DEF 14A
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a2043034zdef14a.txt
DEF 14A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for use of the Commission only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-12
HEXCEL CORPORATION
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2001
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To the Stockholders of Hexcel Corporation:
NOTICE IS HEREBY GIVEN that an Annual Meeting of Stockholders (the "Annual
Meeting") of Hexcel Corporation, a Delaware corporation ("Hexcel"), will be held
at the Marriott Hotel, Two Stamford Forum, Stamford, Connecticut, on May 10,
2001 at 10:30 a.m., local time, for the following purposes:
1. To elect ten individuals (H. Arthur Bellows, Jr., Robert S. Evans,
James J. Gaffney, Marshall S. Geller, Harold E. Kinne, John J. Lee, Sanjeev
K. Mehra, Lewis Rubin, Peter M. Sacerdote and Martin L. Solomon) to Hexcel's
Board of Directors (the "Board of Directors") to serve as directors until
the next annual meeting of stockholders and until their successors are duly
elected and qualified; and
2. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 19, 2001 as
the record date (the "Record Date") for the determination of the stockholders
entitled to notice of and to vote at the Annual Meeting. Accordingly, only
holders of record of Hexcel common stock at the close of business on the Record
Date shall be entitled to vote at the Annual Meeting, either by proxy or in
person. A list of such stockholders will be available for inspection at the
offices of Hexcel at least 10 days prior to the Annual Meeting and will also be
available for inspection at the Annual Meeting. Each share of Hexcel common
stock is entitled to one vote on each matter to be acted upon or which may
properly come before the Annual Meeting.
The enclosed proxy is solicited by the Board of Directors. Reference is made
to the attached Proxy Statement for further information with respect to the
business to be transacted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date the enclosed proxy card and return it promptly using the enclosed
pre-addressed, postage-paid, return envelope. If you attend the Annual Meeting,
you may vote in person if you wish, even if you have previously returned your
proxy card. Your prompt attention is appreciated.
By order of the Board of Directors
[LOGO]
Ira J. Krakower
Senior Vice President, General Counsel
and Secretary
Dated: April 2, 2001
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED, POSTAGE-PAID, RETURN ENVELOPE.
[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2001
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This Proxy Statement is being furnished to the stockholders of Hexcel
Corporation, a Delaware corporation ("Hexcel"), in connection with the
solicitation of proxies by Hexcel's Board of Directors (the "Board of
Directors") for use at the Annual Meeting of Stockholders of Hexcel to be held
at the Marriott Hotel, Two Stamford Forum, Stamford, Connecticut, on May 10,
2001 at 10:30 a.m., local time, and at any adjournment or postponement thereof
(the "Annual Meeting"). At the Annual Meeting, stockholders will be asked to
consider and vote on (i) the election of ten individuals (H. Arthur Bellows,
Jr., Robert S. Evans, James J. Gaffney, Marshall S. Geller, Harold E. Kinne,
John J. Lee, Sanjeev K. Mehra, Lewis Rubin, Peter M. Sacerdote and Martin L.
Solomon) to the Board of Directors; and (ii) such other matters as may properly
come before the Annual Meeting.
The Board of Directors does not intend to bring any matter before the Annual
Meeting except as specifically indicated in the attached notice, nor does the
Board of Directors know of any matters which anyone else proposes to present for
action at the Annual Meeting. The persons named on the enclosed proxy card, or
their duly constituted substitutes acting at the Annual Meeting, will be
authorized to vote or otherwise act thereon at their discretion and in
accordance with their judgment on such matters.
This Proxy Statement and the accompanying proxy card are first being mailed
to stockholders of Hexcel on or about April 2, 2001. The date of this Proxy
Statement is April 2, 2001.
No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement in connection
with the solicitation of proxies made hereby and, if given or made, such
information or representation must not be relied upon as having been authorized
by Hexcel or any other person. The delivery of this Proxy Statement shall not
under any circumstances create an implication that there has been no change in
the affairs of Hexcel since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
PAGE
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THE MEETING................................................. 3
General................................................... 3
Matters to be Considered at the Meeting................... 3
Record Date; Voting Rights................................ 3
Proxies................................................... 4
Recommendations of the Board of Directors................. 4
ELECTION OF DIRECTORS....................................... 4
Information Regarding the Directors....................... 6
Meetings and Standing Committees of the Board of
Directors................................................. 8
EXECUTIVE OFFICERS.......................................... 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 12
Stock Beneficially Owned by Principal Stockholders........ 12
Stock Beneficially Owned by Directors and Officers........ 13
EXECUTIVE COMPENSATION...................................... 14
Summary Compensation Table................................ 14
Stock Options............................................. 16
Deferred Compensation..................................... 17
Employment and Other Agreements........................... 18
Compensation Committee Report on Executive Compensation... 23
Compensation Committee Interlocks and Insider
Participation............................................. 26
Compensation of Directors................................. 26
PERFORMANCE GRAPH........................................... 27
AUDIT COMMITTEE REPORT...................................... 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 29
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 34
OTHER MATTERS............................................... 35
STOCKHOLDER PROPOSALS....................................... 35
INDEPENDENT AUDITORS........................................ 35
ANNUAL REPORT............................................... 35
ANNEX A--CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS OF HEXCEL CORPORATION........................... A-1
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THE MEETING
GENERAL
This Proxy Statement is being furnished to stockholders of Hexcel in
connection with the solicitation of proxies by the Board of Directors of Hexcel
for use at the Annual Meeting to be held at the Marriott Hotel, Two Stamford
Forum, Stamford, Connecticut, on May 10, 2001 at 10:30 a.m., local time, and at
any adjournment or postponement thereof. Each copy of this Proxy Statement is
accompanied by a proxy card for use at the Annual Meeting.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, holders of Hexcel's common stock, par value $0.01 per
share ("Hexcel Common") will vote upon (i) the election of ten individuals to
the Board of Directors; and (ii) such other matters as may properly be brought
before the Annual Meeting and any adjournment or postponement thereof.
RECORD DATE; VOTING RIGHTS
The Board of Directors of Hexcel has fixed the close of business on
March 19, 2001 as the record date for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting (the "Record Date"). This Proxy
Statement and the enclosed proxy card are being mailed on or about April 2, 2001
to holders of record of Hexcel Common on the Record Date. On the Record Date,
there were 37,209,255 shares of Hexcel Common outstanding held by 1,567
stockholders of record.
The presence, either in person or by proxy, of the holders of a majority of
the outstanding shares of Hexcel Common entitled to vote at the Annual Meeting
is necessary to constitute a quorum at the Annual Meeting. The election of
directors requires a plurality of the votes cast in person or by proxy at the
Annual Meeting.
Under the rules of the New York Stock Exchange, brokers who hold shares in
"street name" have the authority to vote on certain matters when they do not
receive instructions from beneficial owners. Brokers that do not receive
instructions are entitled to vote on the election of directors. Under applicable
Delaware law, in determining whether the proposal to elect directors has
received the requisite vote, abstentions and broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
On December 19, 2000, pursuant to the terms of a Stock Purchase Agreement
(the "Stock Purchase Agreement") dated as of October 11, 2000 by and between
LXH, L.L.C. ("LXH"), LXH II, L.L.C. ("LXH II" and, together with LXH, the
"Purchasers"), and Ciba Specialty Chemicals Holding Inc. and certain of its
affiliates (collectively, "Ciba"), LXH and LXH II acquired (the "Investors'
Share Purchase") 14,525,000 shares of Hexcel Common from Ciba for an aggregate
purchase price of $159,775,000, consisting of (i) $123,462,500 in cash, (ii) a
$20,680,780 7.5% Recourse Secured Pay-In-Kind Promissory Note due 2004 issued by
LXH to Ciba (the "LXH Promissory Note"), and (ii) a $15,631,720 7.5% Recourse
Secured Pay-In-Kind Promissory Note due 2004 issued by LXH II to Ciba (together
with the LXH Note, the "Investors' Promissory Notes"). Each Purchaser is a
limited liability company controlled by subsidiaries of the Goldman Sachs
Group, Inc. ("GS Group"), and obtained the cash portion of the purchase price
from capital contributions by its members. Under the terms of a Governance
Agreement (the "Governance Agreement") dated as of December 19, 2000, among
Hexcel, the Purchasers and the limited partnerships (each of which is an
affiliate of the Purchasers) listed on the signature pages thereto (together
with the Purchasers, the "Investors"), the Investors, which currently
beneficially hold approximately 39.0% of the issued and outstanding Hexcel
Common, are subject to certain voting restrictions with respect to the shares of
Hexcel Common held by them. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." In accordance with the terms of the Governance Agreement, the
Investors have indicated that
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they will vote their shares of Hexcel Common in favor of each of the nominees
for election to the Board of Directors.
Prior to the Investors' Share Purchase, Hexcel and Ciba were party to a
governance agreement pursuant to which, among other things, Ciba had the right
to designate four members to the Board of Directors. In connection with the
Investors' Share Purchase, Hexcel and Ciba entered into a Consent and
Termination Agreement pursuant to which, among other things, Ciba would cause
its four existing board designees to resign from the Board of Directors and the
governance agreement with Ciba would be terminated effective as of the closing
of the Investors' Share Purchase. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, Consent and Termination Agreement with Ciba."
PROXIES
All shares of Hexcel Common which are entitled to vote and are represented
at the Annual Meeting by properly executed proxies received prior to or at the
Annual Meeting, and not revoked, will be voted at such Annual Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies will be voted FOR the election of each of the
nominees to Hexcel's Board of Directors.
If any other matters are properly presented for consideration at the Annual
Meeting, the persons named on the enclosed proxy card and acting thereunder, or
their duly constituted substitutes acting at the Annual Meeting, will have
discretion to vote on such matters in accordance with their judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Hexcel at or before the taking of the vote at the Annual
Meeting a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Hexcel before the taking of the vote at the
Annual Meeting or (iii) attending the Annual Meeting and voting in person.
Notice of revocation or subsequent proxy should be sent so as to be delivered to
Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford,
Connecticut 06901-3238, Attention: Secretary, or hand delivered to the Secretary
of Hexcel, at or before the taking of the vote at the Annual Meeting.
The cost of solicitation of proxies will be paid by Hexcel. In addition to
solicitation by use of the mail, proxies may be solicited by directors, officers
and employees of Hexcel in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Hexcel will reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees to the Board of Directors. See "ELECTION OF DIRECTORS".
ELECTION OF DIRECTORS
On December 19, 2000, pursuant to the terms of the Stock Purchase Agreement,
the Investors acquired from Ciba 14,525,000 shares of Hexcel Common (the
"Initial Investors' Shares"), equal to approximately 39.3% of the issued and
outstanding Hexcel Common, and the Board of Directors was reconstituted in
accordance with the terms of the Governance Agreement. The Governance Agreement
provides that the Board of Directors shall consist of ten directors, including
three directors designated by the Investors (the "Investors' Directors")
(currently Sanjeev K. Mehra, James J. Gaffney and Peter M.
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Sacerdote), the Chairman of the Board of Hexcel (the "Chairman") (currently John
J. Lee), and six additional directors who are independent of the Investors (the
"Independent Directors") (currently H. Arthur Bellows, Jr., Robert S. Evans,
Marshall S. Geller, Harold E. Kinne, Lewis Rubin and Martin L. Solomon).
Pursuant to the Governance Agreement, the composition of any slate of
nominees to be presented to stockholders of Hexcel for election to the Board of
Directors is generally determined as follows: (i) if the Investors beneficially
own voting securities representing 20% or more of the total voting power of
Hexcel, the slate of nominees will consist of three individuals designated by
the Investors (the "Investors' Nominees"), the Chairman and six additional
individuals, each of whom (x) is not an Investors' Director, (y) is not and has
not been an officer, employee or director of any Investor or any affiliate or
associate of any Investor and (z) has no affiliation or relationship with any
Investor or any affiliate or associate of any Investor such that a reasonable
person would regard such individual as likely to be unduly influenced by an
Investor or any affiliate or associate of an Investor (the "Independent
Nominees"); PROVIDED, HOWEVER, that if the Investors transfer one-third or more
of the Initial Investors' Shares to persons that are not Investors, then the
slate of nominees will consist of two Investors' Nominees, the Chairman and
seven additional Independent Nominees; (ii) if the Investors beneficially own
voting securities representing less than 20% but at least 15% of the total
voting power of Hexcel, the slate of nominees will consist of two Investors'
Nominees, the Chairman and seven additional Independent Nominees; PROVIDED,
HOWEVER that if the Investors transfer two-thirds or more of the Initial
Investors' Shares to persons that are not Investors, then the slate of nominees
will consist of one Investors' Nominee, the Chairman and eight additional
Independent Nominees; and (iii) if the Investors beneficially own voting
securities representing less than 15% but at least 10% of the total voting power
of Hexcel, the slate of nominees will consist of one Investors' Nominee, the
Chairman and eight additional Independent Nominees. In accordance with the
Governance Agreement, Independent Nominees are designated by the Independent
Directors (including the Chairman if he or she is an Independent Director). The
Investors are required to vote their shares of Hexcel Common in favor of the
slate of nominees determined in accordance with the Governance Agreement.
The Investors currently beneficially own approximately 39.0% of the total
voting power of Hexcel. In accordance with the Governance Agreement, the
following individuals have been nominated for election to the Board of
Directors: (i) John J. Lee (the Chairman); (ii) Sanjeev K. Mehra, James J.
Gaffney and Peter M. Sacerdote (the Investors' Nominees); and (iii) H. Arthur
Bellows, Jr., Robert S. Evans, Marshall S. Geller, Harold E. Kinne, Lewis Rubin
and Martin L. Solomon (the Independent Nominees). All of the nominees for
election to the Board of Directors are currently serving as directors of Hexcel.
Unless otherwise instructed on the enclosed proxy card, the persons named
therein will vote such proxy (if properly executed and returned) for the
election of each of the director nominees. In case any nominee becomes
unavailable for election or declines to serve for any reason, the shares of
Hexcel Common represented by a properly executed and returned proxy will be
voted for an alternative or alternatives designated in accordance with the
Governance Agreement.
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INFORMATION REGARDING THE DIRECTORS
Set forth below is certain information concerning the current directors of
Hexcel as of April 1, 2001. All current directors have been nominated for
re-election to the Board of Directors. There are no family relationships among
any Hexcel executive officer or director.
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
---- -------- -------- --------------------------------------
John J. Lee........................... 64 1993 Chairman of the Board; Chief Executive
Officer; Director
Harold E. Kinne....................... 61 1998 President; Chief Operating Officer;
Director
H. Arthur Bellows, Jr................. 63 2000 Director
Robert S. Evans....................... 57 1999 Director
James J. Gaffney...................... 60 2000 Director
Marshall S. Geller.................... 62 1994 Director
Sanjeev K. Mehra...................... 42 2000 Director
Lewis Rubin........................... 63 1999 Director
Peter M. Sacerdote.................... 63 2000 Director
Martin L. Solomon..................... 64 1996 Director
JOHN J. LEE, age 64, 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. Mr. Lee also serves as Chairman of the Nominating and Finance
Committees of Hexcel. He has served as Chairman of the Board, President and
Chief Executive Officer of Lee Development Corporation, a merchant banking
company, since 1987 and an advisor to the Clipper Group, a private investment
partnership, since 1993. He is also a director of Crane Co. and other various
privately held corporations. Mr. Lee was a director of XTRA Corporation, a
transportation equipment leasing company, from 1990 to 1996 and a director of
Hvide Marine Inc., a marine support and transportation services company, from
1994 to October 1999.
HAROLD E. KINNE, age 61, 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 and a member of the corporate
management committee of Ciba Specialty Chemicals Corporation, a wholly owned
affiliate of Ciba ("CSC"), from 1996 to June 1998. Mr. Kinne also held the same
positions in and was a director of Ciba-Geigy Corporation, a wholly owned
affiliate of Ciba-Geigy Limited ("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 held various other technical and
managerial positions with CGC from 1965 to 1986.
H. ARTHUR BELLOWS, JR., age 63, has been a director of Hexcel since
December 2000. Mr. Bellows also serves as a member of the Audit Committee of
Hexcel. He has served as Chairman of Braeburn Associates, a private merchant
banking firm, from 1999, and Chairman of The Finance Network, a private
financial services firm, from 1999. Mr. Bellows was President, Chief Operating
Officer and a director of Audits & Surveys Worldwide, Inc., an international
market research firm, from 1995 to March 1999, and continues to serve as a
director. In 1967, he founded The Triangle Corporation, a
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manufacturer of hand tools, aerosol chemicals, diagnostic equipment for
automobiles and various hardware products, and served as its Chairman, President
and Chief Executive Officer from its founding to March, 1995. Mr. Bellows also
acts as an officer and director of various civic organizations.
ROBERT S. EVANS, age 57, has been a director of Hexcel since November 1999.
Mr. Evans also serves as a member of the Finance Committee of Hexcel. He is
Chairman and Chief Executive Officer and a director of Crane Co., a New York
Stock Exchange company. Crane Co. is a diversified manufacturer of engineered
industrial products serving a number of industrial markets, including aerospace
and specialty materials markets in which Hexcel does not participate. Mr. Evans
has been Chairman and CEO of Crane Co. since 1984 and a director since 1979. In
addition, Mr. Evans is also a director of Fansteel, Inc., HBD Industries Inc.
and Chairman of Huttig Building Products.
JAMES J. GAFFNEY, age 60, has been a director of Hexcel since
December 2000. Mr. Gaffney also serves as a member of the Audit Committee of
Hexcel. Since 1997 he has served as a consultant to certain private investment
funds ("GS Funds") affiliated with Goldman Sachs & Co. ("Goldman Sachs") in
relation to GS Funds' investment in Viking Pacific Holdings and Vermont
Investments Limited. Since 1997 he has served as Vice Chairman of Viking Pacific
Holdings Ltd. From 1995 through 1997, Mr. Gaffney served as Chairman of the
Board and Chief Executive Officer of General Aquatics, Inc., which manufactures
swimming pool equipment and constructs swimming pools. From 1993 through 1995 he
was President and Chief Executive Officer of KDI Corporation, a conglomerate
which was involved in swimming pool construction and manufactured products for a
variety of industries. Prior to 1993, Mr. Gaffney held numerous other executive
and financial positions. He also is a director of SCP Pool, Inc., Advantica
Restaurant Group, Purina Mills, Safelite Glass Corp. and Hvide Marine Inc.,
where he serves as Chairman of the Board, and of various private companies.
MARSHALL S. GELLER, age 62, 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 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., ValueVision International, Inc.,
drkoop.com, Inc., FutureLink Corp., Concepts Direct Inc. and various other
privately held corporations and charitable organizations.
SANJEEV K. MEHRA, age 42, has been a director of Hexcel since
December 2000. Mr. Mehra also serves as a member of the Finance, Compensation
and Nominating Committees of Hexcel. Mr. Mehra joined Goldman Sachs in 1986, and
has served since 1996 as a Managing Director in the Principal Investment Area of
Goldman Sachs' Merchant Banking Division and serves on the Principal Investment
Area Investment Committee. Mr. Mehra is a director of Amscan Holdings, Inc.,
ProMedCo Management Company, Inc. and various privately held companies.
LEWIS RUBIN, age 63, has been a director of Hexcel since November 1999. He
also served on Hexcel's Board from 1993 to 1995. Mr. Rubin also serves as
Chairman of the Audit Committee of Hexcel. Mr. Rubin is President, Chief
Executive Officer and a director of XTRA Corporation, a New York Stock Exchange
company, and has served in those positions since 1990. XTRA Corporation is a
leading global transportation equipment lessor with operations in highway,
domestic intermodal and marine container markets. From 1988 to 1990, he was a
consultant with Lewis Rubin Associates, a consulting firm advising the
transportation equipment industry. From 1984 to 1988, Mr. Rubin served as
President and Chief Executive Officer of Gelco CTI Container Services, a
subsidiary of Gelco Corporation, a diversified international management services
corporation, and as an Executive Vice President of Gelco Corporation.
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From 1981 to 1983, Mr. Rubin was President and Chief Executive Officer of
Flexi-Van Corporation, a company engaged in the leasing of intermodal
transportation equipment.
PETER M. SACERDOTE, age 63, has been a director of Hexcel since
December 2000. Mr. Sacerdote has been an advisory director of Goldman Sachs
since May 1999 where he also serves as chairman of its Investment Committee and
as a member of its Real Estate Principal Investment Committee. He joined Goldman
Sachs in 1964 and served as a general partner from 1973 through 1990 and a
limited partner from 1991 through 1999. He also serves as a director of AMF
Bowling, Inc., AMF Group Holdings Inc., Qualcomm Incorporated and Franklin
Resources, Inc. He is also a director and/or officer of various civic
organizations.
MARTIN L. SOLOMON, age 64, has been a director of Hexcel since May 1996.
Mr. Solomon also serves as Chairman of the Compensation Committee and is a
member of the Finance Committee of Hexcel. Mr. Solomon has been Co-Chairman of
American County Holdings, Inc., an insurance holding company, since 2000 and,
from 1997 to 2000 he served as its Chairman and Chief Executive Officer.
Mr. Solomon has been 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.P., an investment partnership,
from 1988 to 1990, and was 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, a director of Telephone and
Data Systems, Inc. since 1997, a director of MFN Corp. since 1999, and a
director of eMagin Corporation since 2000. Mr. Solomon is also a director of
various privately held corporations and civic organizations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ELECTION OF THE NOMINEES FOR DIRECTOR
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
During 2000 there were 13 meetings of the Board of Directors and 16 meetings
in the aggregate of the four standing committees of the Board. Each of the
incumbent directors who served on the Board and its committees during 2000
attended or participated in at least 75% of the aggregate number of Board of
Directors meetings and applicable committee meetings held during 2000, except
Messrs. Kinne and Evans, each of whom was absent for 4 of the 13 meetings of the
Board of Directors.
The Board of Directors has established the following standing committees:
Audit Committee; Compensation Committee (formerly called the Executive
Compensation Committee); Finance Committee; and Nominating Committee. The
Technology Committee was abolished in May 2000, and did not meet in 2000. The
Board of Directors may establish other special or standing committees from time
to time. Members of committees serve at the discretion of the Board of
Directors. In accordance with the Governance Agreement, for so long as the
Investors have the right to designate at least two Investors' Directors for
election to the Board, each committee of the Board of Directors will include at
least one Investors' Director; PROVIDED, HOWEVER, that if no Investors' Director
is "independent" as defined in the listing standards of the New York Stock
Exchange, then the Audit Committee shall consist solely of Independent
Directors.
On behalf of the Board of Directors, the Audit Committee oversees Hexcel's
financial reporting process. Information regarding the specific functions
performed by the Audit Committee is in the "AUDIT COMMITTEE REPORT" included in
this Proxy Statement. The charter of the Audit Committee, as adopted by the
Board of Directors, is included as Annex A to this Proxy Statement. The current
members
8
of the Audit Committee are Messrs. Rubin (Chairman), Bellows and Gaffney, each
of whom is independent and financially literate, and one or more of whom possess
accounting or related financial management expertise, as determined by the Board
of Directors within the meaning of the listing standards of the New York Stock
Exchange. During 2000 the Audit Committee held 7 meetings.
The Compensation Committee makes recommendations to the Board of Directors
on matters pertaining to the compensation of, and certain related matters
affecting, Hexcel's employees, its executive officers and directors. The
Compensation Committee also administers Hexcel's incentive plans and makes
grants of stock options and/or awards of restricted stock units or other equity
based compensation to executive officers, other key employees and directors of,
and consultants to, Hexcel. The current members of the Compensation Committee
are Messrs. Solomon (Chairman), Geller and Mehra. During 2000 the Compensation
Committee held 7 meetings.
The Finance Committee oversees certain financial affairs of Hexcel and makes
recommendations to the Board of Directors with respect thereto. In certain
circumstances it may also take certain action on behalf of the Board of
Directors. The current members of the Finance Committee are Messrs. Lee
(Chairman), Evans, Mehra and Solomon. During 2000 the Finance Committee held one
meeting.
The Nominating Committee recommends nominees for the Board of Directors. The
Nominating Committee does not solicit or consider stockholder recommendations
for nomination. Under the Governance Agreement, the Nominating Committee is
required to nominate the Chairman, the Investors' Nominees and the Independent
Nominees. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, The Governance
Agreement." The current members of the Nominating Committee are Messrs. Lee
(Chairman), Geller and Mehra. During 2000 the Nominating Committee held 1
meeting.
In addition, during the period from August 21 to October 11 four directors,
Messrs. Evans, Geller, Rubin and Solomon (who during such period were the only
directors of Hexcel not affiliated with Ciba or employed by Hexcel) held 12
meetings at which various matters relating to the transactions contemplated by
the Stock Purchase Agreement were discussed.
9
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
April 1, 2001. For additional information concerning Messrs. Lee and Kinne, see
"ELECTION OF DIRECTORS, Information Regarding the Directors."
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
---- -------- --------- --------------------------------------------------
John J. Lee.............. 64 1993 Chairman of the Board; Chief Executive Officer;
Director
Harold E. Kinne.......... 61 1998 President; Chief Operating Officer; Director
Stephen C. Forsyth....... 45 1994 Executive Vice President; Chief Financial Officer
Ira J. Krakower.......... 60 1996 Senior Vice President; General Counsel; Secretary
William J. Fazio......... 46 2001 Corporate Controller; Chief Accounting Officer
Robert F. Matthews....... 54 2000 Vice President of Human Resources
Joseph H. Shaulson....... 35 1996 Vice President of Corporate Planning and Chief
Information Officer
Justin P. S. Taylor...... 47 1996 Vice President, Manufacturing and Environmental,
Health and Safety
James N. Burns........... 61 1996 President of the Fibers business unit
William Hunt............. 58 1996 President of the Composites Materials business
unit
David R. Tanonis......... 44 1999 President of the Structures and Interiors business
unit
Steven T. Warshaw........ 52 2000 President of the Hexcel-Schwebel business unit
STEPHEN C. FORSYTH, age 45, 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 also serves as a director of Interglas Technologies AG. Mr. Forsyth
served as Vice President of International Operations of Hexcel from
October 1994 to February 1996 and has held other general management positions
with Hexcel from 1980 to 1994. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 60, 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.
WILLIAM J. FAZIO, age 46, has served as Corporate Controller and Chief
Accounting Officer since April, 2001. Mr. Fazio served as Vice President,
Controller of Kodak Polychrome Graphics, a distributor and manufacturer of
graphic arts products owned by Eastman Kodak Company and Sun Chemical
Corporation, from February 1998 to March 2001, and from April 1997 to
January 1998 he was Director, Corporate Financial Services, for Ogden
Corporation. From 1981 to April 1997, Mr. Fazio held various positions for
Coltec Industries Inc., the latest being Director--Operations Analysis from 1994
to March 1997.
ROBERT F. MATTHEWS, age 54, has served as Vice President of Human Resources
since July 1, 2000, and, from January 10, 2000, served as a consultant to Hexcel
in human resources. From 1999 to June, 2000, Mr. Matthews engaged in consulting
in human resources matters. From 1994 to 1999, he served as Senior Vice
President of Human Resources for Phillips Electronics, North America Region.
From 1974 to 1994 he served in various human resources roles with General
Electric Co.
JOSEPH H. SHAULSON, age 35, has served as Vice President of Corporate
Planning and Chief Information Officer since September, 2000. Mr. Shaulson
served as Vice President of Planning and
10
Integration of Hexcel from November 1998 to September, 2000 and 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.
JUSTIN P. S. TAYLOR, age 47, has served as Vice President of Manufacturing
and Environmental, Health and Safety since June 1999. From April 1996 to
June 1999, Mr. Taylor served as President of Hexcel's Structures and Interiors
business unit, and from July 1995 to April 1996 as a member of Ciba's strategic
planning unit. Prior to July 1995, Mr. Taylor held various management positions
in the Heath Tecna Division of CGC.
JAMES N. BURNS, age 61, 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.
WILLIAM HUNT, age 58, has served as President of Hexcel's Composites
Materials business unit since November 1998 and as President of the former
Hexcel EuroMaterials business unit from February 1996 to October 1998. 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.
DAVID R. TANONIS, age 44, has served as President of Hexcel's Structures and
Interiors business unit since June 1999. Mr. Tanonis served as Vice President of
Hexcel's Structures and Interiors business unit, responsible for the interiors
business, from February 1996 to June 1999 and as the Vice President of Interiors
in the Heath Tecna Division of CGC prior to February 1996. Mr. Tanonis held
various technical and managerial positions with Heath Tecna since 1987.
Mr. Tanonis held various management positions with Polymer Engineering, Inc.
from 1978 to 1987.
STEVEN T. WARSHAW, age 52, has served as President of the Hexcel Schwebel
business unit since April 2000. Prior to joining Hexcel, he was Senior Vice
President, Worldwide Sales and Marketing of Photronics, Inc., a materials
supplier to the semiconductor industry, from 1999 to 2000. From 1974 to 1999, he
served in a variety of general management positions at Olin Corp., including,
from 1996 to 1999, as President of Olin Microelectronic Materials, a company
supplying advanced chemicals, products and services to semiconductor
manufacturers. Mr. Warshaw is a director of NN Inc., a producer of steel balls
and rollers supplied to bearing manufacturers.
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK BENEFICIALLY OWNED BY PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 28, 2001
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 Common.
NUMBER OF
SHARES OF PERCENT
COMMON OF
NAME AND ADDRESS (1) STOCK CLASS
-------------------- ---------- --------
The Goldman Sachs Group, Inc. (2)........................... 14,531,668 39.0%
85 Broad Street
New York, NY 10004
Ciba Specialty Chemicals Holding Inc. (3)................... 3,581,545 9.6%
Klybeckstrasse 141
CH 4002
Basel, Switzerland
Loomis Sayles & Company, L.P. (4)........................... 2,193,241 5.9%
One Financial Center
Boston, MA 02111
Dimensional Fund Advisors, Inc. (5)......................... 1,985,600 5.3%
1299 Ocean Avenue
Santa Monica, CA 90401
------------------------
(1) See also "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT,
Stock Beneficially Owned by Directors and Officers."
(2) Based on information contained in a Statement on Schedule 13D filed with the
Securities and Exchange Commission (the "Commission") on December 28, 2000
by GS Group and several of its affiliates, including LXH and LXH II. Based
on information included in such Schedule 13D, options to purchase 10,000
shares of Hexcel Common granted to each of Investors' Directors Mehra and
Sacerdote pursuant to the Hexcel Corporation Incentive Stock Plan (the
"Incentive Stock Plan") are held for the benefit of GS Group; one-third of
those options are currently exercisable and, accordingly, are included in
the shares beneficially owned by GS Group. The shares of Hexcel Common
beneficially owned by GS Group are subject to the terms of the Governance
Agreement. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
(3) Based on information contained in a Statement on Schedule 13D/A filed with
the Commission on December 20, 2000 on behalf of Ciba. CSC has sole voting
and investment power with respect to 3,496,748 shares of Hexcel Common.
Based on information provided to Hexcel, options to purchase 84,797 shares
of Hexcel Common granted to former directors Walter D. Hosp, John J. McGraw,
Martin Riediker and Stanley Sherman are held for the benefit of Ciba; all of
these options are currently exercisable and, accordingly, are included in
the shares beneficially owned by Ciba above.
(4) Based on information contained in a Statement on Schedule 13G filed with the
Commission on February 12, 2001.
(5) Based on information contained in a Statement on Schedule 13G filed with the
Commission on February 2, 2001.
12
STOCK BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS
Based on information supplied by those persons, beneficial ownership of
shares of Hexcel Common by the individually named directors and executive
officers, and by all directors and executive officers as a group, as of
February 28, 2001 is as follows:
SHARES OF HEXCEL PERCENT
NAME COMMON OWNED (6) OF CLASS
---- ---------------- --------
John J. Lee (2)............................................ 2,310,571 5.9%
Harold E. Kinne............................................ 129,019 (1)
H. Arthur Bellows, Jr...................................... 4,393 (1)
Robert S. Evans............................................ 28,054 (1)
James J. Gaffney (3)....................................... 5,453 (1)
Marshall S. Geller......................................... 144,662 (1)
Sanjeev K. Mehra (3) (4)................................... 0 (1)
Lewis Rubin................................................ 24,765 (1)
Peter M. Sacerdote (3) (4)................................. 0 (1)
Martin L. Solomon.......................................... 118,839 (1)
Stephen C. Forsyth......................................... 150,935 (1)
Ira J. Krakower............................................ 182,682 (1)
William Hunt............................................... 127,833 (1)
All executive officers and directors as a group (20
persons) (5)............................................. 3,551,430 8.9%
------------------------
(1) Less than 1%.
(2) The address for Mr. Lee is c/o Hexcel Corporation, Two Stamford Plaza, 281
Tresser Boulevard, Stamford, Connecticut, 06901.
(3) Messrs. Gaffney, Mehra and Sacerdote serve on the Board of Directors at the
request of the Investors pursuant to the Governance Agreement.
(4) Based on information provided to Hexcel, options to purchase Hexcel Common
granted to Messrs. Mehra and Sacerdote pursuant to the Incentive Stock Plan
are held for the benefit of GS Group. (See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT, Stock Beneficially Owned by Principal
Stockholders"). Messrs. Mehra and Sacerdote disclaim beneficial ownership of
any shares represented by such options and none of the shares represented by
such options are included above. In addition, Messrs. Mehra and Sacerdote
disclaim beneficial ownership of the 14,525,000 shares of Hexcel Common
acquired by the Investors in the Investors' Share Purchase, and none of such
shares are included above.
(5) For Mr. Fazio, includes shares beneficially owned as of April 1, 2001, the
date on which he became an executive officer.
(6) Except as noted in footnote 4 above, includes shares issuable upon the
exercise of options that are currently exercisable, that will become
exercisable within 60 days or that could become exercisable upon termination
of employment in certain circumstances, and shares distributable within
60 days upon the satisfaction of certain conditions of restricted stock
units. Such shares are held as follows: Mr. Lee 1,798,976; Mr. Kinne
119,019; Mr. Bellows 4,393; Mr. Evans 24,554; Mr. Gaffney 5,453; Mr. Geller
64,662; Mr. Rubin 24,765; Mr. Solomon 103,839; Mr. Forsyth 130,038;
Mr. Krakower 150,182; Mr. Hunt 121,533; and all other executive officers as
a group 262,626.
13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total annual compensation paid or accrued
by Hexcel to or for the account of each of the Chief Executive Officer and the
four most highly compensated executive officers of Hexcel (the "Named Executive
Officers") whose total cash compensation for the fiscal year ended December 31,
2000 exceeded $100,000.
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION(1) -----------------------
------------------------------ SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ ALL OTHER
SALARY BONUSES AWARD(S) SARS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($) ($)(3) ($)(4)(8) (#)(5)(8) ($)(6)(7)
------------------------- -------- -------- -------- ---------- ---------- ------------
John J. Lee............................... 2000 644,000 603,989 618,684 519,200 775,551
Chairman; Chief Executive Officer 1999 625,000 0 1,410,433 326,620 683,349
1998 550,000 291,600 803,198 567,600 608,692
Harold E. Kinne (2)....................... 2000 385,000 293,364 269,190 116,195 35,552
President; Chief Operating Officer 1999 350,000 0 452,441 143,498 26,875
1998 137,500 75,800 197,218 267,400 1,389
Stephen C. Forsyth........................ 2000 309,000 199,467 124,800 88,400 27,848
Executive Vice President; Chief 1999 300,000 0 352,813 90,159 26,460
Financial Officer 1998 260,000 119,400 207,990 194,200 23,605
Ira J. Krakower........................... 2000 254,000 164,643 103,350 82,413 22,734
Senior Vice President; General Counsel; 1999 245,000 0 296,639 72,040 19,342
Secretary 1998 235,000 111,400 188,860 166,200 22,925
William Hunt.............................. 2000 242,000 123,867 54,600 67,326 18,562
President, Composites Materials Business 1999 233,663 85,000 174,146 33,320 18,126
Unit 1998 194,948 70,298 55,075 83,700 18,538
------------------------
(1) Annual Compensation includes amounts earned in the fiscal year, whether or
not deferred.
(2) Mr. Kinne's employment with Hexcel commenced on July 15, 1998.
(3) Amounts shown in 1998, 1999 and 2000 include deferred amounts used to
purchase restricted stock units ("RSUs") pursuant to the Management Stock
Purchase Plan ("MSPP"); see footnote 4 below. Bonuses shown for fiscal years
1998, 1999 and 2000 were earned in fiscal years 1998, 1999 and 2000,
respectively, and paid in 1999, 2000 and 2001, respectively.
(4) This column includes the value of (i) Performance Accelerated Restricted
Stock Units ("PARS") granted under the Incentive Stock Plan and (ii) RSUs
purchased under the MSPP (net of purchase price paid), in each case
determined at the closing market price of Hexcel Common on the date of
grant.
(A) PARS. Subject to certain employment conditions, PARS generally vest
after a period of seven years following the grant date, but if Hexcel's
performance equals or exceeds certain performance target levels, or upon
termination of employment in certain circumstances, the PARS will vest
and be converted into an equivalent number of shares of Hexcel Common
earlier than the fixed vesting date. As a result of Hexcel's achieving
performance target levels under certain PARS granted in 1996 and 1997,
190,100 of Mr. Lee's PARS vested, but conversion of those PARS and
distribution of shares to Mr. Lee are restricted at the option of Hexcel
to the extent that its
14
deductions for income tax are limited by Section 162(m) of the Internal
Revenue Code. In connection with Mr. Lee's Amended and Restated
Employment Agreement dated October 11, 2000, Mr. Lee may elect to have up
to 100,000 shares of Hexcel Common underlying such PARS distributed to
him in each calendar year. Mr. Lee has already received this distribution
for the year 2001.
(B) RSUs. For bonuses payable for 1998, 1999 and 2000, RSUs were granted
pursuant to the MSPP to the extent the employee elects to purchase RSUs
for up to 50% of his bonus. RSUs are granted at 80% of the average
closing price of Hexcel Common for the five trading days preceding the
grant date. Subject to certain employment conditions, RSUs vest in equal
increments on each of the first three anniversaries of the grant and, at
the expiration of a three year restricted period from the date of grant,
are converted into an equivalent number of shares of Hexcel Common. The
RSUs with respect to the deferral of the bonus for 1998 were granted on
February 3, 1999 at a purchase price of $7.35 per RSU. The RSUs with
respect to the deferral of the bonus for 1999 were granted on
December 30, 1999 at a purchase price of $4.14 per RSU. The RSUs with
respect to the deferral of the bonus for 2000 were granted on
February 1, 2001, at a purchase price of $8.59 per RSU.
(C) Aggregate Restricted Stock Information. The aggregate number of PARS
held and RSUs elected for purchase by each Named Executive Officer at the
end of 2000 and the aggregate value of such PARS and RSUs (net of
purchase price paid) at the closing price of Hexcel Common on
December 29, 2000 ($8.9375) are as follows: Mr. Lee 609,502 and
$4,718,384; Mr. Kinne 138,771 and $1,055,687; Mr. Forsyth 100,000 and
$747,800; Mr. Krakower 86,687 and $634,676; and Mr. Hunt 43,172 and
$347,247. No dividends are payable on any PARS or RSUs until the shares
represented by the PARS or RSUs are delivered to the employee provided
that, if dividends are paid on Hexcel Common subsequent to vesting of
PARS, but while conversion to Hexcel Common is restricted by Hexcel
because of the application of Section 162(m) of the Internal Revenue
Code, the grantee will be granted additional PARS (as if each of such
PARS were a share of Hexcel Common) equal in value to the dividends which
would have been payable if such vested PARS were converted into Hexcel
Common.
(5) This column includes 10,000 Reload Options which were granted to Mr. Kinne
in 1998 as a result of exercises of certain Short-Term Options which were
also granted in 1998 and either expired or were exercised in that same year.
The Short-Term Options were exercisable at the fair market value of Hexcel
Common on the date of exercise and are not included in this column.
(6) All Other Compensation for fiscal years 1998, 1999 and 2000 consists of
(i) contributions by Hexcel to Hexcel's 401(k) Retirement Savings Plan as
follows: Mr. Lee $7,680, $8,843 and $10,200; Mr. Kinne $0, $8,843 and
$10,200; Mr. Forsyth $7,680, $8,843 and $10,200; and Mr. Krakower $7,680,
$8,843 and $10,200; (ii) contributions by Hexcel to Hexcel's 401(k)
Restoration Plan as follows: Mr. Lee $46,443, $43,773 and $50,415;
Mr. Kinne $0, $15,050 and $22,115; Mr. Forsyth $13,505, $14,947 and $14,922
and Mr. Krakower $7,636, $8,166 and $10,145; (iii) premiums for life
insurance (exceeding $50,000 per such Named Executive Officer) as follows:
Mr. Lee $3,276, $3,744 and $3,869; Mr. Kinne $858, $2,028 and $2,253;
Mr. Forsyth $1,466, $1,716 and $1,772 and Mr. Krakower $1,310, $1,379 and
$1,435; and (iv) premiums for long-term disability insurance of $954, $954
and $954 for each of Messrs. Lee, Kinne, Forsyth and Krakower. Mr. Hunt does
not participate in those four Plans. For Mr. Hunt, All Other Compensation
for fiscal years 1998, 1999 and 2000 consists of: (i) life insurance
premiums of $7,100, $6,989 and $7,227 and (ii) disability insurance premiums
of $11,438, $11,158 and $11,335. For Mr. Lee, the amount also includes
deferred compensation in an amount equal to $550,339, $626,035 and $710,113
in accordance with the terms of Mr. Lee's employment agreement with Hexcel;
this deferred compensation generally reduces the benefit payable under
Mr. Lee's Supplemental Executive Retirement Agreement. See "EXECUTIVE
COMPENSATION, Employment and Other Agreements, SUPPLEMENTAL RETIREMENT
AGREEMENT WITH MR. LEE."
15
(7) Certain contributions by Hexcel to Hexcel's 401(k) Restoration Plan with
regard to the bonuses earned in 2000 but paid in 2001 cannot be estimated at
this time. These contributions will be determined at the end of 2001 and
will be included in Hexcel's next annual Proxy Statement.
(8) In connection with the Investors' Share Purchase, the terms of all
agreements governing unvested stock options and all PARS and RSUs
outstanding at the closing of the Investors' Share Purchase held by each
Named Executive Officer except Mr. Lee were amended in certain respects. See
"EXECUTIVE COMPENSATION, Employment and Other Agreements, AGREEMENTS OF
MESSRS. KINNE, FORSYTH, KRAKOWER AND HUNT ENTERED INTO IN CONNECTION WITH
THE INVESTORS' SHARE PURCHASE."
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (3)
---------------------------------------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS MARKET
OPTIONS/ GRANTED TO EXERCISE OR PRICE ON
SARS EMPLOYEES IN BASE PRICE GRANT EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE DATE 5%($) 10%($)
---- ----------- ------------ ----------- -------- ---------- --------- ---------
John J. Lee................... 364,000(1) 21.0% 11.0000 9.9375 12/20/10 1,888,119 5,378,215
155,000(2) 8.9% 9.9375 9.9375 12/20/10 969,944 2,458,029
Harold E. Kinne............... 50,395(1) 2.9% 11.0000 9.9375 12/20/10 261,406 744,602
65,800(2) 3.8% 9.9375 9.9375 12/20/10 411,226 1,042,128
Stephen C. Forsyth............ 50,000(1) 2.9% 11.0000 9.9375 12/20/10 259,357 738,766
38,400(2) 2.2% 9.9375 9.9375 12/20/10 239,986 608,172
Ira J. Krakower............... 50,613(1) 2.9% 11.0000 9.9375 12/20/10 262,537 747,823
31,800(2) 1.8% 9.9375 9.9375 12/20/10 198,739 503,643
William Hunt.................. 50,626(1) 2.9% 11.0000 9.9375 12/20/10 262,604 748,015
16,700(2) 1.0% 9.9375 9.9375 12/20/10 104,369 264,492
------------------------
(1) The amount shown in these rows reflects the grant of nonqualified stock
options in connection with the Investors' Share Purchase. See "EXECUTIVE
COMPENSATION, Employment and Other Agreements, EMPLOYMENT AGREEMENT WITH
MR. LEE" and "AGREEMENTS OF MESSRS. KINNE, FORSYTH, KRAKOWER AND HUNT
ENTERED INTO IN CONNECTION WITH THE INVESTORS' SHARE PURCHASE."
(2) The amount shown in these rows reflects the annual grant of nonqualified
stock options in December 2000. See "EXECUTIVE COMPENSATION, Compensation
Committee Report on Executive Compensation, EQUITY-BASED INCENTIVES."
(3) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and 10%)
set by the executive compensation disclosure provisions of the proxy rules
of the Commission and have not been discounted to reflect the present values
of such amounts. The assumed rates of stock price appreciation are not
intended to forecast the future stock price appreciation of Hexcel Common.
16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN THE MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON REALIZED FISCAL YEAR END (#)(2) FISCAL YEAR END ($)(3)
NAME EXERCISE (#) ($)(1) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
---- ------------ -------- --------------------------- ---------------------------
John J. Lee................. -- -- 875,109/1,132,811 513,578/670,284
Harold E. Kinne............. -- -- 119,019/383,074 147,632/289,157
Stephen C. Forsyth.......... 33,000 $40,028 133,313/291,771 95,051/184,586
Ira J. Krakower............. -- -- 150,182/251,971 78,764/152,536
William Hunt................ -- -- 48,607/154,639 26,513/51,506
------------------------
(1) Based on the closing prices per share of Hexcel Common as reported on the
New York Stock Exchange Composite Tape on the dates of exercise.
(2) Includes (i) options granted pursuant to the Incentive Stock Plan as
follows: Mr. Lee 2,007,920; Mr. Kinne 502,093; Mr. Forsyth 419,059;
Mr. Krakower 402,153; and Mr. Hunt 203,256; and (ii) options granted
pursuant to Hexcel's 1988 Management Stock Plan as follows: Mr. Forsyth
6,025.
(3) Based on the closing price of $8.9375 per share of Hexcel Common as reported
on the New York Stock Exchange Composite Tape on December 29, 2000.
DEFERRED COMPENSATION
PENSION PLAN--U.S. EMPLOYEES
Messrs. Lee, Kinne, Forsyth and Krakower participate in the Hexcel
Corporation Pension Plan (the "Pension Plan"), a tax-qualified defined benefit
plan. On December 31, 2000, the benefits under the Pension Plan were frozen and
no additional benefits will be earned after that date. The benefit vests in its
entirety after five years of employment; even though the benefit is frozen,
employees continue to earn service credit towards vesting after December 31,
2000. As of the end of the 2000 fiscal year, the monthly benefit earned and the
percentage of such benefit vested for each of the participating Named Executive
Officers was as follows: Mr. Lee $667 and 100%; Mr. Kinne $197 and 0% (two years
credited service); Mr. Forsyth $667 and 100% and Mr. Krakower $442 and 0% (four
years credited service). Benefits are normally payable monthly, as a life
annuity, commencing upon the later of the executive's attainment of age 65 or
retirement. The benefits are not offset by Social Security or any other amounts.
Benefits under the Pension Plan are credited against the Supplemental Executive
Retirement Plan Agreement benefits of the participating Named Executive
Officers; see "EXECUTIVE COMPENSATION, Employment and Other Agreements,
SUPPLEMENTAL RETIREMENT AGREEMENT WITH MR. LEE" and "SUPPLEMENTAL RETIREMENT
AGREEMENTS WITH MESSRS. KINNE, FORSYTH AND KRAKOWER." Mr. Hunt does not
participate in this Pension Plan but Mr. Hunt is a participant in the Hexcel
Composites Limited Pension Scheme as described in "EXECUTIVE COMPENSATION,
Employment and Other Agreements, ADDITIONAL PENSION AGREEMENT WITH MR. HUNT."
17
EXECUTIVE DEFERRED COMPENSATION
AND CONSULTING AGREEMENT (1)
YEARS OF PARTICIPATION
----------------------
REMUNERATION 5 10 15 20 25
------------ -------- -------- -------- -------- --------
300,000........................... 22,500 45,000 67,500 90,000 112,500
350,000........................... 26,250 52,500 78,750 105,000 131,250
400,000........................... 30,000 60,000 90,000 120,000 150,000
450,000........................... 33,750 67,500 101,250 135,000 168,750
500,000........................... 37,500 75,000 112,500 150,000 187,500
550,000........................... 41,250 82,500 123,750 165,000 206,250
------------------------
(1) The current covered compensation under the Executive Deferred Compensation
and Consulting Agreement ("Retirement Agreement") of each of Messrs. Kinne,
Forsyth and Krakower is the sum of the respective officer's salary and
incentive cash bonuses set forth in the Summary Compensation Table (for
1999, includes 70% of target bonus). The annual benefit is calculated as
1.5% of the executive's covered compensation for each year of employment
following the effective date of the executive's Retirement Agreement. The
benefit vests proportionally over the first 67 months following the
effective date. As of the end of the 2000 fiscal year, (1) the estimated
credited years of service and percentage of benefit vested under the
Retirement Agreements were as follows: Mr. Kinne 2 1/2 years and 45%,
Mr. Forsyth 6 1/4 years and 100% and Mr. Krakower 4 1/3 years and 78%; and
(2) the covered compensation for the executives for determination of
benefits under the Retirement Agreements was as follows: Mr. Kinne $441,908,
Mr. Forsyth $348,104 and Mr. Krakower $334,400. Benefits are normally
payable monthly, as a life annuity (with a minimum of 120 monthly payments),
commencing upon the later of the executive's attainment of age 65 or
retirement. The benefits are not offset by social security or any other
amounts. Each Retirement Agreement also requires Hexcel to continue to cover
the executive under Hexcel's group medical, dental and vision insurance
plans and to provide life insurance for so long as the executive continues
to receive monthly payments under the Retirement Agreement and has not
attained the age of 75. The benefits under the Retirement Agreements are
superceded by the terms of the Supplemental Executive Retirement Agreements
upon vesting of the latter agreements. See "EXECUTIVE COMPENSATION,
Employment and Other Agreements, SUPPLEMENTAL RETIREMENT AGREEMENTS WITH
MESSRS. KINNE, FORSYTH AND KRAKOWER."
EMPLOYMENT AND OTHER AGREEMENTS
EMPLOYMENT AGREEMENT WITH MR. LEE
In connection with the Investors' Share Purchase, Hexcel and Mr. Lee amended
and restated his existing employment agreement which was due to terminate in
February 2001 (as so amended and restated, the "Employment Agreement"). The
Employment Agreement provides for Mr. Lee to be employed as Chairman and Chief
Executive Officer of Hexcel for three years commencing December 19, 2000. The
Employment Agreement will be automatically extended for one additional year
unless either Mr. Lee or Hexcel gives notice to the other at least 90 days prior
to December 19, 2003 that the Employment Agreement shall not be so renewed.
Mr. Lee may terminate the Employment Agreement for "good reason" (as defined) or
upon 60 days' notice to Hexcel. The Employment Agreement provides for (i) an
annual base salary of no less than the salary in effect on the date of execution
of the Employment Agreement, which was $644,000, or any higher salary set by the
Compensation Committee, and a target annual bonus of not less than 80% of his
annual base salary, (ii) a deferred compensation arrangement intended to provide
Mr. Lee an annual retirement benefit which, when added to his other Hexcel
retirement benefits, will be equal to approximately 50% of the average annual
cash compensation paid to him during the term of his employment with Hexcel and
(iii) Mr. Lee's participation, where appropriate, in
18
all other components of senior executive compensation, including equity-based
incentives and welfare benefits. See "EXECUTIVE COMPENSATION, Compensation
Committee Report on Executive Compensation, EQUITY-BASED INCENTIVES."
The Employment Agreement provides for the grant to Mr. Lee on December 19,
2000 of an option to purchase 364,000 shares of Hexcel Common under the
Incentive Stock Plan, which option (i) has an exercise price per share equal to
$11.00, (ii) becomes exercisable with respect to one-third of the shares covered
thereby on each of the first, second and third anniversaries of the date of the
grant, subject to earlier vesting upon the occurrence of certain events such as
a change of control, and (iii) expires on the earlier of the third anniversary
of the termination of employment or the tenth anniversary of the date of grant.
If Mr. Lee's employment is terminated by the Company for "cause" (as defined),
or by Mr. Lee other than for good reason, and other than for termination due to
death or "disability" (as defined), the option, to the extent not vested, shall
be forfeited; if Mr. Lee's employment is terminated by the Company other than
for cause or he terminates employment for good reason, or Mr. Lee's employment
is terminated due to death or disability, the option shall become immediately
fully vested and exercisable.
Mr. Lee is entitled to receive his full salary during any period of
disability until his employment is terminated (net of certain other
disability-related benefits), and to receive certain severance payments in the
event his employment is terminated by the Company other than for disability or
cause, or by Mr. Lee for good reason. These payments generally consist of salary
and bonus earned, or deemed earned, through the date of termination plus an
amount determined by multiplying the number of years (including partial years)
remaining of the term of the Employment Agreement or the number two, whichever
is greater, by the sum of his annual salary rate and the highest annual amount
payable to Mr. Lee under the annual bonus plan in the three years preceding
termination of employment.
The Employment Agreement also provides that the Investors' Share Purchase
does not constitute a change of control for purposes of any equity-based awards
previously granted to Mr. Lee or any other award or agreement between Hexcel and
Mr. Lee, including Mr. Lee's SERP Agreement and Severance Agreement described
below. This had the effect of, among other things, preventing all of Mr. Lee's
outstanding but unvested equity-based awards from vesting and, in the case of
restricted stock awards, from certain shares of Hexcel Common being distributed
to Mr. Lee, upon the closing of the Investors' Share Purchase on December 19,
2000. However, if Mr. Lee receives payments under the Employment Agreement, or
any other plan, arrangement or agreement with Hexcel in connection with the
Investors' Share Purchase, then Hexcel will hold Mr. Lee harmless from the
effects of any excise tax that may be imposed under Section 280(G) of the
Internal Revenue Code on "excess parachute payments."
SUPPLEMENTAL RETIREMENT AGREEMENT WITH MR. LEE
In May 1998, Hexcel agreed to provide Mr. Lee with a benefit intended to
supplement his retirement income from Hexcel's other retirement programs and
social security. The agreement was amended in January 1999 and was further
amended as of the closing of the Investors' Share Purchase on December 19, 2000
(as amended, the "SERP Agreement"). The Normal Retirement Benefit under the SERP
Agreement for retirement at age 65 is a monthly payment equal to (1) the
difference between (a) 50% of Mr. Lee's Final Average Pay times the Vesting
Percentage and (b) the Qualified Pension Benefits, less (2) $5,000. Final
Average Pay is Mr. Lee's monthly compensation (salary and bonus without
reduction for amounts deferred) for the highest paid 24 consecutive months of
Mr. Lee's final 60 months of employment. The Vesting Percentage is the number of
completed months of continuous service with Hexcel from September 1, 1994 to the
date of termination (but not greater than 60), divided by 60. Qualified Pension
Benefits are the actuarially determined monthly value of the vested benefits
under the Pension Plan, the 401(k) Retirement Savings Plan, the 401(k)
Restoration Plan, Social Security, and the deferred compensation component of
his Employment Agreement. If Mr. Lee is employed by Hexcel on December 31, 2001,
or if Mr. Lee is terminated by Hexcel without "cause" (as defined) prior to such
date, or if Mr. Lee terminates
19
his employment for "good reason" (as defined) prior to such date, then the
Normal Retirement Benefit shall not be determined by the formula above but
rather shall be fixed at $20,849.42.
Unless otherwise provided in the SERP Agreement, if Mr. Lee's employment
terminates, Hexcel will pay the Normal Retirement Benefit to Mr. Lee or his
surviving spouse or estate, but in no event for less than ten years. Upon
certain terminations after a "change in control" (as defined), termination by
Hexcel without "cause" and termination by Mr. Lee for "good reason," Mr. Lee
will be paid a lump sum equal to the Normal Retirement Benefit. If Mr. Lee's
employment terminates due to a disability, he will receive a monthly benefit in
an amount equal to the Normal Retirement Benefit. No benefits are payable under
the SERP Agreement if Mr. Lee is terminated for cause. In addition, (i) if
Mr. Lee dies after payment of his benefits has started, his spouse will receive
during her lifetime one-half of his benefit payment, or, if Mr. Lee so elects
before payments to him commence, his spouse will receive 100% of the benefit
Mr. Lee was receiving prior to his death, but the benefit payable to him would
be reduced to reflect actuarial equivalence of the election, and (ii) if
Mr. Lee dies before payment of his benefits has started, his spouse will receive
his Normal Retirement Benefit as a monthly benefit or as a lump sum equal to the
actuarially determined present value of his full benefits for 10 years.
If Mr. Lee had retired at December 31, 2000, his Normal Retirement Benefit
under the SERP Agreement would equal $20,235 per month or $242,821 per year.
The SERP Agreement also provides Mr. Lee with certain life insurance
benefits and continuation of group medical, dental and vision care coverage at
levels not materially less favorable than at the time of his termination.
SPLIT-DOLLAR ARRANGEMENT WITH MR. LEE
In January 1999, Hexcel entered into a split dollar insurance agreement with
an irrevocable trust created by Mr. Lee. The trust has purchased a
Survivorship/Last to Die insurance policy on Mr. Lee and his spouse. Hexcel pays
the annual premium on the policy for five years, at which time the policy is
expected to be fully paid; the trust also pays a designated portion of the
premium. Upon the earlier of the 15th anniversary of the date of the policy and
the death of the later to die of Mr. Lee or his spouse, or if the policy is
cancelled or surrendered, Hexcel is reimbursed from the proceeds of the policy
for the cumulative premiums it has paid, and the trust receives the balance
under the policy. The policy is assigned to Hexcel to secure the premium
repayment.
SEVERANCE AGREEMENTS WITH MESSRS. LEE, KINNE, FORSYTH AND KRAKOWER
In February 1999, Hexcel entered into severance agreements with
Messrs. Lee, Kinne, Forsyth and Krakower (as amended, the "Severance
Agreements"). In general terms, the Severance Agreements provide that Hexcel
will make specified termination payments to the executive, and continue his
participation in Hexcel's benefit plans for a limited period of time, upon
termination of employment under certain circumstances. The amounts payable to
the executive vary depending upon the circumstances of termination of
employment: (i) for termination by Hexcel other than for "disability" (as
defined) and other than for "cause" (as defined), or by the executive for "good
reason" (as defined), the executive receives a payment equal to one year's
salary plus average bonus over the last three years (deemed for 1999 to be 70%
of target bonus); (ii) for termination by Hexcel other than for disability and
other than for cause, or by the executive for good reason, during a period of a
"potential change in control" (as defined), or within two years after a "change
in control" (as defined), the executive receives three times the payment
described under clause (i); and (iii) Hexcel will continue the executive's
participation in its benefit plans for up to three years depending on the
circumstances of termination. The Investors' Share Purchase constitutes such a
change of control event. For a termination by Hexcel for cause or by the
executive without good reason, the executive only receives unpaid amounts owed
to the executive through the date of termination. In the event payments to the
executive would result in the imposition of any excise tax on
20
"excess parachute payments," the payments and benefits to which the executive is
otherwise entitled may be reduced to the extent necessary to maximize the
after-tax amount received by the executive. However, in connection with the
Investors' Share Purchase, the Severance Agreements were amended to provide that
if the executive receives payments under the agreement or any other plan,
arrangement or agreement with Hexcel in connection with the Investors' Share
Purchase or as a result of termination of employment before December 19, 2002,
then Hexcel will hold the executive harmless from the effect of any excise tax
imposed on "excess parachute payments." The executive agrees not to compete with
Hexcel for one year or three years after termination of employment depending on
whether termination occurs under circumstances described in clause (i) or
clause (ii) above, respectively. In the case of Mr. Lee, payments made under the
Severance Agreement will be reduced by any amounts received under his Employment
Agreement for similar severance payments. For Messrs. Kinne, Forsyth and
Krakower, the Severance Agreement supercedes and terminates their prior
severance arrangements with Hexcel.
SUPPLEMENTAL RETIREMENT AGREEMENTS WITH MESSRS. KINNE, FORSYTH AND KRAKOWER
In May 2000, Hexcel agreed to provide each of Messrs. Kinne, Forsyth and
Krakower with a benefit intended to supplement such executive's retirement
income from Hexcel's other retirement programs and social security. The Normal
Retirement Benefit under the SERP Agreement for retirement at age 65 is a
monthly payment equal to the difference between (1) the product of the
executive's Final Average Pay, Benefit Percentage, and Vesting Percentage, and
(2) the Qualified Pension Benefits. Final Average Pay is the executive's monthly
compensation (salary and bonus without reduction for amounts deferred) for the
highest paid 36 months of the executive's final 60 months of employment. The
Benefit Percentage is a percentage, based on a formula, which increases with
each month of continuous service with Hexcel. The Vesting Percentage is (i) in
the case of Messrs. Kinne and Krakower, 100% if the executive has completed at
least 60 months of continuous service with Hexcel; otherwise, 0%; and (ii) in
the case of Mr. Forsyth, 100% if Mr. Forsyth has completed 24 months of
continuous service with Hexcel after the date of the agreement; otherwise, 0%.
Qualified Pension Benefits are the actuarially determined monthly value of the
vested benefits under the Pension Plan, and the vested contributions made by
Hexcel to the 401(k) Retirement Savings Plan and the 401(k) Restoration Plan
(deemed increased at a 6% per annum rate of return) and, in the case of
Mr. Forsyth, any similar or analogous benefits arising by Mr. Forsyth's
employment with any former affiliate of Hexcel.
Unless otherwise provided in the SERP Agreement, if the executive's
employment terminates, Hexcel will pay the Normal Retirement Benefit to the
executive starting the month after his employment terminates and ending with his
death, or, if later, after 120 payments have been made. Any payments made after
death shall be made to the executive's surviving beneficiary or estate. Upon
certain terminations within two years after a "change in control" (as defined),
termination by Hexcel without "cause" (as defined), and termination by the
executive for "good reason" (as defined), the executive will be paid a lump sum
equal to the actuarial present value of the Normal Retirement Benefit (computed
using a Vesting Percentage of 100% and continuous service equal to the
executive's actual continuous service plus, in the case of a change of control,
36 months, and in the case of termination by Hexcel without cause or by the
executive for good reason, 12 months). The Investors' Share Purchase constitutes
such a change of control event. If the executive's employment terminates due to
a disability, he will receive a monthly benefit in an amount equal to the
product of the executive's Final Average Pay and Benefit Percentage, less the
executive's Qualified Pension Benefits. No benefits are payable if the executive
is terminated for cause. In addition, the executive may elect to provide certain
survivorship benefits to a designated beneficiary, but the benefit payable to
the executive shall be reduced to reflect the actuarial equivalence of the
survivorship benefit so elected. With certain limitations, the executive may,
from time to time, elect the form of payment of benefits between receiving a
monthly amount or a lump sum amount.
21
If each of Messrs. Kinne, Forsyth and Krakower had retired at December 31,
2000, assuming a vesting percentage of 100% their Normal Retirement Benefit
under the SERP Agreement, payable commencing at age 65, would equal
approximately $5,226, $11,389, and $5,336 per month, respectively.
ADDITIONAL PENSION AGREEMENT WITH MR. HUNT
Mr. Hunt is a participant in the Hexcel Composites Limited Pension Scheme
(the "HCL Pension Scheme") sponsored by Hexcel Composites Limited, a wholly
owned United Kingdom subsidiary of Hexcel ("HCL"), for the benefit of its
employees. The HCL Pension Scheme includes certain legal limitations on the
amount of earnings which can be included for determination of a pension. HCL has
agreed to provide Mr. Hunt with an additional pension which is designed to
provide, when combined with the HCL Pension Scheme and certain other benefits, a
pension equal to the pension the HCL Pension Scheme would provide Mr. Hunt if it
were not limited by the legal earnings limitation. The amount of Mr. Hunt's
pension is equal to two-thirds of 104% of his basic salary for the year prior to
retirement ("Pensionable Salary") at any time after age 60. If he leaves service
prior to age 60, he receives a pension equal to his Pensionable Salary
multiplied by the number of months from the date he joined the pension scheme of
HCL's predecessor pension scheme prior to such termination (up to 480) divided
by 720. As of December 31, 2000, the number of months since Mr. Hunt joined such
pension scheme exceeds 480. If Mr. Hunt leaves the service of HCL prior to age
60, his pension is deferred to age 65, but he may receive a reduced pension if
he chooses early payment. Mr. Hunt may also choose to receive all or part of his
benefit in a lump sum. Pension payments increase annually at the lesser of 5%
and the Retail Prices Index. If Mr. Hunt continues to be employed by Hexcel at
his current base salary until age 65, Mr. Hunt would receive an annual benefit
of $173,724. If Mr. Hunt's base salary during the year prior to his retirement
at age 65 increased to 120% of his current base salary, he would receive an
annual benefit of $208,469.
AGREEMENTS OF MESSRS. KINNE, FORSYTH, KRAKOWER AND HUNT ENTERED INTO IN
CONNECTION WITH THE INVESTORS' SHARE PURCHASE
In connection with the Investors' Share Purchase, each of Messrs. Kinne,
Forsyth, Krakower and Hunt entered into an agreement with Hexcel dated
October 11, 2000 (amended with respect to Messrs. Kinne, Forsyth and Hunt as of
November 21, 2000). These agreements provide, among other things: (i) that the
consummation of the transactions contemplated by the Stock Purchase Agreement
would not be deemed a "change of control" for purposes of all equity-based
awards previously granted to such persons (thereby waiving the acceleration of
vesting and exercisability of stock options, and the immediate receipt of shares
underlying outstanding restricted stock units, which otherwise would have
occurred upon the closing of the Investors' Share Purchase), (ii) that each
award agreement with respect to outstanding equity-based awards granted to such
persons, and the severance agreements and SERP agreements of Messrs. Kinne,
Krakower and Forsyth, are amended to incorporate a new definition of "change of
control"; (iii) that (x) stock options that were unvested at the closing of the
Investors' Share Purchase would vest and become exercisable, and (y) the shares
underlying RSUs and PARS that were outstanding at the closing of the Investors'
Share Purchase would be distributed, on the earlier to occur of (A) as to 50% of
the shares subject thereto, on the first anniversary of the closing, and as to
the remaining 50% of the shares subject thereto, on the second anniversary of
the closing, (B) the executive's termination of employment under certain
circumstances, or (C) the occurrence of a subsequent change in control;
(iv) that if the executive receives payments under his severance agreement or
any other plan, arrangement or agreement with Hexcel in connection with the
Investors' Share Purchase or as a result of termination of employment before
December 19, 2002, then Hexcel will hold the executive harmless from the effects
of any excise tax that may be imposed on "excess parachute payments"; and
(v) for new grants of non-qualified stock options to Messrs. Kinne, Forsyth,
Krakower and Hunt to purchase an aggregate of 201,634 shares of Hexcel Common at
an exercise price of $11.00 per share. With respect to the grants referred to in
clause (v), the agreements specifically provide that these grants are not in
lieu of, and are not to be taken
22
into account in determining the size or terms of, the annual equity-based
incentive grants for such persons for 2001 or any other fiscal year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Hexcel's Compensation Committee (the "Committee") is made up of three
individuals each of whom is a nonemployee member of the Board of Directors. The
Committee is accountable to the Board of Directors for developing, monitoring,
and managing the executive compensation programs at Hexcel. Specifically, the
Committee reviews and authorizes the salaries, cash incentives and equity
incentives for the executive officers of Hexcel, including all of the Named
Executive Officers. The Committee administers the incentive stock plans which
provide for grants of stock options, restricted stock units, and other forms of
equity-based compensation.
In making its decisions, the Committee considers prevailing compensation
practices among a group of companies (the "Comparator Group"). The Comparator
Group includes a peer group of companies plus others that help ensure that the
Committee's benchmarks for compensation decisions reasonably reflect Hexcel's
executive labor market and principal operating competitors. The Comparator Group
is the same group of companies identified as the Comparator Group whose Total
Shareholder Return is disclosed in the Performance Graph.
Hexcel's compensation programs are aligned with the Committee's beliefs
that:
1. Base salaries in the aggregate should approximate the median levels for
similar positions in the Comparator Group;
2. Annual cash incentives at target performance should represent a
significant portion of total cash compensation for executives, and should
provide meaningful risk and reward for variations in performance from
target levels; and
3. Long-term stock incentives should represent a significant portion of
total compensation to link executives' rewards directly with
stockholders' risks and opportunities, and to focus executive attention
on creating long-term stockholder value.
The Committee believes that establishing a compensation program reflecting
these principles will position Hexcel to attract and retain top quality
executives, align management and stockholder interests, and enhance the
financial returns to Hexcel's stockholders. During 2000, the Committee reviewed
the total compensation provided to executives to ensure that it is consistent
with these principles and reflective of practices within the Comparator Group.
The Committee was guided in its review by outside consultants. Each component of
executive compensation is described more fully below.
BASE SALARY
Base salaries for executives are determined by the Committee considering
Comparator Group salary practices for positions of similar responsibilities and
individual and business unit performance. The Committee also assesses the
contributions of Hexcel's executives to corporate and business unit objectives
such as: return on net assets, implementation of capital investments, cost
effectiveness, margin improvements, quality, labor relations, execution of
acquisitions, leadership, development, strategic impact, divestitures and
revenue growth.
The Committee has established base salaries for executives that, in the
aggregate, approximate the median of comparable positions in the Comparator
Group. Effective January 2001 the Committee approved salary increases for the
Named Executive Officers, other than the Chief Executive Officer, which averaged
3.5 percent.
23
ANNUAL INCENTIVES
In 2000 the Management Incentive Compensation Plan aligned annual cash
incentive compensation with the attainment of corporate and/or business unit
performance goals for earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and the degree of achievement of individual objectives.
For the Named Executive Officers, other than the Chief Executive Officer, target
awards ranged from 45% to 65% of base salaries, depending on the nature of the
position. Actual awards could have ranged between 0% and 200% of target awards
based on the degree of attainment of performance goals and, other than for the
Chief Executive Officer, the attainment of individual objectives. For 2000, the
Named Executive Officers other than the Chief Executive Officer received cash
awards averaging 116% of their target awards.
Hexcel maintains the Management Stock Purchase Plan to promote executive
ownership of Hexcel's stock. Under this plan, an executive may elect to purchase
RSUs with up to 50% of his or her pre-tax annual cash incentive award. An RSU
becomes an unrestricted share of Hexcel Common upon the expiration of the
applicable Restricted Period (as such term is defined in the plan). The purchase
price of an RSU is 80% of the average of the closing prices of Hexcel Common for
the five trading days immediately preceding the date on which the cash incentive
awards are payable. One-third of the RSUs purchased will vest on each of the
first three anniversaries of the date of purchase. Mr. Kinne elected to apply
50% of his cash incentive award for 2000 to purchase RSUs.
EQUITY-BASED INCENTIVES
The Incentive Stock Plan authorizes the issuance of stock-based awards,
including nonqualified stock options and PARS. The Committee has the authority
to determine the terms and conditions of the awards, such as the exercise price
and duration of options, vesting schedules and terms related to termination of
employment.
Grants of stock options and PARS to the Named Executive Officers, other than
the Chief Executive Officer, are based on the Committee's assessment of
competitive practices, recommendations from the Chief Executive Officer based on
individual performance, past awards and the need to retain and incentivize key
employees. In December 2000, the Committee approved as part of the annual
compensation review the grant of 152,700 nonqualified stock options and 50,900
PARS to the Named Executive Officers, not including the Chief Executive Officer.
In addition, in connection with the closing of the Investors' Share Purchase, an
aggregate of 201,634 nonqualified stock options were granted to the Named
Executive Officers other than the Chief Executive Officer in accordance with the
terms of certain agreements pursuant to which such persons, among other things,
agreed to waive the Investors' Share Purchase as a "change in control" event
under outstanding stock incentive grants. Under these agreements, these grants
were not to be in lieu of, and were not to be taken into account in determining
the size or terms of, the annual equity-based incentive grants for such persons.
See "EXECUTIVE COMPENSATION, Employment and Other Agreements, AGREEMENTS OF
MESSRS. KINNE, FORSYTH, KRAKOWER AND HUNT ENTERED INTO IN CONNECTION WITH THE
INVESTORS' SHARE PURCHASE."
The level of stock incentive compensation among the companies in the
Comparator Group has increased in recent years. In implementing Hexcel's stock
incentive plans, such as the Incentive Stock Plan and the Management Stock
Purchase Plan, the Committee uses a Black-Scholes valuation methodology to
assist in determining the number of shares of Hexcel Common to be awarded to
each executive. Thus, the number of shares awarded to an executive is a function
of the value of competitive awards granted to executive officers of the
Comparator Group and the value of Hexcel Common.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Board determined that it was important to maintain the continuity of
senior management in connection with the closing of the Investors' Share
Purchase. Therefore, among other things, Hexcel
24
entered into the Employment Agreement with Mr. Lee. See "EXECUTIVE COMPENSATION,
Employment and Other Agreements, EMPLOYMENT AGREEMENT WITH MR. LEE."
In determining Mr. Lee's compensation, the Committee considers Hexcel's
financial and nonfinancial performance, as well as an analysis of Mr. Lee's
total compensation in relation to Chief Executive Officers in the Comparator
Group. The Committee establishes Mr. Lee's base salary to approximate the median
level reflected in the Comparator Group for comparable positions. Mr. Lee's base
salary for 2001 is $665,000, which represents a 3.6% increase over his base
salary for 2000.
In 2000, Mr. Lee's target under the Management Incentive Compensation Plan
was 80% of base salary and his actual award could have ranged between 0% and
160% of base salary depending upon Hexcel's achievement of its EBITDA goals.
Based upon Hexcel's financial performance against these goals established for
2000, Mr. Lee's actual 2000 bonus was $604,000, which was 117% of target.
Mr. Lee's bonus was based solely on Hexcel's financial performance with no
component for personal objectives. Mr. Lee elected to apply 50% of his 2000
bonus to purchase 35,156 RSUs under the Management Stock Purchase Plan.
In December 2000, Mr. Lee received grants of 155,200 nonqualified stock
options and 51,700 PARS as part of the annual compensation review. In addition,
in connection with the closing of the Investors' Share Purchase, an aggregate of
364,000 nonqualified stock options were granted to Mr. Lee in accordance with
the terms of his Employment Agreement. Under the Employment Agreement, this
grant was not to be in lieu of, or taken into account in determining the size
of, the annual equity-based incentive grant for Mr. Lee. See "EXECUTIVE
COMPENSATION, Employment and Other Agreements, EMPLOYMENT AGREEMENT WITH
MR. LEE" above.
STOCK OWNERSHIP GUIDELINES
Effective January 1, 1998 the Committee and Board approved the
implementation of stock ownership guidelines for members of senior management
and directors. The guideline is five times base salary for the Chief Executive
Officer, three times salary for certain members of senior management, one times
salary for other members of senior management, and three times annual retainer
fees for directors. All persons covered by the guidelines are expected to
increase ownership towards the guideline amounts progressively over three years.
All stock accumulated through the Management Stock Purchase Plan, purchased and
retained through stock option exercise, acquired on the open market, or retained
through the PARS program are considered in measuring compliance with the
guideline. Unexercised stock options are not included in computing ownership
levels. The Committee believes that investments in Hexcel Common at these
guideline levels will benefit shareholders by further aligning the personal
financial interests of executives and directors with those of Hexcel's
investors, thereby promoting decision-making that maximizes shareholder value.
TAX DEDUCTIBILITY OF COMPENSATION
It is the Committee's general policy to consider whether particular payments
and awards are deductible to Hexcel for federal income tax purposes, along with
other factors that may be relevant in setting executive compensation practices.
Consistent with this policy and in response to the Treasury regulations
regarding the deductibility of executive compensation under Section 162(m) of
the Internal Revenue Code, the Committee takes appropriate steps to optimize
deductibility except where the best interests of Hexcel call for a different
compensation design.
Martin L. Solomon, Chairman
Marshall S. Geller
Sanjeev K. Mehra
The Members of the Committee
25
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors were members of the Committee during 2000: Marshall
S. Geller and Martin L. Solomon. Sanjeev K. Mehra joined the Committee as an
Investor Director on December 19, 2000. Stanley Sherman and Walter D. Hosp, who
were directors appointed by Ciba until December 19, 2000, also served on the
Committee during 2000.
COMPENSATION OF DIRECTORS
Nonemployee directors are compensated for services as directors with an
annual retainer of $30,000 payable quarterly. Nonemployee directors are also
paid $1,200 for each Board of Directors meeting and $600 for each committee
meeting attended. Committee chairmen are paid an additional $3,000 and receive a
grant of 1,000 nonqualified stock options per year. Messrs. Lee and Kinne do not
receive any compensation as members of the Board of Directors.
In December 2000, the Board of Directors offered each nonemployee director
other than Messrs. Mehra and Sacerdote the opportunity to receive his 2001
retainer compensation in the form of discounted nonqualified stock options. In
lieu of a portion (between 25% and 100%) of a director's annual retainer
(including any retainer paid to committee chairmen), a director could elect to
receive that number of stock options determined by dividing the dollar amount of
such portion by the exercise price of the stock option. The exercise price of
each stock option is 50% of the fair market value of a share of Hexcel Common on
the grant date. The options vest proportionately with the lapse of time over the
first year after grant and expire ten years from the date of grant. In
accordance with elections made by participating directors, the following
nonqualified options were granted at an exercise price of $4.50 per share:
Messrs. Rubin and Solomon--7,333; Messrs. Evans, Gaffney and Geller--6,667;
Mr. Bellows--3,333.
Pursuant to the Incentive Stock Plan, each person who becomes a director and
who is not also a full-time employee of Hexcel will be granted, upon election or
appointment as a director, a nonqualified option to purchase 10,000 shares of
Hexcel Common with an exercise price equal to the fair market value of Hexcel
Common on the date of grant. The Incentive Stock Plan further provides that
immediately after each annual meeting of stockholders each director who is not
also a full-time employee of Hexcel on such date will be granted a nonqualified
option to purchase an additional 2,000 shares of Hexcel Common with an exercise
price equal to the fair market value of Hexcel Common on the date of grant. Each
of Messrs. Bellows, Gaffney, Mehra and Sacerdote were granted 10,000 options at
an exercise price of $9.3125 per share upon joining the Hexcel Board of
Directors in December 2000. Based on information provided to Hexcel, GS Group is
the beneficial owner of all cash and equity-based compensation received by
Messrs. Mehra and Sacerdote for their service as directors of Hexcel.
26
PERFORMANCE GRAPH
The following graph indicates Hexcel's total return to its stockholders
during the past five years, as compared to the total returns of the Standard &
Poor's 500 Composite Stock Price Index ("S&P Index"), Media General Financial
Services' Aerospace Components Stock Price Index ("Media General Aerospace/
Defense Index") and a Comparator Group consisting of companies chosen by the
Executive Compensation Committee.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dollars
DEC-95 DEC-96 DEC-97 DEC-98 DEC-99 DEC-00
Hexcel Corporation 100 144.44 221.66 74.44 49.44 79.45
S&P 500 100 122.9 163.85 210.58 254.83 231.62
Comparator Group 100 114.48 126.58 125.13 151.52 167.68
Media General Aerospace/ Defense Index 100 128.48 137.39 110.85 102.66 158.48
MEDIA
GENERAL
AEROSPACE/
HEXCEL COMPARATOR DEFENSE
DATE CORPORATION S&P 500 GROUP(2)(3) INDEX(1)
---- ----------- -------- ----------- ----------
December 1995...................................... $100.00 $100.00 $100.00 $100.00
December 1996...................................... $144.44 $122.90 $114.48 $128.48
December 1997...................................... $221.66 $163.85 $126.58 $137.39
December 1998...................................... $ 74.44 $210.58 $125.13 $110.85
December 1999...................................... $ 49.44 $254.83 $151.52 $102.66
December 2000...................................... $ 79.45 $231.62 $167.68 $158.48
Assumes quarterly reinvestment of dividends.
(1) Data provided by Media General Financial Services
(2) Comparator Group consists of Albemarle Corp., Alliant Techsystems Inc.,
CertainTeed Corporation, Coltec Industries, Cordant Technologies Inc.,
Corning Inc., Cytec Industries, Engelhard Corp., Gencorp Inc., General
Dynamics Corp., Great Lakes Chemical, H.B. Fuller Co., Hercules Inc.,
Lockheed Martin Corp., Lord Corporation, Millennium Chemicals, Inc.*, Owens
Corning, PPG Industries Inc., Raychem Corp., Raytech Corp., Rohm and Haas
Company*, SPS Technologies Inc.,
27
Union Carbide Corp. and W.R. Grace and Co.* The return is determined by
(i) assuming dividends are reinvested quarterly; (ii) adjusting for
spin-offs or other special dividends; and (iii) weighing the issuers for
stock market capitalization on a quarterly basis.
(3) The Comparator Group contains certain changes from the Comparator Group used
to prepare the Performance Graph in 2000 (the "2000 Comparator Group"). To
obtain the Comparator Group, certain companies were eliminated from the 2000
Comparator Group because current compensation data was not available. The
Committee further determined to add three companies to the Comparator Group
(indicated in footnote 2 by an *); these additional companies are generally
similar in size and business to other companies in the Comparator Group,
providing a broader range of comparisons for the Committee to consider. The
total return as at December of the following years for the companies which
composed the 2000 Comparator Group was (to the extent data is available):
1995--$100.00; 1996--$115.93; 1997--$125.21; 1998--$125.56; 1999--$152.64
and 2000--$168.05.
AUDIT COMMITTEE REPORT
The Audit Committee oversees Hexcel's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the Committee reviewed
the audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of Hexcel's accounting principles and
such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and
Hexcel including the matters in the written disclosures required by the
Independence Standards Board.
The Committee discussed with Hexcel's internal and independent auditors the
overall scope and plans for their respective audits. The Committee meets with
the internal and independent auditors, with and without management present, to
discuss the results of their examinations, their evaluations of Hexcel's
internal controls, and the overall quality of Hexcel's financial reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The Committee and the Board have also selected Hexcel's independent
auditors, PricewaterhouseCoopers LLP.
Lewis Rubin, Chairman
H. Arthur Bellows, Jr.
James J. Gaffney
The Members of the Committee
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 19, 2000, the Investors purchased the Initial Investors' Shares
(14,525,000 shares of Hexcel Common) from Ciba pursuant to the Stock Purchase
Agreement. In connection with this transaction, Hexcel entered into various
agreements with the Investors including the Governance Agreement, a Registration
Rights Agreement, and an agreement dated October 11, 2000 pursuant to which
Hexcel made various representations and warranties to the Investors and provided
the Investors with indemnification, subject to limitations, for losses suffered
as a result of breaches by Hexcel of these representations and warranties.
Hexcel and Ciba also entered into a Consent and Termination Agreement pursuant
to which, among other things, Ciba caused its four existing board designees to
resign from the Board of Directors and the governance agreement with Ciba
terminated effective as of the closing of the Investors' Share Purchase.
Currently, Ciba is the beneficial owner of 3,581,545 shares of Hexcel Common,
representing approximately 9.6% of the issued and outstanding Hexcel Common.
Hexcel is the issuer of an outstanding increasing rate senior subordinated note
due 2003 (the "Ciba Note") held by Ciba, and during the first half of 2000 was
party to certain supply and manufacturing arrangements with Ciba.
THE GOVERNANCE AGREEMENT
Pursuant to the Governance Agreement, Hexcel's Board of Directors was
reconstituted as described under "ELECTION OF DIRECTORS." The material
provisions of the Governance Agreement are described below.
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 Investors' Nominees and Independent Nominees, in addition
to the Chairman. The precise number of Investors' Nominees and Independent
Nominees to be included in any slate of nominees varies based on the Investors'
percentage ownership of the voting securities of Hexcel. See "ELECTION OF
DIRECTORS." The Governance Agreement further provides that for so long as the
Investors are entitled to designate two or more Investors' Directors for
election to the Board of Directors, each committee of the Board of Directors
shall consist of at least one Investors' Director. See "ELECTION OF DIRECTORS,
Meetings and Standing Committees of the Board of Directors." 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 an
Investors' Director, then the Investors shall designate the new director;
(ii) if the former director was the Chairman, the replacement Chairman shall be
the replacement director; and (iii) if the new director is to be an Independent
Director (other than the Chairman), the remaining Independent Directors
(including the Chairman if he or she is an Independent Director) shall designate
the new director.
If at any time the number of Investors' Nominees entitled to be nominated to
the Board would decrease, the Governance Agreement generally requires the
Investors to cause a sufficient number of Investors' Directors to resign from
the Board of Directors so that the number of Investors' Directors on the Board
of Directors after such resignation(s) equals the number of Investors' Nominees
that the Investors 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 the Investors beneficially own
voting securities representing 15% or more 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 Investors'
Directors: (i) any merger, consolidation, acquisition or other business
combination involving Hexcel or any subsidiary of Hexcel (other than a tender
offer, merger or sale of substantially all of Hexcel's assets or similar
transaction (a "Buyout Transaction")), if the value of the consideration paid or
received by Hexcel and/or its stockholders in such individual transaction or the
aggregate consideration paid or received by Hexcel in
29
all such transactions approved by the Board of Directors during the prior
12 months exceeds the greater of $150 million or 11% of Hexcel's total
consolidated assets; (ii) any Buyout Transaction; PROVIDED, HOWEVER, that the
Investors' Directors approval rights with respect to a Buyout Transaction shall
apply only until June 19, 2002; (iii) 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 (other than a Buyout
Transaction), if the value of the assets, business or operations so disposed
during the prior 12 months exceeds the greater of $150 million or 11% of
Hexcel's total consolidated assets; and (iv) any issuance by Hexcel or any
significant subsidiary of Hexcel of equity securities (other than (a) pursuant
to customary employee or director stock option or incentive compensation or
similar plans, (b) transactions solely among Hexcel and its subsidiaries,
(c) upon conversion of convertible securities or upon exercise of warrants or
options, or (d) in connection with any mergers, consolidations, acquisitions or
other business combinations involving Hexcel or any of its subsidiaries), if the
value of the consideration received by Hexcel for such transactions during the
prior 12 months exceeds the greater of $150 million or 11% of Hexcel's total
consolidated assets. Notwithstanding clause (iv) above, prior to December 19,
2001 neither Hexcel nor a subsidiary of Hexcel may issue shares of Hexcel Common
in a registered public offering or in a private placement or otherwise without
the approval of the Investors' Directors, except for an issuance of up to
6,900,000 shares of Hexcel Common in which the offering price is unanimously
approved by a pricing committee of the Board of Directors consisting of one
Investors' Director, the Chairman and one additional Independent Director.
Under the terms of the Governance Agreement, the Investors have agreed that,
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
Investors' Directors, the Investors will be present for purposes of establishing
a quorum and will vote all of their voting securities of Hexcel (x) in favor of
any nominee or director selected in accordance with the terms of the Governance
Agreement and (y) against the removal of any director designated in accordance
with the terms of the Governance Agreement. Other than voting for the election
of directors, the Investors will be free to vote their voting securities of
Hexcel as they wish except (i) in connection with an offer for a Buyout
Transaction, in which case other restrictions apply, as described below, and
(ii) the Investors must vote against any amendment to Hexcel's certificate of
incorporation that would modify the directors' and officers' indemnification
provisions contained therein in a manner which would adversely affect the
persons who are entitled to indemnification thereunder.
STANDSTILL
Under the terms of the Governance Agreement, the Investors have agreed,
subject to certain specified exceptions, that they will not, directly or
indirectly, (i) acquire beneficial ownership of any voting securities of Hexcel,
by purchase or otherwise; (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 for
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 the
proxy rules of the Commission) 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 the
Investors 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 Commission; (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 (other than as provided in the Governance Agreement),
remove a director or seek a change in the size or composition of the Board
30
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. However, notwithstanding the
foregoing, no Investor may acquire any Hexcel voting securities if such
acquisition would result in a default or acceleration of amounts outstanding
under Hexcel's bank credit facility or the indenture governing Hexcel's
outstanding 9 3/4% Senior Subordinated Notes due 2009, unless, prior to such
acquisition, any required consents under these debt documents are obtained.
BUYOUT TRANSACTIONS
The Governance Agreement provides that, notwithstanding the standstill
provisions described above, under certain circumstances the Investors may
propose, participate in, support or cause the consummation of a "Third Party
Offer" or an "Investor Buyout Transaction." A "Third Party Offer" is an offer by
a party other than an Investor or an affiliate of an Investor to enter into a
Buyout Transaction. An "Investor Buyout Transaction" is a Buyout Transaction by
the Investors or their affiliates involving the acquisition of all Hexcel Common
held by stockholders other than the Investors and their affiliates ("Other
Stockholders") in which each Other Stockholder 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 Stockholders 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 Stockholders 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 Stockholders in the opinion of an
independent nationally recognized investment banking firm (including such a firm
retained by the Investors).
In particular, if Hexcel becomes the subject of a Third Party Offer or an
Investor Buyout Transaction, at any time, which is approved by a majority of the
Board of Directors and by a majority of the Independent Directors acting solely
in the interest of the Other Stockholders, then the Investors may act in their
sole discretion with respect to such Third Party Offer or Investor Buyout
Transaction. If Hexcel becomes the subject of a Third Party Offer prior to
December 19, 2003 and such Third Party Offer is approved by a majority of the
Board but not by a majority of the Independent Directors acting solely in the
interest of the Other Stockholders, then none of the Investors nor any of their
affiliates may support or vote in favor of such Third Party Offer, or tender or
sell their voting securities to the person making such Third Party Offer. If
Hexcel becomes the subject of a Third Party Offer or an Investor Buyout
Transaction after December 19, 2003 and such Third Party Offer or Investor
Buyout Transaction is approved by a majority of the Board but not by a majority
of the Independent Directors acting solely in the interest of the Other
Stockholders, then the Investors and their affiliates must vote all of their
voting securities against such Third Party Offer or Investor Buyout Transaction
in proportion to the votes cast against such Third Party Offer or Investor
Buyout Transaction with respect to the voting securities held by the Other
Stockholders, and may not tender or sell their voting securities to the party
making such Third Party Offer or Investor Buyout Transaction in a proportion
greater than the tenders or sales made by the Other Stockholders to the party
making such Third Party Offer or Investor Buyout Transaction.
ISSUANCE OF ADDITIONAL SECURITIES
If, at any time after the Closing for so long as the Investors are entitled
to designate one or more nominees for election to the Board of Directors, Hexcel
issues any additional voting securities for cash, the
31
Investors 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 the Investors to beneficially own the same percentage of the total
voting power of Hexcel after such issuance as the Investors beneficially owned
immediately prior to such issuance. However, the foregoing right of the
Investors shall not apply to any issuance of voting securities (i) in connection
with a registered public offering of up to 6,900,000 shares of Hexcel Common in
which the offering price is unanimously approved by a pricing committee of the
Board of Directors consisting of one Investors' Director, the Chairman and one
additional Independent Director, (ii) upon conversion of any convertible
securities, or (iii) pursuant to stock option or incentive compensation or
similar plans.
TRANSFER RESTRICTIONS
None of the Investors or their affiliates may sell or transfer Hexcel voting
securities prior to December 19, 2001, except to another Investor. After
December 19, 2001, the Investors may generally sell or transfer their Hexcel
voting securities to (i) another Investor, provided such Investor agrees to be
bound by the terms of the Governance Agreement if it is not already so bound,
(ii) in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"), regardless
whether such limitations are applicable, and otherwise subject to compliance
with the Securities Act, (iii) in a registered public offering or a
non-registered offering subject to an applicable exemption from the registration
requirements of the Securities Act, in a manner calculated to achieve a Broad
Distribution (as defined in the Governance Agreement), or (iv) in a Third Party
Offer, but only if otherwise permitted by the Governance Agreement, as described
above under "Buyout Transactions." In addition, after December 19, 2001 the
Investors may sell Hexcel voting securities in a manner not described under
clauses (i) to (iv) above, provided that (a) any buyer of an amount of Hexcel
Common equal to or greater than 5% of the then outstanding Hexcel Common agrees
with Hexcel, for a period of three years, to be bound by the provisions
described under "Standstill" and the last paragraph of "Certain Approvals"
above, and (b) for the period from June 19, 2001 to December 19, 2001, Hexcel
has the option to purchase any Hexcel Common proposed to be sold by the
Investors at the price at which the Hexcel Common is proposed to be sold.
However, notwithstanding the foregoing, no Investor may sell or transfer any
Hexcel voting securities if such sale or transfer would result in a default or
acceleration of amounts outstanding under Hexcel's bank credit facility or the
indenture governing Hexcel's outstanding 9 3/4% Senior Subordinated Notes due
2009, unless, prior to such sale or transfer, any required consents under these
debt documents are obtained.
TERM
The Governance Agreement will terminate upon the earlier of
(i) December 19, 2010, and (ii) the occurrence of any event in accordance with
the Governance Agreement that causes the percentage of the total voting power of
Hexcel beneficially owned by the Investors to be below 10% or equal to or above
90%. In addition, either party may terminate the Governance Agreement if the
other party breaches or violates a material obligation under the Governance
Agreement and fails to cure the breach or violation within 60 days of written
notice of the breach or violation from the other party.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the Investors' Share Purchase, Hexcel and the Investors
entered into a Registration Rights Agreement dated as of December 19, 2000 (the
"Registration Rights Agreement"). The Registration Rights Agreement provides
that any time after December 19, 2001, the Investors may demand that Hexcel
prepare and file with the SEC a registration statement covering the shares of
Hexcel Common owned by the Investors. The Investors' demand must be for a number
of shares of Hexcel Common that represents at least 20% of the Hexcel Common
then owned by the Investors and must have an aggregate anticipated offering
price of at least $25,000,000. The Investors are entitled to make up to three
demands for registration. The Investors also have the right, subject to
restrictions, to include their Hexcel Common in any other registration by the
Company of its equity securities under the Securities Act. The Registration
Rights Agreement also contains provisions relating to blackout periods during
which the Investors would
32
not be permitted to sell shares of Hexcel Common otherwise eligible for sale
under the Registration Rights Agreement, and relating to priority for inclusion
of shares in an offering in the event that the underwriters of such offering
determine the number of shares requested to be included in such offering must be
reduced. Hexcel is generally required to pay for all expenses in connection with
a sale of all or a portion of the Investors' shares, except for underwriting
discounts and commissions relating to the shares of Hexcel Common sold by the
Investors.
THE HEXCEL-INVESTORS AGREEMENT
In connection with the Investors Share Purchase, Hexcel and the Investors
entered into an Agreement dated as of October 11, 2000 (the "Hexcel-Investors
Agreement"). Under the Hexcel-Investors Agreement, Hexcel made customary
representations and warranties to the Investors regarding the transaction and
certain matters relating to its business and corporate organization. If the
Investors suffer any losses caused by one or more breaches of the
representations and warranties, Hexcel will indemnify the Investors for
one-third of any losses suffered by the Investors over approximately
$1.6 million, subject to a maximum total indemnification by Hexcel of
$10 million. Similarly, under the Stock Purchase Agreement, in the event the
Investors suffer any losses caused by one or more breaches of the
representations or warranties, Ciba will indemnify the Investors for one-third
of any losses suffered by the Investors over approximately $1.6 million, subject
to a maximum total indemnification amount by Ciba of $10 million. With respect
to most of the representations and warranties, if the Investors do not make a
claim by December 19, 2001 that such representations and warranties were
breached, any such claim is permanently barred.
CONSENT AND TERMINATION AGREEMENT WITH CIBA
On February 29, 1996, Hexcel consummated certain transactions with Ciba (the
"Ciba Acquisition") whereby Hexcel acquired the Composites Business of Ciba in
exchange for $25 million in cash, the issuance of $42.8 million worth of notes
(including the Ciba Note) and the issuance of 18 million newly issued shares of
Hexcel Common, representing approximately 49.9% of Hexcel Common at the time of
the Ciba Acquisition. Hexcel and Ciba entered into a variety of agreements in
connection with these transactions, including a Governance Agreement dated as of
February 29, 1996 between Hexcel and Ciba (the "Ciba Governance Agreement").
Under the terms of the Ciba Governance Agreement, Ciba was entitled to designate
four members to Hexcel's ten-member Board of Directors and was subject to
restrictions in connection with the transfer of its shares of Hexcel Common.
In connection with the Investors' Share Purchase, Hexcel entered into a
Consent and Termination Agreement with Ciba dated October 11, 2000 (the "Consent
and Termination"). Under the terms of the Consent and Termination, among other
things, (i) Hexcel waived the transfer restrictions on the shares of Hexcel
Common held by Ciba to permit the sale of 14,525,000 shares of Hexcel Common to
the Purchasers; (ii) the Ciba Governance Agreement was terminated effective as
of the closing date of the Investors' Share Purchase; (iii) Ciba agreed to cause
all four of its designees then serving on the Board of Directors to resign as of
the closing date of the Investors' Share Purchase; and (iv) Ciba agreed to be
present for purposes of establishing a quorum for any future Hexcel shareholder
vote.
Each Purchaser entered into a pledge agreement, dated as of December 19,
2000, pursuant to which such Purchaser granted to Ciba a security interest in
all of such Purchaser's right to any shares of Hexcel Common (including the
Initial Investors' Shares) held by such Purchaser to secure the payment of the
Investors' Promissory Note issued by such Purchaser. Absent a default under the
Investors' Promissory Note issued by such Purchaser, such Purchaser has the
right to vote all shares of Hexcel Common held by it. After such a default and
so long as it continues, Ciba has the right to vote all shares of Hexcel Common
held by such Purchaser. In addition, after such a default, Ciba has the right to
acquire all shares of Hexcel Common owned by such Purchaser. Under the Consent
and Termination, if pursuant to the pledge agreements Ciba acquires enough
shares of Hexcel Common from the Purchasers such that the number of shares of
Hexcel Common owned by Ciba exceeds 10% of the Hexcel Common outstanding, then
so long as Ciba holds greater than 10% of the outstanding Hexcel Common, Ciba is
prohibited from transferring its Hexcel Common except for (i) transfers among
Ciba Specialty Chemicals Holding Inc. and its wholly
33
owned subsidiaries, (ii) in accordance with the volume and manner-of-sale
limitations of Rule 144 under the Securities Act (regardless of whether such
limitations are applicable), or (iii) in a registered public offering or a
non-registered offering exempt from the registration requirements of the
Securities Act; PROVIDED, THAT in the case of clauses (ii) and (iii) the
transfer must be in a manner designed to achieve a "Broad Distribution." The
term Broad Distribution is defined in the Consent and Termination, and generally
means a transfer in a manner such that no party that acquires any shares of
Hexcel Common in such transfer will own more than five percent of the
outstanding Hexcel Common after such transfer (seven percent with respect to
certain institutional investors).
The Consent and Termination also contains certain provisions regarding the
Ciba Note and the indenture governing the Ciba Note, each as discussed below.
CIBA NOTE
Hexcel issued the Ciba Note to Ciba as part of the purchase price for the
Composites Business of Ciba. The current outstanding principal amount is
approximately $25 million and is due in full on March 1, 2003. Interest
currently accrues at a rate of 11.5% per annum, will increase to 12.0% on
February 28, 2002, and is payable semiannually on March 1 and September 1 of
each year. Pursuant to the Consent and Termination, (i) Ciba waived any
obligation of Hexcel to repurchase the Ciba Note as a result of the Investors'
Share Purchase constituting a "change of control" under the terms of the
indenture governing the Ciba Note, and (ii) the indenture governing the Ciba
Note was amended on December 19, 2000 to (a) require Hexcel to repay all
principal and interest due on the Ciba Note immediately upon the completion by
Hexcel of a registered underwritten public offering of Hexcel Common prior to
December 19, 2001, and (b) eliminate substantially all covenants under the
indenture to which Hexcel is subject except the covenant to timely pay all
amounts due under the Ciba Note.
SUPPLY AND MANUFACTURING ARRANGEMENTS WITH CIBA
Ciba and Hexcel were parties to certain supply agreements and purchase
orders during 2000. In May 2000, Ciba sold its Performance Polymers division to
Vantico International S.A., and assigned these supply agreements and purchase
orders to Vantico. Prior to the sale to Vantico, sales to Hexcel by Ciba under
such supply agreements were approximately $24.4 million on a worldwide basis in
2000; there were nominal sales by Ciba to Hexcel following the sale to Vantico.
Additionally, Hexcel sold a nominal amount of products to Ciba in 2000. Hexcel
believes that the terms of each of the foregoing arrangements between Hexcel and
Ciba were on terms as fair to Hexcel as those that would have been obtained from
an unaffiliated third party.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Hexcel's directors and executive
officers, and persons who own more than ten percent of a registered class of
Hexcel's equity securities, to file with the Commission initial reports of
ownership and reports of changes in ownership of Hexcel Common and other equity
securities of Hexcel. Executive officers, directors, and greater than ten
percent stockholders are required by Commission regulations to furnish Hexcel
with copies of all Section 16(a) forms they file. To Hexcel's knowledge, based
solely on a review of the copies of such reports furnished to Hexcel and
representations that no other reports were required, for the fiscal year ended
December 31, 2000, all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than ten percent stockholders were
complied with, except as follows: (1) one inadvertent incomplete filing in
January, 2000, by Joseph Shaulson, Vice President of Corporate Planning and
Chief Information Officer, of a Form 4 due in January, 2000, thereafter amended
to show the withholding by Hexcel of 712 shares of Hexcel Common to pay taxes on
the conversion of PARS into shares of Hexcel Common; and (2) one inadvertent
incorrect filing in September, 1999, by Kirk Forbeck, formerly Corporate
Controller and Chief Accounting Officer, of his Form 3, thereafter amended in
December 2000 to show the correct expiration date of certain stock options.
34
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not know
of any other matters to be presented for action by the stockholders at the
Annual Meeting. However, if any other matters not known are properly brought
before the Annual Meeting, proxies will be voted at the discretion of the proxy
holders and in accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Any proposal that a Hexcel stockholder intends to present at the 2002 Annual
Meeting of Stockholders of Hexcel (other than those submitted for inclusion in
Hexcel's proxy materials) must be submitted to the Secretary of Hexcel at its
offices, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut
06901-3238, no earlier than February 8, 2002 and no later than March 10, 2002 in
order to be presented at that meeting. Any proposal that a Hexcel stockholder
intends to present at the 2002 Annual Meeting of Stockholders of Hexcel must be
submitted to the Secretary of Hexcel at its offices no later than December 3,
2001 in order to be considered for inclusion in the Proxy Statement and Proxy
relating to that meeting.
INDEPENDENT AUDITORS
A representative of PricewaterhouseCoopers LLP, Hexcel's independent
auditors, is expected to be present at the Annual Meeting. The representative
will have an opportunity to make a statement if he desires to do so and will be
available to answer appropriate questions from stockholders.
AUDIT FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered for the audit of the Company's annual financial statements for
fiscal year 2000 and the reviews of the financial statements included in the
Company's Forms 10-Q for such fiscal year were approximately $614,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
There were no fees billed by PricewaterhouseCoopers LLP for services
rendered in connection with financial information systems design and
implementation during the fiscal year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed by PricewaterhouseCoopers LLP for professional
services rendered to us during the fiscal year ended December 31, 2000 other
than as stated under the caption "Audit Fees" above were approximately $173,000.
The Audit Committee has determined that the provision of all non-audit services
performed by PricewaterhouseCoopers LLP during the fiscal year ended
December 31, 2000 were compatible with maintaining their independence.
ANNUAL REPORT
Hexcel's Annual Report to Stockholders containing audited financial
statements for the year ended December 31, 2000, is being mailed herewith to all
stockholders of record. Additional copies are available without charge on
request. Requests should be addressed to the Secretary, Hexcel Corporation, Two
Stamford Plaza, 281 Tresser Boulevard, Stamford Connecticut, 06901-3238.
HEXCEL CORPORATION
Stamford, Connecticut
April 2, 2001
35
ANNEX A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF HEXCEL CORPORATION
I. PURPOSE
1. The primary function of the Audit Committee (or "Committee") is to assist
the Board of Directors (or "Board") in fulfilling its oversight
responsibilities by reviewing:
a) The consolidated financial statements and reports provided by Hexcel
Corporation and subsidiaries ("Hexcel" or the "Company") to any
governmental body or the public;
b) The Company's system of internal controls regarding finance, accounting,
treasury, tax, information systems, legal compliance and professional
ethics;
c) The Company's auditing, accounting and financial reporting processes
generally.
2. Consistent with this function, the Audit Committee should encourage
continuous improvement of, and should foster adherence to, Hexcel's
policies, procedures and practices at all levels. The Committee's primary
duties and responsibilities are to:
a) Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control system;
b) Review and appraise the audit efforts of the Company's independent
public accountants and its internal audit function;
c) Provide an open avenue of communication among the independent public
accountants, the internal audit function, financial and senior
management, and the Board of Directors.
3. The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities outlined in Section IV of this Charter.
II. COMPOSITION
1. The Audit Committee is a committee of the Board of Directors comprised of no
less than three (3) directors, each of whom are independent of the
management of Hexcel. The determination of director independence shall be
made by the Board, based on an assessment of whether or not a director is
free of any relationship that, in the opinion of the Board, would interfere
with his or her independent judgment as a member of the Committee.
2. All members of the Audit Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the
Committee shall have accounting or related financial management expertise.
Audit Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the Company
or outside consultants.
3. The members of the Audit Committee shall be elected by the Board of
Directors at the annual organizational meeting of the Board or until their
successors shall be duly elected and qualified. Unless a Chairman is elected
by the full Board, the members of the Committee may designate a Chairman by
majority vote of the full Committee membership.
A-1
III. MEETINGS
1. The Audit Committee shall meet at least four (4) times annually, or more
frequently as circumstances dictate. As part of its responsibility to foster
open communication, the Committee shall meet at least annually with
management, the director of the internal audit function, and the independent
public accountants in separate executive sessions to discuss any matters
that the Committee or any of these groups believe should be discussed
privately. The Committee shall also meet at least annually without
management, the director of the internal audit function, or the independent
public accountants present. In addition, the Audit Committee or at least its
Chairman shall review Hexcel's financial results with management and the
independent public accountants on a quarterly basis in accordance with IV.2.
below.
2. Unless otherwise determined by the Board of Directors or the Audit
Committee, the provisions of the Bylaws applicable to the Board relating to
call, notice and holding of meetings, quorum, and voting shall apply to the
Committee, as provided in Section 32 of the Bylaws.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
DOCUMENTS AND REPORTS
1. Review and update this Audit Committee Charter periodically, but not less
than annually, as conditions dictate.
2. Review with management and the independent public accountants the Company's
quarterly financial results, prior to the public release of earnings and the
filing with the Securities and Exchange Commission (or "SEC") of the
Company's Quarterly Report on Form 10-Q. The Audit Committee may appoint the
Chairman to represent the entire Committee for purposes of this review.
3. Review with management and the independent public accountants the Company's
Annual Report on Form 10-K, prior to filing with the SEC.
4. Review with management and the independent public accountants any other
reports or documents required to be filed with the SEC or any securities
exchange that contain significant financial information about the Company.
5. Review any other reports or documents pertaining to finance, accounting,
treasury, tax, information systems, legal compliance or professional ethics
that management or the independent public accountants request the Audit
Committee to review.
AUDIT PROCESSES
6. Recommend to the Board of Directors the selection of the independent public
accountants, considering independence and effectiveness, and approve the
fees and other compensation to be paid to the independent public
accountants. On an annual basis, the Audit Committee shall review and
discuss with the independent public accountants all significant
relationships that the accountants have with Hexcel, for the purpose of
assessing the accountants' independence and objectivity. In connection with
this responsibility, the Committee shall request that the independent public
accountants provide written confirmation that they are independent from the
Company, as defined by Generally Accepted Auditing Standards, together with
a description of all relationships that the accountants have with the
Company.
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IV. RESPONSIBILITIES AND DUTIES (CONTINUED)
7. Review with management, the internal audit function and the independent
accountants the internal and external audit plans, including their
assessments of major risk factors and key controls, prior to the
commencement of significant audit fieldwork.
8. Review the annual summary of internal audit conclusions and recommendations
prepared by the internal audit function, together with management's
response.
9. Review the annual summary of independent audit conclusions, including
recommendations for improvement, prepared by the independent public
accountants, together with management's response.
10. Review the performance of the internal audit function, including the
performance of any outside service providers within that function.
11. Review the performance of the independent public accountants and approve any
proposed discharge of the accountants when circumstances warrant.
12. Periodically consult with the independent public accountants out of the
presence of management about internal controls and the fullness and accuracy
of the Company's consolidated financial statements.
FINANCIAL REPORTING PROCESSES
13. In consultation with the internal audit function and the independent public
accountants, review the integrity of Hexcel's financial reporting processes.
14. Consider the independent publics accountants' judgments about the quality
and appropriateness of the Company's accounting principles and practices as
applied to its consolidated financial reports. In connection with this
responsibility, the Audit Committee shall request that the independent
public accountants describe to the Committee their assessment of the quality
of the accounting principles and practices used in preparing the Company's
consolidated financial statements, including the clarity of financial
disclosures and the degree of conservatism reflected in accounting
estimates.
15. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by management,
the internal audit function or the independent public accountants.
PROCESS IMPROVEMENT
16. Maintain regular and separate communication with management, the internal
audit function and the independent public accountants regarding the
appropriateness of significant accounting principles, practices and
judgments used in preparing the Company's consolidated financial statements.
17. Following completion of the annual independent audit, review separately with
management and the independent public accountants any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
18. Review any significant disagreement among management, the internal audit
function or the independent public accountants in connection with the
preparation of consolidated financial statements or reports, or with the
preparation of the annual summaries of audit results and recommendations
prepared by the internal audit function and the independent public
accountants.
19. Periodically review with management, the internal audit function and the
independent public accountants the extent to which changes or improvements
in financial or accounting practices, as approved by
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IV. RESPONSIBILITIES AND DUTIES (CONTINUED)
the Audit Committee, have been implemented. (This review should be conducted
at an appropriate time subsequent to implementation of changes or
improvements, as decided by the Committee.)
20. Periodically review accounting, financial, human resources and succession
planning within the Company.
ETHICAL AND LEGAL COMPLIANCE
21. Comply with all applicable rules, requirements and guidelines relating to
Audit Committees promulgated by the New York Stock Exchange, the National
Association of Securities Dealers, the Pacific Exchange or the SEC.
22. Periodically review and approve Hexcel's Code of Conduct regarding legal and
ethical behavior, and assess the degree to which management has established
a system to enforce this Code of Conduct.
23. Periodically assess the degree to which management has maintained a proper
system for satisfying the Company's legal requirements with respect to the
dissemination of consolidated financial reports and other financial
information to governmental organizations and the public.
24. Periodically review the activities, organizational structure and
qualifications of the internal audit function.
25. Periodically review, with the Company's General Counsel, legal compliance
matters including corporate securities trading policies.
26. Review, with the Company's General Counsel, any legal matter that the
General Counsel advises the Committee may have a significant impact on the
Company's consolidated financial statements.
27. Investigate any matter brought to the Committee's attention within the scope
of its duties, with the power to retain outside counsel for this purpose if,
in the Committee's judgment, that is appropriate.
28. Perform any other activities consistent with this Charter, the Bylaws and
governing law, as the Committee or Board deems necessary or appropriate.
A-4