<Page>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 2001
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HEXCEL CORPORATION
(Exact name of Registrant as specified in its charter)
<Table>
DELAWARE 94-1109521
(State or other jurisdiction 3089 (I.R.S. Employer
of (Primary Standard Industrial Identification No.)
incorporation or organization) Classification Code Number)
</Table>
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
IRA J. KRAKOWER, ESQ.
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
(203) 969-0666
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPY TO:
JOSEPH A. COCO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
FOUR TIMES SQUARE
NEW YORK, NEW YORK 10036
(212) 735-3000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE
9 3/4% Senior Subordinated Notes Due
2009................................. $100,000,000 98.5% $98,500,000 $24,625
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<Page>
SUBJECT TO COMPLETION, DATED AUGUST 2, 2001
PROSPECTUS
Offer to Exchange All 9 3/4% Senior Subordinated Notes Due 2009 Issued on June
29, 2001
for 9 3/4% Senior Subordinated Notes Due 2009, Which Have Been Registered
Under the Securities Act of 1933, of
Hexcel Corporation
The exchange offer will expire at 5:00 P.M.,
New York City time, on , 2001, unless extended.
------------------
Terms of the exchange offer:
- We will exchange all original notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
- You may withdraw tenders of original notes at any time prior to the
expiration of the exchange offer.
- We believe that the exchange of original notes will not be a taxable event
for U.S. federal income tax purposes, but you should see "Certain United
States Federal Income Tax Considerations" on page 126 for more
information.
- We will not receive any proceeds from the exchange offer.
- The terms of the exchange notes are substantially identical to the
original notes, except that the exchange notes are registered under the
Securities Act and the transfer restrictions and registration rights
applicable to the original notes do not apply to the exchange notes.
---------------------
This investment involves risks. See "Risk Factors" beginning on page 10.
-------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------
The date of this prospectus is , 2001.
<Page>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes a description of the specific terms of the notes we are
offering, information regarding our business and detailed financial data. We
encourage you to read this prospectus in its entirety. The terms "Hexcel," "we,"
"our" and "us" as used in this prospectus refer to Hexcel Corporation, the
issuer of the original notes and the exchange notes to be issued in the exchange
offer, and its subsidiaries as a combined entity, except where the context makes
it clear that such term means only the parent company. We refer to the 9 3/4%
Senior Subordinated Notes Due 2009 issued on June 29, 2001 as the "original
notes" and to the 9 3/4% Senior Subordinated Notes Due 2009 offered by this
prospectus as the "exchange notes." The original notes, the exchange notes and
all other 9 3/4% Senior Subordinated Notes Due 2009 of Hexcel that are presently
outstanding and issued pursuant to the indenture dated as of January 21, 1999
are collectively referred to as the "notes." Unless otherwise indicated, the
market and market share data contained in this prospectus are derived from
publicly available industry sources, which we have not independently verified.
You should pay special attention to the "Risk Factors" section beginning on
page 10 of this prospectus. For a description of certain industry-related terms,
see "Glossary of Terms."
SUMMARY OF THE EXCHANGE OFFER
On June 29, 2001, we completed the private offering of $100.0 million
aggregate principal amount of our 9 3/4% Senior Subordinated Notes Due 2009. The
original notes were offered as additional debt securities under an indenture
under which we had issued $240.0 million of 9 3/4% Senior Subordinated Notes Due
2009 on January 21, 1999. As part of the offering that closed on June 29, 2001,
we entered into a registration rights agreement with the initial purchasers of
the original notes in which we agreed, among other things, to deliver this
prospectus to you and to complete an exchange offer for the original notes. The
following is a summary of the exchange offer.
<Table>
SECURITIES OFFERED........................ We are offering up to $100.0 million aggregate principal
amount of our 9 3/4% Senior Subordinated Notes Due 2009
which have been registered under the Securities Act. The
form and terms of the exchange notes are identical in
all material respects to those of the original notes,
except that the exchange notes will not contain transfer
restrictions and registration rights applicable to the
original notes.
THE EXCHANGE OFFER........................ We are offering exchange notes in the principal amount
of $1,000 (and any integral multiple of $1,000) in
exchange for original notes with a $1,000 principal
amount (and any equivalent integral multiple of $1,000).
In order to be exchanged, an original note must be
properly tendered and accepted. All original notes that
are validly tendered and not withdrawn will be
exchanged. As of the date of this prospectus, there is
$100.0 million aggregate principal amount of original
notes outstanding. We will issue exchange notes promptly
after the expiration of the exchange offer.
</Table>
1
<Page>
<Table>
RESALES................................... Based on interpretations by the staff of the SEC in a
series of no-action letters issued to third parties, we
believe that the exchange notes issued in the exchange
offer may be offered for resale, resold or otherwise
transferred by you without compliance with the
registration and prospectus delivery requirements of the
Securities Act, provided that:
- you are acquiring the exchange notes in the ordinary
course of your business;
- you are not participating, do not intend to
participate and have no arrangement or understanding
with any person to participate, in a distribution of
the exchange notes; and
- you are not an "affiliate" of ours.
If you are an affiliate of ours, are engaged in or
intend to engage in, or have any arrangement or
understanding with any person to participate in the
distribution of the exchange notes:
- you cannot rely on the applicable interpretations of
the staff of the SEC and
- you must comply with the registration requirements of
the Securities Act in connection with any resale
transaction.
Each broker or dealer that receives exchange notes for
its own account in exchange for original notes that were
acquired as a result of market-making or other trading
activities must acknowledge that it will deliver this
prospectus in connection with any offer to resell,
resale, or other transfer of the exchange notes issued
in the exchange offer.
EXPIRATION DATE........................... 5:00 p.m., New York City time, on , 2001,
unless we extend the expiration date.
ACCRUED INTEREST ON THE EXCHANGE NOTES AND
ORIGINAL NOTES.......................... The exchange notes will bear interest from July 15,
2001. If your original notes are accepted for exchange,
then you will receive interest on the exchange notes and
not on the original notes.
CONDITIONS TO THE EXCHANGE OFFER.......... The exchange offer is subject to customary conditions.
We may assert or waive these conditions in our sole
discretion. If we materially change the terms of the
exchange offer, we will resolicit tenders of the
original notes. Please read the section of the
prospectus entitled "The Exchange Offer--Conditions to
the Exchange Offer" for more information regarding the
conditions to the exchange offer.
</Table>
2
<Page>
<Table>
PROCEDURES FOR TENDERING ORIGINAL NOTES... If you wish to tender your original notes, you must
complete, sign and date the letter of transmittal, or a
facsimile of it, according to its instructions and
transmit the letter of transmittal, together with your
original notes and any other required documentation, to
the exchange agent, The Bank of New York. The exchange
agent must receive this documentation at the address set
forth in the letter of transmittal by 5:00 p.m., New
York City time, on the expiration date. By signing the
letter of transmittal, you will represent to us that you
are acquiring the exchange notes in the ordinary course
of your business, that you are not participating, do not
intend to participate and have no arrangement or
understanding with any person to participate, in the
distribution of exchange notes, and that you are not an
"affiliate" of ours. See "The Exchange Offer--Procedures
for Tendering."
SPECIAL PROCEDURES FOR BENEFICIAL
HOLDERS................................. If you are the beneficial holder of original notes that
are registered in the name of your broker, dealer,
commercial bank, trust company or other nominee, and you
wish to tender in the exchange offer, you should contact
the person in whose name your original notes are
registered and instruct that person to tender on your
behalf. See "The Exchange Offer--Procedures for
Tendering."
GUARANTEED DELIVERY PROCEDURES............ If you wish to tender your original notes and you cannot
deliver your original notes, the letter of transmittal
or any other required documents to the exchange agent
before the expiration date, you may tender your original
notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS......................... Tenders may be withdrawn at any time before 5:00 p.m.,
New York City time, on the expiration date.
ACCEPTANCE OF ORIGINAL NOTES AND DELIVERY
OF EXCHANGE NOTES....................... Subject to the conditions set forth in the section of
this prospectus entitled "The Exchange Offer--Conditions
to the Exchange Offer," we will accept for exchange any
and all original notes that are properly tendered in the
exchange offer before 5:00 p.m., New York City time, on
the expiration date. The exchange notes will be
delivered promptly after the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer."
</Table>
3
<Page>
<Table>
CERTAIN UNITED STATES FEDERAL TAX
CONSEQUENCES............................ We believe that your exchange of original notes for
exchange notes pursuant to the exchange offer will not
result in any gain or loss to you for U.S. federal
income tax purposes. See "Certain United States Federal
Tax Consequences."
EXCHANGE AGENT............................ The Bank of New York is serving as exchange agent in
connection with the exchange offer. The address and
telephone number of the exchange agent are set forth in
the section of this prospectus entitled "The Exchange
Offer--Exchange Agent."
USE OF PROCEEDS........................... We will not receive any proceeds from the issuance of
exchange notes pursuant to the exchange offer. See "Use
of Proceeds." We will pay all expenses incident to the
exchange offer. No underwriter is being used in
connection with the exchange offer. For a description of
the use of proceeds of the offering of original notes,
see "Our Business--Recent Developments--Issuance of
Original Notes."
</Table>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
<Table>
ISSUER.................................... Hexcel Corporation.
AGGREGATE AMOUNT.......................... $100.0 million aggregate principal amount of 9 3/4%
Senior Subordinated Notes Due 2009.
MATURITY.................................. January 15, 2009.
INTEREST RATE............................. 9 3/4% per year.
INTEREST PAYMENT DATES.................... January 15 and July 15 of each year, commencing January
15, 2002.
RANKING................................... The notes will be unsecured senior subordinated
obligations and will rank junior to our existing and
future senior indebtedness. The notes will rank equally
with our existing and future senior subordinated
indebtedness and will rank senior to our subordinated
indebtedness. The notes effectively will rank junior to
all liabilities of our subsidiaries. The terms "Senior
Indebtedness" and "Subordinated Indebtedness" are
defined in the "Description of the Notes--Ranking" and
"Description of the Notes--Definitions of Terms Used in
the Indenture" sections of this prospectus.
As of March 31, 2001, after giving effect to the
issuance and sale of the original notes and our use of
the net proceeds from the issuance, we had outstanding
$275.5 million of senior indebtedness and $72.5 million
of subordinated indebtedness.
OPTIONAL REDEMPTION....................... We cannot redeem the exchange notes until January 15,
2004, except as described below. On and after that date,
we can redeem some or all of the exchange notes at the
redemption prices listed in the "Description of the
Notes--Optional Redemption" section of this prospectus,
plus accrued interest.
</Table>
4
<Page>
<Table>
OPTIONAL REDEMPTION AFTER PUBLIC EQUITY
OFFERINGS............................... At any time, which may be more than once, before January
15, 2002, we can choose to redeem up to 35% of the
original principal amount of the notes, including the
original principal amount of any additional notes, with
money that we raise in public equity offerings, so long
as:
- we pay to holders of the notes a redemption price of
109 3/4% of the face amount of the notes we redeem,
plus accrued interest;
- we redeem the notes within 120 days of completing a
public equity offering; and
- at least 65% of the original aggregate principal
amount of notes issued, including the original principal
amount of any additional notes, remains outstanding
afterwards.
CHANGE OF CONTROL OFFER................... If a change of control of Hexcel occurs, we must give
holders of the exchange notes the opportunity to sell to
us their notes at a purchase price of 101% of their face
amount, plus accrued interest. The term "Change of
Control" is defined in the "Description of the
Notes--Change of Control" section of this prospectus.
Our ability to repurchase the exchange notes following
the occurrence of a change of control may be limited by
then existing financial resources. We cannot assure you
that sufficient funds will be available when necessary
to make any required repurchases. See "Risk Factors--We
may be unable to purchase your notes upon a change of
control."
COVENANTS................................. The indenture governing the notes contains covenants
that limit our ability and that of our subsidiaries to:
- incur additional debt;
-pay dividends or distributions on, or redeem or
repurchase, our capital stock;
- make investments;
- issue or sell capital stock of subsidiaries;
- engage in transactions with affiliates;
- create liens on our assets to secure specified debt;
- transfer or sell assets;
- guarantee debt;
- restrict dividend or other payments to us;
-consolidate, merge or transfer all or substantially all
of our assets and the assets of our subsidiaries; and
- engage in unrelated businesses.
These covenants are subject to important exceptions and
qualifications, which are described in the "Description
of the Notes" section of this prospectus.
</Table>
5
<Page>
OUR BUSINESS
GENERAL
We are the world's leading producer of advanced structural materials. We
develop, manufacture and market lightweight, high-performance reinforcement
products, composite materials and engineered products for use in commercial
aerospace, space and defense, electronics and general industrial applications.
Our materials are used in a wide variety of end products, such as commercial and
military aircraft, space launch vehicles and satellites, printed wiring boards,
computers, cellular telephones, televisions, soft body armor, high-speed trains
and ferries, cars and trucks, wind turbine blades, reinforcements for bridges
and other structures, window blinds, skis and snowboards, golf clubs, fishing
poles, tennis rackets and bicycles.
We are a vertically integrated manufacturer of products organized around
three strategic business segments, presented in order of manufacturing
integration from raw materials to finished products.
- REINFORCEMENT PRODUCTS: This segment manufactures carbon fibers and carbon
fiber fabrics, fiberglass fabrics which are the substrate for printed
wiring boards, woven industrial fabrics, woven fabrics for ballistics
protection and carbon, aramid and glass reinforcement materials, all of
which comprise the foundation of many composite materials, parts and
structures;
- COMPOSITE MATERIALS: This segment produces honeycomb and prepregs, as well
as structural adhesives and specially machined honeycomb details and
composite panels, that are incorporated into military and commercial
aircraft; and
- ENGINEERED PRODUCTS: This segment engineers and produces composite parts
and structures for commercial and military aircraft.
With 20 manufacturing facilities located in six countries around the world
and joint ventures in Asia, Europe and the United States, we are well positioned
to take advantage of opportunities for growth worldwide. For the twelve months
ended December 31, 2000, 43% of our sales were made outside the United States.
We serve our international markets through manufacturing facilities and sales
offices located in the United States and Europe, and through sales offices
located in Asia, Australia and South America.
We believe that we have achieved a degree of vertical integration unmatched
by any competitor. This vertical integration enhances our control over the cost,
quality and delivery of our products, and enables us to offer a variety of
solutions to our customers' structural materials needs. For the year ended
December 31, 2000, we generated net sales of approximately $1.1 billion and
Adjusted EBITDA of $144.9 million. For the three months ended March 31, 2001, we
generated net sales of approximately $276.2 million and Adjusted EBITDA of
$38.9 million. See the footnotes to the "Selected Consolidated Financial
Information" table on page 23 of this prospectus for definitions of the terms
"EBITDA" and "Adjusted EBITDA."
COMPETITIVE STRENGTHS
We believe that our competitive position is attributable to a number of key
strengths, including the following:
- Market leader for advanced structural materials
- Most vertically integrated manufacturer of advanced structural materials
- Market and geographic diversity
- Broad range of product qualifications in the aerospace industry
- Leader in growing multilayer printed wiring board market
- Leader in advanced structural materials technology
6
<Page>
RECENT DEVELOPMENTS
APPOINTMENT OF NEW CHIEF EXECUTIVE OFFICER
The Board of Directors appointed Mr. David E. Berges to serve as our
Chairman of the Board of Directors and our Chief Executive Officer effective as
of July 30, 2001. Mr. Berges succeeds John J. Lee, who passed away in May of
2001.
SECOND QUARTER 2001 FINANCIAL RESULTS
On July 20, 2001, we reported our financial results for the second quarter
of 2001. Net loss for the second quarter of 2001 was $12.6 million, or $0.34 per
diluted share. The net loss for the second quarter 2001, before the
extraordinary loss of $3.1 million arising from the early retirement of debt,
was $9.5 million, or $0.26 per diluted share, compared to net income of
$50.4 million, or $1.14 per diluted share, for the second quarter of 2000. The
quarter's results include a number of one-time charges, which relate to
compensation expenses resulting from the retirement of our former Chief
Executive Officer, the early retirement of our Increasing Rate Senior
Subordinated Notes Due 2003 and a portion of our 7% Convertible Subordinated
Notes Due 2003, both of which were repaid with proceeds from the offering of the
original notes, fees and expenses incurred in connection with an amendment to
our senior credit facility, and a reduction in our tax benefit for U.S.
operating losses. Excluding these items and business consolidation expenses, our
pretax income was $1.6 million. Our second quarter 2000 results included a net
after-tax gain from the sale of Bellingham aircraft interiors business of
approximately $44.0 million, or $0.97 per diluted share.
Adjusted EBITDA for the second quarter of 2001 was $33.4 million versus
$38.8 million for the second quarter of 2000 and $39.3 million for the second
quarter of 2000 on a pro forma basis. Adjusted EBITDA for 2001 year to date was
$72.3 million versus $75.9 million for 2000 year to date on a pro forma basis.
Pro forma results give effect to the April 26, 2000 sale of the Bellingham
aircraft interiors business as if the transaction had occurred on January 1,
2000.
ISSUANCE OF ORIGINAL NOTES
On June 29, 2001, we issued and sold $100.0 million aggregate principal
amount of the original notes, generating net proceeds to Hexcel of approximately
$94.2 million. We used the net proceeds of the issuance to redeem $67.5 million
aggregate principal amount of our outstanding 7% Convertible Subordinated Notes
Due 2003 (plus a $0.8 million premium payment), of which approximately
$114.4 million of principal was outstanding, and to prepay the entire principal
amount of approximately $25.0 million of the Increasing Rate Senior Subordinated
Note Due 2003 held by Ciba Specialty Chemicals Inc.
AMENDMENT TO SENIOR CREDIT FACILITY
In connection with the issuance of the original notes, we amended our senior
credit facility to, among other things, modify financial covenants and permit
that offering. As of March 31, 2001, there were approximately $227.9 million of
loans outstanding under the senior credit facility, consisting of $29.7 million
of term A loans, $92.6 million of term B loans, $25.6 million under the domestic
revolving line of credit, $80.0 million under the European revolving line of
credit, and no amounts under the European overdraft facility.
PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF OUR COMMON STOCK BY A GROUP
OF INVESTORS
On December 19, 2000, a group of investors controlled by subsidiaries of The
Goldman Sachs Group, Inc. completed the purchase of approximately 14.5 million
of the approximately 18 million shares of our common stock owned by Ciba. The
shares acquired by the investors represent
7
<Page>
approximately 39% of our outstanding common stock. In addition, we entered into
a governance agreement with the investors that became effective on December 19,
2000. Under this governance agreement, the investors have the right to designate
three directors to serve on our ten-member Board of Directors.
As a result of this transaction, Ciba now owns approximately 3.5 million
shares of our common stock. In addition, our governance agreement with Ciba,
which gave Ciba the right to designate four directors to sit on our Board of
Directors, terminated. Ciba has stated that its ownership of our common stock is
non-strategic and that it will explore options for its future disposition of our
common stock.
SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, we sold our Bellingham business to Britax Cabin
Interiors, Inc., a subsidiary of Britax International plc, for $113.3 million in
cash, which resulted in an after-tax gain of approximately $44 million. The
Bellingham business generated net sales of $18.9 million for the period from
January 1 through April 26, 2000, $70.0 million for 1999 and $34.3 million for
1998. The Bellingham business was engaged in the manufacture and sale of airline
interior refurbishment applications and its operating results were reflected as
a component of our Engineered Products business segment up to the date of
disposal.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents summary financial and other data with respect
to Hexcel and has been derived from (1) the audited consolidated financial
statements of Hexcel as of and for the three years ended December 31, 2000, and
the unaudited condensed consolidated financial statements of Hexcel as of and
for the three months ended March 31, 2000 and 2001 and for the nine months ended
December 31, 2000, (2) the unaudited pro forma financial statements and (3) the
unaudited supplemental pro forma financial statements. The unaudited pro forma
financial statements and the unaudited supplemental pro forma financial
statements give effect to the offering of the original notes and the application
of the net proceeds from that offering, including the redemption of
$67.5 million aggregate principal of the outstanding 7% Convertible Subordinated
Notes Due 2003 (plus a $0.8 million premium payment) and the redemption of the
entire principal amount of approximately $25.0 million of the Increasing Rate
Senior Subordinated Note Due 2003, each as if they had occurred as of the
beginning of the periods presented. The unaudited supplemental pro forma
financial statements are presented to provide a measure of operating performance
without the Bellingham operation and present an alternative presentation that
should not be considered in isolation or as a substitute for pro forma financial
statements presented in accordance with generally accepted accounting
principles. The summary financial and other data for Hexcel have been derived
from the unaudited consolidated financial statements of Hexcel as of and for the
three months ended March 31, 2000 and 2001 and for the nine months ended
December 31, 2000 which, in the opinion of our management, include all
adjustments necessary for the fair presentation of such information. Results for
interim periods are not necessarily indicative of the results for the full year.
The information set forth should be read together with the other information
contained under the captions "Capitalization," "Selected Consolidated Financial
Information," "Pro Forma Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
consolidated financial statements and the related notes thereto, included
elsewhere in this prospectus.
8
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<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
SUPPLEMENTAL
HISTORICAL PRO FORMA
------------------------------ ------------
1998 1999 2000 2000
-------- -------- -------- ------------
(DOLLARS IN MILLIONS)
STATEMENT OF
OPERATIONS DATA:
Net sales............. $1,089.0 $1,151.5 $1,055.7 $1,036.8
Gross margin.......... 271.3 242.5 231.4 226.8
Business consolidation
expenses (a)........ 12.7 20.1 10.9 10.9
Operating income...... 117.0 68.9 75.4 74.8
Gain on sale of
Bellingham aircraft
interiors
business............ -- -- 68.3 --
Net income (loss)..... 50.4 (23.3) 54.2 6.9
OTHER DATA:
EBITDA (b)............ $ 164.5 $ 130.3 $ 202.3 $ 133.1
Adjusted EBITDA (b)... 177.2 150.4 144.9 144.0
Depreciation and
amortization........ 47.5 61.3 58.7 58.4
Capital
expenditures........ 66.5 35.6 39.6 39.4
Ratio of earnings to
fixed charges (c)... 2.9 N/A 2.1 2.1
BALANCE SHEET DATA (AT
PERIOD END):
Working capital....... $ 219.6 $ 117.3 $ 128.1
Total assets.......... 1,404.2 1,261.9 1,211.4
Total debt............ 864.9 770.9 673.6
Stockholders'
equity.............. 302.4 270.1 315.7
<Caption>
FOR THE TWELVE
MONTHS ENDED
FOR THE THREE MONTHS ENDED MARCH 31, MARCH 31,
----------------------------------------------- --------------
SUPPLEMENTAL SUPPLEMENTAL
HISTORICAL PRO FORMA PRO FORMA PRO FORMA
------------------- ------------ ---------- --------------
2000 2001 2000 2001 2001
-------- -------- ------------ ---------- --------------
(DOLLARS IN MILLIONS)
STATEMENT OF
OPERATIONS DATA:
Net sales............. $ 279.8 $ 276.2 $263.2 $ 276.2 $1,049.8
Gross margin.......... 62.2 60.1 57.7 60.1 229.2
Business consolidation
expenses (a)........ 1.2 1.1 1.2 1.1 10.8
Operating income...... 21.8 22.6 20.7 22.6 76.7
Gain on sale of
Bellingham aircraft
interiors
business............ -- -- -- -- --
Net income (loss)..... 2.6 5.5 0.1 2.6 9.4
OTHER DATA:
EBITDA (b)............ $ 36.8 $ 37.8 $ 35.4 $ 37.8 $ 135.6
Adjusted EBITDA (b)... 38.0 38.9 36.5 38.9 146.4
Depreciation and
amortization........ 15.0 15.2 14.7 15.2 58.9
Capital
expenditures........ 4.4 10.6 4.2 10.6 45.8
Ratio of earnings to
fixed charges (c)... 1.2 1.4 1.2 1.3 2.1
BALANCE SHEET DATA (AT
PERIOD END):
Working capital....... $ 149.8 $ 142.0 $ 142.0
Total assets.......... 1,290.0 1,225.5 1,229.8
Total debt............ 788.8 679.9 686.5
Stockholders'
equity.............. 270.3 307.2 304.7
</Table>
- ------------------------------
(a) Business consolidation expenses include amounts previously reported as
"Restructuring expenses."
(b) "EBITDA" is defined as income from continuing operations before interest,
taxes and depreciation and amortization. "Adjusted EBITDA" is defined as
EBITDA before business consolidation expenses and other income, net. We
believe that EBITDA and Adjusted EBITDA provide useful information regarding
Hexcel's ability to service its indebtedness. These measures may not be
comparable to similarly titled financial measures of other companies. EBITDA
and Adjusted EBITDA do not represent alternative measures of Hexcel's cash
flows or operating income, and should not be considered in isolation or as
substitutes for measures of performance presented in accordance with
generally accepted accounting principles.
(c) Earnings consist of income (loss) from continuing operations before fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of fees related to debt financing and that portion of rent
expense deemed to be interest. Interest portion of rentals was calculated as
one third of rentals, which is a reasonable approximation of the interest
factor. For the year ended December 31, 1999, earnings were insufficient to
cover fixed charges by approximately $5.0 million.
9
<Page>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS WELL AS THE OTHER
MATTERS DESCRIBED IN THIS PROSPECTUS.
YOU MAY HAVE DIFFICULTY SELLING THE ORIGINAL NOTES YOU DO NOT EXCHANGE.
If you do not exchange your original notes for the exchange notes offered in
this exchange offer, you will continue to be subject to the restrictions on the
transfer of your original notes. Those transfer restrictions are described in
the indenture governing the notes and in the legend contained on the original
notes, and arose because we originally issued the original notes under
exemptions from the registration requirements of the Securities Act.
In general, you may offer or sell your original notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the original notes under the Securities Act.
If a large number of original notes are exchanged for new notes issued in
the exchange offer, it may be particularly difficult for you to sell your
original notes. This is because potential buyers will likely prefer to purchase
exchange notes from a different seller if possible. In addition, if you do not
exchange your original notes in the exchange offer, you will not be entitled to
have those original notes registered under the Securities Act.
Please see "The Exchange Offer--Consequences of Failure to Exchange Original
Notes" for a discussion of the possible consequences of failing to exchange your
original notes.
WE HAVE SUBSTANTIAL DEBT THAT COULD LIMIT OUR ABILITY TO MAKE PAYMENTS ON THE
NOTES AND REDUCE THE EFFECTIVENESS OF OUR OPERATIONS.
We have substantial debt and debt service requirements. We cannot assure you
that we will generate sufficient cash flow from operations, or that we will be
able to obtain sufficient funding, to satisfy our debt service obligations,
including the payment of principal and interest on the notes. As of March 31,
2001, we had $679.9 million of outstanding debt. Our total debt, as a percentage
of total capitalization, was 69%. This substantial level of debt will have
important consequences, including:
- limiting our ability to borrow additional amounts for working capital,
capital expenditures, debt service requirements, execution of our growth
strategy and research and development costs;
- limiting our ability to use operating cash flow in other areas of our
business;
- increasing our vulnerability to general adverse economic and industry
conditions; and
- limiting our ability to capitalize on business opportunities and to react
to competitive pressures and adverse changes in government regulation.
Our ability to pay interest on the notes and to meet our other debt service
obligations depends upon, among other things, our future operating performance
and ability to refinance debt when necessary. Each of these factors is to a
large extent dependent upon economic conditions and financial, business and
competitive factors beyond our control. We may be able to incur substantial
indebtedness in the future, and any such additional borrowings would further
increase our leverage and the associated risks.
WE MAY NOT BE ABLE TO FINANCE FUTURE OPERATIONS AND CAPITAL NEEDS BECAUSE OF
RESTRICTIONS IN OUR DEBT AGREEMENTS.
The operating and financial restrictions and covenants in our existing debt
agreements, and in any future financing agreements, may impair our ability to
finance future operations or capital needs. In addition, the senior credit
facility requires that we maintain compliance with specified financial ratios.
10
<Page>
A breach of any of these restrictions or covenants could cause a default under
the notes and our other debt. A significant portion of our debt may then become
immediately due and payable. We may not have, or be able to obtain, sufficient
funds to make these accelerated payments, including payments on the notes.
WE MAY NOT BE ABLE TO PAY PRINCIPAL AND INTEREST ON YOUR NOTES AFTER PAYMENT OF
OUR SENIOR DEBT.
We may not be able to make payments on the notes after payment of amounts
due on our senior debt. Your notes will be subordinate to the prior payment in
full of all senior debt. As of March 31, 2001, we had approximately
$275.5 million of senior debt outstanding. Moreover, the indenture permits us to
incur additional debt, which may include senior debt. After giving effect to
loan covenants under our senior credit facility, the maximum amount of
additional debt that we could borrow as of March 31, 2001 was $58.8 million, all
of which would be senior debt. Because of the subordination provisions of the
notes, in the event of our bankruptcy, our assets would be available to pay
obligations under the notes only after all payments had been made on our senior
debt. We cannot assure you that sufficient assets will remain after these
payments have been made to make any payments on the notes.
In addition, the occurrence of specified events of default under our senior
debt would prohibit us from making any payments on the notes, including payments
of interest when due.
YOUR NOTES WILL BE SUBORDINATED TO THE LIABILITIES OF OUR SUBSIDIARIES AND PRIOR
PAYMENTS OF THESE LIABILITIES MAY PREVENT US FROM BEING ABLE TO MAKE PAYMENTS ON
THE NOTES.
As of March 31, 2001, our subsidiaries had approximately $269.3 million of
liabilities. Because your notes are structurally subordinated to our
subsidiaries' liabilities, we must pay these liabilities prior to making
payments on your notes. We cannot assure you that adequate assets will remain
after these payments. Moreover, these prior payments will generally include the
payment of all liabilities of our subsidiaries, even if the particular
liabilities do not constitute senior debt. Thus, for example, your claim on our
assets in satisfaction of your rights as a note holder will generally be
subordinate to the claims of trade creditors of, or creditors holding guarantees
issued by, our subsidiaries.
YOUR NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. IF OUR BANK LENDERS FORECLOSE
ON OUR ASSETS, THE PROCEEDS FROM OUR REMAINING ASSETS MAY BE INSUFFICIENT TO
MAKE PAYMENTS ON THE NOTES.
Our bank lenders have a security interest in our assets. Your claims as a
note holder are unsecured. Therefore, our secured lenders will have a claim on
our assets prior to any claim you have as a note holder. Accordingly, we cannot
assure you that the liquidation value of our remaining assets after a
foreclosure by our secured lenders would be adequate to make any payments on
your notes.
DECREASED DEMAND IN THE COMMERCIAL AEROSPACE INDUSTRY COULD SIGNIFICANTLY IMPAIR
OUR SALES, PROFIT MARGINS AND FINANCIAL CONDITION.
Decreased demand in the commercial aerospace industry could result in
reduced net sales for our commercial aerospace products and could reduce our
profit margins. Approximately 50% of our net sales for the year ended
December 31, 2000 and 52% of our net sales for the three months ended March 31,
2001 were derived from sales to the commercial aerospace industry. Deliveries of
commercial aircraft in 2001 are expected to be at historically high levels and
could decline in the future. Reductions in demand for commercial aircraft or a
delay in deliveries could result from many factors, including a slower than
anticipated rate of passenger growth, a rise in the cost of aviation fuel,
consolidation of airlines and slower macroeconomic growth. Reduced production of
commercial aircraft will reduce our sales and profits.
In addition, our customers continue to emphasize the need for improved yield
in the use of our products and cost reduction throughout the commercial
aerospace supply chain. In response to these pressures, we reduced the price of
some commercial aerospace products in recent years and are likely to continue to
do so in the future. Where possible, we seek to offset or mitigate the impact of
such
11
<Page>
price and cost reductions by productivity improvements and reductions in the
costs of the materials and services we procure.
A SIGNIFICANT DECLINE IN BUSINESS WITH BOEING OR AIRBUS COULD MATERIALLY IMPAIR
OUR BUSINESS, OPERATING RESULTS, PROSPECTS AND FINANCIAL CONDITION.
Approximately 20% and 13% of our sales for the year ended December 31, 2000
and 21% and 14% of our sales for the three months ended March 31, 2001 were made
to Boeing and its related subcontractors, and Airbus and its related
subcontractors. Accordingly, the loss of, or significant reduction in purchases
by, either of these customers could materially impair our operating results and
weaken our financial condition.
UNTIL THE GLOBAL ELECTRONICS INDUSTRY SLOWDOWN AND INVENTORY CORRECTION ENDS,
OUR ELECTRONICS SALES WILL SUFFER.
Most end producers of electronic devices have reported either slowing or
shrinking demand for their products over the last nine months. A significant
element in the weakening of demand for electronic products has been reduced IT
equipment spending as the technology boom has waned and lower spending on
telecommunications infrastructure as project funding has slowed. The impact of
reduced demand has been magnified down the electronics industry supply chain as
end-product manufacturers reduce production to accommodate lower demand and to
liquidate inventories.
We manufacture electronic fiberglass fabrics that are the substrate for the
laminate from which printed wiring boards are fabricated. As the electronics
industry slowdown became apparent in the first quarter of 2001 with a sharp
reduction in sales in the United States in March, we saw our electronics net
sales decrease by 20.4% compared to the first quarter of 2000. In the second
quarter of 2001, our United States sales remained at much depressed levels and
the same trends emerged in Europe and Asia. Our electronics sales for the second
quarter of 2001 decreased by 65% compared to the pro forma second quarter of
2000.
As a result of our position in the electronics industry supply chain, we
have limited visibility as to the timing of when the inventory correction will
end or as to the level of demand once the correction has been completed.
Further, once demand does start to improve, competition may result in lower
prices for our products as all the industry's suppliers seek to recapture sales
volume. Lastly, the market for electronic glass fabrics has become more global
as producers seek export markets for their products and producers of electronic
products seek to locate production in low labor cost countries. With this
globalization of the industry, international trade agreements that have
historically restricted international imports of competitive products to the
United States have started to be phased-out. On January 1, 2002, quota
restrictions for electronics glass fabrics between the United States and both
Taiwan and the People's Republic of China will fall away.
With limited visibility as to the timing of when the inventory correction
will end, the level of demand following that correction and the impact of global
competition, there is uncertainty as to the future level of our electronic
revenues compared to that reported in 1999 or 2000 and as to the future
profitability of those revenues.
REDUCTIONS IN SPACE AND DEFENSE SPENDING COULD RESULT IN A DECLINE IN OUR NET
SALES.
We cannot assure you that the U.S. defense budgets and the related demand
for defense and related equipment will not decline or that sales of defense and
related equipment to foreign governments will continue at expected levels.
Approximately 11% of our pro forma net sales for the year ended December 31,
2000 and 13% of our net sales for the three months ended March 31, 2001 were
derived from the space and defense industry. The space and defense industry is
largely dependent upon government defense budgets, particularly the U.S. defense
budget. We cannot assure you that new
12
<Page>
military aircraft programs will enter full-scale production as expected, or that
any of the aircraft will use significant amounts of our advanced structural
materials. See "Business--Markets and Customers."
A DECREASE IN SUPPLY OR INCREASE IN COST OF OUR RAW MATERIALS COULD RESULT IN A
MATERIAL DECLINE IN OUR PROFITABILITY.
Because we purchase large volumes of raw materials, such as epoxy and
phenolic resins, aluminum foil, carbon fiber, fiberglass yarn and aramid paper
and fiber, any decrease in the supply or increase in the cost of our raw
materials could significantly reduce our profit margins. We cannot assure you
that we will experience no decrease in the supply or increase in price of our
raw materials. Our profitability depends largely on the price and continuity of
supply of these raw materials, which are supplied by a limited number of
sources. In addition, qualification to use raw materials in some of our products
limits the extent to which we are able to substitute alternative materials for
these products. Our ability to pass on these costs to our customers is, to a
large extent, dependent on the terms of our contracts with our customers and
market conditions, including the extent to which our customers would switch to
alternative materials not produced by us in the event of an increase in the
prices of our products.
VOLATILITY IN ENERGY PRICES MAY RESULT IN A MATERIAL DECLINE IN OUR
PROFITABILITY.
Because our manufacturing operations use a significant amount of energy, any
increase in energy prices could significantly reduce our profit margins. During
the fourth quarter of 2000 and continuing into 2001, there has been
unprecedented volatility in the cost and supply of energy and in natural gas
prices in the United States, particularly in western states where many of our
U.S. manufacturing facilities are located. Continued significant price changes
are likely to have an impact on our financial results. The outcome of the U.S.
energy situation and its impact on the U.S. economy is unpredictable at this
time and may pose unforeseen future risk. Energy costs in the first quarter of
2001 were approximately $2 million higher than in the first quarter of 2000. We
may not be able to pass these costs on to our customers.
OUR BUSINESS CONSOLIDATION AND PRODUCTIVITY IMPROVEMENT PLANS MAY NOT RESULT IN
COST SAVINGS.
We cannot assure you that our current business consolidation and
productivity plans such as our Lean Enterprise initiative will prove successful.
One of our principal strategies is to improve financial results through the
consolidation of our operations. The complexity, cost and time of consolidating
manufacturing operations is greatly increased because of the qualification
requirements of the aerospace and other industries. Accordingly, we may
encounter delays or unanticipated problems in our efforts to consolidate our
operations and these efforts may not result in the cost savings that we
currently anticipate.
THE INTERESTS OF OUR SIGNIFICANT SHAREHOLDER MAY BE DIFFERENT THAN YOUR
INTERESTS.
The Goldman Sachs investor group will have the ability to influence our
affairs so long as it maintains ownership of specified percentages of our
outstanding common stock, and the interests of the investor group may not in all
cases be the same as your interests. The investor group currently owns
approximately 39% of our outstanding common stock. Under our governance
agreement with the investor group, the investor group is currently entitled to
designate three people to serve on our ten-member Board of Directors, and is
entitled to designate one director to serve on each committee of our Board of
Directors. In addition, the governance agreement provides that our Board of
Directors will not authorize specified types of significant transactions without
the approval of the directors designated by the investor group. See "Certain
Relationships and Related Transactions--Relationship with Goldman Sachs Investor
Group."
13
<Page>
WE MAY BE UNABLE TO PURCHASE YOUR NOTES UPON A CHANGE OF CONTROL.
We may not be able to purchase your notes if there is a change of control of
Hexcel. Upon a change of control event, each holder of notes may require us to
purchase all or a portion of its notes at a premium of 101% of principal plus
accrued interest. Our ability to purchase your notes upon a change of control is
limited by the terms of our debt agreements. Upon a change of control event, we
may be required immediately to repay the outstanding principal, any accrued
interest on and any other amounts owed by us under our senior credit facility.
We cannot assure you that we would be able to repay amounts outstanding under
our senior credit facility or obtain necessary consents under the facility to
purchase your notes. The term "Change of Control" is defined in the "Description
of the Notes--Change of Control" section of this prospectus.
YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES.
You may find it difficult to sell your notes because an active trading
market for the notes may not develop. The exchange notes are being offered to
the holders of the original notes. The original notes were issued on June 29,
2001 to a small number of institutional investors and overseas investors and are
eligible for trading in the Private Offering, Resale and Trading through
Automated Linkages (PORTAL) Market, the National Association of Securities
Dealers' screenbased, automated market for trading of securities eligible for
resale under Rule 144A. After the exchange offer, the trading market for the
remaining untendered original notes could be adversely affected.
There is no existing trading market for the exchange notes. We do not intend
to apply for listing or quotation of the exchange notes on any exchange.
Therefore, we do not know the extent to which investor interest will lead to the
development of a trading market or how liquid that market might be. Although the
initial purchasers of the original notes have informed us that they currently
intend to make a market in the exchange notes, they are not obligated to do so,
and any market-making may be discontinued at any time without notice. As a
result, the market price of the notes could be adversely affected.
In addition, the market for non-investment grade debt, such as the notes,
has been subject to disruptions that have caused substantial volatility in the
prices of these securities. These disruptions may have an adverse effect on
holders of the notes.
14
<Page>
FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, including references to assumptions. These statements are contained in
sections entitled "Prospectus Summary," "Risk Factors," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
other sections of this prospectus and in the documents incorporated by reference
in this prospectus.
Such forward-looking statements include, but are not limited to, estimates
of, or expectations regarding, as the case may be:
- commercial aerospace production and delivery rates, including those of
Boeing and Airbus;
- growth in the production of military aircraft and launch vehicle programs
in 2000 and beyond;
- the recovery of the electronics market;
- the impact of pricing pressures from Hexcel's customers;
- the ability of Hexcel to pass along pricing reductions to its suppliers;
- future sales based on current backlog;
- sales growth, sales mix, gross margins, manufacturing productivity,
capital expenditures and effective tax rates;
- Hexcel's financial condition and liquidity, as well as future free cash
flows and earnings;
- the total cost of our business consolidation program and the amount of
cash expenditures to complete the program; and
- expectations regarding the costs and benefits of accelerating and
expanding our Lean Enterprise and business consolidation programs and
implementing a supply chain management program.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to:
- changes in general economic and business conditions;
- changes in current pricing levels;
- changes in political, social and economic conditions and local
regulations, particularly in Asia and Europe;
- foreign currency fluctuations;
- changes in aerospace delivery rates;
- reductions in sales to any significant customers, particularly Boeing or
Airbus;
- changes in sales mix;
- changes in government defense procurement budgets;
15
<Page>
- changes in military aerospace programs technology;
- industry capacity;
- competition;
- disruptions of established supply channels;
- manufacturing capacity constraints; and
- the availability, terms and deployment of capital.
Additional information regarding these factors is described in "Risk
Factors" and in our annual report on Form 10-K (SEC File No. 1-8472) for the
year ended December 31, 2000, and subsequent quarterly report on Form 10-Q,
which are incorporated by reference in this prospectus. If one or more of these
risks or uncertainties materialize, or if underlying assumptions prove
incorrect, our actual results may vary materially from those expected, estimated
or projected. We do not undertake to update our forward-looking statements or
risk factors to reflect future events or circumstances.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing exchange notes, we will receive in exchange original notes of like
principal amount, the terms of which are identical in all material respects to
the exchange notes. The original notes surrendered in exchange for exchange
notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the exchange notes will not result in any increase in our indebtedness. We
have agreed to bear the expenses of the exchange offer. No underwriter is being
used in connection with the exchange offer.
For a description of the use of proceeds of the offering of original notes,
see "Prospectus Summary--Our Business--Recent Developments--Issuance of Original
Notes."
16
<Page>
CAPITALIZATION
The following table sets forth the capitalization of Hexcel as of March 31,
2001 on an actual basis and as adjusted to give effect to the offering of the
original notes and the application of the net proceeds from that offering,
including the redemption of approximately $67.5 million aggregate principal
amount of our outstanding 7% Convertible Subordinated Notes Due 2003 (plus a
$0.8 million premium payment) and the redemption of the entire principal amount
of approximately $25.0 million of the Increasing Rate Senior Subordinated Note
Due 2003.
<Table>
<Caption>
AS OF MARCH 31, 2001
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN MILLIONS)
SENIOR DEBT:
Senior credit facility.................................... $227.9 $227.9
European credit and overdraft facilities.................. 5.5 5.5
Capital lease obligations................................. 42.0 42.0
Other..................................................... 0.1 0.1
------ ------
Total senior debt (a)..................................... 275.5 275.5
------ ------
OTHER DEBT:
Increasing Rate Senior Subordinated Note Due 2003......... 24.4 --
9 3/4% Senior Subordinated Notes Due 2009................. 240.0 338.5
7% Convertible Subordinated Notes Due 2003................ 114.4 46.9
7% Convertible Subordinated Debentures Due 2011........... 25.6 25.6
------ ------
Total other debt.......................................... 404.4 411.0
------ ------
Total debt................................................ 679.9 686.5
------ ------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares
authorized, 37,216,419 shares issued and outstanding
(b)..................................................... 0.4 0.4
Additional paid-in capital (b)............................ 270.7 270.7
Retained earnings......................................... 71.3 68.8(c)
Accumulated other comprehensive loss...................... (35.2) (35.2)
------ ------
Total stockholders' equity.............................. 307.2 304.7
------ ------
Total capitalization.................................... $987.1 $991.2
====== ======
</Table>
- ------------------------
(a) Includes $16.7 million of debt due within one year for both actual and as
adjusted.
(b) Net of 910,318 shares of treasury stock acquired by our company at an
aggregate cost of $11.2 million.
(c) Reflects $2.5 million related to the write-off of the unamortized discount
and capitalized debt issuance costs relating to the redemptions, net of tax.
17
<Page>
PRO FORMA FINANCIAL INFORMATION
The unaudited supplemental pro forma consolidated statements of operations
for the year ended December 31, 2000 and the three months ended March 31, 2000
are presented to provide a measure of operating performance without the
Bellingham operation which is nonrecurring. This supplemental presentation
should not be considered in isolation or as a substitute for pro forma
consolidated statements of operations presented in accordance with generally
accepted accounting principles.
The unaudited pro forma consolidated statement of operations for the three
months ended March 31, 2001 and the unaudited supplemental pro forma
consolidated statements of operations for the year ended December 31, 2000 and
the three months ended March 31, 2000 have been prepared to illustrate the
effect of the offering of the original notes and the application of the net
proceeds therefrom, including the redemption of approximately $67.5 million
aggregate principal amount of our outstanding 7% Convertible Subordinated Notes
Due 2003 (plus a $0.8 million premium payment) and the redemption of the entire
principal amount of approximately $25.0 million of the Increasing Rate Senior
Subordinated Note Due 2003, as if the offering and redemptions had occurred at
the beginning of the periods presented.
The following unaudited pro forma financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of Hexcel
and the notes thereto appearing elsewhere in this prospectus. The unaudited pro
forma financial information does not purport to be indicative of the results of
operations or financial condition that would have been reported had the events
assumed therein occurred on the dates indicated, nor does it purport to be
indicative of results of operations that may be achieved in the future.
18
<Page>
UNAUDITED SUPPLEMENTAL PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(IN MILLIONS)
<Table>
<Caption>
HISTORICAL
---------------------
BELLINGHAM ADJUSTMENTS PRO FORMA
HEXCEL (NOTE 1) (NOTES 1 AND 2) CONSOLIDATED
-------- ---------- --------------- ------------
Net sales...................................... $1,055.7 $(18.9) $ -- $1,036.8
Cost of sales.................................. 824.3 (14.3) -- 810.0
-------- ------ ------ --------
Gross margin................................. 231.4 (4.6) -- 226.8
Selling, general and administrative expenses... 123.9 (2.3) -- 121.6
Research and technology expenses............... 21.2 (1.7) -- 19.5
Business consolidation expenses................ 10.9 -- -- 10.9
-------- ------ ------ --------
Operating income............................. 75.4 (0.6) -- 74.8
Gain on sale of Bellingham aircraft interiors
business..................................... 68.3 -- (68.3) --
Interest expense............................... 68.7 -- (0.6)(a) 68.1
-------- ------ ------ --------
Income (loss) before income taxes............ 75.0 (0.6) (67.7) 6.7
Provision (benefit) for income taxes........... 26.3 (0.2) (23.7)(b) 2.4
Equity in earnings of affiliated companies..... 5.5 -- -- 5.5
-------- ------ ------ --------
Income before extraordinary item............. 54.2 (0.4) (44.0) 9.8
Extraordinary expense (net of income tax of
$1.6)........................................ -- -- 2.9(c) 2.9
-------- ------ ------ --------
Net income (loss)............................ $ 54.2 $ (0.4) $(46.9) $ 6.9
======== ====== ====== ========
OTHER FINANCIAL DATA:
EBITDA (Note 3).............................. $ 202.3 $ (0.9) $(68.3) $ 133.1
Adjusted EBITDA (Note 3)..................... 144.9 (0.9) -- 144.0
Depreciation and amortization................ 58.7 (0.3) -- 58.4
Capital expenditures......................... 39.6 (0.2) -- 39.4
</Table>
See accompanying notes to Pro Forma Financial Information.
19
<Page>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
(IN MILLIONS)
<Table>
<Caption>
ADJUSTMENTS PRO FORMA
HEXCEL (NOTE 2) CONSOLIDATED
-------- ----------- ------------
Net sales................................................... $276.2 $ -- $276.2
Cost of sales............................................... 216.1 -- 216.1
------ ----- ------
Gross margin.............................................. 60.1 -- 60.1
Selling, general and administrative expenses................ 31.7 -- 31.7
Research and technology expenses............................ 4.7 -- 4.7
Business consolidation expenses............................. 1.1 -- 1.1
------ ----- ------
Operating income.......................................... 22.6 -- 22.6
Interest expense............................................ 16.3 0.6 (a) 16.9
------ ----- ------
Income (loss) before income taxes......................... 6.3 (0.6) 5.7
Provision (benefit) for income taxes........................ 2.2 (0.2)(b) 2.0
Equity in earnings of affiliated companies.................. 1.4 -- 1.4
------ ----- ------
Income before extraordinary item.......................... 5.5 (0.4) 5.1
Extraordinary expense (net of income tax of $1.4)........... -- 2.5 (c) 2.5
------ ----- ------
Net income (loss)......................................... $ 5.5 $(2.9) $ 2.6
====== ===== ======
OTHER FINANCIAL DATA:
EBITDA (Note 3)........................................... $ 37.8 $ -- $ 37.8
Adjusted EBITDA (Note 3).................................. 38.9 -- 38.9
Depreciation and amortization............................. 15.2 -- 15.2
Capital expenditures...................................... 10.6 -- 10.6
</Table>
See accompanying notes to Pro Forma Financial Information.
20
<Page>
UNAUDITED SUPPLEMENTAL PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(IN MILLIONS)
<Table>
<Caption>
HISTORICAL
---------------------
BELLINGHAM ADJUSTMENTS PRO FORMA
HEXCEL (NOTE 1) (NOTE 2) CONSOLIDATED
-------- ---------- ----------- ------------
Net sales.......................................... $279.8 $(16.6) $ -- $263.2
Cost of sales...................................... 217.6 (12.1) -- 205.5
------ ------ ------- ------
Gross margin..................................... 62.2 (4.5) -- 57.7
Selling, general and administrative expenses....... 32.9 (2.1) -- 30.8
Research and technology expenses................... 6.3 (1.3) -- 5.0
Business consolidation expenses.................... 1.2 -- -- 1.2
------ ------ ------- ------
Operating income................................. 21.8 (1.1) -- 20.7
Interest expense................................... 18.4 -- (1.7)(a) 16.7
------ ------ ------- ------
Income (loss) before income taxes................ 3.4 (1.1) 1.7 4.0
Provision (benefit) for income taxes............... 1.2 (0.4) 0.6 (b) 1.4
Equity in earnings of affiliated companies......... 0.4 -- -- 0.4
------ ------ ------- ------
Income before extraordinary item................. 2.6 (0.7) 1.1 3.0
Extraordinary expense (net of income tax of
$1.6)............................................ -- -- 2.9 (c) 2.9
------ ------ ------- ------
Net income (loss)................................ $ 2.6 $ (0.7) $ (1.8) $ 0.1
====== ====== ======= ======
OTHER FINANCIAL DATA:
EBITDA (Note 3).................................. $ 36.8 $ (1.4) $ -- $ 35.4
Adjusted EBITDA (Note 3)......................... 38.0 (1.4) -- 36.5
Depreciation and amortization.................... 15.0 (0.3) -- 14.7
Capital expenditures............................. 4.4 (0.2) -- 4.2
</Table>
See accompanying notes to Pro Forma Financial Information.
21
<Page>
NOTES TO PRO FORMA FINANCIAL INFORMATION
NOTE 1--BELLINGHAM.
Bellingham amounts represent operations for the period January 1, 2000 up to
the sale date of April 26, 2000. The sale resulted in a pre-tax gain of
$68.3 million.
NOTE 2--ADJUSTMENTS.
<Table>
<Caption>
FOR THE FOR THE
FOR THE THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 2000 MARCH 31, 2001 MARCH 31, 2000
----------------- -------------- --------------
(a) Adjustment to interest expense representing
the effect of the redemption of debt with
the proceeds from the sale of Bellingham as
if the redemption had occurred at the
beginning of the period..................... $ (3.1) $ -- $(2.3)
The decrease in interest expense
attributable to the redemption of the notes.
The interest expense reduction also includes
the elimination of amortization of debt
issuance costs.............................. (8.1) (2.0) (2.0)
The increase in interest expense
attributable to notes offered hereby,
including amortization of $4.3 million of
debt issuance costs and $1.5 million
discount upon issuance...................... 10.6 2.6 2.6
------ ----- -----
Net interest expense adjustment............. $ (0.6) $ 0.6 $(1.7)
====== ===== =====
(b) Adjustment to reflect an effective income
tax rate of 35.0%........................... $(23.7) $(0.2) $ 0.6
====== ===== =====
(c) Extraordinary item due to debt
extinguishment.............................. $ 2.9 $ 2.5 $ 2.9
====== ===== =====
</Table>
NOTE 3--EBITDA AND ADJUSTED EBITDA.
"EBITDA" is defined as income before income taxes, interest expense,
depreciation and amortization. "Adjusted EBITDA" is defined as EBITDA before
business consolidation expenses and the gain on the Bellingham sale. Hexcel
believes that EBITDA and Adjusted EBITDA provide useful information regarding
Hexcel's ability to service its indebtedness. These measures may not be
comparable to similarly titled financial measures of other companies. EBITDA and
Adjusted EBITDA do not represent alternative measures of Hexcel's cash flows or
operating income, and should not be considered in isolation or as substitutes
for measures of performance presented in accordance with generally accepted
accounting principles.
22
<Page>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected historical financial information of Hexcel set forth below has
been derived from the audited consolidated financial statements of Hexcel as of
and for the five years ended December 31, 2000. The selected historical
financial information as of and for the three months ended March 31, 2001 and
2000 is derived from unaudited financial statements which, in the opinion of
Hexcel's management, include all adjustments necessary for the fair presentation
of such information. Results for interim periods are not necessarily indicative
of results for the full year. The following selected financial information is
qualified in its entirety by, and should be read in conjunction with, Hexcel's
consolidated financial statements and the related notes thereto, included
elsewhere in this prospectus.
<Table>
<Caption>
FOR THE THREE
MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $695.2 $936.9 $1,089.0 $1,151.5 $1,055.7 $ 279.8 $ 276.2
Cost of sales.................................... 553.9 714.3 817.7 909.0 824.3 217.6 216.1
------ ------ -------- -------- -------- ------- -------
Gross margin..................................... 141.3 222.6 271.3 242.5 231.4 62.2 60.1
Selling, general & administrative expenses....... 79.4 102.4 117.9 128.7 123.9 32.9 31.7
Research and technology expenses................. 16.7 18.4 23.7 24.8 21.2 6.3 4.7
Business consolidation expenses (a).............. 42.4 25.3 12.7 20.1 10.9 1.2 1.1
------ ------ -------- -------- -------- ------- -------
Operating income................................. 2.8 76.5 117.0 68.9 75.4 21.8 22.6
Gain on sale of Bellingham aircraft interiors
business....................................... -- -- -- -- 68.3 -- --
Interest expense................................. 21.6 25.8 38.7 73.9 68.7 18.4 16.3
Other income, net................................ 3.0 -- -- -- -- -- --
------ ------ -------- -------- -------- ------- -------
Income (loss) from continuing operations before
income taxes................................... (15.8) 50.7 78.3 (5.0) 75.0 3.4 6.3
Provision for (recovery of) income taxes......... 3.4 (22.9) 28.4 (1.7) 26.3 1.2 2.2
Equity in earnings and write-down in investments
in affiliated companies........................ -- -- 0.5 (20.0) 5.5 0.4 1.4
------ ------ -------- -------- -------- ------- -------
Net Income (loss)............................ $(19.2) $ 73.6 $ 50.4 $ (23.3) $ 54.2 $ 2.6 $ 5.5
====== ====== ======== ======== ======== ======= =======
OTHER DATA:
EBITDA (b)....................................... $ 32.5 $112.3 $ 164.5 $ 130.3 $ 202.3 $ 36.8 $ 37.8
Adjusted EBITDA (b).............................. 71.9 137.6 177.2 150.4 144.9 38.0 38.9
Depreciation and amortization.................... 26.7 35.8 47.5 61.3 58.7 15.0 15.2
Capital expenditures............................. 43.6 57.4 66.5 35.6 39.6 4.4 10.6
Ratio of earnings to fixed charges (c)........... N/A 2.9 2.9 N/A 2.1 1.2 1.4
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................. $128.1 $200.7 $ 219.6 $ 117.3 $ 128.1 $ 149.8 $ 142.0
Total assets..................................... 701.7 811.6 1,404.2 1,261.9 1,211.4 1,290.0 1,225.5
Total debt....................................... 311.0 353.4 864.9 770.9 673.6 788.8 679.9
Stockholders' equity............................. 179.3 249.9 302.4 270.1 315.7 270.3 307.2
</Table>
- --------------------------
(a) Business consolidation expenses include amounts previously reported as
"Restructuring expenses."
(b) "EBITDA" is defined as income from continuing operations before interest,
taxes and depreciation and amortization. "Adjusted EBITDA" is defined as
EBITDA before business consolidation expenses and other income, net. We
believe that EBITDA and Adjusted EBITDA provide useful information regarding
Hexcel's ability to service its indebtedness. These measures may not be
comparable to similarly titled financial measures of other companies. EBITDA
and Adjusted EBITDA do not represent alternative measures of Hexcel's cash
flows or operating income, and should not be considered in isolation or as
substitutes for measures of performance presented in accordance with
generally accepted accounting principles.
(c) Earnings consist of income (loss) from continuing operations before fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of fees related to debt financing and that portion of rent
expense deemed to be interest. Interest portion of rentals was calculated as
one-third of rentals, which is a reasonable approximation of the interest
factor. For the years ended December 31, 1996 and 1999, earnings were
insufficient to cover fixed charges by approximately $15.8 million and
$5.0 million, respectively.
23
<Page>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, which together constitute the
exchange offer, we will accept all original notes which are properly tendered on
or before the expiration date and not withdrawn as permitted below. As used in
this prospectus, the term "expiration date" means 5:00 p.m., New York City time,
on , 2001. However, if we, in our sole discretion, have extended the
period of time for which the exchange offer is open, the term "expiration date"
means the latest time and date to which we extend the exchange offer.
As of the date of this prospectus, $100.0 million aggregate principal amount
of the original notes is outstanding. This prospectus, together with the letter
of transmittal, is first being sent on or about , 2001, to all holders of
original notes known to us. Our obligation to accept original notes for exchange
pursuant to the exchange offer is subject to the conditions set forth below
under "--Conditions to the Exchange Offer."
We reserve the right to extend the period of time during which the exchange
offer is open. We would then delay acceptance for exchange of any original notes
by giving oral or written notice of an extension to the holders of original
notes as described below. During any extension period, all original notes
previously tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any original notes not accepted for exchange will
be returned to the tendering holder after the expiration or termination of the
exchange offer.
Original notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple of $1,000.
We reserve the right to amend or terminate the exchange offer, and not to
accept for exchange any original notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "--Conditions to the Exchange Offer." We will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the original notes as promptly as practicable. If we materially change the
terms of the exchange offer, we will resolicit tenders of the original notes. We
will notify you of any extension by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the first business
day after the previously scheduled expiration date.
Our acceptance of the tender of original notes by a tendering holder will
form a binding agreement upon the terms and subject to the conditions provided
in this prospectus and in the accompanying letter of transmittal.
In the case of either an amendment or termination of, or in the case of an
extension of, the exchange offer, we will give written or oral (promptly
confirmed in writing) notice thereof to the exchange agent.
PROCEDURES FOR TENDERING
Except as described below, a tendering holder must transmit a properly
completed and duly executed letter of transmittal, including all other documents
required by the letter of transmittal, to The Bank of New York, the exchange
agent, on or before the expiration date. In addition, the exchange agent must
receive, on or before the expiration date:
- certificates for the original notes; or
- a timely confirmation of book-entry transfer of the original notes into
the exchange agent's account at The Depository Trust Company (which we
refer to as "DTC" in this prospectus), the book-entry transfer facility,
in accordance with the procedures for book-entry described below.
24
<Page>
The method of delivery of original notes, letters of transmittal and all
other required documents is at your election and risk. If the delivery is by
mail, we recommend that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. You should not send letters of transmittal or original notes to
us.
If you are a beneficial owner whose original notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee, and
wish to tender, you should promptly instruct the registered holder to tender on
your behalf. Any registered holder that is a participant in DTC's book-entry
transfer facility system may make book-entry delivery of the original notes by
causing DTC to transfer the original notes into the exchange agent's account.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the original notes surrendered for exchange are tendered:
- by a registered holder of the original notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
- for the account of an "eligible institution."
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantees must be by an "eligible institution."
An "eligible institution" is a financial institution--including most banks,
savings and loan associations and brokerage houses--that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program.
We will determine in our sole discretion all questions as to the validity,
form and eligibility of original notes tendered for exchange. This discretion
extends to the determination of all questions concerning the timing of receipts
and acceptance of tenders. These determinations will be final and binding.
We reserve the right to reject any particular original note not properly
tendered or any which acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the right to waive any defects or
irregularities or conditions of the exchange offer as to any particular original
note either before or after the expiration date, including the right to waive
the ineligibility of any tendering holder. Our interpretation of the terms and
conditions of the exchange offer as to any particular original note either
before or after the expiration date, including the letter of transmittal and the
instructions to the letter of transmittal, shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of original notes must be cured within a reasonable period of time. Neither we,
the exchange agent nor any other person will be under any duty to give
notification of any defect or irregularity in any tender of original notes. Nor
will we, the exchange agent or any other person incur any liability for failing
to give notification of any defect or irregularity.
If the letter of transmittal is signed by a person other than the registered
holder of original notes, the letter of transmittal must be accompanied by a
written instrument of transfer or exchange in satisfactory form duly executed by
the registered holder with the signature guaranteed by an eligible institution.
The original notes must be endorsed or accompanied by appropriate powers of
attorney. In either case, the original notes must be signed exactly as the name
of any registered holder appears on the original notes.
If the letter of transmittal or any original notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing. Unless waived by us,
proper evidence satisfactory to us of their authority to so act must be
submitted.
25
<Page>
By tendering, each holder will represent to us that, among other things,
- the exchange notes are being acquired in the ordinary course of business
of the person receiving the exchange notes, whether or not that person is
the holder and
- neither the holder nor the other person has any arrangement or
understanding with any person to participate in the distribution of the
exchange notes.
In the case of a holder that is not a broker-dealer, that holder, by
tendering, will also represent to us that the holder is not engaged in and does
not intend to engage in a distribution of the exchange notes.
If any holder or other person is an "affiliate" of ours, as defined under
Rule 405 of the Securities Act, or is engaged in, or intends to engage in, or
has an arrangement or understanding with any person to participate in, a
distribution of the exchange notes, that holder or other person can not rely on
the applicable interpretations of the staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where the original notes were acquired by it as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus that meets the requirements of the Securities
Act in connection with any resale of the exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. See "Plan of Distribution."
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all original notes properly
tendered. We will issue the exchange notes promptly after acceptance of the
original notes. See "--Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we will be deemed to have accepted properly tendered
original notes for exchange when, as and if we have given oral or written notice
to the exchange agent, with prompt written confirmation of any oral notice.
For each original note accepted for exchange, the holder of the original
note will receive an exchange note having a principal amount equal to that of
the surrendered original note. The exchange notes will bear interest from
July 15, 2001, the most recent date to which interest has been paid on the
original notes. Accordingly, registered holders of exchange notes on the
relevant record date for the first interest payment date following the
completion of the exchange offer will receive interest accruing from July 15,
2001, the most recent date to which interest has been paid. Original notes
accepted for exchange will cease to accrue interest from and after the date of
completion of the exchange offer. Holders of original notes whose original notes
are accepted for exchange will not receive any payment for accrued interest on
the original notes otherwise payable on any interest payment date the record
date for which occurs on or after completion of the exchange offer and will be
deemed to have waived their rights to receive the accrued interest on the
original notes.
In all cases, issuance of exchange notes for original notes will be made
only after timely receipt by the exchange agent of:
- certificates for the original notes, or a timely book-entry confirmation
of the original notes, into the exchange agent's account at the book-entry
transfer facility,
- a properly completed and duly executed letter of transmittal and
- all other required documents.
Unaccepted or non-exchanged original notes will be returned without expense
to the tendering holder of the original notes. In the case of original notes
tendered by book-entry transfer pursuant to the book-entry procedures described
below, the non-exchanged original notes will be credited to an
26
<Page>
account maintained with the book-entry transfer facility as promptly as
practicable after the expiration or termination of the exchange offer.
BOOK ENTRY TRANSFER
The exchange agent will make a request to establish an account for the
original notes at the book-entry transfer facility for purposes of the exchange
offer within two business days after the date of this prospectus. Any financial
institution that is a participant in the book-entry transfer facility's systems
may make book-entry delivery of original notes by causing the book-entry
transfer facility to transfer the original notes into the exchange agent's
account at the facility. However, although delivery of the original notes may be
made through the book-entry transfer facility, the letter of transmittal or a
facsimile of the letter of transmittal, with any required signature guarantees
and any other required documents, must, in any case, be transmitted to, and
received by, the exchange agent on or before the expiration date, unless the
holder has strictly complied with the guaranteed delivery procedures described
below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of original notes desires to tender the original
notes, and the original notes are not immediately available, or time will not
permit the holder's original notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer described above cannot be completed on a timely basis, a tender may
nonetheless be made if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent received from an eligible
institution a properly completed and duly executed letter of transmittal,
or a facsimile of the letter of transmittal, and notice of guaranteed
delivery, substantially in the form provided by us, by facsimile
transmission, mail or hand delivery:
- setting forth the name and address of the holder of original notes and
the amount of original notes tendered,
- stating that the tender is being made, and
- guaranteeing that within three NYSE trading days after the expiration
date, the certificates for all physically tendered original notes, in
proper form for transfer, or a book-entry confirmation, as the case may
be, and any other documents required by the letter of transmittal will
be deposited by the eligible institution with the exchange agent; and
- the certificates for all physically tendered original notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal, are received by
the exchange agent within three NYSE trading days after the expiration
date.
WITHDRAWAL RIGHTS
Tenders of original notes may be withdrawn at any time before 5:00 p.m., New
York City time, on the expiration date. For a withdrawal to be effective, the
exchange agent must receive a written notice of withdrawal at the address or, in
the case of eligible institutions, at the facsimile number, set forth below
under "--Exchange Agent" before 5:00 p.m., New York City time, on the expiration
date. Any notice of withdrawal must:
- specify the name of the person, referred to as the depositor, having
tendered the original notes to be withdrawn;
- identify the notes to be withdrawn, including the certificate number or
numbers and principal amount of the original notes;
- contain a statement that the holder is withdrawing his election to have
the original notes exchanged;
27
<Page>
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the original notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the original
notes register the transfer of the original notes in the name of the
person withdrawing the tender; and
- specify the name in which the original notes are registered, if different
from that of the depositor.
If original notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn original notes. We will determine all questions as
to the validity, form and eligibility, including time of receipt, of notices of
withdrawal. Any original notes so withdrawn will be deemed not to have been
validly tendered for exchange. No exchange notes will be issued unless the
original notes so withdrawn are validly retendered. Any original notes that have
been tendered for exchange, but which are not exchanged for any reason, will be
returned to the tendering holder without cost to the holder. In the case of
original notes tendered by book-entry transfer, the original notes will be
credited to an account maintained with the book-entry transfer facility for the
original notes. Properly withdrawn original notes may be retendered by following
the procedures described under "--Procedures for Tendering" above at any time on
or before 5:00 p.m., New York City time, on the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue exchange notes in exchange for, any
original notes, and may terminate or amend the exchange offer, if at any time
before the acceptance of the original notes for exchange or the exchange of the
exchange notes for the original notes, any of the following events shall occur:
- there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any
court or governmental agency or other governmental regulatory or
administrative agency or commission:
(1) seeking to restrain or prohibit the making or completion of the
exchange offer or any other transaction contemplated by the exchange
offer, or assessing or seeking any damages as a result of such
transaction; or
(2) resulting in a material delay in our ability to accept for exchange
or exchange some or all of the original notes pursuant to the
exchange offer; or any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed
applicable to the exchange offer or any of the transactions
contemplated by the exchange offer by any governmental authority,
domestic or foreign; or
(3) any action shall have been taken, proposed or threatened, by any
governmental authority, domestic or foreign, that in our sole
judgment might directly or indirectly result in any of the
consequences referred to in clauses (1) or (2) above or, in our sole
judgment, might result in the holders of exchange notes having
obligations with respect to resales and transfers of exchange notes
which are greater than those described in the interpretation of the
SEC referred to above, or would otherwise make it inadvisable to
proceed with the exchange offer; or
- there shall have occurred:
(1) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in the
over-the-counter market; or
(2) any limitation by a governmental authority which may adversely affect
our ability to complete the transactions contemplated by the exchange
offer; or
28
<Page>
(3) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the
extension of credit; or
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time
of the commencement of the exchange offer, a material acceleration or
worsening of such calamities; or
- any change, or any development involving a prospective change, shall have
occurred or be threatened in our business, financial condition, operations
or prospects and those of our subsidiaries taken as a whole that is or may
be adverse to us, or we shall have become aware of facts that have or may
have an adverse impact on the value of the original notes or the exchange
notes; which in our sole judgment in any case makes it inadvisable to
proceed with the exchange offer and/or with such acceptance for exchange
or with such exchange.
These conditions to the exchange offer are to our sole benefit and may be
asserted by us regardless of the circumstances giving rise to any of these
conditions, or may be waived by us in whole or in part in our sole discretion.
Our failure at any time to exercise any of the foregoing rights will not be
deemed a waiver of any right.
In addition, we will not accept for exchange any original notes tendered,
and no exchange notes will be issued in exchange for any original notes, if at
such time any stop order is threatened or in effect relating to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939.
EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offer. You should direct all executed letters of transmittal to the
exchange agent at the address set forth below. You should direct questions and
requests for assistance, requests for additional copies of this prospectus or of
the letter of transmittal and requests for notices of guaranteed delivery to the
exchange agent addressed as follows:
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<Table>
BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL:
The Bank of New York The Bank of New York
Reorganization Department Reorganization Department
101 Barclay Street, 101 Barclay Street,
Floor 7E Floor 7E
New York, NY 10286 New York, NY 10286
Attention: Duong Nguyen Attention: Duong Nguyen
</Table>
FOR INFORMATION CALL:
(212) 815-3687
BY FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
(212) 815-6339
CONFIRM BY TELEPHONE:
(212) 815-3687
IF YOU DELIVER THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMIT INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, THEN YOUR DELIVERY OR TRANSMISSION WILL NOT CONSTITUTE A VALID DELIVERY
OF THE LETTER OF TRANSMITTAL.
29
<Page>
FEES AND EXPENSES
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer. The estimated cash expenses to be incurred in
connection with the exchange offer will be paid by us. We estimate these
expenses in the aggregate to be approximately $300,000.
ACCOUNTING TREATMENT
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expense of the exchange
offer over the term of the exchange notes under generally accepted accounting
principles.
TRANSFER TAXES
Holders who tender their original notes for exchange will not be obligated
to pay any related transfer taxes, except that holders who instruct us to
register exchange notes in the name of, or request that original notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer taxes.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE ORIGINAL NOTES
Holders of original notes who do not exchange their original notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
provisions in the indenture regarding transfer and exchange of the original
notes and the restrictions on transfer of the original notes as set forth in the
legend on the notes as a consequence of the issuance of the original notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the original notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. As
discussed in "Exchange Offer; Registration Rights," we do not currently
anticipate that we will register original notes under the Securities Act.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, we believe that exchange notes issued pursuant
to the exchange offer in exchange for original notes may be offered for resale,
resold or otherwise transferred by holders of the original notes, other than any
holder which is an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the exchange notes are acquired
in the ordinary course of the holders' business and the holders have no
arrangement or understanding with any person to participate in the distribution
of the exchange notes. However, the SEC has not considered the exchange offer in
the context of a no-action letter. We cannot assure you that the staff of the
SEC would make a similar determination with respect to the exchange offer as in
the other circumstances. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of exchange notes and has no arrangement or understanding to
participate in a distribution of exchange notes. If any holder is an affiliate
of ours, is engaged in or intends to engage in or has any arrangement or
understanding with any person to participate in the distribution of the exchange
notes to be acquired in the exchange offer, that holder:
(1) could not rely on the applicable interpretations of the staff of the
SEC, and
30
<Page>
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes must acknowledge that the original notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of the exchange notes. See "Plan of Distribution." In addition, to comply
with state securities laws, the exchange notes may not be offered or sold in any
state unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification, with which there has been
compliance, is available. The offer and sale of the exchange notes to "qualified
institutional buyers," as defined under Rule 144A of the Securities Act, is
generally exempt from registration or qualification under the state securities
laws. We currently do not intend to register or qualify the sale of exchange
notes in any state where an exemption from registration or qualification is
required and not available.
31
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS RELATES TO OUR AUDITED RESULTS OF
OPERATIONS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31,
2000 AND OUR UNAUDITED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000. THE DISCUSSION AND ANALYSIS SHOULD BE READ IN
CONJUNCTION WITH THE SELECTED CONSOLIDATED FINANCIAL INFORMATION, OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS AND OTHER FINANCIAL INFORMATION INCORPORATED BY REFERENCE.
BUSINESS OVERVIEW
<Table>
<Caption>
QUARTER ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- ------------------------------
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
PRO FORMA (a):
Sales........................................... $276.2 $263.2 $1,036.8 $1,081.5 $1,200.5
Adjusted EBITDA (b)............................. 38.9 36.5 144.0 141.3 203.1
Adjusted net income (c)......................... 6.2 4.2 18.8 9.7 56.3
Adjusted diluted earnings per share (c)......... $ 0.16 $ 0.11 $ 0.50 $ 0.27 $ 1.37
AS REPORTED:
Sales........................................... $276.2 $279.8 $1,055.7 $1,151.5 $1,089.0
Gross margin %.................................. 21.8% 22.2% 21.9% 21.1% 24.9%
Adjusted operating income % (c)................. 8.6% 8.2% 8.2% 7.7% 11.9%
Adjusted EBITDA (b)............................. $ 38.9 $ 38.0 $ 144.9 $ 150.4 $ 177.2
Business consolidation expenses................. 1.1 1.2 10.9 20.1 12.7
Net income (loss)............................... 5.5 2.6 54.2 (23.3) 50.4
Adjusted net income (c)......................... 6.2 3.4 17.2 9.6 59.2
Diluted earnings (loss) per share............... $ 0.15 $ 0.07 $ 1.32 $ (0.64) $ 1.24
Adjusted diluted earnings per share (c)......... $ 0.16 $ 0.09 $ 0.46 $ 0.26 $ 1.43
</Table>
- ------------------------
(a) Pro forma results for 2000, 1999 and 1998 give effect to the April 26, 2000
sale of the Bellingham aircraft interiors business as if it had occurred at
the beginning of the respective years presented. Pro forma results for 1998
also give effect to the acquisition of the industrial fabrics business of
Clark-Schwebel in September 1998, as if it had occurred at the beginning of
1998.
(b) Excludes the gain on sale of Bellingham aircraft interiors business,
business consolidation expenses, interest, taxes, depreciation,
amortization, and equity in earnings of and a write-down of an investment in
affiliated companies.
(c) Excludes business consolidation and other acquisition related costs, the
gain on the disposal of the Bellingham business in 2000, and a write-down of
an investment in an affiliated company in 1999, net of applicable income
taxes.
Adjusted EBITDA and pro forma adjusted EBITDA are presented to provide a
measure of our operating performance that is commonly used by investors and
financial analysts to analyze and compare companies. Adjusted EBITDA and pro
forma adjusted EBITDA may not be comparable to similarly titled financial
measures of other companies. Adjusted EBITDA and pro forma adjusted EBITDA do
not represent alternative measures of our cash flows or operating income, and
should not be considered in isolation or as substitutes for measures of
performance presented in accordance with generally accepted accounting
principles.
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<Page>
After giving pro forma effect to the sale of the Bellingham business during
2000 as if it had occurred on January 1, 1999, sales revenues (at constant
exchange rates) and adjusted EBITDA for the years of 1999 and 2000 were at
approximately the same level. However, the conditions in a number of the markets
that we serve changed markedly over this two-year period.
The first quarter of 1999 represented a peak for commercial aerospace
revenues as sales to Boeing were made to support the 620 aircraft deliveries
Boeing made that year. However, by the second quarter of 1999, commercial
aerospace revenues had started to decline as Boeing reduced its purchases both
to reflect its lower planned aircraft deliveries of 489 aircraft in 2000 and its
goals to reduce inventory. On a seasonally adjusted basis, the bottom of
commercial aerospace revenues was not seen until the summer of 2000. Boeing has
indicated that it is planning increased deliveries in 2001 as compared to 2000.
In addition, production rates by Airbus and the regional aircraft producers
continue to increase.
Over the same period, our revenues from sales of products to the space and
defense industry decreased primarily due to two factors. First, a munitions
program that utilized our materials ended. Second, sales of products to launch
vehicle and commercial satellite programs declined as a result of the failure of
a number of commercial satellite programs and tighter export controls on the
launch of U.S. manufactured commercial satellites. With a number of new military
aircraft programs beginning production (e.g., the F18 E/F and the European
Fighter Aircraft) and existing programs increasing their production rate (e.g.,
C-17), revenues in these market sectors are expected to increase despite
remaining at their recently depressed levels.
In early 1999, our revenues from sales of woven glass fabrics for printed
wiring board applications were reduced as a result of the Asian economic crisis.
Asian producers with surplus production capacity were seeking to export their
products to the Unites States and Europe depressing both our sales prices and
quantity of sales. As the Asian economies recovered in 1999 and demand for
electronic devices for Internet and telecommunication applications continued to
grow, the demand and prices for our company's electronic products increased.
In 2000, we saw more rapid growth in demand for our lightweight fabrics used
in multilayer printed wiring boards as a result of the continued growth in
Internet and telecommunication applications. To meet unprecedented customer
requirements, we reduced our production of heavyweight fabrics for rigid printed
wiring board applications and invested in additional lightweight fabrics
manufacturing capacity. These market conditions continued until January 2001.
During this period, we continued to see revenue growth in our industrial
markets, particularly from ballistic (soft body armor), wind energy and
automotive applications for our products. In constant currency terms, the
revenue growth in the electronics market combined with the revenue growth in
these industrial markets offset the decline in revenues from commercial
aerospace and space and defense markets.
Over the last two years, we have focused on reducing our debt. In 1999, we
reduced our total debt net of cash from $857.4 million as of December 31, 1998
to $770.7 million as of December 31, 1999 through working capital reduction,
particularly reduction in inventories. By December 31, 2000 our total debt net
of cash had been reduced by a further $102.2 million to $668.5 million as a
result of the proceeds from the sale of the Bellingham business in April 2000.
We remain focused on reducing our debt, but the amount by which we can will vary
from year to year based upon business conditions.
RECENT EVENTS
ELECTRONICS INDUSTRY
Demand for our woven electrical fabrics declined sharply in the United
States at the end of the first quarter of 2001. This reduction in demand was the
net result of finished electronic goods
33
<Page>
producers responding to their excess inventories by cutting back on their
purchases, which has impacted the entire supply chain. The excess inventories of
end producers seem to be the result of both lower than anticipated growth in
certain markets and reduced sales in other markets. In April 2001, the inventory
correction became evident in our wholly owned operations in France and at our
Asian joint venture. In response to these market conditions, we idled
manufacturing capacity and furloughed some production employees, and will
continue to monitor the situation closely and make further adjustments if
warranted by market developments.
Customer orders during the second quarter of 2001 have remained at much
reduced levels. Our second quarter 2001 revenues from electronic applications
were lower than the first quarter 2001 and with little visibility from our
customers and the impact of the summer vacation period it seems unlikely that
revenues will recover in the third quarter of 2001.
UTILITY PRICE VOLATILITY
During the fourth quarter of 2000 and continuing into 2001, there has been
significantly increased volatility in the cost and supply of energy and in
natural gas prices in the United States, particularly in the western states
where many of our U.S. manufacturing facilities are located. Continued
significant price changes are likely to have an impact on our financial results.
In anticipation of continued volatility, we are exploring options to reduce
energy consumption and to better control the price paid for energy sources.
However, the outcome of the U.S. energy situation and its impact on the U.S.
economy is unpredictable at this time and may pose unforeseen future risk.
Energy costs in the first quarter of 2001 were approximately $2 million higher
than in the first quarter of 2000. While natural gas prices have fallen during
the second quarter, it is too soon to judge whether energy costs will stabilize
at current levels.
SECOND QUARTER 2001 FINANCIAL RESULTS
On July 20, 2001, we reported our financial results for the second quarter
of 2001. Net loss for the second quarter of 2001 was $12.6 million, or $0.34 per
diluted share. The net loss for the second quarter 2001, before the
extraordinary loss of $3.1 million arising from the early retirement of debt,
was $9.5 million, or $0.26 per diluted share, compared to net income of
$50.4 million, or $1.14 per diluted share, for the second quarter of 2000. The
quarter's results include a number of one-time charges, which relate to
compensation expenses resulting from the retirement of our former Chief
Executive Officer, the early retirement of our Increasing Rate Senior
Subordinated Notes Due 2003 and a portion of our 7% Convertible Subordinated
Notes Due 2003, both of which were repaid with proceeds from the offering of the
original notes, fees and expenses incurred in connection with an amendment to
our senior credit facility, and a reduction in our tax benefit for U.S.
operating losses. Excluding these items and business consolidation expenses, our
pretax income was $1.6 million. Our second quarter 2000 results included a net
after-tax gain from the sale of Bellingham aircraft interiors business of
approximately $44.0 million, or $0.97 per diluted share.
Adjusted EBITDA for the second quarter of 2001 was $33.4 million versus
$38.8 million for the second quarter of 2000 and $39.3 million for the second
quarter of 2000 on a pro forma basis. Adjusted EBITDA for 2001 year to date was
$72.3 million versus $75.9 million for 2000 year to date on a pro forma basis.
Pro forma results give effect to the April 26, 2000 sale of the Bellingham
aircraft interiors business as if the transaction had occurred on January 1,
2000.
ISSUANCE OF ORIGINAL NOTES
On June 29, 2001, we issued and sold $100.0 million aggregate principal
amount of the original notes, which generated net proceeds to Hexcel of
approximately $94.2 million. We used the net proceeds of the issuance to redeem
$67.5 million aggregate principal amount of our outstanding 7%
34
<Page>
Convertible Subordinated Notes Due 2003 (plus a $0.8 million premium payment),
of which approximately $114.4 million of principal was outstanding, and to
prepay the entire principal amount of approximately $25.0 million of the
Increasing Rate Senior Subordinated Note Due 2003 held by Ciba Specialty
Chemical Inc.
AMENDMENT TO SENIOR CREDIT FACILITY
In connection with the closing of the offering of the original notes, we
amended our senior credit facility to, among other things, modify financial
covenants and to permit that offering. As of March 31, 2001, there was
approximately $227.9 million of loans outstanding under the senior credit
facility, consisting of $29.7 million of term A loans, $92.6 million of term B
loans, $25.6 million under the domestic revolving line of credit, $80.0 million
under the European revolving line of credit, and no amounts under the European
overdraft facility.
EXECUTIVE COMPENSATION
In connection with the retirement and passing of our former Chief Executive
Officer, John J. Lee, we recorded certain non-recurring compensation expenses of
approximately $4.7 million in the second quarter of 2001 as a result of early
vesting of deferred compensation and equity, and other compensation due
Mr. Lee's estate.
SIGNIFICANT TRANSACTIONS
PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF OUR COMMON STOCK BY GOLDMAN
SACHS INVESTOR GROUP
On December 19, 2000, an investor group controlled by subsidiaries of The
Goldman Sachs Group, Inc. completed a previously announced purchase of
approximately 14.5 million of the approximately 18 million shares of our common
stock owned by Ciba Specialty Chemicals Holding, Inc. The shares acquired by the
Goldman Sachs investor group represent approximately 39% of our outstanding
common stock. In addition, we entered into a governance agreement with the
Goldman Sachs investor group that became effective on December 19, 2000. Under
this governance agreement, the Goldman Sachs investor group has the right to,
among other things, designate three directors to sit on our ten-member Board of
Directors.
As a result of this transaction, Ciba's ownership of our common stock was
reduced to approximately 3.5 million shares. In addition, our governance
agreement with Ciba, which gave Ciba the right to designate four directors to
sit on our board, terminated. Ciba has stated that its investment in our common
stock is non-strategic and that it will explore options for the future
disposition of its remaining interest in our common stock.
SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, we sold our Bellingham aircraft interiors business to
Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International
plc, for cash proceeds of $113.3 million, which resulted in an after-tax gain of
approximately $44 million. The Bellingham business generated net sales of
$18.9 million for the period from January 1 through April 26, 2000, and
$70.0 million and $34.3 million for 1999 and 1998. The Bellingham business was
engaged in the manufacture and sale of airline interior refurbishment
applications and its operating results were reflected as a component of Hexcel's
Engineered Products business segment up to the date of disposal.
35
<Page>
RECENTLY ISSUED ACCOUNTING STANDARDS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
FASB Statement No. 142 (FAS 142), "Goodwill and Other Intangible Assets."
FAS 142 changes the accounting for goodwill from an amortization method to an
impairment-only approach. Upon adoption of FAS 142, goodwill will be tested at
the reporting unit level annually and whenever events or circumstances occur
indicating that goodwill might be impaired. Amortization of goodwill, including
goodwill recorded in past business combinations, will cease. The adoption date
for Hexcel will be January 1, 2001. Hexcel has not yet determined what the
impact of FAS 142 will be on its results of operations and financial position.
DEFERRED TAX ASSETS
Since 1999, we have generated taxable profits in Europe offset by net
operating losses in the United States. Our U.S. operations have generated
losses, in part, because most of our interest expense and goodwill amortization
is serviced in the United States. We have recorded the benefit of these net
operating losses by increasing the deferred tax asset carried on our balance
sheet. As of March 31, 2001 the deferred tax asset balance was $42.9 million.
The sharp decline in electronics revenues and the recognition of the
non-recurring charges in the second quarter of 2001 have significantly increased
U.S. net operating losses in 2001 compared to prior estimates. In light of this
change in business outlook, in the second quarter of 2001 we have determined to
increase our tax provision rate through the establishment of a non-cash
valuation allowance attributable to currently generated U.S. net operating
losses. Going forward, our financial statements will continue to reflect a tax
provision on our European earnings. As a result, our effective tax rate may
change from quarter to quarter based on relative U.S. and European
profitability. The amount of net deferred tax asset reflected on our balance
sheet considered realizable could be reduced if estimates of future U.S. taxable
income during the carry-forward period are reduced in light of future operating
performance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
The following discussions use comparisons of the March 31, 2001 results to
the March 31, 2000 pro forma results, which give effect to the April 26, 2000
sale of the Bellingham aircraft interiors business as if it had occurred on
January 1, 2000.
NET SALES: Net sales of $276.2 million for the first quarter of 2001 were
5% higher than 2000 first quarter pro forma revenue of $263.2 million. Had the
same U.S. dollar, British pound and Euro exchange rates applied in the first
quarter of 2001 as in the first quarter of 2000, sales for the 2001 quarter
would have been $283.2 million, or 8% higher than the pro forma sales for the
2000 quarter.
The revenue increase was attributable to growth in the commercial aerospace
market as a result of higher build rates for Airbus, Boeing and several regional
aircraft manufacturers and increased production in the space and defense market
related to several programs, partially offset by lower sales volumes in the
electronics market.
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<Page>
The following table summarizes actual and pro forma net sales to third-party
customers by product groups and market segments for the quarters ended
March 31, 2001 and 2000:
<Table>
<Caption>
UNAUDITED
-----------------------------------------------------------
COMMERCIAL SPACE &
AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
---------- -------- ----------- ---------- --------
(IN MILLIONS)
FIRST QUARTER 2001
Reinforcement products....................... $ 18.1 $ 5.5 $34.7 $28.1 $ 86.4
Composite materials.......................... 99.3 26.9 -- 34.0 160.2
Engineered products.......................... 26.0 3.6 -- -- 29.6
------ ----- ----- ----- ------
Total........................................ $143.4 $36.0 $34.7 $62.1 $276.2
====== ===== ===== ===== ======
52% 13% 13% 22% 100%
====== ===== ===== ===== ======
PRO FORMA FIRST QUARTER 2000 (a)
Reinforcement products....................... $ 15.6 $ 4.1 $43.6 $23.8 $ 87.1
Composite materials (b)...................... 90.8 23.3 -- 32.4 146.5
Engineered products.......................... 27.1 2.5 -- -- 29.6
------ ----- ----- ----- ------
Total........................................ $133.5 $29.9 $43.6 $56.2 $263.2
====== ===== ===== ===== ======
51% 11% 17% 21% 100%
====== ===== ===== ===== ======
FIRST QUARTER 2000
Reinforcement products....................... $ 15.6 $ 4.1 $43.6 $23.8 $ 87.1
Composite materials (b)...................... 90.8 23.3 -- 32.4 146.5
Engineered products.......................... 43.7 2.5 -- -- 46.2
====== ===== ===== ===== ======
Total........................................ $150.1 $29.9 $43.6 $56.2 $279.8
====== ===== ===== ===== ======
54% 11% 15% 20% 100%
====== ===== ===== ===== ======
</Table>
- ------------------------
(a) Pro forma net sales give effect to the sale of the Bellingham business that
occurred on April 26, 2000, as if it had occurred on January 1, 2000.
(b) 2000 has been reclassified for comparative purposes.
Net sales to commercial aerospace customers increased 7.4% to
$143.4 million for the first quarter of 2001, as compared to pro forma net sales
of $133.5 million for the first quarter of 2000. This increase in comparable
first quarter sales reflects higher build rates at Airbus, Boeing and several
regional aircraft manufacturers, partially offset by the impact of the weaker
U.S. dollar against the Euro and the British pound sterling.
Commercial aerospace net sales for our reinforcement products and composite
materials businesses increased due to the higher build rates. The commercial
aerospace revenue of the engineered products business is program and contract
specific so this business has not yet derived any net revenue growth from build
rate changes. Boeing has confirmed that it expects to meet its projections to
deliver approximately 530 aircraft in 2001 and an additional 530 aircraft in
2002, an increase over 489 deliveries in 2000; and Airbus has indicated
production plans to sustain deliveries in excess of 300 annually through 2003.
The benefit that we obtain from any increase in build rates in 2001 and 2002
will depend upon the mix of aircraft that are produced, the continuing impact on
the aerospace supply chain of the pressure to reduce the cost of commercial
aircraft and the results of productivity improvement from our Lean Enterprise
initiatives.
Net sales to space and defense markets for the first quarter of 2001
increased 20.4% to $36.0 million, from first quarter 2000 pro forma net sales of
$29.9 million. This increase is due
37
<Page>
primarily to our composite material and reinforcement products businesses and is
due to increased sales related to several programs, including the F/A-18 and the
Eurofighter as well as Boeing's Delta Launchers family. Looking forward, the
requirements of both the United States and European armed forces continue to
support an outlook of increased procurement of military aircraft and
helicopters. The new generation of military aircraft use more of our products.
We are currently qualified to supply materials to a broad range of military
aircraft and helicopters scheduled to enter either full-scale production in the
near future or significantly increase existing production rates. These programs
include the F/A-18E/F (Hornet), the F-22 (Raptor), the European Fighter Aircraft
(Typhoon) as well as the C-17, the V-22 (Osprey) tiltrotor aircraft, the RAH-66
(Comanche) and the NH90 helicopters. The benefits the Company obtains from these
programs will depend upon which ones are funded and the extent of such funding.
Electronics net sales were $34.7 million in the first quarter of 2001, a
decrease of 20.4% from pro forma net sales of $43.6 million in the comparable
2000 quarter. This decline reflects the downturn in the U.S. electronics
industry and the ensuing adjustments throughout the electronics industry supply
chain. Demand for our woven electrical fabrics declined sharply at the end of
the first quarter of 2001. This reduction in demand was the net result of
finished electronic goods producers responding to their excess inventories by
cutting back on their purchases, which has impacted the entire supply chain. The
excess inventories of end producers seems to be the result both of lower than
anticipated growth in certain markets and reduced sales in other markets. In
April 2001, the inventory correction became evident in our wholly owned
operations in France and at our Asian joint venture. In response to these market
conditions, we idled manufacturing capacity and furloughed some production
employees, and will continue to monitor the situation closely and make further
adjustments if warranted by market developments.
Customer orders for electronics applications to date for the second quarter
have remained at the reduced levels seen at the end of March. Our second quarter
revenues from electronic applications will be less than the first quarter of
this year and as of yet there is no visibility as to whether revenues will
increase in the third quarter.
Net sales to industrial markets increased 10.4% to $62.1 million for the
first quarter of 2001 from $56.2 million pro forma net sales for the same 2000
quarter. The increase reflects sales growth in several segments, especially
fabrics (reinforcement segment) used in ballistic and architectural markets and
in composite materials for the wind energy market. Absent a significant
deterioration in the general macroeconomic environment, we expect sales to wind
energy and automotive customers to grow in 2001, driven by growing demand for
low-cost sources of renewable energy and improved automobile safety, as well as
our success in developing products that satisfy these customer applications.
GROSS MARGIN: Gross margin for the first quarter of 2001 was $60.1 million
or 21.8% of net sales, compared to gross margin of $57.7 million or 21.9% of net
sales on a pro forma basis for the first quarter of 2000. The increase in gross
margin reflects the sales increases discussed above offset by the negative
impact of increased energy costs, particularly in the western United States, and
reduced production at our U.S. electronics fabrics manufacturing plants. Energy
costs in the first quarter of 2001 were approximately $2 million higher than in
the first quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were $31.7 million or 11.5% of net sales for the first
quarter of 2001, compared with $30.8 million or 11.7% of net sales on a pro
forma basis for the first quarter of 2000. Research and technology expenses for
the first quarter of 2001 were $4.7 million or 1.7% of net sales, compared with
$5.0 million or 1.9% of net sales on a pro forma basis for the first quarter of
2000.
OPERATING INCOME: Operating income was $22.6 million or 8.2% of net sales
in the first quarter of 2001, compared with $20.7 million or 7.9% of net sales
on a pro forma basis in the first quarter of
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2000. Excluding business consolidation expenses, operating income for the first
quarter of 2001 was $23.7 million or 8.6% of net sales, versus $21.9 million or
8.3% of net sales on a pro forma basis for the first quarter of 2000. Business
consolidation expenses totaled $1.1 million in the first quarter of 2001 and
$1.2 million in the comparable quarter in 2000.
The aggregate increase in operating income, excluding business consolidation
expenses, reflects the increase in gross margin over the pro forma total for the
first quarter of 2000 and a slight reduction in research and technology
expenses, partially offset by higher selling, general and administrative
expenses. The reinforcement products segment increased its operating income by
8.6%, while the composite materials segment increased its operating income by
11.9%, excluding business consolidation expenses, as compared to the first
quarter of 2000 on a pro forma basis. The engineered products segment reported a
decrease in operating income of $1.5 million, after adjusting for the sale of
the Bellingham business on a pro forma basis, reflecting the reduced performance
from the business that became evident in the second half of 2000. We are
pursuing a series of actions focused on progressively improving the performance
of this business segment.
INTEREST EXPENSE: Interest expense was $16.3 million for the first quarter
of 2001, compared to $18.4 million for the first quarter of 2000. The decrease
in interest expense primarily reflects the reduction in term debt outstanding
under our senior credit facility that resulted from the use of the proceeds from
the sale of the Bellingham business to reduce indebtedness.
EQUITY IN EARNINGS OF AFFILIATED COMPANIES: Equity in earnings of
affiliated companies for the first quarter of 2001 was $1.4 million compared to
$0.4 million for the first quarter of 2000 reflecting the strong performance of
our electronics fabrics venture in Asia, partially offset by the initial
start-up costs of our engineered products ventures in China and Malaysia. The
start-up costs of those joint ventures during 2001 are anticipated to reduce our
reported equity in earnings by approximately half compared to 2000. The
electronics industry market conditions discussed above have also started to
impact Asian customer demand and will reduce the second quarter 2001 equity in
earnings reported from our Asian electronic fabrics joint venture.
NET INCOME AND NET INCOME PER SHARE
<Table>
<Caption>
Quarter Ended March
31,
-----------------------
PRO FORMA
2001 2000(a)
---------- ----------
(in millions, except
per share amounts)
Net income.................................................. $ 5.5 $ 3.4
Adjusted net income (b)..................................... $ 6.2 $ 4.2
Diluted net income per share................................ $0.15 $0.09
Diluted net income per share excluding goodwill
amortization.............................................. $0.20 $0.17
Adjusted diluted net income per share (b)................... $0.16 $0.11
Diluted weighted average shares outstanding................. 38.1 36.8
</Table>
- ------------------------
(a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham
aircraft interiors business as if the transaction had occurred on
January 1, 2000.
(b) Excludes business consolidation expenses and related income taxes.
39
<Page>
Our convertible subordinated notes, due 2003, and our convertible
subordinated debentures, due 2011, were excluded from the 2001 and 2000
computations of net income per diluted share, as they were antidilutive.
40
<Page>
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
NET SALES: Net sales for 2000 were $1,055.7 million, a decrease of
$95.8 million or 8% from 1999 net sales of $1,151.5 million. Approximately
$51 million or 4% of the decrease is attributable to the sale of the Bellingham
aircraft interiors business on April 26, 2000. An additional $45 million of the
decrease, representing another 4% of the total, is due to changes in currency
exchange rates--primarily the decline of the British pound and the Euro relative
to the U.S. dollar.
On a pro forma basis, giving effect to the sale of the Bellingham business
as if it had occurred on January 1, 1999, pro forma net sales for 2000 were
$1,036.8 million compared with pro forma net sales for 1999 of
$1,081.5 million. Had the same U.S. dollar, British pound and Euro exchange
rates applied in 2000 as in 1999, pro forma revenues for 2000 would have been
approximately $1,082.0 million.
The following table summarizes actual and pro forma net sales to third-party
customers by product group and market segment for 2000 and 1999:
<Table>
<Caption>
COMMERCIAL SPACE &
AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
---------- -------- ----------- ---------- --------
(IN MILLIONS)
2000 NET SALES
Reinforcement products.............. $ 60.6 $ 13.6 $181.2 $103.8 $ 359.2
Composite materials................. 347.9 95.4 -- 123.7 567.0
Engineered products (a)............. 120.3 9.2 -- -- 129.5
------ ------ ------ ------ --------
Total (a)........................... $528.8 $118.2 $181.2 $227.5 $1,055.7
====== ====== ====== ====== ========
50% 11% 17% 22% 100%
====== ====== ====== ====== ========
PRO FORMA 2000 NET SALES
Total (b)........................... $509.9 $118.2 $181.2 $227.5 $1,036.8
====== ====== ====== ====== ========
49% 11% 18% 22% 100%
====== ====== ====== ====== ========
1999 NET SALES
Reinforcement products.............. $ 52.0 $ 18.2 $166.4 $ 94.3 $ 330.9
Composite materials................. 387.9 101.0 -- 117.0 605.9
Engineered products (a)............. 201.7 13.0 -- -- 214.7
------ ------ ------ ------ --------
Total (a)........................... $641.6 $132.2 $166.4 $211.3 $1,151.5
====== ====== ====== ====== ========
57% 11% 14% 18% 100%
====== ====== ====== ====== ========
PRO FORMA 1999 NET SALES
Total (b)........................... $571.6 $132.2 $166.4 $211.3 $1,081.5
====== ====== ====== ====== ========
53% 12% 15% 20% 100%
====== ====== ====== ====== ========
</Table>
- ------------------------
(a) Net sales for 2000 include $18.9 million of commercial aerospace net sales
by the Bellingham business, which was a component of Hexcel's engineered
products segment until this business was sold on April 26, 2000. Net sales
for 1999 include $70.0 million of commercial aerospace net sales by the
Bellingham business.
(b) Pro forma net sales for 2000 and 1999 give effect to the sale of the
Bellingham business that occurred on April 26, 2000, as if it had occurred
on January 1 of the respective years presented.
40
<Page>
Commercial aerospace net sales for 2000 were $528.8 million, compared with
$641.6 million for 1999. The decrease of $112.8 million or 18% is primarily
attributable to:
- The sale of the Bellingham business on April 26, 2000. This business
generated $70.0 million of revenue for the commercial aerospace segment
during 1999, and $18.9 million during the first four months of 2000.
- Boeing's reduction in aircraft production rates during the second half of
1999 and the first half of 2000, together with some product substitutions
and price reductions on certain products. Boeing delivered 489 aircraft to
its customers in 2000, compared with 620 aircraft in 1999. The impact of
this reduction was most pronounced on our Engineered Products business,
which delivers its products to Boeing just prior to the aircraft being
completed and delivered to the ultimate customer.
- The impact of changes in currency exchange rates.
Boeing has announced that it expects to deliver approximately 530 aircraft
to its customers in 2001 and another 530 aircraft in 2002, while Airbus is
expected to increase its aircraft deliveries from 311 in 2000 to 331 in 2001 and
more than 350 in 2002. As a result of these trends, as well as projections for
continued strength in the demand for regional and business aircraft produced by
such customers as Bombardier Aerospace and Embraer-Empresa Brasileira de
Aeronautica, we expect modest growth in commercial aerospace revenues in 2001.
However, the benefit that we obtain from any increase in aircraft build rates
during 2001 and 2002 will depend upon the mix of aircraft that are produced, the
continuing impact on the aerospace supply chain of the pressure to reduce the
cost of commercial aircraft, and the results of productivity improvements from
our Lean Enterprise initiatives.
Approximately 13% and 10% of 2000 and 1999 net sales, respectively, were
identified as sales to Airbus and its related subcontractors. Approximately 20%
of 2000 net sales and 28% of 1999 net sales were identified as sales to Boeing
and its related subcontractors. Of the 2000 net sales attributable to Boeing and
its related subcontractors, approximately 17% and 3% related to commercial
aerospace and space and defense market applications, respectively. For 1999, the
comparable percentages were 25% and 3%.
Net sales to space and defense markets totaled $118.2 million for 2000, a
decline of $14.0 million or 11% from 1999 net sales of $132.2 million. This
decline reflects the conclusion of one military contract, as well as reduced
demand for carbon fiber and pre-impregnated composites for use in satellites and
satellite launch vehicles. The satellite market continues to suffer from the
impact of a number of launch failures over the past two years, and from concerns
about the financial viability of certain commercial satellite ventures. Looking
forward, we are currently qualified to supply materials to a broad range of
military aircraft and helicopter programs anticipated either to enter full-scale
production in the near future or to significantly increase existing production
rates. These programs include the F/A-18E/F Hornet, the F-22 Raptor, and the
Eurofighter/Typhoon, as well as the C-17, the V-22 Osprey tiltrotor aircraft,
and the RAH-66 Comanche and NH90 helicopters. The benefits we obtain from these
programs will depend upon which ones are funded and the extent of such funding.
Electronics net sales grew to $181.2 million for 2000, an increase of
$14.8 million or 9% over 1999 net sales of $166.4 million. This sales growth
reflects increased demand for lightweight fiberglass fabrics used in electronics
applications, driven by improved economic conditions in Asia and Europe and by
growing worldwide demand for increasingly sophisticated electronic devices.
During 2000, Hexcel switched some of its heavyweight fabric production capacity
to meet lightweight fabric demand, and also began to install additional
lightweight fabric looms to meet the expected continuing growth in demand in
this market. In addition, we were able to raise prices on certain fiberglass
fabrics.
41
<Page>
Net sales to industrial markets rose to $227.5 million for 2000, up from
$211.3 million for 1999. This increase of $16.2 million or 8% is largely due to
the following:
- Increased sales of aramid fabrics used in the manufacture of bulletproof
and puncture resistant vests, driven by military and civilian demand for
lighter, tougher vests.
- Increased sales of newly developed glass fabrics used in certain window
screen and architectural applications, such as screens designed to reduce
glare for computer users in commercial offices.
- Increased sales of prepreg composites products to European customers for
use in producing components for wind energy turbines.
- Increased sales of honeycomb core and machined honeycomb parts used in
certain automotive applications, such as inserts for automobile headliners
to better protect vehicle occupants in collisions.
Aggregate sales to other industrial market segments, such as surface
transportation and recreation markets, were relatively unchanged from 1999 to
2000, after adjusting for changes in currency exchange rates. Absent a
significant deterioration in the general macroeconomic environment, we expect
sales to wind energy and automotive customers to grow again in 2001, driven by
growing demand for low-cost, renewable energy supplies and improved automobile
safety, and by our success in developing products for specific customer
applications. However, the actual rate of growth will depend on economic
conditions in the U.S. and Europe. Aggregate sales to other industrial market
segments are projected to rise more modestly at nominal rates.
GROSS MARGIN: Gross margin for 2000 was $231.4 million or 21.9% of net
sales, compared with $242.5 million or 21.1% of net sales for 1999. The
improvement in gross margin as a percentage of sales during 2000 primarily
reflects the impact of productivity improvements and cost reductions. Price
increases for certain fiberglass fabrics were offset by price decreases for
other select products, with the result that net price changes had minimal impact
on gross margin performance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were $123.9 million for 2000, or 11.7% of net sales.
This compares to $128.7 million or 11.2% of net sales for 1999. The net decline
in selling, general and administrative expenses is attributable in part to the
recognition of a $5.1 million non-cash benefit resulting from the curtailment of
a U.S. defined benefit retirement plan, partially offset by $2.2 million of
expenses resulting from the purchase of our common stock by the Goldman Sachs
investor group. The remainder of the net decline primarily reflects the impact
of the sale of the Bellingham business and changes in currency exchange rates.
RESEARCH AND TECHNOLOGY EXPENSES: Research and technology expenses were
$21.2 million for 2000, or 2.0% of net sales. This compares to $24.8 million or
2.2% of net sales for 1999. The aggregate dollar decrease primarily reflects the
completion of specific research and technology projects, as well as changes in
currency exchange rates.
OPERATING INCOME: Operating income was $75.4 million or 7.1% of net sales
for 2000, of which $0.6 million was contributed by the Bellingham business. This
compares with operating income of $68.9 million or 6.0% of net sales for 1999,
of which $8.0 million was contributed by the Bellingham business. Excluding
business consolidation expenses, operating income was $86.3 million or 8.2% of
net sales for the 2000 period, and $89.0 million or 7.7% of net sales for the
1999 period. Business consolidation expenses, which totaled $10.9 million and
$20.1 million for 2000 and 1999, respectively, are discussed further under
"--Business Consolidation Programs" below.
The divestiture of the Bellingham business in April reduced 2000 operating
income before business consolidation expenses by $7.7 million, compared with
1999. This decline was partially offset by reductions in selling, general and
administrative and research and technology expenses during 2000.
42
<Page>
The improvement in operating income before business consolidation expenses as a
percentage of net sales primarily reflects the aggregate improvement in gross
margin performance noted above.
INTEREST EXPENSE: Interest expense was $68.7 million for 2000, versus
$73.9 million for 1999. The decrease in interest expense primarily reflects the
reduction in outstanding term debt under our senior credit facility that
resulted from the sale of the Bellingham business, partially offset by higher
interest rates on variable-rate debt.
PROVISION FOR (RECOVERY OF) INCOME TAXES: In 2000, the provision for income
taxes was $26.3 million, compared to a recovery of income taxes of $1.7 million
for 1999. Our effective income tax rate was approximately 35% in both years.
EQUITY IN EARNINGS AND WRITE-DOWN OF AN INVESTMENT IN AFFILIATED
COMPANIES: Equity in earnings of affiliated companies for 2000 was
$5.5 million. The primary source of these earnings was our electronic fabrics
joint venture in Asia, which has benefited from the increase in worldwide demand
for electronic devices. The earnings contributed by this venture were partially
offset by our share of the initial start-up losses of our engineered products
ventures in China and Malaysia.
In 1999, we wrote down our investment in one of our joint ventures,
Interglas Technologies AG, formerly CS-Interglas AG, by $20.0 million to its
estimated fair market value. The write-down was the result of management's
decision to allow its fixed-price options to increase its equity investment in
Interglas, from 43.6% to 84%, to expire unexercised, and an assessment that an
other-than-temporary decline in the investment occurred due to its deteriorating
financial condition. The amount of the write-down was determined based on
available market information and appropriate valuation methodologies. We did not
record a deferred tax benefit on the write-down because of limitations imposed
by foreign tax laws on our ability to realize a tax benefit.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
<Table>
<Caption>
2000 1999
--------- ---------
(IN MILLIONS, EXCEPT
PER
SHARE DATA)
Net income (loss)........................................... $ 54.2 $ (23.3)
Diluted net income (loss) per share......................... $ 1.32 $ (0.64)
Diluted net income (loss) per share, excluding goodwill
amortization.............................................. $ 1.51 $ (0.40)
Adjusted diluted net income per share, excluding business
consolidation expenses, the 2000 gain on the sale of the
Bellingham aircraft interiors business, and a 1999
write-down of an investment in an affiliated company...... $ 0.46 $ 0.26
Diluted weighted average shares outstanding................. 45.7 36.4
</Table>
Our convertible subordinated notes, due 2003, our convertible subordinated
debentures, due 2011, and our stock options were excluded from the 1999
computation of net loss per diluted share, as they were antidilutive.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET SALES: Net sales for 1999 were $1,151.5 million, an increase of
$62.5 million or 6% compared with 1998 net sales of $1,089.0 million. The 1998
total includes the net sales of the industrial fabrics business acquired from
Clark-Schwebel, Inc. for the period from September 15, 1998, the date of
acquisition, to December 31, 1998. Net sales for 1999 were approximately
$145 million higher than net sales for 1998 because of the acquisition of the
Clark-Schwebel business. However, this increase was partially offset by sales
reductions attributable to declining aircraft production rates by Boeing,
inventory adjustments in excess of build rate changes by aerospace customers,
price reductions in early
43
<Page>
1999 for certain aerospace products and electronic fabrics, and a decrease in
carbon fiber sales due to the impact of excess installed industry capacity.
Changes in currency exchange rates did not have a material impact on revenue
trends from 1998 to 1999.
The following table summarizes actual and pro forma net sales to third-party
customers by product group and market segment for 1999 and 1998:
<Table>
<Caption>
COMMERCIAL SPACE &
AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
---------- -------- ----------- ---------- --------
(IN MILLIONS)
1999 NET SALES
Reinforcement products.............. $ 52.0 $ 18.2 $166.4 $ 94.3 $ 330.9
Composite materials................. 387.9 101.0 -- 117.0 605.9
Engineered products (a)............. 201.7 13.0 -- -- 214.7
------ ------ ------ ------ --------
Total (a)........................... $641.6 $132.2 $166.4 $211.3 $1,151.5
====== ====== ====== ====== ========
57% 11% 14% 18% 100%
====== ====== ====== ====== ========
PRO FORMA 1999 NET SALES
Total (b)........................... $571.6 $132.2 $166.4 $211.3 $1,081.5
====== ====== ====== ====== ========
53% 12% 15% 20% 100%
====== ====== ====== ====== ========
1998 NET SALES
Reinforcement products.............. $ 24.5 $ 26.4 $ 85.2 $ 88.7 $ 224.8
Composite materials................. 450.6 104.0 -- 103.4 658.0
Engineered products (a)............. 195.0 11.2 -- -- 206.2
------ ------ ------ ------ --------
Total (a)........................... $670.1 $141.6 $ 85.2 $192.1 $1,089.0
====== ====== ====== ====== ========
62% 13% 8% 17% 100%
====== ====== ====== ====== ========
PRO FORMA 1998 NET SALES
Total (b)........................... $672.9 $141.6 $179.3 $206.7 $1,200.5
====== ====== ====== ====== ========
56% 12% 15% 17% 100%
====== ====== ====== ====== ========
</Table>
- ------------------------
(a) Net sales for 1999 include $70.0 million of commercial aerospace net sales
by the Bellingham business, which was a component of our engineered products
segment until this business was sold on April 26, 2000. Net sales for 1998
include $34.3 million of commercial aerospace net sales by the Bellingham
business.
(b) Pro forma net sales for 1999 and 1998 give effect to the sale of the
Bellingham business that occurred on April 26, 2000, as if it had occurred
on January 1 of the respective years presented. Pro forma net sales for 1998
also give effect to the acquisition of the Clark-Schwebel business that
occurred on September 15, 1998, as if it had occurred January 1, 1998.
Commercial aerospace net sales for 1999 were $641.6 million, compared with
$670.1 million for 1998. The decrease of $28.5 million or 4% is largely
attributable to:
- Declining aircraft production rates by Boeing during the second half of
1999, in anticipation of lower aircraft deliveries in 2000.
- Inventory adjustments in excess of build rate changes by aerospace
customers in the U.S., Europe and certain export markets, in connection
with their efforts to improve working capital and reduce manufacturing
cycle times.
44
<Page>
- Price reductions in early 1999 for certain aerospace products, in response
to market conditions.
Partially mitigating these sales reductions was an increase in sales of
woven fabrics attributable to the acquisition of the Clark-Schwebel business in
September 1998.
Approximately 10% of 1999 net sales and 11% of 1998 net sales were
identified as sales to Airbus and its related subcontractors. Approximately 28%
of 1999 net sales and 35% of 1998 net sales were identified as sales to Boeing
and its related subcontractors. Of the 1999 net sales attributable to Boeing and
its related subcontractors, approximately 25% and 3% related to commercial
aerospace and space and defense market applications, respectively. For 1998, the
comparable percentages were 32% and 3%.
Net sales to space and defense markets for 1999 were $132.2 million, a
decline of $9.4 million or 7% from 1998 net sales of $141.6 million. This
decrease is attributable to the conclusion of specific contracts to provide
reinforcement fabrics and composite materials to certain military and space
programs, and to the declining demand for satellites and satellite launch
vehicles in response to launch failures and concerns about the financial
viability of certain satellite ventures. Furthermore, our carbon fiber
manufacturing capacity utilization was only 50% to 60% in 1999, compared to 90%
or higher for much of 1998. Initially, this reduction was due to inventory
corrections by space and defense customers, who purchased or ordered more carbon
fiber than they needed in response to significant carbon fiber supply shortages
in 1997. However, 1999 net sales were also impacted by the changes in the
commercial aerospace market as well as by the new global production capacity
added by Japanese producers. With the high level of fixed costs in this
business, reduced production output significantly impacts the profitability of
the business.
Electronics net sales rose to $166.4 million for 1999, an increase of
$81.2 million or 95% over net sales for 1998 of $85.2 million. The acquisition
of the Clark-Schwebel business in September 1998 added about $94 million of
electronics revenues in 1999, relative to 1998. This addition to our revenue was
somewhat offset, however, by the impact of sales volume and price reductions in
the first half of 1999, which resulted from inventory adjustments in the
electronics industry supply chain and intense competition from manufacturers of
fiberglass fabrics in Asia and Europe. These pressures began to ease in the
second half of 1999, due to increased worldwide demand for electronic devices
and improved manufacturing capacity utilization throughout the fiberglass
fabrics industry.
Net sales to industrial markets for 1999 were $211.3 million, an increase of
$19.2 million or 10% over the 1998 total of $192.1 million. This increase
reflects the following:
- The acquisition of the Clark-Schwebel business in September 1998, which
added more than $14 million of industrial revenues in 1999, compared with
1998.
- Increased sales of aramid and specialty fabrics for ballistics
applications, in response to increased demand for lightweight protective
vests by police forces and the U.S. military.
- Growth in sales of composite materials for wind energy applications, which
nearly doubled from 1998 to 1999.
- Increased sales of composite materials to the automotive industry,
reflecting Hexcel's development of new product applications for automotive
customers.
These positive factors were partially offset by reduced sales of carbon
fiber for industrial applications, due to the impact of excess industry
capacity, as well as lower sales for certain recreation applications.
GROSS MARGIN: Gross margin for 1999 was $242.5 million, or 21.1% of net
sales, compared with $271.3 million, or 24.9% of net sales, for 1998. The
decline in 1999 gross margin relative to 1998 is the result of lower sales
volumes to commercial aerospace and space and defense markets, and the
45
<Page>
associated reduction in the absorption of fixed factory costs, as well as price
reductions on certain products. These factors were partially mitigated by
reductions in labor and overhead costs, as well as negotiated reductions in the
prices of certain raw materials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses were $128.7 million in 1999, or 11.2% of net sales. This
compares with selling, general and administrative expense of $117.9 million or
10.8% of net sales for 1998. The aggregate dollar increase in selling, general
and administrative expenses is primarily attributable to the acquisition of the
Clark-Schwebel business.
RESEARCH AND TECHNOLOGY EXPENSES: Research and technology expenses were
$24.8 million in 1999, or 2.2% of net sales, compared with $23.7 million for
1998, or 2.2% of net sales. The aggregate dollar increase in research and
technology expenses is primarily attributable to the acquisition of the Clark-
Schwebel business.
OPERATING INCOME: Operating income was $68.9 million or 6.0% of net sales
for 1999. This compares with operating income of $117.0 million or 10.7% of net
sales for 1998. Excluding business consolidation expenses, 1999 operating income
was $89.0 million or 7.7% of net sales, while 1998 operating income was
$129.7 million or 11.9% of net sales. The decrease in operating income during
1999 was primarily due to the reductions in sales volumes and prices noted
above, and the related gross margin impact.
INTEREST EXPENSE: Interest expense was $73.9 million for 1999, versus
$38.7 million for 1998. The increase in interest expense primarily reflects the
increase in outstanding debt relating to the acquisition of the Clark-Schwebel
business.
PROVISION FOR (RECOVERY OF) INCOME TAXES: In 1999, the recovery of income
taxes was $1.7 million, reflecting an effective income tax rate of approximately
35%. In 1998, the provision for income taxes of $28.4 million equated to an
effective income tax rate of approximately 36%.
EQUITY IN INCOME AND WRITE-DOWN IN INVESTMENTS IN AFFILIATED
COMPANIES: Economic conditions in the electronics market during the latter part
of 1998 and much of 1999 impacted the performance of Hexcel's joint ventures
during those years. As a result, we recognized a nominal amount of equity in
income of affiliated companies in 1999 and 1998. As previously discussed above,
in the third quarter of 1999, we wrote down our investment in one of these joint
ventures, Interglas, by $20.0 million to its estimated fair market value.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
<Table>
<Caption>
1999 1998
--------- ---------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
Net income (loss)........................................... $ (23.3) $ 50.4
Diluted net income (loss) per share......................... $ (0.64) $ 1.24
Diluted net income (loss) per share, excluding goodwill
amortization.............................................. $ (0.40) $ 1.34
Adjusted diluted net income per share, excluding business
consolidation expenses and a 1999 write-down of an
investment in an affiliated company....................... $ 0.26 $ 1.43
Diluted weighted average shares outstanding................. 36.4 45.7
</Table>
The decrease in the number of diluted weighted average shares outstanding in
1999, relative to 1998, is attributable to the exclusion of 9.0 million
potential common shares relating to the convertible subordinated notes, due
2003, the convertible subordinated debentures, due 2011, and stock options that
were antidilutive in the 1999 period.
46
<Page>
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL RESOURCES
In connection with the acquisition of the industrial fabrics business of
Clark-Schwebel on September 15, 1998, we obtained a new senior credit facility
to: (a) fund the purchase of the Clark-Schwebel business; (b) refinance our
existing revolving credit facility; and (c) provide for our ongoing working
capital and other financing requirements. The senior credit facility was
subsequently amended in January 1999, August 1999, March 2000, October 2000,
May 2001 and June 2001, to accommodate, among other things, the planned sale of
assets, the planned investments in additional manufacturing capacity for
selected products, the impact of the decline in our operating results on certain
financial covenants, the sale by Ciba of approximately 14.5 million of the
approximately 18 million shares of our common stock held by them to the Goldman
Sachs investor group, a restructuring of the ownership and capital structure of
certain of our European subsidiaries and the consummation of the offering of the
original notes.
The senior credit facility is secured by a pledge of shares of certain of
our subsidiaries, as well as security interests in certain U.S. accounts
receivable, inventories, and real property, plant and equipment. We are subject
to various financial covenants and restrictions under the senior credit
facility, including limitations on incurring debt, granting liens, selling
assets, redeeming capital stock and paying dividends. As of March 31, 2001, we
were in compliance with the financial covenants and other terms of the senior
credit facility. In anticipation of lower sales volume in the electronics
market, on May 11, 2001, we obtained an amendment to certain of our financial
covenants under the senior credit facility. As a result, we currently anticipate
continued compliance with all financial covenants for the remainder of 2001.
As of March 31, 2001, the senior credit facility provided us with
approximately $357 million of borrowing capacity, subject to certain
limitations. Interest on outstanding borrowings under the senior credit facility
ranges from 1.00% to 3.25% in excess of the applicable London interbank rate, or
at our option, from 0.25% to 2.25% in excess of the base rate of the
administrative agent for the lenders. Prior to May 11, 2001, the upper limits of
these interest ranges were 3.00% and 2.00%, respectively. In addition, the
senior credit facility is subject to a commitment fee varying from approximately
0.20% to 0.50% per annum of the total facility.
For the years ended December 31, 2000, 1999 and 1998, interest on
outstanding borrowings under the senior credit facility, or previous revolving
credit facility, bore interest at approximately 0.75% to 3.0% in excess of the
applicable London interbank rate, or at our option, 0.0% to 2.0% in excess of
the base rate of the administrative agent for the lenders, and was subject to a
commitment fee ranging from approximately 0.20% to 0.50% per annum of the total
facility.
As of March 31, 2001 and December 31, 2000, 1999 and 1998, we had an
interest rate cap agreement outstanding which covered a notional amount of
$50.0 million of the senior credit facility, providing a maximum fixed rate of
interest of 5.5% on the applicable London interbank rate.
We completed the sale of our Bellingham aircraft interiors business on
April 26, 2000, and used $111.6 million of net proceeds from the sale to repay
outstanding term debt under the senior credit facility.
We expect that the senior credit facility will be sufficient to fund our
worldwide operations for the foreseeable future. The senior credit facility is
scheduled to expire in 2004, except for approximately $58 million of term debt
that is due for repayment in 2005.
As of December 31, 2000, we estimate that we had net operating carryforwards
of approximately $110 million for U.S. federal income tax purposes. These NOLs,
if not utilized to offset taxable income in future periods, will expire at
various dates through fiscal year 2019. If we experience an "ownership
47
<Page>
change" within the meaning of Section 382 of the Internal Revenue Code of 1986,
as amended, our ability to utilize for U.S. federal income tax purposes our NOLs
arising in periods before the ownership change would be subject to an annual
limitation. This annual limitation would be equal to the product of the value of
all of our outstanding stock immediately before the ownership change (less
certain capital contributions made within the preceding two years) and the
relevant "long-term tax-exempt rate," which was 5.01% for ownership changes
occurring in August 2001, increased for any "built-in gains" recognized by us
during the five year period following the ownership change. We do not believe
that we experienced an ownership change as a result of the purchase of
approximately 39% our common stock by the Goldman Sachs investor group, although
such transaction, combined with other issuances or purchases of our stock, could
result in such an ownership change. We cannot currently predict whether such an
ownership change would have a material effect on our U.S. federal income tax
liability or financial condition.
CAPITAL EXPENDITURES
Capital expenditures for the quarter ended March 31, 2001 were
$10.6 million compared to $4.4 million for the 2000 quarter. The increase of
$6.2 million represents our continued efforts toward process improvements,
capacity additions for high-growth product applications such as electronics,
automotive and wind energy; and environmental, safety and maintenance
initiatives.
Capital expenditures were $39.6 million in 2000, compared with
$35.6 million in 1999 and $66.5 million in 1998. The decrease in capital
expenditures from 1998 to 1999 reflects reduced spending due to changing market
conditions, the benefits from our Lean Enterprise program, and our commitment to
reduce our debt. During 1999 and 2000, the majority of our capital expenditures
have been directed toward: (a) process improvements intended to increase
productivity and reduce costs; (b) manufacturing capacity additions for
high-growth product applications, such as electronics, automotive and wind
energy; and (c) environmental, safety and maintenance initiatives. Our capital
expenditures are anticipated to be at a level of approximately $50 million in
2001.
OTHER FINANCIAL COMMITMENTS
In 1999, we formed a joint venture with Boeing and Aviation Industries of
China and BHA Aero Composite Parts Co., Ltd. to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. We have
a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, we formed another joint venture, Asian Composites
Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and Malaysia
Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. We have a 25%
equity ownership interest in this joint venture, which is located in Alor Setar,
Malaysia. It is anticipated that the first parts will be delivered to customers
in 2001. As of May 31, 2001, we have made cash investments in these two joint
ventures totaling $13.0 million, and have commitments to invest another
$2.5 million. In addition, we have committed to provide additional loan
guarantees of up to $13.7 million. The contingent liability under these
commitments is expected to increase in increments through 2002.
Mandatory redemption of our 7.0% convertible subordinated debentures, due
2011, is scheduled to begin in 2002 through annual sinking fund requirements of
$1.1 million in 2002 and $1.8 million in each year thereafter.
In 1998, we entered into a $50.0 million capital lease for property, plant
and equipment used in the acquired Clark-Schwebel business. The lease expires in
September 2006 and includes various purchase options.
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ADJUSTED EBITDA AND CASH FLOWS AND THE RATIO OF EARNINGS TO FIXED CHARGES
Earnings before business consolidation expenses, other income, interest,
taxes, depreciation and amortization and equity in earnings of affiliated
companies, or adjusted EBITDA, and pro forma adjusted EBITDA, are presented to
provide a measure of our operating performance that is commonly used by
investors and financial analysts to analyze and compare companies. Adjusted
EBITDA and pro forma adjusted EBITDA may not be comparable to similarly titled
financial measures of other companies. Adjusted EBITDA and pro forma adjusted
EBITDA do not represent alternative measures of our cash flows or operating
income, and should not be considered in isolation or as substitutes for measures
of performance presented in accordance with generally accepted accounting
principles.
2001: Adjusted EBITDA for the first quarter 2001 was $38.9 million, an
increase of 6.6% above the 2000 first quarter pro forma adjusted EBITDA, giving
effect to the sale of the Bellingham business as if it had occurred at the
beginning of 2000, of $36.5 million.
Net cash provided by operating activities was $3.4 million in the first
quarter of 2001 as compared to net cash used for operating activities of
$6.1 million for the 2000 first quarter. This increase is due to higher net
income, a decrease in working capital requirements and a slight decrease in
deferred income taxes in the first quarter of 2001. The working capital
improvement is due to the timing of certain cash expenditures, which more than
offset the increased inventory levels resulting primarily from the fall-off in
the electronics market demand and the increased accounts receivable resulting
from increased sales. As a result, the improvement is anticipated to reverse in
the second quarter of 2001.
Net cash used for investing activities in the first quarter of 2001 was
$10.6 million compared to $7.8 million used in the 2000 first quarter. The
increase in capital expenditures of $6.2 million represents our continued
efforts toward process improvements, capacity additions for high-growth product
applications such as electronics, automotive and wind energy; and environmental,
safety and maintenance initiatives.
The ratio of earnings to fixed charges for the quarter ended March 31, 2001
was 1.4 compared to 1.3 for the same 2000 quarter on a pro forma basis. The
calculation of earnings to fixed charges assumes that one-third of our rental
expense is attributable to interest expense.
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A reconciliation of net income to EBITDA and adjusted EBITDA for the
quarters ended March 31, 2001 and 2000 as well as the ratio of earnings to fixed
charges, is as follows:
<Table>
<Caption>
Quarter Ended
March 31,
--------------------
PRO FORMA
2001 2000(a)
-------- ---------
(in millions)
Net income.................................................. $ 5.5 $ 3.4
Provision for income taxes.................................. 2.2 1.5
Interest expense............................................ 16.3 16.1
Depreciation and amortization expense....................... 15.2 14.7
Equity in earnings of affiliated companies.................. 1.4 0.4
----- -----
EBITDA...................................................... 37.8 35.3
Business consolidation expenses............................. 1.1 1.2
----- -----
Adjusted EBITDA (b)......................................... $38.9 $36.5
===== =====
Ratio of earnings to fixed charges (c)...................... 1.4 1.3
===== =====
</Table>
- ------------------------
(a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham
aircraft interiors business as if the transaction had occurred on
January 1, 2000.
(b) Excludes business consolidation expenses, interest, taxes, depreciation,
amortization and equity in earnings of affiliated companies.
(c) Earnings consist of income (loss) from continuing operations before fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of fees related to debt financing and that portion of rent
expense deemed to be interest. Interest portion of rentals was calculated as
one third of rentals, which is a reasonable approximation of the interest.
2000: Adjusted EBITDA was $144.9 million for 2000. Pro forma adjusted
EBITDA, giving effect to the sale of the Bellingham business as if it had
occurred at the beginning of 2000, was $144.0 million.
Net cash provided by operating activities was $33.0 million, with the major
sources of cash provided by net income, excluding the after-tax gain from the
sale of the Bellingham business, of $10.2 million and non-cash depreciation and
amortization of $58.7 million. However, these sources of operating cash flow
were offset by $5.5 million of non-cash income from affiliated companies, as was
$5.1 million of income from the curtailment of a U.S. defined benefit retirement
plan. In addition, increases in accounts receivable and inventories used a total
of $24.7 million of cash.
Net cash provided by investing activities was $68.8 million, reflecting net
cash proceeds from the sale of the Bellingham business of $113.3 million,
partially offset by $39.6 million of capital expenditures and $8.3 million of
investments in joint venture affiliates in China and Malaysia. Net cash used for
financing activities was $95.0 million, primarily because the net cash proceeds
from the sale of the Bellingham business were used to reduce outstanding
indebtedness under our senior credit facility.
1999: Adjusted EBITDA for 1999 was $150.4 million. Pro forma adjusted
EBITDA, giving effect to the sale of the Bellingham business as if it had
occurred at the beginning of 1999, was $141.3 million.
Net cash provided by operating activities was $133.7 million, as
$61.3 million of non-cash depreciation and amortization, a $20.0 million
non-cash write-down of an investment in an affiliated
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company, $80.9 million of working capital reductions and $20.1 million of
business consolidation expenses more than offset $23.3 million of net loss,
$15.8 million of non-cash deferred income taxes, and cash used by all other
operating activities. The decrease in working capital reflects lower levels of
receivables and inventory due to aggressive working capital management, our Lean
Enterprise program and lower sales volumes.
Net cash used for investing activities was $40.3 million, reflecting our
capital expenditures and investments in affiliated companies. Net cash used for
financing activities was $99.5 million, reflecting net debt reduction and
$11.0 million of debt issuance costs primarily pertaining to the issuance of the
senior subordinated notes, due 2009.
1998: Adjusted EBITDA for 1998 was $177.2 million. Pro forma adjusted
EBITDA, giving effect to the acquisition of the Clark-Schwebel business and the
sale of the Bellingham business as if both these transactions had occurred at
the beginning of 1998, was $203.1 million.
Net cash provided by operating activities was $93.8 million, as
$50.4 million of net income and $54.4 million of non-cash depreciation,
amortization and deferred income taxes were partially offset by increased
working capital of $14.5 million.
Net cash used for investing activities was $539.2 million, primarily
reflecting $472.8 million of net cash paid for the Clark-Schwebel business, and
$66.5 million of capital expenditures. Net cash provided by financing activities
was $440.7 million, primarily reflecting $459.7 million of net funds borrowed
under the senior credit facility, including the financing of the acquisition of
the Clark-Schwebel business, offset in part by the repurchase of $10.0 million
of treasury stock and $10.3 million of debt issuance costs primarily incurred to
obtain the senior credit facility.
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A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for
2000, 1999 and 1998, as well as the ratio of earnings to fixed charges, is as
follows:
<Table>
<Caption>
2000 1999 1998
------------------- ------------------- -------------------
AS PRO As Pro As Pro
REPORTED FORMA(a) Reported Forma(a) Reported Forma(a)
-------- -------- -------- -------- -------- --------
(in millions)
Net income (loss)............................. $ 54.2 $ 55.8 $(23.3) $(23.1) $ 50.4 $ 48.2
Provision for (recovery of) income taxes...... 26.3 27.1 (1.7) (1.7) 28.4 24.7
Interest expense.............................. 68.7 65.6 73.9 65.8 38.7 62.8
Depreciation and amortization................. 58.7 58.4 61.3 60.2 47.5 59.7
Equity in earnings of and write-down of an
investment in an affiliated company......... (5.5) (5.5) 20.0 20.0 (0.5) (5.0)
Other......................................... (0.1) -- 0.1 -- -- --
------ ------ ------ ------ ------ ------
EBITDA........................................ 202.3 201.4 130.3 121.2 164.5 190.4
Business consolidation expenses............... 10.9 10.9 20.1 20.1 12.7 12.7
Gain on sale of Bellingham aircraft interiors
business.................................... (68.3) (68.3) -- -- -- --
------ ------ ------ ------ ------ ------
Adjusted EBITDA (b)........................... $144.9 $144.0 $150.4 $141.3 $177.2 $203.1
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges (c)........ 2.1 2.1 N/A N/A 2.9 2.0
====== ====== ====== ====== ====== ======
</Table>
- ------------------------
(a) Pro forma results for 2000, 1999 and 1998 give effect to the April 26, 2000
sale of the Bellingham aircraft interiors business as if the transaction had
occurred at the beginning of the respective year's presentation. Pro forma
results for 1998 also give effect to the acquisition of the industrial
fabrics business of Clark-Schwebel in September 1998, as if it had occurred
at the beginning of 1998. Pro forma net income (loss) and pro forma
provisions for (recovery of) income taxes as presented above do not adjust
for the gain on the sale of the Bellingham aircraft interiors business in
2000.
(b) Excludes the gain on the sale of Bellingham aircraft interiors business,
business consolidation expenses, interest, taxes, depreciation, amortization
and equity in earnings of affiliated companies.
(c) Earnings consist of income (loss) from continuing operations before fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of fees related to debt financing and that portion of rent
expense deemed to be interest. Interest portion of rentals was calculated as
one third of rentals, which is a reasonable approximation of the interest
factor. For the year ended December 31, 1999, earnings and pro forma
earnings were insufficient to cover fixed charges by approximately
$5.0 million and $4.8 million, respectively.
The increase in the ratio of earnings to fixed charges from 1999 to 2000
primarily reflects the gain from the sale of the Bellingham business. The
decrease in the ratio of earnings to fixed charges from 1998 to 1999 reflects
our lower operating income, higher interest costs and business consolidation
expenses. The ratio of earnings to fixed charges is equal to net income (loss),
excluding income taxes and interest expense, divided by interest expense.
Interest expense includes approximately one-third of our rental expense.
BUSINESS CONSOLIDATION PROGRAMS
As a result of four substantial business acquisitions from 1996 through
1998, and the need to respond to significant changes in commercial aerospace and
space and defense markets, we initiated three business consolidation programs in
May 1996, December 1998 and September 1999. The primary
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purpose of these programs has been to integrate acquired assets and operations,
and to close or restructure insufficiently profitable facilities and activities.
Due to aerospace industry requirements to "qualify" specific equipment and
manufacturing processes for the manufacture of certain products, some business
consolidation actions have taken up to three years to complete. These
qualification requirements increase the complexity, cost and time of moving
equipment and rationalizing manufacturing activities.
Key initiatives under the three business consolidation programs have been:
- rationalizing manufacturing activities and eliminating excess capacity by
moving and requalifying certain production processes, closing
manufacturing plants and vacating some leased facilities;
- consolidating manufacturing, research, and marketing and administrative
functions into single global business units, in order to create centers of
technical excellence, improve customer service and eliminate redundant
functions; and
- disposing of non-core assets.
As of March 31, 2001, we have closed three manufacturing facilities, vacated
approximately 560 thousand square feet of manufacturing space, and eliminated
more than 700 manufacturing, marketing and administrative positions in
connection with these business consolidation programs.
All of the business consolidation activities initiated in 1996 and 1998 had
been completed as of December 31, 2000, although cash expenditures relating to
accrued severance will continue to be paid through 2001. As of March 31, 2001,
the entire September 1999 program was completed with the exception of the fourth
quarter 2000 amendment, discussed in the next paragraph. The completed program
includes the consolidation of certain production processes, the vacating of
certain leased facilities, and the consolidation into one location of the U.S.
marketing, research and administrative functions of our composite materials
business. However, the reorganization of certain manufacturing activities will
not be completed until 2001 or early in 2002, in accordance with our business
consolidation plans.
In the fourth quarter of 2000, we added two further actions to the
September 1999 business consolidation program. We decided to close the two
smaller of our four U.S. prepreg manufacturing facilities--one in Lancaster,
Ohio and another in Gilbert, Arizona. The manufacturing output from these two
plants will now be produced by the two remaining U.S. prepreg facilities in
Livermore, California and Salt Lake City, Utah. These actions, which are
expected to be completed in early 2002, will result in the elimination of an
additional 79 thousand square feet of manufacturing space and 60 manufacturing
positions.
As of March 31, 2001, future expenses to be recognized and cash expenditures
to be made for all remaining business consolidation activities are estimated at
$2.0 million and $4.2 million, respectively.
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Business consolidation activities for the three years ended December 31,
2000 and the quarter ended March 31, 2001, consisted of the following:
<Table>
<Caption>
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
RELOCATION RELOCATION OTHER TOTAL
----------- ---------- -------- --------
(IN MILLIONS)
BALANCE AS OF JANUARY 1, 1998............................ $9.7 $ 2.0 $0.5 $12.2
Business consolidation expenses:
Current period expenses................................ 3.3 9.6 6.3 19.2
Reversal of 1997 expenses.............................. (6.5) -- -- (6.5)
---- ----- ---- -----
Net business consolidation expenses.................... (3.2) 9.6 6.3 12.7
Cash expenditures........................................ (1.2) (6.3) (1.2) (8.7)
Non-cash usage, including asset write-downs.............. 0.5 (2.9) (5.6) (8.0)
---- ----- ---- -----
BALANCE AS OF DECEMBER 31, 1998.......................... 5.8 2.4 -- 8.2
Business consolidation expenses.......................... 5.1 15.0 -- 20.1
Cash expenditures........................................ (6.7) (2.8) -- (9.5)
Non-cash usage, including asset write-downs.............. (0.7) (14.0) -- (14.7)
---- ----- ---- -----
BALANCE AS OF DECEMBER 31, 1999.......................... 3.5 0.6 -- 4.1
Business consolidation expenses:
Current period expenses................................ 3.7 10.6 -- 14.3
Reversal of 1999 expenses.............................. (0.3) (3.1) -- (3.4)
---- ----- ---- -----
Net business consolidation expenses.................... 3.4 7.5 -- 10.9
Cash expenditures........................................ (3.9) (7.9) -- (11.8)
Non-cash items:
Reversal of 1999 business consolidation expenses....... -- 3.1 -- 3.1
Other non-cash usage, including asset write-downs...... (0.6) (3.0) -- (3.6)
---- ----- ---- -----
Total non-cash items................................... (0.6) 0.1 -- (0.5)
---- ----- ---- -----
BALANCE AS OF DECEMBER 31, 2000.......................... 2.4 0.3 -- 2.7
Business consolidation expenses.......................... 0.1 1.0 -- 1.1
Cash expenditures........................................ (0.5) (0.9) -- (1.4)
Asset write-off.......................................... -- (0.2) -- (0.2)
---- ----- ---- -----
BALANCE AS OF MARCH 31, 2001............................. $2.0 $ 0.2 $ -- $ 2.2
==== ===== ==== =====
</Table>
In 1998, we reversed $6.5 million of accrued business consolidation expenses
relating to employee severance. From 1996 through 1998, during the
implementation of certain business consolidation initiatives, we experienced
significant increased business volume in our commercial aerospace market, which
enabled us to reassign employees who would have otherwise been terminated. As a
result, the actual number of employees terminated was fewer than anticipated,
and we no longer required the full amount of its business consolidation employee
severance accrual.
As part of a business consolidation program, we disposed of our operations
in Brindisi, Italy in 1999. In accordance with Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, we recorded a charge of $5.6 million in
1998 for an asset impairment related to our Italian operations, which was
included in business consolidation expenses. The estimate of fair value used in
determining the impairment charge was based on offers received from interested
buyers. The Italian operations were disposed of for net proceeds that
approximated amounts accrued and were accounted for under our Engineered
Products business segment. Financial operating results for this business were
not material to our consolidated financial statements.
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<Page>
In the second quarter of 2000, we amended our September 1999 business
consolidation program in response to the manufacturing constraints caused by a
stronger than expected increase in sales and production for our electronic woven
glass fabrics and our ballistics protection products. Based on these improved
market conditions, which were expected to continue beyond 2000, and a
manufacturing capacity review, we concluded to expand its capacity by purchasing
additional looms and revising the previous decision to consolidate a number of
weaving activities at two of our facilities. As a result of the decision to not
proceed to consolidate production, we reversed a total of $3.4 million of
business consolidation expenses that were previously recognized in 1999,
including $3.1 million in non-cash write-downs of machinery and equipment that
was to have been sold or scrapped as a result of the consolidation.
For the three months ended March 31, 2001, we recognized $1.1 million of
business consolidation expenses. Accrued expenses as of March 31, 2001 primarily
reflected accrued severance and costs for early termination of certain leases.
Our policy is to pay severance over a period of time rather than in a lump-sum
amount.
MARKET RISKS
As a result of our global operating and financing activities, we are exposed
to various market risks that may affect our results of operations and financial
position. These market risks include fluctuations in interest rates, which
impact the amount of interest we must pay on certain variable-rate debt, and
fluctuations in currency exchange rates, which impact the U.S. dollar value of
transactions, assets and liabilities denominated in foreign currencies. Our
primary currency exposures are in Europe, where we have significant business
activities. To a lesser extent, we are also exposed to fluctuations in the
prices of certain commodities, such as electricity, natural gas, aluminum and
certain chemicals.
We attempt to net individual exposures on a consolidated basis, when
feasible, to take advantage of natural offsets. In addition, we employ an
interest rate cap agreement and foreign currency forward exchange contracts for
the purpose of hedging certain specifically identified interest rate and net
currency exposures. The use of these financial instruments is intended to
mitigate some of the risks associated with fluctuations in interest rates and
currency exchange rates, but does not eliminate such risks. We do not use
financial instruments for trading purposes.
DERIVATIVES POLICY
We formally document all relationships between hedging instruments and
hedged items, as well as our risk management objectives and strategy for
undertaking various hedging transactions. The hedging instruments are assessed
for effectiveness at the inception of the hedge and throughout the term of the
hedge designation. As long as the hedge remains highly effective, changes in the
fair value of our cash flow hedges are recorded in other comprehensive income,
until earnings are affected by the transaction being hedged. Ineffectiveness is
recorded immediately in the income statement. All derivatives are recognized on
the balance sheet at their fair value. We discontinue hedge accounting
prospectively when we determine that (1) the derivative is no longer effective
in offsetting changes in the cash flows of a hedged item (including hedged items
such as forecasted transactions); (2) the derivative expires or is sold,
terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; or (4) designating the derivative as a hedging
instrument is no longer appropriate.
The market risk associated with interest rate and foreign exchange contracts
is managed by us through monitoring of parameters that limit the types and
degree of market risk that may be undertaken. Our derivative activities are
regulated by written policies and procedures that are managed and monitored for
compliance by the Finance Management Committee, which we refer to as the FMC.
The FMC is composed of our chief financial officer, chief accounting officer,
assistant treasurer, and our other senior managers as may be appointed to the
committee from time to time. The FMC
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<Page>
periodically reports to the Audit Committee on the scope of our derivative
activities. Our policies together with the decisions and guidelines of the FMC:
(a) set forth a risk-management philosophy and objectives through a corporate
policy, (b) provide guidelines for derivative instrument usage, and
(c) establish procedures for control and valuation, counterparty credit
approval, and monitoring and reporting of derivative activity. The use of
derivative financial instruments to hedge exposures to changes in exchange rates
and interest rates exposes us to credit risk. We reduce the credit risk in
derivative instruments by (a) entering into transactions with high-quality
counterparties whose credit ratings are AA/Aa or higher, (b) limiting the amount
of exposure to each counterparty, and (c) monitoring the financial condition of
its counterparties.
INTEREST RATE RISKS
Our long-term debt bears interest at both fixed and variable rates. As a
result, our results of operations are affected by interest rate changes on our
variable rate debt. Assuming a 10% favorable and a 10% unfavorable change in the
underlying weighted average interest rates of our variable rate debt, net income
for 2000 of $54.2 million would have been $56.8 million and $52.5 million,
respectively.
In order to partially mitigate interest rate risks, in 1998 we entered into
a five-year interest rate cap agreement. This agreement provides for a maximum
fixed interest rate of 5.5% on the applicable London interbank rate used to
determine the interest on $50.0 million of variable rate debt under the senior
credit facility. In addition, on January 21, 1999, we issued $240.0 million of
9.75% senior subordinated notes, due 2009. Net proceeds of approximately
$231 million from that issuance were used to redeem variable rate amounts owed
under the senior credit facility. As of March 31, 2001 and December 31, 2000,
the fair value of the interest rate cap agreement was not material and for the
quarter ended March 31, 2001, hedge ineffectiveness was not material to our
consolidated financial position. We do not expect that gains or losses under
this agreement will be material to our consolidated results of operations or
cash flows.
CURRENCY EXCHANGE RISKS
We have significant business activities in Europe. We operate seven
manufacturing facilities in Europe which generated approximately 38% of 2000 net
sales. Our European business activities primarily involve three major
currencies--the U.S. dollar, the British pound, and the Euro. We also conduct
business or have joint venture investments in Japan, China, Malaysia, Australia
and Brazil, and sell products to customers throughout the world. The majority of
our transactions with customers and joint venture affiliates outside of Europe
are denominated in U.S. dollars, thereby limiting our exposure to short-term
currency fluctuations involving these countries. However, the value of our
investments in these countries could be impacted by changes in currency exchange
rates over time, as could our ability to profitably compete in international
markets.
We attempt to net individual currency positions at our various European
operations on a consolidated basis, to take advantage of natural offsets and
reduce the need to employ foreign currency forward exchange contracts. We also
enter into short-term foreign currency forward exchange contracts, usually with
a term of ninety days or less, to hedge net currency exposures resulting from
specifically identified transactions. Consistent with the nature of the economic
hedge provided by such contracts, any unrealized gain or loss would be offset by
corresponding decreases or increases, respectively, of the underlying
transaction being hedged. As of March 31, 2001 and December 31, 2000, the
aggregate fair value of these outstanding short-term foreign currency forward
exchange contracts was not material to our consolidated financial position, and
management does not expect that gains or losses on these contracts will be
material to our consolidated results of operations or cash flows.
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In January 2001, we entered into a number of foreign currency forward
exchange contracts to exchange U.S. dollars for Euros at fixed rates on
specified dates through March 2005. The aggregate notional amount of these
contracts is $96.7 million. The purpose of these contracts is to hedge an
equivalent amount of projected U.S. dollar receipts by two of our European
facilities, under long-term sales contracts with certain customers. These
contracts are expected to provide us with a more balanced matching of future
cash receipts and expenditures by currency, thereby reducing our exposure to
fluctuations in currency exchange rates. Assuming a 10% increase in the value of
the Euro relative to the U.S. dollar, the aggregate fair value of these
contracts would constitute a $9.7 million asset of ours. Alternatively, assuming
a 10% decrease in the value of the Euro relative to the U.S. dollar, the
aggregate fair value of these contracts would represent a $9.7 million liability
of ours. For the quarter ended March 31, 2001, hedge ineffectiveness was
immaterial and the fair value of the foreign currency cash flow hedges
recognized in other comprehensive income was a loss of $4.9 million. Over the
next twelve-month period, a $1.0 million loss is expected to be reclassified
into earnings as the hedged sales are recorded.
COMMODITY PRICE RISKS
Certain raw materials and operating supplies used by us are subject to price
fluctuations caused by the volatility of underlying commodity prices. The
commodities most likely to have an impact on our results of operations in the
event of significant price changes are electricity, natural gas, aluminum and
certain chemicals. We attempt to minimize the impact of commodity price risk,
when feasible, by entering into supply agreements that specify raw material
prices or limit price increases for a reasonable period of time. We generally do
not employ forward contracts or other financial instruments to hedge commodity
price risk.
UTILITY PRICE RISKS
During the fourth quarter of 2000 and continuing into 2001, there has been
unprecedented volatility in the cost and supply of energy and in natural gas
prices in the United States, particularly in the western states where we have
many of our U.S. manufacturing facilities. Continued significant price changes
are likely to have an impact on our results of operations. In anticipation of
continued volatility, we are exploring options to reduce energy consumption and
to better control the price paid for energy sources. However, the outcome of the
U.S. energy situation and its impact on the U.S. economy is unpredictable at
this time and may pose unforeseen future risk.
OTHER RISKS
As of December 31, 2000, the aggregate fair values of our senior
subordinated notes, due 2009, convertible subordinated notes, due 2003, and the
convertible subordinated debentures, due 2011, were $211.2 million,
$99.5 million and $17.9 million, respectively. The convertible debt securities
are convertible into our common stock at a price of $15.81 and $30.72 per share,
respectively. Fair values were estimated on the basis of quoted market prices,
although trading in these debt securities is limited and may not reflect fair
value. Due to the conversion feature in these debt securities, fair values are
subject to fluctuations based on the value of our stock and our credit rating,
as well as changes in interest rates for debt securities with similar terms.
Assuming that all other factors remain constant, the fair values of our
convertible subordinated notes, due 2003, and the convertible subordinated
debentures, due 2011, would be approximately $109.5 million and $19.7 million,
respectively, assuming a 10% favorable change in the market price of our stock,
and $89.6 million and $16.1 million, respectively, assuming a 10% unfavorable
change in market price.
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BUSINESS
GENERAL
We are the world's leading producer of advanced structural materials. We
develop, manufacture and market lightweight, high-performance reinforcement
products, composite materials and engineered products for use in commercial
aerospace, space and defense, electronics and general industrial applications.
Our materials are used in a wide variety of end products, such as commercial and
military aircraft, space launch vehicles and satellites, printed wiring boards,
computers, cellular telephones, televisions, soft body armor, high-speed trains
and ferries, cars and trucks, wind turbine blades, reinforcements for bridges
and other structures, window blinds, skis and snowboards, golf clubs, fishing
poles, tennis rackets and bicycles.
We are a vertically integrated manufacturer of products organized around
three strategic business segments, presented in order of manufacturing
integration from raw materials to finished products.
- REINFORCEMENT PRODUCTS: This segment manufactures carbon fibers and carbon
fiber fabrics, fiberglass fabrics which are the substrate for printed
wiring boards, woven industrial fabrics, woven fabrics for ballistics
protection and carbon, aramid and glass reinforcement materials, all of
which comprise the foundation of many composite materials, parts and
structures;
- COMPOSITE MATERIALS: This segment produces honeycomb and prepregs, as well
as structural adhesives and specially machined honeycomb details and
composite panels, that are incorporated into military and commercial
aircraft; and
- ENGINEERED PRODUCTS: This segment engineers and produces composite parts
and structures for commercial and military aircraft.
With 20 manufacturing facilities located in six countries around the world
and joint ventures in Asia, Europe and the United States, we are well positioned
to take advantage of opportunities for growth worldwide. For the twelve months
ended December 31, 2000, 43% of our sales were made outside the United States.
We serve our international markets through manufacturing facilities and sales
offices located in the United States and Europe, and through sales offices
located in Asia, Australia and South America.
We believe that we have achieved a degree of vertical integration unmatched
by any competitor. This vertical integration enhances our control over the cost,
quality and delivery of our products, and enables us to offer a variety of
solutions to our customers' structural materials needs. For the year ended
December 31, 2000, we generated net sales of $1.1 billion and adjusted EBITDA of
$144.9 million. For the three months ended March 31, 2001, we generated net
sales of approximately $276.2 million and Adjusted EBITDA of $38.9 million. See
the footnotes to the "Selected Consolidated Financial Information" table on
page 23 of this prospectus for a definition of the terms "EBITDA" and "Adjusted
EBITDA."
COMPETITIVE STRENGTHS
We believe that our competitive position is attributable to a number of key
strengths, including the following:
- MARKET LEADER. We believe that we are the largest integrated producer of
advanced structural materials in the world. We are the largest supplier of
advanced structural materials to both the commercial and military
aerospace industries. We are the global leader in weaving carbon fibers.
We are the global leader in weaving glass fibers, with an especially
strong position as the leading worldwide supplier of fiberglass fabrics
used in the manufacture of printed wiring boards. We are the global leader
in weaving aramid fibers. Taken together, our overall size and leading
market positions make us a critical supplier to our customers in multiple
end use industries.
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- VERTICAL INTEGRATION. We believe that our acquisitions since 1996 have
built us into the most vertically integrated manufacturer of advanced
structural materials in the world. Vertical integration provides us with a
greater ability to control the cost, quality and delivery of our products.
In addition, because we develop, manufacture and sell products from
various points in the manufacturing process, we are able to provide the
broadest possible range of overall materials solutions to our customers.
Currently, we consume internally approximately 50% of our carbon fiber
production and 20% of our fabric production, and sell the balance of these
products to our customers.
- MARKET AND GEOGRAPHIC DIVERSITY. Approximately 49% of our pro forma net
sales for the twelve months ended December 31, 2000 were derived from the
commercial aerospace industry; 11% from the space and defense industry;
18% from the electronics industry; and 22% from industrial markets. During
the same period, we sold 59%, 38% and 3% of our products to customers
located in North America, Europe and the Pacific Rim. We believe that this
market and geographic diversity provides us with growth platforms in a
number of global markets that follow different business cycles.
- BROADEST RANGE OF QUALIFICATIONS IN THE AEROSPACE INDUSTRY. We believe
that we have the broadest range of product qualifications of any advanced
materials manufacturer in the aerospace industry and have qualified
products for use in virtually all western commercial and military aircraft
programs. Before advanced structural materials may be utilized in
aerospace and military applications, they must be qualified. All Airbus
and Boeing commercial aircraft use our qualified products, and our carbon
fiber is the only qualified carbon fiber in many U.S. military aircraft
and rocket programs. We believe that our extensive range of qualifications
positions us to remain a leading supplier of advanced structural materials
to the aerospace industry.
- LEADER IN THE MULTILAYER PRINTED WIRING BOARD MARKET. We are the leading
weaver of the fine, lightweight fiberglass fabrics used in the fabrication
of multilayer printed wiring boards. This position allows us to capitalize
on the continuing trend toward electronics miniaturization, which relies
on multilayer printed wiring boards to achieve smaller size with increased
functionality. While the electronics industry is currently in the midst of
a worldwide inventory correction, multilayer printed wiring boards are
anticipated to be the fastest growing segment of the printed wiring board
industry once this inventory correction is over. Our fabrics are one of
the enabling technologies for these printed wiring boards. The worldwide
printed wiring board market is estimated at over $38.0 billion, with
multilayer printed wiring boards comprising approximately two-thirds of
the total market. As the leading manufacturer of lightweight fabrics for
multilayer printed wiring boards, we believe we are well positioned to
capture a significant portion of this market growth.
- GROWING INDUSTRIAL PRODUCT APPLICATIONS. We have developed a number of
industrial applications for our products that offer significant future
growth opportunities. In particular, our products have found application
in the production of blades by some wind turbine manufacturers. Wind
energy is the fastest growing source of renewable energy finding
applications worldwide. Our honeycomb products have valuable energy
absorption characteristics enabling some automobile manufacturers to meet
federally mandated impact protection standards for their vehicles.
- MANUFACTURING AND TECHNICAL EXPERTISE. We have been a leader in advanced
structural materials technology for over 50 years and a leader in
fiberglass fabrics technology for nearly 40 years. We believe that the
range of technologies and products that we have developed over these
decades gives us a level of manufacturing expertise unsurpassed in our
industry. Our technically oriented sales force works with new and existing
customers to identify and engineer solutions to meet our customers' needs,
particularly by identifying areas where advanced structural materials may
beneficially replace traditional materials.
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BUSINESS STRATEGY
Key elements of our strategy include the following:
- MAINTAIN LEADERSHIP POSITION IN COMMERCIAL AEROSPACE INDUSTRY. Commercial
aerospace remains the largest market for advanced structural materials. We
are the leading supplier to this industry, with strong positions at both
Boeing and Airbus. We believe that demand for commercial aircraft, and
therefore advanced structural materials, will remain at historically high
levels for the next several years as a result of the following trends that
have been identified in industry reports:
- continued growth in air travel over the next ten years;
- the existing broad design and qualification baseline for advanced
structural materials in modern commercial aircraft;
- increased aircraft retirement rates as a result of fuel costs and
government noise regulation;
- European aviation deregulation;
- continuing airline profitability and balance sheet strength; and
- expected increases in aircraft fleet size during the next decade.
Industry analysts believe combined Boeing and Airbus production will
remain at a historically high level for the next few years, although
relative market shares may shift. We believe that we are well positioned
to capitalize on such trends by continuing to produce a wide variety of
advanced structural materials for use in the manufacture of virtually
every commercial aircraft in the western world, whether the aircraft is
produced by Boeing, Airbus or regional manufacturers. We continue to
pursue the increased use of advanced structural materials in each new
generation of commercial aircraft. The latest Airbus A340 500/600 models
for the first time utilize advanced structural materials to fabricate
the keel beam and the rear pressure bulkhead. The A380 will provide
further penetration of advanced structural materials as a proportion of
total materials used in the fabrication of the airframe and control
surfaces with applications as the central wing box being built from
composite materials.
- REDUCE PRODUCTION COSTS AND IMPROVE MANUFACTURING EFFICIENCIES.We will
pursue specific initiatives to reduce production costs and capital
expenditures and improve manufacturing efficiencies, including continuing
the implementation of our Lean Enterprise program and value chain
management initiatives on a global basis. A current initiative is to
reduce the number of U.S. prepreg plants from four to two, consolidating
the activities of the two smaller plants into the two larger plants. The
goals of our current programs are to reduce unit product costs, lower
production cycle times, increase throughputs, lower inventories and
improve product quality and customer satisfaction.
- CAPITALIZE ON GROWING MILITARY AEROSPACE MARKETS. We intend to capitalize
on the expected growth of the military market, which uses a higher
percentage of advanced structural materials and higher value products than
the commercial market. We are already qualified to supply materials to a
broad range of military aircraft and helicopters entering into full-scale
production. Demand for many of these aircraft is driven in part by the
need to replace aging fighter and transport aircraft platforms. These
programs include the V-22 (Osprey) tilt rotor aircraft, the F-22 (Raptor),
the F/A-18E/F (Hornet), the C-17 transport, the European Fighter Aircraft
(Typhoon) and the NH90 helicopters. In the medium term we will see the
benefit of additional programs such as the Joint Strike Fighter (JSF), the
RAH-66 (Comanche) helicopter and the A400M transport in Europe. While the
relative size of each program will be subject to government funding, the
requirement to replace existing aircraft is expected to result in military
aircraft
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production this decade being significantly higher than the last
decade--and these new generation aircraft use larger quantities of
advanced structural materials.
- INCREASE UTILIZATION OF CARBON FIBER MANUFACTURING CAPACITY. We plan to
increase the utilization of our carbon fiber manufacturing facilities both
as a result of the growth in military aircraft production and as the
result of qualifying the use of our carbon fiber in a broader range of our
products.
- EXPAND APPLICATIONS FOR ADVANCED STRUCTURAL MATERIALS. We are committed to
expanding the application of our advanced materials both within existing
markets and into promising new segments. To date, advanced structural
materials have found their greatest use in aerospace and recreation
applications, where their performance properties have shown the most
demonstrable value. We believe that these materials have significant
potential applications in: surface transportation, including high speed
and mass transit railways, cars and trucks and high speed ferries and
commercial shipping; civil engineering, including repair and reinforcement
of buildings and bridges; and energy, including wind turbine blades and
fly wheels.
In the last two years, we have generated significant growth from wind
energy, automotive and ballistic applications.
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BUSINESSES SEGMENTS
We are a vertically integrated manufacturer of products organized around
three strategic business segments: reinforcement products, composite materials
and engineered products. The following table identifies, by each of these
segments, our principal products and examples of the primary end-uses:
<Table>
<Caption>
BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE
REINFORCEMENT PRODUCTS Carbon Fibers - Raw materials for industrial fabrics and
prepregs; and
- Filament winding for various space, defense
and industrial applications
Industrial Fabrics - Printed wiring boards
- Raw materials for prepregs and honeycomb
- Various marine applications
- Window blinds
- Insulation
- Metal and fume filtration systems
- Soft body armor
- Civil engineering and construction
applications
COMPOSITE MATERIALS Prepregs - Raw materials for composite structures and
interiors
- Semi-finished aircraft components
- Munitions and defense systems
- Skis, snowboards, golf club shafts, fishing
rods and tennis rackets
Structural - Bonding of structural materials and
Adhesives components, including composite panels
Honeycomb, - Raw materials for composite structures and
Honeycomb Parts & interiors
Composite Panels
- Semi-finished aircraft components used in:
Helicopter blades
Aircraft surfaces (flaps, wing tips, elevators
and fairings)
High-speed ferries, truck and train components
Automotive components, Space shuttle doors
ENGINEERED PRODUCTS Composite - Aircraft structures and finished aircraft
Structures and OEM components, including:
aircraft interiors
Wing-to-body and flap track fairings Radomes
Engine cowls and inlet ducts
Wing panels
- OEM aircraft interiors, including:
Overhead storage compartments
Flight deck panels
Door liners
</Table>
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REINFORCEMENT PRODUCTS
Our Reinforcement Products business segment manufactures and markets carbon
fibers and industrial fabrics. We expanded this business segment in 1998 with
the acquisition of the Clark-Schwebel business. Our Reinforcement Products
segment generated third party net sales for the twelve months ended
December 31, 2000 and the three months ended March 31, 2001 of $359.2 million
and $86.4 million, respectively.
CARBON FIBERS. Carbon fibers are manufactured for sale to third-party
customers and for use in the manufacture of some of our industrial fabrics and
composite materials. Carbon fibers are woven into carbon fabrics, used as
reinforcement in conjunction with a resin matrix to produce pre-impregnated
composite materials, which we refer to as "prepreg", and used in filament
winding and advanced fiber placement to produce other composite materials. Key
product applications include structural components for commercial and military
aircraft and space launch vehicles, as well as other applications such as golf
club shafts and tennis racquets.
INDUSTRIAL FABRICS. Industrial fabrics are made from a variety of fibers,
including several types of fiberglass as well as carbon, aramid, quartz, ceramic
and other specialty reinforcements. These fabrics are sold to third-party
customers for use in a wide range of products, including printed wiring boards,
window coverings and other architectural products, soft body armor, and a
variety of structural materials and components used in aerospace, marine and
rail applications. These fabrics are also used internally by us to manufacture
prepregs and other composite materials.
<Table>
REINFORCEMENT PRODUCTS
KEY CUSTOMERS MANUFACTURING FACILITIES
- --------------------------------------------- ---------------------------------------------
Cytec Fiberite Anderson, SC
Isola Decatur, AL
Nelco Decines, France
Piad Les Avenieres, France
DHB Salt Lake City, UT
Second Chance Seguin, TX
Von Roll Statesville, NC Washington, GA
</Table>
COMPOSITE MATERIALS
Our Composite Materials business segment has worldwide responsibility for
manufacturing and marketing prepregs, structural adhesives, honeycomb, specially
machined honeycomb parts and composite panels. Composite Materials net sales to
external customers for the twelve months ended December 31, 2000 and the three
months ended March 31, 2001 were $567.0 million and $160.2 million,
respectively.
PREPREGS AND STRUCTURAL ADHESIVES. We are a worldwide leader in the
production of prepregs and have led the development of applications for prepregs
for nearly thirty years.
Prepregs are manufactured for sale to third party customers and for use in
manufacturing our other composite materials and structures, including finished
components for aircraft structures and interiors. Prepregs are manufactured by
combining high performance reinforcement fabrics or unidirectional fibers with a
resin matrix to form a composite material with exceptional structural properties
not present in either of the constituent materials. Industrial fabrics used in
the manufacture of prepregs include S-2-Registered Trademark- and E-type
fiberglass, carbon, aramid, quartz, ceramic, Thorstrand-Registered Trademark-,
polyethylene and other specialty reinforcements. Resin matrices include
bismaleimide, cyanate ester, epoxy, phenolic, polyester, polyimide and other
specialty resins.
We design and market a comprehensive range of Redux-Registered Trademark-
film adhesives. These structural adhesives, which bond a wide range of
composite, metallic and honeycomb surfaces, are used in a variety of product
applications.
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HONEYCOMB, HONEYCOMB PARTS AND COMPOSITE PANELS. Honeycomb is a unique,
lightweight, cellular structure composed of hexagonal nested cells. The product
is similar in appearance to a cross-sectional slice of a beehive. The hexagonal
cell design gives honeycomb a high strength-to-weight ratio and a uniform
resistance to crushing. These basic characteristics are combined with the
physical properties of the material from which the honeycomb is made to meet
various engineering requirements.
We produce honeycomb from a number of metallic and non-metallic materials.
Most metallic honeycomb is made from aluminum and is available in a selection of
alloys, cell sizes and dimensions. Non-metallic honeycomb materials include
fiberglass, carbon, thermoplastics, non-flammable aramid papers and several
other specialty materials.
We sell honeycomb core material in standard block and sheet form and in
laminated panel form. In the construction of composite panels, sheets of
aluminum, stainless steel, prepreg or other laminates are bonded with adhesives
to each side of a slice of honeycomb core, creating a "sandwich" structure. We
also possess advanced processing capabilities that enable us to design and
manufacture complex fabricated honeycomb parts and bonded assemblies to meet
customer specifications. These parts and assemblies are used as semi-finished
components in the manufacture of composite structures.
The largest market for honeycomb products is the aerospace market. We also
sell honeycomb for non-aerospace applications including high-speed trains and
mass transit vehicles, automotive parts, energy absorption products, marine
vessel compartments, portable shelters, business machine cabinets and other
general industrial uses. In addition, we produce honeycomb for our Engineered
Products business segment for use in manufacturing finished parts for airframe
OEMs.
<Table>
COMPOSITE MATERIALS
KEY CUSTOMERS MANUFACTURING FACILITIES
- --------------------------------------------- ---------------------------------------------
North America: United States:
Boeing Burlington, WA
Bombardier Casa Grande, AZ
CFAN Gilbert, AZ
Embraer-Empresa Lancaster, OH
Hawker de Havilland Livermore, CA
Lockheed Martin Pottsville, PA
Northrop Grumman Salt Lake City, UT
Rohr
United Technologies
Europe: Europe:
Aerospatiale Dagneux, France
Alenia Duxford, England
British Aerospace Linz, Austria
CASA Parla, Spain
DaimlerChrylser Aerospace Welkenraedt, Belgium
</Table>
We are currently consolidating the activities of our Gilbert, Arizona and
our Lancaster, Ohio plants into our Livermore, California and Salt Lake City,
Utah plants. We anticipate completing these consolidation activities and closing
the Gilbert and Lancaster plants by the end of this year.
ENGINEERED PRODUCTS
Our Engineered Products business segment has worldwide responsibility for
manufacturing and marketing composite structures primarily for use in the
aerospace industry, as well as OEM aircraft interiors. Composite structures and
aircraft interior components are manufactured from a variety of composite and
other materials, including prepregs, honeycomb and structural adhesives, using
manufacturing processes such as resin transfer molding, autoclave processing,
multi-axis numerically controlled machining, press laminating, heat forming and
other composite manufacturing techniques.
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Composite structures include such items as wing-to-body and flap track fairings,
radomes, engine cowls, inlet ducts, wing panels and other aircraft components.
Aircraft interior components include such items as overhead storage bins, flight
deck panels and door liners.
In April 2000, we sold our Bellingham aircraft interiors business. This
business was responsible for the design, engineering and manufacture of
commercial aircraft interior components and systems for airline refurbishment
applications. Net sales for this business segment for the twelve months ended
December 31, 2000 as if the Bellingham business had been sold as of the
beginning of 2000 and the three months ended March 31, 2001 were $110.6 million
and $29.6 million.
<Table>
ENGINEERED PRODUCTS
KEY CUSTOMERS MANUFACTURING FACILITIES
- --------------------------------------------- ---------------------------------------------
Boeing Kent, WA
Aviation Partners Boeing
Vought
Mitsubishi Heavy Industries
</Table>
JOINT VENTURES
In 1999, we formed a joint venture with Boeing and Aviation Industries of
China called BHA Aero Composite Parts Co., Ltd., to manufacture composite parts
for secondary structures and interior applications for commercial aircraft. We
have 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, we formed another joint venture, Asian Composites
Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and Naluri Berhadto,
to manufacture composite parts for secondary structures for commercial aircraft.
We have a 25% equity ownership interest in this joint venture, which is located
in Alor Setar, Malaysia. Products manufactured by both joint ventures will be
shipped to our customers worldwide, and it is anticipated that the first parts
will be delivered to customers in 2001.
As part of the acquired Clark-Schwebel business, we acquired equity
ownership interests in three joint ventures: a 43.6% share in Interglas
Technologies AG, headquartered in Germany; a 43.3% share in Asahi-Schwebel
Co., Ltd., headquartered in Japan; and a 50.0% share in Clark-Schwebel Tech-Fab
Company, headquartered in the United States. Interglas and Asahi-Schwebel are
fiberglass fabric producers serving the European and Asian electronics industry
as well as other markets for fiberglass fabrics. CS Tech-Fab manufactures
non-woven materials for roofing, construction and other specialty applications.
We own a 45% equity interest in DIC-Hexcel Limited, a joint venture with
Dainippon Ink and Chemicals, Inc. This joint venture is located in Komatsu,
Japan, and produces and sells prepregs, honeycomb and decorative laminates using
technology licensed from Hexcel and Dainippon.
BUSINESS CONSOLIDATION PROGRAMS
As a result of four substantial business acquisitions from 1996 through
1998, and the need to respond to significant changes in commercial aerospace and
space and defense markets, we initiated three business consolidation programs in
May 1996, December 1998 and September 1999. The primary purpose of these
programs has been to integrate acquired assets and operations into our business,
and to close or restructure insufficiently profitable facilities and activities.
For the year ended December 31, 2000 and the three months ended March 31, 2001,
we recorded business consolidation expenses of $10.9 million and $1.1 million.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Business Consolidation Programs."
All of the business consolidation activities initiated in 1996 and 1998 have
been completed as of December 31, 2000, although cash expenditures relating to
accrued severance will continue to be paid through 2001.
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As of March 31, 2001, the entire September 1999 program was completed with
the exception of the fourth quarter 2000 amendment. In the fourth quarter of
2000, we added two further actions to close the two smaller of our four U.S.
prepreg manufacturing facilities--one in Lancaster, Ohio and another in Gilbert,
Arizona. The manufacturing output from these two plants will now be produced by
the two remaining U.S. prepreg facilities in Livermore, California and Salt Lake
City, Utah. These actions will result in the elimination of 60 additional
positions (primarily manufacturing positions) and are not expected to be
completed until early 2002. As of March 31, 2001, future expenses to be
recognized are $2.0 million for 2001 and $4.2 million for 2002.
LEAN ENTERPRISE
In 1998, we initiated our Lean Enterprise program, which is designed to
create a common way of managing our business, with a focus on creating value for
our customers and eliminating waste throughout the value chain. The goals of the
program are faster processing of customer orders and deliveries, faster
manufacturing cycle times, shorter equipment set-up and clean-down times, lower
manufacturing rejects and warranty claims, simplified manufacturing procedures
and improved manufacturing processes. All of these actions, if successful, are
expected to result in higher throughput and greater capacity on existing
manufacturing equipment, thereby reducing both capital expenditures and facility
requirements. Improved efficiency and quality are expected to result in lower
unit labor requirements and thereby lower product costs and lower inventory
requirements. The Lean Enterprise program is also systematically linked with key
initiatives, such as Six Sigma, to improve quality and the effectiveness of
global procurement activities. This program contributed to our reduction in
working capital and capital spending from 1998 to 1999, as well as improvements
in gross margin and operating income as a percentage of net sales from 1999 to
2000.
RAW MATERIALS AND PRODUCTION ACTIVITIES
Due to the vertically integrated nature of our operations, we produce
several materials used in the manufacture of industrial fabrics, composite
materials and engineered products. We also produce the polyacrylonitrile
precursor material used in the manufacture of carbon fibers, which is commonly
referred to as "PAN." We consumed internally approximately 50% and 20% of our
carbon fiber and industrial fabric production in 2000. However, we purchase most
of the raw materials used in production from third parties. Several key
materials are available from relatively few sources, and in many cases the cost
of product qualification makes it impractical to develop multiple sources of
supply. The unavailability of these materials, which we do not currently
anticipate, could have a material adverse effect on operations.
In addition, raw materials and operating supplies we use are subject to
price fluctuations caused by the volatility of underlying commodity prices. The
commodities most likely to have an impact on our results of operations in the
event of significant price changes are electricity, natural gas, aluminum and
chemicals. We attempt to minimize the impact of commodity price risk, when
feasible, by entering into supply agreements that specify raw material prices or
limit price increases for a reasonable period of time. We generally do not
employ forward contracts or other financial instruments to hedge commodity price
risk.
Our production activities are generally based on a combination of
"make-to-order" and "make-to-forecast" production requirements. We coordinate
closely with key suppliers in an effort to avoid raw material shortages and
excess inventories.
RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW
Our research and technology departments support our core businesses
worldwide. Through R&T activities, we maintain expertise in chemical formulation
and curatives, fabric forming and textile architectures, advanced composite
structures, process engineering, application development analysis and testing of
composite materials, computational design and prediction, and other scientific
disciplines related to our worldwide business base. Additionally, our R&T
function performs a limited amount of
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contract research and development in the U.S. and Europe for strategically
important customers and government agencies in the areas of carbon fiber
ceramics, high temperature polymers, advanced textiles and composite structures
manufacturing.
Our products rely primarily on our expertise in materials science, textiles,
process engineering and polymer chemistry. Consistent with market demand, we
have been placing more emphasis on cost effective product design and lean
manufacturing in recent years. Towards this end, we have entered into formal and
informal alliances, as well as licensing and teaming arrangements, with several
customers, suppliers, external agencies and laboratories. Management believes
that we possess unique capabilities to design, develop and manufacture composite
materials and structures. We own and maintain in excess of 100 patents
worldwide, have licensed many key technologies, and have granted technology
licenses and patent rights to several third parties in connection with joint
ventures and joint development programs. It is our policy to actively enforce
its proprietary rights. We believe that the patents and know-how rights
currently owned or licensed by us are adequate for the conduct of our business.
We spent $21.2 million for research and technology in 2000, and
$4.7 million in the first quarter of 2001. These expenditures were expensed as
incurred.
MARKETS AND CUSTOMERS
Our materials are sold for a broad range of end uses. The following tables
summarize net sales to third-party customers by market and by geography for the
year ended December 31, 2000 and the three months ended March 31, 2001.
<Table>
<Caption>
PRO FORMA
YEAR ENDED YEAR ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED
2000(A) 2000 MARCH 31, 2001
------------ ------------ --------------
NET SALES BY MARKET
Commercial aerospace........................... 49% 50% 52%
Space and defense.............................. 11 11 13
Electronics.................................... 18 17 13
Industrial..................................... 22 22 22
--- --- ---
Total.......................................... 100% 100% 100%
=== === ===
NET SALES BY GEOGRAPHY
United States.................................. 56% 57% 50%
U.S. exports................................... 5 5 6
International.................................. 39 38 44
--- --- ---
Total.......................................... 100% 100% 100%
=== === ===
</Table>
- ------------------------
(a) Pro forma results gave effect to the April 26, 2000 sale of the Bellington
aircraft business as if the transaction had occurred at the beginning of the
period presented.
COMMERCIAL AEROSPACE
Historically, the commercial aerospace industry has led the development of
applications for advanced structural materials and components because it has the
strongest need for the performance properties of these materials, and is well
positioned to maximize the economic benefits from their use. The demand for
advanced structural material products, however, is closely correlated to the
demand for commercial aircraft.
Commercial aerospace activity fluctuates in relation to two principal
factors. First, the number of revenue passenger miles flown by the airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. The second factor, which is less sensitive to the
general economy, is the replacement and retrofit rates for existing aircraft.
These rates, resulting mainly from
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obsolescence, are determined in part by the regulatory requirements established
by various civil aviation authorities as well as public concern regarding
aircraft age, safety and noise. These rates may also be affected by the desire
of the various airlines for higher payloads and more fuel-efficient aircraft,
which in turn is influenced by the price of fuel.
Reflecting the demand factors noted above, the number of commercial aircraft
delivered by Boeing and Airbus declined by 48% from 1992 to 1995. At the lowest
point during this period, Boeing and Airbus reported combined deliveries of 380
aircraft. Beginning in 1996, however, aircraft deliveries by Boeing and Airbus
began to rise, growing to a combined record peak of 914 in 1999, which decreased
to 800 in 2000. Set forth below are historical deliveries as published by Boeing
and Airbus:
<Table>
<Caption>
1992 1993 1994 1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -------- -------- -------- --------
Boeing (including McDonnell
Douglas)..................... 573 409 311 256 271 375 559 620 489
Airbus......................... 157 138 127 124 126 182 229 294 311
--- --- --- --- --- --- --- --- ---
Total.......................... 730 547 438 380 397 557 788 914 800
=== === === === === === === === ===
</Table>
Approximately 20%, 28% and 35% of our 2000, 1999 and 1998 net sales were to
Boeing and related subcontractors. Of the 20% of sales to Boeing and its
subcontractors, 17% and 3% related to commercial aerospace and space and defense
market applications. Approximately 13%, 10% and 11% of our 2000, 1999 and 1998
net sales were to Airbus and related subcontractors. The decrease in the
percentages of sales made to Boeing and related subcontractors primarily reflect
the increased sales from the acquired Clark-Schwebel business as well as the
decline in sales to Boeing as a result of Boeing's 1999 build rate reductions.
On average, we deliver products into the Boeing supply chain about six months
prior to aircraft delivery. As a result, we began to see the impact of reduced
Boeing production rates in the second quarter of 1999. The loss of all or a
significant portion of the business with Boeing or Airbus would likely have a
material adverse effect on our sales and earnings.
Depending on the product, orders placed with us are received anywhere
between one and eighteen months prior to delivery of the aircraft to the
customer. Based on published projections, combined deliveries for Boeing and
Airbus are expected to increase from 800 in 2000 to approximately 860 in 2001,
and to more than 880 in 2002. We are also expecting continued strength in the
demand for regional and business aircraft produced by our customers such as
Bombardier Aerospace and Embraer-Empresa Brasileira de Aeronautica.
SPACE AND DEFENSE
The space and defense markets have historically been innovators in and
sources of significant demand for advanced structural materials. For example,
advanced structural materials made a major contribution to the development of
"stealth" aircraft technologies. However, aggregate demand by space and defense
customers is primarily a function of military aircraft procurement by the U.S.
and some European governments. Presently, there are a number of potentially
significant military aircraft programs in various stages of development or
initial production that utilize advanced structural materials. We are currently
qualified to supply materials to a broad range of military aircraft and
helicopter programs anticipated either to enter full-scale production in the
near future or to significantly increase production rates. These programs
include the F/A-18E/F Hornet, the F-22 Raptor, the Eurofighter/Typhoon, the
C-17, the V-22 Osprey tiltrotor aircraft, the RAH-66 Comanche and the NH90
helicopters. The benefits we obtain from these programs will depend upon which
ones are funded and the extent of such funding.
Contracts to supply materials for military and some commercial projects
contain provisions for termination at the convenience of the U.S. government or
the buyer. In the case of such a termination, we are entitled to recover the
reasonable incurred cost plus a provision for profit on the incurred cost. In
addition, we are subject to U.S. government cost accounting standards, which are
applicable to companies with more than $25 million of government contract or
subcontract awards each year.
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ELECTRONICS
The acquisition of the Clark-Schwebel business has provided us with a global
platform to supply the electronics industry, which we believe has attractive
long-term growth potential. We are the largest producer of fine, lightweight
fiberglass fabrics used in the fabrication of multilayer printed wiring boards,
with an estimated 45% market share in the U.S. and 28% market share in Europe.
In addition to our U.S. businesses, we have significant ownership positions in
three joint ventures: Interglas, Asahi-Schwebel and CS Tech-Fab. Interglas and
Asahi-Schwebel are leading fiberglass fabric manufacturers in Europe, Japan and
Southeast Asia. Fiberglass fabrics are a critical component used in the
production of printed wiring boards, which are integral to most advanced
electronic products, including computers, telecommunications equipment, advanced
cable television equipment, network servers, televisions, automotive equipment
and home appliances.
INDUSTRIAL
We have focused our participation in industrial markets in areas where the
application of advanced structural material technology offers significant
benefits to the end user. As a result, we have chosen to focus on select
opportunities where high performance is the key product criterion. Future
opportunities and growth depend primarily upon the success of the individual
programs and industries in which we have elected to participate. Within
industrial markets, key applications include wind energy, civil engineering,
skis, snowboards, golf club shafts, fishing rods, tennis rackets, bicycles, soft
body armor and surface transportation. Applications within surface
transportation include automobiles, mass transit and high-speed rail and marine
applications. Our participation in these markets is a valuable complement to its
commercial and military aerospace businesses, and we are committed to pursuing
the utilization of advanced structural material technology in our industrial
markets.
COMPETITION
In the production and sale of advanced structural materials, we compete with
numerous United States and international companies on a worldwide basis. The
broad markets for our products are highly competitive and we have focused on
both specific markets and specialty products within markets to obtain market
share. In addition to competing directly with companies offering similar
products, our materials compete with substitute structural materials such as
structural foam, wood, metal and concrete. Depending upon the material and
markets, relevant competitive factors include price, delivery, service, quality
and product performance.
EMPLOYEES
As of December 31, 2000, we employed 6,072 full-time employees, which
approximates the March 31, 2001 level. This compares with the December 31, 1999
and 1998 employees of 6,328 and 7,139. The decrease in the number of employees
from 1998 to the end of 2000 was primarily attributable to our business
consolidation programs, including the closure of a facility in Cleveland,
Georgia and the disposition of a business in Brindisi, Italy, as well as the
divestiture of the Bellingham business.
LEGAL PROCEEDINGS
We are involved in litigation, investigations and claims arising out of the
conduct of our business, including those relating to commercial transactions, as
well as to environmental, health and safety matters. We estimate and accrue our
liabilities resulting from such matters based on a variety of factors, including
outstanding legal claims and proposed settlements; assessments by internal and
external counsel of pending or threatened litigation; and assessments by
environmental engineers and consultants of potential environmental liabilities
and remediation costs. Such estimates exclude counterclaims against other third
parties. Such estimates are not discounted to reflect the time value of
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money due to the uncertainty in estimating the timing of the expenditures, which
may extend over several years. Although it is impossible to determine the level
of future expenditures for legal, environmental and related matters with any
degree of certainty, it is our opinion, based on available information, that it
is unlikely that these matters, individually or in the aggregate, will have a
material adverse effect on our consolidated financial position, results of
operations or cash flows.
ENVIRONMENTAL CLAIMS AND PROCEEDINGS
We are subject to numerous laws and regulations that impose strict
requirements for the control and abatement of air, water and soil pollutants and
the manufacturing, storage, handling and disposal of hazardous substances and
waste. These laws and regulations include the Federal Comprehensive
Environmental Response, Compensation, and Liability Act, commonly known as
"CERCLA" or "Superfund," the Clean Air Act, the Clean Water Act and the Resource
Conservation and Recovery Act, and analogous state laws and regulations.
Environmental regulatory standards have tended to become increasingly stringent
over time.
We have been named as a potentially responsible party with respect to
certain hazardous waste disposal sites that we do not own or operate. Because
CERCLA provides for joint and several liability, we could be responsible for all
remediation costs at such sites, even if we are one of many potentially
responsible parties. We believe, based on the amount and the nature of our
waste, and the number of other financially viable potentially responsible
parties, that our liability in connection with such matters will not be
material. We have accrued an estimate of our liability with respect to these
matters.
Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act, we
signed an administrative consent order and later entered into a remediation
agreement to pay for the environmental remediation of a manufacturing facility
we own and formerly operated in Lodi, New Jersey. Our estimate of the remaining
cost to satisfy this consent order is accrued in our consolidated balance
sheets.
We were party to a cost-sharing agreement regarding the operation of certain
environmental remediation systems necessary to satisfy a post-closure care
permit issued to a previous owner of our Kent, Washington site by the U.S.
Environmental Protection Agency. Under the terms of the cost-sharing agreement,
we were obligated to reimburse the previous owner for a portion of the cost of
the required remediation activities. We have determined that the cost-sharing
agreement terminated in December 1998; however, the other party disputes this
determination. Our estimate of the remaining costs associated with the cleanup
of this site is accrued in our consolidated balance sheets.
At our Livermore, California facility, we have recently received a series of
notices of violation of air quality standards from the Bay Area Air Quality
Management District. We are investigating the issues and are cooperating with
the District. We believe the costs to address this matter, including fines or
penalties, will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
OTHER MATTERS
We are aware of a grand jury investigation being conducted by the Antitrust
Division of the United States Department of Justice with respect to the carbon
fiber and carbon fiber prepreg industries. The Department of Justice appears to
be reviewing the pricing of all manufacturers of carbon fiber and carbon fiber
prepreg since 1993. We, along with other manufacturers of these products, have
received a grand jury subpoena requiring production of documents to the
Department of Justice. We are not in a position to predict the direction or
outcome of the investigation; however, we are cooperating with the Department of
Justice.
In 1999, we were joined in a purported class action lawsuit alleging
antitrust violations in the sale of carbon fiber, carbon fiber industrial
fabrics and carbon fiber prepreg (Thomas & Thomas
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Rodmakers, Inc. et. al. v. Newport Adhesives and Composites, Inc., et. al.,
Amended and Consolidated Class Action Complaint filed October 4, 1999, United
States District Court, Central District of California, Western Division,
CV-99-07796-GHK (CTx)). We were one of many manufacturers joined in the lawsuit,
which was spawned from the Department of Justice investigation. The lawsuit is
in its preliminary stages and we are not in a position to predict the outcome,
but believe that the lawsuit is without merit as to us.
PROPERTIES
We own and lease manufacturing facilities and sales offices located
throughout the United States and in other countries as noted below. Our
corporate offices and our principal corporate support activities are located in
leased facilities in Stamford, Connecticut and Wilton, Connecticut. Our
corporate research and technology administration and some composite materials
laboratories are located in Dublin, California.
The following table lists our manufacturing facilities by geographic
location, approximate square footage and principal products manufactured. This
table does not include manufacturing facilities owned by entities in which we
have a joint venture interest.
MANUFACTURING FACILITIES
<Table>
<Caption>
APPROXIMATE
SQUARE
FACILITY LOCATION FOOTAGE PRINCIPAL PRODUCTS
- -------------------------------------------- ----------- --------------------------------------------
UNITED STATES:
Anderson, South Carolina.................... 432,000 Industrial fabrics
Burlington, Washington...................... 73,000 Honeycomb Parts
Casa Grande, Arizona........................ 307,000 Honeycomb and Honeycomb Parts
Decatur, Alabama............................ PAN Precursor (used to produce Carbon
159,000 Fibers)
Gilbert, Arizona............................ 30,000 Prepregs
Kent, Washington............................ 733,000 Composite Structures; OEM Aircraft Interiors
Lancaster, Ohio............................. 49,000 Prepregs
Livermore, California....................... 141,000 Prepregs
Pottsville, Pennsylvania.................... 134,000 Honeycomb Parts
Salt Lake City, Utah........................ 457,000 Carbon Fibers; Prepregs
Seguin, Texas............................... 204,000 Industrial fabrics
Statesville, North Carolina................. 553,000 Electronic fabrics; Industrial fabrics
Washington, Georgia......................... 160,000 Electronic fabrics
INTERNATIONAL:
Dagneux, France............................. 130,000 Prepregs
Decines, France............................. 90,000 Industrial fabrics
Duxford, United Kingdom..................... 440,000 Prepregs; Honeycomb and Honeycomb Parts
Les Avenieres, France....................... 476,000 Electronic fabrics; Industrial fabrics
Linz, Austria............................... 163,000 Prepregs
Parla, Spain................................ 43,000 Prepregs
Welkenraedt, Belgium........................ 223,000 Honeycomb and Honeycomb Parts
</Table>
We lease the facilities located in Anderson, South Carolina; Washington,
Georgia; Statesville, North Carolina; and Gilbert, Arizona; and the land on
which the Burlington, Washington, facility is located. We also lease portions of
the facilities located in Casa Grande, Arizona; Linz, Austria; and Les
Avenieres, France.
As part of its business consolidation program, we are currently
consolidating the activities of our Gilbert, Arizona and our Lancaster, Ohio
prepreg manufacturing plants into our Livermore, California and Salt Lake City,
Utah prepreg plants. We anticipate completing these consolidation activities and
closing the Gilbert and Lancaster plants by the end of this year.
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MANAGEMENT
DIRECTORS
Our Board of Directors currently consists of ten directors. Three of our
directors, Sanjeev K. Mehra, Peter M. Sacerdote and James J. Gaffney, were
designated by the Goldman Sachs investor group. The remaining seven directors
include our new Chairman and Chief Executive Officer, David E. Berges, our
President and Chief Operating Officer, Harold E. Kinne, and five directors who
are independent of both the investors and Hexcel--H. Arthur Bellows, Jr., Robert
S. Evans, Marshall S. Geller, Lewis Rubin and Martin L. Solomon.
The following table sets forth information regarding the directors of our
company as of August 1, 2001. No family relationship exists between any of our
directors or executive officers.
<Table>
<Caption>
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
- ---- -------- -------- -------------------------------------------
David E. Berges............................ 51 2001 Chairman of the Board; Chief Executive
Officer; Director
Harold E. Kinne............................ 61 1998 President; Chief Operating Officer;
Director
H. Arthur Bellows, Jr...................... 63 2000 Director
Robert S. Evans............................ 57 1999 Director
James J. Gaffney........................... 60 2000 Director
Marshall S. Geller......................... 62 1994 Director
Sanjeev K. Mehra........................... 42 2000 Director
Lewis Rubin................................ 63 1999 Director
Peter M. Sacerdote......................... 63 2000 Director
Martin L. Solomon.......................... 64 1996 Director
</Table>
DAVID E. BERGES, age 51, has served as Chairman of the Board of Directors
and Chief Executive Officer of Hexcel since July 2001. 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. Mr. Berges was President and Chief Operating Officer of Barnes Aerospace,
a division of Barnes Group Inc., from 1992 to 1994, and prior to 1992 held
various other managerial and technical positions with Barnes Group Inc. and the
General Electric Company.
HAROLD E. KINNE, age 61, has served as President and Chief Operating Officer
of Hexcel since July 1998. Prior to joining Hexcel, he was President of the
Additives Division, corporate vice president and a member of the corporate
management committee of Ciba Specialty Chemicals Corporation from 1996 to
June 1998. Mr. Kinne also held the same positions in and was a director of
Ciba-Geigy Corporation from 1988 through 1996. Prior to that, Mr. Kinne served
as Vice President, Pigments, for the Plastics & Additives Division of Ciba-Geigy
Corporation from 1986 to 1988. Mr. Kinne held various other technical and
managerial positions with Ciba-Geigy Corporation from 1965 to 1986.
H. ARTHUR BELLOWS, JR., age 63, has been a director of Hexcel since
December 2000. Mr. Bellows also serves as a member of the Audit and Finance
Committees of Hexcel. He has served as Chairman of Braeburn Associates, a
private merchant banking firm, since 1999, and Chairman of The Finance Network,
a private financial services firm, since 1999. Mr. Bellows was President, Chief
Operating Officer and a director of Audits & Surveys Worldwide, Inc., an
international market research firm, from 1995 to March 1999, and continues to
serve as a director. In 1967, he founded The Triangle Corporation, a
manufacturer of hand tools, aerosol chemicals, diagnostic equipment for
automobiles and various hardware products, and served as its Chairman, President
and Chief Executive Officer from its founding to March, 1995. Mr. Bellows also
acts as an officer and director of various civic organizations.
ROBERT S. EVANS, age 57, has been a director of Hexcel since November 1999.
Mr. Evans also serves as a member of the Finance and Nominating Committees of
Hexcel. He is Chairman and a director of Crane Co., a New York Stock Exchange
company. Crane Co. is a diversified manufacturer of engineered industrial
products serving a number of industrial markets, including aerospace and
specialty materials markets in which Hexcel does not participate. Mr. Evans has
been Chairman of Crane Co. since 1984 and a director since 1979, and served as
its Chief Executive Officer from 1984 to
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April 2001. In addition, Mr. Evans is also a director of Fansteel, Inc., HBD
Industries Inc. and Chairman of Huttig Building Products.
JAMES J. GAFFNEY, age 60, has been a director of Hexcel since
December 2000. Mr. Gaffney also serves as a member of the Audit Committee of
Hexcel. Since 1997 he has served as a consultant to private investment funds
affiliated with Goldman Sachs in relation to these funds' investment in Viking
Pacific Holdings and Vermont Investments Limited. Since 1997 he has served as
Vice Chairman of Viking Pacific Holdings Ltd. From 1995 through 1997,
Mr. Gaffney served as Chairman of the Board and Chief Executive Officer of
General Aquatics, Inc., which manufactures swimming pool equipment and
constructs swimming pools. From 1993 through 1995 he was President and Chief
Executive Officer of KDI Corporation, a conglomerate which was involved in
swimming pool construction and manufactured products for a variety of
industries. Prior to 1993, Mr. Gaffney held numerous other executive and
financial positions. He also is a director of SCP Pool, Inc., Advantica
Restaurant Group, Purina Mills, Safelite Glass Corp. and Hvide Marine Inc.,
where he serves as Chairman of the Board, and of various private companies.
MARSHALL S. GELLER, age 62, served as Co-Chairman of the Board of Directors
of Hexcel from February 1995 to February 1996 and has been a director of Hexcel
since August 1994. Mr. Geller also serves as Chairman of the Nominating
Committee and as a member of the Compensation Committee of Hexcel. Mr. Geller
has served as Chairman of the Board, Chief Executive Officer and founding
partner at Geller & Friend Capital Partners, Inc., a merchant banking firm,
since 1995. Mr. Geller was Senior Managing Director of Golenberg &
Geller, Inc., a merchant banking firm, from 1991 to 1995; Vice Chairman of
Gruntal & Company, an investment banking firm, from 1988 to 1990; and a Senior
Managing Director of Bear, Stearns & Co., Inc., an investment banking firm, from
1967 to 1988. Mr. Geller is currently a director of Ballantyne of Omaha, Inc.,
ValueVision International, Inc., drkoop.com, Inc., FutureLink Corp., Concepts
Direct Inc. and various other privately held corporations and charitable
organizations.
SANJEEV K. MEHRA, age 42, has been a director of Hexcel since
December 2000. Mr. Mehra also serves as Chairman of the Finance Committee and is
a member of the Compensation and Nominating Committees of Hexcel. Mr. Mehra
served as Co-Chairman of the Board of Directors of Hexcel from May 2001 until
July 2001. Mr. Mehra joined Goldman Sachs in 1986, and has served since 1996 as
a Managing Director in the Principal Investment Area of Goldman Sachs' Merchant
Banking Division and serves on the Principal Investment Area Investment
Committee. Mr. Mehra is a director of Amscan Holdings, Inc., ProMedCo Management
Company, Inc. and various privately held companies.
LEWIS RUBIN, age 63, has been a director of Hexcel since November 1999. He
also served on Hexcel's Board from 1993 to 1995. Mr. Rubin also serves as
Chairman of the Audit Committee of Hexcel. Mr. Rubin is President, Chief
Executive Officer and a director of XTRA Corporation, a New York Stock Exchange
company, and has served in those positions since 1990. XTRA Corporation is a
leading global transportation equipment lessor with operations in highway,
domestic intermodal and marine container markets. From 1988 to 1990, he was a
consultant with Lewis Rubin Associates, a consulting firm advising the
transportation equipment industry. From 1984 to 1988, Mr. Rubin served as
President and Chief Executive Officer of Gelco CTI Container Services, a
subsidiary of Gelco Corporation, a diversified international management services
corporation, and as an Executive Vice President of Gelco Corporation. From 1981
to 1983, Mr. Rubin was President and Chief Executive Officer of Flexi-Van
Corporation, a company engaged in the leasing of intermodal transportation
equipment.
PETER M. SACERDOTE, age 63, has been a director of Hexcel since
December 2000. Mr. Sacerdote has been an advisory director of Goldman Sachs
since May 1999 where he also serves as chairman of its Investment Committee and
as a member of its Real Estate Principal Investment Committee. He joined Goldman
Sachs in 1964 and served as a general partner from 1973 through 1990 and a
limited partner from 1991 through 1999. He also serves as a director of AMF
Bowling, Inc., AMF Group Holdings Inc., Qualcomm Incorporated and Franklin
Resources, Inc. He is also a director and/or officer of various civic
organizations.
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MARTIN L. SOLOMON, age 64, has been a director of Hexcel since May 1996.
Mr. Solomon also serves as Chairman of the Compensation Committee and is a
member of the Finance Committee of Hexcel. Mr. Solomon served as Co-Chairman of
the Board of Directors of Hexcel from May 2001 until July 2001. Mr. Solomon has
been Co-Chairman of American County Holdings, Inc., an insurance holding
company, since 2000 and, from 1997 to 2000 he served as its Chairman and Chief
Executive Officer. Mr. Solomon has been a self-employed investor since 1990.
Mr. Solomon was a director and Vice Chairman of the Board of Directors of Great
Dane Holdings, Inc., which is engaged in the manufacture of transportation
equipment, automobile stamping, the leasing of taxis and insurance, from 1985 to
1996, Managing Partner of Value Equity Associates I, L.P., an investment
partnership, from 1988 to 1990, and was an investment analyst and portfolio
manager of Steinhardt Partners, an investment partnership, from 1985 to 1987.
Mr. Solomon has been a director of XTRA Corporation since 1990, a director of
Telephone and Data Systems, Inc. since 1997, a director of MFN Corp. since 1999,
and a director of eMagin Corporation since 2000. Mr. Solomon is also a director
of various privately held corporations and civic organizations.
EXECUTIVE OFFICERS
Set forth below is information concerning the executive officers of Hexcel
and all persons chosen to become executive officers of Hexcel as of August 1,
2001. For additional information concerning Messrs. Berges and Kinne, see
"Management--Directors."
<Table>
<Caption>
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
- ---- -------- --------- ------------------------------------------
David E. Berges........................... 51 2001 Chairman of the Board; Chief Executive
Officer; Director
Harold E. Kinne........................... 61 1998 President; Chief Operating Officer;
Director
Stephen C. Forsyth........................ 46 1994 Executive Vice President; Chief Financial
Officer
Ira J. Krakower........................... 60 1996 Senior Vice President; General Counsel;
Secretary
William J. Fazio.......................... 46 2001 Corporate Controller; Chief Accounting
Officer
Robert F. Matthews........................ 55 2000 Vice President of Human Resources
Joseph H. Shaulson........................ 35 1996 Vice President of Corporate Planning and
Chief Information Officer
Justin P. S. Taylor....................... 47 1996 Vice President, Manufacturing and
Environmental, Health and Safety
James N. Burns............................ 61 1996 President of the Fibers business unit
William Hunt.............................. 58 1996 President of the Composites Materials
business unit
David R. Tanonis.......................... 44 1999 President of the Structures and Interiors
business unit
Steven T. Warshaw......................... 52 2000 President of the Hexcel-Schwebel business
unit
</Table>
STEPHEN C. FORSYTH, age 46, has served as Executive Vice President of Hexcel
since June 1998, Chief Financial Officer since November 1996, and Senior Vice
President of Finance and Administration between February 1996 and June 1998.
Mr. Forsyth also serves as a director of Interglas Technologies AG. Mr. Forsyth
served as Vice President of International Operations of Hexcel from
October 1994 to February 1996 and has held other general management positions
with Hexcel from 1980 to 1994. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 60, has served as Senior Vice President, General
Counsel and Secretary of Hexcel since September 1996. Prior to joining Hexcel,
Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical
Corporation from 1986 to August 1996 and served on the Board of Directors of and
as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996.
WILLIAM J. FAZIO, age 46, has served as Corporate Controller and Chief
Accounting Officer since April, 2001. Mr. Fazio served as Vice President,
Controller of Kodak Polychrome Graphics, a distributor and manufacturer of
graphic arts products owned by Eastman Kodak Company and Sun
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Chemical Corporation, from February 1998 to March 2001, and from April 1997 to
January 1998 he was Director, Corporate Financial Services, for Ogden
Corporation. From 1981 to April 1997, Mr. Fazio held various positions for
Coltec Industries Inc., the latest being Director--Operations Analysis from 1994
to March 1997.
ROBERT F. MATTHEWS, age 55, has served as Vice President of Human Resources
since July 1, 2000, and, from January 10, 2000, served as a consultant to Hexcel
in human resources. From 1999 to June, 2000, Mr. Matthews engaged in consulting
in human resources matters. From 1994 to 1999, he served as Senior Vice
President of Human Resources for Phillips Electronics, North America Region.
From 1974 to 1994 he served in various human resources roles with General
Electric Co.
JOSEPH H. SHAULSON, age 35, has served as Vice President of Corporate
Planning and Chief Information Officer since September, 2000. Mr. Shaulson
served as Vice President of Planning and Integration of Hexcel from
November 1998 to September, 2000 and Vice President of Corporate Development of
Hexcel from April 1996 to October 1998. In addition, Mr. Shaulson served as
Acting General Counsel and Acting Secretary of Hexcel from April 1996 to
September 1996. Prior to joining Hexcel, Mr. Shaulson was an associate in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he was employed from
1991 to 1996.
JUSTIN P. S. TAYLOR, age 47, has served as Vice President of Manufacturing
and Environmental, Health and Safety since June 1999. From April 1996 to
June 1999, Mr. Taylor served as President of Hexcel's Structures and Interiors
business unit, and from July 1995 to April 1996 as a member of Ciba's strategic
planning unit. Prior to July 1995, Mr. Taylor held various management positions
in the Heath Tecna Division of CGC.
JAMES N. BURNS, age 61, has served as President of Hexcel's Fibers business
unit since July 1996. Prior to his employment with Hexcel, Mr. Burns served in a
number of management positions with the Composite Products Division of Hercules
Incorporated, including Business Director from March 1995 to June 1996, Business
Unit Director of Advanced Composite Materials from June 1992 to March 1995 and
Vice President of Marketing from June 1986 to June 1992.
WILLIAM HUNT, age 58, has served as President of Hexcel's Composites
Materials business unit since November 1998 and as President of the former
Hexcel EuroMaterials business unit from February 1996 to October 1998. Mr. Hunt
served as President of the EuroMaterials unit of the Ciba composites business
from 1991 to February 1996 and as Managing Director of Ciba-Geigy Plastics from
1990 to 1991. Prior to joining Ciba-Geigy Plastics in 1990, Mr. Hunt held
various other technical and managerial positions, including the position of
Managing Director of Illford Limited (Photographic) Co.
DAVID R. TANONIS, age 44, has served as President of Hexcel's Structures and
Interiors business unit since June 1999. Mr. Tanonis served as Vice President of
Hexcel's Structures and Interiors business unit, responsible for the interiors
business, from February 1996 to June 1999 and as the Vice President of Interiors
in the Heath Tecna Division of CGC prior to February 1996. Mr. Tanonis held
various technical and managerial positions with Heath Tecna since 1987.
Mr. Tanonis held various management positions with Polymer Engineering, Inc.
from 1978 to 1987.
STEVEN T. WARSHAW, age 52, has served as President of the Hexcel Schwebel
business unit since April 2000. Prior to joining Hexcel, he was Senior Vice
President, Worldwide Sales and Marketing of Photronics, Inc., a materials
supplier to the semiconductor industry, from 1999 to 2000. From 1974 to 1999, he
served in a variety of general management positions at Olin Corp., including,
from 1996 to 1999, as President of Olin Microelectronic Materials, a company
supplying advanced chemicals, products and services to semiconductor
manufacturers. Mr. Warshaw is a director of NN Inc., a producer of steel balls
and rollers supplied to bearing manufacturers.
AGREEMENTS WITH CHIEF EXECUTIVE OFFICER
We entered into an employment agreement and a supplemental executive
retirement agreement with Mr. Berges on July 30, 2001. These agreements are
summarized below, and each agreement is filed as an exhibit to the registration
statement of which this prospectus forms a part.
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EMPLOYMENT AGREEMENT WITH MR. BERGES
The employment agreement provides for Mr. Berges to be employed as our
Chairman and Chief Executive Officer for four years commencing July 30, 2001.
After the end of the initial four-year term, each year the employment agreement
will be automatically extended for one additional year unless either Mr. Berges
or Hexcel gives at least one year's prior notice to the other that the
Employment Agreement shall not be so renewed. Mr. Berges may terminate the
Employment Agreement for "good reason," as such term is defined in the
employment agreement, or upon 30 days' notice to us. The employment agreement
provides for, among other things,
- a sign-on award of $200,000,
- an annual base salary of not less than $550,000, subject to annual review
by the Compensation Committee,
- a target annual bonus opportunity of not less than 100% of his annual base
salary, and a maximum annual bonus opportunity of not less than 200% of
his annual base salary, including a bonus of not less than $229,167 for
2001, and
- participation in all other employee benefit plans available to senior
executives, except that Mr. Berges is not entitled to participate in our
annual equity award program during the initial four-year term of the
employment agreement.
The employment agreement also provides for the grant to Mr. Berges on
July 30, 2001 of an option to purchase 550,000 shares of our common stock and a
performance-based option to purchase 275,000 shares of our common stock. Each of
the options has a term of ten years and provides for an exercise price of $10.50
per share. The option to purchase 550,000 shares of our common stock becomes
exercisable over four years at a rate of one-sixteenth of the shares of common
stock covered by the option 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 of our common stock becomes exercisable in full on July 29, 2011, subject
to earlier vesting, in part or in whole, if the price of our common stock
reaches various thresholds. In the event of a change of control of Hexcel, the
options become immediately fully vested and exercisable. If Mr. Berges'
employment with us terminates, the options, to the extent not vested, are
forfeited. If we terminate Mr. Berges' agreement for cause, then the options,
whether vested or unvested, are forfeited.
The employment agreement further provides for a grant to Mr. Berges of
90,000 restricted shares of our common stock. The restricted shares may not be
sold or transferred until they vest and the restrictions lapse. The restricted
shares vest and the restrictions lapse on March 31, 2002 as to 18,000 shares and
on March 31, 2003 as to 72,000 shares. If we terminate Mr. Berges' employment
without cause or Mr. Berges terminates his employment for good reason, or if
Mr. Berges' employment terminates by reason of death or disability, the
restricted shares vest and the restrictions lapse as to all 90,000 shares. If
Mr. Berges terminates his employment other than for good reason, or we terminate
his employment for cause, then all unvested shares of restricted stock are
forfeited. In the event of a change of control of Hexcel, the restricted shares
immediately vest and the restrictions lapse as to all 90,000 shares.
The employment agreement further provides that we will make termination
payments to Mr. Berges, and continue his participation in our benefit plans for
a limited period of time, upon termination of employment under certain
circumstances. The amounts payable to Mr. Berges vary depending upon the
circumstances of termination of employment, as follows:
- for termination by us other than for disability and other than for cause,
or by Mr. Berges for good reason, Mr. Berges will be entitled to receive a
payment equal to two times the sum of his base salary at that time and
average bonus over the last three years,
- for termination by us other than for disability and other than for cause,
or by Mr. Berges for good reason, in each case during a period which
qualifies as a "potential change in control" or within two years after a
change in control, Mr. Berges will be entitled to receive three times the
sum of his base salary at that time and average bonus over the last three
years, and
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- for termination due to death or disability, Mr. Berges will be entitled to
receive his salary through the date of termination plus an annual bonus
prorated for the portion of the year he was employed.
We will continue Mr. Berges' participation in our benefit plans for up to
three years depending on the circumstances of termination. If we terminate
Mr. Berges for cause or Mr. Berges terminates employment without good reason,
Mr. Berges will be entitled to receive only unpaid amounts owed to him through
the date of termination. In the event payments to Mr. Berges would result in the
imposition of any excise tax on "excess parachute payments," the payments and
benefits to which Mr. Berges is otherwise entitled may be reduced to the extent
necessary to maximize the after-tax amount received by him. However, if
Mr. Berges receives payments from us as a result of termination of employment
before December 19, 2002, then we will hold him harmless from the effect of any
excise tax imposed on "excess parachute payments."
Mr. Berges has agreed not to compete with us for two years or three years
after termination of employment, depending on whether termination occurs under
circumstances described in the first bullet point or second bullet point above.
SUPPLEMENTAL RETIREMENT AGREEMENT WITH MR. BERGES
The supplemental retirement agreement, which we refer to as the SERP
agreement, provides a benefit intended to supplement Mr. Berges' retirement
income from our other retirement programs. The normal retirement benefit under
the SERP agreement for retirement at age 65 is a monthly payment equal to the
product of Mr. Berges' final average pay, benefit percentage, and vesting
percentage, minus the qualified pension benefits. Final average pay is
Mr. Berges' monthly compensation, which includes salary and bonus without
reduction for amounts deferred, for the highest paid 36 months of Mr. Berges'
final 60 months of employment. The benefit percentage is a percentage, based on
a formula, which increases with each month of continuous service with us. The
vesting percentage is 100% if Mr. Berges has completed at least 60 months of
continuous service with us, otherwise it is 0%. Qualified pension benefits are
the actuarially determined monthly value of the vested contributions made by us
to our 401(k) Retirement Savings Plan and our 401(k) Restoration Plan, deemed
increased at a 6% per annum rate of return.
If Mr. Berges' employment terminates after he has attained age 55, we will
pay the normal retirement benefit to him starting the month after his employment
terminates and ending with his death, or, if later, after 120 payments have been
made. Any payments made after his death shall be made to his surviving
beneficiary or estate. Upon certain terminations within two years after a change
in control, termination by us without cause, and termination by Mr. Berges for
good reason, we will pay Mr. Berges a lump sum equal to the actuarial present
value of a monthly benefit starting in the month after his employment
terminates, computed using a vesting percentage of 100% and continuous service
equal to Mr. Berges' actual continuous service plus, in the case of a change of
control, 36 months, and in the case of termination by us without cause or by
Mr. Berges for good reason, 12 months, with the monthly benefit reduced by 3%
per year for each year by which his termination precedes his attaining age 65.
If Mr. Berges' employment terminates due to a disability, he will receive a
monthly benefit in an amount equal to the product of his final average pay and
benefit percentage, less his qualified pension benefits. No benefits are payable
if Mr. Berges is terminated for cause. In addition, Mr. Berges may elect to
provide certain survivorship benefits to a designated beneficiary, but the
benefit payable to Mr. Berges shall be reduced to reflect the actuarial
equivalence of the survivorship benefit elected. Generally, Mr. Berges may, from
time to time, elect the form of payment of benefits between receiving a monthly
amount or a lump sum amount.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of June 1, 2001 with respect
to the ownership by any person, including any group of persons acting together,
known to us to be the beneficial owner of more than five percent of the issued
and outstanding shares of our common stock.
<Table>
<Caption>
NUMBER OF
SHARES OF
NAME AND ADDRESS COMMON STOCK PERCENT OF CLASS
- ---------------- ------------ ----------------
The Goldman Sachs Group, Inc.(1) ........................... 14,533,001 38.7%
85 Broad Street
New York, NY 10004
Ciba Specialty Chemicals Holding Inc.(2) ................... 3,581,545 9.6%
Klybeckstrasse 141
CH 4002
Basel, Switzerland
Loomis Sayles & Company, L.P.(3) ........................... 2,193,241 5.9%
One Financial Center
Boston, MA 02111
Dimensional Fund Advisors, Inc.(4) ......................... 1,985,600 5.3%
1299 Ocean Avenue
Santa Monica, CA 90401
Gayle K. Lee, as Executrix of the Estate of John J. 3,014,571 7.6%
Lee(5) ...................................................
c/o Stewart J. McMillan
McMillan Constabile LLP
2180 Boston Post Road
Larchmont, NY 10538-0300
</Table>
- ------------------------
(1) Based on information contained in a Statement on Schedule 13D filed with the
SEC on December 28, 2000 by the Goldman Sachs Group, Inc. and various
affiliates of Goldman Sachs. Based on information included in this
Schedule 13D, options to purchase 12,000 shares of our common stock granted
to each of Messrs. Mehra and Sacerdote pursuant to the Hexcel Corporation
Incentive Stock Plan are held for the benefit of Goldman Sachs. One-third of
these options are currently exercisable and, accordingly, are included in
the shares beneficially owned by Goldman Sachs. The shares of our common
stock beneficially owned by Goldman Sachs are subject to the terms of a
governance agreement. See "Certain Relationships and Related Transactions."
(2) Based on information contained in a Statement on Schedule 13D/A filed with
the SEC on December 20, 2000 on behalf of Ciba. Ciba has sole voting and
investment power with respect to 3,496,748 shares of our common stock. Based
on information provided to us, options to purchase 84,797 shares of our
common stock granted to former directors Walter D. Hosp, John J. McGraw,
Martin Riediker and Stanley Sherman are held for the benefit of Ciba. All of
these options are currently exercisable and, accordingly, are included in
the shares beneficially owned by Ciba above.
(3) Based on information contained in a Statement on Schedule 13G filed with the
SEC on February 12, 2001.
(4) Based on information contained in a Statement on Schedule 13G filed with the
SEC on February 2, 2001.
(5) Includes 2,007,920 shares issuable upon the exercise of options that are
currently exercisable.
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DESCRIPTION OF MATERIAL DEBT
The following description summarizes the material terms of our material
debt. Our material outstanding debt includes, in addition to the notes, the
senior credit facility, our existing 9 3/4% Senior Subordinated Notes Due 2009,
our 7% Convertible Subordinated Notes Due 2003 and our 7% Convertible
Subordinated Debentures Due 2011. We have not included in the descriptions below
any debt that were repaid in full from the net proceeds of the offering of the
original notes. You may request copies of the agreements governing the terms of
our different types of debt at our address set forth under "Available
Information."
In this description, the word "Hexcel" refers only to Hexcel Corporation and
not to any of its subsidiaries.
SENIOR CREDIT FACILITY
In connection with the acquisition of the Clark-Schwebel business on
September 15, 1998, Hexcel and several of its foreign subsidiaries entered into
a Second Amended and Restated Credit Agreement with various financial
institutions as lenders, Credit Suisse First Boston, as the administrative
agent, and Citibank, N.A., as documentation agent, to:
- fund the purchase of the Clark-Schwebel business;
- refinance our then existing revolving credit facility; and
- provide for ongoing working capital and other financing requirements of
Hexcel.
Prior to the offering of the original notes, the senior credit facility was
amended five times. In June 2001, the senior credit facility was amended to,
among other things, modify financial covenants and permit the offering of the
original notes.
As of March 31, 2001, the senior credit facility provided for up to
$357.3 million of aggregate borrowing capacity, consisting of:
- a secured $29.7 million term A loan;
- a secured $92.6 million term B loan;
- a secured domestic revolving facility in an aggregate amount of
$100 million in borrowings available to Hexcel;
- a secured European revolving facility in an aggregate amount of
$125 million in borrowings available to Hexcel and the foreign
subsidiaries; and
- a secured European overdraft facility in an aggregate amount of
$10.0 million in borrowings available to the foreign subsidiaries.
The domestic revolving facility is available to Hexcel for revolving loans
subject to utilization by Hexcel of a letter of credit sub-facility and a swing
line sub-facility. The European revolving facility is available to Hexcel and
the foreign subsidiaries for revolving loans subject to utilization by Hexcel
and the foreign subsidiaries of a European letter of credit sub-facility. The
European overdraft facility is available to the foreign subsidiaries.
As of March 31, 2001, there was approximately $227.9 million of aggregate
loans outstanding under the senior credit facility, consisting of $29.7 million
of term A loans, $92.6 million of term B loans, $25.6 million of domestic
revolving loans, $80.0 million of European revolving loans and no amounts under
the European overdraft facility.
The term A loan is subject to amortization payments required to be made in
quarterly installments until final payment is made in September 2004. The term B
loan is subject to amortization payments required to be made in quarterly
installments until final payment is made in September 2005. The domestic
revolving facility, the European revolving line of credit and the European
overdraft facility are available until September 14, 2004. Additionally, the
loans under the senior credit facility and the
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aggregate available commitments under the senior credit facility will generally
be reduced in connection with asset and capital stock sales and dispositions,
the receipt of insurance proceeds, and incurrences of debt.
Borrowings of term A loans, term B loans and domestic revolving loans and
borrowings in U.S. dollars of European revolving loans bear interest at a rate
equal to, at our option, either:
- the base rate, which is based on the prime rate most recently announced by
the administrative agent or the Federal Funds rate plus one-half of 1%, or
- the applicable London interbank rate, in each case plus an applicable
margin determined by reference to the ratio of debt to earnings before
interest, taxes, depreciation and amortization (which we refer to as
EBITDA) of Hexcel and its subsidiaries.
Borrowings of swing line loans under the domestic revolving facility bear
interest at a rate equal to the base rate plus an applicable margin determined
by reference to the ratio of debt to EBITDA of Hexcel and its subsidiaries. All
other borrowings under the European revolving facility and the European
overdraft facility bear interest at a rate equal to the applicable London
interbank rate plus an applicable margin determined by reference to the ratio of
debt to EBITDA of Hexcel and its subsidiaries.
Our obligations and those of the foreign subsidiaries are unconditionally
guaranteed, jointly and severally, by all material U.S. subsidiaries. The
obligations of the foreign subsidiaries are unconditionally guaranteed by
Hexcel. Our obligations and those of the foreign subsidiaries and the guarantors
are secured by:
- a pledge of 100% of the stock of our material U.S. subsidiaries;
- a pledge of 65% of the capital stock of each material foreign subsidiary
owned directly by Hexcel or a U.S. subsidiary;
- a security interest in U.S. accounts receivable, inventories, machinery
and equipment; and
- mortgages granted for each parcel of real property we own in the U.S. that
has a value of greater than $1 million.
The senior credit facility contains covenants restricting our ability and
the ability of our subsidiaries to:
- dispose of assets,
- merge,
- pay dividends,
- repurchase or redeem capital stock and debt, including the notes,
- incur debt or give guarantees,
- create liens,
- enter into agreements with negative pledge clauses,
- make investments or acquisitions,
- enter into sale and leaseback transactions,
- enter into transactions with affiliates,
- change our fiscal year,
- change our business or make fundamental changes, and
- otherwise restrict corporate activities.
The senior credit facility also contains a number of financial covenants.
We pay fees to the banks under the senior credit facility, including
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- a facility fee determined by reference to the ratio of debt to EBITDA of
Hexcel and its subsidiaries, which is payable in arrears on a quarterly
basis, times the daily average of the domestic revolving facility,
European revolving facility and European overdraft facility commitments,
and
- letter of credit fees with respect to each letter of credit outstanding
under the senior credit facility based on the applicable margin in effect
for London interbank rate loans under the senior credit facility.
The senior credit facility agreement was filed with the SEC as an exhibit to
our quarterly report on Form 10-Q for the period ended September 30, 1998. Each
of the first four amendments to the senior credit facility, and two consents of
the lending group under the senior credit facility, have been previously filed
with the SEC, and the fifth and sixth amendments are filed with the registration
statement of which this prospectus forms a part.
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
On January 21, 1999, we issued $240.0 million aggregate principal amount of
9 3/4% Senior Subordinated Notes Due 2009 in a private offering. In July 1999,
we completed an exchange offer in which all of the notes sold in January 1999
were exchanged for 9 3/4% Senior Subordinated Notes Due 2009 which are identical
in all respects to the notes issued in January 1999 except that the notes issued
in July 1999 were registered with the SEC and are generally not subject to
transfer restrictions. On June 29, 2001, we issued an additional $100.0 million
aggregate principal amount of 9 3/4% Senior Subordinated Notes Due 2009 in a
private offering. The senior subordinated notes constitute unsecured senior debt
of Hexcel, are junior to all of our senior debt and rank equally with and are
part of the same series as the exchange notes. See "Description of the Notes."
7% CONVERTIBLE SUBORDINATED NOTES DUE 2003
On July 18, 1996, Hexcel issued $114.5 million aggregate principal amount of
7% Convertible Subordinated Notes Due 2003, of which approximately
$114.4 million of principal was outstanding as of March 31, 2001. A portion of
the net proceeds from our issuance of the original notes was applied toward the
redemption of $67.5 million of convertible notes. The convertible notes are
convertible into our common stock at any time on or before August 1, 2003,
unless previously redeemed, at a conversion price of $15.81 per share. The
convertible notes are redeemable, in whole or in part, at our option at any
time, at various redemption prices set forth in the convertible notes indenture,
plus accrued interest. Upon a change of control, each holder of convertible
notes will have the right to require us to repurchase any or all outstanding
convertible notes held by the holder at 100% of their principal amount plus
accrued interest. The convertible notes are subordinated to all present and
future senior debt of Hexcel. The convertible notes indenture contains covenants
that, among other things, limit consolidations, mergers and transfers of all or
substantially all assets.
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
On August 1, 1986, Hexcel issued $35.0 million aggregate principal amount of
7% Convertible Subordinated Debentures Due 2011, of which $25.6 million
aggregate principal amount was outstanding as of March 31, 2001. The convertible
debentures are convertible into shares of our common stock prior to maturity,
unless previously redeemed, at a conversion price of $30.72 per share. Mandatory
redemption of the convertible debentures is scheduled to begin in 2002 through
annual sinking fund requirements of $1.1 million in 2002 and $1.75 million in
each year after 2002. The convertible debentures are subordinated to all of our
present and future senior debt. The convertible debentures contain covenants
that limit consolidations, mergers and transfers of all or substantially all of
our assets.
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DESCRIPTION OF THE NOTES
On January 21, 1999, we issued $240.0 million aggregate principal amount of
9 3/4% Senior Subordinated Notes Due 2009 under an indenture between Hexcel and
The Bank of New York as trustee in a private offering. In July 1999, we
completed an exchange offer in which all of the notes sold in January 1999 were
exchanged for 9 3/4% Senior Subordinated Notes Due 2009 which are identical in
all material respects to the notes issued in January 1999, except that the notes
issued in July 1999 were registered with the SEC and are generally not subject
to transfer restrictions.
On June 29, 2001, we issued an additional $100.0 million aggregate principal
amount of 9 3/4% Senior Subordinated Notes Due 2009 under the indenture in a
private offering. The exchange notes and the notes previously issued under the
indenture will be treated as a single series under the indenture, including for
purposes of determining whether the required percentage of noteholders have
given their approval or consent to an amendment or waiver or joined in directing
the trustee to take certain actions on behalf of all noteholders.
The form and terms of the exchange notes and the original notes issued on
June 29, 2001 are identical in all material respects, except that transfer
restrictions and registration rights applicable to the original notes do not
apply to the exchange notes.
The terms of the notes include those stated in the indenture and those made
part of the indenture by reference to the Trust Indenture Act of 1939. This
description of the notes contains definitions of terms, including those defined
under the caption "--Definition of Terms Used in the Indenture" that are
necessary to understand this section of the prospectus. In this section,
"Hexcel" refers only to Hexcel Corporation and not to any of its subsidiaries.
The following description is only a summary of the material terms of the
indenture and the registration rights agreement. We urge you to read the
indenture and the registration rights agreement because they, and not these
summary descriptions, define your rights as holders of the notes. You may
request copies of these agreements at our address set forth under "Available
Information."
BRIEF DESCRIPTION OF THE NOTES
These notes:
- are unsecured senior subordinated obligations of Hexcel;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of Hexcel; and
- are senior in right of payment to any future Subordinated Obligations of
Hexcel.
The original notes are subject to registration with the SEC pursuant to the
registration agreement.
PRINCIPAL, MATURITY AND INTEREST
The original notes are, and the exchange notes will be, issued initially in
the aggregate principal amount of $100.0 million. The original notes are, and
the exchange notes will be, issued in denominations of $1,000 and any integral
multiple of $1,000. The notes will mature on January 15, 2009. Subject to our
compliance with the covenant described under the caption "--Covenants--
Limitation on Indebtedness," we are permitted to issue additional notes under
the indenture in an unlimited principal amount. The indenture defines notes so
issued as "additional notes."
Interest on the notes will accrue at the rate of 9 3/4% per annum. Interest
will be payable semiannually in arrears on January 15 and July 15, commencing on
January 15, 2002. Hexcel will make each interest payment to the holders of
record of the notes on the immediately preceding January 1 and July 1.
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Interest on each exchange note will accrue from the last interest payment
date on which interest was paid on the original note surrendered for exchange.
If no interest has been paid on the original note, interest will be paid from
the date of its original issuance. Holders whose original notes are accepted in
the exchange offer will waive their right to receive accrued interest on the
original notes. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Additional interest may accrue on the notes in specified circumstances
according to the registration rights agreement.
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the notes at
our option before January 15, 2004.
On and after January 15, 2004 we will be entitled at our option to redeem
all or a portion of the notes upon not less than 30 nor more than 60 days'
notice. We will be entitled to redeem the notes at the redemption prices set
forth below plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning on January 15 in the years indicated below:
<Table>
<Caption>
PERCENTAGE
OF PRINCIPAL
YEAR AMOUNT
- ---- ------------
2004........................................................ 104.875%
2005........................................................ 103.900
2006........................................................ 102.925
2007........................................................ 101.950
2008........................................................ 100.975
2009........................................................ 100.000
</Table>
In addition, before January 15, 2002, we may at our option redeem up to 35%
of the original aggregate principal amount of notes, including the original
principal amount of any additional notes, with the net cash proceeds from one or
more public equity offerings following which there is a public market; provided
that:
- at least 65% of the original aggregate principal amount of notes,
including the original principal amount of any additional notes, other
than notes held by Hexcel or its affiliates, remains outstanding
immediately after the redemption; and
- the redemption occurs within 120 days after the date of the related public
equity offering.
If we exercise this option, we will pay a redemption price of 109 3/4% of
the principal amount of the notes, plus accrued and unpaid interest to the
redemption date.
SELECTION AND NOTICE OF REDEMPTION
If we redeem less than all the notes at any time, the trustee will select
notes on a pro rata basis, by lot or by another method as the trustee will deem
to be fair and appropriate.
We will redeem notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address.
If any note is redeemed in part only, the notice of redemption that relates
to that note will state the portion of the principal amount of that note to be
redeemed. We will issue a new note in principal amount equal to the unredeemed
portion of the original note in the name of the holder of the note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for
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redemption. On and after the redemption date, interest ceases to accrue on notes
or portions of them called for redemption.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium and interest on the notes will be
subordinate in right of payment to the prior payment in full of all Senior
Indebtedness, including Hexcel's obligations under the Credit Agreement.
As of March 31, 2001, Hexcel's Senior Indebtedness was $275.5 million. The
indenture limits the amount of additional Indebtedness that Hexcel may incur.
However, under specified circumstances the amount of the Indebtedness could be
substantial. In any case, the Indebtedness may be Senior Indebtedness. As of
March 31, 2001, the amount of additional Indebtedness that Hexcel could incur
under the indenture was estimated at $58.8 million, all of which is committed
borrowing capacity under the senior credit facility. After giving effect to loan
covenants under the senior credit facility, the maximum amount of additional
debt that Hexcel could borrow as of March 31, 2001 was $52.2 million, all of
which is senior debt.
LIABILITIES OF SUBSIDIARIES VERSUS NOTES
A portion of Hexcel's operations is conducted through its subsidiaries.
Claims of creditors of these subsidiaries generally will have priority with
respect to the assets and earnings of the subsidiaries over the claims of
creditors of Hexcel, including holders of the notes. Accordingly, the notes will
be effectively subordinated to creditors and preferred stockholders, if any, of
subsidiaries of Hexcel.
At March 31, 2001, the total liabilities of our subsidiaries were
approximately $269.3 million, including trade payables. Although the indenture
limits the incurrence of Indebtedness and preferred stock of some of our
subsidiaries, this limitation is subject to a number of significant
qualifications. Moreover, the indenture does not limit the incurrence by our
subsidiaries of liabilities that are not considered Indebtedness under the
indenture. See "--Covenants--Limitation on Indebtedness."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Under the indenture, only Senior Indebtedness of Hexcel will rank senior to
the notes. The notes will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of Hexcel. As of March 31, 2001, Hexcel's outstanding
Senior Subordinated Indebtedness was $264.4 million, net of unamortized discount
of $0.6 million.
We have agreed in the indenture that we will not Incur any Indebtedness that
is contractually subordinate or junior in right of payment to our Senior
Indebtedness, unless the Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
The indenture does not treat unsecured Indebtedness as subordinated or junior to
Secured Indebtedness merely because it is unsecured.
PAYMENT OF NOTES
We are not permitted to pay principal of, premium or interest on the notes
or make any deposit pursuant to the provisions described under "--Defeasance"
below and may not purchase, redeem or otherwise retire any notes if:
(1) any Designated Senior Indebtedness is not paid when due; or
(2) any other default on Designated Senior Indebtedness occurs and its
maturity is accelerated;
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unless, in either case, the default has been cured or waived and any
acceleration has been rescinded or the Designated Senior Indebtedness has been
paid in full. Regardless of these provisions, we are permitted to pay the notes
if we and the trustee receive written notice approving the payment from the
representative of any Designated Senior Indebtedness.
During the continuance of any default, other than a default described in
clause (1) or (2) above, with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated without further
notice, except such notice as may be required to effect such acceleration, or
the expiration of any applicable grace periods, we are not permitted to pay the
notes for a "Payment Blockage Period." The Payment Blockage Period commences
upon the receipt by the trustee of a "Blockage Notice" of the default from the
holders of the Designated Senior Indebtedness and ends 179 days later. The
Payment Blockage Period will end earlier if it is terminated:
- by written notice to the trustee and us from the person who gave the
Blockage Notice;
- because the default giving rise to the Blockage Notice is cured, waived or
otherwise no longer continuing; or
- because the Designated Senior Indebtedness has been discharged or repaid
in full.
Unless the holders of the Designated Senior Indebtedness have accelerated
the maturity of the Designated Senior Indebtedness, we are permitted to resume
paying the notes after the end of the Payment Blockage Period. The notes will
not be subject to more than one Payment Blockage Period in any consecutive
360-day period, except that if any Blockage Notice is delivered to the trustee
by or on behalf of holders of Designated Senior Indebtedness, other than holders
of the Bank Indebtedness, a representative of holders of Bank Indebtedness may
give another Blockage Notice within such period. However, in no event may the
total number of days during which any Payment Blockage Period or Periods is in
effect exceed 179 days in the aggregate during any consecutive 360-day period.
Upon any payment or distribution of the assets of Hexcel upon a liquidation,
dissolution or reorganization of Hexcel or its property:
- the holders of Senior Indebtedness will be entitled to receive payment in
full of the Senior Indebtedness before the holders of the notes are
entitled to receive any payment;
- until the Senior Indebtedness is paid in full, any payment or distribution
to which holders of the notes would be entitled but for the subordination
provisions of the indenture will be made to holders of the Senior
Indebtedness as their interests may appear, except that holders of notes
may receive shares of stock and any debt securities that are subordinated
to the Senior Indebtedness to at least the same extent as the notes; and
- if a distribution is made to holders of the notes that should not have
been made to them, the holders of the notes are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them.
If payment of the notes is accelerated because of an Event of Default,
Hexcel or the trustee shall promptly notify the holders of Designated Senior
Indebtedness of the acceleration.
In the event of a liquidation or insolvency proceeding, creditors of ours
who are holders of Senior Indebtedness may recover more than the holders of the
notes. Creditors of ours who are not holders of Senior Indebtedness may recover
less than holders of Senior Indebtedness and may recover more than the holders
of the notes.
The terms of the subordination provisions described above will not apply to
payments from money held in trust by the trustee for the payment of principal of
and interest on the notes. See "--Defeasance."
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CHANGE OF CONTROL
Upon the occurrence of a "Change of Control," each holder may require us to
purchase its notes at a purchase price equal to 101% of the principal amount of
the notes plus accrued and unpaid interest to the date of purchase. The
following are "Change of Control" events:
(1) any person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) other than one or more Permitted Holders, becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that for purposes of this clause (1), such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether or not such right is exercisable
immediately) of more than 40% of the total voting power of voting stock
of Hexcel; PROVIDED, HOWEVER, that the Permitted Holders beneficially own
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) in the
aggregate a lesser percentage of the total voting power of voting stock
of Hexcel than the other person and do not have the right or ability to
elect or designate for election a majority of the board of directors;
(2) during any period of two consecutive years, individuals who at the
beginning of that period constituted the board of directors, together
with any new directors whose election by the board of directors or whose
nomination for election by the stockholders of Hexcel was approved under
the governance agreement or by a vote of 66 2/3% of the directors of
Hexcel then still in office who were either directors at the beginning of
the two-year period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of
the board of directors then in office; or
(3) the merger or consolidation of Hexcel with or into another person other
than a Permitted Holder, or the merger of another person other than a
Permitted Holder with Hexcel, or the sale of all or substantially all the
assets of Hexcel to another person other than a person controlled by the
Permitted Holders, and in the case of any such merger or consolidation,
the securities of Hexcel that are outstanding immediately prior to the
transaction and that represent 100% of the aggregate voting power of the
voting stock of Hexcel are changed into or exchanged for cash, securities
or property, unless pursuant to the transaction, the securities are
changed into or exchanged for, in addition to any other consideration,
securities of the surviving person that represent, immediately after the
transaction, at least a majority of the aggregate voting power of the
voting stock of the surviving person or transferee.
If the event described in (1) above occurs as a result of a transfer of
voting stock by the Permitted Holders, a Change of Control shall not be deemed
to occur unless and until the publicly announced rating of the notes by either
Rating Agency shall, within 90 days after the date of occurrence of the event,
be less than the rating of the notes by that Rating Agency on the date which is
90 days before the date of the occurrence of that event; provided, however, if
the notes have an investment grade rating by both Rating Agencies on the date
which is 90 days before the date of occurrence of that event, a Change of
Control shall be deemed not to occur following that event unless and until the
publicly announced rating of the notes by either Rating Agency shall be less
than investment grade rating within 90 days after the date of the occurrence of
that event. In each case the 90-day period shall be extended so long as the
rating of the notes is under publicly announced consideration for possible
downgrade by either Rating Agency.
Within 30 days after any Change of Control, we will mail a notice to each
holder of notes, a "Change of Control Offer," stating:
(1) that a Change of Control has occurred and that the holder has the right
to require us to purchase its notes at a purchase price in cash equal to
101% of the principal amount of the notes plus accrued and unpaid
interest to the date of purchase;
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(2) the circumstances and relevant facts regarding the Change of Control,
including a statement of pro forma historical income, cash flow and
capitalization after giving effect to the Change of Control;
(3) the purchase date, which shall be no earlier than 30 days nor later than
60 days from the date the notice is mailed; and
(4) the instructions determined by us, consistent with the covenant
described under this caption, that a holder must follow in order to have
its notes purchased.
We will not be required to make a Change of Control Offer following a Change
of Control if a third party makes the Change of Control Offer in compliance with
the requirements set forth in the indenture and purchases all notes validly
tendered and not withdrawn under the Change of Control Offer.
We will comply with the requirements of the securities laws in connection
with the purchase of notes as a result of a Change of Control. To the extent
that the provisions of any securities laws conflict with the provisions of the
covenant described under this caption, we will comply with the applicable
securities laws and will not be deemed to have breached our obligations under
the change of control covenant.
The Change of Control purchase feature of the notes may make more difficult
or discourage a sale or takeover of Hexcel and, thus, the removal of incumbent
management. The Change of Control purchase feature is a result of negotiations
between Hexcel and the initial purchasers. It is not the result of our knowledge
of any specific effort to accumulate common stock of Hexcel or to obtain control
of Hexcel or part of a plan by management to adopt a series of anti-takeover
provisions. We have no present intention to engage in a transaction involving a
Change of Control, although it is possible that we could decide to do so in the
future.
Subject to the limitations discussed below, we could enter into transactions
that would not constitute a Change of Control under the indenture, but that
could increase the amount of Indebtedness outstanding at that time or otherwise
affect our capital structure or credit ratings. Restrictions on our ability to
incur additional Indebtedness are contained in the covenant described under the
caption "--Covenants--Limitation on Indebtedness." These restrictions can only
be waived with the consent of the holders of a majority in principal amount of
the notes then outstanding. Except for the limitations contained in this
covenant, however, the indenture will not contain any covenants or provisions
that may afford holders of the notes protection in the event of a highly
leveraged transaction.
The Credit Agreement will prohibit us from purchasing any notes and will
also provide that the occurrence of specified change of control events would
constitute a default under the Credit Agreement. In the event a change of
control occurs when we are prohibited from purchasing notes, we may seek the
consent of our lenders to the purchase of notes or attempt to refinance the
borrowings that contain the prohibition. If we do not obtain the consent or
repay the borrowings, we will remain prohibited from purchasing the notes. In
that case, our failure to purchase tendered notes would constitute an Event of
Default under the indenture which would, in turn, constitute a default under the
Credit Agreement. In these circumstances, the subordination provisions in the
indenture would likely restrict payment to the holders of notes.
Future Indebtedness that we may incur may contain prohibitions on the
occurrence of events that would constitute a Change of Control or require us to
repurchase the Indebtedness upon a Change of Control. Moreover, the exercise by
the holders of notes of their right to require us to purchase the notes could
cause a default under the Indebtedness, even if the Change of Control itself
does not. Finally, our ability to pay cash to the holders of notes following the
occurrence of a Change of Control
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may be limited by our then existing financial resources. We cannot assure you
that sufficient funds will be available when necessary to make any required
repurchases.
Our obligation to purchase the notes as a result of a Change of Control may
be waived or modified with the written consent of the holders of a majority in
principal amount of the notes.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Hexcel will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; PROVIDED, HOWEVER, that
Hexcel and its Restricted Subsidiaries may Incur Indebtedness if, on the
date of the Incurrence and after giving effect to the Incurrence on a pro
forma basis, the Consolidated Coverage Ratio exceeds (x) if on or before
January 15, 2002, 2.0 to 1.0 and (y) if thereafter, 2.25 to 1.0.
(b) Notwithstanding paragraph (a) above, Hexcel and the Restricted
Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred by Hexcel or any Restricted Subsidiary under
the Credit Agreement; PROVIDED, HOWEVER, that, after giving effect to
the Incurrence, the aggregate principal amount of such Indebtedness
then outstanding does not exceed (A) the greater of
(x) $680.0 million less the sum of all term loan principal
amortization payments scheduled to be made, whether or not in fact
made, through the date of the Incurrence under the Credit Agreement
as in effect on the issue date (the "Maximum Committed Credit
Agreement Amount") and (y) the sum of 50% of the book value of the
consolidated inventory of Hexcel and its Restricted Subsidiaries and
80% of the consolidated accounts receivable of Hexcel and its
Restricted Subsidiaries (the "Consolidated Working Capital Amount")
less the principal amount of any Indebtedness Incurred under
clause (2) below and then outstanding, less (B) the sum of all
principal payments on such Indebtedness made under
paragraph (a)(3)(A) of the covenant described under the caption
"--Limitation on Asset Dispositions";
(2) Indebtedness Incurred by foreign subsidiaries to finance the working
capital requirements of foreign subsidiaries; PROVIDED, HOWEVER, that
the aggregate principal amount of such Indebtedness, when added
together with the amount of Indebtedness Incurred by all foreign
subsidiaries under this clause (2) and then outstanding, does not
exceed the lesser of (A) the sum of 50% of the book value of the
consolidated inventories of all foreign subsidiaries and 80% of the
consolidated accounts receivable of all foreign subsidiaries and
(B) the amount by which the greater of (x) the Consolidated Working
Capital Amount and (y) the Maximum Committed Credit Agreement Amount,
exceeds the principal amount of Indebtedness Incurred under
clause (1) above and then outstanding;
(3) Indebtedness owed to and held by Hexcel or any Wholly Owned
Subsidiary; provided, however, that (A) any subsequent issuance or
transfer of any capital stock which results in the Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of the Indebtedness, other than to Hexcel or a Wholly Owned
Subsidiary, shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness and (B) if Hexcel is the obligor on
such Indebtedness, the payment of such Indebtedness is expressly
subordinate to the prior payment in full in cash of all obligations
with respect to the notes;
(4) the notes, other than additional notes, and the exchange notes;
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(5) Indebtedness, other than the Indebtedness described in clauses (1),
(2), (3) or (4) above, outstanding on the issue date;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred under
paragraph (a) above or under clause (4), (5) or this clause (6);
(7) hedging obligations directly related to Indebtedness permitted to be
Incurred by Hexcel and Restricted Subsidiaries under the indenture
or, in the case of a currency exchange protection agreement,
reasonably related to the ordinary course of business of Hexcel and
its Restricted Subsidiaries;
(8) Indebtedness, including Capitalized Lease Obligations and purchase
money Indebtedness, Incurred by Hexcel or its Restricted Subsidiaries
to finance the acquisition of tangible assets or other capital
expenditures, and Indebtedness Incurred by Hexcel or its Restricted
Subsidiaries to refinance such Capitalized Lease Obligations and
purchase money Indebtedness, in an aggregate outstanding principal
amount which, when added together with the amount of Indebtedness
Incurred under this clause (8) and then outstanding, does not exceed
$20.0 million;
(9) Indebtedness in respect of performance, surety or appeal bonds
provided in the ordinary course of Hexcel and its Restricted
Subsidiaries; or
(10) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of Hexcel and Restricted Subsidiaries
outstanding on the date of the Incurrence, other than Indebtedness
permitted by clauses (1) through (9) above or paragraph (a), does not
exceed $25.0 million.
(c) Notwithstanding the above provisions, Hexcel will not Incur any
Indebtedness under paragraph (b) above, if the proceeds of the
Indebtedness are used, directly or indirectly, to refinance any
Subordinated Obligations, unless the Indebtedness will be subordinated to
the notes to at least the same extent as the Subordinated Obligations.
(d) For purposes of determining compliance with this covenant:
(1) in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described above, Hexcel, in its
sole discretion, will classify the item of Indebtedness and only be
required to include the amount and type of the Indebtedness in one of
the above clauses and
(2) an item of Indebtedness may be divided and classified under more than
one of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, Hexcel will not Incur:
(1) any Indebtedness if that Indebtedness is contractually subordinate or
junior in right of payment in any respect to any Senior Indebtedness,
unless the Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated
Indebtedness or
(2) any Secured Indebtedness that is not Senior Indebtedness, unless
contemporaneously therewith effective provision is made to secure the
notes equally and ratably with the Secured Indebtedness for so long
as the Secured Indebtedness is secured by a lien.
(f) In determining amounts of Indebtedness outstanding under the Limitation
on Indebtedness covenant and to avoid duplication, Indebtedness of a
person resulting from the grant by that person of security interests with
respect to, or from the issuance by that person of guarantees of, or from
the assumption of obligations with respect to letters of credit
supporting,
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Indebtedness Incurred by that person under the indenture, or Indebtedness
which that person is otherwise permitted to Incur under the indenture,
shall not be deemed to be a separate Incurrence of Indebtedness by that
person.
(g) Indebtedness of any person which is outstanding at the time that person
becomes a Restricted Subsidiary, including upon designation of any
subsidiary or other person as a Restricted Subsidiary, or is merged with
or into or consolidated with Hexcel or a Restricted Subsidiary shall be
deemed to have been Incurred at the time that person becomes a Restricted
Subsidiary or merged with or into or consolidated with Hexcel or a
Restricted Subsidiary, as applicable.
LIMITATION ON RESTRICTED PAYMENTS
(a) Hexcel will not, and will not permit any Restricted Subsidiary, directly
or indirectly, to make a Restricted Payment if at the time Hexcel or any
Restricted Subsidiary makes a Restricted Payment:
(1) a Default shall have occurred and be continuing, or would result from
the Restricted Payment;
(2) Hexcel is not able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under the caption "--Limitation
on Indebtedness"; or
(3) the aggregate amount of the Restricted Payment and all other Restricted
Payments made since the issue date would exceed the sum of, without
duplication:
(A) 50% of the Consolidated Net Income accrued during the period, which
will be treated as one accounting period, from the beginning of the
fiscal quarter in which the issue date occurs to the end of the most
recent fiscal quarter ending at least 45 days before the date of the
Restricted Payment, or, in case the Consolidated Net Income is a
deficit, less 100% of that deficit; plus
(B) 100% of the aggregate Net Cash Proceeds received by Hexcel from the
issuance or sale of its capital stock, other than capital stock
within the meaning of "Disqualified Stock" as defined in the
indenture, subsequent to the issue date and on or before the date of
the Restricted Payment, other than an issuance or sale to a
subsidiary of Hexcel or an issuance or sale to an employee stock
ownership plan or to a trust established by Hexcel or any of its
subsidiaries for the benefit of their employees; plus
(C) the amount by which the Indebtedness of Hexcel is reduced on Hexcel's
balance sheet upon the conversion or exchange, other than by a
subsidiary of Hexcel, subsequent to the issue date and on or before
the date of the Restricted Payment of any Indebtedness of Hexcel
convertible or exchangeable for capital stock, other than
disqualified stock, of Hexcel, less the amount of any cash, or the
fair value of any other property, distributed by Hexcel upon the
conversion or exchange; plus
(D) an amount equal to the sum of (x) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of
loans or advances or other transfers of assets, in each case to
Hexcel or any Restricted Subsidiary from Unrestricted Subsidiaries,
and (y) the portion, proportionate to Hexcel's equity interest in the
subsidiary, of the fair market value of the net assets of an
Unrestricted Subsidiary at the time the Unrestricted Subsidiary is
designated a Restricted Subsidiary; PROVIDED, HOWEVER, that this sum
shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made and treated as a Restricted
Payment by Hexcel or any Restricted Subsidiary in the Unrestricted
Subsidiary.
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(b) The preceding provisions will not prohibit:
(1) any acquisition of any capital stock of Hexcel made by exchange for, or
out of the proceeds of the substantially concurrent sale of, capital
stock of Hexcel, other than disqualified stock and other than capital
stock issued or sold to a subsidiary of Hexcel, or options, warrants or
other rights to purchase the capital stock; PROVIDED, HOWEVER, that
(A) the purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments and
(B) the Net Cash Proceeds from the sale shall be excluded from
clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, capital
stock of Hexcel, other than disqualified stock and other than capital
stock issued or sold to a subsidiary of Hexcel, or options, warrants or
other rights to purchase the capital stock; PROVIDED, HOWEVER, that
(A) the purchase, repurchase, redemption, defeasance or acquisition or
retirement for value shall be excluded in the calculation of the
amount of Restricted Payments and
(B) the Net Cash Proceeds from the sale shall be excluded from
clause (3)(B) of paragraph (a) above;
(3) any purchase, repurchase, redemption, defeasance or acquisition or
retirement for value of Subordinated Obligations made by exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness
of Hexcel which is permitted to be Incurred under the covenant described
under the caption "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that
the Indebtedness
(A) shall have a stated maturity later than the stated maturity of the
notes and
(B) shall have an Average Life greater than the remaining Average Life of
the notes;
PROVIDED FURTHER, HOWEVER, that the purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value shall be excluded
in the calculation of the amount of Restricted Payments;
(4) any purchase or redemption of Subordinated Obligations from Net
Available Cash after application according to clauses (A), (B) and
(C) of paragraph (a)(3) of the covenant described under the caption
"--Limitation on Asset Dispositions"; PROVIDED, HOWEVER, that the
purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments;
(5) dividends paid within 60 days after the date of declaration thereof if
at the date of declaration the dividend would have complied with this
covenant; PROVIDED, HOWEVER, that at the time of payment of the dividend,
no other Default shall have occurred and be continuing, or result
therefrom; PROVIDED FURTHER, HOWEVER, that the declaration, but not the
payment, of such dividend shall be included in the calculation of the
amount of Restricted Payments;
(6) so long as no Default shall have occurred and be continuing, or result
therefrom, Investments in Joint Ventures or other persons engaged in a
related business in an aggregate amount which, when added together with
the amount of all other Investments made according to this clause (6)
which at the time have not been repaid through dividends, repayments of
loans or advances or other transfers of assets, does not exceed
$60.0 million; PROVIDED, HOWEVER, that the amount of the Investments
shall be excluded in the calculation of Restricted Payments;
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(7) so long as no Default shall have occurred and be continuing, or result
therefrom, payments with respect to employee or director stock options,
stock incentive plans or restricted stock plans of Hexcel, including any
redemption, repurchase, acquisition, cancellation or other retirement for
value of shares of capital stock of Hexcel, restricted stock, options on
any of these shares or similar securities held by directors, officers or
employees or former directors, officers or employees or by any Plan upon
death, disability, retirement or termination of employment of any of
these persons under the terms of the Plan or agreement under which the
shares or related rights were issued or acquired; PROVIDED, HOWEVER, that
the amount of any of these payments shall be included in the calculation
of Restricted Payments;
(8) so long as no Default shall have occurred and be continuing, or result
therefrom, any purchase or defeasance of Subordinated Obligations upon a
Change of Control to the extent required by the indenture or other
agreement or instrument under which the Subordinated Obligations were
issued, but only if Hexcel has first complied with all its obligations
under the provisions described under the caption "--Change of Control";
PROVIDED, HOWEVER, that the amount of the purchase or defeasance shall be
excluded in the calculation of Restricted Payments; or
(9) so long as no Default shall have occurred and be continuing, or result
therefrom, Restricted Payments in an aggregate amount which, when added
together with the amount of all other Restricted Payments made under,
this clause (9) which at that time have not been repaid through
dividends, repayments of loans or advances or other transfers of assets,
does not exceed $40.0 million; PROVIDED, HOWEVER, that the amount of the
Restricted Payments shall be included in the calculation of Restricted
Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
Hexcel will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on its capital stock to
Hexcel or a Restricted Subsidiary or pay any Indebtedness owed to Hexcel,
(b) make any loans or advances to Hexcel or any Restricted Subsidiary, or
(c) transfer any of its property or assets to Hexcel or any Restricted
Subsidiary (collectively "Payment Restrictions"), except:
(1) any Payment Restriction imposed under the Credit Agreement, the
indenture, Refinancing Indebtedness in respect of the notes and any
agreement in effect at or entered into on the issue date;
(2) any Payment Restriction with respect to a Restricted Subsidiary under an
agreement relating to any Indebtedness Incurred by the Restricted
Subsidiary on or before the date on which the Restricted Subsidiary was
acquired by Hexcel, other than Indebtedness Incurred as consideration in,
or to provide all or any portion of the funds or credit support utilized
to complete, the transaction or series of related transactions as a
result of which the Restricted Subsidiary became a Restricted Subsidiary
of, or was acquired by, Hexcel, and outstanding on that date;
(3) any Payment Restriction under an agreement effecting a refinancing of
Indebtedness Incurred under an agreement referred to in clause (1) or
(2) of this covenant or this clause (3) or contained in any amendment to
an agreement referred to in clause (1) or (2) of this covenant or this
clause (3); PROVIDED, HOWEVER, that the Payment Restrictions with respect
to the
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Restricted Subsidiary contained in the refinancing agreement or amendment
are no less favorable to the holders of the notes than those with respect
to the Restricted Subsidiary contained in the predecessor agreements;
(4) in the case of clause (c) above, any encumbrance or restriction
consisting of customary non-assignment provisions in leases or other
contracts governing leasehold interests to the extent these provisions
restrict the transfer of the lease or the property leased under the
leases and contracts;
(5) any restriction with respect to a Restricted Subsidiary imposed under an
agreement entered into for the sale or disposition of all or
substantially all the capital stock or assets of the Restricted
Subsidiary pending the closing of the sale or disposition; and
(6) any encumbrance or restriction contained in the governing documents of
any Joint Venture Subsidiary.
LIMITATION ON ASSET DISPOSITIONS
(a) Hexcel will not, and will not permit any Restricted Subsidiary to, make
any Asset Disposition unless:
(1) Hexcel or a Restricted Subsidiary receives consideration at least equal
to the fair market value, of the shares and assets subject to the Asset
Disposition;
(2) at least 75% of the consideration for the Asset Disposition received by
Hexcel or the Restricted Subsidiary is in the form of cash; and
(3) an amount equal to 100% of the Net Available Cash from the Asset
Disposition is applied by Hexcel or the Restricted Subsidiary, as the
case may be: (A) first, to the extent Hexcel or the Restricted Subsidiary
elects or is required by the terms of any Senior Indebtedness or
Indebtedness of the Restricted Subsidiary, to prepay, repay or purchase
Senior Indebtedness or Indebtedness, other than any disqualified stock,
of a Restricted Subsidiary, in each case other than Indebtedness owed to
Hexcel or an affiliate of Hexcel, within one year from the later of the
Asset Disposition or the receipt of the Net Available Cash; (B) second,
to the extent Hexcel or the Restricted Subsidiary elects, to acquire
additional assets within one year from the later of the Asset Disposition
or the receipt of the Net Available Cash; (C) third, to make an offer to
the holders of the notes, and to holders of other Senior Subordinated
Indebtedness designated by Hexcel, to purchase notes, and the other
Senior Subordinated Indebtedness, according to the indenture; and
(D) fourth, to the extent of the balance of the Net Available Cash after
application according to clauses (A), (B) and (C), for any purpose not
prohibited by the terms of the indenture.
Notwithstanding the above provisions of this paragraph, Hexcel and the
Restricted Subsidiaries will not be required to apply any Net Available Cash
according to the foregoing paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied according to
the foregoing paragraph exceeds $15.0 million. Pending application of Net
Available Cash under this covenant, the Net Available Cash will be invested in
Temporary Cash Investments.
For the purposes of the covenant described under this caption, the following
shall be deemed to be cash:
(x) the assumption of Indebtedness of Hexcel or any Restricted Subsidiary
and the release of Hexcel or the Restricted Subsidiary from all liability
with respect to the Indebtedness in connection with the Asset
Disposition, PROVIDED, HOWEVER, that the amount of the Indebtedness shall
not be deemed to be cash for the purpose of the term "Net Available
Cash"; and
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(y) securities received by Hexcel or any Restricted Subsidiary from the
transferee that are promptly converted by Hexcel or the Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
notes and other Senior Subordinated Indebtedness, we will purchase notes
tendered and other Senior Subordinated Indebtedness at a purchase price of 100%
of their principal amount, without premium, plus accrued but unpaid interest,
or, in respect of the Senior Subordinated Indebtedness, the lesser price, if
any, as may be provided for by the terms of the Senior Subordinated Indebtedness
according to the procedures set forth in the indenture. If the aggregate
purchase price of notes and any other Senior Subordinated Indebtedness tendered
is less than the Net Available Cash, we will be entitled to apply the remaining
Net Available Cash according to clause (a)(3)(D) above. We will not be required
to make the offer to purchase notes and other Senior Subordinated Indebtedness
if the Net Available Cash available for the offer, after application of Net
Available Cash according to clauses (A) and (B) of paragraph (a) above, is less
than $10.0 million. The lesser amount shall be carried forward to determine
whether the offer is required for any subsequent Asset Disposition.
(c) Hexcel will comply with the requirements of the securities laws in
connection with the purchase of the notes under this covenant. To the extent
that the provisions of any securities laws conflict with provisions of this
covenant, Hexcel will comply with the applicable securities laws and shall not
be deemed to have breached its obligations under this covenant.
LIMITATION ON AFFILIATE TRANSACTIONS
(a) Hexcel will not, and will not permit any Restricted Subsidiary to, enter
into or permit to exist any "Affiliate Transaction," including the purchase,
sale, lease or exchange of any property, employee compensation arrangements or
the rendering of any service, with any affiliate of Hexcel unless:
(1) the Affiliate Transaction is made in good faith and on terms which are
fair and reasonable to Hexcel or the Restricted Subsidiary, as the case
may be;
(2) if the Affiliate Transaction involves an amount in excess of
$5.0 million, the terms of the Affiliate Transaction are set forth in
writing and a majority of the non-employee directors of Hexcel
disinterested with respect to the Affiliate Transaction have determined
in good faith that the terms are fair and reasonable; and
(3) if the Affiliate Transaction involves an amount in excess of
$10.0 million, the board of directors shall also have received a written
opinion from an investment banking firm to the effect that the Affiliate
Transaction is fair, from a financial standpoint, to Hexcel and its
Restricted Subsidiaries.
(b) The provisions of paragraph (a), above, shall not prohibit:
(1) any Permitted Investment and any Restricted Payment permitted to be paid
under the covenant described under the caption "--Limitation on
Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise under, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the
board of directors;
(3) the payment of reasonable fees to directors of Hexcel and its Restricted
Subsidiaries;
(4) transactions between Hexcel or a Restricted Subsidiary and one or more
Restricted Subsidiaries; PROVIDED, HOWEVER, that no affiliate of Hexcel,
other than another Restricted Subsidiary, owns, directly or indirectly,
any capital stock in any of the Restricted Subsidiaries;
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(5) transactions in the ordinary course of business, including loans,
expense advances and reimbursements, between Hexcel or any of its
Restricted Subsidiaries, on the one hand, and any employee of Hexcel or
any of its Restricted Subsidiaries, on the other hand;
(6) transactions with affiliates entered into in the ordinary course of
business of Hexcel or its Restricted Subsidiaries, on terms which are, in
the opinion of Hexcel's management or the board of directors, fair and
reasonable to Hexcel or its Restricted Subsidiaries;
(7) the granting and performance of registration rights for shares of
capital stock of Hexcel under a written registration rights agreement
approved by a majority of directors of Hexcel that are disinterested with
respect to the transactions;
(8) transactions with affiliates solely in their capacity as holders of
Indebtedness or capital stock of Hexcel or any of its subsidiaries, so
long as Indebtedness or capital stock of the same class is also held by
persons that are not affiliates of Hexcel and these affiliates are
treated no more favorably than holders of the Indebtedness or the capital
stock generally, and the redemption of the outstanding principal amount
of the Ciba Notes, together with accrued interest;
(9) transactions according to the governance agreement, and any amendments
to the governance agreement that are not adverse to the interests of the
holders of the notes and which are approved by a majority of the
directors of Hexcel disinterested with respect to the amendment; and
(10) any transaction between Hexcel or any Restricted Subsidiaries and any
of the Existing Joint Ventures under agreements in effect on the issue
date.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Hexcel will not sell any shares of capital stock of a Restricted Subsidiary,
and shall not permit any Restricted Subsidiary to issue or sell shares of its
capital stock, in each case, other than preferred stock within the meaning of
"Qualified Preferred Stock" as defined in the indenture, except:
(1) to Hexcel or a Wholly Owned Subsidiary;
(2) directors' qualifying shares;
(3) if, immediately after giving effect to the issuance or sale, neither
Hexcel nor any of its subsidiaries own any capital stock of the
Restricted Subsidiary; or
(4) if, immediately after giving effect to the issuance or sale, the
Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any Investment in the person remaining after giving effect to the
issuance or sale would have been permitted to be made under the covenant
described under the caption "--Limitation on Restricted Payments" if made
on the date of the issuance or sale.
The issuance or sale of shares of capital stock of any Restricted Subsidiary
of Hexcel will not violate the provisions above if the shares are issued or sold
in connection with:
- the formation or capitalization of a Restricted Subsidiary which, at the
time of the issuance or sale or immediately after the issuance or sale, is
a Joint Venture Subsidiary or
- a single transaction or a series of substantially contemporaneous
transactions by which the Restricted Subsidiary becomes a Restricted
Subsidiary of Hexcel by reason of the acquisition of securities or assets
from another person.
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MERGER AND CONSOLIDATION
Hexcel will not consolidate with or merge with or into, or convey, transfer
or lease, in one transaction or a series of transactions, all or substantially
all its assets to, any other person, unless:
(1) the successor company shall be a person organized and existing under the
laws of the United States of America, any U.S. State or the District of
Columbia, and the successor company, if other than Hexcel, shall
expressly assume, by a supplemental indenture all the obligations of
Hexcel under the notes and the indenture;
(2) immediately after giving effect to the transaction, and treating any
Indebtedness which becomes an obligation of the successor company or any
Restricted Subsidiary as a result of the transaction as having been
Incurred by the successor company or the Restricted Subsidiary at the
time of the transaction, no Default shall have occurred and be
continuing;
(3) immediately after giving effect to the transaction, the successor
company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under the caption "--Limitation
on Indebtedness";
(4) immediately after giving effect to the transaction, the successor
company shall have Consolidated Net Worth in an amount that is not less
than the Consolidated Net Worth of Hexcel before the transaction; and
(5) Hexcel shall have delivered to the trustee an officers' certificate and
an opinion of counsel, each stating that the consolidation, merger or
transfer and the supplemental indenture, if any, comply with the
indenture.
Nothing contained in the preceding paragraphs shall prohibit any wholly
owned subsidiary from merging with or into, or transferring all or part of its
assets to, Hexcel.
The successor company will succeed to, and be substituted for Hexcel under
the indenture, but the predecessor company in the case of a conveyance, transfer
or lease shall not be released from the obligation to pay the principal of and
interest on the notes.
LIMITATION ON BUSINESS ACTIVITIES
Hexcel will not, and will not permit any Restricted Subsidiary to, engage in
any business other than in businesses conducted by Hexcel and its Restricted
Subsidiaries on the issue date and businesses which are reasonably related,
ancillary or complementary thereto.
SEC REPORTS
Hexcel will file with the SEC and provide the trustee and the holders of the
notes with the annual reports and the applicable information, documents and
other reports as are specified in the Exchange Act.
In addition Hexcel will file a copy of all of the information and reports
referred to above with the SEC for public availability within the time periods
specified in the SEC's rules and regulations. Hexcel will make this information
available to securities analysts and prospective investors upon request.
DEFAULTS
Each of the following is an Event of Default:
(1) a default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the
indenture;
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(2) a default in payment when due of the principal of any note at its stated
maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not prohibited by the subordination
provisions of the indenture;
(3) the failure by Hexcel to comply with its obligations described under the
caption "--Covenants--Merger and Consolidation" above;
(4) the failure by Hexcel to comply for 30 days after notice with any of its
obligations in the covenants described above under the caption "--Change
of Control," other than a failure to purchase notes, or under the
captions "--Covenants--Limitation on Indebtedness," "--Limitation on
Restricted Payments," "--Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "--Limitation on Asset Dispositions," other
than a failure to purchase notes, "--Limitation on Affiliate
Transactions," "--Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries," "--Limitation on Business Activities" or "--SEC
Reports";
(5) the failure by Hexcel to comply for 60 days after notice with any of the
other agreements contained in the indenture;
(6) Indebtedness of Hexcel or any significant subsidiary is not paid within
any applicable grace period after final maturity or is accelerated by the
holders of the Indebtedness because of a default and the total amount of
Indebtedness unpaid or accelerated exceeds $10.0 million;
(7) events of bankruptcy, insolvency or reorganization of Hexcel or a
significant subsidiary; or
(8) any judgment or decree for the payment of money in excess of
$10.0 million is entered against Hexcel or a significant subsidiary,
remains outstanding for a period of 60 days following the judgment and is
not discharged, waived or stayed within 10 days after notice.
However, a default under clauses (4), (5) or (8) will not constitute an
Event of Default until the trustee or the holders of 25% in principal amount of
the outstanding notes notify Hexcel of the default and Hexcel does not cure the
default within the time specified after receipt of the notice.
If an Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal of and accrued but unpaid interest on all the notes to be due and
payable. Upon this declaration, the principal and interest shall be due and
payable immediately. If an Event of Default relating to events of bankruptcy,
insolvency or reorganization of Hexcel occurs and is continuing, the principal
of and interest on all the notes will become and be immediately due and payable.
Under some circumstances, the holders of a majority in principal amount of the
outstanding notes may rescind any acceleration with respect to the notes and its
consequences.
In case an Event of Default occurs and is continuing, the trustee will be
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the holders of the notes unless the
holders have offered to the trustee indemnity or security satisfactory to it
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium, if any, or interest when due, no holder of a note
may pursue any remedy with respect to the indenture or the notes unless:
(1) the holder has previously given the trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding notes
have requested the trustee to pursue the remedy;
(3) the holders have offered the trustee security or indemnity satisfactory
to it against any loss, liability or expense;
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(4) the trustee has not complied with the request within 60 days; and
(5) the holders of a majority in principal amount of the outstanding notes
have not given the trustee a direction inconsistent with the request
within the 60-day period.
The holders of a majority in principal amount of the outstanding notes are
given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or of exercising any trust or
power conferred on the trustee. The trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the trustee
determines is unduly prejudicial to the rights of any other holder of a note or
that would involve the trustee in personal liability.
The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder of the notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any note, the trustee may withhold
notice if a committee of its trust officers in good faith determines that
withholding notice is in the interests of the holders of the notes. In addition,
Hexcel is required to deliver to the trustee, after the end of each fiscal year,
a certificate indicating whether the signers of the certificate know of any
Default that occurred during the previous year. Hexcel also is required to
deliver to the trustee, within 30 days after its occurrence, written notice of
any event which would constitute a Default, its status and what action Hexcel is
taking or proposes to take in respect to the event.
AMENDMENTS AND WAIVERS
Subject to exceptions, the indenture may be amended with the consent of the
holders of a majority in principal amount of the notes then outstanding. This
may include consents obtained in connection with a tender offer or exchange for
the notes. Any past default or compliance with any provisions may also be waived
with the consent of the holders of a majority in principal amount of the notes
then outstanding. However, without the consent of holders of 80% or more in
principal amount of the notes then outstanding, Hexcel may not, with respect to
any notes held by a non-consenting holder, make any change to the subordination
provisions of the indenture that would adversely affect holders of the notes.
In addition, without the consent of each holder affected, an amendment or
waiver may not:
(1) reduce the principal amount of notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on any
note;
(3) reduce the principal of or extend the stated maturity of any note;
(4) reduce the amount payable upon the redemption of any note or change the
time at which any note may be redeemed as described under "--Optional
Redemption";
(5) make any note payable in money other than that stated in the notes;
(6) impair the right of any holder of the notes to receive payment of
principal of and interest on the holder's notes on or after the due dates
for payment or to institute suit for the enforcement of any payment on or
with respect to the holder's notes; or
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Hexcel and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
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(2) to provide for uncertificated notes in addition to or in place of
certificated notes, provided, that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated notes are described in
Section 163(f)(2)(B) of the Code;
(3) to provide for the assumption by a successor corporation of the
obligations of Hexcel under the indenture;
(4) to add guarantees with respect to the notes or to secure the notes;
(5) to add to the covenants of Hexcel for the benefit of the holders of the
notes or to surrender any right or power conferred upon Hexcel;
(6) to make any change that does not adversely affect the rights under the
indenture of any holder; or
(7) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act.
No amendment may be made to the subordination provisions of the indenture
that adversely affects the rights of any holder of Senior Indebtedness then
outstanding unless the holders of the Senior Indebtedness consent to the change.
The consent of the holders of the notes is not necessary under the indenture
to approve the particular form of any proposed amendment. It is sufficient if
the consent approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, Hexcel is required
to mail to holders of the notes a notice briefly describing the amendment.
However, the failure to give notice to all holders of the notes, or any defect
in the notice, will not impair or affect the validity of the amendment.
The notes will be issued in registered form and will be transferable only
upon the surrender of the notes being transferred for registration of transfer.
We may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
DEFEASANCE
Hexcel may terminate at any time all its obligations under the notes and the
indenture, except for specified obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a
registrar and paying agent in respect of the notes. This type of termination is
referred to as legal defeasance.
In addition, Hexcel may terminate at any time its obligations described
under the caption "--Change of Control" and under the covenants described under
the caption "--Covenants", other than the covenant described under the caption
"--Covenants--Merger and Consolidation", the operation of the cross acceleration
provision, the bankruptcy provisions with respect to significant subsidiaries
and the judgment default provision described under the caption "--Defaults"
above and the limitations contained in clauses (3) and (4) of the covenant
described under the caption "--Covenants--Merger and Consolidation" above. This
type of termination is referred to as covenant defeasance.
Hexcel may exercise its legal defeasance option regardless of its prior
exercise of its covenant defeasance option. If Hexcel exercises its legal
defeasance option, payment of the notes may not be accelerated because of an
Event of Default. If Hexcel exercises its covenant defeasance option,
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payment of the notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7), with respect only to significant
subsidiaries, or (8) under the caption "--Defaults" above or because of the
failure of Hexcel to comply with clause (3) or (4) of the covenant described
under the caption "--Covenants--Merger and Consolidation" above.
In order to exercise either legal defeasance or covenant defeasance, Hexcel
must irrevocably deposit in a defeasance trust money or U.S. government
obligations for the payment of principal and interest on the notes to redemption
or maturity. Hexcel must also comply with other conditions, including delivery
to the trustee of an opinion of counsel to the effect that holders of the notes
will not recognize income, gain or loss for federal income tax purposes as a
result of the deposit and defeasance and will be subject to federal income tax
on the same amount and in the same manner and at the same times as would have
been the case if the deposit and defeasance had not occurred. In the case of
legal defeasance only, this opinion of counsel must be based on a ruling of the
IRS or other change in applicable federal income tax law.
CONCERNING THE TRUSTEE
The Bank of New York is the trustee under the indenture and has been
appointed by Hexcel as registrar and paying agent for the notes.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place for exercising any
remedy available to the trustee, subject to various exceptions. The indenture
provides that in case an Event of Default shall occur and be continuing, the
trustee will be required to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to these provisions, the trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless the holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
DEFINITIONS OF TERMS USED IN THE INDENTURE
The following defined terms are used in the indenture and are included in
this prospectus because they are necessary to understand the description of the
notes contained in this prospectus.
"ADDITIONAL ASSETS" means any:
(1) property or assets (other than Indebtedness and capital stock) to be
used by Hexcel, a Restricted Subsidiary or a Joint Venture;
(2) capital stock of a person that becomes a Restricted Subsidiary as a
result of the acquisition of such capital stock by Hexcel or another
Restricted Subsidiary; or
(3) capital stock constituting a minority interest in any person that at
such time is a Restricted Subsidiary or a Joint Venture;
PROVIDED, HOWEVER, that any Restricted Subsidiary described in clauses (2) and
(3) is primarily engaged in related business.
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"AFFILIATE" of any specified person means:
(1) any other person, directly or indirectly, controlling or controlled by
or under direct or indirect common control with such specified person; or
(2) any other person who is a director or officer (A) of such specified
person, (B) of any subsidiary of such specified person or (C) of any
person described in clause (1).
For the purposes of this definition, "control" when used with respect to any
person means the power to direct the management and policies of such person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under the captions "--Covenants--Limitation on Affiliate Transactions" and
"--Covenants--Limitation on Asset Dispositions" only, "affiliate" shall also
mean any beneficial owner of capital stock representing 10% or more of the total
voting power of the voting stock (on a fully diluted basis) of Hexcel or of
rights or warrants to purchase such capital stock (whether or not currently
exercisable) and any person who would be an affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"ASSET DISPOSITION" means any direct or indirect sale, lease, transfer,
conveyance or other disposition (or series of related sales, leases, transfers,
conveyances or dispositions) of shares of capital stock of a Restricted
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by
Hexcel or any Restricted Subsidiary (including any disposition by means of a
merger, consolidation or similar transaction) involving an amount in excess of
$3.0 million other than:
(1) a disposition by a Restricted Subsidiary to Hexcel, by Hexcel or a
Restricted Subsidiary to a Restricted Subsidiary or between Restricted
Subsidiaries;
(2) a disposition of property or assets at fair market value in the ordinary
course of business and consistent with past practices of Hexcel or any of
its Restricted Subsidiaries, as applicable (including sales of products
to customers, disposition of excess inventory and dispositions of used or
replaced equipment);
(3) the disposition or grant of licenses to third parties in respect of
intellectual property;
(4) a sale or disposition of assets for the purpose of forming any Joint
Venture, in exchange for an interest in such Joint Venture;
(5) the sale of Specified Properties;
(6) a disposition by Hexcel or any subsidiary of assets within 24 months
after such assets were directly or indirectly acquired as part of an
acquisition of other properties or assets (including capital stock) (the
"Primary Acquisition"), if the assets being disposed of are "non-core"
assets (as determined in good faith by a majority of the board of
directors) or are required to be disposed of pursuant to any law, rule or
regulation or any order of or settlement with any court or governmental
authority, and the proceeds therefrom are used within 18 months after the
date of sale to repay any Indebtedness Incurred in connection with the
Primary Acquisition of such assets;
(7) for purposes of the covenant described under the caption
"--Covenants--Limitation on Asset Dispositions" only, a disposition that
constitutes a Restricted Payment permitted by the covenant described
under the caption "--Covenants--Limitation on Restricted Payments"; or
(8) an Asset Disposition that also constitutes a Change of Control;
provided, however, that Hexcel complies with all its obligations
described under the caption "--Change of Control."
"AVERAGE LIFE" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (x) the sum of the products of
the numbers of years from the date of
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determination to the date of each successive scheduled principal payment of such
Indebtedness or scheduled redemption multiplied by the amount of such payment by
(y) the sum of all such payments.
"BANK INDEBTEDNESS" means any and all Indebtedness and other amounts payable
under or in respect of the Credit Agreement including principal, premium (if
any), interest (including interest accruing at the contract rate specified in
the Credit Agreement (including any rate applicable upon default) on or after
the filing of any petition in bankruptcy, or the commencement of any similar
state, federal or foreign reorganization or liquidation proceeding, relating to
Hexcel and interest that would accrue but for the commencement of such
proceeding whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"BOARD OF DIRECTORS" means the board of directors of Hexcel or any committee
thereof duly authorized to act on behalf of the board.
"CAPITALIZED LEASE OBLIGATION" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP. The stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"CONSOLIDATED COVERAGE RATIO" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the most recent four consecutive
fiscal quarters ending at least 45 days prior to the date of such determination
to (y) Consolidated Interest Expense for such four fiscal quarters; PROVIDED,
HOWEVER, that:
(1) if Hexcel or any Restricted Subsidiary has Incurred any Indebtedness
since the beginning of such period that remains outstanding on such date
of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for such
period shall calculated after giving effect on a pro forma basis to
(a) such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and (b) the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds
of such new Indebtedness as if such discharge had occurred on the first
day of such period;
(2) if Hexcel or any Restricted Subsidiary has repaid, repurchased, defeased
or otherwise discharged any Indebtedness since the beginning of such
period or if any Indebtedness is to be repaid, repurchased, defeased or
otherwise discharged (in each case other than Indebtedness Incurred under
any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period
shall be calculated on a pro forma basis as if such discharge had
occurred on the first day of such period and as if Hexcel or such
Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period Hexcel or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA
(if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of Hexcel or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to Hexcel and
its continuing Restricted
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Subsidiaries in connection with such Asset Disposition for such period
(or, if the capital stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to
the Indebtedness of such Restricted Subsidiary to the extent Hexcel and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period Hexcel or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any person (that subsequently
became a Restricted Subsidiary or was merged with or into Hexcel or any
Restricted Subsidiary since the beginning of such period) shall have made
any Asset Disposition, any Investment or acquisition of assets requiring
an adjustment pursuant to clause (3) or (4) above if made by Hexcel or a
Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro
forma effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of Hexcel. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any interest rate protection agreement
applicable to such Indebtedness if such interest rate protection agreement has a
remaining term as at the date of determination in excess of 12 months).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum of, without
duplication:
(a) total interest expense of Hexcel and its consolidated Restricted
Subsidiaries for such period, including, to the extent not otherwise
included in such interest expense, and to the extent Incurred by Hexcel
or its Restricted Subsidiaries in such period, without duplication,
(1) interest expense attributable to capital leases;
(2) amortization of debt discount and debt issuance cost;
(3) amortization of capitalized interest;
(4) non-cash interest expense;
(5) accrued interest;
(6) amortization of commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance
financing;
(7) interest actually paid by Hexcel or any such Restricted Subsidiary
under any guarantee of Indebtedness of any other person;
(8) net payments, if any, made pursuant to interest rate protection
agreements (including amortization of fees);
(b) preferred stock dividends paid during such period in respect of all
preferred stock of Restricted Subsidiaries of Hexcel held by persons
other than Hexcel; and
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(c) cash contributions made during such period to any employee stock
ownership plan or other trust for the benefit of employees to the extent
such contributions are used by such plan or trust to pay interest or fees
to any person (other than Hexcel) in connection with Indebtedness
Incurred by such plan or trust to purchase capital stock of Hexcel.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss) of
Hexcel and its consolidated subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income:
(1) any net income (loss) of any person if such person is not a Restricted
Subsidiary, except that
(A) Hexcel's equity in the net income of any such person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such person during
such period to Hexcel or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained
in clause (3) below); and
(B) Hexcel's equity in a net loss of any such person for such period
shall be included in determining such Consolidated Net Income;
(2) any net income (loss) of any person acquired by Hexcel or a subsidiary
in a pooling of interests transaction for any period prior to the date of
such acquisition;
(3) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to Hexcel, except that
(A) Hexcel's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to Hexcel or another
Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend to another Restricted Subsidiary, to the
limitation contained in this clause); and
(B) Hexcel's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net
Income;
(4) any gain (but not loss) realized upon the sale or other disposition of
any assets of Hexcel, its consolidated subsidiaries or any other person
which is not sold or otherwise disposed of in the ordinary course of
business and any gain (but not loss) realized upon the sale or other
disposition of any capital stock of any person;
(5) any extraordinary gain or loss;
(6) cumulative effect of a change in accounting principles; and
(7) any non-cash business consolidation and acquisition charges recognized
with respect to the Clark-Schwebel acquisition (except to the extent such
non-cash charges represent an accrual of or a reserve for cash
expenditures in any future period).
Notwithstanding the foregoing, for the purposes of the covenant described under
the caption "--Covenants--Limitation on Restricted Payments" only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to Hexcel
or a Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"CONSOLIDATED NET WORTH" means the total of the amounts shown on the balance
sheet of Hexcel and its consolidated subsidiaries, determined on a consolidated
basis in accordance with GAAP, as of
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the end of the most recent fiscal quarter of Hexcel ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as the sum of:
(1) the par or stated value of all outstanding capital stock of Hexcel; plus
(2) paid-in capital or capital surplus relating to such capital stock; plus
(3) any retained earnings or earned surplus; less
(4) any accumulated deficit; less
(5) any amounts attributable to disqualified stock.
"CREDIT AGREEMENT" means:
(1) one or more credit agreements, loan agreements or similar agreements
providing for working capital advances, term loans, letter of credit
facilities or similar advances, loan or facilities to Hexcel, any
Restricted Subsidiary, domestic or foreign, or any or all of such
persons, including the Second Amended and Restated Credit Agreement in
effect on the issue date, among Hexcel and specified subsidiaries of
Hexcel, as borrowers, the lenders party thereto and Credit Suisse First
Boston as administrative agent for the lenders, Citibank, N.A., as
documentation agent for the lenders, as the same may be amended,
modified, restated or supplemented from time to time, or any other
indebtedness referred to in clause (b)(1) of the covenant described under
the caption "--Covenants--Limitation on Indebtedness"; and
(2) any one or more agreements governing advances, loans or facilities
provided to refund, refinance, replace or renew (including subsequent or
successive refundings, financings, replacements and renewals)
Indebtedness under the agreement or agreements referred to in the
foregoing clause (1), as the same may be amended, modified, restated or
supplemented from time to time.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means:
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness (other than hedging obligations) which, at
the date of determination, has an aggregate principal amount outstanding
of, or under which, at the date of determination, the holders of which
are committed to lend up to, at least $25.0 million and is specifically
designated by Hexcel in the instrument evidencing or governing the Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the
indenture in an Officers' Certificate received by the Trustee.
"EBITDA" for any period means the sum of Consolidated Net Income plus,
without duplication, the following to the extent deducted in calculating such
Consolidated Net Income:
(1) all income tax expense of Hexcel and its consolidated Restricted
Subsidiaries for such period;
(2) Consolidated Interest Expense for such period;
(3) depreciation expense and amortization expense of Hexcel and its
consolidated Restricted Subsidiaries for such period (excluding
amortization expense attributable to a prepaid cash item that was paid in
a prior period);
(4) all other non-cash items of Hexcel and its consolidated Restricted
Subsidiaries for such period (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash expenditures
in any future period) reducing Consolidated Net Income less all non-cash
items increasing Consolidated Net Income for such period; and
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(5) business consolidation and acquisition charges recognized for such
period to the extent recognized during or prior to the fiscal year ended
December 31, 2000; PROVIDED, HOWEVER, that the aggregate amount of the
charges described in this clause (5) through the end of such fiscal year
shall not exceed $25.0 million.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Restricted Subsidiary
shall be added to Consolidated Net Income to compute EBITDA only to the extent
(and in the same proportion) that the net income of such Restricted Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to
Hexcel by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"EXISTING JOINT VENTURES" means: (1) Asahi-Schwebel, (2) Asahi-Schwebel
(Taiwan), (3) Asahi-Schwebel Interglas (Philippines), (4) CS Tech-Fab, (5) CS
Interglas, (6) Asian Composite Manufacturing, (7) BHA Aero Composite Parts and
(8) DIC. The indenture also defines each of the terms set forth in (1)-(8)
hereof.
"FOREIGN SUBSIDIARY" means a subsidiary that is incorporated in a
jurisdiction other than, and the majority of the assets of which are located
outside of, the United States, a State thereof and the District of Columbia.
"GAAP" means generally accepted accounting principles.
"GOVERNANCE AGREEMENT" means the Governance Agreement dated as of
February 29, 1996, between Ciba Specialty Chemicals Holdings Inc. and Hexcel.
"GUARANTEE" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any other person and any
obligation, direct or indirect, contingent or otherwise, of such person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "guarantee" shall not include:
(1) endorsements for collection or deposit in the ordinary course of
business; or
(2) obligations, warranties and indemnities, not with respect to
Indebtedness of any person, that have been or are undertaken or made in
the ordinary course of business or in connection with any Asset
Disposition permitted by the covenant described under the caption
"--Covenants--Limitation on Asset Dispositions" and not for the benefit
of or in favor of an affiliate of Hexcel or any of its subsidiaries.
The term "GUARANTEE" used as a verb has a corresponding meaning.
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"INCUR" means issue, assume, guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or capital stock of a person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary;
PROVIDED, FURTHER, that any amendment, modification or waiver of any provision
of any document pursuant to which Indebtedness was previously Incurred shall not
be deemed to be an Incurrence of Indebtedness as long as such amendment,
modification or waiver does not:
(1) increase the principal or premium thereof or interest rate thereon;
(2) change to an earlier date the stated maturity thereof or the date of any
scheduled or required principal payment thereon or the time or
circumstances under which such Indebtedness may or shall be redeemed; or
(3) if such Indebtedness is contractually subordinated in right of payment
to the notes, modify or affect, in any manner adverse to the holders,
such subordination.
The term "Incurrence" when used as a noun shall have a correlative meaning. The
accretion of principal of a non-interest bearing or other discount security
shall not be deemed the Incurrence of Indebtedness.
"INDEBTEDNESS" means, with respect to any person on any date of
determination (without duplication):
(1) the principal of and premium (if any such premium is then due and owing)
in respect of (A) indebtedness of such person for money borrowed; and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such person is responsible or
liable;
(2) all Capitalized Lease Obligations of such person;
(3) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such
person and all obligations of such person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(4) all obligations of such person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (1) through (3) above)
entered into in the ordinary course of business of such person to the
extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth business
day following receipt by such person of a demand for reimbursement
following payment on the letter of credit);
(5) the amount of all obligations of such person with respect to the
redemption, repayment or other repurchase of any disqualified stock of
such person, or with respect to any subsidiary of such person, the
liquidation preference with respect to any preferred stock (but
excluding, in each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other persons and all dividends of other persons for the payment of
which, in either case, such person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other persons secured by any lien on any property or asset of such person
(whether or not such obligation is assumed by such person), the amount of
such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, hedging
obligations of such person.
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For purposes of this definition, the obligation of such person with respect to
the redemption, repayment or repurchase price of any disqualified stock that
does not have a fixed redemption, repayment or repurchase price shall be
calculated in accordance with the terms of such stock as if such stock were
redeemed, repaid or repurchased on any date on which Indebtedness shall be
required to be determined pursuant to the indenture; PROVIDED, HOWEVER, that if
such stock is not then permitted to be redeemed, repaid or repurchased, the
redemption, repayment or repurchase price shall be the book value of such stock
as reflected in the most recent financial statements of such person. The amount
of Indebtedness of any person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the amount of liability required by GAAP to be
accrued or reflected on the most recently published balance sheet of such
person; PROVIDED, HOWEVER, that:
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and
(2) Indebtedness shall not include any liability for federal, state, local
or other taxes.
"INVESTMENT" by any person in any other person means any direct or indirect
advance, loan (other than advances to customers or suppliers in the ordinary
course of business that are recorded as accounts receivable on the balance sheet
of such former person) or other extension of credit (including by way of
guarantee or similar arrangement) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
capital stock, Indebtedness or other similar instruments issued by such latter
person that are or would be classified as investments on a balance sheet of such
former person prepared in accordance with GAAP. In determining the amount of any
Investment in respect of any property or assets other than cash, such property
or asset shall be valued at its fair market value at the time of such Investment
(unless otherwise specified in this definition), as determined in good faith by
the board of directors. For purposes of the definition of "Unrestricted
Subsidiary", the definition of "Restricted Payment" and the covenant described
under the caption "--Covenants--Limitation on Restricted Payments,"
(1) "Investment" shall include the portion (proportionate to Hexcel's equity
interest in such subsidiary) of the fair market value of the net assets
of any subsidiary of Hexcel at the time that such subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such subsidiary as a Restricted Subsidiary, Hexcel shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) Hexcel's
"Investment" in such subsidiary at the time of such redesignation less
(y) the portion (proportionate to Hexcel's equity interest in such
subsidiary) of the fair market value of the net assets of such subsidiary
at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the board of directors.
"INVESTMENT GRADE RATING" means a rating of BBB- or higher by Standard &
Poor's Ratings Group, Inc. and Baa3 or higher by Moody's Investors
Service, Inc. or the equivalent of such ratings by Standard & Poor's Ratings
Group, Inc. or Moody's Investors Service, Inc. or by any other Rating Agency
selected as provided in the definition of Rating Agency.
"ISSUE DATE" means the date on which the notes are originally issued.
"JOINT VENTURE" means the Existing Joint Ventures, and any other joint
venture, partnership or other similar arrangement whether in corporate,
partnership or other legal form which is formed by
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Hexcel or any Restricted Subsidiary and one or more persons which own, operate
or service a related business.
"JOINT VENTURE SUBSIDIARY" means a Restricted Subsidiary formed by Hexcel or
any Restricted Subsidiary and one or more persons which own, operate or service
a related business.
"LENDERS" has the meaning specified in the Credit Agreement.
"NET AVAILABLE CASH" from an Asset Disposition means the aggregate amount of
cash received in respect of an Asset Disposition (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) therefrom, in each
case net of:
(1) all legal, accounting, title and recording tax expenses, commissions and
other fees and expenses incurred, and all federal, state, provincial,
foreign and local taxes required to be paid or accrued as a liability
under GAAP as a consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
lien upon such assets, or which must by its terms, or in order to obtain
a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or Joint Ventures as a result
of such Asset Disposition;
(4) any amount of cash required to be placed in escrow by one or more
parties to a transaction relating to contingent liabilities associated
with an Asset Disposition until such cash is released to Hexcel or a
Restricted Subsidiary; and
(5) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition, including pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Dispositions, all as determined in
conformity with GAAP, retained by Hexcel or any Restricted Subsidiary
after such Asset Disposition.
"NET CASH PROCEEDS," with respect to any issuance or sale of capital stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, printing costs, underwriters' or placement agents' fees,
discounts or commissions and brokerage stock exchange listing fees, consultant
and other fees actually incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof.
"PERMITTED HOLDERS" means:
(1) Ciba Specialty Chemicals Holding Inc. and its affiliates;
(2) any person succeeding to the business of Ciba Specialty Chemicals
Holding Inc., including pursuant to any merger or combination of one or
more businesses that includes the business of Ciba Specialty Chemicals
Holding Inc.; and
(3) any affiliate of any person described in clause (2).
"PERMITTED INVESTMENT" means an Investment
(1) in Hexcel or a Restricted Subsidiary or a person which will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
related business;
(2) in another person, if as a result of such Investment such other person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Hexcel or
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a Restricted Subsidiary; PROVIDED, HOWEVER, that such person's primary
business is a related business;
(3) in Temporary Cash Investments;
(4) in receivables owing to Hexcel or any Restricted Subsidiary if created
or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms
as Hexcel or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) in loans or advances to officers, directors or employees of Hexcel or
any of its subsidiaries for travel, transportation, entertainment, and
moving and other relocation expenses and other business expenses that are
expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course
of business;
(6) in loans or advances to employees made in the ordinary course of
business consistent with past practices of Hexcel or such subsidiary, as
the case may be;
(7) in stock, obligations or securities received
(A) in settlement of debts created in the ordinary course of business and
owing to Hexcel or any subsidiary;
(B) in satisfaction of judgments; or
(C) as consideration in connection with an Asset Disposition permitted
pursuant to the covenant described under the caption
"--Covenants--Limitation on Asset Dispositions;" and
(8) deemed to have been made as a result of the acquisition of a person that
at the time of such acquisition held instruments constituting Investments
that were not acquired in contemplation of the acquisition of such
person.
"PLANS" means any employee benefit plan, retirement plan, deferred
compensation plan, restricted stock plan, health, life, disability or other
insurance plan or program, employee stock purchase plan, employee stock
ownership plan, pension plan, stock option plan or similar plan or arrangement
of Hexcel or any subsidiary, or any successor thereof and "Plan" shall have a
correlative meaning.
"PUBLIC EQUITY OFFERING" means an underwritten primary public offering of
common stock of Hexcel pursuant to an effective registration statement under the
Securities Act.
"PUBLIC MARKET" means any time after (x) a public equity offering has been
consummated and (y) at least 15% of the total issued and outstanding common
stock of Hexcel has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"RATING AGENCY" means Standard & Poor's Ratings Group, Inc. and Moody's
Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's
Investors Service, Inc. or both shall not make a rating on the notes publicly
available, a nationally recognized statistical rating agency or agencies, as the
case may be, selected by Hexcel (as certified by a resolution of the board of
directors) which shall be substituted for Standard & Poor's Ratings Group, Inc.
or Moody's Investors Service, Inc. or both, as the case may be.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," and "refinanced" shall have a
correlative meaning) any Indebtedness or Incurred in compliance with the
indenture (including Indebtedness of Hexcel that refinances Indebtedness of any
Restricted Subsidiary
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and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; PROVIDED, HOWEVER, that:
(1) the Refinancing Indebtedness has stated maturity no earlier than any
stated maturity of the Indebtedness being refinanced;
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced; and
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than the sum of (x) either the aggregate
principal amount (or if issued with original issue discount, the
aggregate accreted value) of the Indebtedness being refinanced
(including, with respect to both the Refinancing Indebtedness and the
Indebtedness being refinanced, amounts then outstanding and amounts
available thereunder) or, if the Indebtedness being refinanced is the
Capitalized Lease Obligation entered into on or about September 15, 1998,
the aggregate purchase price of the property subject thereto, plus
(y) unpaid interest, prepayment penalties, redemption premiums,
defeasance costs, fees, expenses and other amounts owing with respect
thereto, plus reasonable financing fees and other reasonable
out-of-pocket expenses incurred in connection therewith;
PROVIDED FURTHER, HOWEVER, that Refinancing Indebtedness shall not include
Indebtedness of a subsidiary that refinances Indebtedness of Hexcel.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of June 29, 2001, between Hexcel and Credit Suisse First Boston
Corporation, Deutsche Banc Alex. Brown Inc., Goldman, Sachs & Co. and J.P.
Morgan Securities Inc.
"RELATED BUSINESS" means any business conducted by Hexcel and its Restricted
Subsidiaries on the issue date and any business related, ancillary or
complementary to the business of Hexcel and its Restricted Subsidiaries on the
issue date.
"RESTRICTED PAYMENT" with respect to any person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its capital stock (including any payment in
connection with any merger or consolidation involving such person) or
similar payment to the direct or indirect holders of its capital stock
(other than dividends or distributions payable solely in its capital
stock (other than disqualified stock) and dividends or distributions
payable solely to Hexcel or a Restricted Subsidiary, and other pro rata
dividends or other distributions made by a subsidiary that is not a
Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a subsidiary that is an entity other
than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value of
any capital stock of Hexcel held by any person or of any capital stock of
the Restricted Subsidiary held by any affiliate of Hexcel (other than a
Restricted Subsidiary), including the exercise of any option to exchange
any capital stock (other than into capital stock of Hexcel that is not
disqualified stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other
than the purchase, repurchase, or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition); or
(4) the making of any Investment (other than a Permitted Investment) in any
person.
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"RESTRICTED SUBSIDIARY" means any subsidiary of Hexcel that is not an
Unrestricted Subsidiary.
"SECURED INDEBTEDNESS" means any Indebtedness of Hexcel secured by a lien.
"SENIOR INDEBTEDNESS" means:
(1) all Bank Indebtedness; and
(2) all other Indebtedness of Hexcel, including interest (including interest
accruing at the contract rate specified in the Credit Agreement or the
documentation governing such other Indebtedness, as applicable (including
any rate applicable upon default) on or after the filing of any petition
in bankruptcy, or the commencement of any similar state, federal or
foreign reorganization or liquidation proceeding, relating to Hexcel,
whether or not allowed as a claim against Hexcel in any such proceeding)
and fees thereon, whether outstanding on the issue date or thereafter
issued or Incurred, unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is provided that
such obligations are not superior in right of payment to the notes;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include:
(1) any liability for federal, state, local or other taxes owed or owing by
Hexcel;
(2) any accounts payable or other liabilities to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(3) any Indebtedness, guarantee or obligation of Hexcel which is subordinate
or junior in any respect to any other Indebtedness, guarantee or
obligation of Hexcel, including any Senior Subordinated Indebtedness and
any Subordinated Obligations; and
(4) any obligations with respect to any capital stock.
"SENIOR SUBORDINATED INDEBTEDNESS" means the notes and any other
Indebtedness of Hexcel that specifically provides that such Indebtedness is to
rank PARI PASSU with the notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of Hexcel
which is not Senior Indebtedness.
"SIGNIFICANT SUBSIDIARY" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated
under the Securities Act and the Exchange Act.
"SPECIFIED PROPERTIES" shall mean Hexcel's manufacturing plants located in
Lancaster, Ohio, Welkenraedt, Belgium, Brindisi, Italy and Lodi, New Jersey, and
certain real property adjacent to the Hexcel's manufacturing plant in Livermore,
California.
"SUBORDINATED OBLIGATION" means any Indebtedness of Hexcel (whether
outstanding on the issue date or thereafter incurred) that is contractually
subordinated or junior in right of payment to the notes pursuant to a written
agreement, including the convertible notes and the convertible debentures.
"SUBSIDIARY" of any person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of voting stock is at the time owned or controlled, directly or
indirectly, by:
(1) such person,
(2) such person and one or more subsidiaries of such person, or
(3) one or more subsidiaries of such person.
Unless the context requires otherwise, "subsidiary" shall refer to a
subsidiary of Hexcel.
"TEMPORARY CASH INVESTMENTS" means any of the following:
(1) investments in U.S. government obligations;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company
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which is organized under the laws of the United States of America, any
State thereof or any foreign country recognized by the United States of
America having capital, surplus and undivided profits aggregating in
excess of $50.0 million (or the U.S. dollar equivalent thereof) and whose
long-term debt is rated "A-" or higher (or such equivalent rating) by at
least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act);
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2)
above;
(4) investments in commercial paper, maturing not more than 90 days after
the date of acquisition, issued by a corporation (other than an affiliate
of Hexcel) organized and in existence under the laws of the United States
of America or any foreign country recognized by the with a rating at the
time as of which any investment therein is made of "P-1" (or higher)
according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard & Poor's Ratings Group; and
(5) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poors Ratings Group or "A" by Moody's Investors Service, Inc.
"UNRESTRICTED SUBSIDIARY" means:
(1) any subsidiary of Hexcel that at the time of determination shall be
designated an Unrestricted Subsidiary by the board of directors in the
manner provided below; and
(2) any subsidiary of an Unrestricted Subsidiary.
The board of directors may designate any subsidiary of Hexcel (including any
newly acquired or newly formed subsidiary) to be an Unrestricted Subsidiary
unless such subsidiary or any of its Subsidiaries owns any capital stock or
Indebtedness of, or holds any lien on any property of, Hexcel or any other
subsidiary of Hexcel that is not a subsidiary of the subsidiary to be so
designated; PROVIDED, HOWEVER, that either (A) the subsidiary to be so
designated has total assets of $1,000 or less or (B) if such subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under the caption "--Covenants--Limitation on Restricted
Payments."
The board of directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation (x) Hexcel could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under the caption
"--Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the board of directors shall be
evidenced to the trustee by promptly filing with the trustee a copy of the
resolution of the board of directors giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing provisions.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the capital
stock of which (other than Qualified Preferred Stock and directors' qualifying
shares) is owned by Hexcel or another Wholly Owned Subsidiary.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the exchange notes will be issued in fully
registered form. Except as described below, the exchange notes initially will be
represented by one or more global notes, in definitive, fully registered form
without interest coupons. The global notes will be deposited with the trustee as
custodian for DTC and registered in the name of Cede & Co. or another nominee as
DTC may designate.
DTC has advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a
"clearing agency" registered pursuant to the provision of Section 17A of
the Exchange Act.
- DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and other organizations.
Indirect access to the DTC system is available to others, including banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
- Upon the issuance of the global notes, DTC or its custodian will credit,
on its internal system, the respective principal amounts of the exchange
notes represented by the global notes to the accounts of persons who have
accounts with DTC. Ownership of beneficial interests in the global notes
will be limited to persons who have accounts with DTC or persons who hold
interests through the persons who have accounts with DTC. Persons who have
accounts with DTC are referred to as "participants." Ownership of
beneficial interests in the global notes will be shown on, and the
transfer of that ownership will be effected only through, records
maintained by DTC or its nominee, with respect to interests of
participants, and the records of participants, with respect to interests
of persons other than participants.
So long as DTC or its nominee is the registered owner or holder of the
global notes, DTC or the nominee, as the case may be, will be considered the
sole record owner or holder of the exchange notes represented by the global
notes for all purposes under the indenture and the exchange notes. No beneficial
owners of an interest in the global notes will be able to transfer that interest
except according to DTC's applicable procedures, in addition to those provided
for under the indenture. Owners of beneficial interests in the global notes will
not:
- be entitled to have the exchange notes represented by the global notes
registered in their names,
- receive or be entitled to receive physical delivery of certificated notes
in definitive form, and
- be considered to be the owners or holders of any exchange notes under the
global notes.
Accordingly, each person owning a beneficial interest in the global notes must
rely on the procedures of DTC and, if a person is not a participant, on the
procedures of the participant through which that person owns its interests, to
exercise any right of a holder of exchange notes under the global notes. We
understand that under existing industry practice, in the event an owner of a
beneficial interest in the global notes desires to take any action that DTC, as
the holder of the global notes, is entitled to take, DTC would authorize the
participants to take that action, and that the participants would authorize
beneficial owners owning through the participants to take that action or would
otherwise act upon the instructions of beneficial owners owning through them.
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Payments of the principal of, premium, if any, and interest on the exchange
notes represented by the global notes will be made to DTC or its nominee, as the
case may be, as the registered owner of the global notes. Neither we, the
trustee, nor any paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the global notes or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the global notes will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
ownership interests in the principal amount of the global notes, as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in the global notes held through these
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for these customers. These payments will be the
responsibility of these participants.
Transfer between participants in DTC will be effected in the ordinary way in
accordance with DTC rules. If a holder requires physical delivery of notes in
certificated form for any reason, including to sell notes to persons in states
which require the delivery of the notes or to pledge the notes, a holder must
transfer its interest in the global notes in accordance with the normal
procedures of DTC and the procedures set forth in the indenture.
Unless and until they are exchanged in whole or in part for certificated
exchange notes in definitive form, the global notes may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC.
Beneficial owners of exchange notes registered in the name of DTC or its
nominee will be entitled to be issued, upon request, exchange notes in
definitive certificated form.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange as described
below, only at the direction of one or more participants to whose account the
DTC interests in the global notes are credited. Further, DTC will take any
action permitted to be taken by a holder of notes only in respect of that
portion of the aggregate principal amount of notes as to which the participant
or participants has or have given that direction.
Although DTC has agreed to these procedures in order to facilitate transfers
of interests in the global notes among participants of DTC, it is under no
obligation to perform these procedures, and may discontinue them at any time.
Neither the trustee nor we will have any responsibility for the performance by
DTC or its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Subject to specified conditions, any person having a beneficial interest in
the global notes may, upon request to the trustee, exchange the beneficial
interest for exchange notes in the form of certificated notes. Upon any issuance
of certified notes, the trustee is required to register the certificated notes
in the name of, and cause the same to be delivered to, the person or persons, or
the nominee of these persons. In addition, if DTC is at any time unwilling or
unable to continue as a depositary for the global notes, and a successor
depositary is not appointed by us within 90 days, we will issue certificated
notes in exchange for the global notes.
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EXCHANGE OFFER; REGISTRATION RIGHTS
As part of the sale of the original notes to Credit Suisse First Boston
Corporation, Deutsche Banc Alex. Brown, Inc., Goldman, Sachs & Co. and J.P.
Morgan Securities Inc. pursuant to the purchase agreement, dated June 15, 2001,
among Hexcel and the initial purchasers, the holders of the original notes
became entitled to the benefits of the registration rights agreement, dated as
of June 29, 2001, by and among Hexcel and the initial purchasers.
Under the registration rights agreement, we have agreed to use our best
efforts:
- to file a registration statement with the SEC by September 27, 2001, in
connection with a registered offer to exchange the original notes for
exchange notes, having terms substantially identical in all material
respects to the original notes, except that the exchange notes will not
contain transfer restrictions;
- to cause the registration statement to become effective by December 26,
2001;
- to offer the exchange notes in exchange for surrender of the original
notes, as soon as practicable after the effectiveness of the registration
statement; and
- to keep the exchange offer open for not less than 30 days--or longer if
required by applicable law--after the date notice of the exchange offer is
mailed to the holders of the original notes.
The exchange offer being made by this prospectus, if consummated within the
required time periods, will satisfy our obligations under the registration
rights agreement. We understand that there are approximately beneficial owners
of original notes. This prospectus, together with the letter of transmittal, is
being sent to all the beneficial holders known to us. For each original note
validly tendered to us in the exchange offer and not withdrawn by the holder of
the original note, the holder will receive an exchange note having a principal
amount equal to that of the tendered original note. Interest on each exchange
note will accrue from the last interest payment date on which interest was paid
on the tendered original note in exchange for an exchange note or, if no
interest has been paid on the original note, from the date of the original issue
of the original note.
Based on an interpretation of the Securities Act by the staff of the SEC set
forth in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the exchange notes issued in the
exchange offer may be offered for resale, resold and otherwise transferred by
holders of the exchange notes without further compliance with the registration
and prospectus delivery provisions of the Securities Act. However, any purchaser
of original notes who is an "affiliate" of ours or who intends to participate in
the exchange offer for the purpose of distributing the exchange notes:
- will not be able to rely on the interpretation by the staff of the SEC set
forth in the above referenced no-action letters,
- will not be able to tender original notes in the exchange offer, and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the notes,
unless the sale or transfer is made under an exemption from these
requirements.
Each holder of the original notes who wishes to exchange original notes for
exchange notes in the exchange offer will be required to make representations,
including that:
- it is neither our affiliate nor a broker-dealer tendering notes acquired
directly from us for its own account;
- any exchange notes to be received by it were acquired in the ordinary
course of its business; and
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- at the time of commencement of the exchange offer, it has no arrangement
with any person to participate in the distribution, within the meaning of
the Securities Act, of the exchange notes.
In addition, in connection with any resales of exchange notes, any
participating broker-dealer who acquired the exchange notes for its own account
as a result of market-making activities or other trading activities must deliver
a prospectus meeting the requirements of the Securities Act. The SEC has taken
the position that participating broker-dealers may fulfill their prospectus
delivery requirements, except for the resale of an unsold allotment from the
original sale of the original notes, with the prospectus contained in the
registration statement. Under the registration rights agreement, we are required
to allow participating broker-dealers and other persons, if any, subject to
similar prospectus delivery requirements to use the prospectus contained in the
registration statement for the resale of exchange notes.
In the event that applicable interpretations of the staff of the SEC do not
permit us to effect the exchange offer, or if for any other reason we do not
consummate the exchange offer within 180 days of the date of the registration
rights agreement, or if an initial purchaser notifies us within 10 business days
following consummation of the exchange offer that notes held by it are not
eligible for exchange in the exchange offer, or if any holder notifies us that
it:
(1) is prohibited by law or SEC policy from participating in the exchange
offer;
(2) may not resell the exchange notes acquired in the exchange offer to
the public without delivering a prospectus and this prospectus is not
appropriate or available for the resales by the holder; or
(3) is a broker-dealer and holds notes that are part of an unsold
allotment from the original sale of the notes, then, we have agreed:
- to file a shelf registration statement as promptly as practicable,
covering resales of the original notes or the exchange notes, as
the case may be;
- to use our best efforts to cause the shelf registration statement
to be declared effective under the Securities Act; and
- to keep the shelf registration statement effective until the
earliest of (A) the time when the notes covered by the shelf
registration statement can be sold pursuant to Rule 144 without any
limitations under clauses (c), (e), (f) and (h) of Rule 144,
(B) two years from the effective date and (C) the date on which all
notes registered under the shelf registration statement are
disposed of in accordance with the shelf registration statement.
We have agreed to pay additional cash interest on the notes if:
(1) by September 27, 2001, neither the registration statement nor the
shelf registration statement is filed with the SEC;
(2) by December 26, 2001, the exchange offer is not consummated and, if
applicable, the shelf registration statement is not declared
effective; or
(3) after either the registration statement or the shelf registration
statement is declared effective, the registration statement
thereafter ceases to be effective or usable, subject to noted
exceptions.
The rate of the additional interest will be 0.50% per annum following the
occurrence of a registration default, until all registration defaults have been
cured, subject to noted exceptions.
Interest on each exchange note will accrue from July 15, 2001 or from the
most recent interest payment date to which interest was paid on the original
note surrendered in exchange for the exchange
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note or on the exchange note, as the case may be. The exchange notes will bear
interest at the rate of 9 3/4% per annum, except that, if any interest accrues
on the exchange notes in respect of any period prior to their issuance, interest
will accrue at the rate or rates borne by the notes from time to time during
that period. If we effect the exchange offer, we will be entitled to close the
exchange offer 30 days after the commencement of the offer, provided that we
have accepted all notes validly tendered in accordance with the terms of the
exchange offer.
The summary in this prospectus of these provisions of the registration
rights agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
registration rights agreement, which is filed as an exhibit to the registration
statement to which this prospectus forms a part.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
On December 19, 2000, under the terms of a stock purchase agreement dated
October 11, 2000 among a group of investors controlled by subsidiaries of
Goldman Sachs and Ciba Specialty Chemicals Holding Inc., the Goldman Sachs
investor group acquired 14,525,000 shares of our common stock from Ciba for an
aggregate purchase price of $159,775,000. The purchase price was comprised of
$123,462,500 in cash and two 7.5% Recourse Secured Pay-In-Kind Promissory Notes
due 2004 issued by the Goldman Sachs investor group to Ciba, one in the amount
of $20,680,780 and one in the amount of $15,631,720. Each of the two actual
companies that purchased the shares is a limited liability company controlled by
Goldman Sachs, and obtained the cash portion of the purchase price from capital
contributions by its members. On December 19, 2000, we entered into a governance
agreement with the Goldman Sachs investor group. The governance agreement was
amended on April 25, 2001. We entered into two other agreements with the Goldman
Sachs investor group, including a registration rights agreement dated
December 19, 2000 and an agreement dated October 11, 2000 in which we made
representations and warranties to the Goldman Sachs investor group and provided
the Goldman Sachs investor group with indemnification, subject to limitations,
for losses suffered as a result of breaches by us of the representations and
warranties. Each of these agreements is described below.
Prior to the purchase by the Goldman Sachs investor group, we were party to
a governance agreement with Ciba under which Ciba had the right to designate
four members to our Board of Directors. In connection with the purchase by the
Goldman Sachs investor group, we entered into a consent and termination
agreement with Ciba that required Ciba to cause its four existing board
designees to resign from our Board of Directors and terminated the governance
agreement with Ciba. Ciba currently is the beneficial owner of 3,581,545 shares
of our common stock, representing approximately 9.5% of our issued and
outstanding common stock. We had issued to Ciba an Increasing Rate Senior
Subordinated Note Due 2003, which was repaid in full on June 29, 2001. In
addition, during the first half of 2000 we were party to supply and
manufacturing arrangements with Ciba. The arrangements with Ciba are described
below.
RELATIONSHIP WITH THE GOLDMAN SACHS INVESTOR GROUP
THE GOVERNANCE AGREEMENT
CORPORATE GOVERNANCE. Under the governance agreement, we and the Goldman
Sachs investor group have agreed to cause any slate of nominees for election to
the Board of Directors to consist of up to three nominees of the Goldman Sachs
investor group. The remaining nominees must be people who are independent of the
Goldman Sachs investor group. In particular:
- if the Goldman Sachs investor group beneficially owns 20% or more of the
total voting power of our voting securities, and has not transferred to a
third party one-third or more of the shares initially purchased by the
Goldman Sachs investor group, then the Goldman Sachs investor group is
entitled to nominate three directors;
- if the Goldman Sachs investor group beneficially owns less than 20% but at
least 15% of the total voting power of our voting securities and has not
transferred to a third party two-thirds or more of the shares initially
purchased by it, or if the Goldman Sachs investor group beneficially owns
20% or more of the total voting power of our voting securities and have
transferred to a third party one third or more of the shares initially
purchased by it, then the Goldman Sachs investor group is entitled to
nominate two directors; and
- if the Goldman Sachs investor group beneficially owns less than 15% but at
least 10% of the total voting power of our voting securities, or if the
Goldman Sachs investor group beneficially owns less than 20% but at least
15% of the total voting power of our voting securities and has
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transferred to a third party two-thirds or more of the shares initially
purchased by it, then the investor group is entitled to nominate one
director.
The Goldman Sachs investor group currently beneficially owns approximately
39% of the total voting power of our voting securities. Accordingly, the Board
of Directors is comprised of the following persons:
- Sanjeev K. Mehra, James J. Gaffney and Peter M. Sacerdote, each of whom is
a nominee of the Goldman Sachs investor group; and
- H. Arthur Bellows, Jr., David E. Berges, Robert S. Evans, Marshall S.
Geller, Harold E. Kinne, Lewis Rubin and Martin L. Solomon, each of whom
is an independent nominee.
The governance agreement further provides that so long as the investors are
entitled to designate two or more nominees for election to the Board of
Directors, each committee of the Board of Directors shall consist of at least
one investors director. New directors chosen to fill vacancies on the Board of
Directors are selected as follows:
- if the new director is to be an investors' director, then the Goldman
Sachs investor group shall designate the new director; and
- if the new director is to be an independent director, the remaining
independent directors shall designate the new director.
If the percentage of the total voting power of our voting securities held by
the Goldman Sachs investor group decreases, or the Goldman Sachs investor group
transfers some of the shares initially purchased by it, in either case such that
the number of directors the Goldman Sachs investor group is entitled to nominate
would decrease, then the Goldman Sachs investor group must cause an appropriate
number of the Goldman Sachs investor group's directors to resign from the Board
of Directors. Any vacancies created by these resignations would be filled by the
independent directors.
APPROVALS. For so long as the Goldman Sachs investor group beneficially
owns at least 15% of the total voting power of our voting securities, the Board
of Directors cannot authorize, approve or ratify any of the following actions
without the approval of a majority of the Goldman Sachs investor group's
directors:
- a tender offer, merger or sale of substantially all of our assets, or
similar transaction in which there would be a change of control of Hexcel
(we refer these as "buyout transactions"); PROVIDED, HOWEVER, that the
approval rights of the Goldman Sachs investor group's directors with
respect to buyout transactions apply only until June 19, 2002;
- any merger, consolidation, acquisition or other business combination
involving us, other than a buyout transaction, in which the value of the
transaction, when added together with the value of all similar
transactions during the previous twelve months, exceeds the greater of
$150 million and 11% of our total consolidated assets;
- any sale, transfer, conveyance, lease or other disposition or series of
related dispositions of any of our assets, business or operations, other
than a buyout transaction, if the value of the assets, business or
operations disposed of in this manner during the prior 12 months exceeds
the greater of $150 million and 11% of our total consolidated assets; and
- any issuance by us or any of our significant subsidiaries of equity
securities, with exceptions for employee and director benefit plans,
intercompany issuances and conversion of outstanding securities, if the
value of the consideration received by us for similar transactions during
the prior 12 months exceeds the greater of $150 million and 11% of our
total consolidated assets. In addition, prior to December 19, 2001 we
cannot issue shares of our common stock in a registered public offering or
in a private placement or otherwise without the approval of the
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Goldman Sachs investor group's directors, except for an issuance of up to
6,900,000 shares of our common stock in which the offering price is
unanimously approved by a pricing committee of the Board of Directors
consisting of one of the Goldman Sachs investor group's directors and two
independent directors.
The Goldman Sachs investor group has agreed that, in any election of
directors or any meeting of our stockholders called for the removal of
directors, so long as the Board of Directors includes, and will include after
any such removal, the requisite number of Goldman Sachs investor group's
directors, the Goldman Sachs investor group will be present for purposes of
establishing a quorum and will vote its shares of our common stock
- in favor of any nominee or director selected in accordance with the terms
of the governance agreement and
- against the removal of any director designated in accordance with the
terms of the governance agreement.
Other than voting for the election of directors, the Goldman Sachs investor
group is free to vote their shares of our common stock as they wish except
- in connection with an offer for a buyout transaction, in which case other
restrictions apply, which are described below, and
- the Goldman Sachs investor group must vote against any amendment to our
certificate of incorporation that would modify the directors' and
officers' indemnification provisions in a manner which would adversely
affect the persons who are entitled to indemnification.
STANDSTILL. The Goldman Sachs investor group has agreed, subject to
specified exceptions, that they will not
- purchase or otherwise acquire any beneficial ownership of our voting
securities, except: shares acquired in connection with broker-dealer
activities in which the Goldman Sachs investor group does not acquire
beneficial ownership of the shares, or up to 255,381 shares acquired
inadvertently by the Goldman Sachs investor group or its affiliates acting
in connection with their activities as a registered broker or dealer or as
an asset manager;
- enter into, solicit or support any merger or business combination
involving us or purchase, acquire, or solicit or support the purchase or
acquisition of any portion of our business or assets, except in the
ordinary course of business or in nonmaterial amounts;
- initiate or propose any shareholder proposal without the approval of the
board of directors or make, or in any way participate in, any solicitation
of proxies, as these terms are used in Section 14 of the Securities
Exchange Act of 1934, to vote or seek to advise or influence any person or
entity with respect to the voting of any of our securities or request or
take any action to obtain any list of security holders for such purposes
with respect to any matter other than those with respect to which the
investors may vote in its sole discretion under the governance agreement;
- form or otherwise participate in a group formed for the purpose of
acquiring, holding, voting, disposing of or taking any action with respect
to the investor's voting securities that would be required under
Section 13(d) of the Securities Exchange Act of 1934 to file a statement
on Schedule 13D with the SEC;
- deposit any of our voting securities in a voting trust or enter into any
voting agreement other than the governance agreement;
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- seek representation on the board of directors, remove a director or seek a
change in the size or composition of the board of directors;
- make any request to amend or waive the provisions of the governance
agreement referred to in this paragraph that would require public
disclosure;
- disclose any intent, purpose, plan, arrangement or proposal inconsistent
with the actions listed above, or take any action that would require
public disclosure of any such intent, purpose, plan, arrangement or
proposal;
- take any action challenging the validity or enforceability of the actions
listed above; or
- assist, advise, encourage or negotiate with respect to or seek to do any
of the actions listed above.
Notwithstanding the foregoing, no member of the Goldman Sachs investment
group may acquire any of our voting securities if such acquisition would result
in a default or acceleration of amounts outstanding under our bank credit
facility or the indenture governing our outstanding 9 3/4% Senior Subordinated
Notes Due 2009, unless, prior to such acquisition, any required consents under
these debt documents are obtained.
BUYOUT TRANSACTIONS. If we become the subject of a buyout transaction
proposed by either a third party or the Goldman Sachs investor group, and the
buyout transaction is approved by a majority of our board of directors and a
majority of our independent directors, the Goldman Sachs investor group may act
in its sole discretion with respect to the buyout transaction.
If we become the subject of a buyout transaction proposed by a third party
that is made prior to December 19, 2003, and such third party offer is approved
by a majority of our Board of Directors but not by a majority of our independent
directors, no member of the Goldman Sachs investor group nor any of their
affiliates may:
- support the third party offer;
- vote in favor of the third party offer; or
- tender or sell their shares of our common stock to the person making the
third party offer.
If we become the subject of a buyout transaction proposed by a third party
or the Goldman Sachs investor group that is made after December 19, 2003, and
such buyout transaction is approved by a majority of our Board of Directors but
not by a majority of our independent directors, then the Goldman Sachs investor
group:
- must vote all of our voting securities it owns against the buyout
transaction in proportion to the votes cast by other shareholders against
the buyout transaction; and
- may not tender or sell their Hexcel voting securities to the person
proposing the buyout transaction in a proportion greater than the tenders
or sales made by the other holders to the person proposing the buyout
transaction.
ISSUANCE OF ADDITIONAL SECURITIES. So long as the Goldman Sachs investor
group is entitled to designate one or more nominees for election to our Board of
Directors, if we issue any additional voting securities for cash, the Goldman
Sachs investor group will have the option to purchase an amount of securities
that would allow the Goldman Sachs investor group to maintain its percentage
ownership of the total voting power of our voting securities after the issuance.
If the Goldman Sachs investor group exercises this option, the Goldman Sachs
investor group would purchase the securities for the same price and otherwise on
the same terms as the securities are sold by us in the issuance. However, this
right of the Goldman Sachs investor group shall not apply to
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- any issuance of voting securities in connection with a registered public
offering of up to 6,900,000 shares of our common stock in which the
offering price is unanimously approved by a pricing committee of the Board
of Directors consisting of one of the Goldman Sachs investor group's
directors and two independent directors, or
- upon conversion of any convertible securities, or
- pursuant to stock option or incentive compensation or similar plans.
TRANSFER RESTRICTIONS. None of the members of the Goldman Sachs investor
group or their affiliates may sell or transfer our voting securities prior to
December 19, 2001, except to another member of the Goldman Sachs investor group
or by persons holding shares acquired inadvertently by affiliates of the member
of the Goldman Sachs investor group acting as a registered broker or dealer or
as an asset manager.
After December 19, 2001, the Goldman Sachs investor group may sell or
transfer our voting securities
- to another member of the Goldman Sachs investor group, provided the
investor agrees to be bound by the terms of the governance agreement,
- in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act of 1933, and otherwise subject to compliance with
the Securities Act,
- in a registered public offering or a non-registered offering subject to an
exemption from the registration requirements of the Securities Act, in a
manner calculated to achieve a broad distribution,
- in a buyout transaction proposed by a third party, but only if otherwise
permitted by the governance agreement, as described above under "Buyout
Transactions", or
- which are shares acquired inadvertently by affiliates of the Goldman Sachs
investor group acting as a registered broker or dealer or as an asset
manager.
In addition to the above restrictions, if members of the Goldman Sachs
investor group desire to transfer any shares of our common stock after
December 19, 2001 to any person other than another member of the Goldman Sachs
investor group, and that person would, after the transfer, beneficially own 5%
or more of our outstanding common stock, then the shares cannot be transferred
unless the person acquiring the shares agrees with us, for a period of three
years, to be bound by the provisions described under "Standstill" and the last
paragraph of "Approvals" above.
For the period from December 19, 2001 to June 19, 2002, we have the option
to purchase any shares of our common stock proposed to be sold by the Goldman
Sachs investor group at the price at which the investors propose to sell the
shares. If we do not exercise our option for a proposed sale by the Goldman
Sachs investor group of shares of our common stock during this period, then the
Goldman Sachs investor group must sell the shares at a price no less than the
price at which the Goldman Sachs investor group offered to sell the shares to
us. However, we do not have this option for any proposed sale by the Goldman
Sachs investor group
- to another member of the Goldman Sachs investor group,
- in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act of 1933,
- in a manner calculated to achieve a broad distribution,
- in a buyout transaction proposed by a third party, or
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- of shares acquired inadvertently by affiliates of the Goldman Sachs
investor group acting as a registered broker or dealer or as an asset
manager.
Notwithstanding anything else in this section, no member of the Goldman
Sachs investor group may transfer any of our voting securities if the transfer
would result in a default or acceleration of amounts outstanding under our bank
credit facility or the indenture governing our outstanding 9 3/4% Senior
Subordinated Notes Due 2009, unless, prior to the transfer, any required
consents under these debt documents are obtained.
TERM. The governance agreement will terminate upon the earlier of
December 19, 2010, and any event that causes the percentage of our voting
securities beneficially owned by the Goldman Sachs investor group to be below
10% or equal to or above 90%.
In addition, either party may terminate the governance agreement if the
other party breaches a material obligation under the governance agreement and
fails to cure the breach within 60 days of written notice of the breach from the
other party.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the purchase by the Goldman Sachs investor group of
shares of our common stock from Ciba, we entered into a registration rights
agreement with the Goldman Sachs investor group. The registration rights
agreement provides that any time after December 19, 2001, the Goldman Sachs
investor group may demand that we prepare and file with the SEC a registration
statement covering our shares of common stock held by the Goldman Sachs investor
group. The Goldman Sachs investor group's demand must be for a number of shares
of our common stock that represents at least 20% of the our common stock then
owned by the Goldman Sachs investor group and must have an aggregate anticipated
offering price of at least $25,000,000. The Goldman Sachs investor group is
entitled to make up to three demands for registration. The Goldman Sachs
investor group also has the right, subject to restrictions, to include their
shares of our common stock in any other registration by us to sell shares of our
common stock under the Securities Act. The registration rights agreement
provides for blackout periods during which the Goldman Sachs investor group
would not be permitted to sell shares of our common stock otherwise eligible for
sale under the registration rights agreement. The registration rights agreement
also contains provisions relating to priority for inclusion of shares in an
offering in the event that the underwriters for the offering determine that the
number of shares requested to be included in the offering must be reduced. We
are generally required to pay for all expenses in connection with a sale of all
or a portion of the Goldman Sachs investor group's shares, except for
underwriting discounts and commissions relating to the shares of our common
stock sold by the investors.
THE GOLDMAN SACHS INVESTOR GROUP AGREEMENT
In connection with the purchase by the investors of shares of our common
stock from Ciba, we entered into an agreement with the Goldman Sachs investor
group in which we made customary representations and warranties to the Goldman
Sachs investor group regarding the transaction and matters relating to our
business and corporate organization. If the Goldman Sachs investor group suffers
any losses caused by a breach of any of these representations and warranties, we
will indemnify the Goldman Sachs investor group for one-third of the losses
suffered by the Goldman Sachs investor group over approximately $1.6 million,
subject to a maximum total indemnification by us of $10 million. Similarly, Ciba
has agreed with the Goldman Sachs investor group that, in the event the Goldman
Sachs investor group suffers any losses caused by one or more breaches of the
representations or warranties, Ciba will indemnify the Goldman Sachs investor
group for one-third of any losses suffered by the Goldman Sachs investor group
over approximately $1.6 million, subject to a maximum total indemnification
amount by Ciba of $10 million. With respect to most of the representations and
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warranties, if the Goldman Sachs investor group does not make a claim by
December 19, 2001 that such representations and warranties were breached, any
claim is permanently barred.
RELATIONSHIP WITH CIBA
GENERAL
On February 29, 1996, we consummated various transactions with Ciba in which
we acquired the composites business of Ciba in exchange for $25 million in cash,
the issuance of $42.8 million worth of notes and the issuance of 18 million
newly issued shares of our common stock. At the time these shares were issued,
these shares represented approximately 49.9% of our common stock. We entered
into numerous agreements with Ciba in connection with these transactions,
including a governance agreement. Under the terms of the Ciba governance
agreement, Ciba was entitled to designate four members to our ten-member Board
of Directors and was subject to restrictions in connection with the transfer of
its shares of our common stock.
CONSENT AND TERMINATION AGREEMENT WITH CIBA
In connection with the purchase by the Goldman Sachs investor group of
shares of our common stock from Ciba, we entered into a consent and termination
agreement with Ciba. Under the terms of the consent and termination agreement:
- we waived the transfer restrictions on the shares of our common stock held
by Ciba to permit the sale of 14,525,000 shares of our common stock to the
Goldman Sachs investor group;
- the Ciba governance agreement was terminated as of the closing date of the
purchase by the Goldman Sachs investor group;
- Ciba agreed to cause all four of its designees then serving on our Board
of Directors to resign as of the closing date of the purchase by the
Goldman Sachs investor group; and
- Ciba agreed to be present for purposes of establishing a quorum for any
future vote of our shareholders.
The Goldman Sachs investor group entered into two pledge agreements with
Ciba under which the Goldman Sachs investor group granted to Ciba a security
interest in all of the Goldman Sachs investor group's rights to any shares of
our common stock held by the Goldman Sachs investor group to secure the payment
of the promissory notes issued by the Goldman Sachs investor group as part of
the purchase price for the shares. Absent a default under the promissory notes,
the investors have the right to vote all shares of our common stock held by
them. If there is a default under a promissory note, then as long as the default
continues, Ciba has the right to vote all shares of our common stock held by the
Goldman Sachs investor group that the Goldman Sachs investor group pledged to
Ciba to secure payment under that note. In addition, after a default under a
promissory note, Ciba has the right to acquire all shares of our common stock
held by the Goldman Sachs investor group that the investors pledged to Ciba to
secure payment under that note. The consent and termination agreement provides
that if, under the pledge agreements Ciba acquires enough shares of our common
stock from the Goldman Sachs investor group such that the number of shares of
our common stock owned by Ciba exceeds 10% of our outstanding common stock, then
so long as Ciba holds greater than 10% of our outstanding common stock Ciba is
prohibited from transferring its shares of our common stock except for
- transfers among Ciba and its subsidiaries,
- in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act, in a manner designed to achieve a broad
distribution, or
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- in a registered public offering or a non-registered offering exempt from
the registration requirements of the Securities Act, in a manner designed
to achieve a broad distribution.
- The consent and termination agreement will terminate if our independent
directors vote to enter into an agreement relating to
- a proposal for us to merge, consolidate, or enter into another similar
business combination, with another company, or
- an offer to acquire greater than 50% of our equity, or our assets.
The consent and termination agreement also contains provisions regarding the
Ciba note and the indenture governing the Ciba note, as discussed below.
CIBA NOTE
We issued an Increasing Rate Senior Subordinated Note Due 2003 to Ciba as
part of the purchase price for the composites business of Ciba. We used a
portion of the proceeds from the offering of the original notes to prepay the
entire aggregate principal amount outstanding under the note, which was
approximately $25 million.
SUPPLY AND MANUFACTURING ARRANGEMENTS WITH CIBA
We were a party to various supply agreements and purchase orders with Ciba
during 2000. In May 2000, Ciba sold its performance polymers division to Vantico
International S.A., and assigned these supply agreements and purchase orders to
Vantico. Before the sale to Vantico and during 2000, sales by Ciba to us under
the supply agreements and purchase orders were approximately $24.4 million on a
worldwide basis. After the sale to Vantico, there were nominal sales by Ciba to
us. In addition, we sold a nominal amount of products to Ciba in 2000. We
believe that the terms of each of these arrangements between Ciba and us were on
terms as fair to us as terms that would have been obtained from an unaffiliated
third party.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a general discussion of certain United States federal tax
consequences associated with the exchange of the original notes for the exchange
notes pursuant to the exchange offer and the ownership and disposition of the
exchange notes. This discussion applies only to a holder of an exchange note who
acquired an original note at the initial offering from an initial purchaser for
the original offering price thereof and who acquires the exchange note in the
exchange offer. This discussion is based on provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations promulgated
thereunder, and administrative and judicial interpretations of the Code and the
regulations, all as currently in effect and all of which are subject to change,
possibly with retroactive effect. This discussion does not address the tax
consequences to subsequent purchasers of the exchange notes and is limited to
investors who hold the exchange notes as capital assets. The tax treatment of
the holders of the notes may vary depending upon their particular situations. In
addition, certain holders, including insurance companies, tax-exempt
organizations, financial institutions and broker-dealers, may be subject to
special rules not discussed below. Each holder should consult its tax advisor
regarding the particular tax consequences to such holder of the exchange of the
original notes for the exchange notes pursuant to the exchange offer and the
ownership and disposition of the exchange notes, as well as any tax consequence
that may arise under the laws of any relevant foreign, state, local or other
taxing jurisdiction.
For purposes of this discussion, the term United States holder means a
holder of an exchange note that is, for United States federal income tax
purposes:
- a citizen or resident of the United States,
- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision of the United States,
- an estate the income of which is subject to United States federal income
taxation regardless of its source and
- a trust if a United States court is able to exercise primary supervision
over the administration of that trust and one or more United States
persons have the authority to control all substantial decisions of the
trust. The term non-U.S. holder means a holder of an exchange note that is
not a United States holder.
UNITED STATES HOLDERS
EXCHANGE OFFER
The exchange of an original note for an exchange note pursuant to the
exchange offer will not constitute a significant modification of the original
note for United States federal income tax purposes. Therefore, the exchange note
received will be treated as a continuation of the original note in the hands of
the holder. As a result, there will be no United States federal income tax
consequences to a United States holder who exchanges an original note for an
exchange note pursuant to the exchange offer and that holder will have the same
adjusted tax basis and holding period in the exchange note as it had in the
original note immediately before the exchange.
STATED INTEREST
Stated interest payable on an exchange note generally will be included in
the gross income of a United States holder as ordinary interest income at the
time accrued or received, according to the United States holder's method of
accounting for United States federal income tax purposes.
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DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement at maturity or other taxable disposition
(collectively, a "disposition") of an exchange note, a United States holder
generally will recognize capital gain or loss equal to the difference between
the amount realized by such holder, except to the extent such amount is
attributable to accrued interest, which will be treated as ordinary interest
income, and such holder's adjusted tax basis in the exchange note. The capital
gain or loss will be long-term capital gain or loss if the United States
holder's holding period for the exchange note exceeds one year at the time of
the disposition.
NON-U.S. HOLDERS
STATED INTEREST
Interest that we pay to a non-U.S. holder on an exchange note will not be
subject to U.S. federal income or withholding tax if the interest is not
connected with the conduct of a trade or business within the United States by
the non-U.S. holder and the non-U.S. holder, among other things, (i) does not
actually or constructively own 10% or more of the total combined voting power of
all classes of our stock; (ii) is not, for U.S. federal income tax purposes, a
controlled foreign corporation to which we are a related person either actually
or constructively through stock ownership; and (iii) provides a statement signed
under penalty of perjury that includes its name and address and certifies that
it is a non-U.S. holder in compliance with applicable requirements, and
satisfies documentary evidence requirements for establishing that it is a
non-U.S. holder.
In the case of interest on an exchange note that is not effectively
connected with the conduct of a trade or business within the United States and
does not satisfy the three requirements in the above list, the non-U.S. holder's
interest on such note would generally be subject to United States withholding
tax at a flat rate of 30%, or a lower applicable treaty rate. If a non-U.S.
holder's interest on an exchange note is effectively connected with the conduct
of a trade or business within the United States, then the non-U.S. holder will
be subject to U.S. federal income tax on such interest income in essentially the
same manner as a U.S. person. In addition, if the non-U.S. holder is a foreign
corporation, it may also be subject to the branch profits tax.
GAIN ON DISPOSITION
A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a disposition of an exchange note unless
(i) the gain is effectively connected with the conduct of a trade or business
within the United States by the non-U.S. holder or (ii) in the case of a
non-U.S. holder who is a nonresident alien individual, such holder is present in
the United States for 183 or more days in the taxable year of the disposition
and other requirements are met. In addition, a non-U.S. holder will not be
subject to U.S. federal income tax upon the exchange of an original note for an
exchange note pursuant to the exchange offer. See "United States
Holders--Exchange Offer."
FEDERAL ESTATE TAXES
An exchange note held by an individual who at the time of death is a
non-U.S. holder generally will not be subject to U.S. federal estate tax if,
immediately before death, such non-U.S. holder did not actually or
constructively own 10% or more of the total combined voting power of all classes
of our stock, and the interest on the exchange note was not effectively
connected with the conduct of a trade or business within the United States by
the non-U.S. holder.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, when required, report to non-U.S. holders of the exchange notes and
the IRS the amount of any interest paid on such notes in each calendar year and
the amounts of tax withheld, if any, with respect to such payments.
In the case of payments of interest to a non-U.S. holder, the general backup
withholding tax (which is imposed at a rate of 30.5% for payments of interest
made after August 6, 2001, and thereafter will be gradually reduced to 28% for
payments of interest made in 2006) and information reporting requirements will
not apply to the payments if the non-U.S. holder has certified, under penalty of
perjury, that it is not a U.S. person and also satisfied documentary evidence
requirements for establishing that it is not a U.S. person, or an exemption has
otherwise been established. Information reporting and backup withholding
requirements will apply to the gross proceeds paid to a non-U.S. holder on the
disposition of an exchange note by or through a U.S. office of a United States
or foreign broker, unless the broker does not have actual knowledge or reason to
know that the holder is a U.S. person and the holder furnishes to the broker
appropriate documentation upon which the holder certifies to the broker under
penalty of perjury as to its name, address and status as a foreign person or
upon which the broker may rely to treat the payment as made to a non-U.S. person
in accordance with U.S. Treasury regulations, or the holder otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a disposition of an
exchange note by or through a foreign office of a U.S. broker or foreign brokers
with some types of relationships to the United States unless such broker has
documentary evidence in its file that the holder of the exchange note is not a
U.S. person and such broker has no actual knowledge to the contrary, or the
holder establishes an exemption. Neither information reporting nor backup
withholding will generally apply to a payment of the proceeds of a disposition
of an exchange note effected outside the United States by or through a foreign
office of a foreign broker not described in the preceding sentence.
For purposes of applying the above rules to an entity that is treated as
fiscally transparent, e.g., a partnership or trust, the beneficial owner means
each of the ultimate beneficial owners of the entity.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the non-U.S.
holder's U.S. federal income tax liability, so long as the required information
is furnished to the IRS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for original notes where the
original notes were acquired as a result of market-making activities or other
trading activities. Hexcel has agreed that, for a period of 180 days after the
expiration date of the exchange offer, it will make this prospectus, available
to any broker-dealer for use in connection with any resale. In addition, until
, 2001, all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
Hexcel will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the exchange notes or a combination of these methods of resale.
These resales may be made at market prices prevailing at the time of resale, at
prices related to these prevailing market prices or negotiated prices. Any
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
broker-dealer or the purchasers of any of the exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
the exchange notes may be deemed to be an underwriter within the meaning of the
Securities Act, and any profit on the resale of exchange notes and any
commission or concessions received by those persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
Hexcel will promptly send additional copies of this prospectus and any amendment
or supplement to this prospectus to any broker-dealer that requests these
documents in the letter of transmittal. Hexcel has agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for the
holders of the notes, other than commissions or concessions of any brokers or
dealers. Hexcel will indemnify the holders of the notes, including any
broker-dealers, against various liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, will pass upon
the validity and enforceability of the notes.
EXPERTS
The financial statements as of December 31, 2000 and 1999 and for each of
the three years in the period ended December 31, 2000, included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information filed by us at the SEC's public reference room at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. Our
filings with the SEC are also available to the public from commercial document
retrieval services and at the SEC's Web site at "http://www.sec.gov." Reports
and other information concerning us can also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file with
them, which means we can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to
be part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any further filings made with the SEC under
Sections 13(a), 14 or 15(d) of the Exchange Act until all of the notes are
exchanged or this exchange offer is terminated:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2000;
- Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001;
and
- Current Reports on Form 8-K dated January 19, 2001, April 19, 2001,
April 30, 2001, May 8, 2001 and June 15, 2001.
You may also access copies of these filings at our website at "http:
//www.Hexcel.com." However, our website and any other information it contains
are not a part of this prospectus. In addition, you may request a copy of any of
these filings, at no cost, by writing or telephoning us at the following address
or phone number:
Hexcel Corporation
Two Stamford Plaza
281 Tresser Blvd.
Stamford, Connecticut 06901
(203) 969-0666
Attention: Investor Relations
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GLOSSARY OF TERMS
ADHESIVES--A thermoset resin (e.g., epoxy, phenolic or BMI) in the form of a
thin film or paste, cured under heat and pressure to bond a wide range of
composite, metallic and honeycomb surfaces.
ARAMID--A high strength, high stiffness fiber derived from polyamide
(Nylon). Kevlar-TM- and Nomex-TM- are examples of aramids. Woven Aramid fabrics
are used in both ballistic and composite materials applications.
CARBON FIBER--Fiber produced by heat treating precursor fibers, such as PAN
(Polyacrylonitrile), rayon and pitch, to drive off non-carbon atoms. The term is
often used interchangeably with graphite; however, carbon fibers and graphite
fibers differ. The basic differences lie in the temperatures at which the fibers
are made and heat treated, and in the resultant carbon content.
COMPOSITE MATERIALS--Product made from combining two or more materials such
that the resultant product has exceptional structural properties not present in
either of the constituent materials.
COWLS OR COWLING--The outside protective shell of a jet engine traditionally
made out of metal. Cowls mainly provides the engine with protection from the
elements and structural support.
FAIRINGS--secondary structure of an airplane providing enhanced
aerodynamics. Typically, fairings are found where the wing meets the body or at
various locations on the leading or trailing edge of the wing.
FIBER--Placement Fabrication of complex shaped components using computer or
numerically controlled machines to place impregnated fiber tows in a
predetermined pattern.
FIBERGLASS--An individual filament made by drawing molten glass. As a
composite materials reinforcement, it is a major material used to reinforce
plastic.
FILAMENT WINDING--A process to manufacture composite materials components
such as mirole and rocket casings and cylinders. Fiber filaments are dipped in a
resin matrix and then wound in a predetermined pattern over a form of the
desired component that is mounted on a mandrel.
FINISHED PARTS--Completed components that typically contain prepregs,
honeycomb, adhesive and assembled hardware. These parts are ready for direct
attachment to a structure (e.g., aircraft) or to sub-assemblies.
HONEYCOMB--A unique, lightweight, cellular structure made from either
metallic sheet material or non-metallic materials (e.g., resin-impregnated paper
or woven fabric) and formed into hexagonal nestled cells, similar in appearance
to a cross-sectional slice of a beehive.
INLET DUCTS--Intake passages or tubes that confine and conduct air. They are
usually located at the upstream end of an airplane engine on the engine cowling
and aid in both propulsion and engine cooling. Inlet ducts are also used to
improve aerodynamics of fighter planes and for this purpose are usually located
on the fuselage near the wings.
INTERIORS--Finished internal aircraft components, such as overhead storage
compartments, lavatories, sidewalls, floor panels and ceilings.
NOMEX--DuPont's registered trademark for its high-temperature-resistant
aramid papers, pressboard, staple fibers and filament yarns. Type 412 Nomex7
aramid paper is used in the manufacture of honeycomb due to its unique
combination of physical and thermal properties.
PCBS--Printed wiring boards (also known as printed circuit boards) contain
high pressure laminates derived from fiberglass fabric on which are mounted and
interconnected semiconductors, passive electronic devices and other electronic
components.
PAN (POLYACRYLONITRILE)--A material used as a base or precursor material in
the manufacture of certain carbon fibers.
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POLYETHYLENE--A common plastic made by polymerizing ethylene which is used
widely in packaging and consumer products.
PRECURSOR--For carbon or graphite, the PAN, rayon or pitch fibers from which
carbon or graphite fibers are derived.
PREPREGS (PRE-IMPREGNATED)--A composite material made from combining high
performance reinforcement fibers or fabrics with a thermoset or thermoplastic
resin matrix. The prepreg has exceptional structural properties not present in
either of the constituent materials.
PRIMARY STRUCTURE--A critical load bearing structure on an aircraft. If this
structure is severely damaged, the aircraft cannot fly.
QUALIFIED AND QUALIFICATIONS--The testing and manufacturing protocols in
aerospace and military applications by which materials, such as composite
materials, are approved for production supply. To qualify a product requires the
creation of a technical database which records the performance of a product
against certain customer specifications, and the documentation of the
manufacturing equipment and process steps for production of the product. The
performance database for the product forms a basis upon which engineers can
design components and against which the manufacturer must test all future
production to ensure that the product performance is replicated consistently.
The manufacturing process and equipment documentation ensure that the future
manufacture of the product replicates product performance. Once a product is
qualified, changes to the product composition, manufacturing process or
manufacturing location and equipment can only be made with customer approval
after further testing has demonstrated that the original product performance
will be replicated. By their nature, these qualification protocols are expensive
and time consuming.
RADOMES--The housing which protects the aircraft radar system from the
elements while allowing transmission of radar signals. Often the radome is in
the nose of an aircraft but can be found at other locations on the aircraft as
well.
REDUX--A registered trademark exclusively licensed by Hexcel for one of
Hexcel's lines of adhesives and primers.
REINFORCEMENTS--A strong material incorporated into a matrix to improve its
mechanical properties. Reinforcements are usually long continuous fibers, which
may be woven. Fiberglass, aramid and carbon fibers are typical reinforcements.
REINFORCEMENT FABRICS--Woven fiberglass, carbon or aramid fabrics used in
later production of prepregs and honeycomb.
RESIN MATRIX--In reinforced fiber composites, a polymeric substrate
material, such as epoxy or phenolic resin, is used to bind together with the
reinforcement material.
S-2-FIBERGLASS--A type of high modulus glass fiber.
SECONDARY STRUCTURE--A non-critical structure on an aircraft. If damaged,
the aircraft can still fly. Fairings, access doors and some flight control
surfaces are examples of secondary structures.
SPECIAL PROCESS--The forming, shaping, machining or bonding of sheets or
blocks of honeycomb into profiled and complex shapes to ready for use as
semi-finished components in the fabrication of composite parts and structures.
STRUCTURES--Finished components for aircraft, truck or other vehicles
constructed from composite materials. For aircraft, these may be for Primary and
Secondary Structures or Interiors. Truck applications include chassis fairings
and floors.
THORSTRAND--A family of electrically conductive fabrics woven by Hexcel from
metallized yarns.
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INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
--------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL
CORPORATION
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000......................... F-2
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 2001 and 2000........ F-3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 2001 and 2000........ F-4
Notes to Condensed Consolidated Financial Statements........ F-5
CONSOLIDATED FINANCIAL STATEMENTS OF HEXCEL CORPORATION
Report of Independent Accountants......................... F-13
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-14
Consolidated Statements of Operations for the three years
ended December 31, 2000................................. F-15
Consolidated Statements of Stockholder's Equity and
Comprehensive Income for the three years ended
December 31, 2000....................................... F-16
Consolidated Statements of Cash Flows for the three years
ended December 31, 2000................................. F-17
Notes to the Consolidated Financial Statements............ F-18
</Table>
F-1
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
MARCH 31, DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000
- ------------------------------------ --------- ------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7.2 $ 5.1
Accounts receivable....................................... 163.9 150.3
Inventories............................................... 162.8 155.4
Prepaid expenses and other assets......................... 6.7 5.5
Deferred tax asset........................................ 7.7 9.7
-------- --------
Total current assets...................................... 348.3 326.0
Property, plant and equipment............................... 610.3 615.3
Less accumulated depreciation............................... (257.7) (255.6)
-------- --------
Net property, plant and equipment......................... 352.6 359.7
Goodwill and other purchased intangibles, net of accumulated
amortization of $39.2 in 2001 and $36.1 in 2000........... 387.8 391.7
Investments in affiliated companies and other assets........ 136.8 134.0
-------- --------
Total assets................................................ $1,225.5 $1,211.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease
obligations............................................. $ 16.7 $ 22.1
Accounts payable.......................................... 88.0 69.4
Accrued liabilities....................................... 101.6 106.4
-------- --------
Total current liabilities................................. 206.3 197.9
Long-term notes payable and capital lease obligations....... 663.2 651.5
Other non-current liabilities............................... 48.8 46.3
-------- --------
Total liabilities........................................... 918.3 895.7
Stockholders' equity:
Preferred stock, no par value, 20.0 shares authorized, No
shares issued or outstanding in 2001 and 2000............. -- --
Common stock, $0.01 par value, 100.0 shares authorized, 38.0
shares issued and outstanding in 2001 and 2000............ 0.4 0.4
Additional paid-in capital.................................. 281.9 280.7
Retained earnings........................................... 71.3 65.8
Accumulated other comprehensive loss........................ (35.2) (20.0)
-------- --------
318.4 326.9
Less--Treasury stock, at cost, 0.9 shares in 2001 and
2000...................................................... (11.2) (11.2)
-------- --------
Total stockholders' equity.................................. 307.2 315.7
-------- --------
Total liabilities and stockholders' equity.................. $1,225.5 $1,211.4
======== ========
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
QUARTER ENDED MARCH 31,
-----------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000
- ------------------------------------ ---------- ----------
UNAUDITED
Net sales................................................... $276.2 $279.8
Cost of sales............................................... 216.1 217.6
------ ------
Gross margin.............................................. 60.1 62.2
Selling, general and administrative expenses................ 31.7 32.9
Research and technology expenses............................ 4.7 6.3
Business consolidation expenses............................. 1.1 1.2
------ ------
Operating income.......................................... 22.6 21.8
Interest expense............................................ 16.3 18.4
------ ------
Income before income taxes................................ 6.3 3.4
Provision for income taxes.................................. 2.2 1.2
Equity in earnings of affiliated companies.................. 1.4 0.4
------ ------
Net income................................................ $ 5.5 $ 2.6
====== ======
Net income per share:
Basic..................................................... $ 0.15 $ 0.07
Diluted................................................... $ 0.15 $ 0.07
Weighted average shares:
Basic..................................................... 37.2 36.6
Diluted................................................... 38.1 36.8
====== ======
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
QUARTER ENDED MARCH 31,
-----------------------
(IN MILLIONS) 2001 2000
- ------------- ---------- ----------
UNAUDITED
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 5.5 $ 2.6
Reconciliation to net cash provided by operating
activities:
Depreciation and amortization........................... 15.2 15.0
Deferred income taxes................................... (3.6) (4.5)
Business consolidation expenses......................... 1.1 1.2
Business consolidation payments......................... (1.4) (2.0)
Equity in earnings of affiliated companies.............. (1.4) (0.4)
Working capital changes and other....................... (12.0) (18.0)
------ ------
Net cash provided by (used for) operating
activities.......................................... 3.4 (6.1)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (10.6) (4.4)
Investments in affiliated companies....................... -- (3.4)
------ ------
Net cash used for investing activities................ (10.6) (7.8)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facilities, net...................... 15.5 26.5
Repayments of long-term debt and capital lease
obligations, net........................................ (8.1) (7.9)
Debt issuance costs....................................... -- (0.9)
Activity under stock plans................................ 0.1 0.1
------ ------
Net cash provided by financing activities............. 7.5 17.8
------ ------
Effect of exchange rate changes on cash and cash
equivalents............................................... 1.8 0.7
------ ------
Net increase in cash and cash equivalents................... 2.1 4.6
Cash and cash equivalents at beginning of year.............. 5.1 0.2
------ ------
Cash and cash equivalents at end of period.................. $ 7.2 $ 4.8
====== ======
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF ACCOUNTING
The accompanying condensed consolidated financial statements have been
prepared from the unaudited records of Hexcel Corporation and subsidiaries
("Hexcel" or the "Company") in accordance with generally accepted accounting
principles, and, in the opinion of management, include all adjustments necessary
to present fairly the balance sheet of the Company as of March 31, 2001 and the
results of operations and cash flows for the quarters ended March 31, 2001 and
2000. The condensed consolidated balance sheet of the Company as of
December 31, 2000 was derived from the audited 2000 consolidated balance sheet.
Certain information and footnote disclosures normally included in financial
statements have been omitted pursuant to rules and regulations of the Securities
and Exchange Commission. Certain prior period amounts in the condensed
consolidated financial statements and accompanying notes have been reclassified
to conform to the 2001 presentation. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 2000 Annual Report on
Form 10-K.
NOTE 2--DISPOSITION OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business
("Bellingham") to Britax Cabin Interiors, Inc., a wholly owned subsidiary of
Britax International plc, for cash proceeds of $113.3 million. The sale resulted
in an after-tax gain of approximately $44 million or $0.97 per diluted share.
Net proceeds from the sale were used to repay $111.6 million of outstanding term
debt under the Company's Senior Credit Facility. The condensed consolidated
financial statements and accompanying notes reflect Bellingham's operating
results as a continuing operation in the Engineered Products business segment up
to the date of disposal.
Net sales and operating income for the Bellingham business is as follows:
<Table>
<Caption>
QUARTER ENDED MARCH 31,
-----------------------
(IN MILLIONS) 2001 2000
- ------------- ---------- ----------
Net sales........................................... $ -- $ 16.6
Operating income.................................... $ -- $ 1.1
======= ========
</Table>
NOTE 3--INVENTORIES
<Table>
<Caption>
(IN MILLIONS) 3/31/01 12/31/00
- ------------- ---------- ----------
Raw materials....................................... $ 69.0 $ 74.5
Work in progress.................................... 46.2 45.2
Finished goods...................................... 47.6 35.7
------- --------
Total inventories............................... $ 162.8 $ 155.4
======= ========
</Table>
F-5
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
<Table>
<Caption>
(IN MILLIONS) 3/31/01 12/31/00
- ------------- -------- --------
Senior credit facility...................................... $227.9 $211.9
European credit and overdraft facilities.................... 5.5 13.7
9.75% Senior subordinated notes, due 2009................... 240.0 240.0
Senior subordinated notes, due 2003......................... 24.4 24.4
7.0% Convertible subordinated notes, due 2003............... 114.4 114.4
7.0% Convertible subordinated debentures, due 2011.......... 25.6 25.6
Various notes payable....................................... 0.1 0.3
------ ------
Total notes payable......................................... 637.9 630.3
Capital lease obligations................................... 42.0 43.3
------ ------
Total notes payable and capital lease obligations......... $679.9 $673.6
====== ======
Notes payable and current maturities of long-term
liabilities............................................... $ 16.7 $ 22.1
Long-term notes payable and capital lease obligations, less
current maturities........................................ 663.2 651.5
------ ------
Total notes payable and capital lease obligations......... $679.9 $673.6
====== ======
</Table>
SENIOR CREDIT FACILITY
Hexcel's global credit facility (the "Senior Credit Facility") was amended
on October 26, 2000, March 7, 2000 and May 11, 2001, to accommodate, among other
things, the planned sale of assets, the planned investment in additional
manufacturing capacity for selected products, the impact of the decline in the
Company's operating results on certain financial covenants, the sale by an
investor group of approximately 14.5 million shares of Hexcel common stock held
by a significant shareholder of the Company, and a restructuring of the
ownership of certain of the Company's European subsidiaries.
The Senior Credit Facility, as amended, provides Hexcel with approximately
$357 million of borrowing capacity, subject to certain limitations. The Senior
Credit Facility is secured by a pledge of shares of certain of the Company's
foreign subsidiaries, as well as security interests in certain U.S. accounts
receivable, inventories, and real property, plant and equipment. The Company is
subject to various financial covenants and restrictions under the Senior Credit
Facility, including limitations on incurring debt, granting liens, selling
assets, redeeming capital stock and paying dividends. At March 31, 2001, the
Company was in compliance with all covenants.
Interest on outstanding borrowings under the Senior Credit Facility ranges
from 1.00% to 3.25% in excess of the applicable London interbank rate, or at the
option of the Company, from 0.25% to 2.25% in excess of the base rate of the
administrative agent for the lenders. Prior to May 11, 2001, the upper limits of
these interest ranges were 3.00% and 2.00%, respectively. In addition, the
Senior Credit Facility is subject to a commitment fee varying from approximately
0.20% to 0.50% per annum of the total facility. As of March 31, 2001 and
December 31, 2000, Hexcel had an interest rate cap agreement outstanding which
covered a notional amount of $50.0 million of the Senior Credit Facility,
providing a maximum fixed rate of interest of 5.5% on the applicable London
interbank rate.
Unused borrowing capacity under the Senior Credit Facility was approximately
$122 million on March 31, 2001. The Company has outstanding letters of credit of
approximately $7.0 million at March 31, 2001. The Company expects that the
Senior Credit Facility will be sufficient to fund its
F-6
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
worldwide operations for the foreseeable future. The Senior Credit Facility is
scheduled to expire in 2004, except for approximately $58 million of term loans
that are due for repayment in 2005.
SENIOR SUBORDINATED NOTES, DUE 2003
The Senior Subordinated Notes, due 2003 are general unsecured obligations of
Hexcel. Effective February 2001, these notes bear interest at a rate of 11.5%
per annum, a rate which will increase by 0.5% per annum each
February thereafter until the notes mature in 2003. Prior to February 2001 and
February 2000, these notes bore interest at a rate of 11.0% and 10.5% per annum,
respectively. These notes have a $0.6 million unamortized discount at March 31,
2001 and December 31, 2000.
NOTE 5--BUSINESS CONSOLIDATION PROGRAMS
Total accrued business consolidation expenses at March 31, 2001 and
December 31, 2000, activity during the three months ended March 31, 2001, and a
brief description of the Company's business consolidation program follows:
<Table>
<Caption>
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
(IN MILLIONS) RELOCATION RELOCATION TOTAL
- ------------- ------------ ----------- --------
BALANCE AS OF DECEMBER 31, 2000............................. $ 2.4 $ 0.3 $ 2.7
Business consolidation expenses............................. 0.1 1.0 1.1
Cash expenditures........................................... (0.5) (0.9) (1.4)
Asset write-off............................................. -- (0.2) (0.2)
----- ----- -----
BALANCE AS OF MARCH 31, 2001................................ $ 2.0 $ 0.2 $ 2.2
===== ===== =====
</Table>
As a result of four substantial business acquisitions from 1996 through 1998
and the need to respond to significant changes in commercial aerospace and space
and defense markets, Hexcel initiated three business consolidation programs in
May 1996, December 1998 and September 1999. The primary purpose of these
programs has been to integrate acquired assets and operations into the Company
and to close or restructure insufficiently profitable facilities and activities.
All of the business consolidation activities initiated in 1996 and 1998 have
been completed as of December 31, 2000, although cash expenditures relating to
accrued severance will continue to be paid through 2001. As of March 31, 2001,
the entire September 1999 program was completed with the exception of the fourth
quarter 2000 amendment, which includes the closure of two manufacturing
facilities and the elimination of an additional 60 positions (primarily
manufacturing positions). The business consolidation activities related to the
fourth quarter 2000 amendment are not expected to be completed until early 2002.
For the three months ended March 31, 2001, Hexcel recognized $1.1 million of
business consolidation expenses. Accrued expenses as of March 31, 2001 primarily
reflected accrued severance and costs for early termination of certain leases.
The Company's policy is to pay severance over a period of time rather than in a
lump-sum amount.
F-7
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--NET INCOME PER SHARE
<Table>
<Caption>
QUARTER ENDED MARCH 31,
-----------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000
- ------------------------------------ ---------- ----------
Basic net income per share:
Net income................................................ $ 5.5 $ 2.6
Weighted average common shares outstanding................ 37.2 36.6
----- -----
Basic net income per share.............................. $0.15 $0.07
===== =====
Diluted net income per share:
Net income.................................................. $ 5.5 $ 2.6
Weighted average common shares outstanding.................. 37.2 36.6
Effect of dilutive securities--Stock options................ 0.9 0.2
----- -----
Diluted weighted average common shares outstanding...... 38.1 36.8
----- -----
Diluted net income per share............................ $0.15 $0.07
===== =====
</Table>
The convertible subordinated notes, due 2003, and the convertible
subordinated debentures, due 2011, were excluded from the first quarter 2001 and
2000 computations of diluted net income per share, as they were antidilutive.
For the quarters ended March 31, 2001 and 2000, 3.9 million and substantially
all of the outstanding stock options were excluded from the calculation of
diluted net income per share, respectively. The exercise price for these stock
options ranged from approximately $11.00 to $29.63 per share, with the weighted
average price being approximately $12.87 per share in 2001 and $11.18 per share
in 2000.
NOTE 7--COMPREHENSIVE INCOME (LOSS)
<Table>
<Caption>
QUARTER ENDED MARCH 31,
(IN MILLIONS) 2001 2000
- ------------- ---------- ----------
Net income.......................................... $ 5.5 $ 2.6
Net derivative loss................................. (4.9) --
Currency translation adjustment..................... (10.3) (3.0)
------ ------
Total comprehensive loss............................ $ (9.7) $ (0.4)
====== ======
</Table>
NOTE 8--DERIVATIVE FINANCIAL INSTRUMENTS
The Company adopted Statement of Financial Accounting Standards No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as amended by
Statement of Financial Accounting Standards No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133, AN AMENDMENT OF FASB NO. 133, and Statement of Financial
Accounting Standards No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND
CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB STATEMENT NO. 133 (referred
herein as FAS 133), on January 1, 2001. There was no transition adjustment
recorded, as the amount was immaterial to earnings and other comprehensive loss.
F-8
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
DERIVATIVES POLICY
As a result of the Company's global operating and financing activities,
Hexcel is exposed to various market risks that may affect its operational
results and financial position. These market risks include, but are not limited
to, fluctuations in interest rates, which impact the amount of interest the
Company must pay on certain variable rate debt, and fluctuations in currency
exchange rates, which impact the U.S. dollar value of transactions, assets and
liabilities denominated in foreign currencies. The Company considers its
strategic use of cash flow hedges to be a prudent method of managing interest
rate and foreign currency exchange rate sensitivities.
The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions. The hedging instruments are assessed
for effectiveness at the inception of the hedge and throughout the term of the
hedge designation. As long as the hedge remains highly effective, changes in the
fair value of the Company's cash flow hedges are recorded in other comprehensive
income, until earnings are affected by the transaction being hedged.
Ineffectiveness is recorded immediately in the income statement. All derivatives
are recognized on the balance sheet at their fair value. The Company
discontinues hedge accounting prospectively when (1) it determines that the
derivative is no longer effective in offsetting changes in the cash flows of a
hedged item (including hedged items such as forecasted transactions); (2) the
derivative expires or is sold, terminated, or exercised; (3) it is no longer
probable that the forecasted transaction will occur; or (4) management
determines that designating the derivative as a hedging instrument is no longer
appropriate.
The market risk associated with interest rate and foreign exchange contracts
is managed by the Company through monitoring of parameters that limit the types
and degree of market risk that may be undertaken. The Company's derivative
activities are regulated by written policies and procedures that are managed and
monitored for compliance by the Finance Management Committee (FMC). The FMC is
composed of the chief financial officer, the chief accounting officer, the
assistant treasurer, and other senior managers of the Company as may be
appointed to the committee from time to time. The FMC periodically reports to
the Audit Committee on the scope of the Company's derivative activities. The
Company's policies together with the decisions and guidelines of the FMC:
(a) sets forth risk-management philosophy and objectives through a corporate
policy, (b) provides guidelines for derivative instrument usage, and
(c) establishes procedures for control and valuation, counterparty credit
approval, and monitoring and reporting of derivative activity. The use of
derivative financial instruments to hedge exposures to changes in exchange rates
and interest rates exposes the Company to credit risk. The Company minimizes the
credit risk in derivative instruments by (a) entering into transactions with
high-quality counterparties whose credit ratings are AA/Aa or higher,
(b) limiting the amount of exposure to each counterparty, and (c) monitoring the
financial condition of its counterparties.
CASH FLOW HEDGES
FOREIGN CURRENCY--A number of the European subsidiaries of Hexcel are
exposed to the impact of exchange rate volatility between the U.S. dollar and
the subsidiaries' functional currencies, being either the Euro or the British
pound sterling. In January 2001, Hexcel entered into foreign exchange contracts
to exchange Euros at fixed rates on specified dates through March 2005. The
aggregate notional amount of these contracts is $96.7 million. The purpose of
these contracts is to hedge a portion of the
F-9
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
forecasted transactions of European subsidiaries under long-term sales contracts
with certain customers. The forward exchange contracts are expected to provide
the Company with a more balanced matching of future cash receipts and
expenditures by currency, thereby reducing the Company's exposure to
fluctuations in currency exchange rates. For the quarter ended March 31, 2001,
hedge ineffectiveness was immaterial and the fair value of the foreign currency
cash flow hedges recognized in other comprehensive income was a loss of $4.9
million. Over the next twelve-month period, a $1.0 million loss is expected to
be reclassified into earnings as the hedged sales are recorded.
INTEREST RATE--Hexcel's results are affected by interest rate changes on its
variable rate debt. In order to partially mitigate this interest rate risk, the
Company entered into a five-year interest rate cap agreement in 1998. This
agreement provides for a maximum fixed interest rate of 5.5% on the applicable
London interbank rate used to determine the interest on $50.0 million of
variable rate debt under the Senior Credit Facility.
For the quarter ended March 31, 2001, hedge ineffectiveness and the fair
value of the interest rate cap at March 31, 2001 was not material.
DERIVATIVE INSTRUMENTS COMPONENT OF OTHER COMPREHENSIVE INCOME (LOSS):
<Table>
<Caption>
(IN MILLIONS)
- -------------
Balance, December 31, 2000.................................. $ --
Current period cash flow hedging............................ (4.9)
------
Total Derivative instruments at March 31, 2001.............. $ (4.9)
======
</Table>
NOTE 9--SEGMENT INFORMATION
Hexcel evaluates the performance of its operating segments based on adjusted
income before business consolidation expenses, interest, taxes and equity in
earnings of affiliated companies ("Adjusted EBIT"), and generally accounts for
intersegment sales based on arm's length prices. Corporate and certain other
expenses are not allocated to the operating segments, except to the extent that
the expense can be directly attributable to the business segment.
F-10
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SEGMENT INFORMATION (CONTINUED)
Financial information for the Company's segments for the periods ended
March 31, 2001 and 2000, is as follows:
HEXCEL CORPORATION AND SUBSIDIARIES
ACTUAL AND PRO FORMA SEGMENT DATA
<Table>
<Caption>
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE &
(IN MILLIONS) PRODUCTS MATERIALS PRODUCTS OTHER(1) TOTAL
- ------------- ------------- --------- ---------- ----------- --------
UNAUDITED
FIRST QUARTER 2001
Net sales to external customers......... $86.4 $160.2 $29.6 $ -- $276.2
Intersegment sales...................... 29.7 2.1 -- -- 31.8
----- ------ ----- ----- ------
Total sales......................... 116.1 162.3 29.6 -- 308.0
Adjusted EBIT(2) ....................... 11.4 20.7 0.6 (9.0) 23.7
Depreciation and amortization........... 9.2 4.7 0.8 0.5 15.2
Business consolidation expenses......... -- 1.1 -- -- 1.1
Capital expenditures.................... 6.2 3.9 0.2 0.3 10.6
----- ------ ----- ----- ------
PRO FORMA FIRST QUARTER 2000
Net sales to external customers......... $87.1 $146.5 $29.6 $ -- 263.2
Intersegment sales...................... 27.2 1.8 -- -- 29.0
----- ------ ----- ----- ------
Total sales......................... 114.3 148.3 29.6 -- 292.2
Adjusted EBIT(2) ....................... 10.5 18.5 2.1 (9.2) 21.9
Depreciation and amortization........... 8.6 4.8 0.7 0.6 14.7
Business consolidation expenses......... 0.7 0.4 0.1 -- 1.2
Capital expenditures.................... 1.0 3.0 0.2 -- 4.2
----- ------ ----- ----- ------
FIRST QUARTER 2000
Net sales to external customers......... $87.1 $146.5 $46.2 $ -- 279.8
Intersegment sales...................... 27.2 2.3 -- -- 29.5
----- ------ ----- ----- ------
Total sales......................... 114.3 148.8 46.2 -- 309.3
Adjusted EBIT(2) ....................... 10.5 18.5 3.2 (9.2) 23.0
Depreciation and amortization........... 8.6 4.8 1.0 0.6 15.0
Business consolidation expenses......... 0.7 0.4 0.1 -- 1.2
Capital expenditures.................... 1.0 3.0 0.4 -- 4.4
----- ------ ----- ----- ------
</Table>
- ------------------------
(1) The Company does not allocate corporate expenses to its business segments.
(2) Consists of earnings before interest, taxes, business consolidation expenses
and equity in earnings of affiliated companies.
Adjusted EBIT has been presented to provide a measure of Hexcel's operating
performance that is commonly used by investors and financial analysts to analyze
and compare companies. Adjusted EBIT may not be comparable to similarly titled
financial measures of other companies. Adjusted EBIT does not represent an
alternative measure of the Company's cash flows or operating income, and should
not
F-11
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SEGMENT INFORMATION (CONTINUED)
be considered in isolation or as a substitute for measures of performance
presented in accordance with generally accepted accounting principles.
A reconciliation of Adjusted EBIT reported for the segments to consolidated
income before income taxes is as follows:
<Table>
<Caption>
QUARTER ENDED MARCH 31,
------------------------------
PRO FORMA
(IN MILLIONS) 2001 2000 2000
- ------------- -------- -------- --------
Total Adjusted EBIT............................... $23.7 $23.0 $21.9
Less: Business consolidation expenses............. 1.1 1.2 1.2
Interest expense............................. 16.3 18.4 16.1
----- ----- -----
Consolidated income before income taxes........... $ 6.3 $ 3.4 $ 4.6
===== ===== =====
</Table>
NOTE 10--SUPPLEMENTAL CASH FLOW INFORMATION
<Table>
<Caption>
QUARTER ENDED MARCH 31,
-----------------------
(IN MILLIONS) 2001 2000
- ------------- ---------- ----------
Cash paid for:
Interest.......................................... $25.2 $25.3
Income taxes...................................... $ 1.9 $ --
===== =====
</Table>
F-12
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hexcel Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and comprehensive
income and of cash flows present fairly, in all material respects, the financial
position of Hexcel Corporation and its subsidiaries at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
- --------------------------------------
PricewaterhouseCoopers LLP
San Jose, California
January 18, 2001
F-13
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
<Table>
<Caption>
2000 1999
--------- ---------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5.1 $ 0.2
Accounts receivable....................................... 150.3 158.6
Inventories............................................... 155.4 153.7
Prepaid expenses and other assets......................... 5.5 5.1
Deferred tax asset........................................ 9.7 10.2
-------- --------
Total current assets.................................... 326.0 327.8
Net property, plant and equipment........................... 359.7 392.1
Goodwill and other purchased intangibles, net of accumulated
amortization of $36.1 in 2000 and $24.9 in 1999........... 391.7 411.2
Investments in affiliated companies and other assets........ 134.0 130.8
-------- --------
Total assets................................................ $1,211.4 $1,261.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease
obligations............................................. $ 22.1 $ 34.3
Accounts payable.......................................... 69.4 80.3
Accrued compensation and benefits......................... 47.4 38.4
Accrued interest.......................................... 17.6 19.1
Other accrued liabilities................................. 41.4 38.4
-------- --------
Total current liabilities............................... 197.9 210.5
Long-term notes payable and capital lease obligations....... 627.1 712.5
Indebtedness to a related party............................. 24.4 24.1
Other non-current liabilities............................... 46.3 44.7
-------- --------
Total liabilities....................................... 895.7 991.8
======== ========
Commitments and contingent liabilities (see accompanying
notes)
Stockholders' equity:
Preferred stock, no par value, 20.0 shares of stock
authorized, no stock issued or outstanding in 2000 and
1999.................................................... -- --
Common stock, $0.01 par value, 100.0 shares of stock
authorized, shares of stock issued and outstanding of
38.0 in 2000 and 37.4 in 1999........................... 0.4 0.4
Additional paid-in capital................................ 280.7 273.6
Retained earnings......................................... 65.8 11.6
Accumulated other comprehensive loss...................... (20.0) (4.8)
-------- --------
326.9 280.8
Less- Treasury stock, at cost, 0.9 shares in 2000 and 0.8
in 1999................................................. (11.2) (10.7)
-------- --------
Total stockholders' equity................................ 315.7 270.1
-------- --------
Total liabilities and stockholders' equity.................. $1,211.4 $1,261.9
======== ========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-14
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
2000 1999 1998
---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales................................................... $1,055.7 $1,151.5 $1,089.0
Cost of sales............................................... 824.3 909.0 817.7
-------- -------- --------
Gross margin................................................ 231.4 242.5 271.3
Selling, general and administrative expenses................ 123.9 128.7 117.9
Research and technology expenses............................ 21.2 24.8 23.7
Business consolidation expenses............................. 10.9 20.1 12.7
-------- -------- --------
Operating income............................................ 75.4 68.9 117.0
Gain on sale of Bellingham aircraft interiors business...... 68.3 -- --
Interest expense............................................ 68.7 73.9 38.7
-------- -------- --------
Income (loss) before income taxes........................... 75.0 (5.0) 78.3
Provision for (recovery of) income taxes.................... 26.3 (1.7) 28.4
-------- -------- --------
Income (loss) before equity in earnings..................... 48.7 (3.3) 49.9
Equity in earnings of and write-down of an investment in
affiliated companies...................................... 5.5 (20.0) 0.5
-------- -------- --------
Net income (loss)........................................... $ 54.2 $ (23.3) $ 50.4
======== ======== ========
Net income (loss) per share:
Basic..................................................... $ 1.47 $ (0.64) $ 1.38
Diluted................................................... $ 1.32 $ (0.64) $ 1.24
Weighted average shares:
Basic..................................................... 36.8 36.4 36.7
Diluted................................................... 45.7 36.4 45.7
======== ======== ========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-15
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
<Table>
<Caption>
COMMON STOCK
---------------------
ADDITIONAL RETAINED EARNINGS ACCUMULATED OTHER
PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY
PAR CAPITAL DEFICIT) INCOME (LOSS) SHARES
-------- ---------- ----------------- ----------------- --------
(IN MILLIONS)
BALANCE, JANUARY 1, 1998.......... $ 0.4 $266.8 $(15.5) $ (1.1) $ (0.7)
Net income.................... 50.4
Currency translation
adjustment.................. 7.4
Comprehensive income..........
Activity under stock plans.... 4.6
Conversion of senior
subordinated notes.......... 0.1
Treasury stock purchased...... (10.0)
----- ------ ------ ------ ------
BALANCE, DECEMBER 31, 1998........ 0.4 271.5 34.9 6.3 (10.7)
Net loss...................... (23.3)
Currency translation
adjustment.................. (11.1)
Comprehensive loss........
Activity under stock plans.... 2.1
----- ------ ------ ------ ------
BALANCE, DECEMBER 31, 1999........ 0.4 273.6 11.6 (4.8) (10.7)
Net income.................... 54.2
Currency translation
adjustment.................. (10.2)
Minimum pension obligation.... (5.0)
Comprehensive income......
Activity under stock plans.... 7.1
Treasury stock purchased...... (0.5)
----- ------ ------ ------ ------
BALANCE, DECEMBER 31, 2000........ $ 0.4 $280.7 $ 65.8 $(20.0) $(11.2)
===== ====== ====== ====== ======
<Caption>
TOTAL
STOCKHOLDERS' COMPREHENSIVE
EQUITY INCOME (LOSS)
------------- -------------
(IN MILLIONS)
BALANCE, JANUARY 1, 1998.......... $249.9
Net income.................... 50.4 $ 50.4
Currency translation
adjustment.................. 7.4 7.4
------
Comprehensive income.......... 57.8
------
Activity under stock plans.... 4.6
Conversion of senior
subordinated notes.......... 0.1
Treasury stock purchased...... (10.0)
------
BALANCE, DECEMBER 31, 1998........ 302.4
Net loss...................... (23.3) (23.3)
Currency translation
adjustment.................. (11.1) (11.1)
------
Comprehensive loss........ (34.4)
------
Activity under stock plans.... 2.1
------
BALANCE, DECEMBER 31, 1999........ $270.1
Net income.................... 54.2 54.2
Currency translation
adjustment.................. (10.2) (10.2)
Minimum pension obligation.... (5.0) (5.0)
------
Comprehensive income...... $ 39.0
======
Activity under stock plans.... 7.1
Treasury stock purchased...... (0.5)
------
BALANCE, DECEMBER 31, 2000........ $315.7
======
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-16
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 54.2 $(23.3) $ 50.4
Reconciliation to net cash provided by operations:
Depreciation............................................ 45.6 47.9 37.4
Amortization............................................ 13.1 13.4 10.1
Deferred income taxes................................... 8.6 (15.8) 6.9
Gain on sale of Bellingham aircraft interiors
business.............................................. (68.3) -- --
Business consolidation expenses......................... 10.9 20.1 12.7
Business consolidation payments......................... (11.8) (9.5) (8.7)
Equity in earnings and write-down of an investment in
affiliated companies.................................. (5.5) 20.0 (0.5)
Gain on curtailment of pension plan..................... (5.1) -- --
Changes in assets and liabilities, net of effects of
acquisitions:
Decrease (increase) in accounts receivable............ (7.7) 16.1 18.2
Decrease (increase) in inventories.................... (17.0) 49.0 (9.3)
Decrease (increase) in prepaid expenses and other
assets.............................................. (0.4) 1.5 (2.9)
Increase (decrease) in accounts payable and accrued
liabilities......................................... 10.7 11.9 (17.1)
Changes in other non-current assets and long-term
liabilities......................................... 5.7 2.4 (3.4)
------ ------ ------
Net cash provided by operating activities............... 33.0 133.7 93.8
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (39.6) (35.6) (66.5)
Proceeds from sale of Bellingham aircraft interiors
business................................................ 113.3 -- --
Proceeds from sale of other assets........................ 3.4 -- --
Cash paid for business acquisitions....................... -- -- (472.8)
Investments in affiliated companies....................... (8.3) (4.7) (1.3)
Dividends received from affiliated companies.............. -- -- 1.4
------ ------ ------
Net cash provided by (used for) investing activities.... 68.8 (40.3) (539.2)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facilities........................... 96.2 37.7 726.0
Repayments of credit facilities........................... (66.7) (349.6) (266.3)
Proceeds from issuance of long-term debt.................. -- 240.0 0.3
Repayments of long-term debt.............................. (126.0) (18.0) (1.8)
Debt issuance costs....................................... (0.9) (11.0) (10.3)
Purchase of treasury stock................................ (0.5) -- (10.0)
Activity under stock plans................................ 2.9 1.4 2.8
------ ------ ------
Net cash provided by (used for) financing activities.... (95.0) (99.5) 440.7
------ ------ ------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1.9) (1.2) 3.2
------ ------ ------
Net increase (decrease) in cash and cash equivalents........ 4.9 (7.3) (1.5)
------ ------ ------
Cash and cash equivalents at beginning of year.............. 0.2 7.5 9.0
------ ------ ------
Cash and cash equivalents at end of year.................... $ 5.1 $ 0.2 $ 7.5
====== ====== ======
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-17
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the accounts of
Hexcel Corporation and subsidiaries ("Hexcel" or the "Company"), after
elimination of intercompany transactions and accounts. Investments in companies
over which the Company exerts significant influence, but does not control the
financial and operating decisions, are accounted for using the equity method.
Hexcel is a leading international producer of advanced structural materials.
The Company develops, manufactures and markets lightweight, high-performance
reinforcement products, composite materials and engineered products for use in
commercial aerospace, space and defense, electronics, and industrial markets.
The Company serves international markets through manufacturing facilities and
sales offices located in the United States and Europe, and through sales offices
located in Asia, Australia and South America. The Company is also a member of
six joint ventures, four of which manufacture and market reinforcement products
and composite materials in Europe, Asia and the United States, and two of which
will manufacture composite structures and interiors in Asia.
As discussed in Notes 2 and 3, Hexcel sold its Bellingham aircraft interiors
business on April 26, 2000, and it acquired the industrial fabrics business of
Clark-Schwebel, Inc. and its subsidiaries ("Clark-Schwebel") on September 15,
1998. The Clark-Schwebel acquisition was accounted for under the purchase method
of accounting. As a result of these transactions, the accompanying consolidated
balance sheets, statements of operations, stockholders' equity and comprehensive
income, and cash flows include the financial position, results of operations and
cash flows of these businesses as of such dates and for such periods that these
businesses were owned by Hexcel.
USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles required management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities, as well as the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
Hexcel invests excess cash in investments with original maturities of less
than three months. The investments consist primarily of Eurodollar time deposits
and are stated at cost, which approximates fair value. The Company considers
such investments to be cash equivalents for purposes of the consolidated
statements of cash flows.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
using the first-in, first-out and average cost methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and maintenance
are charged to expense as incurred; replacements and betterments are
capitalized. Property, plant and equipment are depreciated over estimated useful
lives, using accelerated and straight-line methods. The estimated
F-18
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
useful lives range from 10 to 40 years for buildings and improvements and from 3
to 20 years for machinery and equipment.
GOODWILL AND OTHER PURCHASED INTANGIBLES
Goodwill, representing the excess of purchase price and acquisition costs
over the fair value of the net assets of the businesses acquired, and other
purchased intangibles are amortized on a straight-line basis over estimated
economic lives, which are as follows:
<Table>
Goodwill from the acquisition of the Clark-Schwebel
business.................................................. 40 years
Other goodwill.............................................. 20 years
Other purchased intangibles................................. 15 years
</Table>
The realizability of goodwill, intangibles and other long-term assets is
evaluated periodically when events or circumstances indicate that the carrying
amount of an asset might not be recoverable. Management determines whether there
has been an impairment by comparing the anticipated undiscounted future net cash
flows to the related asset's carrying value. If an asset is considered impaired,
the asset is written down to fair value, which is determined based either on
discounted cash flows or appraised values, depending on the nature of the asset.
DEBT FINANCING COSTS
Debt financing costs are deferred and amortized over the life of the related
debt, which ranges from 7 to 10 years.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense is not recognized when options are
granted at the fair market value at the date of grant. Hexcel also provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
CURRENCY TRANSLATION
The assets and liabilities of international subsidiaries are translated into
U.S. dollars at year-end exchange rates, and revenues and expenses are
translated at average exchange rates during the year. Cumulative currency
translation adjustments are included in "stockholders' equity." Realized gains
and losses from currency exchange transactions are recorded in "selling, general
and administrative expenses" in the accompanying consolidated statements of
operations and were not material to Hexcel's consolidated results of operations
in 2000, 1999 or 1998.
REVENUE RECOGNITION
Product sales are recognized when all significant contractual obligations
have been satisfied and collection of the resulting receivable is reasonably
assured, which is generally on the date of shipment. Revenues derived from
design, installation and support services are recognized when the service is
provided, or alternatively, when the product to which the service relates is
delivered to the customer. The Company accrues for warranty costs and other
sales allowances based on its experience.
F-19
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Hexcel to significant
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's sales to two customers and their related subcontractors accounted
for approximately 33% and 38% of the Company's 2000 and 1999 net sales,
respectively. The Company performs ongoing credit evaluations of its customers'
financial condition but generally does not require collateral or other security
to support customer receivables. The Company establishes an allowance for
doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends and other financial information. As of
December 31, 2000 and 1999, the allowance for doubtful accounts was $7.1 and
$6.0, respectively. Bad debt expense was $0.6, $0.7 and $0.8 in 2000, 1999 and
1998, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
Hexcel employs an interest rate cap agreement and foreign currency forward
exchange contracts in the management of its interest rate and currency exchange
exposures. The Company has designated its interest rate cap agreement against a
specific debt instrument and recognizes interest differentials as adjustments to
interest expense as the differentials occur. Realized and unrealized gains and
losses arising from foreign currency forward exchange contracts are recognized
in income (loss) as offsets to gains and losses resulting from the underlying
hedged transaction. The Company does not use financial instruments for trading
purposes.
Hexcel adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as
amended, effective January 1, 2001. SFAS 133 requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Gains or losses resulting from changes in the
fair values of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS 133 did not have
a material effect on the Company's consolidated financial position or results of
operations as of the date of adoption.
RECLASSIFICATIONS
Certain prior year amounts in the accompanying consolidated financial
statements and related notes have been reclassified to conform to the 2000
presentation.
NOTE 2--GAIN ON SALE OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business to
Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax International
plc, for cash proceeds of $113.3. The sale resulted in a pre-tax gain of $68.3
or an after-tax gain of approximately $44 ($0.97 per diluted share.) Net
proceeds from the sale were used to repay $111.6 of outstanding term debt under
the Company's senior credit facility. The consolidated financial statements and
accompanying notes reflect Bellingham's operating results as a continuing
operation in the Engineered Products business segment up to the date of
disposal. Net sales and operating income for the Bellingham business were as
follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Net sales.............................................. $18.9 $70.0 $34.3
Operating income....................................... 0.6 8.0 3.9
</Table>
F-20
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 3--BUSINESS ACQUISITION
On September 15, 1998, Hexcel acquired certain assets and assumed certain
operating liabilities from Clark-Schwebel. The business acquired from
Clark-Schwebel is engaged in the manufacture and sale of high-quality fiberglass
fabrics, which are used to make printed circuit boards for electronic equipment
such as computers, cellular telephones, televisions and automobiles. This
business also produces high-performance specialty products for use in
insulation, filtration, wall and facade claddings, soft body armor and
reinforcements for composite materials. At the date of acquisition,
Clark-Schwebel operated four manufacturing facilities in the southeastern U.S.
and had approximately 1,300 full-time employees.
As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity
ownership interests in the following three joint ventures:
- a 43.6% share in Interglas Technologies AG, formerly CS-Interglas AG
("Interglas"), headquartered in Germany, together with fixed price options
to increase this equity interest to 84%. Hexcel's acquisition of this
investment was completed on December 23, 1998;
- a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"),
headquartered in Japan, which in turn owns interests in two joint ventures
in Taiwan--a 50% interest in Nittobo Asahi Glass and a 51% interest in
Asahi-Schwebel Taiwan; and
- a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the United States.
Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications. The exercise price of the options to increase the equity interest
in Interglas was significantly higher than their fair market value, and as a
result, Hexcel allowed the options to expire unexercised on December 31, 1999.
The acquisition of Clark-Schwebel's industrial fabrics business was
completed pursuant to an asset purchase agreement dated July 25, 1998, as
amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement,
F-21
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Hexcel acquired the net assets of the business, other than certain excluded
assets and liabilities, in exchange for $472.8 in cash. The assets acquired and
the liabilities assumed or incurred were:
<Table>
Estimated fair value of assets acquired:
Cash...................................................... $ 5.0
Accounts receivable....................................... 20.2
Inventories............................................... 35.5
Net property, plant and equipment......................... 70.0
Investment in joint ventures, intangibles and other
assets.................................................. 68.4
Goodwill.................................................. 365.3
------
Total assets acquired....................................... 564.4
------
Estimated fair value of liabilities assumed or incurred:
Accounts payable and accrued liabilities.................. 32.5
Capital lease obligations................................. 50.0
Other non-current liabilities............................. 4.1
------
Total liabilities assumed or incurred....................... 86.6
------
Estimated fair value of net assets acquired................. $477.8
------
Less cash acquired.......................................... (5.0)
------
Net cash paid............................................... $472.8
======
</Table>
The allocations of the purchase price to the assets acquired and liabilities
assumed or incurred in connection with the Clark-Schwebel business were based on
estimates of fair values. As part of the acquisition, Hexcel entered into a
$50.0 lease for property, plant and equipment used in the acquired business from
an affiliate of Clark-Schwebel, pursuant to a long-term lease that includes
purchase options.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma net sales, net income and diluted net income per share of
Hexcel for the year ended December 31, 1998, giving effect to the acquisition of
the Clark-Schwebel business as if it had occurred at the beginning of 1998, were
$1,234.8, $49.5 and $1.22, respectively.
NOTE 4--BUSINESS CONSOLIDATION PROGRAMS
As a result of four substantial business acquisitions from 1996 through
1998, and the need to respond to significant changes in commercial aerospace and
space and defense markets, Hexcel initiated three business consolidation
programs in May 1996, December 1998 and September 1999. The primary purpose of
these programs has been to integrate acquired assets and operations into the
Company, and to close or restructure insufficiently profitable facilities and
activities. Due to aerospace industry requirements to "qualify" specific
equipment and manufacturing processes for the manufacture of certain products,
some business consolidation actions have taken up to three years to complete.
These qualification requirements increase the complexity, cost and time of
moving equipment and rationalizing manufacturing activities.
F-22
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Key initiatives under the three business consolidation programs have been:
- Rationalizing manufacturing activities and eliminating excess capacity by
moving and requalifying certain production processes, closing
manufacturing plants and vacating some leased facilities.
- Consolidating manufacturing, research, and marketing and administrative
functions into single global business units, in order to create centers of
technical excellence, improve customer service and eliminate redundant
functions.
- Disposing of non-core assets.
As of December 31, 2000, Hexcel has closed three manufacturing facilities,
vacated approximately 560 thousand square feet of manufacturing space, and
eliminated more than 700 manufacturing, marketing and administrative positions
in connection with these business consolidation programs.
All of the business consolidation activities initiated in 1996 and 1998 had
been completed as of December 31, 2000, although cash expenditures relating to
accrued severance will continue to be paid through 2001. A portion of the
business consolidation activities initiated in September 1999 have been
completed, including the consolidation of certain production processes, the
vacating of certain leased facilities, and the consolidation into one location
of the U.S. marketing, research and administrative functions of Hexcel's
composite materials business. However, the reorganization of certain
manufacturing activities will not be completed until 2001 or early in 2002, in
accordance with the Company's business consolidation plans.
In the fourth quarter of 2000, Hexcel added two further actions to the
September 1999 business consolidation program. The Company decided to close the
two smaller of its four U.S. prepreg manufacturing facilities--one in Lancaster,
Ohio and another in Gilbert, Arizona. The manufacturing output from these two
plants will now be produced by the two remaining U.S. prepreg facilities in
Livermore, California and Salt Lake City, Utah. These actions, which are
expected to be completed in early 2002, will result in the elimination of an
additional 79 thousand square feet of manufacturing space and 60 manufacturing
positions.
F-23
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Business consolidation activities for the three years ending December 31,
2000, consisted of the following:
<Table>
<Caption>
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
RELOCATION RELOCATION OTHER TOTAL
----------- ---------- -------- --------
BALANCE AS OF JANUARY 1, 1998............................ $9.7 $ 2.0 $0.5 $12.2
Business consolidation expenses:
Current period expenses................................ 3.3 9.6 6.3 19.2
Reversal of 1997 expenses.............................. (6.5) -- -- (6.5)
---- ----- ---- -----
Net business consolidation expenses.................... (3.2) 9.6 6.3 12.7
Cash expenditures........................................ (1.2) (6.3) (1.2) (8.7)
Non-cash usage, including asset write-downs.............. 0.5 (2.9) (5.6) (8.0)
---- ----- ---- -----
BALANCE AS OF DECEMBER 31, 1998.......................... 5.8 2.4 -- 8.2
Business consolidation expenses.......................... 5.1 15.0 -- 20.1
Cash expenditures........................................ (6.7) (2.8) -- (9.5)
Non-cash usage, including asset write-downs.............. (0.7) (14.0) -- (14.7)
---- ----- ---- -----
BALANCE AS OF DECEMBER 31, 1999.......................... 3.5 0.6 -- 4.1
Business consolidation expenses:
Current period expenses................................ 3.7 10.6 -- 14.3
Reversal of 1999 expenses.............................. (0.3) (3.1) -- (3.4)
---- ----- ---- -----
Net business consolidation expenses.................... 3.4 7.5 -- 10.9
Cash expenditures........................................ (3.9) (7.9) -- (11.8)
Non-cash items:
Reversal of 1999 business consolidation expenses....... -- 3.1 -- 3.1
Other non-cash usage, including asset write-downs...... (0.6) (3.0) -- (3.6)
---- ----- ---- -----
Total non-cash items................................... (0.6) 0.1 -- (0.5)
---- ----- ---- -----
BALANCE AS OF DECEMBER 31, 2000.......................... $2.4 $ 0.3 $ -- $ 2.7
==== ===== ==== =====
</Table>
In 1998, Hexcel reversed $6.5 of accrued business consolidation expenses
relating to employee severance. From 1996 through 1998, during the
implementation of certain business consolidation initiatives, Hexcel experienced
significant increased business volume in its commercial aerospace market, which
enabled Hexcel to reassign employees who would have otherwise been terminated.
As a result, the actual number of employees terminated were fewer than
anticipated, and Hexcel no longer required the full amount of its business
consolidation employee severance accrual.
As part of a business consolidation program, Hexcel disposed of its
operations in Brindisi, Italy (the "Italian Operations") in 1999. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," Hexcel recorded a charge of $5.6 in 1998
for an asset impairment related to its Italian Operations, which was included in
business consolidation expenses. The estimate of fair value used in determining
the impairment charge was based on offers received from interested buyers. The
Italian Operations was disposed of for net proceeds that approximated amounts
accrued and was accounted for under the Company's Engineered Products business
segment. Financial operating results for this business were not material to
Hexcel's consolidated financial statements.
F-24
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
In the second quarter of 2000, Hexcel amended its September 1999 business
consolidation program in response to the manufacturing constraints caused by a
stronger than expected increase in sales and production for its electronic woven
glass fabrics and its ballistic protection products. Based on these improved
market conditions, which were expected to continue beyond 2000, and a
manufacturing capacity review, the Company concluded to expand its capacity by
purchasing additional looms and revising the previous decision to consolidate a
number of weaving activities at two of the Company's facilities. As a result of
the decision to not proceed to consolidate production, the Company reversed a
total of $3.4 of business consolidation expenses that were previously recognized
in 1999, including $3.1 in non-cash write-downs of machinery and equipment that
was to have been sold or scrapped as a result of the consolidation.
NOTE 5--INVENTORIES
<Table>
<Caption>
2000 1999
-------- --------
Raw materials............................................. $ 74.5 $ 55.5
Work in progress.......................................... 45.2 47.8
Finished goods............................................ 35.7 50.4
------- -------
Inventories............................................... $ 155.4 $ 153.7
======= =======
</Table>
NOTE 6--NET PROPERTY, PLANT AND EQUIPMENT
<Table>
<Caption>
2000 1999
-------- --------
Land...................................................... $ 23.9 $ 21.8
Buildings................................................. 135.1 152.7
Equipment................................................. 456.3 440.0
------- -------
Property, plant and equipment............................. 615.3 614.5
Less accumulated depreciation............................. (255.6) (222.4)
------- -------
Net property, plant and equipment......................... $ 359.7 $ 392.1
======= =======
</Table>
NOTE 7--INVESTMENTS IN AFFILIATED COMPANIES AND OTHER ASSETS
<Table>
<Caption>
2000 1999
-------- --------
Investments in affiliated companies....................... $ 72.1 $ 58.7
Deferred tax asset........................................ 29.5 37.2
Deferred debt financing costs, net of accumulated
amortization of $8.7 and $5.0 as of December 31, 2000
and 1999, respectively.................................. 16.7 19.2
Other assets.............................................. 15.7 15.7
------- -------
Investments in affiliated companies and other assets...... $ 134.0 $ 130.8
======= =======
</Table>
INVESTMENTS IN AFFILIATED COMPANIES
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior
F-25
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
applications for commercial aircraft. Hexcel has a 33% equity ownership interest
in this joint venture, which is located in Tianjin, China. Also in 1999, Hexcel
formed another joint venture, Asian Composites Manufacturing Sdn. Bhd., with
Boeing, Sime Link Sdn. Bhd., and Malaysia Helicopter Services Bhd. (now known as
Naluri Berhadto), to manufacture composite parts for secondary structures for
commercial aircraft. Hexcel has a 25% equity ownership interest in this joint
venture, which is located in Alor Setar, Malaysia. It is anticipated that the
first parts will be delivered to customers in 2001. For the years ended
December 31, 2000 and 1999, Hexcel made cash equity investments totaling $8.3
and $4.7, respectively, in these two joint ventures. As of December 31, 2000,
Hexcel has aggregate commitments to these joint ventures to invest another $2.5
and to provide additional loan guarantees of up to $13.7. These commitments are
expected to be fulfilled in increments through 2002.
As discussed in Note 3, the Company owns equity interests in three joint
ventures: a 43.6% share in Interglas; a 43.3% share in Asahi-Schwebel; and a
50.0% share in CS Tech-Fab. These joint ventures produce and sell fiberglass
fabric and other non-woven materials. In the third quarter of 1999, the Company
wrote down its investment in Interglas by $20.0 to its estimated fair market
value. The write-down was the result of management's decision to allow its
fixed-price options to increase its equity investment in Interglas, from 43.6%
to 84%, to expire unexercised, and an assessment that an other-than-temporary
decline in the investment had occurred due to its deteriorating financial
condition. The amount of the write-down was determined based on available market
information and appropriate valuation methodologies. The Company did not record
a deferred tax benefit on the write-down because of limitations imposed by
foreign tax laws on the Company's ability to realize the tax benefit.
Lastly, Hexcel owns a 45% equity interest in DIC-Hexcel Limited ("DHL"), a
joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"). This joint venture
is located in Komatsu, Japan, and produces and sells prepregs, honeycomb and
decorative laminates using technology licensed from Hexcel and DIC. Hexcel is
contingently liable to pay DIC up to $4.5 with respect to DHL's bank debt.
F-26
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 8--NOTES PAYABLE
<Table>
<Caption>
2000 1999
-------- --------
Senior Credit Facility...................................... $211.9 $303.0
European credit and overdraft facilities.................... 13.7 14.8
Senior subordinated notes, due 2009......................... 240.0 240.0
Convertible subordinated notes, due 2003.................... 114.4 114.4
Convertible subordinated debentures, due 2011............... 25.6 25.6
Various notes payable....................................... 0.3 0.4
------ ------
Total notes payable......................................... 605.9 698.2
Capital lease obligations................................... 43.3 48.6
Senior subordinated notes payable to a related party, net of
unamortized discount of $0.6 and $0.9 as of December 31,
2000 and 1999, respectively............................... 24.4 24.1
------ ------
Total notes payable, capital lease obligations and
indebtedness to a related party........................... $673.6 $770.9
====== ======
Notes payable and current maturities of long-term
liabilities............................................... $ 22.1 $ 34.3
Long-term notes payable and capital lease obligations, less
current maturities........................................ 627.1 712.5
Indebtedness to a related party............................. 24.4 24.1
------ ------
Total notes payable, capital lease obligations and
indebtedness to a related party........................... $673.6 $770.9
====== ======
</Table>
SENIOR CREDIT FACILITY
In connection with the acquisition of the Clark-Schwebel business on
September 15, 1998, Hexcel obtained a new global credit facility (the "Senior
Credit Facility") to: (a) fund the purchase of the Clark-Schwebel business;
(b) refinance the Company's existing revolving credit facility; and (c) provide
for ongoing working capital and other financing requirements of the Company. The
Senior Credit Facility was subsequently amended in January 1999, August 1999,
March 2000 and October 2000, to accommodate, among other things: (a) the planned
sale of assets; (b) planned investments in additional manufacturing capacity for
selected products; (c) the impact of the decline in the Company's operating
results in the second half of 1999 on certain financial covenants; (d) the
purchase by an investor group of approximately 14.5 million shares of Hexcel
common stock held by a significant shareholder of the Company; and (e) a
restructuring of the ownership and capital structure of certain of the Company's
European subsidiaries.
The Senior Credit Facility, as amended, provides Hexcel with approximately
$358 of borrowing capacity, subject to certain limitations. The Senior Credit
Facility is secured by a pledge of shares of certain of the Company's
subsidiaries, as well as security interests in certain U.S. accounts receivable,
inventories, and real property, plant and equipment. The Company is subject to
various financial covenants and restrictions under the Senior Credit Facility,
including limitations on incurring debt, granting liens, selling assets,
redeeming capital stock and paying dividends. Unused borrowing capacity under
the Senior Credit Facility was approximately $135 on December 31, 2000. The
Senior Credit Facility is scheduled to expire in 2004, except for approximately
$58 of term loans that are due for repayment in 2005.
Since March 2000, interest on outstanding borrowings under the Senior Credit
Facility has ranged from 0.75% to 3.00% in excess of the applicable London
interbank rate, or at the option of the Company, from 0.0% to 2.00% in excess of
the base rate of the administrative agent for the lenders. From January 1998
through March 2000, the upper limits of these interest ranges averaged 2.50% and
F-27
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
1.50%, respectively. In addition, the Senior Credit Facility is subject to a
commitment fee ranging from approximately 0.20% to 0.50% per annum of the total
facility. As of December 31, 2000 and 1999, Hexcel had an interest rate cap
agreement outstanding which covered a notional amount of $50.0 of the Senior
Credit Facility, providing a maximum fixed rate of 5.5% on the applicable London
interbank rate.
EUROPEAN CREDIT AND OVERDRAFT FACILITIES
In addition to the Senior Credit Facility, certain of Hexcel's European
subsidiaries have access to limited credit and overdraft facilities provided by
various local lenders. These credit and overdraft facilities are primarily
uncommitted facilities that are terminable at the discretion of the lenders. The
interest rates on these credit and overdraft facilities for the years ended
December 31, 2000, 1999 and 1998 ranged from 3.0% to 6.6% per annum.
SENIOR SUBORDINATED NOTES, DUE 2009
On January 21, 1999, the Company issued $240.0 of 9.75% senior subordinated
notes, due 2009. The senior subordinated notes are general unsecured obligations
of Hexcel. Net proceeds from the issuance of these notes were used to repay
amounts owed under the Senior Credit Facility.
CONVERTIBLE SUBORDINATED NOTES, DUE 2003
The convertible subordinated notes carry an annual interest rate of 7.0%,
are due in 2003 and are convertible into Hexcel common stock at a conversion
price of $15.81 per share, subject to adjustment under certain conditions. The
convertible subordinated notes are redeemable, in whole or in part, at the
option of Hexcel at a price equal to 100.0% of the outstanding principal amount.
CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011
The 7.0% convertible subordinated debentures, due 2011, are redeemable by
Hexcel prior to maturity. Mandatory redemption is scheduled to begin in 2002
through annual sinking fund requirements. The debentures are convertible prior
to maturity into common shares of the Company at $30.72 per share.
SENIOR SUBORDINATED NOTES PAYABLE TO A RELATED PARTY
The senior subordinated notes payable to a related party are general
unsecured obligations payable to certain subsidiaries of Ciba Specialty
Chemicals Holding, Inc. (collectively, "Ciba"). Prior to February 1999, these
notes bore interest at a rate of 7.5% per annum. Effective February 1999,
interest on these notes was increased to a rate of 10.5% per annum, a rate which
increases by 0.5% per annum each February thereafter until the notes mature in
2003. The average interest rate on these notes was 11.0% in 2000, 10.25% in
1999, and 7.75% in 1998.
F-28
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
AGGREGATE MATURITIES OF NOTES PAYABLE AND INDEBTEDNESS TO A RELATED PARTY
The table below reflects aggregate maturities of notes payable and
indebtedness to a related party:
<Table>
Payable during years ending December 31:
2001........................................................ $ 16.7
2002........................................................ 9.7
2003........................................................ 149.5
2004........................................................ 135.9
2005........................................................ 59.5
2006 and thereafter......................................... 259.0
------
Total notes payable and indebtedness to a related party..... $630.3
======
</Table>
ESTIMATED FAIR VALUES OF NOTES PAYABLE
The Senior Credit Facility and the various European credit facilities
outstanding as of December 31, 2000 and 1999 are variable-rate debt obligations.
Accordingly, the estimated fair values of each of these debt obligations
approximate their respective book values. The aggregate fair values of the
Company's other notes payable are as follows:
<Table>
<Caption>
2000 1999
-------- --------
Senior subordinated notes, due 2009......................... $211.2 $205.2
Convertible subordinated notes, due 2003.................... 99.5 80.1
Convertible subordinated debentures, due 2011............... 17.9 18.5
====== ======
</Table>
The aggregate fair values of the above notes payable were estimated on the
basis of quoted market prices; however, trading in these securities is limited
and may not reflect fair value.
NOTE 9--LEASING ARRANGEMENTS
Assets, accumulated depreciation, and related liability balances under
capital leasing arrangements, as of December 31, 2000 and 1999, were:
<Table>
<Caption>
2000 1999
-------- --------
Property, plant and equipment............................... $ 62.0 $ 63.0
Less accumulated depreciation............................... (22.2) (15.0)
------ ------
Net property, plant and equipment........................... $ 39.8 $ 48.0
====== ======
Capital lease obligations................................... $ 43.3 $ 48.6
Less current maturities..................................... (5.3) (5.1)
------ ------
Long-term capital lease obligations, net.................... $ 38.0 $ 43.5
====== ======
</Table>
Certain sales and administrative offices, data processing equipment and
manufacturing facilities are leased under operating leases. Rental expense under
operating leases was $7.0 in 2000, $9.4 in 1999 and $8.2 in 1998.
F-29
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Future minimum lease payments as of December 31, 2000 were:
<Table>
<Caption>
TYPE OF LEASE
--------------------
CAPITAL OPERATING
-------- ---------
Payable during years ending December 31:
2001....................................................... $ 8.5 $ 4.8
2002....................................................... 8.5 3.9
2003....................................................... 8.2 2.8
2004....................................................... 8.4 2.1
2005....................................................... 8.3 1.9
2006 and thereafter........................................ 6.9 4.0
----- -----
Total minimum lease payments............................... $48.8 $19.5
===== =====
</Table>
Total minimum capital lease payments include $5.5 of imputed interest.
NOTE 10--RELATED PARTIES
CHANGE IN CONTROL
On December 19, 2000, an investor group controlled by subsidiaries of The
Goldman Sachs Group, Inc. (the "Investor Group") completed a previously
announced purchase of approximately 14.5 of the approximately 18 shares of
Hexcel common stock owned by Ciba. The shares acquired by the Investor Group
represent approximately 39% of the Company's outstanding common stock. In
addition, the Company and the Investor Group entered into a governance agreement
that became effective on December 19, 2000. Under this governance agreement, the
Investor Group has the right to, among other things, designate three directors
to sit on the Company's ten-member board of directors.
As a result of this transaction, Ciba's ownership of Hexcel common stock was
reduced to approximately 3.5 shares. In addition, the governance agreement
between Ciba and Hexcel, which gave Ciba the right to designate four directors
to sit on the Company's board, terminated. Ciba has stated that its investment
in Hexcel is non-strategic and that it will explore options for the future
disposition of its remaining interest in the Company.
Hexcel incurred $2.2 of costs in connection with this transaction, all of
which were expensed to "selling, general, and administrative expenses" during
the fourth quarter of 2000. These costs and expenses included legal, consulting,
and regulatory compliance expenses, as well as a non-cash charge attributable to
the accelerated vesting of certain stock-based compensation and to certain
amendments to an executive retirement plan. Under the terms of the Company's
various stock option and management incentive plans, the transaction constituted
a "change in control" event, resulting in all outstanding stock options becoming
vested and exercisable. The Chief Executive Officer waived the vesting of his
stock options by such event. In addition, nine of the most senior executive
officers other than the Chief Executive Officer agreed to defer the vesting of
their stock options such that any of their stock options that would have
otherwise vested immediately (or would have otherwise vested by their terms)
will vest one year after the closing with respect to half of such options, and
two years after the closing with respect to the remaining half of such options,
subject to earlier vesting in certain circumstances. As a result, approximately
1.3 stock options, with exercise prices ranging from $2.41 to $29.63 per share,
and a weighted average exercise price of $8.99 per share, vested and became
exercisable on December 19, 2000.
F-30
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
In addition, due to the change in control event, shares of the Company's
common stock underlying a total of approximately 0.8 restricted stock units and
performance accelerated restricted stock units (collectively, "stock units")
were distributed. However, the Chief Executive Officer waived the vesting of his
stock units, and nine of the most senior executive officers other than the Chief
Executive Officer agreed to defer the distribution of shares underlying their
stock units (although not the vesting of such stock units) such that any shares
of common stock that would have otherwise been distributed immediately will be
distributed one year after the closing with respect to half of such stock units,
and two years after the closing with respect to the remaining half of such stock
units, subject to earlier distribution under certain circumstances.
TRANSACTIONS AND BALANCES
In addition to the senior subordinated notes payable to Ciba, transactions
and balances with Ciba, as of and for the years ended December 31, 2000, 1999
and 1998, were as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Raw material purchases................................. $24.4 $32.6 $37.7
Interest expense....................................... 2.7 2.7 2.8
Net sales.............................................. -- -- --
----- ----- -----
Accounts payable....................................... $ -- $ 3.1 $ 3.3
Accrued interest payable............................... 1.1 1.1 0.9
===== ===== =====
</Table>
NOTE 11--RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
Hexcel maintains qualified and nonqualified defined benefit retirement plans
covering certain U.S. and European employees, as well as retirement savings
plans covering eligible U.S. employees. The defined benefit retirement plans are
generally based on years of service and employee compensation under either a
career average or final pay benefits method, except as described below. Hexcel's
funding policy is to contribute the minimum amount required by applicable
regulations. The Company also participates in a union sponsored multi-employer
pension plan covering certain U.S. employees with union affiliations.
Under the retirement savings plans, eligible U.S. employees can contribute
up to 16% of their compensation to an individual retirement savings account.
Hexcel makes matching contributions equal to 50% of employee contributions, not
to exceed 3% of employee compensation. The Company also makes profit sharing
contributions when it meets or exceeds certain performance targets which are set
annually.
Effective December 31, 2000, Hexcel made certain changes to its U.S.
retirement benefit plans that are intended to improve the flexibility and
visibility of future retirement benefits for employees. The primary changes are:
- Beginning January 1, 2001, the Company will contribute an additional 2% to
3% of each eligible employee's salary to an individual 401(k) retirement
savings account, depending on the employee's age. This increases the
maximum contribution to individual employee savings accounts to between 5%
and 6% per year, before any profit sharing contributions.
- Offsetting the estimated incremental cost of this additional benefit,
participants in the Company's U.S. qualified defined benefit retirement
plan will no longer accrue benefits under this plan after December 31,
2000. However, employees will retain all benefits earned under this
F-31
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
plan as of that date. Hexcel recognized a non-cash curtailment gain of $5.1
in 2000 as a result of this amendment to its U.S. defined benefit
retirement plan.
The net pension expense for all of these defined benefit and retirement
savings plans, for the three years ended December 31, 2000, were:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Defined benefit retirement plans....................... $(1.2) $ 6.3 $ 5.2
Multi-employer pension plan............................ 0.3 0.4 0.3
Retirement savings plans- matching contributions....... 2.9 3.4 3.0
Retirement savings plans- profit sharing and incentive
Contributions........................................ 5.0 5.4 5.3
----- ----- -----
Net pension expense.................................... $ 6.6 $15.5 $13.8
===== ===== =====
</Table>
In addition to defined benefit and retirement savings plan benefits, Hexcel
also provides certain postretirement health care and life insurance benefits to
eligible U.S. retirees. Depending upon the plan, benefits are available to
eligible employees who retire on or after age 58 or 65 after rendering a minimum
of 15 years or 25 years of service to Hexcel.
The net periodic cost of Hexcel's defined benefit retirement and U.S.
postretirement plans for the three years ended December 31, 2000, were:
<Table>
<Caption>
U.S. PLANS EUROPEAN PLANS
------------------------------ ------------------------------
2000 1999 1998 2000 1999 1998
---- -------- -------- -------- -------- --------
DEFINED BENEFIT RETIREMENT PLANS
Service cost -- benefits earned during the year..... $ 3.0 $ 3.6 $ 3.3 $ 2.4 $ 2.7 $ 2.1
Interest cost on projected benefit obligation....... 1.8 1.5 1.2 2.5 2.4 2.3
Expected return on plan assets...................... (1.3) (1.0) (0.8) 1.6 (14.4) (4.4)
Net amortization and deferral....................... 0.4 0.7 0.6 (6.3) 10.8 0.9
----- ----- ----- ----- ----- -----
Sub-total........................................... 3.9 4.8 4.3 0.2 1.5 0.9
Curtailment and settlement gains.................... (5.3) -- -- -- -- --
----- ----- ----- ----- ----- -----
Net periodic pension cost........................... $(1.4) $ 4.8 $ 4.3 $ 0.2 $ 1.5 $ 0.9
----- ----- ----- ----- ----- -----
</Table>
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
POSTRETIREMENT PLANS- U.S. PLANS
Service cost -- benefits earned during the year............. $ 0.2 $ 0.2 $ 0.1
Interest cost on projected benefit obligation............... 1.0 0.9 0.7
Net amortization and deferral............................... (0.4) (0.3) (0.3)
----- ----- -----
Net periodic postretirement benefit cost.................... $ 0.8 $ 0.8 $ 0.5
===== ===== =====
</Table>
F-32
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The benefit obligation, fair value of plan assets, funded status, and
amounts recognized in the consolidated financial statements for Hexcel's defined
benefit retirement plans and U.S. postretirement plans, as of and for the years
ended December 31, 2000 and 1999, were:
<Table>
<Caption>
DEFINED BENEFIT RETIREMENT PLANS
-----------------------------------------
U.S. PLANS EUROPEAN PLANS POSTRETIREMENT PLANS
------------------- ------------------- -----------------------
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- --------
Change in benefit obligation:
Benefit obligation- beginning of year...... $21.4 $ 21.5 $45.0 $ 47.1 $ 13.0 $ 13.4
Service cost............................... 3.0 3.6 2.4 2.7 0.2 0.2
Interest cost.............................. 1.8 1.5 2.5 2.4 1.0 0.9
Plan participants' contributions........... -- -- 0.5 0.5 0.1 0.1
Actuarial loss (gain)...................... 4.3 (4.1) 4.0 (6.2) 1.0 (0.8)
Benefits paid.............................. (2.0) (1.0) (0.8) (0.4) (1.1) (0.9)
Curtailment and settlement gains........... (5.3) -- -- -- -- --
Foreign exchange translation............... -- -- (3.3) (1.3) -- --
Other...................................... 0.9 (0.1) (0.5) 0.2 -- 0.1
----- ------ ----- ------ ------ ------
Benefit obligation- end of year.............. 24.1 21.4 49.8 45.0 14.2 13.0
----- ------ ----- ------ ------ ------
Change in plan assets:
Fair value of plan assets- beginning of
year..................................... 13.6 11.5 66.2 51.7 -- --
Actual return on plan assets............... (0.6) 1.8 (1.7) 14.4 -- --
Employer contributions..................... 3.8 1.2 1.3 1.2 1.0 0.8
Plan participants' contributions........... -- -- 0.5 0.5 0.1 0.1
Benefits paid.............................. (2.0) (1.0) (0.8) (0.4) (1.1) (0.9)
Foreign exchange translation............... -- -- (4.9) (1.3) -- --
Other...................................... (0.1) 0.1 (0.2) 0.1 -- --
----- ------ ----- ------ ------ ------
Fair value of plan assets- end of year....... 14.7 13.6 60.4 66.2 -- --
----- ------ ----- ------ ------ ------
Funded status:
Plan assets in excess of (less than)
benefit obligation....................... (9.4) (7.8) 10.6 21.2 (14.2) (13.0)
Unrecognized actuarial loss (gain)......... 3.5 0.1 (1.6) (12.1) 0.6 (0.7)
Unrecognized net liability................. -- 0.2 -- -- -- --
Unrecognized prior service cost............ 0.8 (2.7) -- -- (5.0) (5.1)
----- ------ ----- ------ ------ ------
Prepaid (accrued) benefit cost............... $(5.1) $(10.2) $ 9.0 $ 9.1 $(18.6) $(18.8)
===== ====== ===== ====== ====== ======
</Table>
The accumulated benefit obligation for pension plans with accumulated
benefit obligations in excess of plan assets were $22.9 and $18.6 as of
December 31, 2000 and 1999, respectively. In 1998, the Company updated certain
assumptions with respect to its European plans, resulting in an actuarial loss.
Amortization of this loss and other prior service costs is calculated on a
straight-line basis over the expected future years of service of the plans'
active participants. Assets for the defined benefit pension plans generally
consist of publicly traded securities, bonds and cash investments.
As of December 31, 2000 and 1999, the prepaid benefit cost was included in
"investments in affiliated companies and other assets" in the accompanying
consolidated balance sheets. For the same periods, the accrued benefit cost was
included in "accrued compensation and benefits" and "other non-current
liabilities" in the accompanying consolidated balance sheets.
F-33
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Assumptions used to estimate the actuarial present value of benefit
obligations were as follows:
<Table>
<Caption>
2000 1999 1998
------------------ ------------------ ------------------
U.S. defined benefit retirement plans:
Discount rates................................ 7.5% 8.0% 7.0%
Rate of increase in compensation.............. 4.5% 4.5% 4.5%
Expected long-term rate of return on plan
assets...................................... 9.0% 9.0% 9.0%
European defined benefit retirement plans:
Discount rates................................ 5.8% -- 6.0% 5.8% -- 6.0% 5.5% -- 5.8%
Rates of increase in compensation............. 2.5% -- 4.0% 2.0% -- 4.0% 1.5% -- 4.0%
Expected long-term rates of return on plan
assets...................................... 6.5% -- 7.0% 6.5% -- 7.0% 6.5% -- 7.0%
Postretirement benefit plans:
Discount rates................................ 7.0% -- 7.5% 7.0% -- 8.0% 6.8% -- 7.0%
================== ================== ==================
</Table>
For measurement purposes, the annual rate of increase in the per capita cost
of covered health care benefits were assumed at approximately 8.0% for medical,
and 5.0% for dental and vision for 2000. The medical rates were assumed to
decrease gradually to approximately 6.0% by 2004, whereas dental and vision
rates were assumed to remain at 5.0% through 2004.
The table below presents the impact of a one-percentage-point increase and a
one-percentage-point decrease in the assumed health care cost trend on the total
of service and interest cost components, and on the postretirement benefit
obligation.
<Table>
<Caption>
2000 1999
-------- --------
One-percentage-point increase:
Effect on total service and interest cost components...... $ 0.1 $ 0.1
Effect on postretirement benefit obligation............... 0.9 0.8
One-percentage-point decrease:
Effect on total service and interest cost components...... (0.1) (0.1)
Effect on postretirement benefit obligation............... (0.8) (0.7)
===== =====
</Table>
F-34
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 12--INCOME TAXES
Income (loss) before income taxes and the provision for (recovery of) income
taxes, for the years ended December 31, 2000, 1999 and 1998, were:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Income (loss) before income taxes:
U.S................................................. $22.4 $(47.5) $30.6
International....................................... 52.6 42.5 47.7
----- ------ -----
Total income (loss) before income taxes............... $75.0 $ (5.0) $78.3
===== ====== =====
Provision for (recovery of) income taxes:
Current:
U.S................................................. $ -- $ (0.8) $ 6.3
International....................................... 17.7 14.9 15.2
----- ------ -----
Current provision for income taxes.................... 17.7 14.1 21.5
===== ====== =====
Deferred:
U.S................................................. 9.0 (17.1) 4.7
International....................................... (0.4) 1.3 2.2
----- ------ -----
Deferred provision for (recovery of) income taxes..... 8.6 (15.8) 6.9
----- ------ -----
Total provision for (recovery of) income taxes........ $26.3 $ (1.7) $28.4
===== ====== =====
</Table>
A reconciliation of the provision for (recovery of) income taxes at the U.S.
federal statutory income tax rate of 35% to the effective income tax rate, for
the years ended December 31, 2000, 1999 and 1998, is as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Provision (recovery) at U.S. federal statutory rate... $26.3 $ (1.8) $27.4
U.S. state taxes, less federal tax benefit............ 0.3 (1.1) 0.8
Impact of different international tax rates, permanent
differences and other............................... (0.2) 1.5 1.4
Valuation allowance................................... (0.1) (0.3) (1.2)
----- ------ -----
Total provision for (recovery of) income taxes........ $26.3 $ (1.7) $28.4
===== ====== =====
</Table>
The Company has made no U.S. income tax provision for approximately $105.7
of undistributed earnings of international subsidiaries as of December 31, 2000.
Such earnings are considered to be permanently reinvested. The additional U.S.
income tax on these earnings, if repatriated, would be offset in part by foreign
tax credits.
F-35
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
DEFERRED INCOME TAXES
Deferred income taxes result from temporary differences between the
recognition of items for income tax purposes and financial reporting purposes.
Principal temporary differences as of December 31, 2000 and 1999, were:
<Table>
<Caption>
2000 1999
-------- --------
Net operating loss carryforwards............................ $ 43.0 $ 36.3
Reserves and other, net..................................... 30.5 29.3
Accelerated depreciation and amortization................... (35.2) (18.5)
Valuation allowance......................................... (6.2) (6.4)
------ ------
Net deferred tax asset...................................... $ 32.1 $ 40.7
====== ======
</Table>
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 2000, Hexcel had net operating loss ("NOL") carryforwards
for U.S. federal and Belgium income tax purposes of approximately $110.4 and
$4.9, respectively. The U.S. NOL carryforwards, which are available to offset
future taxable income, expire at various dates through the year 2019. As a
result of a change in ownership that occurred in connection with the purchase of
a business in 1996, the Company has a limitation on the utilization of $37.0 of
U.S. NOL carryforwards of approximately $12.0 per year.
NOTE 13--STOCKHOLDERS' EQUITY
COMMON STOCK OUTSTANDING
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
(NUMBER OF SHARES)
Common stock:
Balance, beginning of year.............................. 37.4 37.2 36.9
Activity under stock plans.............................. 0.6 0.2 0.3
---- ---- ----
Balance, end of year...................................... 38.0 37.4 37.2
---- ---- ----
Treasury stock:
Balance, beginning of year.............................. 0.8 0.8 --
Repurchased............................................. 0.1 -- 0.8
---- ---- ----
Balance, end of year...................................... 0.9 0.8 0.8
---- ---- ----
Common stock outstanding.................................. 37.1 36.6 36.4
==== ==== ====
</Table>
In 1998, Hexcel's Board of Directors approved plans to repurchase up to
$20.0 of the Company's common stock. In 1998, the Company repurchased 0.8 shares
of its common stock at an average cost of $12.32 per share, for a total of
$10.0. The Board of Directors may also approve additional stock buybacks from
time to time, subject to market conditions and the terms of the Company's credit
agreements and indentures.
F-36
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
STOCK-BASED INCENTIVE PLANS
Hexcel has various stock option and management incentive plans for eligible
employees, officers, directors and consultants. These plans provide for awards
in the form of stock options, stock appreciation rights, restricted stock,
restricted stock units and other stock-based awards. Options to purchase common
stock are generally granted at the fair market value on the date of grant.
Substantially all of these options have a ten-year term and generally vest over
a three-year period, except for certain circumstances which may accelerate the
vesting period. In 1998, Hexcel's stockholders approved various amendments to
the Company's stock-based incentive plans, which increased the aggregate number
of shares of stock issuable under these plans by 4.5 to 7.4. In 2000, the
aggregate number of shares of stock issuable under these plans was further
increased to 9.1.
As of December 31, 2000, 1999 and 1998, Hexcel had outstanding a total of
0.8, 0.9 and 0.5 of performance accelerated restricted stock units ("PARS"),
respectively. PARS are convertible to an equal number of shares of Hexcel common
stock and generally vest in increments over a seven-year period, subject to
certain terms of employment and other circumstances that may accelerate the
vesting period. In 2000, 1999 and 1998, 0.7, 0.1 and 0.3 PARS vested,
respectively, and 0.2, 0.3, and 0 PARS were converted into shares of Hexcel
common stock, respectively. Approximately $4.5, $0.5 and $1.7 of compensation
expense was recognized in 2000, 1999 and 1998, respectively, with respect to the
PARS. In 2000, $2.4 of PARS compensation expense was recognized due to
accelerated vesting as a result of the attainment of certain financial and other
performance targets as well as the change in control transaction.
Stock option data for the three years ended December 31, 2000, 1999 and
1998, were:
<Table>
<Caption>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Options outstanding as of January 1, 1998................ 4.9 $15.39
Options granted.......................................... 3.2 $12.23
Options exercised........................................ (0.2) $ 8.53
Options expired or canceled.............................. (2.8) $18.52
---- ------
Options outstanding as of December 31, 1998.............. 5.1 $12.05
Options granted.......................................... 1.0 $ 6.57
Options expired or canceled.............................. (0.2) $11.81
---- ------
Options outstanding as of December 31, 1999.............. 5.9 $11.18
Options granted.......................................... 1.6 $ 9.23
Options exercised........................................ (0.3) $ 6.52
Options expired or canceled.............................. (0.5) $11.85
---- ------
Options outstanding as of December 31, 2000.............. 6.7 $10.56
==== ======
</Table>
As previously discussed in Note 10, approximately 1.3 of stock options, with
exercise prices ranging from $2.41 to $29.63 per share, and having a weighted
average exercise price of $8.99 per share, became vested as a result of the
change in control event. The number of options exercisable as of December 31,
2000, 1999 and 1998 were 3.9, 2.1 and 1.5, respectively, at a weighted average
exercise price per share of $10.80, $12.02 and $11.54, respectively.
F-37
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The following table summarizes information about stock options outstanding
as of December 31, 2000:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ---------------------- ----------- --------------- -------- ----------- --------
$ 2.41 -- 4.53 0.2 5.6 $ 3.52 0.1 $ 3.18
$ 4.54 -- 9.94 2.6 8.7 $ 7.37 1.5 $ 7.00
$ 9.95 -- 14.99 3.4 7.4 $11.93 1.7 $12.25
$15.00 -- 18.50 0.4 6.1 $16.54 0.5 $16.56
$18.51 -- 29.63 0.1 6.9 $24.26 0.1 $24.34
- ---------------------- --- --- ------ --- ------
$ 2.41 -- 29.63 6.7 7.8 $10.56 3.9 $10.80
====================== === === ====== === ======
</Table>
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
Hexcel maintains an ESPP, under which eligible employees may contribute up
to 10% of their base earnings toward the quarterly purchase of the Company's
common stock at a purchase price equal to 85% of the fair market value of the
common stock on the purchase date. The maximum number of shares of common stock
reserved for issuance under the ESPP is 0.2. During 2000, 1999 and 1998, an
aggregate total of 0.2 shares of common stock were issued under the ESPP.
PRO FORMA DISCLOSURES
The Company has elected to continue to follow APB Opinion No. 25 for
accounting for its stock-based incentive plans. Had compensation expense for the
Company's stock option plans been determined as prescribed by SFAS 123, pro
forma net income (loss) and related per share amounts would have been as
follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Net income (loss):
As reported......................................... $54.2 $(23.3) $50.4
Pro forma........................................... 48.9 (25.8) 48.2
Basic net income (loss) per share:
As reported......................................... $1.47 $(0.64) $1.38
Pro forma........................................... 1.33 (0.71) 1.31
Diluted net income (loss) per share:
As reported......................................... $1.32 $(0.64) $1.24
Pro forma........................................... 1.21 (0.71) 1.19
===== ====== =====
</Table>
The weighted average fair value of options granted, as determined by the
Black-Scholes pricing model, during 2000, 1999 and 1998 was $4.48, $6.57 and
$12.23, respectively. The following ranges of assumptions were used in the
Black-Scholes pricing models for options granted in 2000, 1999 and 1998:
risk-free interest of 4.6% to 6.5%; estimated volatility of 40% to 50%; dividend
yield of 0.0%; and an expected life of 4 to 5 years.
F-38
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 14--NET INCOME (LOSS) PER SHARE
Computations of basic and diluted net income (loss) per share for the years
ended December 31, 2000, 1999 and 1998, are as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Basic net income (loss) per share:
Net income (loss)........................................... $54.2 $(23.3) $50.4
----- ------ -----
Weighted average common shares outstanding.................. 36.8 36.4 36.7
----- ------ -----
Basic net income (loss) per share........................... $1.47 $(0.64) $1.38
===== ====== =====
Diluted net income (loss) per share:
Net income (loss)........................................... $54.2 $(23.3) $50.4
Effect of dilutive securities:
Convertible subordinated notes, due 2003.................. 5.1 -- 5.1
Convertible subordinated debentures, due 2011............. 1.1 -- 1.1
----- ------ -----
Adjusted net income (loss).................................. $60.4 $(23.3) $56.6
----- ------ -----
Weighted average common shares outstanding.................. 36.8 36.4 36.7
Effect of dilutive securities:
Stock options............................................. 0.8 -- 0.9
Convertible subordinated notes, due 2003.................. 7.2 -- 7.2
Convertible subordinated debentures, due 2011............. 0.9 -- 0.9
----- ------ -----
Diluted weighted average common shares outstanding.......... 45.7 36.4 45.7
----- ------ -----
Diluted net income (loss) per share......................... $1.32 $(0.64) $1.24
===== ====== =====
</Table>
The convertible subordinated notes, due 2003, the convertible subordinated
debentures, due 2011, and the stock options were excluded from the 1999
computation of diluted net loss per share, as they were antidilutive.
Approximately 4.5 stock options were excluded from the 2000 calculation of
diluted net income per share. The exercise price for these stock options ranged
from approximately $9.19 to $29.63 per share, with the weighted average price
being approximately $12.55 per share. Substantially all of the Company's stock
options were included in the calculation of the diluted net income per share for
the year ended December 31, 1998.
NOTE 15--DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 2000 and 1999, the Company had an interest rate cap
agreement outstanding which provided a maximum fixed rate of 5.5% on the
applicable London interbank rate on a notional amount of $50.0 of the Senior
Credit Facility. The cost of the interest rate cap was being amortized to
interest expense over the term of the contract. As of December 31, 2000 and
1999, the fair value and carrying amount of this contract was not material to
Hexcel's consolidated financial statements.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS (UNAUDITED)
In January 2001, Hexcel entered into a number of foreign currency forward
exchange contracts to exchange U.S. dollars for Euros at fixed rates on
specified dates through March 2005. The aggregate notional amount of these
contracts is $96.7. The purpose of these contracts is to hedge an equivalent
amount of projected U.S. dollar receipts by two of the Company's European
subsidiaries, under long-term sales contracts with certain customers. These
contracts are expected to provide the Company
F-39
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
with a more balanced matching of future cash receipts and expenditures by
currency, thereby reducing the Company's exposure to fluctuations in currency
exchange rates.
NOTE 16--CONTINGENCIES
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to commercial
transactions, as well as to environmental, health and safety matters. The
Company estimates and accrues its liabilities resulting from such matters based
on a variety of factors, including outstanding legal claims and proposed
settlements; assessments by internal and external counsel of pending or
threatened litigation; and assessments by environmental engineers and
consultants of potential environmental liabilities and remediation costs. Such
estimates exclude counterclaims against other third parties. Such estimates are
not discounted to reflect the time value of money due to the uncertainty in
estimating the timing of the expenditures, which may extend over several years.
Although it is impossible to determine the level of future expenditures for
legal, environmental and related matters with any degree of certainty, it is the
Company's opinion, based on available information, that it is unlikely that
these matters, individually or in the aggregate, will have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.
LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS
Hexcel has been named as a potentially responsible party with respect to
several hazardous waste disposal sites that it does not own or possess, which
are included on the Superfund National Priority List of the U.S. Environmental
Protection Agency or on equivalent lists of various state governments. The
Company believes that it has limited or no liability for cleanup costs at these
sites, and intends to vigorously defend itself in these matters.
Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act,
Hexcel signed an administrative consent order to pay for the environmental
remediation of a manufacturing facility it owns and formerly operated in Lodi,
New Jersey. The Company's estimate of the remaining cost to satisfy this consent
order is accrued in the accompanying consolidated balance sheets. The ultimate
cost of remediating the Lodi site will depend on developing circumstances.
Hexcel was party to a cost-sharing agreement regarding the operation of
certain environmental remediation systems necessary to satisfy a post-closure
care permit issued to a previous owner of the Company's Kent, Washington, site
by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing
agreement, the Company was obligated to reimburse the previous owner for a
portion of the cost of the required remediation activities. Management has
determined that the cost-sharing agreement terminated on December 22, 1998;
however, the other party disputes this determination. The Company's estimate of
the remaining costs associated with the cleanup of this site is accrued in the
accompanying consolidated balance sheets.
OTHER PROCEEDINGS
Hexcel is aware of a grand jury investigation being conducted by the
Antitrust Division of the United States Department of Justice with respect to
the carbon fiber and carbon fiber prepreg industries. The Department of Justice
appears to be reviewing the pricing of all manufacturers of carbon fiber and
carbon fiber prepreg since 1993. The Company, along with other manufacturers of
these products, has received a grand jury subpoena requiring production of
documents to the
F-40
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Department of Justice. The Company is not in a position to predict the direction
or outcome of the investigation; however, it is cooperating with the Department
of Justice.
In 1999, Hexcel was joined in a purported class action lawsuit alleging
antitrust violations in the sale of carbon fiber, carbon fiber industrial
fabrics and carbon fiber prepreg. The Company was one of many manufacturers
joined in the lawsuit, which was spawned from the Department of Justice
investigation. The lawsuit is in its preliminary stages and the Company is not
in a position to predict the outcome, but believes that the lawsuit is without
merit as to the Company.
NOTE 17--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information, including non-cash financing and
investing activities, for the years ended December 31, 2000, 1999 and 1998,
consist of the following:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Cash paid for:
Interest............................................. $63.3 $59.1 $28.8
Taxes................................................ 11.5 17.7 26.4
----- ----- -----
Non-cash items:
Common stock issued under incentive plans............ 4.2 0.7 1.9
Conversion of senior subordinated notes, due 2003.... -- -- 0.1
Capital lease obligation in connection with the
acquisition of the Clark-Schwebel business......... -- -- 50.0
===== ===== =====
</Table>
NOTE 18--SEGMENT INFORMATION
Hexcel's business segments and related products are as follows:
REINFORCEMENT PRODUCTS: This segment manufactures and sells carbon fibers
and carbon, glass and aramid fiber fabrics. These reinforcement products
comprise the foundation of most composite materials, parts and structures. The
segment weaves electronic fiberglass fabrics that are a substrate for printed
circuit boards. All of the Company's electronics sales come from reinforcement
fabric sales. This segment also sells products for industrial applications such
as decorative blinds and soft body armor. In addition, this segment sells to the
Company's Composite Materials business segment, and to other third-party
customers in the commercial aerospace and space and defense markets. Sales from
the acquired Clark-Schwebel business are included in this business segment.
COMPOSITE MATERIALS: This segment manufactures and sells composite
materials, including prepregs, honeycomb, structural adhesives, sandwich panels
and specially machined honeycomb parts, primarily to the commercial aerospace
and space and defense markets, as well as to industrial markets. This segment
also sells to the Company's Engineered Products business segment.
ENGINEERED PRODUCTS: This segment manufactures and sells a range of
lightweight, high-strength composite structures primarily to the commercial
aerospace and space and defense markets. As discussed in Note 2, the Engineered
Products business segment includes the results of the Bellingham aircraft
interiors businesses, up to the date of its disposal on April 26, 2000. This
business manufactured and sold composite interiors to the aircraft refurbishment
market.
F-41
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The financial results for Hexcel's business segments have been prepared
using a management approach, which is consistent with the basis and manner in
which Hexcel management internally segregates financial information for the
purposes of assisting in making internal operating decisions. Hexcel evaluates
performance based on adjusted income before business consolidation expenses,
interest and taxes ("Adjusted EBIT"), and generally accounts for intersegment
sales based on arm's-length prices. Corporate and other expenses are not
allocated to the business segments, except to the extent that the expenses can
be directly attributable to the business segments.
The following table presents financial information on the Company's business
segments as of December 31, 2000, 1999 and 1998, and for the years then ended:
<Table>
<Caption>
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/
PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL
------------- --------- ---------- ------------ --------
Third-Party Sales
2000....................................... $359.2 $567.0 $129.5 $ -- $1,055.7
1999....................................... 330.9 605.9 214.7 -- 1,151.5
1998....................................... 224.8 658.0 206.2 -- 1,089.0
------ ------ ------ ------- --------
Intersegment sales
2000....................................... 97.5 7.1 -- (104.6) --
1999....................................... 111.0 9.0 -- (120.0) --
1998....................................... 130.3 11.8 0.1 (142.2) --
------ ------ ------ ------- --------
Adjusted EBIT
2000....................................... 46.2 68.5 6.0 (34.4) 86.3
1999....................................... 33.7 68.0 22.4 (35.1) 89.0
1998....................................... 57.4 82.7 20.5 (30.9) 129.7
------ ------ ------ ------- --------
Depreciation & amortization
2000....................................... 34.1 18.5 3.3 2.8 58.7
1999....................................... 34.4 20.3 3.5 3.1 61.3
1998....................................... 23.6 17.4 3.3 3.2 47.5
------ ------ ------ ------- --------
Equity in earnings and writedown of
investments in affiliated companies
2000....................................... 5.9 -- (0.4) -- 5.5
1999....................................... (20.0) -- -- -- (20.0)
1998....................................... 0.5 -- -- -- 0.5
------ ------ ------ ------- --------
Business consolidation expenses
2000....................................... (1.4) 10.9 1.4 -- 10.9
1999....................................... 6.7 9.7 1.6 2.1 20.1
1998....................................... 1.6 3.2 5.5 2.4 12.7
------ ------ ------ ------- --------
Business consolidation payments
2000....................................... $ 2.2 $ 7.2 $ 1.9 $ 0.5 $ 11.8
1999....................................... 2.7 3.0 0.3 3.5 9.5
1998....................................... 0.6 7.1 -- 1.0 8.7
------ ------ ------ ------- --------
Segment assets
2000....................................... 704.6 377.7 84.2 44.9 1,211.4
1999....................................... 712.5 359.3 115.4 74.7 1,261.9
1998....................................... 788.4 428.2 140.5 47.1 1,404.2
------ ------ ------ ------- --------
Investments in affiliated companies
2000....................................... 59.6 -- 12.5 -- 72.1
</Table>
F-42
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/
PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL
------------- --------- ---------- ------------ --------
1999....................................... 54.0 -- 4.7 -- 58.7
1998....................................... 70.3 -- -- -- 70.3
------ ------ ------ ------- --------
Capital expenditures
2000....................................... 15.6 21.2 1.1 1.7 39.6
1999....................................... 14.0 16.1 5.0 0.5 35.6
1998....................................... 21.1 33.3 9.2 2.9 66.5
------ ------ ------ ------- --------
</Table>
A reconciliation of the totals reported for Adjusted EBIT to consolidated
income (loss) before income taxes is as follows:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Total Adjusted EBIT for reportable segments &
corporate....................................... $ 86.3 $ 89.0 $ 129.7
Total consolidated business consolidation
expenses........................................ (10.9) (20.1) (12.7)
Interest expense.................................. (68.7) (73.9) (38.7)
Gain on sale of Bellingham aircraft interiors
business........................................ 68.3 -- --
------- ------- -------
Consolidated income (loss) before income taxes.... 75.0 (5.0) 78.3
------- ------- -------
</Table>
GEOGRAPHIC DATA
Sales and long-lived assets, by geographic area, consisted of the following
for the three years ended December 31, 2000, 1999 and 1998:
<Table>
<Caption>
2000 1999 1998
-------- -------- --------
Net sales to external customers:
United States..................................... $ 650.7 $ 744.1 $ 687.6
International
France.......................................... 164.6 168.1 178.8
United Kingdom.................................. 75.0 76.4 66.0
Other........................................... 165.4 162.9 156.6
------- ------- -------
Total international............................... 405.0 407.4 401.4
------- ------- -------
Total consolidated net sales...................... 1,055.7 1,151.5 1,089.0
------- ------- -------
Long-lived assets:
United States..................................... 746.6 793.5 831.4
International
France.......................................... 35.1 36.6 42.2
United Kingdom.................................. 46.0 44.0 46.4
Other........................................... 28.1 22.8 31.7
------- ------- -------
Total international............................... 109.2 103.4 120.3
------- ------- -------
Total consolidated long-lived assets.............. $ 855.8 $ 896.9 $ 951.7
======= ======= =======
</Table>
Net sales are attributed to geographic areas based on the location in which
the sale originated. U.S. net sales include U.S. exports to non-affiliates of
$47.7, $91.4 and $100.0, for the years ended December 31, 2000, 1999 and 1998,
respectively, of which $12.1, $32.7, and $20.9, respectively, were
F-43
<Page>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
sales attributable to the Bellingham aircraft interiors business. Long-lived
assets primarily consist of property, plant and equipment, intangibles,
investments in affiliated companies and other assets, less long-term deferred
tax assets.
SIGNIFICANT CUSTOMERS
To the extent that the end application of net sales can be identified, The
Boeing Company and its subcontractors accounted for approximately 20%, 28% and
35% of 2000, 1999 and 1998 net sales, respectively. Similarly, the Airbus
Industrie consortium and its subcontractors accounted for approximately 13%, 10%
and 11% of 2000, 1999 and 1998 net sales, respectively.
NOTE 19--QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 2000 and 1999,
were:
<Table>
<Caption>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
2000
Net sales................................................... $279.8 $271.6 $247.4 $256.9
Gross margin................................................ 62.2 60.5 51.7 57.0
Business consolidation expenses............................. 1.2 -- 3.3 6.4
Operating income............................................ 21.8 24.1 13.4 16.1
Net income.................................................. 2.6 50.4 0.2 1.0
------ ------ ------ ------
Net income per share:
Basic..................................................... $ 0.07 $ 1.38 $ 0.00 $ 0.03
Diluted................................................... 0.07 1.14 0.00 0.03
Dividends per share......................................... -- -- -- --
------ ------ ------ ------
Market price:
High...................................................... $ 6.25 $ 9.94 $15.44 $13.56
Low....................................................... 4.75 5.00 9.38 8.56
------ ------ ------ ------
1999
Net sales................................................... $316.2 $292.6 $274.1 $268.6
Gross margin................................................ 70.7 66.3 51.5 54.0
Business consolidation expenses............................. 2.8 1.4 13.6 2.3
Operating income............................................ 27.2 24.8 2.7 14.2
Net income (loss)........................................... 5.2 4.3 (30.1) (2.7)
------ ------ ------ ------
Net income (loss) per share:
Basic..................................................... $ 0.14 $ 0.12 $(0.82) $(0.07)
Diluted................................................... 0.14 0.12 (0.82) (0.07)
Dividends per share......................................... -- -- -- --
------ ------ ------ ------
Market price:
High...................................................... $ 9.60 $11.38 $ 9.06 $ 6.06
Low....................................................... 6.50 6.94 5.81 5.00
====== ====== ====== ======
</Table>
As discussed in Note 2, the Bellingham aircraft interiors business was sold
on April 26, 2000, resulting in an after-tax gain of approximately $44, or $0.97
per diluted share.
F-44
<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY
ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF , 2001. HOWEVER, YOU SHOULD REALIZE THAT
OUR AFFAIRS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
--------
Prospectus Summary.................... 1
Risk Factors.......................... 10
Forward-Looking Statements............ 15
Use of Proceeds....................... 16
Capitalization........................ 17
Pro Forma Financial Information....... 18
Selected Consolidated Financial
Information......................... 23
The Exchange Offer.................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business.............................. 57
Management............................ 71
Security Ownership of Certain
Beneficial Owners and Management.... 77
Description of Material Debt.......... 78
Description of the Notes.............. 81
Book-Entry; Delivery and Form......... 113
Exchange Offer; Registration Rights... 115
Certain Relationships and Related
Transactions........................ 118
Certain United States Federal Tax
Consequences........................ 126
Plan of Distribution.................. 129
Legal Matters......................... 129
Experts............................... 129
Available Information................. 130
Glossary of Terms..................... 131
Index to Financial Statements......... F-1
</Table>
$100,000,000
[LOGO]
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2009
---------------------
PROSPECTUS
---------------------
, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Set forth below is a description of certain provisions of the Delaware
General Corporation Law (the "DGCL"), the Certificate of Incorporation of
Hexcel, the Strategic Alliance Agreement dated as of September 29, 1995 among
Ciba-Geigy Limited, Ciba-Geigy Corporation and Hexcel, as amended December 12,
1995 (the "Strategic Alliance Agreement"), the Hexcel Corporation Incentive
Stock Plan, as amended and restated December 19, 2000, and the Hexcel
Corporation 1998 Broad Based Incentive Stock Plan, as amended on February 3,
2000 and further amended on February 1, 2001 (together, the "Incentive Stock
Plans"), as such provisions relate to the indemnification of the directors and
officers of Hexcel. This description is intended only as a summary and is
qualified in its entirety by reference to the applicable provisions of the DGCL,
the Certificate of Incorporation of Hexcel, the Bylaws of Hexcel, the Strategic
Alliance Agreement and the Incentive Stock Plans, which are incorporated herein
by reference.
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at its
request in such capacity at another corporation or business organization,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided that such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal proceeding, had
no reasonable cause to believe that such person's conduct was unlawful. A
Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in an action by or in the right of the corporation
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses that such officer or director actually and
reasonably incurred.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of a corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of his fiduciary duty as a director; provided, however, that such
clause shall not apply to any liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (Liability of
Directors for Unlawful Payment of Dividend or Unlawful Stock Purchase or
Redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
Hexcel's Certificate of Incorporation provides for the elimination of
personal liability of a director for breach of fiduciary duty, to the full
extent permitted by the DGCL. Hexcel's Certificate of Incorporation also
provides that Hexcel shall indemnify its directors and officers to the full
extent permitted by the DGCL; provided, however, that Hexcel shall indemnify any
such person seeking indemnification in connection with a proceeding initiated by
such person only if such proceeding was authorized by the Board of Directors of
Hexcel. The Certificate of Incorporation further provides that Hexcel may, to
the extent authorized from time to time by the Board of Directors, provide
rights to indemnification similar to those provided to the directors and
officers of Hexcel to the employees and agents of Hexcel who are not directors
or officers of Hexcel.
II-1
<Page>
The Strategic Alliance Agreement provides that Hexcel's Certificate of
Incorporation and Bylaws will continue to contain the provisions with respect to
indemnification of directors and officers as of September 29, 1995, which
provisions will not be amended, repealed or otherwise modified for a period of
six years following the Closing contemplated by the Strategic Alliance Agreement
(the "Ciba Closing") in any manner that would adversely affect the rights of
individuals who at any time prior to the Ciba Closing were directors or officers
of Hexcel in respect of actions or omissions occurring at or prior to the Ciba
Closing, except for such modifications as are required by applicable law. In
addition, the Strategic Alliance Agreement generally requires Hexcel to
indemnify, to the fullest extent permitted under the DGCL, its officers and
directors as of September 29, 1995 against all losses, expense, claims, damages,
liabilities, costs or expenses (including reasonable fees and expenses of
counsel) arising out of any claim, action, suit, proceeding or investigation
based in whole or in part on the fact that such person was a director or officer
of Hexcel at or prior to the Ciba Closing. Hexcel maintains, at its expense, an
insurance policy which insures the directors and officers of Hexcel, subject to
certain exclusions and deductions, against certain liabilities that they may
incur in their capacity as such. The Strategic Alliance Agreement provides that
for six years after the Ciba Closing, Hexcel is generally required to provide
directors' and officers' liability insurance meeting certain specified criteria
for its officers and directors as of September 29, 1995.
Pursuant to the Incentive Stock Plans, no member of the Executive
Compensation Committee of the Board of Directors of Hexcel, or such other
committee or committees of the Board of Directors as may be designated by the
Board of Directors from time to time to administer the Incentive Stock Plans,
shall be liable for any action or determination made in good faith, and the
members of such committee or committees shall be entitled to indemnification in
the manner provided in Hexcel's Certificate of Incorporation.
Item 21. Exhibits and Financial Statement Schedules
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Asset Purchase Agreement between Hexcel Corporation and
Britax Cabin Interiors, Inc., dated as of March 31, 2000
(incorporated herein by reference to Exhibit 2.1 to Hexcel's
Current Report on Form 8-K, dated May 10, 2000).
3.1 Restated Certificate of Incorporation of Hexcel Corporation
(incorporated herein by reference to Exhibit 1 to Hexcel's
Registration Statement on Form 8-A dated July 9, 1996,
Registration No. 1-08472).
3.2* Amended and Restated Bylaws of Hexcel Corporation.
4.1 Indenture dated as of January 21, 1999 between Hexcel
Corporation and The Bank of New York, as trustee, relating
to the issuance of the 9 3/4% Senior Subordinated Notes Due
2009 (incorporated herein by reference to Exhibit 4.1 to
Hexcel's Registration Statement on Form S-4 (No. 333-71601),
filed on February 2, 1999).
4.2 Indenture dated as of July 24, 1996 between Hexcel
Corporation and First Trust of California, National
Association, as trustee, relating to the 7% Convertible
Subordinated Notes due 2003 of Hexcel (incorporated herein
by reference to Exhibit 4 to Hexcel's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
4.3 Indenture dated as of August 1, 1986 between Hexcel
Corporation and the Bank of California, N.A., as trustee,
relating to the 7% Convertible Subordinated Notes due 2011
of Hexcel (incorporated herein by reference to Exhibit 4.3
to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
4.3(a) Instrument of Resignation, Appointment and Acceptance, dated
as of October 1, 1993 (incorporated herein by reference to
Exhibit 4.10 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
</Table>
II-2
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the validity of the exchange notes.
10.1 Second Amended and Restated Credit Agreement, dated as of
September 15, 1998, by and among Hexcel Corporation and
certain of its subsidiaries as borrowers, the lenders from
time to time parties thereto, Citibank, N.A. as
documentation agent, and Credit Suisse First Boston as lead
arranger and as administrative agent for the lenders
(incorporated herein by reference to Exhibit 10.1 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
10.1(a) First Amendment dated as of December 31, 1998 to the Second
Amended and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
party thereto, the banks and other financial institutions
from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.1(b) to Hexcel's Registration Statement on Form
S-4 (No. 333-71601), filed on March 12, 1999).
10.1(b) Consent Letter dated as of January 15, 1999 relating to the
First Amendment dated December 31, 1998 to the Second
Amended and Restated Credit Agreement dated September 15,
1998 (incorporated herein by reference to Exhibit 10.1(h) to
Hexcel's Registration Statement on Form S-4 (No. 333-71601),
filed on March 12, 1999).
10.1(c) Second Amendment dated August 13, 1999 to the Second Amended
and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
party thereto, the banks and other financial institutions
from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.3 of Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1999).
10.1(d) Third Amendment dated as of March 7, 2000 to the Second
Amended and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
party thereto, the banks and other financial institutions
from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.1(j) of Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999).
10.1(e) Consent Letter dated March 30, 2000 relating to the Third
Amendment dated March 7, 2000 to the Second Amended and
Restated Credit Agreement dated September 15, 1998, among
Hexcel Corporation and the Foreign Borrowers from time to
time party thereto, the banks and other financial
institutions from time to time parties thereto, Citibank,
N.A., as Documentation Agent, and Credit Suisse First
Boston, as Administrative Agent (incorporated herein by
reference to Exhibit 2.1 of Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended March 30, 2000).
10.1(f) Fourth Amendment and Consent, dated as of October 26, 2000,
to the Second Amended and Restated Credit Agreement, dated
as of September 15, 1998, among Hexcel Corporation and the
Foreign Borrowers from time to time party thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent (incorporated
herein by reference to Exhibit 10.3 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.1(g) Amended and Restated Collateral Agreement dated March 7,
2000 to the Second Amended and Restated Credit Agreement,
dated as of September 15, 1998, among Hexcel Corporation and
the Foreign Borrowers from time to time party thereto, the
banks and other financial institutions from time to time
parties thereto, Citibank, N.A., as Documentation Agent, and
Credit Suisse First Boston, as Administrative Agent
(incorporated herein by reference to Exhibit 10.1(k) of
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
</Table>
II-3
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1(h)* Fifth Amendment and Consent, dated as of May 11, 2001, to
the Second Amended and Restated Credit Agreement, dated as
of September 15, 1998, among Hexcel Corporation and the
Foreign Borrowers from time to time party thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent.
10.1(i)* Sixth Amendment and Consent, dated as of June 21, 2001, to
the Second Amended and Restated Credit Agreement, dated as
of September 15, 1998, among Hexcel Corporation and the
Foreign Borrowers from time to time party thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent.
10.2 Schedule to the ISDA Master Agreement between Credit
Lyonnais (New York Branch) and Hexcel Corporation, dated as
of September 15, 1998 (incorporated herein by reference to
Exhibit 10.2 of Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999).
10.2(a) Confirmation dated October 22, 1998 relating to transaction
entered into pursuant to ISDA Master Agreement between
Credit Lyonnais (New York Branch) and Hexcel Corporation,
dated as of September 15, 1998 (incorporated herein by
reference to Exhibit 10.2 of Hexcel's Annual Report on Form
10-K for the fiscal year ended December 31, 1999).
10.3 Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997 (incorporated herein by
reference to Exhibit 4.3 to Hexcel's Registration Statement
on Form S-8, Registration No. 333-36163).
10.3(a) Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997 and further amended December
10, 1997 (incorporated herein by reference to
Exhibit 10.5(a) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
10.3(b) Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997 and further amended December
10, 1997 and March 25, 1999 (incorporated herein by
reference to Exhibit 4.3 of Hexcel's Registration Statement
on Form S-8 filed on July 26, 1999).
10.3(c) Hexcel Corporation Incentive Stock Plan as amended and
restated on January 30, 1997 and further amended December
10, 1997, March 25, 1999 and December 2, 1999 (incorporated
herein by reference to Exhibit 10.3(c) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1999).
10.3(d) Hexcel Corporation Incentive Stock Plan, as amended and
restated on February 3, 2000 (incorporated herein by
reference to Annex A of Hexcel's Proxy Statement dated
March 31, 2000).
10.3(e) Hexcel Corporation Incentive Stock Plan, as amended and
restated on December 19, 2000 (incorporated herein by
reference to Exhibit 10.3(e) to Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.4 Hexcel Corporation 1998 Broad Based Incentive Stock Plan
(incorporated herein by reference to Exhibit 4.3 of Hexcel's
Form S-8 filed on June 19, 1998, Registration No.
333-57223).
10.4(a) Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as
amended on February 3, 2000 (incorporated herein by
reference to Exhibit 10.1 to Hexcel's Quarterly Report on
From 10-Q for the Quarter ended June 30, 2000).
10.4(b) Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as
amended on February 3, 2000, and further amended on February
1, 2001 (incorporated herein by reference to Exhibit 10.4(b)
to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
</Table>
II-4
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.5 Hexcel Corporation Management Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.9 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.5(a) Hexcel Corporation Management Stock Purchase Plan, as
amended on March 25, 1999 (incorporated herein by reference
to Exhibit 4.3 of Hexcel's Registration Statement on Form
S-8 filed on July 26, 1999).
10.5(b) Hexcel Corporation Management Stock Purchase Plan, as
amended on March 25, 1999 and December 2, 1999 (incorporated
herein by reference to Exhibit 10.5(b) of Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1999).
10.5(c) Hexcel Corporation Management Stock Purchase Plan, as
amended and restated on February 3, 2000 (incorporated
herein by reference to Annex B of Hexcel's Proxy Statement
dated March 31, 2000).
10.5(d) Hexcel Corporation Management Stock Purchase Plan, as
amended and restated on December 19, 2000 (incorporated
herein by reference to Exhibit 10.5(d) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.6 Hexcel Corporation Management Incentive Compensation Plan,
amended and restated on December 19, 2000 (incorporated
herein by reference to Exhibit 10.6 to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.7 Form of Employee Option Agreement (2000) (incorporated
herein by reference to Exhibit 10.7 to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.8 Form of Employee Option Agreement Special Executive Grant
(2000) dated December 20, 2000 (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Annual Report on Form
10-K for the fiscal year ended December 31, 2000).
10.9 Form of Employee Option Agreement Special Executive Grant
(1999) dated December 2, 1999 (incorporated herein by
reference to Exhibit 10.7 of Hexcel's Annual Report on Form
10-K for the fiscal year ended December 31, 1999).
10.10 Form of Employee Option Agreement Special Executive Grant
(1999) dated December 2, 1999 (incorporated herein by
reference to Exhibit 10.8 of Hexcel's Annual Report on Form
10-K for the fiscal year ended December 31, 1999).
10.11 Form of Employee Option Agreement (1999) (incorporated
herein by reference to Exhibit 10.1 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999).
10.12 Form of Employee Option Agreement (1998) (incorporated
herein by reference to Exhibit 10.4 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
1998).
10.13 Form of Employee Option Agreement (1997) (incorporated
herein by reference to Exhibit 10.4 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1997).
10.14 Form of Employee Option Agreement (1996) (incorporated
herein by reference to Exhibit 10.5 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1996).
10.15 Form of Employee Option Agreement (1995) (incorporated
herein by reference to Exhibit 10.6 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1996).
10.16 Form of Retainer Fee Option Agreement for Non-Employee
Directors (2000) (incorporated herein by reference to
Exhibit 10.16 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
</Table>
II-5
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.17 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1999) (incorporated herein by reference to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.18 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1998) (incorporated herein by reference to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.19 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1997) (incorporated herein by reference to
Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.20 Form of Option Agreement (Directors) (incorporated herein by
reference to Exhibit 10.13 to Hexcel's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.21 Form of Short-Term Option Agreement (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1996).
10.22 Form of Performance Accelerated Restricted Stock Unit
Agreement (December 20, 2000) (incorporated herein by
reference to Exhibit 10.22 to Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.23 Form of Performance Accelerated Restricted Stock Unit
Agreement (Special Executive Grant December 2, 1999)
(incorporated herein by reference to Exhibit 10.19 of
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.24 Form of Performance Accelerated Restricted Stock Unit
Agreement (December 2, 1999) (incorporated herein by
reference to Exhibit 10.20 of Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
10.25 Form of Performance Accelerated Restricted Stock Unit
Agreement (1999) (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
10.26 Form of Performance Accelerated Restricted Stock Unit
Agreement (1998) (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1998).
10.27 Form of Performance Accelerated Restricted Stock Unit
Agreement (1997) (incorporated herein by reference to
Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1997).
10.28 Form of Performance Accelerated Restricted Stock Unit
Agreement (1996) (incorporated herein by reference to
Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1996).
10.29 Form of Reload Option Agreement (1997) (incorporated herein
by reference to Exhibit 10.8 of Hexcel's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1997).
10.30 Form of Reload Option Agreement (1996) (incorporated herein
by reference to Exhibit 10.10 to Hexcel's Quarterly Report
on Form 10-Q for the Quarter ended March 31, 1996).
10.31 Form of Exchange Performance Accelerated Stock Option
Agreement (incorporated herein by reference to Exhibit 10.3
to Hexcel's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1998).
10.32 Form of Performance Accelerated Stock Option Agreement
(Director) (incorporated herein by reference to Exhibit 10.6
to Hexcel's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1997).
10.33 Form of Performance Accelerated Stock Option (Employee)
(incorporated herein by reference to Exhibit 10.7 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
</Table>
II-6
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.34 Form of Grant of Restricted Stock Unit Agreement
(incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.35 Form of Grant of Restricted Stock Unit Agreement
(incorporated herein by reference to Exhibit 10.10 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.36 Hexcel Corporation 1997 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.2 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.37* Employment Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges.
10.37(a)* Employee Option Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges.
10.37(b)* Employee Option Agreement (performance-based option) dated
as of July 30, 2001 between Hexcel Corporation and David E.
Berges.
10.37(c)* Restricted Stock Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges.
10.37(d)* Supplemental Executive Retirement Agreement dated as of July
30, 2001 between Hexcel Corporation and David E. Berges.
10.37(e)* Letter Agreement dated August 1, 2001 between Hexcel
Corporation and David E. Berges.
10.38 Amended and Restated Employment Agreement dated October 11,
2000 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.4 to
Hexcel's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
10.38(a) Amendment to Amended and Restated Employment Agreement dated
October 11, 2000 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.37(a) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.38(b) Employee Option Agreement dated as of February 29, 1996
between Hexcel Corporation and John J. Lee (incorporated
herein by reference to Exhibit 10.14(a) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.38(c) Bankruptcy Court Option Agreement dated as of February 29,
1996 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.14(b) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.38(d) Performance Accelerated Restricted Stock Unit Agreement
dated as of February 29, 1996 between Hexcel Corporation and
John J. Lee (incorporated herein by reference to
Exhibit 10.14(c) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.38(e) Short-Term Option Agreement dated as of February 29, 1996
between Hexcel Corporation and John J. Lee (incorporated
herein by reference to Exhibit 10.14(d) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.38(f) Form of Reload Option Agreement dated as of February 29,
1996 between Hexcel Corporation and John J. Lee
(incorporated herein by Reference to Exhibit 10.14(e) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.38(g) Supplemental Executive Retirement Agreement dated as of May
20, 1998 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1998).
</Table>
II-7
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.38(h) Amendment to Supplemental Executive Retirement Agreement
dated January 21, 1999, between Hexcel Corporation and John
J. Lee (incorporated herein by reference to
Exhibit 10.37(h) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.38(i) Second Amendment to Supplemental Executive Retirement
Agreement dated October 11, 2000, between Hexcel Corporation
and John J. Lee (incorporated herein by reference to Exhibit
10.3 to Hexcel's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2000).
10.38(j) Split Dollar Agreement dated as of January 21, 1999 among
Hexcel Corporation, John J. Lee and certain Trustees
(incorporated herein by reference to Exhibit 10.4 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.38(k) Executive Severance Agreement between Hexcel Corporation and
John J. Lee dated as of February 3, 1999 (incorporated
herein by reference to Exhibit 10.5 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999).
10.38(l) Letter dated December 2, 1999 from Hexcel Corporation to
John J. Lee, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.33(i) of Hexcel's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
10.38(m) Employee Option Agreement dated as of December 20, 2000
between Hexcel Corporation and John J. Lee (incorporated
herein by reference to Exhibit 10.37(m) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.38(n)* Agreement, dated as of April 27, 2001, by and between Hexcel
and John J. Lee.
10.39 Summary of Terms of Employment (effective as of July 15,
1998) between Hexcel Corporation and Harold E. Kinne,
President and Chief Operating Officer of Hexcel
(incorporated herein by reference to Exhibit 10.5 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
10.39(a) Letter dated December 2, 1999 from Hexcel Corporation to
Harold E. Kinne, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.34(a) of Hexcel's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
10.39(b) Supplemental Executive Retirement Agreement dated as of May
10, 2000 between Hexcel Corporation and Harold E. Kinne
(incorporated herein by reference to Exhibit 10.4 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2000).
10.39(c) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Harold E. Kinne (incorporated
herein by reference to Exhibit 10.6 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.39(d) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Harold E.
Kinne (incorporated herein by reference to Exhibit 10.38(d)
to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.40 Letter dated December 2, 1999 from Hexcel Corporation to
Stephen C. Forsyth, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.35 of Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999).
10.40(a) Supplemental Executive Retirement Agreement dated as of May
10, 2000 between Hexcel Corporation and Stephen C. Forsyth
(incorporated herein by reference to Exhibit 10.5 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2000).
</Table>
II-8
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.40(b) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Stephen C. Forsyth
(incorporated herein by reference to Exhibit 10.8 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000).
10.40(c) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Stephen C.
Forsyth (incorporated herein by reference to Exhibit
10.39(c) to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.41 Letter dated December 2, 1999 from Hexcel Corporation to Ira
J. Krakower, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.40 to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.41(a) Supplemental Executive Retirement Agreement dated as of May
10, 2000 between Hexcel Corporation and Ira J. Krakower
(incorporated herein by reference to Exhibit 10.6 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2000).
10.41(b) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Ira J. Krakower (incorporated
herein by reference to Exhibit 10.3 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.42 Form of Executive Severance Agreement between Hexcel
Corporation and certain executive officers dated as of
February 3, 1999 (incorporated herein by reference to
Exhibit 10.6 to Hexcel's "s Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1999).
10.43 Form of Executive Severance Agreement between Hexcel
Corporation and certain executive officers dated as of
February 3, 1999 (incorporated herein by reference to
Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
10.44 Executive Severance Agreement between Hexcel Corporation and
Robert F. Matthews dated as of July 1, 2000 (incorporated
herein by reference to Exhibit 10.2 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 2000).
10.44(a) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Robert F. Matthews
(incorporated herein by reference to Exhibit 10.11 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000).
10.44(b) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Robert F.
Matthews (incorporated herein by reference to Exhibit
10.43(b) to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.45 Executive Severance Agreement between Hexcel Corporation and
Steven T. Warshaw dated as of July 1, 2000 (incorporated
herein by reference to Exhibit 10.3 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 2000).
10.45(a) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Steven Warshaw (incorporated
herein by reference to Exhibit 10.10 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.45(b) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Steven
Warshaw (incorporated herein by reference to Exhibit
10.44(b) to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.46 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and William Hunt (incorporated
herein by reference to Exhibit 10.14 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
</Table>
II-9
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.46(a) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and William Hunt
(incorporated herein by reference to Exhibit 10.45(a) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.47 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and David Tanonis (incorporated
herein by reference to Exhibit 10.12 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.48 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Justin Taylor (incorporated
herein by reference to Exhibit 10.13 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.48(a) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Justin
Taylor (incorporated herein by reference to Exhibit 10.47(a)
to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.49 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Joseph Shaulson (incorporated
herein by reference to Exhibit 10.9 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.49(a) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Joseph
Shaulson (incorporated herein by reference to Exhibit
10.48(a) to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.50 Lease Agreement, dated as of September 15, 1998, by and
among Clark-Schwebel Corporation (a wholly-owned subsidiary
of Hexcel) as lessee, CSI Leasing Trust as lessor, and
William J. Wade as co-trustee for CSI Leasing Trust
(incorporated herein by reference to Exhibit 10.2 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
10.51 Governance Agreement, dated as of December 19, 2000, among
LXH L.L.C., LXH II, L.L.C., Hexcel Corporation and the other
parties listed on the signature pages thereto (incorporated
herein by reference to Exhibit 10.1 to Hexcel's Current
Report on Form 8-K dated December 22, 2000).
10.51(a)* Amendment, dated as of April 25, 2001, to the Governance
Agreement, dated as of December 19, 2000, among LXH L.L.C.,
LXH II, L.L.C., Hexcel Corporation and the other parties
listed on the signature pages thereto.
10.52 Registration Rights Agreement, dated as of December 19,
2000, by and among Hexcel Corporation, LXH, L.L.C. and LXH
II, L.L.C. (incorporated herein by reference to Exhibit 10.2
to Hexcel's Current Report on Form 8-K dated December 22,
2000).
10.53 Agreement, dated October 11, 2000, by and among Hexcel
Corporation, LXH, L.L.C. and LXH II, L.L.C. (incorporated
herein by reference to Exhibit 10.1 to Hexcel's Current
Report on Form 8-K dated October 13, 2000).
10.54 Consent and Termination Agreement, dated as of October 11,
2000, by and between Hexcel Corporation and Ciba Specialty
Chemicals Holding Inc. (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Current Report on Form 8-K dated
October 13, 2000).
12.1* Statement regarding the computation of ratio of earnings to
fixed charges for Hexcel Corporation.
21.1* Subsidiaries of Hexcel Corporation.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1* Powers of attorney (included on signature page to the
Registration Statement).
</Table>
II-10
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
25.1* Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York, as trustee, under the Indenture
relating to the Exchange Notes.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Clients.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* Form of Exchange Agency Agreement.
99.6* Guidelines for Certification of Taxpayer Identification
Number of Substitute Form W-9.
</Table>
- ------------------------
* Filed herewith.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-11
<Page>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-12
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Stamford, State of
Connecticut, on the 31st day of July, 2001.
<Table>
HEXCEL CORPORATION
By: /s/ IRA J. KRAKOWER
-----------------------------------------
Ira J. Krakower
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
</Table>
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ira J. Krakower his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign any
amendments to this registration statement (including post-effective amendments),
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/s/ DAVID E. BERGES Chairman of the Board;
------------------------------------------- Chief Executive Officer; July 31, 2001
David E. Berges director
/s/ STEPHEN C. FORSYTH
------------------------------------------- Executive Vice President; July 31, 2001
Stephen C. Forsyth Chief Financial Officer
/s/ WILLIAM J. FAZIO
------------------------------------------- Corporate Controller; Chief July 31, 2001
William J. Fazio Accounting Officer
/s/ H. ARTHUR BELLOWS, JR.
------------------------------------------- Director July 16, 2001
H. Arthur Bellows, Jr.
/s/ ROBERT S. EVANS
------------------------------------------- Director July 18, 2001
Robert S. Evans.
/s/ JAMES J. GAFFNEY
------------------------------------------- Director July 31, 2001
James J. Gaffney
/s/ MARSHALL S. GELLER
------------------------------------------- Director July 31, 2001
Marshall S. Geller
</Table>
II-13
<Page>
<Table>
<Caption>
NAME TITLE DATE
---- ----- ----
/s/ SANJEEV K. MEHRA
------------------------------------------- Director July 31, 2001
Sanjeev K. Mehra
/s/ LEWIS RUBIN
------------------------------------------- Director July 17, 2001
Lewis Rubin
/s/ PETER SACERDOTE
------------------------------------------- Director July 13, 2001
Peter Sacerdote
/s/ MARTIN L. SOLOMON
------------------------------------------- Director July 31, 2001
Martin L. Solomon
</Table>
II-14
<Page>
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Asset Purchase Agreement between Hexcel Corporation and
Britax Cabin Interiors, Inc., dated as of March 31, 2000
(incorporated herein by reference to Exhibit 2.1 to Hexcel's
Current Report on Form 8-K, dated May 10, 2000).
3.1 Restated Certificate of Incorporation of Hexcel Corporation
(incorporated herein by reference to Exhibit 1 to Hexcel's
Registration Statement on Form 8-A dated July 9, 1996,
Registration No. 1-08472).
3.2* Amended and Restated Bylaws of Hexcel Corporation.
4.1 Indenture dated as of January 21, 1999 between Hexcel
Corporation and The Bank of New York, as trustee, relating
to the issuance of the 9 3/4% Senior Subordinated Notes Due
2009 (incorporated herein by reference to Exhibit 4.1 to
Hexcel's Registration Statement on Form S-4
(No. 333-71601), filed on February 2, 1999).
4.2 Indenture dated as of July 24, 1996 between Hexcel
Corporation and First Trust of California, National
Association, as trustee, relating to the 7% Convertible
Subordinated Notes due 2003 of Hexcel Corporation
(incorporated herein by reference to Exhibit 4 to Hexcel's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996).
4.3 Indenture dated as of August 1, 1986 between Hexcel
Corporation and the Bank of California, N.A., as trustee,
relating to the 7% Convertible Subordinated Notes due 2011
of Hexcel (incorporated herein by reference to Exhibit 4.3
to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
4.3(a) Instrument of Resignation, Appointment and Acceptance, dated
as of October 1, 1993 (incorporated herein by reference to
Exhibit 4.10 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993).
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the validity of the exchange notes.
10.1 Second Amended and Restated Credit Agreement, dated as of
September 15, 1998, by and among Hexcel Corporation and
certain of its subsidiaries as borrowers, the lenders from
time to time parties thereto, Citibank, N.A. as
documentation agent, and Credit Suisse First Boston as lead
arranger and as administrative agent for the lenders
(incorporated herein by reference to Exhibit 10.1 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
10.1(a) First Amendment dated as of December 31, 1998 to the Second
Amended and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
party thereto, the banks and other financial institutions
from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.1(b) to Hexcel's Registration Statement on
Form S-4 (No. 333-71601), filed on March 12, 1999).
10.1(b) Consent Letter dated as of January 15, 1999 relating to the
First Amendment dated December 31, 1998 to the Second
Amended and Restated Credit Agreement dated September 15,
1998 (incorporated herein by reference to Exhibit 10.1(h) to
Hexcel's Registration Statement on Form S-4
(No. 333-71601), filed on March 12, 1999).
10.1(c) Second Amendment dated August 13, 1999 to the Second Amended
and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
party thereto, the banks and other financial institutions
from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.3 of Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1999).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1(d) Third Amendment dated as of March 7, 2000 to the Second
Amended and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time
party thereto, the banks and other financial institutions
from time to time parties thereto, Citibank, N.A., as
Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to
Exhibit 10.1(j) of Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999).
10.1(e) Consent Letter dated March 30, 2000 relating to the Third
Amendment dated March 7, 2000 to the Second Amended and
Restated Credit Agreement dated September 15, 1998, among
Hexcel Corporation and the Foreign Borrowers from time to
time party thereto, the banks and other financial
institutions from time to time parties thereto, Citibank,
N.A., as Documentation Agent, and Credit Suisse First
Boston, as Administrative Agent (incorporated herein by
reference to Exhibit 2.1 of Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended March 30, 2000).
10.1(f) Fourth Amendment and Consent, dated as of October 26, 2000,
to the Second Amended and Restated Credit Agreement, dated
as of September 15, 1998, among Hexcel Corporation and the
Foreign Borrowers from time to time party thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent (incorporated
herein by reference to Exhibit 10.3 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.1(g) Amended and Restated Collateral Agreement dated March 7,
2000 to the Second Amended and Restated Credit Agreement,
dated as of September 15, 1998, among Hexcel Corporation and
the Foreign Borrowers from time to time party thereto, the
banks and other financial institutions from time to time
parties thereto, Citibank, N.A., as Documentation Agent, and
Credit Suisse First Boston, as Administrative Agent
(incorporated herein by reference to Exhibit 10.1(k) of
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.1(h)* Fifth Amendment and Consent, dated as of May 11, 2001, to
the Second Amended and Restated Credit Agreement, dated as
of September 15, 1998, among Hexcel Corporation and the
Foreign Borrowers from time to time party thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent.
10.1(i)* Sixth Amendment and Consent, dated as of June 21, 2001, to
the Second Amended and Restated Credit Agreement, dated as
of September 15, 1998, among Hexcel Corporation and the
Foreign Borrowers from time to time party thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent.
10.2 Schedule to the ISDA Master Agreement between Credit
Lyonnais (New York Branch) and Hexcel Corporation, dated as
of September 15, 1998 (incorporated herein by reference to
Exhibit 10.2 of Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999).
10.2(a) Confirmation dated October 22, 1998 relating to transaction
entered into pursuant to ISDA Master Agreement between
Credit Lyonnais (New York Branch) and Hexcel Corporation,
dated as of September 15, 1998 (incorporated herein by
reference to Exhibit 10.2 of Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
10.3 Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997 (incorporated herein by
reference to Exhibit 4.3 to Hexcel's Registration Statement
on Form S-8, Registration No. 333-36163).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.3(a) Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997 and further amended
December 10, 1997 (incorporated herein by reference to
Exhibit 10.5(a) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
10.3(b) Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997 and further amended
December 10, 1997 and March 25, 1999 (incorporated herein by
reference to Exhibit 4.3 of Hexcel's Registration Statement
on Form S-8 filed on July 26, 1999).
10.3(c) Hexcel Corporation Incentive Stock Plan as amended and
restated on January 30, 1997 and further amended
December 10, 1997, March 25, 1999 and December 2, 1999
(incorporated herein by reference to Exhibit 10.3(c) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.3(d) Hexcel Corporation Incentive Stock Plan, as amended and
restated on February 3, 2000 (incorporated herein by
reference to Annex A of Hexcel's Proxy Statement dated
March 31, 2000).
10.3(e) Hexcel Corporation Incentive Stock Plan, as amended and
restated on December 19, 2000 (incorporated herein by
reference to Exhibit 10.3(e) to Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.4 Hexcel Corporation 1998 Broad Based Incentive Stock Plan
(incorporated herein by reference to Exhibit 4.3 of Hexcel's
Form S-8 filed on June 19, 1998, Registration
No. 333-57223).
10.4(a) Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as
amended on February 3, 2000 (incorporated herein by
reference to Exhibit 10.1 to Hexcel's Quarterly Report on
From 10-Q for the Quarter ended June 30, 2000).
10.4(b) Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as
amended on February 3, 2000, and further amended on
February 1, 2001 (incorporated herein by reference to
Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.5 Hexcel Corporation Management Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.9 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.5(a) Hexcel Corporation Management Stock Purchase Plan, as
amended on March 25, 1999 (incorporated herein by reference
to Exhibit 4.3 of Hexcel's Registration Statement on
Form S-8 filed on July 26, 1999).
10.5(b) Hexcel Corporation Management Stock Purchase Plan, as
amended on March 25, 1999 and December 2, 1999 (incorporated
herein by reference to Exhibit 10.5(b) of Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1999).
10.5(c) Hexcel Corporation Management Stock Purchase Plan, as
amended and restated on February 3, 2000 (incorporated
herein by reference to Annex B of Hexcel's Proxy Statement
dated March 31, 2000).
10.5(d) Hexcel Corporation Management Stock Purchase Plan, as
amended and restated on December 19, 2000 (incorporated
herein by reference to Exhibit 10.5(d) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.6 Hexcel Corporation Management Incentive Compensation Plan,
amended and restated on December 19, 2000 (incorporated
herein by reference to Exhibit 10.6 to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.7 Form of Employee Option Agreement (2000) (incorporated
herein by reference to Exhibit 10.7 to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.8 Form of Employee Option Agreement Special Executive Grant
(2000) dated December 20, 2000 (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.9 Form of Employee Option Agreement Special Executive Grant
(1999) dated December 2, 1999 (incorporated herein by
reference to Exhibit 10.7 of Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
10.10 Form of Employee Option Agreement Special Executive Grant
(1999) dated December 2, 1999 (incorporated herein by
reference to Exhibit 10.8 of Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
10.11 Form of Employee Option Agreement (1999) (incorporated
herein by reference to Exhibit 10.1 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999).
10.12 Form of Employee Option Agreement (1998) (incorporated
herein by reference to Exhibit 10.4 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
1998).
10.13 Form of Employee Option Agreement (1997) (incorporated
herein by reference to Exhibit 10.4 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1997).
10.14 Form of Employee Option Agreement (1996) (incorporated
herein by reference to Exhibit 10.5 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1996).
10.15 Form of Employee Option Agreement (1995) (incorporated
herein by reference to Exhibit 10.6 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1996).
10.16 Form of Retainer Fee Option Agreement for Non-Employee
Directors (2000) (incorporated herein by reference to
Exhibit 10.16 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000).
10.17 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1999) (incorporated herein by reference to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.18 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1998) (incorporated herein by reference to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.19 Form of Retainer Fee Option Agreement for Non-Employee
Directors (1997) (incorporated herein by reference to
Exhibit 10.8 to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
10.20 Form of Option Agreement (Directors) (incorporated herein by
reference to Exhibit 10.13 to Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.21 Form of Short-Term Option Agreement (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1996).
10.22 Form of Performance Accelerated Restricted Stock Unit
Agreement (December 20, 2000) (incorporated herein by
reference to Exhibit 10.22 to Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.23 Form of Performance Accelerated Restricted Stock Unit
Agreement (Special Executive Grant December 2, 1999)
(incorporated herein by reference to Exhibit 10.19 of
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.24 Form of Performance Accelerated Restricted Stock Unit
Agreement (December 2, 1999) (incorporated herein by
reference to Exhibit 10.20 of Hexcel's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.25 Form of Performance Accelerated Restricted Stock Unit
Agreement (1999) (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
10.26 Form of Performance Accelerated Restricted Stock Unit
Agreement (1998) (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1998).
10.27 Form of Performance Accelerated Restricted Stock Unit
Agreement (1997) (incorporated herein by reference to
Exhibit 10.5 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1997).
10.28 Form of Performance Accelerated Restricted Stock Unit
Agreement (1996) (incorporated herein by reference to
Exhibit 10.9 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1996).
10.29 Form of Reload Option Agreement (1997) (incorporated herein
by reference to Exhibit 10.8 of Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1997).
10.30 Form of Reload Option Agreement (1996) (incorporated herein
by reference to Exhibit 10.10 to Hexcel's Quarterly Report
on Form 10-Q for the Quarter ended March 31, 1996).
10.31 Form of Exchange Performance Accelerated Stock Option
Agreement (incorporated herein by reference to Exhibit 10.3
to Hexcel's Quarterly Report on Form 10-Q for the Quarter
ended September 30, 1998).
10.32 Form of Performance Accelerated Stock Option Agreement
(Director) (incorporated herein by reference to
Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended June 30, 1997).
10.33 Form of Performance Accelerated Stock Option (Employee)
(incorporated herein by reference to Exhibit 10.7 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.34 Form of Grant of Restricted Stock Unit Agreement
(incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.35 Form of Grant of Restricted Stock Unit Agreement
(incorporated herein by reference to Exhibit 10.10 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.36 Hexcel Corporation 1997 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.2 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1997).
10.37* Employment Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges.
10.37(a)* Employee Option Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges.
10.37(b)* Employee Option Agreement (performance-based option) dated
as of July 30, 2001 between Hexcel Corporation and David E.
Berges.
10.37(c)* Restricted Stock Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges.
10.37(d)* Supplemental Executive Retirement Agreement dated as of
July 30, 2001 between Hexcel Corporation and David E.
Berges.
10.37(e)* Letter Agreement dated August 1, 2001 between Hexcel
Corporation and David E. Berges.
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.38 Amended and Restated Employment Agreement dated October 11,
2000 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.4 to
Hexcel's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
10.38(a) Amendment to Amended and Restated Employment Agreement dated
October 11, 2000 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.37(a) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.38(b) Employee Option Agreement dated as of February 29, 1996
between Hexcel Corporation and John J. Lee (incorporated
herein by reference to Exhibit 10.14(a) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.38(c) Bankruptcy Court Option Agreement dated as of February 29,
1996 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.14(b) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.38(d) Performance Accelerated Restricted Stock Unit Agreement
dated as of February 29, 1996 between Hexcel Corporation and
John J. Lee (incorporated herein by reference to
Exhibit 10.14(c) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.38(e) Short-Term Option Agreement dated as of February 29, 1996
between Hexcel Corporation and John J. Lee (incorporated
herein by reference to Exhibit 10.14(d) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.38(f) Form of Reload Option Agreement dated as of February 29,
1996 between Hexcel Corporation and John J. Lee
(incorporated herein by Reference to Exhibit 10.14(e) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.38(g) Supplemental Executive Retirement Agreement dated as of
May 20, 1998 between Hexcel Corporation and John J. Lee
(incorporated herein by reference to Exhibit 10.3 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1998).
10.38(h) Amendment to Supplemental Executive Retirement Agreement
dated January 21, 1999, between Hexcel Corporation and John
J. Lee (incorporated herein by reference to
Exhibit 10.37(h) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.38(i) Second Amendment to Supplemental Executive Retirement
Agreement dated October 11, 2000, between Hexcel
Corporation and John J. Lee (incorporated herein by
reference to Exhibit 10.3 to Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 2000).
10.38(j) Split Dollar Agreement dated as of January 21, 1999 among
Hexcel Corporation, John J. Lee and certain Trustees
(incorporated herein by reference to Exhibit 10.4 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.38(k) Executive Severance Agreement between Hexcel Corporation and
John J. Lee dated as of February 3, 1999 (incorporated
herein by reference to Exhibit 10.5 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended March 31, 1999).
10.38(l) Letter dated December 2, 1999 from Hexcel Corporation to
John J. Lee, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.33(i) of Hexcel's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
10.38(m) Employee Option Agreement dated as of December 20, 2000
between Hexcel Corporation and John J. Lee (incorporated
herein by reference to Exhibit 10.37(m) to Hexcel's Annual
Report on Form 10-K for the fiscal year ended December 31,
2000).
10.38(n)* Agreement, dated as of April 27, 2001, by and between Hexcel
and John J. Lee.
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.39 Summary of Terms of Employment (effective as of July 15,
1998) between Hexcel Corporation and Harold E. Kinne,
President and Chief Operating Officer of Hexcel
(incorporated herein by reference to Exhibit 10.5 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
10.39(a) Letter dated December 2, 1999 from Hexcel Corporation to
Harold E. Kinne, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.34(a) of Hexcel's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
10.39(b) Supplemental Executive Retirement Agreement dated as of
May 10, 2000 between Hexcel Corporation and Harold E. Kinne
(incorporated herein by reference to Exhibit 10.4 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2000).
10.39(c) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Harold E. Kinne (incorporated
herein by reference to Exhibit 10.6 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.39(d) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Harold E.
Kinne (incorporated herein by reference to Exhibit 10.38(d)
to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.40 Letter dated December 2, 1999 from Hexcel Corporation to
Stephen C. Forsyth, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.35 of Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999).
10.40(a) Supplemental Executive Retirement Agreement dated as of
May 10, 2000 between Hexcel Corporation and Stephen C.
Forsyth (incorporated herein by reference to Exhibit 10.5 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2000).
10.40(b) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Stephen C. Forsyth
(incorporated herein by reference to Exhibit 10.8 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000).
10.40(c) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Stephen C.
Forsyth (incorporated herein by reference to
Exhibit 10.39(c) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.41 Letter dated December 2, 1999 from Hexcel Corporation to Ira
J. Krakower, regarding Hexcel's Management Incentive
Compensation Plan for 1999 (incorporated herein by reference
to Exhibit 10.40 to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.41(a) Supplemental Executive Retirement Agreement dated as of
May 10, 2000 between Hexcel Corporation and Ira J. Krakower
(incorporated herein by reference to Exhibit 10.6 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
June 30, 2000).
10.41(b) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Ira J. Krakower (incorporated
herein by reference to Exhibit 10.3 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.42 Form of Executive Severance Agreement between Hexcel
Corporation and certain executive officers dated as of
February 3, 1999 (incorporated herein by reference to
Exhibit 10.6 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
10.43 Form of Executive Severance Agreement between Hexcel
Corporation and certain executive officers dated as of
February 3, 1999 (incorporated herein by reference to
Exhibit 10.7 to Hexcel's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.44 Executive Severance Agreement between Hexcel Corporation and
Robert F. Matthews dated as of July 1, 2000 (incorporated
herein by reference to Exhibit 10.2 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 2000).
10.44(a) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Robert F. Matthews
(incorporated herein by reference to Exhibit 10.11 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000).
10.44(b) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Robert F.
Matthews (incorporated herein by reference to
Exhibit 10.43(b) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.45 Executive Severance Agreement between Hexcel Corporation and
Steven T. Warshaw dated as of July 1, 2000 (incorporated
herein by reference to Exhibit 10.3 to Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 2000).
10.45(a) Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Steven Warshaw (incorporated
herein by reference to Exhibit 10.10 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.45(b) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Steven
Warshaw (incorporated herein by reference to
Exhibit 10.44(b) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.46 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and William Hunt (incorporated
herein by reference to Exhibit 10.14 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.46(a) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and William Hunt
(incorporated herein by reference to Exhibit 10.45(a) to
Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 2000).
10.47 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and David Tanonis (incorporated
herein by reference to Exhibit 10.12 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.48 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Justin Taylor (incorporated
herein by reference to Exhibit 10.13 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.48(a) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Justin
Taylor (incorporated herein by reference to
Exhibit 10.47(a) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.49 Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Joseph Shaulson (incorporated
herein by reference to Exhibit 10.9 of Hexcel's Quarterly
Report on Form 10-Q for the Quarter ended September 30,
2000).
10.49(a) Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Joseph
Shaulson (incorporated herein by reference to
Exhibit 10.48(a) to Hexcel's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000).
10.50 Lease Agreement, dated as of September 15, 1998, by and
among Clark-Schwebel Corporation (a wholly-owned subsidiary
of Hexcel) as lessee, CSI Leasing Trust as lessor, and
William J. Wade as co-trustee for CSI Leasing Trust
(incorporated herein by reference to Exhibit 10.2 of
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
</Table>
<Page>
<Table>
<Caption>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.51 Governance Agreement, dated as of December 19, 2000, among
LXH L.L.C., LXH II, L.L.C., Hexcel Corporation and the other
parties listed on the signature pages thereto (incorporated
herein by reference to Exhibit 10.1 to Hexcel's Current
Report on Form 8-K dated December 22, 2000).
10.51(a)* Amendment, dated as of April 25, 2001, to the Governance
Agreement, dated as of December 19, 2000, among LXH L.L.C.,
LXH II, L.L.C., Hexcel Corporation and the other parties
listed on the signature pages thereto.
10.52 Registration Rights Agreement, dated as of December 19,
2000, by and among Hexcel Corporation, LXH, L.L.C. and LXH
II, L.L.C. (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Current Report on Form 8-K dated
December 22, 2000).
10.53 Agreement, dated October 11, 2000, by and among Hexcel
Corporation, LXH, L.L.C. and LXH II, L.L.C. (incorporated
herein by reference to Exhibit 10.1 to Hexcel's Current
Report on Form 8-K dated October 13, 2000).
10.54 Consent and Termination Agreement, dated as of October 11,
2000, by and between Hexcel Corporation and Ciba Specialty
Chemicals Holding Inc. (incorporated herein by reference to
Exhibit 10.2 to Hexcel's Current Report on Form 8-K dated
October 13, 2000).
12.1* Statement regarding the computation of ratio of earnings to
fixed charges for Hexcel Corporation.
21.1* Subsidiaries of Hexcel Corporation.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1* Powers of attorney (included on signature page to the
Registration Statement).
25.1* Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York, as trustee, under the Indenture
relating to the Exchange Notes.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Clients.
99.4* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.5* Form of Exchange Agency Agreement.
99.6* Guidelines for Certification of Taxpayer Identification
Number of Substitute Form W-9.
</Table>
- ------------------------
* Filed herewith.