-----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, V392Z3lds9OrWa0NgtQKgUPFD/BdEe1OfxThux+LkaEoQKUgQ2OOfycR+9NNeBBd kkCoZmcr9fh+6M18hGQdZg== 0001047469-99-003000.txt : 19990203 0001047469-99-003000.hdr.sgml : 19990203 ACCESSION NUMBER: 0001047469-99-003000 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19990202 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: S-4 SEC ACT: SEC FILE NUMBER: 333-71601 FILM NUMBER: 99519337 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 S-4 1 S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ HEXCEL CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 3089 94-1109521 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) No.)
------------------------ TWO STAMFORD PLAZA 281 TRESSER BOULEVARD STAMFORD, CONNECTICUT 06901-3238 (203) 969-0666 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) IRA J. KRAKOWER, ESQ. HEXCEL CORPORATION TWO STAMFORD PLAZA 281 TRESSER BOULEVARD STAMFORD, CONNECTICUT 06901-3238 (203) 969-0666 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: JOSEPH A. COCO, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 THIRD AVENUE NEW YORK, NEW YORK 10022 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------------ If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /____________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / /____________ ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO PRICE AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE 9 3/4% Senior Subordinated Notes Due 2009..................................... $240,000,000 100% $240,000,000 $66,720
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f) under the Securities Act of 1933, as amended. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1999 PROSPECTUS Offer to Exchange All 9 3/4% Senior Subordinated Notes Due 2009 for 9 3/4% Senior Subordinated Notes Due 2009, Which Have Been Registered Under the Securities Act of 1933, As Amended, of Hexcel Corporation The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1999, unless extended. ------------------ Terms of the Exchange Offer: - We will exchange all Original Notes that are validly tendered and not withdrawn prior to the expiration of the Exchange Offer. - You may withdraw tenders of Original Notes at any time prior to the expiration of the Exchange Offer. - We believe that the exchange of Original Notes will not be a taxable event for U.S. federal income tax purposes, but you should see "Certain United States Federal Income Tax Considerations" on page 111 for more information. - We will not receive any proceeds from the Exchange Offer. - The terms of the Exchange Notes are substantially identical to the Original Notes, except that the Exchange Notes are registered under the Securities Act and the transfer restrictions and registration rights applicable to the Original Notes do not apply to the Exchange Notes. --------------------- See "Risk Factors" beginning on page 12 for a discussion of certain risks that should be considered by holders prior to tendering their Original Notes. ------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense. ------------------- The date of this Prospectus is , 1999. FORWARD-LOOKING STATEMENTS This Prospectus includes and incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These statements are contained in sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and other sections of this Prospectus and in the documents incorporated by reference in this Prospectus. Such forward-looking statements include, but are not limited to: (a) estimates of commercial aerospace production and delivery rates, including those of Boeing and Airbus; (b) expectations regarding the growth in the production of military aircraft and launch vehicle programs in 2000 and beyond; (c) expectations regarding the recovery of the electronics market; (d) expectations regarding the impact of pricing pressures from Hexcel's customers; (e) expectations regarding the ability of Hexcel to pass along pricing reductions to its suppliers; (f) expectations regarding future sales based on current backlog; (g) expectations regarding sales growth, sales mix, gross margins, manufacturing productivity, capital expenditures and effective tax rates; (h) expectations regarding Hexcel's financial condition and liquidity, as well as future free cash flows and earnings; (i) estimates of the total cost of Hexcel's business consolidation program and estimates of the amount of cash expenditures to complete the program; (j) expectations regarding the costs and benefits of accelerating and expanding Hexcel's Lean Enterprise and business consolidation programs and implementing a supply chain management program; and (k) the impact of the Year 2000 issue, the estimated costs associated with becoming Year 2000 compliant and the estimated target date for substantial completion of remediation. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the integration of the acquired Clark-Schwebel business without disruption to manufacturing, marketing and distribution activities; changes in general economic and business conditions; changes in current pricing levels; changes in political, social and economic conditions and local regulations, particularly in Asia and Europe; foreign currency fluctuations; changes in aerospace delivery rates; reductions in sales to any significant customers, particularly Boeing or Airbus; changes in sales mix; changes in government defense procurement budgets; changes in military aerospace programs technology; industry capacity; competition; disruptions of established supply channels; manufacturing capacity constraints; the availability, terms and deployment of capital; and the ability of Hexcel to accurately estimate the cost of systems preparation and successfully implement for Year 2000 compliance. Additional information regarding these factors is contained in our annual report on Form 10-K for the year ended December 31, 1997 and subsequent quarterly reports on Form 10-Q. Our risks are more specifically described in "Risk Factors" and in our annual report on Form 10-K and quarterly reports on Form 10-Q, which are incorporated by reference in this Prospectus. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances. ii PROSPECTUS SUMMARY The following summary highlights selected information from this Prospectus and may not contain all of the information that is important to you. This Prospectus includes specific terms of the notes we are offering, as well as information regarding our business and detailed financial data. We encourage you to read this Prospectus in its entirety. The terms "Hexcel," "the Company," "our company" and "we" as used in this Prospectus refer to Hexcel Corporation, the issuer of your notes and the notes to be issued in the Exchange Offer, and its subsidiaries as a combined entity, except where it is made clear that such term means only the parent company. Unless otherwise indicated, the market and market share data contained in this Prospectus are derived from publicly available industry sources, which we have not independently verified. You should pay special attention to the "Risk Factors" section beginning on page 12 of this Prospectus. For a description of certain industry-related terms, see "Glossary of Terms." THE EXCHANGE OFFER On January 21, 1999, we completed the private offering of $240 million aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 (the "Original Notes"). In connection with this private offering, we entered into a registration rights agreement with the initial purchasers of the Original Notes in which we agreed, among other things, to deliver this Prospectus to you and to complete an exchange offer for the Original Notes. Pursuant to the registration rights agreement, we are offering to exchange $240 million aggregate principal amount of our 9 3/4% Senior Subordinated Notes Due 2009, which have been registered under the Securities Act (the "Exchange Notes"), for a like aggregate principal amount of our Original Notes (the "Exchange Offer"). You are entitled to exchange your Original Notes for Exchange Notes with substantially identical terms. We urge you to read the discussions under the headings "Summary of the Exchange Offer" and "Summary of Terms of the Exchange Notes" in this Prospectus Summary for further information regarding the Exchange Offer and the Exchange Notes. THE COMPANY GENERAL Our company is the world's leading producer of advanced structural materials. We develop, manufacture and market lightweight, high-performance carbon fibers, industrial fabrics, composite materials and engineered products for use in commercial aerospace, space and defense, electronics, recreation and general industrial applications. Our materials are used in a wide variety of end products, such as commercial and military aircraft, space launch vehicles and satellites, printed circuit boards ("PCBs"), computers, cellular telephones, televisions, high-speed trains and ferries, cars and trucks, windmill blades, reinforcements for bridges and other structures, window blinds, skis and snowboards, golf clubs, fishing poles, tennis rackets and bicycles. Our business is organized around three strategic business segments, presented in order of manufacturing integration from raw materials to finished products. - FIBERS AND FABRICS: this segment manufactures carbon fibers and carbon fiber fabrics, fiberglass fabrics which form the substrate for PCBs, woven industrial fabrics, woven fabrics for ballistics protection and carbon, aramid and glass reinforcement materials, all of which comprise the foundation of many composite materials, parts and structures; - COMPOSITE MATERIALS: this segment produces honeycomb and prepregs, as well as structural adhesives and specially machined honeycomb details and composite panels, which are incorporated into aerospace platforms; and - ENGINEERED PRODUCTS: this segment engineers and produces composite parts and structures, including finished components for commercial and military aircraft and parts used in automotive, civil engineering and rail applications. Through a series of strategic acquisitions over the past three years, we have expanded and diversified our product lines, manufacturing capabilities and technology portfolio. With 24 manufacturing facilities located in seven countries around the world and with joint ventures in Asia, Europe and the United States, we are well positioned to take advantage of opportunities for growth worldwide. We believe that we have achieved a degree of vertical integration unmatched by any competitor. This vertical integration enhances our control over the cost, quality and delivery of our products, and enables us to offer a variety of solutions to our customers' structural materials needs. For the twelve months ended September 30, 1998, our company generated pro forma net sales of approximately $1.246 billion and pro forma Adjusted EBITDA (as defined) of $214 million. COMPETITIVE STRENGTHS We believe that our competitive position is attributable to a number of key strengths, including the following: - MARKET LEADER. We believe that our company is the largest integrated producer of advanced structural materials in the world. We are the largest supplier of advanced structural materials to both the commercial and military aerospace industries. We are the global leader in weaving carbon fibers. As a result of the Clark-Schwebel acquisition, we are now the global leader in weaving glass and aramid fibers, with an especially strong position as the leading worldwide supplier of fiberglass fabrics used in the manufacture of PCBs. Taken together, our overall size and leading market positions make us a critical supplier to our customers in multiple end-use industries. - VERTICAL INTEGRATION. We believe that our acquisitions since 1996 have built Hexcel into the most vertically integrated manufacturer of advanced structural materials in the world. Vertical integration provides us with a greater ability to control the cost, quality and delivery of our products. In addition, because we develop, manufacture and sell products from various points in the manufacturing process, we are able to provide the broadest possible range of overall materials solutions to our customers. Currently, we consume internally approximately 42% and 27% of our carbon fiber and fabric production, respectively, and sell the balance of these products to our customers. - MARKET AND GEOGRAPHIC DIVERSITY. Approximately 58% of our pro forma net sales for the twelve months ended September 30, 1998 was derived from the commercial aerospace industry; 9% from the space and defense industry; 15% from the electronics industry; 13% from general industrial markets; and 5% from recreation products. During the same period, we sold 61%, 33% and 6% of our products to customers located in North America, Europe and the Pacific Rim, respectively. We believe that this market and geographic diversity provides us with growth platforms in a number of global markets that follow different business cycles. - BROADEST RANGE OF QUALIFICATIONS IN THE AEROSPACE INDUSTRY. We believe that our company has the broadest range of product qualifications of any advanced materials manufacturer in the aerospace industry and has qualified products for use in virtually all western commercial and military aircraft programs. Before advanced structural materials may be utilized in aerospace and military applications, they must be qualified. All Airbus and Boeing commercial aircraft use Hexcel qualified products, and our carbon fiber is the only qualified carbon fiber in many U.S. military aircraft and rocket programs. We believe that our extensive range of qualifications positions us to remain a leading supplier of advanced structural materials to the aerospace industry. - LEADER IN GROWING MULTILAYER PCB MARKET. We are the leading weaver of fine, lightweight fiberglass fabrics used in the fabrication of multilayer PCBs. This position allows us to capitalize on the 2 continuing trend toward electronics miniaturization, which relies on multilayer PCBs to achieve smaller size and increased functionality. Multilayer PCBs are the fastest growing segment of the PCB industry and our fabrics are one of the enabling technologies for such PCBs. The worldwide PCB market is estimated at over $30 billion, with multilayer PCBs comprising approximately two-thirds of the total market. As the leading manufacturer of lightweight fabrics for multilayer PCBs, we are well positioned to capture a significant portion of this market growth. - MANUFACTURING AND TECHNICAL EXPERTISE. We have been a leader in advanced structural materials technology for over 50 years and a leader in fiberglass fabrics technology for nearly 40 years. We believe that the range of technologies and products that we have developed over these decades gives us a level of manufacturing expertise unsurpassed in our industry. Our technically oriented sales force works with new and existing customers to identify and engineer solutions to meet our customers' needs, particularly by identifying areas where advanced structural materials may beneficially replace traditional materials. BUSINESS STRATEGY Key elements of our strategy include the following: - MAINTAIN LEADERSHIP POSITION IN COMMERCIAL AEROSPACE INDUSTRY. Commercial aerospace remains the largest market for advanced structural materials. We are the leading supplier to this industry, with strong positions at both Boeing and Airbus. We believe that demand for commercial aircraft, and therefore advanced structural materials, while leveling off in 1999, will remain at historically high levels for the next several years as a result of certain trends that have been identified in industry reports. See "Business--Business Strategy." We believe that we are well positioned to capitalize on such trends by continuing to produce a wide variety of advanced structural materials for use in the manufacture of virtually every commercial aircraft in the western world, whether the aircraft is produced by Boeing, Airbus or regional manufacturers. - REDUCE PRODUCTION COSTS AND IMPROVE MANUFACTURING EFFICIENCIES. We will pursue specific initiatives to reduce production costs and capital expenditures and improve manufacturing efficiencies, including implementation of our Lean Enterprise program and value chain management initiatives on a global basis. As has been the case with the program we initiated in 1996, which we believe has resulted in a reduction of annual costs in excess of $30 million, these new initiatives are expected to generate significant improvements in our operating cost structure in 1999 and beyond. The goals of our current programs are to reduce unit product costs, lower production cycle times, increase throughputs, lower inventories and improve product quality and customer satisfaction. - CAPITALIZE ON GROWING MILITARY AEROSPACE MARKETS. We intend to capitalize on the expected growth of the military market, which uses a higher percentage of advanced structural materials and higher value products than the commercial market. We are already qualified to supply materials to a broad range of military aircraft and helicopters scheduled to enter full scale production at the start of the next decade. Demand for many of these aircraft is driven in part by the need to replace aging fighter and transport aircraft platforms. Some of these programs are currently in the developmental stage, but in many cases government funding for production has been approved. These programs include the V-22 Osprey tilt-rotor, F-22 (Raptor), F/A-18E/F (Hornet), C-17 transport, European Fighter Aircraft (Typhoon), RAH-66 (Comanche) and NH90 helicopter. - EXPLOIT OPPORTUNITIES FROM THE COMMERCIALIZATION OF SPACE. The rapid growth in the commercial use of satellites for voice, data and image communications, as well as mapping and weather monitoring, is expected to generate increasing production of satellites, rockets and launch vehicles. Advanced structural materials should benefit from the growth in space-related markets because they are well suited to meet severe environmental conditions during launch and in space and the need to maximize launch payloads and reduce launch costs. We are currently developing and positioning 3 our products for the fabrication of satellites and for the next generation of launch vehicles. Our products are already qualified for use in programs such as the Delta II, III and IV, Sea Launch and Ariane rockets. - GLOBALIZE AND INTEGRATE GLASS FABRICS OPERATIONS. As a result of our acquisition of Clark-Schwebel and its equity interests in CS-Interglas and Asahi-Schwebel, we are now the largest supplier of glass fabrics to producers of PCBs and reinforcements for structural composites worldwide. We intend to integrate the acquired Clark-Schwebel operations into our own operations to create a global organization that can exploit best manufacturing practices and technology, leverage procurement of raw materials and optimize the utilization of our manufacturing capacity. We expect that these efforts will significantly reduce costs and broaden our reach in these key markets. - EXPAND APPLICATIONS FOR ADVANCED STRUCTURAL MATERIALS. We are committed to expanding the applications of our advanced materials both within existing markets and into promising new sectors. To date, advanced structural materials have found their greatest use in aerospace and recreation applications, where their performance properties have shown the most demonstrable value. We believe that these materials have significant potential applications in surface transportation (e.g., high speed and mass transit railways, cars and trucks, high speed ferries and commercial shipping), civil engineering (e.g., repair and reinforcement of buildings and bridges) and energy (e.g., windmill blades and fly wheels). Where appropriate, we will leverage our development of new applications through alliances with companies that have strong positions in these markets. For example, we have entered into a strategic alliance with Sika Finanz AG, a leading Swiss-based construction products company, to develop the market for advanced structural materials in construction and civil engineering applications. RECENT DEVELOPMENTS CLARK-SCHWEBEL ACQUISITION On September 15, 1998, we acquired the industrial fabrics business of Clark-Schwebel for a cash purchase price of approximately $472 million (including $19 million paid on December 23, 1998). As part of this acquisition, we also acquired Clark-Schwebel's equity ownership interests in three joint ventures: - a 43.3% share in Asahi-Schwebel Co., Ltd., headquartered in Japan, which in turn has its own joint venture with AlliedSignal in Taiwan; - a 43.6% share in CS-Interglas AG, headquartered in Germany, together with fixed-price options to increase this equity interest to 84.0%; and - a 50.0% share in Clark-Schwebel Tech-Fab Company, headquartered in the United States. We also entered into a $50 million lease of property, plant and equipment used in that business, pursuant to a long-term lease that includes purchase options. The acquired business is engaged in the manufacture and sale of high-quality fiberglass fabrics used to make PCBs for electronics equipment such as computers, cellular telephones, televisions and automotive components. The business also produces high performance specialty products for use in insulation, filtration, wall and facade claddings, ballistics and reinforcements for composite materials. The Clark-Schwebel acquisition established our company as a leading global materials supplier to the electronics industry, which we believe has attractive long-term growth potential, and further diversified our business beyond the historically cyclical commercial aerospace market. BUSINESS CONSOLIDATION PROGRAM As a result of the Clark-Schwebel acquisition, changing market conditions and the need for continuous improvement, we are intensifying our business consolidation efforts to achieve more rapid cost reductions throughout our organization. Our efforts will include implementing an aggressive value chain 4 management program and reducing costs through our Lean Enterprise program. In addition, we have initiated a reorganization of our business operations to focus on improved operating effectiveness and to integrate the Clark-Schwebel business into our existing fabrics operations. We have consolidated our U.S., European and Asian composite materials businesses into a single global business unit. As a result of these and other actions, we anticipate recording approximately $12 million of business acquisition and consolidation costs in the fourth quarter of 1998. Approximately half of this charge will be for writedowns of certain assets held for disposition. Beginning in 1999 we anticipate annual cash savings from our business consolidation activities to be approximately $10 million. In addition, we have identified specific actions that we believe will result in significant savings from our Lean Enterprise and value chain management initiatives. We believe that these savings should help offset, but not eliminate, the expected negative impacts in 1999 of price competition and product mix changes. In addition to these initiatives, we expect to complete a global capacity and utilization review of our worldwide facilities requirements during 1999. This review may result in the closing or right-sizing of one or more facilities, and will likely result in the recognition of additional business consolidation charges in 1999. SENIOR CREDIT FACILITY, AS AMENDED In connection with the Clark-Schwebel acquisition on September 15, 1998, we amended our senior credit facility to: (a) fund the Clark-Schwebel acquisition; (b) refinance our company's then existing revolving credit facility; and (c) provide for our ongoing working capital and other financing requirements. Simultaneously with the closing of the offering of the outstanding 9 3/4% Senior Subordinated Notes Due 2009, we amended our senior credit facility to, among other things, modify certain financial covenants and to permit that offering. As of September 30, 1998, our senior credit facility includes $360.0 million in aggregate revolving credit facility commitments ($100.9 million outstanding) and $311.5 million in aggregate term loans (including $152.6 million of Tranche A Term Loans and $158.9 million of Tranche B Term Loans), after giving pro forma effect to (1) the offering of the Original Notes and the application of the net proceeds from that offering, (2) the redemption of $12.5 million aggregate principal amount of senior subordinated notes payable to Ciba Specialty Chemicals Inc. from borrowings under our senior credit facility and (3) the payment of a $19.0 million deferred purchase price on December 23, 1998 in connection with the acquisition of a 43.6% joint venture interest in CS-Interglas AG. We expect that, on or before February 28, 1999, we will redeem $12.5 million of the $37.5 million aggregate principal amount of senior subordinated notes payable to Ciba Specialty Chemicals Inc. with borrowings under our senior credit facility. The interest rate on such notes is scheduled to increase from 7.5% per annum to 10.5% per annum on February 28, 1999 and by an additional 0.5% per annum on each February 28 thereafter through maturity in 2003. These notes were issued in connection with the acquisition of the composites business of Ciba Geigy Limited. OFFERING OF ORIGINAL NOTES On January 21, 1999, we issued and sold the Original Notes. We used the net proceeds of that offering, which were approximately $231 million (after discounts to the initial purchasers and other transaction fees and expenses), to reduce borrowings under our senior credit facility. 5 SUMMARY OF THE EXCHANGE OFFER Securities Offered.............. We are offering up to $240,000,000 aggregate principal amount of new 9 3/4% Senior Subordinated Notes Due 2009, which have been registered under the Securities Act. The form and terms of these Exchange Notes are identical in all material respects to those of the Original Notes. The Exchange Notes, however, will not contain certain transfer restrictions and registration rights applicable to the Original Notes. The Exchange Offer.............. We are offering to exchange new $1,000 principal amount of our 9 3/4% Senior Subordinated Notes Due 2009, which have been registered under the Securities Act, for $1,000 principal amount of our outstanding 9 3/4% Senior Subordinated Notes Due 2009, which were issued in a private offering on January 21, 1999. In order to be exchanged, an Original Note must be properly tendered and accepted. All Original Notes that are validly tendered and not withdrawn will be exchanged. As of the date of this Prospectus, there are $240.0 million principal of Original Notes outstanding. We will issue Exchange Notes promptly after the expiration of the Exchange Offer. Resales......................... We believe that the Exchange Notes issued in the Exchange Offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act provided that: - you are acquiring the Exchange Notes in the ordinary course of your business; - you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in a distribution of the Exchange Notes; and - you are not an "affiliate" of the Company. If you do not meet the above criteria you will have to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any reoffer, resale or other disposition of your Exchange Notes. Each broker or dealer that receives Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making or other trading activities must acknowledge that it will deliver this Prospectus in connection with any offer to resell, resale, or other transfer of the Exchange Notes issued in the Exchange Offer. Expiration Date................. 5:00 p.m., New York City time, on , 1999, unless we extend the expiration date. Accrued Interest on the Exchange Notes and Original Notes...... The Exchange Notes will bear interest from January 21, 1999. If your Original Notes are accepted for exchange, then you will waive
6 interest on the Original Notes accrued to the date the Exchange Notes are issued. Certain Conditions to the Exchange Offer................ The Exchange Offer is subject to customary conditions, which we may waive. Please read the section "The Exchange Offer--Certain Conditions to the Exchange Offer" of this Prospectus for more information regarding conditions to the Exchange Offer. Procedures for Tendering Original Notes................ If you wish to tender your Original Notes, you must complete, sign and date the Letter of Transmittal, or a facsimile of it, in accordance with its instructions and transmit the Letter of Transmittal, together with your Original Notes and any other required documentation, and The Bank of New York, who is the exchange agent, must receive such documentation at the address set forth in the Letter of Transmittal by 5:00 p.m. New York City time, on the expiration date. By executing the Letter of Transmittal, you will represent to us that you are acquiring the Exchange Notes in the ordinary course of your business, that you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate, in the distribution of Exchange Notes, and that you are not an "affiliate" of ours. See "The Exchange Offer--Procedures for Tendering." Special Procedures for Beneficial Holders............ If you are the beneficial holder of Original Notes that are registered in the name of your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender in the Exchange Offer, you should promptly contact the person in whose name your Original Notes are registered and instruct such person to tender on your behalf. See "The Exchange Offer--Procedures for Tendering." Guaranteed Delivery Procedures.................... If you wish to tender your Original Notes and you cannot deliver your notes, the Letter of Transmittal or any other required documents to the Exchange Agent before the expiration date, you may tender your Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer-- Guaranteed Delivery Procedures." Withdrawal Rights............... Tenders may be withdrawn at any time before 5:00 p.m., New York City time, on the expiration date. Acceptance of Original Notes and Delivery of Exchange Notes......................... Subject to certain conditions, we will accept for exchange any and all Original Notes which are properly tendered in the Exchange Offer before 5:00 p.m., New York City time, on the expiration date. The Exchange Notes will be delivered promptly after the expiration date. See "The Exchange Offer--Terms of the Exchange Offer." Certain U.S. Federal Income Tax Considerations................ We believe that your exchange of Original Notes for Exchange Notes pursuant to the Exchange Offer will not result in any gain or
7 loss to you for U.S. federal income tax purposes. See "Certain United States Federal Income Tax Considerations" in this Prospectus. Exchange Agent.................. The Bank of New York is serving as Exchange Agent in connection with the Exchange Offer. The address and telephone number of the Exchange Agent are set forth in "The Exchange Offer--Exchange Agent" in this Prospectus. Use of Proceeds................. We will not receive any proceeds from the issuance of Exchange Notes pursuant to the Exchange Offer. We will pay all expenses incident to the Exchange Offer.
SUMMARY OF TERMS OF THE EXCHANGE NOTES The form and terms of the Exchange Notes and the Original Notes are identical in all material respects, except that certain transfer restrictions and registration rights applicable to the Original Notes do not apply to the Exchange Notes. The Exchange Notes will evidence the same debt as the Original Notes and will be governed by the same indenture. Where we refer to "Notes" in this document, we are referring to both Original Notes and Exchange Notes. Aggregate Amount................ $240.0 million principal amount of 9 3/4% Senior Subordinated Notes Due 2009. Maturity........................ January 15, 2009. Interest rate................... 9 3/4% per year. Interest payment dates.......... January 15 and July 15 of each year, commencing July 15, 1999. Ranking......................... The Notes will be unsecured senior subordinated obligations and will rank junior to our existing and future senior indebtedness. The Notes will rank equally with our existing and future senior subordinated indebtedness and will rank senior to our subordinated indebtedness. The Notes effectively will rank junior to all liabilities of our subsidiaries. The terms "Senior Indebtedness" and "Subordinated Indebtedness" are defined in the "Description of the Notes--Ranking" and "Description of the Notes--Certain Definitions" sections of this Prospectus. As of September 30, 1998, after giving pro forma effect to (1) the offering of Original Notes and our use of the net proceeds from that offering, (2) the redemption of $12.5 million aggregate principal amount of senior subordinated notes payable to Ciba from borrowings under the Senior Credit Facility and (3) the payment of $19.0 million of deferred purchase price on December 23, 1998 in connection with the acquisition of a 43.6% joint venture interest in CS-Interglas, we would have had outstanding $481.8 million of senior indebtedness and we would have had outstanding $25.0 million of senior subordinated indebtedness other than the Notes. Optional redemption............. We cannot redeem the Notes until January 15, 2004, except as described immediately below. Thereafter, we can redeem some or
8 all of the Notes at the redemption prices listed in the "Description of the Notes--Optional Redemption" section of this Prospectus, plus accrued interest. Optional Redemption after Public Equity Offerings.............. At any time (which may be more than once) before January 15, 2002, we can choose to redeem up to 35% of the original principal amount of the Notes (including the original principal amount of any additional Notes) with money that we raise in certain equity offerings, as long as: - we pay to holders of the Notes a redemption price of 109 3/4% of the face amount of the Notes we redeem, plus accrued interest; - we redeem the Notes within 120 days of completing such equity offering; and - at least 65% of the original aggregate principal amount of the Notes (including the original principal amount of any additional Notes) issued remains outstanding afterwards. Change of Control Offer......... If a change in control of our company occurs, we must give holders of the Notes the opportunity to sell to us their Notes at a purchase price of 101% of their face amount, plus accrued interest. The term "Change of Control" is defined in the "Description of the Notes-- Change of Control" section of this Prospectus. Certain Covenants............... The indenture governing the Notes will contain covenants that limit our ability and that of our subsidiaries to: - incur additional indebtedness; - pay dividends or distributions on, or redeem or repurchase, our capital stock; - make investments; - issue or sell capital stock of subsidiaries; - engage in transactions with affiliates; - create liens on our assets to service certain debt; - transfer or sell assets; - guarantee indebtedness; - restrict dividend or other payments to us; - consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries; and - engage in unrelated businesses. These covenants are subject to important exceptions and qualifications, which are described in the "Description of the Notes --Certain Covenants" section of this Prospectus. Use of Proceeds................. We will not receive any proceeds from the Exchange Offer. See "Use of Proceeds." We have agreed to bear the expenses of the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. For a description of the use of proceeds of the
9 offering of Original Notes, see "--The Company--Recent Developments--Offering of Original Notes."
RISK FACTORS You should carefully consider all of the information set forth or incorporated by reference into this Prospectus and, in particular, the information under "Risk Factors," beginning on page 12, before deciding to tender your Original Notes in the Exchange Offer. 10 SUMMARY CONSOLIDATED FINANCIAL DATA AND OTHER DATA The following table presents summary financial and other data with respect to Hexcel and has been derived from (1) the audited consolidated financial statements of Hexcel as of and for the three years ended December 31, 1997, and the unaudited condensed consolidated financial statements of Hexcel as of and for the nine months ended September 30, 1997 and September 30, 1998, and for the three months ended December 31, 1997 and (2) the unaudited pro forma financial statements included elsewhere in this Prospectus which give effect to the Clark- Schwebel acquisition (including $19.0 million of deferred purchase price paid on December 23, 1998), the offering of the Original Notes and the application of the net proceeds from that offering and the redemption of $12.5 million aggregate principal amount of senior subordinated notes payable to Ciba with borrowings under the Senior Credit Facility. The summary financial and other data for Hexcel as of and for the nine months ended September 30, 1997 and September 30, 1998 are derived from unaudited financial statements which, in the opinion of our management, include all adjustments necessary for the fair presentation of such information. Results for interim periods are not necessarily indicative of the results for the full year. The information set forth below should be read together with the other information contained under the captions "Capitalization," "Pro Forma Financial Information," "Selected Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the consolidated financial statements and the related notes thereto, included elsewhere in this Prospectus.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------------------- ------------------------- HISTORICAL PRO FORMA HISTORICAL ------------------------------- ------------ ------------------------- 1995 1996 1997 1997 1997 1998(A) --------- --------- --------- ------------ ------------ ----------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales.......................................... $ 350,238 $ 695,251 $ 936,855 $1,177,059 $ 682,249 $785,581 Gross margin....................................... 67,090 141,309 222,632 276,935 159,672 199,164 Gross margin percentage............................ 19.2% 20.3% 23.8% 23.5% 23.4% 25.4% Business acquisition and consolidation expenses......................................... $ -- $ 42,370 $ 25,343 $ 25,343 $ 21,150 $ 711 Operating income................................... 17,766 2,789 76,457 107,322 50,229 99,455 Other expense (income)............................. (791) (2,994) -- (35 ) -- -- Bankruptcy reorganization expenses................. 3,361 -- -- -- -- -- Income (loss) from continuing operations........... 3,201 (19,190) 73,630 71,587 61,307 48,546 OTHER DATA: EBITDA (b)......................................... $ 26,819 $ 32,513 $ 112,254 $ 162,990 $ 78,240 $ 130,387 Adjusted EBITDA (b)................................ 29,389 71,889 137,597 188,298 99,390 131,098 Depreciation and amortization...................... 11,623 26,730 35,797 55,633 28,011 30,932 Capital expenditures............................... 12,144 43,569 57,369 65,699 31,695 41,703 Pro forma cash interest expense (c)................ Ratio of pro forma total debt to pro forma Adjusted EBITDA........................................... Ratio of pro forma Adjusted EBITDA to pro forma cash interest expense............................ Ratio of earnings to fixed charges (d)............. 1.7x -- 2.9x 1.6x 2.6x 4.1x BALANCE SHEET DATA (AT PERIOD END): Working capital.................................... $ 61,570 $ 128,119 $ 200,694 $ 214,230 $249,665 Total assets....................................... 230,602 701,736 811,586 807,553 1,394,538 Total debt......................................... 90,144 311,016 353,371 376,275 856,947 Shareholders' equity............................... 48,374 179,329 249,901 234,558 300,262 FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, -------------- PRO FORMA PRO FORMA ------------ -------------- 1998 1998 ------------ -------------- STATEMENT OF OPERATIONS DATA: Net sales.......................................... $931,309 $ 1,245,713 Gross margin....................................... 233,212 310,609 Gross margin percentage............................ 25.0% 24.9% Business acquisition and consolidation expenses......................................... $ 711 $ 4,904 Operating income................................... 116,943 151,667 Other expense (income)............................. 13 (23 ) Bankruptcy reorganization expenses................. -- -- Income (loss) from continuing operations........... 44,040 56,852 OTHER DATA: EBITDA (b)......................................... $ 161,627 $ 209,326 Adjusted EBITDA (b)................................ 162,351 214,207 Depreciation and amortization...................... 44,697 57,636 Capital expenditures............................... 45,244 73,319 Pro forma cash interest expense (c)................ 70,193 Ratio of pro forma total debt to pro forma Adjusted EBITDA........................................... 4.1x Ratio of pro forma Adjusted EBITDA to pro forma cash interest expense............................ 3.1x Ratio of earnings to fixed charges (d)............. 2.2x 2.1x BALANCE SHEET DATA (AT PERIOD END): Working capital.................................... $249,665 Total assets....................................... 1,422,538 Total debt......................................... 885,585 Shareholders' equity............................... 299,624
- ------------------------ (a) Amounts include the operating results of the Clark-Schwebel Business since the acquisition date, September 15, 1998. (b) "EBITDA" is defined as income from continuing operations before interest, taxes, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before business acquisition and consolidation expenses, other income and bankruptcy reorganization expenses. Hexcel believes that EBITDA and Adjusted EBITDA provide useful information regarding Hexcel's ability to service its indebtedness, but should not be considered in isolation or as a substitute for operating income or cash flow from operations (in each case as determined in accordance with generally accepted accounting principles) as an indicator of Hexcel's operating performance or as a measure of Hexcel's liquidity. (c) Pro forma cash interest expense is calculated assuming a weighted average interest rate on the amounts outstanding under the Senior Credit Facility of 7.2% and using the actual rate of 9.75% on the Notes, and is net of non-cash amortization of debt issuance costs. (d) Earnings consist of income (loss) from continuing operations before fixed charges and income taxes. Fixed charges consist of interest expense, amortization of fees related to debt financing and that portion of rent expense deemed to be interest. For the year ended December 31, 1996, earnings were insufficient to cover fixed charges by approximately $15.8 million. 11 RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO TENDER YOUR ORIGINAL NOTES IN THE EXCHANGE OFFER, AS WELL AS THE MORE DETAILED DESCRIPTIONS CROSS-REFERENCED TO THE BODY OF THE PROSPECTUS AND THE OTHER MATTERS DESCRIBED IN THIS PROSPECTUS. THE RISK FACTORS SET FORTH BELOW, OTHER THAN "--ADVERSE CONSEQUENCES OF FAILURE TO EXCHANGE, "--ADVERSE EFFECT OF ISSUANCE OF EXCHANGE NOTES ON MARKET FOR ORIGINAL NOTES" AND "--PROSPECTUS DELIVERY REQUIREMENTS OF AFFILIATES AND BROKER-DEALERS IN CONNECTION WITH RESALES OF EXCHANGE NOTES," GENERALLY APPLY TO THE ORIGINAL NOTES AS WELL AS THE EXCHANGE NOTES. ADVERSE CONSEQUENCES OF FAILURE TO EXCHANGE The Original Notes were not registered under the Securities Act or under the securities laws of any state and may not be resold, offered for resale or otherwise transferred unless they are subsequently registered or resold pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your Original Notes for Exchange Notes pursuant to the Exchange Offer, you will not be able to resell, offer to resell or otherwise transfer the Original Notes unless they are registered under the Securities Act or unless you resell them, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, we will no longer be under an obligation to register the Original Notes under the Securities Act except in the limited circumstances provided under the registration rights agreement. In addition, if you want to exchange your Original Notes in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes, you may be deemed to have received restricted securities, and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. ADVERSE EFFECT OF ISSUANCE OF EXCHANGE NOTES ON MARKET FOR ORIGINAL NOTES To the extent that Original Notes are tendered for exchange and accepted in the Exchange Offer, the trading market for the untendered and tendered but unaccepted Original Notes could be adversely affected. Please refer to the section in this Prospectus entitled "--Adverse Consequences of Failure to Exchange." PROSPECTUS DELIVERY REQUIREMENTS OF AFFILIATES AND BROKER-DEALERS IN CONNECTION WITH RESALES OF EXCHANGE NOTES Based on certain no-action letters issued by the staff of the Securities and Exchange Commission, we believe that the Exchange Notes may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act provided that: - you are acquiring the Exchange Notes in the ordinary course of your business, - you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the Exchange Notes within the meaning of the Securities Act, and - you are not an affiliate of the Company within the meaning of Rule 405 of the Securities Act. If any of the foregoing are not true and you transfer any Exchange Note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your Exchange Notes under such Act, you may incur liability under the Securities Act. We do not and will not assume or indemnify you against such liability. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes which were acquired by such broker-dealer as a result of market making or other trading activities may be deemed to be an "underwriter" within the meaning of the Securities Act and must acknowledge that it will 12 deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may use this Prospectus for any offer to resell, resale or other transfer of the Exchange Notes. We have agreed that, for a period of 180 days after the consummation of the Exchange Offer, we will make this Prospectus available to any broker-dealer for use in connection with any such offer to resell, resale or other transfer. Please refer to the section of this Prospectus entitled "Plan of Distribution." SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS We have substantial indebtedness and debt service requirements. As of September 30, 1998, after giving pro forma effect to (1) the private offering of the Original Notes (the "Private Offering") and the application of the proceeds from that offering, (2) the redemption of $12.5 million aggregate principal amount of senior subordinated notes payable to Ciba with borrowings under the Senior Credit Facility and (3) the payment of $19.0 million of deferred purchase price on December 23, 1998 in connection with the acquisition of a 43.6% joint venture interest in CS-Interglas, we would have had $885.6 million of outstanding indebtedness and our total debt, as a percentage of total capitalization, would have been 75%. This substantial level of indebtedness will have important consequences, including: - limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, execution of our growth strategy, research and development costs or other purposes; - limiting our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to make principal payments and fund debt service; - increasing our vulnerability to general adverse economic and industry conditions; and - limiting our ability to capitalize on business opportunities and to react to competitive pressures and adverse changes in government regulation. We cannot assure you that we will generate sufficient cash flow from operations, or that we will be able to obtain sufficient funding, to satisfy our debt service obligations, including the Notes. Our ratio of pro forma Adjusted EBITDA to pro forma cash interest expense for the twelve months ended September 30, 1998 would have been 3.1x. Our ability to pay interest on the Notes and to meet our other debt service obligations depends upon, among other things, our future operating performance and ability to refinance indebtedness when necessary. Each of these factors is to a large extent dependent upon economic conditions and financial, business and competitive factors beyond our control. If, in the future, we cannot generate sufficient cash from operations to make scheduled payments on the Notes or to meet our other obligations, we will need to refinance such obligations, obtain additional financing or sell assets. RESTRICTIONS IN DEBT AGREEMENTS The operating and financial restrictions and covenants in our existing debt agreements, including our Senior Credit Facility, the indentures governing the Notes, our Convertible Subordinated Notes, Convertible Subordinated Debentures and the Ciba Notes, and in any future financing agreements, may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. In addition, the Senior Credit Facility requires that we maintain compliance with certain financial ratios. A breach of any of these restrictions or covenants could cause a default under the Notes and our other debt. A significant portion of our indebtedness may then become immediately due and payable. We are not certain whether we would have, or be able to obtain, sufficient funds to make these accelerated payments, including payments on the Notes. 13 SUBORDINATION OF THE NOTES TO SENIOR INDEBTEDNESS AND LIABILITIES OF SUBSIDIARIES The Notes will be subordinate to the prior payment in full of all senior indebtedness. As of September 30, 1998, after giving pro forma effect to (1) the Private Offering and the application of the proceeds from that offering, (2) the redemption of $12.5 million aggregate principal amount of senior subordinated notes payable to Ciba with borrowings under the Senior Credit Facility and (3) $19.0 million of deferred purchase price paid on December 23, 1998 in connection with the acquisition of a 43.6% joint venture interest in CS-Interglas, we would have had approximately $481.8 million of senior indebtedness outstanding. Because of the subordination provisions of the Notes, in the event of our bankruptcy, liquidation or dissolution, our assets would be available to pay obligations under the Notes only after all payments had been made on our senior indebtedness. We cannot assure you that sufficient assets will remain after all such payments have been made to make any payments on the Notes. In addition, certain events of default under our senior indebtedness would prohibit us from making any payments on the Notes, including payments on interest when due. The term "senior indebtedness" is defined in the "Description of the Notes--Ranking" section of this Prospectus. Our company conducts a portion of its operations through our subsidiaries. Claims of creditors of any of such subsidiaries, including trade creditors, secured creditors and creditors holding indebtedness and guarantees issued by such subsidiaries, will generally have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of our company, including holders of the Notes, even if the obligations of those subsidiaries do not constitute senior indebtedness. As of September 30, 1998, our company's subsidiaries had approximately $245 million of liabilities. NOTES ARE UNSECURED In addition to being subordinate to all of our senior indebtedness, the Notes will not be secured by any of our assets. Our obligations under our Senior Credit Facility are secured by the pledge of the capital stock of certain of our domestic subsidiaries (including Clark-Schwebel) and 65% of the capital stock of certain of our foreign subsidiaries. If we become insolvent or are liquidated, or if payment under our Senior Credit Facility is accelerated, the lenders under our Senior Credit Facility would be entitled to exercise the remedies available to a secured lender under applicable law. Therefore, our bank lenders will have a claim on such assets before the holders of the Notes. See "Description of Certain Indebtedness." We cannot assure you that the liquidation value of our assets would be sufficient to repay in full the indebtedness under the Senior Credit Facility and our other indebtedness, including the Notes. RISKS ASSOCIATED WITH THE COMMERCIAL AEROSPACE INDUSTRY Decreased demand in the commercial aerospace market could materially and adversely affect our business operating results, prospects and financial condition. Approximately 58% of our pro forma net sales for the twelve months ended September 30, 1998 was derived from sales to the commercial aerospace industry, which includes 38% of such sales to Boeing, Airbus and related subcontractors. The commercial aerospace industry is historically cyclical and is particularly sensitive to fluctuations based on general economic conditions and airline profitability. The Asian markets in particular are important markets for airlines and large commercial aircraft manufacturers. Turbulence in the financial and currency markets of many Asian countries since mid-1997 has created recessionary conditions and has led to an uncertain economic outlook for these countries. Boeing has developed a large backlog of aircraft sales to customers in Asia and estimates that the current crisis in the Asian financial markets will result in about 150 fewer airplane deliveries for all manufacturers during the next 5 years. In addition, Boeing has recently announced that in light of these recent economic conditions in Asia, it plans to adjust its production schedules over the next several years. The Asian crisis could result in additional cancellations or deferrals of deliveries from Boeing and/or Airbus. 14 In addition, our customers have emphasized the need for improved yield in the use of our products and cost and inventory reduction throughout the commercial aerospace supply chain. This has led to pricing pressures during 1998 from our customers, which we expect to address, to the greatest extent possible, through cost reduction efforts, substitution of lower cost composite materials and price reductions from our suppliers. We cannot assure you, however, that these measures will effectively offset the pricing pressures from our customers in the commercial aerospace industry. RELIANCE ON SIGNIFICANT CUSTOMERS Approximately 38% of our pro forma sales for the twelve months ended September 30, 1998 was to Boeing, Airbus and related subcontractors. The loss of, or significant reduction in purchases by, such major customers could materially and adversely affect our business, operating results, prospects and financial condition. RISK ASSOCIATED WITH CARBON FIBER INVENTORY CORRECTION We experienced cancellations of certain carbon fiber orders due for delivery in the fourth quarter of 1998. We believe that, in response to a significant shortage of carbon fiber supply in 1997, a number of our customers, particularly those in the space and defense market, purchased and/or ordered more carbon fiber than they needed for production during the twelve months ended September 30, 1998. Consequently, customers are reducing their inventories of carbon fibers and anticipating lower purchasing needs during 1999. These factors are expected to result in higher than normal inventories in the near term and a significant reduction in our production of carbon fiber in 1999 as compared to 1998. We further expect that carbon fiber pricing in a number of applications will be lower in 1999, which could adversely affect our operating results, prospects and financial condition. We cannot assure you that production will return to preexisting levels in 2000 after our customers utilize current inventories. COMPETITION We cannot assure you that we will be able to compete successfully with either existing or new competitors. Most of the markets in which we operate are highly competitive. We believe that product quality, product performance, customer service and price are the principal factors considered by customers in each of our business segments. In addition, other companies compete aggressively for sole source or limited source qualifications in the commercial and military aerospace markets. Some of these competitors may have lower costs, newer technology or more favorable operating conditions than we do and could replace us as the holder of sole source or limited source qualifications or become an additional qualified source of materials for the commercial aerospace and space and defense markets. Competitive pressures or the loss of sole source or limited source qualifications could materially and adversely affect our operating results, prospects and financial condition. In addition, intense competition from manufacturers located in Asia and Eastern Europe has forced us to reduce our prices for certain woven glass fiber products used in PCB applications. We believe that the prices and margins for some of our fabrics business products are likely to remain under pressure in 1999. Although we are actively pursuing opportunities to reduce costs and capital expenditures as we consolidate our global fabrics business, we cannot assure you that such initiatives will offset these adverse market trends. See "Business--Competition." REDUCTIONS IN SPACE AND DEFENSE SPENDING We cannot assure you that the U.S. defense budgets and the related demand for defense-related equipment will not decline or that sales of defense-related equipment to foreign governments will continue at expected levels. Approximately 9% of our pro forma net sales during the twelve months ended September 30, 1998 was derived from the space and defense industry. The space and defense industry is 15 largely dependent upon government defense budgets, particularly the U.S. defense budget. We cannot assure you that new military aircraft programs will enter full scale production as expected, or that any such aircraft will use significant amounts of our advanced structural materials. See "Business--Markets and Customers." LIMITED SUPPLY OF RAW MATERIALS Because we purchase large volumes of raw materials, such as resins, carbon fiber, fiber glass and aramids, any decrease in the supply or increase in the cost of our raw materials could have a material adverse effect on our business. Our profitability depends largely on the price and continuity of supply of such raw materials, which are supplied by a limited number of sources. In addition, qualification of certain raw materials limits the extent to which we are able to substitute alternative materials in certain products. From time to time in recent years, these raw materials have been subject to increased demand and/or limited supply, thereby increasing our costs of acquiring these raw materials. Our ability to pass on these costs to our customers is, to a large extent, dependent on market conditions, including the extent to which our customers would switch to alternative materials not produced by us in the event of an increase in the prices of our products. RISKS ASSOCIATED WITH OPERATIONS INITIATIVES One of our principal strategies is to improve financial results through the consolidation, rationalization and continuous improvement of our operations. We expect to realize cost savings from the consolidation of our global fabrics business and the ongoing rationalization of our facilities and personnel in our other businesses. We are also pursuing additional cost savings from our Lean Enterprise program and value chain management initiatives. Because of the requirements of the aerospace and other industries to qualify specific equipment and manufacturing facilities for the manufacture of certain products, the complexity, cost and time of making and rationalizing manufacturing equipment is greatly increased. We cannot assure you that we will be able to implement our plans without delay. We may encounter unanticipated problems in connection with the rationalization of operations, and our efforts may not result in the cost savings that we currently anticipate. ENVIRONMENTAL MATTERS We are subject to extensive and changing federal, state, local and foreign laws and regulations establishing health and environmental quality standards, and may be subject to liabilities or penalties for violations of such standards. We are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated by us or to which we have sent hazardous substances or wastes for treatment, recycling or disposal. We have incurred substantial costs maintaining compliance with such standards, laws and regulations, particularly in connection with environmental laws governing air and wastewater emissions, and with ongoing remediation activities at certain facilities and off-site disposal locations. We believe that we will continue to incur substantial costs in connection with such matters and may incur additional costs in the future in the event that existing laws and regulations become subject to new or more stringent interpretations, new requirements are imposed or additional contamination or other environmental liabilities are discovered at our facilities. Failure to maintain compliance with health and environmental quality standards could have a material adverse effect on our business, results of operations and financial condition. INFLUENCE OF SIGNIFICANT STOCKHOLDER Ciba currently beneficially owns 49.6% of our outstanding common stock. Under the Governance Agreement between Hexcel and Ciba, Ciba is entitled to designate a certain number of members of our Board of Directors and a certain number of committee members on each committee of the Board of Directors, based upon Ciba's percentage ownership of our outstanding voting securities. In addition, the 16 Governance Agreement provides that the Board of Directors will not authorize certain transactions without the approval of a certain number of the Ciba designees depending upon the level of Ciba's percentage ownership of our outstanding voting securities and the nature of the action. Consequently, Ciba will have the ability to influence certain of our affairs so long as it maintains ownership of certain percentages of our outstanding voting securities. The interests of Ciba may not in all cases be aligned with the interests of holders of the Notes. See "Business--Recent Acquisition History" and "Certain Relationships and Related Transactions--The Governance Agreement." NEW PRODUCT INTRODUCTIONS AND TECHNOLOGICAL CHANGE Our future success will depend to a significant extent upon our ability to continue to develop, profitably manufacture and deliver, on a timely basis, innovative structural materials that satisfy market demand. Development of product lines to meet the demands of the advanced structural materials market requires substantial investment in research, development and engineering. There can be no assurance that our future developmental efforts will prove successful, or that sufficient cash flow will be available to adequately fund such efforts. See "Business--Research and Technology." POTENTIAL FAILURE OF COMPUTER SYSTEMS TO RECOGNIZE YEAR 2000 We are dependent on business systems (which include our information technology systems and non-information technology devices with embedded microprocessors) in operating our business. We also depend on the proper functioning of business systems of third parties, such as our vendors and customers. The failure of any of these systems to appropriately interpret the upcoming calendar year 2000 could have a material adverse effect on our financial condition, results of operations, cash flow and business prospects. We are currently identifying our own applications that are not Year 2000 compliant and taking steps to determine whether third parties are doing the same. In addition, we are implementing a worldwide plan to prepare our computer systems to be Year 2000 compliant. We have nearly completed our inventory phase and, based on this analysis, our estimated future costs to prepare our business systems to become Year 2000 compliant are approximately $5 million. Amounts incurred as of September 30, 1998 were not material. Our inability to remedy our own Year 2000 problems or the failure of third parties to do so may cause business interruptions or shutdown, financial loss, regulatory actions, reputational harm and/or legal liability. We cannot assure you that our Year 2000 program or the programs of third parties who do business with us will be effective, that our estimate about the timing and cost of completing our program will be accurate, or that all remediation will be complete by the Year 2000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness Disclosure." INTERNATIONAL OPERATIONS, COUNTRY RISKS AND EXCHANGE RATE FLUCTUATIONS Our international operations are subject to a number of special risks, including currency exchange rate fluctuations, trade barriers, exchange controls, national labor strikes, political risks and risks of increases in duties, taxes and governmental royalties, as well as changes in laws and policies governing operations of foreign-based companies. Approximately 40% of our pro forma net sales for the twelve months ended September 30, 1998 was derived from operations conducted outside of the United States at facilities located in Austria, Belgium, England, France, Italy and Spain, through sales offices in Asia, Australia, Germany and South America. We are also a partner in joint ventures that manufacture and sell advanced structural materials in Asia and fabrics in Europe and Asia. Earnings of our non-U.S. subsidiaries and intercompany payments are subject to foreign income tax rules that may reduce cash flows available to meet required debt service and other liquidity needs. In addition, our operations or the value of our future earnings and cash flows translated into U.S. dollars could be materially affected by foreign currency exchange rate fluctuations. 17 RISK ASSOCIATED WITH THE CONVERSION BY CERTAIN EU MEMBER STATES TO THE "EURO" We may be exposed to certain risks as a result of the conversion by certain European Union member states of their respective currencies to the "Euro" as their legal currency on January 1, 1999. The conversion rates between such member states' currencies and the Euro will be fixed by the Council of the European Union. Risks related to the conversion to the Euro could include, among other things: - effects on pricing due to increased cross-border price transparency; - costs of modifying information systems, including both software and hardware; - costs of relying on third parties whose systems also require modification; - changes in the conduct of business and in the principal markets for our products and services; and - changes in the currency exchange rate risk. The actual effects of the conversion may not be known for some time following the conversion to the Euro, and such effects could have a material adverse effect on our business, results of operations, and financial condition. POSSIBLE INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL Upon certain change of control events, each holder of Notes may require us to purchase all or a portion of its Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest. Our ability to purchase the Notes upon a change of control event will be limited by the terms of our debt agreements. Upon a change of control event, we may be required immediately to repay the outstanding principal, any accrued interest on and any other amounts owed by us under our Senior Credit Facility. We cannot assure you that we would be able to repay amounts outstanding under our Senior Credit Facility or obtain necessary consents under such facility to purchase the Notes. In addition, upon the happening of a change of control event, we will be required to offer to purchase all of the Convertible Subordinated Notes. Any requirement to offer to purchase any outstanding Notes or Convertible Subordinated Notes may result in us having to refinance our outstanding indebtedness, which we may not be able to do. In addition, even if we were able to refinance such indebtedness, such financing may be on terms unfavorable to us. The term "change of control" is defined in the "Description of the Notes--Certain Definitions" section of this Prospectus. POSSIBLE VOLATILITY OF TRADING PRICE The trading price of the Notes could be subject to significant fluctuation in response to, among other factors, variations in operating results, developments in the industries in which we do business, general economic conditions and changes in securities analysts' recommendations regarding our securities. Such volatility may adversely affect the market price of the Notes. NO ASSURANCE OF ACTIVE TRADING MARKET The Exchange Notes are being offered to the holders of the Original Notes. The Original Notes were issued on January 21, 1999 to a small number of institutional investors and overseas investors and are eligible for trading in the Private Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the National Association of Securities Dealers' screenbased, automated market for trading of securities eligible for resale under Rule 144A. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market for the remaining untendered Original Notes could be adversely affected. There is no existing trading market for the Exchange Notes. We do not intend to apply for listing or quotation of the Exchange Notes on any exchange. Therefore, we do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be, nor can we make any assurances regarding the ability of Exchange Note holders to sell their Exchange Notes or 18 the price at which the Exchange Notes might be sold. Although the initial purchasers of the Original Notes have informed us that they currently intend to make a market in the Exchange Notes, they are not obligated to do so, and any such market-making may be discontinued at any time without notice. As a result, the market price of the Exchange Notes could be adversely affected. However, the market for non-investment grade debt, such as the Exchange Notes, has been subject to disruptions that have caused substantial volatility in the prices of such securities. Any such disruptions may have an adverse effect on holders of the Exchange Notes. USE OF PROCEEDS We will not receive any proceeds from the Exchange Offer. In consideration for issuing the Exchange Notes, we will receive in exchange Original Notes of like principal amount, the terms of which are identical in all material respects to the Exchange Notes. The Original Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in our indebtedness. We have agreed to bear the expenses of the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. For a description of the use of proceeds of the offering of Original Notes, see "Prospectus Summary-- The Company--Recent Developments--Offering of Original Notes." 19 CAPITALIZATION The following table sets forth the actual capitalization of our company as of September 30, 1998 and as adjusted to give pro forma effect to (1) the Private Offering and the application of the net proceeds from that offering, (2) the redemption of $12.5 million aggregate principal amount of Ciba Notes with borrowings under the Senior Credit Facility and (3) the payment of $19.0 million of deferred purchase price on December 23, 1998 in connection with the acquisition of a 43.6% joint venture interest in CS-Interglas (collectively, the "Pro Forma Transactions"), in each case as if they had occurred on September 30, 1998.
AS OF SEPTEMBER 30, 1998 -------------------- AS ACTUAL ADJUSTED --------- --------- (DOLLARS IN THOUSANDS) Senior debt: Senior Credit Facility............................................. $ 611,916 $ 412,416(a) European Credit and overdraft facilities........................... 13,620 13,620 Capital lease obligations (b)...................................... 55,236 55,236 Other.............................................................. 548 548 --------- --------- Total Senior Debt (c)............................................ 681,320 481,820 Other debt: Senior Subordinated Notes payable to Ciba, net of discount (d)..... 35,567 23,705 9 3/4% Senior Subordinated Notes Due 2009.......................... -- 240,000 7% Convertible Subordinated Notes Due 2003......................... 114,435 114,435 7% Convertible Subordinated Debentures Due 2011.................... 25,625 25,625 --------- --------- Total other debt................................................. 175,627 403,765 --------- --------- Total debt (c)............................................... 856,947 885,585 Shareholders' equity: Common stock, $.01 par value, 100,000,000 shares authorized, 36,288,385 shares issued and outstanding (e)..................... 363 363 Additional paid-in capital (e)..................................... 260,234 260,234 Retained earnings.................................................. 33,005 32,367(f) Cumulative currency translation adjustment......................... 6,660 6,660 --------- --------- Total shareholders' equity....................................... 300,262 299,624 --------- --------- Total capitalization......................................... $1,157,209 $1,185,209 --------- --------- --------- ---------
- ------------------------------ (a) Includes $19.0 million of deferred purchase price paid on December 23, 1998 in connection with the acquisition of a 43.6% joint venture interest in CS-Interglas. (b) Includes a $50 million capital lease for property, plant and equipment entered into in connection with the Clark-Schwebel acquisition. The lease expires in September 2006 and includes various purchase options. (c) Includes $18.2 million of debt due within one year for both actual and as adjusted. (d) Represents the Ciba Notes (face amount of $37.5 million), net of unamortized discount of $1.9 million as of September 30, 1998: as adjusted, the face amount of the Ciba Notes is $25.0 million, or $23.7 million net of unamortized discount of $1.3 million. (e) Net of 847,020 shares of treasury stock acquired by our company at an aggregate cost of $10.7 million. (f) Reflects the $0.6 million write-off of the unamortized discount relating to the $12.5 million aggregate principal amount of the Ciba Notes to be redeemed, as a reduction of retained earnings. 20 PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma combined statements of operations for the fiscal year ended December 31, 1997, the nine months ended September 30, 1998 and the twelve months ended September 30, 1998 were prepared to illustrate the estimated effects of the Pro Forma Transactions as if the Pro Forma Transactions had occurred as of the beginning of the periods presented. The unaudited pro forma financial information presented below is derived from the audited financial statements of Hexcel as of and for the year ended December 31, 1997, the audited financial statements of Clark-Schwebel as of and for the 53 weeks ended January 3, 1998 and the unaudited financial statements of Hexcel and of Clark-Schwebel as of and for the nine months ended September 30, 1998, Hexcel for the three months ended December 31, 1997 and Clark-Schwebel for the fourteen weeks ended January 3, 1998. The Clark-Schwebel acquisition has been accounted for using the purchase method of accounting. The purchase method of accounting allocates the aggregate purchase price to the assets acquired and liabilities assumed based upon their respective fair values. The final allocation of the aggregate purchase price is contingent upon studies and valuations which have not yet been completed. We are unable to predict whether any adjustments as a result of the foregoing will have a material effect on the pro forma financial statements. The following unaudited pro forma financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Hexcel and the notes thereto appearing elsewhere in this Prospectus. The unaudited pro forma financial information does not purport to be indicative of the results of operations or financial condition that would have been reported had the events assumed therein occurred on the dates indicated, nor does it purport to be indicative of results of operations that may be achieved in the future. The following unaudited pro forma financial information does not give effect to any of the charges or expenses expected to be incurred in the future in connection with the business consolidation program or to the operating, financial and other benefits that may be realized from the business consolidation program. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Recent Developments and Outlook--Other Company Initiatives." 21 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------ CLARK- ADJUSTMENTS PRO FORMA HEXCEL SCHWEBEL (NOTE 1) COMBINED -------- -------- ----------- ------------ Net sales............................... $936,855 $240,204 $ -- $ 1,177,059 Cost of sales........................... 714,223 184,901 1,000(a) 900,124 -------- -------- ----------- ------------ Gross margin........................ 222,632 55,303 (1,000) 276,935 Selling, general and administrative expenses.............................. 102,449 13,771 7,451(b) 123,671 Research and technology expenses........ 18,383 2,216 -- 20,599 Business acquisition and consolidation expenses.............................. 25,343 -- -- 25,343 -------- -------- ----------- ------------ Operating income.................... 76,457 39,316 (8,451) 107,322 Interest expense........................ 25,705 15,176 29,574(c) 70,455 Other income, net....................... -- 35 -- 35 -------- -------- ----------- ------------ Income before income taxes.......... 50,752 24,175 (38,025) 36,902 Provision (benefit) for income taxes.... (22,878) 9,657 (14,712)(d) (27,933) Equity in earnings of joint ventures, net................................... -- 3,997 2,755(e) 6,752 -------- -------- ----------- ------------ Net income.......................... $ 73,630 $ 18,515 $(20,558) $ 71,587 -------- -------- ----------- ------------ -------- -------- ----------- ------------ Net income per share: Basic............................... $ 2.00 $ 1.95 Diluted............................. 1.74 1.69 Weighted average shares................. Basic............................... 36,748 36,748 Diluted............................. 45,997 45,997 OTHER FINANCIAL DATA: EBITDA (Note 2)..................... $112,254 $ 48,736 $ 2,000 $ 162,990 Adjusted EBITDA (Note 2)............ 137,597 48,701 2,000 188,298 Depreciation and amortization....... 35,797 9,385 10,451 55,633 Capital expenditures................ 57,369 8,330 -- 65,699
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations. 22 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL ------------------ CLARK- ADJUSTMENTS PRO FORMA HEXCEL SCHWEBEL (NOTE 1) COMBINED -------- -------- ----------- ----------- Net sales............................... $785,581 $145,728 $ -- $ 931,309 Cost of sales........................... 586,417 110,980 700(a) 698,097 -------- -------- ----------- ----------- Gross margin........................ 199,164 34,748 (700) 233,212 Selling, general and administrative expenses.............................. 82,092 9,291 5,725(b) 97,108 Research and technology expenses........ 16,906 1,544 -- 18,450 Business acquisition and consolidation expenses.............................. 711 -- -- 711 -------- -------- ----------- ----------- Operating income.................... 99,455 23,913 (6,425) 116,943 Interest expense........................ 23,167 17,606 13,969(c) 54,742 Other expense, net...................... -- 13 -- 13 -------- -------- ----------- ----------- Income before income taxes.......... 76,288 6,294 (20,394) 62,188 Provision (benefit) for income taxes.... 27,742 2,600 (7,746)(d) 22,596 Equity in earnings of joint ventures, net................................... -- 2,818 1,630(e) 4,448 -------- -------- ----------- ----------- Net income.......................... $ 48,546 $ 6,512 $(11,018) $ 44,040 -------- -------- ----------- ----------- -------- -------- ----------- ----------- Net income per share: Basic............................... $ 1.32 $ 1.20 Diluted............................. 1.15 1.06 Weighted average shares................. Basic............................... 36,800 36,800 Diluted............................. 46,134 46,134 OTHER FINANCIAL DATA: EBITDA (Note 2)..................... $130,387 $ 30,240 $ 1,000 $ 161,627 Adjusted EBITDA (Note 2)............ 131,098 30,253 1,000 162,351 Depreciation and amortization....... 30,932 6,340 7,425 44,697 Capital expenditures................ 41,703 3,541 -- 45,244
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations. 23 UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS TWELVE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL -------------------- CLARK- ADJUSTMENTS PRO FORMA HEXCEL SCHWEBEL (NOTE 1) COMBINED ---------- -------- ----------- ------------ Net sales............................... $1,040,187 $205,526 $ -- $ 1,245,713 Cost of sales........................... 778,065 156,089 950(a) 935,104 ---------- -------- ----------- ------------ Gross margin........................ 262,122 49,437 (950) 310,609 Selling, general and administrative expenses.............................. 109,771 12,797 7,530(b) 130,098 Research and technology expenses........ 21,766 2,174 -- 23,940 Business acquisition and consolidation expenses.............................. 4,904 -- -- 4,904 ---------- -------- ----------- ------------ Operating income.................... 125,681 34,466 (8,480) 151,667 Interest expense........................ 30,584 22,658 20,088(c) 73,330 Other income, net....................... -- 23 -- 23 ---------- -------- ----------- ------------ Income before income taxes.......... 95,097 11,831 (28,568) 78,360 Provision (benefit) for income taxes.... 34,230 4,562 (10,670)(d) 28,122 Equity in earnings of joint ventures, net................................... -- 4,030 2,584(e) 6,614 ---------- -------- ----------- ------------ Net income.......................... $ 60,867 $ 11,299 $(15,314) $ 56,852 ---------- -------- ----------- ------------ ---------- -------- ----------- ------------ Net income per share: Basic............................... $ 1.65 $ 1.54 Diluted............................. 1.45 1.37 Weighted average shares................. Basic............................... 36,812 36,812 Diluted............................. 46,177 46,177 OTHER FINANCIAL DATA: EBITDA (Note 2)..................... $ 164,399 $ 43,368 $ 1,559 $ 209,326 Adjusted EBITDA (Note 2)............ 169,303 43,345 1,559 214,207 Depreciation and amortization....... 38,718 8,879 10,039 57,636 Capital expenditures................ 67,377 5,942 -- 73,319 Pro forma cash interest expense..... 27,679 16,478 26,036 70,193 Ratio of pro forma total debt to pro forma Adjusted EBITDA............. 4.1x Ratio of pro forma Adjusted EBITDA to pro forma cash interest expense........................... 3.1x
See accompanying notes to Unaudited Pro Forma Combined Statements of Operations. 24 NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS NOTE 1 -- ADJUSTMENTS TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS.
FOR THE FOR THE FOR THE NINE MONTHS TWELVE MONTHS YEAR ENDED ENDED ENDED DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 ----------------- ------------------ ------------------ (IN THOUSANDS OF DOLLARS) (a) Adjustment to reflect the increase in depreciation costs resulting from the adjustment to fair value of acquired property, plant and equipment, and from the recognition at fair value of property, plant and equipment to be leased pursuant to a long-term lease with purchase options......................................... 1,000 700 950 -------- -------- -------- -------- -------- -------- (b) Adjustment to reflect the following: Elimination of management fees and other expenses paid by the Clark-Schwebel Business to the selling shareholders............................ (2,000) (1,000) (1,559) Amortization of the excess of purchase price over the net assets acquired (using a 34-year weighted average amortization period, based on asset lives ranging from 10 to 40 years)........ 9,451 6,725 9,089 -------- -------- -------- Net adjustment.................................... 7,451 5,725 7,530 -------- -------- -------- -------- -------- -------- (c) Adjustment to reflect the following: Elimination of interest expense on debt obligations of the Clark-Schwebel Business which were not assumed by Hexcel...................... (15,176) (17,607) (22,658) Net increase in interest expense attributable to borrowings under the Senior Credit Facility and the Notes to finance the acquisition of the Clark-Schwebel Business and to refinance Hexcel's previous bank debt. Interest on outstanding borrowings under the Senior Credit Facility is computed at variable rates based on the London interbank rate or, at the option of Hexcel, the base rate of the administrative agent for the lenders. For purposes of estimating pro forma adjustments, a weighted average interest rate of approximately 7.2% has been used. Interest on the outstanding balance of the Notes has been calculated using the actual interest rate of 9.75%................... 41,150 28,876 39,146 Estimated interest expense under a long-term lease for $50,000 of property, plant and equipment.... 3,600 2,700 3,600 -------- -------- -------- Net adjustment.................................... 29,574 13,969 20,088 -------- -------- -------- -------- -------- -------- (d) Adjustment to reflect an average income tax rate of 36.5% on the Clark-Schwebel Business and on related transaction costs....................... (14,712) (7,746) (10,670) -------- -------- -------- -------- -------- -------- (e) Adjustment to reflect Hexcel's ability to utilize certain tax attributes to reduce aggregate tax expense on the equity in earnings of the Clark-Schwebel Business joint ventures.......... 2,755 1,630 2,584 -------- -------- -------- -------- -------- --------
NOTE 2 -- EBITDA AND ADJUSTED EBITDA. "EBITDA" is defined as income before income taxes, interest expense, depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before business acquisition and consolidation expenses and other income (expense), net. Hexcel believes that EBITDA and Adjusted EBITDA provide useful information regarding Hexcel's ability to service its indebtedness, but should not be considered in isolation or as a substitute for operating income or cash flow from operations (in each case as determined in accordance with generally accepted accounting principles) as an indicator of Hexcel's operating performance or as a measure of Hexcel's liquidity. 25 SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected historical financial information of the Company set forth below has been derived from the audited consolidated financial statements of the Company as of and for the five years ended December 31, 1997. The selected historical financial information as of and for the nine months ended September 30, 1997 and September 30, 1998 is derived from unaudited financial statements which, in the opinion of the Company's management, include all adjustments necessary for the fair presentation of such information. Results for interim periods are not necessarily indicative of results for the full year. The following selected financial information is qualified in its entirety by, and should be read in conjunction with, the Company's consolidated financial statements and the related notes thereto, included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Net sales............................................................ $ 310,635 $ 313,795 $ 350,238 $ 695,251 $ 936,855 Cost of sales........................................................ 263,090 265,367 283,148 553,942 714,223 ---------- ---------- ---------- ---------- ---------- Gross margin......................................................... 47,545 48,428 67,090 141,309 222,632 Selling, general & administrative expenses........................... 44,539 37,584 41,706 79,408 102,449 Research and technology expenses..................................... 7,971 8,201 7,618 16,742 18,383 Business acquisition and consolidation expenses (b).................. 46,600 -- -- 42,370 25,343 ---------- ---------- ---------- ---------- ---------- Operating income (loss).............................................. (51,565) 2,643 17,766 2,789 76,457 Interest expense..................................................... 8,862 11,846 8,682 21,537 25,705 Other expense (income), net.......................................... 12,780 (4,861) (791) (2,994) -- Bankruptcy reorganization expenses................................... 641 20,152 3,361 -- -- ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before income taxes......... (73,848) (24,494) 6,514 (15,754) 50,752 Provision (benefit) for income taxes................................. 6,024 3,586 3,313 3,436 (22,878) ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations............................. $ (79,872) $ (28,080) $ 3,201 $ (19,190) $ 73,630 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- OTHER DATA: EBITDA (c)........................................................... $ (50,106) $ 1,582 $ 26,819 $ 32,513 $ 112,254 Adjusted EBITDA (c).................................................. 9,915 16,873 29,389 71,889 137,597 Depreciation and amortization........................................ 14,880 14,230 11,623 26,730 35,797 Capital expenditures................................................. 6,264 8,362 12,144 43,569 57,369 Ratio of earnings to fixed charges (d)............................... -- -- 1.7x -- 2.9x BALANCE SHEET DATA (AT PERIOD END): Working capital...................................................... $ 61,745 $ (22,955) $ 61,570 $ 128,119 $ 200,694 Total assets......................................................... 263,242 243,457 230,602 701,736 811,586 Total debt........................................................... 117,136 109,539 90,144 311,016 353,371 Shareholders' equity (deficit)....................................... 20,753 (5,885) 48,374 179,329 249,901 FOR THE NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1997 1998(A) ---------- ---------- STATEMENT OF OPERATIONS DATA: Net sales............................................................ $ 682,249 $ 785,581 Cost of sales........................................................ 522,577 586,417 ---------- ---------- Gross margin......................................................... 159,672 199,164 Selling, general & administrative expenses........................... 74,769 82,092 Research and technology expenses..................................... 13,524 16,906 Business acquisition and consolidation expenses (b).................. 21,150 711 ---------- ---------- Operating income (loss).............................................. 50,229 99,455 Interest expense..................................................... 18,288 23,167 Other expense (income), net.......................................... -- -- Bankruptcy reorganization expenses................................... -- -- ---------- ---------- Income (loss) from continuing operations before income taxes......... 31,941 76,288 Provision (benefit) for income taxes................................. (29,366) 27,742 ---------- ---------- Income (loss) from continuing operations............................. $ 61,307 $ 48,546 ---------- ---------- ---------- ---------- OTHER DATA: EBITDA (c)........................................................... $ 78,240 $ 130,387 Adjusted EBITDA (c).................................................. 99,390 131,098 Depreciation and amortization........................................ 28,011 30,932 Capital expenditures................................................. 31,695 41,703 Ratio of earnings to fixed charges (d)............................... 2.6x 4.1x BALANCE SHEET DATA (AT PERIOD END): Working capital...................................................... $ 214,230 $ 249,665 Total assets......................................................... 807,553 1,394,538 Total debt........................................................... 376,275 856,947 Shareholders' equity (deficit)....................................... 234,558 300,262
- ------------------------ (a) Amounts include the operating results of the Clark-Schwebel Business since the acquisition date, September 15, 1998. (b) Business acquisition and consolidation expenses include amounts previously reported as "Restructuring expenses." (c) "EBITDA" is defined as income from continuing operations before interest, taxes and depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before business acquisition and consolidation expenses, other income (expense) and bankruptcy reorganization expenses. The Company believes that EBITDA and Adjusted EBITDA provide useful information regarding the Company's ability to service its indebtedness, but should not be considered in isolation or as a substitute for operating income or cash flow from operations (in each case as determined in accordance with generally accepted accounting principles) as an indicator of the Company's operating performance or as a measure of the Company's liquidity. (d) Earnings consist of income (loss) from continuing operations before fixed charges and income taxes. Fixed charges consist of interest expense, amortization of fees related to debt financing and that portion of rent expense deemed to be interest. For the years ended December 31, 1993, 1994 and 1996, earnings were insufficient to cover fixed charges by approximately $73.8 million, $24.5 million and $15.8 million, respectively. 26 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal, which together constitute the Exchange Offer, we will accept for exchange Original Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used in this Prospectus, the term "Expiration Date" means 5:00 p.m., New York City time, on , 1999. However, if we, in our sole discretion, have extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which we extend the Exchange Offer. As of the date of this Prospectus, $240 million aggregate principal amount of the Original Notes is outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , 1999, to all holders of Original Notes known to us. Our obligation to accept Original Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth below under "--Certain Conditions to the Exchange Offer." We expressly reserve the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Original Notes, by giving oral or written notice of such extension to the holders of Original Notes as described below. During any such extension, all Original Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by us. Any Original Notes not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the Exchange Offer. Original Notes tendered in the Exchange Offer must be in denominations of principal amount of $1,000 and any integral multiple of $1,000. We expressly reserve the right to amend or terminate the Exchange Offer, and not to accept for exchange any Original Notes not previously accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "--Certain Conditions to the Exchange Offer." We will give oral or written notice of any (1) extension, (2) amendment, (3) non-acceptance or (4) termination to the holders of the Original Notes as promptly as practicable on the next business day after the previously scheduled Expiration Date. Such notice in the case of any extension is to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time on such date. PROCEDURES FOR TENDERING The tender to us of Original Notes by a holder of Original Notes as set forth below and acceptance of such tender by us will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Original Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to The Bank of New York (the "Exchange Agent") at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date. In addition, the Exchange Agent must receive: - certificates for such Original Notes along with the Letter of Transmittal; or - prior to the Expiration Date, a timely confirmation of book-entry transfer (a "Book-Entry Confirmation") of such Original Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant to the procedure for book-entry transfer described below. The holder must also comply with the guaranteed delivery procedures described below. 27 The method of delivery of Original Notes, Letters of Transmittal and all other required documents is at your election and risk. If such delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. You should not send Letters of Transmittal or Original Notes to us. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, and who wishes to tender, should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Original Notes, either (1) make appropriate arrangements to register ownership of the Original Notes in such owner's name or (2) obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Original Notes surrendered for exchange are tendered: - by a registered holder of the Original Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or - for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a financial institution--including most banks, savings and loan associations and brokerage houses--that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program (collectively, "Eligible Institutions"). If Original Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by us in our sole discretion, duly executed by the registered holder with the signature on such Original Notes guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Original Notes tendered for exchange will be determined by us in our sole discretion. This determination shall be final and binding. We reserve the absolute right to reject any and all tenders of any particular Original Note not properly tendered or to not accept any particular Original Notes which acceptance might, in our judgment or our counsel's judgment, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Original Note either before or after the Expiration Date, including the right to waive the ineligibility of any holder who seeks to tender Original Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer as to any particular Original Note either before or after the Expiration Date, including the Letter of Transmittal and the instructions to such Letter of Transmittal, by us shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes for exchange must be cured within such reasonable period of time as we shall determine. Neither we, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Original Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Original Notes, such Original Notes must be endorsed or accompanied by appropriate powers of attorney. In either case, such Original Notes must be signed exactly as the name or names of the registered holder or holders appear on the Original Notes. If the Letter of Transmittal or any Original Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a 28 fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by us, proper evidence satisfactory to us of their authority to so act must be submitted. By tendering, each holder will represent to us that, among other things, (1) the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes (whether or not such person is the holder) and (2) neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the Exchange Notes. In the case of a holder that is not a broker-dealer, each such holder, by tendering, will also represent to us that such holder is not engaged in and does not intend to engage in a distribution of the Exchange Notes. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of ours, or is engaged in, or intends to engage in, or has an arrangement or understanding with any person to participate in, a distribution of such Exchange Notes to be acquired pursuant to the Exchange Offer, such holder or any such other person (1) could not rely on the applicable interpretations of the staff of the SEC and (2) must comply with the registration and Prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a Prospectus that meets the requirements of the Securities Act in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering such a Prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, we will accept, promptly after the Expiration Date, all Original Notes properly tendered, and will issue the Exchange Notes promptly after acceptance of the Original Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, we shall be deemed to have accepted properly tendered Original Notes for exchange when, as and if we have given oral or written notice to the Exchange Agent, with written confirmation of any oral notice to be given promptly after giving such notice. For each Original Note accepted for exchange, the holder of such Original Note will receive an Exchange Note having a principal amount equal to that of the surrendered Original Note. The Exchange Notes will bear interest from the most recent date to which interest has been paid on the Original Notes or, if no interest has been paid on the Original Notes, from January 21, 1999. Accordingly, registered holders of Exchange Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from January 21, 1999. Original Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Original Notes whose Original Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Original Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer and will be deemed to have waived their rights to receive such accrued interest on the Original Notes. In all cases, issuance of Exchange Notes for Original Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (1) certificates for such Original Notes, or a timely Book-Entry Confirmation of such Original Notes, into the Exchange Agent's account at the Book-Entry Transfer Facility, (2) a properly completed and duly executed Letter of Transmittal and (3) all other required documents. If any tendered Original Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer, or if Original Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Original Notes will be returned without expense to 29 the tendering holder of such Original Notes, or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry procedures described below, such non-exchanged Original Notes will be credited to an account maintained with such Book-Entry Transfer Facility, as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Original Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book Entry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or a facsimile of such Letter of Transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to, and received by, the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date, unless such holder has strictly complied with the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Original Notes desires to tender such Original Notes, and the Original Notes are not immediately available, or time will not permit such holder's Original Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer described above cannot be completed on a timely basis, a tender may nonetheless be effected if: - the tender is made through an Eligible Institution; - prior to the Expiration Date, the Exchange Agent received from such Eligible Institution a properly completed and duly executed Letter of Transmittal, or a facsimile of such Letter of Transmittal, and Notice of Guaranteed Delivery, substantially in the form provided by us, by facsimile transmission, mail or hand delivery, (a) setting forth the name and address of the holder of Original Notes and the amount of Original Notes tendered, (b) stating that the tender is being made thereby, and (c) guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Original Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and - the certificates for all physically tendered Original Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three NYSE trading days after the Expiration Date. WITHDRAWAL RIGHTS Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address or, in the case of Eligible Institutions, at the facsimile number, set forth below under 30 "--Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must: - specify the name of the person having tendered the Original Notes to be withdrawn (the "Depositor"); - identify the Notes to be withdrawn, including the certificate number or numbers and principal amount of such Original Notes; - contain a statement that such holder is withdrawing his election to have such Original Notes exchanged; - be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Original Notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer to have the Trustee with respect to the Original Notes register the transfer of such Original Notes in the name of the person withdrawing the tender; and - specify the name in which such Original Notes are registered, if different from that of the Depositor. If Original Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Original Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by us, whose determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. No Exchange Notes will be issued with respect to the Exchange Offer unless the Original Notes so withdrawn are validly retendered. Any Original Notes that have been tendered for exchange, but which are not exchanged for any reason, will be returned to the holder of such Original Notes without cost to such holder, or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Original Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Original Notes, as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Original Notes may be retendered by following the procedures described under "--Procedures for Tendering" above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, we shall not be required to accept for exchange, or to issue Exchange Notes in exchange for, any Original Notes, and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Original Notes for exchange or the exchange of the Exchange Notes for such Original Notes, any of the following events shall occur: - there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission (1) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result of such transaction or (2) resulting in a material delay in our ability to accept for exchange or exchange some or all of the Original Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in our sole 31 judgment might directly or indirectly result in any of the consequences referred to in clauses (1) or (2) above or, in our sole judgment, might result in the holders of Exchange Notes having obligations with respect to resales and transfers of Exchange Notes which are greater than those described in the interpretation of the SEC referred to above, or would otherwise make it inadvisable to proceed with the Exchange Offer; or - there shall have occurred: (1) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market; (2) any limitation by a governmental agency or authority which may adversely affect our ability to complete the transactions contemplated by the Exchange Offer; (3) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority which adversely affects the extension of credit; or (4) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening of such calamities; or - any change, or any development involving a prospective change, shall have occurred or be threatened in our business, properties, assets, liabilities, financial condition, operations, results of operations or prospects and those of our subsidiaries taken as a whole that, in our sole judgment, is or may be adverse to us, or we shall have become aware of facts that, in our sole judgment, have or may have adverse significance with respect to the value of the Original Notes or the Exchange Notes; which in our sole judgment in any case, and regardless of the circumstances, including any action by us, giving rise to any such condition, makes it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such exchange. The foregoing conditions are to our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition, or may be waived by us in whole or in part at any time and from time to time in our sole discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, we will not accept for exchange any Original Notes tendered, and no Exchange Notes will be issued in exchange for any such Original Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939. EXCHANGE AGENT The Bank of New York has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of 32 Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: DELIVERY TO: The Bank of New York, EXCHANGE AGENT BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL: The Bank of New York The Bank of New York 101 Barclay Street 101 Barclay Street, 7E Corporate Trust Services Window New York, NY 10286 Ground Level Attention: Reorganization Section New York, NY 10286 Attention: Reorganization Section
FOR INFORMATION CALL: (212) 815-6333 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) 571-3080 CONFIRM BY TELEPHONE: (212) 815-6333 IF YOU DELIVER THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, THEN SUCH DELIVERY OR TRANSMISSION DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. FEES AND EXPENSES We will not make any payment to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by us. We estimate these expenses in the aggregate to be approximately $500,000. ACCOUNTING TREATMENT The Company will not recognize any gain or loss for accounting purposes upon the consummation of the Exchange Offer. We will amortize the expense of the Exchange Offer over the term of the Exchange Notes under generally accepted accounting principles. TRANSFER TAXES Holders who tender their Original Notes for exchange will not be obligated to pay any related transfer taxes, except that holders who instruct us to register Exchange Notes in the name of, or request that Original Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer taxes. CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES Holders of Original Notes who do not exchange their Original Notes for Exchange Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Original Notes and the restrictions on transfer of such Original Notes as set forth in the legend on such Notes as a consequence of the issuance of the Original Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Original Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act 33 and applicable state securities laws. As discussed below in "Exchange Offer; Registration Rights," we do not currently anticipate that we will register Original Notes under the Securities Act. Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold or otherwise transferred by holders of such Original Notes, other than any such holder which is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act, without compliance with the registration and Prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter. There can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes and has no arrangement or understanding to participate in a distribution of Exchange Notes. If any holder is an affiliate of ours, and is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such holder (1) could not rely on the applicable interpretations of the staff of the SEC and (2) must comply with the registration and Prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes must acknowledge that such Original Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a Prospectus in connection with any resale of such Exchange Notes. In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Exchange Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification, with which there has been compliance, is available. See "Plan of Distribution." 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS RELATES TO THE UNAUDITED RESULTS OF OPERATIONS OF HEXCEL FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1998. THE DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE SELECTED CONSOLIDATED FINANCIAL INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING ELSEWHERE AND OTHER FINANCIAL INFORMATION INCORPORATED BY REFERENCE IN THIS PROSPECTUS. GENERAL
- --------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1997 1998 - --------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) Sales...................................................... $ 682.2 $ 785.6 Gross margin %............................................. 23.4% 25.4% Adjusted operating income % (a)............................ 10.5 12.8 Adjusted EBITDA (b)........................................ $ 99.4 $ 131.1 Net income................................................. 61.3 48.5 Adjusted net income (c).................................... 32.8 49.5 - ---------------------------------------------------------------------------------
(a) Excludes business acquisition and consolidation expenses. (b) Excludes business acquisition and consolidation expenses and interest, taxes, depreciation and amortization. (c) Excludes business acquisition and consolidation expenses and other acquisition related costs and assumes a U.S. tax provision of 36% for 1997. For the nine months ended September 30, 1998, Hexcel continued to benefit from strong commercial aerospace and space and defense markets as sales, adjusted operating income and Adjusted EBITDA all reached record levels. Excluding acquisition-related charges and other nonrecurring items, Adjusted EBITDA for the nine months ended September 30, 1998 increased 32% over the same period in 1997. On September 15, 1998, the Company completed its acquisition of the industrial fabrics business of Clark-Schwebel (the "Clark-Schwebel Business"). The acquisition of the Clark-Schwebel Business establishes the Company as a leading global materials supplier to the electronics industry, which we believe has attractive long-term growth potential. Furthermore, it diversifies the Company's business beyond commercial aerospace. The acquisition was accounted for using the purchase method of accounting and, accordingly, the results of operations of the Clark-Schwebel Business since the date of acquisition are included in the Company's 1998 results. Sales and Adjusted EBITDA for the Clark-Schwebel Business for the approximate two week period ended September 30, 1998, were $7.0 million and $1.4 million, respectively. The estimated costs of integrating the Clark-Schwebel Business into the Company's preexisting fabrics operations will be finalized in, and recognized in the results for, the fourth quarter of 1998. The Company expects a reduction in its previously anticipated capital expenditures related to its existing fabrics operations. RECENT DEVELOPMENTS AND OUTLOOK CARBON FIBERS. During October 1998, the Company experienced cancellations of certain carbon fiber orders due for delivery in the fourth quarter of 1998. Management believes that, in response to a significant shortage of carbon fiber supply in 1997, a number of the Company's customers, particularly those in the space and defense market, purchased and/or ordered more carbon fiber than they needed during the twelve months ended September 30, 1998. Now that carbon fiber supplies have increased, customers are reducing their inventories and are anticipating lower purchasing needs for 1999. These 35 factors are expected to result in surplus inventories at December 31, 1998 and a significant reduction in the production of carbon fiber products in 1999 as compared to 1998. The Company further expects that carbon fiber pricing in a number of applications will be lower in 1999. Despite these shorter term impacts, the Company still anticipates growth in carbon fiber sales in 2000 and beyond as new military aircraft and launch vehicle programs enter full scale production. COMPOSITE MATERIALS. Over 70% of the Company's sales in this segment for the nine months ended September 30, 1998 was to the commercial aerospace market, with two customers, Boeing and Airbus, and their subcontractors comprising the vast majority of these sales. Based on a recent announcement by Boeing, the demand for Boeing commercial aircraft is expected to peak in 1999, with the largest percentage reductions in demand thereafter occurring in sales of wide-bodied aircraft. The anticipated reduction in wide-bodied sales is primarily attributed to the Asian economic crisis. Boeing delivered 559 aircraft in 1998, and expects to deliver 620 in 1999 and 490 in 2000. The effects of this reduction will be partially offset by the expectations that the Company will continue to benefit from the growth in Airbus aircraft delivery rates. Airbus has reported deliveries of 229 aircraft in 1998, and has recently forecast deliveries of 293 in 1999 and 317 in 2000. Depending upon the product, orders are placed with Hexcel anywhere between one to 12 months prior to the delivery of the aircraft to the customer. In addition, the Company's products are included 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. The regional aircraft market (under 100 seats) continues to perform well, and no significant changes in this market are expected in the next few years. The Company's customers have also emphasized the need for material yield improvement and cost and inventory reduction throughout the commercial aerospace supply chain. This is leading to pricing pressures from the Company's customers, which the Company expects to address, to the greatest extent possible, through cost reduction efforts, substitution of lower cost composite materials in our customers' end products and price reductions from the Company's suppliers. FABRICS. Towards the end of the third quarter and in the fourth quarter of 1998, the Company experienced increased order volume for woven glass fiber products used in electronic PCB applications, suggesting an end to the recent inventory correction in the electronics industry. However, intense competition from manufacturers located in Asia and Eastern Europe has placed pressure on the Company's prices for these products. The Company believes that the prices and margins for products of its fabrics business are likely to remain under pressure in 1999. Any resulting price reductions are expected to be partially offset by lower material costs. The Company is actively pursuing opportunities to reduce costs and capital expenditures in the consolidation of the Clark-Schwebel Business with its existing fabrics operations in order to help offset these market trends. OTHER COMPANY INITIATIVES. As a result of our acquisition of the Clark-Schwebel Business, changing market conditions and the need for continuous improvement, the Company is intensifying its business consolidation efforts to achieve more rapid cost reductions throughout our organization. The Company's efforts will include the implementation of an aggressive value chain management program and the elimination of waste in our organization and processes through our Lean Enterprise initiatives. In addition, the Company has initiated a reorganization of its business operations to focus on improved operating effectiveness and to integrate the Clark-Schwebel Business into its preexisting fabrics operations. The Company has also consolidated its U.S., European and Asian composite materials businesses into a single global business unit. Beginning in 1999 we anticipate annual cash savings from our business consolidation activities to be approximately $10 million. In addition, we have identified specific actions that we believe will result in significant savings from our Lean Enterprise and value chain management initiatives. We believe that these savings should help offset, but not eliminate, expected negative impacts in 1999 of price competition and product mix changes. 36 In addition to these initiatives, the Company expects to complete a global capacity and utilization review of its worldwide facilities requirements during 1999. This review may result in the closing or right-sizing of one or more facilities, and will likely result in the recognition of additional business consolidation charges in 1999. In pursuing the above plans, the Company will continue to focus on its goal of generating $100 million in free cash flow in the fifteen months ending December 1999. The Company is currently reviewing its capital expenditure and working capital plans. The Company expects that capital expenditures for 1999 will be approximately $45 to $50 million. This compares to estimated capital expenditures of approximately $67 million for 1998, which includes the acquisition of the Clark-Schwebel Business for three and one-half months. The Company expects that it will use such free cash flow to repay debt under the Senior Credit Facility. RESULTS OF OPERATIONS NET SALES. The following table summarizes net sales to third-party customers by product group and market segment for the nine months ended September 30, 1997 and 1998:
------------------------------------------------------------------------------------------------------------------ COMMERCIAL SPACE & GENERAL AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL ------------------------------------------------------------------------------------------------------------------ (DOLLARS IN MILLIONS) NINE MONTHS ENDED SEPT. 30, 1997 Fibers and Fabrics $ 18.0 $ 10.1 $ 37.6 $ 54.1 $ 8.0 $ 127.8 Composite Materials 289.0 45.8 -- 46.7 44.9 426.4 Engineered Products 119.6 7.0 -- 1.4 -- 128.0 - ------------------------------------------------------------------------------------------------------------------ Total $ 426.6 $ 62.9 $ 37.6 $ 102.2 $ 52.9 $ 682.2 Percent of Total 63% 9% 5% 15% 8% 100% - ------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPT. 30, 1998 Fibers and Fabrics $ 14.0 $ 21.6 $ 39.8 $ 47.4 $ 14.6 $ 137.4 Composite Materials 345.5 66.8 -- 41.6 31.3 485.2 Engineered Products 155.2 7.7 -- -- -- 162.9 - ------------------------------------------------------------------------------------------- Total $ 514.7 $ 96.1 $ 39.8 $ 89.0 $ 45.9 $ 785.5 Percent of Total 66% 12% 5% 11% 6% 100% - -------------------------------------------------------------------------------------------
Net sales for the first nine months of 1998 increased by 15% to $785.5 million, compared to $682.2 million for the comparable 1997 period. Excluding sales attributable to the Clark-Schwebel Business, sales for the first nine months of 1998 were $778.6 million, or an increase of 14% over 1997. The sales growth was primarily due to strong sales of composite products to commercial aerospace customers, primarily in Europe, as well as to the space and defense markets. On a constant currency basis, sales for the first nine months of 1998 would have been about $8 million higher than reported. Commercial aerospace net sales increased to $514.7 million for the first nine months of 1998, from $426.6 million for the comparable period of 1997, an increase of 21%. This increase corresponds to the expected peak in commercial aircraft (over 100 seats) delivery rates in 1999, as discussed above in "--Recent Developments and Outlook." Space and defense net sales for the first nine months of 1998 increased 53% to $96.1 million. The increase reflects improved sales of composite materials to select military and space programs as well as the Company's acquisition of Fiberite, Inc.'s satellite business on September 30, 1997. Electronic sales increased $2.2 million, to $39.8 million for the first nine months of 1998. The increase reflects the Company's acquisition of the Clark-Schwebel Business. Despite a worldwide reduction in 37 electronic industry sales volume experienced during the summer of 1998, primarily resulting from inventory adjustments, the Company has experienced a recent increase in sales orders which is consistent with predictions from industry analysts that the market is beginning to recover. However, pricing in this market remains subject to significant pressures, particularly due to competition from manufacturers located in Asia and Eastern Europe. Any resulting price reductions are expected to be partially offset by lower material costs. Net sales in the general industrial and recreational markets decreased in the first nine months of 1998 as compared to the comparable period in 1997, primarily due to reduced customer demand for certain products in these markets. BACKLOG. The following tables summarize the backlog of orders to be delivered within twelve months, by product group, as of September 30, 1997, December 31, 1997 and September 30, 1998:
- ---------------------------------------------------------------------------------------------------- AEROSPACE(A) NON-AEROSPACE(B) TOTAL - ---------------------------------------------------------------------------------------------------- (IN MILLIONS) AS OF SEPTEMBER 30, 1997 Fibers and Fabrics $ 45.6 $ 31.0 $ 76.6 Composite Materials 232.5 22.3 254.8 Engineered Products 162.2 -- 162.2 - ------------------------------------------------------------------------------------------- Total $ 440.3 $ 53.3 $ 493.6 - ------------------------------------------------------------------------------------------- AS OF DECEMBER 31, 1997 Fibers and Fabrics $ 33.3 $ 24.4 $ 57.7 Composite Materials 273.2 19.1 292.3 Engineered Products 170.0 -- 170.0 - ------------------------------------------------------------------------------------------- Total $ 476.5 $ 43.5 $ 520.0 - ------------------------------------------------------------------------------------------- AS OF SEPTEMBER 30, 1998 (C) Fibers and Fabrics $ 13.2 $ 16.7 $ 29.9 Composite Materials 214.9 20.3 235.2 Engineered Products 156.8 0.4 157.2 - ------------------------------------------------------------------------------------------- Total $ 384.9 $ 37.4 $ 422.3 - -------------------------------------------------------------------------------------------
- ------------------------ (a) Includes commercial aerospace and space and defense markets. (b) Includes electronics, general industrial and recreation markets. (c) Includes backlog of orders for Clark-Schwebel from September 15, 1998. Backlog for aerospace materials was $384.9 million as of September 30, 1998, a 19% decrease from backlog as of December 31, 1997 and a 13% decrease from backlog as of September 30, 1997. The Company believes that the decrease in backlog is attributable to a number of factors, including a continuing trend toward shorter lead times and better supply-chain management by the industry overall and, with respect to the decrease from December 31, 1997, the practice of certain customers to place orders near the end of the fiscal year. In light of changing conditions in the aerospace industry, twelve month backlog information may no longer be a material trend indicator. The Company continues to closely watch the economic situation in Asia, along with overall aircraft orders and production trends, to monitor future growth. Backlog for the non-aerospace markets was $37.4 million as of September 30, 1998, compared to $43.5 million as of December 31, 1997 and $53.3 million as of September 30, 1997. The decrease in backlog is primarily attributable to a decrease in orders from customers in the recreation market. Customers in the electronics, general industrial and recreational markets generally operate with little advance purchasing, 38 and thus backlog for such businesses is subject to certain fluctuations. The Clark-Schwebel Business also operates with nominal backlog. The Company's backlog in the non-aerospace markets for the next twelve months is therefore not necessarily a meaningful indicator of future sales. GROSS MARGIN. Gross margin for the first nine months of 1998 was $199.2 million, or 25.4% of net sales, compared to $159.7 million, or 23.4% of net sales, for the comparable period of 1997. While gross margin for the 1998 period increased two percentage points over the 1997 period, on a quarterly trend basis, the Company's gross margin percentage has leveled off as the current business consolidation program has approached completion and commercial aerospace growth has flattened. The Company is, however, pursuing efforts to reduce its cost structure and increase its productivity through its Lean Enterprise program, which will extend to all U.S. locations by year end and to its European facilities in 1999. The expected improvement in cost and productivity will be partially offset by customer demand for reductions in the costs of the products they purchase from the Company. OPERATING INCOME. Operating income for the first nine months of 1997 was $50.2 million, compared with $99.5 million for the same period in 1998. Excluding business acquisition and consolidation expenses of $21.2 million and $0.7 million incurred in the first nine months of 1997 and 1998, respectively, the improvement in operating income is the result of higher sales volume, partially offset by increases in SG&A and R&T expenses. SG&A expenses were $82.1 million, or 10.4% of sales, for the first nine months of 1998, compared to $74.8 million, or 11.0% of sales, for the same period in 1997. The increase in SG&A expenses is the result of higher sales volume. R&T expenses were $16.9 million, or 2.2% of sales, for the first nine months of 1998, compared to $13.5 million, or 2.0% of sales, for the comparable 1997 period. INTEREST EXPENSE. Interest expense was $23.2 million for the first nine months of 1998, compared with $18.3 million for the comparable 1997 period. The increase in interest expense is primarily due to the additional financing required for the Clark-Schwebel Business as well as working capital needs, and a $1.6 million write-off of capitalized loan fees relating to the Company's previous credit facilities. PROVISION FOR INCOME TAXES. The effective income tax rate for the first nine months of 1998 was 36%. For the first nine months of 1997, the benefit for income taxes was $29.4 million, which included a $39.0 million reversal of a U.S. tax valuation allowance. Prior to September 30, 1997, the Company had fully provided valuation allowances against its U.S. net deferred tax assets as there were uncertainties in generating sufficient future taxable income to realize these net deferred tax assets. On September 30, 1997, the Company reversed its U.S. tax valuation allowance as it was more likely than not that these tax assets would be realized. As a result, excluding the $39.0 million U.S. valuation allowance reversal, no provision for U.S. federal income taxes was recorded for the nine months ended September 30, 1997 due to the utilization of net operating loss carryforwards. Going forward, the Company expects that its U.S. income tax rate will approximate the statutory rate. NET INCOME. Net income for the nine months ended September 30, 1998 was $48.5 million versus $61.3 million for the comparable period of 1997. The results for 1998 include approximately $1.3 million of after-tax, acquisition-related charges. The 1997 results included $21.2 million of business acquisition and consolidation expenses and a non-recurring credit resulting from the reversal of a $39.0 million deferred tax reserve against the income tax provision. FINANCIAL CONDITION AND LIQUIDITY SENIOR CREDIT FACILITY, AS AMENDED In connection with the acquisition of the Clark-Schwebel Business on September 15, 1998, Hexcel obtained the Senior Credit Facility to: (a) fund the purchase of the Clark-Schwebel Business; (b) refinance the Company's then existing revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. The Senior Credit Facility, as amended in connection with the 39 Private Offering, and after giving effect to the Pro Forma Transactions, includes $360.0 million in aggregate revolving credit facility commitments ($100.9 million as of September 30, 1998), and $311.5 million in aggregate term loans (including $152.6 million of Tranche A Term Loans and $158.9 million of Tranche B Term Loans). Depending on certain predetermined ratios and other conditions, interest on outstanding borrowings under the Senior Credit Facility is computed at an annual rate ranging from approximately 0.75 to 2.25% in excess of the applicable London interbank rate, or at the option of Hexcel, at an annual rate ranging from approximately 0 to 1.25% in excess of the base rate of the administrative agent for the lenders. In addition, the Senior Credit Facility is subject to a commitment fee ranging from 0.23 to 0.50% per annum of certain commitments under the facility. The Senior Credit Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries. In addition, the Company is subject to various financial covenants and restrictions under the Senior Credit Facility, and is generally prohibited from paying dividends or redeeming capital stock. Approximately $513 million of the Senior Credit Facility expires in September 2004, with the balance expiring in September 2005, in each case unless terminated earlier under certain circumstances. The net proceeds of the Private Offering were used to reduce certain outstanding borrowings under the Senior Credit Facility. In addition, the Company expects that it will redeem $12.5 million aggregate principal amount of the Ciba Notes on or before February 28, 1999, with borrowings under the Senior Credit Facility. CAPITAL LEASE OBLIGATION Hexcel has a $50.0 million capital lease for property, plant and equipment used in the Clark-Schwebel Business. The lease expires in September 2006 and includes various purchase options. OTHER CAPITAL COMMITMENTS Mandatory redemption of the Convertible Subordinated Debentures is scheduled to begin in 2002 through annual sinking fund requirements of $1.1 million in 2002 and $1.8 million in each year thereafter. The Company's total estimated financial commitments to its joint ventures in China and Malaysia are approximately $31 million, which are expected to be made in increments through 2001. EBITDA AND CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1997. Adjusted EBITDA for the first nine months of 1997 was $99.4 million. Net cash used for operating activities was $19.1 million, primarily as the result of the increase in working capital of $71.2 million, business acquisition and consolidation payments of $27.3 million, as well as the deferred income tax allowance reversal of $39.0 million, all of which more than offset $61.3 million of net income, $28.0 million of depreciation and amortization and $21.2 million of business acquisition and consolidation expenses. The substantial increase in working capital reflects higher levels of accounts receivable and inventory resulting from increased sales and production volumes. The working capital increase also reflects reductions in accrued liabilities from peak year-end levels, primarily due to the payment in 1997 of obligations incurred during 1996 for capital projects and employee incentive and benefit programs. Net cash used for investing activities was $65.7 million. This primarily reflects $31.7 million of capital expenditures, $37.0 million related to the acquisition of the satellite business and a license of technology from Fiberite and the receipt of $5.0 million in connection with the sale of a 50% equity interest in the Knytex joint venture. Net cash used for investing activities was funded by borrowings under the Company's revolving credit facility. 40 NINE MONTHS ENDED SEPTEMBER 30, 1998. Adjusted EBITDA for the first nine months of 1998 was $131.1 million, a 32% increase over the comparable 1997 period. Net cash provided by operating activities was $48.1 million, as increased working capital of $32.6 million and restructuring payments of $6.9 million partially offset $48.5 million of net income and $38.4 million of non-cash depreciation and amortization and deferred income taxes. The increase in working capital reflects higher levels of accounts receivable and inventory due to higher sales volume, as well as reductions in accrued liabilities from peak year-end levels, primarily due to the payment of obligations in 1998 for capital projects and employee incentive and benefit programs incurred during 1997. Net cash used for investing activities was $496.0 million, reflecting the net cash paid for the Clark-Schwebel Business, net of cash acquired, of $453.0 million and capital expenditures of $41.7 million. On December 23, 1998, the Company paid $19.0 million to complete its purchase of a 43.6% joint venture interest in CS-Interglas. Net cash provided by financing activities was $436.9 million, primarily reflecting $442.3 million of funds borrowed under the Senior Credit Facility that was offset in part by the acquisition of $10.0 million of treasury stock. Adjusted EBITDA has been presented to provide a measure of Hexcel's operating performance that is commonly used by investors and financial analysts to analyze and compare companies. Adjusted EBITDA does not represent an alternative measure of the Company's cash flows or operating income, and should not be considered in isolation or as a substitute for measures of performance presented in accordance with generally accepted accounting principles. CAPITAL EXPENDITURES Capital expenditures increased to $41.7 million in the first nine months of 1998, from $31.7 million in the first nine months of 1997. This increase is attributable to capital expenditures incurred in connection with the business consolidation program as well as expenditures to improve manufacturing processes and to expand production capacity for select product lines that are in high demand. YEAR 2000 READINESS DISCLOSURE Hexcel, like most other companies, is continuing to address whether its information technology systems and non-information technology devices with embedded microprocessors (collectively "Business Systems") will recognize and process dates starting with the year 2000 and beyond (the "Year 2000"). The Year 2000 issue can arise at any point in the Company's supply, manufacturing, processing and distribution chains. In order to address the Year 2000 issue, the Company has developed and implemented a six phase plan divided into the following components: (1) inventory; (2) risk assessment and assigning priorities; (3) assessing compliance; (4) repairing or replacing; (5) testing; and (6) developing contingency plans. In addition, the Company established a central Year 2000 issue project office to coordinate and monitor progress towards achieving corporate-wide Year 2000 compliance. The Company is also using external consulting services, where appropriate, as part of its efforts to address its Year 2000 issue. With respect to the Company's Business Systems and its Year 2000 project, the Company has nearly completed its inventory phase. The Company has established June 30, 1999 as its target date for substantial completion of phases one through four (i.e., repairing and replacing), and certain testing of significant business systems and manufacturing processes. The Company has initiated formal communications with all of its significant suppliers and customers to survey what steps those companies are taking to remediate their Year 2000 issues. To the extent that supplier responses to Year 2000 readiness are unsatisfactory, the Company will attempt to reduce risks of interruptions, with such options including changes in suppliers to those who have demonstrated Year 2000 41 readiness, and accumulation of inventory. The Company is also monitoring the status of its significant customers as a means of assessing risks and developing alternatives. Estimated future costs to prepare the Company's Business Systems to become Year 2000 compliant are approximately $5 million. This amount includes approximately $1 million of capital expenditures to be used for the purchase of certain capital equipment which is currently not Year 2000 compliant. The estimate also includes the cost of certain internal resources fully dedicated to this project. Due to resource constraints caused by the Year 2000 issue, the Company is deferring other information technology projects. The estimate does not include any costs associated with the implementation of contingency plans, which have not yet been developed. Amounts expensed through September 30, 1998 were immaterial. The Company presently believes that by implementing its plans, including modifications to existing Business Systems and conversion to new or upgraded software and other systems, the Year 2000 issue will not pose significant operational problems for the Company. However, if necessary remediation actions are not completed in a timely manner, or if the Company's suppliers and customers do not successfully address their Year 2000 issues, the Year 2000 issue could have a material impact on the operations, liquidity and financial condition of the Company. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Effective for fiscal years beginning after December 15, 1998, this SOP requires that entities capitalize certain internal-use software costs once certain criteria are met. The Company does not expect SOP 98-1 to have a material impact on its consolidated financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position SOP 98-5, "Reporting on the Costs of Start-Up Activities." Effective for fiscal years beginning after December 15, 1998, this SOP requires start-up activities and organization costs be expensed as incurred. The Company does not expect SOP 98-5 to have a material impact on its consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). This Statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 is not expected to have a material impact on Hexcel's consolidated financial statements. This Statement is effective for fiscal years beginning after June 15, 1999. Hexcel will adopt this accounting standard as required by January 1, 2000. 42 BUSINESS GENERAL Our company is the world's leading producer of advanced structural materials. We develop, manufacture and market lightweight, high-performance carbon fibers, industrial fabrics, composite materials and engineered products for use in commercial aerospace, space and defense, electronics, recreation and general industrial applications. Our materials are used in a wide variety of end products, such as commercial and military aircraft, space launch vehicles and satellites, printed circuit boards ("PCBs"), computers, cellular telephones, televisions, high-speed trains and ferries, cars and trucks, windmill blades, reinforcements for bridges and other structures, window blinds, skis and snowboards, golf clubs, fishing poles, tennis rackets and bicycles. Our business is organized around three strategic business segments, presented in order of manufacturing integration from raw materials to finished products. - FIBERS AND FABRICS: this segment manufactures carbon fibers and carbon fiber fabrics, fiberglass fabrics which form the substrate for PCBs, woven industrial fabrics, woven fabrics for ballistics protection and carbon, aramid and glass reinforcement materials, all of which comprise the foundation of many composite materials, parts and structures; - COMPOSITE MATERIALS: this segment produces honeycomb and prepregs, as well as structural adhesives and specially machined honeycomb details and composite panels, which are incorporated into aerospace platforms; and - ENGINEERED PRODUCTS: this segment engineers and produces composite parts and structures, including finished components for commercial and military aircraft and parts used in automotive, civil engineering and rail applications. Through a series of strategic acquisitions over the past three years, we have expanded and diversified our product lines, manufacturing capabilities and technology portfolio. With 24 manufacturing facilities located in seven countries around the world and with joint ventures in Asia, Europe and the United States, we are well positioned to take advantage of opportunities for growth worldwide. We believe that we have achieved a degree of vertical integration unmatched by any competitor. This vertical integration enhances our control over the cost, quality and delivery of our products, and enables us to offer a variety of solutions to our customers' structural materials needs. For the twelve months ended September 30, 1998, our company generated pro forma net sales of approximately $1.246 billion and pro forma Adjusted EBITDA (as defined) of $214 million. COMPETITIVE STRENGTHS We believe that our competitive position is attributable to a number of key strengths, including the following: - MARKET LEADER. We believe that our company is the largest integrated producer of advanced structural materials in the world. We are the largest supplier of advanced structural materials to both the commercial and military aerospace industries. We are the global leader in weaving carbon fibers. As a result of the Clark-Schwebel acquisition, we are now the global leader in weaving glass and aramid fibers, with an especially strong position as the leading worldwide supplier of fiberglass fabrics used in the manufacture of PCBs. Taken together, our overall size and leading market positions make us a critical supplier to our customers in multiple end-use industries. - VERTICAL INTEGRATION. We believe that our acquisitions since 1996 have built Hexcel into the most vertically integrated manufacturer of advanced structural materials in the world. Vertical integration provides us with a greater ability to control the cost, quality and delivery of our products. In addition, because we develop, manufacture and sell products from various points in the manufacturing process, we are able to provide the broadest possible range of overall materials solutions to our customers. Currently, we consume internally approximately 42% and 27% of our carbon fiber and fabric production, respectively, and sell the balance of these products to our customers. 43 - MARKET AND GEOGRAPHIC DIVERSITY. Approximately 58% of our pro forma net sales for the twelve months ended September 30, 1998 was derived from the commercial aerospace industry; 9% from the space and defense industry; 15% from the electronics industry; 13% from general industrial markets; and 5% from recreation products. During the same period, we sold 61%, 33% and 6% of our products to customers located in North America, Europe and the Pacific Rim, respectively. We believe that this market and geographic diversity provides us with growth platforms in a number of global markets that follow different business cycles. - BROADEST RANGE OF QUALIFICATIONS IN THE AEROSPACE INDUSTRY. We believe that our company has the broadest range of product qualifications of any advanced materials manufacturer in the aerospace industry and has qualified products for use in virtually all western commercial and military aircraft programs. Before advanced structural materials may be utilized in aerospace and military applications, they must be qualified. All Airbus and Boeing commercial aircraft use Hexcel qualified products, and our carbon fiber is the only qualified carbon fiber in many U.S. military aircraft and rocket programs. We believe that our extensive range of qualifications positions us to remain a leading supplier of advanced structural materials to the aerospace industry. - LEADER IN GROWING MULTILAYER PCB MARKET. We are the leading weaver of the fine, lightweight fiberglass fabrics used in the fabrication of multilayer PCBs. This position allows us to capitalize on the continuing trend toward electronics miniaturization, which relies on multilayer PCBs to achieve smaller size with increased functionality. Multilayer PCBs are the fastest growing segment of the PCB industry and our fabrics are one of the enabling technologies for such PCBs. The worldwide PCB market is estimated at over $30 billion, with multilayer PCBs comprising approximately two- thirds of the total market. As the leading manufacturer of lightweight fabrics for multilayer PCBs, we are well positioned to capture a significant portion of this market growth. - MANUFACTURING AND TECHNICAL EXPERTISE. We have been a leader in advanced structural materials technology for over 50 years and a leader in fiberglass fabrics technology for nearly 40 years. We believe that the range of technologies and products that we have developed over these decades gives us a level of manufacturing expertise unsurpassed in our industry. Our technically oriented sales force works with new and existing customers to identify and engineer solutions to meet our customers' needs, particularly by identifying areas where advanced structural materials may beneficially replace traditional materials. BUSINESS STRATEGY Key elements of our strategy include the following: - MAINTAIN LEADERSHIP POSITION IN COMMERCIAL AEROSPACE INDUSTRY. Commercial aerospace remains the largest market for advanced structural materials. We are the leading supplier to this industry, with strong positions at both Boeing and Airbus. We believe that demand for commercial aircraft, and therefore advanced structural materials, while leveling off in 1999, will remain at historically high levels for the next several years as a result of the following trends that have been identified in industry reports: - continued growth in air travel over the next ten years; - the existing broad design and qualification baseline for advanced structural materials in modern commercial aircraft; - the acceleration of new aircraft deliveries as a result of government noise regulations; - European aviation deregulation; - continuing airline profitability and balance sheet strength; and - expected increases in aircraft fleet size during the next decade. Industry analysts believe combined Boeing and Airbus production will decline from 1999 peak levels but remain at a historically high level for the next few years, although relative market shares 44 may shift. We believe that we are well positioned to capitalize on such trends by continuing to produce a wide variety of advanced structural materials for use in the manufacture of virtually every commercial aircraft in the western world, whether the aircraft is produced by Boeing, Airbus or regional manufacturers. We continue to pursue the increased use of advanced structural materials in each new generation of commercial aircraft. The latest Airbus A340 500/600 models for the first time utilize advanced structural materials to fabricate the keel beam and the rear pressure bulkhead. The A3XX, when built, will evidence further penetration of advanced structural materials as a proportion of total materials used in the fabrication of the airframe and control surfaces. - REDUCE PRODUCTION COSTS AND IMPROVE MANUFACTURING EFFICIENCIES. We will pursue specific initiatives to reduce production costs and capital expenditures and improve manufacturing efficiencies, including implementation of our Lean Enterprise program and value chain management initiatives on a global basis. As has been the case with the program we initiated in 1996, which we believe has resulted in a reduction of annual costs in excess of $30 million, these new initiatives are expected to generate significant improvements in our operating cost structure in 1999 and beyond. The goals of our current programs are to reduce unit product costs, lower production cycle times, increase throughputs, lower inventories and improve product quality and customer satisfaction. - CAPITALIZE ON GROWING MILITARY AEROSPACE MARKETS. We intend to capitalize on the expected growth of the military market, which uses a higher percentage of advanced structural materials and higher value products than the commercial market. We are already qualified to supply materials to a broad range of military aircraft and helicopters scheduled to enter full scale production at the start of the next decade. Demand for many of these aircraft is driven in part by the need to replace aging fighter and transport aircraft platforms. Some of these programs are currently in the developmental stage, but in many cases government funding for production has been approved. These programs include the V-22 Osprey tilt-rotor, F-22 (Raptor), F/A-18E/F (Hornet), C-17 transport, European Fighter Aircraft (Typhoon), RAH-66 (Comanche) and NH90 helicopter. - EXPLOIT OPPORTUNITIES FROM THE COMMERCIALIZATION OF SPACE. The rapid growth in the commercial use of satellites for voice, data and image communications as well as mapping and weather monitoring is expected to generate increasing production of satellites, rockets and launch vehicles. Advanced structural materials should benefit from the growth in space-related markets because they are well suited to meet severe environmental conditions during launch and in space and the need to maximize launch payloads and reduce launch costs. We are currently developing and positioning our products for the fabrication of satellites and for the next generation of launch vehicles. Our products are already qualified for use in programs such as the Delta II, III and IV, Sea Launch and Ariane rockets. - GLOBALIZE AND INTEGRATE GLASS FABRICS OPERATIONS. As a result of our acquisition of Clark-Schwebel and its equity interests in CS-Interglas and Asahi-Schwebel, we are now the largest supplier of glass fabrics to producers of PCBs and reinforcements for structural composites worldwide. We intend to integrate the acquired Clark-Schwebel operations into our own operations to create a global organization that can exploit best manufacturing practices and technology, leverage procurement of raw materials and optimize the utilization of our manufacturing capacity. We expect that these efforts will significantly reduce costs and broaden our reach in these key markets. - EXPAND APPLICATIONS FOR ADVANCED STRUCTURAL MATERIALS. We are committed to expanding the applications of our advanced materials both within existing markets and into promising new segments. To date, advanced structural materials have found their greatest use in aerospace and recreation applications, where their performance properties have shown the most demonstrable value. We believe that these materials have significant potential applications in surface transportation (e.g., high speed and mass transit railways, cars and trucks, high speed ferries and commercial shipping), civil engineering (e.g., repair and reinforcement of buildings and bridges) and energy (e.g., windmill blades and fly wheels). Where appropriate, we will leverage our development of new applications through alliances with companies that have strong positions in these markets. For example, we have 45 entered into a strategic alliance with Sika Finanz AG, a leading Swiss-based construction products company, to develop the market for advanced structural materials in construction and civil engineering applications. RECENT ACQUISITION HISTORY On September 15, 1998, we acquired the industrial fabrics business of Clark-Schwebel and its subsidiaries for a cash purchase price of approximately $472 million (including $19 million paid on December 23, 1998). This business is engaged in the manufacture and sale of high-quality fiberglass fabrics used to make PCBs for electronics equipment such as computers, cellular telephones, televisions and automotive components. The business also produces high performance specialty products for use in insulation, filtration, wall and facade claddings, ballistics and reinforcements for composite materials. We also entered into a $50 million lease of property, plant and equipment used in that business pursuant to a long-term lease that includes purchase options. The Clark-Schwebel acquisition established our company as a leading global materials supplier to the electronics industry, which we believe has attractive long-term growth potential, and further diversified our business beyond the historically cyclical commercial aerospace market. The Clark-Schwebel acquisition was our most recent in a series of strategic acquisitions. On February 29, 1996, we purchased the composites business of Ciba-Geigy Limited ("CGL") for an aggregate value of approximately $209 million. This acquisition combined two of the world's leading and most technically advanced structural materials companies, broadening our range of products and markets, enhancing our research, development and technological capabilities and balancing our geographical scope. CGL's composite product lines were highly complementary to our fabrics, prepregs and honeycomb businesses; furthermore, CGL composites provided us with manufacturing capabilities in finished and semi-finished structures and interiors for airframe OEMs. Our overall customer profiles were similar, but CGL's composites had a stronger presence in Europe, particularly with members of the Airbus consortium (Aerospatiale, British Aerospace, CASA and DASA). With equally strong market positions in Europe and the United States, we benefit from future aircraft orders placed with either Boeing or Airbus. As a result of the Ciba composites acquisition and the spinoff of Ciba Specialty Chemical Holding Inc. (a Swiss Corporation formerly an affiliate of CGL ("Ciba")) from CGL, Ciba has a significant relationship with our company and now beneficially owns 49.6% of our outstanding common shares. On June 27, 1996, we acquired Hercules Inc.'s composite products division for a cash purchase price of approximately $139 million. This acquisition combined two leading prepreg manufacturers and enabled us to produce a large portion of a significant raw material, polyacrylonitrile ("PAN") based carbon fiber. With this acquisition, we became the fourth largest carbon fiber producer in the world. We are also today the largest consumer of PAN-based carbon fiber in the world, utilizing approximately 20% of worldwide carbon fiber production. This has created a hedge against carbon fiber price fluctuations for us because we both buy and sell this crucial raw material. In addition, the Hercules acquisition further enhanced our technological and integrated manufacturing capabilities and provided us with new prepreg products and customer qualifications both in the United States and Europe, thus strengthening existing customer relationships. On September 30, 1997, we acquired the business and certain non-exclusive worldwide rights to certain prepreg technologies of Fiberite, Inc., which consisted of intangible assets and inventory, and certain non-exclusive, worldwide rights to certain prepreg technologies, for $37.0 million in cash. The Fiberite acquisition expanded our existing role as a supplier of carbon fiber, prepreg and honeycomb to rocket and space satellite programs, positioned us to capitalize on the expected growth in commercial satellite activities and expanded our offering of prepregs for commercial and military applications. The Clark-Schwebel, Ciba, Hercules and Fiberite acquisitions transformed Hexcel into what we believe is the most vertically integrated company in the advanced structural materials industry. 46 CORE BUSINESSES Hexcel operates in three business segments, each of which focuses on particular products and markets.
BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE FIBERS & FABRICS Carbon Fibers - Raw materials for industrial fabrics and prepregs; and - Filament winding for various space, defense and industrial applications. Industrial Fabrics - Printed circuit boards; - Raw materials for prepregs and honeycomb; - Various marine applications; - 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 & interiors; - Semi-finished aircraft components; - Munitions and defense systems; and - Skis, snowboards, golf club shafts, fishing rods and tennis rackets. Structural Adhesives - Bonding of structural materials and components, including composite panels. Honeycomb, Honeycomb - Raw materials for composite structures Parts & Composite & interiors; and Panels - Semi-finished aircraft components used in: Helicopter blades; Aircraft surfaces (flaps, wing tips, elevators and fairings); High-speed ferries, truck and train components; Automotive carburetor components; and Space shuttle doors. ENGINEERED PRODUCTS Composite Structures - Aircraft structures and finished aircraft components, including: Wing-to-body and flap track fairings; Radomes; Engine cowls and inlet ducts; Wing panels; and Truck floor panels. Interiors - OEM and retrofit aircraft interiors, including: Overhead stowage compartments; Lavatories; and Sidewalls and ceilings.
47 FIBERS & FABRICS The Fibers and Fabrics business segment has worldwide responsibility for manufacturing and marketing carbon fibers and industrial fabrics. CARBON FIBERS. Carbon fibers are manufactured for sale to third-party customers and for use by Hexcel in manufacturing certain industrial 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. Key product applications include structural components for commercial and military aircraft and space launch vehicles, as well as certain recreational and general industrial products such as golf club shafts and tennis racquets. On a pro forma basis, for the nine months ended September 30, 1998, we sold approximately 58% of the carbon fiber that we produced to third-party customers and used the remainder internally. INDUSTRIAL FABRICS. Industrial fabrics are made from a variety of fibers, including several types of fiberglass as well as carbon, aramid, quartz, ceramic and other specialty reinforcements. On a pro forma basis, for the nine months ended September 30, 1998, we sold approximately 73% of the industrial fabrics that we produced to third-party customers for use in a wide range of products, including PCBs, window coverings and other architectural products, soft body armor, and a variety of structural materials and components used in aerospace, marine and rail applications. The remainder was used internally to manufacture prepregs and other composite materials.
FIBERS & FABRICS KEY CUSTOMERS MANUFACTURING FACILITIES AlliedSignal Anderson, SC Alliant Techsystems Cleveland, GA Cytec Fiberite Decatur, AL IBM Decines, France Isola Les Avenieres, France Nelco Salt Lake City, UT Piad Seguin, TX Polyclad Statesville, NC Second Chance Washington, GA
COMPOSITE MATERIALS The Composite Materials business unit, which was recently reorganized on a global basis, has worldwide responsibility for manufacturing and marketing prepregs, structural adhesives, honeycomb, specially machined honeycomb parts and composite panels. PREPREGS AND STRUCTURAL ADHESIVES. We are a worldwide leader in the production of prepregs and have led the development of applications for prepregs for nearly thirty years. Prepregs are manufactured by combining high performance industrial fabrics or unidirectional fibers with a resin matrix to form a composite material with exceptional structural properties not present in either of their constituent materials. Industrial fabrics used in the manufacture of prepregs include S-2-Registered Trademark- fiberglass, carbon, aramid, quartz, ceramic, Thorstrand-Registered Trademark-, polyethylene and other specialty reinforcements. Resin matrices include BMI, cyanates, epoxy, phenolic, polyester, polyimide and other specialty resins. Prepregs are used to manufacture other products, including finished components for aircraft structures and interiors. 48 Hexcel designs and markets a comprehensive range of Redux-Registered Trademark- and other 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 composed of hexagonal nested cells. 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 and a uniform resistance to crushing. These basic characteristics are combined with the physical properties of the material from which the honeycomb is made to meet various engineering requirements. Hexcel produces honeycomb from a number of metallic and non-metallic materials. Most metallic honeycomb is made from aluminum and is available in a selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials include fiberglass, carbon, thermoplastics, non-flammable aramid papers and several other specialty materials. Hexcel sells 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 us 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. The largest market for honeycomb products is the aerospace market. We also sell honeycomb for non-aerospace applications including high-speed trains and mass transit vehicles, automotive parts, energy absorption products, marine vessel compartments, portable shelters, business machine cabinets and other general industrial uses. In addition, we produce honeycomb for the Engineered Products business segment for use in manufacturing finished parts for airframe OEMs.
COMPOSITE MATERIALS KEY CUSTOMERS MANUFACTURING FACILITIES United States United States Boeing Burlington, WA CFAN Casa Grande, AZ Hawker de Havilland Gilbert, AZ Lockheed Martin Lancaster, OH Northrop Grumman Livermore, CA Rohr Pottsville, PA United Technologies Salt Lake City, UT Europe Europe Aerospatiale Dagneux, France Alenia Duxford, England British Aerospace Linz, Austria CASA Parla, Spain DASA Swindon, England Welkenraedt, Belgium
49 ENGINEERED PRODUCTS The Engineered Products business unit has worldwide responsibility for designing, manufacturing and marketing lightweight, high-strength composite structures and interiors primarily for use in the aerospace industry. COMPOSITE STRUCTURES. Composite structures, and structural parts, are manufactured from a variety of composite materials (prepregs, honeycombs and structural adhesives) using such manufacturing processes as resin transfer molding, autoclave processing, press laminating, heat forming, resin transfer molding and other manufacturing techniques. Composite structures include such items as wing-to-body and flap track fairings, radomes, engine cowls, inlet ducts, wing panels and other aircraft components. More recently, we have begun to produce composite structural components used in heavy trucks (such as the cab floor of the Kenworth T2000 truck) and certain other industrial products. AIRCRAFT INTERIORS. Hexcel designs and produces innovative, lightweight, high-strength composite interior systems for aircraft. Aircraft interior products include overhead stowage bins, lavatories, sidewalls and ceilings. We sell these products to Boeing and other airframe manufacturers for use in the production of certain aircraft, and to airlines for replacement of existing interior components.
ENGINEERED PRODUCTS KEY CUSTOMERS MANUFACTURING FACILITIES Alenia Bellingham, WA Boeing Brindisi, Italy Kenworth Kent, WA Mitsubishi Northrop Grumman
JOINT VENTURES In January 1998, we 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, we signed an agreement with Boeing, Sime Darby Berhad and Malaysia Helicopter Services (now known as Naluri Berhad) 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 our 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 2001. Our total estimated financial commitment to both of these joint ventures will be approximately $31 million, which is expected to be made in increments through 2001. However, implementation of these projects, including the related investments, remains subject to certain significant conditions, including completion of negotiation of relevant contracts and U.S. and foreign governmental approvals. We have also formed a global alliance with Sika Finanz AG ("Sika") to develop and market composite systems for the construction industry. Initial applications will focus on the strengthening and repair of existing structures using composite materials. Under the terms of the alliance, Sika will generally take leadership for the marketing and sale of alliance products under the Sika Carbodur-Registered Trademark- trade name, and Hexcel will take leadership for the development and manufacture of advanced structural materials for the alliance. Sika is a worldwide leader in construction chemicals and structural adhesives. Sika has extensive experience and expertise in the repair, protection and strengthening of structures in the construction industry and the use of elastic bonding technology in the transportation industry. 50 In addition, we have a 45% equity interest in a joint venture in Japan with Dainippon Ink and Chemicals ("DIC"). This joint venture, which owns and operates a manufacturing facility in Komatsu, Japan, was formed in 1990 and produces and sells prepregs, honeycomb, decorative laminates and bulk molding compounds using technology licensed from Hexcel and DIC. As part of the Clark-Schwebel acquisition, we also acquired significant equity ownership interests in three joint ventures: - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan, which in turn has its own joint venture with AlliedSignal in Taiwan; - a 43.6% share in CS-Interglas AG ("CS-Interglas"), together with fixed-price options to increase this equity interest to approximately 84%; and - a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"), headquartered in the U.S. CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the European and Asian electronics industry. In addition, CS-Interglas and Asahi-Schwebel have announced plans to build and operate a jointly owned facility in the Philippines to serve the PCB laminate market in Southeast Asia, although there can be no assurance that this proposed joint venture will proceed as originally planned. CS Tech-Fab manufactures non-woven materials for roofing, construction and other specialty applications. LEAN ENTERPRISE AND VALUE CHAIN MANAGEMENT PROGRAMS The Lean Enterprise and value chain management programs are designed to create a common way of managing our company, with a singular focus on creating value for our customers and eliminating waste throughout the value chain. This new management approach targets value creation, and challenges all our employees to continually reduce cost, improve our operating efficiency and maximize the quality of our products. Success of the program will depend on training our employees to eliminate waste and non-value activity while improving business processes to deliver superior product faster and more efficiently than our competitors. The goals of the program are reduced scrap, faster manufacturing cycle times, shorter equipment set-up and clean-down times, lower manufacturing rejects and warranty claims, faster processing of customer orders and deliveries, simplified manufacturing procedures and improved manufacturing processes. All of these actions, if successful, are expected to result in higher throughput and greater capacity on existing manufacturing equipment, thereby reducing both capital expenditures and facility requirements. Improved efficiency and quality are expected to result in lower unit labor requirements and thereby lower product costs and lower inventory requirements. The potential for improvement encompasses our entire vertically integrated supply chain, including our manufacturing plants, support functions, product development activities and customers and suppliers. The Lean Enterprise program is also systematically linked with key initiatives to improve the quality and effectiveness of our global procurement activities. The results of these multi-year initiatives will be measured by the satisfaction of our customers and the progressive improvement in our operating performance. PRODUCTION SUPPLY CHAIN As a result of the vertically integrated nature of Hexcel's operations, we produce several materials used in our manufacture of certain industrial fabrics, composite materials and engineered products, as well as the PAN used as a precursor material in our manufacture of carbon fibers. As depicted below, at each level of the production supply chain Hexcel sells a significant portion of its products to outside customers, thus exposing each product line to market forces and stimulating productivity and innovation so that 51 product lines remain cost competitive and at the leading edge of technology. Currently, we consume internally approximately 42% and 27% of our carbon fiber and fabric production, respectively. [LOGO] Hexcel's production activities are generally based on a combination of "make-to-order" and "make-to-forecast" production requirements. We coordinate closely with key suppliers in an effort to avoid raw material shortages and excess inventories. RESEARCH AND TECHNOLOGY Hexcel's research and technology ("R&T") activities support all of our core businesses worldwide. Through R&T, we maintain 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 our worldwide business base. Additionally, our R&T departments perform a limited amount of contract research and development in the United States and Europe for strategically important customers in the areas of ceramics, higher temperature polymers, advanced textiles and composite structures manufacturing. Our products rely primarily on our expertise in materials science, textiles, process engineering and polymer chemistry. Consistent with market demand, we have been placing more emphasis on cost effective product design and agile manufacturing in recent years. Towards this end, we have entered into formal and 52 informal partnerships, as well as licensing and teaming arrangements, with several customers, suppliers, external agencies and laboratories. We believe that we possess unique capabilities to design, develop and manufacture composite materials and structures. We own and maintain in excess of 100 patents worldwide, have licensed many key technologies and have granted technology licenses and patent rights to several third parties in connection with joint ventures and joint development programs. Our company spent $18.4 million for R&T for the year ended December 31, 1997 and $16.9 million for the nine months ended September 30, 1998. MARKETS AND CUSTOMERS Our materials are sold for a broad range of end-uses. The following tables summarize net sales to third-party customers by market and by geography for the year ended December 31, 1997 and the twelve months ended September 30, 1998 (pro forma after giving effect to the Clark-Schwebel acquisition).
PRO FORMA TWELVE YEAR ENDED DECEMBER MONTHS ENDED 31, 1997 SEPTEMBER 30, 1998 ------------------- ------------------- NET SALES BY MARKET Commercial aerospace.................................................... 67% 58% Space and defense....................................................... 10 9 Electronics............................................................. 4 15 General industrial...................................................... 13 13 Recreation.............................................................. 6 5 ----- ----- Total............................................................... 100% 100% ----- ----- ----- ----- NET SALES BY GEOGRAPHY United States........................................................... 56% 60% U.S. exports............................................................ 8 8 International........................................................... 36 32 ----- ----- Total............................................................... 100% 100% ----- ----- ----- -----
Virtually all of the net sales of the Clark-Schwebel Business (exclusive of its non-consolidated joint ventures) are to customers located in the United States. Approximately 65% of net sales of the Clark-Schwebel Business are to electronics markets, approximately 14% to commercial aerospace markets and 21% to general industrial markets. COMMERCIAL AEROSPACE. Historically, the commercial aerospace industry has led the development of applications for advanced structural materials and components because it has the strongest need for the performance properties of these materials, and is well positioned to maximize the economic benefits from their use. The demand for advanced structural material products, however, is closely correlated to the demand for commercial aircraft. Commercial aircraft demand fluctuates in relation to two principal factors. First, the number of revenue passenger miles flown by the world's 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 4.9% per year over the next decade, providing a source of long-term demand for new commercial aircraft. However, recent economic events in Asia, Latin America and other parts of the world may result in difficulties in achieving this projected growth rate, especially in the near term. The second demand 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 the regulatory requirements established by various civil aviation authorities, and by public concern 53 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. Reflecting the demand factors noted above, the number of commercial aircraft delivered by Boeing, including McDonnell Douglas, and Airbus declined by 48% from 1992 to 1995. At the lowest point during this period, Boeing and Airbus reported combined deliveries of 380 aircraft. Beginning in 1996, however, aircraft deliveries by Boeing and Airbus began to rise, growing to a combined total of 397 in 1996, 557 in 1997, and 788 in 1998. Based on published projections, including a press release issued by Boeing on December 1, 1998, combined deliveries are expected to peak at 913 in 1999, before declining to 807 in 2000. Set forth below are historical and projected deliveries as published by Boeing and Airbus:
1990 1991 1992 1993 1994 1995 ----- ----- ----- ----- ----- ----- Boeing/McDonnell Douglas...................... 527 605 573 409 311 256 Airbus........................................ 95 163 157 138 127 124 --- --- --- --- --- --- Total..................................... 622 768 730 547 438 380 --- --- --- --- --- --- --- --- --- --- --- --- PROJECTED ------------ 1996 1997 1998 1999 2000 ----- ----- ----- ----- ----- Boeing/McDonnell Douglas...................... 271 375 559 620 490 Airbus........................................ 126 182 229 293 317 --- --- --- --- --- Total..................................... 397 557 788 913 807 --- --- --- --- --- --- --- --- --- ---
Approximately 43% of Hexcel's net sales for the nine months ended September 30, 1998 were to Boeing (including materials for military aircraft and space programs), Airbus and related subcontractors, compared with 46% in 1997 and 32% in 1996. This percentage is expected to decline in 1999, as a result of the projected trends in commercial aircraft deliveries as well as the procurement and manufacturing trends noted above. In addition, the acquisition of the Clark-Schwebel Business will increase the proportion of Hexcel's sales to the electronics market in 1999. On a pro forma basis, Hexcel's net sales for the twelve months ended September 30, 1998 to Boeing, Airbus and related subcontractors were approximately 38% of its total net sales. SPACE AND DEFENSE. The space and defense markets have historically been innovators in and sources of significant demand for advanced structural materials. For example, advanced structural materials made a major contribution to the development of "stealth" aircraft technologies. However, aggregate demand by space and defense customers is primarily a function of military aircraft procurement by the U.S. and certain European governments. Consequently, the space and defense market for advanced structural materials declined significantly during the early part of this decade, as a result of substantial decreases in military aircraft procurement that began in the late 1980s. Presently, there are a number of potentially significant military aircraft programs in various stages of development or initial production that utilize advanced structural materials. Hexcel has a number of carbon fiber and composite material products qualified for use on several of these programs, including the competing development versions of the Joint Strike Fighter (JSF), the F-22 (Raptor) and F/A-18 E/F (Hornet) aircraft, the European Fighter Aircraft (Typhoon), the C-17 cargo and V-22 (Osprey) tilt-rotor aircraft, RAH-66 (Comanche) and NH90 helicopter. ELECTRONICS. The acquisition of the Clark-Schwebel Business provides Hexcel with a global platform to supply the electronics industry, which we believe has attractive long-term growth potential. The Clark-Schwebel Business is the largest producer of fine, lightweight fiberglass fabrics used in the fabrication of multilayer PCBs, with an estimated 50% market share in the United States. In addition to its U.S. businesses, it has significant ownership positions in three joint ventures: CS-Interglas, Asahi-Schwebel and CS Tech-Fab. CS-Interglas and Asahi-Schwebel are leading fiberglass fabric manufacturers in Europe, Japan and Southeast Asia with estimated electronics fiberglass fabric market shares of 36%, 38% and 13%, respectively. Fiberglass fabrics are a critical component used in the production of PCBs, which are integral to most advanced electronics products, including computers, telecommunications equipment, advanced cable television equipment, network servers, televisions, automotive equipment and home appliances. We believe that we are strategically positioned to capitalize on the expected growth in worldwide demand for electronics fiberglass fabrics resulting from: 54 - the development of more complex and sophisticated electronics equipment in established markets, such as wireless communications and personal computers; - the proliferation of computer usage through networking, server and multi-media systems; - the increase in global demand for telecommunication infrastructure and mobile telecommunications services; and - new applications for electronic systems in automobiles, home appliances and medical equipment. The worldwide PCB market is estimated at over $30 billion, with multilayer PCBs comprising approximately two-thirds of the total market. As the leading manufacturer of lightweight fabrics for multilayer PCBs, we are well positioned to capture a significant portion of this market growth. RECREATION, GENERAL INDUSTRIAL AND OTHER MARKETS. We have focused our participation in recreation and general industrial markets in areas where the application of advanced structural material technology offers significant benefits to the end-user. As a result, we have chosen select opportunities where high performance is the key product criterion. Accordingly, future opportunities and growth depend primarily upon the success of the individual programs and industries in which we have elected to participate. Within the recreation market, key product applications in which we are involved include skis, snowboards, golf club shafts, fishing rods, tennis rackets and bicycles. Within general industrial markets, key applications include surface transportation (automobiles, trucks, mass transit and high-speed rail and marine applications), wind energy and civil engineering. Hexcel's participation in these markets is a valuable complement to our commercial and military aerospace businesses, and we are committed to the application of advanced structural material technology in performance-driven recreation and general industrial products. COMPETITION In the production and sale of advanced structural materials, Hexcel competes with numerous United States and international companies on a worldwide basis. The broad markets for our products are highly competitive and we have focused on both specific markets and specialty products within markets to obtain market share. In addition to competing directly with companies offering similar products, our materials compete with substitute structural materials such as structural foam, wood, metal and concrete. Depending upon the material and markets, relevant competitive factors include price, delivery, service, quality and product performance. See "Risk Factors--Competition." ENVIRONMENTAL MATTERS We are subject to numerous federal, state, local and foreign laws and regulations that impose strict requirements for the control and abatement of air, water and soil pollutants and the manufacturing, storage, handling and disposal of hazardous substances and waste. These laws and regulations include the Federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA" or "Superfund"), the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act, and analogous state laws and regulations. Regulatory standards under these environmental laws and regulations have tended to become increasingly stringent over time. We have incurred substantial compliance costs, including capital costs, in complying with such requirements in the United States and in foreign jurisdictions. We are currently a party to, or otherwise involved in, legal proceedings in connection with a number of Superfund sites. Because CERCLA provides for joint and several liability, we could be responsible for all remediation costs at such sites, even if we are one of many potentially responsible parties ("PRPs"). We believe, however, based on our experience with such matters, the amount and the nature of our waste, and the number of other financially viable PRPs, that our liability in connection with such matters will not be material. 55 In addition, we are currently investigating and remediating on-site areas of contamination at certain of our current and former facilities. We cannot assure you that we have identified all off-site liability matters and all on-site remediation matters involving our current or former facilities for which we may be responsible or that the cost of such known or unknown remediation matters will be immaterial. We have established financial reserves in cases where the amount of environmentally-related expenditures can be reasonably estimated. As assessments and cleanups proceed, and as additional information becomes available, we will review and adjust, if necessary, these reserve amounts. EMPLOYEES As of September 30, 1998, Hexcel employed 6,875 full-time employees, compared with 5,597 and 5,013 as of December 31, 1997 and 1996, respectively. As a result of the acquisition of the Clark-Schwebel Business, we added approximately 1,300 employees to our workforce. Approximately 20% of Hexcel's employees have various union affiliations. We believe that labor relations in our company are generally satisfactory. PROPERTIES Hexcel owns manufacturing facilities and leases sales offices located throughout the United States and in other countries as noted below. Our corporate offices are located in leased facilities in Stamford, Connecticut and Pleasanton, California. Our central R&T 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 manufactured. The following table does not include manufacturing facilities owned by entities in which we have a joint venture interest. 56 MANUFACTURING FACILITIES
APPROXIMATE FACILITY LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS - ---------------------------------------- -------------- ------------------------------------------------------- UNITED STATES: Anderson, South Carolina.............. 432,000 Reinforcement fabrics Bellingham, Washington................ 188,000 Interiors Burlington, Washington................ 73,000 Honeycomb Parts Casa Grande, Arizona.................. 307,000 Honeycomb and Honeycomb Parts Cleveland, Georgia.................... 93,000 Heavyweight electronic fabric Decatur, Alabama...................... 159,000 PAN Precursor (used to produce Carbon Fibers) Gilbert, Arizona...................... 30,000 Prepregs Kent, Washington...................... 883,000 Composite Structures; Interiors Lancaster, Ohio....................... 49,000 Prepregs Livermore, California................. 141,000 Prepregs Pottsville, Pennsylvania.............. 134,000 Honeycomb Parts Salt Lake City, Utah.................. 371,000 Carbon Fibers; Prepregs Seguin, Texas......................... 204,000 Reinforcement fabrics Statesville, North Carolina........... 553,000 Lightweight electronic fabrics; reinforcement fabrics Washington, Georgia................... 160,000 Midweight electronic fabrics INTERNATIONAL: Brindisi, Italy....................... 110,000 Engineered Products Dagneux, France....................... 130,000 Prepregs Decines, France....................... 90,000 Reinforcement fabrics Duxford, United Kingdom............... 440,000 Prepregs; Honeycomb and Honeycomb Parts Les Avenieres, France................. 476,000 Reinforcement fabrics; Prepregs Linz, Austria......................... 163,000 Prepregs Parla, Spain.......................... 43,000 Prepregs Swindon, United Kingdom............... 20,000 Honeycomb Parts Welkenraedt, Belgium.................. 223,000 Honeycomb and Honeycomb Parts
Hexcel leases the facilities located in Anderson, South Carolina; Washington, Georgia; Statesville, North Carolina; Gilbert, Arizona; and Swindon, U.K.; and the land on which the Burlington, Washington, facility is located. The Company also leases portions of the facilities located in Casa Grande, Arizona; Bellingham and Kent, Washington; Linz, Austria; and Les Avenieres, France. 57 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The Board of Directors of our company (the "Board of Directors" or the "Board") consists of 10 directors: four directors designated by Ciba (John M.D. Cheesmond, Stanley Sherman, Joseph T. Sullivan and Hermann Vodicka), the Chairman of the Board and Chief Executive Officer of Hexcel (John J. Lee), the President and Chief Operating Officer of Hexcel (Harold E. Kinne) and four additional independent directors (Marshall S. Geller, Martin L. Solomon, George S. Springer and Franklin S. Wimer). The following tables set forth certain information regarding the directors and certain executive officers of our company as of December 15, 1998. No family relationship exists between any of our directors and/or executive officers. DIRECTORS
DIRECTOR NAME AGE SINCE POSITION(S) WITH HEXCEL - ------------------------------- --- ----------- ---------------------------------------------------------------- John J. Lee.................... 62 1993 Chairman of the Board; Chief Executive Officer; Director Harold E. Kinne................ 59 1998 President and Chief Operating Officer; Director John M.D. Cheesmond............ 49 1996 Director Marshall S. Geller............. 59 1994 Director Stanley Sherman................ 60 1996 Director Martin L. Solomon.............. 62 1996 Director George S. Springer............. 65 1993 Director Joseph T. Sullivan............. 58 1996 Director Hermann Vodicka................ 56 1996 Director Franklin S. Wimer.............. 62 1995 Director
JOHN J. LEE, age 62, has served as Chairman of the Board of Directors of Hexcel since February 1996, Chief Executive Officer since January 1994, Chairman and Chief Executive Officer from January 1994 to February 1995, Chairman and Co-Chief Executive Officer from July 1993 to December 1993 and a director since May 1993. He also serves as Chairman of the Nominating Committee and is a member of the Finance Committee of Hexcel. Mr. Lee is a director of Hvide Marine Incorporated, a marine support and transportation services company. He has served as Chairman of the Board, President and Chief Executive Officer of Lee Development Corporation, a merchant banking company, since 1987 and as an adviser to the Clipper Group, a private investment partnership, since 1993. He is a trustee of Yale University and is also a director of various privately-held corporations. Mr. Lee was a director of XTRA Corporation, a transportation equipment leasing company, from 1990 to 1996 and Chairman of the Board and Chief Executive Officer of Seminole Corporation, a manufacturer and distributor of fertilizer, from 1989 to 1993. Mr. Lee also served as a director of Tosco Corporation, a national refiner and marketer of petroleum products, from 1988 to 1993 and as President and Chief Operating Officer of Tosco Corporation from 1990 through 1993. HAROLD E. KINNE, age 59, has served as President and Chief Operating Officer of Hexcel since July 1998. Prior to joining Hexcel, he was President of the Additives Division, corporate vice president, a member of the corporate management committee and a director of Ciba Specialty Chemicals Corporation from 1996 to June 1998. Mr. Kinne also held the same positions in Ciba-Geigy Corporation ("CGC") from 1988 through 1996. Prior to that, Mr. Kinne served as Vice President, Pigments, for the Plastics & Additives Division of CGC from 1986 to 1988. Mr. Kinne has held various other technical and managerial positions with CGC from 1965 to 1986. JOHN M.D. CHEESMOND, age 49, has been a director of Hexcel since February 1996. Mr. Cheesmond also serves as Chairman of the Executive Compensation Committee, is a member of the 58 Finance Committee of Hexcel and is Executive Vice President of Ciba Specialty Chemicals Inc. (Switzerland). Mr. Cheesmond was Senior Vice President and Head of Regional Finance and Control of Ciba Geigy Limited ("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, age 59, served as Co-Chairman of the Board of Directors of Hexcel from February 1995 to February 1996 and 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 has served as Chairman of the Board, Chief Executive Officer and founding partner at Geller & Friend Capital Partners, Inc., a merchant banking firm, since 1995. Mr. Geller was Senior Managing Director of Golenberg & Geller, Inc., a merchant banking firm, from 1991 to 1995; Vice Chairman of Gruntal & Company, an investment banking firm, from 1988 to 1990; and a Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking firm, from 1967 to 1988. Mr. Geller is currently a director of Ballantyne of Omaha, Inc., Players International, Inc., Value Vision International, Inc., iMall, Inc., DataLink Systems Corp., Cabletel Communications Corp., Stroud's, Inc. and various privately-held corporations and charitable organizations. STANLEY SHERMAN, age 60, 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). Mr. Sherman served as a director and Vice President and Chief Financial Officer of CGC from 1991 to 1996, and was a member of 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 Directors of the Westchester Educational Coalition. MARTIN L. SOLOMON, age 62, has been a director of Hexcel since May 1996. Mr. Solomon serves as Chairman of the Finance Committee and is a member of the Audit and Executive Compensation Committees of Hexcel. Mr. Solomon has been Chairman and Chief Executive Officer of American County Holdings, Inc., an insurance holding company, since 1997 and a self-employed investor since 1990. Mr. Solomon was a director and Vice Chairman of the Board of Directors of Great Dane Holdings, Inc., which is engaged in the manufacture of transportation equipment, automobile stamping, the leasing of taxis and insurance, from 1985 to 1996, Managing Partner of Value Equity Associates I, L.R., an investment partnership, from 1988 to 1990, and an investment analyst and portfolio manager of Steinhardt Partners, an investment partnership, from 1985 to 1987. Mr. Solomon has been a director of XTRA Corporation since 1990. Mr. Solomon is also a director of various privately-held corporations and civic organizations. GEORGE S. SPRINGER, age 65, 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, age 58, 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 the Joseph H. Colic Professor of Chemical Engineering at Virginia Polytechnic Institute and State University in Blacksburg, VA, and also works as a consultant. Mr. Sullivan served as a director and Senior Vice President of CGC from 1986 to 1996. HERMANN VODICKA, age 56, has been a director of Hexcel since February 1996. Mr. Vodicka also serves as a member of the Nominating and Technology Committees of Hexcel. Mr. Vodicka was Chief Executive Officer and a director of Ciba until December 1998 and 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 59 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, age 62, was a director of Hexcel from February 1995 to February 1996 and was reelected in May 1996. Mr. Wimer also serves as Chairman of the Audit Committee and is a member of 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. EXECUTIVE OFFICERS Set forth below is certain information concerning the executive officers of Hexcel and all persons chosen to become executive officers of Hexcel as of December 15, 1998. For additional information concerning Messrs. Lee and Kinne, see "--Directors and Executive Officers--Directors."
EXECUTIVE OFFICER NAME AGE SINCE POSITION(S) WITH HEXCEL - ----------------------------- --- ----------- ------------------------------------------------------------------ John J. Lee.................. 62 1993 Chairman of the Board; Chief Executive Officer; Director Harold E. Kinne.............. 59 1998 President; Chief Operating Officer; Director Stephen C. Forsyth........... 43 1994 Executive Vice President; Chief Financial Officer Ira J. Krakower.............. 58 1996 Senior Vice President; General Counsel; Secretary Wayne C. Pensky.............. 43 1993 Vice President; Corporate Controller; Chief Accounting Officer Robert A. Petrisko........... 44 1993 Vice President of Research and Technology Gary L. Sandercock........... 57 1989 Vice President of Manufacturing Joseph H. Shaulson........... 33 1996 Vice President of Planning and Integration David M. Wong................ 54 1996 Vice President of Corporate Affairs Bruce D. Herman.............. 43 1996 Treasurer William Hunt................. 55 1996 President of the Global Materials Business Unit William D. Bennison.......... 54 1998 President of the Global Fabrics Business Unit James N. Burns............... 58 1996 President of the Fibers Business Unit Justin Taylor................ 45 1996 President of the Structures and Interiors Business Unit
STEPHEN C. FORSYTH, age 43, has served as Executive Vice President of Hexcel since June 1998, Chief Financial Officer since November 1996 and Senior Vice President of Finance and Administration between February 1996 and June 1998. 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. IRA J. KRAKOWER, age 58, has served as Senior Vice President, General Counsel and Secretary of Hexcel 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 of Uniroyal Chemical Company, Inc. from 1989 to 1996. WAYNE C. PENSKY, age 43, has served as Vice President of Hexcel since December 1998 and 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. 60 ROBERT A. PETRISKO, age 44, 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 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. GARY L. SANDERCOCK, age 57, has served as Vice President of Manufacturing of Hexcel since October 1996. From February 1996 to 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 the Reinforcement Fabrics business unit 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. JOSEPH H. SHAULSON, age 33, has served as Vice President of Planning and Integration of Hexcel since November 1998. Mr. Shaulson served as Vice President of Corporate Development of Hexcel from April 1996 to October 1998. 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 LLP, where he was employed from 1991 to 1996. DAVID M. WONG, age 54, 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. BRUCE D. HERMAN, age 43, 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 Capital 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 Vice President of Corporate Analysis of USL from 1988 to 1991. WILLIAM HUNT, age 55, has served as President of Hexcel's Global Materials business unit since November 1998 and as President of the former Hexcel EuroMaterials business unit since February 1996. Mr. Hunt served as President of the EuroMaterials unit of the Ciba Composites Business from 1991 to February 1996 and as Managing Director of Ciba-Geigy Plastics ("CGP") 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. WILLIAM D. BENNISON, age 54, has served as President of Hexcel's Global Fabrics business unit since November 1998. Prior to joining Hexcel in September 1998, Mr. Bennison was President of Clark-Schwebel, Inc. Mr. Bennison also serves as President of CS Tech-Fab and as a director of CS-Interglas and Asahi-Schwebel. Mr. Bennison was President of BGF Industries and its predecessor, Burlington Glass Fabrics Co., from 1981 to 1989. JAMES N. BURNS, age 58, 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 to June 1996, Business Unit Director of Advanced Composite Materials from June 1992 to March 1995 and Vice President of Marketing from June 1986 to June 1992. JUSTIN TAYLOR, age 45, 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 CGLs strategic planning unit. Prior to July 1995, Mr. Taylor held various management positions in the Heath Tecna Division of CGC. 61 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information as of December 15, 1998 with respect to the ownership by any person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) known to Hexcel to be the beneficial owner of more than five percent of the issued and outstanding shares of Hexcel's common stock.
NUMBER OF SHARES OF PERCENT OF NAME AND ADDRESS COMMON STOCK CLASS - --------------------------------------------------------------------------------- -------------- --------------- Ciba Specialty Chemicals Holding Inc. (a)........................................ 18,021,748 49.6% Klybeckstrasse 141 CH 4002 Basle, Switzerland Franklin Resources, Inc. (b)..................................................... 3,627,773 9.8% Franklin Mutual Advisors, Inc. 51 John F. Kennedy Parkway Short Hills, NJ 07078
- ------------------------ (a) Based on information contained in a Statement on Schedule 13D filed with the SEC on March 18, 1997 on behalf of Ciba and its wholly owned affiliates, Ciba Specialty Chemicals Corporation ("SCC") and Ciba Specialty Chemicals Inc. ("SCI"). SCI has sole voting and investment power with respect to 9,204,503 shares and SCC has sole voting and investment power with respect to 8,817,245 shares of Hexcel's common stock. The shares of Hexcel's common stock beneficially owned by Ciba are subject to the terms of the Governance Agreement. See "Certain Relationships and Related Transactions." (b) Based on information contained in a Statement on Schedule 13G filed with the SEC on January 29, 1999 on behalf of Franklin Resources, Inc., Franklin Mutual Advisors, Inc., Rupert H. Johnson, Jr. and Charles B. Johnson, which parties have sole voting and investment power with respect to all the shares of Hexcel's common stock held by it. 62 DESCRIPTION OF CERTAIN INDEBTEDNESS The following description is only a summary of certain provisions of the Senior Credit Facility, the Convertible Debentures Indenture, the Convertible Notes Indenture and the Ciba Notes Indenture and does not purport to be complete. You may request copies of these agreements at our address set forth under "Available Information." In this description, the word "Company" refers only to Hexcel Corporation and not to any of its subsidiaries. SENIOR CREDIT FACILITY, AS AMENDED In connection with the acquisition of the Clark-Schwebel Business on September 15, 1998, the Company and certain of its foreign subsidiaries (the "Foreign Subsidiaries") entered into a Second Amended and Restated Credit Agreement (the "Senior Credit Facility") with certain financial institutions as lenders, Credit Suisse First Boston ("CSFB"), as the Administrative Agent, and Citibank, N.A., as Documentation Agent, to: (a) fund the purchase of the Clark-Schwebel Business; (b) refinance the Company's then existing revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. Simultaneously with the consummation of the private offering of the Original Notes (the "Private Offering"), the Senior Credit Facility was amended to, among other things, modify certain financial covenants and permit the Private Offering. The Senior Credit Facility (on a pro forma basis after giving effect to the Private Offering and the application of the proceeds thereof) provides for up to $671.5 million of aggregate borrowing capacity, consisting of: - a secured $152.6 million tranche A term loan (the "Tranche A Term Loan"); - a secured $158.9 million tranche B term loan (the "Tranche B Term Loan"); - a secured revolving line of credit in an aggregate amount of $250.0 million in borrowings available to the Company (the "Domestic Revolving Line of Credit"); - a secured European revolving line of credit in an aggregate amount of $100.0 million in borrowings available to the Company and the Foreign Subsidiaries (the "European Revolving Line of Credit"); and - a secured European overdraft facility in an aggregate amount of $10.0 million in borrowings available to certain of the Foreign Subsidiaries (the "European Overdraft Facility"). The Domestic Revolving Line of Credit is available to the Company for revolving loans subject to utilization by the Company of a letter of credit sub-facility and a swing line sub-facility. The European Revolving Line of Credit is available to the Company and the Foreign Subsidiaries for revolving loans subject to utilization by the Company and the Foreign Subsidiaries of a European letter of credit sub-facility. The European Overdraft Facility is available to certain of the Foreign Subsidiaries. As of September 30, 1998 (after giving effect to the Pro Forma Transactions), there was approximately $412.4 million of aggregate loans outstanding under the Senior Credit Facility, consisting of $152.6 million of Tranche A Term Loan, $158.9 million of Tranche B Term Loan, $60.0 million of the Domestic Revolving Line of Credit, $40.9 million of the European Revolving Line of Credit and no amounts under the European Overdraft Facility. The Tranche A Term Loan is subject to certain specified amortization payments required to be made in quarterly installments commencing in December 1999 until final payment is made in September 2004. The Tranche B Term Loan is subject to certain specified amortization payments required to be made in quarterly installments commencing in December 1999 until final payment is made in September 2005. The Domestic Revolving Line of Credit, the European Revolving Line of Credit and the European Overdraft 63 Facility are available until September 14, 2004 unless terminated earlier under certain circumstances. Additionally, the loans under the Senior Credit Facility and the aggregate available commitments under the Senior Credit Facility will be reduced in connection with certain asset and capital stock sales and dispositions, receipt of certain insurance proceeds, and certain incurrences of indebtedness. Borrowings by the Company under the Tranche A Term Loan, Tranche B Term Loan and Domestic Revolving Line of Credit portions of the Senior Credit Facility and borrowings in U.S. dollars by the Company under the European Revolving Line of Credit portion of the Senior Credit Facility bear interest at a rate equal to, at the option of the Company, either (1) the base rate (which is based on the prime rate most recently announced by the Agent or the Federal Funds rate plus one-half of 1%) or (2) the applicable London interbank rate, in each case plus an applicable margin (determined by reference to the ratio of Indebtedness to EBITDA (as defined in the Senior Credit Facility)) of the Company and its subsidiaries; provided that borrowings of swing line loans under the Domestic Revolving Line of Credit portion of the Senior Credit Facility bear interest at a rate equal to the base rate plus an applicable margin determined by reference to the ratio of Indebtedness to EBITDA of the Company and its subsidiaries. All other borrowings under the European Revolving Line of Credit and the European Overdraft Facility portions of the Senior Credit Facility bear interest at a rate equal to the applicable London interbank rate plus an applicable margin determined by reference to the ratio of Indebtedness to EBITDA of the Company and its subsidiaries. The obligations of the Company and the Foreign Subsidiaries under the Senior Credit Facility are unconditionally guaranteed, jointly and severally, by all material U.S. subsidiaries of the Company and the obligations of the Foreign Subsidiaries under the Senior Credit Facility are unconditionally guaranteed by the Company. The obligations of the Company, the Foreign Subsidiaries and such guarantors under the Senior Credit Facility are secured primarily by a first priority pledge of the stock of all material U.S. subsidiaries of the Company, and a first priority pledge of at least 65% of the capital stock of the Company's non-U.S. subsidiaries owned directly by the Company or any of the Company's material U.S. subsidiaries. The Senior Credit Facility contains, among other things, covenants restricting the ability of the Company and its subsidiaries to dispose of assets, merge, pay dividends, repurchase or redeem capital stock and indebtedness (including the Notes), incur indebtedness and guarantees, create liens, enter into agreements with negative pledge clauses, make certain investments or acquisitions, enter into sale and leaseback transactions, enter into transactions with affiliates, change its fiscal year, change its business or make fundamental changes, and otherwise restrict corporate activities. The Senior Credit Facility also contains a number of financial covenants. In addition, the Senior Credit Facility is subject to (1) a facility fee determined by reference to the ratio of Indebtedness to EBITDA of the Company and its subsidiaries, payable in arrears on a quarterly basis, times the daily average of the Domestic Revolving Line of Credit, European Revolving Line Credit and European Overdraft Facility commitments and the additional amount that is available to be borrowed under the Tranche A Term Loan, and (2) letter of credit fees with respect to each letter of credit outstanding under the Senior Credit Facility margin based on the applicable margin in effect for London interbank rate loans under the Senior Credit Facility. The Senior Credit Facility was filed with the SEC as an exhibit to the Company's quarterly report on Form 10-Q for the period ended September 30, 1998. 7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011 On August 1, 1986, the Company issued $35.0 million aggregate principal amount of 7% Convertible Subordinated Debentures Due 2011 (the "Convertible Debentures"), of which $25.6 million aggregate principal amount remains outstanding. The Convertible Debentures are convertible into common stock of the Company prior to maturity, unless previously redeemed, at a conversion price of $30.72 per share. 64 Mandatory redemption of the Convertible Debentures is scheduled to begin in 2002 through annual sinking fund requirements of $1.1 million in 2002 and $1.75 million in each year thereafter. The Convertible Debentures are subordinated to all present and future Senior Indebtedness (as defined in the Convertible Debentures Indenture) of the Company. The Convertible Debentures Indenture contains certain covenants that, among other things, limit consolidations, mergers and certain transfers of assets. 7% CONVERTIBLE SUBORDINATED NOTES DUE 2003 On July 18, 1996, the Company issued $114.5 million aggregate principal amount of 7% Convertible Subordinated Notes Due 2003 (the "Convertible Notes"), of which $114.4 million remains outstanding. The Convertible Notes are convertible into common stock of the Company at any time on or before August 1, 2003, unless previously redeemed, at a conversion price of $15.81 per share. The Convertible Notes are redeemable, in whole or in part, at the option of the Company at any time on or after August 9, 1999, at various redemption prices set forth in the Convertible Notes Indenture, plus accrued interest. Upon a Change of Control (as defined in the Convertible Notes Indenture), each holder of Convertible Notes will have the right to require the Company to repurchase any or all outstanding Convertible Notes by such holder at 100% of their principal amount plus accrued interest. The Convertible Notes are subordinated to all present and future Senior Indebtedness (as defined in the Convertible Notes Indenture) of the Company. The Convertible Notes Indenture contains certain covenants that, among other things, limit consolidations, mergers and certain transfers of assets. SENIOR SUBORDINATED NOTES PAYABLE TO CIBA In connection with the Ciba acquisition, the Company issued $37.5 million of aggregate principal amount of senior subordinated notes payable to Ciba. The Ciba Notes rank PARI PASSU with the Notes and currently bear interest at a rate of 7.5% per annum. The interest rate on the Ciba Notes is scheduled to increase to 10.5% per annum on February 28, 1999 and by an additional 0.5% per year on each February 28 thereafter through maturity in 2003. The Ciba Notes are redeemable, in whole or in part, at the option of the Company. The Company expects that, on or before February 28, 1999, it will redeem $12.5 million aggregate principal amount of the Ciba Notes with borrowings under the Senior Credit Facility. The Company has various financial and other relationships with Ciba, the holder of the Ciba Notes. See "Certain Relationships and Related Transactions." 65 DESCRIPTION OF THE NOTES The form and terms of the Exchange Notes and the Original Notes are identical in all material respects, except that certain transfer restrictions and registration rights applicable to the Original Notes do not apply to the Exchange Notes. The Original Notes are, and the Exchange Notes will be, issued under an indenture, dated as of January 21, 1999 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee"). References to the Notes include the Exchange Notes unless the context otherwise requires. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). Certain terms used in this section are defined under the caption "--Certain Definitions." In this section, the word "Company" refers only to Hexcel Corporation and not to any of its subsidiaries. The following description is only a summary of the material provisions of the Indenture. We urge you to read the Indenture because it, and not this description, defines your rights as holders of the Notes. We have filed a copy of the Indenture as an exhibit to the Registration Statement which includes this Prospectus. You may request a copy of the Indenture at our address set forth under "Available Information." BRIEF DESCRIPTION OF THE NOTES These Notes: - are unsecured senior subordinated obligations of the Company; - are subordinated in right of payment to all existing and future Senior Indebtedness of the Company; and - are senior in right of payment to any future Subordinated Obligations of the Company. PRINCIPAL, MATURITY AND INTEREST The Original Notes are, and the Exchange Notes will be, issued initially in a maximum aggregate principal amount of $240.0 million. The Original Notes are, and the Exchange Notes will be, issued in denominations of $1,000 and any integral multiple of $1,000. The Notes will mature on January 15, 2009. Subject to our compliance with the covenant described under the caption "--Certain Covenants-- Limitation on Indebtedness," we are permitted to issue more Notes under the Indenture in an unlimited principal amount (the "Additional Notes"). Interest on the Notes will accrue at the rate of 9 3/4% per annum and will be payable semiannually in arrears on January 15 and July 15, commencing on July 15, 1999. The Company will make each interest payment to the holders of record of the Notes on the immediately preceding January 1 and July 1. Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the Original Note surrendered in exchange therefor or, if no interest has been paid on such Original Note, from the date of its original issuance. Holders whose Original Notes are accepted in the Exchange Offer will be deemed to have waived their right to receive accrued interest on the Original Notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Additional interest may accrue on the Notes in certain circumstances pursuant to the Registration Rights Agreement. 66 OPTIONAL REDEMPTION Except as set forth below, we will not be entitled to redeem the Notes at our option prior to January 15, 2004. On and after January 15, 2004, we will be entitled at our option to redeem all or a portion of these Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the 12-month period beginning on January 15 in the years indicated below:
YEAR PERCENTAGE - -------------------------------------------------------------------------------------- ----------- 2004.................................................................................. 104.875% 2005.................................................................................. 103.900 2006.................................................................................. 102.925 2007.................................................................................. 101.950 2008.................................................................................. 100.975 2009 and thereafter................................................................... 100.000%
In addition, before January 15, 2002, we may at our option on one or more occasions redeem up to 35% of the original aggregate principal amount of Notes (including the original principal amount of any Additional Notes) at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings following which there is a Public Market; PROVIDED that (1) at least 65% of the original aggregate principal amount of Notes (including the original principal amount of any Additional Notes) remains outstanding immediately after the occurrence of each such redemption (other than Notes held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 120 days after the date of the related Public Equity Offering. SELECTION AND NOTICE OF REDEMPTION If we are redeeming less than all the Notes at any time, the Trustee will select Notes on a PRO RATA basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. We will redeem Notes of $1,000 or less in whole and not in part. We will cause notices of redemption to be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed. We will issue a new Note in principal amount equal to the unredeemed portion of the original Note in the name of the holder thereof upon cancelation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. RANKING SENIOR INDEBTEDNESS VERSUS NOTES The payment of the principal of, premium, if any, and interest on the Notes will be subordinate in right of payment to the prior payment in full of all Senior Indebtedness, including Hexcel's obligations under the Credit Agreement. 67 As of September 30, 1998, after giving effect to the Pro Forma Transactions, Hexcel's Senior Indebtedness would have been $481.8 million. Although the Indenture contains limitations on the amount of additional Indebtedness that the Company may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on Indebtedness." LIABILITIES OF SUBSIDIARIES VERSUS NOTES A portion of Hexcel's operations are conducted through its subsidiaries. Claims of creditors of such subsidiaries generally will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of Hexcel, including holders of the Notes. Accordingly, the Notes will be effectively subordinated to creditors (including trade creditors) and preferred stockholders, if any, of subsidiaries of the Company. At September 30, 1998, the total liabilities of Hexcel's subsidiaries were approximately $245 million, including trade payables. Although the Indenture limits the incurrence of Indebtedness and preferred stock of certain of Hexcel's subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the incurrence by such subsidiaries of liabilities that are not considered Indebtedness under the Indenture. See "--Certain Covenants--Limitation on Indebtedness." OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES Only Indebtedness of Hexcel that is Senior Indebtedness will rank senior to the Notes in accordance with the provisions of the Indenture. The Notes will in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of the Company. As of September 30, 1998, the Company's outstanding Senior Subordinated Indebtedness was $35.6 million (net of unamortized discount of $1.9 million) and, after giving effect to the Pro Forma Transactions, Hexcel would have had $25.0 million of Senior Subordinated Indebtedness outstanding, or $23.7 million net of unamortized discount of $1.3 million. We have agreed in the Indenture that we will not Incur, directly or indirectly, any Indebtedness that is contractually subordinate or junior in right of payment to our Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. The Indenture does not treat unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured. PAYMENT OF NOTES We are not permitted to pay principal of, premium, if any, or interest on the Notes or make any deposit pursuant to the provisions described under "--Defeasance" below and may not repurchase, redeem or otherwise retire any Notes (collectively, "pay the Notes") if: (1) any Designated Senior Indebtedness is not paid when due; or (2) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms; unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Designated Senior Indebtedness has been paid in full. Regardless of the foregoing, we are permitted to pay the Notes if we and the Trustee receive written notice approving such payment from the Representative of any Designated Senior Indebtedness with respect to which either of the events set forth in clause (1) or (2) above has occurred and is continuing. During the continuance of any default (other than a default described in clause (1) or (2) above) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated 68 without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, we are not permitted to pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to us) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter. The Payment Blockage Period will end earlier if such Payment Blockage Period is terminated: (1) by written notice to the Trustee and us from the Person or Persons who gave such Blockage Notice; (2) because the default giving rise to such Blockage Notice is cured, waived or otherwise no longer continuing; or (3) because such Designated Senior Indebtedness has been discharged or repaid in full. Notwithstanding the provisions described above, unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, we are permitted to resume paying the Notes after the end of such Payment Blockage Period. The Notes shall not be subject to more than one Payment Blockage Period in any consecutive 360-day period. Upon any payment or distribution of the assets of Hexcel upon a total or partial liquidation or dissolution or reorganization of or similar proceeding relating to Hexcel or its property: (1) the holders of Senior Indebtedness will be entitled to receive payment in full of such Senior Indebtedness before the holders of the Notes are entitled to receive any payment; (2) until the Senior Indebtedness is paid in full, any payment or distribution to which holders of the Notes would be entitled but for the subordination provisions of the Indenture will be made to holders of such Senior Indebtedness as their interests may appear, except that holders of Notes may receive certain Capital Stock and subordinated debt obligations; and (3) if a distribution is made to holders of the Notes that, due to the subordination provisions, should not have been made to them, such holders of the Notes are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the Notes is accelerated because of an Event of Default, Hexcel or the Trustee shall promptly notify the holders of Designated Senior Indebtedness or the Representative of such holders of the acceleration. By reason of the subordination provisions contained in the Indenture, in the event of a liquidation or insolvency proceeding, creditors of ours who are holders of Senior Indebtedness may recover more, ratably, than the holders of the Notes, and creditors of ours who are not holders of Senior Indebtedness may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the holders of the Notes. The terms of the subordination provisions described above will not apply to payments from money or the proceeds of U.S. Government Obligations held in trust by the Trustee for the payment of principal of and interest on the Notes pursuant to the provisions described under "--Defeasance." CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), each holder shall have the right to require that the Company purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase 69 (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1), such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether or not such right is exercisable immediately), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; (2) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders 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; or (3) the merger or consolidation of the Company with or into another Person (other than a Permitted Holder) or the merger of another Person (other than a Permitted Holder) with, or into the Company or the sale of all or substantially all the assets of the Company to another Person (other than a Person controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and that represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee; PROVIDED, HOWEVER, that if the event described in (1) above occurs as a result of a transfer of Voting Stock by the Permitted Holders in a single transaction or a series of related transactions (a "Change of Control Event"), a Change of Control shall be deemed not to occur unless and until the publicly announced rating of the Notes by either Rating Agency shall, on or within 90 days after the date of the occurrence of such Change of Control Event (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by either Rating Agency), be less than the rating of the Notes by such Rating Agency on the date (the "Rating Date") which is 90 days before the date of the occurrence of such Change of Control Event; PROVIDED FURTHER, HOWEVER, that, if on the Rating Date the Notes have an Investment Grade Rating by both Rating Agencies, a Change of Control shall be deemed not to occur following a Change of Control Event unless and until the publicly announced rating of the Notes by either Rating Agency shall, on or within 90 days after the date of the occurrence of such Change of Control Event (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by either Rating Agency), be less than an Investment Grade Rating. Within 30 days after any Change of Control, the Company will mail a notice to each holder of Notes at its registered address, with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such holder has the right to require us to purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount 70 thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to PRO FORMA historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by us, consistent with the covenant described under this caption, that a holder must follow in order to have its Notes purchased. The Company will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described under this caption, we will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the covenant described under this caption by virtue thereof. The Change of Control purchase feature of the Notes may in certain circumstances make more difficult or discourage a sale or takeover of Hexcel and, thus, the removal of incumbent management. The Change of Control purchase feature is a result of negotiations between Hexcel and the Initial Purchasers and is not the result of our knowledge of any specific effort to accumulate shares of common stock of the Company or to obtain control of Hexcel by means of a merger, tender offer, solicitation or otherwise, or part of a plan by management to adopt a series of anti-takeover provisions. We have no present intention to engage in a transaction involving a Change of Control, although it is possible that we could decide to do so in the future. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. Restrictions on our ability to incur additional Indebtedness are contained in the covenant described under the caption "--Certain Covenants--Limitation on Indebtedness." Such restrictions can only be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenant, however, the Indenture will not contain any covenants or provisions that may afford holders of the Notes protection in the event of a highly leveraged transaction. The Credit Agreement will prohibit us from purchasing any Notes and will also provide that the occurrence of certain change of control events with respect to Hexcel would constitute a default thereunder. In the event a change of control occurs at a time when we are prohibited from purchasing Notes, we may seek the consent of our lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, we will remain prohibited from purchasing the Notes. In such case, our failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Credit Agreement. In such circumstances, the subordination provisions in the Indenture would likely restrict payment to the holders of Notes. 71 Future indebtedness that we may incur may contain prohibitions on the occurrence of certain events that would constitute a Change of Control or require us to repurchase such indebtedness upon a Change of Control. Moreover, the exercise by the holders of Notes of their right to require the Company to purchase the Notes could cause a default under such indebtedness, even if the Change of Control itself does not, due to the financial effect of such purchase on us. Finally, our ability to pay cash to the holders of Notes following the occurrence of a Change of Control may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The provisions under the Indenture relative to our obligation to make an offer to purchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the holders of a majority in principal amount of the Notes. CERTAIN COVENANTS The Indenture contains covenants including, among others, the following: LIMITATION ON INDEBTEDNESS (a) The Company will not, and will not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company and its Restricted Subsidiaries may Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on a PRO FORMA basis, the Consolidated Coverage Ratio exceeds (x) if on or prior to January 15, 2002, 2.0 to 1.0 and (y) if thereafter, 2.25 to 1.0. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred by the Company or any Restricted Subsidiary pursuant to the Credit Agreement; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed (A) the greater of (x) $680.0 million LESS the sum of all term loan principal amortization payments scheduled to be made (whether or not in fact made) through the date of such Incurrence pursuant to the Credit Agreement as in effect on the Issue Date (such amount being the "Maximum Committed Credit Agreement Amount") and (y) the sum of 50% of the book value of the consolidated inventory of the Company and its Restricted Subsidiaries and 80% of the consolidated accounts receivable of the Company and its Restricted Subsidiaries (such sum being the "Consolidated Working Capital Amount") LESS the principal amount of any Indebtedness Incurred pursuant to clause (2) below and then outstanding, LESS (B) the sum of all principal payments with respect to such Indebtedness made pursuant to paragraph (a)(3)(A) of the covenant described under the caption "--Limitation on Asset Dispositions"; (2) Indebtedness Incurred by Foreign Subsidiaries to finance the working capital requirements of Foreign Subsidiaries; PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness, when added together with the amount of Indebtedness Incurred by all Foreign Subsidiaries pursuant to this clause (2) and then outstanding, does not exceed the lesser of (A) the sum of 50% of the book value of the consolidated inventories of all Foreign Subsidiaries and 80% of the consolidated accounts receivable of all Foreign Subsidiaries and (B) the amount by which the greater of (x) the Consolidated Working Capital Amount and (y) the Maximum Committed Credit Agreement Amount exceeds the principal amount of Indebtedness Incurred pursuant to clause (1) above and then outstanding; 72 (3) Indebtedness owed to and held by the Company or any Wholly Owned Subsidiary; PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness and (B) if the Company is the obligor on such Indebtedness, the payment of such Indebtedness is expressly subordinate to the prior payment in full in cash of all obligations with respect to the Notes; (4) the Notes (other than Additional Notes) and the Exchange Notes; (5) Indebtedness (other than the Indebtedness described in clauses (1), (2), (3) or (4) above) outstanding on the Issue Date; (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to paragraph (a) above or pursuant to clause (4), (5) or this clause (6); (7) Hedging Obligations directly related to Indebtedness permitted to be Incurred by the Company and Restricted Subsidiaries pursuant to the Indenture or, in the case of a Currency Exchange Protection Agreement, reasonably related to the ordinary course of business of the Company and its Restricted Subsidiaries; (8) Indebtedness, including Capitalized Lease Obligations and purchase money Indebtedness, Incurred by the Company or its Restricted Subsidiaries to finance the acquisition of tangible assets or other capital expenditures, and Indebtedness Incurred by the Company or its Restricted Subsidiaries to Refinance such Capitalized Lease Obligations and purchase money Indebtedness, in an aggregate outstanding principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (8) and then outstanding, does not exceed $20 million; (9) Indebtedness in respect of performance, surety or appeal bonds provided in the ordinary course of the Company and its Restricted Subsidiaries; or (10) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company and Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (9) above or paragraph (a)), does not exceed $25.0 million. (c) Notwithstanding the foregoing, the Company will not Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations, unless such Indebtedness shall be subordinated to the Notes to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this covenant, (1) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, the Company, in its sole discretion, will classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (2) an item of Indebtedness may be divided and classified under more than one of the types of Indebtedness described above. (e) Notwithstanding paragraphs (a) and (b) above, the Company will not Incur (1) any Indebtedness if such Indebtedness is contractually subordinate or junior in right of payment in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (2) any Secured Indebtedness that is not Senior Indebtedness, unless contemporaneously therewith effective provision is made to secure the Notes equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. 73 (f) For the purpose of determining amounts of Indebtedness outstanding under the covenant described under this caption and for the purpose of avoiding duplication only, Indebtedness of a Person resulting from the grant by such Person of security interests with respect to, or from the issuance by such Person of Guarantees (and security interests with respect thereof) of, or from the assumption of obligations with respect to letters of credit supporting, Indebtedness Incurred by such Person pursuant to the Indenture (or Indebtedness which such Person is otherwise permitted to Incur under the Indenture) shall not be deemed to be a separate Incurrence of Indebtedness by such Person. (g) Indebtedness of any Person which is outstanding at the time such Person becomes a Restricted Subsidiary of the Company (including upon designation of any Subsidiary or other Person as a Restricted Subsidiary) or is merged with or into or consolidated with the Company or a Restricted Subsidiary of the Company shall be deemed to have been Incurred at the time such Person becomes a Restricted Subsidiary or merged with or into or consolidated with the Company or a Restricted Subsidiary, as applicable. LIMITATION ON RESTRICTED PAYMENTS (a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under the caption "--Limitation on Indebtedness;" or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments made since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter in which the Issue Date occurs to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income is a deficit, less 100% of such deficit); PLUS (B) 100% of the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date and on or prior to the date of such Restricted Payment (other than an issuance or sale to a Subsidiary of the Company or an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); PLUS (C) the amount by which the Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date and on or prior to the date of such Restricted Payment of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company upon such conversion or exchange); PLUS (D) an amount equal to the sum of (x) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of 74 Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The preceding provisions will not prohibit: (1) any acquisition of any Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock; PROVIDED, HOWEVER, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clause (3)(B) of paragraph (a) above; (2) any purchase, repurchase, redemption, defeasance or acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock; PROVIDED, HOWEVER, that (A) such purchase, repurchase, redemption, defeasance or acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from clause (3)(B) of paragraph (a) above; (3) any purchase, repurchase, redemption, defeasance or acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred pursuant to the covenant described under the caption "--Limitation on Indebtedness;" PROVIDED, HOWEVER, that such Indebtedness (A) shall have a Stated Maturity later than the Stated Maturity of the Notes and (B) shall have an Average Life greater than the remaining Average Life of the Notes; PROVIDED FURTHER, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash after application in accordance with clauses (A), (B) and (C) of paragraph (a)(3) of the covenant described under the caption "--Limitation on Asset Dispositions;" PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with this covenant; PROVIDED, HOWEVER, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); PROVIDED FURTHER, HOWEVER, that the declaration, but not the payment, of such dividend shall be included in the calculation of the amount of Restricted Payments; (6) so long as no Default shall have occurred and be continuing (or result therefrom), Investments in Joint Ventures or other Persons engaged in a Related Business in an aggregate amount which, when added together with the amount of all other Investments made pursuant to this clause (6) which at such time have not been repaid through dividends, repayments of loans or advances or other transfers of assets, does not exceed $60.0 million; PROVIDED, HOWEVER, that the amount of such Investments shall be excluded in the calculation of Restricted Payments; (7) so long as no Default shall have occurred and be continuing (or result therefrom), payments with respect to employee or director stock options, stock incentive plans or restricted stock plans of the Company, including any redemption, repurchase, acquisition, cancelation or other retirement for value of shares of Capital Stock of the Company, restricted stock, options on any such shares or similar securities held by directors, officers or employees or former directors, officers or 75 employees or by any Plan upon death, disability, retirement or termination of employment of any such person pursuant to the terms of such Plan or agreement under which such shares or related rights were issued or acquired; PROVIDED, HOWEVER, that the amount of any such payments shall be included in the calculation of Restricted Payments; (8) so long as no Default shall have occurred and be continuing (or result therefrom), any purchase or defeasance of Subordinated Obligations upon a Change of Control to the extent required by the indenture or other agreement or instrument pursuant to which such Subordinated Obligations were issued, but only if the Company has first complied with all its obligations under the provisions described under the caption "--Change of Control"; PROVIDED, HOWEVER, that the amount of such purchase or defeasance shall be excluded in the calculation of Restricted Payments; or (9) so long as no Default shall have occurred and be continuing (or result therefrom), Restricted Payments in an aggregate amount which, when added together with the amount of all other Restricted Payments made pursuant to this clause (9) which at such time have not been repaid through dividends, repayments of loans or advances or other transfers of assets, does not exceed $40.0 million; PROVIDED, HOWEVER, that the amount of such Restricted Payments shall be included in the calculation of Restricted Payments. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Company or any Restricted Subsidiary or (c) transfer any of its property or assets to the Company or any Restricted Subsidiary (collectively "Payment Restrictions"), except: (1) any Payment Restriction imposed pursuant to the Credit Agreement, the Indenture, Refinancing Indebtedness in respect of the Notes and any agreement in effect at or entered into on the Issue Date; (2) any Payment Restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary of, or was acquired by, the Company) and outstanding on such date; (3) any Payment Restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this covenant or this clause (3) or contained in any amendment to an agreement referred to in clause (1) or (2) of this covenant or this clause (3); PROVIDED, HOWEVER, that the Payment Restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the holders of the Notes than those with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) in the case of clause (c) above, any encumbrance or restriction consisting of customary non-assignment provisions in leases or other contracts governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; 76 (5) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (6) any encumbrance or restriction contained in the governing documents of any Joint Venture Subsidiary. LIMITATION ON ASSET DISPOSITIONS (a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors (if the total proceeds of such sale is greater than $5.0 million), the determination of which shall be evidenced by a Board Resolution (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) FIRST, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness or Indebtedness of such Restricted Subsidiary), to prepay, repay or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects to acquire Additional Assets within one year from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) THIRD, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the holders of the Notes (and to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Notes (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; and (D) FOURTH, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any purpose not prohibited by the terms of the Indenture. Notwithstanding the foregoing provisions of this paragraph, the Company and the Restricted Subsidiaries will not be required to apply any Net Available Cash in accordance with the foregoing paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied with accordance with the foregoing paragraph exceeds $15.0 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash will be invested in Temporary Cash Investments. For the purposes of the covenant described under this caption, the following shall be deemed to be cash: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of 77 the Company or such Restricted Subsidiary from all liability with respect to such Indebtedness in connection with such Asset Disposition, PROVIDED, HOWEVER, that the amount of such Indebtedness shall not be deemed to be cash for the purpose of the term "Net Available Cash;" and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of the Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(C) above, the Company will purchase Notes tendered pursuant to an offer by the Company for the Notes (and other Senior Subordinated Indebtedness) at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) to be set forth in the Indenture. If the aggregate purchase price of Notes (and any other Senior Subordinated Indebtedness) tendered pursuant to such offer is less than the Net Available Cash allotted to the purchase thereof, the Company will be entitled to apply the remaining Net Available Cash in accordance with clause (a)(3)(D) above. The Company shall not be required to make such an offer to purchase Notes (and other Senior Subordinated Indebtedness) pursuant to the covenant described under this caption if the Net Available Cash available therefor (after application of Net Available Cash in accordance with clauses (A) and (B) of paragraph (a) above) is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Disposition). (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of the Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations under this clause by virtue thereof. LIMITATION ON AFFILIATE TRANSACTIONS (a) The Company will not, and will not permit any Restricted Subsidiary to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless (1) the Affiliate Transaction is made (A) in good faith and (B) on terms which are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be; (2) if such Affiliate Transaction involves an amount in excess of $5.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company disinterested with respect to such Affiliate Transaction have determined in good faith that the criteria set forth in clause (1)(B) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board Resolution; and (3) if such Affiliate Transaction involves an amount in excess of $10.0 million, the Board of Directors shall also have received a written opinion from an investment banking firm of national prominence that is not an Affiliate of the Company to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of the foregoing paragraph (a) shall not prohibit: (1) any Permitted Investment and any Restricted Payment permitted to be paid pursuant to the covenant described under the caption "--Limitation on Restricted Payments;" 78 (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors; (3) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries; (4) transactions between the Company or a Restricted Subsidiary and one or more Restricted Subsidiaries; PROVIDED, HOWEVER, that no Affiliate of the Company (other than another Restricted Subsidiary) owns, directly or indirectly, any Capital Stock in any such Restricted Subsidiary; (5) transactions in the ordinary course of business (including loans, expense advances and reimbursements) between the Company or any of its Restricted Subsidiaries, on the one hand, and any employee thereof, on the other hand; (6) transactions with Affiliates entered into in the ordinary course of business of the Company or its Restricted Subsidiaries, on terms which are, in the opinion of the Company's management or the Board of Directors, fair and reasonable to the Company or its Restricted Subsidiaries; (7) the granting and performance of registration rights for shares of Capital Stock of the Company under a written registration rights agreement approved by a majority of directors of the Company that are disinterested with respect to such transactions; (8) transactions with Affiliates solely in their capacity as holders of Indebtedness or Capital Stock of the Company or any of its Subsidiaries, so long as Indebtedness or Capital Stock of the same class is also held by Persons that are not Affiliates of the Company and such Affiliates are treated no more favorably than holders of such Indebtedness or such Capital Stock generally, and the redemption of the outstanding principal amount of the Ciba Notes (together with accrued interest at the contract rate thereon); (9) transactions in accordance with or as contemplated by the Governance Agreement, and any amendments to the Governance Agreement that are not adverse to the interests of the holders of the Notes and which are approved by a majority of the directors of the Company disinterested with respect to such amendment; and (10) any transaction between the Company or any Restricted Subsidiaries and any of the Existing Joint Ventures pursuant to agreements in effect on the Issue Date. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES The Company will not sell or otherwise dispose of any shares of Capital Stock (other than Qualified Preferred Stock) of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock (other than Qualified Preferred Stock) except (1) to the Company or a Wholly Owned Subsidiary; (2) directors' qualifying shares; (3) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary; or (4) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under the covenant described under the caption "--Limitation on Restricted Payments" if made on the date of such issuance, sale or other disposition. 79 Notwithstanding the foregoing, the issuance or sale of shares of Capital Stock of any Restricted Subsidiary of the Company will not violate the provisions of the immediately preceding sentence if such shares are issued or sold in connection with (x) the formation or capitalization of a Restricted Subsidiary which, at the time of such issuance or sale or immediately thereafter, is a Joint Venture Subsidiary or (y) a single transaction or a series of substantially contemporaneous transactions whereby such Restricted Subsidiary becomes a Restricted Subsidiary of the Company by reason of the acquisition of securities or assets from another Person. MERGER AND CONSOLIDATION The Company will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any other Person, unless (1) the resulting, surviving or transferee person (the "Successor Company"), shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if other than the Company) shall expressly assume, by an indenture supplemental thereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under the caption "--Limitation on Indebtedness;" (4) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company prior to such transaction; and (5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. Nothing contained in the foregoing shall prohibit any Wholly Owned Subsidiary from consolidating with, merging with or into, or transferring all or part of its properties and assets to, the Company. The Successor Company will be the successor to the Company and will succeed to, and be substituted for and may exercise every right and power of, the Company under the Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Notes. LIMITATION ON BUSINESS ACTIVITIES The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than in businesses conducted by the Company and its Restricted Subsidiaries on the Issue Date and businesses which, in the good faith determination of the Board of Directors, are reasonably related, ancillary or complementary thereto. SEC REPORTS Whether or not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC and provide the Trustee and the holders of the Notes with such annual 80 reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections. In addition, whether or not required by the SEC, the Company will file a copy of all of the information and reports referred to above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. DEFAULTS Each of the following is an Event of Default: (1) a default for 30 days in the payment when due of interest on the Notes, whether or not prohibited pursuant to the subordination provisions of the Indenture; (2) a default in payment when due of the principal of any Note at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, whether or not prohibited pursuant to the subordination provisions of the Indenture; (3) the failure by the Company to comply with its obligations described under the caption "--Certain Covenants--Merger and Consolidation" above; (4) the failure by the Company to comply for 30 days after notice with any of its obligations in the covenants described above under the caption "--Change of Control" (other than a failure to purchase Notes) or under the caption "--Certain Covenants--Limitation on Indebtedness," "--Limitation on Restricted Payments," "--Limitation on Restrictions on Distributions from Restricted Subsidiaries," "--Limitation on Asset Dispositions" (other than a failure to purchase Notes), "--Limitation on Affiliate Transactions," "--Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--Limitation on Business Activities" or "--SEC Reports;" (5) the failure by the Company to comply for 60 days after notice with any of the other agreements contained in the Indenture; (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million (the "cross acceleration provision"); (7) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"); or (8) any judgment or decree for the payment of money in excess of $10.0 million is entered against the Company or a Significant Subsidiary, remains outstanding for a period of 60 days following such judgment and is not discharged, waived or stayed within 10 days after notice (the "judgment default provision"). However, a default under clauses (4), (5) or (8) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Notes notify the Company of the default and the Company does not cure such default within the time specified after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and interest on all the Notes will IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the 81 Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the Notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless (1) such holder has previously given the Trustee notice that an Event of Default is continuing; (2) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy; (3) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and (5) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder of a Note or that would involve the Trustee in personal liability. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder of the Notes notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of or interest on any Note, the Trustee may withhold notice if and so long as a committee of its trust officers determines that withholding notice is not opposed to the interest of the holders of the Notes. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the holders of a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange for the Notes) and any past default or compliance with any provisions may also be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. However, without the consent of holders of 80% or more in principal amount of the Notes then outstanding, the Company may not (with respect to any Notes held by a non-consenting holder) make any change to the subordination provisions of the Indenture that would adversely affect holders of the Notes. In addition, without the consent of each holder affected, an amendment or waiver may not: (1) reduce the principal amount of Notes whose holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Note; 82 (3) reduce the principal of or extend the Stated Maturity of any Note; (4) reduce the amount payable upon the redemption of any Note or change the time at which any Note may be redeemed as described under "--Optional Redemption;" (5) make any Note payable in money other than that stated in the Notes; (6) impair the right of any holder of the Notes to receive payment of principal of and interest on such holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes; or (7) make any change in the amendment provisions which require each holder's consent or in the waiver provisions. Notwithstanding the preceding, without the consent of any holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); (3) to provide for the assumption by a successor corporation of the obligations of the Company under the Indenture; (4) to add guarantees with respect to the Notes or to secure the Notes; (5) to add to the covenants of the Company for the benefit of the holders of the Notes or to surrender any right or power conferred upon the Company; (6) to make any change that does not adversely affect the rights under the Indenture of any such holder; or (7) to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or their Representative) consent to such change. The consent of the holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to holders of the Notes a notice briefly describing such amendment. However, the failure to give such notice to all holders of the Notes, or any defect therein, will not impair or affect the validity of the amendment. DEFEASANCE The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. In addition, the Company at any time may terminate its obligations described under the caption "--Change of Control" and under the covenants described under the caption "--Certain Covenants" (other than the covenant described under the caption "Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions 83 with respect to Significant Subsidiaries and the judgment default provision described under the caption "--Defaults" above and the limitations contained in clauses (3) and (4) of the covenant described under the caption "--Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (4), (6), (7) (with respect only to Significant Subsidiaries) or (8) under the caption "--Defaults" above or because of the failure of the Company to comply with clause (3) or (4) of the covenant described under the caption "--Certain Covenants--Merger and Consolidation" above. In order to exercise either legal defeasance or covenant defeasance, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable federal income tax law). CONCERNING THE TRUSTEE The Bank of New York is to be the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. The holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. CERTAIN DEFINITIONS "ADDITIONAL ASSETS" means any (1) property or assets (other than Indebtedness and Capital Stock) to be used by the Company, a Restricted Subsidiary or a Joint Venture; (2) Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary or a Joint Venture; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2) and (3) is primarily engaged in Related Business. 84 "AFFILIATE" of any specified Person means (1) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person; or (2) any other Person who is a director or officer (A) of such specified Person, (B) of any Subsidiary of such specified Person or (C) of any Person described in clause (1). For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the covenants described under the captions "--Certain Covenants--Limitation on Affiliate Transactions" and "--Certain Covenants--Limitation on Asset Dispositions" only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "ASAHI-SCHWEBEL" means Asahi-Schwebel Co., Ltd., a Japanese corporation and joint venture in which a subsidiary of Hexcel owns a 43.3% equity interest. "ASAHI-SCHWEBEL (TAIWAN)" means Asahi-Schwebel (Taiwan) Co., Ltd., a joint venture between Asahi-Schwebel and AlliedSignal. "ASAHI-SCHWEBEL INTERGLAS (PHILIPPINES)" means Asahi-Schwebel Interglas Corporation (Philippines), a proposed joint venture between Asahi-Schwebel and CS Interglas. "ASIAN COMPOSITE MANUFACTURING" means Asian Composite Manufacturing Sdn. Bhd., a proposed joint venture among Hexcel, The Boeing Company, Sime Darby Berhad and Malaysia Helicopter Services. "ASSET DISPOSITION" means any direct or indirect sale, lease, transfer, conveyance or other disposition (or series of related sales, leases, transfers, conveyances or dispositions) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any Restricted Subsidiary (including any disposition by means of a merger, consolidation or similar transaction) involving an amount in excess of $3.0 million other than (1) a disposition by a Restricted Subsidiary to the Company, by the Company or a Restricted Subsidiary to a Restricted Subsidiary or between Restricted Subsidiaries; (2) a disposition of property or assets at fair market value in the ordinary course of business and consistent with past practices of the Company or any of its Restricted Subsidiaries, as applicable (including sales of products to customers, disposition of excess inventory and dispositions of used or replaced equipment); (3) the disposition or grant of licenses to third parties in respect of intellectual property; (4) a sale or disposition of assets for the purpose of forming any Joint Venture, in exchange for an interest in such Joint Venture; (5) the sale of Specified Properties; (6) a disposition by the Company or any Subsidiary of assets within 24 months after such assets were directly or indirectly acquired as part of an acquisition of other properties or assets (including Capital Stock) (the "Primary Acquisition"), if the assets being disposed of are "non-core" assets (as determined in good faith by a majority of the Board of Directors) or are required to be disposed of pursuant to any law, rule or regulation or any order of or settlement with any court or 85 governmental authority, and the proceeds therefrom are used within 18 months after the date of sale to repay any Indebtedness Incurred in connection with the Primary Acquisition of such assets; and (7) for purposes of the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions" only, a disposition that constitutes a Restricted Payment permitted by the covenant described under the caption "--Certain Covenants--Limitation on Restricted Payments;" or (8) an Asset Disposition that also constitutes a Change of Control; PROVIDED, HOWEVER, that the Company complies with all its obligations described under the caption "--Change of Control." "AVERAGE LIFE" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (x) the sum of the products of the numbers of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or scheduled redemption multiplied by the amount of such payment by (y) the sum of all such payments. "BANK INDEBTEDNESS" means any and all Indebtedness and other amounts payable under or in respect of the Credit Agreement including principal, premium (if any), interest (including interest accruing at the contract rate specified in the Credit Agreement (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to the Company and interest that would accrue but for the commencement of such proceeding whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "BHA AERO COMPOSITE PARTS" means BHA Aero Composite Parts Co., Ltd., a proposed joint venture among Hexcel, The Boeing Company and Aviation Industries of China. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "BOARD RESOLUTION" means a duly adopted resolution of the Board of Directors in full force and effect at the time of determination and certified as such by the Secretary or an Assistant Secretary of the Company. "BUSINESS DAY" means each day other than a Saturday, Sunday or a day on which commercial banking institutions are authorized or required by law to close in New York City. "CAPITAL STOCK" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (including partnership interests) in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "CAPITALIZED LEASE OBLIGATION" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP. The Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "CODE" means the Internal Revenue Code of 1986, as amended. "CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters ending at least 45 days prior to the 86 date of such determination to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a PRO FORMA basis to (a) such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and (b) the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a PRO FORMA basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving PRO FORMA effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets requiring an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving PRO FORMA effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. 87 For purposes of this definition, whenever PRO FORMA effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the PRO FORMA calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given PRO FORMA effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term as at the date of determination in excess of 12 months). "CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of, without duplication, (a) total interest expense of the Company and its consolidated Restricted Subsidiaries for such period, including, to the extent not otherwise included in such interest expense, and to the extent Incurred by the Company or its Restricted Subsidiaries in such period, without duplication, (1) interest expense attributable to capital leases; (2) amortization of debt discount and debt issuance cost; (3) amortization of capitalized interest; (4) non-cash interest expense; (5) accrued interest; (6) amortization of commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (7) interest actually paid by the Company or any such Restricted Subsidiary under any Guarantee of Indebtedness of any other Person; (8) net payments, if any, made pursuant to Interest Rate Protection Agreements (including amortization of fees); (b) Preferred Stock dividends paid during such period in respect of all Preferred Stock of Restricted Subsidiaries of the Company held by Persons other than the Company; and (c) cash contributions made during such period to any employee stock ownership plan or other trust for the benefit of employees to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust to purchase Capital Stock of the Company. "CONSOLIDATED NET INCOME" means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income (1) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (3) below); and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; 88 (2) any net income (loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause); and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (5) any extraordinary gain or loss; (6) cumulative effect of a change in accounting principles; and (7) any non-cash business consolidation and acquisition charges recognized with respect to the Clark-Schwebel Acquisition (except to the extent such non-cash charges represent an accrual of or a reserve for cash expenditures in any future period). Notwithstanding the foregoing, for the purposes of the covenant described under the caption "--Certain Covenants--Limitation on Restricted Payments" only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof. "CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as the sum of (1) the par or stated value of all outstanding Capital Stock of the Company; PLUS (2) paid-in capital or capital surplus relating to such Capital Stock; PLUS (3) any retained earnings or earned surplus; LESS (4) any accumulated deficit; LESS (5) any amounts attributable to Disqualified Stock. "CREDIT AGREEMENT" means (1) one or more credit agreements, loan agreements or similar agreements providing for working capital advances, term loans, letter of credit facilities or similar advances, loan or facilities to the Company, any Restricted Subsidiary, domestic or foreign, or any or all of such Persons, including the Second Amended and Restated Credit Agreement in effect on the Issue Date, among the 89 Company and certain subsidiaries of the Company, as borrowers, the lenders party thereto and Credit Suisse First Boston as administrative agent for the lenders, Citibank, N.A., as documentation agent for the Lenders, as the same may be amended, modified, restated or supplemented from time to time, or any other indebtedness referred to in clause (b)(1) of the covenant described under the caption "--Certain Covenants--Limitation on Indebtedness;" and (2) any one or more agreements governing advances, loans or facilities provided to refund, refinance, replace or renew (including subsequent or successive refundings, financings, replacements and renewals) Indebtedness under the agreement or agreements referred to in the foregoing clause (1), as the same may be amended, modified, restated or supplemented from time to time. "CS INTERGLAS" means CS Interglas AG, a German stock corporation in which a subsidiary of Hexcel owns a 43.6% equity interest. "CS TECH-FAB" means CS Tech-Fab Company, a New York general partnership and joint venture in which a subsidiary of Hexcel owns a 50% partnership interest. "CURRENCY EXCHANGE PROTECTION AGREEMENT" means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates. "DEFAULT" means any event which is, or after notice or passage of time or both would be, an Event of Default. "DESIGNATED SENIOR INDEBTEDNESS" means (1) the Bank Indebtedness; and (2) any other Senior Indebtedness (other than Hedging Obligations) which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25.0 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture in an Officers' Certificate received by the Trustee. "DIC" means the joint venture entered into between the Company and Dainippon Ink & Chemicals, Inc. ("Dainippon"), pursuant to that certain Parent Company Agreement dated as of April 17, 1990, 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, 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. "DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise; (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock; or (3) is mandatorily redeemable or must be purchased, upon the occurrence of certain events or otherwise, in whole or in part; 90 in each case on or prior to the first anniversary of the Stated Maturity of the Notes; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Notes shall not constitute Disqualified Stock if (1) the "asset sale" or "change of control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Notes and described under the captions "--Certain Covenants--Limitation on Asset Dispositions" and "--Change of Control"; and (2) any such requirement only becomes operative after compliance with such terms applicable to the Notes, including the purchase of any Notes tendered pursuant thereto. "EBITDA" for any period means the sum of Consolidated Net Income plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries for such period; (2) Consolidated Interest Expense for such period; (3) depreciation expense and amortization expense of the Company and its consolidated Restricted Subsidiaries for such period (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period); (4) all other non-cash items of the Company and its consolidated Restricted Subsidiaries for such period (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period) reducing Consolidated Net Income LESS all non-cash items increasing Consolidated Net Income for such period; and (5) business consolidation and acquisition charges recognized for such period to the extent recognized during or prior to the fiscal year ended December 31, 2000; PROVIDED, HOWEVER, that the aggregate amount of the charges described in this clause (5) through the end of such fiscal year shall not exceed $25.0 million. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "EXISTING JOINT VENTURES" means (1) Asahi-Schwebel, (2) Asahi-Schwebel (Taiwan), (3) Asahi-Schwebel Interglas (Philippines), (4) CS Tech-Fab, (5) CS Interglas, (6) Asian Composite Manufacturing, (7) BHA Aero Composite Parts and (8) DIC. "FOREIGN SUBSIDIARY" means a Subsidiary that is incorporated in a jurisdiction other than, and the majority of the assets of which are located outside of, the United States, a State thereof and the District of Columbia. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the 91 Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. "GOVERNANCE AGREEMENT" means the Governance Agreement dated as of February 29, 1996, between Ciba Specialty Chemicals Holding Inc. and the Company. "GUARANTEE" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise); or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include (1) endorsements for collection or deposit in the ordinary course of business; or (2) obligations, warranties and indemnities, not with respect to Indebtedness of any Person, that have been or are undertaken or made in the ordinary course of business or in connection with any Asset Disposition permitted by the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions" and not for the benefit of or in favor of an Affiliate of the Company or any of its Subsidiaries. The term "Guarantee" used as a verb has a corresponding meaning. "HEDGING OBLIGATIONS" of any Person means the obligations of such Person pursuant to any Interest Rate Protection Agreement or Currency Exchange Protection Agreement or other similar agreement or arrangement involving interest rates, currencies, commodities or otherwise. "INCUR" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; PROVIDED, FURTHER, that any amendment, modification or waiver of any provision of any document pursuant to which Indebtedness was previously Incurred shall not be deemed to be an Incurrence of Indebtedness as long as such amendment, modification or waiver does not (1) increase the principal or premium thereof or interest rate thereon; (2) change to an earlier date the Stated Maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness may or shall be redeemed; or (3) if such Indebtedness is contractually subordinated in right of payment to the Notes, modify or affect, in any manner adverse to the holders, such subordination. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any such premium is then due and owing) in respect of 92 (A) indebtedness of such Person for money borrowed; and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (2) all Capitalized Lease Obligations of such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person, or with respect to any Subsidiary of such Person, the liquidation preference with respect to any Preferred Stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. For purposes of this definition, the obligation of such Person with respect to the redemption, repayment or repurchase price of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such Stock as if such Stock were redeemed, repaid or repurchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture; PROVIDED, HOWEVER, that if such Stock is not then permitted to be redeemed, repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such Stock as reflected in the most recent financial statements of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such Person; PROVIDED, HOWEVER, that (1) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP; and (2) Indebtedness shall not include any liability for federal, state, local or other taxes. "INTEREST RATE PROTECTION AGREEMENT" means, in respect of any Person, any interest rate swap agreement, interest rate option agreement, interest rate cap agreement, interest rate collar agreement, interest rate floor agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in interest rates. 93 "INVESTMENT" by any Person in any other Person means any direct or indirect advance, loan (other than advances to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such former Person) or other extension of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such latter Person that are or would be classified as investments on a balance sheet of such former Person prepared in accordance with GAAP. In determining the amount of any Investment in respect of any property or assets other than cash, such property or asset shall be valued at its fair market value at the time of such Investment (unless otherwise specified in this definition), as determined in good faith by the Board of Directors. For purposes of the definition of "Unrestricted Subsidiary", the definition of "Restricted Payment" and the covenant described under the caption "--Certain Covenants--Limitation on Restricted Payments," (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "INVESTMENT GRADE RATING" means a rating of BBB- or higher by Standard & Poor's Ratings Group, Inc. and Baa3 or higher by Moody's Investors Service, Inc. or the equivalent of such ratings by Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or by any other Rating Agency selected as provided in the definition of Rating Agency. "ISSUE DATE" means the date on which the Notes are originally issued. "JOINT VENTURE" means the Existing Joint Ventures, and any other joint venture, partnership or other similar arrangement whether in corporate, partnership or other legal form which is formed by the Company or any Restricted Subsidiary and one or more Persons which own, operate or service a Related Business. "JOINT VENTURE SUBSIDIARY" means a Restricted Subsidiary formed by the Company or any Restricted Subsidiary and one or more Persons which own, operate or service a Related Business. "LENDERS" has the meaning specified in the Credit Agreement. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "NET AVAILABLE CASH" from an Asset Disposition means the aggregate amount of cash received in respect of an Asset Disposition (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of 94 (1) all legal, accounting, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries or Joint Ventures as a result of such Asset Disposition; (4) any amount of cash required to be placed in escrow by one or more parties to a transaction relating to contingent liabilities associated with an Asset Disposition until such cash is released to the Company or a Restricted Subsidiary; and (5) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Dispositions, all as determined in conformity with GAAP, retained by the Company or any Restricted Subsidiary after such Asset Disposition. "NET CASH PROCEEDS," with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, printing costs, underwriters' or placement agents' fees, discounts or commissions and brokerage stock exchange listing fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "OFFICER'S CERTIFICATE" means a certificate signed by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel reasonably acceptable to the Trustee, which may be an employee of or counsel for the Company. "PERMITTED HOLDERS" means, (1) Ciba Specialty Chemicals Holding Inc. and its Affiliates; (2) any Person succeeding to the business of Ciba Specialty Chemicals Holding Inc., including pursuant to any merger or combination of one or more businesses that includes the business of Ciba Specialty Chemicals Holding Inc.; and (3) any Affiliate of any Person described in clause (2). "PERMITTED INVESTMENT" means an Investment (1) in the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (2) in another Person, if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; (3) in Temporary Cash Investments; 95 (4) in receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) in loans or advances to officers, directors or employees of the Company or any of its Subsidiaries for travel, transportation, entertainment, and moving and other relocation expenses and other business expenses that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) in loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary, as the case may be; (7) in stock, obligations or securities received (A) in settlement of debts created in the ordinary course of business and owing to the Company or any Subsidiary; (B) in satisfaction of judgments; or (C) as consideration in connection with an Asset Disposition permitted pursuant to the covenant described under the caption "--Certain Covenants--Limitation on Asset Dispositions;" and (8) deemed to have been made as a result of the acquisition of a Person that at the time of such acquisition held instruments constituting Investments that were not acquired in contemplation of the acquisition of such Person. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "PLANS" means any employee benefit plan, retirement plan, deferred compensation plan, restricted stock plan, health, life, disability or other insurance plan or program, employee stock purchase plan, employee stock ownership plan, pension plan, stock option plan or similar plan or arrangement of the Company or any Subsidiary, or any successor thereof and "Plan" shall have a correlative meaning. "PREFERRED STOCK," as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "PRINCIPAL" of a Note means the principal of the Note plus the premium, if any, payable on the Note which is due or overdue or is to become due at the relevant time. "PUBLIC EQUITY OFFERING" means an underwritten primary public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act. "PUBLIC MARKET" means any time after (x) a Public Equity Offering has been consummated and (y) at least 15% of the total issued and outstanding common stock of the Company has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "QUALIFIED PREFERRED STOCK" of a Restricted Subsidiary means a series of Preferred Stock of such Restricted Subsidiary which (1) has a fixed liquidation preference that is no greater in the aggregate than the sum of (x) the fair market value (as determined in good faith by the Board of Directors at the time of the issuance of such series of Preferred Stock) of the consideration received by such Restricted Subsidiary for the issuance of such series of Preferred Stock and (y) accrued and unpaid dividends to the date of liquidation, (2) has a fixed annual dividend and has no right to share in any dividend or other distributions 96 based on the financial or other similar performance of such Restricted Subsidiary and (3) does not entitle the holders thereof to vote in the election of directors, managers or trustees of such Restricted Subsidiary unless such Restricted Subsidiary has failed to pay dividends on such series of Preferred Stock for a period of at least 12 consecutive calendar months. "RATING AGENCY" means Standard & Poor's Ratings Group, Inc. and Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company (as certified by a resolution of the Board of Directors) which shall be substituted for Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the case may be. "REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (1) the Refinancing Indebtedness has Stated Maturity no earlier than any Stated Maturity of the Indebtedness being refinanced; (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced; and (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) either the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) of the Indebtedness being refinanced (including, with respect to both the Refinancing Indebtedness and the Indebtedness being refinanced, amounts then outstanding and amounts available thereunder) or, if the Indebtedness being refinanced is the Capitalized Lease Obligation entered into on or about September 15, 1998, the aggregate purchase price of the property subject thereto, PLUS (y) unpaid interest, prepayment penalties, redemption premiums, defeasance costs, fees, expenses and other amounts owing with respect thereto, plus reasonable financing fees and other reasonable out-of-pocket expenses incurred in connection therewith; PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include Indebtedness of a Subsidiary that refinances Indebtedness of the Company. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated January 21, 1999, between the Company and Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. "RELATED BUSINESS" means any business conducted by the Company and its Restricted Subsidiaries on the Issue Date and any business related, ancillary or complementary to the business of the Company and its Restricted Subsidiaries on the Issue Date. "REPRESENTATIVE" means the trustee, agent or other representative (if any) for an issue of Senior Indebtedness. "RESTRICTED PAYMENT" with respect to any Person means (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than 97 dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other PRO RATA dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of the Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) the making of any Investment (other than a Permitted Investment) in any Person. "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "SECURED INDEBTEDNESS" means any Indebtedness of the Company secured by a Lien. "SENIOR INDEBTEDNESS" means (1) all Bank Indebtedness; and (2) all other Indebtedness of the Company, including interest (including interest accruing at the contract rate specified in the Credit Agreement or the documentation governing such other Indebtedness, as applicable (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to the Company, whether or not allowed as a claim against the Company in any such proceeding) and fees thereon, whether outstanding on the Issue Date or thereafter issued or Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the Notes; PROVIDED, HOWEVER, that Senior Indebtedness shall not include (1) any liability for federal, state, local or other taxes owed or owing by the Company; (2) any accounts payable or other liabilities to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities); (3) any Indebtedness, Guarantee or obligation of the Company which is subordinate or junior in any respect to any other Indebtedness, Guarantee or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations; and (4) any obligations with respect to any Capital Stock. "SENIOR SUBORDINATED INDEBTEDNESS" means the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank PARI PASSU with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "SIGNIFICANT SUBSIDIARY" means a Restricted Subsidiary that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act and the Exchange Act. 98 "SPECIFIED PROPERTIES" shall mean the Company's manufacturing plants located in Lancaster, Ohio, Welkenraedt, Belgium, Brindisi, Italy and Lodi, New Jersey, and certain real property adjacent to the Company's manufacturing plant in Livermore, California. "STATED MATURITY" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "SUBORDINATED OBLIGATION" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter incurred) that is contractually subordinated or junior in right of payment to the Notes pursuant to a written agreement, including the Convertible Notes and the Convertible Debentures. "SUBSIDIARY" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless the context requires otherwise, "Subsidiary" shall refer to a Subsidiary of the Company. "TEMPORARY CASH INVESTMENTS" means any of the following: (1) investments in U.S. Government Obligations; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank of trust company which is organized under the laws of the United States of America, any State thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $50.0 million (or the U.S. dollar equivalent thereof) and whose long-term debt is rated "A-" or higher (or such equivalent rating) by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act); (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings Group; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poors Ratings Group or "A" by Moody's Investors Service, Inc. "UNRESTRICTED SUBSIDIARY" means (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and 99 (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under the caption "--Certain Covenants--Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of the covenant described under the caption "--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "VOTING STOCK" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital Stock of which (other than Qualified Preferred Stock and directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. 100 BOOK-ENTRY; DELIVERY AND FORM The certificates representing the Exchange Notes will be issued in fully registered form. Except as described below, the Exchange Notes initially will be represented by one or more global notes, in definitive, fully registered form without interest coupons (each a "Global Note") and will be deposited with the Trustee as custodian for DTC and registered in the name of Cede & Co. or such other nominee as DTC may designate. DTC has advised the Company as follows. - DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provision of Section 17A of the Exchange Act. - DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). - Upon the issuance of the Global Notes, DTC or its custodian will credit, on its internal system, the respective principal amounts of the Exchange Notes represented by such Global Notes to the accounts of persons who have accounts with DTC. Ownership of beneficial interests in the Global Notes will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Ownership of beneficial interests in the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee, with respect to interests of participants, and the records of participants, with respect to interests of persons other than participants. So long as DTC or its nominee is the registered owner or holder of the Global Notes, DTC or such nominee, as the case may be, will be considered the sole record owner or holder of the Exchange Notes represented by such Global Notes for all purposes under the Indenture and the Exchange Notes. No beneficial owners of an interest in the Global Notes will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture. Owners of beneficial interests in the Global Notes will not (1) be entitled to have the Exchange Notes represented by such Global Notes registered in their names, (2) receive or be entitled to receive physical delivery of certificated Notes in definitive form and (3) be considered to be the owners or holders of any Exchange Notes under the Global Notes. Accordingly, each person owning a beneficial interest in the Global Notes must rely on the procedures of DTC and, if such person is not a participant, on the procedures of the participant through which such person owns its interests, to exercise any right of a holder of Exchange Notes under the Global Notes. We understand that under existing industry practice, in the event an owner of a beneficial interest in the Global Notes desires to take any action that DTC, as the holder of the Global Notes, is entitled to take, DTC would authorize the participants to take such action, and that the participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. Payments of the principal of, premium, if any, and interest on the Exchange Notes represented by the Global Notes will be made to DTC or its nominee, as the case may be, as the registered owner of the Global Notes. Neither we, the Trustee, nor any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the 101 Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. We expect that DTC or its nominee, upon receipt of any payment of principal of, premium, if any, or interest in respect of the Global Notes will credit participants' accounts with payments in amounts proportionate to their respective beneficial ownership interests in the principal amount of such Global Notes, as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in such Global Notes held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfer between participants in DTC will be effected in the ordinary way in accordance with DTC rules. If a holder requires physical delivery of Notes in certificated form ("Certificated Notes") for any reason, including to sell Notes to persons in states which require such delivery of such Notes or to pledge such Notes, such holder must transfer its interest in the Global Notes, in accordance with the normal procedures of DTC and the procedures set forth in the Indenture. Unless and until they are exchanged in whole or in part for certificated Exchange Notes in definitive form, the Global Notes may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC. Beneficial owners of Exchange Notes registered in the name of DTC or its nominee will be entitled to be issued, upon request, Exchange Notes in definitive certificated form. DTC has advised us that DTC will take any action permitted to be taken by a holder of Notes, including the presentation of Notes for exchange as described below-only at the direction of one or more participants to whose account the DTC interests in the Global Notes are credited, and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Subject to certain conditions, any person having a beneficial interest in the Global Notes may, upon request to the Trustee, exchange such beneficial interest for Exchange Notes in the form of Certificated Notes. Upon any such issuance, the Trustee is required to register such Certificated Notes in the name of, and cause the same to be delivered to, such person or persons, or the nominee of any such persons. In addition, if DTC is at any time unwilling or unable to continue as a depositary for the Global Notes, and a successor depositary is not appointed by us within 90 days, we will issue Certificated Notes in exchange for the Global Notes. 102 EXCHANGE OFFER; REGISTRATION RIGHTS In connection with the sale of the Original Notes to Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. (collectively, the "Initial Purchasers") pursuant to the Purchase Agreement, dated January 15, 1999, among the Company and the Initial Purchasers, the holders of the Original Notes became entitled to the benefits of the registration rights agreement, dated as of January 21, 1999 (the "Registration Rights Agreement") by and among the Company and the Initial Purchasers. Under the Registration Rights Agreement, we have agreed to use our best efforts: - to file a Registration Statement (the "Exchange Offer Registration Statement") with the Securities and Exchange Commission (the "SEC") in connection with a registered offer (the "Exchange Offer") to exchange the Original Notes for new 9 3/4% Senior Subordinated Notes due 2009 (the "Exchange Notes"), having terms substantially identical in all material respects to the Original Notes (except that the Exchange Notes will not contain terms with respect to transfer restrictions), within 90 days after January 21, 1999, the date the Original Notes were issued (the "Issue Date"); - to cause the registration statement Exchange Offer Registration Statement to become effective within 180 days after the Issue Date; - to offer the Exchange Notes in exchange for surrender of the Original Notes, as soon as practicable after the effectiveness of the Exchange Offer Registration Statement; - to keep the Exchange Offer open for not less than 30 days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the holders of the Original Notes. The Exchange Offer being made hereby, if consummated within the required time periods, will satisfy our obligations under the Registration Rights Agreement. We understand that there are approximately 30 beneficial owners of such Original Notes. This Prospectus, together with the Letter of Transmittal, is being sent to all such beneficial holders known to us. For each Original Note validly tendered to us pursuant to the Exchange Offer and not withdrawn by the holder of such Original Note, such holder will receive a Exchange Note having a principal amount equal to that of the tendered Original Note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the tendered Original Note in exchange for an Exchange Note or, if no interest has been paid on such Original Note, from the date of the original issue of the Original Note. Based on an interpretation of the Securities Act by the Staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, we believe that the Exchange Notes issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders of such Exchange Notes without further compliance with the registration and Prospectus delivery provisions of the Securities Act. However, any purchaser of Original Notes who is an "affiliate" of ours or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (1) will not be able to rely on the interpretation by the staff of the SEC set forth in the above referenced no-action letters, (2) will not be able to tender Original Notes in the Exchange Offer and (3) must comply with the registration and Prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. Each holder of the Original Notes who wishes to exchange Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including that - it is neither our affiliate nor a broker-dealer tendering Notes acquired directly from us for its own account; - any Exchange Notes to be received by it were acquired in the ordinary course of its business; and 103 - at the time of commencement of the Exchange Offer, it has no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes. In addition, in connection with any resales of Exchange Notes, any participating broker-dealer who acquired the Exchange Notes for its own account as a result of market-making activities or other trading activities must deliver a Prospectus meeting the requirements of the Securities Act. The SEC has taken the position that participating broker-dealers may fulfill their Prospectus delivery requirements with respect to the Exchange Notes, other than a resale of an unsold allotment from the original sale of the Original Notes, with the Prospectus contained in the Exchange Offer Registration Statement. Under the Registration Rights Agreement, we are required to allow participating broker-dealers and other persons, if any, subject to similar Prospectus delivery requirements to use the Prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes. In the event that applicable interpretations of the staff of the SEC do not permit us to effect the Exchange Offer, or if for any other reason we do not consummate the Exchange Offer within 180 days of the date of the Registration Rights Agreement, or if an Initial Purchaser notifies us within 10 business days following consummation of the Exchange Offer that Notes held by it are not eligible for exchange in the Exchange Offer, or if any holder notifies us that it (1) is prohibited by law or SEC policy from participating in the Exchange Offer; (2) may not resell the Exchange Notes acquired in the Exchange Offer to the public without delivering a prospectus and this Prospectus is not appropriate or available for such resales by such holder; or (3) is a broker-dealer and holds Notes that are part of an unsold allotment from the original sale of the Notes, then, we have agreed: - to file a shelf registration statement (the "Shelf Registration Statement") as promptly as practicable, covering resales of the Original Notes or the Exchange Notes, as the case may be; - to use our best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act; and - to keep the Shelf Registration Statement effective until the earliest of (A) the time when the Notes covered by the Shelf Registration Statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144, (B) two years from the effective date and (C) the date on which all Notes registered thereunder are disposed of in accordance therewith. We have agreed to pay additional cash interest on the Notes if (1) by April 21, 1999 (90 days after the Issue Date), neither the Exchange Offer Registration Statement nor the Shelf Registration Statement is filed with the SEC; (2) by July 20, 1999 (180 days after the Issue Date), the Exchange Offer is not consummated and, if applicable, the Shelf Registration Statement is not declared effective; or (3) after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective, such Registration Statement thereafter ceases to be effective or usable (subject to certain exceptions). The rate of the additional interest will be 0.50% per annum following the occurrence of such Registration Default, until all Registration Defaults have been cured (subject to certain exceptions). Interest on each Exchange Note will accrue from January 21, 1999 or from the most recent interest payment date to which interest was paid on the Original Note surrendered in exchange for the Exchange Note or on the Exchange Note, as the case may be. The Exchange Notes will bear interest at 9 3/4% per annum, except that, if any interest accrues on the Exchange Notes in respect of any period prior to their issuance, such interest will accrue at the rate or rates borne by the Notes from time to time during such period. If we effect the Exchange Offer, we will be entitled to close the Exchange Offer 30 days after the commencement thereof provided that we have accepted all Notes validly tendered in accordance with the terms of the Exchange Offer. The summary in this Prospectus of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Registration Rights Agreement, which is filed as an exhibit to the Registration Statement to which this Prospectus forms a part. 104 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On February 29, 1996, Hexcel consummated certain transactions with CGL whereby Hexcel acquired the Ciba Composites Business (the "Ciba Acquisition") pursuant to the terms and conditions of the Strategic Alliance Agreement, the Governance Agreement, a Registration Rights Agreement, a Distribution Agreement and other agreements (collectively, the "Agreements"). On December 20, 1996, CGL and Sandoz Limited effected a business combination, forming Novartis Inc., a Swiss corporation. Prior to the business combination, CGL formed a new subsidiary, Ciba. On March 13, 1997, all direct and indirect interests in Hexcel previously held by CGL were transferred to Ciba, including without limitation, all of its direct or indirect interest in Hexcel's common stock, the Ciba Senior Subordinated Debt (as defined below) and all of its rights and obligations under the Agreements. In the Hexcel Consent Letter, Hexcel acknowledged Ciba as the successor to the rights and obligations of CGL and CGC under the Agreements. THE STRATEGIC ALLIANCE AGREEMENT Under the Strategic Alliance Agreement, Hexcel acquired the assets (including the capital stock of certain non-U.S. subsidiaries) and assumed the liabilities of the Ciba Composites Business, other than certain excluded assets and liabilities, in exchange for (i) 18.0 million newly issued shares of Hexcel's common stock (representing beneficial ownership of approximately 49.6% of Hexcel's outstanding common stock), (ii) $25.0 million in cash, (iii) the Ciba Notes, and (iv) senior demand notes in an aggregate principal amount of $5.3 million. The aggregate purchase price for the net assets acquired in 1996 was $208.7 million. THE GOVERNANCE AGREEMENT Pursuant to the Governance Agreement, Hexcel's Board of Directors was reconstituted. In addition, certain key employees of the Ciba Composites Business, including William Hunt, became executive officers of Hexcel effective as of the closing of the Ciba Acquisition (the "Closing"). CORPORATE GOVERNANCE Pursuant to the Governance Agreement, Hexcel has agreed to exercise all authority under applicable law to cause any slate of nominees presented to stockholders for election to the Board of Directors to consist of certain specified numbers of Ciba Nominees and Independent Nominees, in addition to the Chairman and the President. The precise number of Ciba Nominees and Independent Nominees to be included in any slate of nominees varies based on Ciba's percentage ownership of the voting securities of Hexcel. The Governance Agreement further provides that (i) for so long as Ciba beneficially owns voting securities representing 40% or more of the total voting power of Hexcel, each committee of the Board of Directors shall consist of an equal number of Ciba Directors and Independent Directors and (ii) at all other times, each committee shall be comprised such that Ciba's representation is at least proportionate to its representation on the Board of Directors, unless the committee is comprised of three members or less, in which case at least one Ciba Director shall serve. Pursuant to the Governance Agreement, new directors chosen to fill vacancies on the Board of Directors shall be selected as follows: (i) if the new director is to be a Ciba Director, then Ciba shall designate the new director; (ii) if the former director was the Chairman or President, the replacement Chairman or President, respectively, shall be the replacement director; and (iii) if the new director is to be an Independent Director (other than the Chairman or the President), the remaining Independent Directors (including the Chairman and the President if he or she is an Independent Director) shall designate the new director. 105 If at any time the percentage of the total voting power of Hexcel beneficially owned by Ciba decreases to a point at which the number of Ciba Directors would decrease, the Governance Agreement generally requires Ciba to cause a sufficient number of Ciba Directors to resign from the Board of Directors so that the number of Ciba Directors on the Board of Directors after such resignation(s) equals the number of Ciba Nominees that Ciba would have been entitled to designate had an election of directors taken place at such time. Any vacancies created by such resignations would be filled by Independent Directors. CERTAIN APPROVALS Under the Governance Agreement, so long as Ciba beneficially owns voting securities representing 40% or more of the total voting power of Hexcel, neither the Board of Directors nor any committee thereof shall take any action, including the approval, authorization or ratification of any action or inaction by officers, agents or employees of Hexcel, without the affirmative vote of at least one Ciba Director and one Independent Director. In addition, the Governance Agreement generally provides that for so long as Ciba beneficially owns voting securities representing at least 33% of the total voting power of Hexcel, the Board of Directors shall not authorize, approve or ratify any of the following actions without the approval of a majority of the Ciba Directors: (i) any merger, consolidation, acquisition or other business combination involving Hexcel or any subsidiary of Hexcel if the value of the consideration paid or received by Hexcel in such individual transaction or the aggregate consideration paid or received by Hexcel in all such transactions approved by the Board of Directors during the prior 12 months exceeds the greater of $75 million or 11% of Hexcel's total consolidated assets; (ii) any sale, transfer, conveyance, lease or other disposition or series of related dispositions of assets, business or operations of Hexcel or any of its subsidiaries, if the value of the assets, business or operations so disposed exceeds the greater of $75 million or 11% of Hexcel's total consolidated assets; (iii) any issuance by Hexcel or any significant subsidiary of Hexcel of equity securities (other than pursuant to customary employee or director stock option or incentive compensation or similar plans and other than transactions solely among Hexcel and its subsidiaries) or any other bonds, debentures, notes or securities convertible into, exchangeable for or exercisable for equity securities if the aggregate net proceeds to Hexcel of such issuance or of such issuance when added to the aggregate net proceeds to Hexcel of all such issuances approved by the Board of Directors during the prior 12 months exceeds the greater of $75 million or 11% of Hexcel's total consolidated assets; and (iv) any new capital expenditure program or any capital expenditure that is not part of a capital expenditure program previously approved by the Board of Directors, if the amount or anticipated amount of such program or expenditure or of such program or expenditure when added to the aggregate amount of capital expenditures not so approved by the Board of Directors during the prior 12 months exceeds the greater of $50 million or 7% of Hexcel's total consolidated assets. In addition, the Company's Bylaws, which include certain provisions of the Governance Agreement, provide that, for so long as Ciba beneficially owns 33% or more of the total voting power of the Company, the Board of Directors shall not authorize, approve or ratify certain mergers, consolidations, acquisitions, business combinations, sales or transfers of assets, issuances of equity securities or capital expenditures without the prior approval of a majority of the directors of the Company designated by Ciba. Under the terms of the Governance Agreement, Ciba has agreed that, until the percentage of the total voting power of Hexcel beneficially owned by Ciba falls below either (i) 15% if and so long as there is on file with the SEC any statement showing beneficial ownership by any person other than Ciba of 10% or more of the total voting power of Hexcel or (ii) 10% in all other cases, in any election of directors or any meeting of stockholders of Hexcel called expressly for the removal of directors, so long as the Board of Directors includes (and will include after any such removal) the requisite number of Ciba Directors, each of Ciba and any subsidiary of Ciba that holds voting securities of Hexcel (each, a "Ciba Entity") will be present for purposes of establishing a quorum and will vote all of its voting securities of Hexcel (x) in favor of any nominee or director selected in accordance with the terms of the Governance Agreement and (y) otherwise against the removal of any director designated in accordance with the terms of the 106 Governance Agreement. In any other matter submitted to a vote of the stockholders of Hexcel, Ciba and each Ciba Entity will be present for purposes of establishing a quorum and will vote all of its voting securities of Hexcel either, at the discretion of Ciba, (i) as recommended by the Board of Directors or (ii) in proportion to the votes cast with respect to the voting securities of Hexcel not beneficially owned by Ciba or the Ciba Entities, except that Ciba and each Ciba Entity will be free to vote all of its voting securities entitled to vote in its sole discretion on the following matters submitted to stockholders so long as such matters were not submitted to stockholders at the request of Ciba or any of its affiliates (other than Hexcel): (A) any amendment to the Certificate of Incorporation of Hexcel; (B) any merger, consolidation, acquisition or other business combination involving Hexcel or any of its subsidiaries; (C) any sale, lease, transfer or other disposition of the business operations or assets of Hexcel; (D) any recapitalization, restructuring or similar transaction or series of transactions involving Hexcel or any significant subsidiary of Hexcel; (E) any dissolution or complete or partial liquidation or similar arrangement of Hexcel or any significant subsidiary of Hexcel, subject to certain exceptions; (F) certain issuances of equity securities or securities convertible into or exchangeable or exercisable for equity securities; and (G) entering into any material joint venture, collaboration or partnership by Hexcel or any of its subsidiaries. STANDSTILL Under the terms of the Governance Agreement, Ciba has agreed, subject to certain specified exceptions, that it will not, directly or indirectly, (i) purchase or otherwise acquire any beneficial ownership of voting securities of Hexcel; (ii) enter into, propose to enter into, solicit or support any merger or business combination or similar transaction involving Hexcel or any of its subsidiaries or purchase, acquire, propose to purchase or acquire or solicit or support the purchase or acquisition of any portion of the business or assets of Hexcel or any significant subsidiary of Hexcel (except in the ordinary course of business or in nonmaterial amounts); (iii) initiate or propose any security holder proposal without the approval of the Board of Directors or make, or in any way participate in, any "solicitation" of "proxies" (as such terms are used in Section 14 of the Exchange Act) to vote or seek to advise or influence any person or entity with respect to the voting of any voting securities of Hexcel or request or take any action to obtain any list of security holders for such purposes with respect to any matter other than those with respect to which Ciba or the Ciba Entities may vote in their sole discretion under the Governance Agreement (or, as to such matters, solicit any person in a manner that would require the filing of a proxy statement under Regulation 14A of the Exchange Act); (iv) form, join or otherwise participate in a group formed for the purpose of acquiring, holding, voting, disposing of or taking any action with respect to Hexcel's voting securities that would be required under Section 13(d) of the Exchange Act to file a statement on Schedule 13D with the SEC; (v) deposit any voting securities of Hexcel in a voting trust or enter into any voting agreement with respect thereto (other than the Governance Agreement); (vi) seek representation on the Board of Directors, remove a director or seek a change in the size or composition of the Board of Directors; (vii) make any request to amend or waive the provisions of the Governance Agreement referred to in this paragraph that would require public disclosure; (viii) disclose any intent, purpose, plan, arrangement or proposal inconsistent with the foregoing (including any such intent, purpose, plan, arrangement or proposal that is conditioned on or would require the waiver, amendment, nullification or invalidation of any of the foregoing) or take any action that would require public disclosure of any such intent, purpose, plan, arrangement or proposal; (ix) take any action challenging the validity or enforceability of the foregoing; or (x) assist, advise, encourage or negotiate with respect to or seek to do any of the foregoing. The Governance Agreement permits Ciba to purchase or otherwise acquire beneficial ownership of Hexcel's voting securities in open market purchases so long as after giving effect to such purchases or acquisitions the percentage of the total voting power of Hexcel beneficially owned by Ciba does not exceed the greater of (i) 49.9% until February 28, 1999 or 57.5% thereafter and (ii) the highest percentage of the total voting power of Hexcel beneficially owned by Ciba immediately following any action by Hexcel that 107 increases the percentage of the total voting power of Hexcel beneficially owned by Ciba due to a reduction in the amount of voting securities of Hexcel outstanding as a result of such action. BUYOUT TRANSACTIONS The Governance Agreement provides that, notwithstanding the standstill provisions described above, at any time after February 28, 2001, Ciba may propose, participate in, support or cause the consummation of a tender offer, merger or sale of substantially all of Hexcel's assets or similar transaction (a "Buyout Transaction"), including a Buyout Transaction with Ciba or any of its affiliates, if each stockholder other than Ciba and the Ciba Entities (the "Other Holders") is entitled to receive upon consummation of such Buyout Transaction consideration that is (i) approved by (x) a majority of the Independent Directors acting solely in the interests of the Other Holders after the receipt of an opinion of an independent nationally recognized investment banking firm retained by them or (y) a majority in interest of the Other Holders by means of a stockholder vote solicited pursuant to a proxy statement containing the information required by Schedule 14A under the Exchange Act (it being understood that the Independent Directors will, consistent with their fiduciary duties, be free to include in such proxy statement, if applicable, the reasons underlying any failure by them to approve a Buyout Transaction by the requisite vote, including whether a fairness opinion was sought by the Independent Directors and any opinions or recommendations expressed in connection therewith) and (ii) fair from a financial point of view to the Other Holders in the opinion of an independent nationally recognized investment banking firm (including such a firm retained by Ciba). ISSUANCE OF ADDITIONAL SECURITIES If, at any time after the Closing for so long as Ciba is entitled to designate one or more nominees for election to the Board of Directors, Hexcel issues any additional voting securities for cash (other than issuances of voting securities in connection with employee or director stock option or incentive compensation or similar plans), Ciba will, pursuant to the Governance Agreement, have the option to purchase, for the same consideration and otherwise on the same terms as are applicable to such issuance by Hexcel, an amount of such voting securities that would allow Ciba to beneficially own the same percentage of the total voting power of Hexcel after such issuance as Ciba beneficially owned immediately prior to such issuance. THIRD PARTY OFFERS In the event that Hexcel becomes the subject of a bona fide offer to enter into a Buyout Transaction by a person other than Ciba or any of its affiliates or any other person acting on behalf of Ciba or any of its affiliates (a "Third Party Offer") that is made after February 28, 1999 and that is approved by two-thirds of the Independent Directors, Ciba will, within ten days after receipt of notice of such event, either (i) offer to acquire the voting securities of Hexcel held by the Other Holders (the "Other Shares") on terms at least as favorable to the Other Holders as those contemplated by such Third Party Offer or (ii) support such Third Party Offer (or an alternative Third Party Offer providing greater value to the Other Holders) by voting and causing each Ciba Entity to vote all its voting securities of Hexcel eligible to vote thereon in favor of such Third Party Offer or, if applicable, tendering or selling and causing each Ciba Entity to tender or sell all its voting securities of Hexcel to the person making such Third Party Offer. In the event that Hexcel becomes the subject of a Third Party Offer, neither Ciba nor any of the Ciba Entities may support or vote in favor of such Third Party Offer or tender or sell its voting securities of Hexcel to the person making such Third Party Offer unless such Third Party Offer is approved by (i) a majority of the Independent Directors acting solely in the interests of the Other Holders or (ii) a majority in interest of the Other Holders in a stockholder vote solicited pursuant to a proxy statement containing the information required by Schedule 14A under the Exchange Act (it being understood that the Independent Directors will, consistent with their fiduciary duties, be free to include in such proxy statement, if applicable, the reasons underlying any failure by them to approve a Buyout Transaction by the requisite vote, including whether a fairness opinion 108 was sought by the Independent Directors and any opinions or recommendations expressed in connection therewith). TRANSFER RESTRICTIONS Except in connection with a Third Party Offer that has been approved by the Independent Directors or the Other Holders in accordance with the Governance Agreement, Ciba and the Ciba Entities are not permitted to sell, transfer or otherwise dispose of any voting securities of Hexcel except (i) transfers solely among Ciba and its wholly owned subsidiaries, (ii) in accordance with the volume and manner-of-sale limitations of Rule 144 under the Securities Act, and otherwise subject to compliance with the Securities Act or (iii) in a registered public offering or a non-registered offering subject to an applicable exemption from the registration requirements of the Securities Act, and in the case of clauses (ii) and (iii), in a manner calculated to achieve a Broad Distribution (as defined in the Governance Agreement). In addition, the Governance Agreement provides that Ciba will not (i) permit any subsidiary of Ciba that is not wholly owned to become a Ciba Entity or (ii) dispose of any of the capital stock of any Ciba Entity except to another direct or indirect wholly owned subsidiary of Ciba. This provision does not, however, prohibit Ciba from effecting (i) a pro rata distribution to Ciba's stockholders or (ii) a sale in a manner calculated to achieve a Broad Distribution of up to 20%, in each case, of the equity securities of a Ciba Entity if (x) such distribution or sale has a bona fide business purpose (other than the sale or distribution of such voting securities), (y) the voting securities of Hexcel beneficially owned by such Ciba Entity do not constitute a material portion of the total assets of such Ciba Entity and (z) in the case of a pro rata distribution to Ciba's stockholders, such Ciba Entity agrees in writing to be bound by the terms and provisions of the Governance Agreement to the same extent that Ciba would be if it beneficially owned the voting securities of Hexcel beneficially owned by such Ciba Entity. TERMINATION; EXTENSION On February 28, 2006, or at the end of any subsequent renewal period, if the percentage of the total voting power of Hexcel beneficially owned by Ciba is greater than 10% but less than 100%, Ciba will have the option to (i) extend the Governance Agreement for an additional two year period, in which case so long as Ciba beneficially owns voting securities of Hexcel representing 25% or more of the total voting power of Hexcel, on one occasion during such two-year period Ciba may require Hexcel to solicit in good faith a Buyout Transaction in which Ciba, the Ciba Entities and the Other Holders receive the same consideration per voting security of Hexcel (in which event the provisions of the Governance Agreement will continue in full force and effect until the consummation of such Buyout Transaction) or (ii) undertake to sell a sufficient number of voting securities of Hexcel so that the percentage of total voting power of Hexcel beneficially owned by Ciba falls below 10% during the subsequent 18 months pursuant to one or more registered or non-registered offerings calculated to achieve a Broad Distribution (in which event the provisions of the Governance Agreement will continue in full force and effect until Ciba's percentage ownership of the total voting power of Hexcel falls below 10%). If Ciba exercises its option to require Hexcel to solicit a Buyout Transaction as described above, Ciba and the Ciba Entities may vote in favor of or tender or sell their voting securities pursuant to any Third Party Offer made as a result of or during such solicitation so long as the Third Party Offer offers the same consideration to the Other Holders. Unless Hexcel has accepted another Third Party Offer providing at least equivalent value to all Hexcel stockholders, Hexcel will not take any action to interfere with Ciba's right to vote in favor of or tender into such a Third Party Offer, provided, however, that Hexcel will remain free to pursue alternative Third Party Offers that provide for at least equivalent currently realizable value to all Hexcel stockholders (including Ciba and the Ciba Entities) as such previously proposed Third Party Offer. The Governance Agreement will automatically terminate at any time that Ciba beneficially owns voting securities of Hexcel representing either 100% or less than 10% of the total voting power of Hexcel. 109 THE DISTRIBUTION AGREEMENT In accordance with the terms of the Strategic Alliance Agreement, Hexcel and CGL entered into the Distribution Agreement, which was assigned to Ciba in accordance with the Hexcel Consent Letter (as so assigned, the "Distribution Agreement"). Pursuant to the Strategic Alliance Agreement and the Distribution Agreement, certain subsidiaries of CGL continued to act as distributors for Hexcel through February 28, 1997. In accordance with these agreements, Hexcel acquired certain assets (primarily inventory and certain fixed assets) of these distributors from time to time during the year following the Closing for an aggregate purchase price of approximately $2.5 million, to be paid in senior subordinated notes. Pursuant to the Distribution Agreement, sales to CGL subsidiaries were approximately $5.6 million in 1997. THE REGISTRATION RIGHTS AGREEMENT In connection with the Acquisition, Hexcel and CGL entered into a registration rights agreement, which was assigned to Ciba in accordance with the Hexcel Consent Letter (as so assigned and amended, the "Ciba Registration Rights Agreement"). The Ciba Registration Rights Agreement provides that Hexcel will prepare and, not later than 60 days after a request from Ciba, file with the SEC a "shelf" registration statement covering the shares of Hexcel Common beneficially owned by Ciba and the Ciba Entities. Ciba's shares of Hexcel Common will generally become eligible for sale under the Ciba Registration Rights Agreement in four equal annual installments commencing on March 1, 1998. The shares eligible for sale under the Ciba Registration Rights Agreement in any year that are not sold in such year will continue to be eligible for sale under the Ciba Registration Rights Agreement in subsequent years. Under the Ciba Registration Rights Agreement, Ciba also has the right, subject to certain restrictions, to include its shares of Hexcel Common eligible for sale under the Ciba Registration Rights Agreement in certain equity offerings of Hexcel. The Ciba Registration Rights Agreement also contains certain provisions relating to blackout periods (during which Ciba would not be permitted to sell shares of Hexcel Common otherwise eligible for sale under the Ciba Registration Rights Agreement), payment of expenses, selection of underwriters and indemnification. THE SUPPLY AND MANUFACTURING AGREEMENTS Hexcel and CGL have entered into various agreements and purchase orders, some of which were entered into in connection with the Ciba Acquisition, pursuant to which Hexcel and CGL have purchased certain products from each other; Ciba has assumed these obligations. Sales to CGL and Ciba under such agreements were approximately $5.6 million on a worldwide basis in 1997. Sales to Hexcel under such agreements were approximately $34.3 million on a worldwide basis in 1997. 110 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain United States federal income tax consequences associated with the exchange of the Original Notes for the Exchange Notes pursuant to the Exchange Offer and the ownership and disposition of the Exchange Notes. This summary applies only to a holder of an Exchange Note who acquired an Original Note at the initial offering from an Initial Purchaser for the original offering price thereof and who acquires the Exchange Note pursuant to the Exchange Offer. This discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address the tax consequences to subsequent purchasers of the Exchange Notes and is limited to investors who hold the Exchange Notes as capital assets. The tax treatment of the holders of the Notes may vary depending upon their particular situations. In addition, certain holders (including insurance companies, tax exempt organizations, financial institutions and broker-dealers) may be subject to special rules not discussed below. EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OF THE ORIGINAL NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER AND THE OWNERSHIP DISPOSITION OF THE EXCHANGE NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY RELEVANT FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION. UNITED STATES TAXATION OF UNITED STATES HOLDERS As used herein, (A) the term "United States Holder" means a holder of an Exchange Note that is, for United States federal income tax purposes, (i) a citizen or resident of the United States, (ii) a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, (iii) an estate the income of which is subject to United States federal income taxation regardless of its source and (iv) a trust if a United States court is able to exercise primary supervision over the administration of such trust and one or more United States persons have the authority to control all substantial decisions of such trust and (B) the term "Non-U.S. Holder" means a holder of an Exchange Note that is not a United States Holder. EXCHANGE OFFER The exchange of an Original Note for a Exchange Note pursuant to the Exchange Offer will not constitute a "significant modification" of the Original Note for United States federal income tax purposes and, accordingly, the Exchange Note received will be treated as a continuation of the Original Note in the hands of such holder. As a result, there will be no United States federal income tax consequences to a United States Holder who exchanges an Original Note for a Exchange Note pursuant to the Exchange Offer and any such holder will have the same adjusted tax basis and holding period in the Exchange Note as it had in the Original Note immediately before the exchange. STATED INTEREST Stated interest payable on a Exchange Note generally will be included in the gross income of a United States Holder as ordinary interest income at the time accrued or received, in accordance with such United States Holder's method of accounting for United States federal income tax purposes. DISPOSITION OF THE EXCHANGE NOTES Upon the sale, exchange, retirement at maturity or other taxable disposition of a Exchange Note (collectively, a "disposition"), a United States Holder generally will recognize capital gain or loss equal to the difference between the amount realized by such holder (except to the extent such amount is attributable to accrued interest, which will be treated as ordinary interest income) and such holder's adjusted tax basis in the Exchange Note. Such capital gain or loss will be long-term capital gain or loss if 111 such United States Holder's holding period for the Exchange Note exceeds one year at the time of the disposition. UNITED STATES TAXATION OF NON-U.S. HOLDERS STATED INTEREST In general, payments of interest received by a Non-U.S. Holder will not be subject to United States federal withholding tax, provided that (i)(a) the Non-U.S. Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (b) the Non-U.S. Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership, and (c) the beneficial owner of the Exchange Note, under penalty of perjury, either directly or through a financial institution which holds the Exchange Note on behalf of the Non-U.S. Holder and holds customers' securities in the ordinary course of its trade or business, provides The Company or its agent with the beneficial owner's name and address and certifies, under penalty of perjury, that it is not a United States Holder, (ii) the interest received on the Exchange Note is effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States and the Non-U.S. Holder complies with certain reporting requirement; or (iii) the Non-U.S. Holder is entitled to the benefits of an income tax treaty under which the interest is exempt from United States withholding tax and the Non-U.S. Holder complies with certain reporting requirement. Payments of interest not exempt from United States federal withholding tax as described above will be subject to such withholding tax at the rate of 30% (subject to reduction under an applicable income tax treaty). GAIN ON DISPOSITION A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale, redemption or other disposition of an Exchange Note unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-U.S. Holder or (ii) in the case of a Non-U.S. Holder who is a nonresident alien individual, such holder is present in the United States for 183 or more days in the taxable year and certain other requirements are met. In addition, an exchange of an Original Note for a Exchange Note pursuant to the Exchange Offer will not constitute a taxable exchange of the Original Note for Non-U.S. Holders. See "United States Taxation of United States Holders--Exchange Offer." INFORMATION REPORTING AND BACKUP WITHHOLDING Certain non-corporate United States Holders may be subject to backup withholding at a rate of 31% on payments of principal, premium (if any) and interest on, and the proceeds of the disposition of, the Notes. In general, backup withholding will be imposed if the United States Holder (i) fails to furnish its taxpayer identification number ("TIN"), which, for an individual, would be such holder's Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that such holder has failed to report payments of interest or dividends of (iv) under certain circumstances, fails to certify, under penalty of perjury, that such holder has furnished a correct TIN and has been notified by the IRS that such holder is subject to backup withholding tax for failure to report interest or dividend payments. In addition, such payments of principal premium and interest to United States Holders will generally be subject to information reporting. United States Holders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption, if applicable. Backup withholding generally will not apply to payments made to a Non-U.S. Holder of a Exchange Note who provides the certification described under "United States Taxation of Non-U.S. Holders--Stated Interest" or otherwise establishes an exemption from backup withholding. Payments by a United States office of a broker of the proceeds of a disposition of the Exchange Notes generally will be subject to 112 backup withholding at a rate of 31% unless the Non-United States Holder certifies it is a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS. NEW TREASURY REGULATIONS New final Treasury regulations governing information reporting and the certification procedures regarding withholding and backup withholding on certain amounts paid to Non-U.S. Holders after December 31, 1999 generally would not alter the treatment of Non-U.S. Holders described above. The new Treasury regulations would alter the procedures for claiming the benefits of an income tax treaty and may change the certification procedures relating to the receipt by intermediaries of payments on behalf of a Non-U.S. Holder of an Exchange Note. Holders should consult their tax advisors concerning the effect, if any, of such new Treasury regulations on an investment in the Exchange Notes. 113 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until July 20, 1999, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 114 LEGAL MATTERS Certain legal matters with respect to the Exchange Notes offered hereby will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. EXPERTS The consolidated financial statements of Hexcel Corporation as of and for the year ended December 31, 1997 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated financial statements of Hexcel Corporation as of December 31, 1996 and for each of the two years in the period ended December 31, 1996 included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Clark-Schwebel Holdings, Inc. as of and for the years ended December 28, 1996 and January 3, 1998, included in this Prospectus, were audited by Arthur Andersen LLP, independent accountants, as stated in their report appearing herein, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Clark-Schwebel Holdings, Inc. for the year ended December 30, 1995, included in this Prospectus, were audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-4 under the Securities Act of 1933, as amended, covering the notes to be issued in the Exchange Offer. This Prospectus does not contain all of the information included in the Registration Statement. Any statement made in this Prospectus concerning the contents of any contract, agreement or other document is not necessarily complete. If we have filed any such contract, agreement or other document as an exhibit to the Registration Statement, you should read the exhibit for a more complete understanding of the document or matter involved. Each statement regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document. Hexcel Corporation files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy the Registration Statement, including the attached Exhibits, and any reports, statements or other information filed by us at the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings with the SEC are also available to the public from commercial document retrieval services and at the SEC's Web site at "http://www.sec.gov." This Prospectus incorporates by reference the following documents filed by Hexcel Corporation with the SEC: - Annual Report on Form 10-K for the fiscal year ended December 31, 1997; - Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; and - Current Reports on Form 8-K dated July 30, 1998, August 11, 1998, September 24, 1998, October 9, 1998, October 22, 1998, November 12, 1998, December 29, 1998, January 4, 1999 and January 25, 1999. 115 In addition, all reports and other documents we subsequently file pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act shall be deemed to be incorporated by reference into this Prospectus and to be part of this Prospectus from the date we subsequently file such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference into this prospectus are deemed to be modified or superseded for purposes of this prospectus to the extent modified or superseded by another statement contained in any subsequently filed document also incorporated by reference in this prospectus. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this prospectus. You may also access copies of these filings at our website at "http://www.Hexcel.com." In addition, you may request a copy of any of these filings, at no cost, by writing or telephoning us at the following address or phone number: Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. Stamford, Connecticut 06901 (203) 969-0666 Attention: Investor Relations 116 GLOSSARY OF TERMS ADHESIVES--A thermoset resin (e.g., epoxy, phenolic or BMI) in the form of a thin film or paste, cured under heat and pressure to bond a wide range of composite, metallic and honeycomb surfaces. ARAMID--A high strength, high stiffness fiber derived from polyamide (Nylon). Kevlar-Registered Trademark- and Nomex-Registered Trademark- are examples of aramids. Woven Aramid fabrics are used in both ballistic and composite materials applications. CARBON FIBER--Fiber produced by heat treating precursor fibers, such as PAN (Polyacrylonitrile), rayon and pitch, to drive off non-carbon atoms. The term is often used interchangeably with graphite; however, carbon fibers and graphite fibers differ. The basic differences lie in the temperatures at which the fibers are made and heat treated, and in the resultant carbon content. COMPOSITE MATERIALS--Product made from combining two or more materials such that the resultant product has exceptional structural properties not present in either of the constituent materials. COWLS OR COWLING--The outside protective shell of a jet engine traditionally made out of metal. Cowls mainly provides the engine with protection from the elements and structural support. FAIRINGS--A secondary structure of an airplane providing enhanced aerodynamics. Typically, fairings are found where the wing meets the body or at various locations on the leading or trailing edge of the wing. FIBER PLACEMENT--Fabrication of complex shaped components using computer or numerically controlled machines to place impregnated fiber tows in a predetermined pattern. FIBERGLASS--An individual filament made by drawing molten glass. As a composite materials reinforcement, it is a major material used to reinforce plastic. FILAMENT WINDING--A process to manufacture composite materials components such as mirole and rocket casings and cylinders. Fiber filaments are dipped in a resin matrix and then wound in a predetermined pattern over a form of the desired component that is mounted on a mandrel. FINISHED PARTS--Completed components that typically contain prepregs, honeycomb, adhesive and assembled hardware. These parts are ready for direct attachment to a structure (e.g., aircraft) or to sub-assemblies. HONEYCOMB--A unique, lightweight, cellular structure made from either metallic sheet material or non-metallic materials (e.g., resin-impregnated paper or woven fabric) and formed into hexagonal nestled cells, similar in appearance to a cross-sectional slice of a beehive. INLET DUCTS--Intake passages or tubes that confine and conduct air. They are usually located at the upstream end of an airplane engine on the engine cowling and aid in both propulsion and engine cooling. Inlet ducts are also used to improve aerodynamics of fighter planes and for this purpose are usually located on the fuselage near the wings. INTERIORS--Finished internal aircraft components, such as overhead stowage compartments, lavatories, sidewalls, floor panels and ceilings. KOREX-REGISTERED TRADEMARK---DuPont's registered trademark for honeycomb made from high temperature resistant Kevlar-Registered Trademark- aramid papers. NOMEX-REGISTERED TRADEMARK---DuPont's registered trademark for its high-temperature-resistant aramid papers, pressboard, staple fibers and filament yarns. Type 412 Nomex-Registered Trademark- aramid paper is used in the manufacture of honeycomb due to its unique combination of physical and thermal properties. PCBS--Printed circuit boards (also known as printed wiring boards) contain high pressure laminates derived from fiberglass fabric on which are mounted and interconnected semiconductors, passive electronic devices and other electronic components. PAN (POLYACRYLONITRILE)--A material used as a base or precursor material in the manufacture of certain carbon fibers. 117 POLYETHYLENE--A common plastic made by polymerizing ethylene which is used widely in packaging and consumer products. PRECURSOR--For carbon or graphite, the PAN, rayon or pitch fibers from which carbon or graphite fibers are derived. PREPREGS (PRE-IMPREGNATED)--A composite material made from combining high performance reinforcement fibers or fabrics with a thermoset or thermoplastic resin matrix. The prepreg has exceptional structural properties not present in either of the constituent materials. PRIMARY STRUCTURE--A critical load bearing structure on an aircraft. If this structure is severely damaged, the aircraft cannot fly. QUALIFIED AND QUALIFICATIONS--The testing and manufacturing protocols in aerospace and military applications by which materials, such as composite materials, are approved for production supply. To qualify a product requires the creation of a technical database which records the performance of a product against certain customer specifications, and the documentation of the manufacturing equipment and process steps for production of the product. The performance database for the product forms a basis upon which engineers can design components and against which the manufacturer must test all future production to ensure that the product performance is replicated consistently. The manufacturing process and equipment documentation ensure that the future manufacture of the product replicates product performance. Once a product is qualified, changes to the product composition, manufacturing process or manufacturing location and equipment can only be made with customer approval after further testing has demonstrated that the original product performance will be replicated. By their nature, these qualification protocols are expensive and time consuming. RADOMES--The housing which protects the aircraft radar system from the elements while allowing transmission of radar signals. Often the radome is in the nose of an aircraft but can be found at other locations on the aircraft as well. REDUX-REGISTERED TRADEMARK---A registered trademark exclusively licensed by Hexcel for one of Hexcel's lines of adhesives and primers. REINFORCEMENTS--A strong material incorporated into a matrix to improve its mechanical properties. Reinforcements are usually long continuous fibers, which may be woven. Fiberglass, aramid and carbon fibers are typical reinforcements. REINFORCEMENT FABRICS--Woven fiberglass, carbon or aramid fabrics used in later production of prepregs and honeycomb. RESIN MATRIX--In reinforced fiber composites, a polymeric substrate material, such as epoxy or phenolic resin, is used to bind together the reinforcement material. S-2-REGISTERED TRADEMARK- FIBERGLASS--A type of high modulus glass fiber. SECONDARY STRUCTURE--A non-critical structure on an aircraft. If damaged, the aircraft can still fly. Fairings, access doors and some flight control surfaces are examples of secondary structures. SPECIAL PROCESS--The forming, shaping, machining or bonding of sheets or blocks of honeycomb into profiled and complex shapes to ready for use as semi-finished components in the fabrication of composite parts and structures. STRUCTURES--Finished components for aircraft, truck or other vehicles constructed from composite materials. For aircraft, these may be for Primary and Secondary Structures or Interiors. Truck applications include chassis fairings and floors. THORSTRAND-REGISTERED TRADEMARK---A family of electrically conductive fabrics woven by Hexcel from metallized yarns. 118 INDEX TO FINANCIAL STATEMENTS
PAGE --------- CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION Report of Independent Accountants.......................................................................... F-2 Independent Auditors' Report............................................................................... F-3 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1997 and 1996............................................. F-4 Consolidated Statements of Operations for the three years ended December 31, 1997........................ F-5 Consolidated Statements of Stockholders' Equity for the three years ended December 31, 1997.............. F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 1997........................ F-7 Notes to the Consolidated Financial Statements........................................................... F-8 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION Condensed Consolidated Balance Sheets--September 30, 1998 (unaudited) and December 31, 1997................ F-39 Condensed Consolidated Statements of Operations (unaudited)--The Nine-Months Ended September 30, 1998 and 1997..................................................................................................... F-40 Condensed Consolidated Statements of Cash Flows (unaudited)--The Nine-Months Ended September 30, 1998 and 1997..................................................................................................... F-41 Notes to Condensed Consolidated Financial Statements....................................................... F-42 CONSOLIDATED FINANCIAL STATEMENTS OF CLARK-SCHWEBEL HOLDINGS, INC. Report of Independent Public Accountants................................................................... F-49 Independent Auditors' Report............................................................................... F-50 Consolidated Balance Sheets as of December 28, 1996, and January 3, 1998................................... F-51 Consolidated Statements of Income for the year ended December 30, 1995, the two periods in the year ended December 28, 1996 and the year ended January 3, 1998..................................................... F-52 Consolidated Statements of Cash Flows for the year ended December 30, 1995, the two periods in the year ended December 28, 1996 and the year ended January 3, 1998............................................... F-53 Notes to Consolidated Financial Statements................................................................. F-54 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CLARK-SCHWEBEL HOLDINGS, INC. Consolidated Balance Sheets as of January 3, 1998 and July 4, 1998 (unaudited)............................. F-70 Consolidated Statements of Income for the Six months ended June 28, 1997 (unaudited) and July 4, 1998 (unaudited).............................................................................................. F-71 Consolidated Statements of Stockholders' Equity and Comprehensive Income as of January 3, 1998 and July 4, 1998 (unaudited)......................................................................................... F-72 Consolidated Statements of Cash Flows for the Six Months ended June 28, 1997 (unaudited) and July 4, 1998 (unaudited).............................................................................................. F-73 Notes to Condensed and Consolidated Financial Statements................................................... F-74
F-1 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/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS 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 F-2 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 F-3 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. F-4 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------- 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. F-5 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK MINIMUM CUMULATIVE OUTSTANDING ADDITIONAL PENSION CURRENCY TOTAL ---------------------- PAID-IN ACCUMULATED OBLIGATION TRANSLATION STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT EQUITY --------- ----------- ---------- ------------ ------------- ----------- ------------- (IN THOUSANDS) BALANCE, JANUARY 1, 1995............ 7,301 $ 73 $ 62,626 $ (72,714) $ (137) $ 4,267 $ (5,885) Net income........................ 2,733 2,733 Sale of new common stock under standby purchase commitment and subscription rights offering.... 10,800 108 48,631 48,739 Activity under stock plans........ (10) 2 2 Pension obligation adjustment..... (398) (398) Currency translation adjustment... 3,183 3,183 --------- ----- ---------- ------------ ----- ----------- ------------- BALANCE, DECEMBER 31, 1995.......... 18,091 181 111,259 (69,981) (535) 7,450 48,374 Net loss.......................... (19,190) (19,190) Issuance of shares to Ciba, net of issuance costs of $2,993........ 18,022 180 141,001 141,181 Activity under stock plans........ 408 4 7,133 7,137 Other issuance of shares.......... 40 1 199 200 Pension obligation adjustment..... 535 535 Currency translation adjustment... 1,092 1,092 --------- ----- ---------- ------------ ----- ----------- ------------- BALANCE, DECEMBER 31, 1996.......... 36,561 366 259,592 (89,171) -- 8,542 179,329 Net income........................ 73,630 73,630 Activity under stock plans........ 292 3 6,535 6,538 Conversion of Subordinated Notes........................... 3 50 50 Currency translation adjustment... (9,646) (9,646) --------- ----- ---------- ------------ ----- ----------- ------------- BALANCE, DECEMBER 31, 1997.......... 36,856 $ 369 $ 266,177 $ (15,541) $ -- $ (1,104) $ 249,901 --------- ----- ---------- ------------ ----- ----------- ------------- --------- ----- ---------- ------------ ----- ----------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 HEXCEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, -------------------------------- 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 provided (used) 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. F-7 HEXCEL CORPORATION AND SUBSIDIARIES 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, 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 "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. F-8 HEXCEL CORPORATION AND SUBSIDIARIES 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). F-9 HEXCEL CORPORATION AND SUBSIDIARIES 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 provides 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. F-10 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 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 F-11 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2--BUSINESS ACQUISITIONS (CONTINUED) 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. 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 ---------- ---------- ---------- ---------- ---------- ----------
F-12 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2--BUSINESS ACQUISITIONS (CONTINUED) 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. 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. F-13 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3--BUSINESS CONSOLIDATION (CONTINUED) 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. 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. F-14 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3--BUSINESS CONSOLIDATION (CONTINUED) 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 ---------- ---------- ---------- ----------
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. F-15 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 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). 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, respectively, in DIC-Hexcel Limited ("DHL"), 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 F-16 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 6--INTANGIBLES AND OTHER ASSETS (CONTINUED) 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. 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 ---------- ---------- ---------- ----------
F-17 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7--NOTES PAYABLE (CONTINUED) 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. 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. F-18 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7--NOTES PAYABLE (CONTINUED) 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 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 principal amount of approximately $2,300. Upon delivery of these additional Senior Subordinated Notes, the total aggregate principal 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. F-19 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7--NOTES PAYABLE (CONTINUED) 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. 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 --------- --------- --------- ---------
F-20 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 8--LEASING ARRANGEMENTS (CONTINUED) 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 ---------------------- PAYABLE DURING YEARS ENDING DECEMBER 31: CAPITAL OPERATING - --------------------------------------------------------- --------- ----------- 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. 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 Ciba subsidiaries for the same periods were $5,620 and $32,408, respectively. These sales were primarily to the Ciba Distributors F-21 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 9--RELATED PARTIES (CONTINUED) 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 subsidiaries and their Ciba predecessors included in "accounts payable" and "accrued liabilities" as of the same dates were $1,196 and $1,812, respectively. 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. F-22 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11--RETIREMENT PLANS (CONTINUED) 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 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 --------- ----------- --------- --------- --------- ----------- --------- ---------
F-23 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO 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 --------- --------- --------- --------- --------- ---------
F-24 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO 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%. F-25 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO 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. F-26 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO 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. F-27 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14--STOCK-BASED INCENTIVE PLANS (CONTINUED) 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 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 ----- ----------- ----- -----------
F-28 HEXCEL CORPORATION AND SUBSIDIARIES 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 WEIGHTED NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE EXERCISE PRICES OUTSTANDING LIFE (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. F-29 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14--STOCK-BASED INCENTIVE PLANS (CONTINUED) 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) $ 0.20 Pro forma compensation adjustment............................ (0.14) 0.02 (0.06) --------- ---------- --------- Pro forma diluted net income (loss) per share................ $ 1.60 $ (0.56) $ 0.14 --------- ---------- --------- --------- ---------- ---------
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. F-30 HEXCEL CORPORATION AND SUBSIDIARIES 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 F-31 HEXCEL CORPORATION AND SUBSIDIARIES 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 F-32 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 16--CONTINGENCIES (CONTINUED) the CACO and the DCAA regarding a number of cost accounting issues identified during the course 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% --------- --------- --------- --------- --------- ---------
F-33 HEXCEL CORPORATION AND SUBSIDIARIES 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. F-34 HEXCEL CORPORATION AND SUBSIDIARIES 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 ("the Bankruptcy Court") entered an order dated January 10, 1995, confirming the First Amended Plan of Reorganization (the "Reorganization Plan") proposed by Hexcel and the Official Committee of Equity Security Holders (the "Equity Committee"). On February 9, 1995, the Reorganization Plan became effective and Hexcel 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 F-35 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 21--BANKRUPTCY REORGANIZATION (CONTINUED) Series Fund Inc. ("Mutual Series") purchased 1,946 shares of newly issued Hexcel common stock for $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. F-36 HEXCEL CORPORATION AND SUBSIDIARIES 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). F-37 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 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. F-38 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER DECEMBER 30, 31, 1998 1997 ----------- ----------- UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents......................................... $ 3,870 $ 9,033 Accounts receivable............................................... 206,591 181,192 Inventories....................................................... 224,683 165,321 Prepaid expenses and other assets................................. 7,551 6,665 Deferred tax asset................................................ 16,955 24,839 ----------- ----------- Total current assets.............................................. 459,650 387,050 ----------- ----------- Property, plant and equipment....................................... 607,546 488,916 Less accumulated depreciation....................................... (185,971) (157,439) ----------- ----------- Net property, plant and equipment................................. 421,575 331,477 Intangibles and other assets........................................ 513,313 93,059 ----------- ----------- Total assets........................................................ $1,394,538 $ 811,586 ----------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term liabilities..... $ 18,185 $ 13,858 Accounts payable.................................................. 83,009 70,011 Accrued liabilities............................................... 108,791 102,487 ----------- ----------- Total current liabilities......................................... 209,985 186,356 ----------- ----------- Long-term notes payable and capital lease obligations............... 803,195 304,546 Indebtedness to related parties..................................... 35,567 34,967 Other non-current liabilities....................................... 45,529 35,816 ----------- ----------- Total liabilities................................................... 1,094,276 561,685 ----------- ----------- Shareholders' equity: Preferred stock, no par value, 20,000 shares authorized, no shares issued or outstanding in 1998 and 1997............................ -- -- Common stock, $0.01 par value, 100,000 shares authorized, shares issued and outstanding of 37,135 in 1998 and 36,891 in 1997....... 371 369 Additional paid-in capital.......................................... 270,879 266,830 Retained earnings (accumulated deficit)............................. 33,005 (15,541) Cumulative currency translation adjustment.......................... 6,660 (1,104) ----------- ----------- 310,915 250,554 Less-treasury stock, at cost, 847 shares in 1998, 35 shares in 1997.............................................................. (10,653) (653) ----------- ----------- Total shareholders' equity.......................................... 300,262 249,901 ----------- ----------- Total liabilities and shareholders' equity.......................... $1,394,538 $ 811,586 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these condensed consolidated financial statements. F-39 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1998 1997 ---------- ---------- UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales............................................................................... $ 785,581 $ 682,249 Cost of sales........................................................................... 586,417 522,577 ---------- ---------- Gross margin............................................................................ 199,164 159,672 Selling, general and administrative expenses............................................ 82,092 74,769 Research and technology expenses........................................................ 16,906 13,524 Business acquisition and consolidation expenses......................................... 711 21,150 ---------- ---------- Operating income........................................................................ 99,455 50,229 Interest expense........................................................................ 23,167 18,288 ---------- ---------- Income before income taxes.............................................................. 76,288 31,941 Provision (benefit) for income taxes.................................................... 27,742 (29,366) ---------- ---------- Net income.............................................................................. $ 48,546 $ 61,307 ---------- ---------- ---------- ---------- Net income per share: Basic................................................................................. $ 1.32 $ 1.67 Diluted............................................................................... 1.15 1.48 Weighted average shares: Basic................................................................................. 36,800 36,711 Diluted............................................................................... 46,134 45,474
The accompanying notes are an integral part of these condensed consolidated financial statements. F-40 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 --------- --------- UNAUDITED (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................................. $ 48,546 $ 61,307 Reconciliation to net cash provided (used) by operations: Depreciation and amortization........................................ 30,932 28,011 Deferred income taxes................................................ 7,475 (39,000) Write-off of purchased in-process technologies....................... -- 8,000 Business acquisition and consolidation payments...................... (6,929) (27,342) Accrued business acquisition and consolidation expenses.............. 711 21,150 Working capital changes and other.................................... (32,649) (71,185) --------- --------- Net cash provided (used) by operating activities....................... 48,086 (19,059) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures................................................... (41,703) (31,695) Cash paid for the Clark-Schwebel Business, net of $5,049 of acquired cash................................................................. (453,027) -- Cash paid for the Acquired Fiberite Assets............................. -- (37,000) Proceeds from sale of an interest in a joint venture................... -- 5,000 Other.................................................................. (1,250) (2,000) --------- --------- Net cash used by investing activities.................................. (495,980) (65,695) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the senior and revolving credit facilities, and short-term debt, net................................................. 442,343 80,085 Proceeds (repayments) on long-term debt, net........................... 554 (6,746) Purchase of treasury stock............................................. (10,000) -- Activity under stock plans............................................. 4,051 4,938 --------- --------- Net cash provided by financing activities.............................. 436,948 78,277 --------- --------- Effect of exchange rate changes on cash and cash equivalents............. 5,783 1,643 --------- --------- Net decrease in cash and cash equivalents................................ (5,163) (4,834) Cash and cash equivalents at beginning of year........................... 9,033 7,975 --------- --------- Cash and cash equivalents at end of period............................... $ 3,870 $ 3,141 --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. F-41 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--BASIS OF ACCOUNTING The accompanying condensed consolidated financial statements have been prepared from the unaudited records of Hexcel Corporation and subsidiaries ("Hexcel" or the "Company") in accordance with generally accepted accounting principles, and, in the opinion of management, include all adjustments necessary to present fairly the balance sheet of the Company as of September 30, 1998, and the results of operations for the nine months ended September 30, 1998 and 1997, and the cash flows for the nine months ended September 30, 1998 and 1997. The condensed consolidated balance sheet of the Company as of December 31, 1997 was derived from the audited 1997 consolidated balance sheet. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Certain prior period amounts in the condensed consolidated financial statements and notes have been reclassified to conform to the 1998 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1997 Annual Report on Form 10-K. As discussed in Note 2, Hexcel acquired from Clark-Schwebel, Inc. and its subsidiaries (collectively "C-S") certain assets and assumed certain operating liabilities of its industrial fabrics business (the "Clark-Schwebel Business") on September 15, 1998. Accordingly, the condensed consolidated balance sheet as of September 30, 1998 includes the financial position of the Clark-Schwebel Business as of that date, and the condensed consolidated statements of operations and cash flows include the results of operations and cash flows of the Clark-Schwebel Business since the date of acquisition. NOTE 2--BUSINESS ACQUISITION On September 15, 1998, the Company acquired certain assets and assumed certain operating liabilities from C-S. The Clark-Schwebel Business is engaged in the manufacturing and sale of high-quality fiberglass fabrics, which are used in printed circuit boards found in electronic products, including computers, cellular telephones, televisions, automobiles and home appliances. The Clark-Schwebel Business also produces high performance specialty products for use in insulation, filtration, wall and facade claddings, ballistics and reinforcements for composite materials. The Clark-Schwebel Business operates four manufacturing facilities in the southeastern U.S. and has approximately 1,300 full time employees. As part of its purchase of the Clark-Schwebel Business, Hexcel also acquired from C-S significant equity ownership interests in two joint ventures: - a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan, which in turn has its own joint venture with Allied Signal in Taiwan; and - a 50% share in Clark-Schwebel Tech-Fab Company, headquartered in the U.S. In addition, Hexcel has a contractual agreement to purchase a 43.6% share in CS-Interglas AG ("CS-Interglas"), together with fixed-price options to increase this equity interest to 84%. Hexcel's purchase of this joint venture interest will be consummated when German regulatory approval is obtained. CS-Interglas and Asahi-Schwebel are fiberglass fabric producers serving the European and Asian electronics and telecommunications industries. In addition, CS-Interglas and Asahi-Schwebel have announced plans to build and operate a jointly owned facility in the Philippines to serve the printed circuit board laminating market in Southeast Asia. Clark-Schwebel Tech-Fab manufactures non-woven materials for roofing, construction and other specialty applications. F-42 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2--BUSINESS ACQUISITION (CONTINUED) The acquisition of the Clark-Schwebel Business was completed pursuant to an Asset Purchase Agreement dated July 25, 1998, as amended, by and among Hexcel, Stamford CS Acquisition Corp., and C-S (the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel acquired the net assets of the Clark-Schwebel Business other than certain excluded assets and liabilities, in exchange for approximately $453,000 in cash, subject to certain potential adjustments. Hexcel also agreed to lease $50,000 of property, plant and equipment used in the Clark-Schwebel Business from an affiliate of C-S, pursuant to a long-term lease with purchase options. The Company has accounted for the acquisition of the Clark-Schwebel Business using the purchase method of accounting. C-S currently owns 43.6% of the outstanding common stock of C-S Interglas and has options to purchase up to an additional 40% of the common stock in C-S Interglas. As part of the acquisition of the Clark-Schwebel Business, the Company paid $11,000 as a prepayment for the acquisition of C-S's interest in C-S Interglas. The Company has also agreed to pay an additional $19,000 to purchase the interest in C-S Interglas upon approval of the German Federal Cartel Commission. If such approval is not received on or before January 24, 1999, either the Company or C-S may terminate the Company's obligation to acquire the joint venture interest, in which case the Company's commitment to pay the additional $19,000 will be extinguished and the Company will be entitled to receive a share of the sales proceeds resulting from the disposition of the joint venture interest by C-S. In connection with the acquisition of the Clark-Schwebel Business, the Company obtained a new global credit facility (the "Senior Credit Facility") that provides for up to $910,000 of borrowing capacity. Borrowings under the Senior Credit Facility were used to: (a) fund the cash purchase price of approximately $453,000; (b) refinance the Company's previous revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. HISTORICAL AND PRO FORMA FINANCIAL INFORMATION The assets acquired and the liabilities assumed or incurred in connection with the acquisition of the Clark-Schwebel Business were: Estimated fair value of assets acquired: Cash............................................................ $ 5,049 Accounts receivable............................................. 20,249 Inventories..................................................... 39,582 Net property, plant and equipment............................... 70,000 Investments in joint ventures, intangibles and other assets..... 49,389 Goodwill........................................................ 360,469 --------- Total assets acquired......................................... 544,738 --------- Estimated fair value of liabilities assumed or incurred: Accounts payable and accrued liabilities........................ 32,523 Capital lease obligations....................................... 50,000 Other non-current liabilities................................... 4,139 --------- Total liabilities assumed or incurred......................... 86,662 --------- Estimated fair value of net assets acquired....................... $ 458,076 --------- --------- Less- cash acquired............................................... (5,049) --------- Net cash paid for the Clark-Schwebel Business..................... $ 453,027 --------- ---------
F-43 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 2--BUSINESS ACQUISITION (CONTINUED) The allocations of purchase price to the assets acquired and liabilities assumed or incurred in connection with the purchase of the Clark-Schwebel Business are based on current estimates of fair values, and are subject to change until September 15, 1999. The estimated fair value of net assets acquired does not include the additional $19,000 needed to acquire the 43.6% C-S Interglas joint venture interest. The pro forma net sales, net income and diluted earnings per share of Hexcel for the nine months periods ended September 30, 1998 and 1997, giving effect to the acquisition of the Clark-Schwebel Business as if the acquisition had occurred at the beginning of the periods presented, were:
THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------ 1998 1997 ------------------ ----------------- Pro forma net sales.................................... $931,309 $862,655 Pro forma net income................................... 48,434 61,854 Pro forma diluted earnings per share................... $ 1.15 $ 1.49
NOTE 3--INVENTORIES Inventories as of September 30, 1998 and December 31, 1997 were:
SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ----------------- Raw materials.......................................... $ 111,296 $ 90,429 Work in progress....................................... 63,625 47,953 Finished goods......................................... 49,762 26,939 -------- -------- Total inventories...................................... $ 224,683 $ 165,321 -------- -------- -------- --------
Inventories as of September 30, 1998, include $40,061 from the Clark-Schwebel Business F-44 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4--NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED PARTIES Notes payable, capital lease obligations and indebtedness to related parties as of September 30, 1998 and December 31, 1997 were:
SEPTEMBER 30, 1998 DECEMBER 31, 1997 ------------------ ----------------- Senior credit facility..................................................... $ 611,916 $ -- Revolving credit facility.................................................. -- 158,267 European credit and overdraft facilities................................... 13,620 13,909 Convertible subordinated notes, due 2003................................... 114,435 114,450 Convertible subordinated debentures, due 2011.............................. 25,625 25,625 Various notes payable...................................................... 548 680 -------- -------- Total notes payable........................................................ 766,144 312,931 Capital lease obligations.................................................. 55,236 5,473 Senior subordinated notes payable to various wholly-owned subsidiaries of Ciba Specialty Chemicals Corp., who beneficially owns 49.7% of the Company's outstanding stock, net of unamortized discount of $1,909 and $2,233 as of September 30, 1998 and December 31, 1997, respectively...... 35,567 34,967 -------- -------- Total notes payable, capital lease obligations and indebtedness to related parties.......................................................... $ 856,947 $ 353,371 -------- -------- -------- -------- Notes payable and current maturities of long-term liabilities.............. $ 18,185 $ 13,858 Long-term notes payable and capital lease obligations, less current maturities............................................................... 803,195 304,546 Indebtedness to related parties............................................ 35,567 34,967 -------- -------- Total notes payable, capital lease obligations and indebtedness to related parties.......................................................... $ 856,947 $ 353,371 -------- -------- -------- --------
SENIOR CREDIT FACILITY In connection with the acquisition of the Clark-Schwebel Business (see Note 2) on September 15, 1998, Hexcel obtained the Senior Credit Facility to: (a) fund the purchase of the Clark-Schwebel Business; (b) refinance the Company's then existing revolving credit facility; and (c) provide for ongoing working capital and other financing requirements of the Company. The Senior Credit Facility provides for up to $910,000 of borrowing capacity. Depending on certain predetermined ratios and other conditions, interest on outstanding borrowings under the Senior Credit Facility is computed at an annual rate ranging from approximately 0.75 to 2.25% in excess of the applicable London interbank rate or, at the option of Hexcel, at 0 to 1.25% in excess of the base rate of the administrative agent for the lenders. In addition, the Senior Credit Facility is subject to a commitment fee ranging from 0.23 to 0.50% per annum of certain commitments under the facility. The Senior Credit Facility is secured by a pledge of stock of certain of Hexcel's subsidiaries. In addition, the Company is subject to various financial covenants and restrictions under the Senior Credit F-45 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4--NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED PARTIES (CONTINUED) Facility, and is generally prohibited from paying dividends or redeeming capital stock beyond certain specified limits. Approximately $690,000 of the Senior Credit Facility expires by September 2004, with the balance expiring in September 2005, in each case unless terminated earlier under certain circumstances. The Senior Credit Facility replaced the Company's previous revolving credit facility, which had provided up to $355,000 of borrowing capacity. Interest on outstanding borrowings depended upon certain predetermined ratios and other conditions and was computed at an annual rate ranging from approximately 0.3% to 1.1% in excess of the applicable London interbank rate or, at the option of Hexcel, at an annual rate ranging from approximately 0 to .13% in excess of the base rate of the administrative agent for the lenders. In addition, the revolving credit facility was subject to a commitment fee ranging from approximately 0.19 to 0.38% per annum of the total facility. The revolving credit facility, prior to its replacement, would have expired in March 2003, unless terminated earlier under certain circumstances. CAPITAL LEASE OBLIGATION Hexcel also entered into a $50,000 capital lease for property, plant and equipment used in the Clark-Schwebel Business (see Note 2). The lease expires in September 2006 and includes various purchase options. NOTE 5--BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES In 1996, Hexcel announced plans to consolidate the Company's operations over a period of three years. The objective of the program was to integrate acquired assets and operations into Hexcel, and to reorganize the Company's manufacturing and research activities around strategic centers dedicated to select product technologies. The business consolidation program was also intended to eliminate excess manufacturing capacity and redundant administrative functions. As of September 30, 1998, the primary remaining activities of the business consolidation program relate to the Company's European operations and certain customer qualifications of equipment transferred within the U.S. These qualification requirements increase the complexity, cost and time of moving equipment and rationalizing manufacturing activities. As a result, the Company continues to expect that the business consolidation program will take to the end of 1998 to complete. Total expenses for the business consolidation program, which remains unchanged since December 31, 1997, were $54,700. The Company anticipates no significant additional expenses in relation to this program. As of December 31, 1997 and September 30, 1998, accrued business consolidation costs, representing estimated cash expenditures remaining to complete the program, were approximately $12,000 and $7,900 respectively. This business consolidation program does not include any activities that may result from the integration of the Company's Clark-Schwebel Business. As of September 30, 1998, the Company wrote off $711 of business acquisition and consolidation expenses relating to transaction costs for a proposed acquisition that was not consummated. NOTE 6--PROVISION FOR INCOME TAXES The effective income tax rate for the nine months ended September 30, 1998 was 36%. For the nine months ended September 30, 1997, the benefit for income taxes was $29,366, which included a $39,000 reversal of a U.S. tax valuation allowance. F-46 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 6--PROVISION FOR INCOME TAXES (CONTINUED) Prior to September 30, 1997, the Company had fully provided valuation allowances against its U.S. net deferred tax assets as there were uncertainties in generating sufficient future taxable income to realize these net deferred tax assets. On September 30, 1997, the Company reversed its U.S. tax valuation allowance as it was more likely than not that these tax assets would be realized. As a result, excluding the $39,000 U.S. valuation allowance reversal, no provision for U.S. federal income taxes had been recorded for the nine months ended September 30, 1997 due to the utilization of net operating loss carryforwards. Since September 30, 1997, U.S. federal income taxes have been provided at approximately the statutory rate. NOTE 7--EARNINGS PER SHARE Computations of basic and diluted earnings per share are as follows:
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 --------- --------- Basic earnings per share: Net income................................................................ $ 48,546 $ 61,307 Weighted average common shares outstanding................................ 36,800 36,711 --------- --------- Basic earnings per share.................................................. $ 1.32 $ 1.67 --------- --------- --------- ---------
Diluted earnings per share: Net income................................................................ $ 48,546 $ 61,307 Effect of dilutive securities - Senior Subordinated Notes, due 2003..................................... 3,845 5,994 Senior Subordinated Debentures, due 2011................................ 861 -- --------- --------- Adjusted net income....................................................... $ 53,252 $ 67,301 --------- --------- Weighted average common shares outstanding................................ 36,800 36,711 Effect of dilutive securities - Stock options........................................................... 1,262 1,522 Senior Subordinated Notes, due 2003..................................... 7,238 7,241 Senior Subordinated Notes, due 2011..................................... 834 -- --------- --------- Adjusted weighted average common shares outstanding....................... 46,134 45,474 --------- --------- Diluted earnings per share................................................ $ 1.15 $ 1.48 --------- --------- --------- ---------
The Convertible Subordinated Debentures, due 2011, were excluded from the nine months ended September 30, 1997 computation of diluted earnings per share, as they were antidilutive. For the nine months ended September 30, 1997, the net income effect of the Senior Subordinated Notes, due 2003, was not tax effected as a provision for U.S. income taxes was not recorded during these periods. F-47 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 8--COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income and its components, including presentation in an annual financial statement that is displayed with the same prominence as other annual financial statements. Various components of comprehensive income may, for example, consist of foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments classified as available-for-sale. The Company's total comprehensive income was as follows:
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1998 1997 --------- --------- Net income................................................................ $ 48,546 $ 61,307 Currency translation adjustment........................................... 7,764 (11,016) --------- --------- Total comprehensive income................................................ $ 56,310 $ 50,291 --------- --------- --------- ---------
F-48 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Clark-Schwebel Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Clark-Schwebel Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 28, 1996, and January 3, 1998, and the related consolidated statements of income and cash flows for each of the two periods in the year ending December 28, 1996, and the fiscal year ending January 3, 1998. 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 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 disclosure 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, the financial statements referred to above present fairly, in all material respects, the financial position of Clark-Schwebel Holdings, Inc. and subsidiaries as of December 28, 1996, and January 3, 1998, and the results of their operations and their cash flows for each of the two periods in the year ended December 28, 1996, and the fiscal year ending January 3, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Columbia, South Carolina February 12, 1998 (except with respect to the matters discussed in Note 17 as to which the date is September 15, 1998) F-49 INDEPENDENT AUDITORS' REPORT We have audited the accompanying statements of income and cash flows of Fort Mill A Inc. (the "Predecessor") (a wholly owned subsidiary of Springs Industries, Inc.) for the fiscal year ended December 30, 1995. These financial statements are the responsibility of the Predecessor's management, our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of Fort Mill A Inc. for the fiscal year ended December 30, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Charlotte, North Carolina February 9, 1996 (February 24, 1996 as to Note 2) F-50 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 28, 1996 AND JANUARY 3, 1998 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
DECEMBER 28, JANUARY 3, 1996 1998 --------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents........................................................ $ 4,064 $ 147 Accounts receivable, net......................................................... 25,794 28,527 Inventories, net................................................................. 33,625 34,897 Other............................................................................ 592 235 --------------- ------------ Total current assets........................................................... 64,075 63,806 --------------- ------------ PROPERTY, PLANT AND EQUIPMENT...................................................... 67,936 72,133 Accumulated depreciation......................................................... (5,841) (12,540) --------------- ------------ Property, plant and equipment, net............................................. 62,095 59,593 --------------- ------------ EQUITY INVESTMENTS................................................................. 63,426 65,411 GOODWILL........................................................................... 44,333 43,205 OTHER ASSETS....................................................................... 6,808 5,702 --------------- ------------ TOTAL ASSETS....................................................................... $ 240,737 $ 237,717 --------------- ------------ --------------- ------------ LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable................................................................. $ 21,448 $ 19,806 Accrued liabilities.............................................................. 15,330 16,706 Deferred tax liabilities--current................................................ 2,056 2,370 Current maturities of long-term debt............................................. 51 -- --------------- ------------ Total current liabilities...................................................... 38,885 38,882 LONG-TERM DEBT..................................................................... 123,440 155,994 DEFERRED TAX LIABILITIES........................................................... 21,458 20,575 LONG-TERM BENEFIT PLANS AND OTHER.................................................. 7,121 4,139 COMMITMENTS AND CONTINGENCIES --------------- ------------ TOTAL LIABILITIES.................................................................. 190,904 219,590 --------------- ------------ EQUITY: Preferred stock (par value per share--$.01)--12.5% participating, 10,000 shares authorized, 1,000 and 0 shares issued and outstanding, respectively.............. 35,000 -- Common stock (par value per share--$.01)--100,000 shares authorized, 9,000 shares issued and outstanding, less management loans of $822 and $0, respectively....... 9,178 9,000 Retained earnings................................................................ 7,005 13,664 Cumulative translation adjustment................................................ (1,350) (4,537) --------------- ------------ Total equity................................................................... 49,833 18,127 --------------- ------------ TOTAL LIABILITIES AND EQUITY....................................................... $ 240,737 $ 237,717 --------------- ------------ --------------- ------------
See notes to consolidated financial statements. F-51 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (DOLLARS IN THOUSANDS)
DECEMBER DECEMBER 31, APRIL 18-- 29, 1995-- DECEMBER 1996-- APRIL 17, 28, JANUARY 3, 1995 1996 1996 1998 --------- ----------- ----------- ----------- (PREDECESSOR BASIS) (SUCCESSOR BASIS) Net sales................................... $ 231,306 $ 68,911 $ 152,003 $ 240,204 Cost of goods sold.......................... 191,978 54,958 118,605 184,901 --------- ----------- ----------- ----------- Gross profit................................ 39,328 13,953 33,398 55,303 Selling, general and adminstrative expenses.................................. 17,750 4,812 10,418 15,987 --------- ----------- ----------- ----------- Operating income.......................... 21,578 9,141 22,980 39,316 Other income (expense): Interest expense.......................... (401) (148) (10,061) (15,176) Other, net................................ 12 (5) 50 35 --------- ----------- ----------- ----------- Income before income taxes.................. 21,189 8,988 12,969 24,175 Provision for income tax.................... (8,444) (3,595) (5,460) (9,657) Income from equity investees, net........... 2,553 1,174 2,633 3,997 --------- ----------- ----------- ----------- Income from continuing operations........... 15,298 6,567 10,142 18,515 Discontinued operations: Income from discontinued operations, net..................................... 111 -- -- -- --------- ----------- ----------- ----------- Net income.................................. $ 15,409 $ 6,567 10,142 18,515 --------- ----------- --------- ----------- Accrued dividends on preferred stock........ (3,137) (2,856) ----------- ----------- Net income applicable to common shares.... $ 7,005 $ 15,659 ----------- ----------- ----------- -----------
See notes to consolidated financial statements. F-52 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 30, 1995, DECEMBER 28, 1996 AND JANUARY 3, 1998 (DOLLARS IN THOUSANDS)
DECEMBER DECEMBER 31, APRIL 18-- 29, 1995-- DECEMBER 1996-- APRIL 17, 28, JANUARY 3, 1995 1996 1996 1998 --------- ----------- ----------- ----------- (PREDECESSOR BASIS) (SUCCESSOR BASIS) OPERATING ACTIVITIES: Net income................................. $ 15,409 $ 6,567 $ 10,142 $ 18,515 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of goodwill and unearned revenue................... 11,128 3,526 6,683 9,385 Amortization of deferred financing cost................................... -- 0 601 1,106 Deferred tax provision................... 176 1,404 (1,128) (1,369) Income from equity investments, net...... (2,553) (1,174) (2,633) (3,997) Income from discontinued operations, net.................................... (111) -- -- -- Loss on sale of equipment................ -- -- -- 42 Changes in assets and liabilities, net of the effects of the purchase of the company: Accounts receivable.................... (8,244) 1,832 3,811 (2,733) Inventories............................ (2,931) (2,883) 3,323 (1,272) Prepaid expenses and other............. 1,465 (187) 1,399 890 Accounts payable....................... 3,181 (697) 14,011 (1,642) Accrued liabilities.................... 367 (289) 5,076 2,377 Other.................................... 124 (131) (455) 342 --------- ----------- ----------- ----------- Net cash provided by operating activities........................... 18,011 7,968 40,830 21,644 --------- ----------- ----------- ----------- INVESTING ACTIVITIES: Purchases of equipment and other assets.... (8,429) (1,603) (2,035) (11,019) Proceeds from sale of assets............... 42 -- -- 1,511 Payment for purchase of company............ -- -- (192,895) -- --------- ----------- ----------- ----------- Net cash used in investing activities........................... (8,387) (1,603) (194,930) (9,508) --------- ----------- ----------- ----------- FINANCING ACTIVITIES: Investment by Springs...................... (8,982) (10,955) -- -- Transfer of assets retained by Springs..... -- 4,461 -- -- Proceeds from issuance of stock............ -- -- 45,000 -- Payment of acquisition fees, net........... -- -- (10,128) -- Loans to management investors.............. -- -- (822) -- Proceeds from long-term borrowings......... -- -- 160,000 45,994 Principal payments under long-term debt and capital lease obligations................ (87) (29) (36,616) (13,491) Redemption of preferred stock, net......... -- -- -- (50,172) Dividends received from ASCO............... -- -- 304 1,616 --------- ----------- ----------- ----------- Net cash provided by (used in) financing activities................. (9,069) (6,523) 157,738 (16,053) --------- ----------- ----------- ----------- NET CHANGE IN CASH........................... 555 (158) 3,638 (3,917) CASH, BEGINNING OF PERIOD / YEAR............. 29 584 426 4,064 --------- ----------- ----------- ----------- CASH, END OF PERIOD / YEAR................... $ 584 $ 426 $ 4,064 $ 147 --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- CASH PAID FOR INTEREST....................... $ 401 $ 120 $ 7,081 $ 12,263 --------- ----------- ----------- ----------- --------- ----------- ----------- ----------- CASH PAID FOR TAXES.......................... $ -- $ -- $ 7,546 $ 10,488 --------- ----------- ----------- ----------- --------- ----------- ----------- -----------
See notes to consolidated financial statements. F-53 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the assets, liabilities and results of operations of Clark-Schwebel Holdings, Inc. the successor company ("Company"), following the change in ownership (See Note 2), for the following periods: as of and for the period ended January 3, 1998, and as of December 28, 1996 and for the period from April 18, 1996 to December 28, 1996. The Company's primary asset is the capital stock of Clark-Schwebel, Inc. its operating company. The statements also include the assets, liabilities, and results of operations as of and for the period ended December 30, 1995, and for the period from December 31, 1995 to April 17, 1996 of Fort Mill A Inc., the predecessor company ("Predecessor Company"), prior to the change in ownership. The statements of the Predecessor Company include certain liabilities and expenses that historically were accounted for only at the Springs Industries, Inc. ("Springs")--parent company level. The financial statements of the Predecessor Company and Successor Company are not comparable in certain respects due to differences between the costs bases of certain assets and liabilities and the impact of interest expense on the Successor Company (see Note 2). SUMMARIZED FINANCIAL INFORMATION--The following table provides summarized financial information for Clark-Schwebel, Inc., the operating company, on a stand alone basis. Clark-Schwebel, Inc. is a wholly owned subsidiary of Clark-Schwebel Holdings, Inc. and its separate financial statements are not included or filed separately because management has determined that they would not be material to investors. The 1996 balance sheet information is as of December 28, 1996 and the 1996 income statement information is for the period from April 18, 1996 through December 28, 1996. The 1997 balance sheet information is as of January 3, 1998 and the 1997 income statement information is for the period from December 29, 1996 to January 3, 1998.
1996 1997 ---------- ---------- Current assets........................................................ $ 64,038 $ 63,806 Noncurrent assets..................................................... 176,662 173,911 ---------- ---------- Total assets.................................................... $ 240,700 $ 237,717 ---------- ---------- ---------- ---------- Current liabilities................................................... $ 38,885 $ 36,706 Noncurrent liabilities................................................ 148,878 135,097 Equity................................................................ 52,937 65,914 ---------- ---------- Total liabilities and equity.................................... $ 240,700 $ 237,717 ---------- ---------- ---------- ---------- Net sales............................................................. $ 152,003 $ 240,204 Gross profit.......................................................... 33,398 55,303 Income from continuing operations..................................... 10,135 19,816 Net income............................................................ $ 10,135 $ 19,816 ---------- ---------- ---------- ---------- Dividends to Clark-Schwebel Holdings, Inc............................. $ -- $ 5,000 ---------- ---------- ---------- ----------
All assets of Clark-Schwebel, Inc. represent restricted net assets with the exception of the foreign equity investments and distributions received from the foreign equity investments. Except in limited circumstances, Clark-Schwebel, Inc. is prohibited from transferring restricted net assets to Clark-Schwebel Holdings, Inc. in the form of cash dividends, loans, or advances without the consent of a third party lender. The amount of unrestricted net assets at January 3, 1998 is $62,257, which represents the book value of the F-54 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION (CONTINUED) foreign equity investments ($61,254) and distributions received in the form of cash from the foreign equity investments ($1,003). OPERATIONS--The Company consists primarily of the operations, assets, and liabilities of manufacturing facilities located in Anderson, SC, Statesville, NC, Cleveland, GA, and Washington, GA, which produce woven fiber glass and aramid fabrics. The Company's products are used in electronic circuit boards, coated and laminated composites, aircraft construction and protective apparel such as anti-ballistic vests and helmets. 2. PURCHASE TRANSACTION On February 24, 1996, the Company, Springs and affiliates of Vestar Equity Partners, L.P. (Vestar), entered into an Agreement and Plan of Merger (Agreement) whereby affiliates of Vestar would acquire the Company. Pursuant to the Agreement, on April 17, 1996 (Closing Date), Vestar/CS Holding Company, LLC (Vestar/CS) purchased all of the issued and outstanding capital stock of Fort Mill A Inc. from Springs for approximately $192,895. The sources of cash for this purchase included $110,000 of senior notes, an equity contribution of $45,000 and bank debt. On the day following the Closing Date, Vestar/CS had an 82% common equity interest and management investors had an 18% common equity interest in the Company. Under the Agreement, Springs agreed to (i) assume responsibility for repayment of the Industrial Revenue Bonds payable in 2010 and related accrued interest, (ii) pay $959 in certain accrued employee benefits, (iii) provide indemnification for certain environmental, tax and other matters (including the environmental matter described in Note 14 for which $175 was accrued at December 30, 1995), (iv) retain the accounts receivable from one customer (which totaled $2,782 as of December 30, 1995) and related $1,400 reserve, and (v) retain the $99 accrued obligation related to the Company's Long-Term Disability Plan. At the Closing Date, all payable and receivable accounts between the Company and Springs were canceled. The acquisition was accounted for as a purchase business combination. The adjustment to net assets represents the step-up to fair value of the net assets acquired as follows: Purchase price.................................................... $ 192,895 Nonfinancing portion of fees and expenses......................... 2,780 --------- Total purchase price........................................ 195,675 Less fair value of net assets acquired............................ (150,547) --------- Excess of purchase price over fair value of net assets acquired... $ 45,128 --------- ---------
F-55 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 2. PURCHASE TRANSACTION (CONTINUED) The fair values of Clark-Schwebel, Inc.'s assets and liabilities at the date of acquisition are presented below: Current assets.................................................... $ 68,410 Property, plant and equipment..................................... 66,391 Equity investments................................................ 62,314 Current liabilities............................................... (20,282) Other liabilities................................................. (26,286) --------- Net assets acquired............................................... $ 150,547 --------- ---------
Following the acquisition, the purchase cost (including the fees and expenses related thereto) was allocated to the tangible and intangible assets and liabilities of the Company based upon their respective fair values. This resulted in a step-up in the basis of inventory of $5,274 and property, plant and equipment of $15,000. The excess of the purchase price over the fair value of net assets acquired of $45,128 was recorded as goodwill, and is being amortized on a straight-line basis over a period of 40 years. Additional agreements include Transition Agreements for specified periods in which Springs would be compensated for certain services provided to the Company, and a Management Agreement that specifies services to be provided to the Company by Vestar. In accordance with agreements related to the change of ownership transaction, certain assets totaling $4,461 were transferred to Springs in the first quarter of 1996. This balance has been separately disclosed on the face of the accompanying 1996 statements of cash flows. 3. PREFERRED STOCK REDEMPTION AND ISSUANCE OF SENIOR DEBENTURES On July 14, 1997, the Company amended the terms of its outstanding participating preferred stock (the "Preferred Stock") by amending and restating its certificate of incorporation (the "Certificate") to allow the Company to redeem such Preferred Stock. On August 14, 1997 the Company issued $46,000 in 12.5% Senior Debentures due 2007 (the "Senior Debentures") and paid $5,000 in cash in exchange for and redemption of the Preferred Stock. The $51,000 redemption price was established as follows: Book value of Preferred Stock...................................... $ 35,000 Accrued Preferred Stock dividends.................................. 6,000 Common equity component of Preferred Stock......................... 10,000 --------- Total........................................................ $ 51,000 --------- ---------
Vestar/CS-Holding paid $1,000 for the common equity component of the Preferred Stock at the time of the Acquisition. The common equity component was purchased for $10,000 on the redemption date. Vestar/CS-Holding sold the Preferred Stock on July 14, 1997 and simultaneously purchased 10% of the outstanding Common Stock of the Company from the management investors on a pro rata basis. Upon the consummation of that transaction, all of the Company's outstanding loans to management were repaid in full. F-56 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 3. PREFERRED STOCK REDEMPTION AND ISSUANCE OF SENIOR DEBENTURES (CONTINUED) The overall net impact of the Preferred Stock redemption and issuance of Senior Debentures was a reduction of equity by $44,200, an increase in debt by $46,000, a reduction of "long-term benefit plans and other" liabilities by $6,000, and a decrease in cash by $4,200. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of the significant accounting policies used in the preparation of the financial statements of the Company. BASIS OF CONSOLIDATION--The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany amounts and transactions have been eliminated. FISCAL YEAR--The Company's operations are based on a fifty-two or fifty-three week fiscal year ending on the Saturday closest to December 31. The fiscal years ended December 30, 1995, December 28, 1996 and January 3, 1998 are referred to herein as 1995, 1996 and 1997, respectively. The 1995 and 1996 fiscal years each consisted of 52 weeks, while the 1997 fiscal year consisted of 53 weeks. Due to the purchase transaction on April 17, 1996, the 52 week fiscal year in 1996 is comprised of the operations of the Predecessor Company and the Successor Company. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include the allowance for doubtful accounts receivable and the liabilities for certain long-term benefit plans. Actual results could differ from such estimates. REVENUE RECOGNITION--Revenue from product sales is recognized at the time ownership of the goods transfers to the customer and the earnings process is complete. This generally occurs when the goods are shipped. CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand and in the bank as well as short term investments held for the purpose of general liquidity. Such investments normally mature within three months from the date of acquisition. ACCOUNTS RECEIVABLE--The Company establishes an allowance for doubtful accounts based upon factors including the credit risk of specific customers, historical trends and other information. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. The reserve for doubtful accounts was $853 at December 28, 1996 and $1,100 at January 3, 1998. The provision for uncollectible amounts was $1,842, ($84), $160 and $189 for fiscal 1995, 1996 (Predecessor), 1996 (Successor) and 1997 (Successor), respectively. Net write-offs (recoveries) were $349, ($6), ($38) and ($58), respectively, for the same periods. INVENTORIES--Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for substantially all inventories. F-57 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment is recorded at cost and depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Estimated useful lives are as follows: 10 to 20 Land improvements............................................ years 20 to 40 Buildings and improvements................................... years Machinery and equipment...................................... 3 to 11 years
EQUITY INVESTMENTS--The company owns equity interests in CS-Interglas AG (headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan) and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are accounted for using the equity method of accounting. FOREIGN CURRENCY--The foreign equity investments are translated at year-end exchange rates. Equity income and losses are translated at the average rate during the year. Cumulative translation adjustments are reflected as a separate component of stockholders' equity. POSTRETIREMENT BENEFITS--Postretirement benefits are accounted for pursuant to Statement of Financial Accounting Standards ("SFAS") No. 106, EMPLOYERS ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. SFAS No. 106 requires that the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service rather than when claims are incurred. INCOME TAXES--Income taxes are accounted for pursuant to SFAS 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, deferred income tax assets and liabilities represent the future income tax effect of temporary differences between the book and tax bases of assets and liabilities assuming they will be realized and settled at the amounts reported in the financial statements. The provision for income taxes included in the accompanying financial statements is computed in a manner consistent with SFAS No. 109. CERTAIN COMPENSATION PLANS--Certain key employees of the Company were granted stock options and certain types of deferred compensation related to Springs common stock under Springs' executive plans. Compensation expense allocated from Springs for these grants for 1995, 1996 (Predecessor), 1996 Successor) and 1997 (Successor) was approximately $145, $418, $0 and $0, respectively. NEW ACCOUNTING STANDARD--During 1997, the FASB issued SFAS No. 130, "Comprehensive Income", that is not effective until 1998. SFAS No. 130 applies to the Company and will be adopted in the first quarter of 1998. Comprehensive income is defined as essentially all changes in shareholders' equity exclusive of transactions with owners, such as translation adjustments on investments in foreign subsidiaries. Comprehensive income includes net income (loss) plus changes in certain assets and liabilities that are reported directly in equity, referred to as "Other Comprehensive Income." The adoption of SFAS No. 130 is not expected to have a material impact on the consolidated financial statements of the Company. F-58 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 5. LONG-TERM DEBT Long-term debt consisted of the following:
1996 1997 ---------- ---------- Senior Notes, payable in 2006, interest at 10.5%...................... $ 110,000 $ 110,000 Senior Debentures, payable in 2007, interest at 12.5%................. -- 45,994 Term Loan payable in quarterly installments; paid in July 1997........ 13,440 -- Revolving Credit Agreement, due 2002, interest at variable rates...................................................... -- -- Capitalized lease obligation payable in equal monthly Installments of $7, through June 1997............................... 51 -- ---------- ---------- Total........................................................... 123,491 155,994 Less current maturities............................................... (51) -- ---------- ---------- Long-term debt........................................................ $ 123,440 $ 155,994 ---------- ---------- ---------- ----------
The Senior Notes accrue interest at a fixed rate of 10.5% per annum, with interest payable semiannually in arrears on April 15 and October 15. The Senior Notes are not redeemable at the option of the Company prior to April 15, 2001, except in the event of a public equity offering of the Company, at which time a portion of the Senior Notes would be redeemable. Management estimates that the fair value of the Senior Notes is $120,450 at January 3, 1998, based on the estimated market trading price for the Senior Notes as of January 3, 1998. The Senior Debentures accrue interest at a fixed rate of 12.5% per annum with interest payable semiannually in arrears on January 15 and July 15 to the extent permitted by the Credit Agreement and the indenture governing the Senior Notes. If the Company is unable to pay interest in cash due to the prohibitions contained in the Credit Agreement or such indenture, interest on the Senior Debentures would be payable in additional Senior Debentures. Under the terms of the indenture, Clark-Schwebel, Inc., the operating company, must maintain a minimum fixed charge coverage ratio in order to pay dividends. At January 3, 1998, the indenture allowed the operating company to pay $8,700 in dividends to the Company. The Senior Debentures will not be redeemable at the Company's option prior to July 15, 2002, except in the event of a public equity offering of the Company, or a change of control or subsidiary change of control after January 15, 1998. Management estimates that the fair value of the Senior Debentures is $49,214 at January 3, 1998, based on the estimated market trading price for the Senior Debentures as of January 3, 1998. On July 14, 1997, the Company prepaid all of its outstanding indebtedness under the Term Loan and amended the Credit Agreement to provide, among other things, that the Company may, subject to certain conditions, pay up to $5,000 in cash and issue Senior Debentures in a redemption of the Preferred Stock, and make semi-annual interest payments in cash on the Senior Debentures. The Revolving Credit Facility under the Credit Agreement was also amended to increase the aggregate amount of commitments thereunder to $65,000. The Company pays a quarterly commitment fee equal to 0.25% on the unused portion of the Revolving Credit Facility which was $65,000 at January 3, 1998. F-59 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 5. LONG-TERM DEBT (CONTINUED) The Revolving Credit Facility, the Senior Notes, and the Senior Debentures contain certain restrictive covenants which provide limitations on the Company with respect to restricted payments, indebtedness, liens, investments, dividends, distributions, transactions with affiliates, debt repayments, capital expenditures, mergers, and consolidations. The bank facility covenants also require maintenance of certain financial ratios. At January 3, 1998, the Company was in compliance with such covenants. With the exception of the Senior Debentures, which are obligations of Clark-Schwebel Holdings, Inc., all other debt is incurred at the Clark-Schwebel, Inc., operating company level. Substantially all of the assets of Clark-Schwebel, Inc., the operating company, are subject to liens in favor of the Revolving Credit Facility lenders. No principal payments are required on any long-term debt in the next five years due to the payment of the term loan in July 1997. 6. INVENTORIES Inventories consisted of the following:
1996 1997 --------- --------- Finished goods.......................................................... $ 10,256 $ 12,301 Raw material and supplies............................................... 9,254 8,854 In process.............................................................. 15,215 15,317 --------- --------- Total at standard cost (which approximates average cost)................ 34,725 36,472 Less LIFO reserve....................................................... (1,100) (1,575) --------- --------- Inventories, net........................................................ $ 33,625 $ 34,897 --------- --------- --------- ---------
7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
1996 1997 --------- --------- Land..................................................................... $ 1,875 $ 1,875 Buildings and improvements............................................... 19,381 20,714 Machinery and equipment.................................................. 43,113 47,061 Construction in progress................................................. 3,567 2,483 --------- --------- Total.................................................................... 67,936 72,133 Less accumulated depreciation............................................ (5,841) (12,540) --------- --------- Property, plant and equipment, net....................................... $ 62,095 $ 59,593 --------- --------- --------- ---------
F-60 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 8. OTHER CURRENT LIABILITIES Accrued liabilities consisted of the following:
1996 1997 --------- --------- Accrued retirement and incentive........................................ $ 3,841 $ 4,711 Employee benefit accruals............................................... 3,017 2,935 Accrued payroll......................................................... 2,759 2,235 Accrued interest........................................................ 2,477 4,576 Other accrued liabilities............................................... 2,235 2,249 Unearned revenue........................................................ 1,001 0 --------- --------- Total accrued liabilities............................................... $ 15,330 $ 16,706 --------- --------- --------- ---------
9. STOCKHOLDERS' EQUITY Changes in stockholders' equity on a successor basis for the periods of April 18, 1996 through December 28, 1996, and December 29, 1996 through January 3, 1998, respectively, consisted of the following (in thousands, except share amounts):
PREFERRED STOCK COMMON STOCK CUMULATIVE -------------------- -------------------- RETAINED TRANSLATION SHARES AMOUNT SHARES AMOUNT EARNINGS ADJUSTMENT --------- --------- --------- --------- --------- ----------- Preferred stock issued on April 17, 1996................ 1,000 $ 35,000 Common stock issued on April 17, 1996................... 9,000 $ 10,000 Management loans (see Note 16).......................... (822) Net income.............................................. $ 10,142 Accrued preferred stock dividend........................ (3,137) Cumulative translation adjustment....................... ($ 1,350) --------- --------- --------- --------- --------- ----------- Balance at December 28, 1996............................ 1,000 $ 35,000 9,000 $ 9,178 $ 7,005 ($ 1,350) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- ----------- Repayment of management loans (See Notes 3 and 16).................................. 822 Net income.............................................. 18,515 Accrued preferred stock dividend........................ (2,856) Redemption of preferred stock (see Note 3).............. (1,000) (35,000) (1,000) (9,000) Cummulative translation adjustment...................... (3,187) --------- --------- --------- --------- --------- ----------- Balance at January 3, 1998.............................. -- $ -- 9,000 $ 9,000 $ 13,664 ($ 4,537) --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- -----------
10. EMPLOYEE BENEFIT PLANS EMPLOYEES PROFIT SHARING/RETIREMENT PLANS Substantially all associates of the Company are covered by defined contribution plans. In 1995 and 1996 (Predecessor Company) the plan was provided by Springs. The 1996 Successor Company plan operates substantially the same as the Springs plan. The Company makes contributions to a defined contribution Profit Sharing Plan annually based upon the profitability of the Company. The contribution is F-61 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 10. EMPLOYEE BENEFIT PLANS (CONTINUED) allocated to participant accounts based upon participant compensation. The amount of the Company contribution is subject to approval by the Board of Directors. In addition, associates are allowed to contribute a percentage of their compensation to a defined contribution plan and the Company will match a portion of their contribution. This plan, available to substantially all associates, contains a matched savings provision that permits pre-tax employee contributions. Participants can contribute from 1% to 12% of their compensation and receive a 50% matching employer contribution on up to 4% of the participant's contribution. Defined contribution plan expense for 1995, 1996 (Predecessor), and 1996 (Successor) and 1997 (Successor) was $1,810, $964, $1,655 and $3,116, respectively. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company participates in a defined benefit postretirement medical plan which covers substantially all salaried and nonsalaried employees. In 1995 and 1996 (Predecessor Company) the plan was provided by Springs. The benefit cost and benefit obligation for these periods was allocated by Springs to the Predecessor Company. The 1996 Successor Company and 1997 plan operated identically to the Springs plan, but was a separate plan on a stand alone company basis. The plan provides medical coverage to age 65 for employees who retire at age 62 or later, have at least 25 years of service and participated in the plan prior to retirement. The plan is funded on a "pay-as-you-go" basis and is contributory, with retiree contributions adjusted periodically. Postretirement benefit cost consisted of the following components:
1995 1996 1996 1997 --------- --------- --------- --------- (PREDECESSOR) (SUCCESSOR) Service cost.................................... $ 138 $ 41 $ 71 $ 127 Interest cost................................... 278 83 229 283 --------- --------- --------- --------- $ 416 $ 124 $ 300 $ 410 --------- --------- --------- --------- --------- --------- --------- ---------
Management believes that the 1995 and 1996 (Predecessor) allocated amounts are reasonable and approximate the amounts that would have resulted from a SFAS 106 calculation of postretirement benefit cost on a separate company basis. The 1996 Successor and 1997 amounts were determined on a stand alone company basis. The Company has assumed responsibility for the accrued benefits attributable to employees of the Company. Pursuant to the Agreement, the Company established employee benefit plans which are substantially similar to Springs' employee benefit plans. F-62 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 10. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table sets forth the status of the Company's obligation under SFAS No. 106 at the end of 1996 and 1997:
Accumulated postretirement benefit obligation ("APBO") 1996 1997 --------- --------- Retirees.................................................... $ 1,473 $ 1,416 Fully eligible active plan participants..................... 393 261 Other active participants................................... 2,145 2,583 --------- --------- Accumulated postretirement benefit obligation............... $ 4,011 $ 4,260 Unrecognized gain/(loss).................................... (27) (121) --------- --------- Total recorded obligation................................... $ 3,984 $ 4,139 --------- --------- --------- ---------
The 1996 and 1997 balance sheets include a liability of $3,984 and $4,139, respectively, which is classified in "Long-Term Benefit Plans and Other." For measurement purposes, a 10.8% annual rate of increase in the per capita cost of covered health care benefits was assumed. This 10.8% rate is assumed to decrease gradually to 6.3% in the year 2006 and remain at that level thereafter. If the health care cost trend rate was increased by one percent, the APBO would increase by 12.6% and postretirement benefit cost would increase by approximately 14.6%. The discount rate used in determining the APBO at January 3, 1998 was 7.25%. 11. INCOME TAXES The following tables present the components of the provision for income taxes, a reconciliation of the statutory U.S. income tax rate to the effective income tax rate, and the principal items of deferred income tax assets and liabilities at the end of 1995, 1996 (Predecessor), 1996 (Successor), and 1997 (Successor). Components of the total income tax provision were as follows:
1995 1996 1996 1997 --------- --------- --------- --------- (PREDECESSOR) (SUCCESSOR) Current federal......................... $ 8,622 $ 3,739 $ 6,011 $ 9,906 Current state........................... 1,297 563 1,096 1,955 --------- --------- --------- --------- Total current........................... 9,919 4,302 7,107 11,861 --------- --------- --------- --------- Deferred federal........................ 129 56 (18) 543 Deferred state.......................... 47 20 (3) 107 --------- --------- --------- --------- Total deferred.......................... 176 76 (21) 650 --------- --------- --------- --------- Total provision......................... $ 10,095 $ 4,378 $ 7,086 $ 12,511 --------- --------- --------- --------- --------- --------- --------- ---------
F-63 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 11. INCOME TAXES (CONTINUED) The total provision is included in the statements of income as follows:
1995 1996 1996 1997 --------- --------- --------- --------- (PREDECESSOR) (SUCCESSOR) Provision on income before income taxes................................. $ 8,444 $ 3,595 $ 5,460 $ 9,657 Income from equity investees............ 1,582 783 1,626 2,854 Income of discontinued operations....... 69 0 0 0 --------- --------- --------- --------- Total provision......................... $ 10,095 $ 4,378 $ 7,086 $ 12,511 --------- --------- --------- --------- --------- --------- --------- ---------
The difference between the federal statutory tax rate and the effective tax rate on income before income taxes was as follows:
1995 1996 1996 1997 --------- --------- --------- --------- (PREDECESSOR) (SUCCESSOR) Provision at federal statutory tax rate....... 35.0% 35.0% 35.0% 35.0% State income tax, net of federal tax effect... 3.4 3.4 4.2 4.2 Amortization of acquisition price not deductible for tax purposes................. 0.7 0.7 2.1 1.6 Other......................................... 0.8 0.9 (0.2) (0.5) --- --- --- --- Effective tax rate............................ 39.9% 40.0% 41.1% 40.3% --- --- --- --- --- --- --- ---
Temporary differences and the related balances of deferred tax assets and liabilities were as follows:
1996 1997 --------- --------- Employee benefit accruals............................................... $ 3,356 $ 2,865 Equity investments...................................................... 2,376 3,519 Other items............................................................. 419 1,176 --------- --------- Total deferred tax assets............................................... 6,151 7,561 --------- --------- Property................................................................ 11,920 11,114 Equity investments...................................................... 12,551 13,339 Inventories............................................................. 4,362 4,786 Other items............................................................. 832 1,267 --------- --------- Total deferred tax liabilities.......................................... 29,665 30,506 --------- --------- Net deferred tax liabilities............................................ $ 23,514 $ 22,945 --------- --------- --------- ---------
12. EQUITY INVESTMENTS CS-INTERGLAS AG ("INTERGLAS")--In March 1993, the Company contributed two European subsidiaries and $8.8 million to Interglas, a company which manufactures fiber glass, aramid and carbon fabrics, in exchange for a 24.9% common stock interest and convertible notes with a face value of 20 million Deutsche marks (the "Convertible Notes"). No gain or loss was recognized as a result of this exchange. F-64 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 12. EQUITY INVESTMENTS (CONTINUED) The Company's common stock investment in Interglas had a carrying value of $14,282 and $13,107 at December 28, 1996 and January 3,1998, respectively. The Convertible Notes, which had a carrying value of $13,037 and $11,344 at December 28, 1996 and January 3, 1998, respectively, are convertible into common stock of Interglas. At the Company's option, conversion would result in the Company owning a total of 42% of the outstanding common stock of Interglas as of January 3, 1998. Interest on the Convertible Notes, which is included in income from equity investees, is at 8% through December 31, 1996 and 5% thereafter. Interest income in 1995, 1996 and 1997 was recognized on an accrual basis. If Convertible Notes are not converted, the principal balance plus outstanding interest becomes due on June 30, 2007. ASAHI-SCHWEBEL CO. LTD. ("ASCO")--On October 1, 1997, the Company purchased an additional 4.3% common equity interest in ASCO, which increased the Company's ownership percentage from 39.0% to 43.3%. ASCO, a company which manufactures fiber glass fabric, operates a facility in Japan and, in 1996, acquired a majority interest in a fiber glass manufacturer located in Taiwan. The Company's investment in ASCO had a carrying value of $32,586 and $36,803 at December 28, 1996 and January 3, 1998, respectively. The carrying value at January 3, 1998 exceeds 43.3% of ASCO's total equity by approximately $1.7 million, which is being amortized on a straight-line basis through 2008. CLARK-SCHWEBEL TECH-FAB COMPANY ("TECH-FAB")--The Company owns a 50% partnership interest in Tech-Fab, a joint venture which manufactures nonwoven fabrics using fiber glass and other synthetic materials. The Company's investment in Tech-Fab had a carrying value of $3,521 and $4,156 at December 28, 1996 and January 3, 1998, respectively. COMBINED SUMMARIZED FINANCIAL INFORMATION--The following table provides combined summarized balance sheet information for these investees as of December 28, 1996 and January 3, 1998:
1996 1997 ---------- ---------- Current assets........................................................ $ 165,715 $ 178,573 Noncurrent assets..................................................... 125,597 118,694 ---------- ---------- Total assets.......................................................... $ 291,312 $ 297,267 ---------- ---------- ---------- ---------- Current liabilities................................................... $ 54,303 $ 64,879 Noncurrent liabilities................................................ 89,279 77,036 Minority interest..................................................... 9,715 11,712 Redeemable equity instrument.......................................... 21,341 19,853 Equity................................................................ 116,675 123,787 ---------- ---------- Total liabilities and equity.......................................... $ 291,312 $ 297,267 ---------- ---------- ---------- ----------
F-65 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 12. EQUITY INVESTMENTS (CONTINUED) The following table provides combined summarized income statement information for these investees for the years ended December 30, 1995, December 28,1996, and January 3, 1998:
1995 1996 1997 ---------- ---------- ---------- Net sales................................................ $ 328,145 $ 317,918 $ 328,122 Operating income......................................... 20,761 35,163 36,739 Net income............................................... 13,207 16,643 17,783 ---------- ---------- ---------- ---------- ---------- ----------
13. MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS, AND FAIR VALUE OF FINANCIAL INSTRUMENTS Sales to two customers exceeded 10% of net sales during fiscal 1995, 1996, and 1997. Sales to the two customers represented as a percentage of net sales 29.1% and 13.2% in 1995, 29.9% and 13.5% in 1996 (Predecessor), 29.1% and 14.1% in 1996 (Successor), and 28.7% and 15.9% in 1997 (Successor), respectively. Accounts receivable due from these two customers as a percent of total accounts receivable was 38.0% and 19.8% at December 28, 1996 and 27.1% and 25.2% at January 3, 1998. Although the Company's exposure to credit risk could be affected by conditions or occurrences within these customers' industry, no indication of such adverse circumstances existed at January 3, 1998. The Company currently buys substantially all of its fiber glass yarn, an important component of its products, from two suppliers and substantially all of its aramid yarn from one supplier. There are a limited number of manufacturers of fiber glass yarn and aramid yarn. The Company's financial instruments include cash, short term investments, accounts receivable, Convertible Notes, accounts payable and long-term debt. Management estimates that the carrying value of such instruments approximates fair value, with the exception of the Senior Notes and Senior Debentures (see Note 5). 14. COMMITMENTS AND CONTINGENCIES The Company leases certain machinery and equipment under noncancelable operating leases. Rent expense attributed to such leases was $384, $177, $314, and $563 in 1995, 1996 (Predecessor), 1996 (Successor), and 1997 (Successor), respectively. Future minimum payments under the non-cancelable operating leases as of January 3, 1998 were as follows: 1998................................................ $ 497 1999................................................ 360 2000................................................ 316 2001................................................ 258 2002................................................ 258 --------- $ 1,689 --------- ---------
F-66 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 14. COMMITMENTS AND CONTINGENCIES (CONTINUED) Prior to the Closing Date of the Acquisition, the Company was involved in administrative proceedings under environmental laws and regulations, including proceedings under the Comprehensive Environmental Response, Compensation and Liability Act. On the closing date, Springs assumed all liabilities related to the costs associated with these environmental matters. There was no material provision for environmental matters in 1995, 1996 or 1997. The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not materially affect the Company's financial position or results of operations. 15. DISCONTINUED OPERATIONS In January 1996, the Company sold its equity investment in a company engaged in a separate line of business for an amount which approximated book value. The proceeds received were distributed to Springs. The equity earnings from this investment are included in Discontinued Operations in the Company's financial statements. 16. RELATED PARTY TRANSACTIONS In connection with the Acquisition, certain members of management (the "Management Investors") made equity contributions to the Company pursuant to a Management Subscription Agreement which provided the terms under which the Management Investors could purchase shares in the Company. The Management Subscription Agreement set forth the share price, vesting provisions, disposition of shares upon termination of employment, and certain other rights of the Management Investors with respect to the shares. The Management Investors purchased $1,800, or 18%, of the common equity in the Company. Approximately $800 of the purchase price was financed by the Company through a promissory note (the "Note") which carried an interest rate of 6.51% annually. As described in Note 3, the notes were paid in full during 1997 in connection with the Preferred Stock Redemption. The Management Investors have entered into a Securityholders Agreement with the Company and Vestar/CS Holding which contains certain agreements among such parties with respect to the capital stock and corporate governance of the Company. The Securityholders Agreement gives Vestar/CS Holding the right to appoint all members to the Board of Directors of the Company. Additionally, the Securityholders Agreement restricts the ability of Management Investors to transfer their equity interest except upon (A) the exercise of their tag along rights, which allows Management Investors to sell their equity interest when Vestar/CS Holding sells its equity interest in the Company; (B) a sale of the Company; (C) the exercise of certain put and call options under the Management Subscription Agreement; (D) a public sale of the Company's common stock. The Management Investors have entered into a Voting Trust Agreement with the Company and Vestar/CS Holding which requires Management Investors to vote all of their common stock as directed by Vestar/CS Holding for the approval of any of the following: amendment to the Company's Certificate of Incorporation, merger, share exchange, combination or consolidation of the Company with any other person, the sale, lease or exchange of all or substantially all of the property and assets of the Company, or the reorganization, recapitalization, liquidation, or dissolution of the Company. F-67 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 16. RELATED PARTY TRANSACTIONS (CONTINUED) Pursuant to a Management Advisory Agreement (the "Management Agreement"), Vestar Capital Partners will receive an annual fee and reimbursement of out-of-pocket expenses for management and financial consulting services provided to the Company. Such services include advising the Company on the establishment of effective banking, legal and other business relationships, and assisting management in developing and implementing strategies for improving the operational, marketing and financial performance of the Company. The management advisory fees to be paid per annum will equal the greater of (i) 1.0% of the consolidated earnings of the Company before interest, taxes, depreciation and amortization or (ii) $350. Expenses pursuant to the Management Agreement were approximately $485 in 1997 and $258 for the period from April 18, 1996 to December 28, 1996 (Successor Company). Upon consummation of the Acquisition, the Company paid to Vestar Capital Partners an investment banking fee of approximately $1,500 plus out-of-pocket expenses for its services in structuring the transaction and providing financial advice in connection therewith. Additionally, a member of the Company's Board of Directors received a fee of approximately $600 for his consulting services in connection with the Acquisition. 17. SUBSEQUENT EVENTS HEXCEL CORPORATION ACQUIRES ASSETS OF CLARK-SCHWEBEL On September 15, 1998, Hexcel Corporation ("Hexcel") acquired certain assets and operating liabilities of Clark-Schwebel, Inc. In the first transaction, Vestar Capital Partners and Management Investors sold the stock of the Clark-Schwebel Holdings, Inc. ("Holdings") to Stamford C-S Acquisition Corp. ("Stamford") for an enterprise value of approximately $488,000, less debt and transaction expenses. Stamford then immediately sold certain assets and operating liabilities of Clark-Schwebel, Inc. and its subsidiaries (the "Company") to Hexcel for $453,600. Stamford will retain $50,000 of property, plant and equipment to be leased to Hexcel under a long-term capital lease. CLARK-SCHWEBEL AND PARENT COMPANY LAUNCH CASH TENDER OFFERS AND CONSENT SOLICITATIONS FOR NOTES AND DEBENTURES As part of the sale described above, the Company and Holdings launched cash tender offers and consent solicitations for their notes and debentures. Pursuant to the tender offers, the Company and Holdings, respectively, have repurchased: 1. All $110,000 of the 10 1/2% Senior Notes of the Company due 2006. The purchase price offered for each $1 principal amount tendered is based on a fixed spread of 50 basis points over the yield of the 6 1/4% U.S. Treasury Notes due March 31, 2001, plus accrued unpaid interest on the notes, minus the consent payment described below. 2. All $45,994 of the 12 1/2% Senior Debentures of Holdings due 2007. The purchase price offered for each $1 principal amount tendered is $1.06750 plus accrued unpaid interest on the debentures, minus the consent payment described below. Concurrent with the tender offers, the issuers obtained consents to eliminate or modify substantially all of the convenants in the indentures governing the notes and the debentures. Holders who tender their notes and debentures were required to consent to the proposed amendments. F-68 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 17. SUBSEQUENT EVENTS (CONTINUED) The Company offered to make consent payments of $.025 per $1 principal amount to the holders of the notes and debentures who tender their securities and deliver their consents at or prior to 5:00 p.m. New York City time on the consent date. The Company and Holdings purchased the tendered notes and debentures with borrowings under proceeds from stock sale. F-69 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS JANUARY 3, 1998 AND JULY 4, 1998 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
JANUARY 3, JULY 4, 1998 1998 ------------ ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents........................................................ $ 147 $ 14,175 Accounts receivable, net......................................................... 28,527 22,153 Inventories, net................................................................. 34,897 35,799 Other............................................................................ 235 615 ------------ ----------- Total current assets......................................................... 63,806 72,742 ------------ ----------- PROPERTY, PLANT AND EQUIPMENT.......................................................... 72,133 74,565 Accumulated depreciation........................................................... (12,540) (16,623) ------------ ----------- Property, plant and equipment, net............................................... 59,593 57,942 ------------ ----------- EQUITY INVESTMENTS..................................................................... 65,411 65,341 GOODWILL............................................................................... 43,205 42,641 OTHER ASSETS........................................................................... 5,702 5,327 ------------ ----------- TOTAL ASSETS........................................................................... $ 237,717 $ 243,993 ------------ ----------- ------------ ----------- LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable................................................................. $ 19,806 $ 22 994 Accrued liabilities.............................................................. 16,706 15,261 Deferred tax liabilities--current................................................ 2,370 2,370 ------------ ----------- Total current liabilities.................................................... 38,882 40,625 ------------ ----------- LONG-TERM DEBT......................................................................... 155,994 155,994 DEFERRED TAX LIABILITIES............................................................... 20,575 19,578 LONG-TERM BENEFIT PLANS AND OTHER...................................................... 4,139 4,139 COMMITMENTS AND CONTINGENCIES ------------ ----------- TOTAL LIABILITIES...................................................................... 219,590 220,336 ------------ ----------- EQUITY: Common stock (par value per share--$.01)--100,000 shares authorized, 9,000 shares issued and outstanding........................................................... 9,000 9,000 Retained earnings................................................................ 13,664 22,310 Cumulative translation adjustment................................................ (4,537) (7,653) ------------ ----------- Total equity................................................................. 18,127 23,657 ------------ ----------- TOTAL LIABILITIES AND EQUITY........................................................... $ 237,717 $ 243,993 ------------ ----------- ------------ -----------
See notes to condensed and consolidated financial statements. F-70 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED--DOLLARS IN THOUSANDS)
SIX MONTHS ENDED -------------------- JUNE 28, JULY 4, 1997 1998 --------- --------- Net sales............................................................... $ 123,299 $ 111,664 Cost of goods sold...................................................... 95,851 84,546 --------- --------- Gross profit............................................................ 27,448 27,118 Selling, general and administrative expenses............................ 7,727 8,016 --------- --------- Operating income.................................................... 19,721 19,102 Other income (expense): Interest expense.................................................... (6,427) (8,885) Other, net.......................................................... (3) (2) --------- --------- Income before income taxes.............................................. 13,291 10,215 Provision for income tax................................................ (5,475) (4,090) Income from equity investees, net....................................... 1,582 2,521 --------- --------- Net income.............................................................. 9,398 8,646 Accrued dividends on preferred stock.................................... (2,416) 0 --------- --------- Net income applicable to common shares.............................. $ 6,982 $ 8,646 --------- --------- --------- ---------
See notes to condensed and consolidated financial statements. F-71 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK CUMULATIVE -------------------- -------------------- RETAINED TRANSLATION COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL INCOME --------- --------- --------- --------- --------- ----------- ---------- -------------- Balance at December 28, 1996..... 1,000 $ 35,000 9,000 $ 9,178 $ 7,005 $ (1,350) $ 49,833 $ 8,792 Repayment of management loans.... 822 822 Net income....................... 18,515 18,515 18,515 Accrued preferred stock dividend....................... (2,856) (2,856) Redemption of preferred stock.... (1,000) (35,000) (1,000) (9,000) (45,000) Cumulative translation adjustment..................... (3,187) (3,187) (3,187) --------- --------- --------- --------- --------- ----------- ---------- ------- Balance at January 3, 1998....... 0 $ 0 9,000 $ 9,000 $ 13,664 $ (4,537) $ 18,127 $ 24,120 --------- --------- --------- --------- --------- ----------- ---------- ------- --------- --------- --------- --------- --------- ----------- ---------- ------- Net income (Unaudited)........... 4,791 4,791 4,791 Cumulative translation adjustment (Unaudited).................... (2,175) (2,175) (2,175) --------- --------- --------- --------- --------- ----------- ---------- ------- Balance at April 4, 1998 (Unaudited).................... 0 $ 0 9,000 $ 9,000 $ 18,455 $ (6,712) $ 20,743 $ 26,736 --------- --------- --------- --------- --------- ----------- ---------- ------- --------- --------- --------- --------- --------- ----------- ---------- ------- Net Income (Unaudited)........... 3,855 3,855 3,855 Cumulative translation adjustment (Unaudited).................... (941) (941) (941) --------- --------- --------- --------- --------- ----------- ---------- ------- Balance at July 4, 1998 (Unaudited).................... 0 $ 0 9,000 $ 9,000 $ 22,310 $ (7,653) $ 23,657 $ 29,650 --------- --------- --------- --------- --------- ----------- ---------- ------- --------- --------- --------- --------- --------- ----------- ---------- -------
See notes to condensed and consolidated financial statements. F-72 CLARK-SCHWEBEL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED--DOLLARS IN THOUSANDS)
SIX MONTHS ENDED ---------------------- JUNE 28, JULY 4, 1997 1998 ----------- --------- OPERATING ACTIVITIES: Net income........................................................... $ 9,398 $ 8,646 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of goodwill and unearned revenue..... 4,562 4,906 Amortization of deferred financing cost............................ 417 404 Deferred tax provision............................................. (595) (676) Income from equity investments, net................................ (1,540) (2,521) Loss on sale of equipment.......................................... 11 7 Changes in assets and liabilities, net of the effects of the purchase of the company: Accounts receivable.............................................. (557) 6,374 Inventories...................................................... (4,130) (902) Prepaid expenses and other....................................... 98 (320) Accounts payable................................................. 7,525 3,188 Accrued liabilities.............................................. (570) (1,445) Other.............................................................. (6) (1) ----------- --------- Net cash provided by operating activities...................... 14,613 17,660 ----------- --------- INVESTING ACTIVITIES: Purchases of equipment............................................... (3,541) (2,723) Proceeds from sale of equipment...................................... 1,494 25 Additional investment in CS-Interglas................................ 0 (2,643) ----------- --------- Net cash used in investing activities.......................... (2,047) (5,341) ----------- --------- FINANCING ACTIVITIES: Principal payments under long-term debt and capital lease obligations.......................................................... (2,301) 0 Proceeds from repayment of loans to management Investor.............. 23 0 Dividends received from ASCO......................................... 0 1,709 ----------- --------- Net cash (used in) provided by financing activities............ (2,278) 1,709 ----------- --------- NET CHANGE IN CASH....................................................... 10,288 14,028 CASH, BEGINNING OF PERIOD................................................ 4,064 147 ----------- --------- CASH, END OF PERIOD...................................................... $ 14,352 $ 14,175 ----------- --------- ----------- --------- CASH PAID FOR INTEREST................................................... $ 6,030 $ 8,269 ----------- --------- ----------- --------- CASH PAID FOR TAXES...................................................... $ 6,372 $ 4,914 ----------- --------- ----------- ---------
Noncash Transaction: The company accrued dividends on preferred stock of $2,416 for the period of December 29, 1996--June 28, 1997. See notes to condensed and consolidated financial statements. F-73 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the assets, liabilities and results of operations as of July 4, 1998 and for the period from January 4, 1998 to July 4, 1998 of Clark-Schwebel Holdings, Inc. The Company's primary asset is all of the capital stock of Clark-Schwebel, Inc., its operating company. The statements also include the assets and liabilities of the Company as of January 3, 1998, and the Company's results of operations for the period from December 29, 1996 to June 28, 1997. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All significant intercompany balances and transactions have been eliminated. The balance sheet at January 3, 1998 has been derived from the audited financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for the entire year. For further information, refer to the Company's consolidated financial statements and footnotes for the year ended January 3, 1998 included in the Company's Form 10-K for the year then ended. SUMMARIZED FINANCIAL INFORMATION--The following table provides summarized financial information for Clark-Schwebel, Inc., the operating company, on a stand-alone basis. Clark-Schwebel, Inc. is a wholly owned subsidiary of Clark-Schwebel Holdings, Inc. and its separate financial statements are not included or filed separately because management has determined that they would not be material to investors. The balance sheet information is as of July 4, 1998 and the income statement information is for the six months ended July 4, 1998. Current assets.................................................................... $ 72,742 Noncurrent assets................................................................. 171,251 --------- Total assets...................................................................... $ 243,993 --------- --------- Current liabilities............................................................... $ 37,986 Noncurrent liabilities............................................................ 135,189 Equity............................................................................ 70,818 --------- Total liabilities and equity...................................................... $ 243,993 --------- --------- Net sales......................................................................... $ 111,664 Gross profit...................................................................... 27,118 Income from continuing operations................................................. 10,431 Net income........................................................................ $ 10,431 --------- --------- Dividends paid to Clark-Schwebel Holdings, Inc.................................... $ 2,411 --------- ---------
All assets of Clark-Schwebel, Inc. represent restricted net assets with the exception of the foreign equity investments and distributions received from the foreign equity investments. Except in limited circumstances, Clark-Schwebel, Inc. is prohibited from transferring restricted net assets to Clark-Schwebel Holdings, Inc. in the form of cash dividends, loans, or advances without the consent of the lenders under F-74 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 1. BASIS OF PRESENTATION (CONTINUED) the Credit Agreement. The amount of unrestricted net assets at July 4, 1998 was $61,295, which represents the book value of the foreign equity investments ($61,225) and distributions received in the form of cash from the foreign equity investments, net of restricted payments to increase equity ownership in foreign equity investments ($70). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Following is a summary of the significant accounting policies used in the preparation of the financial statements of the Company. BASIS OF CONSOLIDATION--The consolidated financial statements include the accounts of the Company and its operating company and wholly-owned subsidiary, Clark-Schwebel, Inc. All material intercompany amounts and transactions have been eliminated. FISCAL YEAR--The Company's operations are based on a fifty-two or fifty-three week fiscal year ending on the Saturday closest to December 31. Accordingly, the interim periods will also be reported on the Saturday closest to the calendar quarter end. The fiscal year ended January 2, 1999 is referred to herein as 1998. The fiscal year ended January 3, 1998 is referred to herein as 1997. The 1998 fiscal year consists of 52 weeks, while the 1997 fiscal year consisted of 53 weeks. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include the allowance for doubtful accounts receivable and the liabilities for certain long-term benefit plans. Actual results could differ from such estimates. REVENUE RECOGNITION--Revenue from product sales is recognized at the time ownership of the goods transfers to the customer and the earnings process is complete. This generally occurs when the goods are shipped. CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand and in the bank as well as short term investments held for the purpose of general liquidity. Such investments normally mature within three months from the date of acquisition. ACCOUNTS RECEIVABLE--The Company establishes an allowance for doubtful accounts based upon factors including the credit risk of specific customers, historical trends and other information. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. INVENTORIES--Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for substantially all inventories. F-75 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment is recorded at cost and depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Estimated useful lives are as follows: 10 to 20 Land improvements............................................ years 20 to 40 Buildings and improvements................................... years Machinery and equipment...................................... 3 to 11 years
EQUITY INVESTMENTS--The company owns equity interests in CS-Interglas AG (headquartered in Germany), Asahi-Schwebel Co., Ltd. (headquartered in Japan) and Clark Schwebel Tech-Fab Company (located in Anderson, SC), which are accounted for using the equity method of accounting. FOREIGN CURRENCY--The foreign equity investments are translated at year-end exchange rates. Equity income and losses are translated at the average rate during the year. Cumulative translation adjustments are reflected as a separate component of stockholders' equity. POSTRETIREMENT BENEFITS--Postretirement benefits are accounted for pursuant to Statement of Financial Accounting Standards ("SFAS") No. 106, EMPLOYERS ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. SFAS No. 106 requires that the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service rather than when claims are incurred. INCOME TAXES--Income taxes are accounted for pursuant to SFAS 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109, deferred income tax assets and liabilities represent the future income tax effect of temporary differences between the book and tax bases of assets and liabilities assuming they will be realized and settled at the amounts reported in the financial statements. The provision for income taxes included in the accompanying financial statements is computed in a manner consistent with SFAS No. 109. GOODWILL--Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in the Acquisition of the Company from Springs Industries in April 1996. Goodwill recorded from the Acquisition was $45,128, and is being amortized on a straight-line basis over a period of 40 years. 3. LONG-TERM DEBT Long-term debt consisted of the following:
JANUARY 3, JULY 4, 1998 1998 ---------- ---------- Senior Notes, payable in 2006, interest at 10.5%...................... $ 110,000 $ 110,000 Senior Debentures, payable in 2007, interest at 12.5%................. 45,994 45,994 Revolving Credit Agreement, due 2002, interest at variable rates...................................................... 0 0 ---------- ---------- Total................................................................. 155,994 155,994 Less current maturities............................................... 0 0 ---------- ---------- Long-term debt........................................................ $ 155,994 $ 155,994 ---------- ---------- ---------- ----------
F-76 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 3. LONG-TERM DEBT (CONTINUED) The Senior Notes accrue interest at a fixed rate of 10.5% per annum, with interest payable semiannually in arrears on April 15 and October 15. The Senior Notes are not redeemable at the option of the Company prior to April 15, 2001, except in the event of a public equity offering of the Company, at which time a portion of the Senior Notes would be redeemable. The Senior Debentures accrue interest at a fixed rate of 12.5% per annum with interest payable semiannually in arrears on January 15 and July 15 to the extent permitted by the Credit Agreement and the indenture governing the Senior Notes. If the Company is unable to pay interest in cash due to the prohibitions contained in the Credit Agreement or such indenture, interest on the Senior Debentures would be payable in additional Senior Debentures. The Senior Debentures will not be redeemable at the Company's option prior to July 15, 2002, except in the event of a public equity offering of the Company, or a change of control or subsidiary change of control after January 15, 1998. See Note 6. The Company has a $65,000 Revolving Credit Facility under the Credit Agreement. The Company pays a quarterly commitment fee equal to 0.25% on the unused portion of the Revolving Credit Facility, which was $65,000 at July 4, 1998. The Revolving Credit Facility, the Senior Notes, and the Senior Debentures contain certain restrictive covenants which provide limitations on the Company with respect to restricted payments, indebtedness, liens, investments, dividends, distributions, transactions with affiliates, debt repayments, capital expenditures, mergers, and consolidations. The bank facility covenants also require maintenance of certain financial ratios. At July 4, 1998, the Company was in compliance with such covenants. With the exception of the Senior Debentures, which are obligations of Clark-Schwebel Holdings, Inc., all other long-term debt is owed at the Clark-Schwebel, Inc., operating company level, and guaranteed by Clark-Schwebel Holdings, Inc. No principal payments are required on any long-term debt in the next five years. 4. INVENTORIES Inventories consisted of the following:
JANUARY 3, JULY 4, 1998 1998 ----------- --------- Finished goods......................................................... $ 12,301 $ 11,511 Raw material and supplies.............................................. 8,854 10,384 In process............................................................. 15,317 15,853 ----------- --------- Total at standard cost (which approximates average cost)............... 36,472 37,748 Less LIFO reserve...................................................... (1,575) (1,949) ----------- --------- Inventories, net....................................................... $ 34,897 $ 35,799 ----------- --------- ----------- ---------
F-77 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 5. CONVERSION OF CS-INTERGLAS AG ("INTERGLAS") NOTE RECEIVABLE AND OPTION TO PURCHASE A CONTROLLING INTEREST IN INTERGLAS On March 31, 1998, the Company notified CS-Interglas of its intent to convert its 20 million Deutsche mark convertible notes (the "Convertible Notes") into CS-Interglas common stock. Effective June 30, 1998, the conversion increased the Company's ownership of the outstanding common stock of Interglas from 24.9% to 41.9%. The conversion was approved by the German Merger Control Authorities. Interglas manufactures fiber glass, aramid and carbon fabrics in Europe, with plants in Germany, Belgium, England and France. CS-Interglas sales for the fiscal year ended June 30, 1997 were $154,000. On March 31, 1998, the Company also entered into an agreement (the "Interglas Purchase Agreement") with the Deschler-Group, the Company's joint venture partner in Interglas who, following the Company's Convertible Notes conversion described above, owns 41.9% of the outstanding common stock of Interglas. Under the Interglas Purchase Agreement, the Company purchased 1.7% of Interglas' common stock from the Deschler-Group for 4.75 million Deutsche marks (approximately $2,600) on June 30, 1998. This purchase increased the Company's ownership in Interglas from 41.9% to 43.6%. The Company's purchase of additional shares in CS-Interglas was approved by the German Merger Control Authorities. Additionally, pursuant to the Interglas Purchase Agreement, the Company obtained two options from the Deschler-Group to purchase additional shares of Interglas held by the Deschler-Group. The first option allows the Company to purchase an additional 6.4% of Interglas' common stock from the Deschler-Group on or before January 10, 1999, which, if exercised, will give the Company control of Interglas. The second option allows the Company to purchase the remaining shares of Interglas held by the Deschler-Group at any time through December 31, 1999. 6. SUBSEQUENT EVENTS HEXCEL CORPORATION ACQUIRES ASSETS OF CLARK-SCHWEBEL On September 15, 1998, Hexcel Corporation ("Hexcel") acquired certain assets and operating liabilities of Clark-Schwebel, Inc. In the first transaction, Vestar Capital Partners and Management Investors sold the stock of the Clark-Schwebel Holdings, Inc. ("Holdings") to Stamford C-S Acquisition Corp. ("Stamford") for an enterprise value of approximately $488,000, less debt and transaction expenses. Stamford then immediately sold certain assets and operating liabilities of Clark-Schwebel, Inc. and its subsidiaries (the "Company") to Hexcel for $453,600. Stamford will retain $50,000 of property, plant and equipment to be leased to Hexcel under a long-term capital lease. CLARK-SCHWEBEL AND PARENT COMPANY LAUNCH CASH TENDER OFFERS AND CONSENT SOLICITATIONS FOR NOTES AND DEBENTURES As part of the sale described above, the Company and Holdings launched cash tender offers and consent solicitations for their notes and debentures. Pursuant to the tender offers, the Company and Holdings, respectively, have repurchased: 1. all $110,000 of the 10 1/2% Senior Notes of the Company due 2006. The purchase price offered for each $1 principal amount tendered is based on a fixed spread of 50 basis points over the yield of the 6 1/4% U.S. Treasury Notes due March 31, 2001, plus accrued unpaid interest on the notes, minus the consent payment described below. F-78 CLARK-SCHWEBEL HOLDINGS, INC. NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLARS IN THOUSANDS) 6. SUBSEQUENT EVENTS (CONTINUED) 2. all $45,994 of the 12 1/2% Senior Debentures of Holdings due 2007. The purchase price offered for each $1 principal amount tendered is $1.0675 plus accrued unpaid interest on the debentures, minus the consent payment described below. Concurrent with the tender offers, the issuers obtained consents to eliminate or modify substantially all of the convenants in the indentures governing the notes and the debentures. Holders who tender their notes and debentures were required to consent to the proposed amendments. The Company offered to make consent payments of $.025 per $1 principal amount to the holders of the notes and debentures who tender their securities and deliver their consents at or prior to 5:00 p.m. New York City time on the consent date. The Company and Holdings purchased the tendered notes and debentures with borrowings under proceeds from stock sale. F-79 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF , 1999. HOWEVER, YOU SHOULD REALIZE THAT OUR AFFAIRS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS. ------------------------ TABLE OF CONTENTS
PAGE ---- Forward-Looking Statements................................................ ii Prospectus Summary........................................................ 1 Risk Factors.............................................................. 12 Use of Proceeds........................................................... 19 Capitalization............................................................ 20 Pro Forma Financial Information........................................... 21 Selected Consolidated Financial Information............................... 26 The Exchange Offer........................................................ 27 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................................. 35 Business.................................................................. 43 Management................................................................ 58 Security Ownership of Certain Beneficial Owners........................... 62 Description of Certain Indebtedness....................................... 63 Description of the Notes.................................................. 66 Book-Entry; Delivery and Form............................................. 101 Exchange Offer; Registration Rights....................................... 103 Certain Relationships and Related Transactions............................ 105 Certain United States Federal Income Tax Considerations................... 111 Plan of Distribution...................................................... 114 Legal Matters............................................................. 115 Experts................................................................... 115 Available Information..................................................... 115 Glossary of Terms......................................................... 117 Index to Financial Statements............................................. F-1
$240,000,000 [LOGO] 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 --------------------------- PROSPECTUS --------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- , 1999 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Set forth below is a description of certain provisions of the Delaware General Corporation Law (the "DGCL"), the Certificate of Incorporation of the Company, the Strategic Alliance Agreement dated as of September 29, 1995 among Ciba-Geigy Limited, Ciba-Geigy Corporation and the Company, as amended December 12, 1995 (the "Strategic Alliance Agreement") and the Hexcel Corporation Incentive Stock Plan, as amended and restated January 30, 1997 and further amended December 10, 1997 and the Hexcel Corporation 1998 Broad Based Incentive Stock Plan (together, the "Incentive Stock Plans"), as such provisions relate to the indemnification of the directors and officers of the Company. This description is intended only as a summary and is qualified in its entirety by reference to the applicable provisions of the DGCL, the Certificate of Incorporation of the Company, the Bylaws of the Company, the Strategic Alliance Agreement and the Incentive Stock Plans, which are incorporated herein by reference. Section 145 of the DGCL provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at its request in such capacity at another corporation or business organization, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe that such person's conduct was unlawful. A Delaware corporation may indemnify officers and directors against expenses (including attorneys' fees) in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses that such officer or director actually and reasonably incurred. Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of a corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL (Liability of Directors for Unlawful Payment of Dividend or Unlawful Stock Purchase or Redemption) or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Certificate of Incorporation provides for the elimination of personal liability of a director for breach of fiduciary duty, to the full extent permitted by the DGCL. The Company's Certificate of Incorporation also provides that the Company shall indemnify its directors and officers to the full extent permitted by the DGCL; provided, however, that the Company shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the Board of Directors of the Company. The Certificate of Incorporation further provides that the Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification similar to those provided to the directors and officers of the Company to the employees and agents of the Company who are not directors or officers of the Company. The Strategic Alliance Agreement provides that the Company's Certificate of Incorporation and Bylaws will continue to contain the provisions with respect to indemnification of directors and officers as of II-1 September 29, 1995, which provisions will not be amended, repealed or otherwise modified for a period of six years following the Closing contemplated by the Strategic Alliance Agreement (the "Ciba Closing") in any manner that would adversely affect the rights of individuals who at any time prior to the Ciba Closing were directors or officers of the Company in respect of actions or omissions occurring at or prior to the Ciba Closing, except for such modifications as are required by applicable law. In addition, the Strategic Alliance Agreement generally requires the Company to indemnify, to the fullest extent permitted under the DGCL, its officers and directors as of September 29, 1995 against all losses, expense, claims, damages, liabilities, costs or expenses (including reasonable fees and expenses of counsel) arising out of any claim, action, suit, proceeding or investigation based in whole or in part on the fact that such person was a director or officer of the Company at or prior to the Ciba Closing. The Company maintains, at its expense, an insurance policy which insures the directors and officers of the Company, subject to certain exclusions and deductions, against certain liabilities that they may incur in their capacity as such. The Strategic Alliance Agreement provides that for six years after the Ciba Closing, the Company is generally required to provide directors' and officers' liability insurance meeting certain specified criteria for its officers and directors as of September 29, 1995. Pursuant to the Incentive Stock Plans, no member of the Executive Compensation Committee of the Board of Directors of the Company, or such other committee or committees of the Board of Directors as may be designated by the Board of Directors from time to time to administer the Incentive Stock Plans, shall be liable for any action or determination made in good faith, and the members of such committee or committees shall be entitled to indemnification in the manner provided in the Company's Certificate of Incorporation. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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 the Company, Brochier S.A., Composite Materials Limited, Salver S.r.l. and Ciba Geigy Limited (incorporated 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. (incorporated herein by reference to Exhibit 2.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 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).
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 2.2(a) 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). 2.2(b) 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). 2.3 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). 2.3(a) 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). 2.4 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). 2.5 Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated July 25, 1998 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on July 30, 1998). 2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated as of September 15, 1998 (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on September 24, 1998). 2.5(b) Amendment No. 2 to Asset Purchase Agreement by and among the Company and EQCSI Holding Corp., formerly known as Clark-Schwebel, Inc., dated as of December 23, 1998. 2.6 First Amended Plan of Reorganization dated as of November 7, 1994 (incorporated by reference to Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1994). 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). 4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as trustee, relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009. 4.2 Registration Rights Agreement dated as of January 21, 1999 by and among Hexcel Corporation, Credit Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009. 4.3 Purchase Agreement dated as of January 15, 1999 by and among Hexcel Corporation, Credit Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009.
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 4.4 Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California, National Association, as trustee, relating to the 7% Convertible Subordinated Notes due 2003 of the Company (incorporated herein by reference to Exhibit 4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 4.5 Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, National Association, as trustee, relating to the Increasing Rate Senior Subordinated Notes due 2003 of the Company (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 15, 1996). 4.5(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 (incorporated herein by reference to Exhibit 4.2(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.5(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 (incorporated by reference to Exhibit 4.2(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.5(c) Third Supplemental Indenture dated as of September 15, 1998 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee. 4.5(d) Fourth Supplemental Indenture dated as of January 21, 1999 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee. 4.6 Indenture dated as of August 1, 1986 between Hexcel and the Bank of California, N.A., as trustee, relating to the 7% Convertible Subordinated Notes due 2011 of the Company (incorporated herein by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.6(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (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). 5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company. 10.1 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). 10.1(a) 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).
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.1(b) 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). 10.1(c) 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). 10.1(d) 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). 10.1(e) 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 (incorporated herein by reference to Exhibit 10.4(d) to Hexcel's Annual Report on Form 10-K for the year ended December 31, 1997). 10.1(f) Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel and certain of its subsidiaries as borrowers, the lenders from time to time parties thereto, Citibank, N.A. as documentation agent, and Credit Suisse First Boston as lead arranger and as administrative agent for the lenders (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.1(g) First Amendment dated as of December 31, 1998 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time party thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent. 10.1(h) Consent Letter dated as of January 15, 1999 relating to the First Amendment dated December 31, 1998 to the Second Amended and Restated Credit Agreement dated September 15, 1998. 10.2 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). 10.2(a) Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 and further amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.3 Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to Exhibit 4.3 of the Company's Form S-8 filed on June 19, 1998).
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.4 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). 10.5 Hexcel Corporation Management Incentive Compensation Plan (incorporated herein by reference to Annex A of the Company's Proxy Statement dated April 20, 1998, which was previously filed electronically). 10.6 Form of Employee Option Agreement (1998) (incorporated herein by reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 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). 10.8 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). 10.9 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). 10.10 Form of Retainer Fee Option Agreement for Non-Employee Directors (1997) (incorporated herein by reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.11 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). 10.12 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). 10.13 Form of Performance Accelerated Restricted Stock Unit Agreement (1998) (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1998). 10.14 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). 10.15 Form of Performance Accelerated Restricted Stock Unit Agreement (1996) (incorporated herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.16 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). 10.17 Form of Reload Option Agreement (1996) (incorporated herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.18 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). 10.19 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).
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.20 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). 10.21 Form of Exchange Performance Accelerated Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.22 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). 10.23 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). 10.23(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). 10.23(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). 10.23(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). 10.23(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). 10.23(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). 10.23(f) Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998). 10.23(g) Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel and Harold E. Kinne, President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.23(h) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and Richard Wolfe, Executive V.P. of Manufacturing of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.23(i) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and Jack Schwebel, Co-Chairman of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.7 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.23(j) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and William D. Bennison, President of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.24 Agreement dated September 3, 1996 between Hexcel Corporation and Ira J. Krakower (incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.25 Separation and Release Agreement dated as of January 29, 1998 between Hexcel Corporation and Juergen Habermeier (incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.26 Agreement between Hexcel Corporation and Stephen C. Forsyth (incorporated herein 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). 10.27 Agreement between Hexcel Corporation and Gary L. Sandercock (incorporated herein 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). 10.28 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). 10.29 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). 10.29(a) Amendment No.1 dated as of December 29, 1998 to the Registration Rights Agreement by and between Ciba-Geigy Limited (which has since assigned the Registration Rights Agreement to Ciba Specialty Chemical Holding Inc.) and Hexcel Corporation. 10.30 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 as of October 13, 1995). 10.30(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). 10.31 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). 10.32 Lease Agreement, dated as of September 15, 1998, by and among Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) as lessee, CSI Leasing Trust as lessor, and William J. Wade as co-trustee for CSI Leasing Trust (incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company. 21.1 Subsidiaries of the Company.
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EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of Arthur Andersen LLP. 23.4 Consent of Deloitte & Touche LLP. 23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1). 24.1 Powers of attorney (included on signature page to the Registration Statement). 25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee, under the Indenture relating to the Exchange Notes. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5 Form of Exchange Agency Agreement.* 99.6 Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.
- ------------------------ * To be filed by Amendment. ITEM 22. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the II-9 maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-10 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stamford, State of Connecticut, on the 2nd day of February, 1999. HEXCEL CORPORATION (Registrant) By: /s/ IRA J. KRAKOWER ----------------------------------------- Ira J. Krakower SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ira J. Krakower his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this registration statement (including post-effective amendments), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ JOHN J. LEE Chairman of the Board; February 2, 1999 - ------------------------------ Chief Executive Officer; John J. Lee Director /s/ HAROLD E. KINNE President and Chief February 2, 1999 - ------------------------------ Operating Officer; Harold E. Kinne Director /s/ STEPHEN C. FORSYTH Executive Vice President; February 2, 1999 - ------------------------------ Chief Financial Officer Stephen C. Forsyth /s/ WAYNE C. PENSKY Vice President; Corporate February 2, 1999 - ------------------------------ Controller; Chief Wayne C. Pensky Accounting Officer /s/ JOHN M.D. CHEESMOND Director February 2, 1999 - ------------------------------ John M.D. Cheesmond /s/ MARSHALL S. GELLER Director February 2, 1999 - ------------------------------ Marshall S. Geller
II-11
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ STANLEY SHERMAN Director February 2, 1999 - ------------------------------ Stanley Sherman /s/ MARTIN L. SOLOMON Director February 2, 1999 - ------------------------------ Martin L. Solomon /s/ GEORGE S. SPRINGER Director February 2, 1999 - ------------------------------ George S. Springer Director , 1999 - ------------------------------ Joseph T. Sullivan Director , 1999 - ------------------------------ Hermann Vodicka Director , 1999 - ------------------------------ Franklin S. Wimer
II-12 INDEX TO 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 the Company, Brochier S.A., Composite Materials Limited, Salver S.r.l. and Ciba Geigy Limited (incorporated 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. (incorporated herein by reference to Exhibit 2.1(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 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). 2.2(a) 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). 2.2(b) 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). 2.3 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). 2.3(a) 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). 2.4 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). 2.5 Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated July 25, 1998 (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on July 30, 1998). 2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc. and Clark-Schwebel Inc., dated as of September 15, 1998 (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K, filed on September 24, 1998).
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 2.5(b) Amendment No. 2 to Asset Purchase Agreement by and among the Company and EQCSI Holding Corp., formerly known as Clark-Schwebel, Inc., dated as of December 23, 1998. 2.6 First Amended Plan of Reorganization dated as of November 7, 1994 (incorporated by reference to Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 2, 1994). 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). 4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation and The Bank of New York, as trustee, relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009. 4.2 Registration Rights Agreement dated as of January 21, 1999 by and among Hexcel Corporation, Credit Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009. 4.3 Purchase Agreement dated as of January 15, 1999 by and among Hexcel Corporation, Credit Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4% Senior Subordinated Notes due 2009. 4.4 Indenture dated as of July 24, 1996 between Hexcel Corporation and First Trust of California, National Association, as trustee, relating to the 7% Convertible Subordinated Notes due 2003 of the Company (incorporated herein by reference to Exhibit 4 to Hexcel's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996). 4.5 Indenture dated as of February 29, 1996 between Hexcel and First Trust of California, National Association, as trustee, relating to the Increasing Rate Senior Subordinated Notes due 2003 of the Company (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated as of March 15, 1996). 4.5(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 (incorporated herein by reference to Exhibit 4.2(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.5(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 (incorporated by reference to Exhibit 4.2(b) to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 4.5(c) Third Supplemental Indenture dated as of September 15, 1998 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee. 4.5(d) Fourth Supplemental Indenture dated as of January 21, 1999 between Hexcel and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee. 4.6 Indenture dated as of August 1, 1986 between Hexcel and the Bank of California, N.A., as trustee, relating to the 7% Convertible Subordinated Notes due 2011 of the Company (incorporated herein by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997).
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 4.6(a) Instrument of Resignation, Appointment and Acceptance, dated as of October 1, 1993 (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). 5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to the Company. 10.1 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). 10.1(a) 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). 10.1(b) 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). 10.1(c) 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). 10.1(d) 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). 10.1(e) 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 (incorporated herein by reference to Exhibit 10.4(d) to Hexcel's Annual Report on Form 10-K for the year ended December 31, 1997). 10.1(f) Second Amended and Restated Credit Agreement, dated as of September 15, 1998, by and among Hexcel and certain of its subsidiaries as borrowers, the lenders from time to time parties thereto, Citibank, N.A. as documentation agent, and Credit Suisse First Boston as lead arranger and as administrative agent for the lenders (incorporated herein by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.1(g) First Amendment dated as of December 31, 1998 to the Second Amended and Restated Credit Agreement by and among Hexcel Corporation and the Foreign Borrowers from time to time party thereto, the banks and other financial institutions from time to time parties thereto, Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent.
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.1(h) Consent Letter dated as of January 15, 1999 relating to the First Amendment dated December 31, 1998 to the Second Amended and Restated Credit Agreement dated September 15, 1998. 10.2 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). 10.2(a) Hexcel Corporation Incentive Stock Plan as amended and restated January 30, 1997 and further amended December 10, 1997 (incorporated herein by reference to Exhibit 10.5(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.3 Hexcel Corporation 1998 Broad Based Incentive Stock Plan (incorporated herein by reference to Exhibit 4.3 of the Company's Form S-8 filed on June 19, 1998). 10.4 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). 10.5 Hexcel Corporation Management Incentive Compensation Plan (incorporated herein by reference to Annex A of the Company's Proxy Statement dated April 20, 1998, which was previously filed electronically). 10.6 Form of Employee Option Agreement (1998) (incorporated herein by reference to Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 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). 10.8 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). 10.9 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). 10.10 Form of Retainer Fee Option Agreement for Non-Employee Directors (1997) (incorporated herein by reference to Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.11 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). 10.12 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). 10.13 Form of Performance Accelerated Restricted Stock Unit Agreement (1998) (incorporated herein by reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1998). 10.14 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). 10.15 Form of Performance Accelerated Restricted Stock Unit Agreement (1996) (incorporated herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.16 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).
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.17 Form of Reload Option Agreement (1996) (incorporated herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended March 31, 1996). 10.18 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). 10.19 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). 10.20 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). 10.21 Form of Exchange Performance Accelerated Stock Option Agreement (incorporated herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.22 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). 10.23 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). 10.23(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). 10.23(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). 10.23(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). 10.23(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). 10.23(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). 10.23(f) Supplemental Executive Retirement Agreement dated as of May 20, 1998 between Hexcel and John J. Lee (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998). 10.23(g) Summary of Terms of Employment (effective as of July 15, 1998) between Hexcel and Harold E. Kinne, President and Chief Operating Officer of Hexcel (incorporated herein by reference to Exhibit 10.5 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.23(h) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and Richard Wolfe, Executive V.P. of Manufacturing of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 10.23(i) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and Jack Schwebel, Co-Chairman of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.7 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.23(j) Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and William D. Bennison, President of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) (incorporated herein by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998). 10.24 Agreement dated September 3, 1996 between Hexcel Corporation and Ira J. Krakower (incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.25 Separation and Release Agreement dated as of January 29, 1998 between Hexcel Corporation and Juergen Habermeier (incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.26 Agreement between Hexcel Corporation and Stephen C. Forsyth (incorporated herein 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). 10.27 Agreement between Hexcel Corporation and Gary L. Sandercock (incorporated herein 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). 10.28 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). 10.29 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). 10.29(a) Amendment No.1 dated as of December 29, 1998 to the Registration Rights Agreement by and between Ciba-Geigy Limited (which has since assigned the Registration Rights Agreement to Ciba Specialty Chemical Holding Inc.) and Hexcel Corporation. 10.30 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 as of October 13, 1995). 10.30(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). 10.31 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). 10.32 Lease Agreement, dated as of September 15, 1998, by and among Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel) as lessee, CSI Leasing Trust as lessor, and William J. Wade as co-trustee for CSI Leasing Trust (incorporated herein by reference to Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1998).
EXHIBIT NO. DESCRIPTION - ----------- -------------------------------------------------------------------------------------------------- 12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company. 21.1 Subsidiaries of the Company. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of Arthur Andersen LLP. 23.4 Consent of Deloitte & Touche LLP. 23.5 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5.1). 24.1 Powers of attorney (included on signature page to the Registration Statement). 25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee, under the Indenture relating to the Exchange Notes. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5 Form of Exchange Agency Agreement.* 99.6 Guidelines for Certification of Taxpayer Identification Number of Substitute Form W-9.
- ------------------------ * To be filed by Amendment. EX-2.5(B) 2 AMEND #2 TO ASSET PURCHASE AGRMNT (12/23/98) Exhibit 2.5(B) AMENDMENT NO. 2 TO THE ASSET PURCHASE AGREEMENT This AMENDMENT NO. 2, dated as of December 23, 1998 (this "Amendment") by and between Hexcel Corporation, a Delaware corporation ("Buyer") and EQCSI Holding Corp., a Delaware corporation formerly known as Clark-Schwebel, Inc. ("CS Inc."), amends the Asset Purchase Agreement dated as of July 25, 1998, as amended by Amendment No. 1 thereto dated as of September 14, 1998 (as amended, the "Asset Purchase Agreement") by and among Stamford CS Acquisition Corp., a Delaware corporation ("Stamford"), Buyer, Clark-Schwebel Holdings, Inc., a Delaware corporation ("CSH") and CS Inc. RECITALS WHEREAS, Stamford was merged with and into CSH and CSH was merged with and into CS Inc.; WHEREAS, CS Inc. and Buyer are currently the remaining parties to the Asset Purchase Agreement (although certain paragraphs herein continue to refer to the original parties to the Asset Purchase Agreement for convenience of reference); and WHEREAS, the parties hereto wish to amend the Asset Purchase Agreement as herein provided. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. Capitalized terms which are used but not defined herein shall have the meaning ascribed to such terms in the Asset Purchase Agreement. 2. AMENDMENTS TO ASSET PURCHASE AGREEMENT (A) Section 1.2(d) of the Asset Purchase Agreement is hereby amended by deleting Section 1.2(d) in its entirety and replacing such section with the following: 1 "(d) $30,000,000 less the Interglas Pre-Payment less the amount of any premium paid to Credit Suisse First Boston or any of its affiliates in connection with the Current Cap Agreement (except to the extent that any amount in respect of the termination of the Current Cap Agreement was previously remitted to Buyer pursuant to Section 4.21 hereof), plus the CS International Expenses, if any (as defined in Section 4.22(b)) (the "Deferred Purchase Price"), payable to CS Inc. at the Deferred Closing, by wire transfer, to such bank account as shall be designated by CS Inc. at least two business days prior to the Deferred Closing;" (B) Section 4.21 of the Asset Purchase Agreement is hereby amended by deleting Section 4.21 in its entirety and replacing such section with the following: "Section 4.21. CAP AGREEMENT EARLY TERMINATION PAYMENTS. CSH and CS Inc. agree to remit to Buyer, immediately upon receipt thereof, any and all early termination payments paid in connection with the Current Cap Agreement and the Forward Cap Agreement; provided that Buyer shall not be entitled to the remittance of such early termination payments after the Deferred Closing to the extent that the Deferred Purchase Price was reduced pursuant to Section 1.2(d) to take into account the Current Cap Agreement and the Forward Cap Agreement. CSH and CS Inc. agree to take all necessary action to cause the Trust to distribute to CS Inc. pursuant to Section 5.3 of the Trust Agreement any and all early termination payments paid in connection with the Current Cap Agreement and the Forward Cap Agreement." (C) Article X of the Asset Purchase Agreement is hereby amended by deleting the definition of "Cap Agreement" appearing therein and replacing it with the following: "'CAP AGREEMENT' means either or both of, as the context may require, (i) the interest rate cap agreement which is entered into under the Master Agreement, dated as of the date hereof, between the Lessor and Credit Suisse Financial Products and which has an effective date of September 15, 1998 (the "Current Cap Agreement"), and (ii) the 2 interest rate cap agreement which is entered into under such Master Agreement and which has an effective date of September 30, 2001 (the "Forward Cap Agreement")." (D) Article X of the Asset Purchase Agreement is hereby further amended by deleting the definition of "Cap Refund" appearing therein. 3. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. 4. COUNTERPARTS. This Amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same Amendment. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Amendment as of the date first above written. EQCSI HOLDING CORP., formerly known as CLARK-SCHWEBEL, INC. By: /S/ KENNETH GREENBERG -------------------------------- Name: Kenneth Greenberg Title: President HEXCEL CORPORATION By: /S/ IRA J. KRAKOWER -------------------------------- Name: Ira J. Krakower Title: Secretary 3 EX-4.1 3 EXHIBIT 4.1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- HEXCEL CORPORATION Issuer 9-3/4% Senior Subordinated Notes Due 2009 -------------------- INDENTURE Dated as of January 21, 1999 --------------------- The Bank of New York Trustee - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CROSS-REFERENCE TABLE
TIA Indenture SECTION Section 310(a)(1) .............................. 7.10 (a)(2) .............................. 7.10 (a)(3) .............................. N.A. (a)(4) .............................. N.A. (b) .............................. 7.08; 7.10 (c) .............................. N.A. 311(a) .............................. 7.11 (b) .............................. 7.11 (c) .............................. N.A. 312(a) .............................. 2.05 (b) .............................. 11.03 (c) .............................. 11.03 313(a) .............................. 7.06 (b)(1) .............................. N.A. (b)(2) .............................. 7.06 (c) .............................. 11.02 (d) .............................. 7.06 314(a) .............................. 4.02; 4.11; 11.02 (b) .............................. N.A. (c)(1) .............................. 11.04 (c)(2) .............................. 11.04 (c)(3) .............................. N.A. (d) .............................. N.A. (e) .............................. 11.05 (f) .............................. 4.10 315(a) .............................. 7.01 (b) .............................. 7.05; 11.02 (c) .............................. 7.01 (d) .............................. 7.01 (e) .............................. 6.11 316(a)(last sentence) ............................... 11.06 (a)(1)(A) .............................. 6.05 (a)(1)(B) .............................. 6.04 (a)(2) .............................. N.A. (b) .............................. 6.07 317(a)(1) .............................. 6.08 (a)(2) .............................. 6.09 (b) .............................. 2.04 318(a) .............................. 11.01
N.A. means Not Applicable. - ----------------------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions...................................................... 1 SECTION 1.02. Other Definitions................................................ 29 SECTION 1.03. Incorporation by Reference of Trust Indenture Act........................................... 30 SECTION 1.04. Rules of Construction............................................ 30 ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating.................................................. 31 SECTION 2.02. Execution and Authentication..................................... 31 SECTION 2.03. Registrar and Paying Agent....................................... 32 SECTION 2.04. Paying Agent To Hold Money in Trust...................................................... 33 SECTION 2.05. Securityholder Lists............................................. 33 SECTION 2.06. Transfer and Exchange............................................ 33 SECTION 2.07. Replacement Securities........................................... 34 SECTION 2.08. Outstanding Securities........................................... 35 SECTION 2.09. Temporary Securities............................................. 35 SECTION 2.10. Cancellation..................................................... 35 SECTION 2.11. Defaulted Interest............................................... 36 SECTION 2.12. CUSIP Numbers.................................................... 36 SECTION 2.13. Issuance of Additional Securities................................ 36 ARTICLE 3 REDEMPTION SECTION 3.01. Notices to Trustee............................................... 37 SECTION 3.02. Selection of Securities To Be Redeemed...................................................... 37 SECTION 3.03. Notice of Redemption............................................. 38 SECTION 3.04. Effect of Notice of Redemption................................... 39
Page SECTION 3.05. Deposit of Redemption Price...................................... 39 SECTION 3.06. Securities Redeemed in Part...................................... 39 ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities............................................ 39 SECTION 4.02. SEC Reports...................................................... 40 SECTION 4.03. Limitation on Indebtedness....................................... 40 SECTION 4.04. Limitation on Restricted Payments................................ 43 SECTION 4.05. Limitation on Restrictions on Distributions from Restricted Subsidiaries.................................................. 47 SECTION 4.06. Limitation on Asset Dispositions................................. 48 SECTION 4.07. Limitation on Affiliate Transactions.................................................. 52 SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries.................................................. 53 SECTION 4.09. Change of Control................................................ 54 SECTION 4.10. Limitation on Business Activities................................ 56 SECTION 4.11. Compliance Certificate........................................... 56 SECTION 4.12. Further Instruments and Acts..................................... 56 ARTICLE 5 SUCCESSOR COMPANY SECTION 5.01. When Company May Merge or Transfer Assets........................................................ 57 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default................................................ 58 SECTION 6.02. Acceleration..................................................... 60
PAGE SECTION 6.03. Other Remedies................................................... 61 SECTION 6.04. Waiver of Past Defaults.......................................... 61 SECTION 6.05. Control by Majority.............................................. 61 SECTION 6.06. Limitation on Suits.............................................. 61 SECTION 6.07. Rights of Holders To Receive Payment....................................................... 62 SECTION 6.08. Collection Suit by Trustee....................................... 62 SECTION 6.09. Trustee May File Proofs of Claim................................. 62 SECTION 6.10. Priorities....................................................... 63 SECTION 6.11. Undertaking for Costs............................................ 63 SECTION 6.12. Waiver of Stay or Extension Laws................................. 64 ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee................................................ 64 SECTION 7.02. Rights of Trustee................................................ 65 SECTION 7.03. Individual Rights of Trustee..................................... 66 SECTION 7.04. Trustee's Disclaimer............................................. 66 SECTION 7.05. Notice of Defaults............................................... 67 SECTION 7.06. Reports by Trustee to Holders.................................... 67 SECTION 7.07. Compensation and Indemnity....................................... 67 SECTION 7.08. Replacement of Trustee........................................... 68 SECTION 7.09. Successor Trustee by Merger...................................... 69 SECTION 7.10. Eligibility; Disqualification.................................... 70 SECTION 7.11. Preferential Collection of Claims Against Company............................................... 70 ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Discharge of Liability on Securities; Defeasance........................................ 70 SECTION 8.02. Conditions to Defeasance......................................... 71 SECTION 8.03. Application of Trust Money....................................... 73
PAGE SECTION 8.04. Repayment to Company............................................. 73 SECTION 8.05. Indemnity for Government Obligations................................................... 73 SECTION 8.06. Reinstatement.................................................... 73 ARTICLE 9 AMENDMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders....................................... 74 SECTION 9.02. With Consent of Holders.......................................... 75 SECTION 9.03. Compliance with Trust Indenture Act............................................................ 76 SECTION 9.04. Revocation and Effect of Consents and Waivers................................................... 76 SECTION 9.05. Notation on or Exchange of Securities.................................................... 76 SECTION 9.06. Trustee To Sign Amendments....................................... 77 SECTION 9.07. Payment for Consent.............................................. 77 ARTICLE 10 SUBORDINATION SECTION 10.01. Agreement To Subordinate......................................... 77 SECTION 10.02. Liquidation, Dissolution, Bankruptcy.................................................... 77 SECTION 10.03. Default on Senior Indebtedness................................... 78 SECTION 10.04. Acceleration of Payment of Securities.................................................... 79 SECTION 10.05. When Distribution Must Be Paid Over.......................................................... 79 SECTION 10.06. Subrogation...................................................... 80 SECTION 10.07. Relative Rights.................................................. 80 SECTION 10.08. Subordination May Not Be Impaired by Company.................................................... 80 SECTION 10.09. Rights of Trustee and Paying Agent......................................................... 80
PAGE SECTION 10.10. Distribution or Notice to Representative................................................ 81 SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit Right To Accelerate.................................................... 81 SECTION 10.12. Trust Moneys Not Subordinated.................................... 81 SECTION 10.13. Trustee Entitled To Rely......................................... 81 SECTION 10.14. Trustee To Effectuate Subordination................................................. 82 SECTION 10.15. Trustee Not Fiduciary for Holders of Senior Indebtedness........................................ 82 SECTION 10.16. Reliance by Holders of Senior Indebtedness on Subordination Provisions.................................................... 82 ARTICLE 11 MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls..................................... 83 SECTION 11.02. Notices.......................................................... 83 SECTION 11.03. Communication by Holders with Other Holders................................................. 84 SECTION 11.04. Certificate and Opinion as to Conditions Precedent.......................................... 84 SECTION 11.05. Statements Required in Certificate or Opinion........................................ 84 SECTION 11.06. When Securities Disregarded...................................... 85 SECTION 11.07. Rules by Trustee, Paying Agent and Registrar................................................. 85 SECTION 11.08. Legal Holidays................................................... 85 SECTION 11.09. Governing Law.................................................... 85 SECTION 11.10. No Recourse Against Others....................................... 85 SECTION 11.11. Successors....................................................... 86 SECTION 11.12. Multiple Originals............................................... 86 SECTION 11.13. Table of Contents; Headings...................................... 86
Exhibit A - Form of Security INDENTURE dated as of January 21, 1999, between HEXCEL CORPORATION, a Delaware corporation (the "Company"), and The Bank of New York, a New York banking corporation (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's Initial Securities, Exchange Securities and Private Exchange Securities (collectively, the "Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "Additional Assets" means (1) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company, a Restricted Subsidiary or a Joint Venture; (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (3) the Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary or a Joint Venture; PROVIDED, HOWEVER, that any such Restricted Subsidiary described in clauses (2) or (3) above is primarily engaged in a Related Business. "Additional Securities" means, subject to the Company's compliance with Section 4.03, 9-3/4% Senior Subordinated Notes Due 2009 issued from time to time after the Issue Date under the terms of this Indenture (other than pursuant to Section 2.06, 2.07, 2.09 or 3.06 of this Indenture and other than Exchange Securities or Private Exchange Securities issued pursuant to an exchange offer for other Securities outstanding under this Indenture). "Affiliate" of any specified Person means (1) any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person; or (2) any other Person who is a director or officer (A) of such specified Person, (B) of any Subsidiary of such Person or (C) of any Person described in clause (1). For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 4.07 and 4.08 only, "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Capital Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof. "Asahi-Schwebel" means Asahi-Schwebel Co., Ltd., a Japanese corporation and joint venture in which a subsidiary of Hexcel owns a 43.3% equity interest. "Asahi-Schwebel (Taiwan)" means Asahi-Schwebel (Taiwan) Co., Ltd., a joint venture between Asahi-Schwebel and AlliedSignal. "Asahi-Schwebel Interglas (Philippines)" means Asahi-Schwebel Interglas Corporation (Philippines), a proposed joint venture between Asahi-Schwebel and CS Interglas. "Asian Composite Manufacturing" means Asian Composite Manufacturing Sdn. Bhd., a proposed joint venture among the Company, The Boeing Company, Sime Darby Berhad and Malaysia Helicopter Services. "Asset Disposition" means any direct or indirect sale, lease, transfer, conveyance or other disposition (or series of related sales, leases, transfers, conveyances or dispositions) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any Restricted Subsidiary (including any disposition by means of a merger, consolidation or similar transaction) involving an amount in excess of $3.0 million other than (1) a disposition by a Restricted Subsidiary to the Company, by the Company or a Restricted Subsidiary to a Restricted Subsidiary or between Restricted Subsidiaries; (2) a disposition of property or assets at fair market value in the ordinary course of business and consistent with past practices of the Company or any of its Restricted Subsidiaries, as applicable (including sales of products to customers, disposition of excess inventory and dispositions of used or replaced equipment); (3) the disposition or grant of licenses to third parties in respect of intellectual property; (4) a sale or disposition of assets for the purpose of forming any Joint Venture, in exchange for an interest in such Joint Venture; (5) the sale of Specified Properties; (6) a disposition by the Company or any Subsidiary of assets within 24 months after such assets were directly or indirectly acquired as part of an acquisition of other properties or assets (including Capital Stock) (the "Primary Acquisition"), if the assets being disposed of are "non-core" assets (as determined in good faith by a majority of the Board of Directors) or are required to be disposed of pursuant to any law, rule or regulation or any order of or settlement with any court or governmental authority, and the proceeds therefrom are used within 18 months after the date of sale to repay any Indebtedness Incurred in connection with the Primary Acquisition of such assets; (7) for purposes Section 4.06 only, a disposition that constitutes a Restricted Payment permitted under Section 4.04; or (8) an Asset Disposition that also constitutes a Change of Control; PROVIDED, HOWEVER, that the Company complies with all its obligations under Section 4.09. "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (x) the sum of the products of the numbers of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or scheduled redemption multiplied by the amount of such payment by (y) the sum of all such payments. "Banks" has the meaning specified in the Credit Agreement. "Bank Indebtedness" means any and all Indebtedness and other amounts payable under or in respect of the Credit Agreement including principal, premium (if any), interest (including interest accruing at the contract rate specified in the Credit Agreement (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to the Company and interest that would accrue but for the commencement of such proceeding whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "BHA Aero Composite Parts" means BHA Aero Composite Parts Co., Ltd., a proposed joint venture among Hexcel, The Boeing Company and Aviation Industries of China. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means a duly adopted resolution of the Board of Directors in full force and effect at the time of determination and certified as such by the Secretary or an Assistant Secretary of the Company. "Business Day" means each day which is not a Legal Holiday. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (including partnership interests) in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligation" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP. The amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP. The Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Change of Control" means the occurrence of any of the following events: (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (1), such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether or not such right is exercisable immediately), directly or indirectly, of more than 40% of the total voting power of the Voting Stock of the Company; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the total voting power of the Voting Stock of the Company than such other person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors; (2) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders 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; or (3) the merger or consolidation of the Company with or into another Person (other than a Permitted Holder) or the merger of another Person (other than a Permitted Holder) with or into the Company, or the sale of all or substantially all the assets of the Company to another Person (other than a Person controlled by the Permitted Holders), and, in the case of any such merger or consolidation, the securities of the Company that are outstanding immediately prior to such transaction and that represent 100% of the aggregate voting power of the Voting Stock of the Company are changed into or exchanged for cash, securities or property, unless pursuant to such transaction such securities are changed into or exchanged for, in addition to any other consideration, securities of the surviving Person that represent, immediately after such transaction, at least a majority of the aggregate voting power of the Voting Stock of the surviving Person or transferee; PROVIDED, HOWEVER, that if the event described in (1) above occurs as a result of a transfer of Voting Stock by the Permitted Holders in a single transaction or a series of related transactions (a "Change of Control Event"), a Change of Control shall be deemed not to occur unless and until the publicly announced rating of the Securities by either Rating Agency shall, on or within 90 days after the date of the occurrence of such Change of Control Event (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by either Rating Agency), be less than the rating of the Securities by such Rating Agency on the date (the "Rating Date") which is 90 days before the date of the occurrence of such Change of Control Event; PROVIDED FURTHER, HOWEVER, that, if on the Rating Date the Securities have an Investment Grade Rating by both Rating Agencies, a Change of Control shall be deemed not to occur following a Change of Control Event unless and until the publicly announced rating of the Securities by either Rating Agency shall, on or within 90 days after the date of the occurrence of such Change of Control Event (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by either Rating Agency), be less than an Investment Grade Rating. "Clark-Schwebel Acquisition" means the acquisition by the Company of the industrial fabrics business of Clark- Schwebel Inc. and its subsidiaries on September 15, 1998. "Code" means the Internal Revenue Code of 1986, as amended. "Company" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor and, for purposes of any provision contained herein and required by the TIA, each other obligor on the indenture securities. "Consolidated Coverage Ratio" as of any date of determination means the ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED, HOWEVER, that: (1) if the Company or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to (a) such Indebtedness as if such Indebtedness had been Incurred on the first day of such period and (b) the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period; (2) if the Company or any Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of such period or if any Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in each case other than Indebtedness Incurred under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) on the date of the transaction giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall be calculated on a pro forma basis as if such discharge had occurred on the first day of such period and as if the Company or such Restricted Subsidiary has not earned the interest income actually earned during such period in respect of cash or Temporary Cash Investments used to repay, repurchase, defease or otherwise discharge such Indebtedness; (3) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale); (4) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period; and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition, any Investment or acquisition of assets requiring an adjustment pursuant to clause (3) or (4) above if made by the Company or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting Officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Protection Agreement applicable to such Indebtedness if such Interest Rate Protection Agreement has a remaining term as of the date of determination in excess of 12 months). "Consolidated Interest Expense" means, for any period, the sum of, without duplication: (a) total interest expense of the Company and its consolidated Restricted Subsidiaries for such period, including, to the extent not otherwise included in such interest expense, and to the extent Incurred by the Company or its Restricted Subsidiaries in such period, without duplication, (1) interest expense attributable to capital leases; (2) amortization of debt discount and debt issuance cost; (3) amortization of capitalized interest; (4) non-cash interest expense; (5) accrued interest; (6) amortization of commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (7) interest actually paid by the Company or any such Restricted Subsidiary under any Guarantee of Indebtedness of any other Person; (8) net payments, if any, made pursuant to Interest Rate Protection Agreements (including amortization of fees); (b) Preferred Stock dividends paid during such period in respect of all Preferred Stock of Restricted Subsidiaries of the Company held by Persons other than the Company; and (c) cash contributions made during such period to any employee stock ownership plan or other trust for the benefit of employees to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust to purchase Capital Stock of the Company. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (1) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (3) below) and (B) the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (2) any net income (loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (3) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (4) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company, its consolidated Subsidiaries or any other Person which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (5) any extraordinary gain or loss; (6) the cumulative effect of a change in accounting principles; and (7) any non-cash business consolidation and acquisition charges recognized with respect to the Clark-Schwebel Acquisition (except to the extent such non-cash charges represent an accrual of or a reserve for cash expenditures in any future period). Notwithstanding the foregoing, for the purposes of Section 4.04 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such Section pursuant to clause (a)(3)(D) thereof. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its consolidated Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made, as the sum of (1) the par or stated value of all outstanding Capital Stock of the Company PLUS (2) paid-in capital or capital surplus relating to such Capital Stock PLUS (3) any retained earnings or earned surplus LESS (4) any accumulated deficit LESS (5) any amounts attributable to Disqualified Stock. "Credit Agreement" means (1) one or more credit agreements, loan agreements or similar agreements providing for working capital advances, term loans, letter of credit facilities or similar advances, loan or facilities to the Company, any Restricted Subsidiary, domestic or foreign, or any or all of such Persons, including the Second Amended and Restated Credit Agreement in effect on the Issue Date, among the Company and certain subsidiaries of the Company, as borrowers, the lenders party thereto and Credit Suisse First Boston as administrative agent for the lenders, Citibank, N.A., as documentation agent for the Lenders, as the same may be amended, modified, restated or supplemented from time to time, or any other indebtedness referred to in Section 4.03(b)(1) and (2) any one or more agreements governing advances, loans or facilities provided to refund, refinance, replace or renew (including subsequent or successive refundings, financings, replacements and renewals) Indebtedness under the agreement or agreements referred to in the foregoing clause (1), as the same may be amended, modified, restated or supplemented from time to time. "CS Interglas" means CS Interglas AG, a German stock corporation in which a subsidiary of the Company owns a 43.6% equity interest. "CS Tech-Fab" means CS Tech-Fab Company, a New York general partnership and joint venture in which a subsidiary of the Company owns a 50% partnership interest. "Currency Exchange Protection Agreement" means in respect of any Person, any foreign exchange contract, currency swap agreement, currency option or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness" means (1) the Bank Indebtedness and (2) any other Senior Indebtedness (other than Hedging Obligations) which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25.0 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture in an Officers' Certificate received by the Trustee. "DIC" means the joint venture entered into between the Company and Dainippon Ink & Chemicals, Inc. ("Dainippon"), pursuant to that certain Parent Company Agreement dated as of April 17, 1990, 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, 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. "Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event (1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (2) is convertible or exchangeable at the option of the holder for Indebtedness or Disqualified Stock or (3) is mandatorily redeemable or must be purchased, upon the occurrence of certain events or otherwise, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Securities; PROVIDED, HOWEVER, that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the first anniversary of the Stated Maturity of the Securities shall not constitute Disqualified Stock if (1) the "asset sale" or "Change of Control" provisions applicable to such Capital Stock are not more favorable to the holders of such Capital Stock than the terms applicable to the Securities and under Sections 4.06 and 4.09 and (2) any such requirement only becomes operative after compliance with such terms applicable to the Securities, including the purchase of any Securities tendered pursuant thereto. "EBITDA" for any period means the sum of Consolidated Net Income, plus, without duplication, the following to the extent deducted in calculating such Consolidated Net Income: (1) all income tax expense of the Company and its consolidated Restricted Subsidiaries for such period, (2) Consolidated Interest Expense for such period, (3) depreciation expense and amortization expense of the Company and its consolidated Restricted Subsidiaries for such period (excluding amortization expense attributable to a prepaid cash item that was paid in a prior period), (4) all other non-cash items of the Company and its consolidated Restricted Subsidiaries for such period (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenditures in any future period) reducing Consolidated Net Income LESS all non-cash items increasing Consolidated Net Income for such period; and (5) business consolidation and acquisition charges recognized for such period to the extent recognized during or prior to the fiscal year ended December 31, 2000; PROVIDED, HOWEVER, that the aggregate amount of the charges described in this clause (5) through the end of such fiscal year shall not exceed $25.0 million. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to such Restricted Subsidiary or its stockholders. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Joint Ventures" means (1) AsahiSchwebel, (2) Asahi-Schwebel (Taiwan), (3) Asahi-Schwebel Interglas (Philippines), (4) CS Tech-Fab, (5) CS Interglas, (6) Asian Composite Manufacturing, (7) BHA Aero Composite Parts and (8) DIC. "Foreign Subsidiary" means a Subsidiary that is incorporated in a jurisdiction other than, and the majority of the assets of which are located outside of, the United States, a State thereof and the District of Columbia. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Issue Date set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. "Governance Agreement" means the Governance Agreement dated as of February 29, 1996, between Ciba Specialty Chemicals Holding, Inc. and the Company. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (2) entered into for the purpose of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include (1) endorsements for collection or deposit in the ordinary course of business or (2) obligations, warranties and indemnities, not with respect to Indebtedness of any Person, that have been or are undertaken or made in the ordinary course of business or in connection with any Asset Disposition permitted under Section 4.06 and not for the benefit of or in favor of an Affiliate of the Company or any of its Subsidiaries. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Protection Agreement or Currency Exchange Protection Agreement or other similar agreement or arrangement involving interest rates, currencies, commodities or otherwise. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary; PROVIDED, FURTHER, that any amendment, modification or waiver of any provision of any document pursuant to which Indebtedness was previously Incurred shall not be deemed to be an Incurrence of Indebtedness as long as such amendment, modification or waiver does not (1) increase the principal or premium thereof or interest rate thereon; (2) change to an earlier date the Stated Maturity thereof or the date of any scheduled or required principal payment thereon or the time or circumstances under which such Indebtedness may or shall be redeemed; or (3) if such Indebtedness is contractually subordinated in right of payment to the Securities, modify or affect, in any manner adverse to the holders, such subordination. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall not be deemed the Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person on any date of determination (without duplication): (1) the principal of and premium (if any such premium is then due and owing) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (2) all Capitalized Lease Obligations of such Person; (3) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (4) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in clauses (1) through (3) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (5) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock of such Person or, with respect to any Subsidiary of such Person, the liquidation preference with respect to any Preferred Stock (but excluding, in each case, any accrued dividends); (6) all obligations of the type referred to in clauses (1) through (5) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee; (7) all obligations of the type referred to in clauses (1) through (6) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (8) to the extent not otherwise included in this definition, Hedging Obligations of such Person. For purposes of this definition, the obligation of such Person with respect to the redemption, repayment or repurchase price of any Disqualified Stock that does not have a fixed redemption, repayment or repurchase price shall be calculated in accordance with the terms of such Stock as if such Stock were redeemed, repaid or repurchased on any date on which Indebtedness is required to be determined pursuant to this Indenture; PROVIDED, HOWEVER, that if such Stock is not then permitted to be redeemed, repaid or repurchased, the redemption, repayment or repurchase price shall be the book value of such Stock as reflected in the most recent financial statements of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the amount of liability required by GAAP to be accrued or reflected on the most recently published balance sheet of such Person; PROVIDED, HOWEVER, that (1) the amount outstanding at any time of any Indebtedness issued with original issue discount shall be the face amount of such indebtedness LESS the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (2) Indebtedness shall not include any liability for Federal, state, local or other taxes. "Indenture" means this Indenture as amended or supplemented from time to time. "Interest Rate Protection Agreement" means, in respect of any Person, any interest rate swap agreement, interest rate option agreement, interest rate cap agreement, interest rate collar agreement, interest rate floor agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in interest rates. "Investment" by any Person in any other Person means any direct or indirect advance, loan (other than advances to customers or suppliers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such former Person) or other extensions of credit (including by way of Guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such latter Person that are or would be classified as investments on a balance sheet of such former Person prepared in accordance with GAAP. In determining the amount of any Investment in respect of any property or assets other than cash, such property or asset shall be valued at its fair market value at the time of such Investment (unless otherwise specified in this definition), as determined in good faith by the Board of Directors. For purposes of the definition of "Unrestricted Subsidiary," the definition of "Restricted Payment" and Section 4.04, (1) "Investment" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation LESS (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Investment Grade Rating" means a rating of BBB- or higher by Standard & Poor's Ratings Group, Inc. and Baa3 or higher by Moody's Investors Service, Inc. or the equivalent of such ratings by Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or by any other Rating Agency selected as provided in the definition of Rating Agency. "Issue Date" means January 21, 1999. "Joint Venture" means the Existing Joint Ventures, and any other joint venture, partnership or other similar arrangement whether in corporate, partnership or other legal form which is formed by the Company or any Restricted Subsidiary and one or more Persons which own, operate or service a Related Business. "Joint Venture Subsidiary" means a Restricted Subsidiary formed by the Company or any Restricted Subsidiary and one or more Persons which own, operate or service a Related Business. "Lenders" has the meaning specified in the Credit Agreement. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Net Available Cash" from an Asset Disposition means the aggregate amount of cash received in respect of an Asset Disposition (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of: (1) all legal, accounting, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP as a consequence of such Asset Disposition; (2) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition; (3) all distributions and other payments required to be made to minority interest holders in Restricted Subsidiaries or Joint Ventures as a result of such Asset Disposition; (4) any amount of cash required to be placed in escrow by one or more parties to a transaction relating to contingent liabilities associated with an Asset Disposition until such cash is released to the Company or a Restricted Subsidiary; and (5) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition, including pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Dispositions, all as determined in conformity with GAAP, retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, printing costs, underwriters' or placement agents' fees, discounts or commissions and brokerage, stock exchange listing fees, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President, an Executive Vice President, a Senior Vice President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company and delivered to the Trustee. "Opinion of Counsel" means a written opinion of legal counsel acceptable to the Trustee. The counsel may be an employee of or counsel for the Company. "Permitted Holders" means (1) Ciba Specialty Chemicals Holding Inc. and its Affiliates; (2) any Person succeeding to the business of Ciba Specialty Chemicals Holding Inc., including pursuant to any merger or combination of one or more businesses that includes the business of Ciba Specialty Chemicals Holding Inc.; and (3) any Affiliate of any Person described in clause (2). "Permitted Investment" means an Investment: (1) in the Company or a Restricted Subsidiary or a Person which shall, upon the making of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Related Business; (2) in another Person, if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such Person's primary business is a Related Business; (3) in Temporary Cash Investments; (4) in receivables owing to the Company or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that such trade terms may include such concessionary trade terms as the Company or any such Restricted Subsidiary deems reasonable under the circumstances; (5) in loans or advances to officers, directors or employees of the Company or any of its Subsidiaries for travel, transportation, entertainment, and moving and other relocation expenses and other business expenses that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (6) in loans or advances to employees made in the ordinary course of business consistent with past practices of the Company or such Subsidiary, as the case may be; (7) in stock, obligations or securities received (A) in settlement of debts created in the ordinary course of business and owing to the Company or any Subsidiary; (B) in satisfaction of judgments; or (C) as consideration in connection with an Asset Disposition permitted under Section 4.06; and (8) deemed to have been made as a result of the acquisition of a Person that at the time of such acquisition held instruments constituting Investments that were not acquired in contemplation of the acquisition of such Person. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Plans" means any employee benefit plan, retirement plan, deferred compensation plan, restricted stock plan, health, life, disability or other insurance plan or program, employee stock purchase plan, employee stock ownership plan, pension plan, stock option plan or similar plan or arrangement of the Company or any Subsidiary, or any successor thereof and "Plan" shall have a correlative meaning. "Preferred Stock", as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or, as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Public Equity Offering" means an underwritten primary public offering of common stock of the Company pursuant to an effective registration statement under the Securities Act. "Public Market" means any time after (x) a Public Equity Offering has been consummated and (y) at least 15% of the total issued and outstanding common stock of the Company has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 under the Securities Act. "Qualified Preferred Stock" of a Restricted Subsidiary means a series of Preferred Stock of such Restricted Subsidiary which (1) has a fixed liquidation preference that is no greater in the aggregate than the sum of (x) the fair market value (as determined in good faith by the Board of Directors at the time of the issuance of such series of Preferred Stock) of the consideration received by such Restricted Subsidiary for the issuance of such series of Preferred Stock and (y) accrued and unpaid dividends to the date of liquidation, (2) has a fixed annual dividend and has no right to share in any dividend or other distributions based on the financial or other similar performance of such Restricted Subsidiary and (3) does not entitle the holders thereof to vote in the election of directors, managers or trustees of such Restricted Subsidiary unless such Restricted Subsidiary has failed to pay dividends on such series of Preferred Stock for a period of at least 12 consecutive calendar months. "Rating Agency" means Standard & Poor's Ratings Group, Inc. and Moody's Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both shall not make a rating on the Securities publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Company (as certified by a resolution of the Board of Directors) which shall be substituted for Standard & Poor's Ratings Group, Inc. or Moody's Investors Service, Inc. or both, as the case may be. "Refinancing Indebtedness" means Indebtedness that refunds, refinances, replaces, renews, repays or extends (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" and "refinancing" shall each have a correlative meaning) any Indebtedness or Incurred in compliance with this Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary), including Indebtedness that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that: (1) such Refinancing Indebtedness has a Stated Maturity no earlier than any Stated Maturity of the Indebtedness being refinanced; (2) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced; and (3) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) either the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) of the Indebtedness being refinanced (including, with respect to both the Refinancing Indebtedness and the Indebtedness being refinanced, amounts then outstanding and amounts available thereunder) or, if the Indebtedness being refinanced is the Capitalized Lease Obligation entered into on or about September 15, 1998, the aggregate purchase price of the property subject thereto, PLUS (y) unpaid interest, prepayment penalties, redemption premiums, defeasance costs, fees, expenses and other amounts owing with respect thereto, PLUS reasonable financing fees and other reasonable out-of-pocket expenses incurred in connection therewith; PROVIDED, FURTHER, HOWEVER, that Refinancing Indebtedness shall not include Indebtedness of a Subsidiary that refinances Indebtedness of the Company. "Related Business" means any business conducted by the Company and its Restricted Subsidiaries on the Issue Date and any business related, ancillary or complementary to the businesses of the Company and the Restricted Subsidiaries on the Issue Date. "Representative" means the trustee, agent or other representative (if any) for an issue of Senior Indebtedness. "Restricted Payment" with respect to any Person means: (1) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) or similar payment to the direct or indirect holders of its Capital Stock (other than dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and dividends or distributions payable solely to the Company or a Restricted Subsidiary, and other than pro rata dividends or other distributions made by a Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or owners of an equivalent interest in the case of a Subsidiary that is an entity other than a corporation)); (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company (other than a Restricted Subsidiary), including the exercise of any option to exchange any Capital Stock (other than into Capital Stock of the Company that is not Disqualified Stock); (3) the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Subordinated Obligations (other than the purchase, repurchase, or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); or (4) the making of any Investment (other than a Permitted Investment) in any Person. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities" means the Securities issued under this Indenture. "Securities Act" means the Securities Act of 1933. "Senior Indebtedness" means (1) all Bank Indebtedness and (2) all other Indebtedness of the Company including interest (including interest accruing at the contract rate specified in the Credit Agreement or the documentation governing such other Indebtedness, as applicable (including any rate applicable upon default) on or after the filing of any petition in bankruptcy, or the commencement of any similar state, federal or foreign reorganization or liquidation proceeding, relating to the Company, whether or not allowed as a claim against the Company in any such proceeding) and fees thereon, whether outstanding on the Issue Date or thereafter issued or Incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the Securities; PROVIDED, HOWEVER, that Senior Indebtedness shall not include (1) any liability for Federal, state, local or other taxes owed or owing by the Company, (2) any accounts payable or other liabilities to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities), (3) any Indebtedness, Guarantee or obligation of the Company which is subordinate or junior in any respect to any other Indebtedness, Guarantee or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations, and (4) any obligations with respect to any Capital Stock. "Senior Subordinated Indebtedness" means the Securities, the senior subordinated notes payable to Ciba Specialty Chemicals Inc. issued pursuant to the indenture dated February 29, 1996, between the Company and First Trust of California, N.A., as Trustee, as amended and supplemented, and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank PARI PASSU with the Securities in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Significant Subsidiary" means a Restricted Subsidiary of that is a "significant subsidiary" as defined in Rule 1-02 under Regulation S-X promulgated under the Securities Act and Exchange Act. "Specified Properties" means the Company's manufacturing plants located in Lancaster, Ohio; Welkenraedt, Belgium; Brindisi, Italy; and Lodi, New Jersey; and certain real property adjacent to the Company's manufacturing plant in Livermore, California. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) that is contractually subordinated or junior in right of payment to the Securities pursuant to a written agreement, including the 7% Convertible Subordinated Notes Due 2003 and the 7% Convertible Subordinated Debentures Due 2011. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Voting Stock is at the time owned or controlled, directly or indirectly, by (1) such Person, (2) such Person and one or more Subsidiaries of such Person or (3) one or more Subsidiaries of such Person. Unless the context requires otherwise, "Subsidiary" shall refer to a Subsidiary of the Company. "Temporary Cash Investments" means any of the following: (1) investments in U.S. Government Obligations; (2) investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $50.0 million (or the foreign currency equivalent thereof) and whose long-term debt is rated "A-" (or such similar equivalent rating) or higher by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act); (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank meeting the qualifications described in clause (2) above; (4) investments in commercial paper, maturing not more than 90 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group; and (5) investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the Issue Date, except as provided in Section 9.03. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person's knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (1) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than Qualified Preferred Stock and director's qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02. OTHER DEFINITIONS.
Defined in Term Section ---- ---------- "Affiliate Transaction".................................................... 4.07(a) "Bankruptcy Law"........................................................... 6.01 "Blockage Notice".......................................................... 10.03 "Change of Control Offer".................................................. 4.09(b) "Consolidated Working Capital Amount"...................................... 4.03(b)(1) "covenant defeasance option"............................................... 8.01(b) "Custodian"................................................................ 6.01 "Event of Default"......................................................... 6.01 "legal defeasance option".................................................. 8.01(b) "Legal Holiday"............................................................ 11.08 "Maximum Committed Credit Agreement Amount"............................................................... 4.03(b)(1) "Notice of Default"........................................................ 6.01 "Offer".................................................................... 4.06(b) "Offer Amount"............................................................. 4.06(d)(2) "pay the Securities"....................................................... 10.03 "Paying Agent"............................................................. 2.03 "Payment Blockage Period".................................................. 10.03 "Payment Restrictions"..................................................... 4.05 "Purchase Date"............................................................ 4.06(d)(1) "Registrar"................................................................ 2.03 "Successor Company"........................................................ 5.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Securityholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater; (9) all references to the date the Securities were originally issued shall refer to the Issue Date; and (10) all references to any payment of principal, purchase prices in connection with a purchase of the Securities and interest or any other amount payable on or with respect to such Securities shall be deemed to include payment of any additional cash interest pursuant to any Registration Rights Agreement. ARTICLE 2 THE SECURITIES SECTION 2.01. FORM AND DATING. Provisions relating to the Initial Securities, the Private Exchange Securities and the Exchange Securities are set forth in the Rule 144A/Regulation S Appendix attached hereto (the "Appendix") which is hereby incorporated in and expressly made part of this Indenture. The Initial Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit 1 to the Appendix which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Private Exchange Securities and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Security shall be dated the date of its authentication. The terms of the Securities set forth in the Appendix and Exhibit A are part of the terms of this Indenture. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. On the Issue Date, the Trustee shall authenticate and deliver $240.0 million of 9-3/4% Senior Subordinated Notes Due 2009 and, at any time and from time to time thereafter, the Trustee shall authenticate and deliver Securities for original issue in an aggregate principal amount specified in such order, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of an issuance of Additional Securities pursuant to Section 2.13 after the Issue Date, shall certify that such issuance is in compliance with Section 4.03. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Securities. Unless limited by the terms of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange (the "Registrar") and an office or agency where Securities may be presented for payment (the "Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent or co-registrar not a party to this Indenture, which shall incorporate the terms of the TIA. The agreement shall implement the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent and any change in the address of such agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar, co-registrar or transfer agent. The Company initially appoints the Trustee as Registrar and Paying Agent in connection with the Securities. SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of the principal and interest on any Security, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent (other than the Trustee) to agree in writing that the Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by the Paying Agent. Upon complying with this Section, the Paying Agent shall have no further liability for the money delivered to the Trustee. SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee, in writing at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be issued in registered form and shall be transferable only upon the surrender of a Security for registration of transfer. When a Security is presented to the Registrar or a co-registrar with a request to register a transfer, the Registrar shall register the transfer as requested if the requirements of Section 8-401(1) of the Uniform Commercial Code are met. When Securities are presented to the Registrar or a co-registrar with a request to exchange them for an equal principal amount of Securities of other denominations, the Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section. The Company shall not be required to make and the Registrar need not register transfers or exchanges of Securities selected for redemption (except, in the case of Securities to be redeemed in part, the portion thereof not to be redeemed) or any Securities for a period of 15 days before the mailing of a notice of redemption of Securities to be redeemed or 15 days before an interest payment date. Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among a participant in the Depositary or beneficial owners of interests in any Global Security) other than as are expressly required by, and to do so if and when expressly required by the terms of this Indenture. SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is surrendered to the Registrar or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the requirements of Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies any other reasonable requirements of the Company and the Trustee. If required by the Trustee or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Trustee to protect the Company, the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss which any of them may suffer if a Security is replaced. The Company and the Trustee may charge the Holder for their expenses in replacing a Security. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Except as set forth in Section 11.06, a Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the entire amount of their principal and all accrued and unpaid interest on any Securities are considered paid under Section 4.01 on the date such amounts are due, such Securities shall cease to be outstanding under this Indenture and interest on such Securities shall cease to accrue from and after such date. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities and deliver them in exchange for temporary Securities. SECTION 2.10 CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel in accordance with its customary practice all Securities surrendered for registration of transfer, exchange, payment or cancellation. The Company may not issue new Securities to replace Securities it has redeemed, paid or delivered to the Trustee for cancellation. SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Securities, the Company shall pay defaulted interest (PLUS interest on such defaulted interest to the extent lawful) in any lawful manner. The Company may pay the defaulted interest to the persons who are Securityholders on a subsequent special record date. The Company shall fix or cause to be fixed any such special record date and payment date to the satisfaction of the Trustee and shall promptly mail to each Securityholder a notice within 10 days of fixing or causing to be fixed such special record date that states the special record date (which shall not be more than 20 days from the interest payment date applicable thereto), the payment date and the amount of defaulted interest to be paid. SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; PROVIDED, HOWEVER, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in CUSIP numbers. SECTION 2.13. ISSUANCE OF ADDITIONAL SECURITIES. The Company shall be entitled, subject to its compliance with Section 4.03, to issue Additional Securities under this Indenture which shall have identical terms as the Initial Securities issued on the Issue Date, other than with respect to the date of issuance, issue price and amount of interest payable on the first payment date applicable thereto. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor shall be treated as a single class for all purposes under this Indenture. With respect to any Additional Securities, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each which shall be delivered to the Trustee, the following information: (1) the aggregate principal amount of such Additional Securities to be authenticated and delivered pursuant to this Indenture; (2) the issue price, the issue date and the CUSIP number of such Additional Securities and the amount of interest payable on the first payment date applicable thereto; PROVIDED, HOWEVER, that no Additional Securities may be issued at a price that would cause such Additional Securities to have "original issue discount" within the meaning of Section 1273 of the Code; and (3) whether such Additional Securities shall be transfer restricted securities and issued in the form of Initial Securities as set forth in the Appendix to this Indenture or shall be issued in the form of Exchange Securities as set forth in Exhibit A. ARTICLE 3 REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the Trustee in writing of the redemption date, the principal amount of Securities to be redeemed and the paragraph of the Securities pursuant to which the redemption shall occur. The Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption shall comply with the conditions herein. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed at such Holder's registered address. The notice shall identify the Securities (including CUSIP numbers) to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemp tion price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; and (7) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, PLUS accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date). Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to the redemption date, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which have been delivered by the Company to the Trustee for cancellation. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal and interest then due and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 4.02. SEC REPORTS. Whether or not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide the Trustee and the Securityholders with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections. In addition, whether or not required by the SEC, the Company shall file a copy of all of the information and reports referred to above with the SEC for public availability within the time periods specified in the Commission's rules and regulations (unless the SEC does not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company also shall comply with the other provisions of TIA ss. 314(a). Delivery of such SEC reports and information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that the Company and its Restricted Subsidiaries may Incur Indebtedness if, on the date of such Incurrence and after giving effect thereto on a pro forma basis, the Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is Incurred prior to February 15, 2002 or 2.25 to 1.0 if such Indebtedness is Incurred thereafter. (b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1) Indebtedness Incurred by the Company or any Restricted Subsidiary pursuant to the Credit Agreement; PROVIDED, HOWEVER, that, after giving effect to any such Incurrence, the aggregate principal amount of such Indebtedness then outstanding does not exceed (A) the greater of (x) $680.0 million LESS the sum of all term loan principal amortization payments scheduled to be made (whether or not in fact made) through the date of such Incurrence pursuant to the Credit Agreement as in effect on the Issue Date (such amount being the "Maximum Committed Credit Agreement Amount") and (y) the sum of 50% of the book value of the consolidated inventory of the Company and its Restricted Subsidiaries and 80% of the consolidated accounts receivable of the Company and its Restricted Subsidiaries (such sum being the "Consolidated Working Capital Amount") LESS the principal amount of any Indebtedness Incurred pursuant to clause (2) below and then outstanding, LESS, without duplication, (B) the sum of all principal payments with respect to such Indebtedness made pursuant to Section 4.06(a)(3)(A); (2) Indebtedness Incurred by Foreign Subsidiaries to finance the working capital requirements of Foreign Subsidiaries; PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness, when added together with the amount of Indebtedness Incurred by all Foreign Subsidiaries pursuant to this clause (2) and then outstanding, does not exceed the lesser of (A) the sum of 50% of the book value of the consolidated inventories of all Foreign Subsidiaries and 80% of the consolidated accounts receivable of all Foreign Subsidiaries and (B) the amount by which the greater of (x) the Consolidated Working Capital Amount and (y) the Maximum Committed Credit Agreement Amount exceeds the principal amount of Indebtedness Incurred pursuant to clause (1) above and then outstanding; (3) Indebtedness owed to and held by the Company or any Wholly Owned Subsidiary; PROVIDED, HOWEVER, that (A) any subsequent issuance or transfer of any Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness and (B) if the Company is the obligor on such Indebtedness, the payment of such Indebtedness is expressly subordinate to the prior payment in full in cash of all obligations with respect to the Securities; (4) the Securities (other than Additional Securities); (5) Indebtedness (other than the Indebtedness described in clauses (1), (2), (3) or (4) above) outstanding on the Issue Date; (6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to Section 4.03(a) or pursuant to clause (4) or (5) of this Section 4.03(b) or this clause (6); (7) Hedging Obligations directly related to Indebtedness permitted to be Incurred by the Company and Restricted Subsidiaries pursuant to this Indenture or, in the case of a Currency Exchange Protection Agreement, reasonably related to the ordinary course of business of the Company and its Restricted Subsidiaries; (8) Indebtedness, including Capitalized Lease Obligations and purchase money Indebtedness, Incurred by the Company or its Restricted Subsidiaries to finance the acquisition of tangible assets or other capital expenditures, and Indebtedness Incurred by the Company or its Restricted Subsidiaries to Refinance such Capitalized Lease Obligations and purchase money Indebtedness, in an aggregate outstanding principal amount which, when added together with the amount of Indebtedness Incurred pursuant to this clause (8) and then outstanding, does not exceed $20.0 million; (9) Indebtedness in respect of performance, surety or appeal bonds provided in the ordinary course of the Company and its Restricted Subsidiaries; or (10) Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company and Restricted Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness permitted by clauses (1) through (9) of this Section 4.03(b) or Section 4.03(a), does not exceed $25.0 million. (c) Notwithstanding the foregoing, the Company shall not Incur any Indebtedness pursuant to Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to Refinance any Subordinated Obligations, unless such Indebtedness shall be subordinated to the Securities to at least the same extent as such Subordinated Obligations. (d) For purposes of determining compliance with this Section 4.03, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described herein, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be divided and classified in more than one of the types of Indebtedness described herein. (e) Notwithstanding Section 4.03(a) or 4.03(b), the Company shall not Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness, unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness or (ii) any Secured Indebtedness that is not Senior Indebtedness, unless contemporaneously therewith effective provision is made to secure the Securities equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. (f) For the purpose of determining amounts of Indebtedness outstanding under Section 4.03 and for the purpose of avoiding duplication only, Indebtedness of a Person resulting from the grant by such Person of security interests with respect to, or from the issuance by such Person of Guarantees (and security interests with respect thereof) of, or from the assumption of obligations with respect to letters of credit supporting, Indebtedness Incurred by such Person pursuant to this Indenture (or Indebtedness which such Person is otherwise permitted to Incur under this Indenture) shall not be deemed to be a separate Incurrence of Indebtedness by such Person. (g) Indebtedness of any Person which is outstanding at the time such Person becomes a Restricted Subsidiary of the Company (including upon designation of any Subsidiary or other Person as a Restricted Subsidiary) or is merged with or into or consolidated with the Company or a Restricted Subsidiary of the Company shall be deemed to have been Incurred at the time such Person becomes a Restricted Subsidiary or merged with or into or consolidated with the Company or a Restricted Subsidiary, as applicable. SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); (2) the Company is not able to Incur an additional $1.00 of Indebtedness under Section 4.03(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments made since the Issue Date would exceed the sum of (without duplication): (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the fiscal quarter in which the Issue Date occurs to the end of the most recent fiscal quarter ending at least 45 days prior to the date of such Restricted Payment (or, in case such Consolidated Net Income is a deficit, LESS 100% of such deficit); PLUS (B) 100% of the aggregate Net Cash Proceeds received by the Company from the issuance or sale of its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date and on or prior to the date of such Restricted Payment (other than an issuance or sale to a Subsidiary of the Company or an issuance or sale to an employee stock ownership plan or to a trust established by the Company or any of its Subsidiaries for the benefit of their employees); PLUS (C) the amount by which the Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date and on or prior to the date of such Restricted Payment of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (LESS the amount of any cash, or the fair value of any other property, distributed by the Company upon such conversion or exchange); PLUS (D) an amount equal to the sum of (x) the net reduction in Investments in Unrestricted Subsidiaries resulting from dividends, repayments of loans or advances or other transfers of assets, in each case to the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of an Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED, HOWEVER, that the foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made (and treated as a Restricted Payment) by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary. (b) The provisions of Section 4.04(a) shall not prohibit: (1) any acquisition of any Capital Stock of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock; PROVIDED, HOWEVER, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from Section 4.04(a)(3)(B); (2) any purchase, repurchase, redemption, defeasance or acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary of the Company) or options, warrants or other rights to purchase such Capital Stock; PROVIDED, HOWEVER, that (A) such purchase, repurchase, redemption, defeasance or acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from Section 4.04(a)(3)(B); (3) any purchase, repurchase, redemption, defeasance or acquisition or retirement for value of Subordinated Obligations made by exchange for, or out of the proceeds of the substantially concurrent sale of, Indebtedness of the Company which is permitted to be Incurred under Section 4.03; PROVIDED, HOWEVER, that such Indebtedness (A) shall have a Stated Maturity later than the Stated Maturity of the Securities and (B) shall have an Average Life greater than the remaining Average Life of the Securities; PROVIDED FURTHER, HOWEVER, that such purchase, repurchase, redemption, defeasance or other acquisition or retirement for value shall be excluded in the calculation of the amount of Restricted Payments; (4) any purchase or redemption of Subordinated Obligations from Net Available Cash after application in accordance with clauses (A), (B) and (C) of Section 4.06(3)(B); PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (5) dividends paid within 60 days after the date of declaration thereof if at such date of declaration such dividend would have complied with Section 4.04(a); PROVIDED, HOWEVER, that at the time of payment of such dividend, no other Default shall have occurred and be continuing (or result therefrom); PROVIDED FURTHER, HOWEVER, that the declaration, but not the payment, of such dividend shall be included in the calculation of the amount of Restricted Payments; (6) so long as no Default shall have occurred and be continuing (or result therefrom), Investments in Joint Ventures or other Persons engaged in a Related Business in an aggregate amount which, when added together with the amount of all other Investments made pursuant to this clause (6) which at such time have not been repaid through dividends, repayments of loans or advances or other transfer of assets, does not exceed $60.0 million; PROVIDED, HOWEVER, that the amount of such Investments shall be excluded in the calculation of Restricted Payments; (7) so long as no Default shall have occurred and be continuing (or result therefrom), payments with respect to employee or director stock options, stock incentive plans or restricted stock plans of the Company, including any redemption, repurchase, acquisition, cancelation or other retirement for value of shares of Capital Stock of the Company, restricted stock, options on any such shares or similar securities held by directors, officers or employees or former directors, officers or employees or by any Plan upon death, disability, retirement or termination of employment of any such person pursuant to the terms of such Plan or agreement under which such shares or related rights were issued or acquired; PROVIDED, HOWEVER, that the amount of any such payments shall be included in the calculation of Restricted Payments; (8) so long as no Default shall have occurred and be continuing (or result therefrom), any purchase or defeasance of Subordinated Obligations upon a Change of Control to the extent required by the indenture or other agreement or instrument pursuant to which such Subordinated Obligations were issued, but only if the Company has first complied with all its obligations under Section 4.09; PROVIDED, HOWEVER, that the amount of such purchase or defeasance shall be excluded in the calculation of Restricted Payments; or (9) so long as no Default shall have occurred and be continuing (or result therefrom), Restricted Payments in an aggregate amount which, when added together with the amount of all other Restricted Payments made pursuant to this clause (9) which at such time have not been repaid through dividends, repayments of loans or advances or other transfer of assets, does not exceed $40.0 million; PROVIDED, HOWEVER, that the amount of such Restricted Payments shall be included in the calculation of Restricted Payments. SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) pay dividends or make any other distributions on its Capital Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) make any loans or advances to the Company or any Restricted Subsidiary or (c) transfer any of its property or assets to the Company or any Restricted Subsidiary (collectively "Payment Restrictions"), except: (1) any Payment Restriction imposed pursuant to the Credit Agreement, this Indenture, Refinancing Indebtedness in respect of the Securities and any agreement in effect at or entered into on the Issue Date; (2) any Payment Restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary of, or was acquired by, the Company) and outstanding on such date; (3) any Payment Restriction pursuant to an agreement effecting a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2) of this Section 4.05 or this clause (3) or contained in any amendment to an agreement referred to in Section 4.05(1) or (2) or this clause (3); PROVIDED, HOWEVER, that the Payment Restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment are no less favorable to the Securityholders than those with respect to such Restricted Subsidiary contained in such predecessor agreements; (4) in the case of clause (c) above, any encumbrance or restriction consisting of customary non- assignment provisions in leases or other contracts governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; (5) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (6) any encumbrance or restriction contained in the governing documents of any Joint Venture Subsidiary. SECTION 4.06. LIMITATION ON ASSET DISPOSITIONS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition unless (1) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value (including as to the value of all non-cash consideration), as determined in good faith by the Board of Directors (if the total proceeds of such sale is greater than $5.0 million), the determination of which shall be evidenced by a Board Resolution (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition; (2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash; and (3) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) FIRST, to the extent the Company or such Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness or Indebtedness of such Restricted Subsidiary), to prepay, repay or purchase Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to acquire Additional Assets within one year from the later of such Asset Disposition or the receipt of such Net Available Cash; (C) THIRD, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to make an offer to the Securityholders (and to holders of other Senior Subordinated Indebtedness designated by the Company) to purchase Securities (and such other Senior Subordinated Indebtedness) pursuant to and subject to the conditions contained in the Indenture; and (D) FOURTH, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for any purpose not prohibited by the terms of the Indenture. Notwithstanding Section 4.06(a)(3)(C), the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance with the foregoing paragraph except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied with accordance with the foregoing paragraph exceeds $15.0 million. Pending application of Net Available Cash pursuant to this covenant, such Net Available Cash shall be invested in Temporary Cash Investments. For the purposes of this Section 4.06, the following shall be deemed to be cash: (x) the assumption of Indebtedness of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability with respect to such Indebtedness in connection with such Asset Disposition; PROVIDED, HOWEVER, that the amount of such Indebtedness shall not be deemed to be cash for the purpose of the term "Net Available Cash;" and (y) securities received by the Company or any Restricted Subsidiary from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash. (b) In the event of an Asset Disposition that requires the purchase of the Securities (and other Senior Subordinated Indebtedness) pursuant to Section 4.06(a) (3)(C), the Company shall purchase Securities tendered pursuant to an offer by the Company for the Securities (and other Senior Subordinated Indebtedness) (the "Offer") at a purchase price of 100% of their principal amount (without premium) plus accrued but unpaid interest (or, in respect of such other Senior Subordinated Indebtedness, such lesser price, if any, as may be provided for by the terms of such Senior Subordinated Indebtedness) in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.06(d). If the aggregate purchase price of Securities (and any other Senior Subordinated Indebtedness) tendered pursuant to the Offer is less than the Net Available Cash allotted to the purchase thereof, the Company shall be entitled to apply the remaining Net Available Cash in accordance with Section 4.06(a)(3)(D). The Company shall not be required to make such an Offer to purchase Securities (and other Senior Subordinated Indebtedness) pursuant to this Section 4.06 if the Net Available Cash available therefor (after application of Net Available Cash in accordance with clauses (A) and (B) of paragraph (a) above) is less than $10.0 million (which lesser amount shall be carried forward for purposes of determining whether such an Offer is required with respect to any subsequent Asset Disposition). (c) (1) Promptly, and in any event within 10 days after the Company becomes obligated to make an Offer, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date") and shall contain such information concerning the business of the Company which the Company in good faith believes shall enable such Holders to make an informed decision (which at a minimum shall include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports) and (ii) if material, appropriate pro forma financial information). (2) Not later than the date upon which written notice of an Offer is delivered to the Trustee as provided below, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions pursuant to which such Offer is being made and (iii) the compliance of such allocation with Section 4.06(a). (3) Holders shall be entitled to withdraw their election to have a Security purchased if the Trustee or the Company receives not later than one Business Day prior to the Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the period for which the Offer remains open the aggregate principal amount of Securities (and any other Senior Subordinated Indebtedness included in the Offer) surrendered by holders thereof exceeds the Offer Amount, the Company shall select the Securities and the other Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities and the other Senior Subordinated Indebtedness in denominations of $1,000, or integral multiples thereof, shall be purchased). (d) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the purchase of the Securities pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company shall comply with the applicable securities laws and regulations under this clause by virtue thereof. SECTION 4.07. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall not permit any Restricted Subsidiary to enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless (1) the Affiliate Transaction is made in (A) good faith and (B) on terms which are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be; (2) if such Affiliate Transaction involves an amount in excess of $5.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the non-employee directors of the Company disinterested with respect to such Affiliate Transactions have determined in good faith that the criteria set forth in clause (1)(B) are satisfied and have approved the relevant Affiliate Transaction as evidenced by a Board Resolution; and (3) if such Affiliate Transaction involves an amount in excess of $10.0 million, the Board of Directors shall also have received a written opinion from an investment banking firm of national prominence that is not an Affiliate of the Company to the effect that such Affiliate Transaction is fair, from a financial standpoint, to the Company and its Restricted Subsidiaries. (b) The provisions of Section 4.07(a) shall not prohibit (1) any Permitted Investment and any Restricted Payment permitted to be paid under Section 4.04; (2) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors; (3) the payment of reasonable fees to directors of the Company and its Restricted Subsidiaries; (4) transactions between the Company or a Restricted Subsidiary and one or more Restricted Subsidiaries; PROVIDED, HOWEVER, that no Affiliate of the Company (other than another Restricted Subsidiary) owns, directly or indirectly, any Capital Stock in any such Restricted Subsidiary; (5) transactions in the ordinary course of business (including loans, expense advances and reimbursements) between the Company or any of its Restricted Subsidiaries, on the one hand, and any employee thereof, on the other hand; (6) transactions with Affiliates entered into in the ordinary course of business of the Company or its Restricted Subsidiaries, on terms which are, in the opinion of the Company's management or the Board of Directors, fair and reasonable to the Company or its Restricted Subsidiaries; (7) the granting and performance of registration rights for shares of Capital Stock of the Company under a written registration rights agreement approved by a majority of directors of the Company that are disinterested with respect to such transactions; (8) transactions with Affiliates solely in their capacity as holders of Indebtedness or Capital Stock of the Company or any of its Subsidiaries, so long as Indebtedness or Capital Stock of the same class is also held by Persons that are not Affiliates of the Company and such Affiliates are treated no more favorably than holders of such Indebtedness or such Capital Stock generally, and the prepayment from time to time of the outstanding principal amount of the Ciba Notes (together with accrued interest at the contract rate thereon); (9) transactions in accordance with or as contemplated by the Governance Agreement, and any amendments to the Governance Agreement that are not adverse to the interests of the holders of the Securities and which are approved by a majority of the directors of the Company disinterested with respect to such amendment; and (10) any transaction between the Company or any Restricted Subsidiaries and any of the Existing Joint Ventures pursuant to agreements in effect on the Issue Date. SECTION 4.08. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company shall not sell or otherwise dispose of any shares of Capital Stock (other than Qualified Preferred Stock) of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any shares of its Capital Stock (other than Qualified Preferred Stock) except (1) to the Company or a Wholly Owned Subsidiary; (2) directors' qualifying shares; (3) if, immediately after giving effect to such issuance, sale or other disposition, neither the Company nor any of its Subsidiaries own any Capital Stock of such Restricted Subsidiary; or (4) if, immediately after giving effect to such issuance, sale or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect thereto would have been permitted to be made under Section 4.04 if made on the date of such issuance, sale or other disposition. Notwithstanding the foregoing, the issuance or sale of shares of Capital Stock of any Restricted Subsidiary of the Company shall not violate the provisions of the immediately preceding sentence if such shares are issued or sold in connection with (x) the formation or capitalization of a Restricted Subsidiary which, at the time of such issuance or sale or immediately thereafter, is a Joint Venture Subsidiary or (y) a single transaction or a series of substantially contemporaneous transactions whereby such Restricted Subsidiary becomes a Restricted Subsidiary of the Company by reason of the acquisition of securities or assets from another Person. SECTION 4.09. CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date), in accordance with the terms contemplated in Section 4.09(b). In the event that at the time of such Change of Control the terms of the Senior Indebtedness of the Company restrict or prohibit the repurchase of Securities pursuant to this Section, then prior to the mailing of the notice to Holders provided for in Section 4.09(b) below but in any event within 30 days following any Change of Control, the Company shall (1) repay in full all such Senior Indebtedness or offer to repay in full all such Senior Indebtedness and repay such Senior Indebtedness of each lender who has accepted such offer or (2) obtain the requisite consent under the agreements governing such Senior Indebtedness to permit the repurchase of the Securities as provided for in Section 4.09(b). (b) Within 30 days following any Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee (the "Change of Control Offer") stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization, each after giving effect to such Change of Control); (3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (4) the instructions determined by the Company, consistent with this Section, that a Holder must follow in order to have its Securities purchased. (c) Holders electing to have a Security purchased shall be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Trustee or the Company receives not later than one Business Day prior to the purchase date, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered by the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) Notwithstanding the foregoing provisions of this Section, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section applicable to a Change of Control Offer made by the Company and purchases all Securities validly tendered and not withdrawn under such Change of Control Offer. (f) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section by virtue thereof. SECTION 4.10. LIMITATION ON BUSINESS ACTIVITIES. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than in businesses conducted by the Company and its Restricted Subsidiaries on the Issue Date and businesses which, in the good faith determination of the Board of Directors, are reasonably related, ancillary or complementary thereto. SECTION 4.11. COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate, one of the signers of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Company, stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default and whether or not the signers know of any Default that occurred during such period. If they do, the certificate shall describe the Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA ss. 314(a)(4). The Company shall deliver to the Trustee, as soon as possible and in any event within five days after the Company becomes aware of the occurrence of any Event of Default, an Officers' Certificate setting forth the details of such Event of Default and the action which the Company proposes to take with respect thereto. SECTION 4.12. FURTHER INSTRUMENTS AND ACTS. Upon request of the Trustee, the Company shall execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. ARTICLE 5 SUCCESSOR COMPANY SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company shall not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, all or substantially all its assets to, any other Person, unless: (1) the resulting, surviving or transferee Person (the "Successor Company") shall be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (2) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction, the Successor Company would be able to Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a); (4) immediately after giving effect to such transaction, the Successor Company shall have Consolidated Net Worth in an amount that is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; and (5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. Nothing contained in this Section 5.01 foregoing shall prohibit any Wholly Owned Subsidiary from consolidating with, merging with or into, or transferring all or part of its properties and assets to the Company. The Successor Company shall be the successor to the Company and shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor Company in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Securities. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if: (1) the Company defaults in any payment of inter est on any Security when the same becomes due and payable, whether or not such payment shall be prohibited by Article 10, and such default continues for a period of 30 days; (2) the Company (i) defaults in the payment of the principal of any Security when the same becomes due and payable at its Stated Maturity, upon redemption, upon declaration or otherwise, whether or not such payment shall be prohibited by Article 10 or (ii) fails to purchase Securities when required pursuant to this Indenture or the Securities, whether or not such pur chase shall be prohibited by Article 10; (3) the Company fails to comply with Section 5.01; (4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09 or 4.10 (other than a failure to purchase Securities when required under Section 4.06 or 4.09) and such failure continues for 30 days after the notice specified below; (5) the Company fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in clause (1), (2), (3) or (4) above) and such failure continues for 60 days after the notice specified below; (6) Indebtedness of the Company or any Significant Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million or its foreign currency equivalent; (7) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Significant Subsidiary; or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days; or (9) any judgment or decree for the payment of money in excess of $10.0 million or its foreign currency equivalent is entered against the Company or any Significant Subsidiary, remains outstanding for a period of 60 days following the entry of such judgment or decree and is not discharged, waived or the execution thereof stayed within 10 days after the notice specified below. The foregoing shall constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian or similar official under any Bankruptcy Law. A Default under clauses (4), (5), or (9) is not an Event of Default until the Trustee or the holders of at least 25% in principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clause (6) and any event which with the giving of notice or the lapse of time would become an Event of Default under clause (4), (5) or (9), its status and what action the Company is taking or proposes to take with respect thereto. SECTION 6.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in Section 6.01(7) or (8) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Securities to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.01(7) or (8) with respect to the Company occurs, the principal of and interest on all the Securities shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default and its consequences except (i) a Default in the payment of the principal of or interest on a Security (ii) a Default arising from the failure or purchase any Security when required pursuant to this Indenture or (iii) a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.01, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.06. LIMITATION ON SUITS. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Securityholder may pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in principal amount of the Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring 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. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.07. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its creditors or its property and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.07. SECTION 6.10. PRIORITIES. If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.07; SECOND: to holders of Senior Indebtedness of the Company to the extent required by Article 10; THIRD: to Securityholders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and FOURTH: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 6.11. UNDERTAKING FOR COSTS. 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 or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in principal amount of the Securities. SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company (to the extent it may lawfully do so) shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 7 TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise 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 Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, 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 examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers. (h) 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 and to the provisions of the TIA. SECTION 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. But the Trustee, in its reasonable discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful misconduct or negligence. (e) The Trustee may consult with counsel of its selection, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the principal corporate trust office of the Trustee, and such notice references the Securities and this Indenture. (g) The rights, protections, immunities and benefits given to the Trustee, including its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in the Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or interest on any Security (including payments pursuant to the mandatory redemption provisions of such Security, if any), the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as practicable after each January 15 beginning with the January 15 following the date of the first issuance of Securities under this Indenture, and in any event prior to March 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of January 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it, including costs of collection, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee and any predecessor Trustee against any and all loss, damage, claim, liability or expense (including attorneys' fees) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder. The Trustee shall notify the Company promptly of any claim (whether asserted by the Company, any Holder or any other Person) for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Company's payment obligations pursuant to this Section shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.01(7) or (8) with respect to the Company, the expenses are intended to constitute expenses of administration under the Bankruptcy Law. SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns, is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Securities 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 Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined capital and surplus of at least $50.0 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shalL be subject to TIA ss. 311(a) to the extent indicated. ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.07) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article 3 hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities, including interest thereon to maturity or such redemption date (other than Securities replaced pursuant to Section 2.07), and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Sections 8.01(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel and at the cost and expense of the Company. (b) Subject to Sections 8.01(c) and 8.02, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.09 and 4.10 and the operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) and the limitations contained in Sections 5.01(3) and (4) ("covenant defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and (8), with respect only to Significant Subsidiaries) or because of the failure of the Company to comply with Section 5.01(3) or (4). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding clauses (a) and (b) above, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in this Article 8 shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of and interest on the Securities to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment shall provide cash at such times and in such amounts as shall be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; (3) 123 days pass after the deposit is made and during the 123-day period no Default specified in Sections 6.01(7) or (8) with respect to the Company occurs which is continuing at the end of the period; (4) the deposit does not constitute a default under any other agreement binding on the Company and is not prohibited by Article 10; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders shall not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and shall be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders shall not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and shall be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance and discharge of the Securities as contemplated by this Article 8 have been complied with. Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article 3. SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article 8. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. Money and securities so held in trust are not subject to Article 10. SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent shall promptly turn over to the Company upon written request any excess money or securities held by them at any time. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon written request any money held by them for the payment of principal or interest that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article 8 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 8 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS AND WAIVERS SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article 5; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; PROVIDED, HOWEVER, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to make any change in Article 10 that would limit or terminate the benefits available to any holder of Senior Indebtedness (or Representatives therefor) under Article 10; (5) to add guarantees with respect to the Securities, or to secure the Securities; (6) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (7) to comply with any requirements of the SEC in connection with qualifying, or maintaining the qualification of, this Indenture under the TIA; or (8) to make any change that does not adversely affect the rights of any Securityholder. An amendment under this Section may not make any change that adversely affects the rights under Article 10 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.02. WITH CONSENT OF HOLDERS. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities then outstanding (including consents obtained in connection with a tender offer or exchange for the Securities). However, without the consent of 80% or more in principal amount of the Securities then outstanding, the Company may not (with respect to any Securities held by a non-consenting Securityholder) make any change to Article 10 (or the defined terms used therein) that would adversely affect the Securityholders. In addition, without the consent of each Securityholder affected thereby, an amendment or waiver may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the redemption of any Security or change the time at which any Security may be redeemed in accordance with Article 3; (5) make any Security payable in money other than that stated in the Security; or (6) make any change in Section 6.04 or 6.07 or the second sentence of this Section. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. An amendment under this Section may not make any change that adversely affects the rights under Article 10 of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. An amendment or waiver becomes effective upon the execution of such amendment or waiver by the Trustee. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any amendment authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may but need not sign it. In signing such amendment the Trustee shall receive indemnity reasonably satisfactory to it, and (subject to Section 7.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. ARTICLE 10 SUBORDINATION SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each Securityholder by accepting a Security agrees, that the Indebtedness evidenced by the Securities is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment of all Senior Indebtedness and that the subordination is for the benefit of and enforceable by the holders of such Senior Indebtedness. The Securities shall in all respects rank PARI PASSU with all other Senior Subordinated Indebtedness of the Company and only Indebtedness which is Senior Indebtedness shall rank senior to the Securities in accordance with the provisions set forth herein. All provisions of this Article 10 shall be subject to Section 10.12. SECTION 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment or distribution of the assets of the Company to creditors upon a total or partial liquidation or a total or partial dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property: (1) holders of Senior Indebtedness shall be entitled to receive payment in full of such Senior Indebtedness before Securityholders shall be entitled to receive any payment of principal of or interest on the Securities; and (2) until such Senior Indebtedness is paid in full, any payment or distribution to which Securityholders would be entitled but for this Article 10 shall be made to holders of such Senior Indebtedness as their interests may appear, except that Securityholders may receive shares of stock and any debt securities that are subordinated to such Senior Indebtedness to at least the same extent as the Securities. SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS. The Company may not pay the principal of or interest on the Securities or make any deposit pursuant to Section 8.01 and may not repurchase, redeem or otherwise retire any Securities (collectively, "pay the Securities") if (1) any Designated Senior Indebtedness is not paid when due or (2) any other default on Designated Senior Indebtedness occurs and the maturity of such Designated Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived and any such acceleration has been rescinded or (y) such Designated Senior Indebtedness has been paid in full; PROVIDED, HOWEVER, that the Company may pay the Securities without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of such Designated Senior Indebtedness. During the continuance of any default (other than a default described in clause (1) or (2) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Securities for a period (a "Payment Blockage Period") commencing upon the receipt by the Company and the Trustee of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (1) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (2) because the default giving rise to such Blockage Notice is cured, waived or otherwise no longer continuing) or (3) because such Designated Senior Indebtedness has been repaid in full. Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Securities after termination of such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period; PROVIDED, HOWEVER, that if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness (other than the Bank Indebtedness), the Representative of the Bank Indebtedness may give another Blockage Notice within such period; PROVIDED FURTHER, HOWEVER, that in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360-consecutive-day period. For purposes of this Section, no default or event of default which existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis of the commencement of a subsequent Payment Blockage Period by the Representative of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such default or event of default shall have been cured or waived for a period of not less than 90 consecutive days. SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of the Securities is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness (or their Representatives) of the acceleration. The Trustee shall give notice of such acceleration, of which it has actual knowledge, to all holders of Designated Senior Indebtedness. SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution is made to Securityholders that because of this Article 10 should not have been made to them, the Securityholders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants or obligations as are specifically set forth in this Article 10 and no implied covenants or obligations with respect to holders of Senior Indebtedness shall be read into this Indenture against the Trustee. SECTION 10.06. SUBROGATION. After all Senior Indebtedness is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of such Senior Indebtedness to receive distributions applicable to such Senior Indebtedness. A distribution made under this Article 10 to holders of such Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company and Securityholders, a payment by the Company on such Senior Indebtedness. SECTION 10.07. RELATIVE RIGHTS. This Article 10 defines the relative rights of Securityholders and holders of Senior Indebtedness. Nothing in this Indenture shall: (1) impair, as between the Company and Securityholders, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms; or (2) prevent the Trustee or any Securityholder from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness to receive distributions otherwise payable to Securityholders. SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of any holder of Senior Indebtedness to enforce the subordination of the Indebtedness evidenced by the Securities shall be impaired by any act or failure to act by the Company or by its failure to comply with this Indenture. SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make payments on the Securities and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Trust Officer of the Trustee receives notice satisfactory to it that payments may not be made under this Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a Representative or a holder of Senior Indebtedness may give the notice; PROVIDED, HOWEVER, that, if an issue of Senior Indebtedness has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. The Registrar and co-registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 10 with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of such Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 10 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative (if any). SECTION 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by reason of any provision in this Article 10 shall not be construed as preventing the occurrence of a Default. Nothing in this Article 10 shall have any effect on the right of the Securityholders or the Trustee to accelerate the maturity of the Securities. SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article 8 by the Trustee for the payment of principal of and interest on the Securities shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article 10, and none of the Securityholders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness or any other creditor of the Company. SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or distribution pursuant to this Article 10, the Trustee and the Securityholders shall be entitled to rely (1) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 10.02 are pending, (2) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Securityholders or (3) upon the Representatives for the holders of Senior Indebtedness for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. 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 pursuant to this Article 10, the Trustee may request such Person to furnish evidence to the satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 10, 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 provisions of Sections 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 10. SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Securityholder by accepting a Security authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Securityholders and the holders of Senior Indebtedness as provided in this Article 10 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR INDEBTEDNESS. The Trustee 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 Securityholders or the Company or any other Person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article 10 or otherwise. SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of such Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. ARTICLE 11 MISCELLANEOUS SECTION 11.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 11.02. NOTICES. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company: Hexcel Corporation Two Stamford Plaza 281 Tresser Blvd. Stamford, Connecticut 06901 Attention: General Counsel if to the Trustee: The Bank of New York 101 Barclay Street New York, NY 10286 Attention: Corporate Trust Trustee Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual 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 individual, 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 individual, such covenant or condition has been complied with. SECTION 11.06. WHEN SECURITIES DISREGARDED. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 11.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 11.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 11.09. GOVERNING LAW. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 11.10. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 11.11. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. MULTIPLE ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 11.13. TABLE OF CONTENTS; HEADINGS. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. HEXCEL CORPORATION, by /s/ Bruce D. Herman ------------------------------- Name: Bruce D. Herman Title: Treasurer THE BANK OF NEW YORK, as Trustee by /s/ Mary Beth Lewicki ------------------------------- Name: Mary Beth Lewicki Title: Assistant Vice President RULE 144A/REGULATION S APPENDIX FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION S. PROVISIONS RELATING TO INITIAL SECURITIES, EXCHANGE SECURITIES AND PRIVATE EXCHANGE SECURITIES 1. DEFINITIONS 1.1 DEFINITIONS For the purposes of this Appendix the following terms shall have the meanings indicated below: "Depository" means The Depository Trust Company, its nominees and their respective successors. "Exchange Securities" means (i) the 9-3/4% Senior Subordinated Notes Due 2009 issued pursuant to the Indenture in connection with a Registered Exchange Offer pursuant to a Registration Rights Agreement and (ii) Additional Securities, if any, issued pursuant to a registration statement filed with the SEC under the Securities Act. "Initial Purchasers" means (i) with respect to the Initial Securities issued on the Issue Date, Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. and (ii) with respect to each issuance of Additional Securities, the Persons purchasing such Additional Securities under the related Purchase Agreement. "Initial Securities" means (i) $240,000,000 9-3/4% Senior Subordinated Notes Due 2009 issued on the Issue Date and (ii) Additional Securities, if any, issued in a transaction exempt from the registration requirements of the Securities Act. "Private Exchange" means the offer by the Company, pursuant to a Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each Initial Purchaser, in exchange for the Initial Securities held by the Initial Purchaser as part of its initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means any 9-3/4% Senior Subordinated Notes Due 2009 issued in connection with a Private Exchange. "Purchase Agreement" means (i) with respect to the Initial Securities issued on the Issue Date, the Purchase Agreement dated January 15, 1999, among the Company and the Initial Purchasers, and (ii) with respect to each issuance of Additional Securities, the purchase agreement or underwriting agreement among the Company and the Persons purchasing such Additional Securities. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registered Exchange Offer" means the offer by the Company, pursuant to a Registration Rights Agreement, to certain Holders of Initial Securities, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of Exchange Securities registered under the Securities Act. "Registration Rights Agreement" means (i) with respect to the Initial Securities issued on the Issue Date, the Registration Rights Agreement dated January 21, 1999, among the Company and the Initial Purchasers, and (ii) with respect to each issuance of Additional Securities issued in a transaction exempt from the registration requirements of the Securities Act, the registration rights agreement, if any, among the Company and the Persons purchasing such Additional Securities under the related Purchase Agreement. "Securities" means the Initial Securities, the Exchange Securities and the Private Exchange Securities, treated as a single class. "Securities Act" means the Securities Act of 1933. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depository), or any successor person thereto and shall initially be the Trustee. "Shelf Registration Statement" means the registration statement issued by the Company, in connection with the offer and sale of Initial Securities or Private Exchange Securities, pursuant to the Registration Rights Agreement. "Transfer Restricted Securities" means Securities that bear or are required to bear the legend set forth in Section 2.3(b) hereto. 1.2 OTHER DEFINITIONS
DEFINED IN TERM SECTION: ---- ---------- "Agent Members".....................................................2.1(b) "Global Security"...................................................2.1(a) "Regulation S"......................................................2.1(a) "Rule 144A".........................................................2.1(a)
2. THE SECURITIES. 2.1 FORM AND DATING. The Initial Securities are being offered and sold by the Company pursuant to the Purchase Agreement. (a) GLOBAL SECURITIES. Initial Securities offered and sold to a QIB in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on Regulation S under the Securities Act ("Regulation S"), in each case as provided in the Purchase Agreement, shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form without interest coupons with the global securities legend and restricted securities legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be deposited on behalf of the purchasers of the Initial Securities represented thereby with the Trustee, at its New York office, as custodian for the Depository (or with such other custodian as the Depository may direct), and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (b) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to a Global Security deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depository for such Global Security or Global Securities or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instructions or held by the Trustee as custodian for the Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under the Indenture with respect to any Global Security held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) CERTIFICATED SECURITIES. Except as provided in this Section 2.1 or Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. 2.2 AUTHENTICATION. The Trustee shall authenticate and deliver: (1) On the Issue Date, $240.0 million 9-3/4% Senior Subordinated Notes Due 2009, (2) any Additional Securities for an original issue in an aggregate principal amount specified in the written order of the Company pursuant to Section 2.02 of the Indenture and (3) Exchange Securities or Private Exchange Securities in exchange therefor for issue only in a Registered Exchange Offer or a Private Exchange, respectively, for a like principal amount, in each case upon a written order of the Company signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and, in the case of an issuance of Additional Securities pursuant to Section 2.13 of the Indenture, shall certify that such issuance is in compliance with Section 4.03 of the Indenture. 2.3 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. (i) The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depository therefor. A transferor of a beneficial interest in a Global Security shall deliver to the Registrar a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in the Global Security. The Registrar shall, in accordance with such instructions instruct the Depositary to credit to the account of the Person specified in such instructions a beneficial interest in the Global Security and to debit the account of the Person making the transfer the beneficial interest in the Global Security being transferred. (ii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (iii) In the event that a Global Security is exchanged for Securities in definitive registered form pursuant to Section 2.4 or Section 2.09 of the Indenture, prior to the consummation of a Registered Exchange Offer or the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Initial Securities intended to ensure that such transfers comply with Rule 144A or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company. (b) LEGEND. (i) Except as permitted by the following para graphs (ii), (iii) and (iv), each Security certificate evidencing the Global Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form: THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a certificated Security that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder certifies in writing to the Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) After a transfer of any Initial Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Security or such Private Exchange Security will cease to apply, the requirements requiring any such Initial Security or such Private Exchange Security issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Security or Private Exchange Security without legends will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities upon exchange of such transferring Holder's certificated Initial Security or Private Exchange Security or directions to transfer such Holder's interest in the Global Security, as applicable. (iv) Upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will cease to apply and certificated Initial Securities with the restricted securities legend set forth in Exhibit 1 hereto will be available to Holders of such Initial Securities that do not exchange their Initial Securities, and Exchange Securities in certificated or global form will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. (v) Upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will still apply, and Private Exchange Securities in global form with the Restricted Securities Legend set forth in Exhibit 1 hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. (c) CANCELLATION OR ADJUSTMENT OF GLOBAL SECURITY. At such time as all beneficial interests in a Global Security have either been exchanged for certificated Securities, redeemed, repurchased or canceled, such Global Security shall be returned to the Depository for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for certificated Securities, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (d) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF SECURITIES. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate certificated Securities and Global Securities at the Registrar's or co-registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.06, 3.09 and 9.05 of the Indenture). (iii) The Registrar or co-registrar shall not be required to register the transfer of or exchange of any Security for a period beginning 15 Business Days before the mailing of a notice of an offer to repurchase or redeem Securities or 15 Business Days before an interest payment date. (iv) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected by notice to the contrary. (v) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (e) NO OBLIGATION OF THE TRUSTEE. (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depository or other Person with respect to the accuracy of the records of the Depository or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or other Person (other than the Depository) of any notice (including any notice of redemption) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to or upon the order of the registered Holders (which shall be the Depository or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depository subject to the applicable rules and procedures of the Depository. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depository with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depository participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 CERTIFICATED SECURITIES. (a) A Global Security deposited with the Depository or with the Trustee as custodian for the Depository pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of certificated Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section shall be surrendered by the Depository to the Trustee located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of certificated Initial Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depository shall direct. Any certificated Initial Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(b), bear the restricted securities legend set forth in Exhibit 1 hereto. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of either of the events specified in Section 2.4(a), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. EXHIBIT 1 to RULE 144A/REGULATION S APPENDIX [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) THIS SECURITY MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (I) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (I) THOUGHT (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. CUSIP NO. No. $ 9-3/4% Senior Subordinated Notes Due 2009 Hexcel Corporation, a Delaware corporation, promises to pay to , or registered assigns, the principal sum of Dollars on January 15, 2009. Interest Payment Dates: January 15 and July 15. Record Dates: January 1 and July 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: HEXCEL CORPORATION, by ------------------------ Name: Title: by ------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE BANK OF NEW YORK, as Trustee, certifies that this is one of the Securities referred to in the Indenture. by ----------------------------- Authorized Signatory [FORM OF REVERSE SIDE OF INITIAL SECURITY] 9-3/4% Senior Subordinated Note Due 2009 1. INTEREST Hexcel Corporation, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above; PROVIDED, HOWEVER, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this Security at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. The Company will pay interest semiannually on January 15 and July 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from [January 21, 1999] [date of issuance of any Additional Securities]. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. METHOD OF PAYMENT The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the January 1 or July 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of the Securities represented by a Global Security (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments in respect of a certificated Security (including principal, premium and interest) by mailing a check to the registered address of each Holder thereof; PROVIDED, HOWEVER, that payments on a certificated Security will be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). 3. PAYING AGENT AND REGISTRAR Initially, The Bank of New York, a New York banking corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Securities under an Indenture dated as of January 21, 1999 ("Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured obligations of the Company. The Company shall be entitled, subject to its compliance with Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor will be treated as a single class for all purposes under the Indenture. The Indenture contains certain covenants that, among other things, will limit the ability of the Company and its subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or distributions on, or redeem or repurchase, the Company's capital stock, (iii) make investments, (iv) issue or sell capital stock of subsidiaries, (v) engage in transactions with affiliates, (vi) create liens on the Company's assets to service certain debt, (vii) transfer or sell assets, (viii) guarantee indebtedness, (ix) make dividend or other payments to the Company, (x) consolidate, merge or transfer all or substantially all of the Company's assets and the assets of its subsidiaries and (xi) engage in unrelated business. These covenants, however, are subject to important exceptions and qualifications. 5. OPTIONAL REDEMPTION Except as set forth in the next paragraph, the Securities may not be redeemed prior to January 15, 2004. On and after that date, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning January 15,
PERIOD PERCENTAGE ------ ---------- 2004 . . . . . . . . . . . . . . . . . . . 104.875% 2005 . . . . . . . . . . . . . . . . . . . 103.900 2006 . . . . . . . . . . . . . . . . . . . 102.925 2007 . . . . . . . . . . . . . . . . . . . 101.950 2008 . . . . . . . . . . . . . . . . . . . 100.975 2009 and thereafter . . . . . . . . . . . . . 100.000%
In addition, prior to January 15, 2002, the Company may at it option redeem up to 35% of the aggregate principal amount of the original aggregate principal amount of the Securities issued for cash under the Indenture (including the original principal amount of any Additional Securities) at a redemption price of 109.75% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings following which there is a Public Market; PROVIDED, HOWEVER, that (1) at least 65% of the original aggregate principal amount of Securities (including the original principal amount of any Additional Securities) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 120 days after the date of the related Public Equity Offering. 6. NOTICE OF REDEMPTION Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. PUT PROVISIONS Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 8. SUBORDINATION The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 9. DENOMINATIONS; TRANSFER; EXCHANGE The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 10. PERSONS DEEMED OWNERS The registered Holder of this Security may be treated as the owner of it for all purposes. 11. UNCLAIMED MONEY If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. DISCHARGE AND DEFEASANCE Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. However, without the consent of Holders of 80% or more in principal amount of the Securities then outstanding, the Company may not (with respect to any Securities held by a non-consenting Holder) make any change to Article 10 of the Indenture (or the defined terms used therein) that would adversely affect Holders of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder. 14. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the Company to purchase Securities when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10.0 million or its foreign currency equivalent; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; and (vi) certain judgments or decrees for the payment of money in excess of $10.0 million or its foreign currency equivalent. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 15. TRUSTEE DEALINGS WITH THE COMPANY Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of the Company or the Trustee shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. AUTHENTICATION This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 18. ABBREVIATIONS Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 20. GOVERNING LAW. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE SECURITY HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: HEXCEL CORPORATION TWO STAMFORD PLAZA 281 TRESSER BLVD. STAMFORD, CONNECTICUT 06901 ATTENTION: GENERAL COUNSEL - ------------------------------------------------------------------------------- ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Date: ________________ Your Signature: _________________________________________ - -------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. In connection with any transfer of any of the Securities evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act after the later of the date of original issuance of such Securities and the last date, if any, on which such Securities were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Securities are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) / / to the Company; or (2) / / pursuant to an effective registration statement under the Securities Act of 1933; or (3) / / inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) / / outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) / / pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any person other than the registered holder thereof; PROVIDED, HOWEVER, that if box (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Securities, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. -------------------------- Signature Signature Guarantee: - ---------------------------- -------------------------- Signature must be guaranteed Signature - ------------------------------------------------------------------------------- TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ----------------- --------------------------------- NOTICE: To be executed by an executive officer [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The following increases or decreases in this Global Security have been made:
Date of Amount of decrease Amount of increase Principal amount Signature of Exchange in Principal in Principal of this Global authorized officer Amount of this Amount of this Security following of Trustee or Global Security Global Security such decrease or Securities increase) Cusodian
OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, check the box: / / If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture, state the amount in principal amount: $ Date: Your Signature: ----------------- ---------------------------- (Sign exactly as your name appears on the other side of this Security.) Signature Guarantee: -------------------------------------------- (Signature must be guaranteed) EXHIBIT A [FORM OF FACE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY] [*/] [**/] No. 9-3/4% Senior Subordinated Notes Due 2009 Hexcel Corporation, a Delaware corporation, promises to pay to , or registered assigns, the principal sum of Dollars on January 15, 2009. Interest Payment Dates: January 15 and July 15. Record Dates: January 1 and July 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: HEXCEL CORPORATION, by ----------------------- President by ----------------------- Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE BANK OF NEW YORK, as Trustee, certifies that this is one of the Securities referred to in the Indenture. by ----------------------------- Authorized Signatory - --------------------------------- */ [If the Security is to be issued in global form add the Global Securities Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] - SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".] **/ [If the Security is a Private Exchange Security issued in a Private Exchange to an Initial Purchaser holding an unsold portion of its initial allotment, add the Restricted Securities Legend from Exhibit 1 to Appendix A and replace the Assignment Form included in this Exhibit A with the Assignment Form included in such Exhibit 1.] [FORM OF REVERSE SIDE OF EXCHANGE SECURITY OR PRIVATE EXCHANGE SECURITY] 9-3/4% Senior Subordinated Note Due 2009 1. INTEREST Hexcel Corporation, a Delaware corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above [; PROVIDED, HOWEVER, that if a Registration Default (as defined in the Registration Rights Agreement) occurs, interest will accrue on this Security at a rate of 0.50% per annum from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured]1/. The Company will pay interest semiannually on January 15 and July 15 of each year. Interest on the Securities will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from [January 21, 1999] [date of issuance of any Additional Securities]. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by the Securities plus 1% per annum, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. METHOD OF PAYMENT The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered holders of Securities at the close of business on the January 1 or July 1 next preceding the interest payment date even if Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. - ------------------ 1/ Insert if at the time of issuance of the Exchange Security or Private Exchange Security (as the case may be) neither the Registered Exchange Offer has been consummated nor a Shelf Registration Statement has been declared effective in accordance with the Registration Rights Agreement. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. Payments in respect of Securities (including principal, premium and interest) will be made by wire transfer of immediately available funds to the accounts specified by the holders thereof or, if no U.S. dollar account maintained by the payee with a bank in the United States is designated by any holder to the Trustee or the Paying Agent at least 30 days prior to the relevant due date for payment (or such other date as the Trustee may accept in its discretion), by mailing a check to the registered address of such holder. 3. PAYING AGENT AND REGISTRAR Initially, The Bank of New York, a New York banking corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice. The Company or any of its domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent, Registrar or co-registrar. 4. INDENTURE The Company issued the Securities under an Indenture dated as of January 21, 1999 ("Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured obligations of the Company. The Company shall be entitled, subject to its compliance with Section 4.03 of the Indenture, to issue Additional Securities pursuant to Section 2.13 of the Indenture. The Initial Securities issued on the Issue Date, any Additional Securities and all Exchange Securities or Private Exchange Securities issued in exchange therefor, and any Additional Securities will be treated as a single class for all purposes under the Indenture. The Indenture contains certain covenants that, among other things will limit the ability of the Company and certain of its subsidiaries to (i) incur additional indebtedness, (ii) pay dividends or distributions on, or redeem or repurchase, the Company's capital stock, (iii) make investments, (iv) issue or sell capital stock of subsidiaries, (v) engage in transactions with affiliates, (vi) create liens on the Company's assets to service certain debt, (vii) transfer or sell assets, (viii) guarantee indebtedness, (ix) make dividend or other payments to the Company, (x) consolidate, merge or transfer all or substantially all of the Company's assets and the assets of its subsidiaries and (xi) engage in unrelated business. These covenants, however, are subject to important exceptions and qualifications. 5. OPTIONAL REDEMPTION Except as set forth in the next paragraph, the Securities may not be redeemed prior to January 15, 2004. On and after that date, the Company may redeem the Securities in whole at any time or in part from time to time at the following redemption prices (expressed in percentages of principal amount), plus accrued interest to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the related interest payment date): if redeemed during the 12-month period beginning January 15, PERIOD PERCENTAGE 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 104.875% 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 103.900 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 102.925 2007 . . . . . . . . . . . . . . . . . . . . . . . . . 101.950 2008 . . . . . . . . . . . . . . . . . . . . . . . . . 100.975 2009 and thereafter. . . . . . . . . . . . . . . . . . 100.000% In addition, prior to January 15, 2002, the Company may at it option redeem up to 35% of the aggregate principal amount of the original aggregate principal amount of the Securities issued for cash under the Indenture (including the original principal amount of any Additional Securities) at a redemption price of 9-3/4% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds from one or more Public Equity Offerings following which there is a Public Market; PROVIDED, HOWEVER, that (1) at least 65% of the original aggregate principal amount of Securities (including the original principal amount of any Additional Securities) remains outstanding immediately after the occurrence of each such redemption (other than Securities held, directly or indirectly, by the Company or its Affiliates); and (2) each such redemption occurs within 120 days after the date of the related Public Equity Offering. 6. NOTICE OF REDEMPTION Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 7. PUT PROVISIONS Upon a Change of Control, any Holder of Securities will have the right, subject to certain conditions, to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount of the Securities to be repurchased plus accrued interest to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the related interest payment date) as provided in, and subject to the terms of, the Indenture. 8. SUBORDINATION The Securities are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose. 9. DENOMINATIONS; TRANSFER; EXCHANGE The Securities are in registered form without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed or 15 days before an interest payment date. 10. PERSONS DEEMED OWNERS The registered Holder of this Security may be treated as the owner of it for all purposes. 11. UNCLAIMED MONEY If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. DISCHARGE AND DEFEASANCE Subject to certain conditions, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. AMENDMENT, WAIVER Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount outstanding of the Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount outstanding of the Securities. However, without the consent of Holders of 80% or more in principal amount of the Securities then outstanding, the Company may not (with respect to any Securities held by a non-consenting Holder) make any change to Article 10 of the Indenture (or the defined terms used therein) that would adversely affect Holders of the Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company, or to comply with any request of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder. 14. DEFAULTS AND REMEDIES Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the Company to purchase Securities when required; (iii) failure by the Company to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after final maturity) of other Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds $10.0 million or its foreign currency equivalent; (v) certain events of bankruptcy or insolvency with respect to the Company and the Significant Subsidiaries; and (vi) certain judgments or decrees for the payment of money in excess of $10.0 million or its foreign currency equivalent. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of principal or interest) if it determines that withholding notice is in the interest of the Holders. 15. TRUSTEE DEALINGS WITH THE COMPANY Subject to certain limitations imposed by the Act, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its Affiliates and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. 16. NO RECOURSE AGAINST OTHERS A director, officer, employee or stockholder, as such, of the Company or the Trustee shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. AUTHENTICATION This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent) manually signs the certificate of authentication on the other side of this Security. 18. ABBREVIATIONS Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 20. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each Holder of a Security, by acceptance hereof, acknowledges and agrees to the provisions of the Registration Rights Agreement, including, without limitation, the obligations of the Holders with respect to a registration and the indemnification of the Company to the extent provided therein. 21. GOVERNING LAW. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE TO THE SECURITY HOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO: HEXCEL CORPORATION TWO STAMFORD PLAZA 281 TRESSER BLVD. STAMFORD, CONNECTICUT 06901 ATTENTION: GENERAL COUNSEL - ------------------------------------------------------------------------------- ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. - ----------------------------------------------------------------------- Date: Your Signature: ------------------------- ------------------------ - ------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this Security. OPTION OF HOLDER TO ELECT PURCHASE IF YOU WANT TO ELECT TO HAVE THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.09 OF THE INDENTURE, CHECK THE BOX: --- / / --- IF YOU WANT TO ELECT TO HAVE ONLY PART OF THIS SECURITY PURCHASED BY THE COMPANY PURSUANT TO SECTION 4.06 OR 4.09 OF THE INDENTURE, STATE THE AMOUNT: $ DATE: YOUR SIGNATURE: --------------------- ---------------------------------- (SIGN EXACTLY AS YOUR NAME APPEARS ON THE OTHER SIDE OF THE SECURITY) SIGNATURE GUARANTEE: ----------------------------------- (SIGNATURE MUST BE GUARANTEED BY A MEMBER FIRM OF THE NEW YORK STOCK EXCHANGE OR A COMMERCIAL BANK OR TRUST COMPANY) EX-4.2 4 EXHIBIT 4.2 EXECUTION COPY $240,000,000 HEXCEL CORPORATION 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 REGISTRATION RIGHTS AGREEMENT January 21, 1999 CREDIT SUISSE FIRST BOSTON CORPORATION SALOMON SMITH BARNEY INC. c/o CREDIT SUISSE FIRST BOSTON CORPORATION Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: Hexcel Corporation, a Delaware corporation (the "COMPANY"), proposes to issue and sell to Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. (the "INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement dated January 15, 1999 (the "PURCHASE AGREEMENT"), $240,000,000 aggregate principal amount of its 9 3/4% Senior Subordinated Notes Due 2009 (thE "INITIAL SECURITies"). The Initial Securities will be issued pursuant to an Indenture of even date herewith (the "INDENTURE"), between the Company and The Bank of New York, as trustee (the "TRUSTEE"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the holders of the Initial Securities (including, without limitation, the Initial Purchasers), the Exchange Securities (as defined below) and the Private Exchange Securities (as defined below) (collectively the "HOLDERS"), as follows: 1. REGISTERED EXCHANGE OFFER. The Company shall, at its own cost, prepare and, not later than 90 days after (or if the 90th day is not a business day, the first business day thereafter) the date of original issue of the Initial Securities (the "ISSUE DATE"), file with the Securities and Exchange Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act of 1933 (the "SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities (the "EXCHANGE SECURITIES") of the Company issued under the Indenture and identical in all material respects to the Initial Securities (except for the transfer restrictions relating to the Initial Securities and the provisions relating to the matters described in Section 6 hereof) that would be registered under the Securities Act. The Company shall use its best efforts to cause such Exchange Offer Registration Statement to become effective under the Securities Act within 180 days (or if the 180th day is not a business day, the first business day thereafter) after the Issue Date of the Initial Securities and shall use its best efforts to keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). If the Company effects the Registered Exchange Offer, the Company will be entitled to close the Registered Exchange Offer 30 days after the commencement thereof provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer. As soon as practicable, following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder of Transfer Restricted Securities (as defined in Section 6 hereof) electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. Notwithstanding the foregoing, the Initial Purchasers and the Company acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in connection with such sale. The Company shall use its best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; PROVIDED, HOWEVER, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of the Initial Purchaser, in exchange (each, a "PRIVATE EXCHANGE" and collectively, the "PRIVATE EXCHANGES") for the Initial Securities held by the Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and identical in all material respects (including the existence of restrictions on transfer under the Securities Act and the securities laws of the several states of the United States, but excluding provisions relating to the matters described in Section 6 hereof) to the Initial Securities (the "PRIVATE EXCHANGE SECURITIES"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "SECURITIES". In connection with the Registered Exchange Offer, the Company shall: 2 (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) use its best efforts to keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of Registered Exchange Offer or the Private Exchanges, as the case may be, the Company shall: (x) accept for exchange all the Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchanges; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchanges will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 3 Notwithstanding any other provisions hereof, the Company will use its best efforts to ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. SHELF REGISTRATION. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company determines that it is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) for any other reason the Registered Exchange Offer is not consummated within 180 days of the Issue Date (or, if such day is not a business day, the first business day thereafter), (iii) any Initial Purchaser notifies the Company within 10 business days following consummation of the Registered Exchange Offer that the Initial Securities (or the Private Exchange Securities) held by it are not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange, the Company shall take the following actions: (a) The Company shall, at its cost, as promptly as practicable (but in no event more than 90 days after so required or requested pursuant to this Section 2) file with the Commission and thereafter shall use its best efforts to cause to be declared effective a registration statement (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined in Section 6 hereof) by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "SHELF REGISTRATION"); PROVIDED, HOWEVER, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the date of its effectiveness or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) when, in the opinion of outside counsel to the Company, which is reasonably satisfactory in form and substance to counsel for the Initial Purchasers, all such Securities may be sold pursuant to Rule 144 without any limitations imposed pursuant to clauses (c), (e), (f) and (h) thereunder. The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Securities covered thereby not being able to offer and sell such Securities during that period, unless such action is required by applicable law. (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall use its best efforts to cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf 4 Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations thereunder and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. REGISTRATION PROCEDURES. In connection with any Shelf Registration contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering) is participating in such Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may on a timely basis propose; (ii) include substantially the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K under the Securities Act, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made, if applicable): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; 5 (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities included thereunder for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder so requests in writing, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of the Securities included therein and their respective counsel in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities 6 covered by such Registration Statement; PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, as soon as is practicable after the effective date of the applicable Registration Statement. (m) The Company shall cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and containing such changes, if any, as shall be necessary for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such 7 registration the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make reasonably available for inspection by the Holders of the Securities, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; PROVIDED, HOWEVER, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described in and subject to the provisions of Section 4 hereof. In connection with the preparation and filing of a Shelf Registration Statement, the Company may require each Holder to agree to keep confidential any non-public information relating to the Company received by such Holders and not to publicly disclose such information until such information has been made generally available to the public. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion relating to the Securities in customary form; (ii) its officers to execute and deliver all customary documents and certificates requested by any underwriters of the applicable Securities and (iii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall use its best efforts to cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(d)-(f) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants and the independent public accountants with respect to any other entity for which financial information is provided in the Registration Statement to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letters, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) and (b) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. 8 (t) The Company will use its best efforts to (a) if the Initial Securities have been rated prior to the initial sale of such Initial Securities, confirm such ratings will apply to the Securities covered by a Registration Statement, or (b) if the Initial Securities were not previously rated, cause the Securities covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by Holders of a majority in aggregate principal amount of Securities covered by such Registration Statement, or by the managing underwriters, if any. (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "RULES") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. 4. REGISTRATION EXPENSES. The Company shall bear all fees and expenses incurred by it in connection with the performance of its obligations under Sections 1 through 3 hereof (including the reasonable fees and expenses, if any, of Cravath, Swaine & Moore, counsel for the Initial Purchasers, incurred in connection with the Registered Exchange Offer), whether or not the Registered Exchange Offer or a Shelf Registration is filed or becomes effective, and, in the event of a Shelf Registration, shall bear or reimburse the Holders of the Securities covered thereby for the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of the Securities covered thereby to act as counsel for the Holders of the Securities in connection therewith. 5. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or in a prospectus contained in a Registration Statement (a "PROSPECTUS") or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; PROVIDED, HOWEVER, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage, liability or actions in respect thereof arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration 9 Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from whom the person asserting any such losses, claims, damages, liabilities or actions in respect thereof purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage, liability or action of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; PROVIDED FURTHER, HOWEVER, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above, except to the extent the indemnifying party is materially prejudiced by such failure. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof. In no event shall an indemnifying party be liable for fees and expenses of more than one counsel 10 (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the exchange of the Securities, pursuant to the Registered Exchange Offer, or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party on the one hand or such indemnified party on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. ADDITIONAL INTEREST UNDER CERTAIN CIRCUMSTANCES. (a) Additional interest (the "ADDITIONAL INTEREST") with respect to the Initial Securities and the Private Exchange Securities shall be assessed as follows if any of the following events occur (each such event in clauses (i) through (iii) below a "REGISTRATION DEFAULT"): (i) If by April 21, 1999 (90 days after the Issue Date), neither the Exchange Offer Registration Statement nor a Shelf Registration Statement has been filed with the Commission; 11 (ii) If by July 20, 1999 (180 days after the Issue Date), neither the Registered Exchange Offer is consummated nor, if required in lieu thereof, the Shelf Registration Statement is declared effective by the Commission; or (iii) If after July 20, 1999, and after either the Exchange Offer Registration Statement or the Shelf Registration Statement is declared effective (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable except as permitted in paragraph (b) hereof in connection with resales of Transfer Restricted Securities during the periods specified herein because either (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus, to comply with the Securities Act or the Exchange Act or the respective rules thereunder. Additional Interest shall accrue on the Initial Securities and the Private Exchange Notes over and above the interest set forth in the title of the Securities from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have been cured, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE") until all Registration Defaults have been cured. (b) A Registration Default referred to in Section 6(a)(iii) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; PROVIDED, HOWEVER, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured. (c) Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii) of Section 6(a) above will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Initial Securities or Private Exchange Notes or Exchange Securities, as the case may be, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (d) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 12 7. RULES 144 AND 144A. The Company shall use its best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Securities, make publicly available other information so long as necessary to permit sales of their securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Initial Securities identified to the Company by the Initial Purchasers upon request. Upon the request of any Holder of Initial Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering ("MANAGING UNDERWRITERS") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering, with the consent of the Company, which consent shall not be unreasonably withheld. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. (b) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Cravath, Swaine & Moore Worldwide Plaza 825 Eighth Avenue 13 New York, NY 10019-7475 Fax No.: (212) 735-3700 Attention: William J. Whelan, III (3) if to the Company, at its address as follows: Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, CT 06901 Fax No.: (203) 358-3993 Attention: General Counsel with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 Fax No.: (212) 735-2000 Attention: Joseph A. Coco, Esq. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (c) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (d) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns. (e) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the 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. (f) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) GOVERNING Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (h) SEVERABILITY. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (i) SECURITIES HELD BY THE COMPANY. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be 14 affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (j) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. To the extent that the Company may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, it hereby irrevocably waives such immunity in respect of this Agreement, to the fullest extent permitted by law. 15 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Initial Purchasers and the Company in accordance with its terms. Very truly yours, HEXCEL CORPORATION, by /s/ Bruce D. Herman -------------------------------- Name: Bruce D. Herman Title: Treasurer The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION SALOMON SMITH BARNEY INC. by: CREDIT SUISSE FIRST BOSTON CORPORATION by /s/ Joseph D. Carrabino, Jr. ------------------------------- Name: Joseph D. Carrabino, Jr. Title: Managing Director 16 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 17 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 18 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 199 , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.(1) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ----------------- (1) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the inside front cover page of the Exchange Offer prospectus. 19 ANNEX D |_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: -------------------------------------- Address: -------------------------------------- -------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 20 EX-4.3 5 EXHIBIT 4.3 EXECUTION COPY $240,000,000 HEXCEL CORPORATION 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 PURCHASE AGREEMENT January 15, 1999 CREDIT SUISSE FIRST BOSTON CORPORATION SALOMON SMITH BARNEY INC. c/o CREDIT SUISSE FIRST BOSTON CORPORATION Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. INTRODUCTORY. Hexcel Corporation, a Delaware corporation (the "COMPANY"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the "INITIAL PURCHASERS") $240,000,000 principal amount of its 9 3/4% Senior Subordinated Notes Due 2009 (the "OFFERED SECURITIES"). The Offered Securities will be issued under an indenture dated as of January 21, 1999 (the "INDENTURE"), between the Company and The Bank of New York, as trustee (the "TRUSTEE"). The Offered Securities will be offered and sold to the Initial Purchasers without being registered under the Securities Act of 1933 (the "SECURITIES ACT"), in reliance upon an exemption therefrom. Prior to the Closing Date (as defined herein), the Company will deliver to the Initial Purchasers a Preliminary Offering Circular (as defined herein) setting forth the information concerning the Company and the Offered Securities. Any references herein to the Offering Circular (as defined herein) shall be deemed to include all amendments and supplements thereto, unless otherwise noted, and all documents (the "INCORPORATED DOCUMENTS") incorporated by reference therein and filed under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); and any references herein to the terms "amend", "amendment" or "supplement" with respect to the Offering Circular shall be deemed to refer to and include the filing of any document under the Exchange Act subsequent to the date thereof and before the Closing Date that is incorporated by reference therein. The Company hereby confirms that it has authorized the use of the Incorporated Documents and the Offering Document (as defined herein) in connection with the offering and resale of the Offered Securities by the Initial Purchasers in accordance with Section 2 hereof. Holders of the Offered Securities (including the Initial Purchasers and their direct and indirect transferees) will be entitled to the benefits of a Registration Rights Agreement dated January 21, 1999, among the Company and the Initial Purchasers (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company will agree to file with the Securities and Exchange Commission (the "COMMISSION") (i) a registration statement under the Securities Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") registering an issue of senior subordinated notes of the Company (the "EXCHANGE NOTES"), which are identical in all material respects to the Offered Securities (except that the Exchange Notes will not contain terms with respect to transfer restrictions and interest rate increase) and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Securities Act. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Offering Document. The Company hereby agrees with the Initial Purchasers as follows: 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, the Initial Purchasers that: (a) A preliminary offering circular and an offering circular relating to the Offered Securities has been prepared by the Company. Such preliminary offering circular (the "PRELIMINARY OFFERING CIRCULAR") and offering circular (the "OFFERING CIRCULAR"), as both are supplemented as of the date of this Agreement, and any other document approved by the Company for use in connection with the contemplated resale of the Offered Securities, are hereinafter collectively referred to as the "OFFERING DOCUMENT". On the date of this Agreement, the Offering Document does not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Initial Purchaser through Credit Suisse First Boston Corporation ("CSFBC") specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. Except as disclosed in the Offering Document, on the date of this Agreement, the Incorporated Documents and all subsequent reports (collectively, the "EXCHANGE ACT REPORTS") which have been filed by the Company with the Commission or sent to stockholders pursuant to the Exchange Act when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder. (b) The Company has been duly incorporated and is a validly existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries (as hereinafter defined), taken as a whole (a "MATERIAL ADVERSE EFFECT"). (c) Each subsidiary of the Company within the meaning of Rule 1-02(w) of Regulation S-X under the Securities Act is listed in Schedule B hereto (each individually, a "SUBSIDIARY" and collectively, the "SUBSIDIARIES"). Each Subsidiary of the Company has been duly incorporated and is a validly existing corporation in good standing (where applicable) under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each Subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing (where applicable) in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; all of the issued and outstanding capital stock of each Subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and, except as disclosed in the Offering Document, the capital stock of each Subsidiary is owned by the Company, directly or through Subsidiaries, and is owned free from material liens, encumbrances and defects except for liens and encumbrances created by or under the Senior Credit Facility (as defined in the Offering Document). 2 (d) The Indenture has been duly authorized by the Company; the Offered Securities have been duly authorized by the Company; and when the Offered Securities are delivered and paid for pursuant to this Agreement and the Indenture on the Closing Date, the Indenture will have been duly executed and delivered (assuming due authorization, execution and delivery by the Trustee), such Offered Securities will have been duly executed, authenticated, issued and delivered (assuming authentication by the Trustee in accordance with the provisions of the Indenture) and will conform in all material respects to the description thereof contained in the Offering Document; and the Indenture and such Offered Securities will constitute valid and legally binding obligations of the Company (and the Offered Securities will be entitled to the benefits in the Indenture), enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (e) Except as disclosed in the Offering Document, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Initial Purchaser for a brokerage commission, finder's fee or other like payment in connection with the issuance and sale of Offered Securities. (f) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement and the Registration Rights Agreement in connection with the issuance and sale of the Offered Securities by the Company except (i) those that have been obtained or made; (ii) for filings and qualifications contemplated by the Registration Rights Agreement; (iii) such as may be required under foreign or state securities or blue sky laws; or (iv) such Exchange Act Reports as may be required to be filed with the Commission after the Closing Date pursuant to the Company's periodic reporting requirements under Sections 13 and 15(d) of the Exchange Act. (g) The Registration Rights Agreement has been duly authorized by the Company and will conform in all material respects to the description thereof in the Offering Document and, when the Registration Rights Agreement has been duly executed and delivered by the Initial Purchasers, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws, now or hereinafter in effect, relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). (h) This Agreement has been duly authorized, executed and delivered by the Company. (i) The execution, delivery and performance of the Indenture, Registration Rights Agreement and this Agreement, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any Subsidiary of the Company or any of their properties, or (ii) any agreement (except for such provisions in the Senior Credit Facility and the indenture governing the issuance of the Ciba Notes (as defined in the Offering Document) which shall be amended or consents obtained to avoid any default thereunder) or instrument to which the Company or any such Subsidiary is a party or by which the Company or any such Subsidiary is bound or to which any of the properties of the Company or any such Subsidiary is subject, or (iii) the charter or by-laws of the Company or any such Subsidiary except, in the case of clauses (i) and (ii) above, 3 for breaches, violations and defaults that would not have a Material Adverse Effect or prevent or negate the effectiveness of the Indenture, Registration Rights Agreement or this Agreement; and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (j) The Company and its Subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them except, in each case, (i) as disclosed in the Offering Document; (ii) such liens and encumbrances created by or under the Senior Credit Facility (as defined in the Offering Document); or (iii) such as do not have a Material Adverse Effect; and the Company and its Subsidiaries hold any leased real or personal property under valid and enforceable leases with such exceptions as are not material to the Company and its Subsidiaries taken as a whole and would not materially interfere with the use made or proposed to be made thereof by them except (i) as disclosed in the Offering Document; or (ii) such as do not have a Material Adverse Effect. (k) The Company and its Subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business in the manner presently conducted by them, subject to such qualifications as may be set forth in the Offering Document or except where the failure to so possess would not, singularly or in the aggregate, have a Material Adverse Effect and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its Subsidiaries, would have a Material Adverse Effect. (l) No labor dispute with the employees of the Company or any Subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. (m) The Company and its Subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct the business now operated by them, or presently employed by them except where the failure to so own or possess would not, singularly or in the aggregate, have a Material Adverse Effect and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its Subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (n) Except as disclosed in the Offering Document, neither the Company nor any of its Subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances or wastes (collectively, "ENVIRONMENTAL LAWS"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or, to the knowledge of the Company, is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. (o) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company or any of its Subsidiaries or, to the knowledge of the Company or its Subsidiaries, to which any of their respective properties are subject or that, if 4 determined adversely to the Company or any of its Subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under the Indenture or this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company's knowledge, threatened or contemplated. (p) The historical financial statements included in the Offering Document present fairly the financial position of the Company and its consolidated subsidiaries on the basis stated in the Offering Document as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis throughout the periods involved, except as disclosed therein; and the pro forma financial information, and the related notes thereto included in the Offering Document and the assumptions used in preparing such pro forma financial statements are a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. (q) Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (r) The Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the "INVESTMENT COMPANY ACT"); and the Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will not be an "investment company" required to be registered under the Investment Company Act. (s) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system. (t) Assuming the accuracy of the representations and warranties of the Initial Purchasers set forth in this Agreement and compliance by the Initial Purchasers with the provisions of this Agreement, it is not necessary in connection with the offer, sale and delivery of the Offered Securities to the Initial Purchasers and to each subsequent purchaser in the manner contemplated by this Agreement and the Offering Document to register the Offered Securities under the Securities Act or to qualify the Indenture under the United States Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"). (u) Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any securities sold in reliance on Rule 903 of Regulation S, by means of any directed selling efforts within the meaning of Rule 902(b) of Regulation S. The 5 Company has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement. 3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Initial Purchasers, and the Initial Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 97.5% of the principal amount thereof plus accrued interest from January 21, 1999 to the Closing Date (as hereinafter defined), the respective principal amounts of the Offered Securities set forth opposite the names of the several Initial Purchasers in Schedule A hereto. The Company will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global Securities in definitive form (the "GLOBAL SECURITIES") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent Global Securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Initial Purchasers in Federal (same day) funds by wire transfer to an account of the Company at a bank designated by the Company and acceptable to CSFBC or by official Federal Reserve Bank check or checks drawn to the order of the Company at the office of Cravath, Swaine & Moore at 9:00 A.M. (New York time), on January 21, 1999, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "CLOSING DATE", against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities. The Global Securities will be made available for checking at the office of Cravath, Swaine & Moore at least 24 hours prior to the Closing Date. 4. REPRESENTATIONS BY INITIAL PURCHASERS; RESALE BY INITIAL PURCHASERS. (a) Each Initial Purchaser severally represents and warrants to the Company that it is an "ACCREDITED INVESTOR" within the meaning of Regulation D under the Securities Act. (b) Each Initial Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Initial Purchaser severally represents and agrees that it has offered and sold the Offered Securities and will offer and sell the Offered Securities as part of its distribution, only in accordance with Rule 144A ("RULE 144A") or Rule 903 under the Securities Act. Accordingly, neither such Initial Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Initial Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. Terms used in this subsection (b) have the meanings given to them by Regulation S. (c) Each Initial Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Initial Purchaser or affiliates of the other Initial Purchaser or with the prior written consent of the Company. (d) Each Initial Purchaser severally agrees that it and each of its affiliates will not offer or sell the Offered Securities by means of any form of general solicitation or general advertising, within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Initial Purchaser severally agrees, with respect to resales made in reliance on Rule 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered 6 Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (e) Each of the Initial Purchasers severally represents and agrees that (i) it has not offered or sold and prior to the date six months after the date of issue of the Offered Securities will not offer or sell any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom; and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Offered Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on. 5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the several Initial Purchasers that: (a) The Company will advise CSFBC promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without CSFBC's consent, which consent shall not be unreasonably withheld or delayed. If, at any time prior to the completion of the resale of the Offered Securities by the Initial Purchasers any event occurs as a result of which the Offering Document as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any such time to amend or supplement the Offering Document to comply with any applicable law, the Company promptly will notify CSFBC of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission or effect such compliance. Neither CSFBC's consent to, nor the Initial Purchasers' delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6 of this Agreement. (b) The Company will furnish to CSFBC copies of the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC reasonably requests, and the Company will furnish to CSFBC on the date hereof three copies of the Offering Document signed by a duly authorized officer of the Company, one of which will include the independent accountants' reports therein manually signed by such independent accountants. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will promptly furnish or cause to be furnished to CSFBC (and, upon request, to each of the other Initial Purchasers) and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Company will pay the expenses of printing and distributing to the Initial Purchasers all such documents. (c) The Company will arrange with the cooperation of the Initial Purchasers for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States and Canada as CSFBC designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Initial Purchasers provided that the Company will not be required to 7 qualify such Offered Securities if such qualification would require the Company to as a foreign corporation or to file a general consent to service of process or subject itself to taxation in any such state. (d) During the period of three years hereafter, the Company will furnish to CSFBC and, upon request, to each of the other Initial Purchasers, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to CSFBC and, upon request, to each of the other Initial Purchasers (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (e) During the period of two years after the Closing Date, the Company will, upon request, furnish to CSFBC, each of the other Initial Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Offered Securities. (f) During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities that have been reacquired by any of them. (g) During the period of two years after the Closing Date, the Company will not be or become, an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act. (h) The Company will pay all expenses incidental to the performance of its obligations under this Agreement, the Registration Rights Agreement and the Indenture, including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Exchange Securities (as defined in the Registration Rights Agreement), the preparation and printing of this Agreement, the Securities, the Indenture, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and, as applicable, the Exchange Securities; (iii) the cost of qualifying the Offered Securities for trading in The Portal-SM- Market ("PORTAL") of The Nasdaq Stock Market, Inc. and any expenses incidental thereto, (iv) the cost of any advertising approved in writing by the Company in connection with the issue of the Offered Securities, (v) for any expenses (including reasonable fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities or the Exchange Securities for sale under the laws of such jurisdictions as in writing by the Company CSFBC designates and the printing of memoranda relating thereto, (vi) for any fees charged by investment rating agencies for the rating of the Offered Securities or the Exchange Securities, and (vii) for expenses incurred in distributing the Offering Document (including any amendments and supplements thereto) to the Initial Purchasers. The Company will reimburse the Initial Purchasers for all reasonable travel expenses of the Initial Purchasers and the Company's officers and employees (to the extent incurred by the Initial Purchasers) and any other reasonable expenses of the Initial Purchasers and the Company (to the extent incurred by the Initial Purchasers) in connection with attending or hosting meetings with prospective purchasers of the Offered Securities. (i) In connection with the offering, until CSFBC shall have notified the Company and the other Initial Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities. 8 (j) For a period of 120 days after the date of the initial offering of the Offered Securities by the Initial Purchasers, the Company will not, without the prior written consent of CSFBC, which consent shall not be unreasonably withheld, offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any United States dollar-denominated debt securities issued or guaranteed by the Company and having a maturity of more than one year from the date of issue, except issuances of (i) Offered Securities pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options, in each case outstanding on the date hereof, (ii) the Exchange Securities, (iii) any debt securities of another entity acquired by the Company or assured by the Company in connection with an acquisition of the assets of such entity, which debt securities were (a) existing prior to such acquisition; and (b) were not issued in connection with, or in contemplation of, such acquisition), (iv) grants of employee stock options pursuant to the terms of a plan in effect on the date hereof, issuances of Offered Securities pursuant to the exercise of such options or issuances of Offered Securities pursuant to the Company's dividend reinvestment plan. The Company will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offer and sale of the Offered Securities. 6. CONDITIONS OF THE OBLIGATION OF THE INITIAL PURCHASERS. The obligation of the several Initial Purchasers to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Initial Purchasers shall have received a letter, dated the date of this Agreement, of PricewaterhouseCoopers LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder ("RULES AND REGULATIONS") and to the effect that: (i) In their opinion the financial statements and schedules of the Company examined by them and included in the Offering Document comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements of the Company included in the Offering Document; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Offering Document do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent date, there was any change in the capital stock or 9 any increase in short-term indebtedness or long-term debt of the Company and its consolidated Subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated (i) total current assets minus total current liabilities or (ii) total shareholders' equity (or deficit), as compared with amounts shown on the latest balance sheet included in the Offering Document; or (C) for the period from the closing date of the latest statement of operations included in the Offering Document to the closing date of the latest available statement of operations read by such accountants there were any decreases, as compared with the corresponding period of the previous year, in consolidated net sales, in consolidated income (or loss) from continuing operations, in the total amounts of consolidated net income (or loss), except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which are described in such letter; (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document, as agreed upon with the Initial Purchasers (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation), with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter; and (v) on the basis of a reading of the pro forma financial statements, carrying out certain specified procedures, reading of minutes, inquiries of certain officials of the Company who have responsibility for financial and accounting matters and proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the pro forma financial statements, nothing came to their attention which caused them to believe that the pro forma financial statements do not comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X under the Securities Act or that the pro forma adjustments have not been properly applied to the historical amounts in the compilation of such statements or on the pro forma basis described in the notes thereto. (b) The Initial Purchasers shall have received a letter, dated between the date of this Agreement and the Closing Date, of Deloitte & Touche LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published Rules and Regulations and in form and substance reasonably satisfactory to the Initial Purchasers. (c) The Initial Purchasers shall have received a letter, dated the date of this Agreement, of Arthur Andersen LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published Rules and Regulations and in form and substance reasonably satisfactory to the Initial Purchasers. (d) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) a change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market, or (ii) any change, or any development or event involving a prospective change, in the condition 10 (financial or other), business, properties or results of operations of the Company or its Subsidiaries taken as a whole which, in the judgment of a majority in interest of the Initial Purchasers, including CSFBC, is material and adverse and makes it impractical or inadvisable to proceed with the completion of the offering or the sale of and payment for the Offered Securities; (iii) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iv) any suspension or limitation of trading in securities generally on the New York Stock Exchange or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (v) any banking moratorium declared by U.S. Federal or New York authorities; or (vi) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Initial Purchasers, including CSFBC, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with the completion of the offering or sale of and payment for the Offered Securities. (e) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Ira J. Krakower, Esq., General Counsel for the Company, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware; (ii) The Company is duly qualified as a foreign corporation to transact business and is in good standing as a foreign corporation under the laws of each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Effect and except for jurisdictions not recognizing the legal concept of good standing; (iii) Clark-Schwebel Corporation, a Delaware corporation ("Clark-Schwebel") has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware; (iv) Clark-Schwebel is duly qualified as a foreign corporation to transact business and is in good standing as a foreign corporation under the laws of each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Effect and except for jurisdictions not recognizing the legal concept of good standing; (v) Clark-Schwebel has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Circular; (vi) There is no action, suit or proceeding or, to the knowledge of such counsel, inquiry or investigation before or by any court or governmental agency or body, domestic or foreign, now pending or, to the knowledge of such counsel, threatened, against or affecting the Company or any of its subsidiaries, which would, individually or in the aggregate, have a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the transactions contemplated by this Agreement or the performance by the Company of its obligations 11 thereunder or under the Securities or in connection with the transactions contemplated thereby; (vii) The execution and delivery by the Company of the Securities and of each of the Transaction Documents, and the performance by the Company of its obligations thereunder, will not (a) to the best knowledge of such counsel, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of or a default under (except for Permitted Liens) or result in the creation or imposition of any lien, charge or encumbrance (except for Permitted Liens) upon any property or assets of the Company or Clark-Schwebel pursuant to any material contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other material agreement or instrument to which the Company or Clark-Schwebel is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or Clark-Schwebel is subject (except for such conflicts, breaches or defaults, that would not have a Material Adverse Effect) and except that such counsel does not express any opinion with respect to the financial ratios or tests or any aspects of the financial condition or results of operations of the Company and Clark-Schwebel to the extent the determination of such conflict, breach or default requires quantitative determination; and (viii) Such counsel does not know of any legal or governmental proceeding required to be described in the Offering Circular which are not described as required or of any contracts or documents of a character required to be described in the Offering Document which are not described and filed as required. (f) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company to the effect, that: (i) The Company has the corporate power and corporate authority to own, lease and operate its properties and to conduct its business as described in the Offering Circular; (ii) The Company has the corporate power and corporate authority to execute, deliver and perform all its obligations under this Agreement, the Registration Rights Agreement, the Indenture and the Offered Securities; (iii) This Agreement has been duly authorized, executed and delivered by the Company; (iv) The Indenture has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that (a) enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), and (b) the enforceability, under certain circumstances, of provisions imposing a payment obligation pending the ability of the Company to comply timely with its registration obligations may be limited by applicable law; (v) The Registration Rights Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that (a) enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect 12 relating to creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity), (b) the enforceability, under certain circumstances, of provisions imposing a payment obligation pending the ability of the Company to comply timely with its registration obligations may be limited by applicable law, and (c) the enforceability of indemnification and contribution provisions may be limited by Federal and state securities laws or the public policies underlying such laws; (vi) The issuance and sale of the Securities have been duly authorized by the Company, and the Offered Securities, when executed and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except to the extent that (a) enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and (b) the enforceability, under certain circumstances, of provisions imposing a payment obligation pending the ability of the Company to comply timely with its registration obligations may be limited by applicable law; (vii) The execution and delivery by the Company of the Offered Securities and each of the Transaction Documents to which it is a party, and the consummation by the Company of the transactions contemplated thereby, will not conflict with or result in any breach or violation of, or constitute a default under, (A)(i) the Restated Certificate of Incorporation or By-laws of the Company or (ii) the certificate of incorporation or by-laws of Clark-Schwebel or (B) any Applicable Law; (viii) No consent, approval, authorization, order, decree, registration or qualification of or filing with any court or governmental authority or agency is required under Applicable Laws for the valid authorization, issuance, sale and delivery of the Offered Securities by the Company or is required for the valid execution and delivery by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby; (ix) Assuming (i) the accuracy of the representations and warranties of the Company set forth in Sections 2(s) and (u) of this Agreement and of the Initial Purchasers' representations and warranties set forth in Section 4 of this Agreement, (ii) the due performance by the Company of the covenants and agreements set forth in Sections 2(s) and (u) and 3(j) of this Agreement and the due performance by the Initial Purchasers of the covenants and agreements set forth in Section 4(b) and (c) of this Agreement, (iii) the Initial Purchasers' compliance with the offering and transfer procedures and restrictions described in the Offering Circular, (iv) the accuracy of the representations and warranties made in accordance with this Agreement and the Offering Circular by purchasers to whom the Initial Purchasers initially resell the Offered Securities and (v) that purchasers to whom the Initial Purchasers initially resell the Offered Securities receive a copy of the Offering Circular prior to or contemporaneously with such sale, the offer, sale and delivery of the Offered Securities to you in the manner contemplated by the Purchase Agreement and the Offering Circular, and the initial resale of the Offered Securities by the Initial Purchasers in the manner contemplated in the Offering Circular and this Agreement, do not require qualification under the Trust Indenture Act of 1939, as amended, it being understood that such counsel does not express any opinions to any subsequent resale of any Offered Security; and 13 (x) The Company is not and, after giving effect to the issuance and sale of the Offered Securities and the application of the proceeds therefrom as described in the Offering Circular, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. Such counsel shall also state that such counsel has participated in conferences with directors, officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchasers and representatives of counsel for the Initial Purchasers, at which conferences the contents of the Offering Document and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Document, and has made no independent check or verification thereof (except to the extent set forth in paragraph (ii) above with respect to the description of the Offered Securities) on the basis of the foregoing, no facts have come to such counsel's attention which have caused such counsel to believe that the Offering Document, as of its date and as of the Closing Date, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading (it being understood that such counsel need express no view with respect to the financial statements and the notes related thereto). As used in Sections 6(e) and 6(f), the terms "Transaction Documents" shall mean the Indenture, the Registration Rights Agreement and this Agreement and "Applicable Laws" shall mean the laws of the State of New York, the Federal laws of the United States and the General Corporation law of the State of Delaware. (g) The Initial Purchasers shall have received from Cravath, Swaine & Moore, counsel for the Initial Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities offered on such Closing Date, the Offering Circular, the exemption from registration for the offer and sale of the Offered Securities by the Company to the several Initial Purchasers and the resales by the several Initial Purchasers as contemplated hereby and other related matters as CSFBC may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (h) The Initial Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date with the same effect as if made on the Closing Date; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; and, subsequent to the date of the most recent financial statements in the Offering Document, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries taken as a whole except as set forth in or contemplated by the Offering Document or as described in such certificate. (i) The Initial Purchasers shall have received a letter, dated the Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to the Closing Date for the purposes of this subsection. (j) Each of the Senior Credit Facility and the indenture governing the issuance of the Ciba Notes shall have been amended and/or the Company shall have obtained the necessary 14 consents from the parties thereto in order to avoid any default under the Senior Credit Facility or such indenture in connection with the issuance and sale of the Offered Securities. (k) The Registration Rights Agreement shall have been duly authorized, executed and delivered by the Company. The Company shall furnish the Initial Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Initial Purchasers reasonably request. CSFBC may in its sole discretion waive compliance with any condition to the obligations of the Initial Purchasers hereunder. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and hold harmless each Initial Purchaser, its partners, directors and officers and each person, if any, who controls such Initial Purchaser within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Initial Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, including any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement, and will reimburse such Initial Purchaser for any legal or other expenses reasonably incurred by such Initial Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or actions in respect thereof arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Initial Purchaser through CSFBC specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below; PROVIDED FURTHER, HOWEVER, that the foregoing indemnity with respect to the Preliminary Offering Circular shall not inure to the benefit of the Initial Purchaser from whom the person asserting any such losses, claims, damages, liabilities or actions in respect thereof purchased Offered Securities to the extent that any such losses, claims, damages, liabilities or actions in respect thereof of such Initial Purchaser result from a fact that such Initial Purchaser sold Offered Securities to a person in an initial resale to whom there was not sent or given, at or prior to the written confirmation of the sale of such Offered Securities, a copy of the Offering Circular (as amended or supplemented), if the Company had previously furnished a copy of such amendments or supplements to such Initial Purchaser prior to confirmation of the sale of such Offered Securities to such person by such Initial Purchaser, and the losses, claims, damages, liabilities or actions in respect thereof of such Initial Purchaser result from an untrue statement or omission of a material fact contained in the Preliminary Offering Circular, which was corrected in the Offering Circular. (b) Each Initial Purchaser will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Initial Purchaser through CSFBC specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, 15 claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Initial Purchaser consists of the following information in the Offering Document: paragraphs three, six, nine and ten, and the third sentence of paragraph eight under the caption "Plan of Distribution"; PROVIDED, HOWEVER, that the Initial Purchasers shall not be liable for any losses, claims, damages or liabilities arising out of or based upon the Company's failure to perform its obligations under Section 5(a) of this Agreement. (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above, except to the extent the indemnifying party is materially prejudiced by such failure. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In no event shall an indemnifying party be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchaser on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchasers from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), such Initial Purchaser shall not be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased by it were resold exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such 16 untrue or alleged untrue statement or omission or alleged omission. The Initial Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Initial Purchasers under this Section shall be in addition to any liability which the respective Initial Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act. 8. DEFAULT OF INITIAL PURCHASERS. If any Initial Purchaser or Purchasers default in their obligations to purchase Offered Securities and the aggregate principal amount of Offered Securities that such defaulting Initial Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Initial Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Initial Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Initial Purchasers agreed but failed to purchase. If any Initial Purchaser or Purchasers so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Initial Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term "INITIAL PURCHASER" includes any person substituted for a Initial Purchaser under this Section. Nothing herein will relieve a defaulting Initial Purchaser from liability for its default. 9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Initial Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Securities. If for any reason the purchase of the Offered Securities by the Initial Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Initial Purchasers pursuant to Section 7 shall remain in effect and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Initial Purchasers is not consummated for any reason other than solely because of the occurrence of any event specified in clause (iv), (v) or (vi) of Section 6(d), the Company will reimburse the Initial Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. NOTICES. All communications hereunder will be in writing and, if sent to the Initial Purchasers will be mailed, delivered or telegraphed and confirmed to the Initial Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department - Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901, Attention: General Counsel; PROVIDED, HOWEVER, that any notice to an Initial Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Initial Purchaser. 17 11. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties hereto. 12. REPRESENTATION OF INITIAL PURCHASERS. You will act for the several Initial Purchasers in connection with this purchase, and any action under this Agreement taken by you jointly or by CSFBC will be binding upon all of the Initial Purchasers. 13. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 18 If the foregoing is in accordance with the Initial Purchasers' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement among the Company and the Initial Purchasers in accordance with its terms. Very truly yours, HEXCEL CORPORATION, by: /s/ Bruce D. Herman ------------------------------- Name: Bruce D. Herman Title: Treasurer The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION SALOMON SMITH BARNEY INC. Acting on behalf of themselves and as the Representatives of the several Initial Purchasers CREDIT SUISSE FIRST BOSTON CORPORATION by: /s/ Joseph D. Carrabino, Jr. -------------------------------------------- Name: Joseph D. Carrabino, Jr. Title: Managing Director 19 SCHEDULE A
PRINCIPAL AMOUNT OF INITIAL PURCHASERS OFFERED SECURITIES ------------------ ------------------ Credit Suisse First Boston Corporation....................... $156,000,000 Salomon Smith Barney Inc..................................... $ 84,000,000 ------------- Total............................. $240,000,000
20 SCHEDULE B
SUBSIDIARY PLACE OF INCORPORATION ---------- ---------------------- Clark-Schwebel Corporation Delaware Hexcel Composites Limited United Kingdom Hexcel Fabrics S.A. France Hexcel Composites S.A. France Hexcel Composites S.A. Spain
21 EX-4.5(C) 6 EXHIBIT 4.5(C) Exhibit 4.5(c) THIRD SUPPLEMENTAL INDENTURE dated as of September 15, 1998 (this "Supplemental Indenture"), to the Indenture dated as of February 29, 1996 (the "Indenture"), between HEXCEL CORPORATION, a Delaware corporation (the "Company"), and U.S. BANK TRUST NATIONAL ASSOCIATION (formerly known as 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 and waive certain provisions of the Indenture, among other things, in respect of (i) the Company's new Credit Agreement (as defined in Section 1(b) below) and (ii) the Clark-Schwebel Acquisition (as defined in Section 1(a) below); WHEREAS, Section 9.02 of the Indenture authorizes the Company and the Trustee to amend and waive certain provisions of the Indenture with the consent of the Securityholders; WHEREAS, Ciba Specialty Chemicals Inc., a corporation organized under the laws of Switzerland ("Ciba"), is the Holder of all of the Securities; and WHEREAS, Ciba and the Company have agreed to modify and waive 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) Section 1.01 of the Indenture is hereby amended by adding thereto the following definitions in their proper alphabetical order: "'ASAHI-SCHWEBEL' means Asahi-Schwebel Co., Ltd., a joint venture in which the Company or a Subsidiary of the Company will own an interest after giving effect to the Clark-Schwebel Acquisition." "'ASAHI-SCHWEBEL (TAIWAN)' means Asahi-Schwebel (Taiwan) Co, Ltd., a joint venture between Asahi-Schwebel and AlliedSignal." "'ASAHI-SCHWEBEL INTERGLAS (PHILIPPINES)' means Asahi-Schwebel Interglas Corporation (Philippines), a proposed joint venture between Asahi-Schwebel and Interglas." "'ASIAN COMPOSITE MANUFACTURING' means Asian Composite Manufacturing Sdn. Bhd., a proposed joint venture among the Company, The Boeing Company, Sime Darby Berhad and Malaysia Helicopter Services." "'BHA AERO COMPOSITE PARTS' means BHA Aero Composite Parts Co., Ltd., a proposed joint venture among the Company, The Boeing Company and Aviation Industries of China." "'CLARK-SCHWEBEL ACQUISITION' means the acquisition and lease of certain assets of Clark-Schwebel Holdings, Inc. and its subsidiaries by the Company or a Subsidiary of the Company pursuant to (i) that certain Asset Purchase Agreement, dated as of July 25, 1998, by and among Stamford CS Acquisition Corp., Clark-Schwebel Holdings, Inc., Clark-Schwebel, Inc. and the Company, and (ii) that certain Lease Agreement, attached as Exhibit H to such Asset Purchase Agreement, to be entered into by and between CSI Trust, as landlord, and the Company or a Subsidiary of the Company, as tenant, as each of the same may be amended, supplemented or otherwise modified from time to time." "'CLARK-SCHWEBEL JOINT VENTURES' means (i) Asahi-Schwebel, (ii) Asahi-Schwebel (Taiwan), (iii) Asahi-Schwebel Interglas (Philippines), (iv) Clark-Schwebel Tech-Fab and (v) Interglas." "'CLARK-SCHWEBEL TECH-FAB' means Clark-Schwebel Tech-Fab Company, a New York partnership and a joint venture in which the Company or a Subsidiary of the Company will own an interest after giving effect to the Clark-Schwebel Acquisition." "'COMPANY STOCK REPURCHASE PROGRAM' means the purchase from time to time by the Company of its Capital Stock not to exceed $50,000,000 in the aggregate from and after August 5, 1998." 2 "'INTERGLAS' means CS Interglas AG, a German stock corporation." "'POLELINE ASSET MANAGEMENT' means Poleline Asset Management, LLC, a California limited liability company and a joint venture in which Hexcel Beta Corp. owns a 50% interest." (b) The definition of "Credit Agreement" contained in Section 1.01 of the Indenture is hereby amended to read as follows: "'CREDIT AGREEMENT' means, collectively, the Credit Agreement dated as of September 15, 1998, 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 First Boston (or any successor thereto), in its separate capacity as administrative agent and documentation 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." (c) The definition of "Existing Joint Ventures" contained in Section 1.01 of the Indenture is hereby amended to read as follows: "'EXISTING JOINT VENTURES' means (i) Knytex, (ii) DIC, (iii) Fyfe and (iv) the Clark-Schwebel Joint Ventures." 3 (d) The definition of "Permitted Investment" contained in Section 1.01 of the Indenture is hereby amended by deleting the word "and" after the end of clause (vi) thereof and adding new clauses (viii) and (ix) thereto to read as follows: "; (viii) the assets of Clark-Schwebel Holdings, Inc. and its subsidiaries in connection with the Clark-Schwebel Acquisition; and (ix) Interglas." (e) Sections 4.03(b)(vi) and 4.03(b)(x) of the Indenture are hereby amended by deleting each reference to "Section 13.1(j)" therein and replacing it with "Section 14.2(g)". (f) Section 4.03(b)(viii) of the Indenture is hereby amended by deleting the reference to "$12,500,000" therein and substituting "$100,000,000" therefor. (g) Section 4.03(b)(xiii) of the Indenture is hereby amended to read as follows: "(xiii) Guarantees relating to the Acquisition or the Clark-Schwebel Acquisition;" (h) Section 4.03(b) of the Indenture is hereby amended by (A) deleting the word "or" at the end of clause (xv) thereof, (B) deleting the "." at the end of clause (xvi) thereof and replacing it with the phrase "; or" and (C) adding a new clause (xvii) thereto to read as follows: "(xvii) Indebtedness of a Clark-Schwebel Joint Venture outstanding on the date such Clark-Schwebel Joint Venture becomes a Subsidiary." (i) Section 4.04(b) of the Indenture is hereby amended by (A) deleting the word "or" at the end of clause (ix) thereof, (B) deleting the "." at the end of clause (x) thereof and replacing it with a ";" and (C) adding new clauses (xi) and (xii) thereto to read as follows: "(xi) the purchase from time to time by the Company of its Capital Stock (A) with the proceeds of the exercise by grantees under any equity-based incentive plan or (B) pursuant to the Company Stock Repurchase Program; or 4 (xii) the purchase, redemption, retirement or other acquisition of the Capital Stock of Interglas." (j) Clause (A) of Section 4.07(a) of the Indenture is hereby amended to read as follows: "(A) any transaction between the Company or any of its Subsidiaries and (i) any Permitted Holder, (ii) Hexcel Foundation so long as such foundation remains a not-for-profit institution for the purposes of California law, (iii) Fyfe, (iv) Hexcel-DIC Partnership, (v) Knytex, (vi) Poleline Asset Management, (vii) BHA Aero Composite Parts, (viii) Asian Composite Manufacturing, (ix) any Clark-Schwebel Joint Venture and (x) any director or officer of Interglas in connection with the acquisition of Interglas Capital Stock;" SECTION 2. WAIVER. Any Default or Event of Default arising under the Indenture in connection with the consummation of the Clark-Schwebel Acquisition and the transactions contemplated thereby are hereby waived. SECTION 3. CONFIRMATION. Except as hereby expressly amended or waived, 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 4. EFFECTIVENESS. This Supplemental Indenture shall take effect immediately up on its execution and delivery by the Company, the Trustee and Ciba. SECTION 5. 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 6. 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 7. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 5 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: U.S. BANK TRUST NATIONAL ASSOCIATION by ------------------------- Name: Title: CONSENTED AND AGREED TO BY: CIBA SPECIALTY CHEMICALS INC. by ----------------------------- Name: Title: by ----------------------------- Name: Title: 6 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 Third Supplemental Indenture, dated as of September ____, 1998 (the "Supplemental Indenture"), between the Company and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee (the "Trustee"), 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 Chemicals 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 the 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 and that all conditions precedent under the Indenture to the execution of the Supplemental Indenture have been complied with. IN WITNESS WHEREOF, the undersigned have executed this Officer's Certificate as of the ____ day of September, 1998. -------------------------- Name: Title: -------------------------- Name: Title: 7 EX-4.5(D) 7 EXHIBIT 4.5(D) Exhibit 4.5(d) FOURTH SUPPLEMENTAL INDENTURE dated as of January 15, 1999 (this "Supplemental Indenture"), to the Indenture dated as of February 29, 1996 (the "Indenture"), between HEXCEL CORPORATION, a Delaware corporation (the "Company"), and U.S. BANK TRUST NATIONAL ASSOCIATION (formerly known as 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 and have waived certain provisions of the Indenture, among other things, in respect of the Company's issuance of its Senior Subordinated Notes (as defined in Section 1(a) below); WHEREAS, Section 9.02 of the Indenture authorizes the Company and the Trustee to amend and waive certain provisions of the Indenture with the consent of the Securityholders; WHEREAS, Ciba Specialty Chemicals Inc., a corporation organized under the laws of Switzerland ("Ciba"), is the Holder of all of the Securities; and WHEREAS, Ciba and the Company have agreed to modify and waive 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) Section 1.01 of the Indenture is hereby amended by adding thereto the following definitions in their proper alphabetical order: "'SENIOR SUBORDINATED NOTE INDENTURE' means the indenture pursuant to which the Senior Subordinated Notes will be issued." "'SENIOR SUBORDINATED NOTES' means the 9 3/4% Senior Subordinated Notes due 2009 of the Company in the aggregate principal amount not to exceed $240,000,000 and issued pursuant to the Senior Subordinated Note Indenture." (b) Clause (1) of Section 4.05 of the Indenture is hereby amended to read as follows: "(1) any encumbrance or restriction pursuant to the Credit Agreement, this Indenture, the Senior Subordinated Note Indenture and any agreement in effect at or entered into at the time of the Closing;" SECTION 2. WAIVER. Any Default or Event of Default arising under the Indenture in connection with the consummation of the issuance of the Senior Subordinated Notes and the transactions contemplated thereby are hereby waived. SECTION 3. CONFIRMATION. Except as hereby expressly amended or waived, 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 4. EFFECTIVENESS. This Supplemental Indenture shall take effect immediately up on its execution and delivery by the Company, the Trustee and Ciba. SECTION 5. 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 6. 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 7. APPLICABLE LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 2 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: U.S. BANK TRUST NATIONAL ASSOCIATION by ------------------------- Name: Title: CONSENTED AND AGREED TO BY: CIBA SPECIALTY CHEMICALS INC. by ------------------------------ Name: Title: by ------------------------------ Name: Title: 3 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 Fourth Supplemental Indenture, dated as of January 15, 1999 (the "Supplemental Indenture"), between the Company and U.S. Bank Trust National Association (formerly known as First Trust of California, National Association), as trustee (the "Trustee"), 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 Chemicals 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 the 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 and that all conditions precedent under the Indenture to the execution of the Supplemental Indenture have been complied with. IN WITNESS WHEREOF, the undersigned have executed this Officer's Certificate as of the 15th day of January, 1999. -------------------------- Name: Title: -------------------------- Name: Title: 4 EX-5.1 8 EXHIBIT 5.1 Exhibit 5.1 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 THIRD AVENUE NEW YORK, NY 10022 (212) 735-3000 February 2, 1999 Hexcel Corporation Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901-3238 Re: Hexcel Corporation REGISTRATION STATEMENT ON FORM S-4 Ladies and Gentlemen: We have acted as special counsel to Hexcel Corporation, a Delaware corporation (the "Company"), in connection with the public offering of $240,000,000 aggregate principal amount of the Company's 9 3/4% Senior Subordinated Notes due 2009 (the "Exchange Notes"). The Exchange Notes are to be issued pursuant to an exchange offer (the "Exchange Offer") in exchange for a like principal amount of the issued and outstanding 9 3/4% Senior Subordinated Notes due 2009 of the Company (the "Original Notes") under an Indenture dated as of January 21, 1999 (the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"), as contemplated by the Registration Rights Agreement dated as of January 21, 1999 (the "Registration Rights Agreement"), by and among the Company, Credit Suisse First Boston Corporation and Salomon Smith Barney Inc. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the "Act"). Hexcel Corporation February 2, 1999 Page 2 In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the Registration Statement on Form S-4 to be filed with the Securities and Exchange Commission (the "Commission") on the date hereof under the Act (the "Registration Statement"); (ii) an executed copy of the Registration Rights Agreement; (iii) an executed copy of the Indenture; (iv) the Restated Certificate of Incorporation of the Company; (v) the Restated By-Laws of the Company, as amended to date; (vi) certain resolutions adopted by the Board of Directors of the Company relating to the Exchange Offer, the issuance of the Original Notes and the Exchange Notes, the Indenture and related matters; (vii) the Form T-1 of the Trustee filed as an exhibit to the Registration Statement; and (viii) the form of the Exchange Notes. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates of public officials, certificates of officers or other representatives of the Company and others, and such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of executed documents or documents to be executed, we have assumed that the parties thereto, other than the Company, had or will have the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect on such parties. As to any facts material to the opinions expressed herein which we have not inde pendently established or verified, we have relied upon statements and representations of officers and other representatives of the Company and others. Hexcel Corporation February 2, 1999 Page 3 Members of our firm are admitted to the bar in the State of New York, and we do not express any opinion as to the laws of any other jurisdiction other than the Delaware General Corporation Law. Based upon and subject to the foregoing and the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that when the Exchange Notes (in the form examined by us) have been duly executed and authenticated in accordance with the terms of the Indenture and have been delivered upon consummation of the Exchange Offer against receipt of Original Notes surrendered in exchange therefor in accordance with the terms of the Exchange Offer, the Exchange Notes will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and (2) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). In rendering the opinion set forth above, we have assumed that the execution and delivery by the Company of the Indenture and the Exchange Notes and the performance by the Company of its obligations thereunder do not and will not violate, conflict with or constitute a default under (i) any agreement or instrument to which the Company or its properties is subject (except that we do not make the assumption set forth in this clause (i) with respect to the Company's Restated Certificate of Incorporation, the Company's Restated By-Laws, the Indenture or the Registration Rights Agreement), (ii) any law, rule, or regulation to which the Company is subject (except that we do not make the assumption set forth in this clause (ii) with respect to the Delaware General Corporation Law and those laws, rules and regulations of the State of New York and of the United States of America, in each case, which, in our experience, are normally applicable to transactions of the type contemplated by the Exchange Offer, but without our having made any special investigation with respect to any other laws, rules or regulations), (iii) any judicial or regulatory Hexcel Corporation February 2, 1999 Page 4 order or decree of any governmental authority, or (iv) any consent, approval, license, authorization or validation of, or filing, recording or registration with, any governmental authority. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement. We also consent to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. Very truly yours, /s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP EX-10.1(G) 9 EXHIBIT 10.1(G) Exhibit 10.1(g) FIRST AMENDMENT FIRST AMENDMENT, dated as of December 31, 1998 (this "AMENDMENT"), to the Second Amended and Restated Credit Agreement, dated as of September 15, 1998 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among Hexcel Corporation (the "COMPANY") and the Foreign Borrowers from time to time party thereto (together with the Company, the "BORROWERS"), the banks and other financial institutions from time to time parties thereto (the "LENDERS"), Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent (the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrowers; and WHEREAS, the Borrowers have requested, and, upon this Amendment becoming effective, the Lenders have agreed, that certain provisions of the Credit Agreement be amended in the manner provided for in this Amendment. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: SECTION I. AMENDMENTS I.1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement are used herein as defined therein. I.2. AMENDMENT TO SUBSECTION 1.1. Subsection 1.1 of the Credit Agreement is hereby amended, effective simultaneously with the issuance of Subordinated Indebtedness contemplated under subsection 2.1 hereof, by inserting in proper alphabetical order the following new definitions: "SENIOR DEBT": all Indebtedness other than Subordinated Indebtedness. "SENIOR DEBT LEVERAGE RATIO": for any period of four consecutive fiscal quarters, the ratio of Senior Debt 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. "SUBORDINATED INDEBTEDNESS": Indebtedness of the Company and its Subsidiaries permitted pursuant to subsections 14.2(f) and (k). I.3. AMENDMENT TO SUBSECTION 14.1. Subsection 14.1 of the Credit Agreement is hereby amended, effective simultaneously with the issuance of Subordinated Indebtedness contemplated under subsection 2.1 hereof, by: (a) deleting subsection 14.1(b) in its entirety and inserting in lieu thereof the following new subsection 14.1(b): "(b) MAXIMUM LEVERAGE RATIO. Permit the Leverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be greater than the ratio set forth opposite such period:
-------------------------------------------------------------------- Period Ratio -------------------------------------------------------------------- Closing Date - June 30, 2000 4.75 to 1.0 July 1, 2000 - thereafter 4.50 to 1.0" --------------------------------------------------------------------
(b) inserting a new subsection 14.1(d) as follows: "(d) MAXIMUM SENIOR DEBT LEVERAGE RATIO. Permit the Senior Debt Leverage Ratio of the Company and its Subsidiaries on the last day of any fiscal quarter of the Company occurring during a period set forth below to be greater than the ratio set forth opposite such period:
------------------------------------------------------------------- Period Ratio -------------------------------------------------------------------- Closing Date - June 30, 2000 2.50 to 1.0 July 1, 2000 - thereafter 2.25 to 1.0" --------------------------------------------------------------------
I.4. AMENDMENT TO SUBSECTION 14.5. Subsection 14.5 of the Credit Agreement is hereby amended by (a) deleting "and" at the end of subsection 14.5(b); (b) deleting the period (".") at the end of subsection 14.5(c) and inserting in lieu thereof "; and"; and (c) inserting the following new subsection 14.5(d): "(d) any Wholly-owned Subsidiary of (i) the Company or (ii) any other Wholly-owned Subsidiary of the Company, which has no material assets or liabilities, may be liquidated, wound up or dissolved." I.5. AMENDMENT TO SUBSECTION 14.14. Subsection 14.14(b) of the Credit Agreement is hereby amended, effective simultaneously with the issuance of Subordinated Indebtedness contemplated under subsection 2.1 hereof, by deleting therefrom "the Subordinated Debentures, the Subordinated Debenture Indenture, the Subordinated Convertible Notes, the Subordinated Convertible Notes Indenture", and inserting in lieu thereof "any Subordinated Indebtedness". I.6. AMENDMENT TO SUBSECTION 17.2. Subsection 17.2(a)(i) of the Credit Agreement is hereby amended by inserting, on the second line thereof, immediately after "consummation of" and immediately before "any Net Proceeds" the following: "(x) any liquidation, winding up or dissolution permitted by subsection 14.5(d), upon delivery to the Administrative Agent of a certificate of a Responsible Officer of the Company certifying that such Subsidiary has been liquidated, wound up, or dissolved, or (y)". SECTION II. CONSENT TO TERMS OF SUBORDINATED INDEBTEDNESS II.1. CONSENT TO TERMS OF PROPOSED SUBORDINATED DEBT. Pursuant to subsection 14.2(k) of the Credit Agreement, the Lenders hereby consent to the issuance and sale by the Company of Subordinated Indebtedness having gross cash proceeds of at least $250,000,000; PROVIDED that (i) the terms and conditions of such Subordinated Indebtedness shall be substantially those provided on Annex A attached hereto, (ii) such Subordinated Indebtedness shall be issued and sold on or before February 28, 1999 and (iii) the net proceeds of such issuance shall be applied FIRST, to pay fees and expenses related to the issuance of the Subordinated Indebtedness, SECOND, to repay the Subordinated Ciba Notes, and THIRD, to prepay ratably Tranche A Loans and Tranche B Loans outstanding under the Credit Agreement. SECTION III. MISCELLANEOUS III.1. CONDITIONS TO EFFECTIVENESS OF AMENDMENT. This Amendment shall become effective as of the date first set forth above upon the Administrative Agent having received counterparts of this Amendment duly executed and delivered by each Borrower, the Documentation Agent, the Administrative Agent and the Majority Lenders. III.2. AMENDMENT FEE. The Company shall pay to the Administrative Agent, for the account of each Lender executing this Amendment on or before December 31, 1998, an amendment fee equal to .25% of each such Lender's applicable (i) Commitment, in the case of Revolving Credit Commitment, European Loan Commitment or European Overdraft Commitment and (ii) outstanding Loans (after giving effect to the issuance of Subordinated Indebtedness and prepayment of Loans contemplated in subsection 2.1 hereof), in the case of Tranche A Loans and Tranche B Loans; PROVIDED that no such fee shall be payable if the issuance of such Subordinated Indebtedness does not occur. Such amendment fee shall be payable on the date that the Company receives the gross cash proceeds from the issuance of such Subordinated Indebtedness. III.3. REPRESENTATIONS AND WARRANTIES. The Company, as of the date hereof and after giving effect to the amendments contained herein, hereby confirms, reaffirms and restates the representations and warranties made by it and each Foreign Borrower in Section 11 of the Credit Agreement and otherwise in the Credit Documents to which it is a party; PROVIDED that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement after giving effect to this Amendment. III.4. LIMITED EFFECT. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Credit Documents, nor constitute a waiver or amendment of any provisions of any of the Credit Documents. Except as expressly modified herein, all of the provisions and covenants of the Credit Agreement and the other Credit Documents are and shall continue to remain in full force and effect in accordance with the terms thereof and are hereby in all respects ratified and confirmed. III.5. COUNTERPARTS. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts (which may include counterparts delivered by facsimile transmission) and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Any executed counterpart delivered by facsimile transmission shall be effective as for all purposes hereof. III.6. GOVERNING LAW. THIS AMENDMENT 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. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written. HEXCEL CORPORATION HEXCEL (U.K.) LIMITED HEXCEL COMPOSITES LIMITED HEXCEL S.A. (France) HEXCEL FABRICS S.A. HEXCEL COMPOSITES S.A. (Belgium) HEXCEL COMPOSITES S.A. (France) 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 Arranger By: ----------------------------------- Title: By: ----------------------------------- Title: CITIBANK, N.A., as Documentation Agent and as a Lender By: ----------------------------------- Title: 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: AERIES FINANCE LTD. By: ----------------------------------- Title: AMARA - 2 FINANCE LTD. By: ----------------------------------- Title: ARCHIMEDES FUNDING II, Ltd. By: ING Capital Advisors, Inc. as Collateral Manager By: ----------------------------------- Title: BALANCED HIGH-YIELD FUND I LTD. By: BHF Bank Aktiengesellshaft, acting through its New York Branch, as attorney-in-fact By: ----------------------------------- Title: By: ----------------------------------- Title: THE BANK OF NEW YORK By: ----------------------------------- Title: BANQUE NATIONALE DE PARIS By: ----------------------------------- Title: By: ----------------------------------- Title: BANQUE WORMS CAPITAL CORP. By: ----------------------------------- Title: CAPTIVA FINANCE LTD. By: ----------------------------------- Title: CHANCELLOR/TRITON CBO, LIMITED By: INVESCO Secured Management, Inc. as Collateral Manager By: ----------------------------------- Title: THE CHASE MANHATTAN BANK By: ----------------------------------- Title: CHAIO TUNG BANK By: ----------------------------------- Title: CREDIT AGRICOLE INDOSUEZ By: ----------------------------------- Title: By: ----------------------------------- Title: CREDIT LYONNAIS NEW YORK BRANCH By: ----------------------------------- Title: CYPRESSTREE FLOATING RATE FUND By: CypressTree Investment Management Company, Inc. as Portfolio Manager By: ----------------------------------- Title: KZH CYPRESSTREE-1 LLC By: ----------------------------------- Title: CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: ----------------------------------- Title: CYPRESSTREE INVESTMENT PARTNERS I, LTD. By: CypressTree Investment Management Company, Inc. as Portfolio Manager By: ----------------------------------- Title: CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: ----------------------------------- Title: DAI-ICHI KANGYO BANK By: ----------------------------------- Title: DEBT STRATEGIES FUND II, INC. By: ----------------------------------- Title: DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH By: ----------------------------------- Title: By: ----------------------------------- Title: ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG By: ----------------------------------- Title: THE FIRST NATIONAL BANK OF CHICAGO By: ----------------------------------- Title: FIRST UNION NATIONAL BANK By: ----------------------------------- Title: GENERAL ELECTRIC CAPITAL CORPORATION By: ----------------------------------- Title: BATTERSON PARK CBO 1 By: General Re - New England Asset Management, Inc., as Collateral Manager By: ----------------------------------- Title: IMPERIAL CREDIT By: ----------------------------------- Title: INDUSTRIAL BANK OF JAPAN LIMITED, NEW YORK BRANCH By: ----------------------------------- Title: KEYBANK NATIONAL ASSOCIATION By: ----------------------------------- Title: KZH ING-2 LLC By: ----------------------------------- Title: KZH ING-3 LLC By: ----------------------------------- Title: KZH SHOSHONE LLC By: ----------------------------------- Title: KZH SOLEIL-2 LLC By: ----------------------------------- Title: KZH III LLC By: ----------------------------------- Title: MERITA BANK Plc By: ----------------------------------- Title: By: ----------------------------------- Title: METROPOLITAN LIFE INSURANCE COMPANY By: ----------------------------------- Title: MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: ----------------------------------- Title: MOUNTAIN CLO TRUST By: ----------------------------------- Title: OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management, as Investment Advisor By: ----------------------------------- Title: SOCIETE GENERALE By: ----------------------------------- Title: UNION BANK OF CALIFORNIA N.A. By: ----------------------------------- Title: VAN KAMPEN SENIOR FLOATING RATE FUND By: ----------------------------------- Title: WACHOVIA BANK By: ----------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ----------------------------------- Title: SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Manager By: ----------------------------------- Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: ----------------------------------- Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ----------------------------------- Title: MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES PORTFOLIO By: Merrill Lynch Asset Management, L.P. as Investment Advisor By: ----------------------------------- Title: DEBT STRATEGIES FUND II, INC. By: ----------------------------------- Title: EX-10.1(H) 10 EXHIBIT 10.1(H) Exhibit 10.1(h) CREDIT FIRST SUISSE BOSTON CREDIT SUISSE FIRST BOSTON Eleven Madison Avenue New York, NY 10010-3629 To: Lenders to Hexcel Corporation From: Credit Suisse First Boston, as Administrative Agent Date: January 15, 1999 Re: Hexcel Issuance of High Yield Debt - -------------------------------------------------------------------------------- Reference is made to the First Amendment, dated as of December 31, 1998 (the "AMENDMENT"), to the Second Amended and Restated Credit Agreement, dated as of September 15, 1998, among Hexcel Corporation (the "COMPANY") and the Foreign Borrowers from time to time party thereto, the banks and other financial institutions from time to time parties thereto (the "LENDERS"), Citibank, N.A., as Documentation Agent, and Credit Suisse First Boston, as Administrative Agent. Terms defined in the Credit Agreement shall have their defined meanings when used herein. In subsection 2.1 of the Amendment, the Lenders consented, on certain terms and conditions, to the Company's issuance of Subordinated Indebtedness having gross cash proceeds of at least $250,000,000. Today the Company has priced $240,000,000 of such Subordinated Indebtedness, and asks your consent to the decreased amount of such issuance and, notwithstanding the provisions of subsection 10.5(g) of the Credit Agreement, the application of the net proceeds of such issuance FIRST, to pay fees and expenses related to the issuance of the Subordinated Indebtedness, SECOND, to prepay ratably $227,500,000 of the Tranche A Loans and Tranche B Loans outstanding under the Credit Agreement, and THIRD, any balance remaining to be retained by the Company. The Company has also requested that we consent to their amending the Subordinated Ciba Notes Indenture to allow for this Subordinated Indebtedness. Please show your consent to the foregoing by signing below for your institution and returning this signed memo by facsimile to Richard Carey of Credit Suisse First Boston (fax: 212/325-8228) NO LATER THAN 5:00 P.M. TODAY. Thank you for your prompt attention. CONSENTED TO BY: - -------------------------------------- (institution) By: ----------------------------------- Name: Title: EX-10.29(A) 11 EXHIBIT 10.29(A) Exhibit 10.29(a) This Amendment No. 1 ("Amendment No. 1") to the Registration Rights Agreement (the "Registration Rights Agreement"), dated as of February 29, 1996 by and between Ciba-Geigy Limited (which has since assigned the Registration Rights Agreement to Ciba Specialty Chemicals Holding Inc., a Swiss Corporation ("Ciba")), and Hexcel Corporation, a Delaware corporation ("Hexcel") is hereby made and entered into as of the 29th day of December, 1998 by and between Ciba and Hexcel. WHEREAS, Ciba and Hexcel desire to amend the Registration Rights Agreement; WHEREAS, defined terms used herein and not otherwise defined herein shall have the meaning ascribed to such term in the Registration Rights Agreement. NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and in the Registration Rights Agreement and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Section 1 of the Registration Rights Agreement is hereby amended by adding the following defined term immediately after the definition of "Shelf Registration Statement" and immediately before the definition of "Third Installment": ""SHELF REQUEST" has the meaning set forth in Section 2(a) hereof." 2. Section 2(a) of the Registration Rights Agreement is hereby amended by deleting the first clause of Section 2(a) up to, but not including, the proviso and replacing such clause with the following: "Upon the written request of Ciba (the "Shelf Request"), Hexcel shall prepare and, not later than 60 days after receipt of the Shelf Request, shall file with the SEC, and thereafter shall use its commercially reasonable effort to cause to be declared effective under the Securities Act on or prior to the 60th day following receipt of the Shelf Request, a Shelf Registration Statement relating to the offer and sale by Ciba and the Ciba Entities of all Registrable Securities permitted to be registered on Form S-3 as part of such Shelf Registration Statement in the manner or manners elected by Ciba and set forth in such Shelf Registration Statement;" 3. Section 2(b) of the Registration Rights Agreement is hereby amended by deleting Section 2(b) in its entirety and replacing such Section with the following: "(b) Once the Shelf Registration Statement has been declared effective under the Securities Act, Hexcel shall use commercially reasonable efforts to keep the Shelf Registration Statement continuously effective during the remainder of the Registration Period and to permit Ciba to use such Shelf Registration Statement to distribute Registrable Securities in the manners selected by Ciba." 4. Section 2(c) of the Registration Rights Agreement is hereby amended by deleting Section 2(c) in its entirety and replacing such Section with the following: "(c) Without limiting the foregoing, once the Shelf Registration Statement has been declared effective under the Securities Act, Hexcel shall be deemed not to have made commercially reasonable efforts to keep the Shelf Registration Statement effective during the remainder of the Registration Period if Hexcel voluntarily takes any action that would r esult in Ciba or any Ciba Entity not being able to offer and sell Registrable Securities that are then eligible under this Agreement to be offered and sold unless (i) such action is required by applicable law, rule, regulation, or legal proceeding or (ii) such action is consistent with the provisions of Section 5 hereof. 2 IN WITNESS WHEREOF, Ciba, on behalf of itself and the Ciba Entities, and Hexcel by their duly authorized representative(s) have caused this Amendment No. 1 to be executed as of the day and year first above written. CIBA SPECIALTY CHEMICALS HOLDING INC. By: ---------------------------------- Name: Title By: ---------------------------------- Name: Title HEXCEL CORPORATION By: ---------------------------------- Name: Title 3 EX-12.1 12 EXHIBIT 12.1 Exhibit 12.1 Hexcel Corporation Computation of Ratio of Earnings to Fixed Charges
Nine Months Ended For the year ended December 31, September 30, ------------------------------------------------------------------------ 1993 1994 1995 1996 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) Income (loss) from continuing operations before income taxes (73,848) (24,494) 6,514 (15,754) 50,752 76,288 31,941 Interest expense, including amortization of debt issuance costs 8,862 11,846 8,682 21,537 25,705 23,167 18,288 Portion of rental expense deemed to represent interest 1,177 1,225 957 1,541 1,520 1,197 1,140 ---------------------------------------------------------------------- Total fixed charges 10,039 13,071 9,639 23,078 27,225 24,364 19,428 Earnings before fixed charges (63,809) (11,423) 16,153 7,324 77,977 100,652 51,369 Fixed charges 10,039 13,071 9,639 23,078 27,225 24,364 19,428 Ratio of earnings to fixed charges -- -- 1.7x -- 2.9x 4.1x 2.6x Deficiency of earnings to fixed charges 73,848 24,494 -- 15,754 -- -- -- - -----------------------------------------------------------------------------------------------------------------------------------
EX-21.1 13 EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF HEXCEL CORPORATION ACM Holding Corporation (Delaware) Clark-Schwebel Corporation (Delaware) Clark-Schwebel Group Hong Kong (Hong Kong) Clark-Schwebel Holding Corp. (Delaware) Confection et Diffusion de Stores et Rideaux (France) CS Tech-Fab Holding Inc. (Delaware) Hexcel (UK) Limited (United Kingdom) Hexcel Beta Corp. (Delaware) Hexcel Chemical Products Limited (United Kingdom) Hexcel China Holdings (Mauritius) Hexcel Composites GmbH (Austria) Hexcel Composites GmbH (Germany) Hexcel Composites Limited (United Kingdom) Hexcel Composites S.A. (Belgium) Hexcel Composites S.A. (France) Hexcel Composites, S.A. (Spain) Hexcel do Brasil Servicos S/C Ltda (Brazil) Hexcel Fabrics S.A. (France) Hexcel Far East (California) Hexcel Foreign Sales Corporation (Barbados) Hexcel Foundation (California) Hexcel Holding B.V. (Netherlands) Hexcel International (California) Hexcel Omega (California) Hexcel Pacific Rim Corporation (California) Hexcel Pacific Rim Corporation (Delaware) Hexcel Pottsville Corporation (Delaware) Hexcel S.A. (France) Hexcel Technologies Inc. (Delaware) Salver S.r.l. (Italy) EX-23.1 14 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 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, relating to the financial statements of Hexcel Corporation, which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP San Jose, California February 1, 1999 EX-23.2 15 EXHIBIT 23.2 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Hexcel Corporation on Form S-4 of our report dated February 28, 1997, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP - -------------------------------- DELOITTE & TOUCHE LLP Oakland, California February 1, 1999 EX-23.3 16 EXHIBIT 23.3 EXHIBIT 23.3 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the use of our report, and to all references to our firm, included in or made a part of this registration statement. /s/ ARTHUR ANDERSEN - -------------------------- Arthur Andersen LLP Charlotte, North Carolina, February 1, 1999. EX-23.4 17 EXHIBIT 23.4 EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Hexcel Corporation on Form S-4 of our report dated February 9, 1996 (February 24, 1996 as to Note 2), on the statements of income and cash flows of Fort Mill A Inc. for the fiscal year ended December 30, 1995, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP - ----------------------------- DELOITTE & TOUCHE LLP Charlotte, North Carolina February 1, 1999 EX-25.1 18 EXHIBIT 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ---------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ---------------- HEXCEL CORPORATION (Exact name of obligor as specified in its charter) Delaware 94-1109521 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 (Address of principal executive offices) (Zip code) ---------------- 9-3/4% Senior Subordinated Notes due 2009 (Title of the indenture securities) ================================================================================ 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. List of Exhibits. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 1st day of February, 1999. THE BANK OF NEW YORK By: /s/ VAN K. BROWN --------------------------------------- Name: VAN K. BROWN Title: ASSISTANT VICE PRESIDENT Consolidated Report of Condition of THE BANK OF NEW YORK of 48 Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1998, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. ASSETS Dollar Amounts in Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin $7,301,241 Interest-bearing balances 1,385,944 Securities: Held-to-maturity securities 1,000,737 Available-for-sale securities 4,240,655 Federal funds sold and Securities purchased under agreements to resell 971,453 Loans and lease financing receivables: Loans and leases, net of unearned income.............................................. 38,788,269 LESS: Allowance for loan and lease losses........... 632,875 LESS: Allocated transfer risk reserve............... 0 Loans and leases, net of unearned income, allowance, and reserve 38,155,394 Assets held in trading accounts 1,307,562 Premises and fixed assets (including capitalized leases) 670,445 Other real estate owned 13,598 Investments in unconsolidated subsidiaries and associated companies 215,024 Customers' liability to this bank on acceptances outstanding 974,237 Intangible assets 1,102,625 Other assets 1,944,777 Total assets $59,283,692 LIABILITIES Deposits: In domestic offices $26,930,258 Noninterest-bearing 11,579,390 Interest-bearing 15,350,868 In foreign offices, Edge and Agreement subsidiaries, and IBFs 16,117,854 Noninterest-bearing 187,464 Interest-bearing 15,930,390 Federal funds purchased and Securities sold under agreements to repurchase 2,170,238 Demand notes issued to the U.S.Treasury 300,000 Trading liabilities 1,310,867 Other borrowed money: With remaining maturity of one year or less 2,549,479 With remaining maturity of more than one year through three years 0 With remaining maturity of more than three years 46,654 Bank's liability on acceptances executed and outstanding 983,398 Subordinated notes and debentures 1,314,000 Other liabilities 2,295,520 Total liabilities 54,018,268 EQUITY CAPITAL Common stock 1,135,284 Surplus 731,319 Undivided profits and capital reserves 3,385,227 Net unrealized holding gains (losses) on available-for-sale securities 51,233 Cumulative foreign currency translation adjustments (37,639) Total equity capital 5,265,424 Total liabilities and equity capital $59,283,692 I, Robert E. Keilman, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Robert E. Keilman We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. J. Carter Bacot ) Thomas A. Renyi ) Directors Alan R. Griffith ) EX-99.1 19 EXHIBIT 99.1 LETTER OF TRANSMITTAL HEXCEL CORPORATION OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO THE PROSPECTUS, DATED , 1999 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. --------------------------------------------------------------------------- DELIVERY TO: The Bank of New York, EXCHANGE AGENT BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL: The Bank of New York The Bank of New York 101 Barclay Street 101 Barclay Street, 7E Corporate Trust Services Window New York, NY 10286 Ground Level Attention: Reorganization Section New York, NY 10286 Attention: Reorganization Section
FOR INFORMATION CALL: (212) 815-6333 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) 571-3080 CONFIRM BY TELEPHONE: (212) 815-6333 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated , 1999 (the "Prospectus"), of Hexcel Corporation, a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $240,000,000 of the Company's 9 3/4% Senior Subordinated Notes due 2009 (the "Exchange Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding 9 3/4% Senior Subordinated Notes due 2009 (the "Original Notes") from the registered holders thereof (the "Holders"). For each Original Note accepted for exchange, the Holder of such Original Note will receive an Exchange Note having a principal amount equal to that of the surrendered Original Note. The Exchange Notes will bear interest from the most recent date to which interest has been paid on the Original Notes or, if no interest has been paid on the Original Notes, from January 21, 1999. Accordingly, registered Holders of Exchange Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from January 21, 1999. Original Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Original Notes whose Original Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Original Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. This Letter is to be completed by a holder of Original Notes either if certificates are to be forwarded herewith or if a tender of certificates for Original Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The undersigned has completed the appropriate boxes below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the Original Notes to which this Letter relates. If the space provided below is inadequate, the certificate numbers and principal amount of Original Notes should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------------------------------------- DESCRIPTION OF ORIGINAL NOTES 1 2 3 - --------------------------------------------------------------------------------------------------------------- AGGREGATE PRINCIPAL PRINCIPAL NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT OF AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S)* ORIGINAL NOTE(S) TENDERED** - --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- ------------------------------------------------------------- TOTAL - ---------------------------------------------------------------------------------------------------------------
* Need not be completed if Original Notes are being tendered by book-entry transfer. ** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Original Notes represented by the Original Notes indicated in column 2. See Instruction 2. Original Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. See Instruction 1. - -------------------------------------------------------------------------------- / / CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ---------------------------------------------------------------------------- Account Number ---------------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- / / CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ---------------------------------------------------------------------------- Window Ticket Number (if any) ---------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ---------------------------------------------------------------------------- Name of Institution Which Guaranteed Delivery ---------------------------------------------------------------------------- IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number ---------------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- / / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: - -------------------------------------------------------------------------------- Address: ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2 If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering such a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer that will receive Exchange Notes, it represents that the Original Notes to be exchanged for the Exchange Notes were acquired as a result of market-making activities or other trading activities. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Original Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned's true and lawful agent and attorney-in-fact with respect to such tendered Original Notes, with full power of substitution, among other things, to cause the Original Notes to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Original Notes, and to acquire Exchange Notes issuable upon the exchange of such tendered Original Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for Original Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the undersigned, that neither the Holder of such Original Notes nor any such other person is participating in, intends to participate in or has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the Holder of such Original Notes nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such Holders' business and such Holders have no arrangement with any person to participate in the distribution of such Exchange Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes and has no arrangement or understanding to participate in a distribution of Exchange Notes. If any Holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale 3 transaction. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes, it represents that the Original Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus meeting the requirements of the Securities Act, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Original Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section of the Prospectus. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the Exchange Notes (and, if applicable, substitute certificates representing Original Notes for any Original Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Original Notes, please credit the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the Exchange Notes (and, if applicable, substitute certificates representing Original Notes for any Original Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Original Notes." THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF ORIGINAL NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE ORIGINAL NOTES AS SET FORTH IN SUCH BOX ABOVE. 4 - ------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) ----------------------------------------------- To be completed ONLY if certificates for Original Notes not exchanged and/or Exchange Notes are to be issued in the name of and sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above, or if Original Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above. Issue Exchange Notes and/or Original Notes to: Name(s) ____________________________________________________________________ (PLEASE TYPE OR PRINT) __________________________________________________________________________ (PLEASE TYPE OR PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) (COMPLETE SUBSTITUTE FORM W-9) / / Credit unexchanged Original Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below. ____________________________________________________________________________ (BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE) - ------------------------------------------------------ - ------------------------------------------------------ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) ----------------------------------------------- To be completed ONLY if certificates for Original Notes not exchanged and/or Exchange Notes are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above or to such person or persons at an address other than shown in the box entitled "Description of Original Notes" on this Letter above. Mail Exchange Notes and/or Original Notes to: Name(s) ____________________________________________________________________ (PLEASE TYPE OR PRINT) __________________________________________________________________________ (PLEASE TYPE OR PRINT) Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) - ----------------------------------------------------- IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR ORIGINAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 5 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. - -------------------------------------------------------------------------------- PLEASE SIGN HERE - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 BELOW) X ____________________________________________________________________, 1999 X ____________________________________________________________________, 1999 (SIGNATURE(S) OF OWNER) (DATE) Area Code and Telephone Number__________________________________________ If a holder is tendering any Original Notes, this Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the Original Notes or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s): _______________________________________________________________ (PLEASE TYPE OR PRINT) Capacity: _____________________________________________________________ Address: _______________________________________________________________ ________________________________________________________________________ (INCLUDING ZIP CODE) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: _______________________________________________ (AUTHORIZED SIGNATURE) ________________________________________________________________________ (TITLE) ________________________________________________________________________ (NAME AND FIRM) Dated: ___________________________________________________________, 1999 - -------------------------------------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 OF HEXCEL CORPORATION IN EXCHANGE FOR THE 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 OF HEXCEL CORPORATION WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED 1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter is to be completed by holders of Original Notes either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates for all physically tendered Original Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof) and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Original Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. Holders whose certificates for Original Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Original Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer-- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution, (ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the (as defined below) Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Original Notes and the amount of Original Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Original Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Original Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by this Letter, must be received by the Exchange Agent within three NYSE trading days after the Expiration Date. The method of delivery of this Letter, the Original Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Original Notes are sent by mail, it is suggested that the mailing be registered mail, properly insured, with return receipt requested, made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date. See "The Exchange Offer" section of the Prospectus. 2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If less than all of the Original Notes evidenced by a submitted certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Original Notes to be tendered in the box above entitled "Description of Original Notes--Principal Amount Tendered." A reissued certificate representing the balance of nontendered Original Notes will be sent to such tendering holder, unless 8 otherwise provided in the appropriate box on this Letter, promptly after the Expiration Date. ALL OF THE ORIGINAL NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of the Original Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered Original Notes are owned of record by two or more joint owners, all of such owners must sign this Letter. If any tendered Original Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of certificates. When this Letter is signed by the registered holder or holders of the Original Notes specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required. If, however, the Exchange Notes are to be issued, or any untendered Original Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. ENDORSEMENTS ON CERTIFICATES FOR ORIGINAL NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM THAT IS A FINANCIAL INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK EXCHANGES MEDALLION PROGRAM (EACH AN "ELIGIBLE INSTITUTION"). SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION, PROVIDED THE ORIGINAL NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF ORIGINAL NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH ORIGINAL NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Original Notes should indicate in the applicable box the name and address to which Exchange Notes issued pursuant to the Exchange Offer and or substitute certificates evidencing Original Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Noteholders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such noteholder may designate hereon. If no such instructions are given, 9 such Original Notes not exchanged will be returned to the name and address of the person signing this Letter. 5. TAXPAYER IDENTIFICATION NUMBER. Federal income tax law generally requires that a tendering holder whose Original Notes are accepted for exchange must provide the Company (as payor) with such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below, which in the case of a tendering holder who is an individual, is his or her social security number. If the Company is not provided with the current TIN or an adequate basis for an exemption from backup withholding, such tendering holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, the Exchange Agent may be required to withhold 31% of the amount of any reportable payments made after the exchange to such tendering holder of Exchange Notes. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders of Original Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. To prevent backup withholding, each tendering holder of Original Notes must provide its correct TIN by completing the Substitute Form W-9 set forth below, certifying, under penalties of perjury, that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, or (ii) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendering holder of Original Notes is a nonresident alien or foreign entity not subject to backup withholding, such holder must give the Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms may be obtained from the Exchange Agent. If the Original Notes are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Guidelines for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Guidelines for instructions on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking this box and writing "applied for" on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If the box in Part 2 of the Substitute Form W-9 is checked, the Exchange Agent will retain 31% of reportable payments made to a holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with his or her TIN within sixty (60) days of the Substitute Form W-9, the Exchange Agent will remit such amounts retained during such sixty (60) day period to such holder and no further amounts will be retained or withheld from payments made to the holder thereafter. If, however, such holder does not provide its TIN to the Exchange Agent within such sixty (60) day period, the Exchange Agent will remit such previously withheld amounts to the Internal Revenue Service as backup withholding and will withhold 31% of all reportable payments to the holder thereafter until such holder furnishes its TIN to the Exchange Agent. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Original Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Original Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Original Notes tendered hereby, or if tendered Original Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or 10 exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE ORIGINAL NOTES SPECIFIED IN THIS LETTER. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Original Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Original Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Original Notes nor shall any of them incur any liability for failure to give any such notice. 9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any holder whose Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. WITHDRAWAL RIGHTS. Tenders of Original Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. For a withdrawal of a tender of Original Notes to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above prior to 5:00 P.M., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn (including certificate number or numbers and the principal amount of such Original Notes), (iii) contain a statement that such holder is withdrawing his election to have such Original Notes exchanged, (iv) be signed by the holder in the same manner as the original signature on the Letter by which such Original Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Original Notes register the transfer of such Original Notes in the name of the person withdrawing the tender and (v) specify the name in which such Original Notes are registered, if different from that of the Depositor. If Original Notes have been tendered pursuant to the procedure for book-entry transfer set forth in "The Exchange Offer-- Book-Entry Transfer" section of the Prospectus, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Original Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are validly retendered. Any Original Notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the 11 Prospectus, such Original Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Original Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Original Notes may be retendered by following the procedures described above at any time on or prior to 5:00 P.M., New York City time, on the Expiration Date. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, and requests for Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent, at the address and telephone number indicated above. 12 TO BE COMPLETED BY ALL TENDERING HOLDERS (See Instruction 5) PAYOR'S NAME: THE BANK OF NEW YORK PART 1--PLEASE PROVIDE YOUR TIN TIN: IN THE BOX AT SUBSTITUTE RIGHT AND CERTIFY BY SIGNING AND Social Security Number or Form W-9 DATING BELOW. Employer Identification Number DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PART 2--TIN APPLIED FOR / / PAYOR'S REQUEST FOR CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: TAXPAYER IDENTIFICATION NUMBER (1) the number shown on this form is my correct TIN (or I am ("TIN") AND waiting for a number to be issued to me), CERTIFICATION (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and (3) any other information provided on this form is true and correct. SIGNATURE DATE You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, 31 percent of all reportable payments made to me thereafter will be withheld until I provide a number. SIGNATURE DATE 13 EX-99.2 20 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR HEXCEL CORPORATION This form or one substantially equivalent hereto must be used to accept the Exchange Offer of Hexcel Corporation (the "Company") made pursuant to the Prospectus, dated , 1999 (the "Prospectus"), if certificates for the outstanding 9 3/4% Senior Subordinated Notes due 2009 of the Company (the "Original Notes") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach The Bank of New York, as exchange agent (the "Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration Date of the Exchange Offer. Such form may be delivered or transmitted by facsimile transmission, mail or hand delivery to the Exchange Agent as set forth below. In addition, in order to utilize the guaranteed delivery procedure to tender Original Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or facsimile thereof) must also be received by the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date. Capitalized terms not defined herein are defined in the Prospectus. DELIVERY TO: The Bank of New York, EXCHANGE AGENT BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY: The Bank of New York The Bank of New York 101 Barclay Street, 7E 101 Barclay Street New York, New York 10286 Corporate Trust Services Window Attention: Reorganization Section Ground Level New York, New York 10286 Attention: Reorganization Section
FOR INFORMATION CALL: (212) 815-6333 BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY): (212) 571-3080 CONFIRM BY TELEPHONE: (212) 815-6333 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: Upon the terms and conditions set forth in the Prospectus and the accompanying Letter of Transmittal, the undersigned hereby tenders to the Company the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedure described in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus. Principal Amount of Original Notes Tendered:* $ -------------------------------------------- Certificate Nos. (if available): If Original Notes will be delivered by book-entry transfer to The Depository Trust ------------------------------------------- Company, provide account number. Total Principal Amount Represented by Original Notes Certificate(s): $ Account Number -------------------------------------------- -------------------------------------------- - -------------------------------------------------------------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED. ________________________________________________________________________________ PLEASE SIGN HERE X --------------------------------- -------------- X --------------------------------- -------------- Signature(s) of Owner(s) Date or Authorized Signatory Area Code and Telephone Number: --------------------------------------------------
Must be signed by the holder(s) of Original Notes as their name(s) appear(s) on certificates for Original Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): -------------------------------------------------------------------------- -------------------------------------------------------------------------- -------------------------------------------------------------------------- Capacity: -------------------------------------------------------------------------- Address(es): -------------------------------------------------------------------------- -------------------------------------------------------------------------- --------------------------------------------------------------------------
- ------------------------ * Must be in denominations of principal amount of $1,000 and any integral multiple thereof. GUARANTEE (Not to be used for signature guarantee) The undersigned, a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program, hereby guarantees that the certificates representing the principal amount of Original Notes tendered hereby in proper form for transfer, or timely confirmation of the book-entry transfer of such Original Notes into the Exchange Agent's account at The Depository Trust Company pursuant to the procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with any required signature guarantee and any other documents required by the Letter of Transmittal, will be received by the Exchange Agent at the address set forth above, no later than three New York Stock Exchange trading days after the Expiration Date. - -------------------------------------------- -------------------------------------------- Name of Firm Authorized Signature - -------------------------------------------- -------------------------------------------- Address Title - -------------------------------------------- Name: -------------------------------------------- Zip Code (Please Type or Print) Area Code and Tel. No. Dated: - -------------------------------------------- --------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR ORIGINAL NOTES WITH THIS FORM. CERTIFICATES FOR ORIGINAL NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. EX-99.3 21 EXHIBIT 99.3 HEXCEL CORPORATION OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED TO OUR CLIENTS: Enclosed for your consideration is a Prospectus, dated , 1999 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange Offer") of Hexcel Corporation (the "Company") to exchange its 9 3/4% Senior Subordinated Notes due 2009, which have been registered under the Securities Act of 1933, as amended (the "Exchange Notes"), for its outstanding 9 3/4% Senior Subordinated Notes due 2009 (the "Original Notes"), upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated January 21, 1999, by and among the Company and the initial purchasers referred to therein. This material is being forwarded to you as the beneficial owner of the Original Notes held by us for your account but not registered in your name. A TENDER OF SUCH ORIGINAL NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request instructions as to whether you wish us to tender on your behalf the Original Notes held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the Original Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1999, unless extended by the Company. Any Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for any and all Original Notes. 2. The Exchange Offer is subject to certain conditions set forth in the Prospectus in the section captioned "The Exchange Offer--Certain Conditions to the Exchange Offer." 3. Any transfer taxes incident to the transfer of Original Notes from the holder to the Company will be paid by the Company, except as otherwise provided in the Instructions in the Letter of Transmittal. 4. The Exchange Offer expires at 5:00 P.M., New York City time, on , 1999, unless extended by the Company. If you wish to have us tender your Original Notes, please so instruct us by completing, executing and returning to us the instruction form on the back of this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER ORIGINAL NOTES. INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by Hexcel Corporation with respect to its Original Notes. This will instruct you to tender the Original Notes held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal. Please tender the Original Notes held by you for my account as indicated below: 9 3/4% Senior Subordinated Notes due 2009 $ (Aggregate Principal Amount of Original Notes) / / Please do not tender any Original Notes held by you for my account. Dated: , 1999 Signature(s): __________________________________________________________________ Print Name(s) here: ____________________________________________________________ (Print Address(es)): ___________________________________________________________ (Area Code and Telephone Number(s)): ___________________________________________ (Tax Identification or Social Security Number(s)): _____________________________ None of the Original Notes held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific contrary instruction is given in the space provided, your signature(s) hereon shall constitute an instruction to us to tender all the Original Notes held by us for your account. EX-99.4 22 EXHIBIT 99.4 HEXCEL CORPORATION OFFER FOR ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009 IN EXCHANGE FOR 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED To: BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES: Hexcel Corporation (the "Company") is offering, upon and subject to the terms and conditions set forth in the Prospectus, dated , 1999 (the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange (the "Exchange Offer") its 9 3/4% Senior Subordinated Notes due 2009, which have been registered under the Securities Act of 1933, as amended, for its outstanding 9 3/4% Senior Subordinated Notes due 2009 (the "Original Notes"). The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Registration Rights Agreement dated January 21, 1999, by and among the Company and the initial purchasers referred to therein. We are requesting that you contact your clients for whom you hold Original Notes regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Original Notes registered in your name or in the name of your nominee, or who hold Original Notes registered in their own names, we are enclosing the following documents: 1. Prospectus dated , 1999; 2. The Letter of Transmittal for your use and for the information of your clients; 3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if certificates for Original Notes are not immediately available or time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date (as defined below) or if the procedure for book-entry transfer cannot be completed on a timely basis; 4. A form of letter which may be sent to your clients for whose account you hold Original Notes registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. Return envelopes addressed to The Bank of New York, the Exchange Agent for the Exchange Offer. YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE. To participate in the Exchange Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the Exchange Agent and certificates representing the Original Notes should be delivered to the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If a registered holder of Original Notes desires to tender, but such Original Notes are not immediately available, or time will not permit such holder's Original Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." The Company will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Original Notes held by them as nominee or in a fiduciary capacity. The Company will pay or cause to be paid all stock transfer taxes applicable to the exchange of Original Notes pursuant to the Exchange Offer, except as set forth in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to The Bank of New York, the Exchange Agent for the Exchange Offer, at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, HEXCEL CORPORATION NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. Enclosures 2 EX-99.6 23 EXHIBIT 99.6 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPERTY IDENTIFICATION NUMBER TO GIVE THE PAYER.-- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ------------------------------------------------------- GIVE THE SOCIAL FOR THIS TYPE SECURITY OF ACCOUNT: NUMBER OF-- - ------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner of the account) account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for a incompetent person(3) designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under State law 8. Sole proprietorship The owner(4) account - ------------------------------------------------------- GIVE THE SOCIAL FOR THIS TYPE SECURITY OF ACCOUNT: NUMBER OF-- - ------------------------------------------------------- 9. A valid trust, estate, or The legal entity (Do not pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- ------------------------ (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE:If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency, or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a nonexempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received is not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding of this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to non-resident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041(a), 6045, and 6050A. PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1984, payers must generally withhold 20% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. -----END PRIVACY-ENHANCED MESSAGE-----