Table of ContentsUNITED STATES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantx
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)) |
Definitive Proxy Statement |
Definitive Additional Materials |
Soliciting Material under §240.14a-12 |
HEXCEL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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: | |||
| (2) | Aggregate number of securities to which transaction applies: | |||
| (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): | |||
| (4) | Proposed maximum aggregate value of transaction: | |||
| (5) | Total fee paid: | |||
¨ | 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: | |||
| (2) | Form, Schedule or Registration Statement No.: | |||
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| (4) | Date Filed: | |||
Table of ContentsHexcel Corporation
Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 5, 2011
The Annual Meeting of Stockholders of Hexcel Corporation will be held in the Community Room, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut, on May 5, 20112, 2013 at 10:30 a.m. for the following matters:
| 1. | To elect ten individuals (David E. Berges, Joel S. Beckman, Lynn Brubaker, Jeffrey C. Campbell, Sandra L. Derickson, W. Kim Foster, Thomas A. Gendron, Jeffrey A. Graves, David C. Hill and David L. Pugh) to serve as directors until the next annual meeting of stockholders and until their successors are duly elected and qualified; |
| 2. | To conduct an advisory vote to approve the company’s 2012 executive compensation; |
| 3. | To approve the Hexcel Corporation 2013 Incentive Stock Plan; |
| 4. | To ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2013; and |
| 5. | To transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
Stockholders of record at the close of business on March 15, 20117, 2013 will be entitled to vote at the meeting and any adjournments or postponements. A list of these stockholders will be available for inspection at the executive offices of Hexcel and will also be available for inspection at the annual meeting.
| By order of the board of directors | ||
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Ira J. Krakower Senior Vice President, General Counsel and Secretary |
Dated: March 18, 201115, 2013
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.
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Table of ContentsHexcel Corporation
Hexcel Corporation
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held on May 5, 20112, 2013
This proxy statement is furnished to the holders of Hexcel Corporation ("Hexcel"(“Hexcel” or the "company"“company”) common stock, (the "Common Stock"), in connection with the solicitation of proxies by Hexcel on behalf of the Board of Directors of the company (the "board“board of directors"directors” or the "board"“board”) for use at the Annual Meeting of Stockholders, or any adjournments or postponements of the meeting (the "Annual Meeting"“Annual Meeting”) to be held on May 5, 2011, or any adjournments or postponements thereof.2, 2013. This proxy statement and the accompanying proxy/voting instruction card are first being maileddistributed or made available to stockholders on or about March 18, 2011.15, 2013.
Only stockholdersYou will be eligible to vote your shares of common stock at the Annual Meeting if you were a stockholder of record at the close of business on March 15, 2011, will be eligible to vote at the Annual Meeting or any adjournments or postponements thereof.7, 2013. As of that date, 97,859,864100,227,440 shares of Common Stockcommon stock were issued and outstanding and such shares were held by 1,036934 holders of record. The holders of 48,929,98350,113,721 shares will constitute a quorum at the meeting.
Each share of Common Stock entitles the holder thereofcommon stock that you hold will entitle you to cast one vote with respect to each matter that is subject to a votewill be voted on at the Annual Meeting. All shares that are represented by effective proxies received by the companythat we receive in time to be voted shall be voted at the Annual Meeting or any adjournments or postponements thereof. Where stockholdersMeeting. If you direct how theiryour votes shall be cast, shares will be voted in accordance with suchyour directions. If a stockholder returnsyou return a signed proxy and doesdo not otherwise instruct how to vote on the proposals, then the shares represented by theyour proxy will be voted in favor offor each of the director candidates nominated by the board, for approval of ourthe company’s 2012 executive compensation, in favor of our recommendation on the frequency of conducting an annual advisory vote on executive compensation, in favorfor approval of the approval of Hexcel's ManagementHexcel Corporation 2013 Incentive CompensationStock Plan, and in favor of the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for 2011,2013, and in the discretion of the proxy holders on any other matters that may come before the Annual Meeting or any adjournments or postponements thereof. Proxies submittedMeeting. If you return a signed proxy with abstentions, your shares will be included in determining whether or not a quorum is present.
Pursuant to the rules of the New York Stock Exchange ("NYSE"(“NYSE”), if you hold your shares in street name through a broker, your broker is not permitted to vote your shares on Proposal 1 (election of directors), Proposal 2 (advisory vote on executive compensation), Proposal 3 (advisory vote on frequency of advisory vote onthe company’s 2012 executive compensation) or Proposal 43 (approval of Managementthe Hexcel Corporation 2013 Incentive CompensationStock Plan) unless you give your broker specific instructions as to how to vote. If
you are a street name holder and do not provide instructions to your broker on Proposals 1-4,1, 2 and 3, your shares
that are voted on any other matter will count toward a quorum but your broker cannot vote your shares on Proposals 1-41, 2 and 3 (a "broker non-vote"“broker non-vote”). Accordingly, shares subject to a broker non-vote will be disregarded and will have no effect on the outcome of the vote on Proposals 1-4.1, 2 and 3, except that on Proposal 3, for purposes of the NYSE Standard (as defined below), shares subject to a broker non-vote will be counted and will have the same effect as a vote against the proposal. However, if you obtain, sign and return a voting instruction card to your broker, your shares will be voted as you instruct or, if you do not provide instructions on the returned card, your shares will not be voted on Proposals 1-4,1, 2 and 3, but may be voted, in the proxy holder'sholder’s discretion, on Proposal 54 and any other matters on which the proxy holder may properly vote.
We will pay all costs of preparing, assembling, printing and distributing the proxy materials. Management hasWe have retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut, 06902, to assist in soliciting proxies for a fee of approximately $8,000,$9,000, plus reasonable out-of-pocket expenses. Our employees may solicit proxies on behalf of our board through the mail, in person, and by telecommunications. We will request that brokers and nominees who hold shares of common stock in their names furnish proxy solicitation materials to beneficial owners of the shares, and we will reimburse the brokers and nominees for reasonable expenses incurred by them.they incur to do this.
Any stockholder givingIf you give a proxy, you may revoke it at any time prior to the voting thereofAnnual Meeting by:
mailing a revocation to Mr. Ira J. Krakower, the Secretary of the company, at the above address with a later date than any proxy you previously completed proxyprovided so long as it is received prior to the Annual Meeting;
submitting another properly completed proxy dated later than any proxy you previously completed proxyprovided so long as it is received prior to the Annual Meeting;
by filing a written revocation at the Annual Meeting with Mr. Krakower, the Secretary of the company; or
by casting a ballot at the meeting.
If you are an employee stockholder thatwho holds shares through one of our benefit plans, you may revoke voting instructions given to the trustee for the applicable plan by following the instructions under "Employee Stockholder"“How to Vote Your Shares—Employee Stockholders” in this proxy statement.
Matters of Business, Votes Needed and Recommendations of the Board of Directors
Proposal 1—Election of Directors
Each outstanding share of our stock is entitled to one vote for as many separate nominees as there are directors to be elected. There are ten directors to be elected. The board has nominated David E. Berges, Joel S. Beckman, Lynn Brubaker, Jeffrey C. Campbell, Sandra L. Derickson, W. Kim Foster, Thomas A. Gendron, Jeffrey A. Graves, David C. Hill and David L. Pugh for election to the board. Each of these ten nominees is currently a director of the company. A pluralityOnce a quorum is present, a majority of the votes cast in person or represented by proxy at the Annual Meeting and entitled to vote is required to elect each of the nominees for director. "Broker non-votes"This means that each nominee must receive more votes “for” than “against” to be elected. Broker non-votes and abstentions will be disregarded and will have no effect on the outcome of the vote. Under applicable Delaware law, a proxy marked to withhold authority to vote on a proposal to elect directors will be disregarded and will have no effect on the outcome of the vote.TheThe board of directors recommends that you vote FOR the election of each of the board'sboard’s nominees for director.
Proposal 2—Advisory Vote to Approve Executive Compensation
Approval of the advisory vote oncompany’s 2012 executive compensation requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. In determining whether the proposal to approve the advisory vote
2012 executive compensation receives the required number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposal. "Broker non-votes"Broker non-votes will be disregarded and will have no effect on the outcome of the vote. The vote is advisory and non-binding. However,non-binding; however, the compensation committee will reviewconsider the voting results and take them into consideration as one factoramong other factors when making future decisions regarding executive compensation, in conjunction with other factors such as feedback from shareholder outreach programs.compensation.The board of directors recommends that you vote FOR approval of the resolution onapproving the Advisory Vote on Executive Compensation.company’s 2012 executive compensation.
Proposal 3—Advisory Vote Regarding Frequency of Conducting an Advisory Vote on Executive Compensation
You may elect to have the vote on the frequency of conducting an advisory vote on executive compensation held annually, every two years or every three years, or you may abstain. You are not voting to approve or disapprove the board's recommendation. "Broker non-votes" will be disregarded and will have no effect on the outcome of the vote. The vote is advisory and non-binding. The compensation committee will consider the outcome in recommending a voting frequency to the board of directors, but will not be bound either by its own recommendation or by the outcome of the vote, and may choose to conduct the vote more or less frequently in the future based on other factors, such as feedback from shareholder outreach programs, the adoption or revision of compensation policies, or the outcome of "Say on Pay" votes.The board of directors recommends that you vote FOR an ANNUAL shareholder advisory vote about compensation awarded to the company's named executive officers.
Proposal 4—Approval of Management Incentive Compensation Plan
Approval of the ManagementHexcel Corporation 2013 Incentive CompensationStock Plan
Approval of the Hexcel Corporation 2013 Incentive Stock Plan requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. In determining whetherFor purposes of the foregoing standard, broker non-votes will be disregarded and will have no effect on the outcome of the vote. Under applicable NYSE rules, the total number of votes cast on the proposal must represent over 50% in interest of all shares of common stock entitled to approvevote on the plan receivesproposal (the “NYSE Standard”). For purposes of the required numberNYSE Standard, broker non-votes will be counted and will have the same effect as a vote against the proposal. For purposes of affirmative votes,both of the foregoing voting standards, abstentions will be counted and will have the same effect as a vote against the proposal. "Broker non-votes" will be disregarded and will have no effect on the outcome of the vote.The board of directors recommends that you vote FOR approvalthe adoption of the ManagementHexcel Corporation 2013 Incentive CompensationStock Plan.
Proposal 5—4—Ratification of Independent Registered Public Accounting Firm
Ratification of the appointment of PricewaterhouseCoopers LLP to audit the company'scompany’s financial statements for 20112013 requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. Abstentions will be counted and will have the same effect as a vote against the proposal. The audit committee is responsible for appointing the company'scompany’s independent registered public accounting firm. The audit committee is not bound by the outcome of this vote but, if the appointment of PricewaterhouseCoopers LLP is not ratified by stockholders, the audit committee will consider these voting results when selectingreconsider the company's independent auditor for 2011.appointment.The board of directors recommends that you vote FOR the ratification of the selection of PricewaterhouseCoopers LLP as the company'scompany’s independent registered public accounting firm for 2011.2013.
Voting shares you hold through a nominee
If you hold shares through someone else, such as a stockbroker, bank or nominee, you will receive material from that firm asking you for instructions on how you want them to vote your shares should be voted.shares. You can complete that firm'sfirm’s voting instruction form and return it as requested by the firm. If the firm offers
Internet or telephone voting, the voting form will contain instructions on how to vote using those voting methods.
If You Planyou plan to Attendattend the Meetingmeeting
Please note that attendance will be limited to stockholders as of the record date. Admission will be on a first-come, first-served basis. Each stockholder may be askedIf you attend the Annual Meeting, you will need to present valid picture identification, such as a driver'sdriver’s license or passport. Stockholders holding stock in brokerage accounts or byIf you hold your shares through someone else, such as a stockbroker, bank or other nominee, may be requiredyou will need to show a brokerage statement or account statement reflecting
your stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting. You may contact Morrow & Co., LLC at (800) 607-0088 to obtain directions to the site of the Annual Meeting. The doors to the meeting will open at 10:00 a.m. local time and the meeting will begin at 10:30 a.m. local time.
Voting in person
If you are a registered stockholder, you may vote your shares in person by ballot at the Annual Meeting.
If you hold your shares in a stock brokerage account or through a bank or other nominee, you will not be able to vote in person at the Annual Meeting unless you have previously requested and obtained a "legal proxy"“legal proxy” from your broker, bank or other nominee and present it at the Annual Meeting along with a properly completed ballot.
Employee Stockholdersstockholders
If you hold shares through our employee stock purchase plan or our tax-deferred 401(k) savings plan, you will receive a separate voting instruction form to instruct the custodian or trustee for the applicable plan as to how to vote your shares. With respect to the 401(k) plan, all shares of Common Stockcommon stock for which the trustee has not received timely instructions shall be voted by the trustee in the same proportion as the shares of Common Stockcommon stock for which the trustee received timely instructions, except in the case where to do soif that would be inconsistent with the provisions of Title I of ERISA. With respect to our employee stock purchase plan, we have been advised by the custodian thatconsider all shares of Common Stockcommon stock for which the custodian has not received timely instructions will not be present for quorum purposes and those shares will not be voted.voted by the custodian.
At the Annual Meeting, American Stock Transfer & Trust Company will count the votes. Its officers or employees will serve as inspectors of election.
PROPOSAL 1—ELECTION OF DIRECTORS
At the 20112013 annual meeting, ten directors will be elected to hold office until the 20122014 annual meeting and until their successors are duly elected and qualified. All nominees identified in this proxy statement for election to the board are currently serving as directors of Hexcel.the company.
Shares represented by an executed and returned proxy card will be voted for the election of each of the ten nominees recommended by the board, unless the proxy is marked to withhold authority to vote.against any nominee. If any nominee for any reason is unable to serve, the shares of common stock represented by the proxy card may, at the board'sboard’s discretion, be voted for an alternate person asthat the board may nominate.nominates. We are not aware of any nominee who will be unable to or will not serve as a director. Each of the nominees has consented to being named in this proxy statement and to serve if elected.
A pluralityMajority Voting Standard for Election of Directors.
Our Amended and Restated Bylaws provide for a majority voting standard for the election of directors in uncontested elections. Under this standard, a director nominee will be elected only if the number of votes cast in person or by proxy at“for” that nominee exceeds the Annual Meetingnumber of votes cast “against” that nominee. Broker non-votes and entitled to vote is required to elect directors. Broker non-votesabstentions will be disregarded and will have no effect on the outcome of the vote. Each director nominee must submit an irrevocable resignation in advance of the stockholder vote regarding the election of directors. This addresses the situation in which there is a “holdover” director who has not received the required number of votes for re-election, but who, in accordance with Delaware law, remains on the board until his or her successor is elected
and qualified. The resignation is contingent upon both the nominee not receiving the required vote for re-election and the board’s acceptance of the resignation which the board, in its discretion, may reject if it deems such rejection to be in the best interest of the company.
Prior to the board’s determination to accept or reject the resignation, the nominating and corporate governance committee, composed entirely of independent directors, will make a recommendation to the board with respect to the tendered resignation. In its review, the committee will consider those factors deemed relevant to the determination, and whether the director’s resignation from the board would be in the best interest of the company and our stockholders.
The board must take action on the committee’s recommendation within 90 days following the meeting at which the election of directors occurred. An incumbent director whose resignation is the subject of the board’s determination is not permitted to participate in the deliberations or recommendation of the committee or the board regarding the acceptance of the resignation.
In the case of contested elections (a situation in which the number of nominees exceeds the number of directors to be elected) the plurality voting standard will apply.
Information Regarding the Directors
All but one of our current directors have been nominated for re-election to the board. Set forth belowInformation about our directors is certain information concerning each of our current directors. The only current director that has not been nominated for re-election to the board is David C. Hurley, who has reached the age of 70 and is no longer eligible to serve on the board. The number of directors was increased to 11 as of December 7, 2010. As of the date of the annual meeting, the number of directors will be reduced to ten.provided below.
Name | Age on March 15, 2011 | Director Since | Position(s) With Hexcel | ||||
|---|---|---|---|---|---|---|---|
David E. Berges | 61 | 2001 | Chairman of the Board; Chief Executive Officer; Director | ||||
Joel S. Beckman | 55 | 2003 | Director | ||||
Lynn Brubaker | 53 | 2005 | Director | ||||
Jeffrey C. Campbell | 50 | 2003 | Director | ||||
Sandra L. Derickson | 58 | 2002 | Director | ||||
W. Kim Foster | 62 | 2007 | Director | ||||
Thomas A. Gendron | 50 | 2010 | Director | ||||
Jeffrey A. Graves | 49 | 2007 | Director | ||||
David C. Hill | 64 | 2008 | Director | ||||
David L. Pugh | 62 | 2006 | Director | ||||
Name | Age on March 15, 2013 | Director Since | Position(s) With Hexcel | |||||||
David E. Berges | 63 | 2001 | Chairman of the Board; Chief Executive Officer; Director | |||||||
Joel S. Beckman | 57 | 2003 | Director | |||||||
Lynn Brubaker | 55 | 2005 | Director | |||||||
Jeffrey C. Campbell | 52 | 2003 | Director | |||||||
Sandra L. Derickson | 60 | 2002 | Director | |||||||
W. Kim Foster | 64 | 2007 | Director | |||||||
Thomas A. Gendron | 52 | 2010 | Director | |||||||
Jeffrey A. Graves | 51 | 2007 | Director | |||||||
David C. Hill | 66 | 2008 | Director | |||||||
David L. Pugh | 64 | 2006 | Director | |||||||
DAVID E. BERGES has served as our Chairman of the Board of Directors and Chief Executive Officer since July 2001, and was our President from February 2002 to February 2007. Prior to joining Hexcel, Mr. Berges was President of the Automotive Products Group of Honeywell International Inc. from 1997 to July 2001 and Vice President and General Manager, Engine Systems and Accessories, at AlliedSignal Aerospace from 1994 to 1997. Previously Mr. Berges was President and Chief Operating Officer of Barnes Aerospace, a division of Barnes Group Inc. Mr. Berges spent the first fifteen15 years of his career in a variety of managerial and technical positions with the General Electric Company. Mr. Berges was a director of Dana Corporation from 2004 to January 2008.
JOEL S. BECKMAN has been a director of Hexcel since March 2003, and is chair of theour finance committee of Hexcel and a member of our compensation committee. Mr. Beckman is a Managing Partner of Greenbriar Equity Group LLC, a private equity fund focused exclusively on making investments in transportation and transportation-related companies. Prior to founding Greenbriar in 2000, Mr. Beckman was a Managing Director and Partner of Goldman, Sachs & Co., which he joined in 1981. Mr. Beckman is on the board of a number of private companies, and is active in various civic organizations.
LYNN BRUBAKER has been a director of Hexcel since December 2005, and is a member of our compensationaudit committee and nominating and corporate governance committee. She retired after spending over 25thirty years in the aerospace industry in a variety of executive, operations, sales and marking and customer support roles. From 1999 until June 2005 she was Vice President/General Manager—Commercial Aerospace for Honeywell International Inc., with her primary focus in that role being on business strategies and customer operations for Honeywell'sHoneywell’s global commercial markets. From 1997 to 1999, Ms. Brubaker was Vice President Americas for Honeywell, and from 1995 to 1997, prior to AlliedSignal'sAlliedSignal’s merger with Honeywell, she was Vice President, Marketing, Sales and Support Operations, for AlliedSignal. Prior to joining AlliedSignal, Ms. Brubaker held a variety of management positions with McDonnell Douglas, Republic (predecessor to Northwest Airlines), and Comair. Ms. Brubaker has been a director of FARO Technologies, Inc. since July 2009, and currently serves on the board of a variety of private companies and other business organizations.
Tableorganizations and from March to December 2011, was a director of ContentsForce Protection Inc.
JEFFREY C. CAMPBELL has been a director of Hexcel since November 2003, and is chair of our audit committee. Mr. Campbell has served as Executive Vice President and Chief Financial Officer of McKesson Corporation, a leading healthcare services, information technology and distribution company, since January 2004. Mr. Campbell was Senior Vice President and Chief Financial Officer of AMR Corp, the parent company of American Airlines, from June 2002 to December 2003, served as a Vice President of American Airlines from 1998 to June 2002 and served in various management positions of American Airlines from 1990 to 1998. Mr. Campbell is also a member of the board of directors of the San Francisco Chamber of Commerce.
SANDRA L. DERICKSON has been a director of Hexcel since February 2002. Ms. Derickson is chair of our nominating and corporate governance committee, and is a member of theour compensation committee.committee and Lead Independent Director. Ms. Derickson retired from HSBC in February 2007. She held several management positions at HSBC from September 2000 to February 2007 including President and Chief Executive Officer, HSBC Bank USA; Vice Chairman, HSBC Finance; and Group Executive, HSBC Finance. During her tenure, she was responsible for private label credit cards, insurance services, taxpayer services, auto financing and some of the Group'sGroup’s mortgage businesses. From 1976 to 1999, Ms. Derickson held various management positions with General Electric Capital Corporation, the last of which was President of GE Capital Auto Financial Services. Ms. Derickson was also an officer of the General Electric Company.
W. KIM FOSTER has been a director of Hexcel since May 2007, and is a member of our audit committee and nominating and corporate governance committee. From 2001 until October 2012, Mr. Foster has served as Executive Vice President and Chief Financial Officer of FMC Corporation, a chemical manufacturer serving various agricultural, industrial and consumer markets, since 2001.markets. Prior to serving in his currentthis role, Mr. Foster held numerous other executive and management positions with FMC, including Vice President and General Manager—Agricultural Products Group from 1998 to 2001; Director, International, Agricultural Products Group from 1996-1998; General Manager, Airport Products and Systems Division, 1991-1996; and Program Director, Naval Gun Systems, FMC Defense Group, from 1989 to 1991. Mr. Foster was a director of JLG Industries, Inc. from January 2005 to December 2006.
THOMAS A. GENDRON has been a director of Hexcel since December 2010, and is a member of our compensation committee. Since 2007, Mr. Gendron has been Chairman, Chief Executive Officer and President of Woodward, Inc. (formerly Woodward Governor Company), a designer, manufacturer and service provider of energy control and optimization solutions used in global infrastructure equipment, serving the aerospace, power generation and distribution and transportation markets. Mr. Gendron was President and Chief Executive Officer of Woodward from 2005 to 2007 and President and Chief Operating Officer from 2002 to 2005. Prior to becoming President of Woodward, Mr. Gendron served in a variety of management positions at Woodward. Mr. Gendron is the chairman of the board of directors of Woodward.
JEFFREY A. GRAVES has been a director of Hexcel since July 2007, and is a member of our finance committee and nominating and corporate governance committee. Since May 2012, Dr. Graves has served as Chief Executive Officer of MTS Systems Corporation, a leading global supplier of test systems and industrial position sensors. From 2005 until May 2012, Dr. Graves served as President and Chief Executive Officer of
C&D Technologies, Inc., a producer of electrical power storage systems, since 2005.systems. From 2001 to 2005 he was employed by Kemet Corporation as Chief Executive Officer (2003 to 2005); President and Chief Operating Officer (2002-2003); and Vice President of Technology and Engineering (2001-2002). From 1994 to 2001 Dr. Graves was employed by the General Electric Company, holding a variety of Managementmanagement positions in GE'sGE’s Power Systems Division from 1996 to 2001, and in the Corporate Research and Development Center from 1994 to 1996. Prior to General Electric, Dr. Graves was employed by Rockwell International and Howmet Corporation, now a part of Alcoa Corporation. Dr. Graves is also a member of the board of directors of MTS Systems Corporation and Teleflex, Inc. Dr. Graves serves on Teleflex’s compensation committee. Dr. Graves was a member of the board of directors of C&D Technologies, Inc. and Teleflex, Inc., and served on the board of Technitrol, Inc. from January 20062005 through May 2007.
2012.
DAVID C. HILL has been a director of Hexcel since May 2008, and is a member of our audit committee and finance committee. Dr. Hill served as President and Chief Executive Officer of Sun Chemical Corporation, a producer of printing inks and pigments, from 2001 until his retirement in December 2007. During this time he was also a Supervisory Board member of Sun Chemical Group B.V. Prior to joining Sun Chemical Corporation in 2001, Dr. Hill spent four years at JM Huber Corporation as President of Engineered Materials. From 1980 to 1997, Dr. Hill served at AlliedSignal Inc., where he was President, Fibers from 1991 to 1994, Chief Technology Officer, Engineered Materials from 1994 to 1995 and President, Specialty Chemicals through 1997. Dr. Hill began his career at Union Carbide Corporation in 1970, and has also been Director of Exploratory and New Ventures Research at Occidental Petroleum Corporation. He holds a Ph.D. in Materials Science and Engineering as well as an M.S. in Engineering and a B.S. in Materials Science and Engineering from Massachusetts Institute of Technology. Dr. Hill iswas a member of the board of directors of Symyx Technologies, Inc., from 2007 to 2010, and servesserved as a member of its compensation and governance committees.
DAVID L. PUGH has been a director of Hexcel since July 2006, and is chair of our compensation committee. Mr. Pugh has served as the Chairman and Chief Executive Officer of Applied Industrial Technologies Inc., one of North America'sAmerica’s leading industrial product distributors, sincefrom October 2000 and as Applied's Chief Executive Officer since January 2000.until October 2011. He was President of Applied from January 1999 to October 2000. Prior to joining Applied, Mr. Pugh was senior vice president of Rockwell Automation and general manager of Rockwell'sRockwell’s Industrial Control Group. Prior to joining Rockwell, Mr. Pugh held various sales, marketing and operations positions at Square D. Co. and Westinghouse Electric Corp. Mr. Pugh is also a member of the board of directors of NN, Inc. and serves on its audit committee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR
TheWe currently have nine independent directors out of ten directors. Our board affirmatively determined that each of our nominees,director nominee, other than Mr. Berges, who is our Chairman and Chief Executive Officer, meets the NYSE director independence requirements of the listing standards of the NYSE.requirements. In making these determinations our board considered all relevant facts and circumstances including whether a director has a "material relationship"“material relationship” with us as contemplated by the NYSE listing standards. One non-employee director has a direct or indirect relationship with us other than as a director of Hexcel. Ms. Brubaker is a director of a private aerospace company that is our customer. In determining that Ms. Brubaker isdid not have a material relationship with us, and was thus, independent, our board considered, among other things, the sales to thethis private aerospace company as a percentage of our total sales, andas well as that Ms. Brubaker has no significant direct or indirect pecuniary interest in the business relationship between us and thethis private aerospace company. Under applicablethe NYSE listing standards, Mr. Berges is not independent by virtue of his being employed by us.
Meetings and Standing Committees of the Board of Directors
General
During 20102012 there were sixfive meetings of the board and 1819 meetings in the aggregate of the four standing committees of the board. The board also acted twicedid not take any action by written consent. Each of the incumbent directors who served on the board and its committees during 20102012 attended or participated in at least 75% of the aggregate number of board meetings and applicable committee meetings held during 2010.2012. A director is expected to regularly attend and participate in meetings of the board and of committees on which the director serves, and to attend the annual meeting of stockholders. Other than Mr. Gendron, who had not yet been elected to the board, eachEach of the incumbent directors attended the last annual meeting of stockholders.
The board has established the following standing committees: audit committee; compensation committee; finance committee; and nominating and corporate governance committee. The board may
establish other special or standing committees from time to time. Members of committees serve at the discretion of the board. Each of our four standing committees operates under a charter adopted by the board. The charter for each committee except the finance committee requires that all members be independent as required by NYSE listing standards. The charter of the finance committee prohibits the committee from taking any action that is required by NYSE rules to be taken by a committee composed entirely of independent directors, unless the finance committee is composed entirely of independent directors. Our board has also adopted a set of corporate governance guidelines. All committee charters and the corporate governance guidelines can be viewed on the investor relations section of our website,www.hexcel.com, under "corporate governance."“Corporate Governance.” You may obtain a copy of any of these documents, free of charge, by directing your request to Hexcel Corporation, Attention: Investor Relations Manager, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901, telephone (203) 352-6826.
Audit Committee
The audit committee assists with the board'sboard’s oversight of the integrity of our financial statements, our exposure to risk and mitigation of those risks, our compliance with legal and regulatory requirements, our independent registered public accounting firm'sfirm’s qualifications, independence and performance, and our internal audit function. During 20102012, the audit committee held eight meetings. Additional information regarding the audit committee, including additional detail about the functions performed by the audit committee, is set forth in the Audit Committee Report included on page 6066 of this proxy statement. The current members of the audit committee are Messrs.Mr. Campbell (chair), Ms. Brubaker, Mr. Foster Hill and Hurley.Mr. Hill.
Each member of our audit committee is independent under applicable law and NYSE listing standards. All members of our audit committee meet the financial literacy requirements of the NYSE and at least one member has accounting or related financial management expertise as required by the NYSE. In addition, our board has determined that Jeffrey C. Campbell, who currently is Executive Vice President and Chief Financial Officer of McKesson Corporation, is an audit committee financial expert under SEC rules.
The audit committee has adopted procedures for the receipt, retention and handling of concerns regarding accounting, internal accounting controls and auditing matters by employees, stockholders andor other persons. Any person with such a concern should report it to the board as set forth under "Contacting“Contacting the Board"Board” on page 13.14. The audit committee has also adopted procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Employees should consult the Hexcel Code of Business Conduct for information on how to report any such concern.
The audit committee has established policies and procedures for the pre-approval of all services provided by theour independent registered public accounting firm. These policies and procedures are described on page 6167 of this proxy statement.
Finance Committee
The finance committee provides guidance to the board and management on significant financial matters, including the Company'sCompany’s capital structure, credit facilities, equity and debt issuances, acquisitions, divestitures and liquidity. During 20102012 the finance committee held threefour meetings. The current members of the finance committee are Mr. Beckman (chair), Mr.Dr. Graves and Mr. Hill, each of whom is independent under NYSE listing standards.Hill.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee regularly seeks input from the board regarding the skills and attributes it believes new nominees should possess in order to strengthen the board; identifies and recommends to the board individuals qualified to serve as directors and on committees of the board; advises the board with respect to board and committee procedures; develops and recommends to the board, and reviews periodically, our corporate governance principles; and oversees the evaluation of the board, the committees of the board and management. The committee has independent authority to select and retain any search firm to assist it in identifying qualified candidates for board membership, and has the sole authority to approve the search firm'sfirm’s fees and terms of engagement. The current members of the nominating and corporate governance committee are Ms. Derickson (chair), Ms. Brubaker, Mr. Foster and Mr.Dr. Graves, each of whom is independent under NYSE listing standards. During 20102012 the nominating and corporate governance committee held two meetings.meetings and acted once by written consent.
The nominating and corporate governance committee believes that each nominee for director should demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the board'sboard’s supervision and oversight of our business and affairs. The committee also considers the following when selecting candidates for recommendation to the board: broad business knowledge, experience, professional relationships, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, potential conflicts of interest and such other relevant factors that the committee considers appropriate from time to time, in the context of the needs or stated requirements of the board.
We do not have a formal policy with regard to consideration of diversity in identifying director nominees. However, both the charter of the nominating and corporate governance committee and our corporate governance guidelines list diversity as one of many attributes and criteria that the committee will consider when identifying and recruiting candidates to fill positions on the board. Our corporate governance guidelines also state that our board should generally have no fewer than ten directors to permit diversity of experience. The committee considers a broad range of diversity, including diversity with respect to experience, skill set, age, areas of expertise and professional background, as well as race, gender and national origin. Our informal policy regarding consideration of diversity is implemented through discussions among the committee members, and by the committee with our outside search firm and with senior management. The committee assesses the effectiveness of this policy through its annual self-evaluation, a report of which is delivered to the board. Every board candidate search undertaken by us includes diversity as a desired attribute for the candidate.
All nominees for election to the board are currently serving as directors, and have served on our board for between four monthstwo years to ninealmost twelve years. In concluding that our current directors should continue to serve on our board, we considered the following attributes of our directors, which we have observed during the tenure of our directors'directors’ service: extensive familiarity with large-scale manufacturing operations; industry expertise and professional relationships; the ability to utilize extensive past experience in management, finance, technology and operations, and other areas, to address issues we face on a consistentrecurring basis; collegiality and the ability to work together as a group; outstanding integrity and business judgment; and the ability to ask probing questions during board discussions and to carefully scrutinize significant business, financing and other proposals suggested by management. In addition to these factors and those mentioned in the preceding paragraph, we also considered the following in concluding that our current directors should continue to serve on our Board:board:
Mr. Berges: priorChairman and CEO of Hexcel for more than ten years. Prior to becoming CEO of Hexcel, Mr. Berges had 30 years management and operations experience at GE, Barnes Group and Honeywell, including three years as President of the Automotive Group at Honeywell International Inc., a $2billion$2.5 billion business with over 10,000 employees.
Mr. Beckman: over ten years'years’ experience as managing partner of, and a founder of, Greenbriar Equity Group, a private equity firm that invests exclusively in transportation (including aerospace) companies;
companies. Previously, Mr. Beckman had 18 years'years’ experience at Goldman Sachs, where he founded the global transportation business group. In addition to Mr. Beckman'sBeckman’s valuable contributions related to the transportation sector, his experience in private equity led to his appointment as chair of the finance committee and has made him a key contributor to refinancing discussions since joining the board.
Ms. Brubaker: over 30 years'years’ experience in the commercial aerospace, defense and space industries, in a variety of executive, operations, sales, marketing, customer support and independent consultant roles. Ms. Brubaker'sBrubaker’s aerospace experience runs the gamut from operator, to airframer, to original equipment manufacturer, to aftermarket. Her ongoing aerospace industry involvement and relationships provide the board with additional customer feedback independent of management. Ms. Brubaker has used her expertise in sales and marketing management to assess and advise our marketing and mentor our sales management.managers.
Mr. Campbell: extensive experience in finance and accounting, including his current role as CFO of McKesson, a $100 billion healthcare services company;company and over ten years in executive and management positions in the aerospace industry (American Airlines). Mr. Campbell'sCampbell’s financial acumen has made him a valuable audit committee contributor (Mr. Campbell is chair of our audit committee), and due to his experience as CFO of a major public company he has provided valuable expertise and guidance in areas such as compliance, risk management, financing, investor relations and systems solutions.
Ms. Derickson: 30 yearsyears’ executive and global operating experience with HSBC and General Electric, including overseeing acquisitions, start-ups and restructurings. Ms. Derickson'sDerickson’s long career with large international companies provides important "best practice"“best practice” perspectives in such areas as manpower development, succession planning, organizational design and growth. Ms. Derickson was our first director added after we identified diversity as a desired attribute for directors. As chair of the nominating and corporate governance committee she has led the development of a better balanced board, and scheduled corporate governance training for all directors.
Mr. Foster: over 30 yearsyears’ management, operations and finance experience with FMC Corporation, an NYSE-listed chemical manufacturer, including the lastover seven years as CFO, as well as experience as a director of another public company. Mr. Foster has been a valuable member of the audit committee since joining the board. He provides expertise and advice in the finance and investor relations areas, and his background in chemical operations has proven valuable in connection with discussions of capital spending and global sourcing.
Mr. Gendron: experience as president and CEO of Woodward, a NASDAQ-listed company spanning eight years; extensive operations and marketing experience in the aerospace and wind power industries. Mr. Gendron's expertise onWoodward’s global wind turbine controls business enables himMr. Gendron to provide the board with insight as to the wind power industry, and offer guidance on the development of marketing strategies. In addition, Mr. Gendron'sGendron’s significant manufacturing management experience at large scale manufacturers makes him well-suited to advise our operations management team. Mr. Berges suggested to our outside search firm that Mr. Gendron be included among other possible candidates for director.
Mr.Dr. Graves: eight years'nine years’ experience as a CEO of twothree NYSE-listed companies;companies and significant experience as a director of other US public companies. Dr. Graves has significant global operations and R&D experience, including with GE;GE, holds a PhD in Materials Science;Science and has extensive prior involvement in materials development and application processes for airframe, propulsion systems and propulsion systems; significant experience as a director of other US public companies.energy fields. In addition to the obvious value as an experienced CEO of twothree public companies, Mr.Dr. Graves was recruited to the board to help
fill a critical need for additional technical expertise. He has extensive experience doing business in China and India, enabling him to provide valuable contributions to discussions related to our Asia and Far East strategy, particularly with respect to industrial markets such as wind energy. Each year, Mr.markets. Dr. Graves and Mr. Hill have reviewedregularly review our R&D programs and organization and reportedreport back to the board their findings and recommendations. In addition, heDr. Graves has advised on information technology projects based on his past experience with the implementation of Enterprise Resource Planning initiatives.
Mr. Hill: over 40 years'years’ management, operations and technology experience in large-scale chemicals and engineered materials organizations, including six years as CEO of Sun Chemical Corporation; extensive knowledge regarding the manufactureCorporation and use of carbon fiber; member ofmembership in the National Association of Corporate Directors. In addition to his advanced technical degrees (Ph.D. and M.S.), Mr. Hill has extensive knowledge regarding the development, manufacture and use of advanced fibers. Mr. Hill was selected to provide the board and management additional technical expertise, particularly related to largeour fibers and chemical-based fiber facilities.products. His extensive experience with the application of continuous improvement techniques to maximize capital efficiency has made him a key contributor to the board, particularly in connection with capital expansion, utilization and resources. Each year, Mr. Hill and Mr.Dr. Graves have reviewedregularly review our R&D programs and organization and reportedreport back to the board their findings and recommendations.
Mr. Pugh: CEO of an NYSE-listed company for ten years;years until retirement in 2011; extensive operations and sales and marketing experience in large-scale manufacturing organizations; and extensive experience as a director of public companies. Mr. Pugh'sPugh’s expertise in factory control systems and equipment maintenance programs has provided valuable expertise to the board and to our operations management team. Mr. Pugh is chair of the compensation committee and brings important perspectives in the executive compensation area to both the compensation committee and the board, as a result of his varied experiences with other public boards.
The nominating and corporate governance committee will consider director candidates recommended by stockholders, as well as by other means such as our non-management directors, our chief executive officer, and other executive officers. In considering candidates submitted by stockholders, the committee will take into consideration the needs of the board and the qualifications of the candidate. The company’s policy on the consideration of all director candidates, regardless of source, is set forth in the charter of the nominating and corporate governance committee. To have a candidate considered by the committee, a stockholder must submit the recommendation in writing to our corporate secretary at the address listed below under "Contacting“Contacting the Board"Board” so that it is received at least 120 days prior to the anniversary date of our prior year'syear’s annual meeting of stockholders. The stockholder must supply the following information with his or her recommendation:
The name and record address of the stockholder and evidence of the stockholder'sstockholder’s ownership of Hexcel stock, including the class and number of shares owned of record or beneficially (and including any other direct or indirect pecuniary or economic interest in Hexcel stock) and the length of time the interest in the shares have been held
The name, age, business address and residence address of the candidate, a listing of the candidate'scandidate’s qualifications to be a director, and the person'sperson’s consent to be named as a director if selected by the committee and nominated by the board
An advance irrevocable resignation letter providing for the contingent resignation of the candidate in the event that the candidate is elected to the board and subsequently becomes a holdover director
Any information about the stockholder and the candidate which would be required to be disclosed in a proxy statement or other filing relating to the election of directors
A representation that the stockholder intends to appear in person at the annual meeting to nominate the candidate
Any material interest of the stockholder relating to the nomination of the candidate, including a description of all arrangements or understandings between the stockholder and the candidate
A description of all arrangements or understandings between the stockholder and any other person, naming such other person, relating to the recommendation of such candidate
The committee'scommittee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although the board may take into consideration the number of shares held by a recommending stockholder and the length of time that such shares have been held. No stockholder recommendations were made for this Annual Meeting.
Compensation Committee
The compensation committee oversees, reviews and approves our compensation and benefit plans and programs and defines the goals of our compensation policy. In this capacity, the compensation committee administers our incentive plans and makesmay make grants, for example, of non-qualified stock options and/or awards of(“NQOs”), restricted stock units ("RSUs"(“RSUs”) or other equity based compensationand performance-based share awards (“PSAs”) to executive officers, other key employees, directors and consultants. The current members of the compensation committee are Mr. Pugh (chair), Mr. Beckman, Ms. Brubaker, Ms. Derickson and Mr. Gendron, each of whom is independent under NYSE listing standards. During 20102012 the compensation committee held five meetings and acted once by written consent.
Additional information regarding the compensation committee, including additional detail about the objectives, policies, processes and procedures of the compensation committee, and information with regard to the compensation consultant retained by the compensation committee, which includes a description of all services provided, is set forth in Compensation Discussion and Analysis beginning on page 20 of this proxy statement.
As stated in our Corporate Governance Guidelines, we do not require separation of the offices of the Chairman of the Board and Chief Executive Officer. The board believes that it is appropriate for Mr. Berges to hold both offices because the combined role enables decisive leadership and clear accountability and enhances our ability to communicate our strategy clearly and consistently to stockholders and other key constituencies, such as our employees and key customers and suppliers. We also believe we have in place sound counter-balancing mechanisms to ensure that we maintain the highest standards of corporate governance and effective accountability of the CEO to the board, including the following:
Each of the other nine directors on the board is independent
The board has named a presidinglead director, whose responsibilities are described in detail below
Mr. Berges'Berges’ performance and compensation is reviewed, and Mr. Berges'Berges’ compensation is set, by the compensation committee, with formal oversight by the independent directors as a group
The independent directors meet in regular executive sessions without management
The board provides oversight ofregularly reviews performance, management development and succession planningplans for executive positions.
As noted above, our board has a presiding director. IfOur bylaws dictate that if the chairman of the board is independent, then the chairman will be the presiding director. Iflead director or, if the chairman is not independent, as is the case with Mr. Berges, then the independent directors are required to designate an independent board member to serve as presidinglead director. The independent directors have
designated Ms. Derickson to serve as presidinglead director. As presiding director, Ms. Derickson has the authority to call a meeting of the independent directors in addition to the responsibilities listed below. Some of these responsibilities are performed by Ms. Derickson in her capacity as the Chairchair of the nominating and corporate governance committee.
Oversees the flow of information to the board
Determines the agenda for board meetings with input from management and other directors
Oversees the board'sboard’s performance evaluations of the CEO and provides feedback directly to the CEO
Supervises the board and committee annual self-evaluation process
Collaborates with the nominating and corporate governance committee in monitoring the composition and structure of the board and leads director recruitment efforts.
TheUnder our corporate governance guidelines, the independent directors are required under our corporate governance guidelines to meet as a board in executive session, without management, a minimum of two times a year.year, but normally do so at every regular board meeting.
The board is responsible for overseeing our risk management. The board sets our risk management strategy and our risk appetite and oversees the implementation of our risk management framework. Specific board committees are responsible for overseeing specific types of risk. Our audit committee periodically reviews our insurance coverage, currency exchange and hedging policies, tax exposures and our processes to ensure compliance with laws and regulations, and also reviews reports from complianceline, our anonymous hotline that employees can use to report suspected violations of our Code of Business Conduct. The audit committee also regularly meets in executive sessions without management present with our director ofoutsourced internal audit firm and our independent registered public accounting firm without management present, to discuss if there are areas of concern of which the board should be aware. The board, and when specific need arises, the finance committee, addresses significant financing matters such as our capital structure, credit facilities, equity and debt issuances, acquisitions and divestitures, and liquidity. Our compensation committee establishes compensation policies and programs that do not incentivize executives and employees to take on an inappropriate level of risk, as discussed under "Compensation“The Process for Setting Compensation—Compensation Risk Oversight"Oversight” on page 2325 of this proxy statement. The nominating and corporate governance committee is responsible for ensuring that we have an adequate succession plan in place for our senior leadership. Each of our board committees delivers a report to the board, at the next board meeting, regarding what transpiredmatters considered at any committee meetings that have taken place since the last board meeting.
Our Corporate Controllersenior management meets periodically with our operations leadership teams to discuss and review the risks that exist in connection with our business. Management makes regular presentations to the board, no less than two times per year (and more frequently if circumstances warrant), regarding all types of material risks facing the company. At these meetings the board discusses and reviews these risks and determines what, if any, new actions should be taken to mitigate these risks.
At least annually, the board engages in a review of management developmental and succession planning to assess employee development programs and organizational effectiveness, and conducts in-depth discussions regarding specific succession and contingency planning for all key senior leadership positions.
Stockholders and other interested parties may contact the non-management members of the board or the presidinglead director by sending their concerns to: board,Board of Directors, c/o Corporate Secretary, Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901; facsimile number (203) 358-3972; e-mail addressboardofdirectors@hexcel.com. The Corporate Secretary will review all communications and forward them to the presidinglead director. The Corporate Secretary may, however, filter out communications that do not relate to our business activities, operations or our public disclosures, but will maintain a record of these communications and make them available to the presidinglead director. Any communications received by the presidinglead director regarding concerns relating to accounting, internal accounting controls or auditing matters will be immediately brought to the attention of the audit committee and will be handled in accordance with the procedures established by the audit committee to address these matters.
It is our policy that all of our officers, directors and employees worldwide conduct our business in an honest and ethical manner and in compliance with all applicable laws and regulations. Our board has adopted the Hexcel Code of Business Conduct in order to clarify, disseminate and enforce this
policy. The Code applies to all of our officers, directors and employees worldwide, including our chief executive officer, chief financial officer and controller. The Code can be viewed on the investor relations section of our website,www.hexcel.com, under "Corporate“Corporate Governance."” In addition, you may obtain a free copy of the Code by directing your request to Hexcel Corporation, Attention: Investor Relations Manager, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901, telephone (203) 352-6826. Any amendment to the Code of Business Conduct (other than technical, administrative or non-substantive amendments), or any waiver of a provision of the Code that applies to our directors or executive officers, will be promptly disclosed on the investor relations section of our website under "Corporate“Corporate Governance."”
Director Compensation in 2010
2012
Our non-employee director compensation program is comprised of a mix of cash and stock-based incentive compensation designed to attract and retain qualified candidates to serve on our Board. Effective June 30, 2010,board. In 2012, the company, with the assistance of its compensation consultant, reviewed our director compensation program provides for:against survey data from the National Association of Corporate Directors (“NACD”) and our comparator group (as described on page 26). The review indicated that our directors were compensated well below the median of the compensation level indicated by the NACD survey and below the 25th percentile of peer compensation levels. The compensation committee concluded that directors should be competitively compensated at the median level determined in the NACD survey and accordingly recommended that the board approve a $30,000 increase to the annual compensation. The NACD data was considered a more relevant benchmark than that of our comparator group because nominees for director would be drawn from the wider and more diverse pool of candidates represented by the NACD survey. The entire $30,000 increase was made in the form of additional RSUs that would further align the interests of directors with stockholders. The recommendation of the committee was adopted by the board, effective following the annual meeting in May 2012.
Annual non-employee director cash compensation consists of a retainer of $48,000 payable quarterly
$12,500 for the presidinglead director
$12,500 for the audit committee chairman
$7,500 for the compensation committee chairman
$5,000 for each of $5,000 paid to the nominating and corporate governance committee and the finance committee chairmen
$10,000 paid to each member of the audit committee (including the chairmanchair of the committee)
$7,500 paid to each member of the compensation committee (including the chairmanchair of the committee)
$5,000 paid to each member of the nominating and corporate governance committee and the finance committee (including the chairmenchairs of the committees)
Upon initial election to the Boardboard and on each re-election thereafter,
Priordirector. As discussed in Proposal 3, we are requesting shareholder approval of grants of equity-based awards to June 30, 2010,our non-employee directors under the program provided for:Hexcel Corporation 2013 Incentive Stock Plan with respect to up to 20,000 shares annually per director.
In addition to the auditannual compensation described above, each director receives $1,000 for attendance at a meeting of a special committee chairman
The new program was implemented as of June 30, 2010 and the new annual retainer and committee retainers were prorated for the last six months of 2010.board.
This program is for our outside directors only. Mr. Berges our Chairman and Chief Executive Officer, receives no additional compensation for serving on our Board.board.
Our stock ownership guidelines, which are described on page 33,pages 35-36, apply to outsidenon-employee directors in a similar manner as they apply towell as executive officers. Directors areEach director is expected to own shares of our common stock that have a value equal to at least three times theirhis or her annual cash retainer.
The table below summarizes the compensation paid by the company to non-employee Directors for the fiscal year ended December 31, 2010.2012.
Name(1) | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2)(3) | Total ($) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Joel S. Beckman | 55,500 | 49,993 | 105,493 | |||||||
Lynn Brubaker | 50,500 | 49,993 | 100,493 | |||||||
Jeffrey C. Campbell | 64,500 | 49,993 | 114,493 | |||||||
Sandra L. Derickson | 62,500 | 49,993 | 112,493 | |||||||
W. Kim Foster | 50,750 | 49,993 | 100,743 | |||||||
Thomas A. Gendron | 3,288 | 64,996 | 68,284 | |||||||
Jeffrey A. Graves | 49,250 | 49,993 | 99,243 | |||||||
David C. Hill | 54,750 | 49,993 | 104,743 | |||||||
David C. Hurley | 50,750 | 49,993 | 100,743 | |||||||
David. L. Pugh | 54,250 | 49,993 | 104,243 | |||||||
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1)(2) | Total ($) | |||||||||
Joel S. Beckman | 65,500 | 94,990 | 160,490 | |||||||||
Lynn Brubaker | 63,000 | 94,990 | 157,990 | |||||||||
Jeffrey C. Campbell | 70,500 | 94,990 | 165,490 | |||||||||
Sandra L. Derickson | 78,000 | 94,990 | 172,990 | |||||||||
W. Kim Foster | 58,000 | 94,990 | 152,990 | |||||||||
Thomas A. Gendron | 55,500 | 94,990 | 150,490 | |||||||||
Jeffrey A. Graves | 58,000 | 94,990 | 152,990 | |||||||||
David C. Hill | 62,250 | 94,990 | 157,990 | |||||||||
David. L. Pugh | 63,000 | 94,990 | 157,990 | |||||||||
| (1) | The grant date fair value of each RSU granted to directors was $27.14, computed in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that will be realized by the director. For additional information regarding the assumptions made in calculating these amounts, see Note 11, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. |
| (2) | Prior to 2004, we granted NQOs to our outside directors as part of our director compensation program. As of December 31, 2012, our non-employee directors had RSUs and NQOs outstanding as follows: |
| Outstanding RSUs(a) | Shares Underlying Unexercised NQOs(b) | |||||||
Joel S. Beckman | 23,315(c) | — | ||||||
Lynn Brubaker | 3,500 | — | ||||||
Jeffrey C. Campbell | 24,818 | 10,000 | ||||||
Sandra L. Derickson | 17,173 | — | ||||||
W. Kim Foster | 19,674 | — | ||||||
Thomas A. Gendron | 10,230 | — | ||||||
Jeffrey A. Graves | 19,554 | — | ||||||
David C. Hill | 17,476 | — | ||||||
David L. Pugh | 23,066 | — | ||||||
| (a) | All RSUs granted prior to the 2012 annual meeting are vested. Outstanding RSUs include any grants for which the director has elected to defer the conversion of such grant into shares until such time as the director ceases to be a member of the board. Each director (other than Ms. Brubaker, Ms. Derickson and Mr. Hill) has elected to defer the conversion of his or her RSUs granted in 2012. |
| (b) | All of these NQOs are vested and exercisable. |
| (c) | Includes 1,590 RSUs held for the benefit of Greenbriar Equity Group LLC. Mr. Beckman disclaims beneficial ownership of these RSUs. |
Joel S. Beckman Lynn Brubaker Jeffrey C. Campbell Sandra L. Derickson W. Kim Foster Thomas A. Gendron Jeffrey A. Graves David C. Hill David C. Hurley David L. Pugh Set forth below is certain information concerning each of our current executive officers. For additional information concerning Mr. Berges, see David E. Berges Chairman of the Board; Chief Executive Officer; Director Nick L. Stanage President Wayne C. Pensky Senior Vice President; Chief Financial Officer Ira J. Krakower Senior Vice President; General Counsel; Secretary Robert G. Hennemuth Senior Vice President, Human Resources Andrea Domenichini Senior Vice President and General Manager, Wind Energy Business Kimberly A. Hendricks Vice President; Corporate Controller; Chief Accounting Officer Michael J. MacIntyre Treasurer Name Position(s) With Hexcel David E. Berges Nick L. Stanage Wayne C. Pensky Ira J. Krakower Robert G. Hennemuth NICK L. STANAGE has served as our President since November Products and Off Highway Products) at Dana Holding Corporation from December 2005 to October 2009, and served as WAYNE C. PENSKY has served as our Senior Vice President and Chief Financial Officer since April 2007. Prior to serving in his current role, Mr. Pensky served as Vice President, Finance and Controller of our Composites global business unit since 1998. From 1993 to 1998 Mr. Pensky was our Corporate Controller and Chief Accounting Officer. Prior to joining Hexcel in 1993, Mr. Pensky was a partner at Arthur Andersen & Co., where he had been employed since 1979. IRA J. KRAKOWER has served as our Senior Vice President, General Counsel and Secretary since September 1996. Prior to joining Hexcel, Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical Corporation from 1986 to August 1996 and served on the board and as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996. ROBERT G. HENNEMUTH has served as our Senior Vice President, Human Resources since March 2006. Prior to joining Hexcel, Mr. Hennemuth served as Vice President—Human Resources of Jacuzzi Brands, Inc. from July 2003 to September 2005. Previously, he was employed by Honeywell International Stock Beneficially Owned by Principal Stockholders The following table sets forth certain information as of February 28, Lord, Abbett & Co. LLC(2) T. Rowe Price Associates, Inc.(3) BlackRock Inc.(4) Earnest Partners LLC(5) Name and Address BlackRock Inc.(2) 40 East 52nd Street New York, NY 10022 Earnest Partners LLC(3) 1180 Peachtree Street NE, Suite 2300 Atlanta, GA 30309 The Vanguard Group(4) 100 Vanguard Boulevard Malvern, PA 19355(3)Prior to 2004, we granted non-qualified stock options ("NQOs") to our outside directors as part of our director compensation program. As of December 31, 2010, our outside directors had RSUs and NQOs outstanding as follows: RSUs(a) Shares Underlying
Unexercised NQOs(b) 16,672 (c) — 3,215 — 18,175 10,000 16,888 13,833 13,031 — 3,587 — 12,911 — 10,833 — 17,843 — 16,423 — (a)For each director (other than Mr. Gendron), 3,215 RSUs were granted on May 7, 2010, and vest daily over the twelve month period from the grant date. For Mr. Gendron, 3,587 RSUs were granted on December 7, 2010, and vest daily over the twelve month period from the grant date. For each director, all RSUs granted prior to 2010 are vested. For 2010, each director (other than Ms. Brubaker and Ms. Derickson) has elected to defer the settlement of his or her vested RSUs until such time as the director ceases to be a member of the board.(b)All of these NQOs are vested and exercisable.(c)Includes 1,590 RSUs held for the benefit of Greenbriar Equity Group LLC. Mr. Beckman disclaims beneficial ownership of these RSUs."PROPOSAL“PROPOSAL 1—ELECTION OF DIRECTORS—Information Regarding the Directors"Directors” on page 5.Name Age on
March 15, 2011 Executive
Officer Since Position(s) With Hexcel 61 2001 52 2009 55 2007 70 1996 55 2006 63 2007 47 2009 50 2003 Age on
March 15, 2013 Executive
Officer Since 63 2001 Chairman of the Board; Chief Executive Officer; Director 54 2009 President and Chief Operating Officer 57 2007 Senior Vice President; Chief Financial Officer 72 1996 Senior Vice President; General Counsel; Secretary 57 2006 Senior Vice President, Human Resources 2009.2009 and as our Chief Operating Officer since May 2012. Prior to joining Hexcel, Mr. Stanage was President of the Heavy Vehicle Products group (including both Commercial VehicleVPVice President and GMGeneral Manager of the Commercial Vehicle group at Dana from August 2005 to December 2005. Dana Holding Corporation and a number of its US subsidiaries filed for bankruptcy protection in March 2006, and emerged from bankruptcy in January 2008. From 1986 to 2005, Mr. Stanage held a variety of technical, marketing and management positions with Honeywell International Inc. (formerly AlliedSignal Inc.), including VPVice President and GMGeneral Manager of the Engine Systems & Accessories business unit in the aerospace group from January 2005 to August 2005, and VPVice President Integrated Supply Chain & Technology of the Consumer Products Group from 2003 to January 2005. Prior to joining AlliedSignal, Mr. Stanage worked as a design engineer for Clark Equipment Company.formerlyInc., (formerly known as AlliedSignal Inc.), where he served as Vice President of Human Resources & Communications for various businesses from December 1996 to June 2003, including the Honeywell Consumer Products Group. ANDREA DOMENICHINI has served as Senior Vice President and General Manager of our Wind Energy business since September 2010. Prior to that, Mr. Domenichini served as our Vice President, Operations since January 2007, and served as Vice President, Operations of the former Hexcel Composites business unit from November 2001 through December 2006. Mr. Domenichini served as Head of our Matrix Systems Business from October 1997 through October 2001. Prior to joining Hexcel in 1996, Mr. Domenichini held various managerial positions with Hercules Incorporated from 1973 to May 1996, the latest being Managing Director of Hercules Aerospace Spain. KIMBERLY A. HENDRICKS has served as our Vice President, Corporate Controller and Chief Accounting Officer since September, 2009. Ms. Hendricks served as Vice President and Corporate Controller of International Flavors and Fragrances Inc. from July 2007 until July 2009, and as Vice President, Finance, of JLG Industries, Inc. from January 2006 through February 2007. From 1999 to 2006, Ms. Hendricks held various positions with Bristol-Myers Squibb Company, the last being Vice President, Finance from 2003 to 2006. MICHAEL J. MACINTYRE has served as our Treasurer since December 2002 and was Assistant Treasurer from October 2000 to December 2002. Prior to joining Hexcel, Mr. MacIntyre served as Assistant Treasurer of Hitachi America Capital, Ltd, a US financing subsidiary of Hitachi America, Ltd, a sales and manufacturing company serving the US electronics markets, from 1998 to 2000, and held various treasury management positions with Hitachi America, Ltd. from 1988 to 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT20112013 with respect to the ownership by any person (including any "group"“group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”)) known to us to be the beneficial owner of more than five percent of the issued and outstanding shares of Hexcel common stock:Name and Address Number
of Shares of
Common Stock(1) Percent of
Common Stock(1)
90 Hudson Street
Jersey City, NJ 07302 9,612,573 9.8 %
100 E. Pratt Street
Baltimore, MD 21202 6,554,820 6.7 %
40 East 52nd Street
New York, NY 10022 5,160,332 5.3 %
1180 Peachtree Street NE, Suite 2300
Atlanta, GA 30309 5,039,088 5.2 % (1)"Number of Shares" is based on information contained in a Statement on Schedule 13D, 13D/A, 13G or 13G/A filed with the SEC as indicated in footnotes (2) through (5) below. The "Percent of Common Stock" is based on such number of shares and on 97,767,747shares of common stock issued and outstanding as of February 28, 2011.(2)Based on information contained in a Statement on Schedule 13G/A filed with the SEC on February 14, 2011.(3)Based on information contained in a Statement on Schedule 13G filed with the SEC on February 9, 2011.(4)Based on information contained in a Statement on Schedule 13G filed with the SEC on February 4, 2011. This Schedule 13G was also filed on behalf of the following entities: BlackRock Japan Co. Ltd.; BlackRock Institutional Trust Company, N.A.; BlackRock Fund Advisors; BlackRock Asset Management Australia Limited; BlackRock Investment Management, LLC; BlackRock Advisors, LLC; and BlackRock International Ltd.(5)Based on information contained in a Statement on Schedule 13G/A filed with the SEC on February 10, 2011. Number of
Shares of
Common Stock(1) Percent of
Common Stock(1) 5,202,844 5.19% 5,041,952 5.03% 5,575,125 5.56% (1) “Number of Shares” is based on information contained in a Statement on Schedule 13D, 13D/A, 13G or 13G/A filed with the SEC as indicated in footnotes (2) through (4) below. The “Percent of Common Stock” is based on such number of shares and on 100,190,214 shares of common stock issued and outstanding as of February 28, 2013. (2) Based on information contained in a Statement on Schedule 13G filed with the SEC on January 30, 2013. According to the Schedule 13G, which was filed on behalf of BlackRock, Inc. (“BlackRock”), BlackRock Japan Co. Ltd., BlackRock Institutional Trust Company, N.A., BlackRock Fund Advisors, BlackRock Asset Management Canada Limited, BlackRock Asset Management Australia Limited, BlackRock Advisors, LLC, BlackRock Advisors (UK) Limited, BlackRock Investment Management, LLC, BlackRock Investment Management (UK) Limited and BlackRock International Limited, BlackRock is a parent holding company or control person that has sole voting and dispositive power with respect to 5,202,844 shares. (3) Based on information contained in a Statement on Schedule 13G/A filed with the SEC on February 13, 2013. Based on the Schedule 13G/A, Earnest Partners LLC is an investment advisor that has sole voting power with respect to 1,888,612 shares, shared voting power with respect to 583,015 shares and sole dispositive power with respect to 5,041,952 shares. (4) Based on information contained in a Statement on Schedule 13G filed with the SEC on February 12, 2013. Based on the Schedule 13G, The Vanguard Group is an investment advisor that has sole voting power with respect to 140,187 shares, sole dispositive power with respect to 5,439,838 shares and shared dispositive power with respect to 135,287 shares.
Stock Beneficially Owned by Directors and Officers
The following table contains information regarding the beneficial ownership of shares of Hexcel common stock as of February 28, 20112013 by our current directors and the executive officers listed in the Summary Compensation Table, below, and by all directors and executive officers as a group. The information forappearing under the "Numberheading “Number of Shares"Shares of Common Stock” was supplied to us by the persons listed in the table.
Name | Number of Shares of Common Stock(1) | Percent of Common Stock(2)(3) | |||
|---|---|---|---|---|---|
David E. Berges(4) | 2,121,349 | 2.1% | |||
Joel S. Beckman(5) | 18,113 | * | |||
Lynn Brubaker | 17,823 | * | |||
Jeffrey C. Campbell | 28,113 | * | |||
Sandra L. Derickson(6) | 54,030 | * | |||
W. Kim Foster | 12,969 | * | |||
Thomas A. Gendron | 11,405 | * | |||
Jeffrey A. Graves | 12,849 | * | |||
David Hill | 10,771 | * | |||
David C. Hurley | 17,781 | * | |||
David L. Pugh | 18,208 | * | |||
Nick L. Stanage | 59,849 | * | |||
Wayne C. Pensky | 232,151 | * | |||
Ira J. Krakower | 461,917 | * | |||
Robert G. Hennemuth | 114,163 | * | |||
All executive officers and directors as a group (18 persons) | 3,249,539 | 2.9% | |||
Name | Number of Shares of Common Stock(1) | Percent of Common Stock(2)(3) | ||||||
David E. Berges(4) | 1,890,737 | 1.9 | % | |||||
Joel S. Beckman(5) | 24,779 | * | ||||||
Lynn Brubaker | 9,394 | * | ||||||
Jeffrey C. Campbell | 34,779 | * | ||||||
Sandra L. Derickson(6) | 44,425 | * | ||||||
W. Kim Foster | 19,635 | * | ||||||
Thomas A. Gendron | 20,191 | * | ||||||
Jeffrey A. Graves | 16,054 | * | ||||||
David Hill | 13,976 | * | ||||||
David L. Pugh | 24,566 | * | ||||||
Nick L. Stanage | 254,299 | * | ||||||
Wayne C. Pensky | 342,544 | * | ||||||
Ira J. Krakower | 461,488 | * | ||||||
Robert G. Hennemuth | 171,221 | * | ||||||
All executive officers and directors as a group (14 persons) | 3,328,088 | 3.3 | % | |||||
| (1) | Includes shares underlying stock-based awards that either were vested as of February 28, 2013, or will vest within 60 days of this date. These shares are beneficially owned as follows: Mr. Berges 1,049,305; Mr. Beckman 23,276; Ms. Brubaker 3,461; Mr. Campbell 34,779; Ms. Derickson 17,134; Mr. Foster19,635; Mr. Gendron 10,191; Dr. Graves 16,054; Mr. Hill 13,976; Mr. Pugh 19,566; Mr. Stanage 130,740; Mr. Pensky 234,936; Mr. Krakower 214,483; Mr. Hennemuth 130,336; and all executive officers and directors as a group 1,917,872. None of our directors or named executive officers has pledged any of our common stock as security. |
| (2) | Based on 100,190,214 shares of common stock issued and outstanding as of February 28, 2013. As required by SEC rules, for each individual person listed in the chart the percentage is calculated assuming that the shares listed in footnote (1) above for such person are outstanding, but that none of the other shares referred to in footnote (1) above are outstanding. |
| (3) | An asterisk represents beneficial ownership of less than 1%. |
| (4) | Includes 149,423 shares held by the Berges Family Trust. Mr. Berges has investment and voting control over such shares. Also includes 500 shares held by Mr. Berges’ spouse. |
| (5) | Includes 1,590 shares underlying stock-based awards granted to Mr. Beckman that are held for the benefit of Greenbriar Equity Group LLC. Mr. Beckman disclaims beneficial ownership of these shares. |
| (6) | Includes 30,434 shares held by the Derickson Revocable Trust. Ms. Derickson has investment and voting control over such shares. |
COMPENSATION DISCUSSION AND ANALYSIS
This section describes and analyzes the material elements of 20102012 compensation for our executive officers identified in the Summary Compensation Table on page 38.40. We refer to these individuals as the named executive officers, or "NEOs."“NEOs.” The compensation committee of the board of directors is responsible for determining the compensation and benefits of the NEOs. The committee's approvalcommittee’s determination of the compensation of our CEO is subject to ratification by our independent directors. In setting NEO compensation for 2012, the committee considered the results of the stockholder advisory vote on executive compensation held at our 2011 annual meeting of stockholders, at which 88.4% of the votes cast were for approval of our executive compensation. This level of support, which was essentially unchanged from 2010, was one factor in the committee’s decision to maintain the principles underlying our existing compensation strategy during its annual review of the company’s compensation approach and practices.
ExecutiveOur 2012 executive compensation for 2010was aligned well with the primary objectives of our compensation philosophy, which are:
To attract, retain and motivate a high caliber of executive talent.
To ensure that a significant portion of total target compensation is variable compensation based on company performance
To encourage long-term focus while recognizing the importance of short-term performance
To determine compensation based on forward-looking considerations and not solely on the basis of past compensation
To align executive and shareholderstockholder interests by requiring executivesNEOs to own our stockmeet minimum ownership guidelines and prohibiting them from hedging our stock
To establish targets for performance-based compensation that are challenging yet attainable
To discourage excessive risk taking by structuring our pay to consist of a blend of both fixed and variable elements, using an appropriate mix of short and long termlong-term company performance metrics, and setting maximum total payouts
To prevent and requiring our NEOs to meet ownership guidelines
TableOur executive compensation consists of Contents
We achieved superior results in 2010 as compared with 2009, considering that we experienced only a 5.9% increase in year-over-year sales:
Measure(1) | 2010 Actual | 2009 Actual | Increase (%) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | (Millions) | | ||||||||
Free Cash Flow | $ | 93.7 | $ | 78.0 | 20.1 | % | ||||
Adjusted EBIT | $ | 133.3 | $ | 111.0 | 21.1 | % | ||||
Adjusted Net Income | $ | 77.5 | $ | 61.9 | 26.5 | % | ||||
In line with these results, actual 2010mix of fixed and variable components.The following chart shows the elements of our target compensation tofor our NEOs (includingNEOs. Target compensation includes salary, annual cash incentive awards granted under our Management Incentive Compensation Plan (“MICP”), and grant date valueequity awards in the form of equity-based awards) ranged between 119%restricted stock units (“RSUs”), non-qualified stock options (“NQOs”) and 123%performance share awards (“PSAs”). A significant portion of 2010NEO compensation, ranging from 46% to 56% of total target compensation.compensation in 2012, is in the form of long-term equity incentives. We believe that the long tenure of our NEOs (the average tenure is over ten years) and their demonstrated commitment to the long-term performance of the company (NEOs hold their NQOs for an average of almost six years), reflects the effectiveness of our compensation strategy.
Key pay decisions
Actual NEO compensation in 2010 included:2012 included the following elements:
Element |
| ||||
|---|---|---|---|---|---|
Base Salary | Increased NEO salaries | ||||
| Awarded | ||||
Equity-Based Awards | Continued our practice of awarding our NEOs a mix of NQOs, RSUs and PSAs with an overall design to provide performance-based incentives aligned with stockholder interests and long-term company strategy. NEO target equity compensation for 2012 consisted of 25% RSUs, 25% PSAs and 50% NQOs. See “Components of Executive Compensation for 2012 – Equity Awards” on pages 29-31. |
Our 2012 performance was strong.In 2012, we continued to build on our accomplishments in 2011, as we achieved our highest historical results for sales, gross margin, operating income and adjusted net income, while significantly increasing our investment in research and technology. Our year-over-year net sales increased 13.3%, which we leveraged into a 26.5% increase in Adjusted EBIT. Our strong performance was reflected in a
26.6% increase in our Adjusted Diluted Earnings per Share. Cash from Operating Activities grew by 27.9% over the prior measurement period, which helped fund the planned increase in capital expenditures to meet projected customer demand. See “Pay for Performance—MICP Annual Cash Incentive” on page 23. Our 2012 performance resulted in total stockholder return (“TSR”) for 2012 of 11.4%. The following discussion illustrates that we have successfully aligned our CEO’s pay with company performance.
Pay for Performance.We recognize that our stockholders invest in the company with the expectation that we will deliver a level of performance that creates value. We seek to deliver sustainable value, meaning that our actions to generate short-term results should be balanced with the need for our investments in technologies, capabilities, products, markets and employees that will provide increased profitability over the long-term.
When evaluating the appropriateness of our executive compensation for 2012 relative to our performance, the following considerations are relevant:
Did our profitability generate meaningful improvement in TSR?
Did our selection of short-term and long-term financial objectives create incentives to deliver acceptable levels of performance improvement?
Did we invest our capital and resources prudently to generate operating returns that exceed our cost of capital?
As explained below, we believe the answer to these questions is “yes.”
Total Stockholder Return
TSR is one reflection of company performance. Our CEO’s long-term compensation is closely aligned with our TSR performance because over 55% of his target compensation consists of equity awards, and our stock ownership guidelines require a significant holding of equity. However, because TSR can be affected in the short-term by external forces beyond the company’s control, and does not necessarily reflect the operating performance of the company, we believe it is appropriate to closely tie our NEO’s compensation to the performance we seek to achieve, by tying variable cash and equity incentives to short-term and long-term financial and operational goals. The chart below shows our cumulative TSR for the five-year period ending December 31, 2012 compared with our CEO’s total direct compensation for 2008 through 2012. Total direct pay elements suchcompensation includes the following components: salary, actual MICP award, grant date value of annual equity awards and all other compensation, as salary, short-termderived from the Summary Compensation Table (“TDC”).
The SEC’s calculation of total compensation, as shown in the Summary Compensation Table set forth on page 40, includes changes in the value of pensions and nonqualified deferred compensation earnings, which reflect amounts that are driven by accounting and actuarial assumptions, and which are not necessarily reflective of compensation actually realized by the NEOs in a particular year. We believe that TDC provides a more meaningful measurement for assessment.
The five-year cumulative TSR shows the increase or decrease in value of a $100 investment in Hexcel common stock made on January 1, 2008, as of the end of each fiscal year in the five-year period.
MICP Annual Cash Incentive
Our performance measures for 2012 MICP awards incentivized our leaders to achieve improvements in three areas: Adjusted EBIT, Cash from Operating Activities and Adjusted Diluted Earnings per Share, with each component given equal weight. In January 2013 the compensation committee certified the degree of attainment of the 2012 financial measures, which resulted in a payout percentage of 123.4% of the aggregated target awards for all participants in the MICP, as shown in the graph below. We consider this payout appropriate considering that the 2012 performance targets were significantly higher than the actual results achieved for these same performance measures in 2011, which itself was a record-setting year. For 2012 we again achieved results that represent historical highs for the relevant measures. See “Components of Executive Compensation for 2012 – MICP Awards”.
The following GAAP and non-GAAP financial measures were used to measure performance for our 2012 annual cash incentive awards granted under the MICP:
“Cash from Operating Activities” means cash provided by operating activities of continuing operations from the consolidated statement of cash flows, measured from September 30, 2011 to December 31, 2012.
“Adjusted EBIT” means operating income plus the sum of business consolidation and long-term equity incentives,restructuring expense and thereforeother expenses (income) and eligible severance payments.
“Adjusted Diluted Earnings per Share” means the company has minimal perquisites. Additionally, we believe that when executives own a meaningful amountquotient of equity, it creates better alignment with stockholder interests, so we require allAdjusted EBIT minus interest expense minus income taxes, as adjusted, divided by the weighted average number of our NEOs to meet ownership requirements for ourdiluted shares of common stock and we prohibit our NEOs from hedging our stock.outstanding.
Hexcel's Executive Compensation Program
PrincipalPerformance Share Awards
The PSAs awarded in 2010 Compensation Decisions
Although the continuing effects of the global economic and credit crisis began to subside and the economy appeared to enter into a relatively stable phase at the start of 2010, we remained challenged to find appropriate ways to maintain our compensation philosophy in the face of continuing uncertainties affecting the broader economy and our business planning. Our primary focus was to ensure that our long term strategy was sound. We believed that achieving long-term success dependedused Return on retaining the support of knowledgeable employees who remained motivated by long term rewards aligned with stockholder interests. At the same time, we felt that near term results also were important as the company navigated through the uncertainties it faced in the near term, including the lower sales run rate in the second half of 2009. We decided to maintain adjusted EBIT (25%), adjusted net income (25%), and free cash flow (50%) as the financial measures under our Management Incentive Compensation Plan ("MICP") for 2010. Thus we focused management equally on driving profitability and cash generation, and we balanced the possibility of less robust sales growth with the need to
prudently manage cash. Since 2007, we have established five new manufacturing sites in anticipation of the growth in demand for our products based on the penetration of composites into new markets and programs, and aerospace build rate increases expected pre-credit crisis. While these new operations are still necessary to support our projected long term growth, the global economic outlook, coupled with announced delays in the introduction of new airplane programs, and an increasingly uncertain wind energy outlook, all combined to put pressure on sales and earnings projections which influenced our corporate goal setting for 2010.
We also maintained RONCE (defined on page 29) as the cumulative three-year financial measureNet Capital Employed, or “RONCE,” for the 2010-2012purpose of assessing our performance share awards ("PSAs"). We maintainedfor the three-year performance period ending December 31, 2012. RONCE as the measure as it rewards both earnings and the efficient management of the assets of the company. RONCE for these PSAs was defined as the average return for 2010, 2011 and 2012 divided by the average capital employed as of December 31, 2009, 2010, 2011 and 2012, where:
“Return” generally means operating income, adjusted for other expense (income) and including equity in earnings from affiliated companies, and
“Capital employed” generally means stockholder equity plus net debt.
The 2010-2012 PSAs align management with our multi-year strategic business plan; however, the PSAs also provide an opportunity to earn shares in each performance yearvested based on achievingthe greater of the award determined based on RONCE and the average of the relevant three year annual goals. This allows us flexibility to incentivize management to achieve financial goals, subject in the latter case to adjustment based on RONCE performance. The annual goals were the same as those used under the MICP. See below under the heading “Performance Share Awards” for further detail on the terms of the PSAs.
In January 2013, the compensation committee certified that can be set annuallyfor the 2010-2012 performance cycle, we achieved RONCE of 19%, which exceeded the maximum performance level and resulted in response to changing economic conditions (whetherthe maximum award of 200%, as shown in the graph below. This demonstrates that our performance was strong in the long-term as well as in the short-term, as our investments generated a declining or improving economic environment) while maintainingreturn that exceeded our cost of capital by a good margin.
We pay incentive compensation only after the objectivecommittee has certified our performance results for the MICP and PSA payouts. In certifying the results, the committee first performs an independent review of achieving the strategic three-year goal.our financial performance against goals.
The Process for Setting Compensation
The Compensation Committee
The compensation committee of the board of directors operates under a written charter approved by the board and reviewed by the committee annually. The charter provides that the committee is accountable for overseeing, reviewing, and approving our compensation and benefit plans and programs and for defining the goals of our compensation policy. The committee reviews and approves the compensation of the NEOs on an annual basis, including salary, cash incentives and equity grants. The committee'scommittee’s approval of the compensation of our CEO is subject to ratification by our independent directors. The committee also reviews annually the benefit plans applicable to all of our employees, including the NEOs. In addition, the committee periodically reviews our retirement benefits for NEOs.
Compensation Consultant
The committee retains an independent compensation consultant, Semler Brossy Consulting Group, LLC ("(“Semler Brossy"Brossy” or "the consultant"“the consultant”), to assist it in establishing and reviewing executive compensation. The consultant reports directly to the compensation committee and the committee has the sole authority to approve the consultant'sconsultant’s fees and the other terms of engagement. In accordance with NYSE listing standards, the committee assessed the independence of Semler Brossy and determined that it was independent and that its work for the committee has not raised any conflict of interest.
The committee instructs the consultant to provide advice and recommendations to the committee with the objective of creating long-term value for shareholders. Thestockholders through our compensation programs. In providing this advice, the committee instructsasks the consultant to periodically inform the committee of compensation-related developments that may influence the committee'scommittee’s decision-making processes.processes, including changes to regulations. The consultant also is expected to communicate regularly with management to understand the company'scompany’s business environment, talent needs, and compensation considerations (from the perspective of both the committee and management). In addition, in 2010 the committee requested the consultant to conduct a market review of director compensation. Priorprior to committee meetings, the consultant confers with the committee chair regarding the matters to be discussed at the meeting, and confers with management on management presentations to the committee. In the event the consultant disagrees with the appropriateness of a proposal of management, the consultant informs the committee and reviews the areas of disagreement. The consultant has not performed, and does not currently perform, work for management outside the scope of the engagement by the committee. If management requests additional work, the consultant must first obtain the approval of the chair of the committee.
With the recommendation and consent of the committee, our CEO confers with the consultant when developing compensation recommendations for the other NEOs. On behalf of the committee, senior management
periodically confers with the consultant on our executive compensation programs and may request the consultant'sconsultant’s views regarding modifying or adopting new programs or preparing offers of employment to senior executives.
Compensation Risk Oversight
We reviewIn December 2012, the committee conducted its annual risk assessment of our compensation policies and practices and evaluated whether our incentive compensation programs to ensure they dowould encourage undue risk-taking. The committee considered risk-mitigation features, such as maximum award levels, the use of multiple financial measures, multi-year vesting and stock retention requirements, and a clawback policy. As a result of its review, the committee concluded that we have an incentive compensation program that balances pay and performance but does not encouragedrive excessive risk taking.financial risk-taking. We believe that the following ensures thatrisks arising from our compensation motivatespolicies and practices are not reasonably likely to have a material adverse effect on our employees without creating an environment that encourages excessive risk taking:company.
Benchmarking
Each year the committee specifically reviews performance and authorizes the salaries, incentives, and equity grants for the NEOs. In making these determinations, the committee considers prevailing compensation practices of the comparator group as well as general industry survey data.
The Comparator Group
The comparator group is comprised of companies which have attributes that, when viewed as a whole, represent a reasonable comparison to us in a number of relevant respects. In particular, the following criteria are considered in selecting our comparator group:
Industry, such as aerospace, defense and specialty chemicals
Business complexity and international presence
Market for investor capital
Company characteristics such as revenues, numbers of employees, market capitalization and geographic location
Competition for executive and managerial talent
The comparator group is selected by the committee based on recommendations by our consultant with input from management. The peer companies included in the comparator group are reviewed annually, and periodically we conduct a detailed assessment of their continued relevance to the company. As part of the review in 2011, the consultant conducted a screening process to generate a list of potential comparators, which was reviewed by the committee. After review, the committee revised the comparator group to remove Alliant Techsystems, Inc., Goodrich Corporation, and Precision Castparts Corp on the basis that their revenues were significantly greater than the company’s revenues. The committee also removed Perkin Elmer, Inc. from the comparator group as it had sold its aerospace business, as well as Arch Chemicals Inc., which was acquired by a company that was not considered to be appropriate to include in the comparator group based on its size and business. The committee added Albemarle Corporation, Curtiss-Wright Corporation, Moog Inc. and Solutia Inc., each of which were more comparable in size with the company and provided a balance in the comparator group between suppliers to the aerospace and defense market and producers of specialty chemicals.
The comparator group companies considered by the committee in determining NEO compensation for 20102012 were:
AAR Corp. | ||||
Albemarle Corporation | ||||
| Cytec Industries Inc. | ||||
Barnes Group Inc. | Esterline Technologies | |||
BE Aerospace, Inc. | FMC Corporation | Teledyne Technologies Inc. | ||
Cabot Corporation | ||||
Crane Co. | Kaman Corporation |
In establishing appropriate compensation opportunities for NEOs, the committee considers a variety of factors, such as, but not limited to, depth of experience, tenure in position, past performance, internal equity, retention risks, and external benchmarks. We benchmark total pay as well as various components against the comparator group. We target between the median and 75th percentile of the comparator group, taking into account the sizes of the companies. Actual total target pay for each individual NEO falls within the targeted range after adjusting for company size, except for the General Counsel who is positioned slightly above the 75th percentile due to his long tenure with the company and demonstrated value to us. Several NEOs (including the General Counsel) would fall below the comparator group median if we did not consider the sizes of the companies.
General Industry Survey Data
In addition to comparator group data, the committee also reviewed the Towers PerrinWatson General Industry Executive Database ("(“Towers Perrin"Watson”), a large compensation survey of hundreds of companies in various industries, including aerospace, chemicals, automotive and defense. Neither the committee nor the company has any input into the scope of the companies included in the survey. Due to the broad scope of the survey, we size adjust the data based on our revenue for purpose of comparison. While we do notprimarily use the comparator group data to benchmark, againstthe committee uses the Towers PerrinWatson data the committee used the dataas a secondary reference to ensure that the company'scompany’s compensation practices are similar to those in a broader industry index of companies.
Use of Company Performance in our Compensation Programs
We provide the opportunity for both cash and stock incentives based on achievement of individual and company performance measures. Annual cash awards are available under the MICP. PSAs are granted under our 2003 Incentive Stock Plan ("ISP"(“ISP”), our general plan that provides for the granting of various stock-based awards, on an annual basis. The committee,With input from management and the consultant and in consultation with the consultant and senior management, adoptsboard, the committee selects performance measures for earning awardsand goals and determines the relationship between the achievement of performance and the size of the award payable at threshold, target and maximum levels of performance. Consultation with the board and management assists the committee in selecting performance levels. The selected measures and goals that are both achievable and relevantintended to incent high levels of achievement consistent with our overall business objectives for the performance period.
Use of Individual Performance in our Compensation Programs
CEO
At the beginning of eachEach year we establish individual performance objectives for the CEO for the year, and we evaluate the CEO'sCEO’s performance against the objectives for the preceding year. We base the CEO'sCEO’s MICP award opportunity solely on company performance. However, we consider achievement of his individual objectives in deciding whether to exercise negative discretion to reduce his MICP award and in setting his target compensation for the subsequent year. At least twice annually the full board of
directors reviews the CEO'sCEO’s performance, and the presidinglead director then discusses the board'sboard’s assessment with the CEO. This assessment includes a review of overall performance of the company, the degree to which strategic objectives were met, leadership accomplishments, and other factors deemed relevant to the CEO'sCEO’s performance. Semler BrossyThe consultant assists the committee in evaluating competitive CEO compensation data and potential compensation actions that could be taken in light of this performance. Our compensation committee charter requires that all decisions regarding CEO compensation be ratified by our independent directors. The CEO has no role in setting his own compensation. See “NEOs—Direct Compensation and Performance” on page 32 for an explanation regarding the factors that the committee considered in determining the 2012 compensation for Mr. Berges.
Each year the board assesses Mr. Berges'the CEO’s performance and affirmatively considers whether to extend the term of his employment. Mr. Berges'In 2012, the board determined that the CEO’s employment agreement is evergreen for additional one-year periods unless notice is given by us or Mr. Berges of an intention not to extend for an additional year. In 2010, no notice was provided by either party, thereby affirming the extension of the agreementshould be extended until at least to its current expiration date in, July 2012.2014. See “Employment Agreement with Mr. Berges” on page 43 for a description of Mr. Berges employment agreement.
Other NEOs
At the beginning of eachEach year, the CEO establishes individual performance objectives for the other NEOs and evaluates their performance against the objectives for the preceding year.year with additional input from the board. MICP award opportunities for the other NEOs are based 100%solely on company performance, subject to the committee'scommittee’s authority to exercise negative discretion to reduce an NEO'sNEO’s MICP award. The committee receives the CEO'sCEO’s assessment of each NEO'sNEO’s overall performance, criticality to business strategy, career potential, and retention risk. For each NEO, the CEO makes recommendations as to whether to exercise negative discretion regarding the MICP award for the year that just ended and as to compensation for the next year. These recommendations are reviewed by Semler Brossy,with the consultant, who advises the committee on the reasonableness of the recommendations relative to competitive norms. While the committee gives appropriate weight to competitive data and the CEO'sCEO’s recommendations, the committee also exercises its judgment based on the committee'scommittee’s assessment of the performance of the other NEOs. See “NEOs—Direct Compensation and Performance” on page 32 for an explanation regarding the factors that the committee considered in determining the 2012 compensation for each NEO.
Committee'sCommittee’s Use of Tally Sheets
As part of the committee'scommittee’s review of the annual target compensation of the NEOs, the committee reviews "tally sheets"“tally sheets” for each of the NEOs which reflect base salaries, annual bonuses and equity awards plus other forms of compensation such as deferred compensation, retirement benefits, severance paymentshealth insurance, and perquisites under various scenarios. The tally sheets also reflect realized and unrealized amounts from awards of equity incentives. Though the compensation previously earned by the NEOs is not a determinant in setting compensation for subsequent years, the committee does utilize the tally sheet data to understand the impact that compensation actions could have on future payments in retirement, termination, and change in control scenarios.perquisites. With the assistance of the committee'scommittee’s consultant, the committee also uses the tally sheets to provide assurance that our compensation programs and payments upon termination under various scenarios are reasonable and in line with industry practices. In addition to the tally sheets, the committee reviews various termination scenarios for our NEOs.
Components of Executive Compensation for 2010
2012
For 2010,In establishing appropriate compensation opportunities for NEOs, the committee considers a variety of factors, such as, but not limited to, depth of experience, tenure in position, past performance, internal equity, retention risks, and market data. We benchmark total compensation as well as each component of total
compensation against the comparator group. See “The Process for Setting Compensation—Benchmarking” on page 25 of this proxy statement. Pay for the current NEOs is targeted between the median and 75th percentile of the comparator group. This positioning reflects the experience of several of our NEOs as well as their sustained good performance. Actual total target compensation for each individual NEO falls within the targeted range after adjusting for company size.
Applying these factors, the committee determined that 2012 executive compensation consistedwould consist of four primary components—salary, short-term cash incentive, long-term equity awardsincentives and a benefits package. The following chart shows theeach NEO’s salary, target cash incentive under the MICP, and target equity awards in 2012, in each case as a percentage of the NEOsNEO’s salary. For purposes of calculating the percentages in 2010. Thethe chart, the value of aneach equity award is determined
in the same manner used to determine the values appearing in the last column of the grantGrants of plan-based awardsPlan-Based Awards table on page 40.42.
NEO | Salary | Target Cash Incentive as Percentage of Salary | Target Equity Awards as Percentage of Salary | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Berges | $ | 923,113 | 100 | % | 250 | % | ||||
Stanage | $ | 535,000 | 75 | % | 150 | % | ||||
Pensky | $ | 375,921 | 65 | % | 160 | % | ||||
Krakower | $ | 349,408 | 65 | % | 140 | % | ||||
Hennemuth | $ | 326,845 | 55 | % | 130 | % | ||||
NEO | Salary | Target MICP Award as Percentage of Salary | Target Equity Awards as Percentage of Salary | |||||||||
David E. Berges | $975,000 | 100% | 250% | |||||||||
Nick L. Stanage | $572,985 | 75% | 170% | |||||||||
Wayne C. Pensky | $414,415 | 65% | 165% | |||||||||
Ira J. Krakower | $370,687 | 65% | 140% | |||||||||
Robert G. Hennemuth | $348,097 | 55% | 130% | |||||||||
Salary
The committee sets salaries for NEOs usingIn accordance with the comparative datamethodology described above, under "Benchmarking" as a guide and targets between the median and 75th percentile of the comparator group, taking into account size, but is also influenced by other factors. These include job responsibilities, internal equity among the NEOs, individual performance, retention risk, and experience. The committee also considered the 2009 accomplishments of the NEOs in setting their 2010 compensation packages, including salary.
Based on the foregoing, Mr. Berges'Berges’ salary was increased from $905,013$950,000 in 20092011 to $923,113$975,000 in 2010,2012, an increase of 2.0%2.63%. In January 2010,2012, Mr. Berges presented the committee his recommendations regarding salary increases for our other NEOs. TheBased on Mr. Berges’ assessment of their performance and the other factors described in this section which the committee approveddeemed relevant, salary increases for the other NEOs were approved as follows: Mr. Stanage, 5.0%; Mr. Pensky, 2.0%6.0%; Mr. Krakower, 2.4%3.0%; and Mr. Hennemuth, 2.0%3.0%. Mr. Stanage began employment with us on November 9, 2009. His salary was the salary set forth in his employment and severance agreement, which is described on page 41 of this proxy statement.
Annual Cash IncentiveMICP Awards
The MICP is a shareholder-approvedstockholder-approved plan that provides an annual cash incentive opportunity to select key employees including the NEOs. The MICP aligns employees' incentives with our financial goals for the current year. The cash incentive awards paid for 20102012 appear in the Summary Compensation Table under the "Non-equity“Non-Equity Incentive Plan Compensation"Compensation” column. Under the plan, competitively-based cash incentive target amounts, expressed as a percentage of salary, are established for participants at the beginning of each year by the committee.
In December 2011, the committee established 2012 performance measures for all participants in the MICP including our NEOs (there were 185 participants overall). The maximum award for each performance measure was 200% of the target award for that measure. The maximum consolidated award was 200% of the weighted average of the awards determined for each performance measure. Nothing is paid in respect of a performance measure if the threshold level for that measure is not attained. Cash incentive awards paid to NEOs for 20102012 were determined exclusively based on the degree of attainment of these predetermined objective financial performance measures.
For 2012, performance was measured against three metrics: Adjusted EBIT, Cash from Operating Activities and Adjusted Diluted Earnings per Share, with each component given equal weight. This represented a change from our MICP approach in 2011 where we included Free Cash Flow rather than Cash from Operating Activities. We made this change because we recognized that, in 2012, we expected to continue our significant capital expenditure programs in connection with our anticipated long-term requirements under customer contracts. Capital expenditures have a significant impact on Free Cash Flow, but because our capital expenditures
are closely tied with projected aircraft program build rates and often involve long lead times, actions taken during the annual performance period for the MICP have a limited effect on capital expenditures during that same period. Cash from operating activities measures achievements in cash management before the impact of capital expenditures, thereby aligning short-term incentives for plan participants more closely with measures over which they may exercise influence or control.
The MICP provides for "qualifiedthe grant of “qualified awards,"” which are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code (the "Code"“Code”), and for "non-qualified"the grant of “non-qualified” awards, thatwhich are not qualifiedintended to qualify as “performance based compensation” under Section 162(m). See below under the heading “The Impact of Tax Regulations on our Executive Compensation—Deductibility of Compensation—Section 162(m)” for details on the impact of Section 162(m). At the end of the performance period, the committee has discretion to adjust a qualified award downward, but not upward, from the objectively determined level of attainment of the performance measure. Non-qualified awards can be adjusted upward or downward. The MICP givesIn 2012, the committee the authority to make appropriate adjustmentsdid not exercise negative discretion in allmaking MCIP awards. The NEOs received only qualified awards to reflectin 2012.
After review, the impact of unusual, non-recurring or extraordinary income or expense not reflected in the performance measures at the time they are set.
Cash Incentive Award Targets
In approving cash incentive award target amounts for our CEO, the committee concluded that these award opportunities were competitive with the CEO's peers in the comparator group. For each of the other NEOs, the committee considered some or all of the following factors: competitive data in relation to the comparator group, the accomplishments of each NEO in 2010, internal equity among the NEOs based on the CEO's assessment of performance and the importance of each NEO's position
to our strategic goals, and tenure in position. The committee did not increase the target MICP award (expressed as percentage of salary) of any NEO from 20092011 to 2010.2012.
Company Performance Measures
In December 2009 the committee established company performance measures for all participants in the MICP including our NEOs (there were 161 participants overall). Under the 2010 plan, the maximum payout for each performance measure was 250% of the weighted percentage target award for that measure, but in no case could the consolidated award exceed 200% of the target award in total. The 2010 objective performance thresholds, targets, maximums, and actual performance were:
Measure | Weighted Percentage | Threshold Level(4) | 2010 Target | 2010 Actual | Maximum Level(5) | Rationale for Measure | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | ($Millions) | | |||||||||||||||
Free Cash Flow(1) | 50 | % | $ | 0 | $ | 36.0 | $ | 93.7 | $ | 86.0 | Rewards tight inventory management, favorable payment terms, timely collections, prudent capital spending, and effective cost control. | ||||||
Adjusted EBIT(2) | 25 | % | $ | 62.3 | $ | 100.0 | $ | 133.3 | $ | 125.0 | Earnings are the primary measure used by investors to gauge performance. | ||||||
Adjusted Net Income(3) | 25 | % | $ | 22.9 | $ | 49.3 | $ | 77.5 | $ | 66.8 | |||||||
In setting the objective performance targets we considered the company's target performance under the 2010 business plan reviewed by the board and the scaling of potential awards at different achievement levels of free cash flow, adjusted EBIT and adjusted net income.
Cash Incentives Awarded for 2010
After performing appropriate due diligence, in January 2011 the committee certified the degree of attainment of the financial measures using the MICP chart above. Our adjusted EBIT for 2010 was $133.3 million, an increase of $22.1 million from 2009, which resulted in an award payout of 62.5% of target award based on adjusted EBIT. Our adjusted net income for 2010 was $77.5 million, an increase of $15.6 million from 2009, which resulted in a 62.5% of target award payout based on adjusted net income. Our free cash flow for the period September 30, 2009 to December 31, 2010 was $93.7 million, $15.7 million higher than the similar measurement period ending December 31, 2009, which resulted in an award payout of 125.0% of target award based on cash flow. This resulted in a combined payout percentage of 200% for all MICP participants, including each NEO, which was the maximum payout permitted under the plan and reflected the significant increase in performance as compared with 2009.
Equity Awards
We make annual awards of equity incentives to participants in the ISP. In 2010 there were 210 participants in the ISP. On occasion we make unique individual awards when special recognition is warranted. In 2010, we used three forms of equity incentives granted to the NEOs under the ISP: NQOs, RSUs and PSAs. In its meeting in January 2010, the committee approved the dollar value of
each NEO's aggregate equity award for 2010 as a percentage of the NEO's salary for 2010, and approved the forms in which the awards would be granted: 50% of total award value in NQOs, and 25% of total award value in each of RSUs and PSAs. This mix of awards was intended to provide our most senior executives with performance-based incentives for delivering results in a challenging business environment.
Valuation
On February 1, 2010 (the grant date for such awards as determined in accordance with our equity award policy), the dollar values were converted into a number of NQOs, RSUs and PSAs based on the valuation methodology used by us to determine accounting expense for the fair value of the awards under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718. The RSUs and PSAs were valued, for each share they represented, at the closing price of our common stock on the NYSE on February 1, 2010 ($10.90). The NQOs awarded to NEOs were valued at $5.1993 for each share based on a Black-Scholes value determined as 47.7% of the closing price of a share. The committee reviewed a variety of factors to determine if our long-term target incentive percentages for our NEOs were competitive with our peers and appropriate with respect to our shareholders.
These equityEquity incentives foster the long-term perspective necessary for continued success in our business. They also align the interests of our NEOs with shareholderstockholder value and are an important element of our goal to be competitive with peer companies.
Equity Award Policy
We make annual awards of equity incentives to NEOs pursuant to the ISP. On occasion we make unique individual awards to NEOs when special recognition is warranted, although no special awards were granted in 2012. Under our equity award policy:
Equity awards may only be authorized by the board, the compensation committee, or by an equity grant committee specifically authorized by the board or the compensation committee.
The compensation committee has the discretion to authorize grants outside the policy when circumstances warrant.
The per share exercise price of a stock option shall not be less than the closing price of a share of our common stock on the NYSE on the date of grant.
We chosechoose to value equity grants and to set the exercise price of an NQO on the third trading day after we next release earnings following a grant authorization to allow the public market an opportunity to digest our most recent financial results and establish the fair market value of a share of our common stock on the date of grant.
In 2012, we used three forms of equity incentives granted to the NEOs under the ISP: NQOs, RSUs and PSAs. At its meeting in January 2012, the committee approved the dollar value of each NEO’s aggregate equity award for 2012 as a percentage of the NEO’s salary for 2012, and approved the forms in which the awards would be granted: 50% of total grant date award value in NQOs, and 25% of total grant date award value in each of RSUs and PSAs. The committee reviewed a variety of factors to determine if our long-term incentive percentages for our NEOs were competitive with those of our peers and appropriate in light of our compensation philosophies. The mix of types of awards was intended to provide our most senior executives with performance based incentives for delivering results in a challenging business environment.
Valuation
On January 30, 2012 (the grant date for such awards as determined in accordance with our equity award policy), the dollar values were converted into a number of NQOs, RSUs and PSAs based on the valuation methodology used by us to determine accounting expense for the fair value of the awards under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The RSUs and PSAs were valued, for each share they represented, at the closing price of our common stock on the NYSE on January 30, 2012 ($25.03). The value of PSAs was not discounted to reflect the degree of difficulty of attaining the applicable performance goals. The NQOs awarded to NEOs were valued at $10.46 for each share based on a Black-Scholes value determined as 41.8% of the closing price of a share.
Stock Options
NQOs have an exercise price equal to the closing price of our common stock on the NYSE on the grant date, and typically have a term of ten years and vest ratably over three years. Because financial gain from NQOs is only possible afterif the price of our common stock has increased,increases during the term of the NQO, we believe grants encourage NEOs and other employees to focus on behaviors and initiatives that should lead to a longer-term increase in the price of our common stock, which aligns the interests of our NEOs and employees with those of our shareholders.stockholders.
Restricted Stock Units
RSUs represent units that generally vest and convert into shares of our common stock on a one-to-one basis ratably over three years or at some other schedule of vesting.years. Because RSUs are valued at the closing price of common stock on the date of grant, a grant of equity award value in the form of RSUs results in the issuance of fewer shares and less dilution than would result from providing the same value in the form of NQOs. RSUs are also an important vehicle to assist newly hired or promoted NEOs to achieve their ownership guidelines.
Performance Share Awards
PSAs provide an opportunity to receive a number of shares of our common stock based upon achievement of a measure of our performance over a multi-year period. There is a threshold, target and maximum number of shares that can be earned over the performance period. The maximum number of shares that can be earned is 200% of target. PSA grants encourage NEOs and other employees to focus on improved longer termlong-term financial performance and increases in the price of our common stock.
For performance periods prior to 2011, we used RONCE to assess our performance. Starting with the PSAs awarded in 2011, we began using Return on Invested Capital, or “ROIC,” to measure our long-term success. The use of RONCE and ROIC aligns management incentives with our multi-year strategic business plan, including achieving a return greater than our cost of capital, incentivizing the efficient utilization of our net assets and motivating employees to adopt strategies to improve the return that we earn on our capital employed, but ROIC measures such performance on an after-tax basis, which is more consistent with the way investors evaluate our performance.
2010-20122012-2014 PSAs
Our PSA program has a 3-year performance period. TheFor the 2012-2014 PSAs, the number of shares awarded at the end of the three-year period is the greater of (i) the shares earned based on achievement of three-year RONCEROIC or (ii) the sum of the shares earned based on achievement of separate performance measures for each of the three years in the performance period. We structured our PSA awards in this way in response to the very volatile financial and business environment that made three-year projections quite challenging beginning in 2009, and to ensure that the incentive provided by the PSA awards would adjust to reflect the annual assessments of appropriate performance targets. However, if the
threshold performance level for three-year RONCEROIC is not met, then the amount of any shares earned based on yearly achievement will be reduced by 40% and if the threshold performance level is met but the target performance level for three-year ROIC is not achieved, then the amount of any shares so earned will be reduced by 25%. The yearly performance measures, and the threshold, target and maximum levels of payout, as well as all other terms for determining the annual earned share amounts for each year under the PSA program, will beare the same as those adopted under the MICP for the corresponding year.years during the performance period.
For our 2010 PSA program, RONCEROIC is defined as the average return for 2010, 20112012, 2013 and 20122014 divided by the average invested capital employed as of December 31, 2009, 2010, 2011, 2012, 2013 and 2012,2014, where:
“Return” generally means operating income, adjusted for other operating expense (income), taxes and
“Invested capital” generally means shareholderstockholder equity plus nettotal debt.
The following chart indicates the awards payable for 2010-2012,2012-2014, as a percentage of target awards, at various levels of attained RONCE:ROIC:
2010-20122012-2014 PSAPayout Schedule
The structure
As described on page 23 of the 2010-2012 PSAs requires a threshold level of performance before any payout is earned. As the chart shows, depending on achievement there are threshold (50% of target award), target (100% target award) and maximum (200% of target award) award levels.
As indicated previously in this proxy statement, the payout under our MICP for 20102012 was 200%123.4% of the target MICP award,award; therefore, the number of shares that have been provisionally earned so far for each participant under the 2010-20122012-2014 PSA program—based on our performance in the year 2010—2012—is equal to two-thirds41.1% of the three-year target amount of shares. This result is obtained by taking one-third of the three-year target award under the PSA program and multiplying it by 200%123.4%. However, the final 2010-20122012-2014 PSA award will not be determined until the end of the performance period. If we failperiod and is subject to meet the threshold level for the three-year RONCE achievement, then the totalpotential reductions of the provisionally earned shares based on annual achievements for 2010-2012 will decrease by 25%. or 40% as described above. In no event can the award of PSA shares exceed 200% of target award.
Under the PSAs, upon termination of employment due to death, disability or retirement, or upon termination of the employee without cause or, in the case of our NEOs, by the executive for good reason, the employee is entitled to receive a pro-rata portion, based on time employed during the performance period, of the earned award.
The committee adopted RONCE as the performance measure for the 2010-2012 PSAs for various reasons including:
RONCEROIC target levels were established by the committee in late 20092011 based on the business plan for 2010-2012.2012-2014 The target levels chosen were challenging, yet attainable, giving consideration to:
Our planned capital investments in new manufacturing plants and capacity during the period.
Our objective of achieving an adequate return on capital given the current uncertain and challenging economic and business environment.
Our objective of tightly controlling working capital, including better management of inventory levels.levels
NEOs—Direct Compensation and Performance
The committee considered the following factors, among others, in determining the 20102012 compensation of each of our NEOs:
David E. Berges, Chairman and Chief Executive Officer
Mr. Berges'Berges’ leadership in the development of ourformulating a sustainable, long-term business strategies for the aerospacestrategy and wind energy markets, adherencemanaging its successful implementation. In 2012 he made important contributions to good governance practices,expanding our global shareholder base, extending long-term contracts with major customers, building customer relationships and successfulpromoting new research and technology initiatives. In addition he advanced our management of investor relations. Under his guidance, the company managed to successfully absorb the impact of the credit crisis that swept overdevelopment programs with particular emphasis on our markets in 2009, delivering exceptional cash flownew Early Career Program, Hexcel Academy, and maintaining double digit operating income margins. Mr. Berges continued to lead the company's organizational development and was instrumental in successfully recruiting new key senior executives.succession planning.
Nick L. Stanage, President and Chief Operating Officer
Mr. Stanage’s significant role in leading our continued growth in revenues through new product introductions and technological advancements, and the associated capital expansions and human capital acquisitions required to support the growth, as well as his role in advancing the continued refinement of the company’s integrated sales, inventory and operations processes. Mr. Stanage began employmentplayed an important role in helping us to reach long-term agreements with us November 9, 2009. His 2010 compensation was based on his employment agreement, as described under "Employmentkey customer and Severance Agreement withsuppliers. In addition, Mr. Stanage" in this proxy statement.Stanage oversaw the development of the company’s strategic planning and business development processes and more robust market assessments for both aerospace and industrial applications.
Wayne C. Pensky, Senior Vice President and Chief Financial Officer
Mr. Pensky'sPensky’s successful developmentimplementation of accounting, financeborrowing (including refinancing the company’s credit facilities), cash management and tax staff whichstrategies that resulted in substantially decreased interest expense and provided significant improvement in the timelinesstax savings and benefits, his leadership of our financial reporting efforts as the company met or accelerated its internal and external reporting deadlines without experiencing any significant deficiencies with respect to internal controls, and Mr. Pensky’s management of the implementation of various tax strategies which resulted,finance function to change with the organization and will continuemanage costs and operating performance to result, in substantial tax savings and benefits, the refinancing of our credit facility in a difficult borrowing environment, his assistance in cost cutting and improved working capital management as sales declined, and the increased contact and visibility with analysts and investors.help achieve record profitability.
Ira J. Krakower, Senior Vice President, General Counsel, and Secretary
Mr. Krakower'sKrakower’s effective management of the legal, environmental and export functions that report into his position, the successful defense and settlement of several litigation matters, the negotiation of agreements for protection of the company'scompany’s intellectual property and customer contracts, establishment of litigation strategies, guidance to the board and management on matters of governance.governance, as well as overseeing the adoption and implementation of the company’s compliance policies pertaining to ethical conduct of business.
Robert G. Hennemuth, Senior Vice President of Human Resources
Mr. Hennemuth's successful recruitmentHennemuth’s leadership of individuals to fill key executive and operational positions, improvedthe company’s succession planning activities, including development and diversity at multiple organizational levels, and the developmentdelivery of new leadershipcareer development activitiesprograms for key executives coupled with the recruitment and programs.on boarding of new executives, continued strengthening and refinement of recruitment processes globally, and improvement of the compensation and incentive structures and programs to better link pay with performance at all levels of the company.
Our employees are offered participation in a variety of retirement, health and welfare, and paid time-off benefit plans which promote employee well-being and retention. Our NEOs may participate in these plans to the same extent as our other employees. These plans may be subject to tax and regulatory restrictions that may limit benefits payable under the plan or impose adverse consequences if benefits are paid based on compensation above certain levels.
Qualified 401(k) Plan
Our qualified 401(k) Plan allows substantially all US employees to contribute up to 75% percent of their cash compensation. The plan further provides:
that employee contributions and earnings thereon are 100% vested at all times
for a 50% company match on employee contributions, up a maximum of 6% of total cash compensation
for a discretionary profit sharing contribution into the plan annually as determined by the compensation committee
for a fixed contribution of an additional 2% of each employee'semployee’s cash compensation each year, or 4% for employees who were 45 years of age on or before December 31, 2000 and employed by us as of such date
for all matching, discretionary and fixed contributions and earnings to vest at the rate of 20% for each year of service with us—meaning that all contributions are fully vested after five years
One of the investment options in the 401(k) plan is a Hexcel stock fund. Senior executives, including all the NEOs, are not permitted to invest in this fund. Other employees may only invest company contributions, and not their own contributions and earnings, in the Hexcel stock fund.
Amounts contributed by the company to the 401(k) Plan on behalf of the NEOs are included in “All Other Compensation” in the Summary Compensation Table on page 40.
Nonqualified Deferred Compensation Plan
Our NEOs are eligible to participate in the nonqualified deferred compensation plan (“NDCP”). The NDCP is an unfunded plan that permits a select number of highly compensated employees to defer a percentage of their pay and receive Hexcel matching and profit sharing contributions above the IRS limits permitted under our qualified 401(k) plan. Terms of the plan are as follows:
participants can defer any amount of their cash compensation (salary and cash incentive award) on a pre-tax basis
all of our matching contributions are made on the same 50% basis as described above with respect to the qualified 401(k) plan, but only with respect to the participant’s deferrals under the NDCP up to 6% of their compensation in excess of the compensation taken into account for purposes of determining contributions to the qualified 401(k) plan
all of our other contributions—discretionary profit-sharing, and fixed weekly contributions—are made on the same basis as described above with respect to the qualified 401(k) plan, but only with respect to the amount of the participant’s compensation in excess of the amount used for purposes of determining contributions to the qualified 401(k) plan
employee and company contributions are 100% vested at all times
the investment options generally mirror those available in our qualified 401(k) plan, except that the Hexcel stock fund is not an option
distributions are in a lump sum or in a series of monthly, quarterly or annual installments after termination of service, as elected by the employee
in-service distributions are generally prohibited except in the case of an unforeseeable emergency
loans from the NDCP are prohibited.
See “Nonqualified Deferred Compensation in Fiscal Year 2012” on page 49 for details on our NEO’s participation in the NDCP.
Supplemental Benefits
Our NEOs receive the following supplemental benefits:
We have entered into the following supplemental retirement agreements with our NEOs, which are described on page 4546 under "Pension“Pension Benefits in Fiscal 2010"Year 2012”:
supplemental executive retirement agreements ("SERPs"(“SERPs”) with Messrs. Berges, Stanage and Krakower
executive deferred compensation arrangements ("EDCAs"(“EDCAs”) with Messrs. Pensky and Hennemuth
The committee periodically reviews these supplemental retirement benefits and would specifically review the competitive aspect of this type of benefit upon a future NEO hire.
For Mr. Berges we provide a death benefit while he is employed by us equal to two times the sum of (i) his salary on the date of death and (ii) the average of the annual cash incentiveMICP awards in the two years prior to death, up to a maximum of $1,500,000. For Messrs. Stanage, Pensky, Krakower and Hennemuth, we provide a death benefit for each of them so long as they continue to be employed by us equal to two times the sum of (i) salary on the date of death and (ii) the average of the annual cash incentiveMICP awards paid in the three years prior to death, up to a maximum of $1,500,000 for Mr. Stanage.
Neither Mr. Berges nor Mr. Stanage participates in our annual perquisites program. For each of Messrs. Pensky, Krakower and Hennemuth, our perquisites program provides for an annual car allowance of $12,000, and an additional annual allowance of $10,600 (for Messrs. Pensky and Krakower), and $5,600 (for Mr. Hennemuth). These amounts have not increased since 2000. The additional allowance may be used for:
reimbursement of club membership dues
expenses incurred for financial counseling and tax preparation
premiums for supplemental life and health insurance beyond the standard life and health insurance available to our executives
We paid Mr. Stanage certain relocation benefits as part of his employment and severance agreement that he entered into with us when he commenced employment in November 2009. See page 41 for a description of Mr. Stanage's employment and severance agreement.
We believe that the perquisites we offer to our NEOs are reasonable in amount and are market competitive. The committee reviews our perquisites program annually.
Under the company's stock ownership guidelines:
The guidelines provide that shares or vested RSUs held by a parent, child, or grandchild of the executive or director, or by a trust or other entity established for any such family members, will count toward reaching the guideline dollar value so long as the executive or director retains the power to dispose of the shares. The compensation committee believes that the purpose of aligning the interests of directors and executives with those of stockholders through stock ownership is still served when shares are held by immediate family members or trusts or other entities for their benefit. This also removes a disincentive to transfer shares to family trusts in order to facilitate estate planning.
Underreceiving these guidelines, Messrs. Berges, Pensky and Krakower are in compliance with the policy. Messrs. Stanage and Hennemuth, each of whom have served as an executive officer for a shorter tenure, have not yet acquired shares with the requisite target value. All directors are in compliance with the policy. We monitor compliance with the guidelines by all NEOs and directors on a quarterly basis.
Employees and directors are not permitted to "sell short" Hexcel stock or to otherwise hedge their economic exposure to the Hexcel stock they own.
Potential Impact on Compensation from Executive Misconduct
If the board or an appropriate committee of the board has determined that an officer has engaged in fraudulent or intentional misconduct, we are authorized to take action to remedy the misconduct, prevent its recurrence, and impose appropriate discipline on the individual who engaged in the misconduct. Discipline would vary depending on the facts and circumstances, and may include:
performance-based or incentive compensation paid or delivered, or of any gains realized from the sale of stock from equity awards, which is greater than would have been awarded, paid or delivered to, or realized by, the officer, if calculated based on the accurate reporting of financial results. The officer will be subject to such cancellation and recoupment within the eighteen full month period following the date on which the payment or award based on the inaccurate calculation has been made or delivered, including any portion of such period occurring after the executive's employment has terminated for any reason.
These remedies are in addition to any other remedies available to us or imposed by law enforcement agencies, regulators or other authorities.
The Impact of Tax Regulations on our Executive Compensation
Deductibility of Compensation—Section 162(m)
Under Section 162(m) of the Code there is a $1.0 million annual limit on the deductibility of nonperformance-based compensation paid to certain NEOs. Section 162(m) contains a number of requirements to qualify an award for deductibility, including the adoption of a plan containing performance criteria approved by stockholders, the authorizing of awards by a committee consisting solely of "outside directors," the certification of performance results and other requirements. We consider deductibility as one factor along with others that are relevant in setting compensation. The ISP is a qualified plan, and NQOs and PSAs issued under the ISP generally qualify for deductibility. As noted on page 28, we also grant RSUs without any performance requirement as one of the mechanisms we employ to foster retention of key employees. The MICP is a qualified performance-based plan, and provides for performance-based qualified awards and non-qualified awards. Under Internal Revenue rulings, if the terms of performance-based compensation would, under certain circumstances, allow payment to be made without regard to whether performance goals are met, the compensation would not qualify as performance-based under Section 162(m) even if performance goals were met. Generally our performance-based compensation is payable only if performance is attained; however, we do provide for certain payments upon a change in control irrespective of whether performance goals are attained, and those payments would be disqualified under Section 162(m).
We were able to deduct all expense associated with the compensation paid to our NEOs in 2010 except for $635,655 associated with compensation to Mr. Berges and $235,962 associated with compensation to Mr. Stanage. For Mr. Berges, the nonperformance-based compensation consisted of salary and the taxable value of shares received from prior grants of RSUs that converted into shares in 2010. For Mr. Stanage, the nonperformance-based compensation consisted of salary, the taxable value of shares received from a prior grant of RSUs that converted into shares in 2010, and amounts paid for his relocation, as described on page 42 under "Employment and Severance Agreement with Mr. Stanage."
Deferred Compensation Rules—Section 409A
Section 409A limits the timing of deferral elections, the range of permissible payment events, and the ability to accelerate payments under nonqualified deferred compensation plans, and imposes certain additional taxes and penalties on participants if the plan fails to comply. It is our intention that our deferred compensation plans and arrangements comply with Section 409A.perquisites.
Severance and Change in Control Arrangements
As described on pages 49-56 of this proxy statement, weWe provide certain payments, benefits or enhancements to our NEOs as a result of certain terminations of employment or upon a change in control. In addition, as described on pages 51-53, we accelerate vesting of many of our equity grants upon certain terminations or upon a change in control. We also provide a modified gross-up for excise
taxes incurred by our NEOs on "excess parachute payments" under 280G of the Code. With respectThese benefits are designed to Mr. Stanage, the modified gross-up applies only with respect to a change in control that occurs on or before November 9, 2014.
These severance and change in control benefits enhance our ability to attract and
retain executives as we compete for talented individuals in a competitive marketplace. The principal benefits are the following, which are more fully described on pages 50 to 55.
Severance Benefits Upon Termination of Employment
In providing forWe provide payments and enhancements upon termination of employment of the NEO by us without cause or by the NEO for good reason, other than in connection with a change in control,reason. We believe the compensation committee attempted to provide a level of benefits that is both reasonable and competitive, and took into consideration the likelihood that it will take more time for an executive-level employee to find comparable new employment.competitive.
The committee approved the enhanced benefits for our NEOs under their SERP and executive severance agreements following a termination in connection with a change in control in order to motivate executives to consider corporate transactions that are in the best interests of the company and its shareholders without undue concern over the impact of the transaction on the NEO's personal situation.
Single-Trigger Equity Vesting
In adopting a "single-trigger"We utilize “single-trigger” vesting for vesting equity awards—which means the equity awards vest upon a change in control regardless of whether the NEO's employment is terminated—control. In adopting this approach, the compensation committee considered the following:
a single trigger on equity vesting can be an especially powerful retention device for senior executives during change in control discussions, as equity represents a significant portion of total compensation
the desire to provide NEOs with the same opportunity as shareholdersstockholders have to realize value at the time of a change in control, consistent with the intended alignment of NEO'sNEO’s interests to those of shareholders
the fact that the company may no longer exist after a change in control, or performance measures may become misaligned with strategies formulated by new management or a new board
Modified Gross-Up
With respect toWe provide the NEOs with a modified gross-up for excise taxes incurred on "excess“excess parachute payments,"” because we believe that it serves to support the general principle of preserving the benefits intended to be delivered to the NEO and removing personal interests from decisions that enhance stockholder value. The effects of Section 280G and Section 4999 of the Code are unpredictable and can have widely divergent and unexpected effects based on an NEO'sNEO’s personal compensation history. As indicated in the table on page 55, if a change in control and termination of employment occurred on December 31, 2010, Messrs.2012, Mr. Stanage and Hennemuth areis the only NEOsNEO who would have received a gross-up payment. Mr. Stanage’s 280G benefit expires for any change in control occurring after November 9, 2014.
Generally, under the modified gross-up provided by the company, an NEO will be entitled to receive a gross-up payment for any excise tax incurred under Section 280G and Section 4999, but only if the total “parachute payments” exceed such NEO’s safe harbor amount (the amount to which the NEO’s change in control payments would need to be reduced in order to avoid the imposition of the excise tax) by 10% or more. We have agreed to reimburse the NEOs for the excise tax as well as any income tax and excise tax payable by the NEO as a result of any reimbursements for the excise tax. If the NEO’s total “parachute payments” are less than 10% over the safe harbor amount, such NEO’s change in control payments will be reduced by an amount necessary to avoid the imposition of the excise tax.
The committee periodically reviews these benefits and would specifically review the competitive aspect of any of these types of benefits upon a future NEO hire. See pages 50-5250-53 for a description of post-termination obligations imposed on someour NEOs.
We believe that when executives own a meaningful amount of equity, it creates better alignment with stockholder interests, so we require all of our NEOs and directors to meet specified ownership guidelines for our common stock. Under the company’s stock ownership guidelines:
the executive or director is required to reach the target dollar value through ownership of shares of unrestricted common stock and to retain those shares until termination of service;
unvested awards do not count as shares owned, only shares received upon conversion or exercise of awards count as shares owned
the target dollar value is as follows:
CEO | 5x Salary | |
NEOs other than CEO | 2x Salary | |
Directors | 3x Annual Cash Retainer Fee |
until the target dollar value has been reached, an executive must retain 50%, and a director must retain 100%, of all “net” shares received under any company equity compensation program
“net” shares means all shares remaining after the sale by the executive or director, or the withholding by us of shares to pay the exercise price (in the case of options), and any taxes due in respect of the shares received
testing for compliance is done on the last day of each fiscal quarter
once the executive or director holds the target dollar value as of a testing date, he is deemed to be in compliance with the policy so long as he continues to hold at least the number of shares he held as of that testing date
The guidelines provide that shares held by a parent, child, or grandchild of the executive or director, or by a trust or other entity established for any such family members, will count toward reaching the guideline dollar value so long as the executive or director retains the power to dispose of the shares. The compensation committee believes that the purpose of aligning the interests of directors and executives with those of stockholders through stock ownership is still served when shares are held by immediate family members or trusts or other entities for their benefit. This also removes a disincentive to transfer shares to family trusts in order to facilitate estate planning.
Under these guidelines, all of our directors and NEOs are in compliance with the policy. We monitor compliance with the guidelines by all NEOs and directors on a quarterly basis.
Employees and directors are not permitted to “sell short” Hexcel stock or to otherwise hedge their economic exposure to the Hexcel stock they own. None of our directors or NEOs has pledged any of Hexcel’s stock as security.
Potential Impact on Compensation from Executive Misconduct
If the board or an appropriate committee of the board has determined that an officer has engaged in fraudulent or intentional misconduct, we are authorized to take action to remedy the misconduct, prevent its recurrence, and impose appropriate discipline on the individual who engaged in the misconduct. Discipline would vary depending on the facts and circumstances, and may include:
termination of employment
initiating an action for breach of fiduciary duty
if the misconduct resulted in inaccurate reporting of our financial results, seeking cancellation of that number of outstanding equity awards, and recoupment (net of tax) of that portion of any performance-based or incentive compensation paid or delivered, or of any gains realized from the sale of stock from equity awards, which is greater than would have been awarded, paid or delivered
to, or realized by, the officer, if calculated based on the accurate reporting of financial results. The officer will be subject to such cancellation and recoupment within the eighteen month period following the date on which the payment or award based on the inaccurate calculation has been made or delivered, including any portion of such period occurring after the executive’s employment has terminated for any reason. |
These remedies are in addition to any other remedies available to us or imposed by law enforcement agencies, regulators or other authorities.
In addition to the remedies above, our equity grants to NEOs also include a clawback provision in the event the NEO violates certain obligations to the company, including confidentiality, non-competition and non-solicitation of employees.
The Impact of Tax Regulations on our Executive Compensation
Deductibility of Compensation—Section 162(m)
Under Section 162(m) of the Code there is a $1.0 million annual limit on the deductibility of compensation paid to certain NEOs, subject to limited exceptions. One exception applies to compensation that meets all of the requirements of “qualified performance-based compensation” under Section 162(m) and the applicable regulations thereunder and compensation that meets all of these requirements will be fully deductible to the company. We consider deductibility as one factor along with others that are relevant in setting compensation. NQOs and PSAs issued under the ISP are intended to qualify for deductibility as performance-based compensation. As noted on page 30, we also grant RSUs without any performance requirement as one of the mechanisms we employ to foster retention of key employees; these RSUs do not meet the requirements of qualified performance-based compensation under Section 162(m). The MICP provides for the grant of both awards that are intended to qualify as performance-based compensation and awards that are not intended to qualify as performance-based compensation. We generally structure annual awards under the MIPC with the intent that they qualify as performance-based compensation under Section 162(m) so that such awards are fully deductible to the company.
We were able to deduct all expense associated with the compensation paid to our NEOs in 2012 except for $1,391,069 associated with compensation to Mr. Berges and $531,996 associated with compensation to Mr. Stanage. For Mr. Berges, the nonperformance-based compensation consisted of salary and the taxable value of shares received from prior grants of RSUs that converted into shares in 2012. For Mr. Stanage, the nonperformance-based compensation consisted of salary and the taxable value of shares received from a prior grant of RSUs that converted into shares in 2012.
Deferred Compensation Rules—Section 409A
Section 409A limits the timing of deferral elections, the range of permissible payment events, and the ability to accelerate payments under nonqualified deferred compensation plans, and imposes certain additional taxes and penalties on participants if the plan fails to comply. It is our intention that our deferred compensation plans and arrangements comply with Section 409A.
Compensation Committee Interlocks and Insider Participation
The following directors were members of the compensation committee during 2010:2012: Joel S. Beckman, Lynn Brubaker, Sandra L. Derickson, Thomas A. Gendron and David L. Pugh. Lynn Brubaker was also a member of the committee from January 1, 2012 to May 3, 2012. None of these directors has been a Hexcelan employee or executive officer of Hexcel at any time. In addition, during 2012, no Hexcel executive officer served on the board of directors or compensation committee of another entity during 2010.a company that had an executive officer that served on our board of directors or compensation committee.
The compensation committee has reviewed the Compensation Discussion and Analysis and discussed it with management. Based on its review and discussions with management, the committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in our 2011this proxy statement and incorporated by reference into our Annual Report on Form 10-K for 2010.the fiscal year ended December 31, 2012. This report is provided by the following independent directors who comprise the committee (Mr. Gendron joined the committee in December 2010):committee:
David L. Pugh (Chair)
Joel S. Beckman
Lynn Brubaker
Sandra L. Derickson
Thomas A. Gendron
EQUITY COMPENSATION PLAN INFORMATION
The following information is provided as of December 31, 2010:2012:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(1) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | (a) | (b) | (c) | |||||||
Equity compensation plans | 5,803,475 | (2) | $ | 10.90 | (3) | 3,376,425 | (4) | |||
Equity compensation plans | 734,022 | (5) | $ | 10.50 | 0 | |||||
Total | 6,537,497 | $ | 10.84 | (3) | 3,376,425 | (4) | ||||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(1) | |||||||||
| (a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 4,982,262(2) | $ | 15.67(3) | 1,170,023(4) | ||||||||
Equity compensation plans not approved by security holders | 0 | N/A | 0 | |||||||||
|
|
|
|
|
| |||||||
Total | 4,982,262 | $ | 15.67(3) | 1,170,023(4) | ||||||||
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| (1) | All numbers in these columns refer to shares of Hexcel common stock. |
| (2) | Includes 3,309,873 shares issuable upon the exercise of NQOs, 789,826 shares issuable upon the vesting and conversion of RSUs, and 980,847 shares issuable as a result of outstanding PSAs. With respect to PSAs for the 2010-2012 performance period, reflects 452,826 shares to be issued, based on the level of attainment of RONCE (the applicable performance measure) during the 2010-2012 period. With respect to the 2011-2013 and 2012-2014 periods, assumes that we will attain the maximum level of RONCE and ROIC, respectively, under the PSAs for each performance period, which would result in the PSAs converting into the maximum number of RSUs in early 2014 and 2015, respectively. |
| (3) | Excludes the RSUs and PSAs referred to in note 2 above because they have no exercise price. |
| (4) | Includes (i) 1,160,993 shares of common stock available for future issuance under the ISP, which shares of common stock could be issued in connection with awards other than options, warrants or rights, (ii) 9,030 shares of common stock subject to options as of December 31, 2012 under, and purchased in January 2013 pursuant to, the terms of the Hexcel Corporation 2009 Employee Stock Purchase Plan or that could after December 31, 2012 become subject to options under, and therefore be purchased under, the terms of the Hexcel Corporation 2009 Employee Stock Purchase Plan. |
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1)(2) | Option Awards ($)(2)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David E. Berges; | 2010 | 923,113 | 1,153,896 | 1,153,891 | 1,846,226 | 3,485,791 | 110,506 | 8,673,423 | ||||||||||||||||||
Chairman and CEO | 2009 | 905,013 | 1,153,891 | 1,153,832 | 1,386,208 | 3,900,944 | 97,271 | 8,597,159 | ||||||||||||||||||
| 2008 | 875,000 | 1,487,496 | 743,752 | 841,313 | 543,434 | 94,499 | 4,585,494 | |||||||||||||||||||
Nick L. Stanage; | 2010 | 535,000 | 401,251 | 401,251 | 802,500 | 320,100 | 399,005 | 2,859,107 | ||||||||||||||||||
President(8) | 2009 | 72,019 | 999,999 | — | 102,432 | 39,203 | 1,852 | 1,215,505 | ||||||||||||||||||
Wayne C. Pensky; | 2010 | 375,921 | 300,731 | 300,738 | 488,697 | 256,245 | 73,248 | 1,795,580 | ||||||||||||||||||
SVP and CFO | 2009 | 368,550 | 294,846 | 294,825 | 366,930 | 358,169 | 74,283 | 1,757,603 | ||||||||||||||||||
| 2008 | 351,000 | 397,796 | 198,902 | 219,366 | 57,460 | 79,829 | 1,304,353 | |||||||||||||||||||
Ira J. Krakower; | 2010 | 349,408 | 244,596 | 244,585 | 454,230 | 719,958 | 54,068 | 2,066,845 | ||||||||||||||||||
SVP; General Counsel; | 2009 | 341,219 | 238,846 | 238,839 | 339,719 | 858,643 | 69,257 | 2,086,523 | ||||||||||||||||||
Secretary | 2008 | 329,680 | 561,062 | 153,867 | 206,042 | 0 | (7) | 71,774 | 1,322,425 | |||||||||||||||||
Robert G. Hennemuth; | 2010 | 326,845 | 212,441 | 212,449 | 359,350 | 169,526 | 36,544 | 1,317,155 | ||||||||||||||||||
SVP—Human Resources | 2009 | 320,436 | 208,278 | 208,272 | 269,947 | 183,208 | 52,104 | 1,242,245 | ||||||||||||||||||
| 2008 | 310,500 | 269,110 | 134,535 | 164,200 | 64,409 | 68,397 | 1,011,151 | |||||||||||||||||||
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1)(2) | Option Awards ($)(2)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(5) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||||||
David E. Berges; | 2012 | 975,000 | 1,218,761 | 1,218,747 | 1,203,150 | 2,648,591 | 181,669 | 7,445,918 | ||||||||||||||||||||||||
Chairman and CEO | 2011 | 950,000 | 1,187,495 | 1,187,525 | 1,686,250 | 3,423,576 | 171,555 | 8,606,400 | ||||||||||||||||||||||||
| 2010 | 923,113 | 1,153,896 | 1,153,891 | 1,846,226 | 3,485,791 | 110,506 | 8,673,423 | |||||||||||||||||||||||||
Nick L. Stanage; | 2012 | 572,985 | 487,034 | 487,039 | 530,298 | 551,880 | 95,617 | 2,724,852 | ||||||||||||||||||||||||
President(8) | 2011 | 545,700 | 436,547 | 436,570 | 726,463 | 382,643 | 81,543 | 2,609,466 | ||||||||||||||||||||||||
| 2010 | 535,000 | 401,251 | 401,251 | 802,500 | 320,100 | 399,005 | 2,859,107 | |||||||||||||||||||||||||
Wayne C. Pensky; | 2012 | 414,415 | 341,910 | 341,896 | 332,402 | 426,367 | 92,575 | 1,949,565 | ||||||||||||||||||||||||
SVP and CFO | 2011 | 390,958 | 322,541 | 322,547 | 451,068 | 277,813 | 112,430 | 1,877,357 | ||||||||||||||||||||||||
| 2010 | 375,921 | 300,731 | 300,738 | 488,697 | 256,245 | 73,248 | 1,795,580 | |||||||||||||||||||||||||
Ira J. Krakower; | 2012 | 370,687 | 259,461 | 259,481 | 297,328 | 366,927 | 89,654 | 1,643,538 | ||||||||||||||||||||||||
SVP; General Counsel; | 2011 | 359,890 | 251,939 | 251,930 | 415,223 | 873,618 | 115,507 | 2,268,107 | ||||||||||||||||||||||||
and Secretary | 2010 | 349,408 | 244,596 | 244,585 | 454,230 | 719,958 | 54,068 | 2,066,845 | ||||||||||||||||||||||||
Robert G. Hennemuth | 2012 | 348,097 | 226,271 | 226,260 | 236,253 | 276,814 | 62,123 | 1,375,819 | ||||||||||||||||||||||||
SVP—Human Resources | 2011 | 337,958 | 219,681 | 219,677 | 329,931 | 187,640 | 69,167 | 1,364,054 | ||||||||||||||||||||||||
| 2010 | 326,845 | 212,441 | 212,449 | 359,350 | 169,526 | 36,544 | 1,317,155 | |||||||||||||||||||||||||
| | 2010 | 2009 | 2008 | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Amount reflected in table above (target) | Maximum amount | Amount reflected in table above (target) | Maximum amount | Amount reflected in table above (target) | Maximum amount | |||||||||||||
David E. Berges | 576,948 | 1,153,896 | 576,946 | 1,153,891 | 743,748 | 1,487,496 | |||||||||||||
Nick L. Stanage | 200,626 | 401,251 | — | — | — | — | |||||||||||||
Wayne C. Pensky | 150,366 | 300,731 | 147,423 | 294,846 | 198,898 | 397,796 | |||||||||||||
Ira J. Krakower | 122,298 | 244,596 | 119,423 | 238,846 | 153,871 | 307,742 | |||||||||||||
Robert G. Hennemuth | 106,221 | 212,441 | 104,139 | 208,278 | 134,555 | 269,110 | |||||||||||||
| (1) | Reflects the aggregate grant date fair value of RSUs and PSAs granted to the NEO during such year, computed in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that will be realized by the NEO. The amount included for each PSA reflects the estimate of aggregate compensation cost to be recognized over the life of the PSA determined as of the grant date under FASB ASC Topic 718, excluding the effect of estimated forfeitures and assuming that the PSA will pay out at target. The value for each PSA at the grant date assuming that the target level of performance will be achieved and alternatively, that the highest level of performance will be achieved, is as follows: |
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Amount included in Stock Awards above (target) | Maximum amount | Amount included in Stock Awards above (target) | Maximum amount | Amount included in Stock Awards above (target) | Maximum amount | |||||||||||||||||||
David E. Berges | 609,380 | 1,218,761 | 593,747 | 1,187,495 | 576,948 | 1,153,896 | ||||||||||||||||||
Nick L. Stanage | 243,517 | 487,034 | 218,274 | 436,547 | 200,626 | 401,251 | ||||||||||||||||||
Wayne C. Pensky | 170,955 | 341,910 | 161,271 | 322,541 | 150,366 | 300,731 | ||||||||||||||||||
Ira J. Krakower | 129,730 | 259,461 | 125,969 | 251,939 | 122,298 | 244,596 | ||||||||||||||||||
Robert G. Hennemuth | 113,136 | 226,271 | 109,841 | 219,681 | 106,221 | 212,441 | ||||||||||||||||||
| (2) | For additional information regarding the assumptions made in calculating these amounts, see Note 11, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012, and Note 11, “Stock-Based Compensation,” to the consolidated financial statements, and the discussion under the heading “Critical Accounting Policies—Share-Based Compensation” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included in our Annual Report on Form 10-K for the year ended December 31, 2009. |
Postretirement Benefit Plans" in Management's Discussion and Analysis of Financial Condition and Results of Operations, each included in our Annual Report on Form 10-K for the year ended December 31, 2010, for a description of these interest rate and mortality assumptions.
| (3) | Reflects the aggregate grant date fair value of all NQOs granted to the NEO during such year, computed in accordance with FASB ASC Topic 718. These amounts do not necessarily correspond to the actual value that will be realized by the NEO. |
| (4) | Reflects amounts earned under the MICP with respect to 2012, 2011 and 2010. Such amounts were paid in 2013, 2012 and 2011, respectively. |
| (5) | For each year, represents the difference between the actuarial present value of the executive’s accumulated benefit under his SERP or EDCA, as applicable, as of December 31 of the current year and December 31 of the prior year. Messrs. Berges, Stanage and Krakower each have a SERP, and Messrs. Pensky and Hennemuth each have an EDCA. The amounts in this column were calculated assuming retirement at age 65, which is the normal retirement age under the relevant pension plans and arrangements (except in the case of Mr. Krakower who is over age 65, therefore we used his current age). The interest rate and mortality assumptions used are consistent with those used in the preparation of our financial statements. See Note 8, “Retirement and Other Postretirement Benefit Plans” to the consolidated financial statements, and the discussion under the heading “Retirement and Other Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included in our Annual Report on Form 10-K for the year ended December 31, 2012, for a description of these interest rate and mortality assumptions. |
The increase in pension value during 2009 for Messrs. Berges, Pensky, Krakower and Hennemuth was much larger than the increase during 2008. This result is due to a substantial decrease in the PBGC interest rate used to calculate a lump sum payment, as well as a decrease in the FAS 87 interest rate. In addition, because SERP benefits are based on a final average pay formula that is based on the highest paid 36 of the last 60 months, a higher than average 2009 cash incentive award contributed to the increase in SERP benefits for Messrs. Berges and Krakower.
The increase in pension value during 20102012 resulted from a further decrease in the ASC 715 interest rate (formerly referred to as FAS 87) used to calculate a lump sum payment. In addition, because SERP benefits are based on a final average pay formula that is based on the highest paid 36 of the last 60 months, a higher than average 20102012 cash incentive award contributed to the increase in the SERP benefits for Messrs. Berges and Krakower. Mr. Stanage's increase was largely due to his participation for a full year in his SERP.
Name | Hexcel Contributions to 401(K) Retirement Savings Plan | Hexcel Contributions to Nonqualified Deferred Compensation Plan | Cash in Lieu of 401(K) Contributions on Earnings Exceeding ERISA Limits | Premiums for Life Insurance in excess of $50,000 | Premiums for Long-Term Disability Insurance | Perquisites Allowance(a) | Other | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David E. Berges | $ | 19,600 | — | $ | 86,601 | $ | 3,741 | $ | 564 | — | — | |||||||||||
Nick L. Stanage | $ | 14,413 | — | $ | 7,849 | $ | 1,806 | $ | 564 | — | $ | 374,374 | (b) | |||||||||
Wayne C. Pensky | $ | 24,500 | $ | 46,378 | — | $ | 1,806 | $ | 564 | $ | 22,600 | — | ||||||||||
Ira J. Krakower | $ | 24,500 | — | $ | 27,198 | $ | 1,806 | $ | 564 | $ | 22,600 | — | ||||||||||
Robert G. Hennemuth | $ | 19,600 | — | $ | 14,574 | $ | 1,806 | $ | 564 | $ | 17,600 | |||||||||||
| (6) | The amounts in the “All Other Compensation Column” for 2012 include the following: |
Name | Hexcel Contributions to 401(K) Retirement Savings Plan | Hexcel Contributions to Nonqualified Deferred Compensation Plan | Cash in Lieu of 401(K) Contributions on Earnings Exceeding ERISA Limits | Premiums for Life Insurance | Premiums for Long-Term Disability Insurance | Perquisites Allowance(a) | Other | |||||||||||||||||||||
David E. Berges | $22,790 | — | $155,345 | $2,970 | $564 | — | — | |||||||||||||||||||||
Nick L. Stanage | $22,790 | — | $70,2831 | $1,980 | $564 | — | — | |||||||||||||||||||||
Wayne C. Pensky | $27,790 | $62,241 | — | $1,980 | $564 | $22,600 | — | |||||||||||||||||||||
Ira J. Krakower | $27,790 | — | $42,344 | $18,957(b) | $564 | $22,600 | — | |||||||||||||||||||||
Robert G. Hennemuth | $22,790 | $36,789 | — | $1,980 | $564 | $17,600 | — | |||||||||||||||||||||
| (a) | The perquisites allowance consists of a car allowance of $12,000 and an additional amount of $10,600 (in the case of Messrs. Pensky and Krakower) and $5,600 (in the case of Mr. Hennemuth). The additional amount may be used for reimbursement of club membership dues, expenses incurred for financial counseling and tax planning and preparation, premiums for supplemental life and health insurance beyond the standard life and health insurance available to our executives and, to the extent of any remaining balance, to reimburse the NEO for taxes due on the reimbursements (“tax gross-up”). The additional amount was used by the NEOs for the following benefits: Mr. Pensky—supplemental life insurance; Mr. Krakower—tax planning, tax preparation and financial planning; and Mr. Hennemuth—supplemental life insurance. While the compensation committee always has the discretion to authorize additional perquisites for an NEO, our perquisites allowance has remained unchanged since 2000, except that all perquisites were eliminated for Mr. Berges in 2006 and were not offered to Mr. Stanage when he was hired. |
| (b) | This amount includes $8,304 which represented the tax gross up on amounts paid to Mr. Krakower for the purchase of life insurance to offset a portion of the company’s obligation to provide an in-service death benefit to Mr. Krakower pursuant to his executive severance agreement. |
Grants of Plan-Based Awards in 2010
2012
| | | | | | | | | | All Other Stock Awards: Number of Shares of Stock or Units (#)(4) | All Other Option Awards: Number of Securities Underlying Options (#)(5) | | | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Date Board or Compensation Committee took Action to Grant Such Award(3) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(6) | |||||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||||||||||
David E. Berges | — | — | 461,557 | 923,113 | 1,846,226 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | 26,466 | 52,931 | 105,862 | — | — | — | 576,948 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | 52,931 | — | — | 576,948 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | — | 221,932 | 10.90 | 1,153,891 | ||||||||||||||||||||||||||
Nick L. Stanage | — | — | 200,625 | 401,250 | 802,500 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | 9,203 | 18,406 | 36,812 | — | — | — | 200,625 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | 18,406 | — | — | 200,625 | ||||||||||||||||||||||||||
| 02/10/2010 | 01/22/2010 | — | — | — | — | — | — | — | 77,174 | 10.90 | 401,251 | ||||||||||||||||||||||||||
Wayne C. Pensky | — | — | 122,174 | 244,349 | 488,697 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | 6,898 | 13,795 | 27,590 | — | — | — | 150,366 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | 13,795 | — | — | 150,366 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | — | 57,842 | 10.90 | 300,738 | ||||||||||||||||||||||||||
Ira J. Krakower | — | — | 113,558 | 227,115 | 454,230 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | 5,610 | 11,220 | 22,440 | — | — | — | 122,298 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | 11,220 | — | — | 122,298 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | — | 47,042 | 10.90 | 244,585 | ||||||||||||||||||||||||||
Robert G. Hennemuth | — | — | 89,882 | 179,765 | 359,530 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | 4,873 | 9,745 | 19,490 | — | — | — | 106,221 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | 9,745 | — | — | 106,221 | ||||||||||||||||||||||||||
| 02/01/2010 | 01/22/2010 | — | — | — | — | — | — | — | 40,861 | 10.90 | 212,449 | ||||||||||||||||||||||||||
Name | Grant Date | Date Board or Compensation Committee took Action to Grant Such Award(3) | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(4) | All Other Option Awards: Number of Securities Underlying Options (#)(5) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(6) | ||||||||||||||||||||||||||||||||||||||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||
David E. Berges | — | — | 487,500 | 975,000 | 1,950,000 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | 12,173 | 24,346 | 48,692 | — | — | — | 609,380 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | 24,346 | — | — | 609,380 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | — | 116,515 | 25.03 | 1,218,747 | |||||||||||||||||||||||||||||||||||||
Nick L. Stanage | — | — | 214,869 | 429,739 | 859,478 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | 4,865 | 9,729 | 19,458 | — | — | — | 243,517 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | 9,729 | — | — | 243,517 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | — | 46,562 | 25.03 | 487,039 | |||||||||||||||||||||||||||||||||||||
Wayne C. Pensky | — | — | 134,685 | 269,370 | 538,740 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | 3,415 | 6,830 | 13,660 | — | — | — | 170,955 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | 6,830 | — | — | 170,955 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | — | �� | 32,686 | 25.03 | 341,896 | ||||||||||||||||||||||||||||||||||||
Ira J. Krakower | — | — | 120,473 | 240,947 | 481,893 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | 2,592 | 5,183 | 10,366 | — | — | — | 129,730 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | 5,183 | — | — | 129,730 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | — | 24,807 | 25.03 | 259,481 | |||||||||||||||||||||||||||||||||||||
Robert G. Hennemuth | — | — | 95,727 | 191,453 | 382,907 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | 2,260 | 4,520 | 9,040 | — | — | — | 113,136 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | 4,250 | — | — | 113,136 | |||||||||||||||||||||||||||||||||||||
| 01/30/2012 | 01/25/2012 | — | — | — | — | — | — | — | 21,631 | 25.03 | 226,260 | |||||||||||||||||||||||||||||||||||||
| (1) | The amounts shown reflect the range of potential awards for 2012 under the MICP. The actual awards paid for 2012 are shown in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table above. If the threshold performance for any measure under the MICP is not attained, no portion of the MICP award attributable to that measure is paid. |
| (2) | Reflects PSAs granted under the ISP, which will convert into shares of Hexcel common stock after a three-year performance period if we achieve the required performance. The terms of the PSAs are described in more detail on pages 30-31. |
| (3) | For our regular annual equity awards, the committee approved a dollar value (as a percentage of salary) and the algorithm under which the awards would be converted into shares at its meeting on January 25, 2012. In accordance with our equity grant policy, the grant date for the 2012 annual equity awards was January 30, 2012, the third trading day following the release of 2012 fourth-quarter and year-end earnings. |
| (4) | Reflects RSUs granted under the ISP, which will vest and convert into shares at the rate of one-third on each of the first three anniversaries of the grant date. The terms of the RSUs are described in more detail on page 30. |
| (5) | Reflects NQOs granted under the ISP, which will vest and become exercisable at the rate of one-third on each of the first three anniversaries of the grant date. The terms of the NQOs are described in more detail on page 30. |
| (6) | Reflects the full grant date fair value of PSAs, RSUs and NQOs as computed in accordance with the provisions of FASB ASC Topic 718 granted to the NEOs in 2012. Generally, the full grant date fair value is the amount that we will expense in our financial statements over the award’s vesting schedule. For RSUs, fair value is calculated using the closing price of our common stock on the grant date. For PSAs, fair value is calculated using the target number of shares of common stock subject to the PSA award and the closing price of our common stock on the grant date. For NQOs, fair value is calculated using the applicable Black-Scholes value on the grant date. For additional information on the valuation assumptions, see Note 11, “Stock-Based Compensation,” to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. These amounts reflect the company’s accounting expense, and do not necessarily correspond to the actual value that will be realized by the NEOs. |
Employment Agreement with Mr. Berges
Mr. Berges'Berges’ employment agreement, as amended and restated as of December 31, 2008, provides for Mr. Berges to be our Chairman and Chief Executive Officer. The agreement will automatically be extended for successive one-year terms unless either Mr. Berges or the company gives at least one year'syear’s prior notice to the other that the agreement shall not be extended. As no notice was given, theThe agreement is currently in force until July 30, 2012.2014 and would be extended to July 30, 2015 unless either Mr. Berges or the company gives notice not to extend by July 31, 2013. Mr. Berges may terminate the agreement at any time for good reason or upon 30 days'days’ notice to us. The agreement provides that Mr. Berges is entitled to:
an annual base salary of not less than his current salary, subject to annual review by the compensation committee;
a target annual cash incentive award opportunity of not less than 100% of annual base salary, and a maximum annual cash incentive award opportunity of not less than 200% of annual base salary; and
participation in all other employee benefit plans generally available to senior executives (except that Mr. Berges permanently agreed to forgo his perquisite allowance)
Under the employment agreement, on July 30, 2001 we granted Mr. Berges separate options to purchase 550,000 and 275,000 shares of Hexcel common stock. Each of the options has a term of ten years and an exercise price of $10.50 per share. The option to purchase 550,000 shares vested over four years at a rate of one-sixteenth of the shares at the end of each three-month period beginning with the three-month period ending October 31, 2001. The option to purchase 275,000 shares becomes exercisable in full on July 29, 2011, but is subject to earlier vesting in equal one-third parts if the price of a share of Hexcel common stock reaches $15.75, $21.00 and $26.25 over consecutive thirty-day trading periods. The option vested as to one-third of the underlying shares in 2005 as Hexcel stock closed at $15.75 or higher for thirty consecutive days, and vested as to an additional third of the underlying shares in 2006 as Hexcel stock closed at $21.00 or higher for thirty consecutive days.
Mr. Berges'Berges’ employment agreement also provides that we will make payments to Mr. Berges upon his termination of employment with us under various circumstances, and imposes certain obligations on Mr. Berges following termination. These provisions are described on pages 49-50.page 50.
Employment and Severance Agreement with Mr. Stanage
We entered into an employment and severance agreement with Mr. Stanage when he began his employment with us on November 9, 2009. The initial term of the agreement is three years. The agreement is automatically extended for additional one-year periods unless the company gives at least one year'syear’s prior notice to Mr. Stanage that we are not extending the term of the agreement. The agreement provides for
an initialannual base salary of $535,000
an annual cash target incentive award of 75% of salary
an annual equity award in 2010 valued at 150% of base salary, and an annual equity award in subsequent years valued within a range of 140% to 210% of base salary, as determined by the compensation committee. All annual equity awards will be valued and granted in such form as determined by the compensation committee for all executives
participation in all of our employee benefit plans and arrangements applicable to senior level executives, except that Mr. Stanage will not participate in our executive perquisites program
In addition, Mr. Stanage received certain relocation benefits designed to assist him in the purchase of a home in the Stamford, CT area, including:
Mr. Stanage'sStanage’s employment and severance agreement also provides that we will make payments to Mr. Stanage upon his termination of employment with us under various circumstances, and imposes certain obligations on Mr. Stanage following termination. These provisions are described on pages 50-51.page 51.
Description of Plan-Based Awards
All NQOs, RSUs and PSAs granted to the NEOs in fiscal year 20102012 were granted under the ISP and are governed by the terms and conditions of the ISP and the applicable award agreements. See pages 28-2930-31 of this proxy statement for a detailed discussion of NQOs, RSUs and PSAs.
Outstanding Equity Awards at 20102012 Fiscal Year-End
The following table provides information on the holdings of outstanding stock options and unvested stock awards held by the NEOs as of December 31, 2010:2012:
| | Option Awards | Stock Awards | ||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($/Sh) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) | |||||||||||||||||||
David E. Berges | 113,797 | 2,058,588 | 122,030 | 2,207,523 | ||||||||||||||||||||||||
| 221,932 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||
| 94,268 | 188,534 | 7.83 | 01/26/2019 | |||||||||||||||||||||||||
| 49,733 | 24,866 | 21.11 | 01/28/2018 | |||||||||||||||||||||||||
| 121,505 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||
| 85,058 | 22.00 | 02/07/2016 | ||||||||||||||||||||||||||
| 121,082 | 14.51 | 01/06/2015 | ||||||||||||||||||||||||||
| 145,257 | 7.38 | 01/06/2014 | ||||||||||||||||||||||||||
| 280,713 | 3.13 | 01/06/2013 | ||||||||||||||||||||||||||
| 403,047 | 10.50 | 07/30/2011 | ||||||||||||||||||||||||||
| 183,334 | (5) | 10.50 | 07/30/2011 | |||||||||||||||||||||||||
| 91,666 | (5) | 10.50 | 07/30/2011 | |||||||||||||||||||||||||
Nick L. Stanage | 74,381 | 1,345,552 | 18,406 | 332,965 | ||||||||||||||||||||||||
| 77,174 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||
Wayne C. Pensky | 30,906 | (6) | 559,090 | 31,362 | 567,339 | |||||||||||||||||||||||
| 57,842 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||
| 24,087 | 48,174 | 7.83 | 01/26/2019 | |||||||||||||||||||||||||
| 13,300 | 6,650 | 21.11 | 01/28/2018 | |||||||||||||||||||||||||
| 8,542 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||
| 5,432 | 22.00 | 02/07/2016 | ||||||||||||||||||||||||||
| 8,252 | 14.51 | 01/06/2015 | ||||||||||||||||||||||||||
| 15,937 | 7.38 | 01/06/2014 | ||||||||||||||||||||||||||
| 37,466 | 3.13 | 01/06/2013 | ||||||||||||||||||||||||||
Ira J. Krakower | 27,817 | 503,210 | 25,435 | 460,119 | ||||||||||||||||||||||||
| 47,042 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||
| 19,513 | 39,026 | 7.83 | 01/26/2019 | |||||||||||||||||||||||||
| 10,289 | 5,144 | 21.11 | 01/28/2018 | |||||||||||||||||||||||||
| 25,772 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||
| 16,585 | 22.00 | 02/07/2016 | ||||||||||||||||||||||||||
| 20,888 | 14.51 | 01/06/2015 | ||||||||||||||||||||||||||
| 47,129 | 7.38 | 01/06/2014 | ||||||||||||||||||||||||||
| 107,885 | 3.13 | 01/06/2013 | ||||||||||||||||||||||||||
| 44,000 | 2.74 | 01/10/2012 | ||||||||||||||||||||||||||
Robert G. Hennemuth | 20,735 | 375,096 | 22,154 | 400,766 | ||||||||||||||||||||||||
| 40,861 | 10.90 | 02/01/2020 | ||||||||||||||||||||||||||
| 17,016 | 34,031 | 7.83 | 01/26/2019 | |||||||||||||||||||||||||
| 8,997 | 4,498 | 21.11 | 01/28/2018 | |||||||||||||||||||||||||
| 24,388 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||
| 13,363 | 20.82 | 03/20/2016 | ||||||||||||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable(1) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($/Sh) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) | |||||||||||||||||||||||||
David E. Berges | 168,663 | 4,547,154 | 41,325 | 1,114,121 | ||||||||||||||||||||||||||||||
| 116,515 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||
| 51,744 | 103,488 | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||
| 147,955 | 73,977 | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||
| 282,802 | 7.83 | 01/26/2019 | ||||||||||||||||||||||||||||||||
| 74,599 | 21.11 | 01/28/2018 | ||||||||||||||||||||||||||||||||
| 121,505 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||||||||
| 85,058 | 22.00 | 02/07/2016 | ||||||||||||||||||||||||||||||||
| 121,082 | 14.51 | 01/06/2015 | ||||||||||||||||||||||||||||||||
Nick L. Stanage | 60,326 | 1,626,389 | 15,512 | 418,211 | ||||||||||||||||||||||||||||||
| 46,562 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||
| 19,023 | 38,045 | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||
| 51,450 | 25,724 | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||
Wayne C. Pensky | 44,670 | 1,204,303 | 11,314 | 305,021 | ||||||||||||||||||||||||||||||
| 32,686 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||
| 14,055 | 28,108 | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||
| 38,562 | 19,280 | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||
| 72,261 | 7.83 | 01/26/2019 | ||||||||||||||||||||||||||||||||
| 19,950 | 21.11 | 01/28/2018 | ||||||||||||||||||||||||||||||||
| 8,542 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||||||||
| 5,432 | 22.00 | 02/07/2016 | ||||||||||||||||||||||||||||||||
| 8,252 | 14.51 | 01/06/2015 | ||||||||||||||||||||||||||||||||
| 15,937 | 7.38 | 01/06/2014 | ||||||||||||||||||||||||||||||||
Ira J. Krakower | 35,778 | 964,575 | 8,775 | 236,569 | ||||||||||||||||||||||||||||||
| 24,807 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||
| 10,978 | 21,954 | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||
| 31,362 | 15,680 | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||
| 58,539 | 7.83 | 01/26/2019 | ||||||||||||||||||||||||||||||||
| 15,433 | 21.11 | 01/28/2018 | ||||||||||||||||||||||||||||||||
| 25,772 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||||||||
| 16,585 | 22.00 | 02/07/2016 | ||||||||||||||||||||||||||||||||
| 20,888 | 14.51 | 01/06/2015 | ||||||||||||||||||||||||||||||||
| 47,129 | 7.38 | 01/06/2014 | ||||||||||||||||||||||||||||||||
Robert G. Hennemuth | 31,108 | 838,672 | 7,652 | 206,286 | ||||||||||||||||||||||||||||||
| 21,631 | 25.03 | 01/30/2022 | ||||||||||||||||||||||||||||||||
| 9,572 | 19,144 | 19.02 | 01/31/2021 | |||||||||||||||||||||||||||||||
| 27,241 | 13,620 | 10.90 | 02/01/2020 | |||||||||||||||||||||||||||||||
| 26,047 | 7.83 | 01/26/2019 | ||||||||||||||||||||||||||||||||
| 13,495 | 21.11 | 01/28/2018 | ||||||||||||||||||||||||||||||||
| 24,388 | 18.17 | 01/29/2017 | ||||||||||||||||||||||||||||||||
| 13,363 | 20.82 | 03/20/2016 | ||||||||||||||||||||||||||||||||
| (1) | All options listed in this table vest at a rate of one-third per year on each of the first three anniversaries of the grant date. The grant date for each option is the date ten years prior to the option expiration date, as all options have a ten year term. |
| (2) | This column reflects the following: |
| RSUs under the ISP(a) | Earned PSAs(b) | |||||||
David E. Berges | 62,801 | 105,862 | ||||||
Nick L. Stanage | 23,514 | 36,812 | ||||||
Wayne C. Pensky | 17,080 | 27,590 | ||||||
Ira J. Krakower | 13,338 | 22,440 | ||||||
Robert G. Hennemuth | 11,618 | 19,490 | ||||||
| (a) | RSUs granted under the ISP, which generally vest and convert into shares at the rate of one-third per year on each of the first three anniversaries of the grant date. |
| (b) | PSAs for which the performance period has ended and the level of performance has been determined. |
| (3) | Values were computed using a price of $26.96 per share, the closing price of Hexcel common stock on December 31, 2012. |
| (4) | This column reflects the shares that each NEO would receive under the PSAs granted on January 31, 2011 and January 30, 2012 based on actual performance during the applicable performance periods and assuming that the NEO’s employment is terminated as of December 31, 2012. The January 31, 2011 grants, including the number of shares that will be awarded to each NEO if the threshold, target or maximum levels of the performance measure were obtained, are included in the “Grants of Plan-Based Awards in 2011” table contained in our Proxy Statement on Schedule 14A for the 2011 Annual Meeting of Stockholders under the column “Estimated Future Payouts Under Equity Incentive Plan Awards.” The January 30, 2012 grants, including the number of shares that will be awarded to each NEO if the threshold, target or maximum levels of the performance measure were obtained, are included in the “Grants of Plan-Based Awards in 2012” table above under the column “Estimated Future Payouts Under Equity Incentive Plan Awards.” Each NEO will receive a number of shares of common stock based on the extent to which the performance criteria for the respective PSA are attained. Any such shares will be received by the NEO in early 2014 for the 2011 PSAs and early 2015 for the 2012 PSAs. |
David E. Berges Nick L. Stanage Wayne C. Pensky Ira J. Krakower Robert G. Hennemuth David E. Berges Nick L. Stanage Wayne C. Pensky Ira J. Krakower Robert G. Hennemuth Name David E. Berges Nick L. Stanage Wayne C. Pensky Ira J. Krakower Robert G. Hennemuth David E. Berges Nick L. Stanage Wayne C. Pensky Ira J. Krakower Robert G. Hennemuth(2)This column reflects the following: RSUs under
the ISP(a) Earned PSAs(b) MSPP
RSUs(c) 113,797 — — 74,381 — — 29,487 — 1,419 27,817 — — 20,735 — — (a)RSUs granted under the ISP, which generally vest and convert into shares at the rate of one-third per year on each of the first three anniversaries of the grant date.(b)PSAs for which the performance period has ended and the level of performance has been determined.(c)RSUs that were issued under the MSPP. These were issued on January 22, 2008 at a purchase price of $16.0256 per RSU at the election of Mr. Pensky in lieu of a portion of his cash incentive award for 2007. These RSUs vest at the rate of one-third per year on each of the first three anniversaries of the grant date, and convert into shares at the end of the three year vesting period. See page 48 for further information regarding the MSPP.(3)Values were computed using a price of $18.09 per share, the closing price of Hexcel common stock on December 31, 2010.(4)This column reflects the shares that each NEO would receive under the PSAs granted on January 26, 2009 and February 1, 2010 based on actual performance during the applicable performance periods and assuming that the NEO's employment is terminated as of December 31, 2010. The February 1, 2010 grants, including the number of shares that will be awarded to each NEO if the threshold, target or maximum levels of the performance measure were obtained, are included in the "Grants of Plan-Based Awards in 2010" table above under the column "Estimated Future Payouts Under Equity Incentive Plan Awards." Each NEO will receive a number of shares of common stock based on the extent to which the performance criteria for the respective PSA are attained. Any such shares will be received by the NEO in early 2012 for the 2009 PSAs and early 2013 for the 2010 PSAs.(5)On July 30, 2001, Mr. Berges' hire date with Hexcel, he was granted an option to purchase 275,000 shares of common stock. The option provided that it would become exercisable in full on July 29, 2011, subject to earlier vesting, in whole or in part, if the price of a share of Hexcel common stock reached $15.75, $21.00 and $26.25 over a consecutive thirty-day trading period. The option vested as to one-third of the underlying shares in 2005 as Hexcel stock closed at $15.75 or higher for thirty consecutive trading days, and vested as to an additional one-third of the underlying shares in 2006 as Hexcel stock closed at $21.00 or higher for thirty consecutive trading days. The option will vest immediately as to the remaining one-third of the underlying shares if Hexcel stock closes at above $26.25 for thirty consecutive trading days.(6)In addition to the unvested RSUs reflected in this table, as of December 31, 2010, Mr. Pensky held 2,840 RSUs under the MSPP that have vested but have not yet converted into shares of stock. The value of these RSUs, based on the closing price of Hexcel common stock on December 31, 2010 was $51,376.
Option Exercises and Stock Vested in 2010
2012 Option Awards Stock Awards(1) Name Number of
Shares
Acquired
on Exercise
(#) Value Realized
on Exercise
($) Number of
Shares
Acquired
on Vesting
(#) Value Realized
on Vesting
($) — — 81,892 1,011,218 — — 27,988 488,391 — — 16,353 (2) 208,583 (2) 82,413 256,303 21,183 259,191 — — 15,709 194,173 (1)Reflects RSUs that vested during 2010. This includes RSUs that were granted in 2007, 2008 and 2009, with a vesting schedule of one-third of the shares subject to the grant on each of the three anniversaries of the grant date, and RSUs that resulted from the 2007 PSA, as follows: Option Awards Stock Awards(1) Number of
Shares
Acquired
on Exercise
(#) Value Realized
on Exercise
($) Number of
Shares
Acquired
on Vesting
(#) Value Realized
on Vesting
($) 145,257 3,658,959 183,031 4,740,712 — — 37,949 932,956 — — 47,027 1,217,921 — — 38,028 984,931 — — 33,147 858,512 RSUs 2007 PSA 45,903 35,989 27,988 0 13,823 2,530 13,549 7,634 8,485 7,224 (2)In addition to the shares listed, 1,420 RSUs underlying an award granted to Mr. Pensky under the MSPP on January 22, 2008 vested, but did not convert into shares, in 2010. The value of these 1,420 shares, based on the closing share price on the date of vesting, was $17,083.(1) Reflects RSUs and PSAs that vested during 2012. This includes RSUs that were granted in 2009, 2010 and 2011, with a vesting schedule of one-third of the shares subject to the grant on each of the three anniversaries of the grant date, and PSAs earned under grants covering the 2009-2011 performance period.
Pension Benefits in Fiscal 2010
Year 2012
Our NEOs participate in the following pension plans and arrangements:
Supplemental Executive Retirement Agreements with Messrs. Berges, Stanage and Krakower
We have entered into supplemental executive retirement agreements (each a "SERP"“SERP”) with Messrs. Berges, Stanage and Krakower. Each SERP provides for a retirement benefit intended to supplement the executive'sexecutive’s retirement income from our 401(k) plan and Nonqualified Deferred Compensation Plan (described on page 48)pages 33-34). The material features of the SERPs are as follows:
The monthly normal retirement benefit is equal to the product of the executive'sexecutive’s final average pay, benefit percentage and vesting percentage, offset by any vested contributions made by us under our 401(k) plan and supplemental 401(k) plan. Mr. Krakower'sKrakower’s benefit is also offset by his accrued benefit under our former qualified pension plan.
Final average pay equals the executive'sexecutive’s average monthly compensation for the highest paid 36 months out of his final 60 months of employment, and includes salary and cash incentive award, but not equity compensation. The cash incentive award is deemed to be earned ratably over the period in which it was earned.
The SERP is unvested for the first five years of service (subject to acceleration in certain circumstances as described below), and becomes fully vested at the end of the fifth year of service.
The benefits percentages are as follows:
| • | Mr. Berges:1/2 of 1% for each of the first 96 months of service, and1/6 of 1% for each of the next 60 months of service. |
| • | Mr. Krakower:5/12 of 1% for each of the first 60 months of service,1/4 of 1% for each of the next 60 months of service, and1/6 of 1% for each additional month of service. |
| • | Mr. Stanage:7/30 of 1% for each month of service, but shall not increase further once Mr. Stanage reaches age 65. |
Upon retirement after reaching age 65, the executive will receive a lump sum that is actuarially equivalent to a lifetime payment stream of the monthly normal retirement benefit starting the month after employment terminates and ending on death, but is guaranteed to be at least 120 monthly payments.
If the executive'sexecutive’s employment terminates prior to age 65 (early retirement), he will receive a lump sum that is actuarially equivalent to a lifetime payment stream of the monthly normal retirement benefit, reduced by 3% for each year by which the date of the first payment precedes age 65.65, or the lifetime payment stream so reduced. The lump sum is based on an assumed payment stream starting the month after his employment terminates (but no earlier than the month he reaches age 55), and ends on death, but is guaranteed to be at least 120 monthly payments.payments; any payments after death are made to a surviving beneficiary or to the executive’s estate. This does not apply to Mr. Krakower, as he has already attained the age of 65.
Should the executive die before receiving any benefits under the SERP, the executive'sexecutive’s designated beneficiary will receive a lump sum that is actuarially equivalent to the 50% survivor annuity the beneficiary would have received had the executive retired immediately prior to his death and elected to receive his benefit in the form of a 50% joint and survivor annuity.annuity, or receive the annuity itself. The executive also may elect to have the lump sum survivor benefit calculated on the basis of a 75% or 100% survivor annuity, or for it to equal the full lump sum he would have received had he retired immediately prior to his death. If the executive elects any of these alternative forms of benefit, the additional actuarial cost (above the cost of providing the benefit based on a 50%
survivor annuity) reduces the amount of the executive'sexecutive’s retirement benefit (and hence the survivor'ssurvivor’s benefit as well).
Upon certain other types of termination, or permitted elections, the amount and form of benefit are different.
Termination for cause—no benefits are payable
Termination without cause, or by the executive for good reason
For Mr. Berges and Mr. Krakower, 12 months of service are added for purposes of computing the benefits percentage
For Mr. Stanage, upon such a termination after May 9, 2011, the vesting percentage is 100% regardless of whether Mr. Stanage has been employed by us for five years, and 12 months of service are added for purposes of computing the benefits percentage; upon such a termination prior to May 9, 2011, no benefits are payable
Upon termination without cause, or by the executive for good reason, within two years after a change in control or during a period which qualifies as a potential change in control (as defined in the SERPs)
For Mr. Berges and Mr. Krakower, 36 months of service are added for purposes of computing the benefits percentage
For Mr. Stanage, 36 months of service are added (if the termination is on or before November 9, 2014), or 24 months are added (if the termination is after November 9, 2014) for purposes of computing the benefits percentage, and the vesting percentage is 100% regardless of how long Mr. Stanage has been employed by us
Upon termination due to disability, the lump sum is calculated without reduction even if the assumed payment stream would start prior to age 65.
These enhanced benefits payable upon termination are quantified in the table on page 55.
Retirement Agreements with Messrs. Pensky and Hennemuth
We have entered into Executive Deferred Compensation and Consulting Agreements (each an "EDCA"“EDCA”) with Mr. Pensky and Mr. Hennemuth. The material terms of the EDCAs are as follows:
| • | The executive is entitled to receive a monthly benefit upon retirement equal to 1/12th of his accrued benefit. The accrued benefit is equal to 1.5% of the executive’s aggregate salary and cash incentive awards earned while employed by us multiplied by a fraction of X/67, with X=the number of months the executive has been employed by us since entering into his EDCA, subject to a maximum of 67 months. |
The normal monthly retirement benefit is payable starting the month after employment terminates on or after age 65 and ending on death, but is guaranteed to be at least 120 monthly payments; any payments after death are made to a surviving beneficiary or the executive'sexecutive’s estate.
If the executive'sexecutive’s employment terminates prior to age 65, then
the payments will be actuarially reduced to reflect commencement prior to age 65
the executive'sexecutive’s monthly retirement benefit will start the calendar month after he terminates employment and will end on death, but is guaranteed to be at least 120 monthly payments; any payments after death are made to a surviving beneficiary or the executive'sexecutive’s estate.
If the executive dies prior to commencement of payments to him, a benefit is payable to his beneficiary for the duration of the beneficiary'sbeneficiary’s life, and is based on the actuarial equivalent of the early retirement benefit described above, as if the executive had retired immediately prior to his death.
Upon termination for cause, no benefits are payable.
Each executive has agreed to consult with us at our request for up to ten days a year for a period of ten years following his termination of employment with us.
Each executive has agreed not to solicit our employees and not to engage in any activity competitive with our business for ten years after termination of his employment with us, unless he can show that such actions were taken without the use of confidential information regarding Hexcel.
The executive is entitled to an additional amount based on the value of our providing medical, dental and life insurance from termination of employment to age 75. No benefit is provided if the executive has less than five years of service at termination.
the value of the medical and dental insurance is based on the group insurance provided by us to our employees at the time of termination of the executive'sexecutive’s employment
the amount gets added to the value of the lump sum or increases the annuity, depending on the form of payment chosen by the executive.
Messrs. Pensky and Hennemuth have elected to receive their EDCA benefit in the form of an actuarially equivalent lump sum.
Pension Benefits Table
The table below shows the present value of accumulated benefits payable to each NEO as of December 31, 2010,2012, including the number of years of service credited to each NEO, under each pension and retirement plan listed below, determined using interest rate and mortality rate assumptions consistent with those used in our financial statements. The table also shows payments made to the NEOS under the plans indicated during 2010.2012.
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments During Last Fiscal Year ($) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
David E. Berges | Supplemental Executive Retirement Agreement | 9.42 | 13,969,217 | 0 | ||||||||
Nick L. Stanage | Supplemental Executive Retirement Agreement | 1.17 | 359,303 | 0 | ||||||||
Wayne C. Pensky | Executive Deferred Compensation Agreement | 17.42 | 1,157,687 | 0 | ||||||||
Ira J. Krakower | Supplemental Executive Retirement Agreement | 14.33 | 3,828,858 | 0 | ||||||||
Robert G. Hennemuth | Executive Deferred Compensation Agreement | 4.75 | 595,807 | 0 | ||||||||
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments During Last Fiscal Year ($) | ||||||||||
David E. Berges | Supplemental Executive Retirement Agreement | 11.42 | 20,041,383 | 0 | ||||||||||
Nick L. Stanage | Supplemental Executive Retirement Agreement | 3.17 | 1,293,826 | 0 | ||||||||||
Wayne C. Pensky | Executive Deferred Compensation Agreement | 19.42 | 1,861,867 | 0 | ||||||||||
Ira J. Krakower | Supplemental Executive Retirement Agreement | 16.33 | 5,069,403 | 0 | ||||||||||
Robert G. Hennemuth | Executive Deferred Compensation Agreement | 6.75 | 1,060,261 | 0 | ||||||||||
| (1) | The amounts in this column were calculated assuming retirement at age 65 (except with respect to Mr. Krakower, whose actual age at December 31, 2012 was used as he is over age 65), the normal retirement age under the relevant pension plans and arrangements, and using the interest rate and mortality assumptions consistent with those used in the preparation of our financial statements. See Note 8, “Retirement and Other Postretirement Benefit Plans” to the consolidated financial statements, and the discussion under the heading “Retirement and Other Postretirement Benefit Plans” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, each included in our Annual Report on Form 10-K for the year ended December 31, 2012, for a description of these interest rate and mortality assumptions. |
These amounts represent the amounts required to be disclosed by SEC rules, and assume that each currently active executive will retire at the normal retirement age under the plan, which is age 65 (except with respect to Mr. Krakower, who was over age 65 at December 31, 2010)2012), and reflect a discount rate of 3.70%2.00% to determine the present value of the lump sum payable at age 65, which rate is used for purposes of pension calculations in our financial statements.
Nonqualified Deferred Compensation in Fiscal Year 2010
2012
All information in the table below is with respect to our Nonqualified Deferred Compensation Plan ("NDCP") or Management Stock Purchase Plan ("MSPP"). The NDCP, is an unfunded plan that permits a select number of highly compensated employees to defer a percentage of their pay and receive Hexcel matching and profit sharing contributions above the IRS limits permitted under our qualified 401(k) plan. Terms of the plan are as follows:
Mr. PenskyHennemuth participated in the NDCP in 2010.2012. Messrs. Berges, Stanage Krakower and HennemuthKrakower did not participate in the NDCP in 2010,2012, and instead received a taxable cash payment equal to the profit sharing contributions and the 2% fixed company contribution they would have received if they participated. Our contributions to this plan for the NEOs or related payments to the NEOs in 2010 are included in "All Other Compensation" in the Summary Compensation Table on page 38.participated, but no company match.
Under the MSPP, up until 2007 certain senior executives were given the opportunity to defer and apply a portion of their annual cash incentive award to purchase RSUs at a price of 80% of the average of the closing price of Hexcel common stock for the five trading days preceding the date of grant. The RSUs vest at the rate of one-third per year for three years, and convert to shares of Hexcel common stock on a one-to-one basis on the third anniversary of the grant date. Mr. Pensky deferred $68,256 of his 2007 cash incentive award to purchase 4,259 RSUs under the MSPP at a price of
| Name of Plan | Executive Contributions in Last FY($) | Registrant Contributions in Last FY($)(1) | Aggregate Earnings in Last FY($)(2) | Aggregate Balance at Last FYE($)(3) | ||||||||||||||||
David E. Berges | NDCP | — | — | 14,305 | 405,047 | |||||||||||||||
Nick L. Stanage | NDCP | — | — | — | — | |||||||||||||||
Wayne C. Pensky | NDCP | 26,714 | 62,241 | 21,356 | 498,749 | |||||||||||||||
Ira J. Krakower | NDCP | — | — | — | — | |||||||||||||||
Robert G. Hennemuth | NDCP | 22,465 | 36,789 | 6,205 | 136,901 | |||||||||||||||
| (1) | Our contributions to the NDCP or related payments to the NEOs in 2012 are included in the “All Other Compensation” column in the Summary Compensation Table on page 40. See footnote (6) to the Summary Compensation Table on page 41 for a description of the amount of such contributions for each NEO. |
| (2) | The aggregate annual earnings in 2012 are not reported in the Summary Compensation Table, as SEC rules provide that only above-market or preferential earnings be reported in that table. |
| (3) | This column includes the NEO’s contributions to the NDCP in prior years, and our contributions to the NDCP in prior years, which were also included in the Summary Compensation Table for the year in which the amount was contributed. |
David E. Berges Nick L. Stanage Wayne C. Pensky Ira J. Krakower Robert G. Hennemuth Severance Agreements and Arrangements Under Mr. in the event that we terminate Mr. Berges for any reason other than for disability or cause, or if Mr. Berges terminates his employment for good reason, then Mr. Berges will receive an a lump sum payment equal to two times the sum of his then current base salary and his average participation for two years after termination in all medical, dental, life insurance and other welfare and perquisite plans and programs in which Mr. Berges was participating on the date of termination$16.0256 per RSU on January 22, 2008. This plan was discontinued with respect to annual cash incentive awards for years after 2007. Name
of Plan Executive
Contributions
in Last FY($) Registrant
Contributions
in Last FY($)(1) Aggregate
Earnings
in Last FY($)(2) Aggregate
Balance
at Last FYE($)(3) NDCP — — 9,362 366,483 NDCP — — — — NDCP 35,822 46,378 12,000 191,977 MSPP 17,083 (4) — 8,605 (5) 25,688 (6) NDCP — — — — NDCP — — — — (1)Our contributions to the NDCP are included in the "All Other Compensation" column in the Summary Compensation Table on page 38.(2)The aggregate annual earnings in 2010 are not reported in the Summary Compensation Table, as SEC rules provide that only above-market or preferential earnings be reported in that table.(3)The NEO's contributions to the NDCP in prior years, and our contributions to the NDCP in prior years, were included in the Summary Compensation Table for the year in which the amount was contributed. Under the MSPP, the amount of cash incentive award deferred to purchase the RSUs, as well as the difference between the price paid by the NEO for the RSUs and the fair market value of the RSUs on the date of grant, were included in the Summary Compensation Table for the year with respect to which the applicable cash incentive was earned.(4)Represents the value of RSUs granted to Mr. Pensky under the MSPP that vested, but did not convert into shares, on January 22, 2010. The value is based on the closing price of Hexcel stock on the date of vesting, which was $12.03.(5)Represents the difference between the value of the RSUs as of December 31, 2010 (based on a stock closing price of $18.09 per share) and the value of the RSUs on the date of vesting (see footnote (4) above).(6)Represents the value of the RSUs as of December 31, 2010, based on a closing price of Hexcel stock of $18.09 per share.
Potential Payments upon Termination or Change in ControlBerges'Berges’ employment agreement, we have agreed to make certain payments to Mr. Berges upon termination of his employment under certain circumstances. In particular:••annual cash incentiveMICP award prorated for the portion of the year he was employed•annual cash incentiveMICP award over the prior three years•••
the lump sum payment will be equal to three times the sum described above
participation in health, welfare and perquisite plans and programs will be for three years instead of two
Mr. Berges will be entitled to receive a modified gross-up payment for any excise tax incurred under Section 280G and Section 4999 of the Internal Revenue Code, but only if the total "parachute payments"“parachute payments” exceed Mr. Berges'Berges’ untaxed safe harbor amount by 10% or more. We have agreed to reimburse Mr. Berges for the excise tax as well as any income tax and excise tax payable by Mr. Berges as a result of any reimbursements for the excise tax.
in the event of termination due to death or disability, Mr. Berges will receive an annual cash incentiveMICP award prorated for the portion of the year he was employed
Mr. Berges has agreed that, in consideration for these payments, he will not compete with us in any capacity for a period of two years following the termination of his employment. This includes, for example, any situation in which Mr. Berges is an employee of, consultant to, or owner of a business. If Mr. Berges'Berges’ termination is in connection with a change in control, the period is extended to three years. However, this restriction would not apply if Mr. Berges'Berges’ duties and responsibilities with a company that competes with us do not relate to the business segment of that company that competes with us. Mr. Berges also agreed to customary terms regarding our ownership of, and the protection and confidentiality of, our trade secrets, proprietary information, and processes, technologies, designs and inventions.
We have entered into executive severance agreements with each of Messrs. Stanage, Pensky, Krakower and Hennemuth that contain terms substantially similar to the severance terms described above for Mr. Berges, except that
if we terminate the executive for any reason other than for disability or cause, or if the executive terminates his employment for good reason, then
the lump sum payment will be equal to the sum of his then current base salary and his average annual cash incentiveMICP award over the prior three years (rather than two times the sum)
the applicable non-compete term, and the term for continuation of benefits, will be one year instead of two
in the case of Messrs. Pensky, Krakower and Hennemuth, there is no term providing for an annual cash incentiveMICP award pro-rated for the portion of the year the executive was terminated, and so whether such award is paid would be determined in accordance with the terms of the MICP
in the case of Mr. Stanage, if his employment terminates after November 9, 2014 for any reason other than for disability or cause, or if he terminates his employment for good reason, in each case during a change in control period, or within two years following a change in control, then
the lump sum payment will be equal to two times the sum of his then current base salary and his average annual cash incentiveMICP award over the prior three years
if Mr. Stanage'sStanage’s employment terminates before November 9, 2014 for any reason other than for disability or cause, or if he terminates his employment for good reason, in each case during a change in control period, or within two years following a change in control, then
the lump sum payment will be equal to three times the sum of his then current base salary and his average annual cash incentiveMICP award over the prior three years
the applicable non-compete term, and the term for continuation of benefits, will be three years
in the case of Mr. Stanage, the modified gross-up payment for excise tax incurred under Section 280G and Section 4999 of the Internal Revenue Code will not apply only if the applicable change in control occurs afteron or before November 9, 20142014.
Retirement Agreements
As described on page 53, ourOur NEOs are party to various arrangements that provide for benefits payable upon retirement. As described on pages 45-46,46-47, the SERP agreements that we entered into with Messrs. Berges, Stanage and Krakower provide for enhanced benefits upon our termination of the executive without cause, the executive'sexecutive’s termination for good reason or the executive'sexecutive’s termination without cause of for good reason during a potential change ofin control or within two years following a change in control. None of our other retirement programs for our NEOs provide for any form of enhanced or accelerated benefit upon termination ofresignation by the executive other than for anygood reason.
Equity Awards
Each of our NEOs havehas various NQOs, RSUs, PSAs and in some cases, MSPP RSUsPSAs outstanding. Upon termination of employment of an NEO, the treatment of the equity award depends on the nature of the termination. Below is a description of what happens to the NEO'sNEO’s outstanding equity awards upon each different type of termination and upon a change in control.
NQOs
Voluntary departure or termination without cause—upon any termination other than retirement, disability, death, or cause, the NEO has 90 days to exercise the option to the extent vested; to the extent not vested, the option terminates.
Disability/Death—all options vest and remain exercisable for one year.
Retirement—any unvested NQOs continue to vest on the schedule set forth in the option agreement, and the NEO has five years from the date of retirement to exercise the NQOs (but in no event can the NEO exercise an NQO after the expiration of the ten-year term of the option)
Termination for Cause—all options are forfeited.
Change in control—all options vest, and if the NEO is terminated without cause or terminates his employment for good reason within two years after the change in control, the options remain exercisable for three years.
RSUs
Voluntary departure or termination with or without cause—all RSUs are forfeited.
Retirement—all RSUs continue to vest on the schedule set forth in the RSU agreement.
Change in control—all RSUs vest and convert to common stock.
MSPP RSUs
PSAs
Termination for cause—the entire award is forfeited.
Termination by the company without cause, or due to disability, death, or retirement, orby the NEO for good reason—the NEO is entitled to a pro rata award based on the portion of the performance period for which he was employed, and also based on the extent to which the performance target is attained.
Retirement—for awards granted prior to 2012 the NEO is entitled to a pro rata award based on the portion of the performance period for which he was employed, and for awards granted in 2012 the NEO is entitled to receive the full award for the performance period, in each case determined based on the actual level of attainment of the applicable performance goals .
Change in Control—the PSA is paid out at target immediately, unless an acquiring company exchanges the PSA for the right to receive a comparable publicly traded security, in which case the PSA is paid out at target at the end of the performance period.
An employee generally qualifies for retirement if, upon termination of employment for any reason other than for cause, he is age 65 or age 55 with five or more years of service with us.
Our agreements relating to NQOs, RSUs and PSAs require that the employee comply with any obligation of confidentiality to us contained in any written agreement signed by the employee, and refrain from competing with us. The non-compete provision is substantially similar to that contained in the severance arrangements of our NEOs described above. If the employee fails to comply with this requirement, then any outstanding equity grants are forfeited and the employee shall deliver to the company the number of option shares the employee received during the 180-day period immediately prior to the breach of the non-compete requirement, and if the employee sold any option shares during this 180-day period, then the employee shall deliver to the company the proceeds of such sales. These equity grants are also subject to the terms of the applicable plans under which they were issued including terms that cover other possible grounds for forfeiture or recoupment of payments and gains.
Change in Control; Good Reason; Cause
A "Change“Change in Control"Control” is generally defined in our plans and agreements to mean any of the following:
the acquisition by any third party of 50% or more of our common stock
the acquisition by any third party of 40% or more of our common stock within a 12 month period
a merger of Hexcel or a sale of all or substantially all the assets of Hexcel, except if (i) the stockholders of Hexcel prior to the transaction own the company resulting from the transaction in substantially the same proportion as they owned Hexcel prior to the transaction and (ii) the directors of Hexcel before the transaction comprise at least a majority of the directors of the company resulting from the transaction
"Good reason"“Good reason” is generally defined in our plans and agreements to mean:
A material diminution in the executive'sexecutive’s position, duties, responsibilities or authority
A material reduction in the executive'sexecutive’s base salary
Failure by us to continue any compensation plan in which the executive participates which is material to the executive'sexecutive’s total compensation, unless replaced with a plan of substantially equivalent value
Failure by us to continue to provide the executive with the benefits enjoyed by the executive under our pension, savings, life insurance, medical, health, accident, and disability plans in which the executive was participating, except for across-the-board changes similarly affecting all executives, or failure by us to continue to provide the executive with at least twenty paid vacation days per year (or more if the executive is entitled to more under our vacation policy)
Failure to provide facilities or services which are reasonably necessary for the executive'sexecutive’s position
Failure of any successor to Hexcel to assume our obligations under the relevant plan or agreement hereunder or failure by us to remain liable to the executive after such assumption
In the case of the severance or SERP agreements, any termination by us of the executive'sexecutive’s employment which is not effected pursuant to a notice that complies with the relevant agreement
The relocation of the executive'sexecutive’s principal place of employment to a location more than fifty (50) miles from the executive'sexecutive’s place of employment as at the date of the relevant agreement
Failure to pay the executive any portion of compensation within seven (7) days of the date such compensation is due
"Cause"“Cause” is generally defined in our plans and agreements applicable to NEOs to mean (1) the willful and continued failure by the NEO to substantially perform his duties after we have notified the executive in writing with specificity of the nonperformance or (ii) the willful engagement by the NEO in misconduct that materially harms us. Before we can terminate an NEO for cause, our Boardboard must give the NEO notice describing the reasons we intend to terminate the NEO for cause and must pass a resolution approved by at least two-thirds of the Boardboard determining that the NEO is guilty of the improper conduct, and must provide the NEO with the opportunity to be heard before the Boardboard with counsel present.
Benefits Payable upon Termination of Employment on December 31, 20102012
As described above, the following agreements and arrangements with our NEOs provide for severance or enhanced benefits upon termination of employment or a change in control:
Other than the benefits described on page 32,pages 34 and these benefits and enhancements,50 to 54, there are no agreements, arrangements or plans that entitle executive officers to severance, perquisites, or other enhanced benefits upon termination of their employment that are not available to salaried employees generally.
The table below describes the potential benefits and enhancements under the company'scompany’s compensation and benefit plans and arrangements to which the NEOs would be entitled upon termination of employment or a change in control as ofon December 31, 2010.2012. However, the following items are excluded from the table:
The amounts reflected in the middle column of the "Pension Benefits" table on page 47, all of which are vested
The balances under the NDCP listed in the “Nonqualified Deferred Compensation” table on page 49, all of which are vested
Benefits provided on a non-discriminatory basis to salaried employees generally upon termination of employment, such as accrued salary, vacation pay and distributions under an employee'semployee’s 401(k) plan
None of the payments or benefits reflected in the chart below would be payable solely in the event of a change ofin control without a subsequent termination, except for payment to Mr. Pensky or Mr. Hennemuth of his EDCA benefit and vesting and conversion of the equity awards for all NEOs (and the related values) reflected below.
Benefits Payable Upon Termination of Employment on December 31, 2010
2012
| | | Cash Severance/ Payment at Death ($)(1) | Incremental Benefit under SERP or EDCA ($)(2) | Benefits Continuation ($)(3) | Accelerated Vesting of Equity Awards (value based on 12/31/2010 share price) ($)(4) | Excise Tax Gross-Up ($)(5) | Payment under MICP ($)(6) | Total Termination Benefits ($) | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David E. Berges | |||||||||||||||||||||||||
• | Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||
• | Involuntary or good reason termination | 3,940,018 | 684,347 | 16,073 | — | — | — | 4,640,438 | |||||||||||||||||
• | Involuntary or good reason termination after change in control | 5,910,027 | 2,053,244 | 24,110 | 319,174 | — | — | 8,306,555 | |||||||||||||||||
• | Death | 1,500,000 | — | — | — | — | — | 1,500,000 | |||||||||||||||||
• | Disability | — | 2,091,695 | — | — | — | — | 2,091,695 | |||||||||||||||||
| |||||||||||||||||||||||||
• | Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||
• | Involuntary or good reason termination | 637,432 | — | 13,743 | 221,976 | — | — | 873,151 | |||||||||||||||||
• | Involuntary or good reason termination after change in control | 1,912,296 | 847,316 | 41,229 | 2,233,398 | 2,821,393 | — | 7,855,632 | |||||||||||||||||
• | Death | 1,274,864 | — | — | 2,122,410 | — | — | 3,397,274 | |||||||||||||||||
• | Disability | — | 1,918,235 | — | 2,122,410 | — | — | 4,040,645 | |||||||||||||||||
| |||||||||||||||||||||||||
• | Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||
• | Involuntary termination | 636,358 | — | 10,805 | — | — | — | 647,163 | |||||||||||||||||
• | Involuntary or good reason termination after change in control | 1,909,075 | — | 32,414 | 83,184 | — | — | 2,024,673 | |||||||||||||||||
• | Death | 1,272,717 | — | — | — | — | — | 1,272,717 | |||||||||||||||||
• | Disability | — | — | — | — | — | — | — | |||||||||||||||||
| |||||||||||||||||||||||||
• | Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||
• | Involuntary or good reason termination | 594,740 | 178,952 | 6,101 | — | — | — | 779,793 | |||||||||||||||||
• | Involuntary or good reason termination after change in control | 1,784,219 | 536,537 | 18,304 | 67,657 | — | — | 2,406,717 | |||||||||||||||||
• | Death | 1,189,479 | — | — | — | — | — | 1,189,479 | |||||||||||||||||
• | Disability | — | — | — | — | — | — | — | |||||||||||||||||
| |||||||||||||||||||||||||
• | Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||
• | Involuntary or good reason termination | 526,109 | — | 14,250 | 400,764 | — | — | 941,123 | |||||||||||||||||
• | Involuntary or good reason termination after change in control | 1,578,328 | — | 42,749 | 1,609,513 | 686,949 | — | 3,917,539 | |||||||||||||||||
• | Death | 1,052,237 | — | — | 1,593,392 | — | — | 2,645,629 | |||||||||||||||||
• | Disability | — | — | — | 1,593,392 | — | — | 1,593,392 | |||||||||||||||||
| Cash Severance/ Payment at Death ($)(1) | Incremental Benefit under SERP or EDCA ($)(2) | Benefits Continuation ($)(3) | Accelerated Vesting of Equity Awards (value based on 12/31/2012 share price) ($)(4) | Excise Tax Gross-Up ($)(5) | Payment under MICP ($)(6) | Total Termination Benefits ($) | ||||||||||||||||||||||
David E. Berges | ||||||||||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||||||
• Involuntary or good reason termination | 5,107,084 | 959,177 | 7,205 | — | — | — | 6,073,466 | |||||||||||||||||||||
• Involuntary or good reason termination after change in control | 7,660,626 | 1,518,441 | 10,808 | — | — | — | 9,189,875 | |||||||||||||||||||||
• Death | 1,500,000 | — | — | — | — | — | 1,500,000 | |||||||||||||||||||||
• Disability | — | 1,349,653 | — | — | — | — | 1,349,653 | |||||||||||||||||||||
Nick L. Stanage | ||||||||||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||||||
• Involuntary or good reason termination | 1,259,405 | 2,420,361 | 11,726 | 1,410,663 | — | — | 5,102,155 | |||||||||||||||||||||
• Involuntary or good reason termination after change in control | 3,778,216 | 2,704,063 | 35,177 | 2,506,935 | 2,834,031 | — | 11,858,422 | |||||||||||||||||||||
• Death | 1,500,000 | — | — | 2,849,686 | — | — | 4,349,686 | |||||||||||||||||||||
• Disability | — | 3,637,872 | — | 2,849,686 | — | — | 6,487,558 | |||||||||||||||||||||
Wayne C. Pensky | ||||||||||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||||||
• Involuntary termination | 838,471 | — | 9,226 | — | — | — | 847,697 | |||||||||||||||||||||
• Involuntary or good reason termination after change in control | 2,515,412 | — | 27,678 | — | — | — | 2,543,090 | |||||||||||||||||||||
• Death | 1,676,941 | — | — | — | — | — | 1,676,941 | |||||||||||||||||||||
• Disability | — | — | — | — | — | — | — | |||||||||||||||||||||
Ira J. Krakower | ||||||||||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||||||
• Involuntary or good reason termination | 759,614 | 218,780 | 3,994 | — | — | — | 982,388 | |||||||||||||||||||||
• Involuntary or good reason termination after change in control | 2,278,842 | 655,993 | 11,982 | — | — | — | 2,946,817 | |||||||||||||||||||||
• Death | 1,519,228 | — | — | — | — | — | 1,519,228 | |||||||||||||||||||||
• Disability | — | — | — | — | — | — | — | |||||||||||||||||||||
Robert G. Hennemuth | ||||||||||||||||||||||||||||
• Voluntary retirement | — | — | — | — | — | — | — | |||||||||||||||||||||
• Involuntary or good reason termination | 656,608 | — | 11,751 | — | — | — | 668,359 | |||||||||||||||||||||
• Involuntary or good reason termination after change in control | 1,969,825 | — | 35,253 | — | — | — | 2,005,078 | |||||||||||||||||||||
• Death | 1,313,217 | — | — | — | — | — | 1,313,217 | |||||||||||||||||||||
• Disability | — | — | — | — | — | — | — | |||||||||||||||||||||
| (1) | Involuntary or good reason termination, with or without a change in control. For all NEOs, Represents the lump sum cash payment that would have been paid to the executive under his employment agreement, employment and severance agreement or executive severance agreement, as applicable. |
Death. Represents the death benefit we agreed to provide to the executive.
| (2) | For all NEOs, represents the difference between (a) the actual lump sum the NEO would have received upon the indicated type of termination on December 31, 2012, and (b) the lump sum the NEO would have received had he voluntarily terminated his employment on December 31, 2012. Neither Mr. Pensky nor Hennemuth would receive an enhancement to his EDCA benefits as a result of any type of termination of employment or a change in control. |
| (3) | Represents the value of welfare/medical benefits for (a) two years (in the case of Mr. Berges) or one year (in the case of Messrs. Stanage, Pensky, Krakower and Hennemuth), upon involuntary or good reason termination without a change in control, and (b) three years in the event of involuntary or good reason termination following a change in control. |
| (4) | Reflects the value of equity awards that were unvested on December 31, 2012, and that would have vested as a result of the indicated type of termination of employment of the NEO. RSUs are valued at $26.96 per RSU, the closing price of Hexcel common stock on December 31, 2012. Unvested NQOs are valued at the difference between $26.96 and the exercise price of the option; no value is attributed to NQOs if the exercise price is greater than $26.96. Vested NQOs are not reflected in the table regardless of the exercise price. PSAs are valued at $26.96 as well. For PSAs, reflects the value of the additional shares, if any, the NEO would have received as a result of the specified type of termination on December 31, 2012 as compared to a voluntary departure on the part of the NEO on such date. For all PSAs, in the event of a termination in connection with a change in control, it is assumed the acquiring company does not exchange the PSAs for the right to receive a comparable publicly traded security, and therefore assumes payout at target. |
The value of an equity award is not included in this chart if the NEO could have retired on December 31, 20102012 and either received the equity award immediately or on the schedule set forth in the applicable equity award agreement after retirement. Messrs. Berges, Pensky, Krakower and KrakowerHennemuth qualified for retirement under the terms of their NQO, RSU and PSA agreements, and therefore (i) no value is reflected for their NQOs, RSUs and RSUs,PSAs granted in 2012, and (ii) for their PSAs granted prior to 2012, no value is reflected in any termination scenario except for a change in control, in which case the value represents the additional shares, if any, the executive would have received upon termination in connection with a change in control on December 31, 20102012 (based on a payout at target) and the value of the shares the NEO would have received if he retired on December 31, 20102012 (which would have resulted in a pro-rata payout based on the portion of the performance period the executive was employed, and the extent to which the company achieved the applicable performance measure).
| (5) | Our severance arrangements with the NEOs provide for a modified gross-up for excise taxes incurred on “excess parachute payments” under Sections 280G and 4999 of the Code. The amounts in the table are based on a 280G excise tax rate of 20%, a statutory 35% federal income tax rate (adjusted for state taxes allowed as itemized deductions), a 1.45% Medicare tax rate and a 6.7% Connecticut state tax rate. With respect to Mr. Stanage, the modified gross-up applies only with respect to a change in control that occurs on or before November 9, 2014. |
| (6) | Under the MICP, if an executive leaves voluntarily prior to the end of the year, it is within our discretion whether to provide an award to the executive for such year. If an MICP participant is involuntarily terminated, he receives an award pro-rated based on the portion of the year the participant was employed. |
PROPOSAL 2—APPROVAL OF THE COMPANY'S 2010COMPANY’S 2012 EXECUTIVE COMPENSATION
We are seeking a stockholder vote with respect to compensation awarded to our named executive officers for 20102012 as required pursuant to Section 14A of the Exchange Act.
The company'scompany’s executive compensation program and compensation paid to the named executive officers are described on pages 20 to 5637 of this proxy statement. The compensation committee oversees the program and compensation awarded, adopting changes to the program and awarding compensation as appropriate to reflect the company'scompany’s circumstances and to promote the main objectives of the program: to provide competitive overall pay relative to peers, taking into account company performance, to effectively tie pay to performance, and to align the named executive officers'officers’ interest with the interest of stockholders.
You may vote for or against the following resolution, or you may abstain. Abstentions will have the same effect as a vote against the resolution. Broker non-votes will be disregarded and will have no effect on the outcome of the vote. This vote is advisory and non-binding. However, the compensation committee will review the voting results and take them into consideration as one factor when making future decisions regarding executive compensation, in conjunction with other factors such as feedback from shareholderstockholder outreach programs.
RESOLVED, that the stockholders approve the compensation of the company'scompany’s named executive officers, as disclosed under Securities and Exchange Commission rules, including the compensation discussion and analysis, the compensation tables and related material included in this proxy statement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE RESOLUTION APPROVING THE COMPANY'S 2010COMPANY’S 2012 EXECUTIVE COMPENSATION
PROPOSAL 3—FREQUENCY OF SAY-ON-PAY VOTE
As required by Section 14A of the Exchange Act, we are seeking a stockholder vote about how often we should present stockholders with the opportunity to vote on the compensation awarded to our named executive officers.
We believe that an annual vote is most appropriate.
You may elect to have the vote held annually, every two years or every three years, or you may abstain. You are not voting to approve or disapprove the Board's recommendation. Broker non-votes will be disregarded and will have no effect on the outcome of the vote. The vote is advisory and non-binding. The compensation committee will consider the outcome in recommending a voting frequency to the board of directors, but will not be bound either by its own recommendation or by the outcome of the vote, and may choose to conduct the vote more or less frequently in the future based on other factors, such as feedback from shareholder outreach programs, the adoption or revision of compensation policies, or the outcome of "Say on Pay" votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FORAN ANNUAL STOCKHOLDER ADVISORY VOTEREGARDING COMPENSATION AWARDED TO HEXCEL'S NAMED EXECUTIVE OFFICERS
PROPOSAL 4—APPROVAL OF MANAGEMENTTHE HEXCEL CORPORATION 2013 INCENTIVE COMPENSATIONSTOCK PLAN
We maintainOur board approved the Management2013 Incentive CompensationStock Plan which provides for annual cash incentive awards to be granted to eligible participants at the discretion of the compensation committee. On January 24, 2011, the compensation committee approved an amendment and restatement of the plan,(the “new plan”) in February 2013, subject to stockholder approval. Theapproval by our stockholders. We are submitting the new plan is being submitted to stockholders in order to meetcomply with applicable NYSE listing rules and to satisfy the stockholder approval requirement of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and the rules and regulations thereunder (collectively, “Section 162(m)”).
The Board Recommends Voting for the 2013 Incentive Stock Plan
Equity awards are a critical component of our compensation. As discussed in the Compensation Discussion and Analysis beginning on page 20, we believe that equity compensation is integral to a competitive total compensation package necessary to recruit, retain and incentivize talented employees of Hexcel and its subsidiaries (the “Company”). If our stockholders do not approve the new plan, our plans to operate our business could be adversely affected. Our future success depends heavily on our ability to attract and retain high caliber employees. The ability to grant equity awards is a necessary and powerful recruiting and retention tool that helps us to hire and motivate the quality personnel that we need in order to effectively operate our business and remain competitive.
For the foregoing reasons, we believe that approval of the new plan is essential to our continued success. Our employees are our most valuable asset. Thus, approval of the new plan is in the best interest of our stockholders because equity awards granted under the new plan help us to:
attract, motivate and retain talented employees
align employee and stockholder interests
link employee compensation with company performance
Reasonable Share Request.The requested number of authorized shares under the new plan is 3,805,000. The new plan represents an important use of stockholder and company resources and the board of directors believes that it is reasonable and in the best interests of the Company to authorize 3,805,000 shares. If the new plan is approved by stockholders, then no further awards will be made under the 2003 Incentive Stock Plan (the “existing plan”) and awards previously made under the existing plan will remain outstanding and subject to the terms of the existing plan and the applicable award agreements. As a result, all shares that were previously authorized but remain available for grant under the existing plan (1,160,993 shares as of December 31, 2012, see “Equity Compensation Plan Information” on page 39) will no longer be available for grant under the existing plan. As described below, generally if an award granted under the existing plan is cancelled, forfeited, paid in cash, expires unexercised or terminates for any reason without the issuance of shares, then the shares subject to that award become available for issuance pursuant to the new plan.
Equity Usage. We have used shares available under the existing plan in order to make competitive equity grants designed to attract, retain and incentivize qualified and talented employees. We believe that our share usage under the existing plan has been reasonable in light of this goal and we intend to continue to use shares available under the new plan in a manner that is designed to achieve this goal without causing excessive dilution of shareholder equity. Our annual “burn rate” (shares underlying equity awards granted as a percentage of shares outstanding) averaged approximately 1.16% from 2010 to 2012. Note 11 (Stock-Based Compensation) to the consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 21, 2012 sets forth additional information concerning our historical granting practices and outstanding equity-based awards. We do not anticipate that annual equity grants over the next few years will significantly exceed our grant practices in the recent past.
The New Plan Conforms to Best Practices. The new plan incorporates best practices that are designed to serve stockholders’ interests and promote effective corporate governance. For example, the new plan:
Prohibits stock option repricing without stockholder approval
Requires that the per share exercise price of a nonqualified stock option (“NQO”) be no less than 100% of the fair market value of a share of Hexcel common stock, par value $0.01 (“common stock”) on the grant date
Does not permit the term of stock options or stock appreciation rights (“SARs”) to exceed ten years
Limits the number of shares available for “full value grants” (awards other than stock options and SARs) to no more than 50% of the shares available for issuance under the new plan
Requires that awards that vest based upon the lapse of time vest over a period of at least three years, subject to certain exceptions
Requires that the performance period for performance-based awards be at least one year, subject to certain exceptions
| • | Provides that shares tendered or withheld to satisfy tax withholding or exercise price obligations or repurchased by us using the proceeds of stock options are not available again for issuance pursuant to future awards (i.e., the new plan is not self-reloading) |
Provides that dividend equivalents must be subject to the same terms and conditions as, and may not be paid prior to the vesting of, the award to which they relate
Permits the grant of awards that are intended to meet the requirements of “qualified performance-based compensation” within the meaning of Section 162(m) (“Performance-Based Compensation”)
Is administered by the independent compensation committee
Imposes a maximum number of shares that can be covered by awards granted to a non-employee director in any calendar year
Tax Aspects. The new plan is designed to allow us to preserve our opportunity for a tax deduction for certain equity incentive compensation. BelowIn general, Section 162(m) limits Hexcel’s compensation deduction to $1,000,000 paid in any tax year to any “covered employee” as defined under Section 162(m). This deduction limitation does not apply to certain types of compensation, including Performance-Based Compensation. The terms of the new plan permit, but do not require, Hexcel to grant performance-based awards under the new plan that meet the requirements of Performance-Based Compensation so that such awards will be deductible by Hexcel for federal income tax purposes.
For the foregoing reasons, we recommend that stockholders approve the new plan.
Description of Principal Features of the New Plan
The following is a summary description of the material provisionsprincipal features of the new plan. This descriptionsummary is qualified in its entirety by reference to the full text of the new plan, which is included as Annex A to this proxy statement.
The maximum number of shares of common stock that will be available for grant pursuant to awards under the new plan will be 3,805,000 in the aggregate. In addition, the following categories of shares of common stock will again be available for issuance pursuant to awards under the new plan: (1) shares related to awards under the new plan that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of common stock, and the number of shares that are not actually paid pursuant performance-based awards that are earned at less than their maximum performance levels and (2) shares related to awards granted under the existing plan that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of common stock, and the number of shares that are not actually paid pursuant to performance-based awards granted under the existing plan that are earned at less than their maximum performance levels. The following categories of shares of common stock shall not be available for grant pursuant to awards under the new plan: (a) shares tendered or withheld in payment of the Principal Featuresexercise price of stock options, (b) shares withheld by Hexcel to satisfy tax withholding obligations and (c) shares repurchased by Hexcel using the proceeds from the exercise of stock options. The closing price of a share of common stock on the NYSE on March 13, 2013 was $28.98.
No more than fifty percent (50%) of the Plan
Purpose
The purpose of the new plan is to attract, motivate and retain highly qualified executivesemployees, directors and key employeesconsultants of the Company), and to advance our interests by providing a cash incentive award for employees who have a direct, measurable opportunityprovide them with incentives to advance our goals.pursue the long-term profitability and success of the Company.
Administration
TheSubject to the terms of the new plan, isthe new plan will be administered by the compensation committee.committee of our board of directors. The compensation committee establishes incentive awards, performance goalshas the authority administer the plan, including without limitation the authority to (1) make determinations with respect to the participation of employees, directors and all other materialconsultants in the new plan, (2) make determinations with respect to the terms of awards made pursuant to the new plan, provided that awards that vest based on the lapse of time shall vest over a period of at least three years, and the performance period for each participant.performance-based awards shall be at least one year, subject to such exceptions as the committee may make for death, disability, new hires, promotions, retirement, change in control, and other special circumstances, (3) to interpret and construe the provisions of the new plan and (4) prescribe, amend and rescind rules and regulations relating to the new plan. The compensation committee in consultation with management, decidesmay from time to time authorize a subcommittee consisting of one or more directors (including directors who participates inare employees of the plan.
TableCompany) or employees of Contentsthe Company to grant awards pursuant to the new plan, subject to such restrictions and limitations as the committee may specify and to the requirements of applicable law.
Eligibility
AnyAll employees, directors and consultants of our salaried exempt employees or officers isthe Company are eligible to be selected by the committee to receive an award underpursuant to the plan. In 2010, 161 of our employees (including the NEOs) participated in the MICP that was in effect at the time.
Awards
Thenew plan provides for cash incentive awards as(such a percentage, which may exceed one hundred percent, of a target incentive award amount established for each participant. The percentage usedperson who is selected to determinereceive an award is basedreferred to herein as a “participant”). As of the date of this proxy statement, there are approximately 4,700 employees of the Company, approximately 60 consultants to the Company, and 10 members of the board of directors.
Award Types
The new plan permits grants of the following types of awards, subject to such terms and conditions as the committee shall determine, consistent with the terms of the new plan: (1) SARs, (2) stock options, and (3) other stock-based awards, including in the form of phantom stock, restricted stock units, deferred share units or share-denominated performance units. Subject to the terms and conditions set forth in the new plan, awards may be settled in cash or shares of common stock and may be subject to performance-based and/or service-based conditions. Awards may be designed to meet the requirements of Qualified Performance-Based Awards.
Stock Options and SARs
The new plan permits the committee to grant stock options in the form of incentive stock options (“ISOs”), which are stock options that are designated by the committee as incentive stock options and which meet the applicable requirements of incentive stock options pursuant to Section 422 of the Code, or in the form of NQOs, and SARs, subject to certain terms and conditions.
A stock option granted to a participant under the new plan allows a participant to purchase a specified number of shares of common stock at a specified exercise price per share during specified time periods, each as determined by the committee in its discretion, provided that no stock option may have a per share exercise price that is less than the Fair Market Value (as defined below) of a share of common stock on the degreegrant date or a term of achievementlonger than ten (10) years. A SAR granted to a participant under the new plan allows a participant to receive an amount of performance goals. The applicable performance periodcash, or shares of stock with a Fair Market Value, or both, equal to the increase in Fair Market Value of a specified number of shares of common stock between the grant date of the SAR and the date on which it is exercised. An SAR may be onenot have a per share exercise price that is less than Fair Market Value of a share of common stock on the grant date or more calendara term of longer than ten (10) years.
When an awardFor this purpose, “Fair Market Value” is determined as being equal to our CEOthe closing sales price of a share of common stock on the grant date or, anyif not so reported for such day, the immediately preceding business day, of our three most highly compensated executive officers (other thana share of common stock as reported on the CFO) (referredprincipal securities exchange on which shares of common stock are then listed or admitted to trading.
Stock options granted under the new plan that are intended to qualify as "Covered Employees" in this description, with the term being definedISOs are subject to certain additional terms and conditions as set forth in the plan)plan, including: (1) each stock option that is intended to qualify as an ISO must be designated as an ISO in the applicable award agreement, (2) ISOs may only be granted to individuals who are employees of the Company, (3) the aggregate Fair Market Value (determined as of the grant date of the ISOs) of the number of shares of common stock with respect to which ISOs are exercisable for tax deductibilitythe first time by any participant during any calendar year under all plans of the Company cannot exceed $100,000, or such other maximum amount as is then applicable under Section 162(m) (a "Qualified Award" as defined422 of the Code, and (4) no ISO may be granted to a person who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of common stock of the Company unless (a) the exercise price of such ISO is at least one hundred ten percent (110%) of the Fair Market Value of a share of common stock at the time such ISO is granted and (b) such ISO is not exercisable after the expiration of five years from its grant date. The maximum number of shares of common stock that may be subject to awards granted under the new plan that are intended to be ISOs shall not exceed 400,000 shares of common stock in the plan),aggregate. Any stock option granted under the performance goalsnew plan that is designated as an ISO but for any reason fails to meet the award mustrequirements of an ISO shall be basedtreated under the plan as an NQO.
Any repricing of a stock option or cash tender by Hexcel for a stock option shall require the approval of the stockholders of Hexcel.
Qualified Performance-Based Awards
The committee may grant awards under the new plan, the vesting or payment of which is conditioned upon the attainment of one or more performance goals, which are intended to meet the requirements of Performance-Based Compensation (such awards, “Qualified Performance-Based Awards”). Unless otherwise specified in the award agreement for a Qualified Performance-Based Award, the committee may, in its discretion, reduce or eliminate the amount payable to any participant with respect to the award, based on such factors as the committee may deem relevant, but the committee may not increase any such amount above the amount established in accordance with the objective level of achievement of the following criteria, eachapplicable performance goals. For purposes of whichclarity, the committee may exercise the discretion provided by the foregoing sentence in a non-uniform manner among participants.
The performance goals applicable to Qualified Performance-Based Awards may relate to the performance of Hexcel, a subsidiary, a business unit, any subsection of ourthe Company’s business or any combination thereof and may be expressed as an amount or as an increase or decrease over a specified period or a relative comparison of performance to the performance of a peer group of entities or other external measure, and shall be based on one or more of the selected performance criteria:following: earnings, cash flow, customer satisfaction, safety, revenues, financial return ratios, market performance, productivity, costs, shareholderstockholder return and/or value, operating profits (including earnings before any or all of interest, taxes, depreciation and amortization), net profits, earnings per share, profit returns or margins, stock price and working capital (or elements thereof). WithIn determining attainment of a performance goal applicable to a Qualified Performance-Based Award (A) the committee shall exclude the negative impact of unusual, non-recurring or extraordinary items attributable to (1) acquisitions or dispositions of stock or assets, (2) any changes in accounting standards or treatments that may be required or permitted by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or adopted by the Hexcel or its subsidiaries after the goal is established, (3) restructuring activities, (4) disposal of a segment of a business, (5) discontinued operations, (6) the refinancing or repurchase of bank loans or debt securities, (7) unbudgeted capital expenditures, (8) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (9) conversion of some or all of convertible securities to common stock and (10) any business interruption event; and (B) the committee may determine within ninety (90) days after the start of a performance period to exclude such other items, each determined according to Generally Accepted Accounting Principles (to the extent applicable) as identified in the Company’s accounts, financial statements, notes thereto, or management discussion and analysis as may be permitted by Section 162(m).
Within ninety (90) days after the beginning of a performance period with respect to an award to any employee other than a Covered Employee, or an award to a Covered Employee that is not intended to be a Qualified Performance-Based Award, and in any case before twenty-five percent (25%) of the performance period has elapsed, the committee shall establish the performance goals for such performance period.
The maximum number of shares of common stock that may be based oncovered by stock options or SARs that are granted to any executive officer of Hexcel in any calendar year is equal to the maximum aggregate number of shares of common stock that will be available for grant pursuant to awards under the new plan. The maximum number of shares of common stock that may be covered by Qualified Performance-Based Awards that are granted to any executive officer of Hexcel in any calendar year is equal to 345,000 shares.
For purposes of clarity, the foregoing provisions described in this section apply only to Qualified Performance-Based Awards and do not limit the committee’s discretion to determine the terms and conditions of performance-based awards granted under the new plan that are not Qualified Performance-Based Awards. In addition, the committee may, subject to the terms of the criteria listed above and/or on any other objective or subjective performance measures.new plan, amend previously granted Qualified Performance-Based Awards in a way that disqualifies them as Qualified Performance-Based Awards.
The compensation committee has the discretion to increase the size of any award otherwise payable to a participant, other than for a Qualified Award to a Covered Employee. The compensation committee also may reduce or eliminate the size of any award otherwise payable to any participant including a Covered Employee. Any such increase or decrease may reflect a participant's individual performance or be based on other factors the compensation committee deems to be relevant. The amount of an award payable to any participant for any Plan Period (as that term is defined in the plan) cannot exceed $4,000,000 for any award where the Plan Period is a calendar year or $4,000,000 per calendar year where the Plan Period is greater than a calendar year.
An award is generally payable in cash as soon as practicable after the end of the year and certification by the compensation committee of the degree of achievement of the relevant performance goals.
Amendment and Termination
The compensation committee has the authority to amend, suspend or terminate the new plan at any time. Noor make such modifications or amendments to the new plan as it may deem advisable, but no amendment suspensionto the new plan that requires stockholder approval under applicable law, rule, regulation or stock exchange listing requirement will become effective without the approval of our stockholders. In addition, no termination, modification or amendment of the new plan may adversely affect the paymentrights of anya participant under an outstanding award for a yearwithout the consent of such participant.
Adjustment Upon Certain Changes
The new plan includes provisions that has already ended,require or permit the payment of an award duecommittee to make certain adjustments upon the occurrence of specified events, including provisions that provide as follows: (1) upon the occurrence of certain events effecting the capitalization of Hexcel such as a changerecapitalization or stock split, the committee shall make equitable adjustments in control, without the consenttype and maximum number of the participant.
Awardsshares available for issuance under the plan and in the limits described above for ISOs, for awards granted to non-employee directors, and for stock options, SARs and Qualified Performance-Based Awards that are granted atto executive officers of Hexcel, (2) in the discretionevent of an increase or decrease in the number or type of issued shares of any common stock of Hexcel without receipt or payment of consideration by the Company, the committee shall equitably adjust the type or number of shares subject to each outstanding award and the exercise price per share, if any, of shares subject to each such award, (3) in the event of a merger or similar transaction as a result of which the holders of shares of common stock receive consideration consisting exclusively of securities of the compensationsurviving corporation in such transaction, the committee shall appropriately adjust each outstanding award so that it pertains and performance criteria may vary from yearapplies to yearthe securities which a holder of the number of shares of common stock subject to such award would have received in such transaction, and from participant(4) upon the occurrence of certain specified extraordinary corporate transactions, such as a dissolution or liquidation of Hexcel, sale of all or substantially all of the Company’s assets, and certain mergers involving Hexcel, and upon any other change in the capitalization of Hexcel or other corporate change, including but not limited to participant. Therefore, benefits under the plan are generally not determinable.sale of a subsidiary or business unit, the committee has discretion to make certain adjustments to outstanding awards, cancel outstanding awards and provide for cash payments to participants in consideration of such cancellation, or provide for the exchange of outstanding awards.
Table of ContentsEffective Date and Termination
The compensation committee approved performance goalsnew plan shall be effective on the first date (the “Effective Date”) that our stockholders approve the new plan in a manner that satisfies the requirements of the Delaware General Corporation Law and aggregate target awards for 2011 for a groupthe rules of 163 key employees, includingNYSE. The new plan shall terminate on the Covered Employees, subject totenth (10th) anniversary of the date of the latest stockholder approval of the new plan, byincluding without limitation any stockholder approval of an amendment to the company's shareholders for awardsnew plan to Covered Employees. Awards for 2010 are payableincrease the number of shares of common stock that may be granted under the plan.
Following the Effective Date, no further awards will be granted under the existing plan. The new plan provides that, for purposes of clarity, shares of common stock related to all awards granted under the existing plan prior to the Effective Date are acknowledged and affirmed as previously in effecthaving been properly authorized and are not dependent on approvalvalidly granted under the existing plan.
New Plan Benefits
As of the plan by stockholders. Compensation paid and other benefits granted to certaindate of our executive officers for 2010 are set forth in this proxy statement, no awards have been made under the new plan. The benefits or amounts that will be received by or allocated to each named executive officer, all current executive officers as a group, all directors who are not executive officers as a group, all employees who are not executive officers as a group under the new plan, and all consultants as a group, as well as the benefits or amounts that would have been so received or allocated had the new plan been in effect in 2012, are not presently determinable.
U.S. Federal Income Tax Consequences
The following discussion is a brief summary of certain United States federal income tax consequences under current federal income tax laws relating to certain types of awards under the new plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences. Accordingly, participants in the section entitled "Executive Compensation."new plan should consult their respective tax advisors in determining the tax consequences of such participation.
Management Incentive Compensation Plan
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Section 162(m) of the Internal Revenue Code limits the deductibility of certain compensation in excess of $1 million per year paid by a publicly traded corporation to its Covered Employees. However, compensation which qualifies as "performance-based" is exempt from the $1 million limitation. In order for compensation paid under the plan to a covered person to qualify for this exemption, the material terms of the plan must be approved by stockholders every five years and payments to the executive officer must be based solely on the attainment of pre-established, objective performance goals and must be computed by a pre-established, objective formula or standard. The new plan is designed to allow us to preserve our opportunity for a tax deduction for cashcertain equity incentive compensation. In general, Section 162(m) limits Hexcel’s compensation deduction to $1,000,000 paid in any tax year to our Covered Employees.any “covered employee” as defined under Section 162(m). This deduction limitation does not apply to certain types of compensation, including Performance-Based Compensation. The terms of the new plan permit, but do not require, Hexcel to grant performance-based awards under the new plan that meet the requirements of Performance-Based Compensation so that such awards will be deductible by Hexcel for federal income tax purposes.
ParticipantsNQOs
A participant will not recognize any taxable income upon the grant of an NQO and we will not be entitled to a tax deduction with respect to such grant.
Upon exercise of an NQO, the participant will recognize compensation income only uponin an amount equal to the receiptexcess of cash under an award.the aggregate fair market value of the acquired shares of our common stock on the exercise date over the aggregate exercise price paid by the participant. The amount of compensation income recognized by the participant is subject to applicable payroll taxes. We will generally be entitled to a tax deduction at thatthe same time and in the same amount as the participant recognizes compensation income. The participant’s tax basis for the shares of our common stock received pursuant to the exercise of an NQO will equal the sum of the compensation income recognized and the exercise price.
In the event of a sale or other disposition of shares of our common stock received upon the exercise of an NQO, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term or short-term capital gain or loss, depending on how long the shares were held by the participant prior to the sale.
ISOs
A participant will not recognize any taxable income upon the grant or exercise of an ISO, but the excess of the aggregate fair market value of the acquired shares of our common stock on the exercise date (the “ISO shares”) over the aggregate exercise price paid by the participant is included in the participant’s income for alternative minimum tax purposes. We will not be entitled to a tax deduction with respect to such grant or exercise. Upon a disposition of the ISO shares more than two years after grant of the ISOs and one year after exercise of the ISOs, any gain or loss is treated as long-term capital gain or loss. In such case, Hexcel would not be entitled to a deduction. If the participant sells the ISO shares prior to the expiration of these holding periods, the participant recognizes compensation income at the time of disposition equal to the excess if any, of the lesser of (1) the aggregate fair market value of the ISO shares on the exercise date and (2) the amount received for the ISO shares, over the aggregate exercise price previously paid by the participant. Any gain or loss recognized on such a premature disposition of the ISO shares in excess of the amount treated as ordinary income is treated as long-term or short-term capital gain or loss, depending on how long the shares were held by the participant prior to the sale. We will generally be entitled to a deduction at the same time and in the same amount as the participant recognizes compensation income.
Restricted Stock and Restricted Stock Units (“RSUs”)
A participant will not recognize any taxable income upon the grant of a restricted stock award and we will not be entitled to a tax deduction with respect to such grant. When the restrictions lapse with regard to any installment of restricted stock, the participant will recognize ordinary income in an amount equal to the fair market value of the shares with respect to which the restrictions lapse, unless the participant elected to realize compensation income in the year the award is granted in an amount equal to the fair market value of the restricted stock awarded, determined without regard to the restrictions. A participant will not recognize any taxable income upon the grant of RSUs and we will not be entitled to a tax deduction with respect to such grant. The participant will recognize compensation income at the time the RSUs are settled, in an amount equal to the cash paid or the fair market value of the shares delivered. The amount of compensation income recognized by the participant is subject to applicable payroll taxes. We will generally be entitled to a deduction at the same time and in the same amount as the participant recognizes compensation income.
Performance-Based Awards
A participant will not recognize any taxable income upon the grant of a performance-based award and we will not be entitled to a tax deduction with respect to such grant. The participant will recognize compensation income at the time the performance-based award vests or is settled, depending on the structure of the award, in an amount equal to the dollar amount, or the fair market value of the shares of common stock, subject to possible Section 162(m) limitations.the award. The amount of compensation income recognized by the participant is subject to payroll taxes. We will generally be entitled to a deduction at the same time and in the same amount as the participant recognizes compensation income.
Approval of the new plan requires the affirmative vote of a majority of the shares present in person or represented by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. In determining whetherFor purposes of the foregoing standard, broker non-votes will be disregarded and will have no effect on the outcome of the vote. Under applicable NYSE rules, the total number of votes cast on the proposal must represent over 50% in interest of all shares of common stock entitled to approvevote on the plan receivesproposal (the “NYSE Standard”). For purposes of the required numberNYSE Standard, broker non-votes will be counted and will have the same effect as a vote against the proposal. For purposes of affirmative votes,both of the foregoing voting standards, abstentions will be counted and will have the same effect as a vote against the proposal. Broker non-votes will be disregarded and will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE MANAGEMENT2013 INCENTIVE COMPENSATIONSTOCK PLAN
The audit committee is responsible for assisting the Board'sboard’s oversight of the integrity of our financial statements, our exposure to risk and mitigation of those risks, our compliance with legal and regulatory requirements, our independent registered public accounting firm'sfirm’s qualifications, independence and performance, and our internal audit function. We also recommend to the Board of Directors, subject to stockholder ratification, the selection ofappoint our independent registered public accounting firm.firm, and submit our selection to our stockholders for ratification. We operate under a written charter adopted and approved by the Board of Directors, which was last amended on December 7, 2010.is available at our website, www.hexcel.com.
Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States. Our independent registered public accounting firm is responsible for auditing the financial statements and expressing an opinion as to their conformity with generally accepted accounting principles in the United States. Our responsibility is to monitor and review these processes.
We held eight meetings in 2010,2012, held numerous discussions with management and met in executive session, without management, with PricewaterhouseCoopers LLP, our independent registered public accounting firm. We also met in executive session, without management present, with our internal auditors. We have reviewed and discussed the consolidated financial statements with management and the independent registered public accounting firm. We discussed with the independent registered public accounting firm matters required to be discussed by Statement on AuditingPCAOB standards, as amended (AICPA,Professional Standards No. 61,Communications with Audit Committees., Vol 1. AU Section 380) as adopted by the Public Company Accounting Oversight Board in Rule 3200T.
Our independent registered public accounting firm also provided the written disclosures required by PCAOB Rule No. 3526,Communications with Audit Committees Concerning Independence, and we discussed with the independent registered public accounting firm their independence.
Based on our review and the discussions referred to above, we recommended that the board include our audited consolidated financial statements in the Annual Report on Form 10-K for the year ended December 31, 20102012 filed with the SEC. We have also selected PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2011, subject2013, and we are asking our stockholders to stockholder ratification.ratify our selection.
Jeffrey C. Campbell, Chair
Lynn Brubaker
W. Kim Foster
David C. HillDavid C. Hurley
The Members of the Audit Committee
PROPOSAL 4—RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
We are asking the stockholders to ratify the audit committee'scommittee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2011.2013. In the event the appointment of PricewaterhouseCoopers LLP is not ratified, the audit committee will consider the appointment of another independent registered public accounting firm. Stockholder ratification of the appointment of PricewaterhouseCoopers LLP is not required under our Restated Certificate of Incorporation or Amended and Restated Bylaws, but is being submitted as a matter of good corporate practice. The audit committee is not bound by the outcome of this vote, but, if the appointment of PricewaterhouseCoopers LLP is not ratified by stockholders, the audit committee will reconsider the appointment.
PricewaterhouseCoopers LLP has audited our financial statements annually since 1997. A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if shehe desires to do so and will be available to answer appropriate questions from stockholders.
Audit Fees
The aggregate fees billed by PricewaterhouseCoopers LLP for 20102012 for professional services rendered for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q and services provided in connection with foreign statutory and regulatory filings and engagements were approximately $1,803,000.$1,774,000. With respect to 2009,2011, the aggregate amount of such fees was approximately $2,365,000.$1,736,000.
Audit-Related Fees
There were approximately $37,000$35,500 in fees billed by PricewaterhouseCoopers LLP in 20102012 for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and which are not included in the amount for 20102012 under "Audit Fees"“Audit Fees” above. These fees related primarily to the filing of a French prospectus.tax credit reviews. With respect to 2009,2011, the amount of such fees was approximately $47,000,$18,500, related primarily to the MS Dynamics AX pre-implementation and filing of the French prospectus.a transfer pricing review.
Tax Fees
The aggregate fees billed by PricewaterhouseCoopers LLP in 20102012 and 20092011 for professional services rendered for tax compliance, tax advice and tax planning were approximately $490,000$636,000 and $481,000,$305,000, respectively. For both 20102012 and 2009,2011, these fees related primarily to research and development tax credit documentation and European tax compliance.
All Other Fees
There was an additional $5,200$2,600 billed by PricewaterhouseCoopers LLP in 20102012 and 2011 for a one-year license to use their proprietary online accounting research tool and statutory accounting training for our associates in Spain. There were no other fees billed by Pricewaterhouse Coopers LLP in 2009 for professional services rendered to us.tool.
Audit Committee Pre-Approval Policies and Procedures
Our audit committee'scommittee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm on an annual basis. These services may include audit services, audit-related services, tax services and other services. Any pre-approval is detailed as to the particular service. Committee pre-approval is also required for additional services outside the scope of previously approved services in the event the fees for such additional services, in
aggregate, are greater than $25,000 per annum. The independent registered public accounting firm and management are required to periodically report to the audit committee regarding the amount of audit and non-audit service fees incurred to date.
Rule 2-01(c)(7)(i) under SEC Regulation S-X provides that a company'scompany’s independent registered public accounting firm can provide certain non-audit services without the prior approval of the audit committee if certain conditions are met, including that the services are incurred in accordance with policies and procedures detailed as to the particular service adopted by the company and are brought promptly to the attention of the audit committee.
The ratification of the appointment of PricewaterhouseCoopers LLP requires the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote on the matter at the Annual Meeting once a quorum is present. Abstentions will be counted and will have the same effect as a vote against the proposal. The audit committee is directly responsible for appointing the Company'sCompany’s independent registered public accounting firm, regardless of the outcome of this vote. The audit committee is not bound by the outcome of this vote but, if the appointment of PricewaterhouseCoopers LLP is not ratified by stockholders, the audit committee will however, consider these voting results when selectingreconsider the Company's independent auditor for 2011.appointment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Review and Approval of Related Person Transactions
We have adopted a written policy that requires the review and pre-approval of all potential transactions valued at greater than $10,000 in which we and any of our directors, executive officers, shareholdersstockholders owning greater than 5% of any class of our securities or any of their immediate family members participates or otherwise has an interest. The audit committee is responsible for evaluating and authorizing any transaction with a value greater than $120,000, although any member of the audit committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction in question. The Chief Financial Officer is responsible for evaluating and authorizing any transaction with a value between $10,000 and $120,000, unless the Chief Financial Officer is a related person with respect to the transaction under review, in which case the General Counsel shall be responsible for such evaluation and possible authorization.
The factors to be considered in determining whether or not to authorize a transaction brought to the attention of the audit committee or the Chief Financial Officer under this policy include the following:
the terms of the transaction, and whether the terms are no less favorable to us than would be obtained in the transaction were entered into with a party other than a related person
the benefits to us
the availability of other sources for the product or service that is the subject of the transaction
the timing of the transaction
the potential impact of the transaction on a director'sdirector’s independence
any other factors deemed relevant
The company had no related person transactions during 2010,since the beginning of 2012, and is not currently aware of any proposed related person transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Hexcel common stock. Executive officers, directors, and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and representations that no other reports were required, for the year ended December 31, 2010,2012, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than ten percent stockholders were complied with, except (i) a Form 4 filed by Mr. David E. BergesNick L. Stanage on February 2, 2010 inadvertently reported that Mr. Berges acquired 51,983 RSUs and 217,850 NQOs (this was corrected by an amended FormNovember 19, 2012 should have been filed on October 1, 2010);or prior to November 13, 2012 and (ii) an amendeda Form 4 filed by Mr. David E. Berges on October 1, 2010 inadvertently omitted 20,152 shares of common stock that were transferred from the Berges 2009 Grantor Retained Annuity Trust I to Mr. Berges (this was corrected by an amended Form 4November 5, 2012 should have been filed on January 15, 2011); (iii) a Form 4 filed by Mr. Wayne C. Pensky on Februaryor prior to November 2, 2010 inadvertently reported that Mr. Pensky acquired 12,679 RSUs and 53,163 NQOs (this was corrected by an amended Form 4 filed on October 1, 2010); (iv) a Form 4 filed by Mr. Ira J. Krakower on February 2, 2010 inadvertently reported that Mr. Krakower acquired 10,957 RSUs and 45,939 NQOs (this was corrected by an amended Form filed on October 1, 2010); (v) a Form 4 filed by Mr. Robert G. Hennemuth on February 2, 2010 inadvertently reported that Mr. Hennemuth acquired 9,554 RSUs and 40,059 NQOs (this was corrected by an amended Form filed on October 1, 2010) and (vi) a Form 4 filed by Mr. Robert G. Hennemuth on August 3, 2010 incorrectly reported the number of shares of common stock held by Mr. Hennemuth was 32,191 shares (this was corrected by amended Form 4 filed on January 27, 2011)2012).
As of the date of this proxy statement, the board 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 intended for inclusion in our proxy materials for the 2012 Annual Meeting2014 annual meeting of Stockholdersstockholders pursuant to Rule 14a-8 under the Exchange Act must be submitted in writing not later than November 19, 201116, 2013 to the Corporate Secretary at Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, CT 06901-3238.
Our Bylaws require that proposals of stockholders that are made outside of Rule 14a-8 under the Exchange Act and nominations for the election of directors at the 2012 Annual Meeting2014 annual meeting of Stockholdersstockholders be submitted, in accordance with the requirements of our Bylaws, not later than January 6, 20123, 2014 in order to be considered timely. Stockholders are also advised to review our Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations. We may exclude untimely proposals from our 20122014 proxy statement. Management proxies will have discretionary authority to vote on the subject matter of the excluded proposal if otherwise properly brought before the annual meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER MEETING TO BE HELD ON MAY 5, 20112, 2013
The proxy statement, annual report to security holders and related materials are available athttp://phx.corporate-ir.net/phoenix.zhtml?c=75598&p=proxy.
Our Annual Report to Stockholders containing audited consolidated financial statements for the year ended December 31, 2010,2012, is being mailed herewith to all stockholders of record. Additional copies are available without charge on request. Requests should be addressed to the Corporate Secretary, Hexcel Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford Connecticut, 06901-3238.
Stamford, Connecticut
March 18, 201115, 2013
Annex A
HEXCEL CORPORATIONMANAGEMENT2013 INCENTIVE COMPENSATIONSTOCK PLANAs Amended and Restated on January 24, 2011
The purposePlan is intended to attract, motivate and retain Employees, Directors and consultants of this Hexcel Corporation Management Incentive Compensation Plan (the "Plan") isthe Company, and to advanceprovide them with incentives to pursue the interests of Hexcel Corporation (the "Company") by providing an incentive for those key employees who have a direct, measurable opportunity to advance the Company's goalslong-term profitability and promote the growth and long-range interestssuccess of the Company. In addition, it is intended that the Plan create linkage between individual performance and compensation, align management's interests with the interests of stockholders, and encourage common management objectives and overall corporate success. A further purpose of the Plan is to serve as
II. Definitions
(a) “Award” means a qualified performance-based compensation program under Section 162 (m) of the Internal Revenue Code in order to preserve the Company's tax deduction for compensation paid under the Plan to "Covered Employees" (as defined below).
(a) "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person. The term "Control" shall have the meaning specified in Rule 12b-2 promulgated under the Exchange Act.
(b) "Award" shall mean the amount (if any) payable to a Participant in respect of a Plan Periodgrant pursuant to the Plan.Plan in the form of a Stock Appreciation Right, Stock Option, Other Stock-Based Award or Qualified Performance-Based Award.
(c) "Beneficial Owner" (and variants thereof) shall have(b) “Award Agreement” means a written agreement setting forth the meaning given in Rule 13d-3 promulgatedterms and conditions of an Award made under the Exchange Act, modified to ownership pursuant to Section 318(a) of the Internal Revenue Code (the "Code").Plan.
(d) "Board" shall mean(c) “Board” means the Board of Directors of the Company.Corporation.
(d) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations, interpretations and administrative guidance thereunder.
(e) "Cause" shall mean (i) the willful and continued failure by the Participant to substantially perform the Participant's duties with the Company (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant by the Company, which demand specifically identifies the manner in which the Company believes that the Participant has not substantially performed the Participant's duties, or (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the Participant's act, or failure to act, was in the best interest of the Company.
(f) "Change in Control" shall have the meaning given in Article XIV hereof.
(g) "Committee" shall mean“Committee” means the Compensation Committee of the Board (or any duly authorized subcommittee thereof) or such other committee of the Board as may be designated by the Board from time to time to administer the Plan.
(f) “Common Stock” means the common stock of the Corporation, par value $0.01, or any other security into which such common stock shall be changed as contemplated by the adjustment provisions of Section X of the Plan.
(g) “Company” means the Corporation together with all of the Subsidiaries.
(h) "Covered Employee" shall mean any Eligible Employee“Corporation” means Hexcel Corporation, a Delaware corporation.
(i) “Covered Employee” means a Participant who is a "covered employee"an executive officer of the Corporation within the meaning of Section 162(m)(3)Rule 3b-7 promulgated under the Exchange Act.
(j) “DGCL” means the Delaware General Corporation Law, as in effect from time to time.
(k) “Director” means a member of the Code and Section 1.162-27(c)(2)Board.
(l) “Effective Date” means the first date that the stockholders of the U.S. Department of Treasury Regulations ("Treasury Regulations").
(i) "Disability" shall meanCorporation approve the Plan in a manner that as a resultsatisfies the requirements of the Participant's incapacity due to physical or mental illness or injury,DGCL and the Participant shall not have performed all or substantially allrules of the
Participant's usual duties as an employee for a period of more than one-hundred-fifty (150) days in any period of one-hundred-eighty (180) consecutive days. New York Stock Exchange.
(j) "Eligible Employee" shall mean any officer or(m) “Employee” means an employee of the Company or a Subsidiary.Company.
(k) "Exchange Act" shall mean(n) “Exchange Act” means the Securities and Exchange Act of 1934, as amended from timeamended.
(o) “Fair Market Value” means, with respect to time.a share of Common Stock, as of the applicable date of determination, (i) the closing sales price on the date of determination or, if not so reported for such day, the immediately preceding business day, of a share of Common Stock as reported on the principal securities
(l) "Participant"
exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the closing bid price on the date of determination or, if not so reported for such day, on the immediately preceding business day as reported on The NASDAQ Stock Market or (iii) if not so reported, as furnished by any member of the Financial Industry Regulatory Authority, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall mean any Eligible Employee who is approvednot be so reported, the Fair Market Value of a share of Common Stock shall be determined by the Committee in its sole discretion, for participation indiscretion.
(p) “Grant Date” means, with respect to any Award, the date on which the Committee completes the corporate action necessary to create a legally binding obligation on the Corporation constituting the Award, or such future date on which the grant is to be effective as provided by the Committee at the time of the corporate action.
(q) “ISO” means any Stock Option, or portion thereof, awarded to a Participant pursuant to the Plan that is designated by the Committee as an incentive stock option and also meets the applicable requirements of an incentive stock option pursuant to Section 422 of the Code.
(r) “Other Stock-Based Award” has the meaning assigned to such term in anySection VI(b).
(s) “Participant” means an Employee, Director or consultant to whom one or more Awards have been granted pursuant to the Plan Period.that have not been fully settled, cancelled or terminated or that are otherwise are no longer outstanding, such Person’s authorized transferees, and, following the death of such Person, his or her successors, heirs, executors, and administrators, as the case may be.
(m) "Performance Goals" shall mean(t) “Performance-Based Award” means (i) a Qualified Performance-Based Award or (ii) an Other Stock-Based Award subject to performance-based conditions.
(u) “Performance Goals” means objective measures of performance based on one or more criteria established by the Committee whichthat must be met during the Plana Performance Period as a condition to vesting or payment of a Participant's receipt of an Award in respect of such Plan Period.Qualified Performance-Based Award. Such criteria may relate to the performance of the Company,Corporation, a Subsidiary, any subsection of the Company'sCompany’s business or any combination thereof and may be expressed as an amount or as an increase or decrease over a specified period or a relative comparison of entity performance to the performance of a peer group of entities or other external measure, of the selected performance criteria, and shall be based on one or more of the following:
(I) earnings, cash flow, customer satisfaction, safety, revenues, financial return ratios, market performance, productivity, costs, shareholder return and/or value, operating profits (including earnings before any or all of interest, taxes, depreciation and amortization), net profits, earnings per share, profit returns or margins, stock price and working capital (or elements thereof); and.
(II) any other performance measure which the Committee deems appropriate, as well as individual performance objectives.
In determining attainment of a Performance Goal (A) the Committee shall exclude the negative impact of unusual, non-recurring or extraordinary items attributable to (1) acquisitions or dispositions of stock or assets, (2) any changes in accounting standards or treatments that may be required or permitted by the Financial Accounting Standards Board, Public Company Accounting Oversight Board or adopted by the CompanyCorporation or its subsidiariesthe Subsidiaries after the goal is established, (3) restructuring activities, (4) disposal of a segment of a business, (5) discontinued operations, (6) the refinancing or repurchase of bank loans or debt securities, (7) unbudgeted capital expenditures, (8) the issuance or repurchase of equity securities and other changes in the number of outstanding shares, (9) conversion of some or all of convertible securities to common stock;stock and (10) any business interruption event; and (B) the Committee may determine within ninety (90) days after the start of a PlanPerformance Period to exclude such other items, each determined according to GAAPGenerally Accepted Accounting Principles (to the extent applicable) as identified in the Company'sCompany’s accounts, financial statements, notes thereto, or management discussion and analysis as may be permitted by Section 162(m) of the Code andCode.
(v) “Performance Period” means, (i) with respect to any Qualified Performance-Based Award, the Treasury Regulations.
(n) "Person" shall have the meaning given in Section 3(a)(9)period of time over which attainment of the Exchange Act,applicable Performance Goals is measured and (ii) with respect to
any Other Stock-Based Award subject to performance-based conditions, the period of time over which attainment of such performance-based conditions is measured. Performance Periods may be overlapping.
(w) “Person” means a “person” as modified andsuch term is used in SectionsSection 13(d) and 14(d) of the Exchange Act, and shall include "persons acting as a group"including any “group” within the meaning of Section 1.409A-3(i)(5)(v)(B) of13(d)(3) under the Treasury Regulations (or any successor provision).Exchange Act.
(o) "Plan Period" shall mean one or more calendar years(x) “Plan” means this Hexcel Corporation 2013 Incentive Stock Plan, as the Committee may determine, with respect to which any Awardit may be payable under the Plan. The Committee may not grantamended from time to any Covered Employee more than two Awards which either start or end in the same calendar year.time.
(p) "Qualified Award" shall mean(y) “Qualified Performance-Based Award” means an Awardaward granted to a Covered Employee pursuant to Section VI(c), the payment of which is conditioned upon the attainment of one or more Performance Goals, which is intended to qualify asmeet the requirements of “qualified performance-based compensationcompensation” under Section 162(m) of the Code.
Table(z) “Securities Act” means the Securities Act of Contents1933, as amended.
(q) "Restricted Stock Units" shall mean the units in which an Award is partially or wholly payable(aa) “Stock Appreciation Right” means a right granted to a Participant pursuant to Article VI hereofSection VI(a) of the Plan to receive an amount of cash, or shares of Common Stock with a Fair Market Value, or both, equal to the increase in the Fair Market Value of a specified number of shares of Common Stock between the Grant Date of the right and the date on which it is exercised.
(bb) “Stock Option” means a right granted pursuant to Section VI(a) of the Plan to purchase a specified number of shares of Common Stock at a specified exercise price per share of Common Stock.
(cc) “Subsidiary” means any “subsidiary” of the Corporation within the meaning of Rule 405 under the Securities Act.
III. Eligibility
All Employees, Directors and consultants of the Company are issuableeligible to be selected by the Committee to receive an Award pursuant to the Hexcel Corporation Management Stock Purchase Plan.
(r) "Stock" shall mean shares of common stock of the Company, par value $.01 per share.
(s) "Subsidiary" shall mean any corporation, partnership, limited liability company or other business entity of which 50% or more of the equity interests is owned or controlled, directly or indirectly, by the Company.
(t) "Target Incentive Award" shall have the meaning given in Section V(A) hereof.IV. Plan Administration
(a) The Committee shall administer, apply, and interpret the provisions of the Plan, and shall have full power and authority to construe, interpret and carry out such provisions. All decisions, interpretations and actions of the Committee under the Plan shall be at the Committee's sole and absolute discretion, and shall be final, conclusive and binding upon all parties. No member of the Board oradministered by the Committee, which shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder.
IV. Eligibility for Participation
The Committee shall have full and complete discretion in determining which Eligible Employees may be Participants in the Plan in any Plan Period. Participation in the Plan in any Plan Period shall not confer any right on any Participant to participate in any subsequent Plan Period.
A. Establishment of Target Incentive Awards and Performance Goals. No later than ninety (90) days after the beginning of a Plan Period the Committee shall establish for each Participant (i) an award (a "Target Incentive Award") for such Plan Year and the applicable Performance Goals in respect of such Plan Period and (ii) a matrix for determining the amount of Award payable under the Plan as a percentage (which may exceed one hundred (100%) percent) of the Target Incentive Award, derived from the degree of achievement of the applicable Performance Goals. Any Committee (including any subcommittee) taking any such action with respect to a Qualified Award shall be composedconsist of two or more persons, each of whom shall bequalifies as a “non-employee director” (within the meaning of Rule 16b-3 under Section 16 of the Exchange Act), an "outside director"“outside director” within the meaning of Treasury Regulation Section 1.162-27(e)(3) and as “independent” within the meaning of any applicable stock exchange listing rules or similar regulatory authority. The Committee shall periodically make determinations with respect to the participation of Employees, Directors and consultants in the Plan and the terms of Awards, including but not limited to amount, type, vesting schedule, exercise price, term, treatment upon termination of employment or other service relationship of the Participant, form of payment, Performance Goals, performance conditions, and such other terms and conditions as the Committee deems appropriate, in each case which shall be contained in an Award Agreement with respect to the Award;provided,that, Awards that vest based upon the lapse of time shall vest over a period of at least three (3) years, and the Performance Period for Performance-Based Awards shall be at least one (1) year, but, in each case, the Committee may make exceptions for death, disability, new hires, promotions, retirement, change in control, and other special circumstances.
(b) The Committee shall have full discretionary authority to interpret and construe the provisions of the Plan and any Award Agreement and to make determinations pursuant to any Plan provision or Award Agreement. The Committee shall have the authority, in its discretion, to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations related to sub-plans established for the purpose of
satisfying applicable foreign laws and/or qualifying for preferred tax treatment under applicable foreign laws. For purposes of clarity, the Committee may exercise all discretion granted to it under the Plan in a non-uniform manner among Participants and all other Persons. All decisions, determinations and interpretations of the Committee pursuant to the Plan shall be final, binding and conclusive on all Participants and all other Persons.
(c) On or after the Grant Date of an Award, the Committee may (i) accelerate the date on which such Award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such Award, including, without limitation, extending the period following a termination of a Participant’s employment or other service relationship during which such Award may remain outstanding, (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of such Award, (iv) provide for the payment of dividends or dividend equivalents with respect to such Award or (v) permit the transferability of such Award;provided,that the Committee shall not have any such authority to the extent that the grant of such authority would cause any tax to become due under Section 409A of the Code. Notwithstanding anything herein to the contrary, any repricing of a Stock Option or cash tender by the Corporation for a Stock Option shall require the approval of the stockholders of the Corporation.
(d) The employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such Participant is employed by or provides services to a Person that is a Subsidiary and such Person ceases to be a Subsidiary, unless the Committee determines otherwise. The Committee may, without limitation and in its discretion, in connection with any such determination, take any action permitted under Section IV(c) upon or after such cessation, subject to such terms and conditions as the Committee shall specify. The employment of a Participant with the Company shall not be deemed to have terminated for any purpose of the Plan if such Participant is employed by the Corporation or a Subsidiary, and such Participant’s employment is subsequently transferred among the Corporation and the Subsidiaries, unless and to the extent the Committee specifies otherwise in writing in the Award Agreement or otherwise.
(e) All of the powers and responsibilities of the Committee under the Plan may be delegated by the Committee to any subcommittee thereof. In addition, the Committee may from time to time authorize a subcommittee consisting of one or more Directors (including Directors who are Employees) or Employees to grant Awards, subject to such restrictions and limitations as the Committee may specify and to the requirements of DGCL Section 157.
(f) To the extent, and in the manner, provided by the Corporation’s Certificate of Incorporation, as it may be amended from time to time, each member of the Committee, and each Director to whom any duty or power relating to the administration or interpretation of the Plan has been delegated pursuant to Section IV(e), shall not be liable for, and shall be entitled to indemnification and advancement of expenses in respect of, any action, omission, or determination relating to the Plan. To the extent permitted by applicable law, including without limitation the DGCL, each non-Director Employee to whom any duty or power relating to the administration or interpretation of the Plan has been delegated pursuant to Section IV(e) shall not be liable for, and shall be entitled to indemnification and advancement of expenses in respect of, any action, omission or determination relating to the Plan, in the same manner and to the same extent as the members of the Committee and Directors.
V. Stock Subject to Awards under the Plan, Share Counting Rules and Certain Limitations on Awards
(a) Stock Subject to the Plan.
(i) The capital stock subject to Awards under the Plan shall be shares of authorized but unissued Common Stock and shares of Common Stock held as treasury stock. Subject to adjustment in accordance with the provisions of Section X, and subject to Section V(a)(ii) below, the maximum number of shares of Common Stock that shall be available for grant pursuant to Awards under the Plan shall be 3,805,000 in the aggregate.
(ii) The following categories of shares of Common Stock shall again be available for grant pursuant to Awards under the Plan, in addition to shares available for grant under paragraph (a)(i) of this Section V: (A) shares related to Awards that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of Common Stock, and the number of shares that are not actually paid pursuant Performance-Based Awards that are earned at less than their maximum performance levels and (B) shares related to awards granted under the Hexcel Corporation 2003 Incentive Stock Plan, As Amended and Restated May 7, 2009 (the “2003 Plan”), that are cancelled, forfeited, paid in cash, expire unexercised or terminate for any reason without the issuance of shares of Common Stock, and the number of shares that are not actually paid pursuant to performance-based awards granted under the 2003 Plan that are earned at less than their maximum performance levels. The following categories of shares of Common Stock shall not be available for grant pursuant to Awards under the Plan: (1) shares tendered or withheld in payment of the exercise price of Stock Options, (2) shares withheld by the Corporation to satisfy a Participant’s tax withholding obligation and (3) shares repurchased by the Corporation using the proceeds from the exercise of Stock Options.
(iii) Subject to adjustment in accordance with the provisions of Section X, the maximum number of shares of Common Stock that may be subject to Awards granted under the Plan that are intended to be ISOs shall not exceed 400,000 shares of Common Stock in the aggregate.
(iv) No more than fifty percent (50%) of the shares of Common Stock available for grant pursuant to Awards under the Plan shall be granted pursuant to Awards other than Stock Options and Stock Appreciation Rights. For purposes of this limitation only, with respect to a Performance-Based Award, the number of shares of Common Stock deemed to be granted shall be that number of shares that would ultimately be issued if the target level of the applicable performance condition or Performance Goal is achieved.
(b) Assumption, Replacement, Conversion and Adjustment. In the context of a corporate acquisition or merger, the Committee may grant Awards pursuant to the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards of an entity other than the Corporation. Unless otherwise required by the listing rules of any securities exchange on which shares of Common Stock are traded, Common Stock covered by Awards granted pursuant to this Section V(b) shall not count against the number of shares available for issuance pursuant to Section V(a).
(c) Individual Award Limits. Subject to adjustment as provided in Section X:
(i) the maximum number of shares of Common Stock that may be covered by Stock Options or Stock Appreciation Rights that are granted to any Covered Employee in any calendar year is equal to the maximum number of shares specified in Section V(a);
(ii) the maximum number of shares of Common Stock that may be covered by Qualified Performance-Based Awards that are granted to any Covered Employee in any calendar year is equal to 345,000 shares; and
(iii) the maximum number of shares of Common Stock that may be covered by Awards that are granted to any Director who is not an Employee in any calendar year is equal to 20,000 shares.
VI. Awards Under The Plan
The Committee may from time to time grant Awards to Participants, subject to the following terms and conditions:
(a) Stock Options and Stock Appreciation Rights.
(i) Terms and Conditions. The exercise price per share of Common Stock covered by any Stock Option or Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market
Value of a share of Common Stock on the Grant Date of the Stock Option or Stock Appreciation Right. Each Stock Option and Stock Appreciation Right shall become vested and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after the Grant Date of such Stock Option or Stock Appreciation Right and set forth in the applicable Award Agreement;provided,however, that no Stock Option or Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the Grant Date of such Stock Option or Stock Appreciation Right; and,provided,further, that each Stock Option and Stock Appreciation Right shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the applicable Award Agreement. Each Stock Option and Stock Appreciation Right may be exercised in whole or in part. The partial exercise of a Stock Option or Stock Appreciation Right shall have no impact on the remaining portion thereof. A Stock Option or Stock Appreciation Right shall be exercised by such methods and procedures as the Committee determines from time to time. The exercise price of shares of Common Stock purchased upon exercise of Stock Options may be paid in any manner determined by the Committee from time to time, including without limitation through net physical settlement or other method of cashless exercise.
(ii) Additional Terms for ISOs. Each Stock Option that is intended to qualify as an ISO shall be designated as such in the applicable Award Agreement, and if the applicable Award Agreement does not include any such designation, the Stock Option shall be deemed to be a non-qualified Stock Option. ISOs may only be granted to Persons who are Employees. The aggregate Fair Market Value (determined as of the Grant Date of the ISOs) of the number of shares of Common Stock with respect to which ISOs are exercisable for the first time by any Participant during any calendar year under all plans of the Company shall not exceed $100,000, or such other maximum amount as is then applicable under Section 422 of the Code. Any Stock Option or a portion thereof that is designated as an ISO that for any reason fails to meet the requirements of an ISO shall be treated hereunder as a non-qualified Stock Option. No ISO may be granted to a Person who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of common stock of the Company unless (i) the exercise price per share of Common Stock subject to such ISO is at least one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time such ISO is granted and (ii) such ISO is not exercisable after the expiration of five (5) years from its Grant Date.
(b) Other Stock-Based Awards. The Committee may grant equity-based or equity-related awards other than Stock Options, Stock Appreciation Rights or Qualified Performance-Based Awards in such amounts and subject to such terms and conditions as the Committee shall determine (each such award an “Other Stock-Based Award”). Without limiting the generality of the preceding sentence, each such Other Stock-Based Award may (a) involve the transfer of actual shares of Common Stock to Participants, either at the time of grant or thereafter, or payment in cash or otherwise of amounts based on the value of shares of Common Stock, (b) be subject to performance-based and/or service-based conditions, (c) be in the form of phantom stock, restricted stock units, deferred share units or share-denominated performance units and (d) be designed to comply with applicable laws of jurisdictions other than the United States;provided, that each Other Stock-Based Award shall be denominated in, or shall have a value determined by reference to, a number of shares of Common Stock that is specified at the time of the grant of such award.
(c) Qualified Performance-Based Awards. A Qualified Performance-Based Award shall be denominated in, or shall have a value determined by reference to, a number of shares of Common Stock that is specified at the time of the grant of such award. The amount payable with respect to any Qualified Performance-Based Award shall be determined in any manner permitted by Section 162(m) of the Code. The Performance Goals established byUnless otherwise specified in the Award Agreement for a Qualified Performance-Based Award, the Committee may, be (but need not be) different each Plan Period and different Performance Goals may be applicablein its discretion, reduce or eliminate the amount payable to different Participants. As soon as practicable afterany Participant with respect to the establishment of the Target IncentiveQualified Performance-Based Award, and Performance Goals, each Participant shall be notified in writing of such Target Incentive Award and the corresponding Performance Goals. Performance Goals applicable to a Qualified Award shall be based on one or more ofsuch factors as the criteria set forthCommittee may deem relevant, but the Committee may not increase any such amount above the amount established in paragraph (I) inaccordance with the definition of Performance Goals, and shall be objectively determinable. Performance Goals applicable to any Award other than a Qualified Award may be based on one or more of the criteria set forth in paragraphs (I) and (II) of the definition of Performance Goals.
B. Calculation of Awards. The Committee shall determine the Award payable to each Participant based on the degreeobjective level of achievement of the applicable Performance Goals. The Committee may, in its sole discretion (a) increase the size of any Award otherwise payable to any Participant (other than a Qualified Award) or (b) reduce or eliminate the size of any Award otherwise payable to a Participant (including any Qualified Award), in each case to reflect such Participant's individual performance or such other factors as the Committee deems relevant, or in recognition of changed or special circumstances. The amount of each Award payable to any Covered Employee for any Plan
Period shall not exceed (i) $4,000,000 for any Award where the Plan Period is a calendar year or (ii) $4,000,000 per calendar year where the Plan Period is greater than a calendar year. If a Covered Employee has elected payment of a portion of such Award in Restricted Stock Units ("RSUs") pursuant to Section VI (B) hereof, the amount of the Award, forFor purposes of the preceding sentence, shall be calculated by valuing the RSU portion as if each RSU were a share of Stock valued at fair market value on the date the Award would have been payable under this Plan had such election not been made.
C. Effect of Change of Employment Status. In the event of a change in employment status of a Participant during the Plan Period,clarity, the Committee may exercise the discretion provided by the foregoing sentence in its sole discretion, adjusta non-uniform manner among Participants. Within ninety (90) days after the Award matrix (exceptbeginning
of a Performance Period with respect to aany Qualified Award) for the Participant based upon the Participant's new status.
D. Effect of Termination of Employment or ChangePerformance-Based Award, and in Control. Except as otherwise provided in this paragraph, payment of an Award to a Participant for a particular Plan Period shall be made only if the Participant is employed by the Company or one of its Subsidiaries on the last dayany case before twenty-five percent (25%) of the PlanPerformance Period has elapsed, the Committee shall establish the Performance Goals for such Performance Period. Notwithstanding any other provision of the Plan, in the case of a Participant's voluntary termination of employment with the Company or a Subsidiary,In addition, the Committee may, in its sole discretion, authorize the full or partial payment of an Award for such Plan Period, if the Participant was actively employed for at least half of the Plan Period. In the case of a Participant's separation from service duesubject to Disability or death or, in the case of a Participant's involuntary termination of employment by the Company or a Subsidiary other than for Cause, a Participant shall be entitled to receive an Award, prorated for the period of active employment with the Company or a Subsidiary during the Plan Period, payable in accordance with Article VI below. Any Participant who is terminated during a Plan Period for Cause shall not receive an Award for such Plan Period. In the case of a Change in Control of the Company during a Plan Period, a Participant shall be entitled to receive an Award, prorated for the period of active employment with the Company or a Subsidiary during such Plan Period and prior to the Change in Control, computed as if applicable Performance Goals had been attained at the one hundred (100%) percent level and payable in cash no later than the fifth (5th) day following the Change in Control.
E. Forfeiture and Recoupment of Awards. Notwithstanding any other provision in the Plan or any Award to the contrary, whenever the Company may be entitled or required by law, Company policy or the requirements of an exchange on which the Company's shares are listed for trading, to cause an Award to be forfeited or to recoup compensation paid to the Participant pursuant to the Plan, each Participant shall accept such forfeiture and comply with any Company request or demand for recoupment.
A. Timing of, and Right to, Payment. Except as provided in the last sentence of Section V(D) hereof, an Award which becomes payable to a Participant pursuant to Article V hereof shall be paid to the Participant (or the Participant's estate in the event of the Participant's death) as soon as practicable after the end of the Plan Period to which the Award relates, following certification by the Committee of the degree of achievement of the relevant Performance Goals, but in no event later than March 15 of the year following the calendar year in which such Plan Period ended. Except as provided in the last sentence of Section V(D) hereof, no Participant shall have the unconditional right to an Award hereunder until the Plan Period has concluded and the exact amount of the Award (if any) has been determined and certified by the Committee.
B. Payment in Cash and/or Restricted Stock Units. At the election, made in accordance with the terms of the Hexcel Corporation Management Stock Purchase Plan, of each Participant who has been designated by the Committeeamend previously granted Qualified Performance-Based Awards in a way that disqualifies them as a participant in the Management Stock Purchase Plan, up to fifty (50%) percent“qualified performance-based compensation” under Section 162(m) of the Participant'sCode.
VII. Award for anyAgreements
Each Award under the Plan Period shall be paid in Restricted Stock Units
pursuant to, and subject toevidenced by an Award Agreement setting forth the terms and conditions of the Management Stock Purchase Plan; Award.
VIII. Other Terms and Conditions
(a) Transferability; Transfers Upon Death. Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of a Participant, only by the Participant;provided,however, that the Participant'sCommittee may at any time permit in its discretion Awards to be sold, pledged, assigned, hypothecated, transferred, or disposed of, on a general or specific basis, subject to such conditions and limitations as the Committee may determine. Upon the death of a Participant, outstanding Awards granted to such Participant may be exercised by the Participant’s designated authorized person or permitted transferee, provided that such authorized person or permitted transferee has been designated prior to the Participant’s death. Each such designation shall revoke all prior designations by the Participant and shall be effective only if given in a form and manner acceptable to the Committee. In the absence of any such effective designation, such Awards may be exercised only by the executors or administrators of the Participant’s estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer of any Award or the right to exercise any Award, whether by will, the laws of descent and distribution, or to any permitted transferee or authorized person, shall be effective to bind the Corporation unless the Committee shall have been furnished with (i) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (ii) an agreement by the transferee to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Award.
(b) Termination of Employment or Other Relationship. The Committee shall determine the consequences with respect to each Award in the event of the retirement, disability, death or other termination of a Participant’s employment or other relationship with the Company.
(c) No Obligation to Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award.
(d) Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to shares of Common Stock covered by an Award until the date that such shares are issued on the books and records of the Corporation. For the avoidance of doubt, for purposes of the foregoing sentence the right to receive dividend equivalents with respect to an Award shall not be considered a right as a stockholder with respect to the shares of Common Stock covered by such Award.
(e) Dividend Equivalents. In the event that the Committee provides for the accrual of dividend equivalents with respect to an Award, such dividend equivalents shall be subject to the same terms and conditions as, and shall in no event be paid prior to the vesting of, the Award to which they relate.
(f) Withholding. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock, the Participant shall be required to pay the amount of any taxes required
to be withheld prior to receipt of such stock, or alternatively, a number of shares the Fair Market Value of which equals the amount required to be withheld may be deducted from the payment.
(g) Securities Matters. Notwithstanding anything to the contrary herein, the Corporation shall not be obligated to cause to be issued any shares of Common Stock pursuant to the Plan, Periodincluding upon the exercise of any Stock Option granted hereunder, unless and until the Corporation is advised by its counsel that the issuance of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. The Committee may require, as a Changecondition to the issuance of shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that any certificates representing such shares bear such legends, as the Committee deems necessary or desirable. The Corporation may, in Control occursits sole discretion, defer the effectiveness of an exercise of a Stock Option hereunder or the issuance of shares of Common Stock pursuant to any Award pending or to ensure compliance under federal, state, local or foreign securities laws. The Corporation shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of a Stock Option or the issuance of shares of Common Stock pursuant to any Award. During the period that the effectiveness of the exercise of a Stock Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. Notwithstanding the foregoing, the Corporation shall be under no obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state, local or foreign laws.
(h) Expenses and Receipts. The expenses of the Plan shall be paid totallyby the Company. Any proceeds received by the Corporation in cash.connection with any Award will be used for general corporate purposes.
IX. Termination, Modification and Amendments
(a) The Committee in its discretion, may permitat any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable;provided,however, that no amendments to the Plan which require stockholder approval under applicable law, rule, regulation or stock exchange listing requirement shall become effective unless the same shall be approved by the requisite vote of the Corporation’s stockholders.
(b) No termination, modification or amendment of the Plan may adversely affect the rights conferred by a Participantpreviously granted Award without the consent of the recipient thereof.
X. Adjustment Upon Certain Changes
Subject to any action by the stockholders of the Corporation required by law, applicable tax rules or the rules of any exchange on which shares of Common Stock (or any other common stock of the Corporation) are listed for trading:
(a) Shares Available for Grants. In the event of any change in the Managementnumber or type of shares of Common Stock Purchase Plan who first becomes employed(or any other common stock of the Corporation) outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, or any change in the type and number of shares of Common Stock (or any other common stock of the Corporation) outstanding by reason of any other event or transaction, the Committee shall make equitable adjustments in the type of shares and in the limitations on the number of shares with respect to which the Committee may grant Awards as described in Section V.
(b) Increase or Decrease in Issued Shares Without Consideration. In the event of any increase or decrease in the number or type of issued shares of Common Stock (or any common stock of the Corporation)
resulting from a subdivision or consolidation of shares of Common Stock (or any other common stock of the Corporation) or the payment of a stock dividend (but only on the shares of Common Stock or other common stock of the Corporation), or any other increase or decrease in the number of such shares effected without receipt or payment of consideration by the Company, the Committee shall equitably adjust the type or number of shares subject to each outstanding Award and the exercise price per share, if any, of shares subject to each such Award.
(c) Certain Mergers. In the event of any merger, consolidation or similar transaction as a result of which the holders of shares of Common Stock receive consideration consisting exclusively of securities of the surviving corporation in such transaction, the Committee shall appropriately adjust each Award outstanding on the date of such merger or consolidation so that it pertains and applies to the securities which a holder of the number of shares of Common Stock subject to such Award would have received in such merger or consolidation.
(d) Certain Other Transactions. In the event of (i) a dissolution or liquidation of the Corporation, (ii) a sale of all or substantially all of the Company’s assets (on a consolidated basis) or (iii) a merger, consolidation or similar transaction involving the Corporation in which the holders of shares of Common Stock receive securities and/or other property, including cash, other than shares of the surviving corporation in such transaction, the Committee shall, in its sole discretion, have the power to:
(A) cancel, effective immediately prior to the occurrence of such event, each Award (whether or not then exercisable or vested), and, in full consideration of such cancellation, pay to the Participant to whom such Award was granted an amount in cash, for each share of Common Stock subject to such Award, equal to the value, as determined by the Committee, of such share of Common Stock, provided that with respect to the shares of Common Stock subject to any outstanding Stock Option or Stock Appreciation Right such value shall be equal to the excess of (1) the value, as determined by the Committee, of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (2) the exercise price of a share of Common Stock subject to such Stock Option or Stock Appreciation Right; or
(B) provide for the exchange of each Award (whether or not then exercisable or vested) for an Award with respect to some or all of the property which a holder of the number of shares of Common Stock subject to such Award would have received in such transaction, and, incident thereto, make an equitable adjustment as determined by the Committee in the exercise price per share, if any, of stock subject to the Award, or the number of shares or amount of property subject to the Award or provide for a payment (in cash or other property) to the Participant to whom such Award was granted in partial consideration for the exchange of the Award.
(e) Other Changes. In the event of any change in the capitalization of the Corporation or corporate change other than those specifically referred to in subsections (b), (c) or (d) of this Section X, including without limitation, any extraordinary cash dividend, spin-off, split-off, sale of a Subsidiary during a given Plan Periodor business unit, or similar transaction, the Committee may make such adjustments in the issuer, number and type of shares subject to elect to have up to one-hundred (100%) percent of the Participant's Award for such Plan Period paid in such Restricted Stock Units; provided, however, that such discretion is exercisedAwards outstanding on or before the date on which the Participant's election is required to become irrevocable under thesuch change occurs, such as, for example, a substitution of Awards, and in such other terms of such Award as the Management Stock Purchase Plan.Committee may consider appropriate.
(f) Committee Discretion; No Other Rights. The Committee shall exercise the discretion granted to it pursuant to this Section X in a manner necessary to preserve the intended benefits of the Plan for the Corporation and the Participants. Except as expressly provided in the Plan, no Participant or other Person shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of Restricted Stock Units to be paid to a Participant shall be calculated in accordance with the Management Stock Purchase Plan. Paymentshares of stock of any class or any dissolution, liquidation, merger or consolidation of the balance ofCorporation or any other corporation. Except as expressly provided in the Participant's Award for such Plan, Period (or all thereof if no election of Restricted Stock Units is madeissuance by the Participant)Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made in cash. Payments of portions of any Awards made in Restricted Stock Units pursuant to the Management Stock Purchase Plan may be referred to therein as "purchases" of such Restricted Stock Units.
The Committee may, at its option, establish written procedures pursuant to which Participants are permitted to defer the receipt of Awards payable under the Plan, which shall be incorporated by reference into the Plan. Any procedures established by the Committee during a Plan Period shall only apply with respect to, Awards payable for a Plan Period commencing after the Plan Period during whichnumber of shares or amount of other property subject to, or the procedures are established. The procedures, if established,terms related to, any Award.
(g) Construction. Nothing in clauses (c), (d) or (e) of this Section X shall be designeddeemed to complysupersede any provision of an Award that provides for accelerated vesting, termination, or other consequence in connection with any event or change to which such clauses apply.
(h) Savings Clause. No provision of this Section X shall be given effect to the requirements ofextent that such provision would cause any tax to become due under Section 409A of the Code.
XI. No Special Employment RightsVIII. Amendment
No Person shall have any claim or right pursuant to this Plan to be granted an Award, and Terminationthe grant of Plan
an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in any other relationship with, the Corporation or a Subsidiary. The Compensation Committee of the BoardCorporation and each Subsidiary expressly reserves the right at any time including duringto terminate a Plan Period, to amend, suspend or terminate the Plan, in whole or in part, in any manner, and for any reason, and without the consent of any Participant,Participant’s employment or other person; provided, that no such amendment, suspensionservice relationship and to increase or termination shall adversely affectdecrease the payment of any Award for a Plan Period ending prior to the action amending, suspending or terminating the Plan or the payment of any Award payable pursuant to the last sentence of Section V(D) hereof or the rightscompensation of a Participant pursuant tofrom the rate in existence at the time of grant of any agreement withAward.
XII. Governing Law
To the Company or any Subsidiary.
The provisions ofextent that federal laws do not otherwise control, the Plan shall be governed and construed in accordance with and governed by the laws of the State of Delaware without giving effectregard to the choiceits principles of law principles thereof.conflicts of law.
X. Miscellaneous Provisions
XIII. Savings Clauses
Nothing contained(a) In General. The Plan is intended to comply in the Plan shall giveall aspects with applicable laws and regulations. In case any employee the right to be retained in the employmentone or more of the Company or a Subsidiary or affect the rightprovisions of the Company or a Subsidiary to dismiss any employee. The Plan shall not constitute a contract between the Company or a Subsidiary and any employee. Unless approved by the Committee in respect of a particular Plan Period, no Participant shall have any right to be granted an Award hereunder. Nothing contained in the Plan shall prevent the Board or the Committee from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required.
Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subjectheld invalid, illegal or unenforceable in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrancerespect under applicable law and regulation, the validity, legality and enforceability of any kind, northe remaining provisions shall not in any mannerway be subjectaffected or impaired thereby and the invalid, illegal or unenforceable provision shall be deemed null and void; however, to the debtsextent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or
liabilities of a Participant, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void.
XII. No Right, Title or Interest in Company's Assets
(b) Section 409A of the Code.
Nothing contained in(i) To the extent applicable, it is intended that the Plan and no action takenthe Awards granted hereunder comply with, or be exempt from, the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, the Plan and the Awards granted hereunder shall be interpreted and administered to be in compliance therewith or exempt therefrom and if any provision of the Plan or any term or condition of any Award would frustrate or conflict with this intent, then the provision, term or condition will be interpreted and deemed amended so as to avoid the frustration or conflict.
(ii) Notwithstanding anything herein or in any Award Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to its provisions,the Plan to a Participant during the six-month period immediately following the Participant’s “separation from service” (within the meaning of Section 409A of the Code) shall create, orinstead be construedpaid on the first business day after the date that is six (6) months following the Participant’s separation from service (or, if earlier than the end of such six-month period, the first business day after the date of the Participant’s death).
XIV. Effective Date and Termination
The Plan shall be effective on the Effective Date. The Plan shall terminate on the tenth (10th) anniversary of the date of the latest stockholder approval of the Plan, including without limitation any stockholder approval of an amendment to create, a trustthe Plan to increase the number of any kind, or fiduciary relationship betweenshares of Common Stock that may be granted hereunder. No Awards shall be granted after the Company or a Subsidiary and any Participant or any other person. Totermination of the extent that any person acquires a right to receive payments from the CompanyPlan, but all Awards outstanding under the Plan such rightsat the time of termination shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company, and no special or separate funds shall be established, and no segregation of assets shall be made, to assure payment thereof.
XIII. No Stock Subject to the Plan
No shares of Stock shall be reserved for, or issued under, the Plan. To the extent that Awards are paid in Restricted Stock Units, each Restricted Stock Unit shall be issued under, and subjectremain outstanding pursuant to the terms and conditions of, the Management Stock Purchase Plan.thereof.
Unless otherwise specified by the Committee at the commencement of a Plan Period, for purposes of the Plan the term "Change in Control" shall mean any of the following events:
(1) any Person is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of either (A) the combined fair market value of the then outstanding stock of the Company (the "Total Fair Market Value") or (B) the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the Company (the "Total Voting Power"); excluding, however, the following: (I) any acquisition by the Company or any of its Controlled Affiliates, (II) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Controlled Affiliates, (III) any Person who becomes such a Beneficial Owner in connection with a transaction that meets the requirements of clauses (A) and (B) of subsection (4) below and (IV) any acquisition of additional stock or securities by a Person who owns more than 50% of the Total Fair Market Value or Total Voting Power of the Company immediately prior to such acquisition; or
(2) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company that, together with any securities acquired directly or indirectly by such Person within the immediately preceding twelve-consecutive month period, represent 40% or more of the Total Voting Power of the Company; excluding, however, any acquisition described in subclauses (I) through (IV) of subsection (1) above; or
(3) a change in the composition of the Board such that the individuals who, as ofFollowing the Effective Date, constituteno further awards will be granted under the Board (such individuals shall be hereinafter referred to as the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, for2003 Plan. For purposes of this definition, any individual who becomes a director subsequentclarity, shares of Common Stock related to such effective date, whose election, or nomination for election, by the Company's stockholders was made or approved by a vote of at least a majority of the Incumbent Directors (or directors whose election or nomination for election was previously so approved) shall be considered an Incumbent Director; but, provided, further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgatedall awards granted under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person or legal entity other than the Board shall not be considered an Incumbent Director; provided finally, however, that, as of any time, any member of the Board who has been a director for at least twelve consecutive months immediately prior to such time shall be considered an Incumbent
Director for purposes of this definition, other than for the purpose of the first proviso of this definition; or
(4) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company or a sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction (A) pursuant to which all or substantially all of the individuals and entities who are the Beneficial Owners, respectively, of the outstanding common stock of the Company and Total Voting Power immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50%, respectively, of the outstanding common stock and the combined voting power of the then outstanding common stock and the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the company resulting from such Corporate Transaction (including, without limitation, a company which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the outstanding common stock and Total Voting Power, as the case may be, and (B) immediately following which the individuals who comprise the Board immediately prior thereto constitute at least a majority of the board of directors of the company resulting from such Corporate Transaction (including, without limitation, a company which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries);
provided, however, that notwithstanding anything to the contrary in subsections (1) through (4) above, an event which does not constitute a change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, each as defined in Section 1.409A-3(i)(5) of the Treasury Regulations (or any successor provision), shall not be considered a Change in Control for purposes of this Plan.
The2003 Plan is designed and intended to comply with Section 162 (m) of the Code with respect to all Qualified Awards granted under this Plan, and the Plan shall be construed in a manner to so comply.
On January 24, 2011, the Compensation Committee authorized this amended and restated Plan. This amended and restated Plan shall become effective upon approval by the stockholders of the Company (the "Effective Date"). Notwithstanding the foregoing, all Target Incentive Awards outstanding prior to this amendment and restatement shall remain outstanding under the terms of the Plan as in effect prior to the Effective Date.Date are acknowledged and affirmed as having been properly authorized and validly granted under the 2003 Plan.
* * * * * * ANNUAL MEETING OF STOCKHOLDERS OF HEXCEL CORPORATION May 2, 2013 NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, proxy statement and proxy card are available at http://phx.corporate-ir.net/phoenix.zhtml?c=75598&p=proxy Please sign, date and mail
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envelope provided as soon as possible.
HEXCEL CORPORATION Two Stamford Plaza 281 Tresser Boulevard Stamford, Connecticut 06901 PROXY FOR ANNUAL MEETING OF STOCKHOLDERS To be held on May 2, 2013 This Proxy is Solicited by the Board of Directors of Hexcel Corporation The undersigned stockholder of Hexcel Corporation (“Hexcel”) hereby appoints David E. Berges, Wayne C. Pensky and Ira J. Krakower and each of them, the lawful attorneys and proxies of the undersigned, each with powers of substitution, to vote all shares of Common Stock of Hexcel held of record by the undersigned on March 7, 2013 at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held at the Community Room, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut, on May 2, 2013 at 10:30 a.m., local time, and at any and all adjournments or postponements thereof, with all the powers the undersigned would possess if personally present, upon all matters set forth in the Notice of Annual Meeting of Stockholders and Proxy Statement dated March 15, 2013, receipt of which is hereby acknowledged. (Continued and to be signed on the reverse side) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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