-----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, FkzE4JU/Vx+FrA+n6deJ2Dq83croA4nZaL7vQl7caP/2ufihF1lECdkKN2eXZHCi /xtcFQ48JwBVgjR1EqyUIA== 0001047469-98-012927.txt : 19980401 0001047469-98-012927.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-012927 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEXCEL CORP /DE/ CENTRAL INDEX KEY: 0000717605 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 941109521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08472 FILM NUMBER: 98582140 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-K 1 FORM 10K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________ COMMISSION FILE NUMBER 1-8472 ------------------------ HEXCEL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-1109521 (State of Incorporation) (I.R.S. Employer Identification No.) 281 TRESSER BOULEVARD STAMFORD, CONNECTICUT 06901 (Address of principal executive offices and zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 969-0666 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ----------------------- ----------------------------------------- Common Stock New York Stock Exchange Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 7% Convertible Subordinated Debentures Due 2011 7% Convertible Subordinated Notes Due 2003 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value as of March 16, 1998 of voting stock held by nonaffiliates of the registrant: $472,793,149 Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan of reorganization confirmed by a U.S. Bankruptcy Court. Yes __X No ____ The number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
OUTSTANDING AT MARCH 16, CLASS 1998 - ----------------- ---------------------------- Common Stock 36,866,641
DOCUMENTS INCORPORATED BY REFERENCE: PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS (TO THE EXTENT SPECIFIED HEREIN)--PART III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL DEVELOPMENT OF BUSINESS Hexcel Corporation, founded in 1946, was incorporated in California in 1948, and reincorporated in Delaware in 1983. Hexcel Corporation and subsidiaries (herein referred to as "Hexcel" or the "Company") is a leading international developer and manufacturer of carbon fibers, reinforcement fabrics, and lightweight, high-performance composite materials, and engineered products for use in the commercial aerospace, space and defense, recreation, and general industrial markets. The Company serves international markets through manufacturing and marketing facilities located in the United States and Europe, as well as sales offices in Asia, Australia and South America. The Company is also a participant in one operating joint venture and two additional joint venture projects in Asia. BUSINESS ACQUISITIONS Hexcel acquired the worldwide composites division of Ciba-Geigy Limited, a Swiss corporation ("CGL"), and Ciba-Geigy Corporation, a New York corporation ("CGC" and together with CGL, "Ciba"), including most of Ciba's composite materials, parts and structures businesses, on February 29, 1996. The Company subsequently acquired Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's worldwide composites division at various dates through February 28, 1997. The composites businesses acquired from Ciba (collectively, the "Acquired Ciba Business") are engaged in the manufacture and marketing of reinforcement fabrics and lightweight, high-performance composite materials, and engineered products for commercial aerospace, space and defense, recreation, and general industrial markets. Product lines include reinforcement fabrics, pre-impregnated fabrics ("prepregs"), structural adhesives, honeycomb core, sandwich panels and fabricated composite parts and structures and interiors. The aggregate purchase price for the net assets acquired was approximately $208.7 million. Hexcel acquired the composite products division of Hercules Incorporated ("Hercules"), including Hercules' carbon fibers and prepreg businesses (the "Acquired Hercules Business"), on June 27, 1996. The Acquired Hercules Business, which manufactures carbon fibers and prepregs for commercial aerospace, space and defense, recreation, and general industrial markets, was purchased for $139.4 million in cash. On September 30, 1997, Hexcel acquired from Fiberite, Inc., ("Fiberite") its satellite business consisting of intangible assets and inventory, and certain non-exclusive, worldwide rights to other prepreg technologies, for $37.0 million in cash. The acquisition was substantially downsized from an original agreement whereby the Company had, subject to certain terms and conditions, committed to purchase selected assets and businesses of Fiberite for approximately $300 million. As a result of the downsized transaction, the Company wrote-off $5.0 million of acquisition and financing costs to business acquisition and consolidation expenses. In addition, the Company expensed $8.0 million of acquired in process research and technology expenses purchased from Fiberite, which is also included in business acquisition and consolidation expenses. Further discussion of the business acquisitions is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Notes 1, 2 and 3 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. BUSINESS CONSOLIDATION In 1996, Hexcel announced plans to consolidate the Company's operations over a period of three years. The objective of the program is to integrate the Acquired Ciba Business and the Acquired Hercules Business (collectively, the "Acquired Businesses") into Hexcel, and to reorganize the Company's manufacturing and research activities around strategic centers dedicated to select product technologies. 1 The business consolidation program is also intended to eliminate excess manufacturing capacity and redundant administrative functions. The total expense of the business consolidation program through December 31, 1997 was $54.7 million, including $13.0 million related to the Fiberite transaction which was not included in the original program. The Company does not expect to incur any further significant additional expenses in relation to this program. As of December 31, 1997, remaining cash expenditures to complete this program are estimated at $12 million, which approximates amounts accrued. Thus, when the program is complete, the Company expects that cash expenditures (for expenses and capital, net of estimated proceeds from asset sales) necessary to complete the program will approximate the initial estimate of $51 million. Further discussion of the business consolidation program, including a description of certain risks, uncertainties and other factors which could cause the actual expense and cash expenditures of the consolidation program to differ materially from the estimated amounts, is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," and in Note 3 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. RECENTLY ANNOUNCED JOINT VENTURE ACTIVITIES In January 1998, the Company reached an agreement in principle with The Boeing Company ("Boeing") and Aviation Industries of China to form a joint venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for secondary structures and interior applications on commercial aircraft. This joint venture will be located in Tianjin, China. In February 1998, the Company signed an agreement with Boeing, Sime Darby Berhad and Malaysia Helicopter Services to form another joint venture, Asian Composite Manufacturing Sdn. Bhd., to manufacture composite parts for secondary structures on commercial aircraft. This joint venture will be located in Alor Setar, Malaysia. Products manufactured by both joint ventures will be shipped to the Company's Kent, Washington facility for final assembly, inspection and shipment to Boeing as well as other customers worldwide. It is anticipated that the first parts will be delivered to customers in 2000. The Company's total estimated financial commitment to both of these joint ventures will be approximately $31 million, which is expected to be made in increments through 2000. However, implementation of these projects, including the related investments, remain subject to certain significant conditions, including U.S. and foreign government approvals. BUSINESS SEGMENT Hexcel is a vertically integrated manufacturer of a variety of products within a single business segment: Advanced Structural Materials. The Company manufactures and sells advanced structural materials to commercial aerospace, space and defense, recreation, and general industrial markets throughout the U.S. and the world. Net sales, income (loss) before income taxes, total assets, capital expenditures, and depreciation and amortization for the Company's U.S. and international geographic segments for the past three years are contained in Note 18 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. BUSINESS OVERVIEW In connection with the purchase of the Acquired Ciba Business in 1996, Hexcel reorganized itself into strategic business units with responsibility for specific product groups or geographic areas. The research, manufacturing and marketing activities of each of the strategic business units are supported by global administrative functions such as human resources, finance and information systems, legal affairs, and research and technology coordination. The purchase of the Acquired Ciba Business provided the Company with additional manufacturing and marketing capabilities for reinforcement fabrics, prepregs, structural adhesives, and various honeycomb products, in geographically complementary areas. In addition, this acquisition extended the Company's range of product offerings to include a variety of engineered products 2 made from reinforcement fabrics and composite materials. These engineered products encompass a number of composite parts and structures, including finished components for aircraft structures and interiors. As a result of the purchase of the Acquired Hercules Business, Hexcel further extended its range of product offerings to include carbon fibers, an important raw material for many reinforcement fabrics and prepregs. This acquisition also provided the Company with additional prepreg manufacturing capabilities and increased the number of products the Company is qualified to supply for various commercial and military aerospace applications. As a result of the purchase of the Fiberite assets, Hexcel gained immediate access to new products and technologies in the commercial aerospace, and space and defense industries. Following the acquisitions of the Acquired Businesses, Hexcel is now a vertically integrated supplier of advanced structural materials to a range of markets throughout the world. The Company's vertical integration provides it with an enhanced ability to control the cost, quality and delivery of its products, and enables the Company to offer its customers a variety of solutions to their structural materials requirements. The Company sells advanced structural materials to major airframe manufacturers such as Boeing, Airbus Industrie ("Airbus"), as well as many other commercial and military aerospace customers throughout the U.S. and the world. The Company believes that it has the broadest range of product qualifications for aerospace applications of any advanced structural materials manufacturer in the world, and supplies material on every commercial aircraft manufactured by Boeing and Airbus. In addition, the Company's sales to commercial aerospace and space and defense markets are complemented by sales of a number of advanced structural materials to recreation and general industrial markets. Such materials are used in a variety of product applications, including golf club shafts, fishing rods, tennis rackets, skis, snowboards, printed circuit boards, window blinds, trains, high-speed ferries, trucks, automobiles and civil engineering/construction applications. Hexcel's advanced structural materials business is organized around strategic business units within three product groups: Fibers and Fabrics, Composite Materials, and Engineered Products. The following table identifies, by each of these three product groups, the Company's principal products and examples of their primary end uses. 3
PRODUCT GROUP PRODUCTS PRIMARY END USE - ----------------------- --------------------------- ------------------------------------------------------- Fibers and Fabrics Carbon Fibers Raw materials for reinforcement fabrics and prepregs and for filament winding for various space, defense and industrial applications. Reinforcement fabrics Raw materials for prepregs and honeycomb; Various marine applications; Printed circuit boards; Window blinds; Insulation; Metal and fume filtration systems; Soft body armor; and Civil engineering and construction applications.
- -------------------------------------------------------------------------------- Composite Materials Prepregs Raw materials for composite structures and interiors for aircraft, rail, marine, etc.; Semi-finished aircraft and space components; Rail, marine and automotive components; Wind energy turbine blades; Skis, snowboards, golf club shafts, fishing rods, tennis rackets, bike frames; Yacht bows and masts; and Formula 1 and Indy car components. Structural Adhesives Bonding of structural materials and components, including composite panels. Honeycomb Lightweight, structural core material for composite structures and interiors for aircraft, rail, marine, etc.; Energy absorbers in rail and automotive industries; Athletic shoe and protective clothing materials; and Building facia. Special Process Semi-finished aircraft components used in helicopter Honeycomb blades; Space shuttle doors; Aircraft control surfaces (flaps, wing tips, elevators, and fairings); Automotive fuel injection components; and Industrial components. Composite Panels Aircraft flooring and interior components; High speed ferry and train interiors: Structural panels for train flooring; and Semi-structural panels for ferry car decks.
- -------------------------------------------------------------------------------- Engineered Products Composite Structures Aircraft structures and finished aircraft components, including: Wing-to-body and flap track fairings; Radomes; Engine cowls and inlet ducts; and Wing panels. Interiors OEM and retrofit aircraft interiors, including: Overhead stowage compartments; Lavatories; and Sidewalls and ceilings. Composite Systems Structural elements and materials for repair and and Industrial strengthening applications for civil Structures engineering/construction; and Composite structural parts for automotive, truck and other industrial applications.
4 FIBERS AND FABRICS The Fibers and Fabrics business units have worldwide responsibility for manufacturing and marketing carbon fibers and reinforcement fabrics. These business units operate manufacturing facilities in Decatur, Alabama; Salt Lake City, Utah; Seguin, Texas; and Les Avenieres and Decines, France. CARBON FIBERS: Carbon fibers are manufactured for sale to third party customers and for use by Hexcel in manufacturing certain reinforcement fabrics and composite materials. Carbon fibers are woven into carbon fabrics, used as reinforcement in conjunction with a resin matrix to produce prepregs, and used in filament winding and advanced fiber placement to produce various other composite materials. REINFORCEMENT FABRICS: Reinforcement fabrics are made from a variety of fibers, including several types of fiberglass as well as carbon, aramid, Thorstrand-Registered Trademark-, quartz, ceramic and other specialty reinforcements. These fabrics are sold to third-party customers for use in a wide range of products and are used by the Company to manufacture prepregs and other composite materials. Hexcel's net sales of carbon fibers and reinforcement fabrics to third party customers were $170.1 million in 1997, $155.2 million in 1996 and $119.1 million in 1995, respectively. The Company acquired its carbon fibers business in connection with the purchase of the Acquired Hercules Business, and expanded its reinforcement fabrics business in connection with the purchase of the Acquired Ciba Business. Pro forma net sales of carbon fibers and fabrics for 1996 and 1995, giving effect to the acquisitions of the Acquired Businesses as if those transactions had occurred at the beginning of each respective year, were $181.8 million and $194.4 million, respectively. Approximately 44% and 35% of the Company's production of carbon fibers and reinforcement fabrics was used internally to manufacture composite materials in 1997 and 1996, respectively. The percentage of production of carbon fibers and reinforcement fabrics for internal use increased significantly in 1997, due to the increase in commercial aerospace composite materials sales. COMPOSITE MATERIALS The Composite Materials business units, which are organized around U.S. and European markets, have worldwide responsibility for manufacturing and marketing prepregs, structural adhesives, honeycomb, specially machined honeycomb parts and composite panels. These business units operate manufacturing and research facilities in Linz, Austria; Welkenraedt, Belgium; Duxford and Swindon, United Kingdom; Les Avenieres and Dagneux, France; Parla, Spain; Casa Grande, Arizona; Dublin and Livermore, California; Lancaster, Ohio; Pottsville, Pennsylvania; Salt Lake City, Utah; and Burlington, Washington. PREPREGS: Prepregs are manufactured for sale to third party customers and for use by Hexcel in manufacturing other composite materials and structures, including finished components for aircraft structures and interiors. Prepregs are manufactured by combining high performance reinforcement fabrics or unidirectional fibers with a resin matrix to form a composite material with exceptional structural properties not present in either of the constituent materials. Reinforcement fabrics used in the manufacture of prepregs include S-2-Registered Trademark- and E-type fiberglass, carbon, aramid (including Kevlar-Registered Trademark-), quartz, ceramic, Thorstrand-Registered Trademark-, polyethylene and other specialty reinforcements. Resin matrices include bismaleimide, cyanates, epoxy, phenolic, polyester, polyimide and other specialty resins. STRUCTURAL ADHESIVES: As a result of the purchase of the Acquired Ciba Business, Hexcel designs and markets a comprehensive range of Redux-Registered Trademark- film adhesives. These structural adhesives, which bond a wide range of composite, metallic, and honeycomb surfaces, are used in a variety of product applications. HONEYCOMB, HONEYCOMB PARTS AND COMPOSITE PANELS: Honeycomb is a unique, lightweight, cellular structure generally composed of hexagonal cells nested together. The product is similar in appearance to a cross-sectional slice of a beehive. The hexagonal cell design gives honeycomb a high strength-to-weight ratio when used in "sandwich" form and a uniform resistance to crushing. These basic characteristics are 5 combined with the physical properties of the material from which the honeycomb is made to meet various engineering requirements. The Composite Materials business units produce honeycomb from a number of metallic and non-metallic materials. Most metallic honeycomb is made from aluminum and is available in a selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials include fiberglass, carbon, thermoplastics, Nomex-Registered Trademark- (a non-flammable aramid paper), Kevlar-Registered Trademark- (an aramid fiber), Korex-Registered Trademark- and several other specialty materials. The Composite Materials business units sell honeycomb core material in standard block and sheet form, and in laminated panel form. In the construction of composite panels, sheets of aluminum, stainless steel, prepreg or other laminates are bonded with adhesives to each side of a slice of honeycomb core, creating a "sandwich" structure. Hexcel also possesses advanced processing capabilities which enable the Company to design and manufacture complex fabricated honeycomb parts and bonded assemblies to meet customer specifications. Such parts and assemblies are used as semi-finished components in the manufacture of composite structures. Hexcel's net sales of composite materials to third-party customers, sold separately and together as complex bonded structures, were $585.4 million in 1997, $438.2 million in 1996 and $231.1 million in 1995. The Company expanded its composite materials business in connection with the acquisitions of the Acquired Businesses. Pro forma net sales of composite materials for 1996 and 1995, giving effect to the acquisitions of the Acquired Businesses as if those transactions had occurred at the beginning of each respective year, were $502.0 million and $463.4 million, respectively. Approximately 11% and 7% of the Company's production of composite materials was used internally to manufacture composite structures and interiors in 1997 and 1996, respectively. These products have benefited from the recent increase in commercial aerospace build rates as further discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations". ENGINEERED PRODUCTS Hexcel entered the composite structures and interiors businesses in connection with the purchase of the Acquired Ciba Business. The Engineered Products business unit has worldwide responsibility for manufacturing and marketing composite structures and interiors, primarily for commercial and military aerospace markets, and operates manufacturing facilities in Kent and Bellingham, Washington. The Company also manufactures composite structures at a facility in Brindisi, Italy. COMPOSITE STRUCTURES: Composite structures, and structural parts, are manufactured from a variety of composite materials (prepregs, honeycomb and structural adhesives) using such manufacturing processes as autoclave processing, multi-axis numerically controlled machining, press laminating, heat forming and other composite manufacturing techniques. Hexcel manufactures a wide range of composite structures and parts for the commercial and military aerospace markets. INTERIORS: The interiors operations of the Engineered Products business unit design and produce innovative, light weight, high-strength composite interior systems for aircraft. Interior products are sold to Boeing and other airframe manufacturers for production on certain aircraft, and to airlines for replacement of existing interior components. With increasing airline traffic and the trend of increased use of rolling carry on luggage, airlines are increasingly requesting larger overhead stowage bins, which will accommodate these larger bags. Hexcel Interiors has applied for and/or patented a number of new bin designs for commercial aircraft, which will hold this larger luggage. Sales of these products will begin in 1998. Hexcel's net sales of engineered products to third party customers were $181.4 million in 1997 and $101.9 million in 1996. Pro forma net sales of engineered products for 1996 and 1995, giving effect to the acquisition of the Acquired Ciba Business as if it had occurred at the beginning of each respective year, 6 were $114.7 million and $113.5 million, respectively. The improvement for engineered products in 1997 primarily reflects the production of structural and interior components outsourced to Hexcel by Boeing starting in the second half of 1996. PACIFIC RIM The Pacific Rim business unit is responsible for business development in the Asia-Pacific region, and for the sale of all of Hexcel's products within this region. The Pacific Rim business unit operates sales offices in Sydney, Australia; Hong Kong; Singapore; Taipei, Taiwan; Shanghai, China; and Pleasanton, California. This business unit is also responsible for the Company's participation in a joint venture in Japan to manufacture and market composite materials in Asia. Further discussion of Hexcel's business operations is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW Hexcel's Research and Technology function ("R&T") supports all of the Company's businesses worldwide. R&T maintains expertise in chemical formulation and curatives, fabric forming and textile architectures, advanced composites structures, process engineering, analysis and testing of composite materials, computational design and prediction, and other scientific disciplines related to the Company's worldwide business base. Additionally, R&T performs a limited amount of contract research and development in the U.S. and Europe for strategically important customers in the areas of ceramics, higher temperature polymers, advanced textiles and composite structures manufacturing. Each of Hexcel's strategic business units maintains research and engineering staff and facilities to support its business operations. Worldwide investment in research and technology is directed and coordinated by a committee consisting of R&T representatives from each of the Company's strategic business units. This committee is responsible for ensuring that R&T investments are targeted towards maximizing the Company's long-term profitability and strengthening its competitive position in the marketplace. Additionally, the committee oversees the Company's portfolio of patents, technology licenses and other intellectual property. Hexcel spent $18.4 million for research and technology in 1997, $16.7 million in 1996 and $7.6 million in 1995. These expenditures were expensed as incurred. Hexcel's products rely primarily on the Company's expertise in materials science, textiles, engineering and polymer chemistry. Consistent with market demand, the Company has been placing more emphasis on cost effective product design and lean manufacturing in recent years. Towards this end, the Company has entered into formal and informal partnerships, as well as licensing and teaming arrangements, with several customers, suppliers, external agencies and laboratories. Management believes that the Company possesses unique capabilities to design, develop and manufacture composite materials and engineered products. In addition to the rights to certain technologies obtained as part of the Fiberite transaction, the Company owns and maintains in excess of 400 patents worldwide, has licensed many key technologies, and has granted technology licenses and patent rights to several third parties in connection with joint ventures and joint development programs. It is the Company's policy to actively enforce its proprietary rights. Management believes that the patents and know-how rights currently owned or licensed by the Company are adequate for the conduct of its business. RAW MATERIALS AND PRODUCTION ACTIVITIES Due to the vertically integrated nature of Hexcel's operations, the Company produces several materials used in the manufacture of certain reinforcement fabrics, composite materials and engineered products, as well as the polyacrylonitrile ("PAN") used as a precursor material in the manufacture of 7 carbon fibers. However, the Company purchases most of the raw materials used in production. Several key materials are available from relatively few sources, and in many cases the cost of product qualification makes it impractical to develop multiple sources of supply. The unavailability of these materials, which the Company does not anticipate, could have a material adverse effect on operations. The Company coordinates closely with key suppliers in an effort to avoid raw material shortages. Hexcel believes that the availability of certain carbon fibers, an important raw material in manufacturing advanced structural materials, is currently insufficient to satisfy worldwide demand. The Company estimates it has production capacity and sufficient fiber supplier commitments to meet its estimated 1998 and 1999 aerospace customer requirements. However, should customer demand grow faster than expected or the mix or timing of customer requirements change, the Company may not be able to satisfy all of its customers' requirements. In early 1997, the Company and various other carbon fiber manufacturers announced plans to increase carbon fiber production capacity. During 1997, the Company substantially completed a carbon fiber capacity expansion program costing approximately $16 million, which has increased its capacity by 50%. Hexcel's production activities are generally based on a combination of "make to order" and "make to forecast" production requirements. Machined and fabricated honeycomb parts and composite structures and interiors are manufactured almost entirely on a "make to order" basis. MARKETS AND CUSTOMERS Hexcel's products are sold for a broad range of uses. The following tables summarize net sales to third-party customers by market and by geography for the three years ended December 31:
1997 1996 1995 --------- --------- --------- NET SALES BY MARKET Commercial aerospace................................................ 64% 56% 45% Space and defense................................................... 9 11 11 Recreation.......................................................... 7 10 9 General industrial and other........................................ 20 23 35 --------- --------- --------- Total............................................................. 100% 100% 100% --------- --------- --------- --------- --------- --------- NET SALES BY GEOGRAPHY United States....................................................... 56% 49% 51% U.S. exports........................................................ 8 8 5 International....................................................... 36 43 44 --------- --------- --------- Total............................................................. 100% 100% 100% --------- --------- --------- --------- --------- ---------
Boeing and related subcontractors accounted for approximately 36% of 1997 sales, and Airbus and related subcontractors accounted for approximately 10% of 1997 sales. The loss of all or a significant portion of the business with Boeing or Airbus, which Hexcel does not anticipate, could have a material adverse effect on sales and earnings. 8 COMMERCIAL AEROSPACE Commercial aerospace activity fluctuates in relation to two principal factors. First, the number of revenue passenger miles flown by the airlines affects the size of the airline fleets and generally follows the level of overall economic activity. A recent document, published by Boeing, projects that revenue passenger miles will increase an average of 6% per year over the next decade, with the Asian market having the highest growth rate. Recent events in the Asian market which have occurred after this document was published, may result in difficulties in achieving this projected growth rate. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion. The second factor, which is less sensitive to the general economy, is the replacement and retrofit rates for existing aircraft. These rates, resulting mainly from obsolescence, are determined in part by Federal Aviation Administration regulations as well as public concern regarding aircraft age, safety and noise. These rates may also be affected by the desire of the various airlines for higher payloads and more fuel efficient aircraft, which in turn is influenced by the price of fuel. The number of commercial aircraft delivered by Boeing (the 7-series) and Airbus declined by nearly 45% from 1992 to 1995. At the lowest point during this period, Boeing (the 7-series) and Airbus reported combined deliveries of 330 aircraft. Reported aircraft deliveries by Boeing (the 7-series) and Airbus improved only modestly in 1996, to a combined 344 aircraft. Combined aircraft deliveries for 1997 were 503, or an increase of 46% over 1996. This increase was the result of the surge in the commercial aerospace industry. Further, combined backlog orders at December 31, 1997, were at record levels of 2,608 aircraft; including 1,599 for Boeing (the 7-series) and 1,009 for Airbus. Published industry analysis indicates that combined deliveries by these two manufacturers in 1998 should approximate 730 aircraft. The Company sells material used 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. Hexcel's commercial aerospace business volume is expected to increase in 1998 due both in part to the general industry improvement and to the increased utilization of composite materials on new generation aircraft, which is attributable to demands for improved aircraft performance. In addition, the Company began to produce additional structural and interior components for Boeing in the second half of 1996, and expects to continue producing such components through 1998. Despite customer preferences for many of the high performance characteristics of Hexcel's products, the Company must continuously demonstrate the cost benefits of its products for aerospace applications. SPACE AND DEFENSE The space and defense market for composite materials and structures declined significantly during the early part of this decade, as a result of substantial decreases in military aircraft procurement that began in the late 1980's. The current international and domestic political climate suggests that overall military spending, including aircraft procurement, is not likely to change significantly from current levels in the near future. Consequently, management does not expect a significant change in 1998 from the current level of sales to the space and defense market. However, by the start of the next decade a number of new military aircraft programs in both the U.S. and Europe are anticipated to move from development to full scale production. The Company currently has composite material and carbon fiber qualifications on a number of these significant military programs, including the European Fighter Aircraft, F-22, F-18, V-22, C-17 and the Titan and Delta space programs. These programs may be accomplished without a significant increase in defense expenditures by switching current cost incurred in their development to funding aircraft production. These new generation aircraft have a significantly higher portion of their fuselage built from composite materials than their predecessors or current commercial aircraft. Contracts to supply materials for military and some commercial projects contain provisions for termination at the convenience of the U.S. government or the buyer. In the case of such a termination, Hexcel is entitled to recover reasonable incurred cost plus a provision for profit on the incurred cost. In 9 addition, the Company is subject to U.S. government cost accounting standards, which are applicable to companies with more than $25 million of government contract or subcontract awards each year. RECREATION, GENERAL INDUSTRIAL AND OTHER MARKETS Hexcel has focused its participation in recreation and general industrial markets in areas where the application of composites technology offers significant benefits to the end user. As a result, the Company has chosen to focus on select opportunities where high performance, cost effective advanced material situations can be provided to customers. Accordingly, future opportunities and growth depend primarily upon the success of the individual programs and industries in which the Company has elected to participate. Within the recreation market, key industry sectors and product applications in which the Company is involved include golf club shafts, fishing rods, tennis rackets, skis, snowboards, and athletic shoes. Within general industrial markets, key sectors and applications include printed circuit boards, wind energy, civil engineering/construction and surface transportation. Hexcel's participation in these markets is a valuable complement to its commercial and military aerospace businesses, and the Company is committed to the growth of composites technology in recreation and industrial applications. HEXCEL VENTURES In October 1997, the Company created Hexcel Ventures, a new internal organization responsible for certain entrepreneurial activities, outside of the Company's aerospace and space and defense markets. This new organization will focus on leveraging Hexcel's vertically integrated capabilities and geographic reach to bring cost effective advanced materials solutions to new customers and applications. In particular, Hexcel Ventures will seek to stimulate internally and externally driven growth and diversification through targeted projects in areas such as automotive, civil engineering/construction and composite part making for industrial applications. Further discussion of Hexcel's markets and customers, including certain risks, uncertainties and other factors with respect to "forward-looking statements" about those markets and customers, is contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." SALES AND MARKETING A staff of salaried market managers, product managers and salespeople sell and market Hexcel products directly to customers worldwide. The Company also uses independent distributors and manufacturer representatives for certain products, markets and regions. 10 BACKLOG The following table summarizes the backlog of orders by product group as of December 31, 1997 and 1996 (in millions):
RECREATION & BACKLOG AT DECEMBER 31, 1997 AEROSPACE(a) INDUSTRIAL TOTAL - -------------------------------------------------------- ------------- ------------- --------- 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 ------ ------ --------- ------ ------ --------- RECREATION & BACKLOG AT DECEMBER 31, 1997 AEROSPACE(a) INDUSTRIAL TOTAL - -------------------------------------------------------- ------------- ------------- --------- Fibers and Fabrics...................................... $ 26.9 $ 33.6 $ 60.5 Composite Materials..................................... 194.6 15.8 210.4 Engineered Products..................................... 126.0 4.8 130.8 ------ ------ --------- Total................................................. $ 347.5 $ 54.2 $ 401.7 ------ ------ --------- ------ ------ ---------
(a) Includes commercial aerospace and space and defense markets. The backlog of orders for aerospace materials to be filled within 12 months was $476.5 million as of December 31, 1997, $347.5 million as of December 31, 1996 and $88.3 million as of December 31, 1995. The significant increase from the end of 1996 to the end of 1997 is attributable to increased commercial aircraft build rates. The increase from the end of 1995 to the end of 1996 is attributable to the acquisitions of the Acquired Businesses and to increased commercial aircraft build rates. A major portion of the backlog is cancelable by the Company's customers without penalty. Orders for aerospace materials generally lag behind the award of orders for new aircraft by a considerable period. Thus, the level of new aircraft procurement normally will not have an impact on aerospace orders received by Hexcel for about one to three years, depending on the nature of the product, the manufacturer, and delivery schedules. Aerospace orders are generally received by the Company between one and eighteen months prior to scheduled delivery of the aircraft to the customer. Backlog for recreation and general industrial markets amounted to $43.5 million at December 31, 1997 compared with $54.2 million at December 31, 1996 and $33.5 million at December 31, 1995. Most of this backlog is expected to be filled within six months. Markets for Hexcel products outside of the aerospace industry are generally highly competitive and require shorter lead times for delivery or stock for immediate sale. COMPETITION In the production and sale of its materials, Hexcel competes with numerous U.S. and international companies on a worldwide basis. The broad markets for the Company's products are highly competitive, and the Company has focused on both specific markets and specialty products within markets to obtain market share. In addition to competing directly with companies offering similar products, the Company's products compete with substitute structural materials such as structural foam, wood, metal, and concrete. Depending upon the material and markets, relevant competitive factors include price, delivery, service, quality, product performance and total life cycle costs. The acquisitions of the Acquired Businesses and the Fiberite assets enhanced the Company's competitive position by broadening and extending the Company's product portfolio and by strengthening the Company's position in certain geographic regions, particularly in Europe. 11 ENVIRONMENTAL MATTERS To date, environmental control regulations have not had a significant adverse effect on overall operations. A discussion of environmental matters is included in Item 3, "Legal Proceedings," and in Note 16 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K. EMPLOYEES As of December 31, 1997, Hexcel employed 5,597 full-time employees, compared with 5,013 and 2,127 as of December 31, 1996 and 1995, respectively. The increase from the end of 1996 to the end of 1997 is primarily attributable to the growth in the Company's sales. As a result of the acquisitions of the Acquired Businesses, Hexcel added approximately 2,300 employees to its workforce in 1996. Approximately 25% of Hexcel's employees have various union affiliations. Although the Company had a brief strike by certain union affiliated employees at the Company's Salt Lake City, Utah plant, which was settled in January of 1997, and had labor disruptions in its Belgium facility in 1997, which have also been settled, management believes that labor relations in the Company are generally satisfactory. ITEM 2. PROPERTIES Hexcel owns manufacturing and sales offices located throughout the United States and in other countries as noted below. The corporate offices and principal corporate support activities for the Company are located in leased facilities in Stamford, Connecticut and Pleasanton, California. The Company's corporate research and technology administration and certain composite materials laboratories are located in Dublin, California. The following table lists the manufacturing facilities of Hexcel by geographic location, approximate square footage, and principal products. The following table does not include a manufacturing facility in Komatsu, Japan that is owned by a joint venture in which the Company has a 45% equity interest. 12 MANUFACTURING FACILITIES
APPROXIMATE FACILITY LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS - ----------------------------------------- -------------- ------------------------------------------------------ United States: Decatur, Alabama....................... 159,000 PAN Precursor (used to produce Carbon Fibers) Salt Lake City, Utah................... 371,000 Carbon Fibers; Prepregs Seguin, Texas.......................... 204,000 Reinforcement fabrics Livermore, California.................. 141,000 Prepregs Lancaster, Ohio........................ 49,000 Prepregs Casa Grande, Arizona................... 307,000 Honeycomb and Honeycomb Parts Pottsville, Pennsylvania............... 134,000 Honeycomb Parts Burlington, Washington................. 73,000 Honeycomb Parts Kent, Washington....................... 883,000 Composite Structures; Interiors Bellingham, Washington................. 188,000 Interiors International: Les Avenieres, France.................. 476,000 Reinforcement fabrics; Prepregs Decines, France........................ 90,000 Reinforcement fabrics Dagneux, France........................ 130,000 Prepregs Linz, Austria.......................... 163,000 Prepregs Welkenraedt, Belgium................... 223,000 Honeycomb and Honeycomb Parts Parla, Spain........................... 43,000 Prepregs Duxford, United Kingdom................ 440,000 Prepregs; Honeycomb and Honeycomb Parts Swindon, United Kingdom................ 20,000 Honeycomb Parts Brindisi, Italy........................ 110,000 Engineered Products
Hexcel leases the Swindon, U.K. facility and the land on which the Burlington, Washington facility is located. The Company also leases portions of the Casa Grande, Arizona; Bellingham and Kent, Washington; Linz, Austria; and Les Avenieres, France facilities. ITEM 3. LEGAL PROCEEDINGS. Hexcel is involved in litigation, investigations and claims arising out of the conduct of its business, including those relating to government contracts, commercial transactions, and environmental, health and safety matters. The Company estimates its liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements, assessments by internal and external counsel of pending or threatened litigation, and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates exclude counterclaims against other third parties. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Although it is impossible to determine the level of future expenditures for legal, environmental and related matters with any degree of certainty, it is the Company's opinion, based on available information, that it is unlikely that these matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS Hexcel has been named as a potentially responsible party with respect to several hazardous waste disposal sites that it does not own or possess which are included on the Superfund National Priority List of the U.S. Environmental Protection Agency or on equivalent lists of various state governments. The Company estimates that its liability with respect to these sites is not material. 13 Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, Hexcel signed an administrative consent order to pay for the environmental remediation of a manufacturing facility it owns and formerly operated in Lodi, New Jersey. The Company's estimate of the remaining cost to satisfy this consent order is accrued in the accompanying consolidated balance sheets. The ultimate cost of remediating the Lodi site will depend on developing circumstances. In connection with the purchase of the Acquired Ciba Business, Hexcel assumed various liabilities including a liability with respect to certain environmental remediation activities at an acquired facility in Kent, Washington. The Company is a party to a cost sharing agreement regarding the operation of certain environmental remediation systems necessary to satisfy a post-closure care permit issued to a previous owner of the Kent site by the U.S. Environmental Protection Agency. Under the terms of the cost sharing agreement, the Company is obligated to reimburse the previous owner for a portion of the cost of the required remediation activities. The Company's estimate of its share of the cost is accrued in the accompanying consolidated balance sheets as of December 31, 1997 and 1996. PRODUCT CLAIMS In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel delamination problem with panels produced by its wholly-owned Belgium subsidiary, Hexcel Composites S.A., and installed in rail cars in France and Spain. Certain customers have alleged that Hexcel Composites S.A. is responsible for the problem. The Company and its insurer continue to investigate these claims. The Company is also working with the customers to repair or replace panels when necessary, with certain costs to be allocated upon determination of responsibility for the delamination. Two customers in France requested that a court appoint experts to investigate the claims; to date, the experts have not reported any conclusions. The Company's primary insurer for this matter has agreed to fund legal representation and to provide coverage of the claim to the extent of the policy limit. The Company believes that, based on available information, it is unlikely that these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 14 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Hexcel common stock is traded on the New York and Pacific Stock Exchanges. The range of high and low sales prices of Hexcel common stock on the New York Stock Exchange Composite Tape is contained in Note 23 to the accompanying consolidated financial statements included in this Annual Report on Form 10-K and is incorporated herein by reference. Hexcel did not declare or pay any dividends in 1997, 1996 or 1995. The payment of dividends is generally prohibited under the terms of certain of the Company's credit agreements. On March 16, 1998, there were 2,290 holders of record of Hexcel common stock. ITEM 6. SELECTED FINANCIAL DATA. The information required by Item 6 is contained on page 35 of this Annual Report on Form 10-K under "Selected Financial Data" and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by Item 7 is contained on pages 36 to 47 of this Annual Report on Form 10-K under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and are incorporated herein by reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by Item 8 is contained on pages 48 to 83 of this Form 10-K under "Consolidated Financial Statements and Supplementary Data" and is incorporated herein by reference. The reports of the independent public accountants for the years ended December 31, 1997, 1996 and 1995 are contained on pages 50 and 51 of this Annual Report on Form 10-K under "Report of Independent Accountants" and "Independent Auditors' Report" and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On July 10, 1997, the Company changed independent auditors. There were no disagreements or other reportable events related to this change. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (a) Listed below are the directors of Hexcel as of March 16, 1998, the positions with the Company held by them and a brief description of each director's prior business experience.
DIRECTOR NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ John J. Lee.................. 61 1993 Has served as Chairman of the Board of Directors of Hexcel since February 1996, Chief Executive Officer since January 1994, President since May 1997, Chairman and Chief Executive Officer from January 1994 to February 1995, Chairman and Co-Chief Executive Officer from July 1993 to December 1993 and a director of Hexcel since May 1993. Mr. Lee also serves as Chairman of the Nominating Committee and a member of the Finance Committee of Hexcel. In addition, Mr. Lee has served as Chairman of the Operating Committee of Hexcel since May 1997 (the Operating Committee is a committee comprised of certain members of senior management of Hexcel which provides oversight of, and establishes policies in connection with, Hexcel's worldwide business operations). Mr. Lee is also a director of Aviva Petroleum Corporation, an oil and gas exploration company and of Hvide Marine Incorporated, a marine support and transportation services company, and has served as Chairman of the Board, President and Chief Executive Office of Lee Development Corporation, a merchant banking company, since 1987. Mr. Lee is a Trustee of Yale University and has been an adviser to the Clipper Group, a private investment partnership, from 1993 to December 1997. Mr. Lee served as a director of XTRA Corporation, a transportation equipment leasing company, from 1990 to January 1996. From July 1989 through April 1993, Mr. Lee served as Chairman of the Board and Chief Executive Officer of Seminole Corporation, a manufacturer and distributor of fertilizer. From April 1988 through April 1993, Mr. Lee served as a director of Tosco Corporation, a national refiner and marketer of petroleum products and as President and Chief Operating Officer of Tosco Corporation from 1990 through 1993. Mr. Lee is also a director of various privately held corporations.
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DIRECTOR NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ John M.D. Cheesmond.......... 48 1996 Has been a director of Hexcel since February 1996. Mr. Cheesmond also serves as Chairman of the Executive Compensation Committee and a member of the Finance Committee of Hexcel. Mr. Cheesmond is Executive Vice President and Head of Corporate Strategy, and a member of the Executive Committee of Ciba Specialty Chemical Holding Inc., ("CSCH"), a leading global specialty chemical company and successor to Ciba's industrial chemicals business. Mr. Cheesmond also serves as a member of Beirat of TFL, a European headquartered joint venture in leather chemicals. Mr. Cheesmond served as Senior Vice President and Head of Regional Finance and Control of CGL from 1994 to 1996. From 1991 to 1993, Mr. Cheesmond served as Group Vice President, Planning, Information and Control at Ciba Vision Corporation. Marshall S. Geller........... 59 1994 Has been a director of Hexcel since August 1994. Mr. Geller also serves as a member of the Audit, Executive Compensation and Nominating Committees of Hexcel. Mr. Geller is currently Chairman of the Board, Chief Executive Officer and founding partner at Geller & Friend Capital Partners, Inc., a merchant banking firm, since November 1995. From 1991 to 1995, Mr. Geller was Senior Managing Director of Golenberg & Geller, Inc., a merchant banking firm. From 1988 to 1990, he was Vice Chairman of Gruntal & Company, an investment banking firm. From 1967 to 1988, he was a Senior Managing Director of Bear, Stearns & Co. Inc., an investment banking firm. Mr. Geller is currently a director of Ballantyne of Omaha, iMALL, Inc., Datalink Systems Corp., Players International, Value Vision International, Inc., Cabletel Communications Corp. and various privately-held corporations and charitable organizations. Mr. Geller currently serves as Chairmen of the Investment Committee for both Players International and Value Vision International, Inc.
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DIRECTOR NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ Stanley Sherman.............. 59 1996 Has been a director of Hexcel since February 1996. Mr. Sherman also serves as a member of the Executive Compensation and Finance Committees of Hexcel. Mr. Sherman is President and Chief Executive Officer of Ciba Specialty Chemicals Corporation (North America) and Chairman of the Board of Ciba Specialty Chemicals Canada Inc., both of which are members of the Ciba group. Mr. Sherman served as a director and Vice President and Chief Financial Officer of CGC from 1991 to 1996, serving on the Finance Committee and the Corporate Management Committee of CGC's Board of Directors. From 1986 to 1991, Mr. Sherman served as Vice President-Corporate Planning of CGC. Mr. Sherman also serves on the Board of the Westchester Educational Coalition and the Chemical Manufacturers Association. Martin L. Solomon............ 61 1996 Has been a director of Hexcel since May 1996. Mr. Solomon also serves as Chairman of the Finance Committee and as a member of the Audit and Executive Compensation Committees of Hexcel. Since June 1997, Mr. Solomon has been the Chairman and Chief Executive Officer of American Country Holdings, Inc., an insurance holding company. Since 1990, Mr. Solomon has been a private investor. From 1988 to 1990, he was Managing Director and general partner of Value Equity Associates, L.L.P., an investment partnership. From 1985 to 1987, Mr. Solomon was an investment analyst and portfolio manager with Steinhardt Partners, an investment partnership. From 1985 to 1996, Mr. Solomon was a Director and Vice-Chairman of the Board of Great Dane Holdings, Inc., a company engaged in the manufacture of transportation equipment, automobile stamping, the lease of taxis and insurance. Since 1995, Mr. Solomon has been a Director of DLB Oil and Gas, Inc., a company engaged in oil exploration and production, since 1990, Mr. Solomon has been a Director of XTRA Corporation, a lessor of truck trailers, marine containers, and intermodal equipment, and since June 1997, Mr. Solomon has been a Director of Telephone and Data Systems, Inc., a diversified telecommunications service company with established wireless and wireline operations. Mr. Solomon is also a director of various privately held corporations and civic organizations.
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DIRECTOR NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ George S. Springer........... 64 1993 Has been a director of Hexcel since January 1993. Mr. Springer also serves as Chairman of the Technology Committee of Hexcel. Mr. Springer is the Paul Pigott Professor and Chairman of the Department of Aeronautics and Astronautics, and by courtesy, Professor of Mechanical Engineering and Professor of Civil Engineering at Stanford University. Mr. Springer joined Stanford University's faculty in 1983. Joseph T. Sullivan........... 58 1996 Has been a director of Hexcel since February 1996. Mr. Sullivan also serves as a member of the Nominating and Technology Committees of Hexcel. Mr. Sullivan is Joseph H. Colic Professor of Chemical Engineering at Virginia Polytechnic Institute and State University in Blacksburg, VA. Mr. Sullivan served as a director and Senior Vice President of CGC from 1986 to 1996. Hermann Vodicka.............. 55 1996 Has been a director of Hexcel since February 1996. Mr. Vodicka also serves as a member of the Nominating and Technology Committees of Hexcel. From 1996, Mr. Vodicka has served as the Chief Executive Officer and as a director of Ciba. Mr. Vodicka served as President of the Polymers Division and a member of the Executive Committee of CGL from 1993 to 1996. Mr. Vodicka was the Chairman of the Board of Mettler-Toledo, a leading worldwide manufacturer of scales and balances and a wholly owned subsidiary of CGL, until its sale in 1996. From 1988 to 1993, Mr. Vodicka was President and Chief Executive Officer of Mettler-Toledo. Franklin S. Wimer............ 62 1995 Was a director of Hexcel from February 1995 to February 1996 and was reelected in May 1996. Mr. Wimer is Chairman of the Audit Committee and also serves on the Technology Committee of Hexcel. Mr. Wimer is President and Principal of UniRock Management Corporation ("UniRock"), a private merchant banking firm based in Denver, Colorado. Mr. Wimer has been with UniRock since 1987. UniRock acted as strategic planning consultant to Hexcel from December 1993 through April 1996. Mr. Wimer is currently Chairman of the Board of Vista Restaurants, Inc., Chairman of the Board of Colorado Gaming & Entertainment Co. and is a director of the Denver Paralegal Institute and Foresight Products, Inc.
(b) Listed below are the executive officers and other senior management of Hexcel as of March 16, 1998, the positions held by them and a brief description of their business experience.
OFFICER NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ John J. Lee.................. 61 1993 See Item 10(a) above for a brief description of Mr. Lee's positions with Hexcel and his business experience.
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OFFICER NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ Stephen C. Forsyth........... 42 1994 Has served as Chief Financial Officer of Hexcel since November 1996, Senior Vice President of Finance and Administration of Hexcel since February 1996 and as a member of the Operating Committee since May 1997. Mr. Forsyth served as Vice President of International Operations of Hexcel from October 1994 to February 1996 and General Manager of Hexcel's Resins Business and Export Marketing from 1989 to 1994 and held other general management positions with Hexcel from 1980 to 1989. Mr. Forsyth joined Hexcel in 1980. Bruce D. Herman.............. 42 1996 Has served as Treasurer of Hexcel since April 1996. Prior to joining Hexcel, Mr. Herman served as Vice President of Finance in the Transportation and Industrial Financing Division of USL Capitol Corp. (formerly U.S. Leasing Inc.) ("USL") from 1993 to 1996, Vice President of Finance in the Equipment Financing Group of USL from 1991 to 1993 and as Vice President of Corporate Analysis from 1988 to 1991. Ira J. Krakower.............. 57 1996 Has served as Senior Vice President, General Counsel and Secretary since September 1996. Prior to joining Hexcel, Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical Corporation from 1986 to August 1996 and served on the Board of Directors of and as Secretary to Uniroyal Chemical Company, Inc. from 1989 to 1996. Wayne C. Pensky.............. 42 1993 Has served as Corporate Controller and Chief Accounting Officer of Hexcel since July 1993. Prior to joining Hexcel in 1993, Mr. Pensky was a partner at Arthur Andersen & Co., an accounting firm where he was employed from 1979 to 1993. Joseph H. Shaulson........... 32 1996 Has served as Vice President of Corporate Development of Hexcel since April 1996. In addition, Mr. Shaulson served as Acting General Counsel and Acting Secretary of Hexcel from April 1996 to September 1996. Prior to joining Hexcel, Mr. Shaulson was an associate in the law firm of Skadden, Arps, Slate, Meagher & Flom, where he was employed from 1991 to 1996. David M. Wong................ 53 1996 Has served as Vice President of Corporate Affairs of Hexcel since February 1996. Mr. Wong served as Hexcel's Director of Special Projects from July 1993 to February 1996 and Corporate Controller and Chief Accounting Officer of Hexcel from 1983 to 1993 and held other general management positions from 1979 to 1983. Mr. Wong joined Hexcel in 1979.
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OFFICER NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ James N. Burns............... 58 1996 Has served as President of Hexcel's Fibers business unit since July 1996. Prior to his employment with Hexcel, Mr. Burns served in a number of management positions with the Composite Products Division of Hercules Incorporated, including Business Director from March 1995 through June 1996, Business Unit Director of Advanced Composite Materials from June 1992 through March 1995 and Vice President of Marketing from June 1986 through June 1992. Michael Carpenter............ 41 1996 Has served as Vice President of Hexcel's Structures and Interiors business unit, responsible for the structures business since February 1996. Mr. Carpenter served as the Vice President of Structures in the Heath Tecna Division of CGC prior to February 1996. He held various technical and managerial positions with Heath Tecna from 1983. Claude Genin................. 62 1996 President of Hexcel's Fabrics business unit since February 1996. Mr. Genin served as managing director of Hexcel S.A. (France) from 1977 to 1996. Hexcel S.A. (France) was acquired by Hexcel in 1985. William Hunt................. 55 1996 Has served as the President of Hexcel's EuroMaterials business unit since February 1996, and as a member of the Operating Committee since October 1997. Mr. Hunt served as the President of the EuroMaterials unit of the Ciba Composites Business from 1991 to February 1996 and as the Managing Director of Ciba Plastics from 1990 to 1991. Prior to joining CGP in 1990, Mr. Hunt held various other technical and managerial positions, including the position of Managing Director of Illford Limited (Photographic) Co. Rodney P. Jenks, Jr.......... 47 1994 Has served as Assistant General counsel from May 1997. Mr. Jenks served as Vice President and General Counsel of Americas and Asia-Pacific Operations of Hexcel from April 1996 to May 1997. From March 1994 to March 1996, Mr. Jenks served as Vice President, General Counsel and Secretary of Hexcel. Prior to joining Hexcel in 1994, Mr. Jenks was a partner in the law firm of Wendel, Rosen, Black & Dean, where he continued to serve as counsel until March 1996. James A. Koshak.............. 54 1996 Has served as President of Hexcel's U.S. Materials business unit since February 1996. Mr. Koshak served as Vice President of the Ciba Composites Business and General Manager of the U.S. Materials unit of the Ciba Composites Business from 1993 to February 1996 and as Vice President of Ciba's Polymers Division and General Manager of Ciba's Formulated Systems unit from 1988 to 1993. Mr. Koshak held various other sales, marketing and general managerial positions with Ciba from 1974 to 1988.
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OFFICER NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ Thomas J. Lahey.............. 57 1991 Has served as President of Hexcel's Pacific Rim business unit since February 1996. Mr. Lahey served as Vice President of Worldwide Sales of Hexcel from April 1993 to February 1996, Vice President of Advanced Composites of Hexcel from 1992 to 1993, General Manager of Advanced Composites of Hexcel from 1991 to 1992 and General Manager of Advanced Products of Hexcel from 1989 to 1991. Prior to joining Hexcel in 1989, Mr. Lahey held the position of Executive Assistant to the President of Kaman Aerospace Corporation from 1987 to 1988 and was a Vice President of Grumman Corporation from 1985 to 1987. Linn Matthews................ 60 1997 Has served as Vice President of Corporate Sales and Marketing and as a member of the Operating Committee since December 1997. Prior to joining Hexcel, Mr. Matthews served as Vice President of Venture Operations for Amoco Chemical Asia Pacific, located in Hong Kong, from 1994 to 1997. From 1993 to 1994, Mr. Matthews was Vice President of Marketing and Sales for Amoco Performance Products. Prior to 1993, he has served in other management positions in Amoco and Union Carbide Corporation. William P. Meehan............ 62 1993 Has served as Vice President; Deputy Director of Operations of Hexcel since November 1996 and as a member of the Operating Committee since May 1997. He also served as Vice President of Finance and Chief Financial Officer from September 1993 to November 1996 and as Treasurer of Hexcel from April 1994 to April 1996. Prior to joining Hexcel in 1993, Mr. Meehan served as President and Chief Executive Officer of Thousand Trails and NACO, a membership campground and resort business from 1990 to 1992. From 1986 to 1989, Mr. Meehan served as Vice President of Finance and Chief Financial Officer of Hadco Corporation. Robert A. Petrisko........... 43 1993 Has served as Vice President of Research and Technology of Hexcel since September 1993. Mr. Petrisko served at Hexcel's Chandler facility as Manager of the Signature Technology Group from 1989 to April 1993 and as Director of Aerospace and Defense Technology from April 1993 to September 1993. Mr. Petrisko joined Hexcel in 1989 after serving as a Research Specialist with Dow Corning Corporation from 1985 to 1989. He holds a Ph.D. in Macromolecular Science and Engineering from the University of Michigan and a B.S. in Chemistry from Case Western Reserve University.
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OFFICER NAME AGE SINCE POSITIONS WITH HEXCEL AND BUSINESS EXPERIENCE - ----------------------------- --- ----------- ------------------------------------------------------------------ Gary L. Sandercock........... 57 1989 Has served as Vice President of Manufacturing of Hexcel since October 1996 and as a member of the Operating Committee since October, 1997. From February 1996 through October 1996, he served as President of Hexcel's Special Process business unit. Mr. Sandercock served as Vice President of Manufacturing of Hexcel from April 1993 to February 1996, Vice President of Reinforcement Fabrics of Hexcel from 1989 to 1993 and General Manager of the Trevarno Division of Hexcel from 1985 to 1989 and held other manufacturing and general management positions from 1967 to 1985. Mr. Sandercock joined Hexcel in 1967. David Tanonis................ 41 1996 Has served as Vice President of Hexcel's Structures and Interiors business unit, responsible for the interiors business, since February 1996. Mr. Tanonis served as the Vice President of Interiors in the Heath Tecna Division of CGC prior to February 1996. Mr. Tanonis has held various technical and managerial positions with Heath Tecna since 1987. Mr. Tanonis held various management positions with Polymer Engineering, Inc. from 1978 to 1987. Justin Taylor................ 44 1996 Has served as President of Hexcel's Structures and Interiors business unit since April 1996. From July 1995 to April 1996, Mr. Taylor served as a member of CGL's strategic planning unit. Prior to July 1995, Mr. Taylor held various management positions in the Heath Tecna Division of CGC.
(c) There are no family relationships among any of Hexcel's directors or executive officers. ITEM 11. EXECUTIVE COMPENSATION. The information required in Item 11 will be contained in Hexcel's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required in Item 12 will be contained in Hexcel's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required in Item 13 will be contained in Hexcel's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders. Such information is incorporated herein by reference. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. A. FINANCIAL STATEMENTS The consolidated financial statements of Hexcel, notes thereto, and reports of independent accountants are listed on page 48 of this Annual Report on Form 10-K and are incorporated herein by reference. B. REPORTS ON FORM 8-K None. C. EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 2.1 Strategic Alliance Agreement dated as of September 29, 1995 among Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of October 13, 1995). 2.1(a) Amendment dated as of December 12, 1995 to the Strategic Alliance Agreement among Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 2.1(a) to the Company's Current Report on Form 8-K dated as of March 15, 1996). 2.1(b) Letter Agreement dated as of February 28, 1996 among Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 2.1(b) to the Company's Current Report on Form 8-K dated as of March 15, 1996). 2.1(c) Distribution Agreement dated as of February 29, 1996 among Hexcel, Brochier S.A., Composite Materials Limited, Salver S.r.l. and Ciba-Geigy Limited (incorporated herein by reference to Exhibit 2.1(c) to the Company's Current Report on Form 8-K dated as of March 15, 1996). 2.1(d) Consent Letter dated February 21, 1997, between Hexcel and Ciba Specialty Chemicals Holding Inc. 2.2 Sale and Purchase Agreement dated as of April 15, 1996 among Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.2 to Hexcel's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996). 2.3 Amendment Number One dated as of June 27, 1996 to the Sale and Purchase Agreement among Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996). 2.4 Letter Agreement dated as of June 27, 1996 among Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV and HISPAN Corporation (incorporated herein by reference to Exhibit 2.3 to Hexcel's Current Report on Form 8-K dated July 12, 1996). 3.1 Restated Certificate of Incorporation of Hexcel Corporation (incorporated herein by reference to Exhibit 1 to Hexcel's Registration Statement on Form 8-A dated July 9, 1996). 3.2 Amended and Restated Bylaws of Hexcel Corporation (incorporated herein by reference to Exhibit 2 to Hexcel's Registration Statement on Form 8-A dated July 9, 1996).
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EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 4.1 Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California, National Association (incorporated herein by reference to Exhibit 4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 4.2 Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, National Association, as trustee (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 15, 1996). 4.2(a) First Supplemental Indenture dated as of June 27, 1996 between Hexcel and First Trust of California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, N.A., as trustee. 4.2(b) Second Supplemental Indenture dated as of March 5, 1998 between Hexcel and First Trust of California, N.A., as trustee, to the Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, N.A., as trustee. 4.3 Indenture dated as of August 1, 1986 between Hexcel and the Bank of California, N.A., as trustee. 4.3(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1988 (incorporated herein by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993). 10.1 Credit Agreement dated as of February 29, 1996 among Hexcel and certain subsidiaries of the Company, as borrowers, the lenders and issuing banks party thereto, Citibank, N.A., as U.S. administrative agent, Citibank International plc, as European administrative agent and Credit Suisse, as syndication agent (incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated as of March 15, 1996). 10.2 Second Restated and Amended Reimbursement Agreement dated as of February 29, 1996 between Hexcel and Banque Nationale de Paris (incorporated herein by reference to Exhibit 10.3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.2(a) Third Amended and Restated Reimbursement Agreement dated as of June 27, 1996 between Hexcel Corporation and Banque Nationale de Paris (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 10.3 Credit Agreement dated as of June 27, 1996 among Hexcel and certain of its subsidiaries as borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 99.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996). 10.4 Consent Number 1 and First Amendment dated as of July 3, 1996 to the Credit Agreement dated as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
25
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.4(a) Modifications dated as of July 8, 1996 to the First Amendment to the Credit Agreement among Hexcel Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996). 10.4(b) Consent Number 2 and Second Amendment dated as of November 12, 1996 to the Credit Agreement dated as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for the year ended December 31, 1996). 10.4(c) Consent Number 3 and Third Amendment dated as of February 27, 1997 to the Credit Agreement dated as of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.4(c) to Hexcel's Annual Report on Form 10-K for the year ended December 31, 1996). 10.4(d) Amended and Restated Credit Agreement dated as of March 5, 1998 among Hexcel and certain subsidiaries as borrowers, the lenders and issuing banks party thereto, Citibank, N.A., as U.S. administrative agent, Citibank International plc, as European administrative agent and Credit Suisse, as syndication agent. 10.5 Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 (incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8, Registration No. 333-36163). 10.5(a) Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 and further amended December 10, 1997. 10.6 Hexcel Corporation Management Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.6(a) Hexcel Corporation Management Incentive Compensation Plan, as amended on December 5, 1996 (incorporated herein by reference to Exhibit 10.6(a) to Hexcel's Annual Report on Form 10-K for the three year ended December 31, 1996). 10.6(b) Hexcel Corporation Management Stock Purchase Plan (incorporated herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.7 Form of Employee Option Agreement (1997) (incorporated herein by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.7(a) Form of Employee Option Agreement (1996) (incorporated herein by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.7(b) Form of Employee Option Agreement (1995) (incorporated herein by reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996).
26
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.8 Form of Retainer Fee Option Agreement for Non-Employee Directors (1997). 10.8(a) Form of Option Agreement (Directors) (incorporated herein by reference to Exhibit 10.13 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.9 Form of Short-Term Option Agreement (incorporated herein by reference to Exhibit 10.8 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.9(a) Form of Performance Accelerated Restricted Stock Unit Agreement (1997) (incorporated herein by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.9(b) Form of Performance Accelerated Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.9(c) Form of Reload Option Agreement (1997) (incorporated herein by reference to Exhibit 10.8 of Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.9(d) Form of Reload Option Agreement (incorporated herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.9(e) Form of Performance Accelerated Stock Option Agreement (Director) (incorporated herein by reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.9(f) Form of Performance Accelerated Stock Option (Employee) (incorporated herein by reference to Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.9(g) Form of Grant of Restricted Stock Unit Agreement (incorporated herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.10 Hexcel Corporation 1997 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.11 Employment Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11(a) Employee Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11(b) Bankruptcy Court Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11(c) Performance Accelerated Restricted Stock Unit Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
27
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.11(d) Short-Term Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.11(e) Form of Reload Option Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.14(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.12 Agreement dated September 3, 1996 between Hexcel Corporation and Ira J. Krakower. 10.13 Separation and Release Agreement dated as of January 29, 1998 between Hexcel Corporation and Juergen Habermeier. 10.14 Agreement between Hexcel Corporation and Stephen C. Forsyth (incorporated by reference to Exhibit 10.4(L) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.15 Agreement between Hexcel Corporation and Gary L. Sandercock (incorporated by reference to Exhibit 10.4(I) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994). 10.16 Governance Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited (incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.17 Registration Rights Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited (incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.18 Agreement Governing United States Employment Matters dated as of September 29, 1995 between Hexcel and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit D to Exhibit 10.1 to the Company's Current Report on Form 8-K dated as of October 13, 1995). 10.18(a) Amendment dated as of November 22, 1995 to the Agreement Governing United States Employment Matters between Hexcel and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 10.23(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.19 Employment Matters Agreement dated as of February 29, 1996 among Ciba-Geigy PLC, Composite Materials Limited and Hexcel (incorporated herein by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.20 Asset Purchase Agreement by and among Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel Corporation, dated as of April 21, 1997 (incorporated herein by reference to Exhibit 10.1 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1997). 10.21 Amended and Restated Asset Purchase Agreement, by and among Stamford FHI Acquisition Corp., Fiberite, Inc, and Hexcel Corporation, dated as of August 25, 1997 (incorporated herein by reference to Exhibit 10.11 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997).
28
EXHIBIT NO. DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------- 10.22 License of Intellectual Property agreement, by and among Hexcel Corporation and Fiberite, Inc., dated as of August 29, 1997 (incorporated herein by reference to Exhibit 10.12 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997). 21. Subsidiaries of Registrant. 23. Consent of Independent Accountants--Price Waterhouse LLP. 23.(2) Independent Auditors' Consent--Deloitte & Touche LLP. 27. Financial Data Schedule (electronic filing only).
29 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF STAMFORD, STATE OF CONNECTICUT. HEXCEL CORPORATION March 26, 1998 By: /s/ JOHN J. LEE ------------------------------------------ John J. Lee, CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------ -------------- Chairman of the Board of Directors, /s/ JOHN J. LEE Chief Executive Officer and March 26, 1998 ------------------------------------ President (John J. Lee) (PRINCIPAL EXECUTIVE OFFICER) Senior Vice President and /s/ STEPHEN C. FORSYTH Chief March 26, 1998 ------------------------------------ Financial Officer (Stephen C. Forsyth) (PRINCIPAL FINANCIAL OFFICER) /s/ WAYNE C. PENSKY Corporate Controller March 26, 1998 ------------------------------------ (PRINCIPAL ACCOUNTING (Wayne C. Pensky) OFFICER) /s/ JOHN M. D. CHEESMOND March 26, 1998 ------------------------------------ Director (John M. D. Cheesmond) /s/ MARSHALL S. GELLER March 26, 1998 ------------------------------------ Director (Marshall S. Geller) /s/ STANLEY SHERMAN March 26, 1998 ------------------------------------ Director (Stanley Sherman) /s/ MARTIN L. SOLOMON March 26, 1998 ------------------------------------ Director (Martin L. Solomon)
30
SIGNATURE TITLE DATE - ---------------------------------------- ------------------------------ -------------- /s/ GEORGE S. SPRINGER March 26, 1998 ------------------------------------ Director (George S. Springer) /s/ JOSEPH T. SULLIVAN March 26, 1998 ------------------------------------ Director (Joseph T. Sullivan) /s/ HERMANN VODICKA March 26, 1998 ------------------------------------ Director (Hermann Vodicka) /s/ FRANKLIN S. WIMER March 26, 1998 ------------------------------------ Director (Franklin S. Wimer)
31 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following table summarizes selected financial data for continuing operations as of and for the five years ended December 31:
1997 1996(a) 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- INCOME STATEMENT DATA: Net sales.................................................. $ 936,855 $ 695,251 $ 350,238 $ 313,795 $ 310,635 Cost of sales.............................................. 714,223 553,942 283,148 265,367 263,090 ---------- ---------- ---------- ---------- ---------- Gross margin............................................... 222,632 141,309 67,090 48,428 47,545 Selling, general and administrative expenses............... 102,449 79,408 41,706 37,584 44,539 Research and technology expenses........................... 18,383 16,742 7,618 8,201 7,971 Business acquisition and consolidation expenses............ 25,343 42,370 -- -- -- Restructuring expenses..................................... -- -- -- -- 46,600 ---------- ---------- ---------- ---------- ---------- Operating income (loss).................................... 76,457 2,789 17,766 2,643 (51,565) Interest expense........................................... 25,705 21,537 8,682 11,846 8,862 Other (income) expense, net................................ -- (2,994) (791) (4,861) 12,780 Bankruptcy reorganization expenses......................... -- -- 3,361 20,152 641 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes.................................................... 50,752 (15,754) 6,514 (24,494) (73,848) (Benefit) provision for income taxes....................... (22,878) 3,436 3,313 3,586 6,024 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations................... $ 73,630 $ (19,190) $ 3,201 $ (28,080) $ (79,872) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) per share from continuing operations Basic.................................................... $ 2.00 $ (0.58) $ 0.21 $ (3.84) $ (10.89) Diluted.................................................. 1.74 (0.58) 0.20 (3.84) (10.89) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Current assets............................................. $ 387,050 $ 316,931 $ 128,055 $ 148,352 $ 134,710 Non-current assets......................................... 424,536 384,805 102,547 95,105 128,532 ---------- ---------- ---------- ---------- ---------- Total assets............................................. $ 811,586 $ 701,736 $ 230,602 $ 243,457 $ 263,242 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Current liabilities........................................ $ 186,356 $ 188,812 $ 66,485 $ 171,307 $ 72,965 Long-term liabilities...................................... 375,329 333,595 115,743 78,035 169,524 Stockholders' equity (deficit)............................. 249,901 179,329 48,374 (5,885) 20,753 ---------- ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity............... $ 811,586 $ 701,736 $ 230,602 $ 243,457 $ 263,242 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- OTHER DATA: Cash dividends per share................................... -- -- -- -- -- Shares outstanding at year-end............................. 36,856 36,561 18,091 7,301 7,310
- ------------------------ (a) A discussion of the impact of business acquisitions on 1996 selected financial data is contained in Notes 1, 2 and 3 to the accompanying consolidated financial statements. 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1996 1995 ---------- ----------- ----------- (IN MILLIONS, EXCEPT PER SHARE DATA) Sales.................................................. $ 936.9 $ 695.3 $ 350.2 Gross margin %......................................... 23.8% 20.3% 19.2% Adjusted EBITDA(a)..................................... $ 137.6 $ 71.9 $ 29.4 Adjusted operating income %(b)......................... 10.9% 6.5% 5.1% Income (loss) from continuing operations............... $ 73.6 $ (19.2) $ 3.2 ---------- ----------- ----------- Diluted earnings (loss) per share from continuing operations........................................... $ 1.74 $ (0.58) $ 0.20 Pro forma diluted earnings per share(c)................ $ 1.17 $ 0.48 $ 0.38 ---------- ----------- -----------
- ------------------------ (a) Earnings before business acquisition and consolidation expenses, other income, interest, bankruptcy reorganization expenses, taxes, depreciation and amortization. (b) Excludes business acquisition and consolidation expenses. (c) Excludes business acquisition and consolidation expenses and bankruptcy reorganization expenses, and assumes a U.S. effective tax provision of 36% on pro forma basis. As Hexcel begins its 50th year in 1998, the Company completed 1997 with record sales, operating income and net income. In just two years since the bottom of the aerospace cycle, the Company has achieved a 168% increase in sales, increased its gross margin from 19.2% to 23.8%, and improved its Adjusted EBITDA from $29.4 million to $137.6 million, or a 368% increase. The Company expects sales to exceed $1 billion in 1998 for the first time in its history. The dramatic turnaround was a result of three major factors. First, the Company led the consolidation of the advanced structural materials industry, through the acquisitions of the Ciba and Hercules composite materials businesses in 1996; second, a significant increase in commercial aerospace build rates--which is expected to lead to record deliveries for Boeing and Airbus in 1998; and third, the Company successfully embarked on a business consolidation program to eliminate excess capacity and to integrate the Acquired Businesses. In addition, Hexcel has positioned itself for the future by strengthening its balance sheet with the issuance of equity to Ciba as part of the consideration for the Ciba composite materials business, the issuance of $114.5 million of convertible debt in 1996, and most recently through entering into an amended and restated credit agreement. BUSINESS ACQUISITIONS AND CONSOLIDATION BUSINESS ACQUISITIONS Hexcel acquired most of Ciba's composite materials, parts and structures businesses on February 29, 1996, Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's worldwide composites division at various dates through February 28, 1997. The aggregate purchase price for the net assets acquired were approximately $208.7 million. Hexcel acquired the assets of the composite products and carbon fibers businesses of Hercules on June 27, 1996 for $139.4 million in cash. On September 30, 1997, Hexcel acquired from Fiberite its satellite business consisting of intangible assets and inventory, and certain non-exclusive, worldwide rights to other prepreg technologies, for $37.0 million in cash. The acquisition was substantially downsized from an original agreement whereby the 33 Company had, subject to certain terms and conditions, committed to purchase selected assets and businesses of Fiberite for approximately $300 million. As a result of the downsized transaction, the Company wrote-off $5.0 million of acquisition and financing costs to business acquisition and consolidation expenses. In addition, the Company expensed $8.0 million of acquired in process research and technology expenses purchased from Fiberite, which was also included in business acquisition and consolidation expenses. Hexcel will pursue the continued expansion of its revenues and profitability through internally generated growth of existing product lines and by selective, strategic acquisitions or other business combinations. Recognizing the Company's significant market position in commercial aerospace, the growth potential of existing product lines in this market is primarily limited by commercial aircraft build rates and the penetration of advanced structural materials being limited to the development of new generations of aircraft. Hexcel therefore anticipates seeking growth through existing, developed and acquired product lines in space and defense, recreation, electrical, surface transportation, civil engineering/ construction and other industrial markets. The Company's objective is to increase sales to non-commercial markets from the 36% of total revenues reported in 1997 to less than 50% over time. Hexcel also expects to pursue financing opportunities that would, among other things, provide support for these objectives. There can be no assurance that growth can be accomplished in this manner, or that appropriate acquisitions or financing can be successfully consummated. Further discussion of the business acquisitions is contained in Notes 1, 2 and 3 to the accompanying consolidated financial statements. BUSINESS CONSOLIDATION In May of 1996, Hexcel announced the commencement of a plan to consolidate the Company's operations over a period of three years. In December of 1996, the Company announced the commencement of further consolidation activities identified during the ongoing integration of the Acquired Businesses. The total expense of the business consolidation program through December 31, 1997 was $54.7 million, including $12.3 million and $42.4 million of expenses incurred in 1997 and 1996, respectively. Total expenses exclude $13.0 million of business acquisition and consolidation expenses relating to the Fiberite transaction which was not included in the original program. The Company does not expect to incur any further significant additional expenses in relation to the business consolidation program. As of December 31, 1997, remaining cash expenditures to complete this program are estimated at $12 million, which approximates amounts accrued. Thus, when the program is complete, the Company expects that cash expenditures (for expenses and capital, net of estimated proceeds from asset sales) necessary to complete the program will approximate the initial estimate of $51 million. The objective of the business consolidation program is to integrate acquired assets and operations into Hexcel, and to reorganize the Company's manufacturing and research activities around strategic centers dedicated to select product technologies. The business consolidation is also intended to eliminate excess manufacturing capacity and redundant administrative functions. Specific actions of the consolidation program included the closure of the Anaheim, California facility acquired in connection with the purchase of the Acquired Ciba Business, the reorganization of the Company's manufacturing operations in Europe, the consolidation of the Company's U.S. special process manufacturing activities, and the integration of sales, marketing and administrative resources. As of December 31, 1997, the primary remaining activities of the business consolidation program relate to the European operations and the installation and customer qualifications of equipment transferred from the Anaheim facility to other U.S. locations. 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. 34 After closing the Anaheim facility on schedule in the third quarter of 1997, the Company completed the sale of the facility on October 30, 1997. Net cash proceeds from the sale were approximately $8.5 million, which approximated book value. The Company initially estimated that the business consolidation program would result in annual cost reductions of $32 million per year, beginning in 1999. By the nature of the program (i.e., consolidation of existing and Acquired Businesses, while at the same time the Company is experiencing an increase in its commercial aerospace market), the exact amount of annual savings is difficult to isolate. However, the Company continues to believe that cost savings have been achieved and, upon completion of the program, estimated cost savings will equal or exceed the target of $32 million per year. The program was a key contributor to the Company's improvement in operating margins in 1997. Further discussion of the business consolidation program is contained in Note 3 to the accompanying consolidated financial statements. RESULTS OF OPERATIONS 1997 COMPARED TO 1996 NET SALES: Net sales for 1997 were $936.9 million, compared with net sales for 1996 of $695.3 million. On a pro forma basis, including full year results of the Acquired Businesses, 1996 sales were approximately $798.5 million. The 17.4% increase from pro forma 1996 sales was largely attributable to improved sales of composite materials to commercial aerospace customers and sales of engineered products to Boeing, but was partially offset by the translation effect of the strengthening U.S. dollar. On a constant currency basis, 1997 sales would have been approximately $38.0 million higher in 1997, reflecting a 22.2% increase over 1996 pro forma sales. Approximately 46% of Hexcel's 1997 sales were to Boeing, Airbus, and related subcontractors, as compared to 32% in 1996. The increase is primarily due to the growth of the commercial aerospace market and to a much lesser extent Boeing's acquisition of McDonnell Douglas Corporation, which was completed on August 1, 1997. Reported commercial aircraft deliveries by Boeing (the 7-series) and Airbus improved significantly in 1997, from a combined 344 aircraft in 1996 to 503 aircraft in 1997, including 321 of the Boeing 7-series and 182 deliveries by Airbus. 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. 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. The backlog of orders scheduled to be delivered in the next twelve months was $520 million as of December 31, 1997, a 29% increase over backlog as of December 31, 1996. In January 1998, Boeing reported that its current planned production rate for 7-series aircraft is 40 aircraft per month, with plans to increase this production rate to 43 aircraft per month in the second quarter of 1998. Airbus reported production output of 16.5 aircraft per month in 1997, and they expect to increase this rate to 24 per month by the end of 1998. Total estimated Airbus production for 1998 is expected to be 30% greater than that of 1997. Recent announcements regarding delays or cancellations of aircraft orders from certain Asian airlines have not had an observable impact on Hexcel's sales or backlog to date. The Company has, however, recently experienced a minor decline in sales of other materials to the Pacific Rim. Also, should aircraft orders be delayed or cancelled by the economic situation in Asia, and other buyers for these orders can not be found, then the Company's sales and earnings would be negatively impacted. Hexcel believes that the availability of certain carbon fibers, an important raw material in manufacturing advanced structural materials, is currently insufficient to satisfy worldwide demand. The Company estimates it has production capacity and sufficient supplier commitments to purchase carbon fiber to meet its estimated 1998 and 1999 aerospace customer requirements. In early 1997, carbon fiber manufacturers, including the Company, announced plans to increase carbon fiber production capacity. 35 During 1997, the Company substantially completed a carbon fiber capacity expansion program costing approximately $16 million, which has increased its capacity by 50%. However, should customer demand grow faster than expected or the mix or timing of customer requirements change, the Company may not be able to satisfy all of its customers' requirements. Net sales to third-party customers by product group and market segment for 1997 and on a pro forma basis for 1996, which includes full year results of the Acquired Businesses, were as follows:
FIBERS AND COMPOSITE ENGINEERED FABRICS MATERIALS PRODUCTS TOTAL ----------- ----------- ----------- --------------- (IN MILLIONS) 1997 NET SALES Commercial aerospace...................................... $ 23.7 $ 403.9 $ 169.8 $ 597.4 64% Space and defense......................................... 13.9 64.2 10.2 88.3 9 Recreation................................................ 13.0 53.4 -- 66.4 7 General industrial and other.............................. 119.5 63.9 1.4 184.8 20 ----------- ----------- ----------- --------- ---- Total................................................... $ 170.1 $ 585.4 $ 181.4 $ 936.9 100% ----------- ----------- ----------- --------- ---- ----------- ----------- ----------- --------- ---- 1996 PRO FORMA NET SALES Commercial aerospace...................................... $ 17.4 $ 317.1 $ 102.5 $ 437.0 55% Space and defense......................................... 20.2 60.8 10.4 91.4 11 Recreation................................................ 27.4 63.3 -- 90.7 11 General industrial and other.............................. 116.8 60.8 1.8 179.4 23 ----------- ----------- ----------- --------- ---- Total................................................... $ 181.8 $ 502.0 $ 114.7 $ 798.5 100% ----------- ----------- ----------- --------- ---- ----------- ----------- ----------- --------- ----
The 36.7% growth in net sales to the commercial aerospace market from 1996 to 1997 was largely attributable to increased sales of composite materials and engineered products. The improvement in sales of composite materials reflects the commercial aircraft build rate increase noted above. The improvement for engineered products primarily reflects the production of structural and interior components outsourced to Hexcel by Boeing throughout 1997, as well as strong shipments of retrofit interiors to airline customers. Space and defense net sales decreased 3.4% from 1996 to 1997, reflecting a decrease in sales of fibers and fabrics, which were partially offset by improved sales of composite materials to select military programs. The Company believes that military aircraft procurement, in both the U.S. and Europe, is likely to increase significantly from current levels over the next five years. The Company has composite material and carbon fiber qualifications on a number of significant military programs, including the European Fighter Aircraft, F-22, F-18, V-22, C-17 and the Titan and Delta space programs. Recreation net sales also decreased from 1996 to 1997, reflecting the shift in emphasis of production to the commercial aerospace market as a result of the increased demand. The 3.0% increase in general industrial and other net sales was largely due to improved sales of fabrics for printed circuit boards and composite materials for various transportation applications. Hexcel anticipates sales to the recreation and general industrial and other markets to grow modestly throughout 1998. GROSS MARGIN: Gross margin for 1997 was $222.6 million, or 23.8% of net sales, compared with $141.3 million, or 20.3% of net sales, for 1996. The improvement in 1997 gross margin relative to 1996 is the result of higher sales volume, expansion of the Company's fibers capacity and continued advances in manufacturing productivity resulting from the Company's consolidation and restructuring activities. Product price changes were not a significant factor in the 1997 gross margin improvement. The integration of the Acquired Businesses into Hexcel, including the consolidation and rationalization of manufacturing facilities and processes, is a primary objective of the business consolidation program. While the Company has begun to realize the productivity improvements as a result of the program, these improvements will not be fully realized until 1999. 36 SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses were $102.4 million in 1997, or 10.9% of net sales. This compares to $79.4 million, or 11.4% of net sales for 1996. The aggregate dollar increase in SG&A is primarily attributable to the Acquired Businesses. RESEARCH AND TECHNOLOGY (R&T) EXPENSES: R&T expenses were $18.4 million in 1997, or 2.0% of net sales. This compares to $16.7 million, or 2.4% of net sales for 1996. The aggregate dollar increase in R&T is attributable to the additional activity from the Acquired Businesses. The Company expects to continue to increase R&T expenditures in 1998. OPERATING INCOME: Operating income increased from $2.8 million, or 0.4% of net sales, in 1996 to $76.5 million, or 8.2% of net sales, in 1997. The aggregate increase in operating income reflects the higher sales volume, improved gross margins and a $17.0 million decrease in business acquisition and consolidation expenses. Excluding business acquisition and consolidation expenses, operating income as a percentage of sales increased from 6.5% in 1996 to 10.9% in 1997. INTEREST EXPENSE: Interest expense was $25.7 million, or 2.7% of net sales, for 1997 compared to $21.5 million, or 3.1% of net sales, for 1996. The increase in interest expense primarily represents the cost of financing the acquisitions of the Acquired Businesses. The 1996 amount also includes a $3.4 million write-off of capitalized debt issuance costs. PROVISION FOR INCOME TAXES: In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), in 1996 and 1995 the Company had fully provided valuation allowance reserves against its net deferred tax assets primarily in the U.S. and Belgium where there were uncertainties in generating sufficient future taxable income. In 1997, the Company reversed $59.9 million of its valuation allowance reserve as follows: $17.0 million due to current year profitable U.S. operations, $39.0 million due to the Company's assessment that the realization of the remaining U.S. net deferred tax assets is more likely than not, and $3.9 million in Belgium due to a gain on sale of tangible and intangible assets to other Hexcel subsidiaries. The Company continues to reserve the balance of the net deferred tax assets of its Belgium operations. Going forward, the Company expects that its effective U.S. income tax rate will approximate the statutory rate. NET INCOME (LOSS): Net income for 1997 was $73.6 million or $1.74 per diluted share compared with a net loss of $19.2 million or $0.58 per diluted share for 1996. Excluding the $25.3 million in business acquisition and consolidation expenses and assuming a U.S. effective income tax rate of 36%, 1997 pro forma net income would have been $1.17 per share on a diluted basis. Pro forma net income for 1996 would have been $0.48 per diluted share on a comparable basis. There were 36.7 million weighted average shares outstanding in 1997 compared to 33.4 million during 1996. The increase in the number of weighted average shares in 1997 is primarily attributable to the full year impact of the delivery of 18.0 million newly issued shares of Hexcel common stock to Ciba on February 29, 1996 in connection with the purchase of the Acquired Ciba Business. As of December 31, 1997, there were 36.9 million shares of Hexcel common stock issued and outstanding. See Note 15 to the accompanying consolidated financial statements for the calculation and the number of shares used for diluted earnings per share. 1996 COMPARED TO 1995 NET SALES: Net sales for 1996 were $695.3 million, compared with net sales for 1995 of $350.2 million. The results for 1996 include the results of the Acquired Ciba Business and the Acquired Hercules Business for the periods from the respective acquisition dates through December 31, 1996. Excluding the results of the Acquired Businesses, 1996 sales were approximately $385 million, a 10% increase over 1995. This increase was largely attributable to improved sales of composite materials to commercial aerospace customers, and reflected the initial impact of increases in production rates for certain aircraft as well as the increased utilization of composite materials on new generation aircraft. In particular, the Company 37 benefited from higher sales of carbon honeycomb core and carbon-based prepregs. The Company also benefited from improved sales of fabricated honeycomb parts to the commercial aerospace market, and from increased sales of fabrics for use in the manufacture of printed circuit boards. Changes in foreign currency exchange rates did not have a material impact on the level of 1996 sales relative to 1995 sales. Approximately 32% of Hexcel's 1996 sales were to Boeing, Airbus, and related subcontractors. Reported commercial aircraft deliveries of Boeing 7-series and Airbus improved only modestly in 1996, from a combined 330 aircraft in 1995 to 344 aircraft in 1996. However, the 1996 sales benefited from the increase in scheduled deliveries for 1997 as orders placed with Hexcel are received anywhere between one and eighteen months prior to delivery of the aircraft to the customer. PRO FORMA NET SALES: Pro forma net sales for 1996, giving effect to the acquisitions of the Acquired Businesses as if those transactions had occurred at the beginning of the year, were $798.5 million. This compares with pro forma net sales for 1995 of $771.3 million. Pro forma net sales to third-party customers by product group and market segment for 1996 and 1995 were as follows:
FIBERS AND COMPOSITE ENGINEERED FABRICS MATERIALS PRODUCTS TOTAL ----------- ----------- ----------- --------------- (IN MILLIONS) 1996 PRO FORMA NET SALES Commercial aerospace...................................... $ 17.4 $ 317.1 $ 102.5 $ 437.0 55% Space and defense......................................... 20.2 60.8 10.4 91.4 11 Recreation................................................ 27.4 63.3 -- 90.7 11 General industrial and other.............................. 116.8 60.8 1.8 179.4 23 ----------- ----------- ----------- --------- ---- Total................................................... $ 181.8 $ 502.0 $ 114.7 $ 798.5 100% ----------- ----------- ----------- --------- ---- ----------- ----------- ----------- --------- ---- 1995 PRO FORMA NET SALES Commercial aerospace...................................... $ 14.8 $ 294.7 $ 94.9 $ 404.4 52% Space and defense......................................... 25.3 49.0 15.8 90.1 12 Recreation................................................ 31.3 74.3 -- 105.6 14 General industrial and other.............................. 123.0 45.4 2.8 171.2 22 ----------- ----------- ----------- --------- ---- Total................................................... $ 194.4 $ 463.4 $ 113.5 $ 771.3 100% ----------- ----------- ----------- --------- ---- ----------- ----------- ----------- --------- ----
The growth in pro forma sales to the commercial aerospace market from 1995 to 1996 was largely attributable to increased sales of composite materials and commercial aerospace engineered products. The improvement in sales of composite materials reflects the commercial aircraft build rate and product utilization increases noted above. The improvement for engineered products primarily reflects the production of structural and interior components outsourced to Hexcel by Boeing during the second half of 1996, as well as strong shipments of retrofit interiors to airline customers. Pro forma space and defense sales were essentially unchanged from 1995 to 1996, reflecting a decline in sales of fibers and fabrics and engineered structures, offset by improved sales of composite materials to select military programs. The decrease in pro forma sales to the recreation market during 1996 is primarily attributable to reduced demand for composite materials by ski and snowboard manufacturers due to excess inventories. Pro forma sales of fabrics for certain marine applications were also slightly lower. The increase in pro forma general industrial sales reflects improved sales of fabrics for printed circuit boards and composite materials for various transportation applications, partially offset by reduced sales of carbon fibers to non-aerospace customers. GROSS MARGIN: Gross margin for 1996 was $141.3 million, or 20.3% of sales, compared with $67.1 million for 1995, or 19.2% of sales. Excluding the Acquired Businesses, 1996 gross margin was approximately 24% of sales. The improvement in 1996 gross margin relative to 1995, excluding the impact 38 of the Acquired Businesses, is the result of both higher sales volumes and improved manufacturing productivity, especially for composite materials. Hexcel also benefited from the cost reductions associated with the completion, in mid-1995, of a previous restructuring of the Company's composite materials business. Product price changes were not a significant factor in the 1996 gross margin improvement. The aggregate gross margin of the Acquired Businesses from the respective acquisition dates through December 31, 1996, was approximately 16% of sales. The integration of the Acquired Businesses into Hexcel, including the consolidation and rationalization of manufacturing facilities and processes, is a primary objective of the business consolidation program. Although the consolidation program commenced in 1996, the productivity improvements expected to result from this program will not be fully realized until 1999. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses were $79.4 million in 1996, or 11.4% of sales. This compares with 1995 SG&A expenses of $41.7 million, or 11.9% of sales. The aggregate dollar increase in SG&A expenses from 1995 to 1996 is attributable to the acquisitions of the Acquired Businesses. The slight decrease in SG&A expenses as a percentage of sales primarily reflects higher sales levels. RESEARCH AND TECHNOLOGY (R&T) EXPENSES: R&T expenses were $16.7 million in 1996, or 2.4% of net sales. This compares to $7.6 million, or 2.2% of net sales for 1995. The aggregate dollar increase in R&T is attributable to the acquisitions of the Acquired Businesses. OPERATING INCOME: Operating income was $2.8 million in 1996, or 0.4% of sales, compared with $17.8 million in 1995, or 5.1% of sales. The $74.2 million increase in gross margin from 1995 to 1996 was more than offset by $37.7 million in additional SG&A expenses and $42.4 million in business acquisition and consolidation expenses. INTEREST EXPENSE: Interest expense totaled $21.5 million in 1996 and $8.7 million in 1995. The year-on-year increase primarily reflects the cost of financing the acquisitions of the Acquired Businesses. Hexcel financed approximately $200 million of aggregate purchase price with various debt and credit facilities, and wrote off $3.4 million of capitalized debt financing costs in connection with the acquisition-related refinancing of certain debt in 1996. PROVISION FOR INCOME TAXES: Income tax provisions of $3.4 million in 1996 and $3.3 million in 1995 primarily reflect international taxes on certain European subsidiaries, state taxes, and the settlement of various tax audits. The 1996 income tax provision is net of a $2.5 million benefit from the favorable resolution of a U.S. federal tax audit. As of December 31, 1996, Hexcel had net operating loss ("NOL") carryforwards for U.S. federal income tax purposes of approximately $70 million and NOL carryforwards for Belgium income tax purposes of approximately $22 million. For the years ended December 31, 1996 and 1995, the Company has not recognized any tax benefits in 1996 or 1995 attributable to the potential future realization of these NOL carryforwards or any other deferred tax assets. NET INCOME (LOSS): The 1996 net loss was $19.2 million, or $0.58 per diluted share, compared with net income for 1995 of $2.7 million, or $0.17 per diluted share. The 1996 net loss includes business acquisition and consolidation expenses of $42.4 million, or $1.16 per share after income taxes. Net income for 1995 is after bankruptcy reorganization expenses of $3.4 million, or $0.21 per share. There were 33.4 million weighted average shares outstanding during 1996, versus 15.6 million during 1995. The increase in the number of weighted average shares in 1996 is primarily attributable to the delivery of 18.0 million newly issued shares of Hexcel common stock to Ciba on February 29, 1996, in connection with the purchase of the Acquired Ciba Business. As of December 31, 1996, there were 36.6 million shares of Hexcel common stock issued and outstanding. 39 FINANCIAL CONDITION AND LIQUIDITY FINANCIAL RESOURCES The Company had a Revolving Credit Facility, which provided up to $254.6 million of borrowing capacity. As of December 31, 1997, outstanding borrowings and letter of credit commitments under the Revolving Credit Facility totaled $158.3 million. The Revolving Credit Facility was scheduled to expire in February of 1999. On March 5, 1998, the Company amended and restated the Revolving Credit Facility (the "Amended Facility"). The Amended Facility provides for borrowing capacity of up to $355 million and extends the expiration date by four years to March 2003. While the Company continues to be subject to various financial covenants and restrictions and is generally prohibited from paying dividends or redeeming capital stock, the Amended Facility provides $100 million in increased borrowing capacity and more flexibility as to the use of the borrowings than the Company's prior facility. The Company expects that the financial resources of Hexcel, including the Amended Facility, will be sufficient to fund the Company's worldwide operations for the foreseeable future. Further discussion of the Company's financial resources is contained in Note 7 to the accompanying consolidated financial statements. ADJUSTED EBITDA AND CASH FLOWS 1997: Earnings before business acquisition and consolidation expenses, other income, interest, bankruptcy reorganization expenses, taxes, depreciation and amortization ("Adjusted EBITDA") was $137.6 million. Net cash provided from operations was $26.0 million including $33.6 million of business acquisition and consolidation payments and a $47.7 million increase in working capital as a result of the increase in sales volume. Net cash used for investing activities was $82.9 million, including $57.4 for capital expenditures and $37.0 million for the Fiberite transaction, partially offset by $13.5 million of proceeds from the sale of the Anaheim facility and the Company's 50% interest in the Knytex joint venture to Owens Corning. These investing activities were funded by cash from operations and $57.2 million of borrowings primarily under the Revolving Credit Facility. 1996: Adjusted EBITDA was $71.9 million. Pro forma Adjusted EBITDA, giving effect to the acquisitions of the Acquired Businesses as if those transactions had occurred at the beginning of the year, was approximately $86 million. Net cash provided by operating activities was $26.5 million. Net cash used for investing activities was $206.4 million, including $164.4 million used in connection with the acquisitions of the Acquired Businesses and $43.6 million for capital expenditures. Net cash provided by financing activities, including borrowings under the Revolving Credit Facility and proceeds from the issuance of $114.5 million in convertible subordinated notes, was $181.7 million. Non-cash financing of the purchase of the Acquired Ciba Business included the issuance of debt securities valued at $37.2 million and the issuance of 18.0 million shares of Hexcel common stock valued at $144.2 million. 1995: Adjusted EBITDA was $29.4 million, and pro forma Adjusted EBITDA was approximately $62 million. Net cash used by operating activities was $2.5 million. Net cash provided by investing activities was $15.7 million, primarily reflecting $31.9 million in cash proceeds from the sale of various assets and $12.1 million of capital expenditures. Net cash used by financing activities of $9.6 million includes proceeds from short-term debt and the issuance of Hexcel common stock, as well as the repayment of allowed claims in connection with Hexcel Corporation's emergence from bankruptcy reorganization proceedings. 40 Adjusted EBITDA and pro forma Adjusted EBITDA have 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 and pro forma Adjusted EBITDA do not represent alternative measures of the Company's cash flows or operating income, and should not be considered in isolation or as substitutes for measures of performance presented in accordance with generally accepted accounting principles. CAPITAL EXPENDITURES Capital expenditures were $57.4 million in 1997 compared with $43.6 million in 1996 and $12.1 million in 1995. The increase in 1997 expenditures over prior years reflects the impact of the Acquired Businesses on capital requirements, including the impact of certain business consolidation activities. The increase also reflects expenditures on manufacturing equipment necessary to improve manufacturing processes and to expand production capacity for select product lines that are in high demand, such as the Company's carbon fiber capacity expansion. A modest increase in capital spending is expected in 1998 as a result of ongoing opportunities for additional manufacturing improvements. Such expenditures will be financed with cash generated from operations and borrowings under the Amended Facility. YEAR 2000 The Company is continuing to monitor as well as implement its plan to resolve the Year 2000 issue in both existing software and other systems with embedded microprocessors. The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that, with modifications to existing software and other systems with embedded microprocessors, and conversion to new software and other systems, the Year 2000 issue will not pose significant operational problems for the Company's computer and other systems as so modified and converted. However, if such modifications and conversions are not completed in a timely manner, or the Company's customers and suppliers do not successfully address their Year 2000 issues, the Year 2000 issue may have a material impact on the operations of the Company. The Company continues to evaluate appropriaste courses of corrective action, including replacement of certain systems whose associated costs would be recorded as assets and amortized. The Company does not expect amounts required to be expensed for Year 2000 issues over the next two years to have a material effect on its financial position or results of operations. The amount expensed in 1997 was immaterial. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). Hexcel is required to adopt SFAS 130 in the first quarter of 1998. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general purpose financial statements. Management does not anticipate that the adoption of SFAS 130 will have a significant impact on the consolidated financial statements. In June 1997, the Financial Accounting Standards Board also issued Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). Hexcel is required to adopt SFAS 131 in its annual consolidated financial statements covering the year ending December 31, 1998. SFAS 131 establishes standards for the way business enterprises report information about operating segments in annual financial statements. Beginning in 1999, the Company will also be required to report selected information about operating segments in its interim financial reports to stockholders. The Company has not yet determined the impact, if any, that the adoption of SFAS 131 will have on the consolidated financial statements. 41 FORWARD-LOOKING STATEMENTS AND RISK FACTORS Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," elsewhere in this document, the Company's annual report or other communications (including press releases and analysts calls) that are not of historical fact, constitute "forward-looking statements" regarding events and trends which effect the Company's future operating results and financial position. Such forward-looking statements include, but are not limited to: (a) revenue and profitability growth objectives, including increasing sales to non-commercial aerospace markets as well as the execution of strategic acquisitions or other business combinations; (b) estimates of commercial aircraft orders and deliveries; (c) estimates of government defense procurement budgets and military and space build rates; (d) expectations regarding sales growth, sales mix, gross margins, manufacturing productivity, selling, general and administrative and R&T expenses, and capital expenditures; (e) the availability and utilization of NOL carryforwards for income tax purposes; (f) expectations regarding Hexcel's financial condition and liquidity, as well as future cash flows; (g) expectations regarding capital expenditures; (h) the estimated total cost of the Company's business consolidation program, the estimated amount of cash expenditure to complete the program and the estimated annual cost savings resulting from the consolidation program; and (i) the Year 2000 issue. The words "believes", "estimates", "anticipate", "expect", "intend" and "project", as well as other words or expressions of similar meaning, are intended to identify forward-looking statements. Such statements are based on current expectations, are inherently uncertain, and are subject to changing assumptions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Hexcel, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: ability to identify and successfully consummate acquisitions and secure related financing; general economic and business conditions; changes in political, social and economic conditions and local regulations, particularly in Asia and Europe; foreign currency fluctuations; level of profitability by country; changes in, or failure to comply with, government regulations; demographic changes; changes in customer preferences; changes in build rates; the loss of any significant customers, particularly Boeing or Airbus; changes in sales mix; changes in government defense procurement budgets; changes in current pricing levels; technology; industry capacity; competition; changes in business strategy or development plans; availability of carbon fiber; disruptions of established supply channels; manufacturing capacity constraints; indebtedness of the Company; and the availability, terms and deployment of capital. Because of the foregoing factors, in addition to other factors that affect the Company's operating results and financial position, past financial performance or the Company's expectations should not be considered to be a reliable indicator of future performance. Investors should not use historical trends to anticipate results or trends in future periods. Further, the Company's stock price is subject to volatility. Any of the factors discussed above could have an adverse impact on the Company's stock price. In addition, failure of sales or income in any quarter to meet the investment community's expectations, as well as broader market trends, can have an adverse impact on the Company's stock price. The Company does not undertake an obligation to update its forward-looking statements or risk factors to reflect future events or circumstances. 42 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DESCRIPTION PAGE - ------------------------------------------------------------------------ ------ Management Responsibility for Financial Statements...................... 49 Report of Independent Accountants....................................... 50 Independent Auditor's Report............................................ 51 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1997 and 1996.......... 52 Consolidated Statements of Operations for the three years ended December 31, 1997................................................... 53 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1997............................................. 54 Consolidated Statements of Cash Flows for the three years ended December 31, 1997................................................... 55 Notes to the Consolidated Financial Statements........................ 56-83
Financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto. 43 MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS Hexcel management has prepared and is responsible for the consolidated financial statements and the related financial data contained in this report. These financial statements, which include estimates, were prepared in accordance with generally accepted accounting principles. Management uses its best judgment to ensure that such statements reflect fairly the consolidated financial position, results of operations and cash flows of the Company. Hexcel maintains accounting and other control systems, which management believes provide reasonable assurance that financial records are reliable for purposes of preparing financial statements and that assets are safeguarded and accounted for properly. Underlying this concept of reasonable assurance is the premise that the cost of control should not exceed benefits derived from control. The Audit Committee of the Board of Directors reviews and monitors the financial reports and accounting practices of Hexcel. These reports and practices are reviewed regularly by management and by the Company's independent accountants, Price Waterhouse LLP, in connection with the audit of the Company's financial statements. The Audit Committee, composed solely of outside directors, meets periodically, separately and jointly, with management and the independent accountants. /s/ JOHN J. LEE - -------------------------------------- (John J. Lee) CHIEF EXECUTIVE OFFICER /s/ STEPHEN C. FORSYTH - -------------------------------------- (Stephen C. Forsyth) CHIEF FINANCIAL OFFICER /s/ WAYNE C. PENSKY - -------------------------------------- (Wayne C. Pensky) CHIEF ACCOUNTING OFFICER 44 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Hexcel Corporation: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Hexcel Corporation and its subsidiaries at December 31, 1997, and the results of their operations and their cash flows for the year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of Hexcel Corporation for the years ended December 31, 1996 and 1995 were audited by other independent accountants whose report dated February 28, 1997 expressed an unqualified opinion on those statements. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP San Jose, California January 28, 1998, except as to Aggregate Maturities of Notes Payable in Note 7, which is as of March 5, 1998 45 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Hexcel Corporation: We have audited the accompanying consolidated balance sheet of Hexcel Corporation and subsidiaries as of December 31, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of Hexcel's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Hexcel Corporation and subsidiaries at December 31, 1996, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Oakland, California February 28, 1997 46 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, December 31, 1997 1996 ------------ ------------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents......................................................... $ 9,033 $ 7,975 Accounts receivable............................................................... 181,192 151,263 Inventories....................................................................... 165,321 145,884 Prepaid expenses and other assets................................................. 6,665 11,809 Deferred tax asset................................................................ 24,839 -- ------------ ------------- Total current assets............................................................ 387,050 316,931 ------------ ------------- Property, plant and equipment....................................................... 488,916 468,173 ------------ ------------- Less accumulated depreciation....................................................... (157,439) (141,390) ------------ ------------- Net property, plant and equipment............................................... 331,477 326,783 ------------ ------------- Intangibles and other assets........................................................ 93,059 58,022 ------------ ------------- Total assets.................................................................... $ 811,586 $ 701,736 ------------ ------------- ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term liabilities..................... $ 13,858 $ 23,835 Accounts payable.................................................................. 70,011 73,117 Accrued compensation and benefits................................................. 37,306 30,969 Other accrued liabilities......................................................... 65,181 60,891 ------------ ------------- Total current liabilities....................................................... 186,356 188,812 ------------ ------------- Long-term notes payable and capital lease obligations............................... 304,546 254,919 Indebtedness to related parties..................................................... 34,967 32,262 Other non-current liabilities....................................................... 35,816 46,414 ------------ ------------- Stockholders' equity: Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding in 1997 and 1996.................................................... -- -- Common stock, $0.01 par value, 100,000 shares authorized, shares issued and outstanding of 36,856 in 1997 and 36,561 in 1996................................ 369 366 Additional paid-in capital........................................................ 266,177 259,592 Accumulated deficit............................................................... (15,541) (89,171) Cumulative currency translation adjustment........................................ (1,104) 8,542 ------------ ------------- Total stockholders' equity...................................................... 249,901 179,329 ------------ ------------- Total liabilities and stockholders' equity...................................... $ 811,586 $ 701,736 ------------ ------------- ------------ -------------
The accompanying notes are an integral part of these consolidated financial statements. 47 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
1997 1996 1995 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales.................................................................. $ 936,855 $ 695,251 $ 350,238 Cost of sales.............................................................. 714,223 553,942 283,148 ----------- ----------- ----------- Gross margin............................................................... 222,632 141,309 67,090 Selling, general and administrative expenses............................... 102,449 79,408 41,706 Research and technology expenses........................................... 18,383 16,742 7,618 Business acquisition and consolidation expenses............................ 25,343 42,370 -- ----------- ----------- ----------- Operating income........................................................... 76,457 2,789 17,766 Interest expense........................................................... 25,705 21,537 8,682 Other income, net.......................................................... -- (2,994) (791) Bankruptcy reorganization expenses......................................... -- -- 3,361 ----------- ----------- ----------- Income (loss) from continuing operations before income taxes............... 50,752 (15,754) 6,514 (Benefit) provision for income taxes....................................... (22,878) 3,436 3,313 ----------- ----------- ----------- Income (loss) from continuing operations................................... 73,630 (19,190) 3,201 Discontinued operations: Losses during phase-out period........................................... -- -- 468 ----------- ----------- ----------- Net income (loss)...................................................... $ 73,630 $ (19,190) $ 2,733 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per share: Basic Continuing operations.................................................... $ 2.00 $ (0.58) $ 0.21 Discontinued operations.................................................. -- -- (0.03) ----------- ----------- ----------- Net income (loss)...................................................... $ 2.00 $ (0.58) $ 0.18 ----------- ----------- ----------- ----------- ----------- ----------- Diluted Continuing operations.................................................... $ 1.74 $ (0.58) $ 0.20 Discontinued operations.................................................. -- -- (0.03) ----------- ----------- ----------- Net income (loss)...................................................... $ 1.74 $ (0.58) $ 0.17 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average shares: Basic.................................................................... 36,748 33,351 15,605 Diluted.................................................................. 45,997 33,351 15,742 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements. 48 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK MINIMUM CUMULATIVE -------------------------- ADDITIONAL PENSION CURRENCY OUTSTANDING PAID-IN ACCUMULATED OBLIGATION TRANSLATION SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT ------------- ----------- ----------- ------------ ------------- ----------- (IN THOUSANDS) BALANCE, JANUARY 1, 1995................ 7,301 $ 73 $ 62,626 $ (72,714) $ (137) $ 4,267 Net income............................ 2,733 Sale of new common stock under standby purchase commitment and subscription rights offering..................... 10,800 108 48,631 Activity under stock plans............ (10) 2 Pension obligation adjustment......... (398) Currency translation adjustment....... 3,183 ------ ----- ----------- ------------ ----- ----------- BALANCE, DECEMBER 31, 1995.............. 18,091 181 111,259 (69,981) (535) 7,450 Net loss.............................. (19,190) Issuance of shares to Ciba at $8, net of issuance costs of $2,993......... 18,022 180 141,001 Activity under stock plans............ 408 4 7,133 Other issuance of shares.............. 40 1 199 Pension obligation adjustment......... 535 Currency translation adjustment....... 1,092 ------ ----- ----------- ------------ ----- ----------- BALANCE, DECEMBER 31, 1996.............. 36,561 366 259,592 (89,171) -- 8,542 Net income............................ 73,630 Activity under stock plans............ 292 3 6,535 Conversion of Subordinated Notes...... 3 50 Currency translation adjustment....... (9,646) ------ ----- ----------- ------------ ----- ----------- BALANCE, DECEMBER 31, 1997.............. 36,856 $ 369 $ 266,177 $ (15,541) $ -- $ (1,104) ------ ----- ----------- ------------ ----- ----------- ------ ----- ----------- ------------ ----- ----------- TOTAL STOCKHOLDERS' EQUITY ------------- BALANCE, JANUARY 1, 1995................ $ (5,885) Net income............................ 2,733 Sale of new common stock under standby purchase commitment and subscription rights offering..................... 48,739 Activity under stock plans............ 2 Pension obligation adjustment......... (398) Currency translation adjustment....... 3,183 ------------- BALANCE, DECEMBER 31, 1995.............. 48,374 Net loss.............................. (19,190) Issuance of shares to Ciba at $8, net of issuance costs of $2,993......... 141,181 Activity under stock plans............ 7,137 Other issuance of shares.............. 200 Pension obligation adjustment......... 535 Currency translation adjustment....... 1,092 ------------- BALANCE, DECEMBER 31, 1996.............. 179,329 Net income............................ 73,630 Activity under stock plans............ 6,538 Conversion of Subordinated Notes...... 50 Currency translation adjustment....... (9,646) ------------- BALANCE, DECEMBER 31, 1997.............. $ 249,901 ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. 49 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) from continuing operations.................................... $ 73,630 $ (19,190) $ 3,201 Reconciliation to net cash provided (used) by continuing operations: Depreciation and amortization............................................. 35,797 26,730 11,623 Deferred income taxes..................................................... (33,203) (520) (329) Write-off of purchased in-process technologies............................ 8,000 -- -- Accrued business acquisition and consolidation expenses................... 25,343 42,370 -- Business acquisition and consolidation payments........................... (33,595) (11,579) -- Other income.............................................................. -- (1,560) (600) Changes in assets and liabilities, net of effects of acquisitions: Increase in accounts receivable......................................... (37,557) (14,695) (1,752) Increase in inventories................................................. (23,797) (5,072) (8,111) Decrease (increase) in prepaid expenses and other assets................ 1,667 (1,430) 718 Increase (decrease) in accounts payable and accrued liabilities......... 23,567 15,549 (10,090) Changes in other non-current assets and long-term liabilities........... (13,878) (4,096) 2,346 ---------- ---------- ---------- Net cash provided (used) by continuing operations......................... 25,974 26,507 (2,994) Net cash provided by discontinued operations.............................. -- -- 486 ---------- ---------- ---------- Net cash provided (used) by operating activities.......................... 25,974 26,507 (2,508) ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures........................................................ (57,369) (43,569) (12,144) Cash paid for business acquisitions......................................... (37,000) (164,400) (4,150) Proceeds from sale of certain manufacturing facilities and an interest in a joint venture............................................................. 13,500 1,560 27,294 Proceeds from sale of discontinued resins business.......................... -- -- 4,648 Other....................................................................... (2,000) -- 17 ---------- ---------- ---------- Net cash (used) provided by investing activities.......................... (82,869) (206,409) 15,665 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt.................................... 3,199 286,974 4,317 Repayments of long-term debt................................................ (9,679) (124,288) (5,402) Proceeds from the revolving credit facility and short-term debt, net........ 57,186 15,319 20,923 Proceeds from issuance of common stock...................................... 6,538 3,702 48,741 Payments of allowed claims pursuant to the Reorganization Plan.............. -- -- (78,144) ---------- ---------- ---------- Net cash provided (used) by financing activities.......................... 57,244 181,707 (9,565) ---------- ---------- ---------- Effect of exchange rate changes on cash and cash equivalents.................. 709 2,341 (694) ---------- ---------- ---------- Net increase in cash and cash equivalents..................................... 1,058 4,146 2,898 ---------- ---------- ---------- Cash and cash equivalents at beginning of year................................ 7,975 3,829 931 ---------- ---------- ---------- Cash and cash equivalents at end of year...................................... $ 9,033 $ 7,975 $ 3,829 ---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS AND BASIS OF ACCOUNTING The accompanying consolidated financial statements include the accounts of Hexcel Corporation and subsidiaries ("Hexcel" or the "Company"), after elimination of intercompany transactions and accounts. Hexcel is a leading international developer and manufacturer of carbon fibers, reinforcement fabrics, and lightweight, high-performance composite materials, parts and structures for use in the commercial aerospace, space and defense, recreation, and general industrial markets. The Company serves international markets through manufacturing and marketing facilities located in the United States and Europe, as well as sales offices in Asia, Australia and South America. The Company is also a partner in a joint venture that manufactures and markets composite materials in Asia. As discussed in Note 2, Hexcel acquired the worldwide composites division of Ciba-Geigy Limited ("CGL"), a Swiss corporation, and Ciba-Geigy Corporation, a New York corporation ("CGC" and together with CGL, "Ciba"), including most of Ciba's composite materials, parts and structures businesses, on February 29, 1996. The Company subsequently acquired Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's worldwide composites division at various dates through February 28, 1997 (the "Acquired Ciba Business"). As also discussed in Note 2, Hexcel acquired the composite products division of Hercules Incorporated ("Hercules"), including Hercules' carbon fibers and prepreg businesses (the "Acquired Hercules Business"), on June 27, 1996, and the satellite business and rights to certain technologies from Fiberite, Inc. ("Fiberite") on September 30, 1997. Accordingly, the accompanying consolidated balance sheets, statements of operations, stockholders' equity and cash flows include the financial position, results of operations and cash flows, of the businesses acquired from Ciba, Hercules and Fiberite as of such dates and for such periods that these businesses were owned by the Company. ESTIMATES AND ASSUMPTIONS The accompanying consolidated financial statements and related notes reflect numerous estimates and assumptions made by the management of Hexcel. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures with respect to contingent assets and liabilities, and the reported amounts of revenues and expenses. Although management believes that the estimates and assumptions used in preparing the accompanying consolidated financial statements and related notes are reasonable in light of known facts and circumstances, actual results could differ from the estimates used. CASH AND CASH EQUIVALENTS Hexcel invests excess cash in investments with original maturities of less than three months. The investments consist primarily of Eurodollar time deposits and are stated at cost, which approximates fair value. The Company considers such investments to be cash equivalents for purposes of the statements of cash flows. ACCOUNTS RECEIVABLE Accounts receivable are net of reserves for doubtful accounts of $6,641 and $6,625 as of December 31, 1997 and 1996, respectively. 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out and average cost methods. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Repairs and maintenance are charged to expense as incurred; replacements and betterments are capitalized. The Company depreciates property, plant and equipment over estimated useful lives. Accelerated and straight-line methods are used for financial statement purposes. The estimated useful lives range from 10 to 40 years for buildings and improvements and from 3 to 20 years for machinery and equipment. INTANGIBLES AND OTHER ASSETS Goodwill and other purchased intangibles are included in "intangibles and other assets" at cost, less accumulated amortization (see Note 6). Amortization is provided on a straight-line basis over estimated economic lives which range from 10 to 20 years. The Company periodically reviews the recoverability of long-term assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. CURRENCY TRANSLATION The assets and liabilities of European subsidiaries are translated into U.S. dollars at year-end exchange rates, and revenues and expenses are translated at average exchange rates during the year. Cumulative currency translation adjustments are included in stockholders' equity. Realized gains and losses from currency exchange transactions are recorded in "selling, general and administrative expenses" in the accompanying consolidated statements of operations and were not material to the Company's consolidated results of operations in 1997, 1996 or 1995. REVENUE RECOGNITION Product sales are recognized on the date of shipment. EARNINGS PER SHARE The Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" ("SFAS 128"), in March 1997 which is effective for reporting periods ending after December 15, 1997. The Company adopted SFAS 128 in the fourth quarter of 1997. SFAS 128 requires the presentation of "Basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all potential common shares. A dual presentation of "Diluted" earnings per share reflecting the dilutive effects of all potential common shares, is also required. The Diluted presentation is similar to fully diluted earnings per share under the prior accounting standard (see Note 15). 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION In 1996, Hexcel adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which provide for the disclosure of pro forma net earnings and earnings per share as if the fair value method were used to account for stock-based employee compensation plans (see Note 14). Pursuant to SFAS 123, the Company has elected to continue to use the intrinsic value method to account for such plans in the accompanying consolidated financial statements, in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable. The Company's sales to two customers and their related subcontractors accounted for approximately 46% and 32% of the Company's 1997 and 1996 net sales, respectively (see Note 17). The Company performs on-going credit evaluations of its customers' financial condition but generally does not require collateral or other security to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other financial information. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). Hexcel is required to adopt SFAS 130 in the first quarter of 1998. SFAS 130 establishes standards for reporting comprehensive income and its components in a full set of general purpose financial statements. Management does not anticipate that the adoption of SFAS 130 will have a significant impact on the consolidated financial statements. In June 1997, the Financial Accounting Standards Board also issued Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"). Hexcel is required to adopt SFAS 131 in its annual consolidated financial statements covering the year ending December 31, 1998. SFAS 131 establishes standards for the way business enterprises report information about operating segments in annual financial statements. Beginning in 1999, the Company will also be required to report selected information about operating segments in its interim financial reports to stockholders. The Company has not yet determined the impact, if any, that the adoption of SFAS 131 will have on the consolidated financial statements. RECLASSIFICATIONS Certain prior year amounts in the accompanying consolidated financial statements and related notes have been reclassified to conform to the 1997 presentation. NOTE 2 -- BUSINESS ACQUISITIONS ACQUIRED CIBA BUSINESS Hexcel acquired most of Ciba's composite materials, parts and structures businesses on February 29, 1996, Ciba's Austrian composites business on May 30, 1996, and various remaining assets of Ciba's 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2 -- BUSINESS ACQUISITIONS (CONTINUED) worldwide composites division at various dates through February 28, 1997. The Acquired Ciba Business is engaged in the manufacture and marketing of reinforcement fabrics and lightweight, high-performance composite materials, parts and structures for commercial aerospace, space and defense, recreation, and general industrial markets. Product lines include reinforcement fabrics, pre-impregnated fabrics ("prepregs"), structural adhesives, honeycomb core, sandwich panels and fabricated components, as well as composite structures and interiors primarily for the commercial and military aerospace markets. The acquisition of the Acquired Ciba Business was consummated pursuant to a Strategic Alliance Agreement dated as of September 29, 1995, among Ciba and Hexcel, as amended (the "Strategic Alliance Agreement"). Under the Strategic Alliance Agreement, the Company acquired the assets (including the capital stock of certain non-U.S. subsidiaries) and assumed the liabilities of the Acquired Ciba Business, other than certain excluded assets and liabilities, in exchange for: (a) 18,022 newly issued shares of Hexcel common stock; (b) $25,000 in cash; (c) senior subordinated notes in an aggregate principal amount of $34,928, subject to certain adjustments (the "Senior Subordinated Notes"); and (d) senior demand notes in an aggregate principal amount equal to the cash on hand at certain of the non-U.S. subsidiaries included in the Acquired Ciba Business (the "Senior Demand Notes"). In exchange for assets acquired between January 1, 1997 and February 28, 1997, from Ciba affiliates that continued to act as distributors for the Acquired Ciba Business (the "Ciba Distributors") throughout 1996, Hexcel undertook to deliver additional Senior Subordinated Notes to Ciba Specialty Chemicals Holding Inc., a Swiss Corporation ("CSCH"), as successor to Ciba in an aggregate principal amount of approximately $2,300 which was accrued in 1997. The aggregate purchase price for the net assets acquired was approximately $208,700. ACQUIRED HERCULES BUSINESS Hexcel acquired the assets of the composite products division of Hercules (the "Acquired Hercules Business") on June 27, 1996. The Acquired Hercules Business, which manufactures carbon fibers and prepregs for commercial aerospace, space and defense, recreation, and general industrial markets, was purchased for $139,400 in cash. In connection with the purchase of the Acquired Hercules Business, Hexcel obtained a new revolving credit facility (the "Revolving Credit Facility"). As discussed in Note 7, the Revolving Credit Facility was obtained to: (a) refinance outstanding indebtedness under a senior secured credit facility; (b) finance the purchase of the Acquired Hercules Business; and (c) provide for the ongoing working capital and other financing requirements of the Company, including business consolidation activities, on a worldwide basis (see Note 3). ACQUIRED FIBERITE ASSETS On September 30, 1997, the Company acquired from Fiberite its satellite business consisting of intangible assets and inventory, and certain non-exclusive worldwide rights to other prepreg technologies, for $37,000 in cash. The acquisition was substantially downsized from the original agreement whereby the Company had, subject to certain terms and conditions, committed to purchase selected assets and businesses of Fiberite for approximately $300,000. As a result of the downsized transaction, the Company wrote-off $4,973 of acquisition and financing costs to business acquisition and consolidation expenses. In addition, the Company expensed $8,000 of acquired in-process research and technology purchased from Fiberite which is also included in business acquisition and consolidation expenses. 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2 -- BUSINESS ACQUISITIONS (CONTINUED) The acquisition of the satellite business and certain technologies from Fiberite on September 30, 1997 was accounted for using the purchase method, in accordance with Accounting Principles Board Opinion No. 16 "Business Combinations" ("APBO No. 16"). Under this method, substantially all of the $37,000 purchase price, less the $8,000 write-off of the acquired in-process research and technology expenses, was allocated to intangible assets. Transaction costs in relation to the downsized transaction were not material. ASSETS ACQUIRED AND LIABILITIES ASSUMED OR INCURRED The acquisitions of the Acquired Ciba Business and the Acquired Hercules Business (collectively, the "Acquired Businesses"), have been accounted for using the purchase method, in accordance with APBO No. 16. The assets acquired and the liabilities assumed or incurred in 1996 were:
ACQUIRED ACQUIRED TOTAL CIBA HERCULES ACQUIRED BUSINESS BUSINESS BUSINESSES ---------- ---------- ---------- Estimated fair values of assets acquired: Accounts receivable.................................... $ 53,861 $ 16,819 $ 70,680 Inventories............................................ 63,048 22,289 85,337 Property, plant and equipment.......................... 119,446 110,611 230,057 Goodwill and other purchased intangibles............... 48,539 -- 48,539 Other assets........................................... 3,069 642 3,711 ---------- ---------- ---------- Total assets acquired.................................. 287,963 150,361 438,324 ---------- ---------- ---------- Estimated fair values of liabilities assumed or incurred: Accounts payable and accrued liabilities............... 62,582 7,688 70,270 Notes payable and capital lease obligations............ 4,743 2,774 7,517 Deferred liabilities................................... 14,233 499 14,732 ---------- ---------- ---------- Total liabilities assumed or incurred.................. 81,558 10,961 92,519 ---------- ---------- ---------- Estimated fair values of net assets acquired............. $ 206,405 $ 139,400 $ 345,805 ---------- ---------- ---------- ---------- ---------- ---------- Purchase price: Cash................................................... $ 25,000 $ 139,400 $ 164,400 Senior Subordinated Notes issued to Ciba, at aggregate fair value........................................... 31,902 -- 31,902 Senior Demand Notes issued to Ciba..................... 5,329 -- 5,329 Hexcel common stock issued to Ciba, valued at $8 per share................................................ 144,174 -- 144,174 ---------- ---------- ---------- Aggregate purchase price............................... $ 206,405 $ 139,400 $ 345,805 ---------- ---------- ---------- ---------- ---------- ----------
The acquisitions of the Acquired Businesses were subject to certain post-closing adjustments, including the adjustment to the Senior Subordinated Notes discussed above and the pension adjustment discussed in Note 6. 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2 -- BUSINESS ACQUISITIONS (CONTINUED) PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The pro forma net sales, net loss and net loss per share of Hexcel for the years ended December 31, 1996 and 1995, giving effect to the acquisitions of the Acquired Businesses and the related issuance of the Convertible Subordinated Notes (see Note 7) as if those transactions had occurred at the beginning of the periods presented, were:
1996 1995 ---------- ---------- Pro forma net sales................................................... $ 798,515 $ 771,325 Pro forma net loss.................................................... (21,191) (10,189) Pro forma basic and diluted net loss per share........................ (0.59) (0.30) ---------- ---------- ---------- ---------- Shares used in computing pro forma basic and diluted net loss per share............................................................... 36,003 33,614 ---------- ---------- ---------- ----------
Pro forma adjustments giving effect to the Fiberite transaction as if it occurred at the beginning of 1997 and 1996 would not have had a material effect to the Company's consolidated financial statements. NOTE 3 -- BUSINESS CONSOLIDATION In May of 1996, Hexcel announced the commencement of a plan to consolidate the Company's operations over a period of three years. In December of 1996, the Company announced the commencement of further consolidation activities identified during the ongoing integration of the Acquired Businesses. The total expense of the business consolidation program was estimated to be approximately $58,000. Total expenses through December 31, 1997 were $54,700, excluding costs associated with the Fiberite transaction which were not included in the original program. The Company does not expect to incur any further significant additional expenses in relation to this program. As of December 31, 1997, cash expenditures remaining to complete this program are estimated at $12,000, which approximates amounts accrued. Thus, when the program is complete, the Company expects that cash expenditures (for expenses and capital, net of estimated proceeds from asset sales) necessary to complete the program will approximate the initial estimate of $51,000. The objective of the business consolidation program is to integrate acquired assets and operations into Hexcel, and to reorganize the Company's manufacturing and research activities around strategic centers dedicated to select product technologies. The business consolidation is also intended to eliminate excess manufacturing capacity and redundant administrative functions. Specific actions of the consolidation program included the closure of the Anaheim, California facility acquired in connection with the purchase of the Acquired Ciba Business, the reorganization of the Company's manufacturing operations in Europe, the consolidation of the Company's U.S. special process manufacturing activities, and the integration of sales, marketing and administrative resources. As of December 31, 1997, the primary remaining activities of the business consolidation program relate to the European operations and the installation and customer qualifications of equipment transferred from the Anaheim facility to other U.S. locations. 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. 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 -- BUSINESS CONSOLIDATION (CONTINUED) After closing the Anaheim facility on schedule in the third quarter of 1997, the Company completed the sale of the facility on October 30, 1997. Net cash proceeds from the sale were approximately $8,500, which approximated book value. Total accrued business acquisition and consolidation expenses at December 31, 1997 and 1996 were as follows:
EMPLOYEE FACILITY SEVERANCE CLOSURE & AND EQUIPMENT FIBERITE RELOCATION RELOCATION OTHER TRANSACTION TOTAL ----------- ----------- --------- ----------- ---------- BALANCE AS OF JANUARY 1, 1996........................ -- -- -- -- -- Business acquisition and consolidation expenses...... $ 17,285 $ 10,488 $ 14,597 $ -- $ 42,370 Liabilities assumed or incurred in business acquisitions....................................... 7,104 2,497 -- -- 9,601 Cash expenditures.................................... (5,306) (1,109) (5,164) -- (11,579) Non-cash usage, including asset write-downs.......... -- (6,678) (8,357) -- (15,035) ----------- ----------- --------- ----------- ---------- BALANCE AS OF DECEMBER 31, 1996...................... 19,083 5,198 1,076 -- 25,357 Business acquisition and consolidation expenses...... (25) 7,651 4,744 12,973 25,343 Cash expenditures.................................... (6,644) (8,771) (5,207) (12,973) (33,595) Non-cash usage, including asset write-downs, currency translation effects and reclassifications.......... (2,759) (2,068) (105) -- (4,932) ----------- ----------- --------- ----------- ---------- BALANCE AS OF DECEMBER 31, 1997...................... $ 9,655 $ 2,010 $ 508 $ -- $ 12,173 ----------- ----------- --------- ----------- ---------- ----------- ----------- --------- ----------- ----------
The consolidation program calls for the elimination of approximately 345 manufacturing, marketing and administrative positions at certain locations, partially offset by the addition of new positions at other locations. As of December 31, 1997, approximately 245 positions have been eliminated. Accrued business consolidation costs of $12,173 as of December 31, 1997 were included in "other accrued liabilities", and $21,780 and $3,577 as of December 31, 1996, were included in "other accrued liabilities" and "other non-current liabilities," respectively, in the accompanying consolidated balance sheets. During 1997 and 1996, business consolidation activities were financed with operating cash flows and borrowings under the Revolving Credit Facility. NOTE 4 -- INVENTORIES Inventories as of December 31, 1997 and 1996, were:
1997 1996 ---------- ---------- Raw materials......................................................... $ 90,429 $ 66,055 Work in progress...................................................... 47,953 45,469 Finished goods........................................................ 26,939 34,360 ---------- ---------- Inventories........................................................... $ 165,321 $ 145,884 ---------- ---------- ---------- ----------
57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1997 and 1996, were:
1997 1996 ----------- ----------- Land.............................................. $ 13,729 $ 19,253 Buildings......................................... 206,900 127,863 Equipment......................................... 268,287 321,057 ----------- ----------- Property, plant and equipment..................... 488,916 468,173 Less accumulated depreciation..................... (157,439) (141,390) ----------- ----------- Net property, plant and equipment................. $ 331,477 $ 326,783 ----------- ----------- ----------- -----------
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $33,214, $24,656 and $11,623, respectively. NOTE 6 -- INTANGIBLES AND OTHER ASSETS Intangibles and other assets as of December 31, 1997 and 1996, were:
1997 1996 ---------- ---------- Goodwill and other purchased intangibles, net of accumulated amortization of $4,657 and $2,074 as of December 31, 1997 and 1996, respectively..... $ 67,237 $ 47,692 Debt financing costs, net of accumulated amortization of $2,487 and $877 as of December 31, 1997 and 1996, respectively................. 4,030 5,915 Prepaid pension asset............................. 8,619 -- Deferred income taxes............................. 9,901 -- Investments in joint ventures..................... -- 1,450 Other assets...................................... 3,272 2,965 ---------- ---------- Intangibles and other assets...................... $ 93,059 $ 58,022 ---------- ---------- ---------- ----------
GOODWILL AND OTHER PURCHASED INTANGIBLES Goodwill and other purchased intangibles include certain intellectual property acquired in connection with the purchases of the Acquired Ciba Business, the Fiberite assets and the Hexcel-Fyfe joint venture (see below). Amortization expense for these assets for the years ended December 31, 1997 and 1996, was $2,583 and $2,074, respectively. DEBT FINANCING COSTS Debt financing costs are deferred and amortized over the life of the related debt. Unamortized debt financing costs relate to the Revolving Credit Facility obtained in June of 1996, and to the Convertible Subordinated Notes issued in July of 1996 (see Notes 2 and 7). 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 6 -- INTANGIBLES AND OTHER ASSETS (CONTINUED) INVESTMENTS IN JOINT VENTURES Investments in joint ventures are accounted for by the equity method. Equity in the earnings of joint ventures were not material to Hexcel's consolidated results of operations for 1997, 1996 or 1995. As of December 31, 1997 and 1996, Hexcel owned a 45% and 43% equity interest in DIC-Hexcel Limited ("DHL"), respectively, a joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"). On August 12, 1997, the Company sold its 40% equity interest in Hexcel-Fyfe, LLC, to its joint venture partner, Fyfe Associates Corporation, for net cash proceeds and the receipt of rights to certain intangible assets that approximated the Company's investment. On December 31, 1996, the Company sold its 50% equity interest in Knytex Company, LLC to the joint venture partner, Owens Corning Corporation, for net cash proceeds that approximated the Company's investment. The DHL joint venture, which owns and operates a manufacturing facility in Komatsu, Japan, was formed in 1990 for the production and sale of Nomex honeycomb, prepregs and decorative laminates for the Japanese market. In December of 1996, Hexcel and DIC reached an agreement in principle to continue the DHL joint venture and expand its operations. The Company and DIC agreed to fund the joint venture's operations through 1998 by each contributing an additional $3,250 in cash, payable in installments through 1998. Of this amount, $2,000 was paid in 1997. As of December 31, 1997 and 1996, the Company's liability with respect to funding the venture's activities, has been accrued for in the accompanying consolidated balance sheets. In addition, the Company and DIC agreed to contribute certain additional technology and product manufacturing rights to DHL. Under the terms of the agreement in principle, the Company remains contingently liable to pay DIC up to $4,500 with respect to DHL's bank debt, but the possibility that such repayment will be required has diminished as a result of the improvement in the venture's business prospects. PREPAID PENSION ASSET As part of the Acquired Ciba Business, the Company acquired a net pension asset from a defined benefit plan covering employees of a United Kingdom subsidiary. Pursuant to the terms of the purchase agreement, these employees continued to participate in a defined benefit retirement plan sponsored by Ciba up to January 1, 1997, at which time, the net pension asset was valued at $8,688 and was transferred to a newly created plan sponsored by the Company. Accordingly, the Company recorded the $8,688 as a prepaid pension asset with a corresponding reduction in goodwill. As of December 31, 1997, the prepaid pension asset was $8,619, reflecting the net change for the year. 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7 -- NOTES PAYABLE Notes payable, capital lease obligations and indebtedness to related parties as of December 31, 1997 and 1996, were:
1997 1996 ---------- ---------- Revolving Credit Facility......................... $ 158,267 $ 98,656 European Credit and Overdraft Facilities.......... 13,909 23,405 Convertible Subordinated Notes, due 2003.......... 114,450 114,500 Convertible Subordinated Debentures, due 2011..... 25,625 25,625 Obligations Under IDRB Variable Rate Demand Notes........................................... -- 8,450 Various notes payable............................. 680 1,212 ---------- ---------- Total notes payable............................... 312,931 271,848 Capital lease obligations (see Note 8)............ 5,473 6,906 Senior Subordinated Notes Payable to CSC, net of unamortized discount of $2,233 and $2,666 as of December 31, 1997 and 1996, respectively........ 34,967 32,262 ---------- ---------- Total notes payable, capital lease obligations and indebtedness to related parties................. $ 353,371 $ 311,016 ---------- ---------- ---------- ---------- Notes payable and current maturities of long-term liabilities..................................... $ 13,858 $ 23,835 Long-term notes payable and capital lease obligations, less current maturities............ 304,546 254,919 Indebtedness to related parties................... 34,967 32,262 ---------- ---------- Total notes payable, capital lease obligations and indebtedness to related parties................. $ 353,371 $ 311,016 ---------- ---------- ---------- ----------
REVOLVING CREDIT FACILITY In connection with the acquisition of the Acquired Hercules Business on June 27, 1996, Hexcel obtained the Revolving Credit Facility to: (a) refinance outstanding indebtedness under its current credit facility; (b) finance the purchase of the Acquired Hercules Business; and (c) provide for the ongoing working capital and other financing requirements of the Company, including business consolidation activities, on a worldwide basis. The Revolving Credit Facility provided for up to $254,600 of borrowing capacity and would have expired in February 1999. As discussed in Note 24, the Revolving Credit Facility was amended and restated in March 1998. Interest on outstanding borrowings under the Revolving Credit Facility was computed at an annual rate of 0.4% 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 of approximately 0.2% per annum on the unused portion of the facility. As of December 31, 1997, letters of credit with an aggregate face amount of $3,700 were outstanding under the Revolving Credit Facility. The Revolving Credit Facility was secured by a pledge of stock of certain of Hexcel's subsidiaries. In addition, the Company was subject to various financial covenants and restrictions under the Revolving Credit Facility, and was generally prohibited from paying dividends or redeeming capital stock. 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7 -- NOTES PAYABLE (CONTINUED) As a result of obtaining the Revolving Credit Facility and the corresponding extinguishment of certain of the Company's credit facilities, Hexcel wrote off $3,400 of capitalized debt financing costs in 1996. This amount is included in "interest expense" in the accompanying consolidated statement of operations for 1996. EUROPEAN CREDIT AND OVERDRAFT FACILITIES In addition to the Revolving Credit Facility, certain of Hexcel's European subsidiaries have access to limited credit and overdraft facilities provided by various local lenders. These credit and overdraft facilities, which are only available to finance certain activities by specific subsidiaries, are primarily uncommitted facilities that are terminable at the discretion of the lenders. The credit and overdraft facilities in use by the Company's European subsidiaries as of December 31, 1997 and 1996, other than the Revolving Credit Facility, bear interest at rates between 2.5% and 7.7% per year. CONVERTIBLE SUBORDINATED NOTES, DUE 2003 In July of 1996, Hexcel completed an offering of $114,500 in convertible subordinated notes due 2003 (the "Convertible Subordinated Notes"). The Convertible Subordinated Notes carry an annual interest rate of 7% and are convertible into Hexcel common stock at a conversion price of $15.81 per share, subject to adjustment under certain conditions. Net proceeds of $111,351 from this offering were used to repay outstanding borrowings under the Revolving Credit Facility. The Convertible Subordinated Notes are redeemable beginning in August of 1999, in whole or in part, at the option of Hexcel. The redemption prices range from 103.5% to 100.0% of the outstanding principal amount, depending on the period in which redemption occurs. As of December 31, 1997, $50 of the Convertible Subordinated Notes had been converted resulting in the issuance of 3 shares of common stock. CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011 The 7% convertible subordinated debentures, due 2011, are redeemable by Hexcel under certain provisions, although any such redemption is restricted by the terms of the Revolving Credit Facility. Mandatory redemption is scheduled to begin in 2002 through annual sinking fund requirements. The debentures are convertible prior to maturity into common stock of the Company at $30.72 per share, subject to adjustment under certain conditions. OBLIGATIONS UNDER IDRB VARIABLE RATE DEMAND NOTES In 1997, Hexcel repaid in full various industrial development revenue bonds ("IDRBs") to obtain the benefit of reduced administration costs. The IDRBs had original maturity dates after 2001 and were guaranteed by bank letters of credit issued under the Revolving Credit Facility. The interest rates on the IDRBs were variable and averaged 4.0% in 1997, 4.2% in 1996 and 6.2% in 1995. SENIOR SUBORDINATED NOTES PAYABLE TO CSC In connection with the purchase of the Acquired Ciba Business, Hexcel delivered Senior Subordinated Notes to Ciba in an aggregate principal amount of $34,928. Hexcel has also consented to an assignment by Ciba of Ciba's rights and obligations under the Alliance Agreement to CSCH, and Ciba Specialty Chemicals Corporation, a Delaware corporation (collectively "CSC"). In connection with the assignment 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7 -- NOTES PAYABLE (CONTINUED) of these rights and obligations, the Senior Subordinated Notes that were previously payable to Ciba are now payable to CSC. In accordance with the terms of the amended Strategic Alliance Agreement, Hexcel acquired certain assets of the Ciba Distributors between January 1, 1997 and February 28, 1997, in exchange for an undertaking to deliver additional Senior Subordinated Notes in an aggregate principle amount of approximately $2,300. Upon delivery of these additional Senior Subordinated Notes, the total aggregate principle amount of Senior Subordinated Notes payable to CSC will be approximately $37,200. At the date of issue, the aggregate fair value of the Senior Subordinated Notes was $31,902, or $3,026 less than the aggregate principal amount. The original discount of $3,026 reflects the absence of certain call protection provisions from the terms of the Senior Subordinated Notes and the difference between the stated interest rate on the Senior Subordinated Notes and the estimated market rate for debt obligations of comparable quality and maturity. This discount, which is amortized over the life of the Senior Subordinated Notes, had an unamortized balance of $2,233 and $2,666 as of December 31, 1997 and 1996, respectively. The Senior Subordinated Notes are general unsecured obligations of Hexcel that bear interest for three years at a rate of 7.5% per annum, payable semiannually from February 29, 1996. The interest rate will increase to 10.5% per annum on the third anniversary of the purchase of the Acquired Ciba Business (February 28, 1999), and by an additional 0.5% per year thereafter until the Senior Subordinated Notes mature in the year 2003. As discussed in Note 9, Hexcel has various financial and other relationships with CSC. Accordingly, the Company's net indebtedness to CSC under the Senior Subordinated Notes has been classified as "indebtedness to related parties" in the accompanying consolidated balance sheets. AGGREGATE MATURITIES OF NOTES PAYABLE Aggregate maturities of notes payable, excluding capital lease obligations (see Note 8), as of December 31, 1997, were: Payable during years ending December 31: 1998............................................ $ 13,511 1999............................................ 672 2000............................................ 147 2001............................................ 154 2002............................................ 1,856 2003 and thereafter............................. 331,558 --------- Total notes payable........................... $ 347,898 --------- ---------
At December 31, 1997, amounts owed under the Revolving Credit Facility totaled $158,267. As discussed in Note 24, the Revolving Credit Facility was amended and restated in March 1998. Under the amended terms, the facility was extended to 2003, and accordingly, the above table reflects the amended due date. 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7 -- NOTES PAYABLE (CONTINUED) ESTIMATED FAIR VALUES OF NOTES PAYABLE The Revolving Credit Facility, and substantially all of the various European credit facilities and other notes payable outstanding as of December 31, 1997 and 1996, are variable-rate debt obligations. Accordingly, management believes that the estimated fair value of each of these debt obligations approximates the respective book value. The aggregate fair values of the Convertible Subordinated Notes, due 2003, and the Convertible Subordinated Debentures, due 2011, are estimated on the basis of quoted market prices, although trading in these debt securities is limited and may not reflect fair value. The aggregate fair value of the Convertible Subordinated Notes, due 2003, was approximately $196,000 and $141,700 as of December 31, 1997 and 1996, respectively. The aggregate fair value of the Convertible Subordinated Debentures, due 2011, was approximately $25,500 and $24,000 as of December 31, 1997 and 1996, respectively. NOTE 8 -- LEASING ARRANGEMENTS Assets, accumulated depreciation and related liability balances under capital leasing arrangements as of December 31, 1997 and 1996, were:
1997 1996 --------- --------- Property, plant and equipment..................... $ 10,197 $ 11,572 Less accumulated depreciation..................... (3,593) (2,927) --------- --------- Net property, plant and equipment................. $ 6,604 $ 8,645 --------- --------- --------- --------- Capital lease obligations......................... $ 5,473 $ 6,906 less current maturities........................... (347) (768) --------- --------- Long-term capital lease obligations, net.......... $ 5,126 $ 6,138 --------- --------- --------- ---------
Certain sales and administrative offices, data processing equipment, and manufacturing facilities are leased under operating leases. Rental expense under operating leases was $4,559 in 1997, $4,623 in 1996 and $2,871 in 1995. Future minimum lease payments as of December 31, 1997, were:
TYPE OF LEASE ---------------------- CAPITAL OPERATING --------- ----------- Payable during years ending December 31: 1998............................................ $ 858 $ 3,935 1999............................................ 858 3,304 2000............................................ 783 1,987 2001............................................ 512 714 2002............................................ 512 233 2003 and thereafter............................. 5,948 1,402 --------- ----------- Total minimum lease payments.................. $ 9,471 $ 11,575 --------- ----------- --------- -----------
Total minimum capital lease payments include $3,999 of imputed interest. 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 9 -- RELATED PARTIES In connection with the purchase of the Acquired Ciba Business, Hexcel delivered 18,022 newly issued shares of Hexcel common stock to Ciba, representing 49.9% of the Hexcel common stock issued and outstanding at that date. In addition, the Company and Ciba entered into the Alliance Agreement which currently provides for, among other things, the designation by Ciba of four of the Company's ten directors, and the approval of a majority of these four designated directors for the taking of certain significant actions by the Company. On February 21, 1997, the Company consented to an assignment by Ciba of Ciba's rights and obligations under the Alliance Agreement to CSC. In connection with the assignment of these rights and obligations, all of the Hexcel common stock previously held by Ciba is now held by CSC. As discussed in Notes 2 and 7, Hexcel has delivered Senior Subordinated Notes in an aggregate principal amount of $34,928 to Ciba in connection with the purchase of the Acquired Ciba Business and has undertaken to deliver approximately $2,300 additional Senior Subordinated Notes in connection with the acquisition of certain assets of the Ciba Distributors. In connection with the assignment of Ciba's rights and obligations under the Alliance Agreement, the Senior Subordinated Notes that were previously payable to Ciba will be payable to CSC. During 1996, the Company also delivered Senior Demand Notes to Ciba in an aggregate principle amount of $5,329. The Senior Demand Notes were presented for payment and paid in full prior to December 31, 1996. Aggregate interest expense on the Senior Subordinated Notes in 1997 and 1996 was $2,762 and $2,715, respectively. Hexcel purchases certain raw materials from various CSC subsidiaries, as successor to Ciba subsidiaries. In addition, the Company sells certain finished products to various CSC subsidiaries, including the Ciba Distributors. The Company's aggregate purchases from CSC subsidiaries and their predecessor Ciba subsidiaries for 1997 and for the period from March 1, 1996 through December 31, 1996, were $34,255 and $15,116, respectively. The Company's aggregate sales to CSC subsidiaries and their predecessor Ciba subsidiaries for the same periods were $5,620 and $32,408, respectively. These sales were primarily to the Ciba Distributors pursuant to a distribution agreement, which expired February 28, 1997. In addition, in 1997 and 1996 the Company incurred $1,234 and $214, respectively, of expenses related to the Acquired Ciba Business that are subject to reimbursement by CSC as successor to Ciba under the terms of the Strategic Alliance Agreement. As of December 31, 1997 and 1996, aggregate receivables from CSC or CSC subsidiaries and their Ciba predecessors included in "accounts receivable" in the accompanying consolidated balance sheets were $400 and $5,951, respectively. Aggregate payables to CSC or CSC and their Ciba predecessors included in "accounts payable" and "accrued liabilities" as of the same dates were $1,196 and $1,812, respectively. 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 10 -- OTHER NON-CURRENT LIABILITIES Other non-current liabilities as of December 31, 1997 and 1996, were:
1997 1996 --------- --------- Postretirement benefit liability (see Note 12).... $ 14,066 $ 13,726 Liability for environmental remediation activities...................................... 5,080 7,070 Liability for business consolidation activities (see Note 3).................................... -- 3,577 Liability for DIC-Hexcel Limited (see Note 6)..... -- 3,250 Pension and retirement liability (see Note 11).... 2,702 2,206 Deferred tax liability (see Note 13).............. 2,970 1,433 Other............................................. 10,998 15,152 --------- --------- Other non-current liabilities..................... $ 35,816 $ 46,414 --------- --------- --------- ---------
NOTE 11 -- RETIREMENT PLANS Hexcel maintains a retirement savings and contribution plan and a defined benefit retirement plan covering most U.S. employees, except for certain employees with union affiliations. In addition, the Company maintains a separate retirement savings plan available to certain U.S. employees with union affiliations, and contributes to a union sponsored multi-employer pension plan covering these same employees. The Company also maintains various retirement plans covering certain European employees, as well as defined benefit supplemental retirement plans for eligible senior executives. The net expense to the Company of all of these retirement plans was $11,500 in 1997, $9,107 in 1996 and $2,768 in 1995. Under the U.S. retirement savings and contribution plan, eligible employees may contribute up to 16% of their compensation to an individual retirement savings account. Hexcel makes matching contributions to individual retirement savings accounts equal to 50% of employee contributions, not to exceed 3% of employee compensation. Furthermore, the Company makes profit sharing contributions of up to an additional 4% of employee compensation when the Company meets or exceeds certain annual performance targets. Matching contributions to the U.S. retirement savings and contribution plan were $2,309 for 1997, $2,160 for 1996 and $1,290 for 1995. The profit sharing contributions were $3,648 for 1997 and $3,236 for 1996. There was no profit sharing contribution for 1995. The U.S. defined benefit retirement plan is a career average pension plan covering both hourly and salaried employees. Benefits are based on years of service and the annual compensation of the employee. Hexcel's funding policy is to contribute the minimum amount required by applicable regulations. Hexcel maintains a separate retirement savings plan available to certain U.S. employees with union affiliations of the composite structures business acquired from Ciba on February 29, 1996. Under this plan, employees may contribute up to 14% of their compensation to an individual retirement savings account. There are no matching or profit sharing contributions. In addition, the Company participates in a union sponsored multi-employer pension plan covering these same employees. The Company's contributions to this plan were $1,326 for 1997 and $731 for 1996. As part of the Acquired Ciba Business, the Company acquired a net pension asset from a defined benefit retirement plan covering employees of a United Kingdom subsidiary. Pursuant to the terms of the purchase agreement, these employees continued to participate in a defined benefit retirement plan 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11 -- RETIREMENT PLANS (CONTINUED) sponsored by Ciba up to January 1, 1997, at which time, the accumulated benefit obligation and net pension asset was valued and transferred to a newly created plan sponsored by the Company. The net periodic cost of Hexcel's defined benefit retirement plans for the years ended December 31, 1997, 1996 and 1995, were:
U.S. Plans European Plans 1997 1996 1995 1997 1996 --------- --------- --------- --------- --------- Service cost--benefits earned during the year..... $ 2,310 $ 2,365 $ 661 $ 1,933 $ 150 Interest cost on projected benefit obligation..... 817 646 660 2,168 132 Return on plan assets--actual..................... (739) (477) (1,103) (6,799) (109) Net amortization and deferral..................... 265 273 1,260 4,002 -- --------- --------- --------- --------- --------- Net periodic pension cost......................... $ 2,653 $ 2,807 $ 1,478 $ 1,304 $ 173 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The following table sets forth the funded status of the plans as of December 31, 1997 and 1996:
U.S. Plans European Plans 1997 1996 1997 1996 --------- --------- --------- --------- Actuarial present value of benefit obligations-- Vested benefit obligation......................... $ 12,424 $ 9,082 $ 22,813 $ 2,760 Non-vested benefit obligation..................... 613 473 -- -- --------- --------- --------- --------- Accumulated benefit obligation.................... $ 13,037 $ 9,555 $ 22,813 $ 2,760 --------- --------- --------- --------- --------- --------- --------- --------- Projected benefit obligation...................... $ 14,910 $ 11,070 $ 32,627 $ 3,494 Plan assets at fair value......................... 8,343 5,974 44,557 2,405 --------- --------- --------- --------- Plan assets more (less) than projected benefit obligation...................................... (6,567) (5,096) 11,930 (1,089) Unrecognized net (gain) loss...................... 1,436 157 (3,311) -- Unrecognized net transition obligation............ 169 212 -- -- Unrecognized prior service cost................... 4 32 -- 1,183 --------- --------- --------- --------- Prepaid (accrued) pension liability............... (4,958) (4,695) 8,619 94 --------- --------- --------- --------- less current portion............................ 2,256 2,395 -- -- --------- --------- --------- --------- Long-term portion prepaid (accrued) pension liability....................................... $ (2,702) $ (2,300) $ 8,619 $ 94 --------- --------- --------- --------- --------- --------- --------- ---------
66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11 -- RETIREMENT PLANS (CONTINUED) Assumptions used to estimate the actuarial present value of benefit obligations as of December 31, 1997, 1996 and 1995, were:
1997 1996 1995 --------- --------- --------- U.S. defined benefit retirement plans: Discount rate................................... 7.5 % 7.5 % 7.0 % Rate of increase in compensation.................. 4.5 % 4.5 % 4.0 % Expected long-term rate of return on plan assets.......................................... 9.0 % 9.0 % 9.5 %
1997 1996 ------------- -------------- European defined benefit retirement plans: Discount rates.................................. 6.5% - 7.0% 6.5% - 7.5% Rates of increase in compensation............... 2.0% - 5.0% 2.0% - 4.5% Expected long-term rates of return on plan assets........................................ 6.5% - 7.5% 6.5% - 9.0%
NOTE 12 -- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS Hexcel provides certain postretirement health care and life insurance benefits to eligible retirees. Substantially all U.S. employees hired on or before December 31, 1995, are eligible for benefits, as well as certain U.S. employees hired on February 29, 1996, in connection with the purchase of the Acquired Ciba Business, and on June 27, 1996, in connection with the purchase of the Acquired Hercules Business. Effective January 1, 1996, the Company amended its postretirement benefit program to eliminate any benefits for employees hired after December 31, 1995, other than senior executives and certain employees hired in connection with business acquisitions. Benefits are available to eligible employees who retire on or after age 58 after rendering at least 15 years of service to Hexcel, including years of service rendered to the Acquired Ciba Business or the Acquired Hercules Business prior to the dates of acquisition. Benefits consist of coverage of up to 50% of the annual cost of certain health insurance plans, as well as annual life insurance coverage equal to 65% of the final base pay of the retiree until the age of 70. Upon reaching 70 years of age, life insurance coverage is reduced. Effective January 1, 1996, Hexcel amended its postretirement benefit program to limit health care benefit coverage to selected health insurance plans for the majority of active employees. Hexcel funds postretirement health care and life insurance benefit costs on a pay-as-you-go basis and, for 1997, 1996 and 1995, made benefit payments of approximately $750, $400 and $600, respectively. Net defined postretirement benefit costs for the years ended December 31, 1997, 1996 and 1995, were:
1997 1996 1995 --------- --------- --------- Service cost--benefits earned during the year..... $ 91 $ 80 $ 279 Interest cost on accumulated postretirement benefit obligation.............................. 752 701 780 Net amortization and deferral..................... (213) (222) (201) --------- --------- --------- Net periodic postretirement benefit cost.......... $ 630 $ 559 $ 858 --------- --------- --------- --------- --------- ---------
67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 12 -- POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED) Defined postretirement benefit liabilities as of December 31, 1997 and 1996, were:
1997 1996 --------- --------- Accumulated postretirement benefit obligation: Retirees........................................ $ 7,483 $ 7,302 Fully eligible active plan participants......... 1,897 1,658 Other active plan participants.................. 1,456 1,031 --------- --------- 10,836 9,991 Unrecognized prior service credit................. 556 890 Unrecognized net gain............................. 3,210 3,567 --------- --------- Defined postretirement benefit liability.......... 14,602 14,448 less current portion of postretirement benefit liability....................................... (536) (722) --------- --------- Deferred postretirement benefit liability (see Note 10)........................................ $ 14,066 $ 13,726 --------- --------- --------- ---------
Two health care cost trend rates were used in measuring the accumulated postretirement benefit obligation. For indemnity health care costs, the assumed cost trend in 1997 was 10.0% for participants less than 65 years of age and 6.0% for participants 65 years of age and older, gradually declining to 5.0% for both age groups in the year 2002. For Health Maintenance Organization health care costs, the assumed cost trend in 1997 was 7.0% for participants less than 65 years of age and 4.0% for participants 65 years of age and older, gradually declining to 5.0% and 4.0%, respectively, in the year 1999. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.0% in 1997 and 7.5% in 1996. The rate of increase in compensation used in determining the obligation was 4.5% in 1997 and 1996 and 4.0% in 1995. If the health care cost trend rate assumptions were increased by 1.0%, the accumulated postretirement benefit obligation as of December 31, 1997 would be increased by 6.1%. The effect of this change on the sum of the service cost and interest cost would be an increase of 5.6%. 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 13 -- INCOME TAXES PROVISION FOR INCOME TAXES Income (loss) before income taxes and the (benefit) provision for income taxes from continuing operations for the years ended December 31, 1997, 1996 and 1995, were:
1997 1996 1995 ---------- ---------- --------- Income (loss) before income taxes: U.S....................................................... $ 24,197 $ (11,956) $ (1,027) International............................................. 26,555 (3,798) 7,541 ---------- ---------- --------- Total income (loss) before income taxes..................... $ 50,752 $ (15,754) $ 6,514 ---------- ---------- --------- ---------- ---------- --------- Provision (benefit) for income taxes: Current: U.S....................................................... $ 798 $ (1,600) $ 197 International............................................. 9,527 5,556 3,445 ---------- ---------- --------- Current provision for income taxes.......................... 10,325 3,956 3,642 ---------- ---------- --------- Deferred: U.S....................................................... (33,935) -- -- International............................................. 732 (520) (329) ---------- ---------- --------- Deferred benefit for income taxes........................... (33,203) (520) (329) ---------- ---------- --------- Total (benefit) provision for income taxes.................. $ (22,878) $ 3,436 $ 3,313 ---------- ---------- --------- ---------- ---------- ---------
A reconciliation of the (benefit) provision to the U.S. federal statutory income tax rate of 35%, 34% and 34% for the years ended December 31, 1997, 1996 and 1995, is as follows:
1997 1996 1995 ---------- --------- --------- Provision (benefit) at U.S. federal statutory rate........... $ 17,763 $ (5,356) $ 2,215 U.S. state taxes, less federal tax benefit................... 519 21 (254) Impact of different international tax rates, adjustments to income tax accruals and other.............................. 18,773 (9,656) 492 Valuation allowance.......................................... (59,933) 18,427 860 ---------- --------- --------- Total (benefit) provision for income taxes................... $ (22,878) $ 3,436 $ 3,313 ---------- --------- --------- ---------- --------- ---------
In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), in 1996 and 1995 the Company had fully provided valuation allowance reserves against its net deferred tax assets primarily in the U.S. and Belgium where there were uncertainties in generating sufficient future taxable income. In 1997, the Company reversed $59.9 million of its valuation allowance reserve as follows: $17.0 million due to current year profitable U.S. operations, $39.0 million due to the Company's assessment that the realization of the remaining U.S. net deferred tax assets is more likely than not, and $3.9 million in Belgium due to a gain on sale of certain tangible and intangible assets to other Hexcel subsidiaries. The Company continues to reserve the balance of the net deferred tax asset related to its Belgium operations. 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 13 -- INCOME TAXES (CONTINUED) The Company has made no U.S. income tax provision for approximately $46,000 of undistributed earnings of international subsidiaries as of December 31, 1997. Such earnings are considered to be permanently reinvested. The additional U.S. income tax on these earnings, if repatriated, would be offset in part by foreign tax credits. DEFERRED INCOME TAXES Deferred income taxes result from temporary differences between the recognition of items for income tax purposes and financial reporting purposes. Principal temporary differences as of December 31, 1997 and 1996, were:
1997 1996 ---------- ---------- Net operating loss carryforwards...................................... $ 21,000 $ 33,922 Reserves and other, net............................................... 31,580 37,596 Accrued business acquisition and consolidation expenses............... 4,380 9,128 Accelerated depreciation and amortization............................. (16,690) (13,646) Valuation allowance................................................... (8,500) (68,433) ---------- ---------- Net deferred tax asset (liability).................................... $ 31,770 $ (1,433) ---------- ---------- ---------- ----------
NET OPERATING LOSS CARRYFORWARDS As of December 31, 1997, Hexcel had net operating loss ("NOL") carryforwards for U.S. federal and Belgium income tax purposes of approximately $53,000 and $5,000, respectively. The U.S. NOL carryforwards, which are available to offset future taxable income, expire at various dates through the year 2010. As a result of the ownership change, which occurred in connection with the purchase of the Acquired Ciba Business, the Company has a limitation on the utilization of U.S. NOL carryforwards of approximately $12,000 per year. NOTE 14 -- STOCK-BASED INCENTIVE PLANS The Hexcel Corporation Incentive Stock Plan as amended and restated ("Incentive Stock Plan"), authorizes the use of Hexcel common stock for providing a variety of stock-based incentive awards to eligible employees, officers, directors and consultants. The Incentive Stock Plan provides for grants of stock options, stock appreciation rights, restricted stock and restricted stock units, and other stock-based awards. In May 1997, Hexcel's stockholders increased the aggregate number of shares of Hexcel common stock available for use under the Incentive Stock Plan by 3,850 to 4,013. As of December 31, 1997, 1,193 options were vested. As of December 31, 1997 and 1996, the Company had outstanding a total of 352 and 286, respectively, of performance accelerated restricted stock units ("PARS"). Subject to certain conditions of employment, PARS vest in increments through 2004, subject to accelerated vesting under certain circumstances, and are convertible into an equal number of shares of Hexcel common stock. As of December 31, 1997, no PARS were vested. In May 1997, Hexcel's stockholders approved the Management Stock Purchase Plan (the "MSPP"). The MSPP authorizes an aggregate of 150 shares of Hexcel common stock for use by the Company in 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14 -- STOCK-BASED INCENTIVE PLANS (CONTINUED) providing stock-based incentive awards to senior executives and certain key management employees. Eligible executives and employees may purchase Restricted Stock Units ("Units") for up to 50% of their annual bonus pursuant to an irrevocable election made previously. Each Unit is purchased at 80% of the fair market value (as defined in the MSPP) of the Company's common stock at the date the bonus becomes available and is restricted for a period of three years. Subject to certain conditions of employment, the Units vest equally over a period of three years, and upon expiration of the restricted period are convertible on a one-to-one basis for shares of Hexcel common stock. No Units had been purchased as of December 31, 1997. In December 1997, the Board of Directors resolved to permit non-employee directors to elect to receive a portion or all of their annual retainer fees in the form of non-qualified stock options issued under the Incentive Stock Plan. These options may be used to purchase common stock of the Company at a price of 50% of the fair market value at the date of grant. Options vest proportionately over a period of one year from the date of grant. No such options had been granted as of December 31, 1997. Stock option data for the three years ended December 31, 1997, 1996 and 1995, were:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE ----------- ----------- Options outstanding at January 1, 1995............ 468 $ 12.37 Options granted................................... 787 $ 5.63 Options exercised................................. (1) $ 7.56 Options expired or canceled....................... (240) $ 11.80 ----------- ----------- Options outstanding at December 31, 1995.......... 1,014 $ 7.27 Options granted................................... 1,577 $ 12.69 Options exercised................................. (447) $ 9.40 Options expired or canceled....................... (85) $ 11.45 ----------- ----------- Options outstanding at December 31, 1996.......... 2,059 $ 10.36 Options granted................................... 3,094 $ 18.24 Options exercised................................. (289) $ 9.64 Options expired or canceled....................... (25) $ 15.51 ----------- ----------- Options outstanding at December 31, 1997.......... 4,839 $ 15.39 ----------- ----------- ----------- -----------
71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14 -- STOCK-BASED INCENTIVE PLANS (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------- ------------------------ WEIGHTED WEIGHTED NUMBER OF WEIGHTED AVERAGE AVERAGE NUMBER OF AVERAGE OPTIONS REMAINING LIFE EXERCISE OPTIONS EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE - ------------------------------------------------- ----------- ----------------- ----------- ----------- ----------- $ 4.75 - 5.00................................... 160 7.3 $ 4.75 160 $ 4.75 $ 5.01 - 10.00................................... 373 5.5 $ 5.99 335 $ 6.10 $10.01 - 15.00................................... 1,211 8.0 $ 12.43 648 $ 12.42 $15.01 - 20.00................................... 3,058 9.1 $ 18.13 49 $ 16.71 $20.01 - 25.00................................... 15 9.2 $ 20.13 -- -- $25.01 - 30.00................................... 20 9.6 $ 27.39 1 $ 29.38 $30.01 - 32.06................................... 2 9.2 $ 30.49 -- $ 32.06 -- ----------- ----------- ----------- ----------- $ 4.75 - 32.06................................... 4,839 8.5 $ 15.39 1,193 $ 9.80 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
EMPLOYEE STOCK PURCHASE PLAN ("ESPP") In July 1997, the Company established an ESPP to provide eligible employees an additional opportunity to share in the ownership of Hexcel. The maximum number of shares of common stock reserved for issuance under the ESPP is 200. Under the ESPP, eligible employees may contribute up to 10% of their base earnings toward the quarterly purchase of the Company's common stock at a purchase price equal to 85% of the fair market value of the common stock on the purchase date. During 1997, approximately 3 shares of common stock were issued under the ESPP. PRO FORMA DISCLOSURES In 1996, Hexcel adopted the disclosure requirements of SFAS 123, which provide for the disclosure of pro forma net earnings and net earnings per share as if the fair value method were used to account for stock-based employee incentive plans. Pursuant to SFAS 123, the Company has elected to continue to use the intrinsic value method to account for its stock option plans in the accompanying consolidated financial statements, in accordance with APBO No. 25. If compensation expense had been determined for stock options granted in 1997, 1996 and 1995 using the fair value method at the date of grant, consistent with the provisions of SFAS 123, Hexcel's pro forma net income (loss) and diluted income (loss) per share would have been as follows:
1997 1996 1995 --------- ---------- --------- Net income (loss), as reported.................... $ 73,630 $ (19,190) $ 2,733 Pro forma compensation adjustment................. (6,275) (43) (1,029) --------- ---------- --------- Pro forma net income (loss)....................... $ 67,355 $ (19,233) $ 1,704 --------- ---------- --------- --------- ---------- --------- Diluted net income (loss) per share, as reported........................................ $ 1.74 $ (0.58) $ 0.17 Pro forma compensation adjustment................. (0.14) 0.02 (0.06) --------- ---------- --------- Pro forma diluted net income (loss) per share..... $ 1.60 $ (0.56) $ 0.11 --------- ---------- --------- --------- ---------- ---------
72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14 -- STOCK-BASED INCENTIVE PLANS (CONTINUED) The weighted average fair value of options granted during 1997, 1996 and 1995 were $18.24, $12.75 and $5.63, respectively. The following ranges of assumptions were used in the Black-Scholes pricing models for options granted in 1997, 1996 and 1995: risk-free interest of 5.6% to 6.2%, estimated volatility of 40% to 49%, and an expected life of 3.6 years to 4.7. During 1996, the Company recognized $3,635 of compensation expense under the intrinsic value method resulting from stock options which vested in connection with the purchase of the Acquired Ciba Business. This compensation expense was based on the difference between the exercise price of the stock options granted and the market price of Hexcel common stock on the date that the Company's stockholders approved the Incentive Stock Plan under which these options were granted. The recognition of compensation expense in connection with these stock options resulted in a corresponding $3,635 increase in the additional paid-in capital of the Company. NOTE 15 -- EARNINGS PER SHARE In the fourth quarter of 1997, Hexcel adopted SFAS 128. SFAS 128 requires the presentation of "Basic" earnings per share which represents net earnings divided by the weighted average shares outstanding excluding all potential common shares. A dual presentation of "Diluted" earnings per share reflecting the dilutive effects of all potential common shares is also required. The Diluted presentation is similar to fully diluted earnings per share under the prior accounting standard. 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 15 -- EARNINGS PER SHARE (CONTINUED) Computations of basic and diluted earnings (loss) per share for the years ended December 31, 1997, 1996 and 1995, are as follows:
1997 1996 1995 --------- ---------- --------- Basic earnings (loss) per share: Net income (loss) from continuing operations...... $ 73,630 $ (19,190) $ 3,201 --------- ---------- --------- Weighted average common shares outstanding........ 36,748 33,351 15,605 --------- ---------- --------- Basic earnings (loss) per share................... $ 2.00 $ (0.58) $ 0.21 --------- ---------- --------- --------- ---------- --------- Diluted earnings (loss) per share: Net income (loss) from continuing operations...... $ 73,630 $ (19,190) $ 3,201 Effect of dilutive securities-- Senior Subordinated Notes, due 2003............. 5,087 -- -- Senior Subordinated Debentures, due 2011........ 1,111 -- -- --------- ---------- --------- Adjusted net income (loss) from continuing operations........................... $ 79,828 $ (19,190) $ 3,201 --------- ---------- --------- Weighted average common shares outstanding........ 36,748 33,351 15,605 Effect of dilutive securities-- Stock options................................... 1,176 -- 137 Senior Subordinated Notes, due 2003............. 7,239 -- -- Senior Subordinated Debentures, due 2011........ 834 -- -- --------- ---------- --------- Adjusted weighted average common shares outstanding..................................... 45,997 33,351 15,742 --------- ---------- --------- Diluted earnings (loss) per share................. $ 1.74 $ (0.58) $ 0.20 --------- ---------- --------- --------- ---------- ---------
The Convertible Subordinated Notes, due 2003, which were issued in 1996, and the Convertible Subordinated Debentures, due 2011, were excluded from the 1996 and 1995 computations of diluted earnings (loss) per share, as applicable, as they were antidilutive. Substantially all of the Company's stock options were included in the calculation of diluted earnings per share for the year ended December 31, 1997. NOTE 16 -- CONTINGENCIES Hexcel is involved in litigation, investigations and claims arising out of the conduct of its business, including those relating to government contracts, commercial transactions, and environmental, health and safety matters. The Company estimates its liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements, assessments by internal and external counsel of pending or threatened litigation, and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. Such estimates exclude counterclaims against other third parties. Such estimates are not discounted to reflect the time value of money due to the uncertainty in estimating the timing of the expenditures, which may extend over several years. Although it is impossible to determine the level of future expenditures for legal, environmental and related matters with any degree of certainty, it is the Company's opinion, based on available information, that it is unlikely 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 16 -- CONTINGENCIES (CONTINUED) that these matters, individually or in the aggregate, will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS Hexcel has been named as a potentially responsible party with respect to several hazardous waste disposal sites that it does not own or possess which are included on the Superfund National Priority List of the U.S. Environmental Protection Agency or on equivalent lists of various state governments. The Company believes that its liability with respect to these sites is not material. Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, Hexcel signed an administrative consent order to pay for the environmental remediation of a manufacturing facility it owns and formerly operated in Lodi, New Jersey. The Company's estimate of the remaining cost to satisfy this consent order is accrued in the accompanying consolidated balance sheets. The ultimate cost of remediating the Lodi site will depend on developing circumstances. In connection with the purchase of the Acquired Ciba Business, Hexcel assumed various liabilities including a liability with respect to certain environmental remediation activities at an acquired facility in Kent, Washington. The Company is a party to a cost sharing agreement regarding the operation of certain environmental remediation systems necessary to satisfy a post-closure care permit issued to a previous owner of the Kent site by the U.S. Environmental Protection Agency. Under the terms of the cost sharing agreement, the Company is obligated to reimburse the previous owner for a portion of the cost of the required remediation activities. The Company's estimate of its share of the cost is accrued in the accompanying consolidated balance sheets as of December 31, 1997 and 1996. PRODUCT CLAIMS In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel delamination problem with panels produced by its wholly-owned Belgium subsidiary, Hexcel Composites S.A., and installed in rail cars in France and Spain. Certain customers have alleged that Hexcel Composites S.A. is responsible for the problem. The Company and its insurer continue to investigate these claims. The Company is also working with the customers to repair or replace panels when necessary, with certain costs to be allocated upon determination of responsibility for the delamination. Two customers in France requested that a court appoint experts to investigate the claims; to date, the experts have not reported any conclusions. The Company's primary insurer for this matter has agreed to fund legal representation and to provide coverage of the claim to the extent of the policy limit. The Company believes that, based on available information, it is unlikely that these claims will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company. U.S. GOVERNMENT CLAIMS Hexcel, as a defense subcontractor, is subject to U.S. government audits and reviews of negotiations, performance, cost classifications, accounting and general practices relating to government contracts. Under the direction of the Corporate Administrative Contracting Officer ("CACO"), the Defense Contract Audit Agency ("DCAA") reviews cost accounting and business practices of government contractors and subcontractors, including the Company. In 1996, the Company was engaged in discussions with the CACO and the DCAA regarding a number of cost accounting issues identified during the course 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 16 -- CONTINGENCIES (CONTINUED) of various audits performed by the DCAA. The Company reached an agreement with the CACO and the DCAA that resolved the primary issues identified during the course of these audits. Under the terms of the agreement, the Company paid the U.S. federal government $1,314 in exchange for the irrevocable discharge of any claims with respect to the issues that were resolved. NOTE 17 -- RAW MATERIALS, SIGNIFICANT CUSTOMERS AND MARKETS Hexcel purchases most of the raw materials used in production. Several key materials are available from relatively few sources, and in many cases the cost of product qualification makes it impractical to develop multiple sources of supply. The unavailability of these materials, which the Company does not anticipate, could have a material adverse effect on sales and earnings. The Boeing Company ("Boeing") and Boeing subcontractors accounted for approximately 36% of 1997 sales, 22% of 1996 sales and 21% of 1995 sales. The Airbus Industrie ("Airbus") consortium and Airbus subcontractors accounted for approximately 10% of 1997 and 1996 sales, and less than 10% of 1995 sales. The loss of all or a significant portion of the business with Boeing or Airbus, which Hexcel does not anticipate, could have a material adverse effect on sales and earnings. Net sales by market for the years ended December 31, 1997, 1996 and 1995, were:
1997 1996 1995 --------- --------- --------- Commercial aerospace.............................................. 64% 56% 45% Space and defense................................................. 9 11 11 Recreation........................................................ 7 10 9 General industrial and other...................................... 20 23 35 --------- --------- --------- Net sales......................................................... 100% 100% 100% --------- --------- --------- --------- --------- ---------
76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 18 -- BUSINESS SEGMENT DATA Hexcel operates within a single business segment: Advanced Structural Materials. The following table summarizes certain financial data for continuing operations by geographic area as of December 31, 1997, 1996 and 1995, and for the years then ended:
1997 1996 1995 ---------- ----------- ---------- Net sales to non-affiliates: U.S................................................... $ 598,555 $ 394,524 $ 197,665 International......................................... 338,300 300,727 152,573 ---------- ----------- ---------- Consolidated.......................................... $ 936,855 $ 695,251 $ 350,238 ---------- ----------- ---------- ---------- ----------- ---------- Income (loss) before income taxes: U.S................................................... $ 34,684 $ (2,934) $ 2,912 International......................................... 16,068 (12,820) 3,602 ---------- ----------- ---------- Consolidated.......................................... $ 50,752 $ (15,754) $ 6,514 ---------- ----------- ---------- ---------- ----------- ---------- Total assets: U.S................................................... $ 547,471 $ 429,025 $ 134,972 International......................................... 264,115 272,711 95,630 ---------- ----------- ---------- Consolidated.......................................... $ 811,586 $ 701,736 $ 230,602 ---------- ----------- ---------- ---------- ----------- ---------- Capital expenditures: U.S................................................... $ 40,667 $ 27,217 $ 7,729 International......................................... 16,702 16,352 4,415 ---------- ----------- ---------- Consolidated.......................................... $ 57,369 $ 43,569 $ 12,144 ---------- ----------- ---------- ---------- ----------- ---------- Depreciation and amortization: U.S................................................... $ 22,348 $ 15,239 $ 6,528 International......................................... 13,449 11,491 5,095 ---------- ----------- ---------- Consolidated.......................................... $ 35,797 $ 26,730 $ 11,623 ---------- ----------- ---------- ---------- ----------- ----------
The international segment is comprised primarily of operations in Western Europe conducted by various European subsidiaries. International net sales consist of the net sales of these European subsidiaries, sold primarily in Europe. U.S. net sales include U.S. exports to non-affiliates of $70,875 in 1997, $53,333 in 1996 and $18,092 in 1995. Transfers from the Company's U.S. subsidiaries to its international subsidiaries for the years ended December 31, 1997, 1996 and 1995 were $44,650, $30,390 and $18,590, respectively. Transfers from the Company's international subsidiaries to its U.S. subsidiaries for the years ended December 31, 1997, 1996 and 1995 were $22,700, $11,480 and $4,380, respectively. Transfers between geographic areas are recorded on the basis of arm's length prices established by the Company. To compute income (loss) before income taxes, Hexcel allocated administrative expenses to the international segment of $10,487 in 1997, $9,022 in 1996 and $3,939 in 1995. 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 19 -- SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information, including non-cash financing and investing activities, for the years ended December 31, 1997, 1996 and 1995, consist of the following:
1997 1996 1995 --------- ---------- --------- Cash paid for: Interest..................................................... $ 22,300 $ 14,061 $ 8,345 Taxes........................................................ 3,929 8,911 3,864 --------- ---------- --------- Non-cash items: Debt issued in connection with Ciba acquisition.............. -- 37,231 -- Common stock issued in connection with Ciba Acquisition...... -- 144,174 -- Conversion of Senior Subordinated Notes...................... 50 -- -- Compensation expense in connection with the issuance of common stock (see Note 14)................................. -- 3,635 --
NOTE 20 -- OTHER INCOME, NET Other income of $2,994 recognized in 1996 is largely attributable to the receipt of an additional $1,560 of cash in connection with the disposition of the Chandler, Arizona manufacturing facility and certain related assets in 1994, and to the receipt of $1,054 in partial settlement of a claim arising from the sale of certain assets in 1991. Other income of $791 recognized in 1995 is largely attributable to the receipt of an additional $600 of cash in connection with the disposition of the Chandler, Arizona manufacturing facility and certain related assets in 1994. Hexcel sold its Chandler, Arizona manufacturing facility and certain related assets, including technology, to Northrop Grumman Corporation ("Northrop") in 1994. Under the terms of the Chandler transaction, Hexcel retained a royalty-free, non-exclusive license to use the technology sold to Northrop in non-military applications. In addition, the Company will receive royalties from Northrop on certain applications of the technology by Northrop. The Company received net cash proceeds of $1,560 and $27,294 in relation to this sale in 1996 and 1995, respectively. NOTE 21 -- BANKRUPTCY REORGANIZATION On January 12, 1995, the U.S. Bankruptcy Court for the Northern District of California entered an order dated January 10, 1995, confirming the First Amended Plan of Reorganization (the "Reorganization Plan") proposed by Hexcel and the Official Committee of Equity Security Holders (the "Equity Committee"). On February 9, 1995, the Reorganization Plan became effective and Hexcel Corporation (a Delaware corporation) emerged from the bankruptcy reorganization proceedings which had begun on December 6, 1993, when Hexcel filed a voluntary petition for relief under the provisions of Chapter 11 of the federal bankruptcy laws. The Reorganization Plan which became effective on February 9, 1995 provided for, among other things: (a) the completion of the first closing under a standby purchase commitment whereby Mutual Series Fund Inc. ("Mutual Series") purchased 1,946 shares of newly issued Hexcel common stock for 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 21 -- BANKRUPTCY REORGANIZATION (CONTINUED) $9,000 and loaned the Company $41,000 as an advance against the proceeds of a subscription rights offering for additional shares of Hexcel common stock; and (b) the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The subscription rights offering concluded on March 27, 1995, with the issuance of an additional 7,156 shares of Hexcel common stock. The resulting cash proceeds of $33,098 were used to reduce the outstanding balance of the loan from Mutual Series. The second closing under the standby purchase agreement was completed on April 6, 1995, with the issuance of an additional 1,590 shares of Hexcel common stock to Mutual Series, the issuance of an additional 108 shares of Hexcel common stock to John J. Lee, the Company's Chief Executive Officer, and the retirement of the remaining balance of the Mutual Series loan. The Reorganization Plan provided for the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. On February 9, 1995, Hexcel paid $78,144 in prepetition claims and interest, and reinstated another $60,575 in prepetition liabilities. The payment of claims and interest on February 9, 1995 was financed with: (a) cash proceeds of $26,694 received in the first quarter of 1995 from the sale of the Company's Chandler, Arizona manufacturing facility and certain related assets (see Note 20); (b) the $50,000 in cash received from Mutual Series in connection with the standby purchase agreement; and (c) borrowings under a $45,000 U.S. credit facility obtained on February 9, 1995. This $45,000 U.S. credit facility was subsequently replaced by a secured credit facility on February 29, 1996, which in turn was replaced by the Revolving Credit Facility on June 27, 1996 (see Notes 2 and 7). Professional fees and other costs directly related to bankruptcy proceedings were expensed as incurred, and have been reflected in the accompanying consolidated statements of operations as "bankruptcy reorganization expenses." Bankruptcy reorganization expenses consisted primarily of professional fees paid to legal and financial advisors of Hexcel, the Equity Committee and the Official Committee of Unsecured Creditors. In addition, these expenses included incentives for employees to remain with the Company for the duration of bankruptcy proceedings and the write-off of previously capitalized costs related to the issuance of prepetition debt. NOTE 22 -- DISCONTINUED OPERATIONS In October of 1995, the Company sold its U.S. resins operations for net cash proceeds that approximated the net book value of the assets sold. This sale, which completed the divestiture of the Company's resins business, has been accounted for as a discontinued operation in the accompanying consolidated statements of operations and cash flows for 1995. The net sales of the discontinued resins business were $6,944 in 1995. 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 23 -- QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for the years ended December 31, 1997 and 1996, were:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------- ---------- ---------- ---------- 1997 Net sales.................................... $ 214,009 $ 241,629 $ 226,611 $ 254,606 Gross margin................................. 46,889 57,818 54,967 62,958 Business acquisition and consolidation expenses................................... (2,899) (2,818) (15,433) (4,193) Operating income............................. 16,384 24,516 9,331 26,226 Net income................................... 8,226 15,135 37,948 12,321 Earnings per share Basic...................................... $ 0.22 $ 0.41 $ 1.03 $ 0.33 Diluted.................................... 0.22 0.38 0.87 0.30 Dividends per share.......................... -- -- -- -- Market price: High....................................... $ 21.38 $ 20.00 $ 30.25 $ 31.75 Low........................................ 16.00 16.38 18.75 22.25 1996 Net sales.................................... $ 126,418 $ 166,770 $ 189,542 $ 212,521 Gross margin................................. 26,783 35,188 35,813 43,525 Business acquisition and consolidation expenses................................... (5,211) (29,209) (1,382) (6,568) Operating income (loss)...................... 4,090 (17,900) 8,789 7,810 Net income (loss)............................ 1,848 (23,667) 346 2,283 Basic and diluted net income (loss) per share...................................... $ 0.07 $ (0.65) $ 0.01 $ 0.06 Dividends per share.......................... -- -- -- -- Market price: High....................................... $ 13.13 $ 16.00 $ 20.00 $ 19.88 Low........................................ 10.63 11.50 12.75 15.75
For the nine months ended September 30, 1997 and for the year ended December 31, 1996, except for the $39,000 reversal of the U.S. tax valuation allowance reserve on September 30, 1997, there was no net federal tax provision recorded on the Company's U.S. income (loss). Third quarter 1997 results include both the $39,000 reversal of the U.S. tax valuation allowance reserve and an additional charge of $13,000 to business acquisition and consolidation expenses in connection with the Company's acquisition of the Fiberite assets. In addition, first quarter 1996 results include other income of $2,697 (see Note 20). NOTE 24 -- SUBSEQUENT EVENTS (UNAUDITED) REVOLVING CREDIT FACILITY On March 5, 1998, the Company amended and restated its Revolving Credit Facility (the "Amended Facility"). The Amended Facility provides for borrowing capacity of up to $355,000 and extends the expiration date to March 2003. Depending on certain predetermined ratios and other conditions, interest 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 24 -- SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) on outstanding borrowings under the Amended Facility is computed at an annual rate ranging from 0.313 to 1.125% 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 Amended Facility is subject to a commitment fee ranging from approximately 0.188 to 0.375% per annum of the total facility. The Amended Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries. In addition, the Company continues to be subject to various financial covenants and restrictions, and is generally prohibited from paying dividends or redeeming capital stock. JOINT VENTURES In January 1998, the Company reached an agreement in principle with Boeing and Aviation Industries of China to form a joint venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for secondary structures and interior applications on commercial aircraft. This joint venture will be located in Tianjin, China. In February 1998, the Company signed an agreement with Boeing, Sime Darby Berhad and Malaysia Helicopter Services to form another joint venture, Asian Composite Manufacturing Sdn. Bhd., to manufacture composite parts for secondary structures for commercial aircraft. This joint venture will be located in Alor Setar, Malaysia. Products manufactured by both joint ventures will be shipped to the Company's Kent, Washington facility for final assembly, inspection and shipment to Boeing as well as other customers worldwide. It is anticipated that the first parts will be delivered to customers in 2000. The Company's total estimated financial commitment to both of these joint ventures will be approximately $31,000, which is expected to be made in increments through 2000. However, completion of these projects and related investments remain subject to certain significant conditions, including U.S. and foreign government approvals. STOCK-BASED INCENTIVE PLAN On February 5, 1998, the Company adopted the 1998 Broad Based Stock Incentive Plan (the "Broad Based Plan"), which authorizes the use of Hexcel common stock for providing a variety of stock-based incentive awards to eligible employees and consultants (but not to directors, officers and related consultants). The Broad Based Plan provides for grants of stock options, stock appreciation rights, restricted stock and restricted stock units, and other stock-based awards. The aggregate number of shares of Hexcel common stock available under the Broad Based Plan is 500. 81 EX-2.1(D) 2 EXHIBIT 2.1(D) EXHIBIT 2.1(d) CIBA SPECIALTY CHEMICALS HOLDING INC. CH 4002 BASLE, SWITZERLAND February 21, 1997 LETTER AGREEMENT Dear Sirs: We refer to the Strategic Alliance Agreement dated as of September 29, 1995 among Ciba-Geigy Limited ("Ciba"), Ciba-Geigy corporation ("CGC") and Hexcel Corporation ("Hexcel"), as amended (the "SAA"), the Ancillary Agreements (as defined in the SAA) and the Retention Agreement dated as of June 27, 1996, between Hexcel and Ciba (the "Retention Agreement"), and collectively with the SAA and the Ancillary Agreement, the "Agreements"). Capitalized terms used in this Letter Agreement but not defined herein shall have the meanings set forth in the SAA. Ciba and Sandoz Limited ("Sandoz") effected a business combination on December 20, 1996 (the "Combination"), forming Novartis Inc., a Swiss corporation ("Novartis"). Ciba previously formed a new subsidiary, Ciba Specialty Chemicals Holding Inc. ("SpinCo"), the holding company for Novartis' (formerly Ciba's) specialty chemicals businesses (including its direct or indirect interest in Hexcel Common and Senior Subordinated Debt and its rights and obligations under the Agreements) and plans to distribute the stock of SpinCo on a pro rata basis to the stockholders of Novartis (the "Spin-off"). In connection with the Spin-off: 1. Hexcel hereby consents to the consummation of the Spin-off and, in connection therewith, to the assignment to and the assumption by SpinCo and any of its wholly-owned Subsidiaries (by operation of law or otherwise in a manner reasonably satisfactory to Hexcel) of the Agreements. Such consent is being granted by Hexcel subject to the following: (a) the consummation of the Spin-off and the related assignments and assumptions will have no adverse consequences to Hexcel under the revolving credit facility as in effect on the date hereof and entered into by Hexcel and certain of its Subsidiaries in connection with Hexcel's acquisition of Hercules' Composite Products Division (the "Credit Facility"), (b) SpinCo will pay (or reimburse Hexcel for) any and all out-of-pocket fees and/or expenses incurred in connection with obtaining any required consents to or waivers regarding the Spin-off and the related and assumptions under the Credit Facility and (c) immediately after the Spin-off, SpinCo will contain Ciba's former Additives, Pigments, Polymers, Textile Dyes and Chemicals Divisions. SpinCo acknowledges that such consent shall be null and void if any of the foregoing conditions are not satisfied. 2. As a result of the Combination and the Spin-off, the Agreements shall be deemed amended so that all references therein to Ciba, a Subsidiary of Ciba or the term "Ciba" shall, subject to the effectiveness of the foregoing consents, effective upon consummation of the Spin-off, be references to SpinCo, a Subsidiary of SpinCo or the name of SpinCo, as the case may be. 3. Subject to the effectiveness of the foregoing consents, (a) Hexcel waives any violations of the Agreements that may result solely from the consummation of the Spin-off, (b) Hexcel confirms that, after giving effect to this Letter Agreement, consummation of the Spin-off will not conflict with or give rise to any right of termination, cancellation or acceleration by Hexcel or any of its Subsidiaries, or the loss by Ciba, Novartis, SpinCo or any of their respective Subsidiaries of any right (other than by virtue of having assigned such right to and in favor of SpinCo or any of its Subsidiaries, as the case may be, as contemplated by this Letter Agreement), under the Agreements and (c) upon consummation of the Spin-off, Hexcel releases Novartis and its Subsidiaries from any and all obligations under the Agreements, whether or not existing on the date of this Letter Agreement. 4. For purposes of paragraph 1, adverse consequences shall mean (a) any and all fees, costs, expenses and other adverse consequences (including any increase in interest rates) under the Credit Facility that result solely from the Spin-off or a Default or Event of Default under Sections 15.1(m), (n), (o) or (p) of the Credit Facility resulting solely from the Spin-off (a "Spin-off Event or Default"), if at the time of the Spin-off there are no other Defaults or Events of Defaults, as defined in the Credit Facility, and (b) in the event that any other Default, Event of Default or other adverse consequence occurs under the Credit Facility (other than a Spin-off Event of Default), only those fees, costs, expenses and other adverse consequences (including any increase in interest rates) that the lenders under the Credit Facility (after having first met in good faith jointly with SpinCo and Hexcel representatives) specifically identify in writing as attributable solely to the Spin-off and/or a Spin-off Event of Default. The fees, costs and expenses required to be paid or reimbursed by SpinCo or other adverse consequences for which SpinCo is responsible under this Letter Agreement shall be limited to solely to those fees, costs, expenses and other adverse consequences as described in this paragraph 4, and upon (i) payment of all such fees, costs and expenses by SpinCo or (ii) resolution of each other adverse consequence by SpinCo in a manner reasonably satisfactory to Hexcel no further action shall be required and no such adverse consequence shall be deemed to have occurred hereunder. 5. SpinCo agrees to provide reasonable prior notice to Hexcel as to the timing of the spin-off and, SpinCo and Hexcel agree to cooperate with each other in negotiating jointly in good faith with the lenders to obtain any necessary consents or waivers, reduce or obviate any fees, costs and expenses and minimize and otherwise resolve any other adverse consequences for which SpinCo is responsible under paragraph 4 of this Letter Agreement. Notwithstanding anything herein to the contrary, SpinCo shall retain without prejudice its right to assert that any consent or waiver by Hexcel referred to in this Letter Agreement is not necessary in order to consummate the Spin-off without affecting any party's rights under any particular Agreement, and Hexcel shall retain without prejudice its right to assert that any such consent or waiver is necessary. The provisions of this Letter Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. As used herein, the term "Including" means including, without limitation. Except as expressly set forth herein, each of the Agreements shall remain in full force and effect. If the foregoing is in accordance with your understanding of our agreement, please sign where indicated below and return a copy of the same to the undersigned, whereupon this Letter Agreement shall represent a binding agreement between SpinCo and Hexcel Very truly Yours, CIBA SPECIALTY CHEMICALS HOLDING INC. by ------------------------------------- Name: B. Kamm Dr. Peter Rudolf Title: Head Senior Division Counsel Affiliate Financing The foregoing is hereby confirmed and accepted as of the date first above written: HEXCEL CORPORATION by: ----------------------------- Name: S.C. Forsyth Title: Senior Vice President EX-4.2(A) 3 EXHIBIT 4.2(A) EXHIBIT 4.2(a) FIRST SUPPLEMENTAL INDENTURE dated as of June 27, 1996 (this "Supplemental Indenture"), to the Indenture dated as of February 29, 1996 (the "Indenture"), between HEXCEL CORPORATION, a Delaware corporation (the "Company"), and FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, a national banking association, as trustee (the "Trustee"). Capitalized terms used but not defined in this Supplemental Indenture shall have the meanings ascribed to them in the Indenture. WHEREAS, the Company desires to amend certain provisions of the Indenture, among other things, in respect of the Credit Agreement (as defined in Section 1(b) below) which is being entered into concurrently with this Supplemental Indenture; WHEREAS, the Company desires to issue up to $115 million of its Convertible Subordinated Notes due 2003; WHEREAS, Section 9.02 of the Indenture authorizes the Company and the Trustee to amend certain provisions of the Indenture with the consent of the Securityholders; WHEREAS, the Company has not issued any Securities under the Indenture as of the date of this Supplemental Indenture; WHEREAS, pursuant to the Strategic Alliance Agreement, dated as of September 29, 1995, and as subsequently amended (the "Strategic Alliance Agreement"), among Ciba-Geigy Limited ("Ciba"), Ciba-Geigy Corporation and the Company, all the Securities to be issued under the Indenture shall be issued to Ciba and its Subsidiaries (as defined in the Strategic Alliance Agreement); and WHEREAS, Ciba and the Company have agreed to modify the terms of the Securities as set forth in this Supplemental Indenture, and accordingly, Ciba consents to this Supplemental Indenture. NOW, THEREFORE, the Company and the Trustee hereby agree for the equal and ratable benefit of the Securityholders as follows: 2 SECTION 1. AMENDMENT OF INDENTURE. (a) The definition of "Ciba" contained in Article I of the Indenture is hereby amended to read as follows: ""CIBA" means Ciba-Geigy Limited, a corporation organized under the laws of Switzerland, together with its successors and assigns, including, upon consummation of the merger or combination of Ciba-Geigy Limited and Sandoz Limited, Novartis Limited." (b) The definition of "Credit Agreement" contained in Article I of the Indenture is hereby amended to read as follows: ""CREDIT AGREEMENT" means, collectively, the Credit Agreement dated as of June 27, 1996, among the Company, certain of its Subsidiaries, the institutions from time to time party thereto as Lenders, Citibank, N.A. (or any successor thereto) in its separate capacity as collateral agent for the Lenders and Credit Suisse (or any successor thereto) in its separate capacity as administrative agent for the Lenders, as the same may from time to time be amended, renewed, supplemented or otherwise modified at the option of the parties thereto, and any other agreement pursuant to which any of the Indebtedness, commitments, obligations, costs, expenses, fees, reimbursements and other indemnities payable or owing thereunder may be replaced or refinanced, in any such event having an aggregate principal amount and availability not in excess of $310,000,000 LESS the amount of any Indebtedness Incurred by Subsidiaries of the Company pursuant to Section 13.1(j) of the Credit Agreement (or any successor provision) PLUS amounts otherwise permitted pursuant to Section 4.03(b)(i) of this Indenture." 3 (c) The definition of "Specified Properties" contained in Article I of the Indenture is hereby amended to read as follows: ""SPECIFIED PROPERTIES" shall mean (i) the Company's manufacturing plants located in (a) Lancaster, Ohio, (b) Welkenraedt, Belgium and (c) Graham, Texas, (ii) the manufacturing plants of Hexcel Omega Corporation located in Anaheim, California, (iii) the outstanding capital stock of Hexcel Omega Corporation and (iv) the outstanding capital stock and intercompany obligations of Hercules Aerospace Espana, S.A., a Spanish corporation, to the extent such properties are sold pursuant to the letter agreement dated June 27, 1996, between the Company and Hercules Incorporated." (d) Section 4.03(b)(i) of the Indenture is hereby amended to read as follows: "(i) Indebtedness under the Credit Agreement and any other loan or other agreement in an aggregate principal amount outstanding at any time not to exceed the sum of (A) the outstanding Indebtedness under the Credit Agreement and the unused commitments thereunder as of the date the Credit Agreement first becomes effective and (B) $12,500,000." (e) Section 4.03(b)(vi) of the Indenture is hereby amended to read as follows: "(vi) Refinancing Indebtedness Incurred in respect of Indebtedness Incurred pursuant to clause (iv) or (v) above or Section 13.1(j) of the Credit Agreement as in effect on the date the Credit Agreement first becomes effective (or any successor provision having the same terms)." (f) Section 4.03(b)(x) of the Indenture is hereby amended to read as follows: "(x)(A) Guarantees of any Subsidiary in respect of obligations of the Company, (B) Guarantees of the Company in respect of Indebtedness of any Subsidiary Incurred pursuant to Section 13.1(j) of the Credit Agreement as in effect on the date the Credit Agreement first becomes effective (or any successor provision having the same terms) and (C) Guarantees of any partnership or 4 joint venture (other than Existing Joint Ventures) to the extent that the Incurrence of such obligations shall not cause to Maximum Partnership/Joint Venture Amount to exceed $15,000,000 at any time; PROVIDED that no such Investment may be made as long as any Default or Event of Default has occurred and is continuing or would occur as a result of such Investment;" (g) Section 4.03(b) of the Indenture is hereby amended by inserting the following new clauses (xv) and (xvi) at the end thereof: "(xv) Indebtedness of the Company in respect of unsecured standby and commercial letters of credit issued by Lenders under the Credit Agreement in an aggregate face amount (including, without limitation, any reimbursement obligations owing in respect thereof) not to exceed $10,000,000; or (xvi) Indebtedness represented by the Company's Convertible Subordinated Notes due 2003 in an aggregate principal amount not to exceed $115 million." (h) The face of Exhibit A to the Indenture is hereby amended to state that the principal amount of the Securities is payable on March 1, 2003. (i) The second sentence of Section 1 of Exhibit A to the Indenture is hereby amended to read as follows: "On the third anniversary of the date of the Closing (as defined in the Strategic Alliance Agreement dated as of September 29, 1995, among Ciba-Geigy Limited, Ciba-Geigy Corporation and the Company), the rate of interest then borne by the Securities shall increase to 10.5%, and on each subsequent anniversary of the Closing the rate of interest then borne by the Securities shall increase by an additional 0.5%." (j) Exhibit B to the Indenture is hereby amended and restated in the form of Exhibit B hereto. SECTION 2. CONFIRMATION. Except as hereby expressly amended, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. SECTION 3. EFFECTIVENESS. This Supplemental Indenture shall take effect immediately upon its execution and delivery by the Company, the Trustee and Ciba. 5 SECTION 4. COUNTERPARTS. This Supplemental Indenture may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original, but all of which shall together constitute but one contract. SECTION 5. EXECUTION. Delivery of an executed counterpart of a signature page by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Supplemental Indenture. SECTION 6. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed by their duly authorized officers, all as of the date and year first above written. HEXCEL CORPORATION by --------------------------------- Name: Title: FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION by ----------------------------------- Name: Title: 6 CONSENTED AND AGREED TO BY: CIBA-GEIGY LIMITED by ---------------------------- Name: Title: by ---------------------------- Name: Title: EX-4.2(B) 4 EXHIBIT 4.2(B) EXHIBIT 4.2(b) SECOND SUPPLEMENTAL INDENTURE dated as of March 3, 1998 (this "Supplemental Indenture"), to the Indenture dated as of February 29, 1996 (the "Indenture"), between HEXCEL CORPORATION, a Delaware corporation (the "Company"), and FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION, a national banking association, as trustee (the "Trustee"), as previously supplemented. Capitalized terms used but not defined in this Supplemental Indenture shall have the meanings ascribed to them in the Indenture. WHEREAS, the Company desires to amend certain provisions of the Indenture, among other things, in respect of the Credit Agreement (as defined in Section 1(a) below) which is being amended and restated concurrently with this Supplemental Indenture; WHEREAS, Section 9.02 of the Indenture authorizes the Company and the Trustee to amend certain provisions of the Indenture with the consent of the Securityholders; and WHEREAS, Ciba Specialty Chemical Holding Inc. ("Ciba"), as successor to Ciba Geigy Limited, and the Company have agreed to modify the terms of the Securities as set forth in this Supplemental Indenture, and accordingly, Ciba consents to this Supplemental Indenture. NOW, THEREFORE, the Company and the Trustee hereby agree for the equal and ratable benefit of the Securityholders as follows: SECTION 1. AMENDMENT OF INDENTURE. (a) The definition of "Ciba" contained in Article I of the Indenture is hereby amended to read as follows: "CIBA" means Ciba Specialty Chemical Holding Inc., a corporation organized under the laws of Switzerland, together with its successors and assigns." (b) The definition of "Credit Agreement" contained in Article I of the Indenture is hereby amended to read as follows: "CREDIT AGREEMENT" means, collectively, the Credit Agreement dated as of June 27, 1996, among the Company, certain of its Subsidiaries, the institutions from time to time party thereto as Lenders, Citibank, N.A. (or any successor thereto) in its separate capacity as collateral agent for the Lenders and Credit Suisse (or any successor thereto) in its separate capacity as administrative agent for the Lenders, including any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as the same may from time to time be amended, renewed, replaced, refunded, supplemented, or otherwise modified at the option of the parties thereto (including, without limitation, any extension of maturity thereof or increase in commitments or principal amounts eligible to be borrowed thereunder), and any other agreement pursuant to which any of the Indebtedness, commitments, obligations, costs, expenses, fees, reimbursements and other indemnities payable or owing thereunder may be replaced or refinanced and the amount of any Indebtedness incurred by Subsidiaries of the Company pursuant to Section 13.1(j) of the Credit Agreement (or any successor provision)." (c) In Sections 4.06(a) and (b) the references to "$10 million" are hereby deleted and the phrase "$20 million" inserted in lieu thereof. SECTION 2. CONFIRMATION. Except as hereby expressly amended, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. SECTION 3. EFFECTIVENESS. This Supplemental Indenture shall take effect immediately up on its execution and delivery by the Company, the Trustee and Ciba. SECTION 4. COUNTERPARTS. This Supplemental Indenture may be executed in any number of counterparts, each of which, when so executed, shall be deemed to be an original, but all of which shall together constitute but one contract. SECTION 5. EXECUTION. Delivery of an executed counterpart of a signature page by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Supplemental Indenture. 2 SECTION 6. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 3 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed by their duly authorized officers, all as of the date and year first above. HEXCEL CORPORATION by__________________________ Name: Title: FIRST TRUST OF CALIFORNIA, NATIONAL ASSOCIATION by___________________________ Name: Title: CONSENTED AND AGREED TO BY: CIBA SPECIALTY CHEMICAL HOLDING INC. by______________________________ Name: Title: by______________________________ Name: Title: 4 OFFICERS' CERTIFICATE The undersigned hereby certify that they are duly elected officers of Hexcel Corporation (the "Company"), and in such capacities they state the following with respect to the Second Supplemental Indenture, dated as of March ____, 1998 (the "Supplemental Indenture"), between the Company and First Trust of California, National Association, as trustee (the "Trustees"), which supplements the Indenture, dated as of February 29, 1996 as previously supplemented (the "Indenture"), between the Company and the Trustee with respect to the Increasing Rate Senior Subordinated Notes due 2003 (the "Notes") of the Company. Ciba Specialty Chemical Holding Inc. has consented to the Supplemental Indenture. Based upon the foregoing and the investigation referred to below, the undersigned certify that: 1. The undersigned have read the Supplemental Indenture and Section 9.02 of the Indenture. 2. The foregoing investigation was, in the opinion of the undersigned, sufficient to enable to undersigned to express the opinion whether the provisions of Section 9.02 of the Indenture have been complied with; and 3. The undersigned are of the opinion that the Supplemental Indenture is permitted by Section 9.02 of the indenture. IN WITNESS WHEREOF, the undersigned have executed this Officer's Certificate as of the ____ day of March, 1998. __________________________ Name: Title: __________________________ Name: Title: 5 EX-4.3 5 EXHIBIT 4.3 EXHIBIT 4.3 HEXCEL CORPORATION AND THE BANK OF CALIFORNIA, N.A. Trustee Indenture Dated as of August 1, 1986 7% Convertible Subordinated Debentures due 2011 RECONCILIATION AND TIE SHEET* BETWEEN PROVISIONS OF THE TRUST INDENTURE ACT OF 1939 AND INDENTURE, DATED AS OF AUGUST 1, 1986 BETWEEN HEXCEL CORPORATION AND THE BANK OF CALIFORNIA, N.A.
Section Section of of Act Indenture ---------- 310(a)(1) 9.09 310(a)(2) 9.09 310(a)(3) Inapplicable 310(a)(4) Inapplicable 310(b) 9.08,9.10 310(c) Inapplicable 311(a) 9.13(a), 9.13(c) 311(b) 9.13(b), 9.13(c) 311(c) Inapplicable 312(a) 7.01, 7.02(a) 312(b) 7.02(b) 312(c) 7.02(c) 313(a) 7.4(a) 313(b)(1) Inapplicable 313(b)(2) 7.04(b) 313(c) 7.04(c) 313(d) 7.04(d) 314(a)(1) 7.03(a) 314(a)(2) 7.03(b) 314(a)(3) 7.03(c) 314(b) Inapplicable 314(c)(1) 16.05 314(c)(2) 16.05 314(c)(3) Inapplicable 314(d) Inapplicable 314(e) 16.05 314(f) Omitted 315(a) 9.01 315(b) 8.07 315(c) 9.01 315(d) 9.01 315(e) 8.08 316(a)(1) 8.06,10.04 316(a)(2) Omitted 316(b) 8.04 317(a) 8.02 317(b) 6.04(a) 318(a) 16.07
* This Reconciliation and Tie Sheet is not a part of the Indenture. i TABLE OF CONTENTS*
Page ---- PARTIES 1 RECITALS: Purpose of Indenture 1 Form of Face of Debenture 1 Form of Reverse of Debenture 3 Form of Trustee's Certificate of Authentication 8 Form of Conversion Notice 9 Compliance with Legal Requirements 10 Purpose of and Consideration for Indenture 10
ARTICLE ONE DEFINITIONS SECTION 1.01. Certain Terms Defined 10 Authenticating Agent 10 Bankruptcy Code 10 Board of Directors 10 Business Day 11 Common Stock 11 Company 11 Conversion Price 11 Date of Conversion 11 Debenture or Debentures; outstanding 11 Debentureholder; registered bolder 12 Event of Default 12 Indenture 12 Officers' Certificate 12 Opinion of Counsel 12 Responsible Officer 12 Senior Indebtedness 12 Subsidiary 13 Trustee; Principal Office 13 Trust Indenture Act of 1939 13 SECTION 1.02. References Are to Indenture 13
* This Table of Contents is not part of the Indenture. ii ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES
Page - ---- 13 SECTION 2.01. Designation, Amount, Authentication and Delivery of Debentures 14 SECTION 2.02. Form of Debentures and Trustee's Certificate 14 SECTION 2.03. Date of Debentures and Denominations 15 SECTION 2.04. Execution of Debentures 16 SECTION 2.05. Exchange of Debentures 17 SECTION 2.06. Temporary Debentures 17 SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures 18 SECTION 2.08. Cancellation of Surrendered Debentures
ARTICLE THREE SUBORDINATION OF DEBENTURES 19 SECTION 3.01. Agreement to Subordinate 19 SECTION 3.02. Distribution on Dissolution, Liquidation and Reorganization; Subrogation of Debentures 22 SECTION 3.03. Payments on Debentures Prohibited During Event of Default Under Senior Indebtedness 23 SECTION 3.05. Authorization of Debentureholders to Trustee to Effect Subordination 23 SECTION 3.06. Notices to Trustee
ARTICLE FOUR CONVERSION OF DEBENTURES 23 SECTION 4.01. Conversion Privilege 23 SECTION 4.02. Manner of Exercise of Conversion Privilege 24 SECTION 4.03. Cash Adjustment Upon Conversion 25 SECTION 4.04. Initial Conversion Price 25 SECTION 4.05. Adjustment of Conversion Price . . 28 SECTION 4.06. Effect of Reclassifications, Consolidations, Mergers or Sales on Conversion Privilege
iii
Page - ---- 29 SECTION 4.07. Taxes on Conversion 29 SECTION 4.08. Company to Reserve Stock 30 SECTION 4.09. Disclaimer by Trustee of Responsibility for Certain Matters 30 SECTION 4.10. Company to Give Notice of Certain Events
ARTICLE FIVE REDEMPTION OF DEBENTURES-SINKING FUND 31 SECTION 5.01. Redemption Prices 31 SECTION 5.02 Notice of Redemption; Selection of Debentures 33 SECTION 5.03. When Debentures Called for Redemption Become Due and Payable 33 SECTION 5.04. Sinking Fund 35 SECTION 5.05. Application of Sinking Fund Payments 36 SECTION 5.06. Redemption in Event of Default 36 SECTION 5.07 Manner of Redeeming Debentures 37 SECTION 5.08. Cancellation of Redeemed Debentures 37 SECTION 5.09. Conversion Arrangements on Call for Redemption
ARTICLE SIX PARTICULAR COVENANTS OF THE COMPANY 37 SECTION 6.01. Payment of Principal of (and Premium, if Any) and Interest on Debentures 37 SECTION 6.02. Maintenance of Office or Agency for Registration of Transfer, Conversion, Exchange and Payment of Debentures 38 SECTION 6.03. Appointment to Fill a Vacancy in the Office of Trustee 38 SECTION 6.04. Provision as to Paying Agent 39 SECTION 6.05. Maintenance of Corporate Existence 39 SECTION 6.06. Further Assurance 40 SECTION 6.07. Officers' Certificates as to Default
iv ARTICLE SEVEN DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE 40 SECTION 7.01. Company to Furnish Trustee Information as to Names and Addresses of Debentureholders 41 SECTION 7.02. Preservation and Disclosure of Lists 42 SECTION 7.03. Reports by the Company 43 SECTION 7.04. Reports by the Trustee
ARTICLE EIGHT REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT 44 SECTION 8.01. Events of Default Defined 47 SECTION 8.02. Payment of Debentures on Default; Suit Therefor 49 SECTION 8.03. Application of Moneys Collected by Trustee 50 SECTION 8.04. Limitation on Suits by Holders of Debentures 51 SECTION 8.05. Proceedings by Trustee; Remedies Cumulative and Continuing 51 SECTION 8.06. Rights of Holders of Majority in Principal Amount of Debentures to Direct Trustee and to Waive Defaults 52 SECTION 8.07. Trustee to Give Notice of Defaults Known to It, But May Withhold in Certain Circumstances 52 SECTION 8.08. Requirement of an Undertaking to Pay Costs in Certain Suits Under the Indenture or Against the Trustee 53 SECTION 8.09. Enforcement of Rights of Conversion by Debentureholders
ARTICLE NINE CONCERNING THE TRUSTEE SECTION 9.01. Duties and Responsibilities of Trustee 53 SECTION 9.02. Reliance on Documents, Opinions, etc 54 SECTION 9.03. No Responsibility for Recitals, etc 56 SECTION 9.04. Trustee, Paying Agent, Conversion Agent or Debenture Registrar May Own Debentures 56 SECTION 9.05. Moneys Received by Trustee to be Held in Trust Without Interest 56
v
Page - ---- 57 SECTION 9.06. Compensation and Expenses of Trustee 57 SECTION 9.07. Right of Trustee to Rely on Officers' Certificate Where No Other Evidence Specifically Prescribed 57 SECTION 9.08. Conflicting Interest of Trustee 63 SECTION 9.09. Requirements for Eligibility of Trustee 64 SECTION 9.10. Resignation or Removal of Trustee 65 SECTION 9.11. Acceptance by Successor to Trustee; Notice of Succession of a Trustee 66 SECTION 9.12. Successor to Trustee by Merger, Consolidation or Succession to Business 66 SECTION 9.13. Limitations on Rights of Trustee as a Creditor 71 SECTION 9.14 Authenticating Agent
ARTICLE TEN CONCERNING THE DEBENTUREHOLDERS 72 SECTION 10.01. Evidence of Action by Debentureholders 72 SECTION 10.02. Proof of Execution of Instruments and of Holding of Debentures 73 SECTION 10.03. Who May Be Deemed Owners of Debentures 73 SECTION 10.04. Debentures Owned by Company or Controlled or Controlling Persons Disregarded for Certain Purposes 74 SECTION 10.05. Record Date for Action by Debentureholders 74 SECTION 10.06. Instruments Executed by Debentureholders Bind Future Holders
ARTICLE ELEVEN DEBENTUREHOLDERS' MEETINGS 75 SECTION 11.01. Purposes for Which Meetings May be Called 75 SECTION 11.02. Manner of Calling Meetings; Record Date 76 SECTION 11.03. Call of Meeting by Company or Debentureholders 76 SECTION 11.04. Who May Attend and Vote at Meetings 76 SECTION 11.05. Regulations 77 SECTION 11.06. Manner of Voting at Meetings and Record to be Kept 78 SECTION 11.07. Exercise of Rights of Trustee and Debentureholders Not to be Hindered or Delayed
vi ARTICLE TWELVE SUPPLEMENTAL INDENTURES
Page - ---- 78 SECTION 12.O1. Purposes for Which Supplemental Indentures May be Entered into Without Consent of Debentureholders 80 SECTION 12.02. Modification of Indenture with Consent of Holders of 66 2/3% in Principal Amount of Debentures 81 SECTION 12.03. Effect of Supplemental Indentures 81 SECTION 12.04. Debentures May Bear Notation of Changes by Supplemental Indentures 81 SECTION 12.05. Opinion of Counsel
ARTICLE THIRTEEN CONSOLIDATION, MERGER AND SALE 82 SECTION 13.01. Company May Consolidate, etc., on Certain Terms 83 SECTION 13.02. Successor Corporation to be Substituted 83 SECTION 13.03. Opinion of Counsel
ARTICLE FOURTEEN SATISFACTION AND DISCHARGE OF INDENTURES; UNCLAIMED MONEYS 84 SECTION 14.01. Satisfaction and Discharge of Indenture 84 SECTION 14.02. Application by Trustee of Funds Deposited for Payment of Debentures 84 SECTION 14.03. Repayment of Moneys Held by Paying Agent 85 SECTION 14.04. Repayment of Moneys Held by Trustee
ARTICLE FIFTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDER% OFFICERS AND DIRECTORS 85 SECTION 15.01. Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability
vii ARTICLE SIXTEEN MISCELLANEOUS PROVISIONS
Page - ---- 86 SECTION 16.01. Successors and Assigns of Company Bound by Indenture 86 SECTION 16.02. Acts of Board, Committee or Officer of Successor Corporation Valid 86 SECTION 16.03. Required Notices or Demands May be Served by Mail; Waiver 86 SECTION 16.04. Indenture and Debentures to be Construed in Accordance with the Laws of the State of California 87 SECTION 16.05. Evidence of Compliance with Conditions Precedent 88 SECTION 16.06. Payments Due on Saturdays, Sundays and Holidays 88 SECTION 16.07. Provisions Required by Trust Indenture Act of 1939 to Control 88 SECTION 16.08. Provisions of the Indenture and Debentures for the Sole Benefit of the Parties and the Debentureholders 89 SECTION 16.09. Indenture May be Executed in Counterparts; Acceptance by Trustee 89 SECTION 16.10. Article and Section Headings 89 SECTION 16.11. Severability 89 TESTIMONIUM 89 SIGNATURES AND SEALS 90 ACKNOWLEDGEMENTS
THIS INDENTURE, dated as of the first day of August, 1986, between HEXCEL CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (hereinafter sometimes referred to as the "Company"), party of the first part, and THE BANK OF CALIFORNIA, N.A., a national banking association incorporated under the laws of the United States (hereinafter sometimes referred to as the "Trustee"), party of the second part, WITNESSETH: WHEREAS, for its lawful corporate purposes, the Company has duly authorized an issue of its 7% Convertible Subordinated Debentures due 2011 (hereinafter referred to as the "Debentures"), for an aggregate principal amount of up to $35,000,000 to be issued as registered Debentures without coupons, to be authenticated by the Trustee, to be payable August 1, 2011, to be redeemable as hereinafter provided, and to be convertible into Common Stock of the Company as hereinafter provided; and, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, the Debentures and the Trustee's certificate of authentication to be borne by the Debentures are to be substantially in the following forms, respectively: [FORM OF FACE OF DEBENTURE) No. $ ..... HEXCEL CORPORATION 7% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2011 HEXCEL CORPORATION, a corporation organized and existing under the laws of the State of Delaware (hereinafter called the "Company," which term shall include any successor corporation), for value received, hereby promises to pay to.........., or registered assigns, the principal sum of................ DOLLARS on August 1, 2011, at the office or agency maintained by the Company for that purpose in the City of San Francisco, State of California, or in the Borough of Manhattan, The City of New York, State of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts, and to pay to the registered holder hereof, as hereinafter provided, interest on said principal sum at the rate per annum specified in the title of this Debenture, in like coin or currency, from the February 1 or the August 1 next preceding the date hereof to which interest has been paid or duly provided for (unless the date hereof is a February 1 or August 1 to which interest has been paid or duly provided for, in which case 2 from the date hereof, or unless the date hereof is between the close of business on January 15 or July 15, as the case may be, and the following February 1 or August 1, in which case from such February 1 or August 1; provided, however, that if the Company shall default in payment of the interest due on such February 1 or August 1, then from the next preceding February 1 or August 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on the Debentures, from August 1, 1986) semi-annually on February 1 and August 1 in each year, until payment of said principal sum has been made or duly provided for. The interest so payable on any February 1 or August 1 will, subject to certain exceptions provided in the Indenture hereinafter referred to, be paid to the person in whose name this Debenture is registered at the close of business on the January 15 or July 15, as the case may be, next preceding such February 1 or August 1 or, if such January 15 or July 15 is not a business day, the business day next preceding such January 15 or July 15. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Unless other arrangements are made by the Company, payment of interest will be made by check mailed by the Company to the registered address of the person entitled thereto. This Debenture is continued on the reverse hereof and the additional provisions there set forth shall for all purposes have the same effect as if set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee or Authenticating Agent under the Indenture. IN WITNESS WHEREOF, HEXCEL CORPORATION has caused this Debenture to be executed in its corporate name by the signature of its President or one of its Vice Presidents manually or in facsimile and a facsimile of its corporate seal to be imprinted hereon and attested by the signature of its Secretary or one of its Assistant Secretaries or its Treasurer or one of its Assistant Treasurers, manually or in facsimile. HEXCEL CORPORATION By..................................... [CORPORATE SEAL] Attest: .......................................... 3 [FORM OF REVERSE OF DEBENTURE] This Debenture is one of a duly authorized issue of Debentures of the Company known as its 7% Convertible Subordinated Debentures due 2011 (herein referred to as the "Debentures"), limited (subject to certain exceptions provided for in the Indenture hereinafter referred to) in aggregate principal amount to thirty-five million dollars ($35,000,000), all issued or to be issued under and pursuant to an Indenture dated as of August 1, 1986 (herein referred to as the "Indenture"), duly executed and delivered between the Company and The Bank of California, N.A., trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company, the holders of Senior Indebtedness and the holders of the Debentures. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal hereof may be declared and upon such declaration shall become due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture provides that in certain events such declaration and its consequences may be waived by the holders of a majority in aggregate principal amount of the Debentures then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture. It is also provided in the Indenture that the holders of a majority in aggregate principal amount of the Debentures then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture may, on behalf of the holders of all of the Debentures, waive, prior to such declaration, any past default under the Indenture and its consequences, except a default in the payment of the principal of (or premium, if any) or interest on any of the Debentures or a default in the making of any sinking fund payment. The payment of the principal of (and premium, if any) and interest on this Debenture is expressly subordinated, as provided in the Indenture, to the payment of all Senior Indebtedness, as defined in the Indenture, and by acceptance of this Debenture the holder hereof agrees, expressly for the benefit of the present and future holders of Senior Indebtedness, to be bound by the provisions of the Indenture. Subject to the provisions of the Indenture, the holder of this Debenture is entitled, at his option, at any time on or before August 1, 2011 (except that, in case this Debenture or any portion hereof shall be called for redemption, such right shall terminate with respect to this Debenture or portion hereof, as 4 the case may be, so called for redemption at the close of business on the date fixed for redemption as provided in the Indenture), to convert the principal amount of this Debenture (or any portion hereof which is $1,000 or a whole multiple thereof) into shares of Common Stock of the Company, as said shares shall be constituted at the date of conversion, at the conversion price of $47.80 principal amount of Debentures for each share of such Common Stock, or at the adjusted conversion price in effect at the date of conversion determined as provided in the Indenture, upon surrender of this Debenture to the Company at the office or agency of the Company in the City of San Francisco, State of California, or in the Borough of Manhattan, The City of New York, State of New York, accompanied by written notice of election to convert in the form provided hereon, duly executed, and (if so required by the Company) by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or by his duly authorized attorney. Such surrender shall, if made during the period from the close of business on the January 15 or July 15 next preceding an interest payment date (or the next preceding business day if such January 15 or July 15 is a day on which banking institutions in the City of San Francisco, State of California or The City of New York, State of New York are authorized or obligated by law to close) to the opening of business on such interest payment date (unless this Debenture or the portion being converted shall have been called for redemption on a date fixed for redemption during such period), also be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such interest payment date on the principal amount of this Debenture then being converted. Subject to the foregoing and the right of the person in whose name this Debenture is registered at the close of business on the January 15 or July 15 next preceding an interest payment date to receive the interest payable on such interest payment date (with certain exceptions provided in the Indenture), no adjustment is to be made on conversion for interest accrued hereon or for dividends on Common Stock issued on conversion. The Company is not required to issue fractional shares upon any such conversion, but shall make adjustment therefor in cash on the basis of the current market value of such fractional interest as provided in the Indenture. The Indenture contains provisions permitting the Company, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture, to fail or omit to comply with certain covenants set forth in the Indenture. The Indenture also contains provisions permitting the Company and the Trustee, with the consent 5 of the holders of not less than 66 2/3% in aggregate principal amount of the Debentures then outstanding or outstanding on the record date, if any, fixed therefor in accordance with the provisions of the Indenture, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture (including, but not limited to, those relating to the Company's Sinking Fund obligations) or of any supplemental indenture or modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the stated maturity of any Debenture, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, or alter the provisions of the Indenture so as to affect adversely the terms of conversion of the Debentures into Common Stock of the Company, without the consent of the holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures, the consent of the holders of which is required for any such supplemental indenture, without the consent of the holders of all Debentures then outstanding; and provided further that no change shall terminate or impair the subordination provisions of the Indenture without the prior written consent of the holders of Senior Indebtedness. Any such consent or waiver by the registered holder of this Debenture (unless effectively revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders of this Debenture and of any Debenture issued in exchange or substitution herefor, irrespective of whether or not any notation of such consent or waiver is made upon this Debenture or such other Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture (except those provisions by which the Debentures are subordinated to Senior Indebtedness) shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Debenture at the place, at the respective times, at the rate and in the currency herein prescribed. The Debentures are issuable as fully registered Debentures without coupons in the denominations of $1,000 and any whole multiple thereof, at the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations provided in the Indenture. Debentures may be exchanged for a like aggregate principal amount of Debentures of other authorized denominations, without payment of any charge other than a sum sufficient to reimburse the Company for any tax or other governmental charge 6 incident thereto. Principal of (and premium, if any) on this Debenture is payable at the office or agency of the Company maintained for that purpose in the City of San Francisco, State of California or in the Borough of Manhattan, The City of New York, State of New York. Unless other arrangements are made by the Company, payment of interest hereon will be made by check mailed by the Company to the registered address of the person entitled thereto. The Debentures are subject to redemption (otherwise than through the operation of the Sinking Fund), at the option of the Company, as a whole or in part at any time, on any date prior to maturity, upon mailing by first-class mail a notice of such redemption not less than 30 nor more than 60 days prior to the date fixed for redemption to the holders of Debentures to be redeemed as a whole or in part at their registered addresses as they shall appear upon the registry books, all as provided in the Indenture, at the redemption prices set forth in the following table (expressed in percentages of the principal amount thereof to be redeemed) together with accrued and unpaid interest on the principal amount thereof to be redeemed to the date fixed for redemption, except that Debentures may not be so redeemed before August 1, 1989, unless the closing price of the Common Stock of the Company on the New York Stock Exchange (or on any national securities exchange on which the Common Stock may then be listed or, if the Common Stock shall not then be listed on any exchange, the highest bid quotation in the over-the-counter market as reported by the National Association of Securities Dealers, Inc. through NASDAQ, or its successor or such other generally accepted source of publicly reported bid and ask quotations as the Company may reasonably designate) shall have equaled or exceeded 150% of the conversion price then in effect for at least 20 out of 30 consecutive trading days ending within five business days prior to the date the notice of redemption is given. If redeemed If redeemed during the twelve during the twelve months' period months' period beginning Redemption beginning Redemption August 1 Price August 1 Price -------- ----- -------- ----- 1986 105.0% 1991 102.5% 1987 104.5 1992 102.0 1988 104.0 1993 101.5 1989 103.5 1994 101.0 1990 103.0 1995 100.5
and thereafter at 100% of their principal amount. 7 Any such notice which is mailed in the manner hereinabove provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. The Debentures are entitled to the benefits of a Sinking Fund, beginning on August 1, 1997, through the operation of which Debentures are subject to redemption (upon notice as set forth above) at 100% of the principal amount thereof together with accrued and unpaid interest to the date for redemption, all as more fully provided in the Indenture. Any Debentures called for redemption, unless surrendered for conversion on or before the close of business on the date fixed for redemption, are subject to being purchased from the holder of such Debentures at the redemption price by one or more investment bankers or other purchasers who may agree with the Company to purchase such Debentures and convert them into Common Stock of the Company. The transfer of this Debenture is registrable by the registered holder hereof in person or by his attorney duly authorized in writing on the books of the Company at the office or agency of the Company referred to on the face hereof, subject to the terms of the Indenture but without payment of any charge other than a sum sufficient to reimburse the Company for any tax or other governmental charge incident thereto, and upon surrender and cancellation of this Debenture upon any such transfer, a new Debenture or Debentures of authorized denomination or denominations, for the same aggregate principal amount, will be issued to the transferee in exchange herefor. The Company, the Trustee, any paying or conversion agent and any Debenture registrar may deem and treat the person in whose name this Debenture shall be registered upon the books of the Company as the absolute owner of this Debenture (whether or not this Debenture shall be overdue and notwithstanding any notation of ownership or other writing hereon) for the purpose of receiving payment of or on account of the principal hereof, premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying or conversion agent nor any Debenture registrar shall be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability on this Debenture to the extent of the sum or sums so paid. 8 No recourse shall be had for the payment of the principal of, premium, if any, or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. As provided in the Indenture, this Debenture shall for all purposes be governed by and construed in accordance with the laws of the State of California. [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] Dated: This is one of the Debentures described in the within-mentioned Indenture. THE BANK OF CALIFORNIA, N.A., as Trustee By................................... Authorized Officer OR THE BANK OF CALIFORNIA, N.A., as Trustee By The Bank of California New York Trust Company, Authenticating Agent By................................ Authorized Officer 9 [FORM OF CONVERSION NOTICE] To HEXCEL CORPORATION: The undersigned owner of this Debenture hereby irrevocably exercises the option to convert this Debenture, or portion hereof (which is $ 1,000 or a whole multiple thereof) below designated, into shares of Common Stock of Hexcel Corporation in accordance with the terms of the Indenture referred to in this Debenture, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and any Debentures representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Debenture. Dated: .......... .................................. Signature Principal Amount to be Converted (in a whole multiple of $1,000 if less than All): .................................. ....................................... Signature Guarantee: All signature(s) must be guaranteed by a member of the New York Stock Exchange or a commercial bank or trust company. Fill in for registration of shares of Common Stock and Debentures if to be issued other-wise than to the registered holder. ....................................... (Name) Social Security or Other Taxpayer Identifying Number .................................. ....................................... Please print name and address (including zip code number) 10 AND WHEREAS, all acts and things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee or the Authenticating Agent as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid indenture and agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Debentures have in all respects been duly authorized, and the Company, in the exercise of the legal right and power vested in it, executes this Indenture and proposes to make, execute, issue and deliver the Debentures; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Debentures are authenticated, issued, delivered and held, and in consideration of the premises, of the purchase and acceptance of the Debentures by the holders thereof and of the sum of one dollar to it duly paid by the Trustee at the execution of these presents, the receipt whereof is hereby acknowledged, the Company covenants and agrees with the Trustee, for the equal and proportionate benefit of the respective holders from time to time of the Debentures, as follows: ARTICLE ONE DEFINITIONS SECTION 1.01. Certain Terms Defined. The terms defined in this Section 1.01 (except as otherwise expressly provided or unless the context otherwise requires), for all purposes of this Indenture and of any indenture supplemental hereto, shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939 or which are by reference therein defined in the Securities Act of 1933, as amended (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as they were in force at the date of the execution of this Indenture. Authenticating Agent. The term "Authenticating Agent" shall mean the agent or agents, if any, of the Trustee which at any time shall have been appointed pursuant to Section 9.14. Bankruptcy Code. The term "Bankruptcy Code" shall mean Title 11, U.S. Code or any similar Federal or State law for the relief of debtors. Board of Directors: The term "Board of Directors," when used with reference to the Company, shall mean the Board of Directors of the Company or any duly authorized committee of such Board. Business Day: The term "business day" shall mean a day other than a Saturday, a Sunday or a day on which banking institutions in the City of San Francisco, State of California or The City of New York, State of New York are authorized or obligated by law to close. Common Stock The term "Common Stock," when used with reference to stock of the Company, shall mean all shares now or hereafter authorized of the class of the Common Stock of the Company presently authorized and stock of any other class into which such shares may hereafter have been changed. Company: The term "Company" shall mean HEXCEL CORPORATION, a Delaware corporation, and, subject to the provisions of Article Thirteen, shall also include its successors and assigns. Conversion Price. The term "conversion price" shall mean the price per share of Common Stock from time to time in effect at which Debentures may be converted into Common Stock as hereinafter in Article Four provided. Date of Conversion: The term "date of conversion" shall mean the date on which any Debenture shall be surrendered for conversion and notice given in accordance with the provisions of Article Four hereof. Debenture or Debentures; outstanding: The term "Debenture" or "Debentures" shall mean any Debenture or Debentures, as the case may be, authenticated and delivered under this Indenture. The term "outstanding," when used with reference to Debentures, shall, subject to the provisions of Section 10.04, mean, as of any particular time, all Debentures authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (b) Debentures, or portions thereof, for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent), provided that such Debentures shall have reached their stated maturity, or, if such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article Five provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms 12 of Section 2.07, unless proof satisfactory to the Trustee is presented that any such Debentures are held by bona fide holders in due course. Debentureholder; registered holder. The term "debentureholder," "holder of Debentures," "registered holder" or other similar term, shall mean any person who shall at the time be the registered holder of any Debenture or Debentures on the books of the Company kept for that purpose in accordance with the provisions of the Indenture and shall also mean the executors, administrators and other legal representatives of such person. Event of Default. The term "Event of Default" shall mean any event specified in Section 8.01, continued for the period of time, if any, and after the giving of notice, if any, therein designated. Indenture. The term "Indenture" shall mean this instrument as originally executed, or, if amended or supplemented as herein provided, as so amended or supplemented. Officers' Certificate. The term "Officers' Certificate" shall mean a certificate signed by the Chairman of the Board or President or any Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company. Each such certificate shall include the statements provided for in Section 16.05, if and to the extent required by the provisions thereof. Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of, or of counsel to, the Company or may be other counsel and who shall be acceptable to the Trustee. Each such opinion shall include the statements provided for in Section 16.05, if and to the extent required by the provisions thereof. Responsible Officer: The term "responsible officer," when used with respect to the Trustee, shall mean the chairman of the board of directors, the president, every vice president, the treasurer, every trust officer, and every other officer and assistant officer to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. Senior Indebtedness. The term "Senior Indebtedness" shall mean the principal of, premium, if any, and unpaid interest on (a) indebtedness of the Company (including indebtedness of others guaranteed by the Company), other than the Debentures, whether outstanding on the date hereof or thereafter created, incurred, assumed, or guaranteed, for (i) money borrowed, (ii) reimbursement obligations in connection with letters of credit issued for the account of the Company and bankers' acceptances, (iii) purchase obligations and (iv) lease obligations (including but not limited to capitalized lease obligations), unless in the instrument creating or evidencing the same or 13 pursuant to which the same is outstanding it is provided that such indebtedness is not superior in right of payment to the Debentures, and (b) renewals, extensions, modifications and refundings of any such indebtedness. Senior Indebtedness does not include the 9% Convertible Subordinated Guaranteed Debentures due 1996 issued by Hexcel International Finance N.V. and guaranteed by the Company, which debentures rank pari passu with the Debentures. Subsidiary: The term "Subsidiary" shall mean any corporation or other entity at least a majority of the outstanding voting shares of which is at the time directly or indirectly owned or controlled (either alone or through Subsidiaries or together with Subsidiaries) by the Company or another Subsidiary. Trustee; principal office: The term "Trustee" shall mean The Bank of California, N.A., and, subject to the provisions of Article Nine, shall also include its successors. The term "principal office" of the Trustee shall mean the principal office of the Trustee at which at any particular time its corporate trust business may be principally administered, which office at the date hereof is located at 400 California Street, San Francisco, California 94104. Trust Indenture Act of 1939 The term "Trust Indenture Act of 1939" shall mean the Trust Indenture Act of 1939 as it was in force at the date of execution of this Indenture except as provided by Article Twelve. SECTION 1.02. References are to Indenture. Unless the context otherwise requires, all references herein to "Articles," "Sections" and other subdivisions refer to the corresponding Articles, Sections and other subdivisions of this Indenture, and the words "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision hereof. ARTICLE TWO ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. Designation, Amount, Authentication and Delivery of Debentures. The Debentures shall be designated as "7% Convertible Subordinated Debentures due 2011." Debentures for the aggregate principal amount of thirty-five million dollars ($35,000,000), upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee or Authenticating Agent for authentication, and the Trustee or 14 Authenticating Agent shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its President or a Vice President without any further corporate action by the Company. The aggregate principal amount of Debentures authorized by this Indenture is limited to thirty-five million dollars ($35,000,000) and, except as provided in Section 2.07, the Company shall not execute and the Trustee or the Authenticating Agent shall not authenticate or deliver Debentures in excess of such aggregate principal amount. Nothing contained in this Section 2.01 or elsewhere in this Indenture, or in the Debentures, is intended to or shall limit execution by the Company or authentication or delivery by the Trustee or the Authenticating Agent of Debentures under the circumstances contemplated by Section 2.05, 2.06, 2.07, 4.02, 5.02 and 12.04. SECTION 2.02. Form of Debentures and Trustee's Certificate. The definitive Debentures and the Trustee's or the Authenticating Agent's certificate of authentication to be borne by the Debentures shall be substantially of the tenor and purport as in this Indenture above recited, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the officers executing the same may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Debentures may be listed, or to conform to usage. SECTION 2.03. Date of Debentures and Denominations. The Debentures shall bear interest at the rate per annum set forth in their title, payable semi-annually on February 1 and August 1, commencing February 1, 1987, shall mature on August 1, 2011 and shall be issuable as registered Debentures without coupons in denominations of $1,000 and any whole multiple thereof. The person in whose name any Debenture is registered at the close of business on any record date (as hereinbelow defined) with respect to any interest payment date shall be entitled to receive the interest payable thereon on such interest payment date notwithstanding the cancellation of such Debenture upon any registration of transfer, conversion or exchange thereof subsequent to such record date and prior to such interest payment date, unless such Debenture shall have been called for redemption on a date fixed for redemption subsequent to such record date and prior to such interest payment date, or unless an Event of Default shall have occurred and be continuing as the result of a default in 15 the payment of interest due on such interest payment date on any Debenture, in which case such defaulted interest shall be paid to the person in whose name such Debenture (or any Debenture or Debentures issued upon registration of transfer or exchange thereof) is registered on the record date for payment of such defaulted interest. Unless other arrangements are made by the Company, payment of interest will be made by check mailed by the Company to the registered address of the person entitled thereto. The term "record date" as used in this Section 2.03 with respect to any interest payment date shall mean the January 15 or July 15, as the case may be, next preceding such interest payment date, or, if such January 15 or July 15 is not a business day, the business day next preceding such January 15 or July 15, and such term, as used in this Section, with respect to the payment of any defaulted interest shall mean the tenth day next preceding the date fixed by the Company for the payment of defaulted interest or, if such tenth day is not a business day, the business day next preceding such tenth day, but in no case shall such record date be less than 10 days after notice thereof shall have been mailed by or on behalf of the Company to all registered holders of Debentures at their registered addresses. Except as provided in the next sentence, the Debentures shall be dated the date of authentication and shall bear interest from the February 1 or August 1 next preceding the date thereof to which interest has been paid or duly provided for, unless the date of authentication is a February 1 or August 1 to which interest has been paid or duly provided for, in which case they shall bear interest from such date. Each Debenture authenticated between the record date for any interest payment date and such interest payment date shall be dated the date of its authentication but shall bear interest from such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, then any Debenture so authenticated shall bear interest from the next preceding February 1 or August 1, as the case may be, to which interest has been paid or duly provided for or, if no interest has been paid on the Debentures, from August 1, 1986. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 2.04. Execution of Debentures. The Debentures shall be signed on behalf of the Company, manually or in facsimile, by its President or a Vice President under its corporate seal (which may be in facsimile) reproduced thereon and attested, manually or in facsimile, by its Secretary or an Assistant Secretary or its Treasurer or an Assistant Treasurer. Only such Debentures as shall bear thereon a certificate of authentication substantially 16 in the form hereinbefore recited, signed manually by the Trustee or the Authenticating Agent, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company whose signature appears on any of the Debentures, manually or in facsimile, shall cease to be such officer before such Debentures so signed shall have been authenticated and delivered by the Trustee or the Authenticating Agent, or disposed of by the Company, such Debentures nevertheless may be authenticated and delivered or disposed of as though the person whose signature appears on such Debentures had not ceased to be such officer of the Company; and any Debenture may be signed, and the corporate seal reproduced thereon may be attested, on behalf of the Company, manually or in facsimile, by such persons as, at the actual date of the execution of such Debenture, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such officer. SECTION 2.05. Exchange of Debentures. Debentures may be exchanged for a like aggregate principal amount of Debentures of other authorized denominations. The Debentures to be exchanged shall be surrendered at the offices or agencies to be maintained by the Company in accordance with the provisions of Section 6.02, and the Company shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange therefor the Debenture or Debentures which the debentureholder making the exchange shall be entitled to receive. The Company shall keep, at one of the offices or agencies to be maintained by the Company in accordance with the provisions of Section 6.02, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall register Debentures and shall register the transfer of Debentures as in this Article Two provided. Upon surrender for registration of transfer of any Debenture at such office or agency, the Company shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver in the name of the transferee or transferees a new Debenture or Debentures for a like aggregate principal amount. All Debentures presented or surrendered for exchange, registration of transfer, redemption, conversion or payment shall, if so required by the Company or the Trustee or any Debenture registrar, be accompanied by a written instrument or instruments of transfer, in form satisfactory to the 17 Company and the Trustee and such registrar, duly executed by the registered holder or by his duly authorized attorney. No service charge shall be made for any exchange or registration of transfer of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. The Company shall not be required to issue, register the transfer of or exchange any Debentures for a period of fifteen days next preceding any date for the selection of Debentures to be redeemed. The Company shall not be required to register the transfer of or exchange any Debenture called or being called for redemption except, in the case of any Debenture to be redeemed in part, the portion thereof not to be so redeemed. SECTION 2.06. Temporary Debentures. Pending the preparation of definitive Debentures, the Company may execute and the Trustee or the Authenticating Agent shall authenticate and deliver temporary Debentures (printed, lithographed or typewritten) of any authorized denomination and substantially in the form of the definitive Debentures, but with or without a recital of specific redemption prices and with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Board of Directors of the Company. Temporary Debentures may contain such reference to any provisions of the Indenture as may be appropriate. Every such temporary Debenture shall be authenticated by the Trustee or the Authenticating Agent upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Debentures. Without unnecessary delay the Company will execute and deliver to the Trustee or to the Authenticating Agent definitive Debentures and thereupon any or all temporary Debentures may be surrendered in exchange therefor, at the offices or agencies to be maintained by the Company in accordance with the provisions of Section 6.02, and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures. Until so exchanged, the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures authenticated and delivered hereunder. SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures. In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company, in the case of any mutilated Debenture shall, and in the case of any destroyed, lost or stolen Debenture in its discretion may, in the absence of notice to the Company or the Trustee or the Authenticating 18 Agent that such Debenture has been acquired by a bona fide purchaser, execute and upon its request the Trustee or the Authenticating Agent shall authenticate and deliver a new Debenture bearing a number not contemporaneously outstanding in exchange and substitution for the mutilated Debenture, or in lieu of and substitution for the Debenture so destroyed, lost or stolen, or, if any such Debenture shall have matured or shall be about to mature or shall have been selected for redemption, instead of issuing a substituted Debenture, the Company may pay the same without surrender thereof except in the case of a mutilated Debenture. In every case the applicant for a substituted Debenture or for such payment shall furnish to the Company and to the Trustee and to the Authenticating Agent such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee and to the Authenticating Agent evidence to their satisfaction of the destruction, loss or theft of such Debenture and of the ownership thereof. The Trustee or the Authenticating Agent may authenticate any such substituted Debenture and deliver the same, or the Trustee or any paying agent of the Company may make any such payment, upon the written request or authorization of any officer of the Company, and shall incur no liability to anyone by reason of anything done or omitted to be done by it in good faith under the provisions of this Section 2.07. Upon the issue of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any expenses connected therewith. Every substituted Debenture issued pursuant to the provisions of this Section 2.07 in substitution for any destroyed, lost or stolen Debenture shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.08. Cancellation of Surrendered Debentures. All Debentures surrendered for the purpose of payment, redemption, conversion, exchange, substitution or registration of transfer, or in discharge in whole or 19 in part of any Sinking Fund payment, shall, if surrendered to the Company or any paying or conversion agent or registrar, be delivered to the Trustee and the same, together with Debentures surrendered to the Trustee for cancellation, shall be promptly cancelled by it, and no Debentures shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy cancelled Debentures and shall deliver certificates of destruction thereof to the Company from time to time unless the Company shall otherwise direct in writing. If the Company shall purchase or otherwise acquire any of the Debentures, however, such purchase or acquisition shall not operate as a payment, redemption or satisfaction of the indebtedness represented by such Debentures unless and until the Company, at its option, shall deliver or surrender the same to the Trustee for cancellation. ARTICLE THREE SUBORDINATION OF DEBENTURES SECTION 3.01. Agreement to Subordinate. The Company, for itself, its successors and assigns, covenants and agrees, and each holder of Debentures, by his acceptance thereof, likewise covenants and agrees, that the payment of the principal of and premium, if any, and interest on each and all of the Debentures, including payment through the operation of the Sinking Fund as provided in this Indenture, is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all Senior Indebtedness and that such subordination is for the benefit of the holders of Senior Indebtedness. All persons who, in reliance upon such provisions, become holders of, or continue to hold, Senior Indebtedness, shall be entitled to rely hereon. and such provisions are made for the benefit of the holders of Senior Indebtedness, and they or any of them may proceed to enforce such provisions directly against the holders of Debentures or the Trustee. SECTION 3.02. Distribution on Dissolution, Liquidation and Reorganization; Subrogation of Debentures. Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise: 20 (a) the holders of all Senior Indebtedness shall first be entitled to receive payment in full of the principal thereof, premium, if any, and the interest due thereon before the holders of the Debentures are entitled to receive any payment upon the principal of and premium, if any, or interest on indebtedness evidenced by the Debentures; (b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article Three shall be paid or delivered by the Company or any liquidating trustee, trustee in bankruptcy, receiver, agent or other person making such payment or distribution directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or holders of the Debentures before all Senior Indebtedness is paid in full, such payment or distribution shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, as their interests appear, for application to the payment of all Senior Indebtedness remaining unpaid until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the sale or conveyance of its property or assets as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Thirteen shall not be deemed a dissolution, winding up, liquidation or reorganization of the Company for the purposes of this Article Three if such other corporation shall, as a part of such consolidation, merger, sale or conveyance, comply with the conditions stated in Article Thirteen. 21 Subject to the payment in full of all Senior Indebtedness, the holders of the Debentures shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Indebtedness until the principal of, premium, if any, and interest on the Debentures shall be paid in full and no such payments or distributions to the holders of the Debentures of cash, property or securities otherwise distributable to the Senior Indebtedness shall, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of the Debentures. It is understood that the provisions of this Article Three are and are intended solely for the purpose of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of Senior Indebtedness, on the other hand. Nothing contained in this Article Three or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Debentures, the obligation of the Company, which is unconditional and absolute, to pay to the holders of the Debentures the principal of, premium, if any, and interest on the Debentures as and when the same shall become due and payable in accordance with their terms or to affect the relative rights of the holders of the Debentures and creditors of the Company other than the holders of Senior Indebtedness, nor shall anything herein or in the Debentures prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Three of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Three, the Trustee, subject to the provisions of Section 9.01, and the holders of the Debentures shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in this Section are pending or upon a certificate of the liquidating trustee, trustee in bankruptcy, receiver, agent or other person making any distribution to the Trustee or to the holders of the Debentures, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all others facts pertinent thereto or to this Article Three. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution 22 pursuant to this Section, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, as to the extent to which such person is entitled to participate in such payment or distribution, and as to other facts pertinent to the rights of such person under this Section, and if such evidence is not furnished, the Trustee may defer any payment to such person pending judicial determination as to the right of such person to receive such payment. The Trustee, however, shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to or on behalf of holders of Debentures or the Company moneys or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Three. SECTION 3.03. Payments on Debentures Prohibited During Event of Default Under Senior Indebtedness. In the event and during the continuation of any default in the payment of principal of, or premium, if any, or interest on, any Senior Indebtedness beyond any applicable period of grace, or in the event that any other event of default (as defined in the instrument governing such Senior Indebtedness) with respect to any Senior Indebtedness shall have occurred and be continuing, or would occur as a result of the payment referred to hereinafter, permitting the holders of such Senior Indebtedness (or a trustee on behalf of the holders thereof) to accelerate the maturity thereof, then, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no payment of principal of, premium, if any, or interest on the Debentures and no Sinking Fund payment shall be made by the Company (except Sinking Fund payments made on Debentures redeemed or acquired or converted prior to the happening of such default or event of default), nor shall Debentures be directly or indirectly purchased by the Company or any Subsidiary. SECTION 3.04. Payments on Debentures Permitted. Nothing contained in this Indenture or in any of the Debentures shall (a) affect the obligation of the Company to make, or prevent the Company from making, at any time except as provided in Sections 3.02 and 3.03, payments of principal of, premium, if any, or interest on the Debentures, or (b) prevent the application by the Trustee or any paying agent of any moneys deposited with it hereunder to the payment of or on account of the principal of, premium, if any, or interest on the Debentures, if, prior to mailing or otherwise effecting distribution of checks or other instruments representing such payment, the Trustee or paying agent, as the case may be, did not have written notice of any event prohibiting the making of such deposit by the Company. 23 SECTION 3.05. Authorization of Debentureholders to Trustee to Effect Subordination. Each Holder of Debentures by his acceptance thereof authorizes and directs the Trustee in his behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article Three and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 3.06. Notices to Trustee. The Company shall give prompt notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee or any paying agent in respect of the Debentures pursuant to the provisions of this Article Three. Notwithstanding the provisions of this Article Three or any other provisions of this Indenture, neither the Trustee nor any paying agent (other than the Company) shall be charged with knowledge of the existence of any Senior Indebtedness or of any event which would prohibit the making of any payment of moneys to or by the Trustee or such paying agent, unless and until the Trustee or such paying agent shall have received written notice thereof at the principal office of the Trustee from the Company or from the holder of any Senior Indebtedness or from the representative of any such holder. ARTICLE FOUR CONVERSION OF DEBENTURES SECTION 4.01. Conversion Privilege. Subject to and upon compliance with the provisions of this Article Four, at the option of the holder, any Debenture or any portion of the principal amount thereof which is $1,000 or a whole multiple thereof, may, at any time on or before August 1, 2011, or in case such Debenture or some portion thereof shall be called for redemption prior to such date, then, with respect to such Debenture or portion thereof so called for redemption, until and including, but not after, the close of business on the date fixed for such redemption, be converted at the principal amount thereof into Common Stock at the conversion price in effect at the date of conversion. SECTION 4.02. Manner of Exercise of Conversion Privilege. In order to exercise the conversion privilege, the holder of any Debenture to be converted shall surrender such Debenture to the Company at the office or agency to be maintained by the Company in accordance with the provisions of Section 6.02, together with the conversion notice, which shall be irrevocable, in the form provided on the Debentures duly executed, and, if so required by the Company, the Debenture shall also be accompanied by proper assignments thereof to the Company or in blank for transfer and any requisite Federal and State transfer 24 tax stamps. Debentures so surrendered during the period from the close of business on the record date preceding an interest payment date to the opening of business on such interest payment date shall (unless any such Debenture or the portion thereof being converted shall have been called for redemption on a date fixed for redemption during such period) also be accompanied by payment in New York Clearing House funds, or other funds acceptable to the Company, of an amount equal to the interest payable on such interest payment date on the principal amount of such Debenture then being converted. As promptly as practicable after the surrender of such Debenture for conversion as aforesaid, the Company shall issue and shall deliver at said office or agency to such holder, or on his written order, a certificate or certificates for the number of full shares issuable upon the conversion of such Debenture or portion thereof and a check or cash in respect of any fraction of a share of Common Stock issuable upon such conversion, all as provided in this Article Four, together with a Debenture or Debentures in principal amount equal to the unconverted and unredeemed portion, if any, of the Debenture so converted. Such conversion shall be deemed to have been effected on the date on which such notice shall have been received at said office or agency and such Debenture shall have been surrendered as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder or holders of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person or persons in whose name or names the certificates are to be issued as the record holder or holders thereof for all purposes on the next succeeding day on which such stock transfer books are open, but on such conversion shall be at the conversion price in effect on such next succeeding day on which such transfer books are open. Subject to the foregoing, no adjustment shall be made for interest accrued on any Debenture that shall be converted or for dividends on any Common Stock that shall be issued upon the conversion of such Debenture. SECTION 4.03. Cash Adjustment Upon Conversion. The Company shall not be required to issue Fractions of shares of Common Stock upon conversion of Debentures. If more than one Debenture shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Debentures so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any 25 Debenture or Debentures, the Company shall make an adjustment therefor in cash equal to the current market value of such fractional interest computed to the nearest one-hundredth of a share either on the basis of the last reported sale price regular way of the Common Stock on the New York Stock Exchange (or, if not listed on the New York Stock Exchange, then on such other exchange on which the Common Stock is listed as the Company may designate) on the last business day prior to the date of conversion or, if there shall not have been a sale on such last business day, on the basis of the average of the bid and ask quotations therefor on such exchange on such last business day or, if the Common Stock shall not then be listed on any exchange, at the highest bid quotation in the over-the-counter market on such last business day as reported by the National Association of Securities Dealers, Inc. through NASDAQ, its automated system for reporting quotes, or its successor or such other generally accepted source of publicly reported bid and ask quotations as the Company may reasonably designate. SECTION 4.04. Initial Conversion Price. The conversion price shall be as specified in the form of Debenture hereinabove set forth or, after adjustment as provided in this Article Four, the conversion price as so adjusted. SECTION 4.05. Adjustment of Conversion Price. The conversion price shall be adjusted from time to time as follows: (a) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, (i) pay a dividend in shares of its Common Stock, (ii) subdivide its outstanding shares of Common Stock, or (iii) combine its outstanding shares of Common Stock into a smaller number of shares, the conversion price in effect immediately prior thereto shall be adjusted so that the holder of any Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other securities of the Company which he would have owned or been entitled to receive after the happening of any of the events described above, had such Debenture been converted immediately prior to the happening of such event. Any adjustment made pursuant to this subdivision (a) shall become effective, in the case of a dividend, on the payment date retroactively to immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such dividend, subject to the provisions of subdivision (f) of this Section 4.05, and shall become effective in the case of a subdivision or combination immediately after the opening of business on the day following the day when such subdivision or combination, as the case may be, becomes effective. 26 (b) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, issue rights or warrants to all holders of shares of its Common Stock entitling them (for a period expiring within 45 days of the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as defined in subdivision (d) below) at such record date, the conversion price in effect immediately prior to the issuance of such right or warrants shall be adjusted as follows: the number of shares of Common Stock into which $1,000 principal amount of Debentures was theretofore convertible shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such current market price; and the conversion price shall be adjusted by dividing $1,000 by the new number of shares into which $1,000 principal amount of Debentures shall be convertible as aforesaid. Such adjustment shall become effective on the date of such issuance retroactively to immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such rights or warrants, subject to the provisions of subdivision (f) of this Section 4.05. (c) In case the Company shall, at any time or from time to time while any of the Debentures are outstanding, distribute to all holders of shares of its Common Stock evidences of its indebtedness or securities (excluding those referred to in subdivision (a) above) or assets (excluding cash dividends or cash distributions payable out of consolidated earnings or retained earnings, or dividends payable in shares of Common Stock) or rights to subscribe (excluding those referred to in subdivision (b) above), the conversion price in effect immediately prior to such distribution shall be adjusted by multiplying the number of shares of Common Stock into which $1,000 principal amount of Debentures was theretofore convertible by a fraction, the numerator of which shall be the current market price per share of Common Stock (as defined in subdivision (d) below) on the record date for such distribution, and the denominator of which shall be such current market price per share of the Common Stock, less the then 27 fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of such assets or securities or evidences of indebtedness so distributed or of such subscription rights applicable to one share of Common Stock; and the conversion price shall be adjusted by dividing $1,000 by the new number of shares into which $1,000 principal amount of Debentures shall be convertible as aforesaid. Such adjustment shall become effective on the date of such distribution retroactively to immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such distribution, subject to the provisions of subdivision (f) of this Section 4.05. For the purposes of this subdivision (c), consolidated earnings or retained earnings shall be computed by adding thereto all charges against retained earnings on account of dividends paid in shares of Common Stock in respect of which the conversion price has been adjusted, all as determined by the independent public accountants then regularly auditing the accounts of the Company, whose determination shall be conclusive. (d) For the purpose of any computation under subdivisions (b) and (c) above, the current market price per share of Common Stock at any date shall be deemed to be the average of the market values of the Common Stock for the ten consecutive business days immediately preceding the day in question. The market value of the Common Stock for each day shall be determined as provided in Section 4.03 hereof. (e) Except as herein otherwise provided, no adjustment in the conversion price shall be made by reason of the issuance in exchange for cash, property or services, of shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock, or carrying the right to purchase any of the foregoing. Notwithstanding the other provisions of this Article Four, no adjustment in the conversion price shall be made for (i) rights to purchase Common Stock pursuant to a plan for reinvestment of dividends or interest, including optional cash purchases, or (ii) a change in the par value of, or a change to or from no par value for, the Common Stock. (f) If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or any subscription or purchase rights or any distribution and shall, thereafter and before the distribution to stockholders of any such dividend, subscription or purchase rights or distribution, legally abandon its plan to pay or deliver such dividend, subscription or purchase rights or distribution, then no adjustment of the conversion price shall be required by reason of the taking of such record. 28 (g) No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subdivision (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. Except as provided in Section 4.03, all calculations under this Article Four shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (h) Whenever the conversion price is adjusted as herein provided, the Company shall (i) forthwith place on file at the principal office of the Trustee a statement signed by the President or a Vice President of the Company and by its Treasurer or an Assistant Treasurer showing in detail the facts requiring such adjustment and the conversion price after such adjustment and the Trustee shall exhibit the same from time to time to any Debentureholder desiring an inspection thereof, and (ii) cause a notice stating that such adjustment has been effected and the adjusted conversion price to be mailed to the holders of Debentures at their last addresses as they shall appear on the registry books. (i) No adjustment in the conversion price shall be required for a transaction specified in subdivisions (a), (b) or (c) above if debentureholders, upon conversion, are permitted to participate in the transactions on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. SECTION 4.06. Effect of Reclassifications, Consolidations, Mergers or Sales on Conversion Privilege. In case of any reclassification or change of outstanding shares of Common Stock issuable upon conversion of the Debentures (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any consolidation of the Company with one or more other corporations (other than a consolidation in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding shares of Common Stock issuable upon conversion of the Debentures), or in case of the merger of the Company into another corporation, or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company, or such successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall conform to the Trust Indenture Act of 1939 as in force at the date of the execution of such supplemental indenture) providing that the holder of each Debenture then 29 outstanding shall have, in lieu of the right to convert such Debenture into Common Stock of the Company, the right to convert such Debenture into the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock into which such Debenture might have been converted immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly, equivalent as may be practicable to the adjustments provided for in this Article Four and any such adjustments which shall be approved by the Board of Directors and set forth in such supplemental indenture shall be conclusive for all purposes of this Section 4.06, and the Trustee shall not be under any responsibility to determine the correctness of any provision contained in such supplemental indenture relating to either the kind or amount of shares of stock or securities or property receivable by debentureholders upon the conversion of their Debentures after any such reclassification, change, consolidation, merger, sale or conveyance. To the extent the Debentures become convertible into cash, no adjustment need be made thereafter as to the cash, and interest will not accrue on the cash. The above provisions of this Section 4.06 shall similarly apply to successive reclassifications, changes, consolidations, mergers, sales and conveyances. SECTION 4.07. Taxes on Conversion. The issue of stock certificates on conversion of Debentures shall be made without charge to the converting debentureholder for any issue tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares in any name other than that of the holder of any Debenture converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 4.08. Company to Reserve Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares, for the purpose of effecting the conversion of the Debentures, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Debentures. If any shares of Common Stock reserved or to be reserved for the purpose of conversion of Debentures hereunder require registration with or approval of any governmental authority under any Federal or State law before such shares may be validly issued upon conversion, then the Company covenants 30 that it will in good faith and as expeditiously as practicable endeavor to secure such registration or approval, as the case may be. The Company covenants that all shares of Common Stock which may be issued upon conversion of Debentures shall upon issue be fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. SECTION 4.09. Disclaimer by Trustee of Responsibility for Certain Matters. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any holder of Debentures to determine whether any facts exist which may require any adjustment of the conversion price, or with respect to the nature, accuracy or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same, subject, however, to the provisions of Section 9.01 of this Indenture. Neither the Trustee nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and neither of them makes any representations with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Debenture for the purpose of conversion or, subject to Section 9.01, to comply with any of the covenants of the Company contained in this Article Four. SECTION 4.10. Company to Give Notice of Certain Events. In the event (1) that the Company shall pay any dividend or make any distribution to the holders of Common Stock otherwise than in cash out of its retained earnings; or (2) that the Company shall offer for subscription, pro rata, to the holders of Common Stock any additional shares of stock of any class or any other right; or (3) that the Company shall effect any reclassification or change of outstanding shares of the Common Stock issuable upon the conversion of the Debentures (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change 31 of outstanding shares of Common Stock issuable upon conversion of the Debentures), or any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety; then, and in any one or more of such events, the Company will give to the Trustee and any conversion agent written notice thereof at least ten days (or such shorter period acceptable to the Trustee) prior to (i) the record date fixed with respect to any of the events specified in (1) and (2) above, and (ii) the effective date of any of the events specified in (3) above; and shall mail a copy of such notice to the holders of Debentures at their last addresses as they shall appear upon the registry books. ARTICLE FIVE REDEMPTION OF DEBENTURES - SINKING FUND SECTION 5.01. Redemption Prices. (a) The Company may, at its option, redeem all or from time to time any part of the Debentures, otherwise than through the operation of the Sinking Fund provided for in this Article Five, subject to the conditions and at the prices specified in the form of Debenture hereinbefore set forth for redemption otherwise than through the operation of the Sinking Fund, together with interest accrued and unpaid thereon to the date fixed for redemption. (b) The Debentures are also subject to redemption in part on August 1, 1997 and on each August 1 thereafter to and including August 1, 2010, through the operation of the Sinking Fund described in Section 5.04, at 100% of the principal amount thereof, together with interest accrued and unpaid thereon to the date fixed for redemption. SECTION 5.02. Notice of Redemption; Selection of Debentures. In case the Company shall desire to exercise such right to redeem all or, as the case may be, any part of the Debentures in accordance with the right reserved so to do, it shall give notice of such redemption to the Trustee, and the Trustee shall thereupon, in the name of and at the expense of the Company, give notice on behalf of the Company of such redemption to the holders of the Debentures to be !redeemed as hereinafter in this Section 5.02 provided. Notice of redemption shall be given to the holders of Debentures to be redeemed as a whole or in part by mailing by first-class mail a notice of such redemption not less than thirty nor more than sixty days prior to the date fixed for redemption to their last addresses as they shall appear upon the registry books, but failure to give such notice by mailing to the holder of any Debenture designated for redemption as a whole or in part, or any defect therein, shall not affect the validity of the proceedings for the redemption of any other Debentures. 32 Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives the notice. Each such notice of redemption shall specify the total principal amount to be redeemed, the date fixed for redemption and the redemption price at which Debentures are to be redeemed, and shall state that payment of the redemption price of the Debentures to be redeemed will be made at the office or agency to be maintained by the Company in accordance with the provisions of Section 6.02, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption will be paid as specified in said notice, that on and after said date interest thereon will cease to accrue and such notice shall state the current conversion price, the date on which the right to convert the Debentures or portion of the principal amount thereof to be redeemed will terminate and the places where such Debentures may be surrendered for conversion. If less than all the Debentures are to be redeemed, the notice of redemption to each holder shall specify the numbers of such Debentures to be redeemed. In case any Debenture is to be redeemed in part only, the notice which relates to such Debenture shall state the portion of the principal amount thereof to be redeemed (which shall be $1000 or a whole multiple thereof), and shall state that on and after the date fixed for redemption, upon surrender of such Debenture, the holder will receive the redemption price together with accrued interest in respect of the principal amount thereof called for redemption and, without charge, a new Debenture or Debentures of authorized denominations for the principal amount thereof remaining unredeemed. On or prior to the redemption date specified in the notice of redemption given as provided in this Section 5.02, the Company will deposit with the Trustee or with one or more paying agents an amount of money in immediately available funds sufficient to redeem on the redemption date all the Debentures or portions of Debentures so called for redemption at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If all the Debentures are to be redeemed, the Company shall give the Trustee notice thereof at least thirty-five days (or such shorter period acceptable to the Trustee) in advance of the date fixed for redemption. If less than all the Debentures are to be redeemed, the Company shall give the Trustee, at least forty-five days (or such shorter period acceptable to the Trustee) in advance of the date fixed for redemption, notice of the aggregate principal amount of Debentures to be redeemed, and thereupon the Trustee shall select by lot or in such other manner as it shall deem appropriate and fair, in its discretion, the Debentures or portions thereof to be redeemed and shall thereafter promptly 33 notify the Company in writing of the number of the Debentures or portions thereof to be redeemed. For the purpose of any redemption of less than all the Debentures, the Company and the Trustee may treat as outstanding Debentures surrendered for conversion during the period of fifteen days immediately preceding the mailing of the notice of redemption. If any Debenture selected for redemption in part is surrendered for conversion in part on or before the close of business on the third business day next preceding the date fixed for redemption, the part of such Debenture converted shall be applied first to the part to be redeemed. SECTION 5.03. When Debentures Called for Redemption Become Due and Payable. If the giving of notice of redemption shall have been completed as above provided, the Debentures or portions of Debentures specified in such notice shall, unless theretofore converted into Common Stock, become due and payable on the date and at the place stated in such notice at the applicable redemption price, together with interest accrued to the date fixed for redemption, and (i) on and after such date fixed for redemption (unless the Company shall default in the payment of such Debentures at the redemption price, together with interest accrued to the date fixed for redemption) interest on the Debentures or portions of Debentures so called for redemption shall cease to accrue, and (ii)any right to convert the Debentures or portions of Debentures so called for redemption shall terminate at the close of business on the date fixed for redemption. On presentation and surrender of such Debentures at said place of payment in said notice specified, the said Debentures shall be paid and redeemed by the Company at the applicable redemption price, together with interest accrued to the date fixed for redemption. Upon presentation of any Debenture which is redeemed in part only, the Company shall execute and register and the Trustee or the Authenticating Agent shall authenticate and deliver at the expense of the Company, a new Debenture or Debentures in principal amount equal to the unredeemed portion of the Debenture so presented. SECTION 5.04. Sinking Fund. (a) As and for a Sinking Fund for the retirement of Debentures, the Company covenants that, on or before August 1, 1997, and annually on or before August 1 of each year thereafter to and including August 1, 2010, it will pay to the Trustee a sum in immediately available funds sufficient to retire by redemption 5% of the aggregate principal amount of Debentures issued at a redemption price which shall be 100% of the principal amount thereof, provided, however, that in any such year in which August 1 is not a business day, such payment shall be made to the Trustee on or before the last business day preceding such August 1; and provided, further, 34 that such principal amount of Debentures may, at the option of the Company, be reduced by an amount not exceeding the sum of the following: (i) the principal amount of Debentures theretofore issued and reacquired (otherwise than through redemption pursuant to this Article Five) by the Company and delivered to the Trustee for cancellation and not theretofore made the basis for the reduction of a Sinking Fund payment; (ii) the principal amount of Debentures theretofore converted into Common Stock pursuant to Article Four and not theretofore made the basis for the reduction of a Sinking Fund payment pursuant to this subparagraph (ii), or Section 5.05(b) or otherwise; (iii) the principal amount of Debentures redeemed and paid pursuant to the provisions of this Article Five (otherwise than through the operation of the Sinking Fund), or which shall have been duly called for redemption (otherwise than through the operation of the Sinking Fund) and the redemption price of which shall have been deposited in trust for that purpose, and which have not theretofore been made the basis for the reduction of a Sinking Fund payment; and (iv) the principal amount of Debentures redeemed through optional Sinking Fund payments made pursuant to Section 5.04(b) and not theretofore made the basis for the reduction of a Sinking Fund payment. On or before June 1 in each year, beginning June 1, 1997 to and including June 1, 2010, the Company shall deliver to the Trustee an Officer's Certificate stating whether it elects to reduce the amount to be paid to the Trustee in cash on the next succeeding August 1 and, if it elects to make such a reduction, setting forth the amount of the reduction and the basis or bases provided above for such reduction, together with any Debentures theretofore issued and reacquired (otherwise than through redemption pursuant to this Article Five) by the Company and not theretofore delivered to the Trustee for cancellation, which are to be made the basis for such reduction of a Sinking Fund payment. (b) In addition to the funds required to be paid to the Trustee pursuant to paragraph (a) of this Section 5.04, the Company may at its option on or before August 1, 1997, and annually on or before August 1 of each year thereafter to and including August 1, 2010, pay to the Trustee as and for the Sinking Fund a sum in immediately available funds not exceeding the amount required to retire by redemption an additional 5% of the aggregate principal amount of Debentures issued at a redemption price which shall be 100% of the principal 35 amount thereof on such August 1. Any such election by the Company shall be evidenced by an Officers' Certificate delivered to the Trustee not later than the June 1 next preceding the August I in question and shall be irrevocable upon such delivery. The right granted in this paragraph (b) shall be noncumulative so that the failure to exercise such right in any year, in whole or in part, shall not increase the maximum amount which may be paid to the Trustee in any subsequent year. (c) All funds paid to the Trustee pursuant to the provisions of this Section 5.04 shall be applied in accordance with the provisions of this Article Five. SECTION 5.05. Application of Sinking Fund Payments. (a) In each year commencing with 1997, as soon as practicable after June 1, the Trustee shall take the action herein specified to call for redemption on the next succeeding August 1, at a redemption price which shall be 100% of the principal amount thereof, an amount of Debentures sufficient to exhaust, as nearly as may be practicable, the sums then held by it in the Sinking Fund or required to be paid to it for the Sinking Fund pursuant to Sections 5.04(a) and (b) prior to such August 1; provided, however, that such action shall be taken only if such sums shall be sufficient to redeem $25,000 principal amount of Debentures or more. (b) In the event that any Debenture or portion thereof called for redemption through operation of the Sinking Fund pursuant to paragraph (a) of this Section 5.05 is converted into Common Stock of the Company after being so called for redemption, the Company may, at its option, reduce in whole or part the amount of the payment currently required or payable under Section 5.04(a) (and Section 5.04(b) if applicable) by an amount equal to the principal amount of such Debenture or portion thereof so converted, provided that the Company shall notify the Trustee in writing at the time any Sinking Fund payment is made whether the Company elects to reduce such payment, and, if so, the amount of the reduction. (c) Any unused balance of moneys remaining in the hands of the Trustee on the June 1 preceding the Sinking Fund payment date in any year shall be added to any Sinking find payment to be made I immediately available funds in that year, and together with such payment, if any, shall be applied to the redemption of Debentures in accordance with the provisions of this Section 5.05. The Company will pay to the Trustee, with respect to any Debentures to be redeemed pursuant to this Section 5.05, accrued interest to be paid by the Trustee in respect of such Debentures, it being the intention that accrued interest and any other expenses shall not be charged against Sinking Fund moneys. 36 SECTION 5.06. Redemption in Event of Default. The Trustee shall not redeem any Debentures with Sinking Fund moneys or mail any notice of redemption of Debentures by operation of the Sinking Fund during any period in which the Trustee is charged with knowledge of the continuance of either a default in payment of interest on the Debentures or of any Event of Default (other than an Event of Default occurring as a consequence of this paragraph), except that if the notice of redemption of any Debentures shall theretofore have been mailed in accordance with the provisions hereof, the Trustee shall redeem such Debentures if funds sufficient for that purpose shall be paid to the Trustee for that purpose in accordance with the terms of this Article Five. Except as aforesaid, any moneys in the Sinking Fund during any period in which the Trustee is charged with the knowledge of the continuance of any such default or Event of Default shall, during such period, be held as security for the payment of all the Debentures; provided, however, that in case such Event of Default shall have been cured or waived as provided herein, such moneys shall thereafter be applied on the next August 1 on which such moneys may be applied pursuant to the provisions of this Section 5.06. For the purposes of this Section 5.06 and of Section 8.07, the Trustee shall not be charged with knowledge of the continuance either of default in payment of interest on the Debentures or of any Event of Default unless either (a) a responsible officer of the Trustee assigned to its corporate trust department shall, as such officer, have actual knowledge thereof or (b) written notice of such continuance shall have been given to the Trustee by the Company or by the holders of at least five percent of the aggregate principal amount of the Debentures at the time outstanding. SECTION 5.07. Manner of Redeeming Debentures. The Debentures to be redeemed from time to time as in Section 5.05 provided shall be selected by the Trustee for redemption in the manner provided in Section 5.02 and notice thereof shall be given by the Trustee to the Company, and the Company hereby authorizes the Trustee, in the name of and at the expense of the Company, to give notice on behalf of the Company of the call of such Debentures, all in the manner and with the effect in this Article Five specified except that, in addition to the matters required to be included in such notice by Section 5.02, such notice shall also state that the Debentures therein designated for redemption are to be redeemed through operation of the Sinking Fund. Subject to the provisions of Section 5.06 and to the receipt by the Trustee of the funds and the accrued interest to be paid to the Trustee pursuant to Sections 5.04 and 5.05, the Trustee shall cause such Debentures to be so redeemed and paid in accordance with such notice in the manner and with the effect provided in Sections 5.02 and 5.03 37 SECTION 5.08. Cancellation of Redeemed Debentures. All Debentures surrendered to the Trustee, pursuant to the provisions of this Article Five, shall be forthwith cancelled by it, and shall be destroyed by the Trustee, which shall, upon request, deliver its certificate thereof to the Company. SECTION 5.09. Conversion Arrangements on Call for Redemption. In connection with any redemption of Debentures, the Company may arrange for the purchase and conversion of any Debentures by an agreement with one or more investment bankers or other purchasers to purchase such Debentures by paying to debentureholders, or to the Trustee in trust for the debentureholders, on or before the close of business on the date fixed for redemption, an amount not less than the redemption price payable by the Company on redemption of such Debentures. Notwithstanding anything to the contrary contained in this Article Five, the obligation of the Company to pay the redemption price of such Debentures shall be satisfied and discharged to the extent such amount is so paid by such purchasers. Pursuant to such an agreement, any Debentures tendered by the holder for redemption or not duly surrendered for conversion by the holder shall be deemed acquired by such purchasers from such holders and surrendered by such purchasers for conversion, all as of immediately prior to the close of business on the date fixed for redemption, subject to payment of the above as aforesaid. ARTICLE SIX PARTICULAR COVENANTS OF THE COMPANY The Company covenants as follows: SECTION 6.01. Payment of Principal of (and Premium, if Any) and Interest on Debentures. The Company will duly and punctually pay or cause to be paid the principal of (and premium, if any) and interest on each of the Debentures at the time and place and in the manner provided in the Debentures and this Indenture. SECTION 6.02. Maintenance of Office or Agency for Registration of Transfer, Conversion Exchange and Payment of Debentures. So long as any of the Debentures shall remain outstanding, the Company will maintain an office or agency in the City of San Francisco, the State of California and in the Borough of Manhattan, The City of New York, State of New York, where the Debentures may be surrendered for exchange, conversion or registration of transfer as in this Indenture provided, and where notices and demands to or upon the Company in respect of the Debentures or of this Indenture may be served, and where the Debentures may be presented or surrendered for payment. The Company initially appoints each of the Trustee and the Authenticating Agent its office or agency for each of said purposes. The 38 Company will give to the Trustee notice of the location of any such office or agency and of any change of location thereof. In case the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, such surrenders, presentations and demands may be made and notices may be served at the principal office of the Trustee in the City of San Francisco, and the Company hereby appoints the Trustee its agent to receive at the aforesaid office all such surrenders, presentations, notices and demands. Unless other arrangements are made by the Company, payment of interest will be made by check mailed by the Company to the registered address of the person entitled thereto. The Company may from time to time designate one or more other offices or agencies (in or outside of the Borough of Manhattan, The City of New York) where the Debentures may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the City of San Francisco and in the Borough of Manhattan, The City of New York, for such purposes as stated in this Section. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such office or agency. SECTION 6.03. Appointment to Fill a Vacancy in the Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 6.04. Provision as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 6.04, (1) that it will hold all sums held by it as such agent for the payment of the principal of (and premium, if any) or interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor on the Debentures) in trust for the benefit of the persons entitled thereto, and (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Debentures) to make any payment of the principal of (and premium, if any) or interest on the Debentures when the same shall be due and payable, and (3) that it will, at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust, by such paying agent. 39 (b) Whenever the Company shall have one or more paying agents, it will, on or prior to each due date of the principal of (and premium, if any) or interest on any Debentures, deposit with a paying agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held ins trust for the benefit of the holders of Debentures entitled to such principal, premium or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of its failure so to act. (c) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of (and premium, if any) or interest on the Debentures, set aside, segregate wad hold in trust for the benefit of the persons entitled thereto, a sum sufficient to pay such principal (and premium, if any) or interest so becoming due and will notify the Trustee of any failure to take such action. (d) Anything in this Section 6.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by it, or any paying agent hereunder, as required by this Section 6.04, such sums to be held by the Trustee upon the trusts herein contained. (e) Anything in this Section 6.04 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 6.04 is subject to the provisions of Sections 14.03 and 14.04. SECTION 6.05. Maintenance of Corporate Existence. So long as any of the Debentures shall remain outstanding, the Company will at all times (except as otherwise provided or permitted in this Section 6.05 or elsewhere in this Indenture) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and franchises and the corporate existence and franchises of each Subsidiary; provided that nothing herein shall require the Company to continue the corporate existence or franchises of any Subsidiary if in the judgment of the Company it shall be necessary, advisable or in the interest of the Company to discontinue the same. SECTION 6.06. Further Assurance. From time to time whenever reasonably demanded by the Trustee the Company will make, execute and deliver or cause to be made, executed and delivered any and all such further and other instruments and assurances as may be reasonably necessary or proper to carry out the intention of or to facilitate the performance of the terms of this Indenture or to secure the rights and remedies hereunder of the holders of the Debentures. 40 SECTION 6.07. Officers' Certificate as to Default. The Company will, so long as any of the Debentures are outstanding: (a) deliver to the Trustee, forthwith upon becoming aware of any default or defaults in the performance of any covenant, agreement or condition contained in this Indenture, an Officers' Certificate specifying such default or defaults, (b) deliver to the Trustee, forthwith upon becoming aware of any default or defaults under Section 8.01(d) of this Indenture, an Officers' Certificate specifying such default or defaults, and (c) deliver to the Trustee within 90 days after the end of each fiscal year of the Company, which on the date hereof ends December 31, beginning with the fiscal year 1986, an Officers' Certificate stating that: (1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision; and (2) to the best of his knowledge, based on such review, the Company has fulfilled all its obligations under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to him and the nature and status thereof. ARTICLE SEVEN DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 7.01. Company to Furnish Trustee Information as to Names and Addresses of Debentureholders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after each January 15 and July 15, beginning January 15, 1987, a list, in such form as the Trustee may reasonably require, of the names and addresses of the debentureholders as of such January 15 and July 15, as the case may be (or if such January 15 or July 15 is not a business day, as of the business day next preceding such January 15 or July 15), and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished. 41 provided, however, that so long as the Trustee is the Debenture registrar, no such lists shall be required to be furnished. SECTION 7.02. Preservation and Disclosure of Lists. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures (1) contained in the most recent list furnished to it as provided in Section 7.01 and (2) received by it in the capacity of paying agent (if so acting) or Debenture registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. (b) In case three or more holders of Debentures (hereinafter referred to as "applicants") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other holders of Debentures with respect to their rights under this Indenture or under the Debentures, and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five business days after the receipt of such application, at its election either (1) afford such applicants access to the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 7.02, or (2) inform such applicants as to the approximate number of holders of Debentures whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 7.02, and as to the approximate cost of mailing to such debentureholders the form of proxy or other communication, if any, specified in such application. If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each debentureholder whose name and address appears in the information preserved at the time by the Trustee in accordance with the provisions of subsection (a) of this Section 7.02, a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within five days after such tender, the Trustee shall mail to such applicants 42 and file with the Securities and Exchange Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the holders of Debentures or would be violation of applicable law. Such written statement shall specify the basis of such opinion. If said Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such objections, said Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all such debentureholders with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application. All notices, demands, filings or other documents received by the Trustee from, or sent by the Trustee to, debentureholders or said Commission pursuant to subsection (b) shall also be sent to the Company by the Trustee promptly after receipt or concurrently with sending. (c) Each and every holder of the Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any paying agent nor the Debenture registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the holders of Debentures in accordance with the provisions of subsection (b) of this Section 7.02, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under said subsection (b). SECTION 7.03. Reports by the Company. (a) The Company covenants and agrees to file with the Trustee within fifteen days after the Company is required to file the same with the Securities and Exchange Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as said Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with said Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and said Commission, in accordance with rules and regulations prescribed from time to time by said Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. 43 (b) The Company covenants and agrees to file with the Trustee and the Securities and Exchange Commission, in accordance with the rules and regulations prescribed from time to time by said Commission, such additional information, documents, and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit to the holders of Debentures within thirty days after the filing thereof with the Trustee, in the manner and to the extent provided in subsection (c) of Section 7.04 with respect to reports pursuant to subsection (a) of said Section 7.04, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 7.03 as may be required by rules and regulations prescribed from time to time by the Securities and Exchange Commission. SECTION 7.04. Reports by the Trustee. (a) On or before July 15, 1987, and on or before July 15 in every year thereafter, so long as any Debentures are outstanding hereunder, the Trustee shall transmit to the debentureholders, as hereinafter in this Section 7.04 provided, and to the Company, a brief report dated as of May 15 of the year in which such report is made with respect to: (1) its eligibility under Section 9.09, and its qualifications under Section 9.08, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under such Sections, a written statement to such effect; (2) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Debentures, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to state such advances if such advances so remaining unpaid aggregate not more than one-half of one per cent of the principal amount of the Debentures outstanding on the date of such report; (3) the amount, interest rate, and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Debentures) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in paragraph (2), (3), (4) or (6) of subsection (b) of Section 9.13; (4) the property and funds of the Company, if any, physically in the possession of the Trustee (as such) on the date of such report; 44 (5) any additional issue of Debentures which the Trustee has not previously reported; and (6) any action taken by the Trustee in the performance of its duties under this Indenture which it has not previously reported and which in its opinion materially affects the Debentures, except action in respect of a default, notice of which has been or is to be withheld by it in accordance with the provisions of Section 8.07. (b) The Trustee shall transmit to the debentureholders, as hereinafter provided, and to the Company, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to the provisions of subsection (a) of this Section 7.04 (or if no such report has yet been so transmitted, since the date of execution of this Indenture), for the reimbursement of which it claims or may claim a lien or charge prior to that of the Debentures on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate ten per cent or less of the principal amount of Debentures outstanding at such time, such report to be transmitted within ninety days after such time. (c) Reports pursuant to this Section 7.04 shall be transmitted by mail to all holders of Debentures, as the names and addresses of such holders appear upon the registry books of the Company, and to the Company in accordance with Section 16.03. (d) A copy of each such report shall, at the time of such transmission to debenturebolders, be filed by the Trustee with each stock exchange upon which the Debentures are listed and also with the Securities and Exchange Commission. The Company will notify the Trustee when and as the Debentures become listed on any stock exchange. ARTICLE EIGHT REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 8.01. Events of Default Defined. In case one or more of the following Events of Default shall have occurred and be continuing, that is to say: (a) default in the payment, whether or not prohibited by the provisions of Article Three, of any instalment of interest upon any of the 45 Debentures as and when the same shall become due and payable, and continuance of such default for a period of thirty days; or (b) default in the payment, whether or not prohibited by the provisions of Article Three, of the principal of (and premium, if any, on) any of the Debentures as and when the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise, or in the making of any Sinking Fund payment; or (c) failure on the part of the Company duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Company in the Debentures or in this Indenture contained for a period of sixty days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Trustee, or to the Company and the Trustee by the holders of at least twenty-five per cent in aggregate principal amount of the Debentures at the time outstanding; or (d) If an event of default as defined in any mortgage, indenture or instrument, under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any Subsidiary (other than indebtedness owing to a seller or any of its affiliates, successors and assigns for real or personal property (including intangibles) and other than indebtedness owing to a lessor or any of its affiliates, successors and assigns under any lease of real or personal property (including, but not limited to any capitalized lease)), whether such indebtedness now exists or shall hereafter be created, shall happen and shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, provided that (i) such acceleration shall not be rescinded or annulled within thirty days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Debentures a written notice specify in such event of default and requiring the Company to cause such acceleration to be rescinded or annulled and (ii) the amount of the indebtedness subject to acceleration equals or exceeds 15% of the consolidated total indebtedness of the Company as of the last date of the next preceding fiscal quarter of the Company; or (e) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under 46 any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of sixty consecutive days; or (f) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay is debts as they become due or shall take any corporate action in furtherance of any of the foregoing, then and in each and every such case, unless the principal of all the Debentures shall have already become due and payable, either the Trustee or the holders of not less than twenty-five per cent in aggregate principal amount of the Debentures then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by debentureholders), may declare the principal of all the Debentures to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Debentures contained to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured instalments of interest upon all the Debentures and the principal of (and premium, if any, on) any and all Debentures which shall have become due otherwise than by declaration (with interest on overdue instalments of interest to the extent permitted by law, and on such principal and premium, if any, at the rate of interest borne by the Debentures to the date of such payment or deposit) and the expenses of the Trustee, and any and all defaults under the Indenture, other than the nonpayment of principal of and accrued interest on Debentures which shall have become due by declaration, shall have been remedied-then and in every such case the holders of a majority in aggregate principal amount of the Debentures then outstanding, by written notice to the Company and to the Trustee, may waive all defaults and rescind and annul 47 such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the Trustee and the holders of the Debentures shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. SECTION 8.02. Payment of Debentures on Default; Suit Therefor. The Company covenants that (1) in case default shall be made in the payment of any instalment of interest on any of the Debentures, as and when the same shall become due and payable, and such default shall have continued for a period of thirty days, or (2) in case default shall be made in the payment of the principal of (and premium, if any, on) any of the Debentures when the same shall have become due and payable, whether upon maturity of the Debentures or upon redemption or upon declaration or otherwise-then, upon demand of the Trustee, or upon the request of 25% of the debentureholders the Company will pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have become due and payable on all such Debentures for principal (and premium, if any) or interest, or both, as the case may be, with interest upon the overdue principal (and premium, if any) and instalments of interest (to the extent permitted by law) at the rate of interest borne by the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including a reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in is own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or any other obligor upon the Debentures, and collect in the manner provided by law out of the 48 property of the Company or any other obligor upon the Debentures wherever situated the moneys adjudged or decreed to be payable. In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor upon the Debentures under the Bankruptcy Code or any other applicable law or in connection with the insolvency of the Company or any other obligor upon the Debentures or in case a receiver or trustee shall have been appointed for any substantial part of its property, or in case of any other judicial proceedings of a similar nature relative to the Company or any other obligor upon the Debentures or to creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Debentures shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 8.02, shall be entitled and empowered by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Debentures, and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the debentureholders allowed in any such judicial proceedings relative to the Company or any other obligor upon the Debentures, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses and any other amounts due the Trustee pursuant to Section 9.06; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the debentureholders to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to the debentureholders, to pay to the Trustee any amount due it for compensation and expenses, including counsel fees incurred by it up to the date of such distribution and any other amounts due the Trustee pursuant to Section 9.06. To the extent that such payment of reasonable compensation, expenses, liabilities and counsel fees out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, moneys, securities and other property which the holders of the Debentures may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any debentureholder 49 any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any holder thereof, or to authorize the Trustee to vote in respect of the claim of any debentureholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Debentures, may be enforced by the Trustee without the possession of any of the Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as Trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Debentures and the Trustee. SECTION 8.03. Application of Moneys Collected by Trustee. Subject to the provisions of Article Three, any moneys collected by the Trustee pursuant to section 8.02 shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Debentures, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 9.06; SECOND: In case no principal of the outstanding Debentures shall have become due and be unpaid, to the payment of interest on the Debentures, in the order of the maturity of the instalments of such interest, with interest upon the overdue instalments of interest (so far as permitted by law and to the extent that such interest has been collected by the Trustee) at the rate of interest borne by the Debentures, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; THIRD: In case any principal of the outstanding Debentures shall have become due, by declaration or otherwise, to the payment of the whole amount then owing and unpaid upon the Debentures for principal (and premium, if any) and interest, with interest on the overdue principal (and premium, if any) and instalments of interest (so far as permitted by law and to the extent that such interest has been collected by the Trustee) at the rate of interest borne by the Debentures; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Debentures, then to the payment of such principal (and premium, if any) and interest, without preference or priority of principal (and premium, if any) over interest, or of interest over principal (and premium, if any), or of any instalment of interest over any other instalment of interest, 50 ratably to the aggregate of such principal (and premium, if any) and accrued and unpaid interest; and FOURTH: To the payment of the remainder, if any, to the Company, its successors or assigns, or to whosoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. SECTION 8.04. Limitation on Suits by Holders of Debentures. No holder of any Debenture shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of default and of the continuance thereof, as hereinabove provided, and unless also the holders of not less than twenty-five per cent in aggregate principal amount of the Debentures then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for sixty days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 8.06; it being understood and intended, and being expressly covenanted by the holder of every Debenture with every other debentureholder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section 8.04, each and every debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provisions in this Indenture, but subject to the provisions of Article Three, the right of any holder of any Debenture to receive payment of the principal of (and premium, if any) and interest on such Debenture, on or after the respective due dates expressed in such Debenture, or to institute suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such holder. 51 SECTION 8.05. Proceedings by Trustee: Remedies Cumulative and Continuing. In case of a default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. All powers and remedies given by this Article Eight to the Trustee or to the debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 8.04, every power and remedy given by this Article Eight or by law to the Trustee or to the debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the debentureholders. SECTION 8.06. Rights of Holders of Majority in Principal Amount of Debentures to Direct Trustee and to Waive Defaults. The holders of a majority in aggregate principal amount of the Debentures at the time outstanding (determined as provided in Section 10.04), or, if a record date is set in accordance with Section 10.05, as of such record date, shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that subject to the provisions of Section 9.01, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel shall determine that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a responsible officer or officers of the Trustee, determine that the proceedings so directed would be illegal or subject it to any personal liability or be unjustly prejudicial to the debentureholders not consenting, and provided further that nothing in this Indenture shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction by the debentureholders. Prior to the declaration of the maturity of the 52 Debentures as provided in Section 8.01, the holders of a majority in aggregate principal amount of the Debentures at the time outstanding (determined as provided in Sections 10.04 and 10.05) may on behalf of the holders of all of the Debentures waive any past default hereunder and its consequences, except a default in the payment of interest or premium on, or the principal of, any of the Debentures or the making of any Sinking Fund payment or a default in respect of a covenant or provision hereof which under Article Twelve cannot be modified or amended without the consent of each outstanding Debenture so affected. In the case of any such waiver the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights thereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 8.07. Trustee to Give Notice of Defaults Known to It, But May Withhold in Certain Circumstances. The Trustee shall, within ninety days after the occurrence of a default hereunder, give to the debentureholders, in the manner and to the extent provided in subsection (c) of Section 7.04 with respect to reports pursuant to subsection (a) of Section 7.04, notice of such defaults known to the Trustee unless such defaults shall have been cured or waived before the giving of such notice (the term "defaults" for the purposes of this Section 8.07 being hereby defined to be the events specified in clauses (a), (b), (c), (d), (e) and (f) of Section 8.01, not including any periods of grace provided for in clauses (a), (c), (d) and (e), respectively, and irrespective of the giving of notice specified in clause (c)); provided that, except in the case of default in the payment of the principal of (and premium, if any) or interest on any of the Debentures or any Sinking Fund payment, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the debentureholders. SECTION 8.08. Requirement of an Undertaking to Pay Costs in Certain Suits Under the Indenture or Against the Trustee. All parties to this Indenture agree, and each holder of any Debenture by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made 53 by such party litigant; but the provisions of this Section 8.08 shall not apply to any suit instituted by the Trustee, to any suit instituted by any debenturebolder, or group of debentureholders, holding in the aggregate more than ten per cent in aggregate principal amount of the Debentures outstanding, or to any suit instituted by any debentureholder for the enforcement of the payment of the principal of (and premium, if any) or interest on any Debenture, on or after the due date expressed in such Debenture, or for the enforcement of the right to convert any Debenture as provided in Article Four. SECTION 8.09. Enforcement of Rights of Conversion by Debentureholders. Anything in this Indenture to the contrary notwithstanding, the holder of any Debenture, without reference to and without the consent of either the Trustee or the holder of any other Debenture, in his own behalf and for his own benefit may enforce, and may institute and maintain any proceedings suitable to enforce, his right to convert his Debenture into Common Stock as provided in Article Four. ARTICLE NINE CONCERNING THE TRUSTEE SECTION 9.01. Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default has occurred (which has not been cured or waived) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, provided, however, that (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default which may have occurred: (1) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and the Trustee shall only be liable for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and 54 (2) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a responsible officer or officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Debentures at the time outstanding (determined as provided in Sections 10.04 and 10.05) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section 9.01. SECTION 9.02. Reliance on Documents, Opinions, etc. Subject to the provisions of Section 9.01: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture or other paper or document believed by it to be genuine and to, have been signed or presented by the proper party or parties; (b) any request direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an instrument signed 55 in the name of the Company by the President or any Vice President and the Secretary or any Assistant Secretary or the Treasurer or any Assistant Treasurer (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors of the Company may be evidenced to the Trustee by a copy thereof certified by the Secretary or any Assistant Secretary of the Company; (c) The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (d) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the debentureholders, pursuant to the provisions of this Indenture, unless such debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e) The Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture or other paper or document, unless requested in writing so to do by the holders of not less than a majority in aggregate principal amount of the Debentures then outstanding (determined as provided in Sections 10.04 and 10.05); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding. The reasonable expense of every such examination made at the request of holders of not less than a majority in aggregate principal amount of the Debentures then outstanding (determined as provided in 56 Sections 10.04 and 10.05) shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. The Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 9.03. No Responsibility for Recitals, etc. The recitals contained herein and in the Debentures (other than the certificate of authentication of the Debentures) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representation as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent other than the Trustee. SECTION 9.04. Trustee, Paying Agent, Conversion Agent or Debenture Registrar May Own Debentures. The Trustee or any Authenticating Agent, paying agent, conversion agent or Debenture registrar, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, Authenticating Agent, paying agent, conversion agent or Debenture registrar. The Trustee shall be entitled to all rights set forth in Article Three in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness and nothing in Section 9.13 or elsewhere in this Indenture shall be construed to deprive the Trustee of any rights as such holder. SECTION 9.05. Moneys Received by Trustee to be Held in Trust Without Interest. Subject to the provisions of Section 14.04, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on moneys received by it hereunder except such as it may agree with the Company to pay thereon. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by its President or any Vice President or its Treasurer or any Assistant Treasurer. 57 SECTION 9.06. Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in connection with the acceptance or administration of its trust under this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company under this Section 9.06 to compensate the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this indenture. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. SECTION 9.07. Right of Trustee to Rely on Officers' Certificate Where No Other Evidence Specifically Prescribed. Subject to the provisions of Section 9.01, whenever in the administration of the provisions of this Indenture the trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. SECTION 9.08. Conflicting Interest of Trustee. (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section 9.08, it shall, within ninety days after ascertaining that it has such conflicting interest, either eliminate such conflicting interest or resign in the manner and with the effect specified in Section 9.10, such resignation to become effective upon the 58 appointment of a successor trustee and such successor's acceptance of such appointment, and the Company shall take prompt steps to have a successor appointed in the manner provided in Section 9.10. (b) In the event that the Trustee shall fail to comply with the provisions of subsection (a) of this Section 9.08, the Trustee shall, within ten days after the expiration of such ninety-day period, transmit notice of such failure to the debentureholders in the manner and to the extent provided in subsection (c) of Section 7.04 with respect to reports pursuant to subsection (a) of Section 7.04. (c) For the purposes of this Section 9.08 the Trustee shall be deemed to have a conflicting interest if (1) the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company, are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of Debentures issued under this Indenture, provided that there shall be excluded from the operation of this paragraph any other indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding if (i) this Indenture and such other indenture or indentures are wholly unsecured and such other indenture or indentures are hereafter qualified under the Trust Indenture Act of 1939, unless the Securities and Exchange Commission shall have found and declared by order pursuant to subsection (b) of Section 305 or subsection (c) of Section 307 of the Trust Indenture Act of 1939 that differences exist between the provisions of this Indenture and the provisions of such other indenture or indentures which are so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under this Indenture and such other indenture or indentures, or (ii) the Company shall have sustained the burden of proving, on application to the Securities and Exchange Commission and after opportunity for hearing thereon, that the trusteeship under this Indenture and such other indenture is not so likely to involve a material conflict of interest as to make it necessary in the public interest or for the protection of investors to disqualify the Trustee from acting as such under one of such indentures; (2) the Trustee or any of its directors or executive officers is an obligor upon the Debentures or an underwriter for the Company; 59 (3) the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with the Company or an underwriter for the Company; (4) the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee, or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (A) one individual may be a director and/or an executive officer of the Trustee and a director and/or an executive officer of the Company, but may not be at the same time an executive officer of both the Trustee and the Company; (B) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director and/or executive officer of the Trustee and a director of the Company; and (C) the Trustee may be designated by the Company or by an underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent, or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this subsection (c), to act as trustee whether under an indenture or otherwise; (5) ten per cent or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner, or executive officer thereof, or twenty per cent or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or ten per cent or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner, or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons; (6) the Trustee is beneficial owner of, or holds as collateral security for an obligation which is in default, (A) five per cent or more of the voting securities, or ten per cent or more of any other class of security, of the Company, not including the Debentures issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (B) ten per cent or more of any class of security of an under-writer for the Company; (7) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, five per cent or more of the voting securities of any person who, to the knowledge of the Trustee, owns ten per cent or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company; 60 (8) the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default, ten per cent or more of any class of security of any person who, to the knowledge of the Trustee, owns fifty per cent or more of the voting securities of the Company; or (9) the Trustee owns on May 15 in any calendar year, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of twenty-five per cent or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7), or (8) of this subsection (c). As to any such securities of which the Trustee acquired ownership through becoming executor, administrator, or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of two years from the date of such acquisition, to the extent that such securities included in such estate do not exceed twenty-five per cent of such voting securities or twenty-five per cent of any such class of security. Promptly after May 15, in each calendar year, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of May 15. If the Company fails to make payment in full of principal of or interest on any of the Debentures when and as the same becomes due and payable and such failure continues for thirty days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such thirty-day period, and after such date, notwithstanding the foregoing provisions of this paragraph (9), all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this subsection (c). The specifications of percentages in paragraphs (5) to (9), inclusive, of this subsection (c) shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this subsection (c). For the purposes of paragraphs (6), (7), (8), and (9) of this subsection (c) only, (A) the terms "security" and "securities" shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay 61 moneys lent to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (B) an obligation shall be deemed to be in default when a default in payment of principal shall have continued for thirty days or more and shall not have been cured; and (C) the Trustee shall not be deemed to be the owner or holder of (i) any security which it holds as collateral security (as trustee or otherwise) for an obligation which is not in default as defined in clause (B) above, or (ii) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (iii) any security which it holds as agent for collection, or as custodian, escrow agent, or depository, or in any similar representative capacity. Except as above provided, the word "security" or "securities" as used in this Indenture shall mean any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security," or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. (d) For the purposes of this Section 9.08: (1) The term "underwriter" when used with reference to the Company shall mean every person who within three years prior to the time as of which the determination is made has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission. (2) The term "director" shall mean any director of a corporation or any individual performing similar functions with respect to any organization whether incorporated or unincorporated. (3) The term "person" shall mean an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization, or a government or political subdivision thereof. As 62 used in this paragraph, the term "trust" shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security. (4) The term "voting security" shall mean any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person. (5) The term "Company" shall mean any obligor upon the Debentures. (6) The term "executive officer" shall mean the president, every vice-president, every trust officer, the cashier, the secretary, and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors. The percentages of voting securities and other securities specified in this Section 9.08 shall be calculated in accordance with the following provisions: (A) A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section 9.08 (each of whom is referred to as a "person" in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person. (B) A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding. (C) The term "amount," when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares, and the number of units if relating to any other kind of security. 63 (D) The term "outstanding" means issued and not held by or for the account of the issuer. The following securities shall not be deemed outstanding within the meaning of this definition: (i) Securities of an issuer held in a sinking fund relating to securities of the issuer of the same class; (ii) Securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise; (iii) Securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and (iv) Securities held in escrow if placed in escrow by the issuer thereof; provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof. (E) A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges, provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes, and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture. SECTION 9.09. Requirements for Eligibility of Trustee. The Trustee hereunder shall at all times be a national banking association or corporation organized and doing business under the laws of the United States or any State or territory thereof or of the District of Columbia authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least one hundred million dollars, subject to supervision or examination by Federal, State, Territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.09, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth 64 in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.09, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.10. SECTION 9.10. Resignation or Removal of Trustee. (a) The Trustee, or any trustee hereafter appointed, may at any time resign by giving written notice of such resignation to the Company and to the debentureholders, such notice to the debentureholders to be given by mailing (by first-class mail) the same within thirty days after such notice is given to the Company. Upon receiving such notice of resignation and evidence satisfactory to it of such mailing, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within sixty days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 8.08, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur- (1) the Trustee shall fail to comply with the provisions of subsection (a) of Section 9.08 after written request therefor by the Company or by any debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months, or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.09 and shall fail to resign after written request therefor by the Company or by any such debentureholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of a substantial portion of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of a substantial portion of its property or affairs far the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the 65 Board of Directors of the Company, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 8.08, any debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures then outstanding (determined as provided in Sections 10.04 and 10.05) may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments signed by such holders or their attorneys-in-fact duly authorized, or by the affidavits of the permanent chairman and secretary of a meeting of the debentureholders evidencing the vote upon a resolution or resolutions submitted thereto with respect to such removal and appointment (as provided in Article Eleven), and by delivery thereof to the Trustee so removed, to the successor trustee and to the Company. (d) Any resignation or removal of the Trustee and appointment of any successor trustee pursuant to any of the provisions of this Section 9.10 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.11. SECTION 9.11. Acceptance by Successor to Trustee; Notice of Succession of a Trustee. Any successor trustee appointed as provided in Section 9.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but, nevertheless, on the written request of the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 9.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a lien upon all property or funds held or called by such trustee to secure any amounts then due it pursuant to the provisions of Section 9.06. 66 No successor trustee shall accept appointment as provided in this Section 9.11 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 9.08 and eligible under the provisions of Section 9.09. Upon acceptance of appointment by a successor trustee as provided in this Section 9.11, the Company shall mail to the debentureholders by first-class mail notice thereof. If the Company fails to mail such notice within thirty days after acceptance of appointment by the successor trustee, the successor trustee shall, in its discretion, cause such notice to be mailed at the expense of the Company. SECTION 9.12. Successor to Trustee by Merger, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger or conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be qualified under the provisions of Section 9.08 and eligible under the provisions of Section 9.09, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Debentures shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor Trustee, and deliver such Debentures so authenticated; and in case at that time any of the Debentures shall not have been authenticated, any successor to the Trustee may authenticate such Debentures either in the name of any predecessor hereunder or in the name of the successor Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Debentures or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or authenticate Debentures in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. SECTION 9.13. Limitations on Rights of Trustee as a Creditor. (a) Subject to the provisions of subsection (b) of this Section 9.13, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company or of any other obligor on the Debentures within four months prior to a default, as defined in subsection (c) of this Section 9.13, or subsequent to such a default, then, unless and until such default shall be cured or waived, 67 the Trustee shall se apart and hold in a special account for the benefit of the Trustee individually, the holders of the Debentures, and the holders of other indenture securities (as defined in subsection (c) of this Section 9.13): (1) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such four months' period, and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and (2) all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such four months' period, or an amount equal to the proceeds of any such property if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee (A) to retain for its own account (i) payments made on account of any such claim by any person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third person, and (iii) distributions made in cash, securities, or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable State laws; (B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such four months' period; (C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such four months' period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in subsection (c) of this Section 9.13, would occur within four months; or 68 (D) to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in such paragraph (B) or (C), as be one may be, to be extent of the fair value of such property. For the purposes of paragraphs (B), (C), and (D), property substituted after the beginning of such four months' period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned between the Trustee, the debentureholders, and the holders of other indenture securities in such manner that the Trustee, the debentureholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee, the debentureholders, and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account; provided, however, that if such other indenture securities constitute or represent Senior Indebtedness, such funds and property shall be apportioned in a manner that gives the holders thereof the benefits provided by Article Three. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim in bankruptcy or receivership or in proceedings for reorganization pursuant to the Bankruptcy Code or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceeding for reorganization is pending shall have jurisdiction 69 (i) to apportion between the Trustee, the debentureholders, and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and the proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee, the debentureholders and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula. Any Trustee who has reigned or been removed after the beginning of such four months' period shall be subject to the provisions of this subsection (a) as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such four months' period, it shall be subject to the provisions of this subsection (a) if and only if the following conditions exist: (i) the receipt of property or reduction of claim which would have given rise to the obligation to account, if such Trustee had continued as trustee, occurred after the beginning of such four months' period; and (ii) such receipt of property or reduction of claim occurred within four months after such resignation or removal. (b) There shall be excluded from the operation of subsection (a) of this Section 9.13 a creditor relationship arising from (1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advance and of the circumstances surrounding the making thereof is given to the debentureholders at the time and in the manner provided in Section 7.04 with respect to reports pursuant to subsections (a) and (b) thereof, respectively; 70 (3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity; (4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in subsection (c) of this Section 9.13; (5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25 (a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or (6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in subsection (c) of this Section 9.13. (c) As used in this Section 9.13: (1) The term "default" shall mean any failure to make payment in full of the principal of or interest upon any of the Debentures or upon the other indenture securities when and as such principal or interest becomes due and payable. (2) The term "other indenture securities" shall mean securities upon which the Company is an obligor (as defined in the Trust Indenture Act of 1939 as then in effect) outstanding under any other indenture (A) under which the Trustee is also trustee, (B) which contains provisions substantially similar to the provisions of subsection (a) of this Section 9.13, and (C) under which a default exists at the time of the apportionment of the funds and property held in said special account. (3) The term "cash transaction" shall mean any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand. (4) The term "self-liquidating paper" shall mean any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacture, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of goods, wares or 71 merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation. (5) The term "Company" shall mean any obligor upon the Debentures. SECTION 9.14. Authenticating Agent. The Trustee shall appoint an Authenticating Agent for the Debentures to act on its behalf and subject to its direction in connection with the authentication of the Debentures as set forth in Article Two. Such Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States or of the State of New York, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of at least one million dollars ($1,000,000), being subject to supervision or examination by Federal or state authority and having its principal office and place of business in the Borough of Manhattan, The City of New York, State of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.14 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency business of any Authenticating Agent, shall continue to be the Authenticating Agent without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 9.14, the Trustee promptly shall appoint a successor Authenticating Agent, shall give written notice of such appointment to the Company and shall mail notice of such appointment to all Debentureholders as their names and addresses appear in the registry books for the Debentures. 72 Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers, duties and responsibilities of its predecessor hereunder, with like effect as if originally named authenticating Agent herein. No successor Authenticating Agent shall be appointed unless eligible under the provision of this Section 9.14. The Trustee, with the consent of the Company, hereby appoints The Bank of California New York Trust Company as Authenticating Agent for the Debentures. The Trustee agrees to pay to the Authenticating Agent, if any, thus appointed, from time to time reasonable compensation for its services, and the Trustee shall be entitled to be reimbursed for such payments as provided in Section 9.06. The Authenticating Agent shall have no responsibility or liability for any action taken by it as such at the direction of the Trustee. ARTICLE TEN CONCERNING THE DEBENTUREHOLDERS SECTION 10.01. Evidence Of Action Debentureholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent, or waiver or the taking of any other action) the fact that the holders of such specified percentage, determined as of the time such action was taken or, if a record date was set with respect thereto pursuant to Section 10.05, as of such record date, have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by debentureholders in person or by agent or proxy appointed in writing, or (b) by the record of the holders of Debentures voting in favor thereof at any meeting of debentureholders duly called and held in accordance with the provisions of Article Eleven, or (c) by a combination of such instrument or instruments and any such record of such a meeting of debentureholders. SECTION 10.02. Proof of Execution of Instruments and of Holding of Debentures. Subject to the provisions of Sections 9.01, 9.02 and 11.05, proof of the execution of any instrument by a debentureholder or his agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Debentures shall be proved by the register of such Debentures, or by a certificate of the registrar thereof. 73 The Trustee may accept such other proof or require such additional proof of any matter referred to in this Section 10.02 as it shall deem reasonable. The record of any debentureholders' meeting shall be proved in the manner provided in Section 11.06. SECTION 10.03. Who May be Deemed Owners of Debentures. The Company, the Trustee, any paying or conversion agent and any Debenture registrar may deem and treat the person in whose name any Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of (premium, if any) and interest on such Debenture and for all other purposes; and neither the Company nor the Trustee nor any paying or conversion agent nor any Debenture registrar shall be affected by any notice to the contrary. All such payments so made to, or upon the order of, any such holder shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Debenture. SECTION 10.04. Debentures Owned by Company or Controlled or Controlling Persons Disregarded for Certain Purposes. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any demand, direction, request, notice, consent, waiver or other action under this Indenture, Debentures which are owned by the Company or any other obligor on the Debentures or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be outstanding for the purpose of any such determination, provided that for the purposes of determining whether the Trustee shall be protected in relying on any such demand, direction, request, notice, consent or waiver, only Debentures which the Trustee knows are so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section 10.04, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Debentures and that the pledgee is not a person directly or indirectly controlling or controlled by or under direct or common control with the Company or any such obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. 74 SECTION 10.05. Record Date for Action by Debentureholders, Whenever in this Indenture it is provided that holders of a specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any direction, notice, consent or waiver or the taking of any other action), other than any action taken at a meeting of debentureholders called pursuant to Article Eleven, the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten per cent in aggregate principal amount of the Debentures then outstanding, may request the Trustee to fix a record date for determining debentureholders entitled to notice of and to take any such action. In case the Company or the holders of Debentures in the amount above specified shall desire to request debentureholders to take any such action and shall request the Trustee to fix a record date with respect thereto by written notice setting forth in reasonable detail the debentureholder action to be requested, the Trustee shall promptly (but in any event within five days of receipt of such request) fix a record date which shall be a business day not less than fifteen nor more than twenty days after the date on which the Trustee receives such request. If the Trustee shall fail to fix a record date as hereinabove provided, then the Company or the holders of Debentures in the amount above specified may fix the same by mailing written notice thereof (the record date so fixed to be a business day not less than fifteen nor more than twenty days after the date on which such written notice shall be given) to the Trustee. If a record date is fixed according to this Section 10.05, only persons shown as debentureholders on the registration books for the Company at the close of business on the record date so fixed shall be entitled to take the requested action and the taking of any such action by the holders on the record date of the required percentage of the aggregate principal amount of the Debentures shall be binding on all debenturebolders, provided that the taking of the requested action by the holders on the record date of the percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall have been evidenced to the Trustee, as provided in Section 10.01, not later than 180 days after such record date. SECTION 10.06. Instruments Executed by Debentureholders Bind Future Holders. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.01, of the taking of any action by the holders of the percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture the serial number of which is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice 75 with the Trustee at its principal office and upon proof of holdings as provided in Section 10.02, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture and any direction, demand, request, waiver, consent, vote or other action of the holder of any Debenture which by any provisions of this Indenture is required or permitted to be given shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in lieu thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of the Debentures. ARTICLE ELEVEN DEBENTUREHOLDERS' MEETINGS SECTION 11.01. Purposes for Which Meetings May be Called A meeting of debentureholders may be called at any time and from time to time pursuant to the provisions of this Article Eleven for any of the following purposes: (1) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default or Event of Default hereunder and its consequences, or to take any other action authorized to be taken by debentureholders pursuant to any of the provisions of Article Eight; (2) to remove the Trustee and appoint a successor trustee pursuant to the provisions of Article Nine; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 12.02; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Debentures under any other provisions of this Indenture or under applicable law. SECTION 11.02. Manner of Calling Meetings, Record Date. The Trustee may at any time call a meeting of debentureholders to take any action specified in Section 11.01, to be held at such time and at such place in the Borough of Manhattan, The City of New York, State of New York, as the Trustee shall determine. Notice of every meeting of the debentureholders, setting forth the time and the place of such meeting and in general terms the 76 action proposed to be taken at such meeting, shall be mailed not less than twenty nor more than sixty days prior to the date fixed for the meeting to such debentureholders at their registered addresses and to the Company as provided in Section 16.03. For the purpose of determining debentureholders entitled to notice of any meeting of debentureholders, the Trustee shall fix in advance a date as the record date for such determination, such date to be a business day not more than ten days prior to the date of the mailing of such notice as hereinabove provided. Only persons in whose name any Debenture shall be registered upon the books of the Company on a record date fixed by the Trustee as aforesaid, or by the Company or the debentureholders as in Section 11.03 provided, shall be entitled to notice of the meeting of debentureholders with respect to which such record date was so fixed. SECTION 11.03. Call of Meeting by Company or Debentureholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the holders of at least ten per cent in aggregate principal amount of the Debentures then outstanding, shall have requested the Trustee to call a meeting of debentureholders to take any action authorized in Section 11.01 by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within twenty days after receipt of such request, then the Company or the holders of Debentures in the amount above specified, as the case may be, may fix the record date with respect to, and determine the time and the place in said Borough of Manhattan for, such meeting and may call such meeting to take any action authorized in Section 11.01, by mailing notice thereof as provided in Section 11.02. The record date fixed as provided in the preceding sentence shall be set forth in a written notice to the Trustee and shall be a business day not less than fifteen nor more than twenty days after the date on which such notice is sent to the Trustee. SECTION 11.04. Who May Attend and Vote at Meetings. Only persons entitled to receive notice of a meeting of debentureholders and their respective proxies duly appointed by an instrument in writing shall be entitled to vote at such meeting. The only persons who shall be entitled to be present or to speak at any meeting of debentureholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. When a determination of debentureholders entitled to vote at any meeting of debentureholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. SECTION 11.05. Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may 77 deem advisable for any meeting of debentureholders, in regard to proof of the holding of Debentures and the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. Except as otherwise permitted or required by any such regulations, the holding of Debentures shall be proved in the manner specified in Section 10.02. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by debentureholders as provided in Section 11.03, in which case the Company or the debentureholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by a vote of the holders of a majority in principal amount of the Debentures represented at the meeting and entitled to vote. Subject to the provisions of Section 10.04, at any meeting each debentureholder or proxy entitled to vote thereat shall be entitled to one vote for each $1,000 principal amount of Debentures held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debenture challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debentures held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other debentureholders. Any meeting of debentureholders duly called pursuant to the provisions of Section 11.02 or 11.03 may be adjourned from time to time, and the meeting may be held as so adjourned without further notice. At any meeting of debentureholders, the presence of persons who held, or who are acting as proxy for persons who held, an aggregate principal amount of Debentures on the record date for such meeting sufficient to take action on the business for the transaction of which such meeting was called shall constitute a quorum, but, if less than a quorum is present, the persons holding or representing a majority in aggregate principal amount of the Debentures represented at the meeting may adjourn such meeting with the same effect, for all intents and purposes, as though a quorum had been present. SECTION 11.06. Manner of Voting at Meetings and Record to be Kept. The vote upon any resolution submitted to any meeting of debentureholders shall be by written ballots on each of which shall be subscribed the signature of the debentureholder or proxy casting such ballot and the identifying number or numbers of the Debentures held or represented in respect of which 78 such ballot is cast. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of debentureholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 11.02. The record shall show the identifying numbers of the Debentures voting in favor of or against any resolution. Each counterpart of such record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the counterparts shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any counterpart record so signed and verified shall be conclusive evidence of the matters therein stated and shall be the record referred to in clause (b) of Section 10.01. SECTION 11.07. Exercise of Rights of Trustee and Debentureholders Not to be Hindered or Delayed. Nothing in this Article Eleven contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of debentureholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the debentureholders under any of the provisions of this Indenture or of the Debentures. ARTICLE TWELVE SUPPLEMENTAL INDENTURES SECTION 12.01. Purposes for Which Supplemental Indentures May Be Entered into Without Consent of Debentureholders. The Company, when authorized by a resolution of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall comply with the provisions of the Trust Indenture Act of 1939 as then in effect) for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article Thirteen; 79 (b) to add to the covenants of the Company such further covenants, restrictions or conditions as its Board of Directors and the Trustee shall consider to be for the protection of the holders of Debentures, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided, however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (c) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture or any supplemental indenture as shall not adversely affect the interests of the holders of the Debentures; (d) to provide for the issuance under this Indenture of Debentures, whether or not then outstanding, in coupon form (including Debentures registrable as to principal only) and to provide for exchangeability of such Debentures with Debentures issued hereunder in fully registered form and to make all appropriate changes for such purpose; and (e) to comply with Section 4.06. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer, mortgage, pledge or assignment of any property thereunder, provided that if any such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. Any supplemental indenture authorized by the provisions of this Section 12.01 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 12.02. 80 SECTION 12.02. Modification of Indenture with Consent of Holders of 66 2/3% in Principal Amount of Debentures. With the consent (evidenced as provided in Section 10.01) of the holders of not less than 66 2/3% in aggregate principal amount of the Debentures at the time outstanding (determined as provided in Sections 10.04 and 10.05), or, if a record date is set with respect to such consent in accordance with Section 10.05, as of such record date, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall comply with the provisions of the Trust Indenture Act of 1939 as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture (including, but without limitation, those relating to the Company's Sinking Fund obligations) or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the stated maturity of any Debenture, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, or reduce any premium payable upon the redemption thereof, or alter the provisions of this Indenture so as to affect adversely the terms of conversion of the Debentures into Common Stock, without the consent of the holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures, the consent of the holders of which is required for any such supplemental indenture, without the consent of the holders of all Debentures then outstanding; and provided further that no change or modification shall directly or indirectly modify or eliminate the provisions of Article Three in any manner which might terminate or impair the subordination of the Debentures to Senior Indebtedness without the prior written consent of the holders of the Senior Indebtedness. Upon the request of the Company, accompanied by a copy of a resolution of its Board of Directors certified by the Secretary or an Assistant Secretary of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of debentureholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture, provided that if such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. 81 It shall not be necessary for the consent of the debentureholders under this Section 12.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Prompt, after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section 12.02, the Company shall mail a notice to the debentureholders, setting forth in general terms the substance of such supplemental indenture. Any failure of the Company to mail such notice, or any defect therein, shall not, however in any way impair or affect the validity of any such supplemental indenture. SECTION 12.03. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the provisions of this Article Twelve, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 12.04. Debentures May Bear Notation of Changes by Supplemental Indentures. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article Twelve, or after any action taken at a debentureholders' meeting pursuant to Article Eleven, may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture or as to any action taken at any such meeting. If the Company or the Trustee shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures then outstanding. SECTION 12.05. Opinion of Counsel The Trustee, subject to the provisions of Sections 9.01 and 9.02, may rely upon, and shall be entitled to receive, an Opinion of Counsel as conclusive evidence that any such supplemental indenture complies with the provisions of this Article Twelve. 82 ARTICLE THIRTEEN CONSOLIDATION, MERGER AND SALE SECTION 13.01. Company May Consolidate, etc., on Certain Terms. Nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company) or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of the Company as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company) authorized to acquire and operate the same; provided, however, and the Company hereby covenants and agrees, that any such consolidation, merger, sale or conveyance shall be upon the condition that (a) immediately after such consolidation, merger, sale or conveyance the corporation (whether the Company or such other corporation) formed by or surviving any such consolidation or merger, or to which such sale or conveyance shall have been made, shall not be in default in the performance or observance of any of the terms, covenants and conditions of this Indenture to be kept or performed by the Company; (b) the corporation (if other than the Company) formed by or surviving any such consolidation or merger, or to which sale or conveyance shall have been made, shall be a corporation organized under the laws of the United States of America or any State thereof; and (c) the due and punctual payment of the principal of, premium, if any, and interest on all of the Debentures, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed or observed by the Company, shall be expressly assumed, by supplemental indenture complying with the requirements of Article Twelve, satisfactory in form to the Trustee, executed and delivered to the Trustee by the corporation formed by such consolidation, or into which the Company shall have been merged, or by the corporation which shall have acquired such property. If at any time there be any consolidation or merger or sale or conveyance or lease of property to which the covenant of this Section 13.01 is applicable, then in any such event the successor corporation will promptly deliver to the Trustee: (1) an Officer's Certificate stating that as of the time immediately after the effective date of any such transaction the covenants of the Company contained in this Section 13.01 have been complied with and the successor corporation is not in default under the provisions of the Indenture; and 83 (2) an Opinion of Counsel stating that in his opinion such covenants have been complied with and that any instrument or instruments executed in the performance of such covenants comply with the requirements thereof SECTION 13.02. Successor Corporation to be Substituted. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, in the manner hereinabove provided, of the due and punctual payment of the principal of (premium, if any) and interest on all of the Debentures and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part. Such successor corporation thereupon may cause to be signed, and may issue either in its own name or in the name of Hexcel Corporation, any or all of the Debentures issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation (instead of the Company) and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Debentures which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Debenture which such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. SECTION 13.03. Opinion of Counsel The Trustee, subject to the provisions of Sections 9.01 and 9.02, may and shall be entitled to receive and rely on an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of this Article Thirteen. 84 ARTICLE FOURTEEN SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 14.01. Satisfaction and Discharge of indenture. If (a) the Company shall deliver to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07) and not theretofore cancelled, or (b) all the Debentures not theretofore cancelled or delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit with the Trustee as trust funds cash equal to the entire amount sufficient to pay at maturity or upon redemption all of such Debentures not theretofore cancelled or delivered to the Trustee for cancellation, including principal (and premium, if any) and interest due or to become due to such date of maturity or redemption date, as the case may be, and if in either case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect, and the Trustee, on demand of the Company and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture, the Company, however, hereby agreeing to reimburse the Trustee for any costs or expenses theretofore and thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Debentures notwithstanding the satisfaction and discharge of this Indenture, the obligation of the Company to the Trustee under Section 9.06 shall survive. SECTION 14.02. Application by Trustee of Funds Deposited for Payment of Debentures. All moneys deposited with the Trustee pursuant to Section 14.01 shall be held in trust and applied by it to the payment, either directly or through any paying agent (including the Company acting as its own payment agent), to the holders of the particular Debentures, for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest and premium, if any. SECTION 14.03. Repayment of Moneys Held by Paying .Agent. In connection with the satisfaction and discharge of this Indenture all moneys then held by any paying agent under the provisions of this Indenture shall, upon 85 demand of the Company, be paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. SECTION 14.04. Repayment of Moneys Held by Trustee. Any moneys deposited with the Trustee or any paying agent for the payment of the principal of, premium, if any, or interest on any Debentures and not applied but remaining unclaimed by the holders of Debentures for two years after the date upon which such payment shall have become due, shall be repaid to the Company by the Trustee or by such paying agent on demand; and thereupon the Trustee and such paying agent shall be released from all further liability with respect to such moneys, and the holder of any of the Debentures entitled to receive such payment shall thereafter look only to the Company for the payment thereof; provided, however, that the Trustee or such paying agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an authorized newspaper in each place of payment, or mail to each such holder notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be paid to the Company. ARTICLE FIFTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 15.01. Incorporators, Stockholders, Officers and Directors of Company Exempt from Individual Liability. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors, as such, of the Company or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights 86 and claims against, every such incorporator, stockholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom are hereby expressly waived and released as a condition of, and as consideration for, the execution of this Indenture and the issue of such Debentures. ARTICLE SIXTEEN MISCELLANEOUS PROVISIONS SECTION 16.01. Successors and Assigns of Company Bound by Indenture All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Company shall bind its successors and assigns, whether so expressed or not. SECTION 16.02. Acts of Board, Committee or Officer of Successor Corporation Valid. Any act or proceeding by any provision of this Indenture - --authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 16.03. Required Notices or Demands May be Served by Mail; Waiver. Any notice or demand which by any provisions of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited by registered mail (return receipt requested) in a United States Postal Service facility addressed (until another address is filed by the Company with the Trustee for such purpose), as follows: Hexcel Corporation, attention Corporate Secretary, 650 California Street, San Francisco, California 94108. Any notice, direction, request or demand by any debentureholder or the Company to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made at the principal office of the Trustee. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event or action relating thereto, and such waiver shall be the equivalent of such notice. Waivers of notice by debentureholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. 87 SECTION 16.04. Indenture and Debentures to be Construed in Accordance with the Laws of the State of California. This Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of California, and for all purposes shall be construed in accordance with the laws of said State, except as otherwise required by mandatory provisions of law. SECTION 16.05. Evidence of Compliance with Conditions Precedent Upon any request or application by the Company to the Trustee to take any action under any of the provisions as of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such document is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based, insofar as it relates to factual matters or information which is in the possession of the Company, upon the certificate, statement or opinion of or representations by an officer or officers of the Company, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, 88 statement or opinion may be band as aforesaid are erroneous, in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Trustee shall contain a statement that such firm is independent. SECTION 16.06. Payments Due on Saturdays, Sundays, and Holidays. In any case where the date of payment of interest on or principal of the Debentures or the date fixed for redemption of any Debenture or the making of any Sinking Fund payment shall not be a business day then payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if made on the date of payment or the date fixed for redemption, and no interest shall accrue for the period after the date of payment or date fixed for redemption. SECTION 16.07. Provisions Required by Trust Indenture Act of 1939 to Control. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included in this Indenture by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such required provision shall control. SECTION 16.08. Provisions of the Indenture and Debenture for the Sole Benefit of the Parties and the Debentureholders. Nothing in this Indenture or in the Debentures, expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto, the holders of Senior Indebtedness and the holders of the Debentures, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all its covenants, conditions and provisions being for the sole benefit of the parties hereto, the holders of Senior Indebtedness and the holders of the Debentures. 89 SECTION 16.09. Indenture May Be Executed in Counterparts; Acceptance by Trustee. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. The Bank of California, N.A., the party of the second part, hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. SECTION 16.10. Article and Section Headings. The Article and Section heading references herein and in the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 16.11. Severability. provision hereof shall be held to be invalid, illegal or unenforceable under applicable law, then the remaining provisions hereof shall be construed as though such invalid, illegal or unenforceable provision were not contained herein. IN WITNESS WHEREOF, HEXCEL CORPORATION, the party of the first part, has caused this Indenture to be signed and acknowledged by its President or one of its Vice Presidents, and its corporate sea] to be affixed hereunto, and the same to be attested by its Secretary or an Assistant Secretary; and The Bank of California, N.A., the party of the second part, has caused this Indenture to be signed and acknowledged by one of its Assistant Vice Presidents, has caused its corporate sea] to be affixed hereunto, and the same to be attested by one of its Assistant Secretaries, all as of the day and year first written above. HEXCEL CORPORATION ATTEST: By Secretary THE BANK OF CALIFORNIA, N.A. By ATTEST: Assistant Vice President Assistant Secretary 90 STATE OF CALIFORNIA THE CITY AND COUNTY OF SAN FRANCISCO ss.: On this 7th day of August, 1986, before me appeared D.T. Divird to me personally known or proved to me on the basis of satisfactory evidence to be the person who executed the above instrument, who, being by me duly sworn, did depose and say that he resides at Danville, CA; that he is the Vice President of Hexcel corporation, one of the corporations described in and which executed the above instrument; that the seal affixed to said instrument is the corporate seal of said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and that said instrument was the free act and deed of said corporation. /s/ Barbara Bernardo Notary Public STATE OF CALIFORNIA THE CITY AND COUNTY OF SAN FRANCISCO ss.: On this 7th day of August, 1986, before me appeared Gary Lew to me personally known or proved to me on the basis of satisfactory evidence to be the person who executed the above instrument, who, being by me duly sworn, did depose and say that he resides at San Francisco, CA; that he is the Asst. Vice President of The Bank of California, N.A., one of the corporations described in and which executed the above instrument; that the seal affixed to said instrument is the corporate seal of said corporation; that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors; and that said instrument was the free act and deed of said corporation. /s/ Barbara Bernardo Notary Public EX-10.4(D) 6 EXHIBIT 10.4(D) EXHIBIT 10.4(d) HEXCEL CORPORATION AND CERTAIN OF ITS SUBSIDIARIES _________________________ $345,000,000 SYNDICATED CREDIT FACILITIES $10,000,000 EUROPEAN OVERDRAFT FACILITY _________________________ AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF MARCH 5, 1998 _________________________ CREDIT FIRST SUISSE BOSTON - ----------------------------------------------------------------------------- TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . . . 26 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS . . . . . . . . . . . 26 2.1 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . 26 2.2 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . . . . 26 2.3 Use of Proceeds of Revolving Credit Loans. . . . . . . . . . . . . . . . 27 SECTION 3. AMOUNT AND TERMS OF LETTER OF CREDIT SUB-FACILITY. . . . . . . . . . . 27 3.1 L/C Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.2 Procedure for Issuance of Letters of Credit. . . . . . . . . . . . . . . 28 3.3 Fees, Commissions and Other Charges. . . . . . . . . . . . . . . . . . . 29 3.4 L/C Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 3.5 Reimbursement Obligation of the Borrowers. . . . . . . . . . . . . . . . 30 3.6 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.7 Letter of Credit Payments. . . . . . . . . . . . . . . . . . . . . . . . 32 3.8 Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3.9 Issuing Lender Reporting Requirements. . . . . . . . . . . . . . . . . . 32 3.10 Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 4. AMOUNT AND TERMS OF SWING LINE SUB-FACILITY. . . . . . . . . . . . . . 33 4.1 Swing Line Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 33 4.2 Procedure for Swing Line Loan Borrowing. . . . . . . . . . . . . . . . . 33 4.3 Refunding of Swing Line Loans. . . . . . . . . . . . . . . . . . . . . . 34 4.4 Unconditional Obligation to Refund Swing Line Loans. . . . . . . . . . . 35 4.5 Use of Proceeds of Swing Line Loans. . . . . . . . . . . . . . . . . . . 35 SECTION 5. AMOUNTS AND TERMS OF EUROPEAN SUB-FACILITY . . . . . . . . . . . . . . 35 5.1 European Revolving Credit Facility . . . . . . . . . . . . . . . . . . . 35 5.2 Procedure for Borrowing Syndicated European Loans. . . . . . . . . . . . 36 5.3 Procedure for Borrowing Local European Loans . . . . . . . . . . . . . . 36 5.4 Matters Relating to Local European Loans . . . . . . . . . . . . . . . . 37 5.5 Use of Proceeds of European Revolving Loans. . . . . . . . . . . . . . . 39 5.6 Termination of Foreign Borrower Status . . . . . . . . . . . . . . . . . 39 5.7 Resignation of Local Lender. . . . . . . . . . . . . . . . . . . . . . . 39 5.8 Reporting by Local Lenders . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 6. AMOUNTS AND TERMS OF EUROPEAN OVERDRAFT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 6.1 European Overdraft Facility. . . . . . . . . . . . . . . . . . . . . . . 40 6.2 Making of European Overdraft Loans . . . . . . . . . . . . . . . . . . . 41
Page 6.3 Repayment of European Overdraft Loans. . . . . . . . . . . . . . . . . . 41 6.4 Use of Proceeds of European Overdraft Loans. . . . . . . . . . . . . . . 41 6.5 Adjustment of European Overdraft Commitment. . . . . . . . . . . . . . . 41 SECTION 7. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 42 7.1 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . . . 42 7.2 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.3 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 43 7.4 Optional Termination or Reduction of Aggregate Revolving Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 7.5 Mandatory Reduction of Commitments and Prepayments . . . . . . . . . . . 44 7.6 Conversion and Continuation Options. . . . . . . . . . . . . . . . . . . 46 7.7 Minimum Amounts and Maximum Number of Tranches . . . . . . . . . . . . . 47 7.8 Interest Rates and Payment Dates . . . . . . . . . . . . . . . . . . . . 47 7.9 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . 48 7.10 Inability to Determine Interest Rate. . . . . . . . . . . . . . . . . . 49 7.11 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . 49 7.12 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.13 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . 51 7.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.16 Certain Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 7.17 Change of Lending Office. . . . . . . . . . . . . . . . . . . . . . . . 55 7.18 Overall Interest Rate for French Law. . . . . . . . . . . . . . . . . . 56 7.19 Designation of Additional Borrowers . . . . . . . . . . . . . . . . . . 56 7.20 European Monetary Union . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 8. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 58 8.1 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . 58 8.2 No Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . 59 8.4 Corporate Power; Authorization; Enforceable Obligations. . . . . . . . . 59 8.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.8 Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . 60 8.9 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.11 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.12 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 8.13 Investment Company Act; Other Regulations . . . . . . . . . . . . . . . 62 8.14 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Page 8.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 62 8.16 Collateral Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.17 Accuracy and Completeness of Information. . . . . . . . . . . . . . . . 64 8.18 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.20 Government Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 9. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . 65 9.1 Conditions to Initial Loans. . . . . . . . . . . . . . . . . . . . . . . 65 9.2 Conditions to Each Loan. . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 10. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 68 10.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 69 10.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . 69 10.3 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . 70 10.4 Conduct of Business and Maintenance of Existence. . . . . . . . . . . . 70 10.5 Maintenance of Property; Insurance. . . . . . . . . . . . . . . . . . . 71 10.6 Inspection of Property; Books and Records; Discussions. . . . . . . . . 71 10.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 10.8 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . 72 10.9 Additional Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 11. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 73 11.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . . . . . 73 11.2 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 74 11.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 75 11.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . . . . . 77 11.5 Limitation on Fundamental Changes . . . . . . . . . . . . . . . . . . . 78 11.6 Limitation on Sale of Assets. . . . . . . . . . . . . . . . . . . . . . 78 11.7 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . 79 11.8 Limitation on Investments . . . . . . . . . . . . . . . . . . . . . . . 79 11.9 Limitation on Transactions with Affiliates. . . . . . . . . . . . . . . 81 11.10 Limitation on Sales and Leasebacks . . . . . . . . . . . . . . . . . . 81 11.11 Limitation on Changes in Fiscal Year or Accounting Treatment . . . . . 81 11.12 Limitation on Negative Pledge Clauses. . . . . . . . . . . . . . . . . 81 11.13 Limitation on Lines of Business. . . . . . . . . . . . . . . . . . . . 82 11.14 Limitation on Modification of Agreements and Payments on Account of Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 11.15 No New Restrictions on Subsidiary Dividends. . . . . . . . . . . . . . 82 SECTION 12. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 13. THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT . . . . . . . . . . 86
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Page 13.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 13.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . . . 87 13.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 87 13.4 Reliance by Administrative Agent and Collateral Agent . . . . . . . . . 87 13.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 13.6 Non-Reliance on Administrative Agent, Collateral Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 13.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 13.8 Agents in their Individual Capacities . . . . . . . . . . . . . . . . . 89 13.9 Successor Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 14. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 14.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . 91 14.2 Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 92 14.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 14.4 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . 93 14.5 Survival of Representations and Warranties. . . . . . . . . . . . . . . 93 14.6 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . 94 14.7 Successors and Assigns; Participations and Assignments. . . . . . . . . 95 14.8 Adjustments; Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . 97 14.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 14.10 Certain Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 14.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 14.12 Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 14.13 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 14.14 Submission To Jurisdiction; Waivers. . . . . . . . . . . . . . . . . . 99 14.15 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . .100 14.16 WAIVERS OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . . . .101 14.17 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . .101 14.18 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . . . . .101
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SCHEDULES Schedule I Lenders; Commitments Schedule II Addresses for Notices Schedule 3.10 Existing Letters of Credit Schedule 7.5 Permitted Property Sales Schedule 8.4 Additional Foreign Law Requirements Schedule 8.6 Existing Litigation Schedule 8.14 Subsidiaries Schedule 8.15 Environmental Matters Schedule 9.1 International Counsel Schedule 11.2 Indebtedness Schedule 11.3 Liens Schedule 11.4 Guarantee Obligations Schedule 11.9 Permitted Transactions with Affiliates Schedule 11.14 Permitted Payments of Indebtedness
EXHIBITS Exhibit A Form of Revolving Credit Note Exhibit B Form of Swing Line Note Exhibit C-1 Form of Company Guaranty Exhibit C-2 Form of Company Pledge Agreement Exhibit D-1 Form of Subsidiary Guaranty Exhibit D-2 Form of Subsidiary Pledge Agreement Exhibit E Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP Exhibit F-1 Form of Notice of Borrowing (Drawings) Exhibit F-2 Form of Notice of Borrowing (Conversions) Exhibit F-3 Form of Notice of Borrowing (Continuations) Exhibit G Form of Assignment and Acceptance Exhibit H Form of Compliance Certificate Exhibit I Form of Additional Borrower Joinder Agreement Exhibit J Form of Local Lender Joinder Agreement
2 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 5, 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 collateral agent (the "COLLATERAL AGENT"); (e) CITICORP SECURITIES, INC., a Delaware corporation, as syndication agent (the "SYNDICATION AGENT") for the Lenders (e) CREDIT SUISSE FIRST BOSTON, a Swiss banking association ("CSFB"), as documentation agent (in such capacity, the "DOCUMENTATION AGENT") 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 is a party to the Credit Agreement, dated as of June 27, 1996 (as amended, supplemented or otherwise modified from time to time, the "EXISTING 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 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 Banks 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: 3 SECTION 1. DEFINITIONS 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. "ADDITIONAL BORROWER": as defined in subsection 7.19(a). "ADDITIONAL BORROWER JOINDER AGREEMENT": an Additional Borrower Joinder Agreement, substantially in the form of Exhibit I, delivered pursuant to subsection 7.19(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 OUTSTANDING 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 L/C Obligations and Swing Line Loans then outstanding. "AGGREGATE REVOLVING CREDIT COMMITMENT": $345,000,000, 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": (a) for each day when a Pricing Adjustment 4 Event is not continuing, the rate equal to 0.250% PER ANNUM and (b) for each day when a Pricing Adjustment Event is continuing, 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 .375% to 1.0 Greater than or equal to 4.0 .325% to 1.0, but less than 4.5 to 1.0 Greater than or equal to 3.5 .300% to 1.0, but less than 4.0 to 1.0 Greater than or equal to 3.0 .250% to 1.0, but less than 3.5 to 1.0 Greater than or equal to 2.5 .225% to 1.0, but less than 3.0 to 1.0 Less than 2.5 to 1.0 .1875% -----------------------------------------
"APPLICABLE MARGIN": (a) for each day when a Pricing Adjustment Event is not continuing, the rate per annum set forth under the relevant column heading below opposite the Leverage Ratio then in effect:
---------------------------------------------- Margin Leverage Ratio ------------------------ Eurodollar ABR Loans Loans ---------------------------------------------- Greater than or equal 0.625% 0% to 4.0 Greater than or equal 0.500% 0% to 3.5 to 1.0, but less than 4.0 to 1.0 Less than 3.5 to 1.0 0.375% 0% ----------------------------------------------
5 (b) for each day when a Pricing Adjustment Event is continuing, the rate per annum set forth under the relevant column heading below opposite the Leverage Ratio then in effect:
---------------------------------------------- Margin Leverage Ratio ------------------------ Eurodollar ABR Loans Loans ---------------------------------------------- Greater than or equal 1.125% 0.125% to 4.5 to 1.0 Greater than or equal 0.925% 0% to 4.0 to 1.0, but less than 4.5 to 1.0 Greater than or equal 0.700% 0% to 3.5 to 1.0, but less than 4.0 to 1.0 Greater than or equal 0.625% 0% to 3.0 to 1.0, but less than 3.5 to 1.0 Greater than or equal 0.400% 0% to 2.5 to 1.0, but less than 3.0 to 1.0 Less than 2.5 to 1.0 0.3125% 0% ----------------------------------------------
(c) Notwithstanding the foregoing and regardless of whether a Pricing Adjustment Event shall then be continuing, (i) 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 and (ii) 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. "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. "ASSIGNEE": as defined in subsection 14.7(c). "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 Extensions of Credit and (ii) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the Reserved Proceeds then outstanding. "BANKRUPTCY EVENT": any event described in Section 12(f)(i) or (ii). 6 "BORROWERS": as defined in the preamble hereto. "BORROWING DATE": any Business Day specified in a Notice of Borrowing pursuant to subsection 2.2, 4.2, 5.2, 5.3 or 6.2 as a date on which the relevant Borrower requests 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 (a) in New York, New York and (b) in the case of Eurocurrency Loans, (i) in London, England and either (A) in the case of Loans denominated in (1) Austrian shillings, in Vienna, Austria, (2) Belgian francs, in Brussels, Belgium, (3) Dutch guilders, in Amsterdam, The Netherlands, (4) French francs, in Lyon, France, (5) German marks, in Frankfurt-am-Main, Germany, (6) Italian lire, in Milan, Italy, (7) Spanish pesetas, in Madrid, Spain, and (8) any other currency, the principal financial center of the jurisdiction in which such Loan is being made and (B) 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 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 Standard and Poor's Rating Group ("S&P") or P-2 by Moody's Investors Service, Inc. 7 ("MOODY'S"), (e) securities with maturities of one year or less from the date of 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. '' 9601 ET SEQ., as amended, any successor statutes, and any regulations or legally enforceable guidelines promulgated thereunder. "CERCLIS" is defined in subsection 8.15(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 Holdings Inc., a Swiss corporation, and its successors. "CLOSING DATE": the date on which the conditions precedent set forth in subsection 9.1 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 understood that, on the Closing Date, the only such assets constituting "Collateral" shall be capital stock). 8 "COLLATERAL AGENT": as defined in the preamble hereto. "COMMERCIAL LETTER OF CREDIT": as defined in subsection 3.1(b). "COMMITMENT PERIOD": the period from and including the date hereof to but not including the Termination Date or such earlier date on which the Aggregate Revolving Credit 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. "COMPANY GUARANTY": the Guaranty, substantially in the form of Exhibit C-1, made by the Company in favor of the Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time. "COMPANY PLEDGE AGREEMENT": the Pledge Agreement, substantially in the form of Exhibit C-2, made by the Company in favor of the Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time. "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. "CREDIT DOCUMENTS": this Agreement, the Notes, the Applications, the Guarantees 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. "CSFB": as defined in the preamble. "DEFAULT": any of the events specified in Section 12, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has 9 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. "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 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 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 Lender or any Affiliate thereof; (ii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000; (iii) 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 having total assets in excess of $5,000,000,000; (iv) 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; (v) 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 10 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 or another country that is also a member of the OECD; (vi) the central bank of any country that is a member of the OECD; or (vii) a finance company, insurance company, bank, other financial institution or fund acceptable to the Administrative Agent, which acceptance shall not be unreasonably withheld; and, in each case, is capable of making Loans in accordance with the terms hereof both in the United States and 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 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. "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 11 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. (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 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 6.5 "EUROPEAN OVERDRAFT LOANS": as defined in subsection 6.1. "EUROPEAN REVOLVING LOANS": as defined in subsection 5.1(a). "EVENT OF DEFAULT": any of the events specified in Section 12, 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 12 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; and (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. "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 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, for any period of four consecutive fiscal quarters, the ratio of (i) EBITDA of the Company and its Subsidiaries for such period, 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 5.6, the collective 13 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"); (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 7.19. "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. 14 "FOREIGN PLEDGE AGREEMENT": each pledge agreement (or analogous agreement) by and between the Company or a Domestic Subsidiary, as applicable, and the Collateral 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 (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. "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 11.1, "GAAP" shall mean generally accepted account principles in the United States of America as in effect on December 31, 1996. "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 15 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. "GUARANTOR": any Person delivering a Guaranty pursuant to this Agreement. "GUARANTEES": the collective reference to (a) the Company Guaranty, (b) the Subsidiary Guaranty and (c) each other guaranty hereafter delivered to the Collateral Agent to support the obligations and liabilities of any Borrower hereunder and under any of the other Credit Documents. "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 11.1 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 12(e) only, the term "Indebtedness" shall also include obligations under Interest Rate Agreements and obligations on account of currency hedging arrangements. "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 16 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 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 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 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 17 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. "INTEREST RATE AGREEMENT": any interest rate swap, option, cap, collar or insurance or any other agreement or arrangement with any Lender (or any Affiliate thereof) which is designed to provide protection against fluctuations in interest rates, and any renewals thereof or substitutions therefor; "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 11.8(j) only, incurrence of any Guarantee Obligation with respect to obligations of, any Person. "ISSUING LENDER": with respect to any 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. "L/C COMMITMENT": $30,000,000 (or the Local Equivalent thereof). "L/C FEE PAYMENT DATE": the last Business Day of each March, June, September, and December. "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 Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to subsection 3.5. "L/C PARTICIPANTS": with respect to any Letter of Credit, the collective reference to all the Revolving Credit Lenders other than the Issuing Lender with respect thereto. "LENDERS": the collective reference to the Revolving Credit Lenders, the Swing Line Lender, the European Overdraft Lender and each Issuing Lender. "LETTERS OF CREDIT": as defined in paragraph 3.1. 18 "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 Revolving Credit Loan, Swing Line 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 5.1(a)(ii). "LOCAL LENDER" means, with respect to Local European Loans borrowed by (a) Hexcel-Belgium, Credit Suisse First Boston, (b) Salver, Istituto Bancario San Paolo di Torino S.p.A., (c) Composites-Austria, Credit Suisse First Boston and (d) Hexcel-Spain, Credit Suisse First Boston Aktiengesellschaft and (e) any Additional Borrower, the Lender (or affiliate 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. "LOCAL LENDER JOINDER AGREEMENT": a Local Lender Joinder Agreement, substantially in the form of Exhibit J, delivered pursuant to subsection 7.19(b). 19 "LOCAL LOAN BORROWER": Hexcel-Belgium, Salver, Composites-Austria, Hexcel-Spain and each other Foreign Borrower as to which a Local Lender has agreed to make Local European Loans. "MAJORITY LENDERS": at any time, Lenders having Revolving Credit Commitment Percentages which aggregate more than 50% of the Aggregate Revolving Credit Commitment then in effect or if the Aggregate Revolving Credit Commitment has been terminated, then 50% of the Aggregate Outstanding Extensions of Credit. "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 Collateral Agent or the Administrative Agent to enforce 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. "MULTICURRENCY SUBLIMIT" means, at any date, the amount equal to (a) $200,000,000 MINUS (b) the aggregate principal amount of Indebtedness then outstanding which was incurred pursuant to subsection 11.2(g). "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "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, 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 20 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) 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, 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) of the Company or such Subsidiary to any Person (other than to the Company or any of its Subsidiaries) and (b) the recovery by the Company and its Subsidiaries of amounts owing to them under property insurance policies. "NON-EXCLUDED TAXES": as defined in subsection 7.14(a). "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 F-1, (b) any conversion of Loans, a Notice of Borrowing (Conversions), substantially in the form of Exhibit F-2 and (c) any continuation of Eurocurrency Loans, a Notice of Borrowing (Continuations), substantially in the form of Exhibit F-3 hereto. "NPL": as defined in subsection 8.15(f). "OBLIGATIONS" means, to the extent arising hereunder, under the Notes or under any other Credit Document, all Loans, advances, debts, liabilities and obligations owing by (as applicable) the Borrowers or any Domestic Subsidiary that has executed a Domestic Guaranty to the Administrative Agent, any Lender, any Affiliate of the Administrative Agent or any Lender or any Person entitled to indemnification pursuant to subsection 13.7, 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 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 Austria (Austrian shillings), Belgium (Belgian francs), France (French francs), Germany (Deutschemarks), The 21 Netherlands (Dutch guilders), the United Kingdom (British pounds sterling ("Euro sterling")), 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 Revolving Credit 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. "PARTICIPANT": as defined in subsection 14.7(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "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 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. "PLEDGE AGREEMENTS": the collective reference to (a) the Company Pledge Agreement, (b) the Foreign Pledge Agreements and (c) the Subsidiary Pledge Agreements. "PRICING ADJUSTMENT EVENT": the failure of Specialty Chemicals to beneficially own (directly or indirectly) at least 30% of the issued and outstanding voting stock of the Company. "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. 22 "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 Subsidiaries, as applicable (including any surface water thereon or adjacent thereto, and soil and groundwater thereunder). "REFUNDED SWING LINE LOANS": as defined in subsection 4.3(a). "REGISTER": as defined in subsection 14.7(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 3.5 for amounts drawn under Letters of Credit issued by it. "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. ' 2615. "REQUIRED LENDERS": at any time, Lenders having Revolving Credit Commitment Percentages which aggregate more than 66-2/3% of the sum of the Aggregate Revolving Credit Commitment then in effect or if the Aggregate Revolving Credit Commitment has been terminated, then 66-2/3% of the Aggregate Outstanding Extensions of Credit. "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. 23 "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) of the definition of such term which was consummated within the immediately preceding 180 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 180-day period or (y) have been applied in accordance with the terms of subsection 7.5(f) (it being understood that amounts not so applied pursuant to the provisions of clause (x) or (y) of the proviso to subsection 7.5(f) shall be deemed not to constitute "Reserved Proceeds"). "RESPONSIBLE OFFICER": with respect to: (a) any Borrower, the chief executive officer, chief operating officer, senior vice president for finance and administration or chief financial officer of the Company or, with respect to financial matters, the senior vice president for finance and administration, 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 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 Lender immediately prior to such expiry or termination). "REVOLVING CREDIT LENDERS": 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 Extensions of Credit hereunder); collectively, the "REVOLVING CREDIT LENDERS". "REVOLVING CREDIT LOANS": as defined in subsection 2.1. "REVOLVING CREDIT NOTE": as defined in subsection 7.1(e). "SECURITY DOCUMENTS": the collective reference to the Company Pledge Agreement, the Subsidiary Pledge Agreement, the Foreign Pledge Agreements and all 24 other security documents hereafter delivered to the Administrative Agent or the Collateral 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 and Transaction Documents. "SPECIALTY CHEMICALS": the collective reference to Chemical Holdings and Ciba Specialty Chemicals Corporation, a Delaware corporation, and their successors. "STANDBY LETTER OF CREDIT": as defined in subsection 3.1(b). "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 and Ciba-Geigy Corporation), as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with subsection 11.14. "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 the First Supplemental Indenture, dated as of June 27, 1996, 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 25 $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. "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 a Subsidiary Guaranty. "SUBSIDIARY GUARANTY": the Guaranty, substantially in the form of Exhibit D-1, made by each Domestic Subsidiary of the Company in favor of the Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time. "SUBSIDIARY PLEDGE AGREEMENT": the Pledge Agreement, substantially in the form of Exhibit D-2, made by certain Domestic Subsidiaries of the Company in favor of the Collateral Agent, as the same may be amended, supplemented or otherwise modified from time to time. "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. 26 "SWING LINE LOANS": as defined in subsection 4.1. "SWING LINE NOTE": as defined in subsection 7.1(e). "SYNDICATED EUROPEAN LOAN": as defined in subsection 5.1(a)(i). "SYNDICATION AGENT": as defined in the preamble. "TERMINATION DATE": March 4, 2003. "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". "TRANSACTION DOCUMENTS" means the Credit Documents and all other agreements or instruments 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. "TRANSFEREE": as defined in subsection 14.7(h). "TYPE": as to any Loan, its nature as an ABR Loan or a Eurocurrency Loan. "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 27 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 REVOLVING CREDIT COMMITMENTS 2.1 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 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 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 2.2 and 7.6, 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. 2.2 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) on 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 of each borrowing available to the 28 Administrative Agent for the account of the Company at the office of the Administrative Agent specified in subsection 14.3 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 Leners and in like funds as received by the Administrative Agent. 2.3 USE OF PROCEEDS OF REVOLVING CREDIT LOANS. (a) The proceeds of the Revolving Credit Loans shall be utilized by the Company for general corporate purposes of the Company and its Subsidiaries. SECTION 3. AMOUNT AND TERMS OF LETTER OF CREDIT SUB-FACILITY 3.1 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 3.4(a), agrees to issue letters of credit ("LETTERS OF CREDIT") for the account of any Borrower 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 Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment, (ii) the Available Revolving Credit Commitment of any Revolving Credit Lender would be less than zero or (iii) the Aggregate Outstanding Extensions of Credit of all Revolving Credit Lenders would exceed the Aggregate Revolving Credit Commitment then in effect. (b) Each Letter of Credit shall (i) be denominated in Dollars or an Optional Currency, (ii) be (x) a standby letter of credit (a "STANDBY 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 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 Letter of Credit with an expiration date occurring up to twelve months after such 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 Letter of Credit shall have given 60 days' prior written notice to the relevant Borrower and the beneficiary of such 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 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 such Borrower agrees that, from and after the Termination Date, it shall provide to the Administrative Agent, as collateral security for the L/C Obligations on account of such Letter of Credit, an amount of cash which is equal to at 29 least 105% of the face amount thereof. (c) Each 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 Letter of Credit hereunder if (i) 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 or (ii) in the case of any requested Letter of Credit to be denominated in an Optional Currency, such Issuing Lender is not reasonably satisfied that deposits in the relevant Optional Currency will be freely available to it for the relevant period of time. 3.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. Any Borrower may request that an Issuing Lender issue a 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 Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days (or, in the case of Letters of Credit denominated in Optional Currencies, four 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 Letter of Credit to the beneficiary thereof or as otherwise may be agreed by such Issuing Lender and the relevant Borrower. Each Issuing Lender shall furnish to the Company and the Administrative Agent a copy of each Letter of Credit issued by such Issuing Lender, promptly following the issuance thereof. 3.3 FEES, COMMISSIONS AND OTHER CHARGES. (a) The Borrowers shall pay to the Administrative Agent, for the account of the relevant Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Standby Letter of Credit, computed for the period from and including the date of issuance of such Letter of Credit to the expiration date of such Standby 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 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 Participations). 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 June 30, 1998, for the period ending on, and including, the last day of the immediately preceding December, March, June or September, respectively) and on the Termination Date. (b) The Borrowers shall pay to the Administrative Agent, for the account of the relevant Issuing Lender and the L/C Participants, a letter of credit fee with respect to each 30 Commercial 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 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 Participations). Such fee shall be payable to the Administrative Agent, for the ratable account of the Revolving Credit Lenders, on the first L/C Fee Payment Date (commencing on June 30, 1998, for the period ending on, and including, the last day of the immediately preceding December, March, June or September, respectively) to occur following the issuance of such Commercial Letter of Credit. (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 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. 3.4 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 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 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 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 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. (b) If any amount required to be paid by any L/C Participant to an Issuing Lender pursuant to paragraph 3.4(a) in respect of any unreimbursed portion of any payment made by such Issuing Lender under any 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 31 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 3.4(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 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 3.4(a), such Issuing Lender receives any payment related to such 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 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. 3.5 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 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, New York City time, 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 Letter of Credit issued by it. Each Issuing Lender shall provide notice to the relevant 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 Letter of Credit was denominated and in immediately available funds. (b) Interest shall be payable on any and all amounts remaining unpaid by the Borrowers under this subsection from the date such amounts become payable until payment in full at (i) in the case of amounts owing in Dollars, the rate which would be payable on any outstanding Loans that are ABR Loans which were then overdue and (ii) in the case of amounts owing in Optional Currencies, 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 Letter of Credit shall constitute a request by 32 the relevant Borrower to the Administrative Agent for a borrowing of ABR Loans (in the case of Letters of Credit denominated in Dollars) or Local European Loans (in the case of Letters of Credit denominated in Optional Currencies) in the amount and currency of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. 3.6 OBLIGATIONS ABSOLUTE. (a) The obligations of each Borrower under subsection 3.5(a) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which any Borrower may have or have had against the relevant Issuing Lender, any L/C Participant or any beneficiary of a 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 3.5(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 Letter of Credit or any other party to which such Letter of Credit may be transferred or (iii) any claims whatsoever of such Borrower against any beneficiary of such Letter of Credit or any such transferee. (c) Neither the Issuing Lender with respect to any 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 Letter of Credit, except for errors or omissions caused by such Issuing Lender's gross negligence or willful misconduct. (d) Each Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit issued by it or the related drafts or documents, if done in the absence of gross negligence 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. 3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented for payment under any 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 Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 3.8 APPLICATION. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. 3.9 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 33 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 Letters of Credit and Standby Letters of Credit issued by such Issuing Lender, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the aggregate 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 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. 3.10 TRANSITIONAL PROVISIONS. Schedule 3.10 lists certain letters of credit issued prior to the date hereof by the Revolving Credit Lenders 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 Letters of Credit Issued pursuant to this Section 3 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 3.3 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 L/C Obligations. No letter of credit converted in accordance with this subsection 3.10 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 3.10 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 3.2(c)(A), to the extent that any letter of credit listed on Schedule 3.10 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 4. AMOUNT AND TERMS OF SWING LINE SUB-FACILITY 4.1 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 Extensions of Credit of all Revolving Credit Lenders shall not exceed the Aggregate Revolving Credit Commitment then in effect. Amounts borrowed under this subsection 4.1 may be repaid and, to but excluding the Termination Date, reborrowed. 34 (b) All Swing Line Loans shall be made and maintained as ABR Loans and, notwithstanding the provisions of subsection 7.6, shall not be entitled to be converted into Eurocurrency Loans; PROVIDED that nothing contained in this subsection 4.1 shall prohibit the conversion into Eurocurrency Loans of any Revolving Credit Loans the proceeds of which are utilized to refund Swing Line Loans. 4.2 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 $1,000,000 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 14.3 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. 4.3 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 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 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 14.3 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 4.3(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 35 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 4.3(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). 4.4 UNCONDITIONAL OBLIGATION TO REFUND SWING LINE LOANS. Each Revolving Credit Lender's obligation to make Revolving Credit Loans and to purchase participating interests in accordance with subsections 4.3(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 4.3(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. 4.5 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 5. AMOUNTS AND TERMS OF EUROPEAN SUB-FACILITY 5.1 EUROPEAN REVOLVING CREDIT FACILITY. (a) Subject to the terms and conditions set forth herein: 36 (i) each Revolving Credit 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 the Foreign Borrowers (including, without limitation, the Local Loan Borrowers) in Dollars and Optional Currencies from time to time during the period from the Closing Date to the Termination Date in accordance with the provisions of subsection 5.2; 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 Optional Currencies from time to time during the period from the Closing Date to the Termination Date in accordance with the provisions of subsection 5.3; PROVIDED that, after giving effect to the making of such European Revolving Loans and the simultaneous use of proceeds thereof, (w) each Revolving Credit Lender's Aggregate Outstanding Extensions of Credit shall not exceed its Revolving Credit Commitment then in effect, (x) the Aggregate Outstanding Extensions of Credit of all Revolving Credit Lenders shall not exceed the Aggregate Revolving Credit Commitment then in effect, (y) the aggregate principal amount of European Revolving Loans denominated in Optional Currencies and L/C Obligations denominated in Optional Currencies made to the Foreign Borrowers shall not exceed at any time the Multicurrency Sublimit in effect at such time and (z) the aggregate outstanding amount of European Revolving Loans made to such Foreign Borrower shall not exceed at any time its Foreign Borrower Sublimit then in effect. (b) Amounts borrowed pursuant to this subsection 5.1 may be repaid and, to but excluding the Termination Date, reborrowed. 5.2 PROCEDURE FOR BORROWING SYNDICATED EUROPEAN LOANS. The Foreign Borrowers may borrow under the Aggregate Revolving Credit Commitment pursuant to subsection 5.1 during the Commitment Period on any Business Day, PROVIDED that the relevant Foreign 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) 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 Foreign Borrower, 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 of each borrowing available to the Administrative Agent for the account of such Foreign Borrower prior to 11:00 A.M. (London, England time) on 37 the Borrowing Date requested by such Foreign Borrower in funds immediately available to the Administrative Agent in the relevant currency. Such borrowing will then be made available to the relevant Foreign Borrower by the Administrative Agent crediting the account of such Foreign Borrower with the Administrative Agent 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. 5.3 PROCEDURE FOR BORROWING LOCAL EUROPEAN LOANS. The Local Loan Borrowers may borrow under the Aggregate Revolving Credit Commitment pursuant to subsection 5.1 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 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 at its local office in the jurisdiction of the Local Loan Borrower prior to 11:00 A.M. (local time) on the Borrowing Date requested by such Local Loan Borrower in funds immediately available to such Local Loan Borrower in the relevant currency. 5.4 MATTERS RELATING TO LOCAL EUROPEAN LOANS. (a) Each Revolving Credit 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 Revolving Credit 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 Lenders at least three Business Days' prior notice thereof; (ii) the Administrative Agent hereby agrees that it will request that the Revolving Credit 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 12(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 38 (iii) in the event that any of the events specified in Section 12(f) shall have occurred with respect to any Borrower who has Local European Loans then outstanding, each Revolving Credit 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 Revolving Credit Lender and shall specify the relevant currency and the amount thereof required from such Revolving Credit Lender in order to effect the purchase by such Revolving Credit Lender of a participating interest in the amount equal to its Revolving Credit 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 Revolving Credit 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 Revolving Credit Lender (through the Administrative Agent) a certificate evidencing the participating interest in the Local European Loans purchased by such Revolving Credit 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 7.8(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 Revolving Credit Lenders, on account of such participating interests. The failure of any Revolving Credit Lender to deposit the amount described above with the Administrative Agent on the date when due shall not relieve any other Revolving Credit Lender of its obligations hereunder to purchase its participating interest or prejudice any rights that the relevant Local Lender may have against such Revolving Credit Lender as a result of any such default by such Revolving Credit Lender. No Revolving Credit Lender shall be responsible for any failure by any other Revolving Credit Lender to perform its obligation to purchase such participating interest hereunder nor shall the evolving Credit Commitment of any Revolving Credit 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 Revolving Credit Lender such Revolving Credit Lender's participating interest in a Local European Loan pursuant to subsection 5.4(a), such Local Lender receives any payment on account thereof, such Local Lender will distribute to the Administrative Agent, for the account of such Revolving Credit Lender, such Revolving Credit Lender's 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) 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 Revolving Credit Lender will return to such Local Lender any portion thereof previously distributed by such Local Lender for the account of such Revolving Credit Lender in like funds as such payment is required to be returned by such Local Lender. 39 (c) Each Revolving Credit 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 or gross negligence of the Local Lender as determined in a final, non-appealable judgment by a court of competent jurisdiction, and shall be honored in accordance with this Section 5 (irrespective of the satisfaction of the applicable conditions described in Section 9) 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, the Administrative Agent, any Lender 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 Revolving Credit 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 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. 5.5 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 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. 5.6 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, 40 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 subject to the terms of this Agreement (other than any indemnities and similar obligations of such Foreign Borrower which expressly survive the termination of this Agreement). 5.7 RESIGNATION OF LOCAL LENDER. (a) In the event that the Revolving Credit Commitment of a Local Lender shall at any time terminate (otherwise than on termination of the Aggregate Revolving Credit Commitment) or a Local Lender shall assign all of its Revolving Credit Commitment in accordance with the provisions of subsection 14.7(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 Revolving Credit Lender reasonably acceptable to the Administrative Agent and the Company is designated as a substitute Local Lender in accordance with the provisions of subsection 5.7(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 5.7(a), the Company may designate another Revolving Credit Lender reasonably acceptable to the Administrative Agent to serve as "Local Lender" with respect to the relevant Foreign Borrower; PROVIDED that no Revolving Credit 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 Joinder Agreement, duly executed and delivered by such designated Local Lender, such Revolving Credit 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 5.7(b), the right of the relevant Foreign Borrower to borrow Local European Loans shall be suspended. 5.8 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 Revolving Credit Lender a report containing such information. SECTION 6. AMOUNTS AND TERMS OF EUROPEAN OVERDRAFT FACILITY 41 6.1 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 6, 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. 6.2 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 date of the proposed Borrowing 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 9.2 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 9.2 hereof have been satisfied in connection with the making of any European Overdraft Loan. 6.3 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. 6.4 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. 6.5 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 Revolving Credit Commitment of Citibank, N.A. to the extent required by subsection 7.5(e); PROVIDED that, after giving effect to such decrease in the Revolving Credit Commitment of Citibank, N.A., the sum of the Revolving Credit Commitment of Citibank, N.A. and the European Overdraft Commitment shall be unchanged (it being understood 42 that such reduction in the Revolving Credit Commitment of Citibank, N.A. shall alter the Revolving Credit Commitment Percentage of each Revolving Credit 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 Revolving Credit 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 Revolving Credit Commitment of Citibank, N.A., the sum of the Revolving Credit Commitment of Citibank, N.A. and the European Overdraft Commitment shall be unchanged (it being understood that such increase in the Revolving Credit Commitment of Citibank, N.A. shall alter the Revolving Credit Commitment Percentage of each Revolving Credit Lender). SECTION 7. PROVISIONS RELATING TO THE EXTENSIONS OF CREDIT; FEES AND PAYMENTS 7.1 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 5.4(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 on the 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 7.8. (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 14.7(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each 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 7.1(b) shall, to the extent permitted by applicable law, be PRIMA FACIE 43 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 Lender through the Administrative Agent, such Borrower will execute and deliver to such Lender (i) 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 with appropriate insertions as to date and principal amount (a "REVOLVING CREDIT NOTE") and (ii) 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 B 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. 7.2 FACILITY FEE. (a) The Borrowers shall pay to the Administrative Agent, for the account of each Revolving Credit 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 then in effect on the average daily amount of the Revolving Credit Commitment of such Revolving Credit Lender 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 June 30, 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. (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 then in effect 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 June 30, 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. 7.3 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 7.3(b) shall apply and (y) the European Overdraft Loans, as to which the provisions of subsection 6.3 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 Revolving Credit Loans or the other Loans hereunder and, in any event, the date and amount of prepayment and whether the prepayment is of Eurocurrency Loans, ABR 44 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 7.15 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 principalamount 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. (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. 7.4 OPTIONAL TERMINATION OR REDUCTION OF AGGREGATE REVOLVING CREDIT COMMITMENT. The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Aggregate Revolving Credit Commitment or, from time to time, to reduce the amount thereof; PROVIDED that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans, European Revolving Loans and Swing Line Loans made on the effective date thereof, the aggregate principal amount of the Revolving Credit Loans, European Revolving Loans and Swing Line Loans then outstanding, when added to the then outstanding L/C Obligations, would exceed the Aggregate Revolving Credit Commitment 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. 7.5 MANDATORY REDUCTION OF COMMITMENTS AND PREPAYMENTS. (a) The Aggregate Revolving Credit Commitment shall terminate on the Termination Date. (b) If the Aggregate Outstanding Extensions of Credit of all 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 7.4 or this subsection 7.5), the Borrowers shall immediately repay the Aggregate Outstanding 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, THIRD, to the then outstanding European Revolving Loans (in such order as the Company shall elect) and, FOURTH, to cash collateralize the then outstanding L/C Obligations. (c) If the aggregate outstanding principal amount of European Overdraft Loans shall at any time exceed the European Overdraft Commitments then in effect, the Foreign 45 Borrowers shall, within five Business Days, repay the European Overdraft Loans by the amount of such excess. (d) If any Foreign Borrower shall at any time cease to be a "Foreign Borrower" hereunder, all European Revolving Loans owing by such Foreign Borrower shall be immediately due and payable (together with accrued interest and any other amounts owing in respect thereof). (e) If the European Overdraft Commitment shall at any time be increased pursuant to subsection 6.5(a), the Revolving Credit Commitment of Citibank, N.A. immediately shall be temporarily reduced (subject to reinstatement in accordance with the provisions of subsection 6.5(b)) by 100% of the amount of such increase and the Aggregate Outstanding Extensions of Credit owing to Citibank, N.A. immediately shall be prepaid by the amount necessary to cause such Aggregate Outstanding Extensions of Credit to equal Citibank, N.A.'s Revolving Credit Commitment Percentage of (after giving effect to such reduction of its Revolving Credit Commitment) of the Aggregate Outstanding Extensions of Credit of all Revolving Credit Lenders. (f) The Aggregate Revolving Credit 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 no such reduction shall be required: (x) with respect to the first $20,000,000 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); or (y) with respect to any Net Proceeds received on account of the sale, transfer or other disposition of any property listed on Schedule 7.5. Unless the Company otherwise elects, the application of prepayments made pursuant to this subsection 7.5(f) shall be made, FIRST, to ABR Loans and, SECOND, to Eurocurrency Loans. Notwithstanding anything to the contrary contained in this clause (f), any Reserved Proceeds which are not reinvested in accordance with the definition of such term within 180 days following the occurrence of the relevant Net Proceeds Event shall cease to be Reserved Proceeds, and shall be applied to reduce the Aggregate Revolving Credit Commitment in accordance with the terms of this clause (f), on the earlier to occur of (x) the 181st day following such occurrence and (y) 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. (g) Notwithstanding anything to the contrary contained herein, in the event that a Borrower would incur costs pursuant to subsection 7.15 as a result of any payment due as a result of any commitment reduction required to be made pursuant to this subsection 7.5, 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 46 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. 7.6 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 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 and (ii) no Revolving Credit Loan may be converted into a Eurocurrency Loan after the date that is one month prior to the Termination Date. 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, 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 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 Lender thereof. 7.7 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods 47 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 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 7.7 shall not apply to European Overdraft Loans. 7.8 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. (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 Revolving Credit 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 Lenders) promptly upon receipt by such Local Lender of any interest payment hereunder a 48 risk participation 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 (y) the amount equal to 1/8 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 Revolving Credit Lenders have funded the purchase of participating interests in such Local European Loans pursuant to subsection 5.4(a), such Local Lender instead shall pay to the Administrative Agent, for the account of each Revolving Credit Lender which has so funded such purchase, the amount equal to such Revolving Credit Lender's Revolving Credit Commitment Percentage of the full amount (other than the amount equal to 1/8 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 Lender any amounts due pursuant to subsection 7.15. 7.9 COMPUTATION OF INTEREST AND FEES. (a) Facility fees and, whenever it is 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; and, otherwise, interest shall be calculated on the basis of a 360-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 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 10.1 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 7.9(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. 7.10 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; 49 (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 (x) any Eurocurrency Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any 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. 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. 7.11 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 from the Lenders hereunder, each payment by a Borrower on account of any facility fee hereunder and any reduction of the Revolving Credit Commitments of the Lenders shall be made PRO RATA according to the respective relevant Revolving Credit Commitment Percentages of the Lenders holding obligations in respect of which such amounts were paid. Each payment (including each prepayment) by a Borrower on account of principal of and (subject to the provisions of subsection 7.12) 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 5.4(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 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 14.3 (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 7.2 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 50 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 Revolving Credit 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 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 7.11 shall be conclusive in the absence of manifest error. If such Lender's relevant Revolving Credit 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 at the rate PER ANNUM applicable to ABR Loans hereunder, on demand, from the relevant Borrower. (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. (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 Loan or any application for a Letter of Credit, and such Dollar Equivalent shall be recalculated on each date that it shall be necessary to determine the unused portion of each Lender's Revolving Credit Commitment or any or all of the Aggregate Outstanding 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). 7.12 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: 51 (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; 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 7.15. 7.13 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 7.14 and changes in the rate of tax on the overall net income of such Lender); (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 52 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. (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. (d) The Company shall be permitted to replace any Lender which (a) requests reimbursement for amounts owing pursuant to this Section 7.13 with a replacement financial institution; PROVIDED that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall not have taken action under Section 7.17 so as to eliminate the continued need for payment of amounts owing pursuant to this Section 7.13, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Company shall be liable to such replaced Lender under Section 7.15 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 14.7 (provided that the Company shall be obligated to pay the registration and processing fee referred to therein), (viii) the Company shall pay to the replaced Lender all additional amounts (if any) owing pursuant to this Section 7.13. 7.14 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 assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income 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") 53 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 no Borrower shall be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof 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 Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (i) deliver to the Company and the Administrative Agent (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) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (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 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 14.7 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to 54 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 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 7.14 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. (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 7.14, 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 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 Agent agrees to notify the Agent if there is any change in its position from that set out above. 7.15 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) default by such Borrower in making a borrowing of, conversion into or 55 continuation of Eurocurrency Loans after such Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by such Borrower in making 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 7.15 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. 7.16 CERTAIN FEES. The Company agrees to pay to the Administrative Agent and to the Collateral Agent, for their own accounts, the non-refundable fees previously agreed to with the Administrative Agent and the Collateral Agent in the manner and on the dates so previously agreed. 7.17 CHANGE OF LENDING OFFICE. (a) Each Lender agrees that if it makes any demand for payment under subsection 7.12 or 7.14(a), or if any adoption or change of the type described in subsection 7.13 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 7.12 or 7.14(a), or would eliminate or reduce the effect of any adoption or change described in subsection 7.13. (b) Notwithstanding anything to the contrary contained herein, no Lender shall be entitled to receive any amount under subsections 7.12, 7.13 or 7.14(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. 7.18 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. 56 7.19 DESIGNATION OF ADDITIONAL BORROWERS. (a) The Company may from time to time request that any one or more 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, (iii) the Optional Currency (if any) in which Loans to such Foreign Subsidiary shall be denominated and (iv) whether such Foreign Subsidiary is to be a Local Loan Borrower and, if so, the Revolving Credit Lender (or affiliate 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 Revolving Credit Lender of such request. Within five Business Days following the receipt of such notice, each Revolving Credit Lender shall notify the Administrative Agent in writing whether such designation is acceptable to such Revolving Credit 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 Revolving Credit Lenders holding the majority of the Aggregate Revolving Credit 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) a first-priority, perfected security interest in all of the issued and outstanding capital stock of each direct Subsidiary of such requested Additional Borrower pursuant to a pledge agreement which is in form and substance reasonably satisfactory to the Administrative Agent (PROVIDED that such security interest shall secure the obligations only of such requested Additional Borrower and not of the Company or any other Borrower) 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 7.19(b), the requested Additional Borrower shall be a Foreign Borrower for all purposes hereunder and (if applicable) the Revolving Credit 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. 7.20 EUROPEAN MONETARY UNION. (a) If, as a result of the implementation of European monetary union, (i) any currency ceases to be lawful currency of the nation issuing the same and is replaced by a European single currency or (ii) any currency and a European single currency 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, the European Overdraft Lender) shall so request in a notice delivered to the Company, then any amount payable hereunder by the Revolving Credit Lenders (or the European Overdraft Lender, as the case may be) to any Borrower, or by any Borrower to the Revolving Credit Lenders (or the European Overdraft Lender, as the case may be), in such currency shall instead by payable in the European single currency and the amount so payable shall be determined by translating the amount payable 57 in such currency to such European single currency 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 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 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 a 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. (c) The Company agrees, at the request of the Required Lenders (or, with respect to matters relating to the European Overdraft Loans, the European Overdraft Lender), 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, 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 8. 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: 8.1 FINANCIAL CONDITION. (a) The condensed, consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 31, 1996 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Deloitte & Touche 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 September 30, 1997 and the related unaudited consolidated statements of income and of cash flows for the nine-month period ended on such date, 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 58 date, and the consolidated results of their operations and their consolidated cash flows for the nine-month period 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) 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. (c) During the period from December 31, 1996 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 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, 1996. 8.2 NO CHANGE. Since December 31, 1996, there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. 8.3 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. 8.4 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 8.4, 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 8.4, this Agreement 59 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. 8.5 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 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. 8.6 NO MATERIAL LITIGATION. Except to the extent described in Schedule 8.6, 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. 8.7 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. 8.8 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 11.3. 8.9 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 60 "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. 8.10 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, 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. 8.11 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 G or 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 G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case may be. 8.12 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 61 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. 8.13 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. 8.14 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 8.14. 8.15 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 8.15: (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; 62 (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; (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 63 (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. 8.16 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 Collateral Agent, for the ratable benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and, when the Collateral 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 Collateral 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. 8.17 ACCURACY AND COMPLETENESS OF INFORMATION. The factual statements contained in the financial statements referred to in subsection 8.1(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 Collateral Agent or the Lenders 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. 8.18 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 nothing contained in this subsection 8.18 shall 64 constitute a representation or warranty that such future financial performance or results of operations will in fact be achieved. 8.19 SOLVENCY. Each Borrower is, and after giving effect to the incurrence of all Indebtedness and obligations being incurred in connection herewith will be, Solvent. 8.20 GOVERNMENT CONTRACTS. (a) None of the Company or any of its Subsidiaries or any of their respective Affiliates 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, such Subsidiaries or such Affiliates 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. SECTION 9. CONDITIONS PRECEDENT 9.1 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 March 31, 1998), of the following conditions precedent: (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 Company Pledge Agreement, executed and delivered by a duly authorized officer of the Company, (iii) the Subsidiary Pledge Agreement, executed and delivered by a duly authorized officer of each Domestic Subsidiary party thereto, (iv) the Foreign Pledge 65 Agreements, each executed and delivered by a duly authorized officer of each party thereto, (v) the Company Guaranty, executed and delivered by a duly authorized officer of the Company, (vi) the Subsidiary Guaranty, executed and delivered by a duly authorized officer of each Domestic Subsidiary party thereto. (b) RELATED AGREEMENTS. The Administrative Agent shall have received true and correct copies, certified as to authenticity by the Company, of such other documents or instruments as may be reasonably requested by the Administrative Agent. (c) 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. (d) 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. (e) 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. (f) 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. (g) 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. 66 (h) FEES. Each of the Administrative Agent and the Collateral Agent shall have received the fees to be received on the Closing Date referred to in subsection 7.16. (i) 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 E; (ii) the executed legal opinions of counsel described on Schedule 9.1, 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 Collateral Agent and the Lenders, its opinions. (j) PLEDGED STOCK; STOCK POWERS. The Administrative Agent shall have received the certificates representing the shares pledged pursuant to each of the Pledge Agreements (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. (k) 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. (l) 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. (m) 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 67 Subsidiaries hereunder or under any other Credit Document. 9.2 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 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, 1996, 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 or the Subsidiary Guarantors, taken as a whole, or of the Company and its Subsidiaries, taken as a whole. (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. 68 SECTION 10. AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as the Aggregate Revolving Credit Commitment or the European Overdraft Commitment remains in effect or any amount is owing to any Lender, the Collateral 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: 10.1 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 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). 10.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative Agent (who shall promptly forward such documents to the Lenders): 69 (a) concurrently with the delivery of the financial statements referred to in subsection 10.1(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 10.1(a) and (b), a certificate of a Responsible Officer, substantially in the form of Exhibit H; (c) 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; (d) 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 (e) 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; and (f) promptly, such additional financial and other information as any Lender (acting through the Administrative Agent) may from time to time reasonably request. 10.3 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. 10.4 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 11.5 and (ii) to the extent that the failure to maintain or preserve such rights, privileges and franchises would not reasonable be expected to 70 have a Material Adverse Effect. (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. 10.5 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 10.5 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. 10.6 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 12(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 10.6 shall be paid by the Company. 10.7 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; (c) any litigation or proceeding affecting the Company or any of its Subsidiaries 71 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 Collateral Agent's interest in, the Collateral. Each notice pursuant to this subsection 10.7 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. 10.8 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 Collateral Agent, for the benefit of the Lenders, Liens on the Collateral that are duly perfected in accordance with all applicable Requirements of Law. 10.9 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 Collateral Agent, for the benefit of the Lenders, a new pledge agreement or such amendments to the existing Pledge Agreements as the Administrative Agent shall deem necessary or advisable to grant to the Collateral 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 Collateral 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 such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to become a party to the Subsidiary Guaranty, in each case pursuant to documentation which is in form and substance satisfactory to the Administrative Agent, and (B) to take all actions 72 necessary or advisable to cause the Lien created by the relevant Security Documents 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 Collateral 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 Collateral 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 11. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Aggregate Revolving Credit Commitment or the European Overdraft Commitment remains in effect or any amount is owing to any Lender, the Collateral Agent or the Administrative Agent hereunder or under any other Credit Document, it shall not and (except in the case of subsection 11.1) shall not permit any of its Subsidiaries to, directly or indirectly: 11.1 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 to be less than 3.0 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 to be greater than 4.75 to 73 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 2.0 to 1.0. 11.2 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 thereof is a party; (b) Indebtedness listed on Schedule 11.2 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) 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 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 to any Subsidiary and of any Subsidiary 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; (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 Revolving Credit Commitment shall be temporarily reduced by the amount of any 74 Indebtedness incurred pursuant to this subsection 11.2(g) and (y) during such time as a Foreign Borrower has any Indebtedness under this subsection 11.2(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; (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 PRO FORMA Leverage Ratio of the Company and its Subsidiaries (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) is not more than 4.5 to 1.0; and (l) additional Indebtedness in an aggregate principal amount not to exceed $20,000,000 (or the Local Equivalent thereof) at any time outstanding. 11.3 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; 75 (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 UCC 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; (j) Liens listed on Schedule 11.3, securing Indebtedness permitted by subsection 11.2(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) purchase money Liens (including the interest of a lessor under a Financing Lease) and Liens to which any Property is subject at the time of the acquisition thereof securing Indebtedness permitted by subsection 11.2(c) and 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 12(h); (m) Liens securing Indebtedness permitted by subsection 11.2(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; (n) Liens on the property or assets of a Person which becomes a Subsidiary after the Closing Date securing Indebtedness permitted by Section 11.2(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 76 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 11.4(i), does not exceed 5% of the consolidated net assets of the Company and its Subsidiaries; PROVIDED that no Default or Event of Default has occurred and is continuing at the time that such Indebtedness is incurred. 11.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to exist any Guarantee Obligation except: (a) Guarantee Obligations listed on Schedule 11.4; (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 11.6(f) and (iii) are not for the benefit of or in favor of an Affiliate of the Company or any of its Subsidiaries; (d) Guarantee Obligations of (i) the Company in respect of obligations of any of its Wholly-owned Subsidiaries and (ii) any Subsidiary of the Company in respect of obligations of the Company or any wholly-owned Subsidiary of the Company; (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 the 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 11.2(g); (h) Guarantee Obligations constituting Investments pursuant to subsection 11.8(j); 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 11.3(n), does not exceed 5% of the consolidated net assets of the Company and its Subsidiaries; PROVIDED 77 that no Default or Event of Default has occurred and is continuing at the time that such Guarantee Obligation is incurred. 11.5 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 a Borrower) 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 Subsidiaries of the Company (PROVIDED that the wholly owned Subsidiary or Subsidiaries shall be the continuing or surviving corporation); and (b) any wholly owned Subsidiary 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. 11.6 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 7.5; PROVIDED, that (i) the Administrative Agent shall have received the documentation evidencing such sales, (ii) such sales shall not be made for 78 less than the fair market value of such Property and for consideration other than at least 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 9.5; (g) sales permitted by subsection 11.5 or 11.9; and (h) additional sales of assets not in excess of $20,000,000 (or the Local Equivalent thereof) in any fiscal year. Any Collateral which is sold, transferred or otherwise conveyed pursuant to this subsection 11.6 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 Collateral Agent to take such action as the Company reasonably may request to evidence such release. 11.7 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 any warrants or options to purchase any such 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, the Company may make Restricted Payments with respect to (a) employee or director stock options, stock incentive plans or restricted stock plans of the Company, (b) 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 (c) other purchases from time to time by the Company of its common stock not to exceed $10,000,000 in the aggregate since the date hereof and (d) transactions otherwise permitted pursuant to subsection 11.14. 11.8 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 11.2(d), (ii) the purchase of equity interests of, and the making of capital 79 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; (f) promissory notes and other Investments received as consideration pursuant to transactions permitted by subsection 11.6(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) 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 Leverage Ratio of the Company and its Subsidiaries (determined 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 after giving effect to the consummation of such Investment) is not more than 4.5 to 1.0; and (j) 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 provisions of this subsection 11.8(j) 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 Leverage Ratio of the Company and its Subsidiaries (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 after giving effect to the consummation of such Investment) is not more than 4.5 to 1.0. 11.9 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 80 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 existing 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 11.9 or permitted by subsection 11.5 and (vi) transactions which are expressly contemplated by the Existing Transaction Documents. 11.10 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 does not exceed $20,000,000 (or the Local Equivalent thereof). 11.11 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. (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. 11.12 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. 11.13 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 are engaged on the date hereof. 11.14 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 11.1 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, (v) payments of equity or cash 81 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 $10,000,0000 in the aggregate, and (vi) payments of Indebtedness made in connection with (A) the Existing Transaction Documents or (B) as set forth on Schedule 11.14; 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 Ciba 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 or the Subordinated Convertible Notes Indenture 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. 11.15 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 11.2(g). 82 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 12. 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 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 11 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; 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 83 (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 84 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 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 shall so assert or (ii) the Lien created by any of the Security Documents 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 Collateral Agent to maintain possession of the securities representing the Collateral or (y) the gross negligence or willful misconduct of any of the Administrative Agent, the Collateral Agent or the Lenders; or (j) Any of the Guarantees (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 Guarantees shall so assert; or (k) Any Change of Control shall occur; or (l) 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 Revolving Credit Commitment and the European Overdraft 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 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 Revolving Credit 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 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 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 85 benefit of the Issuing Lender 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 Lender 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 12, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 13. THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT 13.1 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, (b) the Documentation Agent as the documentation agent hereunder and under the other Credit Documents, (c) the Collateral Agent as the collateral agent hereunder and under the other Credit Documents and (d) the Syndication Agent as the syndication agent hereunder and under the other Credit Documents. Each such Lender hereby further irrevocably authorizes the Administrative Agent and the Collateral 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 Collateral 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 Collateral 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 Collateral Agent. Each Lender hereby acknowledges and agrees that Citibank, N.A., shall have no obligations or liability hereunder in its capacity as syndication agent and that Credit Suisse First Boston shall have no obligations or liability hereunder in its capacity as documentation agent. 13.2 DELEGATION OF DUTIES. Each of the Administrative Agent and the Collateral Agent may execute any of its duties under this Agreement and the other Credit Documents by or 86 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 Collateral Agent shall be responsible for the negligence or misconduct of any agent or attorneys in-fact selected by it with reasonable care. 13.3 EXCULPATORY PROVISIONS. None of the Administrative Agent, the Collateral Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact 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 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 Collateral 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 Collateral 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. 13.4 RELIANCE BY ADMINISTRATIVE AGENT AND COLLATERAL AGENT. Each of the Administrative Agent and the Collateral 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 the Company), independent accountants and other experts selected by the Administrative Agent or the Collateral Agent (as the case may be). Each of the Administrative Agent and the Collateral 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 Collateral Agent (as the case may be). Each of the Administrative Agent and the Collateral 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 Collateral 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. 13.5 NOTICE OF DEFAULT. Neither the Administrative Agent nor the Collateral Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of 87 Default hereunder unless it has received notice from the Collateral 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 Collateral 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 Collateral Agent, any Lender or a Borrower, the Administrative Agent shall give notice thereof to the Lenders. Each of the Administrative Agent and the Collateral 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 Collateral Agent) as shall be reasonably directed by the Administrative Agent; PROVIDED that unless and until the Administrative Agent or the Collateral 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. 13.6 NON-RELIANCE ON ADMINISTRATIVE AGENT, COLLATERAL AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that none of the Administrative Agent, the Collateral Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent or the Collateral 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 Collateral Agent (as the case may be) to any Lender. Each Lender represents to the Administrative Agent and the Collateral Agent that such Lender has, independently and without reliance upon the Administrative Agent, the Collateral 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 Collateral 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 Collateral Agent hereunder, neither the Administrative Agent nor the Collateral 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, conditio (financial or otherwise), prospects or creditworthiness of any Borrower which may come into the possession of the Administrative Agent or the Collateral Agent (as the case may be) or any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates. 13.7 INDEMNIFICATION. The Lenders agree to indemnify each of the Administrative Agent, the Collateral Agent, the Documentation Agent and the Syndication 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), ratably (according to the percentage which the Revolving Credit Commitment of such Lender constitutes of the Aggregate Revolving Credit Commitment 88 on the date on which indemnification is sought), 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, the Collateral Agent, the Documentation Agent or the Syndication Agent in any way relating to or arising out of, the Aggregate Revolving Credit Commitment and/or the European Overdraft Commitment, 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, the Collateral Agent, the Documentation Agent or the Syndication 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 or willful misconduct of the Administrative Agent, the Collateral Agent, the Documentation Agent or the Syndication Agent (as the case may be). The agreements in this subsection 13.7 shall survive the payment of the Loans and all other amounts payable hereunder. 13.8 AGENTS IN THEIR INDIVIDUAL CAPACITIES. Each of the Administrative Agent, the Collateral Agent, the Documentation Agent, the Syndication 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, the Collateral Agent, the Documentation Agent or the Syndication Agent (as the case may be) were not the Administrative Agent, the Collateral Agent, the Documentation Agent or the Syndication 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, the Collateral Agent, the Documentation Agent and the Syndication 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, the Collateral Agent, the Documentation Agent or the Syndication Agent (as the case may be), and the terms "Lender" and "Lenders" shall include each of the Administrative Agent, the Collateral Agent, the Documentation Agent and the Syndication Agent in its respective individual capacity. 13.9 SUCCESSOR AGENTS. Each of the Administrative Agent, the Collateral Agent, the Documentation Agent and the Syndication Agent may resign as such upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as "Administrative Agent" or the Collateral Agent shall resign as "Collateral Agent" under this Agreement and the other Credit Documents, then the Required Lenders shall appoint from among the Lenders a successor Administrative Agent or Collateral Agent (as the case may be) for the Lenders, which successor Administrative Agent or Collateral 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 Collateral Agent, as the case may be, shall have been approved by the Company), shall succeed to the rights, powers and duties of the Administrative Agent or the Collateral Agent (as the case may be) hereunder. Effective upon such appointment and approval, the term "Administrative Agent" or "Collateral Agent" (as the case may be) shall mean such successor Administrative Agent or Collateral Agent, and the rights, powers and duties of the former Administrative Agent as Administrative Agent or of the former Collateral Agent as Collateral Agent (as the case may be) shall be 89 terminated, without any other or further act or deed on the part of such former Administrative Agent or Collateral 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 Collateral Agent as Collateral Agent, the provisions of this Section 13 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Collateral 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 Collateral Agent pursuant to the terms hereof, any successor Collateral Agent shall be a Person who is acceptable to the Defense Investigative Service. If the Syndication Agent shall resign as "Syndication Agent" under this Agreement and the other Credit Documents, then no successor Syndication Agent shall be appointed. If the Documentation Agent shall resign as "Documentation Agent" under this Agreement and the other Credit Documents, then no successor Documentation Agent shall be appointed. SECTION 14. MISCELLANEOUS 14.1 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 Collateral 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 Collateral 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 Revolving Credit Commitment; (ii) without the written consent of all the Lenders, (A) amend, modify or waive any provision of this subsection, (B) reduce the percentage specified in the definition of Required 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 90 Letter of Credit; (iv) amend, modify or waive any provision of Section 4 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 5 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 6 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 13 without the written consent of the then Administrative Agent and, to the extent affected thereby, the Collateral Agent. 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 Collateral Agent, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Borrowers, the Lenders, the Collateral 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. 14.2 RELEASE OF COLLATERAL. (a) Notwithstanding anything to the contrary contained herein (other than the provisions of subsection 14.2(b)) or in any Security Document, the Collateral 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 11.6 by the Company or any of its 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 7.5 (if so required); and (ii) all collateral and guarantee obligations provided for in the Credit Documents upon the termination of each of the Aggregate Revolving Credit Commitment and the European Overdraft Commitment, payment in full of all Loans and Reimbursement Obligations owing hereunder and termination of all L/C Obligations. In furtherance of the foregoing, each Lender hereby authorizes and instructs the Collateral Agent to execute and deliver or file such termination and partial release statements and do such other 91 things as the Company reasonably may request to evidence and effect any release contemplated hereby. (b) Notwithstanding the provisions of subsection 14.2(a), the Collateral Agent shall not be required to execute any release document which, in the Collateral Agent's opinion, would expose the Collateral Agent to liability or impose additional obligations upon the Collateral Agent. 14.3 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 Collateral 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 Foreign Borrowers: c/o Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 Attention: Treasurer Fax: 203/358-3993 The Collateral Agent: Citibank, N.A. 399 Park Avenue New York, New York 10022 Attention: ________________________ Fax: ______________________________ The Administrative Agent: Credit Suisse First Boston 11 Madison Avenue New York, New York 10010 Attention: ________________________ Fax: ______________________________ 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, 5.3, 5.7, 6.2, 7.3, 7.4, 7.6 or 7.11(b) 92 shall not be effective until received. 14.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent, the Collateral 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. 14.5 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. 14.6 PAYMENT OF EXPENSES AND TAXES. The Borrowers agree (a) to pay or reimburse the Administrative Agent and the Collateral Agent for all its respective 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 Collateral Agent, (b) to pay or reimburse each Lender, the Collateral Agent and the Administrative Agent for all its 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 Collateral Agent and the Administrative Agent, (c) to pay, indemnify, and hold each Lender, the Collateral Agent, the Administrative Agent, the Documentation Agent and the Syndication 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 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 Collateral Agent, the Administrative Agent, the Documentation Agent and the Syndication Agent 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 whasoever 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 Collateral Agent, the Documentation 93 Agent, the Syndication Agent or any Lender with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Administrative Agent, the Collateral Agent, the Documentation Agent, the Syndication Agent or any such Lender (as the case may be), (y) (ii) 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 Collateral Agent, the Documentation Agent, the Syndication Agent or any Lender hereunder with respect to indemnified liabilities relating to the Revolving Credit Loans made to the Company, Swing Loans or Letters of Credit issued for the account of a Borrower other than such Foreign Borrower. The agreements in this subsection 14.6 shall survive repayment of the Loans and all other amounts payable hereunder. 14.7 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Collateral 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 without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Revolving Credit Loan owing to such Lender, the Revolving Credit 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, 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 Collateral 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 14.1 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 14.8(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 7.13, 7.14 and 7.15 with respect to its participation in the Revolving Credit Commitments, Revolving Credit Loans and other extensions of credit outstanding from time to time as if it was a Lender; PROVIDED that, in the case of subsection 7.14, 94 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 banking business and in accordance with applicable law, at any time and from time to time assign to (i) any Lender or any affiliate thereof, (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), to any additional bank or financial institution (any assignee described in clause (i), (ii) or (ii), 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 G, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an affiliate 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 Loans, the aggregate amount of the L/C Obligations and the aggregate amount of the Available Revolving Credit Commitment being assigned is not less than $5,000,000 (or such lesser amount as may be agreed to by the Company 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 a Revolving Credit Commitment 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 14.7, 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 12(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 14.3 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 Revolving Credit Commitments of, and principal amounts of the Loans 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 Collateral 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 95 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 thereof, by the Company and the Administrative Agent), 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 in such Lender's possession concerning such Borrower and its Affiliates 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 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 14.7 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. 14.8 ADJUSTMENTS; SET-OFF. (a) If any 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 the Revolving Credit 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 Revolving Credit Loans or Reimbursement Obligations owing to it under the Revolving Credit Commitment or interest thereon, such benefitted Lender shall purchase for cash from the other Lender such portion of each such other Lender's similar Loans or Reimbursement Obligations, or shall provide such other Lender 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 the Revolving Credit 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. 96 (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 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. 14.9 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. 14.10 CERTAIN WAIVERS. (a) Each Lender hereby acknowledges that certain of the Foreign Pledge Agreements and related documentation may not be executed and delivered prior to or on the Closing Date. Each Lender hereby waives compliance with the provision of Section 9 of this Agreement to the extent and only to the extent necessary to permit the Borrowers to borrow under the this Agreement without the delivery of such 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 30 days following the Closing Date and that the failure to deliver any such Foreign Pledge Agreement or related documentation within such 30-day period shall constitute an Event of Default hereunder; PROVIDED that the Administrative Agent may (in its sole discretion) elect to extent such 30-day period by not more than an additional 30 days. (b) Notwithstanding anything to the contrary contained in this Agreement, the Borrowers shall not be entitled to borrow European Revolving Loans under this Agreement until March 11, 1998; PROVIDED that such restriction shall not affect the commitment fees payable pursuant to this Agreement if such European Revolving Loans were available (but undrawn) during such period. (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: (i) the Existing Agreement hereby is superseded by this Agreement, except that (A) the Company and its Subsidiaries shall remain obligated to pay any amounts owing thereunder, (B) 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 and (C) 97 the Revolving Credit Commitments of each Lender under (and as defined in) the Existing Agreement (and any related provisions of the Existing Agreement) shall remain in effect through March 11, 1998 to the extent necessary to permit the Borrowers under the Existing Agreement to borrow European Revolving Loans through such date in accordance with the terms of the Existing Agreement (with the Company acknowledging and agreeing, on its own behalf and on behalf of each of its Subsidiaries, that any credit support and collateral security granted pursuant to the Existing Agreement shall continue to secure and support such European Revolving Loans until they are superseded by European Revolving Loans under this Agreement or repaid); and (ii) on March 11, 1998, the Revolving Credit Obligations under (and as defined in) the Existing Agreement shall be due and payable (it being understood that such Revolving Credit Obligations may be paid through borrowings or other extensions of credit under this Agreement). 14.11 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 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. 14.12 INTEGRATION. This Agreement and the other Credit Documents represent the agreement of the Borrowers, the Administrative Agent, the Collateral 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 Collateral Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Credit Documents. 14.13 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. 14.14 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 98 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 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 14.3 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 14.14 any special, exemplary, punitive or consequential damages. 14.15 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 Collateral 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 Collateral 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 99 (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. 14.16 WAIVERS OF JURY TRIAL. EACH BORROWER, THE ADMINISTRATIVE AGENT, THE COLLATERAL 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. 14.17 CONFIDENTIALITY. Subject to subsection 14.7(f), the Administrative Agent, the Collateral 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 accordance with safe and sound banking 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 14.17. In no event shall the Administrative Agent, the Collateral 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. 14.18 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 Collateral 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 Collateral 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 Collateral 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 Collateral 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 Collateral Agent or the Administrative Agent (as the case may be) against such loss, and if the amount of the Original Currency so purchased 100 exceeds the sum originally due to any Lender or the Administrative Agent (as the case may be) in the Original Currency, such Lender, the Collateral Agent or the Administrative Agent (as the case may be) agrees to remit to such Borrower such excess. 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. HEXCEL COMPOSITES S.A. (Belgium) SALVER S.r.L. HEXCEL COMPOSITES GMBH (Austria) HEXCEL COMPOSITES S.A. (Spain) HEXCEL COMPOSITES GMBH (Germany) By:____________________________________ Title: CREDIT SUISSE FIRST BOSTON, as Administrative Agent and as Documentation Agent By:____________________________________ Title: By:____________________________________ Title: CITIBANK, N.A., as Collateral Agent and as a Lender By:____________________________________ Title: By:____________________________________ Title: 2 CITICORP SECURITIES, INC. as Syndication Agent By:____________________________________ Title: CREDIT SUISSE FIRST BOSTON, as a Lender By:____________________________________ Title: By:____________________________________ Title: CREDIT SUISSE FIRST BOSTON, as a Local Lender By:____________________________________ Title: By:____________________________________ Title: CREDIT SUISSE FIRST BOSTON AKTIENGESELLSCHAFT, as a Local Lender By:____________________________________ Title: By:____________________________________ Title: 3 THE BANK OF NEW YORK, as Lender By:____________________________________ Title: 4 BANQUE NATIONAL DE PARIS, San Fransciso Branch, as Lender By:____________________________________ Title: 5 THE CHASE MANHATTAN BANK, as Lender By:____________________________________ Title: 6 CREDIT LYONNAIS, as Lender By:____________________________________ Title: 7 ISTITUTO BANCARIO SAN PAOLO DI TORINO, S.p.A., as Lender By:____________________________________ Title: ISTITUTO BANCARIO SAN PAOLO DI TORINO, S.p.A., as a Local Lender By:____________________________________ Title: 8 SOCIETE GENERALE, as Lender By:____________________________________ Title: 9 SWISS BANK CORPORATION, Stamford and Cayman Island Branches, as Lender By:____________________________________ Title: 10 UNION BANK OF CALIFORNIA, as Lender By:____________________________________ Title: 11 UNION BANK OF SWITZERLAND, as Lender By:____________________________________ Title: SCHEDULE I LENDER; COMMITMENTS
COMMITMENTS IN U.S. DOLLARS NAME OF LENDER SYNDICATED FACILITY EUROPEAN OVERDRAFT FACILITY - ------------------------------------------------------------------------------------ Credit Suisse First Boston U.S.$50,000,000.00 U.S.$0.00 Citibank, N.A. 40,000,000.00 10,000,000.00 The Bank of New York 40,000,000.00 0.00 The Chase Manhattan Bank 40,000,000.00 0.00 Credit Lyonnais 40,000,000.00 0.00 Banque Nationale de Paris 25,000,000.00 0.00 Istituto Bancario San Paolo 10,000,000.00 0.00 Societe Generale 25,000,000.00 0.00 Swiss Bank Corporation 25,000,000.00 0.00 Union Bank of California, N.A. 25,000,000.00 0.00 Union Bank of Switzerland 25,000,000.00 0.00 - ------------------------------------------------------------------------------------- TOTAL: 345,000,000.00 10,000,000.00
SCHEDULE II ADDRESSED FOR NOTICES THE BANK OF NEW YORK 10990 Wilshire Blvd. Suite 1126 Los Angeles, CA 90024 Attention: Liz Ying Telephone: 310-996-8661 Facsimile: 310-996-8667 BANQUE NATIONAL DE PARIS 180 Montgomery Street San Francisco, CA 94104 Attention: Katherine Wolfe Telephone: 415-956-0707 x230 Facsimile: 415-296-8954 THE CHASE MANHATTAN BANK 270 Park Avenue New York, NY 10017 Attention: Robert Sacks Telephone: 212-270-4118 Facsimile: 212-270-7939 CITIBANK, N.A. 399 Park Avenue New York, NY 10043 Attention: William Clark Telephone: 212-559-5944 Facsimile: 212-826-2371 CREDIT LYONNAIS 1301 Avenue of the Americas 20th Floor New York, NY 10019 Attention: Rolf Seibert Telephone: 212-261-7176 Facsimile: 212-459-3174 ISTITUTO BANCARIO SAN PAOLO DI TORINO 444 South Flower St. 45th Floor Los Angeles, CA 90071 Attention: Donald Brown Telephone: 213-489-3105 Facsimile: 213-622-2514 SOCIETE GENERALE 1221 Avenue of the Americas New York, NY 10020 Attention: George Peters Telephone: 212-278-7091 Facsimile: 212-278-7462 SWISS BANK CORPORATION 277 Park Avenue New York, NY 10172 Attention: Hanno Huber Telephone: 212-574-3177 Facsimile: 212-574-3551 UNION BANK OF CALIFORNIA 350 California Street San Francisco, CA 94104 Attention: David Taylor Telephone: 415-705-5098 Facsimile: 415-705-5093 UNION BANK OF SWITZERLAND 299 Park Avenue New York, NY 10171 Attention: Chris Glockler Telephone: 212-821-3853 Facsimile: 212-821-3878 SCHEDULE 3.10 EXISTING LETTERS OF CREDIT
ISSUING BANK* BENEFICIARY STATED AMOUNT L/C NUMBER BNP Safeco Insurance Co. USD 576,000 # 0086850 BNP Northrop Grumman Corp USD 1,563,819 0189019 BNP Zurich Insurance Co. USD 100,000 0189020 BNP Home Insurance Co. USD 75,000 0189021 BNP Safeco Insurance Co. USD 288,375 # 0189022 BNP Self Insurance Plans - CA USD 645,218 # 0189023 BNP Zurich Insurance Co. USD 100,000 0189067 BNP H.M. Customs & Excise GBP 200,000 0189072
* Note BNP stands for Banque Nationale de Paris # Subject to change due to self-insurance annual security calculation requirements. SCHEDULE 7.5 PERMITTED PROPERTY SALES
DESCRIPTION MINIMUM NET CASH PROCEEDS 1. The manufacturing plant located in Lancaster, Ohio USD 200,000 2. The manufacturing plant located in Welkenraedt, Belgium USD 600,000 3. The manufacturing plant located in Graham, Texas USD 0 4. The manufacturing plant located in Brindisi, Italy USD 0 5. The Company will purchase from F&P Properties a certain USD 0 piece of real property adjacent to the Livermore, California facility in the amount of approximately 4.7 acres and then sell the property. Purchase from F&P pending required environmental clean-up of site. 6. The real property located in Lodi, New Jersey USD 0
SCHEDULE 8.4 ADDITIONAL REQUIREMENTS OF FOREIGN LAW BELGIUM Filing stipulated in the first paragraph of Article 17b is of the Belgium Law of March 2, 1989 on the publication of important holdings in stock exchange companies and the organization of public takeover bids (in connection with Hexcel Belgium). SCHEDULE 8.6 EXISTING LITIGATION DESCRIPTION 1. GEC Alsttom vs. Hexcel Composites S.A. (Belgium) An action for damage brought by a customer based on product liability. The claim relates to allegedly defective panels, delivered 1989-1992, which have since delaminated after being installed in railway carriages in France. The case is proceeding through the French Courts and has yet to be quantified. A report of judicial experts is expected shortly. 2. ANF vs. Hexcel Composites S.A. (Belgium) An action for damage brought by a customer based on product liability. The claim relates to allegedly defective panels, delivered 1989-1992, which have since delaminated after being installed in railway carriages in France. The case is proceeding through the French Courts and has yet to be quantified. A report of judicial experts is expected shortly. SCHEDULE 8.14 SUBSIDIARIES
Name Of Company And Its Jurisdiction of Incorporation Outstanding shares and Stockholders Subsidiaries Hexcel Corporation Delaware 2,344 (as of 12/31/97) stockholders 94-1109521 2 March 1983 of common stock 100,000,000 common, 20,000,000 preferred as of 12/31/97 Outstanding shares: 36,856,238 Hexcel Far East California Hexcel Corporation (10,000) 94-2260183 8 July 1974 Hexcel Foundation California (nonprofit public no shares issued 94-2972860 benefit) 27 November 1984 Hexcel International California Hexcel Corporation (100) 94-2880337 7 June 1982 Hexcel Omega Corporation California Hexcel International (1,000) 33-0703595 8 April 1996 Hexcel Pacific Rim California Hexcel Corporation (1,000) Corporation 1 January 1997 94-3261056 Hexcel Pacific Rim Delaware Hexcel Corporation (3,000) Corporation (formerly 6 February 1995 Hexcel Alpha Corp.) 94-3226988 Hexcel Beta Corp. Delaware Hexcel Corporation (3,000) 94-3226513 6 February 1995 Hexcel Pottsville Delaware Hexcel Corporation (100) Corporation 15 November 1995 23-2827480 Hexcel Technologies Inc. Delaware Hexcel Corporation (100) 93-1047646 1 May 1990 Hexcel Composites GmbH Austria Hexcel Far East (250,000) FN144908a 15 May 1996 250,000 Outstanding 500,000 Authorized Hexcel Composites S.A. Belgium Hexcel Corporation (254,719) 402.459.235 19 June 1967 Hexcel International (1) Hexcel do Brasil Servicos Brazil Hexcel Corporation (201,069) S/C Ltda. 20 March 1986 Hexcel International (1) 43.397.601/0001-18 Confection et Diffusion France Hexcel Fabric S.A.[France] (3,195) de Stores et Rideaux 14 March 1979 Hexcel S.A.[France] (986) R.C.S. Lyon B 315 253 021 Christopher Boland (1) Stephen C. Forsyth (1) Claude Genin (1) Rodney P. Jenks, Jr. (1) Hexcel International (1) Hexcel S.A. France Hexcel Corporation (92,204) R.C.S. Lyon B 955 508 007 7 December 1933 Eugene A. Forcione (1) Stephen Forsyth (1) Claude Genin (1) Juergen Habermeier (1) Rodney P. Jenks, Jr. (1) Hexcel International (1)
SCHEDULE 8.14 SUBSIDIARIES
Name Of Company And Its Jurisdiction of Incorporation Outstanding shares and Stockholders Subsidiaries Hexcel Fabrics S.A France Hexcel S.A. (2,494) B410287379. 24 December 1996 Hexcel Corporation (1) Hexcel International (1) Eugene A. Forcione (1) Stephen Forsyth (1) Claude Genin (1) Ira Krakower (1) Hexcel Composites S.A. France Hexcel S.A. (499,694) B410286702 24 December 1996 Hexcel Corporation (1) Hexcel International (1) William Hunt (1) Stephen Forsyth (1) Peter Young (1) Ira Krakower (1) Hexcel Composites GmbH Germany Hexcel (U.K.) Limited (50,000) HRB 114589 18 August 1996 Salver S.r.l. Italy Hexcel Corporation (1,580,000) 00063690747 20 June 1970 Hexcel International (90,000,000) Hexcel Composites, S.A. Spain Hexcel (U.K.) Limited (145,250) A78399672 18 December 1986 Hexcel Chemical Products United Kingdom Hexcel Corporation (596,085) Ltd 14 September 1972 Hexcel Corporation and 1071897 Stephen C. Forsyth (1) Hexcel Composites Limited United Kingdom Ciba-Geigy AG (50,000,002 deferred) 3069887 19 June 1995 Hexcel (UK) Limited (200,000 ordinary) Hexcel (U.K.) Limited United Kingdom Hexcel Corporation (502,000 ordinary) 1088844 29 December 1972 Hexcel Corporation (225,000 redeemable)
Joint Ventures and Other Equity Interests
Name of Joint Venture or Jurisdiction Summary of Ownership Other Equity Interest Interest Hexcel-DIC Partnership California Joint venture (general partnership) owned 42% by Hexcel Technologies Inc. and 58% by DIC Technologies, Inc. DIC-HEXCEL, Ltd. Japan corporation owned 100% by Hexcel-DIC Partnership Pole Asset Management, LLC California Owned 50% by Hexcel Beta 1 September 1996
SCHEDULE 8.15 ENVIRONMENTAL MATTERS DESCRIPTION 1. Hexcel Lodi, New Jersey Facility This site was sold to Fine Organics Corporation in 1986. The sale triggered provisions of New Jersey Law essentially requiring the site to be cleaned up. To that end, Hexcel entered into an Administrative Consent Order for the clean up of the site, and has satisfied the statutory net worth and cash flow tests to assure performance. The State of New Jersey has approved Hexcel's remediation plan. The cost of the remediation is largely dependent on developing circumstances including the possible redevelopment of the entire area in which this facility is located. Based on certain assumptions relating to the developing circumstances, Hexcel believes the cost of remediation will be approximately $2,000,000. 2. Former Hexcel Facility, City of Industry, California As a result of spills that occurred at a former Hexcel facility located in the City of Industry, CA, Hexcel has been named a Potentially Responsible Party (PRP) in the Puente Valley Subbasin of the San Gabriel Superfund. Together with other PRP's Hexcel has signed a Consent Decree to participate in a remedial investigation and feasibility study of the subbasin. Hexcel agreed to a 2.68% allocation for this work. Hexcel has paid virtually all of it's obligation under this agreement. Hexcel's future obligations in the basin-wide superfund proceedings have currently not yet determined and will be a subject of future discussion with the USEPA and the other PRP's. In addition, Hexcel has consented to a State of California EPA request to institute further remedial activities at it's former facility. This work is expected to cost approximately $450K. 3. Heath Tecna, Kent Washington Facility An investigation of groundwater contamination at this facility commenced in or around 1982. The source of the contamination has been identified. The contaminants of concern are trichloroethylene (TCE) and its degradation products, primarily vinyl chloride. A groundwater remediation project has been implemented and is operational. The maintenance of this project is estimated to cost between $250,000 and $300,000 per year for 20 to 30 years for an estimated total cost of $5,550,000. SCHEDULE 9.1 INTERNATIONAL COUNSEL BAKER & MCKENZIE (UK) UK COUNSEL S.G. ARCHIBALD FRANCE COUNSEL BRUCKHAUS WESTRICK HELLER LOBER AUSTRIA COUNSEL HOGAN & HARTSON, L.L.P. BELGIUM COUNSEL MARENA, AGHINA, BONVICINI & LEDERGNENI ITALY COUNSEL GOMEZ ACEBO & POMBO ABOGADOS SPAIN COUNSEL DOSER AMERELLER NOACK GERMAN COUNSEL SCHEDULE 11.2 INDEBTEDNESS 1. Indebtedness underlying certain Liens as set forth on Schedules 11.3.
DESCRIPTION OUTSTANDING AT CLOSING CAPITAL LEASES (UNITED STATES) 2. Joseph S. Riggio and Marcia G. Riggio, Trustees USD 675,521 under Revocable Trust Agreement dated May 16, 1972, as amended, and Joseph S. Riggio, Trustee under Trust Agreement dated July 11, 1969, as amended December 31, 1994: Real property and improvements At Building #73 in Casa Grande, AZ. 3. Erwin Family Trust doing business as Valley USD 851,446 Warehouse and Storage Company, lessor, under Lease Agreement dated April 1, 1991, as amended December 21, 1994 and June 23, 1995: Three Warehouses and real property in Casa Grande, AZ (maturity November 20, 2009). CAPITAL LEASES (EUROPE) 4. Batimap/Slicomi lease for various buildings and FRF 6,649,559 land at Plant B in Lyon, France. 5. Raiffeisen Leasing Gesellschaft m.b.H. for building ATS 39,061,736 in Pasching, Austria with repayment by 12/31/2012. OTHER AGREEMENTS FOR BORROWED MONEY (U.S.) 6. Bankruptcy priority claims USD 680,386 7. City of Chandler, AZ for taxes owed under the USD 78,097 terms of the bankruptcy proceedings of Hexcel Corp. 8. F&P Properties Note Payable for Livermore land USD 240,000 OTHER AGREEMENTS FOR BORROWED MONEY HEXCEL COMPOSITES S.A. (BELGIUM) 9. Miscellaneous overdraft lines BEF 90,000,000 HEXCEL S.A. (FRANCE), HEXCEL COMPOSITES S.A. (FRANCE), HEXCEL FABRICS S.A. (FRANCE) AND CDSR 10. Miscellaneous overdraft lines FRF 100,000,000 Salver S.r.l. (Italy) 11. Miscellaneous credit lines ITL 3,500,000,000 HEXCEL (U.K.) LTD. AND HEXCEL COMPOSITES LTD. (U.K.) AND HEXCEL COMPOSITES GMBH (GERMANY) 12. Miscellaneous credit lines GBP 5,000,000 HEXCEL COMPOSITES G.M.B.H (AUSTRIA)
13. Capital Lease between Hexcel Composites G.m.b.H. ATS 39,061,736 (Austria) and Raiffeisen Leasing Gesellschaft m.b.H. maturing on 12/31/2012 for Pasching Austria building. 14. Loan by Osterreichische Investkredit ATS 2,857,100 Aktiengesellschaft for investment expenditures with half year repayment Continuing until December 31, 1999. 15. Loan to fund Hexcel Composites G.m.b.H. (Austria) ATS 25,000,000 sales abroad. Revolving loan renewed every 6 months by Creditanstalt Bankverein AG. 16. Miscellaneous overdraft lines ATS 31,500,000 HEXCEL COMPOSITES S.A. (Spain) 17. Miscellaneous overdraft lines ESP 150,000,000
SCHEDULE 11.3 LIENS 1. Mortgages and pledges of business set forth in Schedule 11.2 - Indebtedness 2. Liens in connection with the Capital Leases set forth in Schedule 11.2 - Indebtedness 3. Liens in connection with the Existing Agreement. 4. Those liens listed on the attached Exhibit X related to UCC Financing Statements, Fixture Filings and Operating Leases 5. Consigned inventory from Hexcel suppliers entered into in the ordinary course HEXCEL COMPOSITES GMBH (AUSTRIA) 7. As an assignment for security, Hexcel Composites Gmbh (Austria) pledged public bonds of ATS 5,230,475 to Osterreichische investitionskredit A.G. 8. Assignment of ATS 30,000,000 of receivables, originally entered into on July 3, 1995, to Creditanstalt Bankverein AG to support a loan for funding a broad sales. Collateral based on rolling receivables. EXHIBIT X PERMITTED LIEN SCHEDULE
DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Quinn Enterprises, Inc. Arizona - UCC-1 602574 8/8/89 Specified equipment Corporation Secretary of State Hexcel International Computer Services, Inc. Arizona - UCC-1 632871 8/17/90 Specified equipment Corporation Assignee: Circle Business Credit, Inc. Secretary of State Hexcel Assignee: International Computer Arizona - UCC-3 632871 4/22/94 Assignment to Corporation Services, Inc. Secretary of Assign- International Computer State ment Services Inc. Hexcel International Computer Services, Inc. Arizona - UCC-1 675730 8/19/91 Specified equipment Corporation Assignee: Tilden Financial Corp. Secretary of State Hexcel, Norwest Financial Leasing Arizona - UCC-1 717899 9/14/92 Specified equipment Inc. Secretary of State Hexcel Northrup Grumman Corporation Arizona - UCC-1 815742 1/11/95 Specified equipment Corporation Secretary of State Hexcel Northrup Grumman Corporation Arizona - UCC-1 815743 1/11/95 Specified equipment Corporation Secretary of State Hexcel International Computer Services, Inc. Arizona - UCC-1 820433 2/21/95 Specified equipment Corporation Secretary of State Hexcel Yale Financial Services, Inc. Arizona - UCC-1 828379 4/24/95 Specified equipment Corporation Secretary of State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Briggs-Weaver, Inc. Arizona - UCC-1 840349 7/27/95 Specified equipment Corporation Assignee: Yale Financial Services, Secretary of Inc. State Hexcel Briggs-Weaver, Inc. Arizona - UCC-1 841455 8/3/95 Specified equipment Corporation Assignee: Yale Financial Services, Secretary of Inc. State Hexcel American Business Credit Corporation Arizona - UCC-1 863133 1/19/96 Specified equipment Corporation Secretary of State Hexcel American Business Credit Corp. Arizona - UCC-1 890394 3/25/96 Specified equipment Corporation Assignee: ABCC Secretary of State Hexcel Briggs-Equipment Arizona - UCC-1 957939 3/3/97 Specified equipment Corporation Assignee: Yale Financial Services, Secretary of Inc. State Hexcel International Computer Services, Inc. California - UCC-1 92264153 12/11/92 Specified equipment Corporation Assignee: Tilden Financial Corp. Secretary of State Hexcel International Computer Services, Inc. California - UCC-1 92264154 12/11/92 Specified equipment Corporation Assignee: Tilden Financial Corp. Secretary of State Hexcel International Computer Services, Inc. California - UCC-1 92264157 12/11/92 Specified equipment Corporation Assignee: Tilden Financial Corp. Secretary of State Hexcel Assignee: Matrix Funding California - UCC-3 95320C0127 11/13/95 Assignment to Matrix Corporation Secretary of Assign- Funding State ment Hexcel International Computer Services, Inc. California - UCC-1 92264159 12/11/92 Specified equipment Corporation Assignee: Tilden Financial Corp. Secretary of State Hexcel International Computer Services, Inc. California - UCC-1 92264160 12/11/92 Specified equipment Corporation Assignee: Tilden Financial Corp. Secretary of State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel International Computer Services, Inc. California - UCC-1 93038853 2/24/93 Specified equipment Corporation Secretary of State Hexcel Taylor Made Office Systems, Inc. California - UCC-1 93077820 4/19/93 Specified equipment Corporation Secretary of State Hexcel Capital Associates International, Inc. California - UCC-1 93086671 4/29/93 Specified equipment Corporation Assignee: Capital Preferred Yield Fund II Secretary of State Hexcel Capital Associates International Inc. California - UCC-1 93089733 5/3/93 Specified equipment Corporation Assignee: Leasetec Income Fund V Secretary of State Hexcel Capital Associates International Inc. California - UCC-3 94356C0032 12/5/94 Amendment to Equipment Corporation Assignee: Leasetec Income Fund V Secretary of Amend- Schedule State ment Hexcel United States Leasing International, California - UCC-1 93088336 5/5/93 Specified equipment Corporation Inc. Secretary of State Hexcel United States Leasing International, California - UCC-1 93149849 7/28/93 Specified equipment Corporation Inc. Secretary of State Hexcel International Computer Services, Inc. California - UCC-1 93161636 8/9/93 Specified equipment Corporation Secretary of State Hexcel Assignee: Western Computer Leasing California - UCC-3 93161636 11/17/93 Assignment to Western Corporation Secretary of Assign- Computer Leasing State ment Hexcel International Computer Services, Inc. California - UCC-1 93161637 8/9/93 Specified equipment Corporation Secretary of State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Assignee: Western Computer Leasing. California - UCC-3 93161637 11/17/93 Assignment to Western Corporation Secretary of Assign- Computer Leasing State ment Hexcel Ciba-Geigy Corporation. California - UCC-1 93218048 10/28/93 Inventory and all accounts Corporation Secretary of receivable and other State proceeds as they relate to products sold or consigned under Con- signment Agreement Hexcel Ciba-Geigy Corporation. California - UCC-1 93218049 10/28/93 Consigned goods under Corporation Secretary of consignment Agreement State Hexcel Capital Associates International, Inc. California - UCC-1 93234554 11/18/93 Specified equipment Corporation Secretary of State Hexcel Amoco Performance Products, Inc. California - UCC-1 94061175 3/28/94 Specified equipment Corporation Secretary of State Hexcel International Computer Services, Inc. California - UCC-1 94161996 8/8/94 Specified equipment Corporation Assignee: Matrix Funding Corporation Secretary of State Hexcel Assignee: Heller Financial Inc. California - UCC-3 94263C0230 9/5/94 Assignment to Heller Corporation Secretary of Assign- Financial, Inc. State ment Hexcel Assignee: Matrix Funding Corporation California - UCC-3 95320C0133 11/13/95 Assignment back to Matrix Corporation Secretary of Assign- Funding Corporation State ment Hexcel Yale Financial Services, Inc. California - UCC-1 9511660448 4/24/95 Specified equipment Corporation Secretary of State Hexcel Briggs-Weaver, Inc. California - UCC-1 9521260952 7/27/95 Specified equipment Corporation Assignee: Yale Financial Services, Secretary of Inc. State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Briggs-Weaver, Inc. California - UCC-1 9522160693 8/7/95 Specified equipment Corporation Assignee: Yale Financial Services, Secretary of Inc. State Hexcel Capital Associates International, Inc. California - UCC-1 9605460295 2/22/96 Specified equipment Corporation Assignee: Capital Preferred Yield Secretary of Fund-II, L.P. State Hexcel Ciba-Geigy Corporation California - UCC-1 9607860538 3/15/96 Raw materials, inventory, Corporation Secretary of work in process-finished State products under Manufac- turing and Supply Agree- ment Hexcel Taylor Made Office Systems, Inc. California - UCC-1 9615160063 5/28/96 Specified equipment Corporation Secretary of State Hexcel Caterpillar Financial Services California - UCC-1 9631860942 11/12/96 Specified equipment Corporation Corporation Secretary of State Hexcel Briggs Equipment California - UCC-1 9709160292 3/24/97 Specified equipment Corporation Secretary of State Hexcel East Bay Clarklift, Inc. California - UCC-1 9715460364 5/29/97 Specified equipment Corporation dba Cromer Equipment Secretary of State Hexcel Roger Paul Shumaker California- Judge- 948599-7 5/7/90 Dismissed with prejudice, Corporation (Plaintiff) Alameda ment no damages awarded County Superior Court Hexcel As You Sow, a non-profit corporation California- Judge- 748827-2 7/26/95 Dismissed with prejudice, Corporation Alameda ment maximum of $4,500.00 County awarded Superior Court Hexcel Amoco Performance Products, Inc. Ohio - UCC-1 AK 87540 3/28/94 Specified Amoco inventory Corporation Secretary of State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Amoco Performance Products, Inc. Ohio - UCC-1 55420 3/28/94 Specified Amoco inventory Corporation Fairfield County Hexcel Meridian Leasing, Inc. Pennslyvania- UCC-1 22090328 7/7/93 Specified equipment Corporation Secretary of the Commonwealth Hexcel Meridian Leasing, Inc. Pennslyvania- UCC-1 22090329 7/7/93 Specified equipment Corporation Secretary of the Commonwealth Hexcel Keystone Financial Leasing Corp. Pennslyvania- UCC-1 25920639 10/4/96 Specified equipment Corp. Secretary of the Commonwealth Hexcel Northrup Grumman Corporation Pennslyvania- UCC-1 24170774 4/10/95 Specified equipment Corporation Secretary of the Commonwealth Hexcel Meridian Leasing, Inc. Pennslyvania- UCC-1 19737-39- 7/2/93 Specified equipment Corporation Schuylkill 378-3 County Hexcel Meridian Leasing, Inc. Pennslyvania- UCC-1 19738-39- 7/2/93 Specified equipment Corporation Schuylkill 378-4 County Hexcel International Computer Services, Inc. Pennslyvania- UCC-1 19941-39- 9/20/93 Specified equipment Corporation Assignee: Western Computer Leasing Schuylkill 429-3 County Hexcel Keystone Financial Leasing Corp. Pennslyvania- UCC-1 23268-41- 10/3/96 Specified equipment Corp. Schuylkill 226-4 County Hexcel Capital Associates International, Inc. Texas - UCC-1 119766 6/18/93 Specified equipment Corporation Assignee: Capital Preferred Yield Fund Secretary of II State Hexcel United States Leasing International, Texas - UCC-1 144606 7/28/93 Specified equipment Corporation Inc. Secretary of State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Capital Associates International, Inc. Texas - UCC-1 220866 11/17/93 Specified equipment Corporation Secretary of State Hexcel Hercules Incorporated Texas - UCC-1 234431 12/10/93 All Hercules Incorporated Corporation Secretary of consigned carbon fiber State products Hexcel Amoco Performance Products, Inc. Texas - UCC-1 057479 3/28/94 All Amoco carbon fiber Corporation Secretary of products State Hexcel Southwest Lift, Inc. Texas - UCC-1 192130 9/30/94 Specified equipment Corp. Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Southwest Lift, Inc. Texas - UCC-1 192131 9/30/94 Specified equipment Corp. Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Southwest Lift, Inc. Texas - UCC-1 192132 9/30/94 Specified equipment Corp. Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Southwest Lift, Inc. Texas - UCC-1 192133 9/30/94 Specified equipment Corp. Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Southwest Lift, Inc. Texas - UCC-1 231919 12/1/94 Specified equipment Corp. Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Southwest Lift, Inc. Texas - UCC-1 231920 12/1/94 Specified equipment Corp. Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Capital Associates International, Inc. Texas - UCC-1 035244 2/26/96 Specified equipment Corporation Assignee: Capital Preferred Yield Secretary of Fund-II, L.P. State
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DEBTOR NAME SECURED PARTY JURISDICTION FILING FILING FILING COLLATERAL DESCRIPTION TYPE NUMBER DATE Hexcel Southwest Lift, Inc. Texas - UCC-1 048826 3/12/96 Specified equipment Corporation Assignee: Toyota Motor Credit Secretary of Corporation State Hexcel Clarklift of Washington/Alaska, Inc. Washington - UCC-1 95-128-0751 5/8/95 Specified equipment Corporation Assignee: Clarke Credit Corporation Secretary of State Hexcel Caterpillar Financial Services Washington - UCC-1 96-317-0092 11/12/96 Specified equipment Corporation Corporation Secretary of State Hexcel Quality Business Systems Washington - UCC-1 97-147-0499 5/27/97 Specified equipment Corp. Secretary of State
SCHEDULE 11.4 GUARANTY OBLIGATIONS 1. See Schedule 3.10, Existing Letters of Credit
DESCRIPTION OUTSTANDING - ----------- ----------- HEXCEL CORPORATION 2. Guaranty of remaining payments under two GBP 197,929 operating leases between Hexcel U.K. Ltd. and Raychem Ltd. both expiring on 12/31/98. 3. Effective 7/15/97, Hexcel Corporation ITL 3,050,000,000 provided patronage letters to: (1) Banco di Napoli, LIR 500,000,000, (2) Rola Banca, LIR 950,000,000, (3) Credito Italiano, LIR 1,300,000,000, (4) Banca Commerciale Italiano, LIR 300,000,000 all to expire 7/15/98. 4. Pursuant to the Parent Company Agreement made April 17, 1990 (the "Parent Company Agreement"), Hexcel Corporation ("Hexcel") and Dainippon Ink & Chemicals, Inc. ("DIC") agreed to form a joint venture in order to develop, manufacture and sell certain products. In furtherance of this end and pursuant to the Parent Company Agreement, Hexcel's wholly owned subsidiary, Hexcel Technologies, Inc. ("HEXTI"), and DIC's wholly-owned subsidiary, DIC Technologies Inc. ("DICTI"), entered into the Participants' Agreement made September 14, 1990 (the AParticipants' Agreement") whereby HEXTI and DICTI formed HDP as a California partnership under a certain General Partnership Agreement of HEXCEL-DIC Partnership entered into as of September 14, 1990 (the "Partnership Agreement"). Pursuant to the Participants' Agreement, HEXTI and DICTI caused HDP to form DIC- Hexcel , Ltd., a Japanese corporation ("OPCO") as a wholly owned subsidiary of HDP under the laws of Japan. Hexcel and DIC have agreed to each make $3,250,000 of capital contributions to DIC-Hexcel Ltd. during 1997-1998. As of the date hereof, a final payment of $500,000 each remains to be paid in July 1998. Hexcel has a contingent liability of $4.5 million that is to be paid by Hexcel either upon the liquidation of DIC-Hexcel Ltd. or following DIC making any payment upon the call of the bank guarantees DIC has made supporting bank loans that have been provided to DIC-Hexcel Ltd. In the latter case, Hexcel shall have to contribute 50% of any amount paid by DIC under such guarantees, up to a maximum of $4.5 million.
1
DESCRIPTION OUTSTANDING - ----------- ----------- 5. Guaranty in favor of Wimpey Pension USD 128,000 Trustees, Ltd. for one year of rental payments of the sublessee located in Lightwater, England under an operating lease dated 7/22/74 and due to expire on 7/21/98. 6. Guaranty by Hexcel of Lease dated August GBP 22,950 15, 1974 between John Mark Temple Gaisford and David Wallis Shaw, and Joseph Lucas Industries Limited, covering annual lease payments 7. Guaranty with respect to Hexcel Lodi USD 4,000,000 facility in New Jersey SURETY BONDS 8. Bond securing 12 months of lease payments USD 30,000 for the benefit of the Port of Skagit, WA, Bond#5686352, Expires 3/13/98 9. Bond securing the State of Arizona workers USD 288,375 compensation benefits due to employees in favor of the State of Arizona, Bond# 5214167, Expires 4/15/98 10. Bond securing duties, taxes and charges USD 200,000 due on imported merchandise in favor of U.S. Customs, Bond# 5288974, Expires 10/18/98 11. Bond securing duties, taxes and charges on USD250,000* imports that are exported in favor of U.S. Customs, Bond#5288976, Expires 10/18/98 12. Bond securing the State of Washington USD576,000** worker's compensation benefits (due employees) in favor such state, Bond#5852114, Expires 2/28/99 13. Bond securing State of California USD 54,200 disability plan benefits due to employees in favor of the State of California Employment Development Department, Bond# 5288984, Expires 1/1/99 14. Bond securing a lost cashiers check and USD 653,853 legal fees in favor of First Interstate Bank, Bond# 5736792, Expires 11/12/99 15. Bond securing utility guarantee in USD 65,000 Decatur, AL, Bond#5864791, Expires 6/25/98
- ----------------------- * Will be increased from $130,000 to $250,000 in March 1998 for increased export activity. ** Subject to change depending on self-insurer security requirements. 3
HEXCEL COMPOSITES S.A. (BELGIUM) 16. Guarantees issued by Credit Lyonnais various currencies Belgium S.A. to guarantee obligations of Hexcel Composites S.A. (Belgium) vis-a-vis de Dietrich (FRF 114,227), Baudet (FRF 86,263), and GEC Alsthom (BEF 12,540,000). 17. Rental Bank guarantee BEF 135,000 SALVER S.R.L. (ITALY) 18. Declaration of Fidejussor from LA.ME.S. ITL 835,000,000 S.r.l.. signed by Roberto Salvetti, in favor Fime Leasing S.P.A., in the Interest of Centro Trattamenti Superficiali S.p.a., Naples, as Guaranty for Leasing contract dated June 28, 1989. As with the guaranty, the Same 17 guarantors have guaranteed the lease payments of C.T.S. As lessee of a warehouse facility. Salver S.r.l. (Italy) is responsible To guaranty repayment of up to 7% of the loan then outstanding. 19. Declaration of Fidujussor from LA. ME.S. ITL 195,000,000 S.r.l. signed by Roberto Salvetti, in favor of Fime Leasing S.p.a., in the Interest Of Centro Trattamenti Superficiali S.p.a., Naples, as guaranty for leasing contract dated June 28, 1989. Guaranty arrangement relating to a warehouse facility. 20. Declaration of Fidejussor from Credito ITL 5,000,000 Italiano Bank, No. 935 in favor of SNAM S.p.a. dated 2/23/95 HEXCEL FABRICS S.A. (FRANCE) 21. Guarantee in favor of Credit Lyonnais FRF 2,200,000 (expect cancellation 6/98) HEXCEL COMPOSITES GMBH (AUSTRIA) 22. As an assignment for security, Hexcel ATS 5,230,475 Composites GmbH (Austria) pledged bonds to Osterreichische Investition Aktiengesellschaft. Repayment started on 12/31/96 semiannually until 12/31/99. 23. Assignment of receivables, originally ATS 30,000,000 entered into on July 3, 1995 to Creditanstalt Bankverein Aktiengesellschaft to support an export credit program, payments thereon are due semiannually; collateral based on rolling 6 months receivables. 24. Bill of exchange with various customers. ATS 25,000,000
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HEXCEL COMPOSITES LTD. (U.K.) 25. Bond issued by Banque Nationale de Paris GBP 200,000 securing import duties in favor of HM Customs and Excise. HEXCEL COMPOSITES S.A. (SPAIN) 26. Generale Bank issued guaranties on behalf ESP 311,000,000 of Hexcel Composite S.A. (Spain) for the payment of duties and VAT before customs on goods imported by Hexcel Composites S.A. (Spain)
SCHEDULE 11.9 PERMITTED TRANSACTIONS WITH AFFILIATES See also Schedule 11.2, Indebtedness DESCRIPTION NONE SCHEDULE 11.14 PERMITTED PAYMENTS OF INDEBTEDNESS
DESCRIPTION 1. Subordinated Ciba Notes B The Increasing Rate Senior Subordinated Notes, due 2003, 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. 2. All payments of any intercompany debt, as referenced on Indebtedness Schedule 11.2. 3. All payments required under amortizing debt (capital leases and mortgages), as referenced on Indebtedness Schedule 11.2.
Page 1 EXHIBIT A FORM OF REVOLVING CREDIT NOTE [NAME OF BORROWER] U.S. $________________ March 5, 1998 New York, New York For value received, the undersigned, ________________, a _____________ [corporation] [company] (the "Borrower"), promises to pay to the order of ____________________ (the "Lender"), on the Termination Date (as defined in the Credit Agreement referred to below), the lesser of (i) the principal amount of ______________________________ DOLLARS ($_____________) or (ii) the unpaid principal amount of all amounts loaned by the Lender to the Borrower under this Note as Revolving Credit Loans under the Credit Agreement. The principal amount which can be borrowed under this Note, when aggregated with the principal amount which can be borrowed under all other Notes issued in accordance with the terms of the Credit Agreement, will in no case exceed the Aggregate Revolving Credit Commitment set forth in the Credit Agreement. The Borrower also promises to pay interest on the unpaid principal amount borrowed hereunder from the date advanced until paid at the rates (which shall not exceed the maximum rate permitted by applicable law) and at the times determined in accordance with the provisions of that certain Amended and Restated Credit Agreement dated as of March 5, 1998 among Hexcel Corporation, the Foreign Borrowers named therein, the financial institutions from time to time parties thereto as Lenders, the Collateral Agent and Credit Suisse First Boston in its capacity as administrative agent for the Lenders (in such capacity, the "Administrative Agent") (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). This Note is issued pursuant to, and is entitled to the benefits of, the Credit Agreement to which reference is hereby made for a more complete statement of the terms and conditions under which the Revolving Credit Loans evidenced hereby are made and are to be repaid. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. All payments of principal and interest in respect of this Note shall be made on the date and at the place due, to the Administrative Agent in lawful money of the United States of America in same day funds. This Note shall be governed by, and shall be construed and enforced in accordance with, the law of the State of New York. 3 The Lender shall record in accordance with its usual practice the date and amount of each Revolving Credit Loan made hereunder, and the date and amount of each payment of principal; PROVIDED, that the failure to record any such amount shall not limit or otherwise affect the obligation of the Borrower to repay the Lender the outstanding principal amount evidenced by this Note together with accrued interest thereon in accordance with the terms of the Credit Agreement. Upon the occurrence of an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement as applied to any Borrower (as defined in the Credit Agreement), the unpaid balance of the principal amount of this Note may become, and upon the occurrence and continuation of any one or more other Events of Default, such unpaid balance may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement. The Borrower hereby waives diligence, presentment, protest, demand and notice of every kind except as required pursuant to the Credit Agreement. This Note is secured by certain of the Credit Documents, and reference is made to such Credit Documents for the terms and conditions governing the collateral security for the Obligations of the Borrower hereunder. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and at the place first above written. HEXCEL CORPORATION By_____________________ Name: Title: EXHIBIT B FORM OF SWING LINE LOAN NOTE HEXCEL CORPORATION US $__________ March [__], 1998 New York, New York For value received, the undersigned, HEXCEL CORPORATION, a Delaware corporation (the "Borrower"), promises to pay to the order of Credit Suisse First Boston (the "Swing Line Lender"), in accordance with SECTION 7.1 of the Credit Agreement, upon the earlier of (A) demand by the Swing Line Loan Lender and (B) the Termination Date (as defined in the Credit Agreement referred to below), the lesser of (i) the principal amount of ___________ DOLLARS (US $__________) or (ii) the unpaid principal amount of all amounts loaned by the Swing Line Lender to the Borrower under this Note as Swing Line Loans under the Credit Agreement. The principal amount which can be borrowed under this Note, when aggregated with the principal amount which can be borrowed under all other Notes issued in accordance with the terms of the Credit Agreement, will in no case exceed the Aggregate Revolving Credit Commitment set forth in the Credit Agreement. The Borrower also promises to pay interest on the unpaid principal amount borrowed hereunder from the date advanced until paid at the rates (which shall not exceed the maximum rate permitted by applicable law) and at the times determined in accordance with the provisions of that certain Amended and Restated Credit Agreement dated as of March 5, 1998 among the Borrower, the Foreign Borrowers from time to time parties thereto, the financial institutions from time to time parties thereto as Lenders, the Collateral Agent and Credit Suisse First Boston, in its capacity as administrative agent for the Lenders (in such capacity, the "Administrative Agent") (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). This Note is issued pursuant to, and is entitled to the benefits of, the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Swing Line Loans evidenced hereby are made and are to be repaid. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings so defined. All payments of principal and interest in respect of this Note shall be made on the date and at the place due, to the Administrative Agent in lawful money of the United States of America in same day funds in accordance with the Credit Agreement. This Note may be prepaid at any time at the option of the Borrower without premium or penalty, and must be prepaid as provided in SECTION 7.5 of the Credit Agreement. This Note shall be governed by, and shall be construed and enforced in accordance with, the law of the State of New York. Upon the occurrence of an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement as applied to any Borrower (as defined in the Credit Agreement), the unpaid balance of the principal amount of this Note may become, and upon the occurrence and continuation of any one or more of certain other Events of Default, such unpaid balance may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement. The Borrower hereby waives diligence, presentment, protest, demand and notice of every kind except as required pursuant to the Credit Agreement. This Note is secured by certain of the Credit Documents, and reference is made to such Loan 2 Documents for the terms and conditions governing the collateral security for the Obligations of the Borrower hereunder. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and at the place first above written. HEXCEL CORPORATION By_________________________ Name: Title: EXHIBIT C-1 FORM OF COMPANY GUARANTY This AMENDED AND RESTATED GUARANTY ("Guaranty") is made as 5th day March 1998, by HEXCEL CORPORATION, a Delaware corporation (the "Guarantor") in favor of CITIBANK, N.A., in its capacity as collateral agent (with its successors and permitted assigns in such capacity, the "Collateral Agent") for the Lenders from time to time parties, to (and as defined in) the Credit Agreement described below. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement. W I T N E S S E T H WHEREAS, the Lenders have agreed to make extensions of credit from time to time to, the Guarantor and the Foreign Borrowers pursuant to the Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Guarantor, the Foreign Borrowers from time to time parties thereto, the Lenders, the Collateral Agent, the Syndication Agent and CSFB, as administrative agent (in such capacity, the "Administrative Agent"; together with the Collateral Agent and the Syndication Agent, the "Agents"); WHEREAS, each of the Foreign Borrowers, directly or indirectly, is a Wholly-owned Subsidiary of the Guarantor; WHEREAS, the Guarantor will directly and indirectly benefit from the loans and other financial accommodations made to the Foreign Borrowers pursuant to the Credit Agreement; WHEREAS, it is a condition precedent to the obligation of the Lenders to make their extensions of credit under the Credit Agreement that the Guarantor execute and deliver to the Collateral Agent this Guaranty; WHEREAS, the Guarantor is a party to the Company Guaranty, dated as of June 27, 1996 (as amended, supplemented or otherwise modified from time to time, the "EXISTING GUARANTY AGREEMENT"), with the Collateral Agent; and Whereas, the Collateral Agent has requested the Existing Guaranty Agreement to be amended as more fully described herein; and 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 Guaranty Agreement, for convenience of reference, has agreed to restate the Existing Guaranty Agreement as so amended; and WHEREAS, each of the parties hereto are agreeable to the terms and provisions of the Existing Guaranty Agreement as amended and restated hereby; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties to the Existing Guaranty Agreement agree that the Existing Guaranty Agreement shall be and hereby is amended and restated in its entirety and the parties hereto hereby agree as follows: 1. GUARANTY. (i) The Guarantor hereby irrevocably and unconditionally guarantees to the Collateral Agent, for the benefit of the Agents and the Lenders, the full and prompt payment when due (whether at maturity or earlier, by reason of acceleration or otherwise, and at all times thereafter) of the Obligations of the 2 Foreign Borrowers (including, without limitation, interest accruing following the commencement of any insolvency or bankruptcy case or proceeding or other similar case or proceeding in respect of any Foreign Borrower, at the applicable rate specified in the Credit Agreement, whether or not such interest is allowed as a claim in such case or proceeding) (the "Guaranteed Obligations"). (ii) At any time after the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement, the Guarantor shall pay to the Collateral Agent, for the benefit of the Agents and the Lenders, on demand and in immediately available funds, the amount of the Guaranteed Obligations that is due and payable, and upon acceleration, the full amount thereof. The Guarantor further agrees to pay and reimburse the Agents and the Lenders for, on demand and in immediately available funds, all reasonable fees, costs and expenses (including, without limitation, all court costs and reasonable attorneys' fees, costs and expenses) paid or incurred by the Agents or the Lenders in: (1) endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action in respect of the Guaranteed Obligations against, any Foreign Borrower or the Guarantor; (2) taking any action with respect to any security or collateral securing the Guaranteed Obligations or the Guarantor's obligations hereunder; and (3) preserving, protecting or defending the enforceability of, or enforcing, this Guaranty or the Collateral Agent's rights hereunder (all such costs and expenses are hereinafter referred to as the "Expenses"), and interest thereon. The Guarantor hereby agrees that this Guaranty is an absolute guaranty of payment and is not a guaranty of collection. 2. OBLIGATIONS UNCONDITIONAL. The Guarantor hereby agrees that its obligations under this Guaranty shall be unconditional, irrespective of: (i) the validity, enforceability, avoidance or subordination of any of the Guaranteed Obligations or any of the Credit Documents; (ii) the absence of any attempt by, or on behalf of, either Agent or any of the Lenders to collect, or to take any other action to enforce, all or any part of the Guaranteed Obligations whether from or against any Foreign Borrower, the Guarantor or any other guarantor of the Guaranteed Obligations or any other Person; (iii) the election of any remedy by, or on behalf of, either Agent or any of the Lenders with respect to all or any part of the Guaranteed Obligations; (iv) the waiver, consent, extension, forbearance or granting of any indulgence by, or on behalf of, either Agent or any of the Lenders with respect to any provision of any of the Credit Documents; (v) the failure of either Agent or any of the Lenders to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Guaranteed Obligations; (vi) the election by, or on behalf of, either Agent or any of the Lenders, in any proceeding instituted under Chapter 11 of Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; (vii) any borrowing or grant of a security interest by any Foreign Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code; (viii) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of the claims against any Foreign Borrower of any of the Lenders or either Agent for repayment of all or any part of the Guaranteed Obligations or any Expenses; or (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor, any Foreign Borrower or any other guarantor of the Obligations. 3. ENFORCEMENT; APPLICATION OF PAYMENTS. Subject to SECTION 1(ii) hereof and the provisions of the Credit Agreement, upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may proceed directly against the Guarantor to collect and recover the full amount, or any portion, of the Guaranteed Obligations, without first proceeding against any Foreign Borrower or any other Person, or against any security or collateral for the Guaranteed Obligations. Subject only to the terms and provisions of the Credit Agreement, the 3 Collateral Agent shall have the exclusive right to determine the application of payments and credits, if any, from the Guarantor, any Foreign Borrower or from any other Person on account of the Guaranteed Obligations or any other liability of the Guarantor to either Agent or any of the Lenders. 4. WAIVERS. (i) The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of receivership or bankruptcy of any Foreign Borrower, protest or notice with respect to the Guaranteed Obligations, all setoffs and counterclaims, demands for performance, notices of nonperformance, notices of protest, notices of dishonor and notices of acceptance of this Guaranty, and all other demands whatsoever (and shall not require that the same be made on any Foreign Borrower as a condition precedent to the Guarantor's obligations hereunder), and covenants that this Guaranty will not be discharged, except by complete payment (in cash) and performance of the Guaranteed Obligations and any other obligations contained herein. The Guarantor further waives all notices of the existence, creation or incurring of new or additional Indebtedness, arising either from additional loans extended to any Foreign Borrower or otherwise, and also waives all notices that the principal amount, or any portion thereof, and/or any interest on any instrument or document evidencing all or any part of the Guaranteed Obligations is due, notices of any and all proceedings to collect from the maker, any endorser or any other guarantor of all or any part of the Guaranteed Obligations, or from any other Person, and, to the extent permitted by law, notices of exchange, sale, surrender or other handling of any security or collateral given to the Administrative Agent or any of the Lenders to secure payment of all or any part of the Guaranteed Obligations. (ii) The Agents and/or the Lenders are hereby authorized, without notice or demand and without affecting the liability of the Guarantor hereunder, from time to time, (a) to renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, all or any part of the Guaranteed Obligations, or to otherwise modify, amend or change the terms of any of the Credit Documents; (b) to accept partial payments on all or any part of the Guaranteed Obligations; (c) to take and hold security or collateral for the payment of all or any part of the Guaranteed Obligations, this Guaranty, or any other guaranties of all or any part of the Guaranteed Obligations or other liabilities of the Foreign Borrowers, (d) to exchange, enforce, waive and release any such security or collateral; (e) to apply such security or collateral and direct the order or manner of sale thereof as in its discretion it may determine; (f) to settle, release, exchange, enforce, waive, compromise or collect or otherwise liquidate all or any part of the Guaranteed Obligations, this Guaranty, any other guaranty of all or any part of the Guaranteed Obligations, and any security or collateral for the Guaranteed Obligations or for any such guaranty. Any of the foregoing may be done in any manner, without affecting or impairing the obligations of the Guarantor hereunder. 5. SETOFF. At any time after all or any part of the Guaranteed Obligations have become due and payable (by acceleration or otherwise), the Lenders may, without notice to the Guarantor and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward the payment of all or any part of the Guaranteed Obligations (i) any Indebtedness due or to become due from the Lenders to the Guarantor, and (ii) any moneys, credits or other property belonging to the Guarantor, at any time held by or coming into the possession of the Lenders or their respective affiliates. 6. FINANCIAL INFORMATION. The Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Foreign Borrowers and any and all other guarantors and/or endorsers of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations, or any part thereof, that diligent inquiry would reveal, and the Guarantor hereby agrees that the Agents and the Lenders shall have no duty to advise the Guarantor of information known to it regarding such condition or any such circumstances. In the event that the either Agent or any of the Lenders, in its sole discretion, undertakes at any time or from time to time to provide any such information to the Guarantor, then such Agent or such Lender shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which such Agent or such Lender, pursuant to accepted or reasonable commercial finance or banking practices, wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to the Guarantor. 7. NO MARSHALLING; REINSTATEMENT. The Guarantor consents and agrees that none of the Agents or any of the Lenders or any Person acting for or on behalf of the Collateral Agent shall be under any obligation to marshall any assets in favor of the Guarantor or against or in payment of any or all of the Guaranteed Obligations. 4 The Guarantor further agrees that, to the extent that any Foreign Borrower or any other guarantor of all or any part of the Guaranteed Obligations makes a payment or payments to the Agents or the Lenders or either Agent or any Lender receives any proceeds of Collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to such Foreign Borrower, such other guarantor or any other Person, or their respective estates, trustees, receivers or any other party, including, without limitation, the Guarantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the part of the Guaranteed Obligations which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the time immediately preceding such initial payment, reduction or satisfaction. 8. SUBROGATION. Until the Guaranteed Obligations shall have been paid in full, the Guarantor hereby agrees that it (i) shall not exercise any right of subrogation with respect to such Guaranteed Obligations (under contract, Section 509 of the Bankruptcy Code or otherwise) or any other right of indemnity, reimbursement or contribution, (ii) waives any right to enforce any remedy which either Agent, any of the Lenders now have or may hereafter have against any Foreign Borrower, any endorser or any other guarantor of all or any part of the Guaranteed Obligations or any other Person, and (iii) waives any benefit of, and any right to participate in, any security or collateral given to the Agents or the Lenders to secure the payment or performance of all or any part of the Guaranteed Obligations or any other liability of any Foreign Borrower to the Agents and the Lenders. 9. SUBORDINATION. The Guarantor agrees that any and all claims of the Guarantor against any Foreign Borrower or any endorser or other guarantor of all or any part of the Guaranteed Obligations, or against any of their respective properties with respect to any Indebtedness of such Foreign Borrower to the Guarantor (the "Borrower Indebtedness"), shall be subordinated to the payment in full in cash of all Guaranteed Obligations. Notwithstanding any right of the Guarantor to ask, demand, sue for, take or receive any payment from any Foreign Borrower, all such rights and Liens of the Guarantor with respect to the Borrower Indebtedness, whether now or hereafter arising and howsoever existing shall be and hereby are subordinated to the rights of the Agents and the Lenders to receive payment in full in cash of the Guaranteed Obligations. So long as no Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and be continuing, the Guarantor shall retain all its rights and shall be entitled to receive and retain any and all payments made in respect of, the Borrower Indebtedness. After an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and be continuing, the Guarantor shall not exercise any rights with respect to the Borrower Indebtedness or to foreclose upon any asset securing the Borrower Indebtedness, whether by judicial action or otherwise, unless and until all of the Guaranteed Obligations shall have been fully paid in cash and all financing arrangements pursuant to the Credit Agreement between the Foreign Borrowers and the Lenders have been terminated. If all or any part of the assets of any Foreign Borrower, or the proceeds thereof, are subject to any distribution, division or application to the creditors of such Foreign Borrower, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any Foreign Borrower is dissolved or if substantially all of the assets of any Foreign Borrower are sold, then, and in any such event, any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any Borrower Indebtedness shall be paid or delivered directly to the Lenders for application to any of the Guaranteed Obligations, due or to become due, until such Guaranteed Obligations shall have first been fully paid in cash and satisfied. The Guarantor irrevocably authorizes and empowers each Agent and each of the Lenders to demand, sue for, collect and receive every such payment or distribution and give acquittance therefor and to make and present for and on behalf of the Guarantor such proofs of claim and take such other action, in the such Agent's or such Lender's own name or in the name of the Guarantor or otherwise, as either or any Lender may deem necessary or advisable for the enforcement of this Guaranty. Each Lender may vote such proofs of claim in any such proceeding, receive and collect any and all dividends or other payments or disbursements made thereon in whatever form the same may be paid or issued and apply the same on account of any of the Guaranteed Obligations. Should any payment, distribution, security or instrument or proceeds thereof be received by the Guarantor upon or with respect to the Borrower Indebtedness after an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and is continuing, and prior to the payment in full in cash of all Guaranteed Obligations and the termination of all financing arrangements pursuant to the Credit Agreement between the Foreign Borrowers and the Lenders, the Guarantor shall receive and hold the same in trust, as trustee, for the benefit of the Agents and the Lenders, and shall forthwith deliver the same to the Collateral Agent, in precisely the form received (except for the endorsement or assignment of the Guarantor where necessary), for application to any of the Guaranteed Obligations, due or not due, 5 and, until so delivered, the same shall be held in trust by the Guarantor as the property of the Collateral Agent for the benefit of the Agents and the Lenders; PROVIDED, that if the Guarantor fails to make any such endorsement or assignment to the Collateral Agent, the Collateral Agent (or any of its officers or employees) is hereby irrevocably authorized to make the same. The Guarantor agrees that after an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and is continuing, and until the Guaranteed Obligations have been paid in full (in cash) and satisfied and all financing arrangements pursuant to the Credit Agreement between the Foreign Borrowers and the Lenders have been terminated, the Guarantor will not assign or transfer to any Person any claim the Guarantor has or may have against any Foreign Borrower. 10. ENFORCEMENT; AMENDMENTS; WAIVERS. No delay on the part of either Agent or any of the Lenders in the exercise of any right or remedy arising under this Guaranty, the Credit Agreement, any of the other Credit Documents or otherwise with respect to all or any part of the Guaranteed Obligations, the Collateral or any other guaranty of or security for all or any part of the Guaranteed Obligations shall operate as a waiver thereof, and no single or partial exercise by either Agent or any of the Lenders of any such right or remedy shall preclude any further exercise thereof. No modification or waiver of any of the provisions of this Guaranty shall be binding upon either Agent or any of the Lenders, except as expressly set forth in a writing duly signed and delivered by the Administrative Agent. Failure by either Agent or any of the Lenders at any time or times hereafter to require strict performance by any Foreign Borrower, any other guarantor of all or any part of the Guaranteed Obligations or any other Person of any of the provisions, warranties, terms and conditions contained in any of the Credit Documents now or at any time or times hereafter executed by such Persons and delivered to either Agent or any of the Lenders shall not waive, affect or diminish any right of either Agent or any of the Lenders at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or knowledge of either Agent or any of the Lenders or its agents, officers or employees, unless such waiver is contained in an instrument in writing, directed and delivered to the Guarantor, specifying such waiver, and is signed by the Administrative Agent. No waiver of any Event of Default by the Lenders shall operate as a waiver of any other Event of Default or the same Event of Default on a future occasion, and no action by either Agent or any of the Lenders permitted hereunder shall in any way affect or impair either Agent's or any Lender's rights and remedies or the obligations of the Guarantor under this Guaranty. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest owing by any Foreign Borrower to the Agents and the Lenders shall be conclusive and binding on the Guarantor irrespective of whether the Guarantor was a party to the suit or action in which such determination was made. 11. EFFECTIVENESS; TERMINATION. This Guaranty shall become effective against the Guarantor upon its execution by the Guarantor and shall continue in full force and effect and may not be terminated or otherwise revoked until the Guaranteed Obligations (other than indemnities not yet due) shall have been fully paid (in cash) and discharged and the Credit Agreement and the Revolving Credit Commitments shall have been terminated. If, notwithstanding the foregoing, the Guarantor shall have any right under applicable law to terminate or revoke its obligations under this Guaranty, the Guarantor agrees that such termination or revocation shall not be effective until a written notice of such revocation or termination, specifically referring hereto, signed by the Guarantor, is actually received by each Agent and the Lenders. Such notice shall not affect the right and power of the Agents or any of the Lenders to enforce rights arising prior to receipt thereof by the Agents and the Lenders. If any of the Lenders grants Loans or takes other action after the Guarantor terminates or revokes its obligations under this Guaranty but before such Lender receives such written notice, the rights of such Lender with respect thereto shall be the same as if such termination or revocation had not occurred. 12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the parties hereto and their respective successors and permitted assigns, and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Agents and the Lenders. The rights hereunder and the interest herein of the Guarantor may not be assigned without the written consent of the Required Lenders. Any attempted assignment without such written consent shall be void. Nothing set forth herein or in any other Credit Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Guaranty. The Guarantor's successors shall include, without limitation, a receiver, trustee or debtor-in-possession of or for the Guarantor. 13. GOVERNING LAW. This Guaranty shall be construed, and the rights and duties of the parties hereto shall be determined, in accordance with the law of the State of New York. 6 14. CERTAIN CONSENTS AND WAIVERS. (a) PERSONAL JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (i) EACH OF THE COLLATERAL AGENT AND THE GUARANTOR IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RELATED HERETO, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR IN SUCH FEDERAL COURT. THE GUARANTOR IRREVOCABLY DESIGNATES AND APPOINTS UNITED STATES CORPORATION SERVICES COMPANY AT 80 STATE STREET, ALBANY, NEW YORK 12207, AS ITS RESPECTIVE PROCESS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE COLLATERAL AGENT AND THE GUARANTOR AGREES THAT A FINAL NONAPPEALABLE 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. EACH OF THE COLLATERAL AGENT AND THE GUARANTOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE IN ANY SUCH ACTION OR PROCEEDING IN SUCH STATE COURT OR IN SUCH FEDERAL COURT. (ii) THE GUARANTOR AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST THE GUARANTOR OR ITS PROPERTY IN A COURT HAVING JURISDICTION IN ANY LOCATION TO ENABLE THE AGENTS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE ADMINISTRATIVE AGENT OR ANY LENDER. THE GUARANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH EITHER AGENT OR ANY LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) SERVICE OF PROCESS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW: THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE GUARANTOR'S NOTICE ADDRESS SPECIFIED PURSUANT TO SECTION 16 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. EACH OF THE COLLATERAL AGENT AND THE GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS AGAINST THE GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. (c) WAIVER OF JURY TRIAL. EACH OF THE COLLATERAL AGENT AND THE GUARANTOR IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT. 15. WAIVER OF BOND. The Guarantor waives, to the extent permitted by law, the posting of any bond otherwise required of the Collateral Agent in connection with any judicial process or proceeding to realize on the Collateral or any other security for the Guaranteed Obligations, to enforce any judgment or other court order entered in favor of the Collateral Agent, or to enforce by specific performance, temporary restraining order, or 7 preliminary or permanent injunction, this Guaranty or any other agreement or document between the Collateral Agent and the Guarantor. 16. NOTICES. All notices and other communications required or desired to be served, given or delivered hereunder shall be in writing or by a telecommunications device capable of creating a printed record and shall be addressed to the party to be notified as follows: if to the Guarantor, at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 Attention: Treasurer Telecopier No.: (203) 358-3993 Confirmation No.: (203) 969-0666 with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: Joseph Coco, Esq. Telecopier No.: (212) 735-2000 Confirmation No.: (212) 735-3000 if to the Collateral Agent, at: Citibank, N.A. 399 Park Avenue New York, New York 10022 Attention: William E. Clark Telecopier No.: (212) 793-7460 Confirmation No.: (212) 559-5944 or, as to each party, at such other address as designated by such party in a written notice to the other party. All such notices and communications shall be deemed to be validly served, given or delivered (i) ten (10) days following deposit in the United States mails, with proper postage prepaid; (ii) upon delivery thereof if delivered by hand to the party to be notified; (iii) one Business Day after delivery thereof to a reputable overnight courier service, with delivery charges prepaid; or (iv) upon confirmation of receipt thereof if transmitted by a telecommunications device. 17. SEVERABILITY. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 18. COLLATERAL. The Guarantor hereby acknowledges and agrees that its obligations under this Guaranty are secured pursuant to the terms and provisions of the other Credit Documents to which it is a party. 19. ENTIRE AGREEMENT. This Guaranty, together with the other Credit Documents, embodies the entire agreement and understanding of the parties hereto with respect to the matters contained herein and supersedes all prior agreements and understandings, written and oral, relating to the subject matter hereof. 21. EXECUTION IN COUNTERPARTS. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an 8 original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor as of the day and year first set forth above. HEXCEL CORPORATION By________________________________ Name: Title: Acknowledged and agreed to as of the __ day of March, 1998 CITIBANK, N.A., as Collateral Agent By________________________________ Name: Title: EXHIBIT C-2 FORM OF COMPANY PLEDGE AGREEMENT This AMENDED AND RESTATED PLEDGE AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Pledge Agreement"), dated as of March 5, 1998, by and between HEXCEL CORPORATION, a Delaware corporation (with its successors and permitted assigns, the "Pledgor"), and CITIBANK, N.A., in its separate capacity as collateral agent (with its successors and permitted assigns in such capacity, the "Collateral Agent") for the Lenders (as defined below) parties to the Credit "greement described below. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement. W I T N E S S E T H: WHEREAS, the Lenders have agreed to make extensions of credit from time to time to the Pledgor and the Foreign Borrowers pursuant to the Amended and Restated Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Pledgor, the Foreign Borrowers from time to time parties thereto, the Lenders, the Collateral Agent and the CSFB, as administrative agent (in such capacity, the "Administrative Agent", together with the Collateral Agent, the "Agents"); WHEREAS, the Pledgor owns the shares of capital stock described in EXHIBIT A hereto and issued by the issuers named therein; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their extensions of credit under the Credit Agreement that the Pledgor execute and deliver to the Collateral Agent this Pledge Agreement; and WHEREAS, the Pledgor is a party to the pledge agreement, dated as of June 27, 1996 (as amended, supplemented or otherwise modified from time to time, the "EXISTING PLEDGE AGREEMENT"), with the Collateral Agent; and Whereas, the Collateral Agent has requested the Existing Agreement to be amended as more fully described herein; and WHEREAS, each of the parties to the Existing Pledge 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 Pledge Agreement, for convenience of reference, has agreed to restate the Existing Pledge Agreement as so amended; and WHEREAS, each of the parties hereto are agreeable to the terms and provisions of the Existing Pledge Agreement as amended and restated hereby; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties to the Existing Pledge Agreement agree that the Existing Pledge Agreement shall be and hereby is amended and restated in its entirety and the parties hereto hereby agree as follows: 1. DEFINED TERMS. (a) Unless otherwise defined herein, each capitalized term used herein that is defined in the Credit Agreement shall have the meaning specified for such term in the Credit Agreement. Unless otherwise defined herein, all terms defined in Article 8 and Article 9 of the Uniform Commercial Code in effect as of the date hereof 2 in the State of New York are used herein as defined therein. (b) The words "hereby," "hereof," "herein" and "hereunder" and words of like import when used in this Pledge Agreement shall refer to this Pledge Agreement as a whole and not to any particular provision of this Pledge Agreement, and section references are to this Pledge Agreement unless otherwise specified. (c) All terms defined in this Pledge Agreement in the singular shall have comparable meanings when used in the plural, and VICE VERSA, unless otherwise specified. 2. PLEDGE. The Pledgor hereby pledges to the Collateral Agent (for the benefit of the Agents and the Lenders) and grants to the Collateral Agent (for the benefit of the Agents and the Lenders) a security interest in the following (collectively, the "Pledged Collateral"): (a) All of the issued and outstanding capital stock of the issuers described in EXHIBIT A hereto (including, without limitation, the shares of such capital stock described in EXHIBIT A hereto), and the certificates representing the shares of such capital stock, all options and warrants for the purchase of shares of such capital stock (all of said capital stock, options and warrants and all capital stock held in the name of the Pledgor as a result of the exercise of such options or warrants being hereinafter collectively referred to as the "Pledged Stock"), and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Stock; (b) All additional shares of stock of any issuer of the Pledged Stock from time to time acquired by the Pledgor in any manner, and all of the shares of the capital stock issued to the Pledgor by any other Subsidiary of the Pledgor after the date hereof that are required to be pledged pursuant to the Credit Agreement, and the certificates representing such additional shares (any such additional shares shall constitute part of the Pledged Stock and the Collateral Agent is irrevocably authorized, but is not required, to amend EXHIBIT A from time to time to reflect such additional shares), and all options, warrants, dividends, cash, instruments and other rights and options from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (c) The property and interests in property described in SECTION 4 below; and (d) All proceeds of the foregoing. The Pledgor hereby delivers to the Collateral Agent all of such Pledged Collateral which is in existence on the date hereof, accompanied by appropriate undated stock powers (the "Stock Powers") duly executed in blank. 3. SECURITY FOR OBLIGATIONS. The Pledged Collateral secures the prompt payment, performance and observance of the Obligations (including, without limitation, the Guaranteed Obligations under, and as defined in, the Company Guaranty) of the Borrowers. 4. PLEDGED COLLATERAL ADJUSTMENTS. If, during the term of this Pledge Agreement: (a) any stock dividend, reclassification, readjustment or other change is declared or made in the capital structure of any issuer of Pledged Stock, or any option included within the Pledged Collateral is exercised, or both, or (b) any subscription warrants or any other rights or options shall be issued in connection with the Pledged Collateral, then all new, substituted and additional shares, warrants, rights, options, notes or other securities, issued by reason of any of the foregoing, shall be immediately delivered to and held by the Collateral Agent under the terms of this Pledge Agreement and shall constitute Pledged Collateral hereunder; PROVIDED, HOWEVER, that nothing contained in this SECTION 4 shall be deemed to permit any stock dividend, issuance of additional stock, warrants, rights or options, reclassification, readjustment or other change in the capital structure of any issuer of Pledged Stock which is prohibited in the Credit Agreement. 3 5. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. The Pledgor represents and warrants that it has made its own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and the Pledgor agrees that neither the Agents nor any of the Lenders shall have any obligation to inform the Pledgor of any such changes or potential changes or to take any action or omit to take any action with respect thereto. The Collateral Agent may, upon the occurrence and during the continuation of an Event of Default, without notice and at its option, transfer or register the Pledged Collateral or any part thereof into its or its nominee's name with or without any indication that such Pledged Collateral is subject to the security interest hereunder. In addition, the Collateral Agent may at any time, after the occurrence and during the continuation of an Event of Default, exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. 6. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants as follows: (a) The Pledgor is the sole legal and beneficial owner of all of the issued and outstanding capital stock of each issuer listed on EXHIBIT A hereto, free and clear of any Lien except for the security interest created by this Pledge Agreement, and the Pledged Stock constitutes 100% of the issued and outstanding shares of capital stock of the respective issuers thereof set forth in EXHIBIT A hereto; (b) There are no restrictions upon the voting rights associated with, or upon the transfer of, any of the Pledged Collateral, other than (i) pursuant to this Pledge Agreement and (ii) with regard to the shares of Hexcel Pottsville Corporation, such restrictions as may exist under any applicable Requirement of Law; (c) The pledge of the Pledged Collateral pursuant to this Pledge Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, securing the payment and performance of the Obligations of the Borrowers; and (e) The Stock Powers are duly executed and give the Collateral Agent the authority they purport to confer. 7. VOTING RIGHTS. During the term of this Pledge Agreement, and except as provided in this SECTION 7 below, the Pledgor shall have the right to vote the Pledged Stock on all corporate questions in a manner not inconsistent with the terms of this Pledge Agreement, the Credit Agreement or any other Credit Document. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may, at the Collateral Agent's option and following written notice from the Collateral Agent to the Pledgor, exercise all voting powers pertaining to the Pledged Collateral, including the right to take action by shareholder consent. 8. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) So long as no Event of Default under SECTION 12(a) of the Credit Agreement shall have occurred and be continuing: (i) The Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, PROVIDED, HOWEVER, that any and all (A) dividends and interest paid or payable other than in cash with respect to, and instruments and other property received, receivable or otherwise distributed with respect to, or in exchange for, any of the Pledged Collateral; (B) dividends and other distributions paid or payable in cash with respect to any of the Pledged Collateral on account of a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid in surplus; and (C) cash paid, payable or otherwise distributed with respect to principal of, or in redemption of, or in exchange for, any of the Pledged Collateral; 4 shall be Pledged Collateral, and shall be forthwith delivered to the Collateral Agent to hold, for the benefit of the Agents and the Lenders, as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the Collateral Agent, for the benefit of the Agents and the Lenders, be segregated from the other property or funds of the Pledgor, and be delivered immediately to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement); and (ii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to receive the dividends or interest payments which the Pledgor is authorized to receive and retain pursuant to CLAUSE (i) above or exercise the voting rights in Section 7 above. (b) Upon the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement: (i) All rights of the Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to SECTION 8(a)(i) hereof shall cease, and all such rights shall thereupon become vested in the Collateral Agent, for the benefit of the Agents and the Lenders, which shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; (ii) All dividends and interest payments which are received by the Pledgor contrary to the provisions of CLAUSE (i) of this SECTION 8(b) shall be received in trust for the Collateral Agent, for the benefit of the Agents and the Lenders, shall be segregated from other funds of the Pledgor and shall be paid over immediately to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsements); and (iii) The Pledgor shall, upon the request of the Collateral Agent, at Pledgor's expense, execute and deliver all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Collateral Agent, the Pledgor or its or their counsel, advisable to register the applicable Pledged Collateral under the provisions of the Securities Act, and to exercise its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Collateral Agent, the Pledgor or its or their counsel, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (iv) The Pledgor shall, upon the request of the Collateral Agent, at Pledgor's expense, use its best efforts to qualify the Pledged Collateral under state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Collateral Agent; (v) The Pledgor shall, upon the request of the Collateral Agent, at the Pledgor's expense, make available to the holders of its securities, as soon as practicable, earnings statements which will satisfy the provisions of Section 11(a) of the Securities Act; and (vi) The Pledgor shall, upon the reasonable request of the Collateral Agent, at the Pledgor's expense, do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor will reimburse the Collateral Agent for all reasonable expenses incurred by the Collateral Agent, including, without limitation, reasonable attorneys' and accountants' fees and expenses in connection with the foregoing. Upon or at any time after the occurrence and during the continuation of an Event of Default, if the Collateral Agent determines that, prior to any public offering of any securities constituting part of the Pledged Collateral, such securities should be registered under the Securities Act and/or registered or qualified under any other federal or state law and such registration and/or qualification is not practicable, then the Pledgor agrees that it will be commercially reasonable if a private sale, upon at least ten (10) Business Days' notice to the Pledgor, is 5 arranged so as to avoid a public offering, even though the sales price established and/or obtained at such private sale may be substantially less than prices which could have been obtained for such security on any market or exchange or in any other public sale. 9. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral without the prior written consent of the Collateral Agent, other than in accordance with the Credit Agreement, or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest permitted hereunder and under the Credit Agreement. 10. REMEDIES; APPLICATION OF PROCEEDS. (a) Subject to the restrictions set forth in the Collateral Agency Agreement among Hexcel Corporation and the Agents, the Collateral Agent shall have, in addition to any other rights given under this Pledge Agreement or by law, all of the rights and remedies with respect to the Pledged Collateral of a secured party under the Uniform Commercial Code as in effect in the State of New York. In addition, upon the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations, the Administrative Agent shall have such powers of sale and other powers as may be conferred by applicable law. With respect to the Pledged Collateral or any part thereof which shall then be in or shall thereafter come into the possession or custody of the Collateral Agent or which the Collateral Agent shall otherwise have the ability to transfer under applicable law, the Collateral Agent may, in its sole discretion, without notice except as specified below, after the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations of the Borrowers, sell or cause the same to be sold at any exchange, broker's board or at public or private sale, in one or more sales or lots, at such price as the Collateral Agent may deem best, for cash or on credit or for future delivery, without assumption of any credit risk, and the purchaser of any or all of the Pledged Collateral so sold shall thereafter own the same, absolutely free from any claim, encumbrance or right of any kind whatsoever. The Agents and any Lender may, in its own name, or in the name of a designee or nominee, buy such Pledged Collateral at any public sale and, if permitted by applicable law, buy such Pledged Collateral at any private sale. In the event of a sale of any Collateral, or any part thereof, to a Lender or the Agents upon the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations, such Lender or the Agents, as the case may be, shall not deduct or offset from any part of the purchase price to be paid therefor any indebtedness owing to it by the Pledgor. The Pledgor will pay to the Agents all reasonable expenses (including, without limitation, court costs and reasonable attorneys' expenses) of, or incidental to, the enforcement of any of the provisions hereof. The Collateral Agent agrees to distribute any proceeds of the sale of the Pledged Collateral in accordance with the Credit Agreement and the Pledgor shall remain liable for any deficiency following the sale of the Pledged Collateral. (b) Unless any of the Pledged Collateral threatens to decline speedily in value or is or becomes of a type sold on a recognized market, the Collateral Agent will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Pledged Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to the Pledged Collateral shall be deemed to be commercially reasonable. Notwithstanding any provision to the contrary contained herein, the Pledgor agrees that any requirements of reasonable notice shall be met if such notice is received by the Pledgor as provided in SECTION 20 below at least ten (10) Business Days before the time of the sale or disposition; PROVIDED, HOWEVER, that the Collateral Agent may give any shorter notice that is commercially reasonable under the circumstances. Any other requirement of notice, demand or advertisement for sale is waived, to the extent permitted by law. (c) In view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Pledged Collateral may be effected after the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations of the Borrowers, the Pledgor agrees that upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may, from time to time, attempt to sell all or any part of the Pledged Collateral by means of a private placement restricting the bidders and prospective purchasers to those who are qualified and will represent and agree that they are purchasing for investment only and not for distribution. In so doing, the Collateral Agent may solicit offers to buy the Pledged Collateral, or any part of it, from a limited number of investors deemed by the 6 Collateral Agent, in its reasonable judgment, to be financially responsible parties who might be interested in purchasing the Pledged Collateral. If the Collateral Agent solicits such offers from not less than four (4) such investors, then the acceptance by the Collateral Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposing of such Pledged Collateral; PROVIDED, HOWEVER, that this Section does not impose a requirement that the Collateral Agent solicit offers from four or more investors in order for the sale to be commercially reasonable. 11. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby appoints the Collateral Agent its attorney-in-fact, with full authority, in the name of the Pledgor or otherwise, upon the occurrence and during the continuation of an Event of Default, from time to time in the Collateral Agent's sole discretion, to take any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including, without limitation (subject to SECTION 8 hereof), to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same and to arrange for the transfer of all or any part of the Pledged Collateral on the books of each of the issuers of such Pledged Stock or obligors of such Pledged Stock to the name of the Administrative Agent or the Collateral Agent's nominee. 12. WAIVERS. The Pledgor waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or Event of Default with respect to any of the Obligations and all other notices to which the Pledgor might otherwise be entitled except as otherwise expressly provided herein or in the Credit Agreement. 13. TERMINATION OF THIS SECURITY AGREEMENT; RELEASE OF COLLATERAL. (a) The pledge made and the security interest granted by the Pledgor under this Pledge Agreement shall terminate upon final payment in full in cash of the Obligations and the termination of the Revolving Credit Commitments under the Credit Agreement. Upon such termination (other than as a result of the sale of the Pledged Collateral) and at the written request of the Pledgor or its successors or assigns, and at the cost and expense of the Pledgor or its successors or assigns, the Collateral Agent shall execute in a timely manner such instruments, documents or agreements as are necessary or desirable to terminate the Collateral Agent's security interest in the Pledged Collateral and deliver the Pledged Stock and the Stock Powers, subject to any disposition made by the Collateral Agent pursuant to the Pledge Agreement. (b) Notwithstanding anything in this Pledge Agreement to the contrary, the Pledgor may, to the extent permitted by the Credit Agreement, sell, assign, transfer or otherwise dispose of any Pledged Collateral. In addition, the Collateral shall be subject to release from time to time (with the Collateral referred to in the immediately preceding sentence, the "Released Collateral") in accordance with SECTION 14.2 of the Credit Agreement. The Liens under this Pledge Agreement shall terminate with respect to the Released Collateral upon such sale, transfer, assignment, disposition or release, and, upon the request of the Pledgor, the Collateral Agent shall execute and deliver such instruments or documents as may be necessary to release the Liens granted hereunder; PROVIDED, HOWEVER, that (i) the Collateral Agent shall not be required to execute any such documents on terms which, in the Collateral Agent's opinion, would expose the Collateral Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens on (or obligations of the Pledgor in respect of) all interests retained by the Pledgor, including without limitation, the proceeds of any sale, all of which shall continue to constitute part of the Collateral unless and until applied strictly in accordance with the Credit Documents. 14. SUCCESSORS AND ASSIGNS. This Pledge Agreement shall be binding upon the parties hereto and their respective successors and permitted assigns, and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Agents and the Lenders. The rights hereunder and the interest herein of the Pledgor may not be assigned without the written consent of the Required Lenders. Any attempted assignment without such written consent shall be void. Nothing set forth herein or in any other Credit Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Pledge Agreement or any Pledged Collateral. The Pledgor's successors shall include, without limitation, a receiver, trustee or debtor-in-possession of or for the Pledgor. 15. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND THE RIGHTS AND DUTIES OF THE 7 PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT FOR PERFECTION AND ENFORCEMENT OF SECURITY INTERESTS AND LIENS IN OTHER JURISDICTIONS WHICH SHALL BE GOVERNED BY THE LAWS OF THOSE JURISDICTIONS. 16. WAIVER OF BOND. The Pledgor waives, to the extent permitted by law, the posting of any bond otherwise required of the Collateral Agent in connection with any judicial process or proceeding to realize on the Pledged Collateral or any other security for the Obligations, to enforce any judgment or other court order entered in favor of the Collateral Agent, or to enforce by specific performance, temporary restraining order, or preliminary or permanent injunction, this Pledge Agreement or any other agreement or document between the Collateral Agent and the Pledgor. 17. SEVERABILITY. Whenever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but, if any provision of this Pledge Agreement shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. 18. FURTHER ASSURANCES. The Pledgor agrees that it will cooperate with the Collateral Agent and will execute and deliver, or cause to be executed and delivered, all such other stock powers, proxies, instruments and documents, and will take all such other actions, including, without limitation, the execution and filing of financing statements, as the Collateral Agent may reasonably request from time to time in order to carry out the provisions and purposes of this Pledge Agreement. 19. THE COLLATERAL AGENT'S DUTY OF CARE. The Collateral Agent shall not be liable for any acts, omissions, errors of judgment or mistakes of fact or law including, without limitation, acts, omissions, errors or mistakes with respect to the Pledged Collateral, except for those arising out of or in connection with the Collateral Agent's (i) gross negligence or willful misconduct as determined in a final nonappealable judgment by a court of competent jurisdiction, or (ii) failure to use reasonable care with respect to the safe custody of the Pledged Collateral in the Collateral Agent's possession. Without limiting the generality of the foregoing, the Collateral Agent shall be under no obligation to take any steps necessary to preserve rights in the Pledged Collateral against any other parties but may do so at its option. All expenses incurred in connection therewith shall be for the sole account of the Pledgor, and shall constitute part of the Obligations secured hereby. 20. NOTICES. All notices and other communications hereunder shall be given in the manner and to the addresses set forth in SECTION 14.3 of the Credit Agreement. 21. AMENDMENTS, WAIVERS AND CONSENTS. None of the terms or provisions of this Pledge Agreement may be waived, altered, modified or amended, and no consent to any departure by the Pledgor herefrom shall be effective, except by or pursuant to an instrument in writing which (i) is duly executed by the Pledgor and the Administrative Agent and (ii) is otherwise made in accordance with the Credit Agreement. Any such waiver shall be valid only to the extent set forth therein. A waiver by the Collateral Agent of any right or remedy under this Pledge Agreement on any one occasion shall not be construed as a waiver of any right or remedy which the Collateral Agent would otherwise have on any future occasion. No failure to exercise or delay in exercising any right, power or privilege under this Pledge Agreement on the part of the Collateral Agent shall operate as a waiver thereof; and no single or partial exercise of any right, power or privilege under this Pledge Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 22. SECTION TITLES. The section titles herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof. 23. EXECUTION IN COUNTERPARTS. This Pledge Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 8 24. ENTIRE AGREEMENT. This Agreement, together with the other Credit Documents, embodies the entire agreement and understanding of the parties hereto with respect to the matters contained herein and supersedes all prior agreements and understandings, written and oral, relating to the subject matter hereof. IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have executed this Pledge Agreement as of the date set forth above. HEXCEL CORPORATION By:________________________ Name: Title: CITIBANK, N.A., as Collateral Agent By:_________________________ Name: Title: EXHIBIT A to PLEDGE AGREEMENT PLEDGED STOCK
STOCK ISSUER Percentage of Stock Certificate Shares of Capital Owned by Pledgor No. Stock Represented Thereby Hexcel Beta Corp. 100% 1 3,000 Hexcel International 100% 2 100 Hexcel Pottsville Corporation 100% 1 100
ACKNOWLEDGEMENT The undersigned hereby acknowledge receipt of a copy of the foregoing Pledge Agreement, waive any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Collateral in the name of the Collateral Agent or its nominee or the exercise of voting rights by the Collateral Agent and agree to comply with any provision of such Pledge Agreement which is applicable to it. HEXCEL BETA CORPORATION HEXCEL INTERNATIONAL HEXCEL POTTSVILLE CORPORATION By:_________________________ Name: Title: EXHIBIT D-1 FORM OF SUBSIDIARY GUARANTY This AMENDED AND RESTATED SUBSIDIARY GUARANTY (" Guaranty") is made as of this 5th day March 1998, by each of the corporations signatory hereto (each individually a AGuarantor", and collectively the "Guarantors"), in favor of CITIBANK, N.A., in its capacity as collateral agent (with its successors and permitted assigns in such capacity, the "Collateral Agent") for the Lenders from time to time parties to (and as defined in) the Credit Agreement described below. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement. W I T N E S S E T H WHEREAS, the Lenders have agreed to make extensions of credit from time to time to the Company and the Foreign Borrowers pursuant to the Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Hexcel Corporation (the "Company"), the Foreign Borrowers from time to time parties thereto, the Lenders, the Collateral Agent, the Syndication Agent and CSFB, as administrative agent (in such capacity, the "Administrative Agent"; together with the Collateral Agent and the Syndication Agent, the "Agents"); WHEREAS, the Guarantors are direct Wholly-owned Subsidiaries of the Company and will directly and indirectly benefit from the loans and other financial accommodations made pursuant to the Credit Agreement to the Company and the Foreign Borrowers; WHEREAS, it is a condition precedent to the obligation of the Lenders to make their extensions of credit under the Credit Agreement that each Guarantor execute and deliver to the Collateral Agent this Guarantee; WHEREAS, the Guarantors are party to the Subsidiary Guaranty, dated as of June 27, 1996 (as amended, supplemented or otherwise modified from time to time, the "EXISTING GUARANTY AGREEMENT"), with the Collateral Agent; and Whereas, the Collateral Agent has requested the Existing Guaranty Agreement to be amended as more fully described herein; and 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 Guaranty Agreement, for convenience of reference, has agreed to restate the Existing Guaranty Agreement as so amended; and WHEREAS, each of the parties hereto are agreeable to the terms and provisions of the Existing Guaranty Agreement as amended and restated hereby; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties to the Existing Guaranty Agreement agree that the Existing Guaranty Agreement shall be and hereby is amended and restated in its entirety and the parties hereto hereby agree as follows: NOW THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. GUARANTY. (i) Each Guarantor jointly and severally hereby irrevocably and unconditionally guarantees to the Collateral Agent, for the benefit of the Agents and the Lenders, the full and prompt payment when due (whether at maturity or earlier, by reason of acceleration or otherwise, and at all times thereafter) of the Obligations including, without limitation, interest accruing following the commencement of any insolvency or 2 bankruptcy case or proceeding or other similar case or proceeding in respect of any Borrower, at the applicable rate specified in the Credit Agreement, whether or not such interest is allowed as a claim in such case or proceeding (the "Guaranteed Obligations"). (ii) At any time after the occurrence and during the continuation of an Event of Default set forth in SECTION 12(A) of the Credit Agreement, each Guarantor shall jointly and severally pay to the Collateral Agent, for the benefit of the Agents and the Lenders, on demand and in immediately available funds, the amount of the Guaranteed Obligations that is due and payable, and upon acceleration, the full amount thereof. Each Guarantor further agrees to jointly and severally pay and reimburse the Agents and the Lenders for, on demand and in immediately available funds, all reasonable fees, costs and expenses (including, without limitation, all court costs and reasonable attorneys' fees, costs and expenses) paid or incurred by the Agents and the Lenders in: (1) endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action in respect of the Guaranteed Obligations against, any Borrower or such Guarantor; (2) taking any action with respect to any security or collateral securing the Guaranteed Obligations or such Guarantor's obligations hereunder; and (3) preserving, protecting or defending the enforceability of, or enforcing, this Guaranty or the Collateral Agent's rights hereunder (all such costs and expenses are hereinafter referred to as the "Expenses"), and interest thereon. Each Guarantor hereby agrees that this Guaranty is an absolute guaranty of payment and is not a guaranty of collection. (iii) Notwithstanding anything contained in this Guaranty to the contrary, the amount guaranteed by each Guarantor hereunder shall be limited to an aggregate amount which is equal to the largest amount that would not be subject to avoidance under Section 548 of Title 11 of the United States Code (11 U.S.C. SECTIONS 101 ET SEQ.) (the "Bankruptcy Code") or any applicable provisions of any comparable state law. 2. OBLIGATIONS UNCONDITIONAL. Each Guarantor hereby agrees that its obligations under this Guaranty shall be unconditional, irrespective of: (i) the validity, enforceability, avoidance or subordination of any of the Guaranteed Obligations or any of the Credit Documents; (ii) the absence of any attempt by, or on behalf of, either Agent or any of the Lenders to collect, or to take any other action to enforce, all or any part of the Guaranteed Obligations whether from or against any Borrower, any Guarantor or other guarantor of the Guaranteed Obligations or any other Person; (iii) the election of any remedy by, or on behalf of, the either Agent or any of the Lenders with respect to all or any part of the Guaranteed Obligations; (iv) the waiver, consent, extension, forbearance or granting of any indulgence by, or on behalf of, the either Agent or any of the Lenders with respect to any provision of any of the Credit Documents; (v) the failure of the either Agent or any of the Lenders to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Guaranteed Obligations; (vi) the election by, or on behalf of, the either Agent or any of the Lenders, in any proceeding instituted under Chapter 11 of Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code; (vii) any borrowing or grant of a security interest by any Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code; (viii) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of the claims against any Borrower of any of the Lenders or either Agent for repayment of all or any part of the Guaranteed Obligations or any Expenses; or (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of any Borrower or any Guarantor. 3 3. ENFORCEMENT; APPLICATION OF PAYMENTS. Subject to SECTION 1(ii) hereof and the provisions of the Credit Agreement, upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may proceed directly against any Guarantor to collect and recover the full amount, or any portion, of the Guaranteed Obligations, without first proceeding against any Borrower or any other Person, or against any security or collateral for the Guaranteed Obligations. Subject only to the terms and provisions of the Credit Agreement, the Collateral Agent shall have the exclusive right to determine the application of payments and credits, if any, from any Guarantor, any Borrower or from any other Person on account of the Guaranteed Obligations or any other liability of the Guarantors to the either Agent or any of the Lenders. 4. WAIVERS. (i) Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of receivership or bankruptcy of any Borrower, protest or notice with respect to the Guaranteed Obligations, all setoffs and counterclaims, demands for performance, notices of nonperformance, notices of protest, notices of dishonor and notices of acceptance of this Guaranty, and all other demands whatsoever (and shall not require that the same be made on any Borrower as a condition precedent to such Guarantor's obligations hereunder), and covenants that this Guaranty will not be discharged, except by complete payment (in cash) and performance of the Guaranteed Obligations and any other obligations contained herein. Each Guarantor further waives all notices of the existence, creation or incurring of new or additional Indebtedness, arising either from additional loans extended to any Borrower or otherwise, and also waives all notices that the principal amount, or any portion thereof, and/or any interest on any instrument or document evidencing all or any part of the Guaranteed Obligations is due, notices of any and all proceedings to collect from the maker, any endorser or any other guarantor of all or any part of the Guaranteed Obligations, or from any other Person, and, to the extent permitted by law, notices of exchange, sale, surrender or other handling of any security or collateral given to either Agent or any of the Lenders to secure payment of all or any part of the Guaranteed Obligations. (ii) The Agents and/or the Lenders are hereby authorized, without notice or demand and without affecting the liability of the Guarantors hereunder, from time to time, (a) to renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, all or any part of the Guaranteed Obligations, or to otherwise modify, amend or change the terms of any of the Credit Documents; (b) to accept partial payments on all or any part of the Guaranteed Obligations; (c) to take and hold security or collateral for the payment of all or any part of the Guaranteed Obligations, this Guaranty, or any other guaranties of all or any part of the Guaranteed Obligations or other liabilities of any of the Borrowers, (d) to exchange, enforce, waive and release any such security or collateral; (e) to apply such security or collateral and direct the order or manner of sale thereof as in its discretion it may determine; (f) to settle, release, exchange, enforce, waive, compromise or collect or otherwise liquidate all or any part of the Guaranteed Obligations, this Guaranty, any other guaranty of all or any part of the Guaranteed Obligations, and any security or collateral for the Guaranteed Obligations or for any such guaranty. Any of the foregoing may be done in any manner, without affecting or impairing the obligations of the Guarantors hereunder. 5. SETOFF. At any time after all or any part of the Guaranteed Obligations have become due and payable (by acceleration or otherwise), the Lenders may, without notice to any Guarantor and regardless of the acceptance of any security or collateral for the payment hereof, appropriate and apply toward the payment of all or any part of the Guaranteed Obligations (i) any Indebtedness due or to become due from the Lenders to such Guarantor, and (ii) any moneys, credits or other property belonging to such Guarantor, at any time held by or coming into the possession of the Lenders or their respective affiliates. 6. FINANCIAL INFORMATION. Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrowers and any and all other Guarantors and endorsers and/or other guarantors of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations, or any part thereof, that diligent inquiry would reveal, and such Guarantor hereby agrees that the Agents and the Lenders shall have no duty to advise any Guarantor of information known to it regarding such condition or any such circumstances. In the event that either Agent or any of the Lenders, in its sole discretion, undertakes at any time or from time to time to provide any such information to any Guarantor, then such Agent or such Lender shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which such Agent or such Lender, pursuant to accepted or reasonable commercial finance or banking practices, wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to such Guarantor. 4 7. NO MARSHALLING; REINSTATEMENT. Each Guarantor consents and agrees that none of the Agents any of the Lenders or any Person acting for or on behalf of the Collateral Agent shall be under any obligation to marshall any assets in favor of any Guarantor or against or in payment of any or all of the Guaranteed Obligations. Each Guarantor further agrees that, to the extent that any Borrower, any Guarantor or any other guarantor of all or any part of the Guaranteed Obligations makes a payment or payments to the Agents or the Lenders or either Agent or any Lender receives any proceeds of Collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to any Borrower, any Guarantor, such other guarantor or any other Person, or their respective estates, trustees, receivers or any other party, including, without limitation, such Guarantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the part of the Guaranteed Obligations which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the time immediately preceding such initial payment, reduction or satisfaction. 8. SUBROGATION. Until the Guaranteed Obligations shall have been paid in full, each Guarantor hereby agrees that it (i) shall not exercise any right of subrogation with respect to such Guaranteed Obligations (under contract, SECTION 509 of the Bankruptcy Code or otherwise) or any other right of indemnity, reimbursement or contribution, (ii) waives any right to enforce any remedy which either Agent or any of the Lenders now have or may hereafter have against any Borrower, any endorser or any other guarantor of all or any part of the Guaranteed Obligations or any other Person, and (iii) waives any benefit of, and any right to participate in, any security or collateral given to the Agents and the Lenders to secure the payment or performance of all or any part of the Guaranteed Obligations or any other liability of any Borrower to the Agents and the Lenders. 9. SUBORDINATION. Each Guarantor agrees that any and all claims of such Guarantor against any Borrower, any other Guarantor or any endorser or other guarantor of all or any part of the Guaranteed Obligations, or against any of their respective properties, with respect to any Indebtedness of such Borrower to the Guarantor (the "Borrower Indebtedness"), shall be subordinated to the payment in full in cash of all Guaranteed Obligations. Notwithstanding any right of the Guarantor to ask, demand, sue for, take or receive any payment from any Borrower, all such rights and Liens of the Guarantor with respect to the Borrower Indebtedness, whether now or hereafter arising and howsoever existing shall be and hereby are subordinated to the rights of the Agents and the Lenders to receive payment in full in cash of the Guaranteed Obligations. So long as no Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and is continuing, the Guarantor shall retain all its rights and shall be entitled to receive and retain any and all payments made in respect of, the Borrower Indebtedness. After an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and is continuing, the Guarantor shall not exercise any rights with respect to the Borrower Indebtedness or to foreclose upon any asset securing the Borrower Indebtedness, whether by judicial action or otherwise, unless and until all of the Guaranteed Obligations shall have been fully paid in cash and all financing arrangements pursuant to the Credit Agreement between the Borrowers and the Lenders have been terminated. If all or any part of the assets of any Borrower, or the proceeds thereof, are subject to any distribution, division or application to the creditors of such Borrower, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any Borrower is dissolved or if substantially all of the assets of any Borrower are sold, then, and in any such event, any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any Borrower Indebtedness shall be paid or delivered directly to the Lenders for application to any of the Guaranteed Obligations, due or to become due, until such Guaranteed Obligations shall have first been fully paid in cash and satisfied. The Guarantor irrevocably authorizes and empowers each Agent and each of the Lenders to demand, sue for, collect and receive every such payment or distribution and give acquittance therefor and to make and present for and on behalf of the Guarantor such proofs of claim and take such other action, in such Agent's or such Lender's own name or in the name of the Guarantor or otherwise, as either Agent or any Lender may deem necessary or advisable for the enforcement of this Guaranty. Each Lender may vote such proofs of claim in any such proceeding, receive and collect any and all dividends or other payments or disbursements made thereon in whatever form the same may be paid or issued and apply the same on account of any of the Guaranteed Obligations. Should any payment, distribution, security or instrument or proceeds thereof be received by the Guarantor upon or with respect to the Borrower Indebtedness after an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and is continuing, and prior to the payment in full in cash of all Guaranteed Obligations and the termination of all financing arrangements pursuant 5 to the Credit Agreement between the Borrowers and the Lenders, the Guarantor shall receive and hold the same in trust, as trustee, for the benefit of the Agents and the Lenders and shall forthwith deliver the same to the Collateral Agent, in precisely the form received (except for the endorsement or assignment of the Guarantor where necessary), for application to any of the Guaranteed Obligations, due or not due, and, until so delivered, the same shall be held in trust by the Guarantor as the property of the Collateral Agent, for the benefit of the Agents and the Lenders; PROVIDED, that if the Guarantor fails to make any such endorsement or assignment to the Collateral Agent, the Collateral Agent (or any of its officers or employees) is hereby irrevocably authorized to make the same. The Guarantor agrees that after an Event of Default set forth in SECTION 12(a) or (f) of the Credit Agreement shall have occurred and is continuing, and until the Guaranteed Obligations have been paid in full (in cash) and satisfied and all financing arrangements pursuant to the Credit Agreement between the Borrowers and the Lenders have been terminated, the Guarantor will not assign or transfer to any Person any claim the Guarantor has or may have against any Borrower. 10. ENFORCEMENT; AMENDMENTS; WAIVERS. No delay on the part of either Agent or any of the Lenders in the exercise of any right or remedy arising under this Guaranty, the Credit Agreement, any of the other Credit Documents or otherwise with respect to all or any part of the Guaranteed Obligations, the Collateral or any other guaranty of or security for all or any part of the Guaranteed Obligations shall operate as a waiver thereof, and no single or partial exercise by either Agent or any of the Lenders of any such right or remedy shall preclude any further exercise thereof. No modification or waiver of any of the provisions of this Guaranty shall be binding upon either Agent or any of the Lenders, except as expressly set forth in a writing duly signed and delivered by the Administrative Agent. Failure by either Agent or any of the Lenders at any time or times hereafter to require strict performance by any Borrower, any Guarantor, any other guarantor of all or any part of the Guaranteed Obligations or any other Person of any of the provisions, warranties, terms and conditions contained in any of the Credit Documents now or at any time or times hereafter executed by such Persons and delivered to either Agent or any of the Lenders shall not waive, affect or diminish any right of either Agent or any of the Lenders at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or knowledge of either Agent or any of the Lenders, or its agents, officers or employees, unless such waiver is contained in an instrument in writing, directed and delivered to the Borrowers or the Guarantors, as applicable, specifying such waiver, and is signed by either Agent. No waiver of any Event of Default by the Lenders shall operate as a waiver of any other Event of Default or the same Event of Default on a future occasion, and no action by either Agent or any of the Lenders permitted hereunder shall in any way affect or impair either Agent's or any Lender's rights and remedies or the obligations of the Guarantors under this Guaranty. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest owing by any Borrower to either Agents and the Lenders shall be conclusive and binding on each Guarantor irrespective of whether such Guarantor was a party to the suit or action in which such determination was made. 11. EFFECTIVENESS; TERMINATION. This Guaranty shall become effective against any Guarantor upon its execution by such Guarantor and shall continue in full force and effect and may not be terminated or otherwise revoked until the Guaranteed Obligations (other than indemnities not yet due) shall have been fully paid (in cash) and discharged and the Credit Agreement and the Revolving Credit Commitments shall have been terminated. If, notwithstanding the foregoing, any Guarantor shall have any right under applicable law to terminate or revoke its obligations under this Guaranty, such Guarantor agrees that such termination or revocation shall not be effective until a written notice of such revocation or termination, specifically referring hereto, signed by such Guarantor, is actually received by each Agent. Such notice shall not affect the right and power of the Agents or any of the Lenders to enforce rights arising prior to receipt thereof by the Agents and the Lenders. If any of the Lenders grants loans or takes other action after such Guarantor terminates or revokes its obligations under this Guaranty but before such Lender receives such written notice, the rights of such Lender with respect thereto shall be the same as if such termination or revocation had not occurred. 12. SUCCESSORS AND ASSIGNS. This Guaranty shall be binding upon the parties hereto and their respective successors and permitted assigns, and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Agents and the Lenders. The rights hereunder and the interest herein of each Guarantor may not be assigned without the written consent of the Required Lenders. Any attempted assignment without such written consent shall be void. Nothing set forth herein or in any other Credit Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Guaranty. Each Guarantor's successors shall include, without limitation, a receiver, trustee or debtor-in-possession of or for such Guarantor. 6 13. GOVERNING LAW. THIS GUARANTY SHALL BE CONSTRUED AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 14. CERTAIN CONSENTS AND WAIVERS. (a) PERSONAL JURISDICTION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, (i) EACH OF THE COLLATERAL AGENT AND THE GUARANTORS IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN NEW YORK, NEW YORK, AND ANY COURT HAVING JURISDICTION OVER APPEALS OF MATTERS HEARD IN SUCH COURTS, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT RELATED HERETO, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR IN SUCH FEDERAL COURT. EACH OF THE GUARANTORS IRREVOCABLY DESIGNATES AND APPOINTS UNITED STATES CORPORATION SERVICES COMPANY AT 80 STATE STREET, ALBANY, NEW YORK 12207, AS ITS RESPECTIVE PROCESS AGENT (THE "PROCESS AGENT") FOR SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. EACH OF THE COLLATERAL AGENT AND THE GUARANTORS AGREES THAT A FINAL NONAPPEALABLE 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. EACH OF THE COLLATERAL AGENT AND THE GUARANTORS WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE IN ANY SUCH ACTION OR PROCEEDING IN SUCH STATE COURT OR IN SUCH FEDERAL COURT. (ii) EACH OF THE GUARANTORS AGREES THAT THE COLLATERAL AGENT SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH OF THE GUARANTORS OR ITS RESPECTIVE PROPERTY IN A COURT HAVING JURISDICTION IN ANY LOCATION TO ENABLE THE AGENTS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE AGENTS OR ANY LENDER. EACH OF THE GUARANTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH EITHER AGENT OR ANY LENDER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION. (b) SERVICE OF PROCESS. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE GUARANTORS IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PROCESS AGENT OR THE GUARANTOR'S NOTICE ADDRESS SPECIFIED PURSUANT TO SECTION 16 HEREOF, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. EACH OF THE COLLATERAL AGENT AND THE GUARANTORS IRREVOCABLY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT IN ANY JURISDICTION SET FORTH ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COLLATERAL AGENT TO BRING PROCEEDINGS AGAINST EACH OF THE GUARANTORS IN THE COURTS OF ANY OTHER JURISDICTION. 7 (c) WAIVER OF JURY TRIAL. EACH OF THE COLLATERAL AGENT AND THE GUARANTORS IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT TO WHICH SUCH PERSON IS A PARTY. 15. WAIVER OF BOND. Each Guarantor waives, to the extent permitted by law, the posting of any bond otherwise required of the Collateral Agent in connection with any judicial process or proceeding to realize on the Collateral or any other security for the Guaranteed Obligations, to enforce any judgment or other court order entered in favor of the Collateral Agent, or to enforce by specific performance, temporary restraining order, or preliminary or permanent injunction, this Guaranty or any other agreement or document between the Collateral Agent and such Guarantor. 16. NOTICES. All notices and other communications required or desired to be served, given or delivered hereunder shall be in writing or by a telecommunications device capable of creating a printed record and shall be addressed to the party to be notified as follows: if to any Guarantor, at: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 Attention: Treasurer Telecopier No.: (203) 358-3993 Confirmation No.: (203) 969-0666 with a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: Joseph Coco, Esq. Telecopier No.: (212) 735-2000 Confirmation No.: (212) 735-3000 if to the Collateral Agent, at: Citibank, N.A. 399 Park Avenue New York, New York 10022 Attention: William E. Clark Telecopier No.: (212) 793-7460 Confirmation No.: (212) 559-5944 or, as to each party, at such other address as designated by such party in a written notice to the other party. All such notices and communications shall be deemed to be validly served, given or delivered (i) ten (10) days following deposit in the United States mails, with proper postage prepaid; (ii) upon delivery thereof if delivered by hand to the party to be notified; (iii) one Business Day after delivery thereof to a reputable overnight courier service, with delivery charges prepaid; or (iv) upon confirmation of receipt thereof if transmitted by a telecommunications device. 17. SEVERABILITY. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 18. ENTIRE AGREEMENT. This Guaranty, together with the other Credit Documents, embodies the entire agreement and understanding among the parties hereto with respect to the matters contained herein and supersedes all prior agreements and understandings, written and oral, relating to the subject matter hereof. 8 19. EXECUTION IN COUNTERPARTS. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 20. ADDITIONAL GUARANTORS. Each of the Guarantors agrees that, if, pursuant to the Credit Agreement, the Company shall be required to cause any Domestic Subsidiary that is not a Guarantor to become a Guarantor, and such Subsidiary shall execute and deliver a Subsidiary Guaranty Supplement in the form of Exhibit A attached hereto, such Subsidiary shall for all purposes be a party hereto and have the same rights, benefits and obligations as a Guarantor party hereto on the Closing Date; PROVIDED that such Subsidiary may become a guarantor of the Guaranteed Obligations by way of any document, instrument or agreement which is reasonably satisfactory to the Collateral Agent and nothing contained herein shall require that such Subsidiary become a guarantor of the Guaranteed Obligations by way of a Subsidiary Guaranty Supplement 9 IN WITNESS WHEREOF, this Guaranty has been duly executed by each Guarantor as of the day and year first set forth above. HEXCEL BETA CORPORATION, a Delaware corporation HEXCEL INTERNATIONAL, a California corporation HEXCEL OMEGA CORPORATION, a California corporation By____________________________ Name: Title: Acknowledged and agreed to as of the __ day of March 1998. CITIBANK, N.A., as Collateral Agent By:_________________________________ Name: Title: 10 EXHIBIT A TO SUBSIDIARY GUARANTY SUBSIDIARY GUARANTY SUPPLEMENT The undersigned hereby agrees to be bound as a Guarantor for purposes of the Subsidiary Guaranty dated as of March 5, 1998, among certain Subsidiaries of Hexcel Corporation listed on the signature pages thereof and acknowledged by Citibank, N.A., as Collateral Agent, and the undersigned hereby acknowledges receipt of a copy of the Guaranty. Capitalized terms used herein are used with the meanings given them in the Guaranty. Agreed to this ___ day of ______________, _________. [NAME OF GUARANTOR] By:________________________ Name: Title: Notice Address: EXHIBIT D-2 FORM OF SUBSIDIARY PLEDGE AGREEMENT This AMENDED AND RESTATED PLEDGE AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Pledge Agreement"), dated as of March 5, 1998, by and between __________, a _____________ [corporation][company] (with its successors and permitted assigns, the "Pledgor"), and CITIBANK, N.A., in its separate capacity as collateral agent (with its successors and permitted assigns in such capacity, the "Collateral Agent") for the Lenders (as defined below) parties to the Credit Agreement described below. Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement. W I T N E S S E T H: WHEREAS, the Lenders have agreed to make extensions of credit from time to time to Hexcel Corporation (the "Company") and the Foreign Borrowers pursuant to the Credit Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Company, the Foreign Borrowers from time to time parties thereto, the Lenders, the Collateral Agent, the Syndication Agent and CSFB, as administrative agent (in such capacity, the "Administrative Agent", together with the Collateral Agent and the Syndication Agent, the "Agents"); WHEREAS, the Pledgor is a Wholly-owned Subsidiary of the Company and has guaranteed the Obligations of the Company pursuant to the Domestic Subsidiary Guaranty; WHEREAS, the Pledgor owns the shares of capital stock described in EXHIBIT A hereto and issued by the issuers named therein; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their extensions of credit under the Credit Agreement that the Pledgor execute and deliver to the Collateral Agent this Pledge Agreement; WHEREAS, the Pledgor is a party to the pledge agreement, dated as of June 27, 1996 (as amended, supplemented or otherwise modified from time to time, the "EXISTING PLEDGE AGREEMENT"), with the Collateral Agent; and Whereas, the Collateral Agent has requested the Existing Pledge Agreement to be amended as more fully described herein; and WHEREAS, each of the parties to the Existing Pledge 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 Pledge Agreement, for convenience of reference, has agreed to restate the Existing Pledge Agreement as so amended; and WHEREAS, each of the parties hereto are agreeable to the terms and provisions of the Existing Pledge Agreement as amended and restated hereby; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties to the Existing Pledge Agreement agree that the Existing Pledge Agreement shall be and hereby is amended and restated in its entirety and the parties hereto hereby agree as follows: 1. DEFINED TERMS. 2 (a) Unless otherwise defined herein, each capitalized term used herein that is defined in the Credit Agreement shall have the meaning specified for such term in the Credit Agreement. Unless otherwise defined herein, all terms defined in Article 8 and Article 9 of the Uniform Commercial Code in effect as of the date hereof in the State of New York are used herein as defined therein. (b) The words "hereby," "hereof," "herein" and "hereunder" and words of like import when used in this Pledge Agreement shall refer to this Pledge Agreement as a whole and not to any particular provision of this Pledge Agreement, and section references are to this Pledge Agreement unless otherwise specified. (c) All terms defined in this Pledge Agreement in the singular shall have comparable meanings when used in the plural, and VICE VERSA, unless otherwise specified. 2. PLEDGE. The Pledgor hereby pledges to the Collateral Agent (for the benefit of the Agents and the Lenders) and grants to the Collateral Agent (for the benefit of the Agents and the Lenders) a security interest in the following (collectively, the "Pledged Collateral"): (a) All of the issued and outstanding capital stock of the issuers described in EXHIBIT A hereto (including, without limitation, the shares of such capital stock described in EXHIBIT A hereto), and the certificates representing the shares of such capital stock, all options and warrants for the purchase of shares of such capital stock (all of said capital stock, options and warrants and all capital stock held in the name of the Pledgor as a result of the exercise of such options or warrants being hereinafter collectively referred to as the "Pledged Stock"), and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Stock; (b) All additional shares of stock of any issuer of the Pledged Stock from time to time acquired by the Pledgor in any manner, and all of the shares of the capital stock issued to the Pledgor by any other Subsidiary of the Company after the date hereof that are required to be pledged pursuant to the Credit Agreement, and the certificates representing such additional shares (any such additional shares shall constitute part of the Pledged Stock and the Collateral Agent is irrevocably authorized, but is not required, to amend EXHIBIT A from time to time to reflect such additional shares), and all options, warrants, dividends, cash, instruments and other rights and options from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (c) The property and interests in property described in SECTION 4 below; and (d) All proceeds of the foregoing. The Pledgor hereby delivers to the Collateral Agent all of such Pledged Collateral which is in existence on the date hereof, accompanied by appropriate undated stock powers (the "Stock Powers") duly executed in blank. 3. SECURITY FOR OBLIGATIONS. The Pledged Collateral secures the prompt payment, performance and observance of the Guaranteed Obligations (as defined in the Domestic Subsidiary Guaranty) of the Company. 4. PLEDGED COLLATERAL ADJUSTMENTS. If, during the term of this Pledge Agreement: (a) any stock dividend, reclassification, readjustment or other change is declared or made in the capital structure of any issuer of Pledged Stock, or any option included within the Pledged Collateral is exercised, or both, or (b) any subscription warrants or any other rights or options shall be issued in connection with the Pledged Collateral, then all new, substituted and additional shares, warrants, rights, options, notes or other securities, issued by reason of any of the foregoing, shall be immediately delivered to and held by the Collateral Agent under the terms of this Pledge Agreement and shall constitute Pledged Collateral hereunder; PROVIDED, HOWEVER, that nothing contained in this SECTION 4 shall be deemed to permit any stock dividend, issuance of additional stock, warrants, rights or options, 3 reclassification, readjustment or other change in the capital structure of any issuer of Pledged Stock which is prohibited in the Credit Agreement. 5. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. The Pledgor represents and warrants that it has made its own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and the Pledgor agrees that neither the Agents nor any of the Lenders shall have any obligation to inform the Pledgor of any such changes or potential changes or to take any action or omit to take any action with respect thereto. The Collateral Agent may, upon the occurrence and during the continuation of an Event of Default, without notice and at its option, transfer or register the Pledged Collateral or any part thereof into its or its nominee's name with or without any indication that such Pledged Collateral is subject to the security interest hereunder. In addition, the Collateral Agent may at any time, after the occurrence and during the continuation of an Event of Default, exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. 6. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants as follows: (a) The Pledgor is the sole legal and beneficial owner of all of the issued and outstanding capital stock of each issuer listed on EXHIBIT A hereto, free and clear of any Lien except for the security interest created by this Pledge Agreement, and the Pledged Stock constitutes 100% of the issued and outstanding shares of capital stock of the respective issuers thereof set forth in EXHIBIT A hereto; (b) There are no restrictions upon the voting rights associated with, or upon the transfer of, any of the Pledged Collateral, other than pursuant to this Pledge Agreement; (c) The pledge of the Pledged Collateral pursuant to this Pledge Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, securing the payment and performance of the Obligations of the Borrowers; and (e) The Stock Powers are duly executed and give the Collateral Agent the authority they purport to confer. 7. VOTING RIGHTS. During the term of this Pledge Agreement, and except as provided in this SECTION 7 below, the Pledgor shall have the right to vote the Pledged Stock on all corporate questions in a manner not inconsistent with the terms of this Pledge Agreement, the Credit Agreement or any other Credit Document. Upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may, at the Collateral Agent's option and following written notice from the Collateral Agent to the Pledgor, exercise all voting powers pertaining to the Pledged Collateral, including the right to take action by shareholder consent. 8. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) So long as no Event of Default under SECTION 12(a) of the Credit Agreement shall have occurred and be continuing: (i) The Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, PROVIDED, HOWEVER, that any and all (A) dividends and interest paid or payable other than in cash with respect to, and instruments and other property received, receivable or otherwise distributed with respect to, or in exchange for, any of the Pledged Collateral; (B) dividends and other distributions paid or payable in cash with respect to any of the Pledged Collateral on account of a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid in surplus; and (C) cash paid, payable or otherwise distributed with respect to principal of, or in redemption of, or in exchange for, any of the Pledged Collateral; 3 shall be Pledged Collateral, and shall be forthwith delivered to the Collateral Agent to hold, for the benefit of the Agents and the Lenders, as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the Collateral Agent, for the benefit of the Agents and the Lenders, be segregated from the other property or funds of the Pledgor, and be delivered immediately to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement); and (ii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to receive the dividends or interest payments which the Pledgor is authorized to receive and retain pursuant to CLAUSE (i) above or exercise the voting rights in SECTION 7 above. (b) Upon the occurrence and during the continuation of an Event of Default set forth in SECTION 12(A) of the Credit Agreement: (i) All rights of the Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to SECTION 8(a)(i) hereof shall cease, and all such rights shall thereupon become vested in the Collateral Agent, for the benefit of the Agents and the Lenders, which shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; (ii) All dividends and interest payments which are received by the Pledgor contrary to the provisions of CLAUSE (i) of this SECTION 8(b) shall be received in trust for the Collateral Agent, for the benefit of the Agents and the Lenders, shall be segregated from other funds of the Pledgor and shall be paid over immediately to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsements); and (iii) The Pledgor shall, upon the request of the Collateral Agent, at Pledgor's expense, execute and deliver all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Collateral Agent, the Pledgor or its or their counsel, advisable to register the applicable Pledged Collateral under the provisions of the Securities Act, and to exercise its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Collateral Agent, the Pledgor or its or their counsel, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (iv) The Pledgor shall, upon the request of the Collateral Agent, at Pledgor's expense, use its best efforts to qualify the Pledged Collateral under state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Collateral Agent; (v) The Pledgor shall, upon the request of the Collateral Agent, at the Pledgor's expense, make available to the holders of its securities, as soon as practicable, earnings statements which will satisfy the provisions of SECTION 11(a) of the Securities Act; and (vi) The Pledgor shall, upon the reasonable request of the Collateral Agent, at the Pledgor's expense, do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor will reimburse the Collateral Agent for all reasonable expenses incurred by the Collateral Agent, including, without limitation, reasonable attorneys' and accountants' fees and expenses in connection with the foregoing. Upon or at any time after the occurrence and during the continuation of an Event of Default, if the Collateral Agent determines that, prior to any public offering of any securities constituting part of the Pledged Collateral, such securities should be registered under the Securities Act and/or registered or qualified under any 5 other federal or state law and such registration and/or qualification is not practicable, then the Pledgor agrees that it will be commercially reasonable if a private sale, upon at least ten (10) Business Days' notice to the Pledgor, is arranged so as to avoid a public offering, even though the sales price established and/or obtained at such private sale may be substantially less than prices which could have been obtained for such security on any market or exchange or in any other public sale. 9. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral without the prior written consent of the Collateral Agent, other than in accordance with the Credit Agreement, or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest permitted hereunder and under the Credit Agreement. 10. REMEDIES; APPLICATION OF PROCEEDS. (a) The Collateral Agent shall have, in addition to any other rights given under this Pledge Agreement or by law, all of the rights and remedies with respect to the Pledged Collateral of a secured party under the Uniform Commercial Code as in effect in the State of New York. In addition, upon the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations, the Administrative Agent shall have such powers of sale and other powers as may be conferred by applicable law. With respect to the Pledged Collateral or any part thereof which shall then be in or shall thereafter come into the possession or custody of the Collateral Agent or which the Collateral Agent shall otherwise have the ability to transfer under applicable law, the Collateral Agent may, in its sole discretion, without notice except as specified below, after the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations of the Borrowers, sell or cause the same to be sold at any exchange, broker's board or at public or private sale, in one or more sales or lots, at such price as the Collateral Agent may deem best, for cash or on credit or for future delivery, without assumption of any credit risk, and the purchaser of any or all of the Pledged Collateral so sold shall thereafter own the same, absolutely free from any claim, encumbrance or right of any kind whatsoever. The Agents and any Lender may, in its own name, or in the name of a designee or nominee, buy such Pledged Collateral at any public sale and, if permitted by applicable law, buy such Pledged Collateral at any private sale. In the event of a sale of any Collateral, or any part thereof, to a Lender or the Agents upon the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations, such Lender or the Agents, as the case may be, shall not deduct or offset from any part of the purchase price to be paid therefor any indebtedness owing to it by the Pledgor. The Pledgor will pay to the Agents all reasonable expenses (including, without limitation, court costs and reasonable attorneys' expenses) of, or incidental to, the enforcement of any of the provisions hereof. The Collateral Agent agrees to distribute any proceeds of the sale of the Pledged Collateral in accordance with the Credit Agreement and the Pledgor shall remain liable for any deficiency following the sale of the Pledged Collateral. (b) Unless any of the Pledged Collateral threatens to decline speedily in value or is or becomes of a type sold on a recognized market, the Collateral Agent will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Pledged Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to the Pledged Collateral shall be deemed to be commercially reasonable. Notwithstanding any provision to the contrary contained herein, the Pledgor agrees that any requirements of reasonable notice shall be met if such notice is received by the Pledgor as provided in SECTION 20 below at least ten (10) Business Days before the time of the sale or disposition; PROVIDED, HOWEVER, that the Collateral Agent may give any shorter notice that is commercially reasonable under the circumstances. Any other requirement of notice, demand or advertisement for sale is waived, to the extent permitted by law. (c) In view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Pledged Collateral may be effected after the occurrence and during the continuation of an Event of Default set forth in SECTION 12(a) of the Credit Agreement or upon acceleration of the Obligations of the Borrowers, the Pledgor agrees that upon the occurrence and during the continuation of an Event of Default, the Collateral Agent may, from time to time, attempt to sell all or any part of the Pledged Collateral by means of a private placement restricting the bidders and prospective purchasers to those who are qualified and will represent and agree that they are purchasing for investment only and not for distribution. In so doing, the Collateral Agent 6 may solicit offers to buy the Pledged Collateral, or any part of it, from a limited number of investors deemed by the Collateral Agent, in its reasonable judgment, to be financially responsible parties who might be interested in purchasing the Pledged Collateral. If the Collateral Agent solicits such offers from not less than four (4) such investors, then the acceptance by the Collateral Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposing of such Pledged Collateral; PROVIDED, HOWEVER, that this Section does not impose a requirement that the Collateral Agent solicit offers from four or more investors in order for the sale to be commercially reasonable. 11. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby appoints the Collateral Agent its attorney-in-fact, with full authority, in the name of the Pledgor or otherwise, upon the occurrence and during the continuation of an Event of Default, from time to time in the Collateral Agent's sole discretion, to take any action and to execute any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including, without limitation (subject to SECTION 8 hereof), to receive, endorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same and to arrange for the transfer of all or any part of the Pledged Collateral on the books of each of the issuers of such Pledged Stock or obligors of such Pledged Stock to the name of the Administrative Agent or the Collateral Agent's nominee. 12. WAIVERS. The Pledgor waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or Event of Default with respect to any of the Obligations and all other notices to which the Pledgor might otherwise be entitled except as otherwise expressly provided herein or in the Credit Agreement. 13. TERMINATION OF THIS SECURITY AGREEMENT; RELEASE OF COLLATERAL. (a) The pledge made and the security interest granted by the Pledgor under this Pledge Agreement shall terminate upon final payment in full in cash of the Obligations and the termination of the Revolving Credit Commitments under the Credit Agreement. Upon such termination (other than as a result of the sale of the Pledged Collateral) and at the written request of the Pledgor or its successors or assigns, and at the cost and expense of the Pledgor or its successors or assigns, the Collateral Agent shall execute in a timely manner such instruments, documents or agreements as are necessary or desirable to terminate the Collateral Agent's security interest in the Pledged Collateral and deliver the Pledged Stock and the Stock Powers, subject to any disposition made by the Collateral Agent pursuant to the Pledge Agreement. (b) Notwithstanding anything in this Pledge Agreement to the contrary, the Pledgor may, to the extent permitted by the Credit Agreement, sell, assign, transfer or otherwise dispose of any Pledged Collateral. In addition, the Collateral shall be subject to release from time to time (with the Collateral referred to in the immediately preceding sentence, the "Released Collateral") in accordance with SECTION 14.2 of the Credit Agreement. The Liens under this Pledge Agreement shall terminate with respect to the Released Collateral upon such sale, transfer, assignment, disposition or release, and, upon the request of the Pledgor, the Collateral Agent shall execute and deliver such instruments or documents as may be necessary to release the Liens granted hereunder; PROVIDED, HOWEVER, that (i) the Collateral Agent shall not be required to execute any such documents on terms which, in the Collateral Agent's opinion, would expose the Collateral Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens on (or obligations of the Pledgor in respect of) all interests retained by the Pledgor, including without limitation, the proceeds of any sale, all of which shall continue to constitute part of the Collateral unless and until applied strictly in accordance with the Credit Documents. 14. SUCCESSORS AND ASSIGNS. This Pledge Agreement shall be binding upon the parties hereto and their respective successors and permitted assigns, and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Agents and the Lenders. The rights hereunder and the interest herein of the Pledgor may not be assigned without the written consent of the Required Lenders. Any attempted assignment without such written consent shall be void. Nothing set forth herein or in any other Credit Document is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Pledge Agreement or any Pledged Collateral. The Pledgor's successors shall include, without limitation, a receiver, trustee or debtor-in-possession of or for the Pledgor. 7 15. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, EXCEPT FOR PERFECTION AND ENFORCEMENT OF SECURITY INTERESTS AND LIENS IN OTHER JURISDICTIONS WHICH SHALL BE GOVERNED BY THE LAWS OF THOSE JURISDICTIONS. 16. WAIVER OF BOND. The Pledgor waives, to the extent permitted by law, the posting of any bond otherwise required of the Collateral Agent in connection with any judicial process or proceeding to realize on the Pledged Collateral or any other security for the Obligations, to enforce any judgment or other court order entered in favor of the Collateral Agent, or to enforce by specific performance, temporary restraining order, or preliminary or permanent injunction, this Pledge Agreement or any other agreement or document between the Collateral Agent and the Pledgor. 17. SEVERABILITY. Whenever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but, if any provision of this Pledge Agreement shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. 18. FURTHER ASSURANCES. The Pledgor agrees that it will cooperate with the Collateral Agent and will execute and deliver, or cause to be executed and delivered, all such other stock powers, proxies, instruments and documents, and will take all such other actions, including, without limitation, the execution and filing of financing statements, as the Collateral Agent may reasonably request from time to time in order to carry out the provisions and purposes of this Pledge Agreement. 19. THE COLLATERAL AGENT'S DUTY OF CARE. The Collateral Agent shall not be liable for any acts, omissions, errors of judgment or mistakes of fact or law including, without limitation, acts, omissions, errors or mistakes with respect to the Pledged Collateral, except for those arising out of or in connection with the Collateral Agent's (i) gross negligence or willful misconduct as determined in a final nonappealable judgment by a court of competent jurisdiction, or (ii) failure to use reasonable care with respect to the safe custody of the Pledged Collateral in the Collateral Agent's possession. Without limiting the generality of the foregoing, the Collateral Agent shall be under no obligation to take any steps necessary to preserve rights in the Pledged Collateral against any other parties but may do so at its option. All expenses incurred in connection therewith shall be for the sole account of the Pledgor, and shall constitute part of the Obligations secured hereby. 20. NOTICES. All notices and other communications hereunder shall be given in the manner and to the addresses set forth in SECTION 14.3 of the Credit Agreement. 21. AMENDMENTS, WAIVERS AND CONSENTS. None of the terms or provisions of this Pledge Agreement may be waived, altered, modified or amended, and no consent to any departure by the Pledgor herefrom shall be effective, except by or pursuant to an instrument in writing which (i) is duly executed by the Pledgor and the Administrative Agent and (ii) is otherwise made in accordance with the Credit Agreement. Any such waiver shall be valid only to the extent set forth therein. A waiver by the Collateral Agent of any right or remedy under this Pledge Agreement on any one occasion shall not be construed as a waiver of any right or remedy which the Collateral Agent would otherwise have on any future occasion. No failure to exercise or delay in exercising any right, power or privilege under this Pledge Agreement on the part of the Collateral Agent shall operate as a waiver thereof; and no single or partial exercise of any right, power or privilege under this Pledge Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 22. SECTION TITLES. The section titles herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof. 23. EXECUTION IN COUNTERPARTS. This Pledge Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 8 24. ENTIRE AGREEMENT. This Agreement, together with the other Credit Documents, embodies the entire agreement and understanding of the parties hereto with respect to the matters contained herein and supersedes all prior agreements and understandings, written and oral, relating to the subject matter hereof. 9 IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have executed this Pledge Agreement as of the date set forth above. [PLEDGOR] By:________________________ Name: Title: CITIBANK, N.A., as Collateral Agent By:_________________________ Name: EXHIBIT A to PLEDGE AGREEMENT PLEDGED STOCK
Stock Issuer Percentage of Stock Certificate Shares of Capital Owned by Pledgor No. Stock Represented Thereby Hexcel Omega Corporation 100% 1 1,000
ACKNOWLEDGEMENT The undersigned hereby acknowledges receipt of a copy of the foregoing Pledge Agreement, waives any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Collateral in the name of the Administrative Agent or its nominee or the exercise of voting rights by the Collateral agent and agrees to comply with any provision of such Pledge Agreement which is applicable to it. HEXCEL OMEGA CORPORATION By:_________________________ Name: Title: 11 EXHIBIT E - FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP March 5, 1998 Credit Suisse First Boston, as Administrative Agent and The Lenders (as defined below) listed on Schedule I hereto Re: HEXCEL CORPORATION Ladies and Gentlemen: We have acted as special counsel to Hexcel Corporation, a Delaware corporation ("HEXCEL"), and its subsidiaries, Hexcel Composites S.A., a company organized under the laws of Belgium, Hexcel S.A., a company organized under the laws of France, Hexcel Fabrics S.A., a company organized under the laws of France, Hexcel Composites S.A., a company organized under the laws of France, Hexcel (U.K.) Limited, a company organized under the laws of the United Kingdom, Salver S.r.l., a limited liability company organized under the laws of Italy, Hexcel Composites GmbH, a company organized under the laws of Germany, Hexcel Composites GmbH, a company organized under the laws of Austria, Hexcel Composites S.A., a corporation organized under the laws of Spain, and Hexcel Composites Limited, a company organized under the laws of the United Kingdom (such subsidiaries collectively, the "FOREIGN SUBSIDIARIES") in connection with the preparation, execution and delivery of the Amended and Restated Credit Agreement dated as of March 5, 1998 (the "AMENDED AND RESTATED CREDIT AGREEMENT") among Hexcel, the Foreign Subsidiaries, the Lenders (as defined in the Amended and Restated Credit Agreement) from time to time parties thereto (the "LENDERS"), Citibank, N.A., a national banking association, in its capacity as collateral agent (the "COLLATERAL AGENT"), Citicorp Securities, Inc., in its capacity as syndication agent (the "SYNDICATION AGENT") and Credit Suisse First Boston, a Swiss banking association, in its capacity as administrative agent and documentation agent (the "ADMINISTRATIVE AGENT" and together with the Collateral Agent, the "AGENTS"). This opinion is being delivered to you pursuant to Section 9.1(i)(i) of the Amended and Restated Credit Agreement. Capitalized terms used herein and not otherwise defined herein shall have the same meanings herein as ascribed thereto in the Amended and Restated Credit Agreement. Hexcel and the Foreign Subsidiaries are collectively referred to herein as the "BORROWERS." Hexcel Beta Corp., a Delaware corporation ("BETA"), Hexcel Far East, a California corporation ("FAR EAST"), Hexcel International, a California corporation ("INTERNATIONAL"), Hexcel Omega Corporation, a California corporation ("OMEGA"), Hexcel Pacific Rim Corporation, a Delaware corporation ("PACIFIC DELAWARE"), Hexcel Pacific Rim Corporation, a California corporation ("PACIFIC CALIFORNIA") and Hexcel Technologies Inc., a Delaware corporation ("TECHNOLOGIES") are collectively referred to herein as the "DOMESTIC SUBSIDIARIES." Hexcel and the Domestic Subsidiaries are collectively referred to herein as the "UNITED STATES PARTIES." Hexcel, Beta, Pacific Delaware, and Technologies are collectively referred to herein as the "DELAWARE PARTIES." Far East, International, Omega and Pacific 12 California are collectively referred to herein as the "CALIFORNIA PARTIES." The Borrowers and the Domestic Subsidiaries are collectively referred to herein as the "TRANSACTION PARTIES." In rendering the opinions set forth herein, we have examined and relied on originals or copies of the following: (a) the Amended and Restated Credit Agreement; (b) the Revolving Credit Notes made by Hexcel in favor of the Lenders, dated the date hereof; (c) the Swing Line Note made by Hexcel in favor of the Swing Line Lender, dated the date hereof; (d) the Amended and Restated Company Guaranty made by Hexcel in favor of the Collateral Agent, for the benefit of the Agents and the Lenders, dated the date hereof; (e) the Amended and Restated Subsidiary Guaranty made by the Domestic Subsidiaries (other than Far East and Technologies) in favor of the Collateral Agent for the benefit of the Agents and the Lenders, dated the date hereof; (f) the Amended and Restated Company Pledge Agreement executed by Hexcel in favor of the Collateral Agent for the benefit of the Agents and the Lenders, dated the date hereof (the "COMPANY PLEDGE AGREEMENT"); (g) the Amended and Restated Hexcel International Pledge Agreement executed by International in favor of the Collateral Agent for the benefit of the Agents and the Lenders, dated the date hereof (the "INTERNATIONAL PLEDGE AGREEMENT"); (h) a certificate of an Officer of Hexcel, a copy of which is attached hereto as Exhibit A (the "OFFICER'S CERTIFICATE"); (i) certified copies of the Certificate of Incorporation and By-laws of each of the United States Parties; (j) certified copies of certain resolutions of the Board of Directors of the United States Parties; (k) our opinion (the "ORIGINAL OPINION") dated June 27, 1996 delivered to you pursuant to Section 9.1(a)(i)(A) of the Credit Agreement dated as of June 27, 1996 (the "CREDIT AGREEMENT") among Hexcel, certain foreign subsidiaries party thereto, the Lenders and the Agents; and (l) such other documents as we have deemed necessary or appropriate as a basis for the opinions set forth below. In our examination we have assumed the genuineness of all signatures, including indorsements, the legal capacity of natural persons, the authenticity of all documents submitted to us as 13 originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies, and the authenticity of the originals of such copies. As to any facts material to this opinion which we did not independently establish or verify, we have relied upon statements and representations of the Transaction Parties and their officers and other representatives in the Transaction Documents (as hereinafter defined) and the Officer's Certificate and of public officials. The documents referred to in clauses (a) through (g) above are referred to collectively herein as the "TRANSACTION DOCUMENTS". The documents referred to in clauses (d) through (g) above are referred to collectively herein as the "SECURITY DOCUMENTS". References to the "NEW YORK UCC" shall mean the Uniform Commercial Code as in effect on the date hereof in the State of New York. References to the "EXISTING CREDIT AGREEMENT" shall mean the Credit Agreement as amended by Consent Number 1 and First Amendment dated as of July 3, 1996, Consent Number 2 and Second Amendment dated as of November 12, 1996 and Consent Number 3 and Third Amendment dated as of February 27, 1997. We express no opinion as to the law of any jurisdiction other than (i) the laws of the State of New York, (ii) the General Corporation Law of the State of Delaware, (iii) the General Corporation Law of the State of California, (iv) the federal laws of the United States of America to the extent specifically referred to herein, and (v) with respect to the security interest perfection opinion set forth in paragraph 8 herein, the New York UCC. The opinions set forth below are subject to the following assumptions and qualifications: (i) enforcement of the Transaction Documents may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law); (ii) we express no opinion as to the applicability or effect of any fraudulent transfer or similar law on the Transaction Documents or any transactions contemplated thereby; (iii) certain of the remedial provisions, including waivers, with respect to the exercise of remedies against the collateral contained in the Security Documents, may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of each such agreement, taken as a whole, and each such agreement, taken as a whole, together with applicable law, contains adequate provisions for the practical realization of the benefits of the security created thereby; (iv) enforcement of the Security Documents with respect to collateral consisting of the interest of the 14 Borrowers in instruments, leases, contracts or other agreements ("CONTRACTS") and accounts or general intangibles arising thereunder, may be subject to the terms of such Contracts, the rights of such other parties to such Contracts and any claims or defenses of such other parties against the Borrowers arising under or outside such Contracts; (v) we have assumed that the Transaction Documents constitute the legal, valid and binding obligation of each party to such Transaction Document (other than the Transaction Parties) enforceable against such party (other than the Transaction Parties) in accordance with its terms; (vi) we express no opinion as to the effect on the opinions expressed herein of (a) the compliance or noncompliance of the Collateral Agent, the Administrative Agent or any of the Lenders, with any state, federal or other laws or regulations applicable to it or (b) the legal or regulatory status or the nature of the business of the Collateral Agent, the Administrative Agent and the Lenders; (vii) we express no opinion as to the effect on the opinions expressed herein of any conflict, contravention, violation or default under (a) any lease, indenture, instrument or other agreement to which any Transaction Party or its property is subject (other than the Applicable Contracts as to which we express our opinion in paragraph 4 herein), (b) any rule, law or regulation to which any Transaction Party is subject (other than Applicable Laws as to which we express our opinion in paragraph 5 herein), or (c) any judicial or administrative order or decree of any governmental authority (other than Applicable Orders as to which we express our opinion in paragraph 7 herein); (viii) we have assumed that no authorization, consent or other approval of, notice to or filing with any court, governmental authority or regulatory body (other than Governmental Approvals as to which we express our opinion in paragraph 6 herein) is required to authorize or is required in connection with the execution, delivery or performance by the Transaction Parties of any of the Transaction Documents or the transactions contemplated thereby; (ix) we have assumed that (a) each of the Foreign Subsidiaries is duly organized and validly existing in its jurisdiction of organization, has the corporate or company power and authority to execute, deliver and perform all of its obligations under each of the Transaction Documents to which it is a party, and has the corporate or company 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, (b) the execution and delivery of each of the Transaction Documents by each Foreign Subsidiary which is a party thereto and the consummation by each Foreign Subsidiary 15 of the transactions contemplated thereby have been duly authorized by all requisite corporate or company action on the part of each Foreign Subsidiary, and (c) each of the Transaction Documents has been duly executed and delivered by each Foreign Subsidiary which is a party thereto; and (x) we call to your attention that (i) effective enforcement of a claim denominated in a foreign currency may be limited by requirements that the claim (or a judgment in respect of such claim) be converted into United States dollars at a rate of exchange prevailing on a specified date and (ii) we express no opinion as to whether a federal or state court would award a judgment in a currency other than United States dollars. We have previously delivered to you our Original Opinion with respect to, among other things, the enforceability of each of the Company Pledge Agreement and the International Pledge Agreement (as defined therein and herein referred to as the "EXISTING PLEDGE AGREEMENTS") and the validity and perfection of the security interests created thereby. Such opinion is subject to certain assumptions and qualifications and the opinions set forth herein are subject to such assumptions and qualifications. We understand that you are separately receiving legal opinions (collectively, the "OTHER LEGAL OPINIONS"), dated the date hereof, from (i) Baker & McKenzie (UK), (ii) S.G. Archibald, (iii) Hogan & Hartson, L.L.P., (iv) Marina, Aghina, Bonvicini & Ludergneni, (v) Heller, Lober, Bahn & Partners, (vi) Gomez, Acibo & Pambo, and (vii) Doser Amereller Noack, with respect to certain of the matters set forth above. Our opinions herein stated are based upon the assumptions and qualifications specified herein and we express no opinion as to the effect on the opinions herein stated of the assumptions and qualifications contained in the Other Legal Opinions. Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that: 1. Each United States Party is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation. Based solely upon the certificates issued by public officials in the jurisdictions set forth on Schedule II hereto, each United States Party is qualified, licensed, authorized, or entitled to transact or do business (as set forth in such certificates) as a foreign corporation under the laws of each such jurisdiction. 2. Each United States Party (a) has the corporate power and authority to execute, deliver and perform all of its obligations under each of the Transaction Documents to which it is a party and (b) has the corporate power and authority to conduct the business as described in the Annual Report on Form 10-K of Hexcel for the fiscal year ended December 31, 1996. The execution and delivery of each of the Transaction Documents by each United States Party which is a party thereto and the consummation by each United States Party of the transactions contemplated thereby have been duly authorized by all requisite corporate 16 action on the part of each United States Party. Each of the Transaction Documents has been duly executed and delivered by each United States - Party which is a party thereto. 3. Each of the Transaction Documents constitutes the legal, valid and binding obligation of each Transaction Party which is a party thereto, enforceable against each such Transaction Party in accordance with its terms, subject to the qualification that we express no opinion as to (i) the enforceability of any rights to contribution or indemnification provided for in such Transaction Documents to the extent any such rights are violative of the public policy underlying any law, rule or regulation (including, without limitation, any federal or state securities law, rule or regulation) and (ii) any provisions which permit any party to any such Transaction Document or any purchaser of a participation interest from any such party to set off or apply any deposit, property or indebtedness with respect to any participation interest. 4. The execution and delivery by each United States Party of the Transaction Documents to which it is a party and the performance by each such United States Party of its obligations under each such Transaction Document, each in accordance with its terms, do not (a) conflict with the Certificate of Incorporation or By-laws of each such United States Party, (b) constitute a violation of or a default under any Applicable Contract (as hereinafter defined) or (c) cause the creation of any security interest or lien (other than the liens granted under or created by the Transaction Documents) upon any of the property of the United States Parties pursuant to any Applicable Contracts. "APPLICABLE CONTRACTS" means those agreements set forth on Schedule III hereto. We express no opinion, as to the existence of any violation of, or default under, any financial ratios or tests which may be contained in any Applicable Contract. 5. Neither the execution, delivery or performance by any United States Party of the Transaction Documents to which it is a party, nor the compliance by any United States Party with the terms and provisions thereof will contravene any provision of any Applicable Law (as hereinafter defined). "APPLICABLE LAWS" means the General Corporation Law of the States of Delaware and California and those laws, rules and regulations of the State of New York and of the United States of America (including, without limitation, Regulations G, U and X of the Board of Governors of the Federal Reserve Board) which, in our dexperience, are normally applicable to transactions of the type contemplated by the Transaction Documents, but without our having made any special investigation as to the applicability of any specific law, rule or regulation. 6. No Governmental Approval (as hereinafter defined), which has not been obtained or taken and is not in full force and effect, is required to authorize or is required in connection with the execution, delivery or performance of any of the Transaction Documents by any United States Party. "GOVERNMENTAL APPROVAL" means any consent, approval, license, authorization or validation of, or filing, recording or registration with, any Governmental Authority pursuant to Applicable Laws. "GOVERNMENTAL AUTHORITY" means any New York, Delaware, California or federal, legislative, judicial, administrative or regulatory body. 17 7. Neither the execution, delivery or performance by any United States Party of its obligations under the Transaction Documents to which it is a party, nor compliance by such United States Party with the terms thereof will contravene any Applicable Order applicable to such United States Party. "APPLICABLE ORDERS" means those orders, judgments or decrees of Governmental Authorities applicable to or binding upon the United States Parties as identified to us in the Officer's Certificate. 8. The Amendment and Restatement of the Existing Credit Agreement and the Existing Pledge Agreements do not, of themselves, adversely affect the validity or perfection of the security interest of the Collateral Agent for the benefit of the Agents and the Lenders granted in the certificates identified on Exhibit A to each of the Existing Pledge Agreements (the "PLEDGED SHARES"). After giving effect to the Amendment and Restatement of the Existing Credit Agreement and the Existing Pledge Agreements, the security interest of the Collateral Agent in the Pledged Shares will be entitled to the same status as a valid and perfected security interest to which it would otherwise have been entitled (as reflected in the Original Opinion) immediately prior to giving effect to the Amendment and Restatement of the Existing Credit Agreement and the Existing Pledge Agreements. The Loans are entitled to the benefit of the security interest created by the Existing Pledge Agreements in favor of the Collateral Agent. Our opinion in paragraph 8 above is subject to the following additional assumptions and qualifications: (a) our security interest opinions are limited to Articles 8 and 9 of the UCC, and therefore such opinions do not address (i) laws of jurisdictions other than New York, and of New York, except for Articles 8 and 9 of the UCC, (ii) collateral of a type not subject to Article 8 or 9 of the UCC, and (iii) under Section 9-103, what law governs perfection of the security interests granted in the collateral covered by this opinion; (b) except for the amendment and restatement thereof on the date hereof, based on the Officer's Certificate, we have assumed that each of the Existing Pledge Agreements has not been amended, modified or supplemented and no rights pursuant thereto have been released, waived or modified by any of the parties to the Existing Pledge Agreements subsequent to the date of our Original Opinion; (c) based on the Officer's Certificate, we have assumed that all actions specified, assumed or relied upon in the Original Opinion have been taken and that all of the facts and conditions specified, assumed or relied upon in the Original Opinion remain correct; (d) we have assumed that the Collateral Agent was at all times acting in good faith and without notice of any adverse claims with respect to the Pledged Shares and that the certificates evidencing the Pledged Shares are, have been and will be at all times in the continuous possession of the Collateral Agent in the State of New York. 18 (e) we express no opinion with respect to the priority of a lien creditor (as defined in Section 9-301(3) of the UCC) who acquired a lien on any of the Pledged Shares by attachment or levy at any time within 45 days prior to the date hereof pursuant to Section 9-301(4) of the UCC; and (f) we note that since the date of the Original Opinion, filing was not a method of perfection for the Pledged Shares, but the law has since changed to permit filing a financing statement with respect to the Pledged Shares. 9. None of the Transaction Parties is an "investment company" under the Investment Company Act of 1940, as amended. 10. None of the Transaction Parties is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. This opinion is being furnished only to you in connection with the Amended and Restated Credit Agreement and is solely for your benefit and is not to be used, quoted, relied upon or otherwise referred to by any other Person or for any other purpose without our prior written consent. Very truly yours, 19 SCHEDULE I TO SASM&F OPINION ADDRESSEES 1. Credit Suisse First Boston 2. The Bank of New York 3. Banque Nationale de Paris, San Francisco Branch 4. The Chase Manhattan Bank 5. Citibank, N.A. 6. Credit Lyonnais 7. Istituto Bancario San Paolo Di Torino, S.p.A. 8. Societe Generale 9. Union Bank of California, N.A. 10. Swiss Bank Corporation, Stamford and Cayman Island Branches 11. Union Bank of Switzerland 12. Credit Suisse First Boston Aktiengesellschaft 13. Union Bank of California, N.A. 20 SCHEDULE II TO SASM&F OPINION FOREIGN JURISDICTIONS
NAME JURISDICTION Hexcel Corporation Alabama, Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts, Michigan, New Jersey, Ohio, Pennsylvania, Texas, Utah, Washington Hexcel Beta Corp. California Hexcel Pacific Rim Corporation California (Delaware)
21 SCHEDULE III TO SASM&F OPINION APPLICABLE CONTRACTS 1. Indenture dated as of August 1, 1986 between Hexcel Corporation and The Bank of California, N.A., as trustee. 2. Indenture dated as of February 29, 1996 between Hexcel Corporation and First Trust of California, National Association, as trustee, as amended. 3. Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California, National Association, as trustee. 22 Exhibit A to SASM&F Opinion CERTIFICATE OF OFFICER OF HEXCEL CORPORATION I, Ira Krakower, am the Senior Vice President, Secretary and the General Counsel of Hexcel Corporation, a Delaware corporation ("HEXCEL"), and as such, am familiar with the business and operations of each of the Transaction Parties. I understand that pursuant to the Amended and Restated Credit Agreement, dated as of March 5, 1998 (the "CREDIT AGREEMENT"), among Hexcel, certain Foreign Subsidiaries thereto, the Lenders from time to time parties thereto (the "LENDERS"), Citibank, N.A., in its capacity as collateral agent (the "COLLATERAL AGENT"), and Credit Suisse First Boston, in its capacity as documentation agent and administrative agent (the "ADMINISTRATIVE AGENT" and together with the Collateral Agent, the "AGENTS"), Skadden, Arps, Slate, Meagher & Flom LLP is rendering an opinion dated March 5, 1998 with respect thereto (the "OPINION"). I further understand that Skadden, Arps, Slate, Meagher & Flom LLP is relying on this officer's certificate and the statements made herein in rendering such Opinion. Capitalized terms used herein and not otherwise defined herein shall have the same meaning herein as ascribed thereto in the Opinion. With regard to the foregoing, on behalf of each of the Transaction Parties, I do hereby certify that: 1. Due inquiry has been made of all persons deemed necessary or appropriate to confirm the statements made herein. 2. Set forth on Schedule II hereto are all the material orders, judgments or decrees of Governmental Authorities which name any United States Party or to which the business or assets of any United States Party are subject. 3. Less than 25 percent of the assets of each of the Transaction Parties on a consolidated basis and on an unconsolidated basis consist of margin stock (as such term is defined in Regulation G or Regulation U of the Board of Governors of the Federal Reserve System). 4. Each of the Transaction Parties (a) is primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding or trading in securities and (b) is not engaged and does not propose to engage in the business or investing, reinvesting, owning, holding or trading in securities, and does not own or propose to acquire "investment securities" (as such term is defined in the Investment Company Act of 1940, as amended) having a value exceeding 40 percent of the value of such Transaction Party's total assets (exclusive of government securities and cash items) on an unconsolidated basis. 23 5. No Transaction Party is a "gas utility company" within the meaning of the Public Utility Holding Company of 1935, as amended. 6. No Transaction Party is an "electric utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7. No Transaction Party, owns, controls, or holds with power to vote (a) ten percent (10%) or more of the outstanding securities, such as notes, drafts, stock, treasury stock, bonds, debentures, certificates of interest or participations in any profit sharing agreements or in oil, gas, other mineral royalties or leases, collateral-trust certificates, preorganization certificates or subscriptions, transferable shares, investment contracts, voting-trust certificates, certificates of deposit for a security, receiver's or trustee's certificates, or any other instrument commonly known as a "security" (including certificates of interest or participation in, temporary or interim certificates for, receipt for, guaranty of, assumption of liability on, or warrants or rights to subscribe to or purchase any of the foregoing) presently entitling it to vote in the direction of management of, or any such instrument issued under or pursuant to any trust, agreement, or arrangement whereby a trustee or trustees or agent or agents for the owner of holder of such instrument is presently entitled to vote in the direction or management of, any corporation, partnership, association, joint-stock company, joint venture or trust that owns or operates any "public utility company" (as such term is defined in the Public Utility Holding Company Act of 1935, as amended), or (b) any other interest, directly or indirectly, or through one or more intermediary entities, in any corporation partnership, association, joint-venture company, joint venture or trust that owns or operates any public utility company. 8. No Transaction Party has received notice that the Securities and Exchange Commission has determined, or may determine, that such Transaction Party exercises a controlling influence over the management or direction of the policies of a gas utility company or an electric utility company as to make it subject to the obligations, duties and liabilities imposed on holding companies by the Public Utility Holding Company Act of 1935, as amended. 9. Since June 27, 1996 each of the Existing Pledge Agreements has not been amended, modified or supplemented and no rights pursuant thereto have been released waived or modified. 10. In respect of the validity or perfection of the security interest of the Collateral Agent on behalf of the Agents and the Lenders in the Transaction Parties' Pledged Shares, all actions to be taken by the Borrowers or any other Transaction Party specified, assumed or relied upon in the Original Opinion have been taken and all the facts and conditions specified, assumed or relied upon in the Original Opinion remain correct. 24 IN WITNESS WHEREOF, I, in my capacity as an officer of Hexcel Corporation, have executed this certificate this __ day of March, 1998. HEXCEL CORPORATION By:______________________________ Name: Ira Krakower Title: Senior Vice President, Secretary and General Counsel Schedule I to Exhibit A APPLICABLE ORDERS United States Bankruptcy Court Northern District of California Order N. 93-48535T dated January 10, 1995 In re Hexcel Corporation. EXHIBIT F-1 FORM OF NOTICE OF BORROWING (DRAWINGS) To: Credit Suisse First Boston, in its capacity as administrative agent (with its successors in such capacities, the "Administrative Agent") for the Lenders (as defined below) under the Amended and Restated Credit Agreement dated as of March 5, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Hexcel Corporation, the Foreign Borrowers from time to time parties thereto, the financial institutions from time to time parties thereto as Lenders (the "Lenders"), the Collateral Agent and Credit Suisse First Boston, in its capacity as administrative agent for the Lenders. Pursuant to [SECTION 2.2](1)/[SECTION 4.2](2)/[SECTION 5.2](3)/[SECTION 5.3](4)/ of the Credit Agreement, this Notice of Borrowing ("Notice") represents the request of the undersigned Borrower (the "Borrower") to borrow on [the date hereof] [_______________, _____ ](the "Funding Date") from the Lenders [the principal amount of $ _______________][the principal amount of _______________ in the lawful currency of [Austria][Belgium][France][Germany] [Italy][the Netherlands][Spain][the United Kingdom]] in Revolving Credit Loans as [ABR Loans][Eurocurrency Rate Loans]. In the event that such Revolving Credit Loans are Eurocurrency Rate Loans, the Interest Period for such Eurocurrency Rate Loans is requested to be a [one][two][three][six] month period.] [the principal amount of $ ________________ in Swing Line Loans as ABR Loans] Proceeds of such Loans are to be deposited on the Funding Date into the Borrower's disbursement account number __________ maintained at the office of __________. The Borrower certifies that as of the Funding Date all of the conditions precedent contained in [SECTION 9.1 of the Credit Agreement](5)/[SECTION 9.2 of the Credit Agreement](6)/ have been satisfied (or waived pursuant to SECTION 14.1 of the Credit Agreement). Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings in this Notice. Dated this ___ day of ___________, ____. [Name of Borrower] - ---------------------------- (1)/ To be used for a requested Borrowing of Domestic Revolving Loans. (2)/ To be used for a requested Borrowing of Swing Loans. (3)/ To be used for a requested Borrowing of Syndicated European Loans. (4)/ To be used for a requested Borrowing of Local European Loans. (5)/ To be used for Revolving Credit Loans to be made on the Closing Date. All Revolving Credit Loans made on the Closing Date shall be ABR Loans. (6)/ To be used for Revolving Credit Loans and Swing Line Loans to be made after the Closing Date. By: Name: Title: EXHIBIT F-2 FORM OF NOTICE OF BORROWING (CONVERSION) To: Credit Suisse First Boston, in its capacity as administrative agent (with its successors in such capacities, the "Administrative Agent") for the Lenders (as defined below) under the Amended and Restated Credit Agreement dated as of March 5, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Hexcel Corporation, the Foreign Borrowers from time to time parties thereto, the financial institutions from time to time parties thereto as Lenders (the "Lenders"), the Collateral Agent and the Administrative Agent for the Lenders. Pursuant to SECTION 7.6(a) of the Credit Agreement, this Notice of Borrowing (Conversion) ("Notice") represents the election of the undersigned Borrower (the "Borrower") to [Convert $____________ in aggregate principal amount of Revolving Credit Loans consisting of ABR Loans from ABR Loans to Eurocurrency Rate Loans denominated in the same currency on ________________, ____. The initial Interest Period for such Eurocurrency Rate Loans is requested to be a [one][two][three][six] month period.] [Convert $_____________ in aggregate principal amount of outstanding Eurocurrency Rate Loans to ABR Loans denominated in the same currency on ____________, _____.] The Borrower hereby certifies that (i) the proposed conversion would not violate any provisions of SECTION 7.7 of the Credit Agreement and, as a result thereof, (ii) no Default or Event of Default would occur or has occurred and is continuing under the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings in this Notice. Dated this ___ day of ________, ____. [Name of Borrower] By:________________________ Name: Title: EXHIBIT F-3 FORM OF NOTICE OF BORROWING (CONTINUATION) To: Credit Suisse First Boston, in its capacity as administrative agent (with its successors in such capacities, the "Administrative Agent") for the Lenders (as defined below) under the Amended and Restated Credit Agreement dated as of March 5, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Hexcel Corporation, the Foreign Borrowers from time to time parties thereto, the financial institutions from time to time parties thereto as Lenders (the "Lenders"), the Collateral Agent and the Administrative Agent for the Lenders. Pursuant to SECTION 7.6(b) of the Credit Agreement, this Notice of Borrowing (Continuation) ("Notice") represents the election of the undersigned Borrower (the "Borrower") to continue as Eurocurrency Rate Loans $_______________ in aggregate principal amount of Revolving Credit Loans consisting of Eurocurrency Rate Loans denominated in the same currency with a current Interest Period ending _______________, ____. The succeeding Interest Period for such Eurocurrency Rate Loans is requested to be a [one][two][three][six] month period. The Borrower hereby certifies that (i) the proposed continuation would not violate any provisions of SECTION 7.7 of the Credit Agreement and, as a result thereof, (ii) no Default or Event of Default would occur or has occurred and is continuing under the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings in this Notice. Dated this ___ day of ________, ____. [Name of Borrower] By:________________________ Name: Title: EXHIBIT G FORM OF ASSIGNMENT AND ACCEPTANCE ASSIGNMENT AND ACCEPTANCE dated ____________ __, ____, between _______________________ (the "ASSIGNOR") and __________________________ (the "ASSIGNEE"). PRELIMINARY STATEMENTS A. Reference is made to the Amended and Restated Credit Agreement dated as of March 5, 1998 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Hexcel Corporation, a Delaware corporation (with its successors and permitted assigns, the "COMPANY"), the Foreign Borrowers (as defined therein) from time to time parties thereto, the institutions from time to time parties thereto as Lenders, whether by execution of the Credit Agreement or an Assignment and Acceptance, Citibank, N.A., in its separate capacity as collateral agent for the Lenders and Credit Suisse First Boston, a Swiss banking association acting through its New York branch ("CSFB"), in its separate capacity as administrative agent for the Lenders (with its successors in such capacity, the "ADMINISTRATIVE AGENT"). Terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement. B. The Assignor is a Lender under the Credit Agreement and desires to sell and assign to the Assignee, and the Assignee desires to purchase and assume from the Assignor, on the terms and conditions set forth below, a ___ percent (____%) interest in the Aggregate Revolving Credit Commitment (the "ASSIGNED PERCENTAGE"), together with the Assignor's rights and obligations under the Credit Agreement with respect to the Assigned Percentage. NOW, THEREFORE, the Assignor and the Assignee hereby agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the Assigned Percentage, together with the Assignor's rights and obligations under the Credit Agreement with respect to such Assigned Percentage, including, without limitation, the obligation to make Revolving Credit Loans and to participate in Letters of Credit. 2. The Assignor (i) represents and warrants that as of the date hereof its Revolving Credit Commitment Percentage (without giving effect to assignments thereof which have not yet become effective) is ____% and that such Revolving Credit Commitment Percentage multiplied by the Aggregate Revolving Credit Commitments is equal to $_____________; (ii) represents and warrants that it has legal and beneficial title to the interests being assigned by it hereunder free and clear of any claim adverse to such title; (iii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any of the other Credit Documents, or any other instrument or document furnished pursuant thereto or executed and delivered in connection therewith; (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or any of such Borrower's Subsidiaries or the performance or observance by any Borrower or any of such Borrower's Subsidiaries of any of such Persons' respective obligations under the Credit Agreement, any other Credit Document or any instrument or document furnished pursuant thereto; and (v) attaches the Revolving Credit Note (if any) delivered to it under the Credit Agreement. 2 3. The Assignee (i) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (ii) confirms that it has received a copy of the Credit Agreement, together with copies of such other Credit Documents, information, exhibits, reports, projections and forecasts that the Assignee has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iii) agrees that it shall have no recourse against the Assignor with respect to any matters relating to the Credit Agreement, any other Credit Document or this Assignment and Acceptance (except with respect to the representations and warranties made by the Assignor in CLAUSES (i) and (ii) of PARAGRAPH 2 above); (iv) agrees that it will, independently and without reliance upon the Administrative Agent, the Collateral Agent, the Assignor 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 decisions in taking or not taking action under the Credit Agreement and the other Credit Documents; (v) appoints and authorizes each of the Administrative Agent and the Collateral Agent to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents as are delegated to the Administrative Agent or the Collateral Agent, as the case may be, by the terms thereof, together with such powers as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and other Credit Documents are required to be performed by it as a Lender; (vii) confirms that it is an Eligible Assignee; and (viii) specifies as its address for notices the address set forth beneath its name on the signature page hereof, together with the name and address of its U.S. lending office and its European lending office. 4. The effective date for this Assignment and Acceptance shall be ___________ __, ____ (the "EFFECTIVE DATE"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by the Administrative Agent and for recording in the Register by the Administrative Agent, together with a processing and recordation fee of $3,500 to be paid to the Administrative Agent by the [Assignor][Assignee]. 5. As of the Effective Date, provided that each of the Administrative Agent accepts this Assignment and Acceptance and the Company accepts the Assignee pursuant to the terms of SECTION 14.7(c) of the Credit Agreement, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall relinquish its rights and be released from its obligations under the Credit Agreement with respect to the Assigned Percentage. 6. From and after the Effective Date, provided that the Administrative Agent accepts this Assignment and Acceptance, the Administrative Agent shall make all payments under the Credit Agreement in respect of the Assigned Percentage (including, without limitation, all payments of principal, interest and fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, intending to be legally bound, each of the undersigned has caused this Assignment and Acceptance to be executed on its behalf by its officer thereunto duly authorized, as of _________ __, ____. [NAME OF ASSIGNOR] By______________________________ Name:_________________________ Title:________________________ New Revolving Credit Commitment Percentage _______% New Revolving Credit Commitment $_______ [NAME OF ASSIGNEE] By______________________________ Name:_________________________ Title:________________________ Notice Address and U.S. Lending Office: European Lending Office: Revolving Credit Commitment Percentage _______% Revolving Credit Commitment $_______ Agreed to and accepted this __ day of __________, ____ CREDIT SUISSE FIRST BOSTON, as Administrative Agent By____________________________ Title: By____________________________ Title: HEXCEL CORPORATION By____________________________ Title: EXHIBIT H FORM OF COMPLIANCE CERTIFICATE To: Credit Suisse First Boston, in its capacity as administrative agent (with its successors in such capacities, the "Administrative Agent") for the Lenders (as defined below) under the Amended and Restated Credit Agreement dated as of March 5, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among Hexcel Corporation, the Foreign Borrowers from time to time parties thereto, the financial institutions from time to time parties thereto as Lenders (the "Lenders"), the Collateral Agent (as defined therein) and Credit Suisse First Boston, in its capacity as administrative agent for the Lenders. Pursuant to SECTION 10.2(b) of the Credit Agreement, the [Chief Financial Officer][Treasurer][Comptroller] of the undersigned, hereby certifies that: 1. I am the duly elected, qualified and acting [Chief Financial Officer][Treasurer][Controller] of the Borrower. 2. Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings in this Certificate. 3. There has been a review of the terms of the Credit Documents and a review in reasonable detail of the transactions and consolidated financial condition of the Borrower and its Subsidiaries during the accounting period(s) covered by the financial statements identified below. Such review [has] [has not] disclosed the existence during or at the end of such accounting period, and as at the date hereof the undersigned [does] [does not] have knowledge, of any condition or event which constitutes a Default or an Event of Default. [If such condition or event exists or existed, specify (i) nature and period of such condition or event and (ii) action being taken and/or proposed to be taken with respect thereto.] 4. The financial statements, reports and copies of certain instruments and documents attached hereto, namely, A. _______________, dated _______________ B. _______________, dated _______________ C. _______________, dated _______________ D. _______________, dated _______________ are true, accurate and complete copies of the aforesaid instruments and documents which constitute part of the customary books and records of the Borrower. 2 5. The certificate attached as Annex I hereto demonstrates (a) calculations relating to the terms of SECTION 7.5 of the Credit Agreement (including, without limitation, calculations of Net Cash Proceeds and mandatory prepayments), and (b) compliance by the Borrowers with the negative covenants of SECTION 11 of the Credit Agreement. Dated this ___ day of ________, ____. HEXCEL CORPORATION By__________________________ Name:_____________________ Title:____________________ EXHIBIT I FORM OF ADDITIONAL BORROWER JOINDER AGREEMENT WHEREAS, [_________________] is a Wholly-owned Subsidiary of Hexcel Corporation (the ACompany"); and WHEREAS, the Company is a party to that certain Amended and Restated Credit Agreement dated as of March 5, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") among the Company, the Foreign Borrowers from time to time parties thereto, the institutions from time to time parties thereto as lenders (the "Lenders"), the Collateral Agent and Credit Suisse First Boston, in its capacity as administrative agent (in such capacity, the "Administrative Agent") (terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement); and WHEREAS, the Lenders and the Administrative Agent have required as a condition, among other conditions set forth in SECTION 7.19 of the Credit Agreement, to [the undersigned] becoming an Additional Borrower under the Credit Agreement that [the undersigned] execute this Additional Borrower Joinder Agreement; NOW THEREFORE, [the undersigned] agrees as follows: 1. [the undersigned] hereby acknowledges receipt of the Credit Agreement and the other Credit Documents. 2. [the undersigned] hereby agrees to be a Foreign Borrower under and as defined in the Credit Agreement and to be bound by all the terms and conditions of the Credit Agreement and the other Credit Documents applicable to a Foreign Borrower. Agreed to this ___ day of _______, ____. [___________________] By: _______________________ Name: Title: EXHIBIT J FORM OF LOCAL LENDER JOINDER AGREEMENT LOCAL LENDER JOINDER AGREEMENT, dated as of the date set forth on Schedule I hereto, made by the Local Lender designated on Schedule I hereto (the "LOCAL LENDER") pursuant to the Amended and Restated Credit Agreement, dated as of March 5, 1998 (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among the Company, the Foreign Borrowers from time to time parties thereto, the institutions from time to time parties thereto as lenders (the "LENDERS"), the Collateral Agent and Credit Suisse First Boston, in its capacity as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT") (terms defined in the Credit Agreement and not otherwise defined herein are used herein with the meanings ascribed thereto in the Credit Agreement). For good and valid consideration, the sufficiency of which hereby is acknowledged, the undersigned hereby agrees that it shall serve as a "Local Lender" under the Credit Agreement upon the terms and subject to the conditions set forth therein. The undersigned hereby: (a) represents and warrants that it is legally authorized to enter into this Local Lender Joinder Agreement; (b) confirms that it has received a copy of the Credit Agreement and the other Credit Documents relevant to it; and (c) agrees that it will (i) be bound by the provisions of the Credit Agreement and each other Credit Document, in each case, applicable to it as a Local Lender and (ii) perform all obligations which are required to be performed by it as a Local Lender pursuant to the Credit Agreement and each other Credit Document. From and after the Effective Date set forth on Schedule I hereto, the undersigned shall (a) be a "Local Lender" with respect to the Optional Currency set forth on Schedule I hereto for all purposes under the Credit Documents and (b) have the rights and obligations of a Local Lender thereunder and under the other Credit Documents and (c) be bound by the provisions of the Credit Documents. THIS LOCAL LENDER JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the Local Lender has caused this Local Lender Joinder Agreement to be executed on Schedule I hereto by its duly authorized officer as of the date set forth on Schedule I hereto. SCHEDULE I TO LOCAL LENDER JOINDER AGREEMENT RELATING TO THE AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF MARCH [__], 1998 (AS AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM TIME TO TIME) AMONG THE COMPANY, THE FOREIGN BORROWERS FROM TIME TO TIME PARTIES THERETO, THE INSTITUTIONS FROM TIME TO TIME PARTIES THERETO AS LENDERS, THE COLLATERAL AGENT AND CREDIT SUISSE FIRST BOSTON, IN ITS CAPACITY AS ADMINISTRATIVE AGENT =============================================================================== DATE OF LOCAL LENDER JOINDER AGREEMENT: NAME OF DESIGNATED LOCAL LENDER: JURISDICTION: OPTIONAL CURRENCY: FOREIGN BORROWER SUBLIMIT: US$ NAME OF DESIGNATED ADDITIONAL BORROWER: EFFECTIVE DATE OF LOCAL LENDER JOINDER AGREEMENT: [NAME OF LOCAL LENDER] By:____________________________ Title: ACKNOWLEDGED AND AGREED: CREDIT SUISSE FIRST BOSTON, as Administrative Agent By:___________________________ Title: EX-10.5 7 EXHIBIT 10.5 EXHIBIT 10.5 HEXCEL CORPORATION INCENTIVE STOCK PLAN, AS AMENDED AND RESTATED JANUARY 30, 1997 AND FURTHER AMENDED DECEMBER 10, 1997 I. PURPOSE This Incentive Stock Plan, as approved by the stockholders of the Corporation on February 21, 1996, combined the Hexcel Corporation Long-Term Incentive Plan and the Hexcel Corporation 1995 Directors' Stock Option Plan and, subject to approval by the stockholders of the Corporation, is now amended and restated herein (as so amended and restated, the "Plan"). The Plan is intended to attract, retain and provide incentives to Employees, officers, Directors and consultants of the Corporation, and to thereby increase overall stockholders' value. The Plan generally provides for the granting of stock, stock options, stock appreciation rights, restricted shares, other stock-based awards or any combination of the foregoing to the eligible participants. II. DEFINITIONS (a) "Award" includes, without limitation, stock options (including Director Options and incentive stock options within the meaning of Section 422(b) of the Code) with or without stock appreciation rights, dividend equivalent rights, stock awards, restricted share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock ("other Common Stock-based Awards"), all on a stand-alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Plan. (c) "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act. (d) "Board" means the Board of Directors of the Corporation. (e) "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (g) "Committee" means the Executive Compensation Committee of the Board or such other committee of the Board as may be designated by the Board from time to time to administer this Plan. (h) "Common Stock" means the $.01 par value common stock of the Corporation. (i) "Corporation" means Hexcel Corporation, a Delaware corporation. (j) "Director" means a member of the Board. (k) "Director Option" means a stock option granted pursuant to Section VII hereof to a Director. (l) "Director Optionee" means a recipient of an Award of a Director Option. (m) "Employee" means an employee of the Corporation or a Subsidiary. (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (o) "Fair Market Value" means the closing price for the Common Stock as reported in publications of general circulation from the New York Stock Exchange Consolidated Transactions Tape on such date, or, if there were no sales on the valuation date, on the next preceding date on which such closing price was recorded; provided, however, that the Committee may specify some other definition of Fair Market Value in good faith with respect to any particular Award. (p) "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement. (q) "Participant" means an Employee, officer, Director or consultant who has been granted an Award under the Plan. (r) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement. (s) "Plan Year" means a calendar year. 2 (t) "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba-Geigy Corporation, dated as of September 29, 1995, as amended. (u) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock owner ship or otherwise. III. ELIGIBILITY Any Employee, officer, Director or consultant of the Corporation or Subsidiary selected by the Committee is eligible to receive an Award pursuant to Section VI hereof. Additionally, Directors described in Section VII(a) hereof are eligible to receive Awards of Director Options pursuant to Section VII. IV. PLAN ADMINISTRATION (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees, officers, Directors and consultants in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards, including vesting schedules, price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and any Award Agreement and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. The Committee shall have the authority at the time of the grant of any Award to provide for the conditions and circumstances under which such Award shall be forfeited. The Committee shall have the authority to accelerate the vesting of any Award and the time at which any Award becomes exercisable. 3 V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN (a) The capital stock subject to the provisions of this Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section XI, and subject to Section V(c) below, the maximum number of shares of Common Stock that shall be available for grants of Awards under this Plan shall be 4,012,533 (the number of shares remaining available under the Incentive Stock Plan immediately prior to its amendment and restatement on January 30, 1997 plus 3,850,000 additional shares). (b) The grant of a restricted share Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Awards payable only in cash will not reduce the number of shares available for Awards granted under the Plan. (c) There shall be carried forward and be available for Awards under the Plan, in addition to shares available for grant under paragraph (a) of this Section V, all of the following: (i) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (ii) the excess amount of variable Awards which become fixed at less than their maximum limitations. VI. DISCRETIONARY AWARDS UNDER THIS PLAN As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand-alone, combination or tandem basis: (a) STOCK OPTION. A right to buy a specified number of shares of Common Stock at a fixed exercise price during a specified time, all as the Committee may determine. (b) INCENTIVE STOCK OPTION. An Award which may be granted only to Employees in the form of a stock option which shall comply with the requirements of Code Section 422 or any successor section as it may be amended from time to time. The exercise price of any incentive stock option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant of the incentive stock option Award. Subject to adjustment in accordance with the provisions of Section XI, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed the maximum number of shares provided in paragraph (a) of Section V above. To the extent that the aggregate Fair 4 Market Value of Common Stock with respect to which options intended to be incentive stock options are exercisable for the first time by any individual during any calendar year exceeds $100,000, such options shall be treated as options which are not incentive stock options. (c) STOCK OPTION IN LIEU OF COMPENSATION ELECTION. A right given with respect to a year to a Director, officer or key Employee to elect to exchange annual retainers, fees or compensation for stock options. (d) STOCK APPRECIATION RIGHT. A right which may or may not be contained in the grant of a stock option or incentive stock option to receive the excess of the Fair Market Value of a share of Common Stock on the date the option is surrendered over the option exercise price or other specified amount contained in the Award Agreement. (e) RESTRICTED SHARES. A transfer of Common Stock to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (f) DIVIDEND OR EQUIVALENT. A right to receive dividends or their equivalent in value in Common Stock, cash or in a combination of both with respect to any new or previously existing Award. (g) STOCK AWARD. An unrestricted transfer of ownership of Common Stock. (h) OTHER STOCK-BASED AWARDS. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section VI. VII. FORMULA AWARDS UNDER THIS PLAN In addition to discretionary Awards (including, without limitation, options) that may be granted to Directors pursuant to Section VI hereof, Director Options shall be granted as provided below: (a) GRANTS OF DIRECTOR OPTIONS. (i) As of April 4, 1995, each Director shall be granted an Option to acquire 40,000 shares of Common Stock upon the terms and subject to the conditions set forth in the Plan and this Section VII. With respect to any individual who becomes a Director and who is not also a full-time employee of the Corporation or any Subsidiary (provided such individual has not previously received a grant 5 pursuant to this Section VII(a)(i)), such individual shall be granted as of the date of his election or appointment as a Director a Director Option to acquire (x) 40,000 shares of Common Stock if elected or appointed between April 4, 1995 and December 31, 1996 inclusive or, (y) 10,000 shares of Common Stock if elected or appointed on or after January 1, 1997, upon the terms and subject to the conditions set forth in the Plan and this Section VII. (ii) On April 4, 1996 and immediately after each annual meeting of stockholders of the Corporation held after January 1, 1997 and before February 7, 2005, each person who is not on such date also a full-time employee of the Corporation or any Subsidiary and who (x) is a Director on April 4, 1996 or (y) has been re-elected at such meeting, shall be granted a Director Option to acquire 2,000 shares of Common Stock upon the terms and subject to the conditions set forth in the Plan and this Section VII. (iii) If on any date when Options are to be granted pursuant to Section VII(a)(i) or (ii) the total number of shares of Common Stock as to which Director Options are to be granted exceeds the number of shares of Common Stock remaining available under the Plan, there shall be a PRO RATA reduction in the number of shares of Common Stock as to which each Director Option is granted on such day. (b) TERMS OF DIRECTOR OPTIONS. The terms of each Director Option granted under this Section VII shall be determined by the Board consistent with the provisions of the Plan, including the following: (i) The purchase price of the shares of Common Stock subject to each Director Option shall be equal to the Fair Market Value of such shares on the date such option is granted. (ii) Each Director Option shall be exercisable as to one-third of the shares subject thereto immediately upon the grant of the option and as to an additional one-third of such shares on the first and second anniversaries of the date of such grant. (iii) Shares of Common Stock obtained upon exercise of a Director Option may not be sold until six months after the date such option was granted. 6 (iv) Each Director Option shall expire ten years after the granting thereof. Each Director Option shall be subject to earlier expiration as expressly provided in Section VII(c) hereof. (c) DISABILITY, DEATH OR TERMINATION OF DIRECTOR STATUS; CHANGE IN CONTROL. (i) If a Director Optionee ceases to be a Director for any reason other than his disability or death, each Director Option held by him to the extent exercisable on the effective date of his ceasing to be a Director shall remain exercisable until the earlier to occur of (i) the first anniversary of such effective date and (ii) the expiration of the stated term of the Director Option; PROVIDED, HOWEVER, that if the Director Optionee is removed, withdraws or otherwise ceases to be a Director due to his fraud, dishonesty or intentional misrepresentation in connection with his duties as a Director or his embezzlement, misappropriation or conversion of assets or opportunities of the Corporation or any Subsidiary, all unexercised Director Options held by the Director Optionee shall expire forthwith. Each Director Option held by the Director Optionee to the extent not exercisable on the effective date of his ceasing to be a Director for any reason other than his disability or death shall expire forthwith. (ii) If a Director Optionee ceases to be a Director as a result of his disability or death, each Director Option held by him to the extent that the Director Option is exercisable on the effective date of his ceasing to be a Director shall remain exercisable by the Director Optionee or the Director Optionee's executor, administrator, legal representative or beneficiary, as the case may be, until the earlier to occur of (x) the third anniversary of such effective date and (y) the expiration of the stated term of the Director Option. Each Director Option held by the Director Optionee to the extent not exercisable on the effective date of his ceasing to be a Director as a result of his disability or death shall expire forthwith. (iii) In the event of a Change in Control (as hereinafter defined) while a Director Optionee is a Director, each Director Option held by the Director Optionee to the extent not then exercisable shall thereupon become exercisable. If a Change in Control occurs on or before the effective date of a Director Optionee's ceasing to be a Director, the provisions of this subsection (iii) shall govern with respect to the exercisability of the Director Options held by him as of the date on which the Director Optionee ceases to be a Director and the provisions of subsection (i) or (ii) of this Section VII(c) shall govern with respect to the period of time during which such Director Options shall remain exercisable. For purposes of this subsection (iii), "Change in Control" shall mean any of the following events: 7 (1)(a) any Person is or becomes the Beneficial Owner of 20% or more of either (i) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of January 30, 1997, constitute the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; PROVIDED, HOWEVER, for purposes of this definition, that any individual who becomes a director subsequent to such effective date, whose election, or nomination for election by the Corporation's stockholders, was made or approved pursuant to the Governance Agreement or by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered a member of the Incumbent Board; but, PROVIDED, FURTHER, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered a member of the Incumbent Board; or (3) the approval by the stockholders of the Corporation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation ("Corporate Transaction"); excluding, however, such a Corporate Transaction (a) pursuant to which all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Common Stock and Total Voting Power immediately prior to such Corporate Trans action will beneficially own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, 8 without limitation, a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Common Stock and Total Voting Power, as the case may be, or (b) after which no Person beneficially owns a greater percentage of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation than does Ciba; or (4) Ciba shall become the Beneficial Owner of more than 57.5% of the Total Voting Power; or (5) the approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation. VIII. AWARD AGREEMENTS Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Corporation and Participant. IX. OTHER TERMS AND CONDITIONS (a) ASSIGNABILITY. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except by will, by the laws of descent and distribution and during the lifetime of a Participant, the Award shall be exercisable only by such Participant. No Award granted under the Plan shall be subject to execution, attachment or process. (b) TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. Except as provided in Section VII(c) with respect to Director Options, the Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment or other relationship with the Corporation or a Subsidiary. (c) RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant is the holder of record. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) NO OBLIGATION TO EXERCISE. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. 9 (e) PAYMENTS BY PARTICIPANTS. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a "cashless exercise" program if established by the Corporation; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (f) WITHHOLDING. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment. (g) MAXIMUM AWARDS. The maximum number of shares of Common Stock that may be issued to any single Participant pursuant to options under this Plan is equal to the maximum number of shares provided for in paragraph (a) of Section V. X. TERMINATION, MODIFICATION AND AMENDMENTS (a) The Executive Compensation Committee may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that no amendments to the Plan which require stockholder approval under applicable law, rule or regulation shall become effective unless the same shall be approved by the requisite vote of the Corporation's stockholders. (b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. (c) Notwithstanding anything herein to the contrary, the provisions of Section VII shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder. 10 XI. RECAPITALIZATION The aggregate number of shares of Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award, and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee shall also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. XII. NO RIGHT TO EMPLOYMENT Except as provided in Section VII with respect to Director Options, no person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in the other relationship with, the Corporation or a Subsidiary. Further, the Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan, except as provided herein or in any Award Agreement issued hereunder. XIII. GOVERNING LAW To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. XIV. SAVINGS CLAUSE This Plan is intended to comply in all aspects with applicable laws and regulations. In case any one more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted 11 or revised retroactively to permit this Plan to be construed in compliance with all applicable laws so as to foster the intent of this Plan. XV. EFFECTIVE DATE AND TERM The Hexcel Corporation Incentive Stock Plan is amended and restated herein on January 30, 1997. The effectiveness of such amendment and restatement is subject to approval by stockholders of the Corporation. AWARDS GRANTED UNDER THE AMENDED AND RESTATED PLAN PRIOR TO SUCH APPROVAL BY THE STOCKHOLDERS SHALL BE SUBJECT TO SUCH APPROVAL. THE PLAN SHALL TERMINATE ON FEBRUARY 8, 2005. NO AWARDS SHALL BE GRANTED AFTER THE TERMINATION OF THE PLAN. 12 EX-10.8 8 EXHIBIT 10.8 EXHIBIT 10.8 RETAINER FEE OPTION AGREEMENT For Non-Employee Directors 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, as amended and restated January 30, 1997 and approved by the stockholders on May 22, 1997 (the "Plan"); and WHEREAS, the Board of Directors of the Corporation (the "Board") has determined that it is desirable and in the best interests of the Corporation to grant to the Optionee a stock option as an incentive for the Optionee to advance the interests of the Corporation; NOW, THEREFORE, the parties agree as follows: 1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is attached hereto as Annex A and incorporated by reference herein. Unless otherwise provided herein, capitalized terms used herein and set forth in such Notice of Grant shall have the meanings ascribed to them in the Notice of Grant and capitalized terms used herein and set forth in the Plan shall have the meanings ascribed to them in the Plan. The Plan is incorporated by reference and made a part of this Option Agreement, and this Option Agreement shall be subject to the terms of the Plan, as the Plan may be amended from time to time, provided that any such amendment of the Plan must be made in accordance with Section X of the Plan. The Option granted herein constitutes an Award within the meaning of the Plan. 2. GRANT OF OPTION. Pursuant to the Plan and subject to the terms and conditions set forth herein and therein, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase all or any part of the Option Shares of the Corporation's common stock, $.01 par value per share (the "Common Stock"), which Option is not intended to qualify as an incentive stock option, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. PURCHASE PRICE. The purchase price per share of the Option Shares shall be the Purchase Price. 4. TERMS OF OPTION. (a) EXPIRATION DATE; TERM. Subject to Section 4(d) below, the Option shall expire on, and shall no longer be exercisable following, the fifth anniversary of the Grant Date. The five-year period from the Grant Date to its fifth anniversary shall constitute the "Term" of the Option. (b) VESTING PERIOD; EXERCISABILITY. Subject to Section 4(c) and 4(d) below, the Option shall vest in proportion to the time elapsed between the Grant Date and the first anniversary of the Grant Date. (c) CHANGE OF CONTROL. In the event of a Change in Control (as defined in the last Section hereof), the Option shall immediately become fully vested and exercisable. (d) TERMINATION OF SERVICE AS DIRECTOR. (i) Except as provided in Section 4(d)(ii) hereof, if the Optionee's service as a member of the Board is terminated for any reason (other than death or disability), the Option (to the extent vested on the date of termination) may be exercised at any time within ninety 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. (ii) In the event the Optionee's service as a member of the Board is terminated because of death or disability, the Option (to the extent vested on the date of termination) 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 vested, shall immediately expire upon such termination. 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 2 other changes, including changes in the classes of securities available, to the extent reasonably necessary or desirable to preserve the intended benefits under this Option Agreement in the event of any other reorganization, recapitalization, merger, consolidation, spin- off, extraordinary dividend or other distribution or similar transaction involving the Corporation. (b) Any adjustment under this Section 5 in the number of Option Shares and the Purchase Price shall apply to only the unexercised portion of the Option. If fractions of a share would result from any such adjustment, the adjustment shall be rounded down to the nearest whole number of shares. 6. METHOD OF EXERCISING OPTION AND WITHHOLDING. (a) The Option shall be exercised by the delivery by the Optionee to the Corporation at its principal office (or at such other address as may be established by the Committee) of written notice of the number of Option Shares with respect to which the Option is exercised, accompanied by payment in full of the aggregate Purchase Price for such Option Shares. Payment for such Option Shares shall be made (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, or by money transfers or direct account debits to an account designated by the Corporation; (ii) through the delivery of shares of Common Stock with a Fair Market Value equal to the total payment due from the Optionee; (iii) pursuant to a "cashless exercise" program if such a program is established by the Corporation; or (iv) by any combination of the methods described in (i) through (iii) above. (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 3 transfer of the Option and the transferee of the Option shall be subject to all conditions applicable to the Option prior to its transfer. 8. NO RIGHTS IN OPTION SHARES. The Optionee shall have none of the rights of a stockholder with respect to the Option Shares unless and until shares of Common Stock are issued upon exercise of the Option. 9. NO RIGHT TO CONTINUED SERVICE AS DIRECTOR. Nothing contained herein shall be deemed to confer upon the Optionee any right to continue to serve as a member of the Board. 10. GOVERNING LAW/JURISDICTION. This Option Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws. 11. RESOLUTION OF DISPUTES. Any disputes arising under or in connection with this Option Agreement shall be resolved by binding arbitration before a single arbitrator, to be held in New York in accordance with the commercial rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator shall be final and subject to appeal only to the extent permitted by law. Each party shall bear such party's own expenses incurred in connection with any arbitration; PROVIDED, HOWEVER, that the cost of the arbitration, including without limitation, reasonable attorneys' fees of the Optionee, shall be borne by the Corporation in the event the Optionee is the prevailing party in the arbitration. Anything to the contrary notwithstanding, each party hereto has the right to proceed with a court action for injunctive relief or relief from violations of law not within the jurisdiction of an arbitrator. 12. NOTICES. Any notice required or permitted under this Option Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to the Optionee at the last address specified in Optionee's records with the Corporation, or such other address as the Optionee may designate in writing to the Corporation, or to the Corporation, Attention: Corporate Secretary, or such other address as the Corporation may designate in writing to the Optionee. 13. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party hereto to enforce at any time any provision of this Option Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 14. COUNTERPARTS. This Option Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall represent one and the same agreement. 4 15. MISCELLANEOUS. This Option Agreement cannot be changed or terminated orally. This Option Agreement and the Plan contain the entire agreement between the parties relating to the subject matter hereof. The section headings herein are intended for reference only and shall not affect the interpretation hereof. 16. DEFINITIONS. For purposes of this Option Agreement: (I) the term "Beneficial Owner" (and variants thereof) shall have the meaning given in Rule 13d-3 promulgated under the Exchange Act; (II) the term "Change in Control" shall mean any of the following events: (1)(a) any Person (as defined in this Section) is or becomes the Beneficial Owner of 20% or more of either (i) the then outstanding Common Stock of the Corporation (the "Outstanding Common Stock") or (ii) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Corporation (the "Total Voting Power"); excluding, however, the following: (A) any acquisition by the Corporation or any of its affiliates or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any of its affiliates and (b) Ciba (as defined in this Section) beneficially owns, in the aggregate, a lesser percentage of the Total Voting Power than such Person beneficially owns; or (2) a change in the composition of the Board such that the individuals who, as of the effective date of this Employee Option Agreement, constitute the Board (such individuals shall be hereinafter 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 5 (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 trans action 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; (III) the term "Ciba" shall mean Ciba-Geigy Limited, a Swiss corporation, or such corporation or corporations as are substituted for Ciba-Geigy Limited, together with their respective affiliates and any former affiliates holding Corporation voting securities pursuant to Section 4.01(b) of the Governance Agreement; (IV) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; (V) the term "Governance Agreement" shall have the meaning given in the Strategic Alliance Agreement (as defined in this Section); (VI) the term "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the 6 Exchange Act, but excluding Ciba for so long as Ciba is subject to the restrictions imposed by the Governance Agreement; and (VII) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance Agreement among the Corporation, Ciba-Geigy Limited and Ciba- Geigy Corporation, dated as of September 29, 1995, as amended. 7 ANNEX A NOTICE OF GRANT STOCK OPTION HEXCEL CORPORATION INCENTIVE STOCK PLAN The following member of the Board of Directors of Hexcel Corporation, a Delaware corporation ("Hexcel"), has been granted an option to purchase shares of the Common Stock of Hexcel, $.01 par value per share, in accordance with the terms of this Notice of Grant and the Retainer Fee Option Agreement to which this Notice of Grant is attached. The following is a summary of the principal terms of the option which has been granted. The terms below shall have the meanings ascribed to them below when used in the Option Agreement.
- ------------------------------------------------------------------------------ Optionee - ------------------------------------------------------------------------------ Address of Optionee - ------------------------------------------------------------------------------ Grant Date - ------------------------------------------------------------------------------ Purchase Price - ------------------------------------------------------------------------------ Aggregate Number of Shares Granted (the "Option Shares") - ------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of Grant and the Retainer Fee Option Agreement to which this Notice of Grant is attached and execute this Notice of Grant and Option Agreement as of the Grant Date. _________________________ HEXCEL CORPORATION Optionee By: ____________________________ Name: ____________________________ Title: ____________________________ EX-10.12 9 EXHIBIT 10.12 [COMPANY LOGO] EXHIBIT 10.12 AGREEMENT BETWEEN HEXCEL CORPORATION AND IRA J. KRAKOWER AGREEMENT, dated as of September 3, 1996, by and between Hexcel Corporation, a Delaware corporation (the "Company") and Ira J. Krakower ("Employee"). WHEREAS, the Company and Employee both desire that Employee commence employment with the Company as Senior Vice President, General Counsel, and Corporate Secretary of the Company with such authority, responsibilities and duties customarily attendant to such position including acting as the chief legal officer of the Company; and WHEREAS, the parties desire to enter into this Agreement setting forth the terms and conditions applicable to the termination of such employment under certain circumstances; NOW, THEREFORE, for and in consideration of the mutual promises made herein, the Company and Employee agree as follows: 1. In the event that Employee's employment by the Company is terminated (a) by the Company at any time for any reason other than Cause (as defined in Exhibit A hereto) or (b) by Employee for Good Reason (as defined in Exhibit A) the Company shall pay Employee an amount equal to the sum of (i) one year of salary based on the highest salary rate in effect with respect to Employee at any time during the 12-month period ending on Employee's last day of employment with the Company, plus (ii) an amount equal to Employee's target bonus under the Company's annual bonus plan for the Company's fiscal year during which Employee's employment terminates ("Severance Pay"). Severance Pay shall be paid in equal installments, in accordance with the Company's regular payroll practice, less applicable federal, state, and local tax withholdings. Except as otherwise provided in this Agreement, Severance Pay shall be in full satisfaction of all other amounts due Employee from the Company. 2. In addition, if Employee becomes entitled to Severance Pay (i) the Company shall pay Employee, as soon as practicable after termination of employment, any amounts earned, accrued or owing to Employee for services prior to the date of termination and (ii) for a period of one year following Employee's last day of employment with the Company, the Company shall provide to Employee, at no cost to Employee, coverage under (or equivalent to) the medical/dental plans, disability insurance program and life insurance program in which Employee participated as of such last day of employment (or at any time within the 12-month period preceding such day). 3. Upon termination of his employment with the Company or at any time the Company may so request, Employee will promptly deliver to the Company all memoranda, notices, records, reports, and other documents (and all copies thereof) relating to the business of the Company and all property associated therewith which may then be in his possession or under this control, such as a personal computer, printer, cellular phone and/or facsimile machine. Furthermore, Employee's agreements with respect to confidentiality and secrecy shall remain in full force and effect. 4. The Company and Employee agree that any dispute as to the interpretation or enforcement of this Agreement shall be resolved by final and binding arbitration in Stamford, Connecticut before a single arbitrator selected by mutual agreement or (failing agreement) selected in accordance with the rules of the American Arbitration Association then in effect (the "Arbitrator"). The award of the Arbitrator may include an award of the costs of arbitration. 5. The terms of this Agreement shall be regarded as severable. If any term is found by the Arbitrator to be unenforceable, that shall not affect the enforceability of the remainder of the terms of the Agreement. If any term as written should be interpreted by the Arbitrator to be so broad as to be unenforceable, then such term shall be restricted as necessary to make such term enforceable to the fullest extent permitted by law. 2 6. The Company mid Employee acknowledge that they have read this Agreement, that they are fully aware of its contents and of its legal effect, that the preceding paragraphs recite the sole consideration for this Agreement, that all agreements and understandings between the parties are embodied and expressed herein and that each party enters into this Agreement freely, without coercion, and based on the party's own judgment and not in reliance upon any representations or promises made by the other party, other than those contained herein. 7. This Agreement shall be construed and governed by the laws of the State of Connecticut. 8. Employee shall execute and deliver such further documents, instruments and agreements and shall do such further acts and things as may be necessary or desirable and proper to effectuate the terms hereof and in consideration and as a condition to payment of Severance Pay, a release of the Company in the form it then uses pursuant to its severance Policy; provided, however, that such release shall not result in the release or waiver by Employee of any of this rights under (i) this Agreement or (ii) any other agreement, plan or arrangement to the extent that Employee's rights thereunder have vested. 9. Employee shall not be required to mitigate amounts payable to him under this Agreement by seeking employment or otherwise, nor shall there be any offset against such amounts for any reason. 10. This Agreement is binding upon and shall enure to the benefit of the Company and its successors and Employee and this heirs or legal representatives. 3 11. Notices required or permitted hereunder shall be in writing and deemed duly given upon personal delivery or when received following mailing by United States certified mail, return receipt requested, postage prepaid, addressed, if to Employee at: Ira J. Krakower 30 Norrans Ridge Drive Ridgefield, CT 06877 and if to the Company at: John J. Lee, Chairman & Chief Executive Officer Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901-3238 HEXCEL CORPORATION By: /s/ John J. Lee -------------------------------------- JOHN J. LEE EMPLOYEE /s/ Ira J. Krakower -------------------------------------- IRA J. KRAKOWER 4 EXHIBIT A --------- Cause Defined. "Cause" for termination of employment shall consist of the following: (a) Gross misconduct specifically intended to injure or cause financial loss to the Company, and failure to discontinue same immediately after written notice thereof; (b) Repeated willful disregard of or willful failure to substantially perform duties (other than any such disregard or failure resulting from Employee's incapacity due to physical or mental illness) and failure to cure such disregard or failure within thirty (30) days after written notice thereof (and no act, or failure to act, shall be deemed "willfull" unless done, or omitted to be done, by Employee not in good faith and without reasonable belief that the act, or failure to act was in the best interest of the Company); (c) Conviction of a felony or the pleading of nolo contenders to a felony, provided such conviction or pleading results in incarceration; or (d) Conviction of, or the pleading of nolo contendere to, a crime involving dishonesty in dealing with Company property, such as theft, embezzlement, etc. Good Reason Defined. "Good Reason" for termination by Employee of Employee's employment shall mean the occurrence (without Employee's express written consent) of any one of the following acts by the Company, or failures by the Company to act, unless, in the case of any act or failure to act described in paragraph (a) below, such act or failure to act is corrected within 30 days of receipt by the Company of written notice thereof from Employee: (a) An adverse alteration in the nature or status of Employee's responsibilities, including a diminution in Employee's position, duties, responsibilities or authority or the failure of Employee to report directly to the Chief Executive Officer of the Company; (b) Reduction by the Company in (i) Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time, or (ii) Employee's level of participation in any compensation plan, including but not limited to the Company's Annual Management Incentive Compensation Plan or equity-based incentive compensation plans or (iii) benefits enjoyed by Employee under any of the Company's pension, savings, life insurance, medical, health and accident or disability plans in which Employee was participating immediately prior to the date of termination, unless, in any such case, such reduction is part of an across-the-board program similarly affecting all officers of the Company; (c) The Company's requiring Employee to be based anywhere other than the New York/Stamford metropolitan area except for required travel on the Company's business; (d) The failure by the Company without Employee's consent to pay to Employee any portion of Employee's current compensation or to pay to Employee any portion of an installment of deferred compensation under any deferred compensation program of the Company, within seven (7) days of the date such compensation is due; or (e) The failure by the Company to provide adequate office and/or support facilities suitable to Employee's position and available to other Company executives. EX-10.13 10 EXHIBIT 10.13 EXHIBIT 10.13 SEPARATION AND RELEASE AGREEMENT This Agreement (the "Agreement") is made as of the 29th day of January, 1998 between Hexcel Corporation (the "Company"), for itself and on behalf of its direct and indirect affiliated entities, and Juergen Habermeier (the "Employee"). WITNESSETH: WHEREAS, the Company employs Employee on the date hereof and Employee has resigned his position as the Vice Chairman of the Board of Directors of the Company effective December 31, 1997; WHEREAS, Employee desires to resign his employment with the Company and his officerships and/or directorships with the Company's affiliated entities; WHEREAS, Employee has extensive knowledge of the business and operations of the Company including its technologies, customers, markets and strategic plans; and WHEREAS, Employee and the Company are parties to the Agreements identified on schedule 1 hereto and any other agreements or arrangements between the Company and Employee (other than this Agreement) (the "Existing Agreements"). NOW THEREFORE, in consideration of the mutual terms and conditions hereof, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee hereby agree as follows (subject, however, to the termination of this Agreement as provided in Section 16 hereof): 1. TERMINATION OF EMPLOYMENT. (a) Effective as of January 31,1998 (the "Termination Date"), Employee hereby voluntarily and amicably resigns (i) from his employment with the Company and (ii) from all of his officerships and directorships with the Company's affiliated entities. Employee acknowledges that all files, records, electronic data, documents and notes (and all copies, if any, thereof) relating to the Consolidated Group (as defined below), whether prepared by Employee or otherwise in his possession, custody or control, together with all office or file keys and passes and all other property of any member of the Consolidated Group, are the exclusive property of the Consolidated Group and shall be delivered to the Company and not retained by Employee following the date hereof. The term "Consolidated Group" shall mean the Company and its direct and indirect affiliated entities. (b) Except as otherwise provided in Section 2 (B) hereof, the Termination Date shall be the date of termination of Employee's employment with the Company for all purposes under the Existing Agreements and Employee shall not accrue any rights or benefits thereunder after the Termination Date, nor shall his termination of employment be considered a "retirement" under any Existing Agreements. 2. SEVERANCE BENEFITS. Subject to the terms and conditions of this Agreement, the Company shall extend the following severance benefits to Employee (the "Severance Benefits"): A. The Company shall pay Employee, as a discretionary payment, severance pay in an amount equal to $25,000 per calendar month commencing February 1998 for a period of twelve months (such payments being collectively referred to herein as "Cash Severance"). Cash Severance will be directly deposited in Employee's bank account (as he may designate in writing from time to time) or, if there is no such designation, mailed to Employee at his address set forth in Section 9 hereof, on a bi-weekly basis in accordance with the Company's customary payroll practices. B. With respect to the Option Agreement between Employee and the Company dated March 1, 1996, the Company agrees to accelerate the vesting of options that would have vested on March 1, 1998 to January 31, 1998. C. All PARS granted to Employee under the PARS Agreements dated March 1, 1996 and January 2, 1997, shall be deemed vested as of the Termination Date, but none of such PARS shall be converted into shares of the Company's common stock and distributed to Employee prior to the approval of this Agreement by the Company's Board of Directors or a committee thereof as provided in Section 16 hereof. D. Notwithstanding anything to the contrary contained in this Agreement, in the event Employee is in breach of this Agreement Employee shall not be entitled to exercise any options or receive 2 any shares pursuant to PARS in excess of the number of options or PARS that are vested under the Existing Agreements on the date hereof, and the Company shall be entitled to recover from Employee any gains realized from the exercise of options or receipt of shares pursuant to PARS in excess thereof. 3. POST-EMPLOYMENT BENEFITS. For the one-year period following the Termination Date, the Company, at its expense, will continue the group health benefits (medical, prescription, dental and vision) that Employee and/or his family were receiving immediately prior to the Termination Date. Following such one-year period, the Company shall arrange to provide Employee through COBRA with group health benefits, substantially similar to those benefits which Employee and/or his family were receiving immediately prior to the Termination Date, for such periods as required by COBRA, subject to Employee's payment to the Company or its designee of the Company's cost for such coverage to the extent permitted by COBRA. Employee agrees to notify the Company in writing promptly upon accepting employment with another employer and becoming eligible to participate in group health benefits of the new employer. All benefits and perquisites, other than those specifically mentioned in Sections 3 and 4 hereof, shall terminate effective upon the Termination Date. 4. OTHER RIGHTS. This Agreement shall not affect Employee's vested rights (determined as of the Termination Date), if any, under any welfare benefit or pension plan, except as otherwise provided in Section 13 hereof with respect to the Executive Deferred Compensation Agreement dated March 1, 1996 ("EDCA"). Employee's entitlement to a bonus payment for 1997 shall be governed and deter mined by the terms of the Management Incentive Compensation Plan (the "Plan") (under which the Company acknowledges that Employee is entitled to 100 percent of the bonus due under the Plan), but such bonus payment will be made when the Company makes its 1997 bonus payments to other employees in the ordinary course of business. This Agreement shall not affect Employee's right to reimbursement (in accordance the Company's reimbursement policy) for reasonable business expenses incurred, and to current base salary and accrued vacation earned, on or before the Termination Date. 5. CONTINUING OBLIGATIONS. (a) During the period commencing upon the Termination Date and ending on the first anniversary thereof, Employee (i) shall not, without the prior written consent of the Company, employ or solicit employment of, or suggest, encourage, or at- 3 tempt to influence the hiring or termination of any person employed on the date hereof by any member of the Consolidated Group, and (ii) shall not interfere with any existing or planned project or proposal of the Consolidated Group. (b) Employee acknowledges that the Consolidated Group's trade secrets and confidential and proprietary information, including without limitation: A. Non public information concerning the Consolidated Group's: (i) Research activities and plans; (ii) Marketing or sales plans; (iii) Pricing or pricing strategies; (iv) Manufacturing techniques; and (v) Strategic plans; B. Non public financial information, including information concerning revenues, profits and profit margins; C. Any non public "material inside information" as such phrase is used for purposes of the Securities Exchange Act of 1934, as amended; all constitute valuable, special and unique information of the Consolidated Group. In recognition of this fact, Employee agrees that he will not disclose any such trade secrets or confidential or proprietary information (except information which becomes publicly available without violation of this Agreement), to any person or entity, for any reason or purpose whatsoever, nor shall Employee make use of any such information for the benefit of himself or any person or entity. 6. RELEASE. (a) In consideration of the mutual covenants and agreements contained herein, Employee, for himself and on behalf of his heirs, executors, administrators and representatives, hereby irrevocably and unconditionally, knowingly and voluntarily, releases, acquits, and forever discharges each member of the Consolidated Group and their respective stockholders, officers, directors, employees, representatives, attorneys and agents, and each of their respective successors and assigns (referred to 4 collectively as the "Releasees") from any and all claims and causes of action whether known to Employee or unknown, suspected or unsuspected, which exists or may have existed or may arise in any way relating to any act or omission or other matter occurring up to and including the date hereof including, without limitation, Employee's employment relationship with the Company, or the termination thereof, rights or claims which did exist or which might have been asserted pursuant to any express or implied contract of employment or any other agreement (other than the Existing Agreements listed on Schedule 1 hereto), or under any tort, federal, state, or local fair employment practice or civil rights law, any other statute, executive order, law, ordinance, or any other duty or obligation of any kind or description. For the avoidance of doubt and not in limitation of the foregoing, this release includes (i) all claims which have existed from the beginning of the world to the present and which may arise in the future out of any and all occurrences or omissions up to and including the date of this Agreement, and (ii) all claims for alleged discrimination based upon age, race, sex, religion, national origin, citizenship, or disability, and includes any claim asserted or unasserted, which could arise under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 1981, 42 U.S.C. Section 1983, the Connecticut Human Rights and Opportunities Act, the Age Discrimination in Employment Act of 1967, 29 U.S.C. Section 621 et seq., (individually and collectively, "ADEA"), California Fair Employment and Housing Act, the Employee Retirement Income Security Act of 1974, 29 U.S.C. Section 1001 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C. Section 12101 et seq., the Older Workers Benefit Protection Act and any fair employment practice, equal employment opportunity, or employee benefit statute under any federal, state, or local law, or any judicial decision or executive order now or hereafter recognized, as well as any unsuspected and unanticipated claims, liens, injuries and damages as well as those that are known. (b) Employee hereby expressly waives all rights afforded by Section 1542 of the Civil Code of the State of California ("Section 1542"), or any statute of similar effect in any other jurisdiction in which any action might be brought. Section 1542 states as follows: A GENERAL RELEASE DOES NO EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. 5 Notwithstanding the provisions of Section 1542, and for the purpose of implementing a full and complete release, Employee understands and agrees that this Agreement is intended to include all claims, if any, which Employee may have that Employee does not now know or suspect to exist in Employee's favor against the Company or any Releasee, and that this Agreement extinguishes those claims. (c) Employee hereby irrevocably and unconditionally, knowingly and voluntarily, waives and gives up any right Employee has, had, or might have had to file a charge or commence a legal action against the Releasees with respect to the matters released in Section 6(a), to the full extent permitted by applicable law. Employee represents and warrants to the Company that prior to the date hereof he has not filed or permitted to be filed with any court, governmental or administrative agency, or arbitration tribunal, any complaint, lawsuit, charge or claim against the Releasees in respect of any such matter. Employee further agrees and covenants not to seek or be entitled to any recovery in any proceeding of any nature whatsoever in connection with such matters. Should any such proceeding be brought against the Releasees, Employee shall take all steps necessary to opt out, abandon, and disclaim interest in such proceeding. If such proceeding is brought successfully and thereby Employee becomes entitled to a monetary award, Employee shall promptly return the proceeds received by him to the payor thereof. Further, to the full extent permitted by applicable law, Employee shall not testify, assist or participate (except in response to subpoena or judicial order) in any lawsuit, administrative action, or any judicial or administrative proceeding brought against the Releasees in connection with such matters. Neither the existence nor terms of this Agreement nor any claims or allegations that were or could have been raised by Employee as of the date hereof, nor the facts and circumstances underlying such claims or allegations, shall be admissible or submitted as evidence in any litigation in any forum for any purpose other than to secure enforcement of the terms and conditions of this Agreement. (d) Employee acknowledges that he received a draft of this document on January 21, 1998; that he has been offered by the Company at least twenty-one days from the date he received this Agreement within which to consider its terms; that he has been advised by the Company that during such period he should consult an attorney regarding the terms of this Agreement and that if he signs before the expiration of said twenty-one days he does so of his own free will and with the full knowledge that he could 6 have taken the full twenty-one days and he realizes and understands that this Agreement applies to and covers all claims, demands, and causes of action, including those that could be asserted under ADEA against the Consolidated Group. Employee represents and warrants that he has, in fact, considered this Agreement and that he knowingly and voluntarily enters into this Agreement including, but not limited to, the releases and waivers set forth above. The terms of this Agreement shall become effective and enforceable upon the date of signing. Notwithstanding the preceding sentence, Employee shall have seven (7) days from the date of signing to revoke his consent to the release and waiver of his rights under ADEA set forth in Sections 6 (a) and (b) by written notice to be received by the Company before 5:00 P.M. EST on the seventh day. If no such revocation occurs, Employee's release and waiver of his rights under ADEA shall become effective seven (7) days from the date of signing of this Agreement. In the event that Employee revokes his release and waiver of rights under ADEA, the Company shall have no obligation to Employee for Severance Benefits under Section 2, but all other terms, provisions and agreements contained in this Agreement shall remain in full force and effect. 7. PURCHASE OF COMPUTER. The Company hereby grants Employee the option to purchase the IBM Notebook computer that heretofore has been provided to him by the Company, provided that (i) Employee shall pay a purchase price equal to the net book value of such computer as shown on the Company's books and records and (ii) the Company shall have completely purged all of its software and data from the computer. This option shall terminate on the 20th day following the Termination Date. 8. VALIDITY; INJUNCTIVE RELIEF. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Employee acknowledges and agrees that, in the event of his breach of any provision of Sections 5, 6 or 11 of this Agreement ("Basic Covenants"), the Company would be irreparably and immediately harmed and could not be made whole by monetary damages. It is accordingly agreed that any member of the Consolidated Group, in addition to any other remedy to which it may be entitled in law or equity, shall be entitled to an injunction to prevent breaches of any Basic Covenants and/or to compel specific performance of any Basic Covenants, and Employee will not oppose the granting of such form of relief. In addition, in the event of any breach of any Basic Covenants by Employee, the Company shall have no 7 further obligations under this Agreement (other than the Company's COBRA obligations under law, if any) including, without limitation, any obligation under Section 2 hereof. 9. NOTICE. All notices and all other communications required or permitted pursuant to this Agreement shall be in writing, and shall be deemed to have been duly given when personally delivered by courier, or by fax transmission, or when received by United States certified or registered mail, postage prepaid, addressed to the respective addresses set forth below: If to the Company: Hexcel Corporation 281 Tresser Boulevard Two Stamford Plaza 16th Floor Stamford, CT 06901-3261 Attn: General Counsel Fax: 203.358.3972 If to Employee: Juergen Habermeier 4242 Golden Oak Court Danville, CA 94506 Fax: 510.736.0966 The foregoing address may be changed by a party giving a notice of such change as provided in this Section 9. 10. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO SUCH STATE'S CONFLICT OF LAW RULES. ALL DISPUTES CONCERNING THE APPLICATION OR ENFORCEMENT OF THE AGREEMENT SHALL, IF NECESSARY, BE TRIED IN A COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA OR THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA. EMPLOYEE HEREBY CONSENTS TO THE PERSONAL JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA. 8 11. NONDISCLOSURE. (a) Employee hereby covenants and agrees that he will not (i) except as to his personal representatives or as otherwise required by law, disclose the existence of this Agreement or the terms and conditions hereof to any other person or entity or (ii) make, or cause to be made, any statement, observation, opinion, or communication (whether oral or written) that disparages the Consolidated Group, any member thereof, or any of their respective past or present officers, directors, shareholders or employees, whether concerning his separation from employment or otherwise. (b) The Company hereby covenants and agrees that it will not (i) except as to its representatives or as otherwise required by law, disclose the existence of this Agreement or the terms and conditions hereof to any other person or entity or (ii) make, or cause to be made, any statement, observation, opinion, or communication (whether oral or written) that disparages Employee, whether concerning his separation from employment or otherwise. 12. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties hereto in respect of the subject matter hereof and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto or its agent or representative; and any prior agreement of the parties hereto in respect of the subject matter hereof is hereby terminated and cancelled. No terms, conditions, amendments or modifications hereto shall be binding unless made in writing and signed by the parties hereto. 13. EDCA. The Company and Employee hereby terminate EDCA in its entirety, and in complete satisfaction of all Employee's or his beneficiaries' rights thereunder (whether accrued, contingent or otherwise), the Company shall make a payment to Employee of $21,072.00 simultaneously with the first monthly payment of Cash Severance to Employee. 14. NO WAIVER. The failure of the Company or Employee to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. 9 15. WITHHOLDING BY COMPANY. All payments in cash or by delivery of Shares payable to Employee pursuant to this Agreement shall be made net of all applicable withholding and payroll taxes under federal, state and local laws. 16. TERMINATION. Employee has been advised and he hereby agrees that the obligations of the Company under this Agreement are subject to the review and approval of this Agreement by the Company's Board of Directors or a committee thereof. The Company undertakes to seek such review and approval on or before February 5, 1998. If such approval is obtained, the obligations of Employee and the Company shall thereupon become unconditional and absolute; if such approval is not obtained, then this Agreement shall automatically terminate, and be of no further force or effect, at 12:01 a.m. on February 6, 1998. IN WITNESS WHEREOF, the Company and Employee have executed this Agreement on the date first set forth above. HEXCEL CORPORATION By: ______________________ EMPLOYEE ___________________________ JUERGEN HABERMEIER Consented to: _______________________ JUTTA HABERMEIER 10 SCHEDULE 1 Executive Deferred Compensation Agreement dated March 1, 1996. PARS Agreement dated March 1, 1996 Option Agreement dated March 1, 1996 Reload Option Agreement dated March 19, 1996 Reload Option Agreement dated April 8, 1996 PARS Agreement dated January 2, 1997 Option Agreement dated January 2, 1997 PASO Agreement dated February 3, 1997 (as amended May 22, 1997) Reload Option Agreement dated March 6, 1997 11 EX-21 11 EXHIBIT 21 Exhibit 21 Subsidiaries of Hexcel Corporation Hexcel subsidiaries (first-, second- and third-tier) and their jurisdiction of incorporation: Hexcel Far East (California) Hexcel International (California) Hexcel Omega Corporation (California) Hexcel Pacific Rim Corporation (California) Hexcel Beta Corp. (Delaware) Hexcel Pottsville Corporation (Delaware) Hexcel Technologies Inc. (Delaware) Hexcel Composites GmbH (Austria) Hexcel Composites S.A. (Belgium) Hexcel do Brasil Servicos S/C Ltda. (Brazil) Confection et Diffusion de Stores et Rideaux (France) Hexcel Composites S.A. (France) Hexcel Composites GmbH (Germany) Salver S.r.l. (Italy) Hexcel Composites, S.A. (Spain) Hexcel Chemical Products Ltd. (U.K.) Hexcel Composites Limited) (U.K.) Hexcel (U.K.) Limited (U.K.) Hexcel Pacific Rim Corporation (Delaware) Hexcel S.A. (France) Hexcel Fabrics S.A. (France) EX-23 12 EXHIBIT 23 EXHIBIT 23. CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-36163, 333-36099 and 333-31125) of Hexcel Corporation of our report dated January 28, 1998, except as to aggregate maturities of notes payable in Note 7, which is as of March 5, 1998, which appears on page 50 of this Annual Report on Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP San Jose, California March 26, 1998 EX-23.2 13 EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Hexcel Corporation on From S-8 of our report dated February 28, 1997, appearing in the Annual Report on Form 10-K of Hexcel Corporation for the year ended December 31, 1996. /s/ Deloitte & Touche LLP San Francisco, California March 26, 1998 82 EX-27 14 EXHIBIT 27
5 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 9,033 0 187,833 6,641 165,321 387,050 488,916 157,439 811,586 186,536 339,513 0 0 369 249,532 249,901 936,855 936,855 714,223 714,223 0 0 25,705 50,752 (22,878) 73,630 0 0 0 73,630 2.00 1.74
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