PRELIMINARY COPY -- SUBJECT TO COMPLETION
As filed with the Securities and Exchange Commission on January 31, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. 1)
________________
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Under
Rule 14a-12
Hexcel Corporation
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY -- SUBJECT TO COMPLETION
[LOGO]
HEXCEL CORPORATION
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
_______, 2003
Dear Stockholder:
You are cordially invited to attend a special meeting of
stockholders of Hexcel Corporation to be held at _:00 a.m., local time, on
_______, _______, 2003, at ________, located at _____, _____, ____.
As explained in greater detail in the accompanying proxy
statement, Hexcel has entered into definitive agreements providing for $125
million of new equity financing through the issuance for cash of a total of
125,000 shares of series A convertible preferred stock and 125,000 shares of
series B convertible preferred stock. Upon the closing of the transactions,
the total number of outstanding shares of Hexcel common stock, including
shares issuable upon conversion of the new convertible preferred stocks, is
expected to increase from approximately 38.5 million shares to approximately
88.2 million shares.
Under these agreements, Hexcel has agreed to issue 77,875
shares of series A convertible preferred stock and 77,875 shares of series B
convertible preferred stock to affiliates of Berkshire Partners LLC and
Greenbriar Equity Group LLC for approximately $77.9 million in cash (before
giving effect to certain transaction costs). After giving effect to the
transactions, these investors will own approximately 35.2% of Hexcel's
outstanding voting securities.
Hexcel has separately agreed to issue 47,125 shares of
series A convertible preferred stock and 47,125 shares of series B convertible
preferred stock to investment partnerships affiliated with The Goldman Sachs
Group, Inc., which currently own approximately 37.8% of Hexcel's outstanding
common stock, for approximately $47.1 million in cash (before giving effect to
certain transaction costs). This issuance will enable Goldman Sachs and its
affiliates to maintain their current percentage ownership interest in Hexcel's
voting securities after giving effect to the transactions, consistent with
their rights under the governance agreement that Hexcel entered into with
affiliates of Goldman Sachs in 2000.
At the closing of the transactions, Hexcel will enter into a
stockholders agreement with the Berkshire and Greenbriar investors, which will
give them the right to nominate up to two directors (of a total of ten) to
Hexcel's board of directors and certain other rights. Affiliates of Goldman
Sachs will continue to have the right to nominate up to three directors
pursuant to the governance agreement entered into at the time of their
investment in Hexcel in 2000, which will be amended in connection with these
transactions. The stockholders agreement and the amended Goldman Sachs
governance agreement will require that the approval of at least six directors,
including at least two directors not nominated by the Berkshire and Greenbriar
investors or the Goldman Sachs investors, be obtained for board actions
generally. The stockholders agreement and the amended governance agreement
will also contain certain standstill and transfer restriction provisions.
These agreements are described in the accompanying proxy statement.
The transactions are conditioned upon the refinancing of
Hexcel's existing senior credit facility through a new senior credit facility
and potentially a private placement of senior secured notes or other form of
debt. The transactions are also subject to customary closing conditions,
including the approval by Hexcel's stockholders of both the issuances of the
series A and series B convertible preferred stock and an amendment to Hexcel's
restated certificate of incorporation increasing the number of shares of
common stock that Hexcel is authorized to issue from 100,000,000 to
200,000,000. You will be asked to approve these transactions at the special
meeting. Affiliates of Goldman Sachs have committed, subject to certain
conditions, to vote all of their shares of Hexcel common stock in favor of the
transactions.
Our board of directors (with the directors nominated by
affiliates of Goldman Sachs abstaining from the vote) has unanimously approved
the proposed financing transactions and unanimously recommends that you vote
FOR the issuances and sales of the series A and series B convertible preferred
stock and FOR the amendment to Hexcel's restated certificate of incorporation.
At the special meeting, you will also be asked to consider
and vote on proposals to adopt (a) the Hexcel Corporation 2003 Incentive Stock
Plan, (b) an amendment to the Hexcel Corporation Management Stock Purchase
Plan increasing the number of shares reserved for grant of restricted units
under such plan and (c) an amendment to the Hexcel Corporation Employee Stock
Purchase Plan increasing the number of shares available for sale under such
plan. Our board of directors unanimously recommends that you vote FOR each of
these proposals.
Details of the transactions, including the terms of the
series A and series B convertible preferred stock, and the other items of
business scheduled for the special meeting, are provided in the accompanying
proxy statement. Please give this material your careful attention.
Your vote is important regardless of the number of shares
you own. We urge you to read the enclosed proxy statement carefully and then
to complete, sign and date the enclosed proxy card and return it promptly in
the enclosed postage-paid return envelope, whether or not you plan to attend
the meeting. Your prompt cooperation and continued support of Hexcel are
greatly appreciated.
Sincerely,
/s/ David E. Berges
--------------------------------
David E. Berges
Chairman of the Board,
Chief Executive Officer and President
This proxy statement is dated _______, 2003 and was first mailed to Hexcel's
stockholders on or about ______, 2003.
[LOGO]
_______________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 2003
_______________________
A special meeting of the stockholders of Hexcel Corporation
will be held at __:00 a.m., local time, on _______, _______, 2003, at ______,
located at _____, _____, ____, for the following purposes:
1. To consider and vote upon a proposal to approve:
o the issuance and sale of 77,875 shares of Hexcel's series A
convertible preferred stock and 77,875 shares of Hexcel's series
B convertible preferred stock (and the issuance of shares of
Hexcel common stock issuable upon conversion of such shares of
series A and series B convertible preferred stock) to affiliates
of Berkshire Partners LLC and Greenbriar Equity Group LLC for
approximately $77.9 million in cash (before giving effect to
certain transaction costs); and
o the issuance and sale of 47,125 shares of Hexcel's series A
convertible preferred stock and 47,125 shares of Hexcel's series
B convertible preferred stock (and the issuance of shares of
Hexcel common stock issuable upon conversion of such shares of
series A and series B convertible preferred stock) to affiliates
of The Goldman Sachs Group, Inc. for approximately $47.1 million
in cash (before giving effect to certain transaction costs);
2. To consider and vote upon a proposal to approve an amendment to
Hexcel's restated certificate of incorporation to increase the number
of shares of common stock that Hexcel is authorized to issue from
100,000,000 to 200,000,000;
3. To consider and vote upon proposals to adopt (a) the Hexcel
Corporation 2003 Incentive Stock Plan, (b) an amendment to the Hexcel
Corporation Management Stock Purchase Plan to increase by 200,000 the
number of shares reserved for the grant of restricted stock units
under such plan and (c) an amendment to the Hexcel Corporation
Employee Stock Purchase Plan to increase by 150,000 the number of
shares available for sale under such plan; and
4. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
A more detailed description of the proposals to be acted
upon at the special meeting and the recommendations of Hexcel's board of
directors with respect to such proposals is included in the accompanying proxy
statement.
THE ISSUANCES AND SALES OF SHARES REFERRED TO IN PROPOSAL #1 ABOVE ARE
CONDITIONED ON THE APPROVAL OF BOTH PROPOSAL #1 AND PROPOSAL #2 ABOVE.
Stockholders of record at the close of business on ______,
2003 will be entitled to notice of, and to vote at, the special meeting and
any adjournment of the special meeting. A list of these stockholders will be
available for inspection at Hexcel's executive office, located at Two Stamford
Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901, during ordinary
business hours, from ____, 2003 until the date of the special meeting, and
will also be available for inspection at the special meeting.
By Order of the Board of Directors
/s/ Ira J. Krakower
------------------------------------
Ira J. Krakower
Senior Vice President, General Counsel
and Secretary
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING, PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED PRE-ADDRESSED, POSTAGE-PAID, RETURN ENVELOPE.
Dated: ________, 2003
TABLE OF CONTENTS
PAGE
SUMMARY..................................................................................................1
The Special Meeting...................................................................................1
The Financing Transactions Proposal...................................................................2
The Charter Amendment Proposal........................................................................7
The Equity Incentive Plans Proposals..................................................................7
No Appraisal Rights...................................................................................8
THE SPECIAL MEETING......................................................................................9
General...............................................................................................9
Matters to be Considered..............................................................................9
Record Date; Voting Rights............................................................................9
Quorum; Required Vote................................................................................10
Solicitation and Voting Procedure....................................................................10
No Appraisal Rights..................................................................................11
Other Matters........................................................................................11
THE FINANCING TRANSACTIONS PROPOSAL.....................................................................12
Background of the Financing Transactions.............................................................12
Recommendation of the Board of Directors; Reasons for the Financing Transactions.....................15
Opinion of Financial Advisor to the Independent Directors............................................17
Use of Proceeds......................................................................................27
Interests of Certain Persons.........................................................................28
Certain Accounting Matters...........................................................................28
TERMS OF THE FINANCING TRANSACTIONS.....................................................................30
General..............................................................................................30
The Stock Purchase Agreements........................................................................30
The Stockholders Agreement and the Amended and Restated Governance Agreement.........................40
The Registration Rights Agreements...................................................................48
Terms of Preferred Stock.............................................................................49
Senior Debt Refinancing..............................................................................56
THE CHARTER AMENDMENT PROPOSAL..........................................................................57
THE EQUITY INCENTIVE PLANS PROPOSALS....................................................................59
The 2003 Incentive Stock Plan........................................................................59
The Management Stock Purchase Plan...................................................................62
The Employee Stock Purchase Plan.....................................................................65
Recommendations of the Board of Directors............................................................67
Equity Compensation Plan Information.................................................................67
EXECUTIVE COMPENSATION..................................................................................69
Summary Compensation Table...........................................................................69
Stock Options........................................................................................71
Deferred Compensation................................................................................71
Employment and Other Agreements......................................................................72
Compensation Committee Interlocks and Insider Participation..........................................76
Compensation of Directors............................................................................76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................78
Stock Beneficially Owned By Principal Stockholders...................................................78
Stock Beneficially Owned by Directors and Officers...................................................79
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...............................................80
OTHER INFORMATION.......................................................................................80
2003 Annual Meeting of Stockholders..................................................................80
Where You Can Find More Information..................................................................81
FORM OF CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF HEXCEL CORPORATION....A-1
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.......................................B-1
FORM OF HEXCEL CORPORATION 2003 INCENTIVE STOCK PLAN...................................................C-1
FORM OF HEXCEL CORPORATION MANAGEMENT STOCK PURCHASE PLAN..............................................D-1
FORM OF HEXCEL CORPORATION EMPLOYEE STOCK PURCHASE PLAN................................................E-1
SUMMARY
This summary highlights selected information from this proxy
statement and may not contain all of the information that is important to you.
For additional information concerning the special meeting and the proposals to
be acted upon, you should read this entire proxy statement, including the
appendices and the other documents incorporated by reference into this proxy
statement. In this proxy statement, we sometimes refer to Hexcel Corporation
as "Hexcel," "we," "us" or "our." Unless otherwise noted, all references in
this proxy statement to a number or percentage of shares outstanding are based
on 38,539,926 shares of our common stock outstanding as of January 21, 2003.
The Special Meeting
Date, Time & Place (page __). The special meeting of Hexcel's stockholders
will be held at _:00 a.m., local time, on _______, _______, 2003, at ________,
located at _____, _____, ____.
Matters to be Considered (page __). At the special meeting, you will be asked
to approve:
o a proposal for the issuances and sales of our series A and series B
convertible preferred stock to affiliates of Berkshire Partners LLC
and Greenbriar Equity Group LLC (which we refer to in this proxy
statement as the "Berkshire and Greenbriar investors") and to
investment partnerships affiliated with The Goldman Sachs Group, Inc.
(which we refer to in this proxy statement as the "Goldman Sachs
investors") pursuant to the financing transactions (we refer to this
proposal as the "financing transactions proposal");
o a proposal for an amendment to our restated certificate of
incorporation increasing the number of shares of our common stock
that we are authorized to issue from 100,000,000 to 200,000,000 (we
refer to this proposal as the "charter amendment proposal");
o proposals for the adoption of (a) the Hexcel Corporation 2003
Incentive Stock Plan, (b) an amendment to our Management Stock
Purchase Plan to increase by 200,000 the number of shares reserved
for the grant of restricted stock units under the Management Stock
Purchase Plan and (c) an amendment to our Employee Stock Purchase
Plan to increase by 150,000 the number of shares available for sale
under the Employee Stock Purchase Plan (we collectively refer to
these proposals as the "equity incentive plans proposals"); and
o such other business as may properly come before the special meeting
or any adjournment or postponement of the special meeting.
Record Date; Voting Rights (page __). Our board of directors has fixed the
close of business on ____, 2003 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the special meeting. On
the record date, there were ____ shares of our common stock outstanding held
by ___ stockholders of record. Each outstanding share of our common stock on
the record date will be entitled to one vote on each matter to be acted upon
at the special meeting.
Required Vote (page __). If a quorum is present, approval of the financing
transactions proposal and each of the equity incentive plans proposals
requires the affirmative vote of a majority of the shares of our common stock
present or represented by proxy at the special meeting, provided that the
total number of votes cast on the proposal represents over 50% in interest of
all securities entitled to vote on the proposal (as required by the rules of
the New York Stock Exchange). The approval of the charter amendment proposal
requires the affirmative vote of a majority of the outstanding shares of our
common stock.
Affiliates of Goldman Sachs, which beneficially own approximately 37.8% of the
outstanding shares of our common stock, have agreed, subject to specified
conditions, to vote their shares of our common stock in favor of each of the
proposals described in this proxy statement.
The Financing Transactions Proposal
Terms of the Financing Transactions (page __). Under the agreements that we
have entered into with the Berkshire and Greenbriar investors, we have agreed
to issue 77,875 shares of our series A convertible preferred stock and 77,875
shares of our series B convertible preferred stock to the Berkshire and
Greenbriar investors for approximately $77.9 million in cash (before giving
effect to certain transaction costs). At the closing of these financing
transactions, the Berkshire and Greenbriar investors will own approximately
35.2% of our outstanding voting securities.
Under separate agreements that we have entered into with the Goldman Sachs
investors, we have agreed to issue 47,125 shares of our series A convertible
preferred stock and 47,125 shares of our series B convertible preferred stock
to affiliates of Goldman Sachs, which currently own approximately 37.8% of our
outstanding common stock, for approximately $47.1 million in cash (before
giving effect to certain transaction costs). This issuance of preferred stock
will enable affiliates of Goldman Sachs to maintain their current percentage
ownership interest in our voting securities, consistent with their rights
under the governance agreement entered into in 2000.
Conditions to the Financing Transactions (page __). Each party's obligation to
complete the financing transactions is subject to a number of conditions,
including:
o the approval by our stockholders of the financing transactions
proposal and the charter amendment proposal; and
o the completion of the senior debt refinancing as described under the
heading "Terms of the Financing Transactions - Senior Debt
Refinancing."
The obligations of the Berkshire and Greenbriar investors and the Goldman
Sachs investors to complete the financing transactions are subject to a number
of additional conditions, including (1) the accuracy of our representations
and warranties as of the date of the applicable stock purchase agreement and
as of the closing date, (2) the performance by us in all material respects of
the obligations required to be performed by us under the applicable stock
purchase agreement at or prior to the closing and (3) the absence of any
change, event or development which has had or would reasonably be expected to
have a material adverse effect on Hexcel since June 30, 2002.
Our obligation to complete the financing transactions is also subject to a
number of additional conditions, including (1) the accuracy in all material
respects of the representations and warranties of the Berkshire and Greenbriar
investors or the Goldman Sachs investors, as the case may be, as of the date
of the applicable stock purchase agreement and as of the closing date and (2)
the performance by each of them in all material respects of the obligations
required to be performed by each of them under the applicable stock purchase
agreement at or prior to the closing.
No Solicitation (page __). The stock purchase agreements contain
non-solicitation provisions which prohibit us from soliciting or engaging in
discussions or negotiations regarding an alternate proposal to the financing
transactions.
However, if we receive an unsolicited proposal for a transaction from a third
party, the terms of the stock purchase agreements permit us to consider and
accept such proposal prior to consummating the financing transactions if our
board of directors determines in good faith, after consultation with its
financial advisors, that such proposal is more favorable to our stockholders,
from a financial point of view, than the financing transactions, and, after
consultation with its legal advisors, that accepting such proposal may be
required to satisfy its fiduciary duties.
Termination (page __). Each stock purchase agreement may be terminated by
mutual consent of the parties to such agreement. In addition, the stock
purchase agreements may be terminated by either us or the Berkshire and
Greenbriar investors or the Goldman Sachs investors, as the case may be, if:
o the closing of the financing transactions has not occurred on or
before May 30, 2003 (provided that this right to terminate will not
be available to any party whose failure to fulfill any obligation
under the applicable stock purchase agreement was the cause of, or
resulted in, the failure of the closing to occur on or before such
date);
o any governmental entity issues an injunction permanently restraining
the financing transactions that has become final and non-appealable
(provided that this right to terminate will not be available to any
party whose breach resulted in the issuance of the injunction); or
o the approval of the financing transactions proposal and the charter
amendment proposal by our stockholders is not obtained at the special
meeting (provided that this right to terminate will not be available
to any party whose breach resulted in the failure to obtain the
approval).
In addition, we may terminate either stock purchase agreement if:
o we receive a superior proposal and our board of directors has
complied with the provisions of the agreement described under "Terms
of the Financing Transactions - The Stock Purchase Agreement - No
Solicitation"; or
o the Berkshire and Greenbriar investors or the Goldman Sachs
investors, as the case may be, breach any of their representations,
warranties or covenants under the applicable stock purchase
agreement, and such breach is incapable of being cured prior to May
30, 2003.
In addition, the Berkshire and Greenbriar investors or the Goldman Sachs
investors, as the case may be, may terminate the applicable stock purchase
agreement if:
o our board of directors (or any committee of our board of directors)
withdraws or adversely modifies its approval or recommendation of the
financing transactions;
o we breach any of our representations, warranties or covenants under
the applicable stock purchase agreement, and such breach is incapable
of being cured prior to May 30, 2003; or
o we experience a material adverse effect subsequent to the date of the
applicable stock purchase agreement which is incapable of being cured
prior to May 30, 2003.
We will pay Berkshire Partners LLC and Greenbriar Equity Group LLC a
termination payment equal to $3,115,000, less (1) any transaction fee paid or
payable by us and (2) 50% of the amount of expenses of the Berkshire and
Greenbriar investors paid or payable by us if:
o the Berkshire and Greenbriar investors terminate the stock purchase
agreement because our board of directors (or any committee of our
board of directors) withdraws or adversely modifies its approval or
recommendation of the financing transactions;
o we terminate the stock purchase agreement because we receive a
superior proposal and our board of directors has complied with the
provisions of the agreement described under "Terms of the Financing
Transactions - The Stock Purchase Agreement - No Solicitation"; or
o the Berkshire and Greenbriar investors terminate the stock purchase
agreement as a result of the failure to satisfy the condition
relating to our receipt of not less than $47,125,000 in proceeds from
the sale of our preferred stock to investors other than the Berkshire
and Greenbriar investors;
and, in any such case, we complete a transaction that constitutes an alternate
proposal within nine months after the date the agreement is terminated.
No termination fee is payable to the Goldman Sachs investors under the Goldman
Sachs stock purchase agreement.
Terms of the Preferred Stock (page __). Our series A convertible preferred
stock and our series B convertible preferred stock will have the following
terms, among others:
o commencing on the third anniversary of the original issuance date,
dividends will be payable on our series A convertible preferred stock
quarterly, on a cumulative basis, at a rate of 6.00% per year, either
entirely in cash or, at our option, allowing them to accrue, compound
and become payable upon liquidation, redemption or conversion; our
series B convertible preferred stock will not be entitled to any
scheduled dividends;
o if any dividends are paid on our common stock (other than dividends
paid in shares of our common stock or securities convertible into our
common stock), dividends will be payable to the holders of our series
A convertible preferred stock and our series B convertible preferred
stock in the form and amount that would have been paid on the shares
of our common stock into which such convertible preferred stock is
then convertible;
o we must redeem all outstanding shares of our series A and series B
convertible preferred stock on January 22, 2010 for cash or, under
specified circumstances, for shares of our common stock;
o the shares of our series A convertible preferred stock and series B
convertible preferred stock will be convertible, at the holder's
option, into a number of shares of our common stock equal to the
"stated value" of such preferred stock ($1,000.00 in the case of our
series A convertible preferred stock or $195.618 in the case of our
series B convertible preferred stock) divided by the conversion
price, which will initially be equal to $3.00 per share but will be
subject to customary anti-dilution adjustments and the conversion
limitations described under "Terms of the Financing Transactions -
Terms of Preferred Stock - Conversion of Preferred Stock into Common
Stock";
o subject to the conversion limitations referred to above, shares of
our series A convertible preferred stock and series B convertible
preferred stock will automatically convert into our common stock (on
the conversion terms described above) if the closing trading price of
our common stock for any period of 60 consecutive trading days ending
after the third anniversary of the original issuance date of such
convertible preferred stock is equal to or greater than $9.00;
o holders will be entitled to vote, on an as-converted basis, on all
matters put to a vote or consent of our stockholders, voting together
with the holders of our common stock as a single class;
o in the event a change of control (as defined in the indenture
governing our 9-3/4% senior subordinated notes due 2009) occurs, we
must offer to redeem all outstanding shares of our convertible
preferred stock for cash or, under specified circumstances, our
common stock, at a redemption price equal to the "liquidation
preference" (in the case of our series A convertible preferred stock)
or the "redemption amount" (in the case of our series B convertible
preferred stock), as the case may be; and
o in the event of our liquidation, winding up or dissolution, or the
occurrence of specified bankruptcy events, before any payment or
distribution may be made to holders of our common stock, the holder
of each share of our convertible preferred stock is entitled to the
"liquidation preference" of that share.
Other Agreements (page __). At the closing of the financing transactions, we
and the Berkshire and Greenbriar investors will enter into a stockholders
agreement, which will give these investors the right to nominate up to two
directors (of a total of ten) to our board of directors and certain other
rights. Affiliates of Goldman Sachs will continue to have the right to
nominate up to three directors under the governance agreement entered into at
the time of their investment in Hexcel in 2000, which will be amended and
restated in connection with the financing transactions. The stockholders
agreement and the amended and restated Goldman Sachs governance agreement will
require that the approval of at least six directors, including at least two
directors not nominated by the Berkshire and Greenbriar investors or the
Goldman Sachs investors, be obtained for board actions generally.
In addition, the stockholders agreement and the amended and restated
governance agreement will provide that, for so long as the Berkshire and
Greenbriar investors (in the case of the stockholders agreement) or the
Goldman Sachs investors (in the case of the amended and restated governance
agreement) beneficially own at least 15% of the total voting power of our
voting securities, our board of directors may not approve certain
extraordinary transactions, such as mergers or business combinations (other
than a "buyout transaction," as such term is defined under "Terms of the
Financing Transactions - The Stockholders Agreement and the Amended and
Restated Governance Agreement - Buyout Transactions," to which other terms
apply) involving consideration above specified thresholds without the approval
of a majority of the directors nominated by the Berkshire and Greenbriar
investors and a majority of the directors nominated by the Goldman Sachs
investors.
The stockholders agreement will also prohibit the Berkshire and Greenbriar
investors from acquiring more than 39.5% of our outstanding voting securities
unless approved by our board. The amended and restated governance agreement
will prohibit the Goldman Sachs investors from acquiring additional shares of
our voting securities, subject to specified limits and exceptions. The
Berkshire and Greenbriar investors and the affiliates of Goldman Sachs have
also each agreed to an 18-month lock-up of the securities being issued, except
for certain registered offerings.
The stockholders agreement and the amended and restated governance agreement
will require the Berkshire and Greenbriar investors (in the case of the
stockholders agreement) and the Goldman Sachs investors (in the case of the
amended and restated governance agreement) to vote their shares of our voting
securities in the manner provided in the stockholders agreement or the amended
and restated governance agreement, as the case may be, in the event of a
buyout transaction proposal that is not approved by a majority of our board of
directors and a majority of directors which are not interested directors
(within the meaning of the Delaware General Corporation Law, and it being
understood that no directors nominated by the Berkshire and Greenbriar
investors or the Goldman Sachs investors will be deemed to be not interested
with respect to such buyout transaction) with respect to such buyout
transaction.
At the closing of the financing transactions, we will enter into a
registration rights agreement with the Berkshire and Greenbriar investors and
an amended and restated registration rights agreement with the Goldman Sachs
investors in which we will grant the Berkshire and Greenbriar investors and
the Goldman Sachs investors demand and piggyback registration rights with
respect to the shares of our common stock (and, after the third anniversary of
the closing date, the shares of our series A convertible preferred stock) held
by them.
Recommendation of the Board of Directors (page _). Our board of directors
(with our three directors nominated by affiliates of Goldman Sachs abstaining
from the vote) has unanimously approved the financing transactions and
unanimously recommends that you vote FOR approval of the financing
transactions proposal.
Background of the Financing Transactions; Reasons for the Financing
Transactions (page _). For a description of the events leading to the approval
and recommendation of the financing transactions by our board of directors,
you should refer to "The Financing Transactions Proposal - Background of the
Financing Transactions" and " - Recommendations of the Board of Directors;
Reasons for the Financing Transactions."
Opinion of the Financial Advisor to our Independent Directors (page __).
Houlihan Lokey Howard & Zukin Financial Advisors, Inc., financial advisor to
our independent directors in connection with the financing transactions, has
rendered its written opinion, addressed at the request of our independent
directors to our full board of directors, to the effect that, as of the date
of such opinion and based upon and subject to the matters set forth in the
opinion, the financing transactions were fair, from a financial point of view,
to us and our public stockholders, other than the Berkshire and Greenbriar
investors and the Goldman Sachs investors. The full text of the Houlihan Lokey
opinion dated December 18, 2002 is attached as Appendix B to this proxy
statement. We urge you to read the opinion carefully and in its entirety.
Use of Proceeds from the Financing Transactions (page _). We anticipate that
we will use the proceeds from the financing transactions to repay indebtedness
(including all of our 7% convertible subordinated notes due 2003 and a portion
of our senior credit facility indebtedness) and to pay certain transaction
costs. For a more detailed summary of the estimated sources and uses of the
proceeds of the financing transactions, you should refer to "The Financing
Transactions Proposal - Use of Proceeds."
Interests of Certain Persons (page __). In considering the recommendations of
our board of directors that you vote in favor of the financing transactions
proposal, you should be aware that the Goldman Sachs investors and the three
directors nominated by affiliates of Goldman Sachs (Messrs. Sanjeev K. Mehra,
James J. Gaffney and Peter M. Sacerdote) have interests in the financing
transactions that may be in addition to, or different from, your interests as
a stockholder. Unlike our other stockholders, the Goldman Sachs investors will
maintain their ownership percentage in our common stock (assuming the
conversion of all shares of our convertible preferred stock) at the closing of
the financing transactions consistent with their rights under the existing
governance agreement entered into in 2000, and will continue to be entitled to
certain board representation, approval and other rights, as more fully
described under the heading "Terms of the Financing Transactions - The
Stockholders Agreement and the Amended and Restated Governance Agreement." In
addition, upon the closing of the financing transactions, David E. Berges, our
CEO, will receive an option to purchase 200,000 shares of our common stock.
The Charter Amendment Proposal (page __)
In connection with the financing transactions, we are also seeking your
approval of an amendment to our restated certificate of incorporation to
increase the total number of shares of our common stock that we are authorized
to issue from 100,000,000 to 200,000,000.
The purpose of the charter amendment is to create a sufficient reserve of
shares of our common stock for issuance (1) upon conversion (or, under certain
circumstances, redemption) of our series A and series B convertible preferred
stock, (2) in connection with equity-based incentive awards pursuant to our
compensation programs, (3) upon conversion of our outstanding convertible debt
securities and (4) for our future needs in connection with future financing
transactions, acquisitions or otherwise.
The approval of the amendment to our restated certificate of incorporation is
a condition to the closing of the financing transactions. Our board of
directors recommends that you vote FOR approval of the charter amendment
proposal.
The Equity Incentive Plans Proposals (page __)
The Hexcel Corporation 2003 Incentive Stock Plan amends, restates and combines
our current Incentive Stock Plan and Broad Based Plan, under which there were
an aggregate of 1,954,869 shares available for grant as of December 31, 2002.
If the 2003 Incentive Stock Plan is adopted by our stockholders, all
outstanding awards under the combined plans as of the date of stockholder
approval of the 2003 Incentive Stock Plan will be deemed granted under the
2003 Incentive Stock Plan, and the number of shares available for future grant
under the 2003 Incentive Stock Plan will be 5,000,000 shares greater than were
available under the combined plans as of the date of stockholder approval of
the 2003 Incentive Stock Plan.
Under our Management Stock Purchase Plan, there are currently 127,712 shares
available for the grant of restricted stock units. If the proposed amendment
to our Management Stock Purchase plan is adopted by our stockholders, the
number of shares reserved for the grant of restricted stock units under the
plan will be increased by 200,000 shares.
Under our Employee Stock Purchase Plan, there are currently 145,566 shares
available for sale. If the proposed amendment to our Employee Stock Purchase
Plan is adopted by our stockholders, the number of shares available for sale
under the plan will be increased by 150,000 shares.
Our board of directors recommends that you vote FOR approval of each of the
equity incentive plans proposals.
No Appraisal Rights (page __)
Under the Delaware General Corporation Law, stockholders will have no rights
of appraisal in connection with the financing transactions or the amendment of
our restated certificate of incorporation.
THE SPECIAL MEETING
General
We are providing this proxy statement to our stockholders in
connection with the solicitation of proxies by our board of directors for use
at the special meeting to be held at __:00 a.m., local time, on _______,
_______, 2003, at ________, located at _____, _____, ____, and at any
adjournments or postponements of the special meeting. Each copy of this proxy
statement is accompanied by a proxy card for use in connection with the
special meeting.
Matters to be Considered
At the special meeting, you will be asked:
1. to consider and vote upon a proposal to approve:
o the issuance and sale of 77,875 shares of our series A
convertible preferred stock and 77,875 shares of our series
B convertible preferred stock (and the issuance of the
shares of our common stock issuable upon conversion of such
shares of series A and series B convertible preferred stock)
to the Berkshire and Greenbriar investors, for approximately
$77.9 million in cash (before giving effect to certain
transaction costs); and
o the issuance and sale of 47,125 shares of our series A
convertible preferred stock and 47,125 shares of our series
B convertible preferred stock (and the issuance of the
shares of our common stock issuable upon conversion of such
shares of series A and series B convertible preferred stock)
to the Goldman Sachs investors, for approximately $47.1
million in cash (before giving effect to certain transaction
costs);
2. to consider and vote upon a proposal to approve an amendment to our
restated certificate of incorporation to increase the number of
shares of common stock that we are authorized to issue from
100,000,000 to 200,000,000;
3. to consider and vote upon proposals to adopt (a) the Hexcel
Corporation 2003 Incentive Stock Plan, (b) an amendment to the Hexcel
Corporation Management Stock Purchase Plan to increase by 200,000 the
number of shares reserved for the grant of restricted stock units
under such plan and (c) an amendment to the Hexcel Corporation
Employee Stock Purchase Plan to increase by 150,000 the number of
shares available for sale under such plan; and
4. to transact such other business as may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
Record Date; Voting Rights
Our board of directors has fixed the close of business on
____, 2003 as the record date for the determination of stockholders entitled
to notice of and to vote at the special meeting. This proxy statement and the
enclosed proxy card are being mailed on or about ____, 2003 to holders of
record of our common stock on the record date. On the record date, there were
____ shares of our common stock outstanding held by ___ stockholders of
record. Each outstanding share of our common stock is entitled to one vote on
each matter to be acted upon at the special meeting.
Quorum; Required Vote
The presence, either in person or by proxy, of the holders
of a majority of the outstanding shares of our common stock entitled to vote
at the special meeting is necessary to constitute a quorum at the special
meeting. If a quorum is present, approval of each of the financing
transactions proposal and each of the equity incentive plans proposals
requires the affirmative vote of a majority of the shares of our common stock
present or represented by proxy at the special meeting, provided that the
total number of votes cast on the proposal represents over 50% in interest of
all securities entitled to vote on the proposal (as required by the rules of
the New York Stock Exchange). The approval of the charter amendment proposal
requires the affirmative vote of a majority of the outstanding shares of our
common stock.
The Goldman Sachs investors beneficially own approximately
37.8% of the shares of our outstanding common stock, which excludes options
granted to certain directors of Hexcel designated by the Goldman Sachs
investors and held for the benefit of The Goldman Sachs Group, Inc. For a more
detailed summary of the Hexcel common stock beneficially owned by the Goldman
Sachs investors, you should refer to "Security Ownership of Certain Beneficial
Owners and Management." The Goldman Sachs investors have agreed, subject to
specified conditions, to vote their shares of our outstanding common stock in
favor of each of the proposals described in this proxy statement. See "Terms
of the Financing Transactions - The Stock Purchase Agreements - Commitment to
Vote in Favor of Proposals."
Solicitation and Voting Procedure
If no direction is indicated on a validly executed proxy
card which we receive pursuant to this solicitation (and not revoked prior to
exercise), all shares represented by such proxy card will be voted FOR the
approval of the financing transactions proposal, FOR the approval of the
charter amendment proposal and FOR the approval of each of the equity
incentive plans proposals.
If any other matters are properly presented for
consideration at the special meeting, the persons named on the enclosed proxy
card, or their duly constituted substitutes acting at the special meeting, may
vote on the other matters at their discretion.
If you give a proxy in response to this solicitation, you
may revoke the proxy at any time before it is voted. You may revoke a proxy by
signing another proxy and delivering it to the Secretary of Hexcel before or
at the special meeting, or by attending the special meeting and voting in
person. You can also revoke your proxy by filing a written notice of
revocation with the Secretary of Hexcel before or at the special meeting. You
should send any subsequent proxy or notice of revocation to Hexcel
Corporation, Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut
06901-3238, Attention: Secretary, or you may deliver it to the Secretary of
Hexcel at the special meeting.
We will pay the cost of solicitation of the proxies. In
addition to solicitation by use of the mail, our directors, officers and
employees may solicit proxies in person or by telephone or other means of
communication. We will not pay additional compensation for this solicitation,
although we may reimburse reasonable out-of-pocket expenses. We will request
that brokers and nominees who hold shares of our common stock in their names
furnish proxy solicitation materials to beneficial owners of the shares, and
we will reimburse the brokers and nominees for reasonable expenses incurred by
them.
Brokers may not vote shares held for a customer without
specific instructions from the customer. If you are the beneficial owner of
shares held through a broker and you do not sign and return your proxy card,
the stockholder of record will not be permitted to vote your shares in the
absence of instructions from you and the votes represented by such shares will
be considered "broker non-votes." In the case of the financing transactions
proposal and the equity incentive plans proposals, these broker non-votes will
have no effect on the outcome of the vote on the financing transactions
proposal or any of the equity incentive plans proposals (except that broker
non-votes will not count towards the 50% in interest of all securities
entitled to vote on the proposal that must be cast for the proposal to be
approved in accordance with the rules of the New York Stock Exchange). Because
the charter amendment proposal requires the affirmative vote of a majority of
the outstanding shares of our common stock, broker non-votes will have the
same effect as votes against the charter amendment proposal.
No Appraisal Rights
Under the Delaware General Corporation Law, stockholders
will have no rights of appraisal in connection with the financing transactions
or the amendment of our restated certificate of incorporation.
Other Matters
Except for the vote on the financing transactions proposal,
the charter amendment proposal, the equity incentive plans proposals and, upon
appropriate motion, an adjournment of the special meeting, no other matters
are expected to come before the special meeting. If, however, other matters
are presented, the persons named as proxies will vote in accordance with their
judgment with respect to those matters.
Your vote is important. Please return your marked proxy card
promptly so your shares can be represented at the meeting, even if you plan to
attend the meeting in person.
THE FINANCING TRANSACTIONS PROPOSAL
Background of the Financing Transactions
In 2001, we started to experience a significant
deterioration in the demand for our products from the commercial aerospace and
electronics markets. Our total revenues declined by 3% in 2001 and by an
additional 16% in 2002. The commercial aerospace industry, which historically
has accounted for over 50% of our revenues, was severely negatively impacted
by the events of September 11, 2001. These events caused a reduction in the
commercial aircraft build rates of our principal customers, which has, in
turn, caused our commercial aircraft revenues to decline by $148 million, or
27%, in 2002 as compared to 2001. At the same time, the severe industry
downturn in the global electronics market has had a prolonged negative impact
on the demand for our fiberglass fabric substrates used in the fabrication of
printed wiring boards. In 2000, our net revenues in the electronics industry
were $181 million. As a result of the severe global recession in this
industry, our net revenues in this industry were $77 million in 2001 (a
decrease of approximately 51% as compared to 2000) and further declined to $58
million in 2002 (a decrease of approximately 17% as compared to 2001).
In response to these adverse business conditions, we
announced a program in 2001 to restructure our business operations. This
program reduced our annual cash fixed costs by 23% and enabled us to reduce
our debt by over $61 million in the twelve-month period ended December 31,
2002. We also reduced our workforce during this period by more than 25%, to
4,245 employees.
Despite our restructuring actions, we continued to have a
highly leveraged capital structure and were required to amend our senior bank
facilities to relax our financial covenants to accommodate our projected
financial performance in 2002. The January 2002 amendment we obtained modified
our financial covenants through the fourth quarter of 2002. Absent a
refinancing, we would need another amendment to avoid a breach of the
financial covenants, and therefore a default, under our senior credit
facility. In addition, we face the upcoming maturity in August 2003 of our 7%
convertible subordinated notes (aggregate principal amount of approximately
$46.9 million) and the scheduled maturity of most of our senior credit
facility (aggregate principal amount of approximately $179.7 million) in 2004.
In light of these considerations, and given the uncertain
timing and extent of anticipated recoveries in our core markets, we began, in
the spring of 2002, to explore a number of potential financing alternatives to
enable us to reduce our leverage and to improve our financial and operating
flexibility. The alternatives considered included (1) raising capital through
a public offering or private placement of debt or equity securities for cash,
(2) offering to exchange new debt or equity securities for our outstanding 7%
convertible subordinated notes due 2003, (3) conducting a rights offering with
a "backstop" purchase commitment by one or more investors, (4) accessing the
commercial bank loan markets to extend or refinance our senior credit facility
and (5) selling for cash one or more non-core assets.
In May 2002, we approached a number of potential private
equity investors, who had previously approached us, to inquire as to their
interest in making an equity investment in Hexcel, through a private placement
or backstop purchase commitment in a rights offering. In connection with these
discussions, we were informed by the Goldman Sachs investors that, as part of
any issuance of our equity securities, subject to the terms and conditions of
any such issuance, they would be interested in maintaining their equity
ownership percentage in Hexcel, consistent with their rights under the
governance agreement entered into in 2000.
Following these initial inquiries, we entered into
confidentiality agreements with five potential investors who then conducted
limited due diligence investigations of Hexcel. In early July 2002, four of
the five potential investors submitted proposals for an equity investment in
Hexcel.
On July 15, 2002, our finance committee met to discuss the
proposals received from the potential equity investors and to develop a
recommendation to the board of directors. They reviewed the terms and
conditions of the proposals. Management and the committee then reviewed the
proposals with the board of directors on July 17, 2002. Following
consideration of the proposals, the board determined to authorize management
to engage in preliminary discussions with respect to two of the proposals
received, including the proposal made by the Berkshire and Greenbriar
investors.
Starting during the week of July 22, 2002, the Berkshire and
Greenbriar investors conducted a comprehensive due diligence review of Hexcel
and began to engage in negotiations with us of draft agreements relating to a
proposed investment by the Berkshire and Greenbriar investors. The
transactions ultimately proposed by the Berkshire and Greenbriar investors
contemplated the issuance to them of convertible preferred stock at a price to
be negotiated based on the closing trading prices of our common stock, subject
to a maximum price per share. The Berkshire and Greenbriar investors indicated
that their consideration of an investment in us was conditioned upon the
Goldman Sachs investors making a concurrent investment in Hexcel in order to
maintain their percentage ownership interest in Hexcel consistent with the
terms of their existing governance agreement entered into in 2000. As a
result, we began to separately negotiate draft agreements with the Goldman
Sachs investors relating to their proposed investment in Hexcel.
On November 8, 2002, we entered into a limited exclusivity
agreement with the Berkshire and Greenbriar investors pursuant to which we
agreed to negotiate exclusively with the Berkshire and Greenbriar investors
for a period of 10 days with respect to their proposed investment, subject to
an exception allowing us to negotiate with the Goldman Sachs investors.
On November 17, 2002, the finance committee met to review
the proposed purchases of convertible preferred stock by the Berkshire and
Greenbriar investors and the Goldman Sachs investors, as well as continued
interest by one other potential investor in a possible equity investment. The
finance committee and representatives of Skadden, Arps, Slate, Meagher & Flom
LLP, our legal advisors, reviewed and discussed the structure, terms and
conditions of the various proposals and agreements. The finance committee also
reviewed and discussed, with the assistance of Skadden Arps, the proposed
terms of the convertible preferred stock to be issued under the proposals. The
finance committee determined that, although the proposal from the other
potential investor was generally comparable, from a financial point of view,
when compared to the Berkshire and Greenbriar proposal, the governance and
other contractual provisions contemplated by the proposal from the other
potential investor would be more onerous to us and our stockholders than the
governance and other contractual provisions that the Berkshire and Greenbriar
investors had indicated that they would be prepared to accept.
On November 25, 2002, our board of directors met to review
the series of meetings of the finance committee, including the meeting on
November 17th, regarding the proposed financing transactions and each of the
financing alternatives explored over the prior several months. The board
reviewed in detail the terms of the proposed issuances of convertible
preferred stock to the Berkshire and Greenbriar investors and to the Goldman
Sachs investors, including the governance and other provisions of the
stockholders agreement with the Berkshire and Greenbriar investors and the
amended and restated governance agreement with the Goldman Sachs investors.
Representatives of Skadden Arps also reviewed with the board of directors its
fiduciary duties in connection with the proposed financing transactions.
During the meeting on November 25th, our independent
directors discussed retaining an independent financial advisor to assist them
in reviewing and analyzing the proposed financing alternatives (including the
financing transactions with the Berkshire and Greenbriar investors and the
Goldman Sachs investors). At this meeting, the independent directors
determined to retain an independent financial advisor, and on November 26,
2002, Houlihan Lokey Howard & Zukin Financial Advisors, Inc. was retained to,
among other things, undertake a financial analysis of the financing
alternatives and, if appropriate, to deliver the fairness opinions described
below.
The independent directors met on three separate occasions
following the meeting of the full board of directors on November 25th. At
these meetings, the independent directors received presentations from Houlihan
Lokey and from our management and considered the financing alternatives
available to Hexcel. During this period, the parties continued to negotiate
the terms of the agreements relating to the proposed investments.
On December 12, 2002, the full board of directors met to
further consider the financing alternatives. At this meeting, the board of
directors received a presentation from Houlihan Lokey further addressing the
financing alternatives available to Hexcel. During this meeting, Houlihan
Lokey provided its oral opinion to the effect that, as of that date, the
financing transactions with the Berkshire and Greenbriar investors and the
Goldman Sachs investors were fair, from a financial point of view, to us and
our public stockholders (other than the Berkshire and Greenbriar investors and
the Goldman Sachs investors). In addition, Houlihan Lokey provided its oral
opinion to the effect that, as of that date, the financing transactions were
fair, from a financial point of view, to us, our "restricted subsidiaries" (as
defined in the indenture governing our 9-3/4% senior subordinated notes due
2009) and our public stockholders (other than the Berkshire and Greenbriar
investors and the Goldman Sachs investors), as required under the indenture
governing our 9-3/4% senior subordinated notes due 2009. Following receipt of
these oral opinions, the board of directors authorized management to finalize
the agreements relating to the proposed investments by the Berkshire and
Greenbriar investors and the Goldman Sachs investors.
Following the December 12th meeting, the parties proceeded
to finalize the agreements relating to the proposed investments. As a result
of certain changes to the terms of the proposed investments during this
period, the board of directors was reconvened on December 17, 2002 to give its
final approval to the amended terms of the financing transactions and the
related agreements, as so modified. At this meeting, Houlihan Lokey delivered
updated versions of its oral opinions and the board of directors approved the
financing transactions and the related agreements (with the directors
nominated by the Goldman Sachs investors abstaining from the vote). On
December 18, 2002, Houlihan Lokey confirmed its oral opinion in a written
opinion, addressed at the request of the independent directors to the full
board of directors, that as of that date and based upon and subject to the
matters set forth in the opinion, the financing transactions were fair, from a
financial point of view, to us and to our public stockholders, other than the
Berkshire and Greenbriar investors and the Goldman Sachs investors. In
addition, as required by the indenture governing Hexcel's 9-3/4% senior
subordinated notes due 2009, Houlihan Lokey delivered to the board of
directors a separate written opinion, dated December 18, 2002, that as of that
date and based upon and subject to the matters set forth in the opinion, the
financing transactions were fair, from a financial point of view, to us, our
"restricted subsidiaries" (as defined in the indenture) and our public
stockholders, other than the Berkshire and Greenbriar investors and the
Goldman Sachs investors.
The agreements were then finalized and signed by each of the
parties and the transactions were publicly announced on December 18th.
Recommendation of the Board of Directors; Reasons for the Financing Transactions
Recommendations of the Board of Directors
Our board of directors (with the three directors nominated
by affiliates of Goldman Sachs abstaining from the vote) has unanimously
determined that the financing transactions are fair to and in the best
interests of us and our stockholders and has unanimously approved the
financing transactions. Accordingly, our board of directors recommends that
our stockholders vote FOR approval of the financing transactions.
Reasons for the Financing Transactions
In approving the financing transactions, our board of
directors considered, among other things, each of the following favorable
factors:
o the fact that the financing transactions will enable us (1) to reduce
our high leverage through the application of the proceeds to the
repayment at maturity of our 7% convertible subordinated notes due
2003 and the repayment of a portion of our senior bank debt and (2)
to refinance our senior bank debt and our 7% convertible subordinated
notes due 2003 and extend the maturity of our senior bank debt to a
date by which we anticipate the commercial aerospace industry to have
recovered, thereby improving our financial and operating flexibility;
o the oral opinions of Houlihan Lokey, subsequently confirmed in
writing, to the effect that, as of the date of such opinions and
based upon and subject to the matters set forth in the opinions, (1)
the financing transactions were fair, from a financial point of view,
to us and our public stockholders (other than the Berkshire and
Greenbriar investors and the Goldman Sachs investors) and (2) the
financing transactions were fair, from a financial point of view, to
us, our "restricted subsidiaries" (as defined in the indenture
governing our 9-3/4% senior subordinated notes due 2009) and our
public stockholders (other than the Berkshire and Greenbriar
investors and the Goldman Sachs investors);
o the risks of not proceeding with the financing transactions; in this
regard, our board of directors considered the risk that continued
weakness in the commercial aerospace and electronics industries, and
in the economy in general, would continue to adversely affect our
operating income and cash flows and the risk that we would not be
able to comply with the covenants in our senior credit facility or
fund our upcoming debt maturities in the absence of the financing
transactions, in which case we would be in default under our senior
credit facility and other debt instruments as a result of
cross-default terms contained in such other debt instruments;
o the range of alternative transactions we considered as possible
sources of financing and our board of directors' belief, after
considering such alternatives and advice from outside financial and
legal advisors, that the financing transactions were the best
alternative reasonably available to us;
o the terms of the stock purchase agreements which, among other things,
permit us to consider unsolicited acquisition proposals and accept a
superior proposal prior to consummating the financing transactions if
our board of directors determines in good faith, after consultation
with its financial advisors, that such proposal is more favorable to
our stockholders, from a financial point of view, than the financing
transactions, and, after consultation with its legal advisors, that
accepting the superior proposal may be required to satisfy its
fiduciary duties, as more fully described under the heading entitled
"Terms of the Financing Transactions - The Stock Purchase Agreements
- No Solicitation";
o the fact that the financing transactions will give us access to the
expertise and strategic relationships of the Berkshire and Greenbriar
investors, which, due to their substantial investment in Hexcel, will
have a strong incentive to help us build stockholder value; and
o the improved confidence that we anticipate our suppliers, customers
and employees will have in our long-term potential as we address our
financial leverage issues through the financing transactions.
Our board of directors also considered certain adverse
factors in their deliberations concerning the financing transactions,
including:
o the dilutive effect of the increase in our outstanding voting
securities from approximately 38.5 million shares to approximately
88.2 million shares that will result from the financing transactions;
o the risk that the financing transactions will not close due to a
failure to satisfy one or more of the conditions to the closing of
the financing transactions, including the completion of the
contemplated senior debt refinancing, as more fully described under
the headings "Terms of the Financing Transactions - The Stock
Purchase Agreements - Conditions to Financing Transactions" and
"Terms of the Financing Transactions - Senior Debt Refinancing";
o the provisions in the Berkshire and Greenbriar stock purchase
agreement requiring us to pay up to $3,115,000 in termination fees if
the Berkshire and Greenbriar stock purchase agreement is terminated
under certain circumstances, as more fully described under the
heading entitled "Terms of the Financing Transactions - The Stock
Purchase Agreements - Termination"; and
o the provisions in the stock purchase agreement requiring us to
indemnify the Berkshire and Greenbriar investors and the Goldman
Sachs investors, subject to limitations, for certain losses they may
incur, as more fully described under the heading "Terms of the
Financing Transactions - The Stock Purchase Agreements - Survival of
Representations and Warranties; Indemnification."
In addition, our independent directors and our full board of
directors considered the interests of the Goldman Sachs investors (and our
directors appointed by them) that may be different from, or in addition to,
the interests of our other stockholders described under the heading " -
Interests of Certain Persons."
The foregoing discussion concerning the information and
factors considered by our independent directors and our full board of
directors is not intended to be exhaustive, but includes all of the material
factors considered by our board of directors in making its determination. In
view of the variety of factors considered in connection with its evaluation of
the financing transactions, our board of directors did not quantify or
otherwise attempt to assign relative weights to the specific factors it
considered in reaching its determinations. In addition, individual directors
may have given different weight to different factors.
Opinion of Financial Advisor to the Independent Directors
At a meeting of Hexcel's independent directors on December
10, 2002 and at the meeting of the full board of directors of Hexcel on
December 12, 2002, Houlihan Lokey presented orally its financial analysis of
the financing transactions. On December 18, 2002, Houlihan Lokey confirmed its
oral presentation in a written opinion to the effect that, as of that date and
based upon and subject to the matters described in the opinion, (1) the
issuance and sale of 77,875 shares of Hexcel's series A convertible preferred
stock and of 77,875 shares of Hexcel's series B convertible preferred stock to
the Berkshire and Greenbriar investors for an aggregate price of $77,875,000
(before giving effect to certain transaction costs), (2) the issuance and sale
of 47,125 shares of Hexcel's series A convertible preferred stock and of
47,125 shares of Hexcel's series B convertible preferred stock to the Goldman
Sachs investors for an aggregate price of $47,125,000 (before giving effect to
certain transaction costs) and (3) the other transactions contemplated by the
stock purchase agreements, including the refinancing of Hexcel's existing
senior credit facility, and the transactions contemplated by the stockholders
agreement, the amended and restated governance agreement and the registration
rights agreements to be entered into at the closing ((1), (2) and (3)
collectively being referred to for purposes of this section as the
"Transaction"), were fair, from a financial point of view, to Hexcel and its
public stockholders other than the Berkshire and Greenbriar investors and the
Goldman Sachs investors. At the request of Hexcel's independent directors,
Houlihan Lokey's written opinion was addressed to the full board of directors
of Hexcel.
The complete text of the Houlihan Lokey opinion described
above, dated December 18, 2002, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached to this proxy statement
as Appendix B. The advisory services and opinion of Houlihan Lokey were
provided for the information and assistance of Hexcel's independent directors
and Hexcel's board of directors in connection with their consideration of the
Transaction and do not constitute a recommendation as to how any stockholder
should vote with respect to the Transaction. The summary of the opinion set
forth below is qualified in its entirety by reference to such opinion. We urge
you to read the opinion carefully and in its entirety.
In connection with its opinion, Houlihan Lokey has made such
reviews, analyses and inquiries as it deemed necessary and appropriate under
the circumstances. Among other things, Houlihan Lokey:
1. reviewed Hexcel's annual reports on Form 10-K for the three fiscal
years ended December 31, 2001 and quarterly reports on Form 10-Q for
the three quarters ended September 30, 2002;
2. reviewed copies of the following agreements:
o Berkshire and Greenbriar stock purchase agreement dated
December 18, 2002;
o form of stockholders agreement to be entered into by Hexcel
and the Berkshire and Greenbriar investors;
o form of registration rights agreement to be entered into by
Hexcel and the Berkshire and Greenbriar investors;
o Goldman Sachs stock purchase agreement dated December 18,
2002;
o form of amended and restated governance agreement to be
entered into by Hexcel and the Goldman Sachs investors;
o form of amended and restated registration rights agreement
to be entered into by Hexcel and the Goldman Sachs
investors;
o form of Certificate of Designations of Hexcel's series A
convertible preferred stock;
o form of Certificate of Designations of Hexcel's series B
convertible preferred stock;
o letter with respect to registration rights dated December
18, 2002 from Hexcel to Greenbriar Equity Group LLC and
Berkshire Partners LLC;
o letter with respect to registration rights dated December
18, 2002 from Hexcel to LXH, L.L.C., LXH II, L.L.C., GS
Capital Partners 2000, L.P., GS Capital Partners 2000
Offshore, L.P., GS Capital Partners 2000 Employee Fund,
L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG
and Stone Street Fund 2000, L.P.;
o letter dated December 18, 2002 with respect to rights to
purchase Hexcel securities pursuant to Section 3.02 of the
governance agreement from Hexcel to LXH, L.L.C., LXH II,
L.L.C., GS Capital Partners 2000, L.P., GS Capital Partners
2000 Offshore, L.P., GS Capital Partners 2000 Employee Fund,
L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG
and Stone Street Fund 2000, L.P.;
o form of the proposed charter amendment; and
o form of Hexcel's amended and restated bylaws;
3. reviewed the terms of Hexcel's existing outstanding debt;
4. reviewed a series of memoranda prepared by Hexcel's management
regarding capital structure alternatives, process and timing;
5. met with certain members of Hexcel's senior management to discuss
Hexcel's operations, financial condition, future prospects, projected
operations and performance and strategic alternatives;
6. visited Hexcel's headquarters in Stamford, Connecticut;
7. reviewed forecasts and projections prepared by Hexcel's management
with respect to Hexcel for the years ended December 31, 2002 through
December 31, 2007;
8. reviewed the historical market prices and trading volume for Hexcel's
publicly traded securities; and
9. conducted such other studies, analyses and inquiries as Houlihan
Lokey deemed appropriate.
In preparing its opinion, Houlihan Lokey has relied upon and
assumed, without independent verification, that the financial forecasts and
projections provided to it have been reasonably prepared and reflect the best
currently available estimates of Hexcel's future financial results and
condition, and that there has been no material change in Hexcel's assets,
financial condition, business or prospects since the date of the most recent
financial statements made available to it.
Houlihan Lokey did not independently verify the accuracy and
completeness of the information supplied to it with respect to Hexcel or any
of its subsidiaries and did not assume any responsibility with respect to it.
Houlihan Lokey has not made any physical inspection or independent appraisal
of any of Hexcel's properties or assets and has not been furnished with any
such appraisal or evaluation. Houlihan Lokey's opinion is necessarily based on
business, economic, market and other conditions as they existed and could be
evaluated by Houlihan Lokey at the date of its opinion.
The summary of the financial analyses that follows includes
information presented in tabular format. You should read these tables together
with the text of each summary.
In its assessment of the financial fairness of the
Transaction, Houlihan Lokey (1) reviewed the historical trading prices for
Hexcel's publicly traded securities, (2) used widely accepted valuation
methodologies to perform an independent analysis of the equity value of
Hexcel, (3) analyzed the terms of the Transaction and the terms of the
securities to be issued in the Transaction; (4) examined the post-Transaction
value to public equity holders; and (5) considered certain alternatives to the
Transaction. In performing its analyses, Houlihan Lokey considered the per
share implied value of Hexcel common stock resulting from (1) on a converted
basis, the conversion of all shares of Hexcel's convertible preferred stock
into shares of Hexcel common stock due to the convertibility feature of
Hexcel's convertible preferred stock and (2) on a non-converted basis, the
issuance of Hexcel's convertible preferred stock, which has a seniority
position with respect to other securities of Hexcel.
Historical Trading Prices
Using publicly available market data, Houlihan Lokey
reviewed and compared the daily historical per share prices of Hexcel's
publicly traded common stock, the amount of active equity analyst coverage
Hexcel received and the average daily trading volumes of Hexcel common stock
as compared to other companies the securities of which are publicly traded
over a 90-day period ending December 4, 2002. Houlihan Lokey concluded that
Hexcel's publicly traded common stock had less equity analyst coverage than
most of the similar publicly traded companies and had less trading volume than
most of the similar publicly traded companies.
Valuation
As a result of its conclusions that Hexcel's publicly traded
common stock had less equity analyst coverage than most of the similar
publicly traded companies and had less trading volume than most of the similar
publicly traded companies, Houlihan Lokey conducted an independent valuation
of Hexcel, utilizing three standard valuation methodologies: the market
multiple approach, the comparable transaction approach and the discounted cash
flow approach. Using each of these valuation methodologies, Houlihan Lokey
calculated the enterprise value of Hexcel, which is the equity value of Hexcel
plus debt minus cash, on a pre-Transaction and post-Transaction basis. In
examining the pre-Transaction and post-Transaction scenarios, Houlihan Lokey
took into effect, among other factors, the refinancing of Hexcel's senior
credit facility, the leverage ratio of Hexcel's capital structure, the use of
the proceeds from the sale of Hexcel's convertible preferred stock to reduce
Hexcel's existing debt obligations and certain transaction costs incurred as a
result of the Transaction. Houlihan Lokey used the various enterprise values
of Hexcel it derived under the three different methodologies in order to
calculate an implied per share value of the common stock into which Hexcel's
convertible preferred stock is convertible. Such per share implied value of
Hexcel common stock in the post-Transaction scenario was calculated both
assuming a conversion of all of the shares of Hexcel's convertible preferred
stock and assuming no conversion of the shares of Hexcel's convertible
preferred stock (subtracting, in the latter case, the $149.5 million face
value of Hexcel's series A and series B convertible preferred stock and the
number of fully diluted shares of Hexcel common stock outstanding without
conversions).
Market Multiple Methodology
Houlihan Lokey reviewed and compared selected financial
information relating to Hexcel to corresponding financial information, ratios
and public market multiples for comparable companies, whose securities were
publicly traded and which were selected on the basis of operational and
economic similarity with the principal business operations and the revenue
model of Hexcel, taking into account the risks specific to Hexcel. In
estimating the risks specific to Hexcel, Houlihan Lokey took into
consideration both quantitative and qualitative risk factors, which relate to,
among other things, the nature of the industry in which Hexcel and the other
comparative companies are engaged, the relative size of each company, and the
profitability and growth rates of each company. Houlihan Lokey reviewed the
following five selected companies in the aerospace industry:
o Cobham plc;
o Cytec Industries Inc.;
o Ladish Co., Inc.;
o Precision Castparts Corp; and
o Sequa Corporation.
Where applicable, the financial multiples and ratios for the
selected companies were calculated using (1) the selected companies' per share
common stock prices on December 4, 2002 and (2) the selected companies' equity
market capitalizations. Houlihan Lokey's analyses of the selected companies
compared, among other things, the following to the results of Hexcel:
o enterprise value as a multiple of earnings before interest, taxes,
depreciation and amortization, or EBITDA for (1) the latest twelve
months, or LTM, ended September 30, 2002, using publicly available
information, (2) estimated fiscal year ended December 31, 2002 and
(3) estimated fiscal year 2003, using in the case of (2) and (3)
estimates contained in equity analysts' reports;
o enterprise value as a multiple of earnings before interest and taxes,
or EBIT for (1) LTM ended September 30, 2002, using publicly
available information, (2) estimated fiscal year ended December 31,
2002 and (3) estimated fiscal year 2003, using in the case of (2) and
(3) estimates contained in equity analysts' reports;
o enterprise value as a multiple of revenues (as reported under
generally accepted accounting principles) for (1) LTM ended September
30, 2002, using publicly available information, (2) estimated fiscal
year ended December 31, 2002 and (3) estimated fiscal year 2003,
using in the case of (2) and (3) estimates contained in equity
analysts' reports.
The results of these analyses are summarized as follows:
Selected Companies
Range Median Mean
Enterprise Value/EBITDA LTM as of September
30, 2002(1) 4.7x-8.9x 5.8x 6.5x
Enterprise Value/EBITDA 2002E(2) 5.4x-8.3x 6.6x 6.7x
Enterprise Value/EBITDA 2003E(2) 5.3x-7.6x 6.6x 6.5x
Enterprise Value/EBIT LTM as of September 30,
2002(1) 6.6x-12.6x 11.2x 10.4x
Enterprise Value/EBIT 2002E(2) 7.2x-18.6x 9.7x 11.3x
Enterprise Value/EBIT 2003E(2) 7.9x-16.1x 9.1x 10.6x
Enterprise Value/Revenue LTM as of September
30, 2002(1) 0.57x-1.74x 0.90x 0.95x
Enterprise Value/Revenue 2002E(2) 0.65x-1.68x 0.96x 1.06x
Enterprise Value/Revenue 2003E(2) 0.64x-1.51x 0.97x 1.03x
___________________
(1) LTM data is based on publicly available information.
(2) Estimated financial data is based on equity analysts reports.
Houlihan Lokey applied the multiples derived from the
selected companies analysis to Hexcel's actual EBITDA, EBIT and revenues for
(1) LTM ended September 30, 2002, using information available from public
filings, (2) estimated fiscal year ended December 31, 2002 and (3) estimated
fiscal year 2003, using in the case of (2) and (3) Hexcel's management
projections dated December 4, 2002. Based on this analysis, Houlihan Lokey
calculated enterprise values of Hexcel ranging from $650.0 million to $710.0
million both on a pre-Transaction and post-Transaction basis.
Comparable Transaction Methodology
Houlihan Lokey reviewed the following twenty-three selected
transactions in the aerospace industry announced between January 1998 and
October 2002:
o DRS Technologies, Inc. (acquiror)/ Paravant Inc. (target);
o Northrop Grumman Corporation (acquiror)/ TRW Inc. (target);
o EDO Corporation (acquiror)/ Condor Systems, Inc. (target);
o General Dynamic Corporation (acquiror)/ Advanced Technical Products,
Inc. (target);
o L-3 Communications Corporation (acquiror)/ Raytheon Aircraft
Integration Systems (Division of Raytheon Company) (target);
o L-3 Communications Corporation (acquiror)/ Spar Aerospace Limited
(target);
o Northrop Grumman Corporation (acquiror)/ Newport News Shipbuilding
Inc. (target);
o The Titan Corporation (acquiror)/ Datron Systems Incorporated
(target);
o DRS Technologies, Inc. (acquiror)/ Boeing - Sensors & Electronic
Systems (Division of The Boeing Company) (target);
o L-3 Communications Corporation (acquiror)/ EER Systems, Inc.
(target);
o Ducommun Incorporated (acquiror)/ Composite Structures, LLC (target);
o Northrop Grumman Corporation (acquiror)/ Litton Industries, Inc.
(target);
o Oncap L.P. (acquiror)/ BAE Systems Canada, Inc. (target);
o Rosemount Aerospace Inc. (acquiror)/ Humphrey, Inc. (Division of
Remec, Inc.) (target);
o Veritas Capital Fund, L.P. (acquiror)/ Tech-Sym Corporation (target);
o Northrop Grumman Corporation (acquiror)/ Comptek Research, Inc.
(target);
o L-3 Communications Corporation (acquiror)/ Honeywell Traffic Alert &
Collision Avoidance System (Division of Honeywell International Inc.)
(target);
o L-3 Communications Corporation (acquiror)/ Raytheon Training Devices
& Services (Division of Raytheon Company) (target);
o Engineered Support Systems, Inc. (acquiror)/ Systems & Electronics,
Inc. (target);
o Comptek Research, Inc. (acquiror)/ Amherst Systems, Inc. (target);
o DRS Technologies, Inc. (acquiror)/ NAI Technologies, Inc. (target);
o Jacobs Engineering Group Inc. (acquiror)/ Sverdrup Corporation
(target); and
o The Titan Corporation (acquiror)/ DBA Systems, Inc. (target).
The multiples used in this approach involved the sale of
controlling blocks of stock for companies in the aerospace industry, in which
Hexcel also operates. Because these transactions involved the sale of a
controlling interest and the Transaction involves the sale of a
non-controlling interest, Houlihan Lokey reduced the enterprise values for
these transactions to reflect an average estimated control premium of 30.0%,
which Houlihan Lokey considered to be representative for such transactions in
the aerospace industry, using information provided by Mergerstat.
For each transaction, Houlihan Lokey calculated the multiple
of the enterprise value, paid in each transaction, as a multiple of the
target's (1) LTM revenue and (2) LTM EBITDA. Houlihan Lokey derived the
following selected reference range of multiples from its review of the
comparable transactions:
o enterprise value to LTM revenue of 0.21x to 2.32x; and
o enterprise value to LTM EBITDA of 4.8x to 14.3x.
Houlihan Lokey then applied these selected ranges of
multiples to Hexcel's actual revenue and EBITDA for LTM ended September 30,
2002, using information available from public filings. Based on this analysis,
Houlihan calculated an enterprise value of Hexcel ranging from $702.0 million
to $779.0 million on a pre-Transaction basis and from $705.0 million to $782.0
million on a post-Transaction basis.
Discounted Cash Flow Methodology
Houlihan Lokey performed a discounted cash flow, or DCF,
analysis of Hexcel based on projections provided to Houlihan Lokey by Hexcel's
management for a five-year period from 2003 through 2007 and on various
assumptions and valuation parameters that it deemed appropriate.
In performing the DCF analysis, Houlihan Lokey discounted
Hexcel's unlevered free cash flows (operating income less income taxes, plus
depreciation and amortization, less changes in working capital and capital
expenditures) that Hexcel expects to generate over the specified forecast
period using a range of risk adjusted discount rates between 14.0% and 18.0%.
Houlihan Lokey calculated Hexcel's unlevered free cash flows based on Hexcel's
estimated growth from Hexcel's management projections and selected these
discount rates based on the risk it estimated in achieving these projections.
The sum of the respective present values of such free cash flows of Hexcel
were then added to the present value of the terminal values of Hexcel's EBITDA
estimated for the fiscal year 2007 times a range of EBITDA multiples of 5.5x
to 7.5x. Based on this analysis, Houlihan Lokey selected a discount rate of
16.0%, reflecting a weighted average risk of capital of Hexcel, as adjusted at
a rate of 5.33% to reflect the size of Hexcel compared to the five companies
used in the "Market Multiple Methodology" above and a mean terminal exit
multiple of 6.5x. Such discount rate of 16.0% and terminal exit multiple of
6.5x yielded an enterprise value of Hexcel in the range of $645.0 million to
$771.0 million, both on a pre-Transaction and post-Transaction basis.
Summary
Houlihan Lokey calculated an implied mean per share value of
Hexcel common stock on a pre-Transaction and post-Transaction basis, using an
average of the enterprise values of Hexcel derived under the three valuation
methodologies described above, subtracting Hexcel's debt and adding Hexcel's
cash, and dividing the resulting average equity value by the number of shares
of Hexcel common stock, using the then-most recent publicly available
information with respect to the number of shares of Hexcel common stock and
Hexcel's management projections dated December 4, 2002 for the fiscal year
ended December 31, 2002 with respect to Hexcel's nonoperating assets and
liabilities. With respect to the post-Transaction scenario, Houlihan Lokey
used the conversion price of $3.00 per share of Hexcel's convertible preferred
stock into shares of Hexcel common stock in order to calculate the implied
average per share value of Hexcel common stock, assuming both a conversion of
all shares of Hexcel's convertible preferred stock and no conversion of the
shares of Hexcel's convertible preferred stock (subtracting, in the latter
case, the $149.5 million face value of Hexcel's series A and series B
convertible preferred stock and the number of fully diluted shares of Hexcel
common stock outstanding without conversions).
The results of these calculations are summarized in the
table below:
Pre-Transaction Valuation of the Enterprise Value of
Hexcel Range
Market Multiple Approach $650,000,000 - $710,000,000
Comparable Transaction Approach $702,000,000 - $779,000,000
Discounted Cash Flow Approach $645,000,000 - $771,000,000
Pre-Transaction Enterprise Value Range $670,000,000 - $750,000,000
Average Per Share Value of the Common Stock of
Hexcel(1)(2) $2.36
Post-Transaction Valuation of the Enterprise Value of
Hexcel Range
Market Multiple Approach $650,000,000 - $710,000,000
Comparable Transaction Approach $705,000,000 - $782,000,000
Discounted Cash Flow Approach $645,000,000 - $771,000,000
Post-Transaction Enterprise Value Range $670,000,000 - $750,000,000
Average Per Share Value of the Common Stock of
Hexcel(1)(2)
(Assuming No Conversion) $2.05
Average Per Share Value of the Common Stock of
Hexcel (1)(3)
(Assuming Conversion) $2.31
___________________
(1) All per share amounts are rounded up to the nearest ten
millionth.
(2) Based on 38,419,559 shares of Hexcel common stock outstanding as
of November 8, 2002, as reported by Hexcel's public filings.
(3) Based on 88,236,983 shares of Hexcel common stock outstanding,
using the 38,419,559 outstanding shares of Hexcel common stock as of
November 8, 2002, derived from Hexcel's public filings, and assuming
a conversion of all shares of Hexcel's convertible preferred stock.
Analysis of the Terms of the Transaction
In determining the fairness of the Transaction, Houlihan
Lokey compared the terms of the Transaction to terms of transactions involving
the issuance of publicly traded convertible preferred securities, with a value
greater than $50.0 million, announced during 2002. Houlihan Lokey considered
the following ten companies:
o EchoStar Communications Corporation;
o The Williams Companies, Inc.;
o America Online Latin America, Inc.;
o Proxim Corporation;
o Sovran Self Storage, Inc.;
o The Meridian Resource Corporation;
o divine, inc.;
o Crescent Real Estate Equities Company;
o Penton Media, Inc.; and
o Aspect Communications Corporation.
Houlihan Lokey calculated a mean and a median premium of the
conversion price of the publicly traded convertible preferred securities to
the underlying companies' common stock price, using an average trading price
of the companies' common stock over a five-day period ending on the date of
issuance of the publicly traded convertible preferred securities. Houlihan
Lokey calculated a mean and a median premium for such companies of 23.2% and
15.8%, respectively, compared to the 21.9% premium implied in the Transaction,
based on the 10-day average per share closing price of $2.46 of Hexcel common
stock as of December 9, 2002 and assuming the conversion of all shares of
Hexcel's convertible preferred stock into 49.8 million shares of Hexcel common
stock at the conversion price of $3.00 per share.
Alternatives to the Transaction
In determining the fairness, from a financial point of view,
of the Transaction, Houlihan Lokey considered certain alternatives available
to Hexcel. Specifically, Houlihan Lokey considered and compared the positive
and negative sides of various characteristics of each of the current position
of Hexcel (which would require a refinancing of Hexcel's 7% convertible
subordinated notes due 2003) and the following possible transactions: a rights
offering or other equity investment in Hexcel, a sale of certain non-core
assets, a sale of the entire company and the Transaction. Among the
characteristics examined by Houlihan Lokey were the following: the need to
refinance Hexcel's 7% convertible subordinated notes due 2003, the value
available to public stockholders after satisfying Hexcel's outstanding debt
obligations, the terms of any securities to be issued in any proposed
transaction, Hexcel's prospects for obtaining alternative debt or equity
financing, liquidity of Hexcel's publicly traded securities, the leverage
ratio of Hexcel's capital structure, the availability of certain strategic
opportunities and buyers for Hexcel and transaction costs.
Opinion of Houlihan Lokey
Based upon the foregoing, and in reliance thereon, it is
Houlihan Lokey's opinion that, as of the date of the written opinion of
Houlihan Lokey, the Transaction was fair, from a financial point of view, to
Hexcel and its public stockholders other than the Berkshire and Greenbriar
investors and the Goldman Sachs investors.
The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to partial analysis or summary description.
This summary summarizes the material methodologies utilized by Houlihan Lokey
in rendering its fairness opinion. This summary does not purport to be a
complete statement of the analyses and procedures applied, the judgments made
or the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised Hexcel's independent
directors, that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete view of the
process underlying its analyses and opinions. Houlihan Lokey did not attempt
to assign specific weights to particular analyses. Rather, Houlihan Lokey made
its determination as to fairness on the basis of experience and professional
judgment after considering the results of all of the analyses. No company used
in the analyses above as a comparison is directly comparable to Hexcel and no
transaction used is directly comparable to the Transaction. In its analysis,
Houlihan Lokey made numerous assumptions with respect to Hexcel, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond Hexcel's control. The quantitative
information presented in the tables above is not necessarily indicative of
current market conditions, or of actual values or predictive of future results
or values, which may be more or less favorable than suggested by such
analysis. Because these analyses are inherently subject to uncertainty and are
based upon numerous factors or events beyond the control of the parties and
their respective financial advisors, neither Hexcel nor Houlihan Lokey assumes
responsibility if future results are materially different from those forecast.
Additionally, analyses relating to the value of businesses or securities are
not appraisals. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty.
Houlihan Lokey's opinion and analyses were only one of many
factors considered by Hexcel's independent directors and the full board of
directors of Hexcel in their evaluation of the Transaction and in the full
board's determination to approve the Transaction and should not be viewed as
determinative of the views of Hexcel's independent directors, the full board
of directors of Hexcel or of Hexcel's management with respect to the
Transaction.
Houlihan Lokey's opinion does not address the underlying
business decision of Hexcel to effect the Transaction. Houlihan Lokey has not
been requested to, and did not, solicit third party indications of interest in
acquiring all or part of Hexcel. The terms of the Transaction were arrived at
by separate negotiations between Hexcel and the Berkshire and Greenbriar
investors on the one hand, and between Hexcel and the Goldman Sachs investors
on the other hand. Houlihan Lokey was not asked to and did not participate in
those negotiations.
Houlihan Lokey is a nationally recognized investment-banking
firm with special expertise in, among other things, valuing businesses and
securities and rendering fairness opinions. Houlihan Lokey is continually
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, leveraged buyouts, private placements of debt and
equity, corporate reorganizations, employee stock ownership plans, corporate
and other purposes. Hexcel's independent directors selected Houlihan Lokey
because of its experience and expertise in performing valuation and fairness
analyses. Houlihan Lokey does not beneficially own nor has it ever
beneficially owned any interest in Hexcel. Furthermore, except for its
agreement with Hexcel to perform a valuation of the convertible preferred
stock for financial reporting purposes, Houlihan Lokey has no agreement or
understanding to provide additional services to Hexcel beyond the scope of
this fairness opinion.
Houlihan Lokey does not make a market in Hexcel's publicly
traded securities. Houlihan Lokey is engaged, from time to time, to provide
financial advice to a variety of public and private entities and persons.
Houlihan Lokey may have rendered certain services to other participants in
this transaction in the form of an opinion or advice. The services, however,
rendered in the past or to be rendered by Houlihan Lokey hereunder do not
represent any actual or potential conflict of interest on the part of Houlihan
Lokey.
Hexcel has agreed to pay Houlihan Lokey a fee of $300,000
plus its reasonable out-of-pocket expenses, including Houlihan Lokey's
expenses of legal counsel, incurred in connection with the rendering of
Houlihan Lokey's fairness opinion described above to Hexcel and the rendering
of its fairness opinion required by the indenture. No portion of the fee was
contingent upon the completion of the transactions discussed in this proxy
statement or the conclusions reached in the two fairness opinions. Hexcel has
further agreed to indemnify Houlihan Lokey (and its employees, agents,
officers, directors, attorneys, stockholders or any other person who controls
Houlihan Lokey) against certain liabilities and expenses related to or arising
in connection with the rendering of its services, including liabilities under
the federal securities laws.
Use of Proceeds
We will use the proceeds of the financing transactions to
repay existing debt (including all of our outstanding 7% convertible
subordinated notes due 2003 and a portion of our senior bank debt) and to pay
related transaction costs. In the table below, we have summarized the
estimated sources and uses of proceeds from the financing transactions and the
senior debt refinancing (in the form it is currently contemplated). The senior
debt refinancing will be some combination of revolving credit and overdraft
facilities, term loans and/or senior notes. The table below assumes that the
gross proceeds from the senior debt refinancing will be $142.1 million.
However, we cannot assure you that we will be able to obtain such proceeds
from the senior debt refinancing on acceptable terms, if at all, or that the
senior debt refinancing will be composed of the borrowings in the amounts set
forth below.
Amount (1)
-----------------
(in thousands)
Sources of Funds:
Gross proceeds from the financing transactions (sales of convertible preferred stock)... $ 125,000
Gross proceeds from the senior debt refinancing (2)..................................... 114,200
-----------------
Total sources of funds............................... $ 239,200
=================
Uses of Funds:
Repayment of the outstanding 7% convertible subordinated notes due 2003 (3)............. $ 46,900
Repayment of the existing senior credit facility (2) (4)................................ 179,700
Payment of estimated transaction costs.................................................. 12,600
-----------------
Total uses of funds.................................. $ 239,200
=================
______________
(1) Assumes a closing date of the financing transactions and senior debt
refinancing of December 31, 2002.
(2) The actual amount outstanding under the existing senior credit facility
at the closing of the financing transactions, and the actual amount of
gross proceeds from the senior debt refinancing at the closing of the
financing transactions, may be larger due to our cash flow requirements
during the period January 1, 2003 through the date of the closing.
(3) Represents the estimated aggregate principal amount (plus accrued but
unpaid interest) of our 7% convertible subordinated notes due 2003
expected to be outstanding immediately prior to the closing of the
financing transactions.
(4) Represents the estimated aggregate principal amount (plus accrued but
unpaid interest) under our existing senior credit facility expected to
be outstanding immediately prior to the closing of the financing
transactions.
Interests of Certain Persons
In considering the recommendation of our board of directors
with respect to the financing transactions, our stockholders should be aware
that the Goldman Sachs investors and Messrs. Sanjeev K. Mehra, James J.
Gaffney and Peter M. Sacerdote, our directors nominated by affiliates of
Goldman Sachs, have interests that may be different from, or in addition to,
the interests of our stockholders generally and that, as indicated above, the
directors nominated by affiliates of Goldman Sachs abstained from the vote by
our board of directors approving the financing transactions.
The Goldman Sachs investors, unlike our other stockholders,
will maintain their ownership percentage in our common stock (assuming the
conversion of all shares of our convertible preferred stock) at the closing of
the financing transactions consistent with their rights under the existing
governance agreement entered into in 2000, and will continue to be entitled to
certain board representation, approval and other rights, as more fully
described under the heading "Terms of the Financing Transactions - The
Stockholders Agreement and the Amended and Restated Governance Agreement."
Upon the closing of the financing transactions, David E.
Berges, our CEO, will receive an option to purchase 200,000 shares of our
common stock with an exercise price equal to the closing price of our common
stock on the date of grant.
Our board of directors was aware of these interests and
considered them, among other matters, in making its recommendation. See " -
Recommendation of the Board of Directors; Reasons for the Financing
Transactions."
Certain Accounting Matters
Concurrently with the issuance of our series A convertible
preferred stock and series B convertible preferred stock, we may record a
beneficial conversion charge. The beneficial conversion charge would be
calculated in accordance with the provisions of EITF 00-27 "Application of
Issue 98-5 to Certain Convertible Instruments" and is the difference between
the aggregate purchase price paid for our series A convertible preferred stock
and series B convertible preferred stock and the deemed fair market value of
our common stock into which our series A convertible preferred stock and
series B convertible preferred stock is convertible, limited to the total
proceeds received by us from the sale of our series A convertible preferred
stock and series B convertible preferred stock. Accordingly, a deemed
preferred dividend, if any, as of the issuance date will not be determined
until such date. Such amount would be recognized as a charge to accumulated
deficit and net loss attributable to common stockholders, and as an increase
to additional paid-in capital.
We have been informed by PricewaterhouseCoopers LLP, our
independent accountants, that, in the event the financing transactions
described in this proxy statement are not completed by the time the report of
our independent accountants on our financial statements as of and for the year
ended December 31, 2002 is issued, such report will likely include an
explanatory paragraph. We anticipate that the explanatory paragraph would
describe that our inability to meet scheduled 2003 debt maturities and comply
with various debt covenants through 2003 raises substantial doubt about our
ability to continue as a going concern.
Our plans for resolving our liquidity uncertainties are
described more fully in "The Financing Transactions Proposal."
A representative of PricewaterhouseCoopers LLP will be
present at the special meeting. The representative will have an opportunity to
make a statement and will be available to respond to any questions.
TERMS OF THE FINANCING TRANSACTIONS
The following is a summary of the material terms of the
financing transactions and the agreements relating to the financing
transactions. The following summary is qualified in its entirety by reference
to the applicable agreements, which we have filed with the SEC as exhibits to
our Current Report on Form 8-K filed on December 20, 2002. That Current Report
is incorporated by reference into this document. We encourage you to read the
agreements relating to the financing transactions in their entirety.
General
In connection with the financing transactions:
o we and the Berkshire and Greenbriar investors entered into a stock
purchase agreement and we will enter a stockholders agreement and a
registration rights agreement with the Berkshire and Greenbriar
investors at the closing of the financing transactions; and
o we and the Goldman Sachs investors entered into a stock purchase
agreement and we will enter into an amendment and restatement of the
governance agreement and the registration rights agreement that we
entered into in 2000 with the Goldman Sachs investors at the closing
of the financing transactions.
The Stock Purchase Agreements
In the financing transactions, we will issue and sell shares
of our series A convertible preferred stock, without par value, and shares of
our series B convertible preferred stock, without par value, to the Berkshire
and Greenbriar investors and to the Goldman Sachs investors pursuant to the
terms and subject to the conditions contained in separate stock purchase
agreements.
Investment by the Berkshire and Greenbriar Investors
On December 18, 2002, we entered into a stock purchase
agreement with the Berkshire and Greenbriar investors. Pursuant to the terms
and conditions of the Berkshire and Greenbriar stock purchase agreement, we
agreed to sell shares of our preferred stock to the Berkshire and Greenbriar
investors for an aggregate purchase price of approximately $77.9 million
(before giving effect to the payment of certain transaction costs). The sale
will be comprised of 77,875 shares of our series A convertible preferred stock
and 77,875 shares of our series B convertible preferred stock. The terms and
relative rights and preferences of our series A convertible preferred stock
and our series B convertible preferred stock are set forth in the Certificates
of Designations that were filed as exhibits to our Current Report on Form 8-K
dated December 20, 2002 and are described below under the heading " - Terms of
Preferred Stock."
Upon the closing of the financing transactions, the shares
of our series A convertible preferred stock and series B convertible preferred
stock held by the Berkshire and Greenbriar investors will be convertible into
approximately 31 million shares of our common stock, which will represent
approximately 35.2% of our outstanding voting securities.
Berkshire Partners LLC is an active investor in the private
equity market managing approximately $3.5 billion of equity capital, with a
primary focus on building solid, growth-oriented companies in conjunction with
strong, equity-oriented management teams. Berkshire invests in a broad range
of industries, including manufacturing, retailing and related services,
telecommunications, business services and transportation. Greenbriar Equity
Group LLC is focused exclusively on making private equity investments in the
global transportation industry, including companies in freight and passenger
transport, commercial aerospace, automotive, logistics, and related sectors.
Greenbriar and Berkshire have entered into a strategic joint venture and
co-investment agreement to address transportation and related investment
activities. Greenbriar manages $700 million of committed limited partner
capital and co-investment commitments and, together with Berkshire, has access
to more than $1 billion for investment in privately negotiated equity
investments within the transportation industry.
Investment by Goldman Sachs Investors
On December 18, 2002, we entered into a stock purchase
agreement with the Goldman Sachs investors. Pursuant to the terms and
conditions of the Goldman Sachs stock purchase agreement, we agreed to sell
shares of our preferred stock for an aggregate purchase price of approximately
$47.1 million to the Goldman Sachs investors (before giving effect to the
payment of certain transaction costs). The sale will be comprised of 47,125
shares of our series A convertible preferred stock and 47,125 shares of our
series B convertible preferred stock. Affiliates of Goldman Sachs currently
own approximately 37.8% of the outstanding shares of our common stock, which
they purchased in December 2000 and which excludes options granted to certain
directors of Hexcel designated by the Goldman Sachs investors and held for the
benefit of The Goldman Sachs Group, Inc. For a more detailed summary of our
common stock beneficially owned by the Goldman Sachs investors, you should
refer to "Security Ownership of Certain Beneficial Owners and Management." The
investment pursuant to the Goldman Sachs stock purchase agreement will enable
affiliates of Goldman Sachs to maintain their current ownership percentage of
our voting securities, consistent with their rights under the governance
agreement entered into in December 2000.
Upon the closing of the financing transactions, the shares
of our series A convertible preferred stock and series B convertible preferred
stock held by the Goldman Sachs investors will be convertible into
approximately 18.8 million shares of our common stock, which, when added to
the shares of our common stock currently held by affiliates of Goldman Sachs,
will represent approximately 37.8% of our outstanding voting securities.
GS Capital Partners 2000, L.P. is the current primary
investment vehicle of Goldman Sachs for making privately negotiated equity
investments. The current GS Capital Partners 2000, L.P. fund was formed in
July 2000 with total committed capital of $5.25 billion, $1.5 billion of which
was committed by Goldman Sachs and its employees, with the remainder committed
by institutional and individual investors.
Conditions to Financing Transactions
The obligations of the parties to close the financing
transactions under each of the stock purchase agreements are subject to:
o the absence of laws, regulations or orders which prohibit the
financing transactions;
o the approval by our stockholders of the financing transactions
proposal and charter amendment proposal;
o the completion of the senior debt refinancing as described under the
heading " - Senior Debt Refinancing";
o the receipt of all required material foreign governmental approvals;
o the approval for listing on the New York Stock Exchange, or NYSE, and
the Pacific Exchange, or PCX, of the shares of our common stock
issuable upon conversion of our preferred stock, subject to official
notice of issuance; and
o our receipt of not less than $47,125,000 in gross proceeds from the
sale of our preferred stock to investors other than the Berkshire and
Greenbriar investors (in the case of the Berkshire and Greenbriar
stock purchase agreement) or our receipt of not less than
$77,875,0000 in gross proceeds from the sale of our preferred stock
to investors other than the Goldman Sachs investors (in the case of
the Goldman Sachs stock purchase agreement), as the case may be.
The obligations of the Berkshire and Greenbriar investors
and the Goldman Sachs investors to close the financing transactions are also
subject to:
o the accuracy of our representations and warranties as of the date of
the stock purchase agreements and as of the closing date;
o the performance by us in all material respects of our obligations
required to be performed by us under the stock purchase agreements at
or prior to the closing;
o the resignation of one of our current directors effective as of the
closing;
o the absence of any change, event or development which has had or
would reasonably be expected to have a material adverse effect on us
since June 30, 2002;
o our execution and delivery of the stockholders agreement and
registration rights agreement (in the case of the Berkshire and
Greenbriar stock purchase agreement) or the amended and restated
governance agreement and the amended and restated registration rights
agreement (in the case of the Goldman Sachs stock purchase
agreement);
o the receipt by the Berkshire and Greenbriar investors of a resolution
of our board of directors affirmatively determining that, under the
New York Stock Exchange's proposed corporate governance rules, no
relationship will have been created between us and either Joel S.
Beckman or Robert J. Small, the proposed nominees to our board of
directors of the Berkshire and Greenbriar investors, solely by the
execution of the Berkshire and Greenbriar stock purchase agreement,
the stockholders agreement and the registration rights agreement,
that would preclude our board of directors from determining that
either Mr. Beckman or Mr. Small is an "independent director";
o the receipt by the Berkshire and Greenbriar investors and the Goldman
Sachs investors of a certificate of our Chief Executive Officer and
Chief Financial Officer certifying that the financing transactions do
not violate the terms of the senior debt refinancing, and, to their
good faith belief, based on projections prepared by us using
assumptions believed to be reasonable in good faith, that we will be
able to satisfy the financial covenants contained in the senior debt
refinancing;
o the filing and effectiveness of the Certificates of Designations
relating to our preferred stock;
o the receipt by the Berkshire and Greenbriar investors and the Goldman
Sachs investors of a legal opinion from Skadden Arps; and
o the absence of any amendment, waiver, termination, modification or
other alteration in any material respect of the provisions of any
agreement with respect to an investment in our convertible preferred
stock.
Our obligation to close the financing transactions under the
stock purchase agreements is also subject to:
o the accuracy in all material respects of the representations and
warranties of the Berkshire and Greenbriar investors or the Goldman
Sachs investors, as the case may be, as of the date of the stock
purchase agreements and as of the closing date;
o the performance by the Berkshire and Greenbriar investors or the
Goldman Sachs investors, as the case may be, in all material respects
of the obligations required to be performed by them under their
respective stock purchase agreements at or prior to the closing;
o the execution and delivery of the stockholders agreement and
registration rights agreement (in the case of the Berkshire and
Greenbriar investors) and the execution and delivery of the amended
and restated governance agreement and the amended and restated
registration rights agreement (in the case of the Goldman Sachs
investors); and
o our receipt of a legal opinion from Ropes & Gray (special counsel to
the Berkshire and Greenbriar investors) and a legal opinion from
Fried, Frank, Harris, Shriver & Jacobson (special counsel to the
Goldman Sachs investors).
Representations and Warranties
Both stock purchase agreements contain customary
representations and warranties made by us and by the Berkshire and Greenbriar
investors or the Goldman Sachs investors, as the case may be. These
representations and warranties are subject, in some cases, to specified
exemptions and qualifications.
Conduct of Business Prior to the Closing
Prior to the closing or earlier termination of the stock
purchase agreements, subject to specified exceptions, we agreed to conduct our
business in the ordinary course of business and consistent with past practice,
use reasonable best efforts to preserve our assets, goodwill and third party
relationships, maintain our books and records in the ordinary manner and
consistent with past practice and comply in all material respects with
applicable laws.
In addition, subject to specified exceptions, we agreed not
to:
o amend our organizational documents, except as contemplated by the
stock purchase agreements;
o incur or guarantee any indebtedness other than in the normal course
of business as permitted under our senior credit facility;
o declare or pay any dividend or distribution or redeem or repurchase
any of our securities, except as required by the terms of such
securities;
o take any action that is reasonably likely to cause our
representations and warranties to be untrue or the closing conditions
to not be satisfied;
o amend, waive or terminate in any material respect the provisions of
any agreement with respect to an investment in our convertible
preferred stock; or
o agree to take any of the above actions.
Prior to the closing of the financing transactions, we may,
without the approval of the Berkshire and Greenbriar investors or the Goldman
Sachs investors, (1) enter into mergers or other business combinations and
sell or otherwise dispose of our assets if the value of such transaction
together with the value of similar transactions in the previous twelve months
is less than the greater of $75 million or 11% of our total consolidated
assets and (2) issue our equity securities if the value of such transaction
together with the value of similar transactions in the previous twelve months
is less than $25 million.
Senior Debt Refinancing
Pursuant to the stock purchase agreements, we agreed to use
our reasonable best efforts to complete the refinancing of our senior credit
facility on substantially the terms contemplated by the stock purchase
agreements. See " - Senior Debt Refinancing."
Commitment to Vote in Favor of Proposals
The Goldman Sachs investors hold approximately 37.8% of the
shares of our outstanding common stock, which excludes options granted to
certain of our directors designated by the Goldman Sachs investors and held
for the benefit of The Goldman Sachs Group, Inc. For a more detailed summary
of the Hexcel common stock beneficially owned by the Goldman Sachs investors,
you should refer to "Security Ownership of Certain Beneficial Owners and
Management." Subject to specified exemptions described below, under the
Goldman Sachs stock purchase agreement, the Goldman Sachs investors have
agreed to vote all of their shares of our outstanding common stock in favor of
each of the proposals described in this proxy statement. The Goldman Sachs
investors will not be required to vote these shares of our common stock in
favor of the proposals if:
o our board of directors withdraws or adversely modifies its
recommendations in favor of the proposals;
o we materially breach our obligations under the Goldman Sachs stock
purchase agreement;
o we have experienced a material adverse effect since June 30, 2002;
o we have not either received an executed commitment letter or entered
into definitive agreements for the senior debt refinancing on terms
no less favorable to us than those described in the Goldman Sachs
stock purchase agreement, or if the commitment letter or definitive
agreements are adversely modified, withdrawn or otherwise terminated;
or
o the Houlihan Lokey fairness opinions described elsewhere in this
proxy statement are withdrawn or materially adversely modified.
No Solicitation
Prior to the closing of the financing transactions, without
the consent of the Berkshire and Greenbriar investors and the Goldman Sachs
investors, we and our representatives are not permitted to, directly or
indirectly:
o solicit, initiate, encourage, or facilitate any third party proposal
or indication of interest which would involve the direct or indirect
acquisition of a business or assets representing 20% or more of our
assets, net income or net revenues, 20% or more of our equity or any
merger, other business combination, liquidation or similar
transaction involving us, other than the financing transactions
described in this proxy statement, any such proposal being referred
to in this proxy statement as an "alternate proposal";
o in connection with such an alternate proposal, engage in discussions
or negotiations with any person; or
o in connection with such an alternate proposal, disclose any nonpublic
information concerning us or provide access to our books, records or
facilities to any person that has made or, to our knowledge, is
considering making an alternate proposal.
However, at any time prior to the closing, in the event we
receive an unsolicited alternate proposal, we may (1) make such inquiries or
conduct such discussions with respect to such alternate proposal as our board
of directors, after consulting with outside legal counsel, may deem necessary
to inform itself for the purposes of exercising its fiduciary duties and (2)
may conduct such additional discussions or provide such information as our
board of directors may determine if:
o our board of directors determines in good faith (after receiving
advice of a financial advisor of nationally recognized reputation)
that such alternate proposal is reasonably likely to result in a
superior proposal (as defined below);
o prior to such additional discussions or provision of information, our
board of directors determines in good faith (after consulting with
outside legal counsel) that the failure to take such action would
reasonably be expected to constitute a breach of its fiduciary duties
under applicable law; and
o prior to providing any information, the recipient of such information
enters into a confidentiality agreement.
A "superior proposal" is defined as a bona fide alternate
proposal, which does not contain a due diligence condition, that our board of
directors determines in good faith (after consultation with a financial
advisor of nationally recognized reputation) to be more favorable from a
financial point of view to our stockholders than the financing transactions,
taking into account any changes to the financing transactions that have been
proposed by the Berkshire and Greenbriar investors or the Goldman Sachs
investors, as applicable, in response to such proposal.
We agreed to promptly (and in no event later than two
business days after receipt of any alternate proposal) notify the Berkshire
and Greenbriar investors and the Goldman Sachs investors upon our receipt of
any unsolicited alternate proposal (or any amendment to a previously submitted
alternate proposal) or any inquiry that could reasonably be expected to lead
to an alternate proposal and of the identity of the person making such
alternate proposal or inquiry and the material terms and conditions of such
alternate proposal or inquiry.
Prior to the closing of the financing transactions, our
board of directors may withdraw its recommendation of the financing
transactions or approve or recommend, or cause us to enter into an agreement
with respect to, a superior proposal under certain circumstances. These are:
o if our board of directors determines in good faith (after consulting
with outside legal counsel) that such withdrawal or approval or
recommendation of, or entering into of an agreement with respect to,
a superior proposal may reasonably be expected to be required to
satisfy its fiduciary duties;
o if we provide written notice to the Berkshire and Greenbriar
investors and the Goldman Sachs investors specifying the material
terms and conditions of the superior proposal and identifying the
person making such superior proposal;
o if the Berkshire and Greenbriar investors or the Goldman Sachs
investors, as applicable, do not, within five business days of
receipt of notice of the superior proposal, make an offer which our
board of directors determines in good faith (based upon the advice of
a financial advisor of nationally recognized reputation) to be as
favorable to our stockholders as such superior proposal; and
o if the applicable stock purchase agreement has been or is
concurrently terminated and, in the case of the Berkshire and
Greenbriar stock purchase agreement, we have paid the required
termination fees to the Berkshire and Greenbriar investors.
Certain Payments and Reimbursement of Expenses
Pursuant to the Berkshire and Greenbriar stock purchase
agreement, we will pay Berkshire Partners LLC and Greenbriar Equity Group LLC
at the closing of the financing transactions or upon termination of the stock
purchase agreement a transaction fee equal to $1,500,000 in the aggregate,
subject to reduction as provided below.
The transaction fee payable to Berkshire Partners LLC and
Greenbriar Equity Group LLC will be reduced to $750,000 if the Berkshire and
Greenbriar stock purchase agreement is terminated:
o either by us or by the Berkshire and Greenbriar investors if either
the financing transactions proposal or the charter amendment proposal
is not approved by our stockholders at the special meeting; or
o either by us or by the Berkshire and Greenbriar investors because of
the failure to satisfy the conditions relating to the absence of
legal restraints prohibiting the financing transactions, the
completion of the senior debt refinancing, the receipt of material
foreign governmental approvals or the approval for listing on the
NYSE and the PCX of the shares of our common stock issuable upon the
conversion of the convertible preferred stock to be issued in the
financing transactions (provided that the failure of the Berkshire
and Greenbriar investors to fulfill any obligation under the
agreement did not result in the failure of such condition).
However, no transaction fee is payable to Berkshire Partners
LLC and Greenbriar Equity Group LLC if the Berkshire and Greenbriar stock
purchase agreement is terminated:
o by the Berkshire and Greenbriar investors because of the occurrence
of a material adverse effect on us since June 30, 2002, or because of
any inaccuracy of a representation or warranty due to an event
occurring after the date of the agreement which constitutes a
material adverse effect on us; or
o by us because of the inaccuracy of the representations and warranties
of the Berkshire and Greenbriar investors as of the date of the
agreement or as of the closing date or the breach in any material
respect by the Berkshire and Greenbriar investors of their material
obligations under the agreement, which inaccuracy or breach is
incapable of being cured by May 30, 2003.
As required by the terms of the Berkshire and Greenbriar
stock purchase agreement, upon execution of the Berkshire and Greenbriar stock
purchase agreement, we paid Berkshire Partners LLC and Greenbriar Equity Group
LLC $550,000 (an amount intended to approximate the expenses incurred by the
Berkshire and Greenbriar investors in connection with the financing
transactions through September 11, 2002) plus $197,390 (an amount equal to 50%
of all reasonable, documented, out-of-pocket legal, travel and accounting
expenses incurred by them in connection with the financing transactions from
September 11, 2002 to the date of the agreement).
Upon the earlier to occur of the closing of the financing
transactions and two business days following the termination of the Berkshire
and Greenbriar stock purchase agreement, we will pay Berkshire Partners LLC
and Greenbriar Equity Group LLC 50% of all reasonable, documented,
out-of-pocket legal, travel and accounting expenses incurred by the Berkshire
and Greenbriar investors in connection with the financing transactions from
September 11, 2002 to the date of the agreement, plus all reasonable,
documented, out-of-pocket legal, travel and accounting expenses incurred by
the Berkshire and Greenbriar investors in connection with the financing
transactions from the date of the Berkshire and Greenbriar stock purchase
agreement until the earlier to occur of the closing of the financing
transactions and the date of termination of the Berkshire and Greenbriar stock
purchase agreement. However, in the event we terminate the agreement because
the Berkshire and Greenbriar investors breach any of their representations,
warranties or covenants under the agreement (which breach is incapable of
being cured by May 30, 2003), we will not be required to pay the expenses
incurred by the Berkshire and Greenbriar investors after the date of the
agreement.
Pursuant to the Goldman Sachs stock purchase agreement, at
the closing of the financing transactions we will make certain payments to the
Goldman Sachs investors equal to $907,705 in the aggregate.
As required by the terms of the Goldman Sachs stock purchase
agreement, upon execution of the Goldman Sachs stock purchase agreement, we
paid the Goldman Sachs investors $320,907.92 (an amount equal to 50% of all
reasonable, documented, out-of-pocket legal, travel and accounting expenses
incurred by them in connection with the financing transactions through the
date of the Goldman Sachs stock purchase agreement).
Upon the earlier to occur of the closing of the financing
transactions and two business days following the termination of the Goldman
Sachs stock purchase agreement, we will pay the Goldman Sachs investors 50% of
all reasonable, documented, out-of-pocket legal, travel and accounting
expenses incurred by them in connection with the financing transactions, plus
all reasonable, documented, out-of-pocket legal, travel and accounting
expenses incurred by them in connection with the financing transactions from
the date of the Goldman Sachs stock purchase agreement until the earlier to
occur of the closing of the financing transactions and the date of termination
of the Goldman Sachs stock purchase agreement, subject to an aggregate cap of
$500,000. However, in the event we terminate the agreement because the Goldman
Sachs investors breach any of their representations, warranties or covenants
under the agreement (which breach is incapable of being cured by May 30,
2003), we will not be required to pay the expenses incurred by the Goldman
Sachs investors after the date of the agreement.
Termination
Each stock purchase agreement may be terminated by mutual
consent of the parties to such agreement.
The stock purchase agreements may be terminated by either us
or the Berkshire and Greenbriar investors or the Goldman Sachs investors, as
the case may be, under the following circumstances:
o if the closing of the financing transactions has not occurred on or
before May 30, 2003 (provided that this right to terminate will not
be available to any party whose failure to fulfill any obligation
under the applicable stock purchase agreement was the cause of, or
resulted in, the failure of the closing to occur on or before such
date);
o if any governmental entity issues an injunction permanently
restraining the financing transactions that has become final and
non-appealable (provided that this right to terminate will not be
available to any party whose breach resulted in the issuance of the
injunction); or
o if the approval of the financing transactions proposal and the
charter amendment proposal by our stockholders is not obtained at the
special meeting (provided that this right to terminate will not be
available to any party whose breach resulted in the failure to obtain
the approval).
In addition, we may terminate either stock purchase
agreement if:
o we receive a superior proposal and our board of directors has
complied with the provisions of the agreement described above under "
- No Solicitation"; or
o the Berkshire and Greenbriar investors or the Goldman Sachs
investors, as the case may be, breach any of their representations,
warranties or covenants under the applicable stock purchase
agreement, and such breach is incapable of being cured prior to May
30, 2003.
In addition, the Berkshire and Greenbriar investors or the
Goldman Sachs investors, as the case may be, may terminate the applicable
stock purchase agreement if:
o our board of directors (or any committee of our board of directors)
withdraws or adversely modifies its approval or recommendation of the
financing transactions;
o we breach any of our representations, warranties or covenants under
the applicable stock purchase agreement, and such breach is incapable
of being cured prior to May 30, 2003; or
o any material adverse effect on us occurs subsequent to the date of
the applicable stock purchase agreement which is incapable of being
cured prior to May 30, 2003.
We will pay Berkshire Partners LLC and Greenbriar Equity
Group LLC a termination payment equal to $3,115,000, less (1) any transaction
fee paid or payable by us and (2) 50% of the amount of expenses of the
Berkshire and Greenbriar investors paid or payable by us if:
o the Berkshire and Greenbriar investors terminate the stock purchase
agreement because our board of directors (or any committee of our
board of directors) withdraws or adversely modifies its approval or
recommendation of the financing transactions;
o we terminate the stock purchase agreement because we receive a
superior proposal and our board of directors has complied with the
provisions of the agreement described above under " - No
Solicitation"; or
o the Berkshire and Greenbriar investors terminate the stock purchase
agreement as a result of the failure to satisfy the condition
relating to our receipt of not less than $47,125,000 in proceeds from
the sale of our preferred stock to investors other than the Berkshire
and Greenbriar investors;
and, in any such case, we complete a transaction that constitutes an alternate
proposal within nine months after the date the agreement is terminated.
No termination fee is payable to the Goldman Sachs investors
under the Goldman Sachs stock purchase agreement.
Survival of Representations and Warranties; Indemnification
Under the stock purchase agreements, the representations and
warranties of each party survive for 12 months after the closing, except for
(1) the representations and warranties relating to our organization, the due
authorization of the financing transactions, the related documentation and the
convertible preferred stock and our capitalization, which expire 60 days after
the expiration of the applicable statute of limitations and (2) the
representations and warranties relating to our compliance with laws, which
expire 18 months after the closing of the financing transactions.
Under the stock purchase agreements, we will indemnify the
Berkshire and Greenbriar investors and related parties and the Goldman Sachs
investors and related parties for any losses they incur arising from (1) a
breach of any representations, warranties or covenants made by us or (2) any
actual or threatened litigation against them in connection with the financing
transactions.
The Berkshire and Greenbriar investors and the Goldman Sachs
investors will each indemnify us for any losses we incur arising from a breach
of any of their respective representations, warranties or covenants.
With respect to any indemnification claims made by any party
for breaches of representations and warranties, the party providing
indemnification will only be responsible for amounts in excess of $2,000,000.
The maximum amount payable by a party providing indemnification will be
$20,000,000, in the case of the Berkshire and Greenbriar stock purchase
agreement, and $10,000,000, in the case of the Goldman Sachs stock purchase
agreement; provided, the maximum amount payable by us for losses incurred due
to our breach of the representations and warranties relating to our SEC
filings will equal the applicable purchase price provided for in the
applicable agreement.
Except in cases of fraud, the right to indemnification
provided in the stock purchase agreements is the sole post-closing remedy for
breaches of representations and warranties under the stock purchase
agreements.
The Stockholders Agreement and the Amended and Restated Governance Agreement
The Berkshire and Greenbriar investment will be subject to
the terms and conditions of the stockholders agreement we will enter into with
the Berkshire and Greenbriar investors at the closing of the financing
transactions. The Goldman Sachs investment will be subject to the terms and
conditions of the amended and restated governance agreement we will enter into
with the Goldman Sachs investors at the closing of the financing transactions.
Board Representation
The stockholders agreement provides that our board of
directors will consist of ten directors and that:
o for so long as the Berkshire and Greenbriar investors beneficially
own 15% or more of the total "voting power" (as defined below) of our
voting securities and have not sold or otherwise disposed of shares
representing 66 2/3% or more of the voting power of our securities
that they will acquire in the financing transactions, any slate of
nominees for election to our board of directors will consist of two
nominees nominated by the Berkshire and Greenbriar investors and
eight nominees not nominated by the Berkshire and Greenbriar
investors, and at least five of these eight nominees must be
"independent" nominees (as defined below);
o in the event (1) the Berkshire and Greenbriar investors beneficially
own 15% or more of the total voting power of our voting securities
and have sold or otherwise disposed of shares representing 66 2/3% or
more of the voting power of our securities that they will acquire in
the financing transactions or (2) the Berkshire and Greenbriar
investors beneficially own less than 15% but at least 10% of the
total voting power of our voting securities, any slate of nominees
for election to our board of directors will consist of one nominee of
the Berkshire and Greenbriar investors and nine nominees not
nominated by the Berkshire and Greenbriar investors, and at least six
of these nine nominees must be independent nominees; and
o in the event the total voting power of our voting securities
beneficially owned by the Berkshire and Greenbriar investors at any
time is below 10%, the stockholders agreement will terminate and the
Berkshire and Greenbriar investors will have no further right to
nominate any of our directors.
Under the stockholders agreement, "voting power" means the
portion of all of our common stock, our convertible preferred stock and any
other of our voting securities outstanding held by the Berkshire and
Greenbriar investors. "Voting power" would also include all of our voting
securities that could be issued to the Berkshire and Greenbriar investors upon
the exercise or conversion of any outstanding securities, such as options,
beneficially owned by the Berkshire and Greenbriar investors.
For purposes of the stockholders agreement and the amended
and restated governance agreement and the description of such agreements in
this proxy statement, the terms "independent nominee" and "independent
director" refer to a nominee or director who is not and has never been an
officer, employee or director of any of the Berkshire and Greenbriar investors
or the Goldman Sachs investors and has no affiliation or relationship with any
of the Berkshire and Greenbriar investors or the Goldman Sachs investors that
would cause a reasonable person to regard the person as likely to be unduly
influenced by any of the Berkshire and Greenbriar investors or the Goldman
Sachs investors.
The Berkshire and Greenbriar investors will initially
nominate Robert J. Small and Joel S. Beckman to our board of directors. Upon
the closing of the financing transactions, a sufficient number of our
independent directors will resign in order to permit the appointment of these
nominees.
The amended and restated governance agreement with the
Goldman Sachs investors provides that our board of directors will consist of
ten directors and that:
o for so long as the Goldman Sachs investors beneficially own 20% or
more of the total "voting power" (as defined below) of our voting
securities and have not sold or otherwise disposed of shares
representing 33 1/3% or more of the voting power of our securities
that they will hold upon the closing of the financing transactions,
any slate of nominees for election to our board of directors will
consist of three nominees of the Goldman Sachs investors and seven
nominees not nominated by the Goldman Sachs investors, and at least
five of these seven nominees must be independent nominees;
o in the event (1) the Goldman Sachs investors beneficially own 20% or
more of the total voting power of our securities but sell or
otherwise dispose of shares of our common stock or our convertible
preferred stock (other than to other Goldman Sachs investors)
together representing 33 1/3% or more of the voting power of our
securities that they hold upon the closing of the financing
transactions or (2) the Goldman Sachs investors beneficially own less
than 20% but at least 15% of the total voting power of our voting
securities and have not sold or otherwise disposed of shares
representing 66 2/3% or more of the voting power of our securities
that they will hold upon the closing of the financing transactions,
any slate of nominees for election to our board of directors will
consist of two nominees of the Goldman Sachs investors and eight
nominees not nominated by the Goldman Sachs investors, and at least
six of these eight nominees must be independent nominees;
o in the event (1) the Goldman Sachs investors beneficially own less
than 20% but at least 15% of the total voting power of our voting
securities and have sold or otherwise disposed of shares representing
66 2/3% or more of the voting power of our securities that they will
hold upon the closing of the financing transactions or (2) the
Goldman Sachs investors beneficially own less than 15% but at least
10% of the total voting power of our voting securities, any slate of
nominees for election to our board of directors will consist of one
nominee of the Goldman Sachs investors and nine nominees not
nominated by the Goldman Sachs investors, and at least seven of these
nine nominees must be independent nominees; and
o in the event the total voting power of our voting securities
beneficially owned by the Goldman Sachs investors at any time is
below 10%, the amended and restated governance agreement will
terminate and the Goldman Sachs investors will have no further right
to nominate any of our directors.
Under the amended and restated governance agreement, "voting
power" means the portion of all of our common stock, our convertible preferred
stock and any other of our voting securities outstanding held by the Goldman
Sachs investors. "Voting power" would also include all of our voting
securities that could be issued to the Goldman Sachs investors upon the
exercise or conversion of any outstanding securities, such as options,
beneficially owned by the Goldman Sachs investors.
The Berkshire and Greenbriar investors and the Goldman Sachs
investors are required to vote their shares of our voting securities in favor
of the nominees for director determined in accordance with the stockholders
agreement or the amended and restated governance agreement, as the case may
be. Notwithstanding the foregoing, we may increase the size of our board of
directors through the appointment of one or more independent directors in
order to comply with any law, regulation or NYSE rule. In such an event, we
will use our commercially reasonable best efforts to give the Berkshire and
Greenbriar investors and the Goldman Sachs investors the right to nominate, as
nearly as possible, the proportion of directors as permitted by the board
representation provisions described above.
Under the stockholders agreement, for so long as the
Berkshire and Greenbriar investors are entitled to designate two or more
nominees for election to our board of directors, each committee of our board
of directors will consist of at least one director nominated by the Berkshire
and Greenbriar investors. Under the amended and restated governance agreement,
for so long as the Goldman Sachs investors are entitled to designate two or
more nominees for election to our board of directors, each committee of our
board of directors will consist of at least one director nominated by the
Goldman Sachs investors.
If at any time the number of directors the Berkshire and
Greenbriar investors or the Goldman Sachs investors are entitled to nominate
would decrease, then the Berkshire and Greenbriar investors or the Goldman
Sachs investors, as the case may be, must cause a sufficient number of
directors nominated by them to resign from our board of directors. Any
vacancies created by these resignations will be filled by the independent
directors with additional independent directors.
Approvals
Pursuant to the stockholders agreement and the amended and
restated governance agreement, for so long as the Berkshire and Greenbriar
investors (in the case of the stockholders agreement) or the Goldman Sachs
investors (in the case of the amended and restated governance agreement)
beneficially own at least 15% of the total voting power of our voting
securities, our board of directors may not approve any of the following
actions without the approval of a majority of the directors nominated by the
Berkshire and Greenbriar investors and a majority of the directors nominated
by the Goldman Sachs investors:
o any merger or other business combination involving us or any of our
subsidiaries, other than a "buyout transaction" (as defined below
under " - Buyout Transactions"), if the value of the consideration to
be paid or received by us and/or our stockholders, when added
together with the value of the consideration to be paid or received
by us in all similar transactions during the previous 12 months,
exceeds the greater of $75 million and 11% of our total consolidated
assets;
o any sale, transfer, conveyance, lease or other disposition or series
of related dispositions of any of our assets, businesses 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 $75 million and 11% of our
total consolidated assets; or
o any issuance by us or any of our significant subsidiaries of equity
securities, with exceptions for employee and director benefit plans,
intercompany issuances, conversion or exercise of outstanding
securities and issuances in connection with any mergers or other
business combinations involving us or any of our subsidiaries which
are approved by our board of directors, if the consideration received
by us for similar transactions, including the proposed transaction,
during the prior 12 months exceeds $25 million.
For so long as any directors nominated by the Berkshire and
Greenbriar investors or the Goldman Sachs investors are serving on our board
of directors, any board action will require approval of at least six
directors, at least two of which must be independent directors.
The Berkshire and Greenbriar investors have agreed with us
and the Goldman Sachs investors have agreed with us that, in any election of
directors or at any meeting of our stockholders called for the removal of
directors, so long as our board of directors includes, and will include after
the removal, any director nominated by such investors, they will be present
for purposes of establishing a quorum and will vote their shares of our voting
securities (1) in favor of any nominee for director placed by Hexcel on the
slate presented to stockholders for election to the board of directors and
selected in accordance with the terms of any applicable stockholders or
governance agreement and (2) against the removal of any director placed by
Hexcel on the slate presented to stockholders for election to the board of
directors and designated in accordance with the terms of any applicable
stockholders or governance agreement.
Other than voting for the election of directors and as
provided below under " - Standstill," the Berkshire and Greenbriar investors
and the Goldman Sachs investors are free to vote their shares of our voting
securities as they wish except:
o in connection with an offer for a buyout transaction, in which case
other restrictions apply, which are described below under " - Buyout
Transactions"; and
o the Berkshire and Greenbriar investors and the Goldman Sachs
investors must vote against any amendment to our certificate of
incorporation that would adversely affect the rights of the persons
who are entitled to indemnification under the applicable provisions
of our certificate of incorporation.
We agreed to amend our bylaws to reflect the board and
committee representation and approval provisions described above and such
other matters as we may reasonably agree.
Standstill
The Berkshire and Greenbriar investors have agreed under the
stockholders agreement and the Goldman Sachs investors have agreed under the
amended and restated governance agreement, subject to specified exceptions,
that without the approval of a majority of all of the directors, other than
those nominated by the Berkshire and Greenbriar investors and the Goldman
Sachs investors, including at least two independent directors, they will not:
o purchase or otherwise acquire any beneficial ownership of our voting
securities, except for (1) the shares to be purchased by such
investors in the financing transactions, (2) shares of our common
stock issuable upon conversion of our convertible preferred stock,
(3) shares of our common stock the beneficial ownership of which is
acquired through options granted to directors nominated by such
investors, (4) in the case of the Goldman Sachs investors, a limited
number of shares of our common stock the beneficial ownership of
which is acquired inadvertently in connection with broker dealer
activities and (5) in the case of the Berkshire and Greenbriar
investors, any additional shares of voting securities, provided that
under no circumstances may the Berkshire and Greenbriar investors own
more than 39.5% of the total voting power of our voting securities;
o 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 or in
accordance with the provisions regarding buyout transactions
described below;
o initiate or propose any stockholder proposal without the approval of
our 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 their sole
discretion under the stockholders agreement or the amended and
restated governance agreement, as the case may be;
o 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 voting securities held by such investors (other than,
in the case of Berkshire and Greenbriar investors, a group made up of
only other Berkshire and Greenbriar investors, and in the case of
Goldman Sachs investors, a group made up of only other Goldman Sachs
investors) 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;
o deposit any of our voting securities in a voting trust or enter into
any voting agreement other than the stockholders agreement or the
amended and restated governance agreement, as the case may be;
o seek representation on our board of directors, remove a director or
seek a change in the size or composition of our board of directors,
except as provided by the stockholders agreement or the amended and
restated governance agreement, as the case may be;
o make any request to amend or waive any of these standstill
provisions, which would require public disclosure under applicable
law, rule or regulation;
o 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;
o take any action challenging the validity or enforceability of the
actions listed above; or
o assist, advise, encourage or negotiate with respect to or seek to do
any of the actions listed above.
Notwithstanding the foregoing, (1) neither the Berkshire and
Greenbriar investors nor the Goldman Sachs investors may acquire, sell,
transfer or otherwise dispose of beneficial ownership of any of our voting
securities if such acquisition, sale, transfer or other disposition would
result in a default, or acceleration of amounts outstanding, under our senior
credit facility or the indenture governing our outstanding 9-3/4% senior
subordinated notes due 2009, unless, prior to such acquisition, sale, transfer
or other disposition, any required consents under these debt instruments are
obtained and (2) the Berkshire and Greenbriar investors and the Goldman Sachs
investors may propose "buyout transactions" (as defined below) after the date
that is 18 months from the closing of the financing transactions and may
participate in buyout transactions proposed by third parties, provided that
their participation is consistent with the provisions below. See " - Buyout
Transactions."
Buyout Transactions
Pursuant to each of the stockholders agreement and the
amended and restated governance agreement, the Berkshire and Greenbriar
investors and the Goldman Sachs investors, as the case may be, may not propose
or participate in a "buyout transaction" (as defined below) for a period of
eighteen months after the closing of the financing transactions, except as
described below in this section.
Pursuant to each of the stockholders agreement and the
amended and restated governance agreement, if we become the subject of a
buyout transaction proposed by a third party that is made during the term of
such agreement, and the buyout transaction is approved by a majority of our
board of directors and a majority of our "disinterested directors" (as defined
below), including two of the independent directors, the Berkshire and
Greenbriar investors and the Goldman Sachs investors, as the case may be, may
act in their sole discretion with respect to the buyout transaction.
Pursuant to each of the stockholders agreement and the
amended and restated governance agreement, if we become the subject of a
buyout transaction proposal made prior to the date that is 18 months from the
closing date of the financing transactions, and such third party offer is
either not approved by a majority of our board of directors or is approved by
a majority of our board of directors but not by a majority of our
disinterested directors, including two of our independent directors, the
Berkshire and Greenbriar investors may not, and the Goldman Sachs investors,
with respect to the shares they acquire in the financing transactions, may
not:
o support the third party offer;
o vote in favor of the third party offer; or
o tender or sell their shares of our voting securities to the person
making the third party offer.
With respect to the shares of our common stock owned by the
Goldman Sachs investors prior to the closing of the financing transactions,
the restrictions described in the immediately preceding paragraph will be
applicable from the date of execution of the amended and restated governance
agreement until December 19, 2003.
Pursuant to each of the stockholders agreement and the
amended and restated governance agreement, if we become the subject of a
buyout transaction proposed by a third party, the Berkshire and Greenbriar
investors or the Goldman Sachs investors that is made after the date that is
18 months from the closing date of the financing transactions, and the offer
is either not approved by a majority of our board of directors or is approved
by a majority of our board of directors but not by a majority of our
disinterested directors, including two of our independent directors, then the
Berkshire and Greenbriar investors must, and the Goldman Sachs investors, with
respect to the shares they acquire in the financing transactions, must:
o vote their shares of our voting securities against the buyout
transaction in proportion to the votes cast by our other stockholders
against the buyout transaction; and
o not tender or sell their shares of our voting securities to the
person proposing the buyout transaction in a proportion greater than
the tenders or sales made by our other stockholders to the person
proposing the buyout transaction.
With respect to the shares of our common stock owned by the
Goldman Sachs investors prior to the closing of the financing transactions,
the restrictions described in the immediately preceding paragraph will be
applicable after December 19, 2003.
A "buyout transaction" is defined as (1) a tender offer,
merger or any similar transaction that offers holders the opportunity to
dispose of their shares of our voting securities or otherwise contemplates the
acquisition by any person or group of our voting securities that would result
in such person or group beneficially owning a majority of our outstanding
voting securities or (2) a sale of all or substantially all of our assets.
A "disinterested director" is defined with respect to any
buyout transaction as any of our directors who is not an interested director
within the meaning of Section 144 of the Delaware General Corporation Law with
respect to such buyout transaction, it being understood that no directors
nominated by the Berkshire and Greenbriar investors or the Goldman Sachs
investors will be deemed to be not interested with respect to such buyout
transaction.
Issuance of Additional Securities
For so long as the Berkshire and Greenbriar investors and
the Goldman Sachs investors are entitled to each designate one or more
nominees for election to our board of directors, if we issue any additional
voting securities for cash, the Berkshire and Greenbriar investors and the
Goldman Sachs investors will each have the option to purchase an amount of
securities that would allow them to maintain their respective percentage
ownership of the total voting power of our voting securities after the
issuance for the same price and otherwise on the same terms as those governing
the additional issuance. However, this right will not apply to any issuance of
our voting securities upon conversion of any of our convertible securities, or
pursuant to our stock option, incentive compensation or similar plans.
Transfer Restrictions
Under the stockholders agreement and the amended and
restated governance agreement, the Berkshire and Greenbriar investors and the
Goldman Sachs investors, as the case may be, may not sell or transfer their
shares of our voting securities acquired in the financing transactions for a
period of 18 months following the closing of the financing transactions,
except for sales or transfers:
o pursuant to the Certificates of Designations governing our
convertible preferred stock;
o to affiliates of Berkshire Partners LLC or Greenbriar Equity LLC (in
the case of transfers from the Berkshire and Greenbriar investors) or
to affiliates of The Goldman Sachs Group, Inc. (in the case of
transfers from the Goldman Sachs investors), provided the transferee
agrees to be bound by the terms of the stockholders agreement or
amended and restated governance agreement, as the case may be;
o of shares of our common stock the beneficial ownership of which is
acquired through options granted to the directors nominated by the
investors; and
o in the case of the Berkshire and Greenbriar investors, of shares of
our voting securities registered pursuant to their piggyback rights
under the registration rights agreement (provided such registration
includes shares of our voting securities beneficially owned by the
Goldman Sachs investors prior to the closing of the financing
transactions).
In addition to the foregoing exceptions to the prohibition
on transfers and sales, from and after the date that is 18 months following
the closing of the financing transactions, the Berkshire and Greenbriar
investors and the Goldman Sachs investors, as the case may be, may sell or
transfer their shares of our voting securities acquired in the financing
transactions if such sales or transfers are:
o 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 of 1933;
o in a registered public offering or a non-registered offering subject
to an exemption from the registration requirements of the Securities
Act of 1933, in a manner calculated to achieve a broad distribution
(generally meaning a distribution of our voting securities that, to
the knowledge, after due inquiry, of the person on whose behalf such
distribution is being made, does not result in the acquisition by any
other person of beneficial ownership of more than 5% of our voting
securities after giving effect to such acquisition); or
o in a buyout transaction proposed by a third party, but only if
otherwise permitted by the stockholders agreement or the amended and
restated governance agreement, as the case may be, as described above
under " - Buyout Transactions."
Additionally, the Goldman Sachs investors will be prohibited
from selling or transferring the shares of our common stock beneficially owned
by them prior to the closing of the financing transactions, subject to certain
exceptions, including each of the exceptions described in this section.
Term
Each of the stockholders agreement and the amended and
restated governance agreement will terminate upon the earlier of (1) the tenth
anniversary of the closing date of the financing transactions and (2) any
event that causes the percentage of our voting securities beneficially owned
by the applicable investors to be less than 10% or equal to or more than 90%.
In addition, either party may terminate the stockholders agreement or the
amended and restated governance agreement, as applicable, if the other party
to that agreement breaches a material obligation under the stockholders
agreement or the amended and restated governance agreement, as the case may
be, and fails to cure the breach within 60 days of written notice of the
breach from the other party to that agreement.
The Registration Rights Agreements
Upon the closing of the financing transactions, we will
enter into a registration rights agreement with the Berkshire and Greenbriar
investors and an amendment and restatement of the registration rights
agreement that we entered into with affiliates of Goldman Sachs in 2000. Each
of the registration rights agreements will grant the Berkshire and Greenbriar
investors and the Goldman Sachs investors, as the case may be, three "demand"
registration rights, pursuant to which such investors may require us to use
our commercially reasonable efforts to register under the Securities Act of
1933 the shares of our common stock (or, after the third anniversary of the
original issuance date, the shares of our series A convertible preferred
stock) held by them. The applicable investors' demand must be for a number of
shares that represents at least 20% of the total voting power of the then
outstanding securities eligible for registration under the applicable
registration rights agreement owned by such investors and must have an
aggregate anticipated offering price of at least $25,000,000. In addition, no
shares of our common stock issued or issuable, directly or indirectly, upon
conversion of shares of our convertible preferred stock may be included in any
such demand request prior to the date that is 18 months from the closing of
the financing transactions.
Each of the registration rights agreements will also grant
the Berkshire and Greenbriar investors and the Goldman Sachs investors, as the
case may be, "piggyback" registration rights, pursuant to which, subject to
specified restrictions, such investors may include their shares of our common
stock (or, after the third anniversary of the original issuance date, the
shares of our series A convertible preferred stock) in any other registration
by us to sell shares of our common stock under the Securities Act of 1933.
The registration rights agreements will provide for blackout
periods during which we will be relieved from registering the shares of our
common stock otherwise eligible for registration under the registration rights
agreements. The registration rights agreements will also contain provisions
relating to the priority for inclusion of shares in an underwritten offering
in the event that the underwriters determine that the number of shares
requested to be included in the offering must be reduced.
We will generally be required to pay for all expenses in
connection with such registrations, except for underwriting discounts and
commissions relating to the shares of our common stock sold by the investors.
Terms of Preferred Stock
Our board of directors has approved the Certificates of
Designations which set forth the designations, voting powers, preferences and
relative participating, optional and other special rights of, and the
qualifications, limitations or restrictions of our series A convertible
preferred stock and our series B convertible preferred stock. The Certificates
of Designations designate 125,000 shares each of our series A convertible
preferred stock and our series B convertible preferred stock. Shares of both
the series A convertible preferred stock and the series B convertible
preferred stock are without par value. The following is a summary of the
material terms of the preferred stock and other rights of the investors, which
is qualified is its entirety by reference to the Certificates of Designations
that were filed with the SEC as exhibits to our Current Report on Form 8-K
dated December 20, 2002.
Ranking
Our preferred stock is senior to our common stock, and our
series A convertible preferred stock ranks on parity with our series B
convertible preferred stock, with respect to rights upon our liquidation,
winding up or dissolution. Our series A convertible preferred stock ranks
senior to our common stock and our series B convertible preferred stock with
respect to dividends. In this regard, unless and until full cumulative
dividends on our series A convertible preferred stock in respect of all past
quarterly dividends have been paid, we may not pay any cash dividends on
shares of our common stock. Our series B convertible preferred stock ranks on
parity with our common stock with respect to the dividends declared on our
common stock to which the holders of our series B convertible preferred stock
are entitled. See " - Dividends - Series B Convertible Preferred Stock."
Dividends
Series A Convertible Preferred Stock. Commencing on the
third anniversary of the original issuance date, holders of our series A
convertible preferred stock will be entitled to receive dividends at an annual
rate of 6% of the "accrued value," which is equal to the sum of $1,195.618 and
an amount equal to the aggregate of all accrued but unpaid dividends, whether
or not declared, that have been added to the accrued value pursuant to the
terms of the certificate of designations for our series A convertible
preferred stock, as described below. Dividends are payable on the 15th of each
January, April, July and October, commencing on the third anniversary of the
original issuance date, are cumulative whether or not they are earned or
declared and compound quarterly in arrears. We may pay the dividends on our
series A convertible preferred stock either entirely in cash or, at our
option, by allowing them to accrue and compound and become payable upon
liquidation, redemption and conversion. Such dividends will cease to accrue at
such time as our series A convertible preferred stock becomes automatically
convertible. See " - Conversion of Preferred Stock into Common Stock." In
addition, in the event that dividends (other than dividends consisting, in
whole or in part, of our common stock or securities convertible into our
common stock) are paid on our common stock, the holders of our series A
convertible preferred stock are entitled to receive such dividends on an
"as-converted" basis (disregarding, for this purpose, the conversion
limitations described below under " - Conversion of Preferred Stock into
Common Stock").
Series B Convertible Preferred Stock. In the event that
dividends (other than dividends consisting, in whole or in part, of our common
stock or securities convertible into our common stock) are paid on our common
stock, the holders of our series B convertible preferred stock are entitled to
receive such dividends on an "as converted" basis (disregarding, for this
purpose, the conversion limitations described below under " - Conversion of
Preferred Stock into Common Stock"). No other dividends accrue or are payable
on our series B convertible preferred stock.
Conversion of Preferred Stock into Common Stock.
Series A Convertible Preferred Stock. Each share of our
series A convertible preferred stock is convertible, at the option of the
holder, into a number of shares of our common stock equal to $1,000 (as
adjusted for any split, subdivision, combination, consolidation,
recapitalization or similar event with respect to our series A convertible
preferred stock) divided by a conversion price, initially set at $3.00 per
share, subject to anti-dilution adjustment (as adjusted, the "conversion
price"). The conversion price is adjustable in connection with:
o any dividends paid on our common stock in shares of our common stock
or securities convertible into our common stock and any subdivisions,
combinations, consolidations or reclassifications of the shares of
our common stock into a greater or lesser number of shares of our
common stock; and
o issuances of shares of our common stock or securities convertible
into our common stock at a price per share (or having a conversion
price per share) less than the conversion price then in effect, other
than issuances of:
o shares of our common stock, options or other securities
issued under any employee or director benefit plan approved
by our board of directors (or any duly authorized committee)
or shares of our common stock issued upon the exercise
thereof;
o shares of our common stock issuable upon the conversion of
our convertible preferred stock, our 7% convertible
subordinated notes due 2003 or our 7% convertible
subordinated debentures due 2011; or
o shares of our common stock issued by us in connection with a
mandatory redemption of our series A convertible preferred
stock, an offer to purchase our convertible preferred stock
in connection with a change of control or payment of the
conversion payment described below.
Holders of our series A convertible preferred stock may
convert their shares into our common stock at any time, except:
o to the extent that any conversion of our preferred stock would cause
the holder (together with its affiliates) to have beneficial
ownership (as defined in Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, but broadened to include the right to acquire
securities, whether or not immediately exercisable) of more than
39.9% of the voting power of our outstanding voting stock; and
o if our 9-3/4% senior subordinated notes due 2009 are outstanding and
beneficial ownership by any holder or group of holders of at least
40% of the voting power of our outstanding voting stock would
constitute a "change of control" under the terms of such notes).
In this proxy statement, we refer to the above restrictions on conversion as
the "conversion limitations." For the purpose of the conversion limitations,
any securities beneficially owned by any of the Berkshire and Greenbriar
investors will be deemed to be beneficially owned by all of the Berkshire and
Greenbriar investors.
Upon conversion of a share of our series A convertible
preferred stock, the holder will be entitled to receive, in addition to the
number of shares of common stock described above, an amount equal to such
share's "conversion payment," payable by us either entirely in cash or
entirely in shares of our common stock valued at either 90% of the closing
trading price on the conversion date (if we are paying in shares of our common
stock at our option) or 95% of the closing trading price on the conversion
date (if we are paying in shares of our common stock because we do not have
sufficient capital, surplus or other funds available or because we are
restricted by our debt instruments from making the conversion payment in
cash).
The "conversion payment" with respect to each share is equal
to the amount of dividends that have accrued and not been paid on such share
since the dividend commencement date and prior to the occurrence of the
"dividend accrual event" (as defined below).
The "dividend accrual event" occurs if and when the closing
trading price of our common stock for any period of 60 consecutive trading
days ending after the third anniversary of the original issuance date of the
convertible preferred stock exceeds $6.00 (subject to adjustment for any
split, subdivision, combination, consolidation or reclassification of our
common stock).
Subject to the conversion limitations described above, our
series A convertible preferred stock will automatically convert into our
common stock (on the conversion terms described above) if the closing trading
price of our common stock for any period of 60 consecutive trading days ending
after the third anniversary of the original issuance date of the convertible
preferred stock exceeds $9.00 (subject to adjustment for any split,
subdivision, combination, consolidation or reclassification of our common
stock).
Series B Convertible Preferred Stock. Each share of our
series B convertible preferred stock is convertible, at the option of the
holder, into a number of shares of our common stock equal to $195.618 divided
by a conversion price initially set at $3.00 per share, subject to adjustment
for any split, subdivision, combination, consolidation or reclassification of
our common stock.
Upon conversion of a share of our series B convertible
preferred stock, the holder will not be entitled to receive any conversion
payment.
Subject to the conversion limitations described above, our
series B convertible preferred stock will automatically convert into our
common stock (on the conversion terms described above) if the closing trading
price of our common stock for any period of 60 consecutive trading days ending
after the third anniversary of the original issuance date of the convertible
preferred stock exceeds $9.00 (subject to adjustment for any split,
subdivision, combination, consolidation or reclassification of our common
stock).
Mandatory Redemption.
Series A Convertible Preferred Stock. We must redeem all
outstanding shares of our series A convertible preferred stock on January 22,
2010 at a mandatory redemption price equal to the liquidation preference (as
defined below under " - Liquidation Preference"). Generally we must redeem the
shares for cash; however we shall be entitled to pay the redemption price
using shares of our common stock if the redemption price is equal to the
"participating preference amount" (as defined below under " - Liquidation
Preference") and the holder does not elect instead to receive a lower value,
the "adjusted accrued value" (as defined below under " - Liquidation
Preference"), in cash. Any shares of our common stock used as payment in a
mandatory redemption will be valued based upon the closing trading price of
our common stock on the business day immediately preceding January 22, 2010.
In the event we are unable to pay the mandatory redemption price on January
22, 2010, we must redeem as many shares as possible on a pro rata basis (both
as among holders of our series A convertible preferred stock and as between
the holders of our series A and series B convertible preferred stock,
respectively in the aggregate), and the remaining outstanding shares will
accrue dividends at an annual rate of 10% of their accrued value, compounded
quarterly in arrears, until the remaining outstanding shares are redeemed.
Series B Convertible Preferred Stock. We must redeem all
outstanding shares of our series B convertible preferred stock on January 22,
2010. The redemption will be at a mandatory redemption price equal to the
greater of $195.618 per share (as adjusted for any split, subdivision,
combination, consolidation, recapitalization or similar event with respect to
our series B convertible preferred stock) and the participating redemption
amount (as defined below), which greater amount is referred to as the
"redemption amount." Generally we must redeem the shares for cash; however we
must use shares of our common stock in such redemption if the redemption
amount is equal to the participating redemption amount and the holder does not
elect to receive cash in connection with the mandatory redemption of our
series A convertible preferred stock. If we redeem shares of our series B
convertible preferred stock for shares of our common stock, a holder of shares
of our series B convertible preferred stock will be entitled to a number of
shares of our common stock equal to $195.618 (as adjusted for any split,
subdivision, combination, consolidation, recapitalization or similar event
with respect to our series B convertible preferred stock) divided by the
conversion price then in effect for each share of our series B convertible
preferred stock such holder owns. The "participating redemption amount" is
defined as the amount that would be payable to a holder of our series B
convertible preferred stock if all outstanding shares of our series B
convertible preferred stock were converted into common stock immediately prior
to a redemption in accordance with the certificate of designations for our
series B convertible preferred stock.
Offer To Purchase Upon Change of Control
Series A Convertible Preferred Stock. In the event a change
of control (as defined in the indenture governing our 9-3/4% senior
subordinated notes due 2009) occurs, we must offer to redeem all outstanding
shares of our series A convertible preferred stock for cash or, under the
circumstances described below, our common stock, within 10 business days
following the change of control, at a redemption price per share equal to the
greater of (1) 101% of the adjusted accrued value and (2) the participating
preference amount. We shall be entitled to use shares of our common stock in
such redemption if the redemption price is equal to the participating
preference amount and the holder does not elect to receive a lower value, the
adjusted accrued value, in cash. Any shares of our common stock used in any
redemption upon a change of control will be valued based upon the closing
trading price of our common stock on the business day immediately preceding
the redemption date. In the event we are unable to pay the redemption price at
the redemption date, we must redeem as many shares as possible on a pro rata
basis (both as among holders of our series A convertible preferred stock and
as between the holders of our series A and series B convertible preferred
stock, respectively in the aggregate) and the remaining outstanding shares
will accrue dividends at an annual rate of 10% of their accrued value,
compounded quarterly in arrears, until the remaining outstanding shares are
redeemed.
Series B Convertible Preferred Stock. In the event a change
of control occurs, we must offer to redeem from each holder that number of
outstanding shares of our series B convertible preferred stock held by such
holder equal to the number of shares of our series A convertible preferred
stock that we redeem from such holder in connection with such change of
control, within 10 business days following the change of control, at a
redemption price equal to the redemption amount (as defined under " -
Mandatory Redemption - Series B Convertible Preferred Stock"). Generally we
must redeem the shares for cash; however we must use shares of our common
stock in such redemption if the redemption amount is equal to the
participating redemption amount and the holder does not elect to receive cash
in connection with the redemption of our series A convertible preferred stock
upon a change of control. If the redemption amount equals $195.618 (as
adjusted for any split, subdivision, combination, consolidation,
recapitalization or similar event with respect to our series B convertible
preferred stock) or if the holder elects to receive cash in connection with
the redemption of our series A convertible preferred stock upon a change of
control, the redemption amount will be paid by (1) paying the holder an amount
of cash equal to the "adjusted value" (as defined below) and (2) issuing a
number of shares of our common stock equal to the quotient obtained by
dividing (x) the excess of $195.618 (as adjusted for any split, subdivision,
combination, consolidation, recapitalization or similar event with respect to
our series B convertible preferred stock) over the adjusted value by (y) the
conversion price then in effect for our series B convertible preferred stock.
The "adjusted value" is defined as $195.618 (as adjusted for any split,
subdivision, combination, consolidation, recapitalization or similar event
with respect to our series B convertible preferred stock) multiplied by the
lesser of (1) 1.00 and (2) the quotient obtained by dividing the number of
days elapsed between the original issuance date and the date of liquidation or
redemption, as applicable, by 1096.
Reorganization; Consolidation; Merger; Asset Sale
In the event of:
o any capital reorganization or reclassification of our common stock
(other than a reclassification subject to the anti-dilution
adjustment described above under " - Conversion of Preferred Stock
into Common Stock");
o any consolidation or merger of us with or into another entity; or
o any sale or conveyance to another person or entity of our property as
an entirety or substantially as an entirety;
each then-outstanding share of our series A convertible preferred stock and
each then-outstanding share of our series B convertible preferred stock will
thereafter be convertible into (upon receipt of any requisite governmental
approvals) the same consideration receivable in such transaction as such
holder would have been entitled to receive in the transaction had such share
of convertible preferred stock been converted into our common stock
immediately prior to such transaction. In any such case, we will make
appropriate provision, as determined in good faith by our board of directors,
to ensure that the terms relating to dividends, voting rights, offer to
purchase upon a change of control, liquidation and dissolution and conversion
(other than mandatory conversion) will continue to be applicable to our
convertible preferred stock. We may not effect any such transaction unless the
surviving person or entity in the transaction assumes the obligation to
deliver this consideration to the holders of our preferred stock.
Voting Rights
Series A Convertible Preferred Stock. The holders of shares
of our series A convertible preferred stock will be entitled to vote on all
matters put to a vote or consent of our stockholders, voting together with the
holders of our common stock and the holders of our series B convertible
preferred stock as a single class. Each holder of shares of our series A
convertible preferred stock will have the number of votes equal to the number
of shares of our common stock into which such shares could be converted as of
the applicable record date. In addition, without the prior consent of holders
of at least 70% of the outstanding shares of our series A convertible
preferred stock, we may not (1) amend, repeal or restate our restated
certificate of incorporation or bylaws or the Certificate of Designations for
the series A convertible preferred stock in a manner that adversely affects
the rights of our series A convertible preferred stock or (2) authorize, issue
or otherwise create any shares of capital stock ranking on parity with or
senior to our series A convertible preferred stock or any additional shares of
our series A convertible preferred stock.
Series B Convertible Preferred Stock. The holders of shares
of our series B convertible preferred stock will be entitled to vote on all
matters put to a vote or consent of our stockholders, voting together will the
holders of our common stock and the holders of our series A convertible
preferred stock as a single class. Each holder of shares of our series B
convertible preferred stock will have the number of votes equal to the number
of shares of our common stock into which such shares could be converted as of
the applicable record date. In addition, without the prior consent of holders
of at least 70% of the outstanding shares of our series B convertible
preferred stock, we may not amend, repeal or restate our restated certificate
of incorporation or bylaws or the certificate of designations for the series B
convertible preferred stock in a manner that adversely affects the rights of
our series B convertible preferred stock.
Dilutive Effects of our Convertible Preferred Stock. Because
the holders of both series of our convertible preferred stock are entitled to
vote together with the holders of our common stock on an as-converted basis,
our issuance of the convertible preferred stock will have a dilutive effect on
the voting power of the current holders of our common stock (other than the
Goldman Sachs investors).
Liquidation Preference
Series A Convertible Preferred Stock. Upon our liquidation,
winding up or dissolution, or the occurrence of specified bankruptcy events,
each share of our series A convertible preferred stock is entitled to a cash
payment equal to its "liquidation preference," which is defined as an amount
equal to the greater of (1) $1,000 (as adjusted for any split, subdivision,
combination, consolidation, recapitalization or similar event with respect to
our series A convertible preferred stock), if measured prior to the third
anniversary of the original issuance date of the convertible preferred stock,
or the "adjusted accrued value" (as defined below) of such share, if measured
on or after the third anniversary of the original issuance date of the
convertible preferred stock, and (2) the "participating preference amount" (as
defined below). In the event our liquidation occurs due to a voluntary case
under the federal bankruptcy laws or any other applicable similar state or
federal law, if the liquidation preference with respect to a share of our
series A convertible preferred stock is equal to the participating preference
amount, then each holder of shares of our series A convertible preferred stock
will receive out of assets available for distribution to our stockholders a
liquidation preference that is (1) in preference to any distribution to
holders of our common stock or any other stock that ranks junior to our series
A convertible preferred stock with respect to dividend rights and rights on
liquidation, winding up and dissolution, an amount of cash with respect to
each share of our series A convertible preferred stock equal to the adjusted
accrued value and (y) thereafter, the holders of such shares will be entitled
to share in all of our remaining assets pari passu, with the holders of our
common stock (with the holders of our series A convertible preferred stock
deemed to hold the number of shares of our common stock into which such
shares, if their liquidation preference were equal to the amount by which the
participating preference amount exceeds the adjusted accrued value, would be
convertible) until the holders of our series A convertible preferred stock
have received an amount equal to the amount by which the participating
preference amount exceeds the adjusted accrued value. The payment of the
liquidation preference must be made to holders of our series A convertible
preferred stock before any payment or distribution may be made to holders of
our common stock.
The "adjusted accrued value" is defined as $1,000 (as
adjusted for any split, subdivision, combination, consolidation,
recapitalization or similar event with respect to our series A convertible
preferred stock) plus the aggregate amount of accrued but unpaid dividends
which have been added to the accrued value of such share plus the aggregate
amount of accrued but unpaid dividends which have not been added to the
accrued value of such share. The "participating preference amount" is defined
as the amount that would be payable to the holder of such share in respect of
the number of shares of our common stock issuable upon conversion of such
share if all shares of our series A convertible preferred stock were converted
into shares of our common stock immediately prior to liquidation (disregarding
the conversion limitations described above under " - Conversion of Preferred
Stock into Common Stock").
Series B Convertible Preferred Stock. Upon our liquidation,
winding up or dissolution, or the occurrence of specified bankruptcy events,
each share of our series B convertible preferred stock is entitled to the
"liquidation preference," which is defined as an amount equal to the greater
of (1) the adjusted value (as defined under " - Offer to Purchase Upon Change
of Control - Series B Convertible Preferred Stock") of such share plus the
amount of proceeds that would be distributed in such liquidation to a holder
of the number of shares of our common stock equal to the quotient obtained by
dividing the difference between $195.618 (as adjusted for any split,
subdivision, combination, consolidation, recapitalization or similar event
with respect to our series B convertible preferred stock) and the adjusted
value by $3.00 (as adjusted for any split, subdivision, combination,
consolidation or reclassification of our common stock) and (2) the
participating preference amount. The payment of the liquidation preference
must be made to holders of our series B convertible preferred stock before any
payment or distribution may be made to holders of our common stock.
Preemptive Rights
Our series A convertible preferred stock and our series B
convertible preferred stock do not carry preemptive rights, although the
Goldman Sachs investors and the Berkshire and Greenbriar investors do have
certain preemptive rights pursuant to contractual arrangements with us. See
"Terms of the Financing Transactions - The Stockholders Agreement and the
Amended and Restated Governance Agreement - Issuance of Additional
Securities."
Senior Debt Refinancing
We will seek to complete a refinancing of our existing
senior credit facility as of the closing of the financing transactions. The
closing of this refinancing is a condition to the closing of the financing
transactions.
The senior debt refinancing will be comprised of some
combination of revolving credit and overdraft facilities, term loans and/or
senior notes, subject to certain maturity requirements. The agreements
evidencing the new senior financing will contain representations and
warranties, events of default, financial, affirmative and negative covenants
(subject to certain threshold requirements) and other terms to be negotiated.
The senior debt refinancing will refinance the
then-outstanding advances under our existing senior credit facility and the
payment of all fees and expenses associated with the refinancing.
We cannot assure you that we will be able to complete the
senior debt refinancing in accordance with the terms described in this proxy
statement or otherwise. Our failure to complete the senior debt refinancing
will not affect the vote to approve the financing transactions proposal and
the charter amendment proposal.
THE CHARTER AMENDMENT PROPOSAL
Our restated certificate of incorporation authorizes the
issuance of a total of 120,000,000 shares of capital stock, consisting of
100,000,000 shares of common stock, par value $0.01 per share, and 20,000,000
shares of preferred stock, without par value. In connection with its approval
of the financing transactions, our board of directors has unanimously (with
the three directors affiliated with the Goldman Sachs investors abstaining
from the vote) declared the advisability of and approved an amendment to our
restated certificate of incorporation to increase the total number of shares
of capital stock that we are authorized to issue from 120,000,000 to
220,000,000 by increasing the number of shares of common stock that we are
authorized to issue from 100,000,000 to 200,000,000, and has resolved to
submit the proposed amendment to our stockholders. To effect the charter
amendment, we propose that Article 4 of our restated certificate of
incorporation be amended to provide as follows:
"4. CAPITALIZATION.
The total number of shares which the Corporation is authorized to
issue is 220,000,000, consisting of 20,000,000 shares of Preferred
Stock, without par value (hereinafter in this Certificate of
Incorporation called the "Preferred Stock"), and 200,000,000 shares
of Common Stock with a par value of $0.01 per share (hereinafter in
this Certificate called the "Common Stock")."
The purpose of the charter amendment is to create a
sufficient reserve of shares of our common stock for issuance (1) upon
conversion (or, under certain circumstances, redemption) of shares of our
series A convertible preferred stock and shares of our series B convertible
preferred stock, (2) in connection with equity based incentive awards pursuant
to our compensation programs, (3) upon conversion of our outstanding
convertible debt securities and (4) for our future needs in connection with
future financing transactions, acquisitions or otherwise. The approval of the
charter amendment proposal is a condition to the closing of the financing
transactions.
The increase in authorized shares of our common stock will
provide us with financial flexibility as we continue to seek to de-leverage
our balance sheet and improve our capital structure. It will provide a
potential source of financial liquidity to us through sales of our common
stock or securities convertible into our common stock. The additional
authorized shares also could be used to increase the number of shares
available for issuance to our employees under employee benefit plans. If our
board of directors deems it to be in our best interests and the best interests
of our stockholders to issue additional shares of our common stock in the
future, our board generally will not seek further authorization from our
stockholders, unless such authorization is otherwise required by applicable
law or regulations. Any future issuances of our common stock or securities
convertible into our common stock could further dilute your ownership or
voting interest in the company.
The proposed charter amendment to increase the number of
authorized shares of our common stock could, under certain circumstances, have
an anti-takeover effect, although this is not the intention of this proposal.
For example, in the event of an unsolicited attempt by a third party to
acquire control over Hexcel, an issuance of our common stock, may have the
effect of diluting the voting power of the other outstanding shares and
increasing the potential costs to acquire control of us. The charter
amendment, therefore, may have the effect of discouraging unsolicited takeover
attempts, thereby potentially limiting the opportunity for our stockholders to
dispose of their shares in connection with an unsolicited takeover offer.
On December 12, 2002, our board of directors determined that
the charter amendment is advisable and in our best interests and the best
interests of our stockholders, and approved the charter amendment.
Accordingly, our board of directors recommends that our stockholders vote FOR
the charter amendment proposal.
THE EQUITY INCENTIVE PLANS PROPOSALS
The 2003 Incentive Stock Plan
General
We previously adopted the 1998 Broad Based Incentive Stock
Plan and the Incentive Stock Plan. On May 11, 2000, our stockholders approved
the Incentive Stock Plan, which was subsequently amended as of December 19,
2000 and January 10, 2002. On December 12, 2002, the board of directors
approved, subject to adoption by our stockholders, the combination, amendment
and restatement of those two plans, which we refer to as the combined plans,
as the 2003 Incentive Stock Plan. Upon adoption by our stockholders, the 2003
Incentive Stock Plan will replace the combined plans. Any awards previously
granted under the combined plans as of the date of stockholder approval of the
2003 Incentive Stock Plan will remain outstanding pursuant to their respective
terms but will be deemed to have been granted under the 2003 Incentive Stock
Plan. In addition, however, the number of shares available for new awards
under the 2003 Incentive Stock Plan will be 5,000,000 shares greater than were
available under the combined plans immediately prior to the date of
stockholder approval of the 2003 Incentive Stock Plan.
We are submitting the 2003 Incentive Stock Plan to our
stockholders, as required by the proposed rules of the NYSE which we
anticipate will become final shortly and to meet the stockholder approval
requirement of Section 162(m) of the Internal Revenue Code of 1986, as
amended, to maximize the deductibility of compensation paid by us under the
2003 Incentive Stock Plan to named executive officers.
The following description of the 2003 Incentive Stock Plan
is not intended to be complete and is qualified in its entirety by the
complete text of the 2003 Incentive Stock Plan, a copy of which is included as
Appendix C to this proxy statement.
Description Of The Principal Features Of The Plan
Authorized Shares. Subject to adjustment as provided in the
2003 Incentive Stock Plan, the 2003 Incentive Stock Plan will authorize
14,355,348 shares for awards (subject to the last sentence of this paragraph).
Of this number, as of December 31, 2002, 7,400,479 shares were subject to
existing awards outstanding under the combined plans, which will become awards
outstanding under the 2003 Incentive Stock Plan, and 1,954,869 shares were
available for new awards under the combined plans, which will become available
for awards under the 2003 Incentive Stock Plan. Five million additional shares
of common stock will become available for new awards upon stockholder approval
of this plan. The precise number of shares that will be available for future
issuance of awards and subject to outstanding awards under the 2003 Incentive
Stock Plan will not be able to be determined until immediately prior to the
time the plan becomes effective, and will depend upon the extent to which the
shares currently authorized and subject to outstanding awards under the
combined plans cease to be subject to, or become available for re-grant under,
the terms of the combined plans (for example, upon the exercise of options,
the vesting of restricted shares, the cancellation of awards, etc.).
Purpose. The purpose of the 2003 Incentive Stock Plan is to
benefit our stockholders by enabling us and our subsidiaries to attract,
retain and provide incentives to the most highly qualified employees,
officers, directors and consultants.
Administration. The plan will be administered by the
compensation committee of our board of directors, or such other committee of
our board of directors as our board of directors may designate. The committee
has the authority to make determinations with respect to the participation of
employees, officers and consultants in the 2003 Incentive Stock Plan and the
terms of awards made to participants. The committee has the authority to
establish, among other things, vesting schedules, performance criteria,
post-termination exercise provisions and all other material terms and
conditions of awards and has the authority to accelerate the time at which any
award becomes vested or exercisable including upon the occurrence of a "change
in control" as defined in the 2003 Incentive Stock Plan. The committee has the
authority to interpret and construe the provisions of the 2003 Incentive Stock
Plan.
Eligibility. Upon selection by the committee, any employee,
officer or consultant of Hexcel or its subsidiaries or director of Hexcel is
eligible to receive discretionary awards under the 2003 Incentive Stock Plan.
Additionally, directors are eligible to receive formula awards under the 2003
Incentive Stock Plan. It is currently estimated that up to approximately 150
of our employees (including officers) and all of our directors will be
eligible to participate in the 2003 Incentive Stock Plan. The number of
eligible consultants cannot be estimated.
Discretionary Awards. The 2003 Incentive Stock Plan provides
for grants of a variety of awards, including stock options, stock options in
lieu of compensation elections, stock appreciation rights, restricted shares,
and other stock-based awards. Stock options may be either "incentive stock
options," or ISOs, which qualify under Section 422 of the Internal Revenue
Code of 1986, as amended, or "nonqualified stock options," or NQSOs, which do
not qualify under Section 422. To the extent that the aggregate fair market
value of our common stock underlying options which are intended to be ISOs and
are exercisable for the first time by any individual during any calendar year
exceeds $100,000, such options will be treated as NQSOs. The market value of a
share of our common stock as of January 23, 2003 was $3.11.
Formula Awards. Any person who becomes a director of Hexcel
for the first time and who is not a full-time employee of Hexcel or any
subsidiary is automatically granted (as of the date of his or her election or
appointment as a director) a nonqualified stock option to acquire 10,000
shares of our common stock. In addition, immediately after each annual meeting
of our stockholders, each director who is not a full-time employee of Hexcel
or any subsidiary and who is re-elected at such meeting will be granted a
nonqualified stock option to acquire 2,000 shares of our common stock. All
options described in this paragraph will be granted automatically with an
exercise price equal to the fair market value of a share of our common stock
on the date of grant and with a term of ten years. Such options will be
exercisable as to one-third of the shares subject thereto upon grant and as to
an additional one-third of the shares on the first and second anniversaries of
the date of grant. Upon the occurrence of a "change in control" of Hexcel (as
defined in the 2003 Incentive Stock Plan), each option described in this
paragraph will become fully exercisable.
Amendment and Termination. The committee has the authority
to terminate the 2003 Incentive Stock Plan or make such modifications or
amendments to the 2003 Incentive Stock Plan as it may deem advisable. No
amendment to the 2003 Incentive Stock Plan which requires stockholder approval
under applicable law, rule or regulation will become effective without the
approval of our stockholders. In addition, no termination or amendment of the
2003 Incentive Stock Plan may adversely affect the rights of a participant
under an outstanding award without the consent of such participant.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of certain
United States federal income tax consequences under current federal income tax
laws relating to awards under the 2003 Incentive Stock Plan. This summary is
not intended to be exhaustive and, among other things, does not describe
state, local or foreign income and other tax consequences. ACCORDINGLY,
PARTICIPANTS IN THE 2003 INCENTIVE STOCK PLAN SHOULD CONSULT THEIR RESPECTIVE
TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF SUCH PARTICIPATION.
Nonqualified Stock Options. An optionee will not recognize
any taxable income upon the grant of an NQSO, and we will not be entitled to a
tax deduction with respect to such grant.
Upon exercise of an NQSO, the excess of the fair market
value of the acquired shares of our common stock on the exercise date over the
exercise price will be taxable as compensation income to the optionee and will
be subject to applicable withholding taxes. We will generally be entitled to a
tax deduction at that time in the amount of such compensation income. The
optionee's tax basis for the shares of our common stock received pursuant to
the exercise of an NQSO will equal the sum of the compensation income
recognized and the exercise price.
In the event of a sale or other disposition of shares of our
common stock received upon the exercise of an NQSO, any appreciation or
depreciation after the exercise date generally will be taxed as capital gain
or loss and will be long-term capital gain or loss if the holding period for
such shares of our common stock (which begins upon such exercise) is more than
one year.
Incentive Stock Options. An optionee will not recognize any
taxable income at the time of grant or timely exercise of an ISO and we will
not be entitled to a tax deduction with respect to such grant or exercise.
Exercise of an ISO may, however, give rise to taxable compensation income to
the optionee, and a corresponding tax deduction to us, if the ISO is not
exercised on a timely basis (generally, while the optionee is employed by us
or one of our subsidiaries or within 90 days after termination of employment)
or if the optionee engages in a "disqualifying disposition" as described
below. The exercise of an ISO or the disqualifying disposition of shares
acquired upon the exercise of an ISO should not be subject to federal income
tax withholding. In addition, the Internal Revenue Service has announced that
employment taxes will not apply to the exercise of an ISO that occurs before
January 1 of the year that follows the second anniversary of the publication
of final guidance by the IRS. The difference between (a) the fair market value
of the shares of our common stock on the date of exercise of an ISO and (b)
the exercise price constitutes an item of tax preference for purposes of the
federal alternative minimum tax.
A sale or exchange by an optionee of shares of our common
stock acquired upon the exercise of an ISO more than one year after the
transfer of such shares of our common stock to such optionee and more than two
years after the date of grant of the ISO generally will result in any
difference between the net sale proceeds and the exercise price being treated
as long-term capital gain or loss to the optionee. If such sale or exchange
takes place within two years after the date of grant of the ISO or within one
year from the date of transfer of shares of our common stock to the optionee,
such sale or exchange will generally constitute a "disqualifying disposition"
of such shares of our common stock that will have the following results: any
excess of (1) the lesser of (a) the fair market value of the shares of our
common stock at the time of exercise of the ISO and (b) the amount realized on
such disqualifying disposition of the shares of our common stock over (2) the
exercise price of such ISO will be taxable as compensation income to the
optionee, and we will be entitled to a tax deduction in the amount of such
compensation income. Any gain in excess of the amount required to be
recognized by the optionee as taxable compensation income will generally
qualify as capital gain and will not result in any deduction by us. If the
amount realized on a disqualifying disposition of the shares of our common
stock is less than the exercise price of such ISO, the difference will
generally constitute a capital loss to the optionee.
Stock Appreciation Rights. The amount of any cash received
upon the exercise of a stock appreciation right, or SAR, will be includible in
the grantee's compensation income, will be deductible by us, and will be
subject to applicable withholding taxes.
Restricted Shares. If restricted shares are awarded to a
participant in accordance with the terms of the 2003 Incentive Stock Plan,
generally no income will be recognized by such participant at the time the
award is made. Generally, such participant will be required to include as
compensation income, subject to applicable withholding taxes, the fair market
value of such restricted shares upon the lapse of the forfeiture provisions
applicable thereto, less any amount paid therefor. The participant may,
however, elect within 30 days after the award is made, to be taxed immediately
upon receipt of such shares rather than when the forfeiture provisions lapse.
If such an election is made, the participant will recognize compensation
income, subject to applicable withholding taxes, in the taxable year of his or
her award in an amount equal to the fair market value of such restricted
shares (determined without regard to the restrictions which by their terms
will lapse) at the time of receipt, less any amount paid therefor. Absent the
making of the election described in the preceding sentences, any cash
dividends or other distributions paid with respect to restricted shares prior
to lapse of the applicable restrictions will be includible in the
participant's ordinary income as compensation at the time of receipt. In each
case, we will be entitled to a deduction in the same amount as the
compensation income realized by the participant.
Plan Benefits
Awards under the 2003 Incentive Stock Plan will be granted
at the sole discretion of the committee and performance criteria may vary from
year to year and from participant to participant. Therefore, benefits under
the 2003 Incentive Stock Plan are not determinable. Compensation paid and
other benefits granted to certain of our executive officers for the 2002
fiscal year are set forth below in the section entitled "Executive
Compensation."
Upon the closing of the financing transactions, David E.
Berges, our CEO, will receive an option to purchase 200,000 shares of our
common stock with an exercise price equal to the closing price of our common
stock on the date of grant.
The Management Stock Purchase Plan
General
On May 22, 1997, our stockholders approved the Management
Stock Purchase Plan, and on May 11, 2000 they approved certain amendments to
the Management Stock Purchase Plan. On December 12, 2002, our board of
directors approved certain additional amendments, subject to adoption by our
stockholders, and, upon the adoption by our stockholders, the Management Stock
Purchase Plan will be amended and restated and will replace the currently
existing plan. Any awards previously granted under the currently existing plan
will remain outstanding pursuant to its terms.
The Management Stock Purchase Plan is being submitted to our
stockholders in view of the proposed increase in the number of shares of our
common stock subject to the provisions of the Management Stock Purchase Plan
and pursuant to the rules of the New York Stock Exchange.
The following description of the Management Stock Purchase
Plan is not intended to be complete and is qualified in its entirety by the
complete text of the Management Stock Purchase Plan, a copy of which is
included as Appendix D to this proxy statement.
Description Of The Principal Features Of The Plan
Authorized Shares. As amended and restated, the Management
Stock Purchase Plan authorizes an additional 200,000 shares of our common
stock to the number of shares currently authorized. There were 127,712 shares
remaining available for new awards as of December 31, 2002. Upon adoption by
our stockholders, the aggregate number of shares authorized under the
Management Stock Purchase Plan will be 550,000, subject to adjustment as
provided in the Management Stock Purchase Plan. Of these 550,000 shares,
327,712 will be available for issuances not covered by outstanding awards
(subject to adjustment as provided in the following sentence). The precise
number of shares that will be available for issuance of future awards under
the amended and restated Management Stock Purchase Plan will not be able to be
determined until immediately prior to the time the amendment is effective, and
will depend upon the extent to which the shares currently authorized under the
plan cease to be subject to the terms of the plan and the extent to which
shares subject to outstanding awards become available for re-grant under the
plan.
Purposes. The purposes of the Management Stock Purchase Plan
are to (1) attract and retain highly qualified executives, (2) align executive
and stockholder long-term interests and (3) enable executives to purchase
stock by using a portion of their annual incentive compensation so that they
can develop and maintain a substantial stock ownership position in Hexcel.
Administration. The plan will be administered by the
compensation committee of the board of directors or such other committee of
the board as may be designated by the board. The committee has the authority
to grant Restricted Stock Units (as such term is defined in Section 5 of the
Management Stock Purchase Plan). The committee has the authority to interpret
the Management Stock Purchase Plan, to exercise all the powers and authorities
necessary or advisable in the administration of the Management Stock Purchase
Plan, and to establish, among other things, the time at which Restricted Stock
Units will be granted and the number of Restricted Stock Units to be covered
by each grant.
Eligibility. Any officer or employee of Hexcel or its
subsidiaries participating in our Management Incentive Compensation Plan and
designated by the committee as a participant in the Management Stock Purchase
Plan can participate in the Management Stock Purchase Plan. It is currently
estimated that up to approximately 7 executives will be eligible to
participate in the Management Stock Purchase Plan.
Grant Of Restricted Stock Units. Eligible employees can
elect to receive up to fifty (50%) percent of their annual bonuses under our
Management Incentive Compensation Plan as Restricted Stock Units. The
Restricted Stock Units are deemed to be acquired on the date on which the
annual bonus is payable. The deemed price of each Restricted Stock Unit will
be eighty (80%) percent of the average closing price of a share of our common
stock over the five trading days preceding the date of acquisition. The market
value of a share of our common stock as of January 23, 2003 was $3.11.
Vesting. One-third (1/3) of the Restricted Stock Units
acquired on a given date will generally vest on each of the first three
anniversaries of the date of acquisition; however, all Restricted Stock Units
will immediately become completely vested upon the occurrence of a "change in
control" or certain employment termination events (as such terms are defined
and discussed in the Management Stock Purchase Plan). The committee also has
discretion to vest Restricted Stock Units at any time.
Payment With Respect To Restricted Stock Units. Payment with
respect to a participant's Restricted Stock Units will generally be made in an
equal number of shares of our common stock on the third anniversary of their
grant. Earlier payments with respect to a participant's Restricted Stock Units
will be made in the event of a "change in control" of Hexcel or certain
employment termination events (as such terms and events are defined in the
Management Stock Purchase Plan) or a discretionary decision of the committee.
Payments in cash equal to the acquisition price with respect to unvested
Restricted Stock Units will be made under certain circumstances.
Amendment And Termination. Our board of directors has the
authority to terminate the Management Stock Purchase Plan or make such
modifications or amendments to the Management Stock Purchase Plan as it may
deem advisable. No amendment to the Management Stock Purchase Plan for which
our board of directors determines stockholder approval is necessary or
appropriate will become effective without the approval of our stockholders. In
addition, no termination or amendment of the Management Stock Purchase Plan
may adversely affect the rights of a participant under an outstanding grant
without the consent of such participant.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of certain
United States federal income tax consequences under current federal income tax
laws relating to awards under the Management Stock Purchase Plan. This summary
is not intended to be exhaustive and, among other things, does not describe
state, local or foreign income and other tax consequences. ACCORDINGLY,
PARTICIPANTS IN THE MANAGEMENT STOCK PURCHASE PLAN SHOULD CONSULT THEIR
RESPECTIVE TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF SUCH
PARTICIPATION (INCLUDING, WITHOUT LIMITATION, ANY FEDERAL EMPLOYMENT TAX
CONSEQUENCES OF THE VESTING OF RESTRICTED STOCK UNITS).
Generally, no income will be recognized for federal income
tax purposes at the time Restricted Stock Units are granted to a participant
in accordance with the terms of the Management Stock Purchase Plan and no
income will be recognized for federal income tax purposes at the times the
Restricted Stock Units vest. However, at the time payment is made with respect
to such Restricted Stock Units, the participant will generally be required to
recognize compensation income, subject to applicable withholding taxes, in an
amount equal to the cash received as payment or the fair market value of the
shares of our common stock received as payment.
Plan Benefits
Grants under the Management Stock Purchase Plan vary
depending on the decision of a participant to elect to receive Restricted
Stock Units and the amount of the participant's annual bonus award. Therefore,
benefits under the Management Stock Purchase Plan are not determinable.
Compensation paid and other benefits granted to certain of our executive
officers for the 2002 fiscal year are set forth below in the section entitled
"Executive Compensation."
The Employee Stock Purchase Plan
General
We previously adopted the 1997 Employee Stock Purchase Plan,
which was amended as of March 19, 2002. On December 12, 2002, our board of
directors approved certain additional amendments to the plan, subject to
adoption by our stockholders, and, upon the adoption by our stockholders, the
Employee Stock Purchase Plan, as so amended and restated, will replace the
currently existing plan. Any options previously granted under the currently
existing plan will remain outstanding pursuant to its terms. The Employee
Stock Purchase Plan is not intended to qualify for the tax treatment under
Section 423 of the Internal Revenue Code of 1986, as amended.
The Employee Stock Purchase Plan is being submitted to our
stockholders in view of the proposed increase in the number of share of our
common stock subject to the provisions of the Employee Stock Purchase Plan.
The following description of the Employee Stock Purchase
Plan is not intended to be complete and is qualified in its entirety by the
complete text of the Employee Stock Purchase Plan, a copy of which is included
as Appendix E to this proxy statement.
Description Of The Principal Features Of The Plan
Authorized Shares. As amended and restated, the Employee
Stock Purchase Plan will authorize an additional 150,000 shares of our common
stock to the number of shares authorized under the currently existing plan.
There were 145,566 shares remaining available for purchase under the currently
existing plan on December 31, 2002. Upon adoption by our stockholders, the
aggregate number of shares authorized under the Employee Stock Purchase Plan,
subject to adjustment as provided in the Employee Stock Purchase Plan, will be
604,574. Of these 604,574 shares, 296,566 will be available for purchase
(subject to adjustment as provided in the following sentence). The precise
number of shares that will be available for purchase under the amended and
restated Employee Stock Purchase Plan will not be able to be determined until
immediately prior to the time the amendment is effective, and will depend upon
the extent to which the shares currently authorized under the plan are
purchased under the terms of the plan.
Purpose. The Employee Stock Purchase Plan is designed to
encourage the purchase by our employees of shares of our common stock at a 15%
discount.
Administration. The Employee Stock Purchase Plan will be
administered by a committee designated by our board of directors. The
committee may interpret and construe the Employee Stock Purchase Plan, may
make such rules and regulations and establish such procedures for the
administration of the Employee Stock Purchase Plan as it deems appropriate,
and has the authority to exercise all the powers and authorities necessary or
advisable in the administration of the Employee Stock Purchase Plan.
Eligibility. Generally, all employees of Hexcel or its
designated subsidiaries who have been employed at least six months, have
reached the age of majority in the state of the employee's residence, and work
at least 30 hours per week and more than 1,000 hours in a calendar year, will
be eligible to participate in the Employee Stock Purchase Plan.
Purchase Of Shares. Each eligible employee who elects to
participate in an offering period will be granted options to purchase our
common stock through regular payroll deductions during the offering period in
an amount equal to either (a) 1% to 10% of the employee's cash compensation
for each payroll period, or (b) a dollar amount that is not less than $5.00
and not more than 10% of the employee's cash compensation for each payroll
period. The offering periods are the successive calendar quarters beginning
January 1, March 1, July 1 and October 1. The purchases are made at the end of
the offering period. The purchase price of a share of our common stock will be
equal to 85% of the fair market value of a share of our common stock on the
last business day in the calendar quarter. The market value of a share of our
common stock as of January 23, 2003 was $3.11
Amendment And Termination. The Employee Stock Purchase Plan
will automatically terminate on May 22, 2007, unless it is terminated earlier
by action of our board of directors or by the purchase of all shares of our
common stock which are subject to the plan. Our board of directors may from
time to time amend or terminate the Employee Stock Purchase Plan, but no such
amendment or termination may adversely affect the rights of any participant,
and no amendment to the Employee Stock Purchase Plan which requires
stockholder approval under applicable law, rule or regulation shall become
effective unless the same shall be approved by the requisite vote of our
stockholders. Additionally, the committee may make such amendments as it deems
necessary to comply with applicable laws and regulations.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of certain
United States federal income tax consequences under current federal income tax
laws relating to awards under the Employee Stock Purchase Plan. This summary
is not intended to be exhaustive and, among other things, does not describe
state, local or foreign income and other tax consequences. ACCORDINGLY,
PARTICIPANTS IN THE EMPLOYEE STOCK PURCHASE PLAN SHOULD CONSULT THEIR
RESPECTIVE TAX ADVISORS IN DETERMINING THE TAX CONSEQUENCES OF SUCH
PARTICIPATION.
Nonqualified Stock Options
The options granted under the Employee Stock Purchase Plan
are nonqualified stock options, or NQSOs, which do not qualify under Section
423 of the Code. An optionee will not recognize any taxable income upon the
grant of an NQSO and we will not be entitled to tax deduction with respect to
such grant.
Upon exercise of an NQSO, the excess of the fair market
value of the acquired shares of our common stock on the exercise date over the
exercise price will be taxable as compensation income to the optionee and will
be subject to applicable withholding taxes. We will generally be entitled to a
tax deduction at that time in the amount of such compensation income. The
optionee's tax basis for the shares of our common stock received pursuant to
the exercise of an NQSO will equal the sum of the compensation income
recognized and the exercise price.
In the event of a sale or other disposition of shares of our
common stock received upon the exercise of an NQSO, any appreciation or
depreciation after the exercise date generally will be taxed as capital gain
or loss and will be long-term capital gain or loss if the holding period for
such shares of our common stock (which begins upon such exercise) is more than
one year.
Plan Benefits
Since the amount of benefits to be received by each
participant in the Employee Stock Purchase Plan is determined by his or her
elections, the amount of future benefits to be allocated to any individual or
group of individuals under the plan in any particular year is not
determinable. Compensation paid and other benefits granted to certain of our
executive officers for the 2002 fiscal year are set forth below in the section
entitled "Executive Compensation."
Recommendations of the Board of Directors
Our board of directors recommends a vote FOR each of the
proposals to adopt (a) the Hexcel Corporation 2003 Incentive Stock Plan, (b)
an amendment to our Management Stock Purchase Plan to increase by 200,000 the
number of shares reserved for the grant of restricted stock units under the
Management Stock Purchase Plan and (c) an amendment to our Employee Stock
Purchase Plan to increase by 150,000 the number of shares available for sale
under the Employee Stock Purchase Plan.
Equity Compensation Plan Information (1)
---------------------- ----------------------- -------------------------- ---------------------------
Number of securities
Number of securities remaining available for
to be issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights(2) warrants and rights (3) reflected in column (a))(2)
---------------------- ----------------------- -------------------------- ---------------------------
(a) (b) (c)
---------------------- ----------------------- -------------------------- ---------------------------
Equity compensation
plans approved by
security holders 5,720,624 (4) $10.31 1,369,713 (5)
---------------------- ----------------------- -------------------------- ---------------------------
Equity compensation
plans not approved
by security holders 2,558,166 (6) $7.09 858,434 (7)
---------------------- ----------------------- -------------------------- ---------------------------
Total 8,278,790 $9.33 2,228,147
---------------------- ----------------------- -------------------------- ---------------------------
(1) All information is as of December 31, 2002.
(2) All numbers in this column refer to shares of Hexcel common stock.
(3) Excludes the restricted stock units referred to in notes 4 and 6 below.
(4) Includes 242,486 shares of common stock issuable upon the vesting and
conversion of restricted stock units.
(5) Includes 1,242,001 shares of common stock available for future issuance
under the Hexcel Corporation Incentive Stock Plan in connection with awards,
other than options, warrants or rights, that could be granted in the future.
(6) Includes 154,600 shares of common stock issuable upon the vesting and
conversion of restricted stock units.
(7) Includes (i) 19,846 shares of common stock subject to options as of
December 31, 2002 under, and to be purchased in January 2003 pursuant to, the
terms of the Hexcel Corporation 1997 Employee Stock Purchase Plan, and (ii)
125,720 shares of common stock that could in the future become subject to
options under, and therefore purchased under, the terms of the Hexcel
Corporation 1997 Employee Stock Purchase Plan. Also includes 712,868 shares of
common stock available for future issuance under the Hexcel Corporation 1998
Broad Based Incentive Stock Plan in connection with awards, other than
options, warrants or rights, that could be granted in the future.
We have two compensation plans, and two individual equity
compensation arrangements, in which equity securities were authorized for
issuance without the approval of security holders. These include the 1997
Employee Stock Purchase Plan, the 1998 Broad Based Incentive Stock Plan, and
two individual option agreements with our Chief Executive Officer, David E.
Berges. The 1997 Employee Stock Purchase Plan is described under the heading
"The Equity Incentive Plans Proposals - The Employee Stock Purchase Plan." The
1998 Broad Based Incentive Stock Plan is substantially similar to the 2003
Incentive Stock Plan, the approval of which is being proposed to Hexcel's
stockholders under this proxy statement. Pursuant to this proposal, you are
being asked to approve the combination, amendment and restatement of the 1998
Broad Based Incentive Stock Plan and another equity compensation plan, the
Incentive Stock Plan, into the 2003 Incentive Stock Plan. Please see the more
detailed description under the heading "The Equity Incentive Plans Proposals -
The 2003 Incentive Stock Plan." We entered into the two individual option
agreements with Mr. Berges in connection with his employment agreement, as
described under the heading "Executive Compensation - Employment and Other
Agreements - Employment Agreement with Mr. Berges."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total annual compensation
paid or accrued by us to each person who served as our Chief Executive Officer
during any part of 2002 and our next four most highly compensated executive
officers who were employed by us as of December 31, 2002. We refer to these
individuals as the named executive officers.
Annual Compensation(1) Long-Term Compensation Awards
------------------------------------ ------------------------------------------
Securities
Underlying
Options/
Other Annual Restricted ---------- All Other
Salary Bonuses Compensation Stock Award(s) SARS Compensation
Name & Principal Position Year ($) ($)(3) $(4) ($)(5)(6) (#)(6) ($)(7)
------------------------- ---- ------ ------- ------------ -------------- ---------- -------------
David E. Berges(2)............. 2002 572,000 599,914 -- 447,991 250,000 18,738
Chairman; Chief Executive 2001 229,167 429,167 81,182 706,500 825,000 16,628
Officer; President
Stephen C. Forsyth........... 2002 335,000 217,513 -- 117,820 133,000 17,071
Executive Vice President; 2001 320,000 105,600 -- 10,932 -- 50,017
Chief Financial Officer 2000 309,000 199,467 -- 124,800 88,400 27,848
Ira J. Krakower.............. 2002 273,000 166,046 -- 95,900 108,400 16,506
Senior Vice President; 2001 265,000 72,875 -- -- -- 41,394
General Counsel; Secretary 2000 254,000 164,643 -- 103,350 82,413 22,734
William Hunt................. 2002 240,495 143,874 7,213 49,046 55,600 11,687
President, Composites 2001 250,000 68,750 6,981 -- -- 13,904
Materials Business Unit 2000 242,000 123,867 7,178 54,600 67,326 18,562
Joseph H. Shaulson........... 2002 247,500 144,874 -- 67,678 76,400 14,320
President, 2001 240,000 72,000 -- -- -- 27,143
Hexcel-Schwebel Business 2000 225,000 116,089 -- 85,547 52,586 18,104
Unit
______________________
(1) Annual Compensation includes amounts earned in the fiscal year, whether
or not deferred.
(2) Mr. Berges' employment with us commenced on July 30, 2001.
(3) Amounts shown include deferred amounts used to purchase restricted stock
units ("MSPP RSUs") under the Management Stock Purchase Plan ("MSPP");
see footnote 5 below. Bonuses shown for fiscal years 2000, 2001 and 2002
were earned in fiscal years 2000, 2001 and 2002, and paid in 2001, 2002
and 2003. The 2001 amount shown for Mr. Berges includes a $200,000
sign-on bonus and a guaranteed pro-rated bonus payment of $229,167 for
2001 in accordance with the terms of his employment agreement.
(4) This column includes, among other things, perquisites and other benefits
in excess of reporting thresholds. The amount for Mr. Berges in 2001
includes $76,182 of attorneys' fees incurred by Mr. Berges in connection
with entering into employment with us. The amounts for Mr. Hunt represent
payments to cover tax liabilities related to reimbursement for housing
expenses.
(5) This column includes the value of (i) Performance Accelerated Restricted
Stock Units ("PARS"), (ii) Restricted Stock Units ("RSUs") under the
Incentive Stock Plan and Broad Based Incentive Stock Plan, (iii) MSPP
RSUs (net of purchase price paid), and (iv) restricted shares of Hexcel
common stock, awarded to the named executive officers. In each case, the
value was determined at the closing market price of Hexcel common stock
on the date of grant without taking into account any restrictions on
vesting or transfer.
(A) PARS. PARS generally vest after a period of seven years following the
grant date. However, the PARS will vest and be converted into an
equivalent number of shares of Hexcel common stock earlier than the fixed
vesting date, if our performance equals or exceeds certain performance
target levels, or, in certain circumstances, upon the executive's
termination of employment.
(B) RSUs. RSUs generally vest in equal increments on each of the first
three anniversaries of the grant and the vested RSUs are concurrently
converted into an equivalent number of shares of Hexcel common stock.
(C) MSPP RSUs. MSPP RSUs were issued under the MSPP to the extent the
executive elected to purchase MSPP RSUs with up to 50% of his bonus for
2000, 2001 and 2002. The purchase price of an MSPP RSU was 80% of the
average closing price of Hexcel common stock for the five trading days
preceding the date on which the bonus was payable. MSPP RSUs generally
vest in equal increments on each of the first three anniversaries of the
grant and, at the expiration of a three year restricted period from the
date of grant, are converted into an equivalent number of shares of
Hexcel common stock. The MSPP RSUs with respect to the bonus for 2000
were issued on February 1, 2001 at a purchase price of $8.59 per MSPP
RSU. The MSPP RSUs with respect to the bonus for 2001 were issued on
January 10, 2002 at a purchase price of $2.27 per MSPP RSU. The MSPP RSUs
with respect to the bonus for 2002 were issued on January 21, 2003 at a
purchase price of $2.53 per MSPP RSU.
(D) Restricted Shares Granted to Mr. Berges. Pursuant to his employment
agreement, upon commencing employment in July 2001, Mr. Berges was
granted 90,000 restricted shares of Hexcel common stock. Eighteen
thousand shares vested, and the restrictions as to these shares lapsed,
on March 31, 2002. The remainder of these shares will vest, and the
restrictions thereon will lapse, on March 31, 2003.
(E) Aggregate Restricted Stock Information. The aggregate number of
shares underlying PARS, RSUs, MSPP RSUs and restricted shares held by
each named executive officer at the end of 2002, and the aggregate value
of the PARS, RSUs, MSPP RSUs (net of purchase price paid) and restricted
shares based on the closing price of Hexcel common stock at December 31,
2002 ($3.00), are as follows: Mr. Berges 293,136 and $699,434; Mr.
Forsyth 75,059 and $184,379; Mr. Krakower 45,600 and $136,800; Mr. Hunt
23,500 and $70,500; and Mr. Shaulson 35,878 and $77,717. These amounts
include PARS, RSUs, MSPP RSUs and restricted shares that were not vested
as of December 31, 2002. No dividends are payable on any PARS, RSUs or
MSPP RSUs until the shares represented by the PARS, RSUs or MSPP RSUs are
delivered to the employee provided that, if dividends are paid on Hexcel
common stock subsequent to vesting of PARS, but while conversion to
Hexcel common stock is restricted by Hexcel because of the application of
Section 162(m) of the Internal Revenue Code, the executive will be
granted additional PARS (as if each of such PARS were a share of Hexcel
common stock) equal in value to the dividends which would have been
payable if such vested PARS were converted into Hexcel common stock.
Dividends are payable on the restricted shares held by Mr. Berges.
(6) The compensation committee authorized the annual award of stock
incentives for 2001 in December 2000, and for 2002 on January 10, 2002.
Therefore, no stock incentive awards granted to any named executive
officer in 2001 are reflected in the summary compensation table except as
to Mr. Berges whose awards were granted in July 2001 under his employment
agreement and as to Mr. Forsyth, who had elected to purchase MSPP RSUs
with 50% of his 2001 bonus. An aggregate of 193,524 restricted stock
units and options to purchase an aggregate of 707,236 shares of Hexcel
common stock were granted to the incumbent named executive officers on
January 6, 2003.
(7) The amounts in the "All Other Compensation" column for fiscal years 2000,
2001 and 2002 for all named executive officers except for Mr. Hunt
include the following:
Hexcel Premiums for
Contributions to Hexcel Life Premiums for
401(k) Contributions to Insurance in Long-Term
Retirement 401(k) excess of Disability
Name Year Savings Plan Restoration Plan $50,000 Insurance
---- ---- ----------------- ---------------- ------------- ------------
David E. Berges 2002 $15,579 $0 $2,823 $336
2001 -- $15,886 $547 $195
Stephen C. Forsyth 2002 $15,130 $0 $1,605 $336
2001 $10,338 $36,849 $1,840 $990
2000 $10,200 $14,922 $1,772 $954
Ira J. Krakower 2002 $14,890 $0 $1,280 $336
2001 $9,942 $29,465 $1,497 $990
2000 $10,200 $10,145 $1,435 $954
Joseph H. Shaulson 2002 $12,833 $0 $1,151 $336
2001 $13,880 $10,931 $1,342 $990
2000 $8,843 $7,053 $1,242 $954
As a non-US based executive, Mr. Hunt does not participate
in the same plans as the other named executive officers. For Mr. Hunt, the
amounts in the "All Other Compensation" column for fiscal years 2000, 2001 and
2002 consist of life insurance premiums of $7,227, $6,584 and $4,152 and
disability insurance premiums of $11,335, $7,320 and $7,535.
Stock Options
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed Annual
Rates of
Stock Price Appreciation
Individual Grants for Option Term (1)
----------------- -------------------------
Number of % of Total Exer-
Securities Options/SARS cise or Market
Underlying Granted to Base Price on
Options/SARS Employees in Price Grant Expiration
Name Granted (#) Fiscal Year ($/Sh) Date Date 5%($) 10%($)
David E. Berges............. 250,000 21.9% $2.74 $2.74 January 10, 2012 $430,793 $1,091,714
Stephen C. Forsyth.......... 133,000 11.6% 2.74 2.74 January 10, 2012 229,182 580,792
Ira J. Krakower............. 108,400 9.5% 2.74 2.74 January 10, 2012 186,792 473,367
William Hunt................ 55,600 4.9% 2.74 2.74 January 10, 2012 95,808 242,797
Joseph H. Shaulson.......... 76,400 6.7% 2.74 2.74 January 10, 2012 131,650 333,628
_______________________
(1) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and
10%) set by the executive compensation disclosure provisions of the
proxy rules of the Commission and have not been discounted to reflect
the present values of such amounts. The assumed rates of stock price
appreciation are not intended to forecast the future stock price
appreciation of Hexcel common stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at in the Money
Shares Fiscal Year End (#)(1) Options/SARs at
Acquired on Value (Exercisable/ Fiscal Year End ($)(2)
Name Exercise (#) Realized ($) Unexercisable) (Exercisable/Unexercisable)
------------------------------ ------------ ------------ ---------------------- ---------------------------
David E. Berges.............. -- -- 171,875/903,125 0/65,000
Stephen C. Forsyth........... -- -- 391,093/162,466 0/34,580
Ira J. Krakower.............. -- -- 374,682/135,871 0/28,184
William Hunt................. -- -- 180,805/79,141 0/14,456
Joseph H. Shaulson........... -- -- 218,058/93,928 0/19,864
________________________
(1) Includes (i) 825,000 shares underlying options granted to Mr. Berges
under his employment agreement; (ii) options granted pursuant to the
Incentive Stock Plan and Broad Based Incentive Stock Plan as follows:
Mr. Berges 250,000; Mr. Forsyth 552,059; Mr. Krakower 510,553; Mr. Hunt
259,946 and Mr. Shaulson 311,986; and (iii) options granted pursuant to
Hexcel's 1988 Management Stock Plan as follows: Mr. Forsyth 1,500.
(2) Based on the closing price of $3.00 per share of Hexcel common stock as
reported on the New York Stock Exchange Composite Tape on December 31,
2002.
Deferred Compensation
Pension Plan - U.S. Employees
Messrs. Forsyth, Krakower and Shaulson participated in the
Hexcel Corporation Pension Plan, a tax-qualified defined benefit plan. On
December 31, 2000, the benefits under the Pension Plan were frozen and no
additional benefits will be earned after that date. The benefit vests in its
entirety after five years of employment; even though the benefit is frozen,
employees continue to earn service credit towards vesting after December 31,
2000. As of the end of the 2002 fiscal year, the monthly benefit earned and
the percentage of such benefit vested for each of the participating named
executive officers was as follows: Mr. Forsyth $667 and 100%; Mr. Krakower
$442 and 100% and Mr. Shaulson $498 and 100%. Benefits are normally payable
monthly, as a life annuity, commencing upon the later of the executive's
attainment of age 65 or retirement. The benefits are not offset by Social
Security or any other amounts. Benefits under the Pension Plan are credited
against the supplemental executive retirement agreement benefits of Messrs.
Forsyth and Krakower; see "EXECUTIVE COMPENSATION, Employment and Other
Agreements, "Supplemental Executive Retirement Agreements with Messrs. Forsyth
and Krakower." Mr. Hunt does not participate in this Pension Plan but Mr. Hunt
is a participant in the Hexcel Composites Limited Pension Scheme as described
in "EXECUTIVE COMPENSATION, Employment and Other Agreements, Additional
Pension Agreement with Mr. Hunt."
Employment and Other Agreements
Employment Agreement with Mr. Berges
We entered into an employment agreement with Mr. Berges when
he began his employment with us on July 30, 2001. 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, the employment agreement will automatically be extended for
successive one-year terms unless either Mr. Berges or Hexcel gives at least
one year's prior notice to the other that the employment agreement shall not
be renewed. Mr. Berges may terminate the employment agreement for good reason
or upon 30 days' notice to us. The employment agreement provides for, among
other things:
o a sign-on award of $200,000;
o an annual base salary of not less than $550,000, subject to annual
review by the compensation committee;
o a target annual bonus opportunity of not less than 100% of annual
base salary, and a maximum annual bonus opportunity of not less than
200% of annual base salary, including a guaranteed pro-rated bonus of
not less than $229,167 for 2001; and
o participation in all other employee benefit plans available to senior
executives, except that Mr. Berges' participation in our annual
equity award program during the initial four-year term of the
employment agreement is at the discretion of the compensation
committee.
Under the employment agreement, on July 30, 2001 we granted
Mr. Berges separate options to purchase 550,000 and 275,000 shares of Hexcel
common stock. Each of the options has a term of ten years and an exercise
price of $10.50 per share. The option to purchase 550,000 shares becomes
exercisable over four years at a rate of one-sixteenth of the shares at the
end of each three-month period beginning with the three-month period ending
October 31, 2001. The option to purchase 275,000 shares becomes exercisable in
full on July 29, 2011, subject to earlier vesting, in part or in whole, if the
price of Hexcel common stock reaches defined thresholds. If Mr. Berges'
employment with us terminates, the options, to the extent not vested, are
forfeited.
In addition, on July 30, 2001 Mr. Berges received 90,000
restricted shares of Hexcel common stock. The restricted shares may not be
sold or transferred until they vest and the restrictions lapse. On March 31,
2002, 18,000 restricted shares vested and the restrictions on those shares
lapsed. On March 31, 2003, the remaining 72,000 restricted shares will vest,
and the restrictions on those shares will lapse. However, if before March 31,
2003 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 72,000 restricted shares will
vest and the restrictions on those shares will lapse. If prior to March 31,
2003 Mr. Berges terminates his employment other than for good reason, or we
terminate his employment for cause, then he forfeits the 72,000 restricted
shares.
In the event of a change of control of Hexcel, any unvested
options immediately vest and become exercisable and any unvested restricted
shares immediately vest and the restrictions on those shares lapse.
Upon termination of employment under certain circumstances
we will make payments to Mr. Berges, and continue his participation in our
benefit plans for a limited period of time. The amounts payable to Mr. Berges
vary depending upon the circumstances of termination of employment:
o 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;
o 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 receives three times the sum of
his base salary at that time and average bonus over the last three
years; and
o 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 Executive Retirement Agreement with Mr. Berges
We also entered into a supplemental executive retirement
agreement with Mr. Berges upon his commencing employment with us on July 30,
2001. This agreement provides a benefit intended to supplement Mr. Berges'
retirement income from our other retirement programs. The normal retirement
benefit under the 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 up
to 156 months. 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 under our defined contribution retirement plans
deemed increased at a 6% per annum rate of return.
If Mr. Berges' employment terminates, 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 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. Mr. Berges may
generally elect the form of payment of benefits between receiving a monthly
amount or a lump sum amount.
If Mr. Berges had retired at December 31, 2002, assuming a
vesting percentage of 100%, his normal retirement benefit under his
supplemental executive retirement commencing at age 65 would equal
approximately $7,787 per month.
Severance Agreements with Messrs. Forsyth, Krakower and Shaulson
In February 1999, we entered into severance agreements with
Messrs. Forsyth, Krakower and Shaulson. These severance agreements provide
that we will make a termination payment to the executive, 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
the executive vary depending upon the circumstances of termination of
employment:
o for termination by us other than for disability and other than for
cause, or by the executive for good reason, the executive receives a
payment equal to one year's salary plus average bonus over the last
three years; and
o for termination by us other than for disability and other than for
cause, or by the executive for good reason, during a period of a
potential change in control or within two years after a change in
control, the executive receives three times the payment described in
the bullet point above.
If payments to the executive would result in the imposition
of any excise tax on "excess parachute payments," the payments may be reduced
to maximize the after-tax amount received by the executive. The executive
agrees not to compete with us for one year or three years after termination of
employment depending on whether termination occurs under circumstances
described in the first or second bullet point above.
Supplemental Executive Retirement Agreements with Messrs. Forsyth and Krakower
In May 2000, we agreed to provide each of Messrs. Forsyth
and Krakower with a benefit intended to supplement the executive's retirement
income from our other retirement programs and social security. The normal
retirement benefit under the supplemental executive retirement agreement for
retirement at age 65 is a monthly payment equal to the product of the
executive's final average pay, benefit percentage, and vesting percentage,
minus the qualified pension benefits. Final average pay is the executive's
monthly compensation, which includes salary and bonus without reduction for
amounts deferred, for the highest paid 36 months of the executive's final 60
months of employment. The benefit percentage is a percentage, based on a
formula, which increases with each month of continuous service with us. The
vesting percentage for Mr. Krakower is 100% if Mr. Krakower has completed at
least 60 months of continuous service with us, and otherwise it is 0%. The
vesting percentage for Mr. Forsyth is 100% if Mr. Forsyth has completed 24
months of continuous service with us after the date of the agreement, and
otherwise it is 0%. Both Mr. Krakower and Mr. Forsyth now have vesting
percentages of 100%. Qualified pension benefits are the actuarially determined
monthly value of the vested benefits under the pension plan, and the vested
contributions made by us under our defined contribution plans deemed increased
at a 6% per annum rate of return. In addition, for Mr. Forsyth, qualified
pension benefits include any other similar benefits Mr. Forsyth is entitled to
as a result of his employment with any of our current or former affiliates.
If the executive's employment terminates, we will pay the
normal retirement benefit to the executive starting the month after his
employment terminates and ending with his death, or, if later, after 120
payments have been made. Any payments made after death shall be made to the
executive's surviving beneficiary or estate. Upon certain terminations within
two years after a change in control, termination by us without cause, and
termination by the executive for good reason, the executive will be paid a
lump sum equal to the actuarial present value of the normal retirement
benefit, computed using a vesting percentage of 100% and continuous service
equal to the executive's actual continuous service plus, in the case of a
change of control, 36 months, and in the case of termination by us without
cause or by the executive for good reason, 12 months. If the executive's
employment terminates due to a disability, he will receive a monthly benefit
in an amount equal to the product of the executive's final average pay and
benefit percentage, less the executive's qualified pension benefits. No
benefits are payable if the executive is terminated for cause. In addition,
the executive may elect to provide certain survivorship benefits to a
designated beneficiary, but the benefit payable to the executive will be
reduced to reflect the actuarial equivalence of the survivorship benefit
elected. The executive may generally elect the form of payment of benefits
between receiving a monthly amount or a lump sum amount.
If Mr. Forsyth had retired at December 31, 2002, his normal
retirement benefit under his supplemental executive retirement agreement
payable commencing at age 65 would equal approximately $15,143 per month. For
Mr. Krakower the amount would be $8,122 per month.
Additional Pension Agreement with Mr. Hunt
Mr. Hunt participates in the Hexcel Composites Limited
Pension Scheme, a United Kingdom pension plan, which includes limitations on
the earnings which can be included for determination of a pension. We have
agreed to provide Mr. Hunt with an additional pension which is designed to
provide, when combined with the pension scheme and other benefits, a pension
Mr. Hunt would receive if there were no earnings limitation under the pension
scheme. The amount of Mr. Hunt's pension is equal to approximately 69% of his
salary for the year prior to retirement. Mr. Hunt may also choose to receive
all or part of his benefit in a lump sum. Pension payments increase annually
at the lesser of 5% and the retail price index. If Mr. Hunt continues to be
employed by us at his current base salary until age 65, Mr. Hunt would receive
an annual benefit of $166,743. If Mr. Hunt's base salary during the year prior
to his retirement at age 65 increased to 120% of his current base salary, he
would receive an annual benefit of $200,092.
Compensation Committee Interlocks and Insider Participation
The following directors were members of the compensation
committee during 2002: Sandra L. Derickson, Marshall S. Geller, Sanjeev K.
Mehra and Martin L. Solomon. For information regarding our relationship with
Goldman Sachs, of which Mr. Mehra is a Managing Director, see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Relationship with the Goldman Sachs
Investor Group" contained elsewhere in this Proxy Statement.
Compensation of Directors
Nonemployee directors are compensated for services as
directors with an annual retainer of $30,000 payable quarterly. Nonemployee
directors are also paid $1,200 for each Board of Directors meeting and $600
for each committee meeting attended. Committee chairmen are paid an additional
$3,000 annually and receive a grant of 1,000 nonqualified stock options per
year. Mr. Berges does not receive any additional compensation as a member of
the Board of Directors.
In January 2003, the Board of Directors offered each
nonemployee director other than Messrs. Mehra and Sacerdote the opportunity to
receive his or her 2003 retainer compensation in the form of discounted
nonqualified stock options. The director may, in lieu of a portion (between
25% and 100%) of his or her annual retainer (including any retainer paid to
the director as a committee chairman), elect to receive that number of stock
options determined by dividing the dollar amount of such portion by the
exercise price of the stock option. The exercise price of each stock option is
50% of the fair market value of a share of Hexcel common stock on the grant
date. The options vest ratably over the first year after grant and expire ten
years from the date of grant. In accordance with elections made by
participating directors, the following nonqualified options were granted on
January 6, 2003 at an exercise price of $1.565 per share to each of the named
directors: Mr. Solomon - 21,086; Ms. Derickson--14,377; Mr. Geller--10,543;
Messrs. Gaffney and Bellows - 9,585.
Pursuant to the Incentive Stock Plan, each non-employee
director is granted, upon election or appointment as a director, a
nonqualified option to purchase 10,000 shares of Hexcel common stock with an
exercise price equal to the fair market value of Hexcel common stock on the
date of grant. The Incentive Stock Plan further provides that immediately
after each annual meeting of stockholders, each non-employee director will be
granted a nonqualified option to purchase an additional 2,000 shares of Hexcel
common stock with an exercise price equal to the fair market value of Hexcel
common stock on the date of grant.
Based on information provided to us, The Goldman Sachs
Group, Inc. is the beneficial owner of all cash and equity-based compensation
received by Messrs. Mehra and Sacerdote for their services as directors of
Hexcel.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Stock Beneficially Owned By Principal Stockholders
The following table sets forth certain information as of December 31,
2002 with respect to the ownership by any person (including any "group" as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934)
known to us to be the beneficial owner of more than five percent of the issued
and outstanding shares of Hexcel common stock.
Number of
Shares of Percent
Name and Address Common Stock of Class
---------------- ------------ --------
The Goldman Sachs Group, Inc. (1) 14,557,002 37.9%
85 Broad Street
New York, NY 10004
Ingalls & Snyder LLC (2) 4,252,688 10.9%
61 Broadway
New York, NY 10006
Dimensional Fund Advisors, Inc. (3) 2,805,800 7.3%
1299 Ocean Avenue
Santa Monica, CA 90401
Estate of John J. Lee (4) 2,805,636 7.0%
c/o Stewart J. McMillan
McMillan Constabile LLP,
2180 Boston Post Road
Larchmont, NY 10538-0300
Ciba Specialty Chemicals Holding Inc. (5) 2,290,448 5.9%
Klybeckstrasse 141
CH 4002
Basel, Switzerland
AXA Financial, Inc. (6) 2,025,577 5.3%
1290 Avenue of the Americas
New York, NY 10104
------------------------
(1) Based on information contained in a Statement on Schedule 13D/A filed
with the SEC on December 20, 2002 by The Goldman Sachs Group, Inc. and
several of its affiliates. Based on information included in the Schedule
13D/A, options to purchase 36,000 shares of Hexcel common stock granted
to each of Messrs. Mehra and Sacerdote pursuant to the Hexcel
Corporation Incentive Stock Plan are held for the benefit of The Goldman
Sachs Group, Inc. Options to purchase 32,002 of the 36,000 shares are
currently exercisable and, accordingly, are included in the shares
beneficially owned by The Goldman Sachs Group, Inc. The shares of our
common stock beneficially owned by The Goldman Sachs Group, Inc. are
subject to the terms of the governance agreement entered into in 2000.
(2) Based on information contained in a Statement on Schedule 13G/A filed
with the SEC on November 8, 2002. Assumes conversion of $8,048,000
principal amount of our 7% convertible subordinated notes due 2003.
(3) Based on information contained in a Statement on Schedule 13G filed with
the SEC on February 12, 2002.
(4) Based on information contained in a Statement on Schedule 13D filed with
the SEC on November 26, 2001, and includes 2,007,920 shares issuable
upon the exercise of options that are currently exercisable.
(5) Based on information provided by Ciba to Hexcel on December 10, 2002.
(6) Based on information contained in a Statement on Schedule 13G filed with
the SEC on February 11, 2002. The Schedule 13G is also filed on behalf
of the following entities: AXA Conseil Vie Assurance Mutuelle, AXA
Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle, AXA and Alliance Capital Management L.P.
Stock Beneficially Owned by Directors and Officers
The following table contains information regarding the beneficial
ownership of shares of Hexcel common stock as of December 31, 2002 by our
directors, the executive officers listed in the summary compensation table
below, and by all directors and executive officers as a group. The information
in the table is based upon information supplied to us by the persons listed in
the table.
Shares of Hexcel Percent
Name Common Owned (1) of Class (2)
---- ---------------- ------------
David E. Berges 501,730 1.3%
H. Arthur Bellows, Jr. 27,521 *
Sandra L. Derickson 21,616 *
James J. Gaffney (3) 32,093 *
Marshall S. Geller 158,774 *
Sanjeev K. Mehra (3)(4) -0- *
Lewis Rubin 56,856 *
Peter M. Sacerdote (3)(4) -0- *
Martin L. Solomon 162,983 *
Stephen C. Forsyth 543,825 1.4%
Ira J. Krakower 644,302 1.6%
William Hunt 318,704 *
Joseph H. Shaulson 290,840 *
All executive officers and directors as a
group (17 persons) (5) 2,963,105 7.2%
______________________________
(1) Except as noted in footnote 4 below, includes shares issuable upon the
exercise of options that are currently exercisable, that will become
exercisable within 60 days or that could become exercisable upon
termination of employment under certain circumstances, and shares
distributable within 60 days upon the satisfaction of certain conditions
of restricted stock units. Such shares are held as follows: Mr. Berges
339,584; Mr. Bellows 27,521; Ms. Derickson 21,616; Mr. Gaffney 32,093;
Mr. Geller 98,774; Mr. Rubin 56,856; Mr. Solomon 147,983; Mr. Forsyth
456,014; Mr. Krakower 556,153; Mr. Hunt 282,346; Mr. Shaulson 254,011;
all other executive officers and directors as a group 179,070.
(2) An asterisk represents ownership of less than 1%.
(3) Messrs. Gaffney, Mehra and Sacerdote serve on our board of directors at
the request of the Goldman Sachs investors pursuant to the governance
agreement.
(4) Based on information provided to us, options to purchase shares of our
common stock granted to Messrs. Mehra and Sacerdote pursuant to the
Incentive Stock Plan are held for the benefit of The Goldman Sachs
Group, Inc. Messrs. Mehra and Sacerdote disclaim beneficial ownership of
any shares represented by such options and none of the shares
represented by such options are included above. In addition, Messrs.
Mehra and Sacerdote disclaim beneficial ownership of the 14,525,000
shares of our common stock held by the Goldman Sachs investors, and none
of these shares are included above.
(5) Includes 3,409,729 shares, including shares issuable upon the exercise
of options that are currently exercisable.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this document and the documents
referenced herein that constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information that are based on
forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to future prospects, developments and business
strategies. These forward-looking statements are identified by the use of
terms and phrases such as "anticipate," "believe," "could," "estimate,"
"expect," "intend," "may," "plan," "predict," "project," "should," "will," and
similar terms and phrases, including references to assumptions. Such
statements are based on current expectations, are inherently uncertain, and
are subject to changing assumptions.
Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual results to be
materially different. Such factors include, but are not limited to, the
following: changes in general economic and business conditions; changes in
current pricing and cost levels; changes in political, social and economic
conditions and local regulations, particularly in Asia and Europe; foreign
currency fluctuations; changes in aerospace production or delivery rates;
reductions in sales to any significant customers, particularly Airbus or
Boeing; changes in sales mix; changes in government defense procurement
budgets; changes in military aerospace programs or 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 contained in our
Annual Report on Form 10-K for the year ended December 31, 2001 and our
Quarterly Reports on Form 10-K for the quarters ended March 31, 2002, June 30,
2002 and September 30, 2002.
If one or more of these risks or uncertainties materialize,
or if underlying assumptions prove incorrect, actual results may vary
materially from those expected, estimated or projected. In addition to other
factors that affect our operating results and financial position, neither past
financial performance nor our expectations should be considered reliable
indicators of future performance. Investors should not use historical trends
to anticipate results or trends in future periods. Further, our stock price is
subject to volatility. Any of the factors discussed above could have an
adverse impact on our stock price. In addition, failure of sales or income in
any quarter to meet the investment community's expectations, as well as
broader market trends, can have an adverse impact on our stock price. We do
not undertake an obligation to update our forward-looking statements or risk
factors to reflect future events or circumstances.
OTHER INFORMATION
2003 Annual Meeting of Stockholders
Any proposal that any of our stockholders intends to present
at our 2003 annual meeting of stockholders (other than those submitted for
inclusion in our proxy materials) must be submitted to the Secretary of Hexcel
at our offices, Two Stamford Plaza, 281 Tresser Boulevard, Stamford,
Connecticut 06901-3238, no earlier than February 7, 2003 and no later than
March 9, 2003 in order to be presented at that meeting. Any proposal that any
of our stockholders intends to present at our 2003 annual meeting of
stockholders must have been submitted to the Secretary of Hexcel at our
offices no later than December 2, 2002 in order to have been considered for
inclusion in the proxy statement and proxy relating to that meeting.
Where You Can Find More Information
As required by law, we file reports, proxy statements and
other information with the SEC. You may read and copy this information at the
following offices of the SEC:
Public Reference Room
450 Fifth Street, N.W. Northeast Regional Office
Room 1024 233 Broadway
Washington, D.C. 20549 New York, New York 10279
For further information concerning the SEC's public
reference rooms, you may call the SEC at 1-800-SEC-0330. You may obtain copies
of this information by mail from the public reference section of the SEC, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
You may also access some of this information via the World Wide Web through
the SEC's Internet address at http://www.sec.gov.
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 proxy statement,
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 after the date of this proxy statement and prior to
the date of the special meeting.
Hexcel SEC Filings Period or Date Filed
Annual Report on Form 10-K Year Ended December 31, 2001
Quarterly Reports on Form 10-Q Quarter Ended September 30, 2002
Quarter Ended June 30, 2002
Quarter Ended March 31, 2002
Current Reports on Form 8-K January 27, 2003
December 20, 2002
October 23, 2002
July 24, 2002
May 17, 2002
April 26, 2002
February 26, 2002
January 28, 2002
January 10, 2002
You may also access copies of these filings at our website
at "http://www.Hexcel.com." However, our website and any information it
contains are not a part of this proxy statement. 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 Boulevard
Stamford, Connecticut 06901-3238
Attention: Michael Bacal, Investor Relations Manager
Telephone: (203) 969-0666
If you would like to request documents from us, please do so
by _____, 2003 to receive them before the special meeting.
You should rely only on the information contained in this
proxy statement or other documents to which we refer. We have not authorized
anyone to provide you with information that is different from what is
contained in this proxy statement. This proxy statement is dated ______, 2003.
You should not assume that the information contained in this proxy statement
is accurate as of any date other than the date hereof, and the mailing of the
proxy statement to stockholders will not create any implication to the
contrary.
Your vote is important. To vote your shares, please
complete, date, sign and return the enclosed proxy card as soon as possible in
the enclosed postage-prepaid envelope or follow the instructions on your
voting card to vote by telephone. Please call our investor relations
department at (203) 969-0666 if you have questions or need assistance with the
voting procedures.
APPENDIX A
FORM OF CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION OF HEXCEL CORPORATION
____________________________
Pursuant to Section 242
of the General Corporation Law
of the State of Delaware
____________________________
Hexcel Corporation, a Delaware Corporation (the "Corporation") does hereby
certify as follows:
FIRST: Article 4 of the Corporation's Restated Certificate of Incorporation is
hereby amended to read in its entirety as set forth below:
4. CAPITALIZATION.
The total number of shares which the Corporation is authorized to
issue is 220,000,000, consisting of 20,000,000 shares of Preferred
Stock, without par value (hereinafter in this Certificate of
Incorporation called the "Preferred Stock"), and 200,000,000 shares
of Common Stock with a par value of $0.01 per share (hereinafter in
this Certificate called the "Common Stock").
SECOND: The foregoing amendment was duly adopted in accordance with Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Hexcel Corporation has caused this Certificate to be duly
executed in its corporate name this ___ day of ___, 2003.
HEXCEL CORPORATION
By:___________________________
Name:
Title
APPENDIX B
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
December 18, 2002
The Board of Directors of
Hexcel Corporation
Ladies and Gentlemen:
We understand that Hexcel Corporation (the "Company") is proposing to enter
into agreements for the sale of a total of approximately $125.0 million of
newly issued Series A convertible preferred stock and Series B convertible
preferred stock to several private investors (the "Investors"). Such
transaction and other related transactions disclosed to Houlihan Lokey are
referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders on
Form 10-K for the three fiscal years ended December 31, 2001
and quarterly reports on Form 10-Q for the three quarters
ended September 30, 2002;
2. reviewed copies of the following agreements:
a. Stock Purchase Agreement (the "Purchase Agreement") by
and among Berkshire Investors LLC, Berkshire Fund V,
Limited Partnership, Berkshire Fund VI, Limited
Partnership, Greenbriar Equity Fund, L.P. and
Greenbriar Co-Investment Partners, L.P. and the
Company dated December 18, 2002;
b. Form of Stockholders Agreement among Berkshire Fund V,
Limited Partnership, Berkshire Fund VI, Limited
Partnership, Berkshire Fund V Investment Corp.,
Berkshire Fund VI Investment Corp., Berkshire
Investors LLC, Greenbriar Co-Investment Partners,
L.P., Greenbriar Equity Fund, L.P., and the Company;
c. Form of Registration Rights Agreement among the
Company, Berkshire Fund V, Limited Partnership,
Berkshire Fund VI, Limited Partnership, Berkshire
Investors LLC, Greenbriar Co-Investment Partners,
L.P., and Greenbriar Equity Fund, L.P.;
d. Stock Purchase Agreement by and among the Company, GS
Capital Partners 2000, L.P., GS Capital Partners 2000
Offshore, L.P., GS Capital Partners 2000 Employee
Fund, L.P., GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG and Stone Street Fund 2000, L.P. dated
December 18, 2002;
e. Form of Amended and Restated Governance Agreement
among LXH, L.L.C., LXH II, L.L.C., GS Capital Partners
2000, L.P., GS Capital Partners 2000 Offshore, L.P.,
GS Capital Partners 2000 Employee Fund, L.P., GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG and
Stone Street Fund 2000, L.P. and the Company;
f. Form of Amended and Restated Registration Rights
Agreement among the Company, LXH, L.L.C., LXH II,
L.L.C., GS Capital Partners 2000, L.P., GS Capital
Partners 2000 Offshore, L.P., GS Capital Partners 2000
Employee Fund, L.P., GS Capital Partners 2000 GmbH &
Co. Beteiligungs KG and Stone Street Fund 2000, L.P.;
g. Form of Certificate of Designations of Series A
Convertible Preferred Stock of the Company;
h. Form of Certificate of Designations of Series B
Convertible Preferred Stock of the Company;
i. Letter with respect to registration rights dated
December 18, 2002 from the Company to Greenbriar
Equity Group LLC and Berkshire Partners LLC;
j. Letter with respect to registration rights dated
December 18, 2002 from the Company to LXH, L.L.C., LXH
II, L.L.C., GS Capital Partners 2000, L.P., GS Capital
Partners 2000 Offshore, L.P., GS Capital Partners 2000
Employee Fund, L.P., GS Capital Partners 2000 GmbH &
Co. Beteiligungs KG and Stone Street Fund 2000, L.P.;
k. Letter dated December 18, 2002 with respect to rights
to purchase Company securities pursuant to Section
3.02 of the Governance Agreement from the Company to
LXH, L.L.C., LXH II, L.L.C., GS Capital Partners 2000,
L.P., GS Capital Partners 2000 Offshore, L.P., GS
Capital Partners 2000 Employee Fund, L.P., GS Capital
Partners 2000 GmbH & Co. Beteiligungs KG and Stone
Street Fund 2000, L.P.;
l. Form of Certificate of Amendment of the Restated
Certificate of Incorporation of the Company;
m. Form of Amended and Restated Bylaws of the Company;
3. reviewed the terms of the Company's existing debt
outstanding;
4. reviewed a series of memoranda prepared by Company
management regarding capital structure alternatives, process
and timing;
5. met with certain members of the senior management of the
Company to discuss operations, financial condition, future
prospects, projected operations and performance of the
Company and strategic alternatives;
6. visited the Company's headquarters in Stamford, CT;
7. reviewed forecasts and projections prepared by the Company's
management with respect to the Company for the years ended
December 31, 2002 through December 31, 2007;
8. reviewed the historical market prices and trading volume for
the Company's publicly traded securities; and
9. conducted such other studies, analyses and inquiries as we
have deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Transaction is fair, from a financial point of view, to the Company and its
public stockholders other than the Investors.
This Opinion is furnished solely for the benefit of the Board of Directors of
the Company and may not be relied upon by any other person without our
express, prior written consent. This Opinion is delivered to each recipient
subject to the conditions, scope of engagement, limitations and understandings
set forth in this Opinion and our engagement letter dated November 25, 2002,
and subject to the understanding that the obligations of Houlihan Lokey in the
Transaction are solely corporate obligations, and no officer, director,
employee, agent, shareholder or controlling person of Houlihan Lokey shall be
subjected to any personal liability whatsoever to any person, nor will any
such claim be asserted by or on behalf of you or your affiliates.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
APPENDIX C
FORM OF HEXCEL CORPORATION 2003 INCENTIVE STOCK PLAN
Purpose
This Hexcel Corporation 2003 Incentive Stock Plan (this
"Plan") is an amendment and restatement of the Current Incentive Stock Plan
and the Current Broad Based Plan (the Current Incentive Stock Plan together
with the Current Broad Based Plan to be collectively referred to as the
"Amended and Restated Plans"). This Plan combines the Amended and Restated
Plans into one plan and increases the number of shares available under the
Amended and Restated Plans. Upon the Effective Date, each Award (as defined in
the Amended and Restated Plans) outstanding under either of the Amended and
Restated Plans shall become an Award outstanding under this Plan, and shall
continue to be subject to the same terms and conditions to which such Award
was subject prior to the adoption of this Plan.
This Plan is intended to attract, retain and provide
incentives to Employees, officers, Directors and consultants of the
Corporation, and to thereby increase overall stockholders' value. This Plan
generally provides for the granting of stock, stock options, stock
appreciation rights, restricted shares, other stock-based awards or any
combination of the foregoing to the eligible participants.
Definitions
"Affiliate" of any Person shall mean any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such first Person. The term
"Control" shall have the meaning specified in Rule 12b-2 under the Exchange
Act.
"Award" includes, without limitation, stock options
(including Director Options and incentive stock options within the meaning of
Section 422(b) of the Code) with or without stock appreciation rights,
dividend equivalent rights, stock awards, restricted share awards, or other
awards that are valued in whole or in part by reference to, or are otherwise
based on, the Common Stock ("other Common Stock-based Awards"), all on a
stand-alone, combination or tandem basis, as described in or granted under
this Plan.
"Award Agreement" means a written agreement setting forth
the terms and conditions of each Award made under this Plan.
"Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act.
"Board" means the Board of Directors of the Corporation.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" means the Compensation Committee of the Board or
such other committee of the Board as may be designated by the Board from time
to time to administer this Plan.
"Common Stock" means the $.01 par value common stock of the
Corporation.
"Corporation" means Hexcel Corporation, a Delaware
corporation.
"Current Broad Based Plan" means the Hexcel Corporation 1998
Broad Based Incentive Stock Plan, dated as of February 5, 1998, as amended on
February 3, 2000, February 1, 2001 and January 10, 2002
"Current Incentive Stock Plan" means the Hexcel Corporation
Incentive Stock Plan, dated as of February 21, 1996, which Plan was amended
and restated January 30, 1997, further amended on December 10, 1997, further
amended on March 25, 1999, further amended on December 2, 1999, amended and
restated on February 3, 2000, amended and restated on December 19, 2000, and
further amended on January 10, 2002
"Director" means a member of the Board.
"Director Option" means a stock option granted pursuant to
Section VII hereof to a Director.
"Director Optionee" means a recipient of an Award of a
Director Option.
"Effective Date" means the date on which the stockholders of
the Corporation approve this Plan.
"Employee" means an employee of the Corporation or a
Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" means the closing price for the Common
Stock as reported in publications of general circulation from the New York
Stock Exchange Consolidated Transactions Tape on such date, or, if there were
no sales on the valuation date, on the next preceding date on which such
closing price was recorded; provided, however, that the Committee may specify
some other definition of Fair Market Value in good faith with respect to any
particular Award.
"Participant" means an Employee, officer, Director or
consultant who has been granted an Award under this Plan.
"Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the
Exchange Act.
"Plan Year" means a calendar year.
"Stockholders Agreement" means any stockholders agreement,
governance agreement or other similar agreement between the Corporation and a
holder or holders of Voting Securities.
"Subsidiary" means any corporation or other entity, whether
domestic or foreign, in which the Corporation has or obtains, directly or
indirectly, a proprietary interest of more than 50% by reason of stock
ownership or otherwise.
"Voting Securities" means Common Stock and any other
securities of the Corporation entitled to vote generally in the election of
directors of the Corporation.
Eligibility
Any Employee, officer, Director or consultant of the
Corporation or a Subsidiary selected by the Committee is eligible to receive
an Award pursuant to Section VI hereof. Additionally, Directors described in
Section VII(a) hereof are eligible to receive Awards of Director Options
pursuant to Section VII.
Plan Administration
Except as otherwise determined by the Board, this Plan shall
be administered by the Committee. The Board, or the Committee to the extent
determined by the Board, shall periodically make determinations with respect
to the participation of Employees, officers, Directors and consultants in this
Plan and, except as otherwise required by law or this Plan, the grant terms of
Awards, including vesting schedules, price, restriction or option period,
dividend rights, post-retirement and termination rights, payment alternatives
such as cash, stock, contingent awards or other means of payment consistent
with the purposes of this Plan, and such other terms and conditions as the
Board or the Committee deems appropriate which shall be contained in an Award
Agreement with respect to a Participant.
The Committee shall have authority to interpret and construe
the provisions of this Plan and any Award Agreement and make determinations
pursuant to any Plan provision or Award Agreement which shall be final and
binding on all persons. No member of the Committee shall be liable for any
action or determination made in good faith, and the members shall be entitled
to indemnification and reimbursement in the manner provided in the
Corporation's Certificate of Incorporation, as it may be amended from time to
time.
The Committee shall have the authority at the time of the
grant of any Award to provide for the conditions and circumstances under which
such Award shall be forfeited. The Committee shall have the authority to
accelerate the vesting of any Award and the time at which any Award becomes
exercisable. The Committee shall have the authority to cancel an Award (with
the consent of the Participant holding such Award) on such terms and
conditions as the Committee shall determine.
Capital Stock Subject to the Provisions of this Plan
The capital stock subject to the provisions of this Plan
shall be shares of authorized but unissued Common Stock and shares of Common
Stock held as treasury stock. Subject to adjustment in accordance with the
provisions of Section XI, and subject to Section V(c) below, the maximum
number of shares of Common Stock that shall be available for grants of Awards
under this Plan shall be [14,355,348], which, as of the Effective Date,
includes (i) [7,400,479] shares of Common Stock subject to outstanding grants
of Awards under this Plan, and (ii) [6,954,869] shares of Common Stock
available for future grants of Awards under this Plan. 1
_______________________
1 All numbers in this paragraph are as of December 31, 2002, and will be
adjusted as of the date this plan is approved by shareholders, as described in
this paragraph. The 14,355,348 number equals the sum of (1) the number of
shares subject to existing equity grants (7,400,479), (2) the number of shares
currently available for future equity grants (1,954,869), and (3) the new
shares to be added subject to shareholder approval (5,000,000). The 6,954,869
number equals the sum of (1) the number of shares available for future equity
grants (1,954,869), plus (2) the 5,000,000 new shares to be submitted to
shareholders for approval.
Over the life of the two currently existing plans, 11,954,221 shares have been
authorized. Of these 11,954,221 shares, 7,400,479 shares are subject to
existing equity grants, and 2,598,873 shares have been issued upon the
exercise or conversion of equity incentives - leaving a total of 1,954,869
shares available for future equity grants prior to any increase. The 7,400,479
and 6,954,869 numbers will be adjusted as appropriate when the plan becomes
effective upon shareholder approval, to reflect any changes in the number of
shares available for future grants and subject to existing equity grants (for
example, if an employee with one or more options quits or is terminated and
the shares then again become available for grant, the 7,400,479 number would
decrease and the 6,954,869 number would increase). The 14,355,348 number and
the 7,400,479 number will decrease by the same amount if and to the extent
that shares are issued (for example, upon the exercise of stock options or the
conversion of restricted stock) under the two currently existing plans.
The grant of a restricted share Award shall be deemed to be
equal to the maximum number of shares which may be issued under the Award.
Awards payable only in cash will not reduce the number of shares available for
Awards granted under this Plan.
There shall be carried forward and be available for Awards
under this Plan, in addition to shares available for grant under paragraph (a)
of this Section V, all of the following: (i) shares represented by Awards
which are cancelled, forfeited, surrendered, terminated, paid in cash or
expire unexercised; and (ii) the excess amount of variable Awards which become
fixed at less than their maximum limitations.
Discretionary Awards Under This Plan
As the Board or Committee may determine, the following types
of Awards and other Common Stock-based Awards may be granted under this Plan
on a stand-alone, combination or tandem basis:
Stock Option. A right to buy a specified number of shares of
Common Stock at a fixed exercise price during a specified time, all as the
Committee may determine.
Incentive Stock Option. An Award which may be granted only
to Employees in the form of a stock option which shall comply with the
requirements of Code Section 422 or any successor section as it may be amended
from time to time. The exercise price of any incentive stock option shall not
be less than 100% of the Fair Market Value of the Common Stock on the date of
grant of the incentive stock option Award. Subject to adjustment in accordance
with the provisions of Section XI, the aggregate number of shares which may be
subject to incentive stock option Awards under this Plan shall not exceed the
maximum number of shares provided in paragraph (a) of Section V above. To the
extent that the aggregate Fair Market Value of Common Stock with respect to
which options intended to be incentive stock options are exercisable for the
first time by any individual during any calendar year exceeds $100,000, such
options shall be treated as options which are not incentive stock options.
Stock Option in lieu of Compensation Election. A right given
with respect to a year to a Director, officer or key Employee to elect to
exchange annual retainers, fees or compensation for stock options.
Stock Appreciation Right. A right which may or may not be
contained in the grant of a stock option or incentive stock option to receive
the excess of the Fair Market Value of a share of Common Stock on the date the
option is surrendered over the option exercise price or other specified amount
contained in the Award Agreement.
Restricted Shares. A transfer of Common Stock to a
Participant subject to forfeiture until such restrictions, terms and
conditions as the Committee may determine are fulfilled.
Dividend or Equivalent. A right to receive dividends or
their equivalent in value in Common Stock, cash or in a combination of both
with respect to any new or previously existing Award.
Stock Award. An unrestricted transfer of ownership of Common
Stock.
Other Stock-Based Awards. Other Common Stock-based Awards
which are related to or serve a similar function to those Awards set forth in
this Section VI.
Formula Awards Under This Plan
In addition to discretionary Awards (including, without
limitation, options) that may be granted to Directors pursuant to Section VI
hereof, Director Options shall be granted as provided below:
Grants of Director Options.
With respect to any individual who becomes a Director and
who is not also a full-time employee of the Corporation or any Subsidiary
(provided such individual has not previously received a grant pursuant to this
Section VII(a)(i)), such individual shall be granted, as of the date of
election or appointment as a Director, a Director Option to acquire 10,000
shares of Common Stock upon the terms and subject to the conditions set forth
in this Plan and this Section VII.
Immediately after each annual meeting of stockholders of the
Corporation each Director who is not on such date also a full-time employee of
the Corporation or any Subsidiary shall be granted a Director Option to
acquire 2,000 shares of Common Stock upon the terms and subject to the
conditions set forth in this Plan and this Section VII.
If on any date when Options are to be granted pursuant to
Section VII(a)(i) or (ii) the total number of shares of Common Stock as to
which Director Options are to be granted exceeds the number of shares of
Common Stock remaining available under this Plan, there shall be a pro rata
reduction in the number of shares of Common Stock as to which each Director
Option is granted on such day.
Terms of Director Options.
The terms of each Director Option granted under this Section
VII shall be determined by the Board consistent with the provisions of this
Plan, including the following:
The purchase price of the shares of Common Stock subject to
each Director Option shall be equal to the Fair Market Value of such shares on
the date such option is granted.
Each Director Option shall be exercisable as to one-third of
the shares subject thereto immediately upon the grant of the option and as to
an additional one-third of such shares on the first and second anniversaries
of the date of such grant.
Each Director Option shall expire ten years after the
granting thereof. Each Director Option shall be subject to earlier expiration
as expressly provided in Section VII(c) hereof.
Disability, Death or Termination of Director Status; Change in Control.
If a Director Optionee ceases to be a Director for any
reason other than his disability or death, each Director Option held by him to
the extent exercisable on the effective date of his ceasing to be a Director
shall remain exercisable until the earlier to occur of (i) the first
anniversary of such effective date and (ii) the expiration of the stated term
of the Director Option; provided, however, that if the Director Optionee is
removed, withdraws or otherwise ceases to be a Director due to his fraud,
dishonesty or intentional misrepresentation in connection with his duties as a
Director or his embezzlement, misappropriation or conversion of assets or
opportunities of the Corporation or any Subsidiary, all unexercised Director
Options held by the Director Optionee shall expire forthwith. Each Director
Option held by the Director Optionee to the extent not exercisable on the
effective date of his ceasing to be a Director for any reason other than his
disability or death shall expire forthwith.
If a Director Optionee ceases to be a Director as a result
of his disability or death, each Director Option held by him to the extent
that the Director Option is exercisable on the effective date of his ceasing
to be a Director shall remain exercisable by the Director Optionee or the
Director Optionee's executor, administrator, legal representative or
beneficiary, as the case may be, until the earlier to occur of (x) the third
anniversary of such effective date and (y) the expiration of the stated term
of the Director Option. Each Director Option held by the Director Optionee to
the extent not exercisable on the effective date of his ceasing to be a
Director as a result of his disability or death shall expire forthwith.
In the event of a Change in Control (as hereinafter defined)
while a Director Optionee is a Director, each Director Option held by the
Director Optionee to the extent not then exercisable shall thereupon become
exercisable. If a Change in Control occurs on or before the effective date of
a Director Optionee's ceasing to be a Director, the provisions of this
subsection (iii) shall govern with respect to the exercisability of the
Director Options held by him as of the date on which the Director Optionee
ceases to be a Director and the provisions of subsection (i) or (ii) of this
Section VII(c) shall govern with respect to the period of time during which
such Director Options shall remain exercisable. For purposes of this
subsection (iii), "Change in Control" shall mean any of the following events:
(1) any Person is or becomes the Beneficial Owner, directly or
indirectly, of 40% or more of either (A) the then outstanding Common Stock of
the Corporation (the "Outstanding Common Stock") or (B) the combined voting
power of the then outstanding securities entitled to vote generally in the
election of directors of the Corporation (the "Total Voting Power");
excluding, however, the following: (I) any acquisition by the Corporation or
any of its Controlled Affiliates, (II) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Corporation or any of
its Controlled Affiliates and (III) any Person who becomes such a Beneficial
Owner in connection with a transaction described in the exclusion within
paragraph (3) below; or
(2) a change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such
individuals shall be hereinafter referred to as the "Incumbent Directors")
cease for any reason to constitute at least a majority of the Board; provided,
however, for purposes of this definition, that any individual who becomes a
director subsequent to such date whose election, or nomination for election by
the Corporation's stockholders, was made or approved pursuant to the terms of
each then existing Stockholders Agreement or by a vote of at least a majority
of the Incumbent Directors (or directors whose election or nomination for
election was previously so approved) shall be considered a member of the
Incumbent Board; but, provided, further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person or
legal entity other than the Board shall not be considered a member of the
Incumbent Board; or
(3) there is consummated a merger or consolidation of the Corporation
or any direct or indirect subsidiary of the Corporation or a sale or other
disposition of all or substantially all of the assets of the Corporation
("Corporate Transaction"); excluding, however, such a Corporate Transaction
(A) pursuant to which all or substantially all of the individuals and entities
who are the Beneficial Owners, respectively, of the Outstanding Common Stock
and Total Voting Power immediately prior to such Corporate Transaction will
Beneficially Own, directly or indirectly, more than 50%, respectively, of the
outstanding common stock and the combined voting power of the then outstanding
common stock and the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the company
resulting from such Corporate Transaction (including, without limitation, a
company which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the Outstanding Common
Stock and Total Voting Power, as the case may be, and (B) immediately
following which the individuals who comprise the Board immediately prior
thereto constitute at least a majority of the board of directors of the
company resulting from such Corporate Transaction (including, without
limitation, a company which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries); or
(4) the approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
Award Agreements
Each Award under this Plan shall be evidenced by an Award
Agreement setting forth the terms and conditions of the Award and executed by
the Corporation and Participant.
Other Terms and Conditions
Assignability. Unless provided to the contrary in any Award,
no Award shall be assignable or transferable except by will, by the laws of
descent and distribution and during the lifetime of a Participant, the Award
shall be exercisable only by such Participant. No Award granted under this
Plan shall be subject to execution, attachment or process.
Termination of Employment or Other Relationship. The
Committee shall determine the disposition of the grant of each Award in the
event of the retirement, disability, death or other termination of a
Participant's employment or other relationship with the Corporation or a
Subsidiary.
Rights as a Stockholder. A Participant shall have no rights
as a stockholder with respect to shares covered by an Award until the date the
Participant is the holder of record. No adjustment will be made for dividends
or other rights for which the record date is prior to such date.
No Obligation to Exercise. The grant of an Award shall
impose no obligation upon the Participant to exercise the Award.
Payments by Participants. The Committee may determine that
Awards for which a payment is due from a Participant may be payable: (i) in
U.S. dollars by personal check, bank draft or money order payable to the order
of the Corporation, by money transfers or direct account debits; (ii) through
the delivery or deemed delivery based on attestation to the ownership of
shares of Common Stock with a Fair Market Value equal to the total payment due
from the Participant; (iii) pursuant to a "cashless exercise" program if
established by the Corporation; (iv) by a combination of the methods described
in (i) through (iii) above; or (v) by such other methods as the Committee may
deem appropriate.
Withholding. Except as otherwise provided by the Committee,
(i) the deduction of withholding and any other taxes required by law will be
made from all amounts paid in cash and (ii) in the case of payments of Awards
in shares of Common Stock, the Participant shall be required to pay the amount
of any taxes required to be withheld prior to receipt of such stock, or
alternatively, a number of shares the Fair Market Value of which equals the
amount required to be withheld may be deducted from the payment.
Maximum Awards. The maximum number of shares of Common Stock
that may be issued to any single Participant pursuant to options under this
Plan is equal to the maximum number of shares provided for in paragraph (a) of
Section V.
Termination, Modification and Amendments
The Committee may at any time terminate this Plan or from
time to time make such modifications or amendments of this Plan as it may deem
advisable; provided, however, that no amendments to this Plan which require
stockholder approval under applicable law, rule or regulation shall become
effective unless the same shall be approved by the requisite vote of the
Corporation's stockholders.
No termination, modification or amendment of this Plan may
adversely affect the rights conferred by an Award without the consent of the
recipient thereof.
Recapitalization
The aggregate number of shares of Common Stock as to which
Awards may be granted to Participants, the number of shares thereof covered by
each outstanding Award, and the per share price thereof set forth in each
outstanding Award, shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares or other capital adjustment, or the
payment of a stock dividend or other increase or decrease in such shares,
effected without receipt of consideration by the Corporation, or other change
in corporate or capital structure; provided, however, that any fractional
shares resulting from any such adjustment shall be eliminated. The Committee
shall also make the foregoing changes and any other changes, including changes
in the classes of securities or other consideration available, to the extent
it is deemed necessary or desirable to preserve the intended benefits of this
Plan for the Corporation and the Participants in the event of any other
reorganization, recapitalization, merger, consolidation, spin-off,
extraordinary dividend or other distribution or similar transaction.
No Right to Employment
Except as provided in Section VII with respect to Director
Options, no person shall have any claim or right to be granted an Award, and
the grant of an Award shall not be construed as giving a Participant the right
to be retained in the employ of, or in any other relationship with, the
Corporation or a Subsidiary. Further, the Corporation and each Subsidiary
expressly reserve the right at any time to dismiss a Participant free from any
liability, or any claim under this Plan, except as provided herein or in any
Award Agreement issued hereunder or in any other agreement applicable between
a Participant and the Corporation or a Subsidiary.
Governing Law
To the extent that federal laws do not otherwise control,
this Plan shall be construed in accordance with and governed by the laws of
the State of Delaware.
Savings Clause
This Plan is intended to comply in all aspects with
applicable laws and regulations. In case any one more of the provisions of
this Plan shall be held invalid, illegal or unenforceable in any respect under
applicable law and regulation, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable provision shall be deemed null and
void; however, to the extent permissible by law, any provision which could be
deemed null and void shall first be construed, interpreted or revised
retroactively to permit this Plan to be construed in compliance with all
applicable laws so as to foster the intent of this Plan.
Effective Date and Term
This Plan shall be effective as of the Effective Date.
This Plan shall terminate on the tenth anniversary date of
the Effective Date. No Awards shall be granted after the termination of this
Plan.
APPENDIX D
FORM OF HEXCEL CORPORATION MANAGEMENT STOCK PURCHASE PLAN
As Amended and Restated _______ __, 2003
1. Purposes
This Hexcel Corporation Management Stock Purchase Plan, as
approved by the stockholders of the Corporation on May 11, 2000, as amended
and restated as of December 19, 2000, is hereby further amended and restated
as of ________ __, 2003 as authorized by the Board on December 12, 2002 (as so
amended and restated, the "Plan"). The purposes of the Plan are to attract and
retain highly-qualified executives, to align executive and stockholder
long-term interests by creating a direct link between annual incentive
executive compensation and stockholder return and to enable executives to
purchase stock by using a portion of their annual incentive compensation so
that they can develop and maintain a substantial stock ownership position in
the Corporation.
2. Definitions
As used in this Plan, the following words and phrases shall
have the meanings indicated:
"Affiliate" of any Person shall mean any other Person that
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, such first Person. The term
"Control" shall have the meaning specified in Rule 12b-2 under the Exchange
Act.
"Agreement" shall mean an agreement entered into between the
Corporation and a Participant in connection with a grant under the Plan.
"Annual Bonus" shall mean the bonus earned by a Participant
for any Corporation fiscal year under the Annual Plan.
"Annual Plan" shall mean the Hexcel Corporation Management
Incentive Compensation Plan or any substitute plan, as amended from time to
time.
"Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act.
"Board" shall mean the Board of Directors of the
Corporation.
"Cause" shall mean (i) the willful and continued failure by
the Participant to substantially perform the Participant's duties with the
Corporation (other than any such failure resulting from the Participant's
incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to the Participant by the Corporation,
which demand specifically identifies the manner in which the Corporation
believes that the Participant has not substantially performed the
Participant's duties, or (ii) the willful engaging by the Participant in
conduct which is demonstrably and materially injurious to the Corporation or
its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and
(ii) of this definition, no act, or failure to act, on the Participant's part
shall be deemed "willful" unless done, or omitted to be done, by the
Participant not in good faith and without reasonable belief that the
Participant's act, or failure to act, was in the best interest of the
Corporation.
"Change in Control" shall have the meaning given in Article
6 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean the Compensation Committee of the
Board or such other committee of the Board as may be designated by the Board.
"Corporation" shall mean Hexcel Corporation, a corporation
organized under the laws of the State of Delaware, or any successor
corporation.
"Disability" shall mean that, as a result of the
Participant's incapacity due to physical or mental illness or injury, the
Participant shall not have performed all or substantially all of the
Participant's usual duties as an employee for a period of more than
one-hundred-fifty (150) days in any period of one-hundred-eighty (180)
consecutive days.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
"Fair Market Value" per share of Stock shall be the average
of the closing prices on the NYSE Consolidated Transactions Tape for the five
trading days immediately preceding the relevant valuation date and "Fair
Market Value" of a Restricted Stock Unit on any valuation date shall be deemed
to be equal to the Fair Market Value of a share of Stock on such valuation
date.
"Participant" shall mean a person who receives a grant of
Restricted Stock Units under the Plan; all such grants are sometimes referred
to herein as "purchases".
"Person", as used in Article 6 hereof, shall have the
meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) of the Exchange Act.
"Plan" means this Hexcel Corporation Management Stock
Purchase Plan, as amended from time to time.
"Restricted Period" shall have the meaning given in Sections
5(c) and 5(h) hereof.
"Restricted Stock Unit" or "Restricted Stock Units" shall
have the meaning given in Section 5 hereof.
"Retirement" shall mean the termination of a Participant's
employment (other than by reason of death or Cause) which occurs either (i) at
or after age 65 or (ii) at or after age 55 after five (5) years of employment
by the Corporation (or a Subsidiary thereof).
"Stock" shall mean shares of the common stock of the
Corporation, par value $.01 per share.
"Stockholders Agreement" shall mean any stockholders
agreement, governance agreement or other similar agreement between the
Corporation and a holder or holders of Voting Securities.
"Subsidiary" shall mean any subsidiary of the Corporation
(whether or not a subsidiary at the date the Plan is adopted) which is
designated by the Committee to participate in the Plan.
"Term" shall have the meaning given in Article 14 hereof.
"Voting Securities" shall mean Stock and any other
securities of the Corporation entitled to vote generally in the election of
directors of the Corporation.
3. Stock
The maximum number of shares of Stock which shall be
reserved for the grant of Restricted Stock Units under the Plan shall be
550,000, which number shall be subject to adjustment as provided in Article 7
hereof. Such shares may be either authorized but unissued shares or shares
that shall have been or may be reacquired by the Corporation.
If any outstanding grant of Restricted Stock Units under the
Plan should, for any reason be cancelled or be forfeited before all its
restrictions lapse, the shares of Stock allocable to the cancelled or
terminated portion of such grant shall (unless the Plan shall have been
terminated) become available for subsequent grants under the Plan.
4. Eligibility
During the Term of the Plan any Participant in the Annual
Plan (who has been designated by the Committee as a Participant in this Plan)
can elect to receive up to fifty (50%) percent of the Participant's Annual
Bonus in Restricted Stock Units granted pursuant to, and subject to the terms
and conditions of, this Plan. Except as otherwise provided by the Committee in
its discretion with respect to the first fiscal year of the Corporation in
which (i) the Plan is in effect or (ii) a Participant participates in the
Plan, any such election by a Participant must be made at least six months
prior to the day the amount of the Participant's Annual Bonus is finally
determined under the Annual Plan. Since the Restricted Stock Units are
"purchased" with part or all of the Annual Bonus, all Restricted Stock Unit
grants under this Plan are sometimes referred to herein as "purchases." For
purposes of the Plan, the date of purchase of a Restricted Stock Unit shall be
deemed to be the date the Annual Bonus (from which the purchase funds are
derived) is payable.
5. Restricted Stock Units
Each grant of Restricted Stock Units under the Plan shall be
evidenced by a written agreement between the Corporation and the Participant,
in such form as the Committee shall from time to time approve, and shall
comply with the following terms and conditions (and with such other terms and
conditions not inconsistent with the terms of this Plan as the Committee, in
its discretion, shall establish):
(a) NUMBER OF RESTRICTED STOCK UNITS. Each agreement shall state the
number of Restricted Stock Units to be subject to a grant.
(b) PRICE. The price of each Restricted Stock Unit purchased under
the Plan shall be eighty (80%) percent of its Fair Market Value on the
date of purchase. Notwithstanding any other provision of the Plan, in no
event shall the price per Restricted Stock Unit be less than the par
value per share of Stock.
(c) NORMAL VESTING; NORMAL END OF RESTRICTED PERIOD. Subject to
Section 5(d) hereof, one-third (1/3) of Restricted Stock Units purchased
on a given date shall vest on each of the first three anniversaries of
the date of purchase, but the Restricted Period of all Restricted Stock
Units purchased on that date shall end on the third anniversary thereof.
(d) ACCELERATION OF VESTING AND END OF RESTRICTED PERIOD.
Notwithstanding Section 5(c) hereof, a Participant's Restricted Stock
Units shall immediately become completely vested and their respective
Restricted Periods shall end upon the first to occur of (x) a Change in
Control, (y) the involuntary termination of the Participant's employment
without Cause, or (z) the termination of a Participant's employment by
reason of Retirement or the Participant's death or Disability.
Additionally, the Committee shall have the authority to vest any or all
of a Participant's Restricted Stock Units and to end their respective
Restricted Periods at such earlier time or times and on such terms and
conditions as the Committee shall deem appropriate.
(e) PAYMENT AT END OF RESTRICTED PERIOD. Upon the end of the
Restricted Period with respect to a Restricted Stock Unit, the
Participant (or the Participant's estate, in the event of the
Participant's death) will receive payment of all the Participant's
Restricted Stock Units in the form of an equal number of unrestricted
shares of Stock.
(f) TERMINATION DURING THE RESTRICTED PERIOD AND VESTED RESTRICTED
STOCK UNITS; PAYMENT. If the termination of the employment of a
Participant occurs during the Restricted Period, the Participant (or the
Participant's estate, in the event of the Participant's death) will
receive unrestricted shares of Stock equal in number to the Participant's
vested Restricted Stock Units.
(g) TERMINATION DURING RESTRICTED PERIOD AND UNVESTED RESTRICTED
STOCK UNITS; PAYMENT. If the termination of the employment of a
Participant occurs during the Restricted Period, the Participant will
receive a cash payment equal to eighty (80%) percent of the Fair Market
Value of the Participant's unvested Restricted Stock Units on the date of
their purchase.
(h) RESTRICTIONS. Restricted Stock Units (whether or not vested) may
not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution,
during the Restricted Period. The Committee may also impose such other
restrictions and conditions on the shares as it deems appropriate.
6. Change in Control of the Corporation
For purposes of the Plan, the term "Change in Control" shall
mean any of the following events:
(1) any Person is or becomes the Beneficial Owner, directly or
indirectly, of 40% or more of either (a) the then outstanding Stock of the
Corporation (the "Outstanding Common Stock") or (b) the combined voting power
of the then outstanding securities entitled to vote generally in the election
of directors of the Corporation (the "Total Voting Power"); excluding,
however, the following: (i) any acquisition by the Corporation or any of its
Controlled Affiliates, (ii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any of its
Controlled Affiliates and (iii) any Person who becomes such a Beneficial Owner
in connection with a transaction described in the exclusion within paragraph
(3) below; or
(2) a change in the composition of the Board such that the individuals
who, as of ________ __, 2003 constitute the Board (such individuals shall be
hereinafter referred to as the "Incumbent Directors") cease for any reason to
constitute at least a majority of the Board; provided, however, for purposes
of this definition, that any individual who becomes a director subsequent to
such date whose election, or nomination for election by the Corporation's
stockholders, was made or approved pursuant to the terms of each then existing
Stockholders Agreement or by a vote of at least a majority of the Incumbent
Directors (or directors whose election or nomination for election was
previously so approved) shall be considered a member of the Incumbent Board;
but, provided, further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person or legal entity other than the Board
shall not be considered a member of the Incumbent Board; orthere is
consummated a merger or consolidation of the Corporation or any direct or
indirect subsidiary of the Corporation or a sale or other disposition of all
or substantially all of the assets of the Corporation ("Corporate
Transaction"); excluding, however, such a Corporate Transaction (a) pursuant
to which all or substantially all of the individuals and entities who are the
Beneficial Owners, respectively, of the Outstanding Common Stock and Total
Voting Power immediately prior to such Corporate Transaction will Beneficially
Own, directly or indirectly, more than 50%, respectively, of the outstanding
common stock and the combined voting power of the then outstanding common
stock and the combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the company
resulting from such Corporate Transaction (including, without limitation, a
company which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the Outstanding Common
Stock and Total Voting Power, as the case may be, and (b) immediately
following which the individuals who comprise the Board immediately prior
thereto constitute at least a majority of the board of directors of the
company resulting from such Corporate Transaction (including, without
limitation, a company which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries); or
(3) the approval by the stockholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
7. Recapitalization
The aggregate number of shares of Stock as to which
Restricted Stock Units may be granted to Participants and the number of shares
thereof covered by each outstanding Restricted Stock Unit, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a subdivision or consolidation of shares or
other capital adjustment, or the payment of a stock dividend or other increase
or decrease in such shares, effected without receipt of consideration by the
Corporation, or other change in corporate or capital structure; provided,
however, that any fractional shares resulting from any such adjustment shall
be eliminated. The Committee shall also make the foregoing changes and any
other changes, including changes in the classes of securities available, to
the extent it is deemed necessary or desirable to preserve the intended
benefits of the Plan for the Corporation and the Participants in the event of
any other reorganization, recapitalization, merger, consolidation, spin-off,
extraordinary dividend or other distribution or similar transaction.
8. Payment of Withholding Taxes
Except as otherwise provided by the Committee, (i) the
deduction of withholding and any other taxes required by law will be made from
all amounts paid in cash and (ii) in the case of distributions in shares of
Stock, the Participant shall be required to pay the amount of any taxes
required to be withheld prior to receipt of such Stock, or alternatively, a
number of shares the Fair Market Value of which equals the amount required to
be withheld may be deducted from the shared distributed.
9. Rights as a Stockholder
A Participant or a transferee of a grant shall have no
rights as a stockholder with respect to any shares of Stock which may become
issuable pursuant to the grant until the date of the issuance of a stock
certificate to him or her for such shares. No adjustment shall be made for
dividends (whether ordinary or extraordinary, and whether in cash, securities
or other property) or distribution of other rights for which the record date
is prior to the date such stock certificate is issued, except as provided in
Article 7 hereof.
10. No Rights to Employment
No person shall have any claim or right to be a Participant
in the Plan, and the grant hereunder shall not be construed as giving a
Participant the right to be retained in the employ of, or in the other
relationship with, the Corporation or a Subsidiary. Further, the Corporation
and each Subsidiary expressly reserve the right at any time to dismiss a
Participant free from any liability, or any claim under the Plan, except as
provided herein or in any agreement issued hereunder or in any other agreement
applicable between a Participant and the Corporation or a Subsidiary.
11. Administration
The Plan shall be administered by the Committee. The
Committee shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically granted to
it under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Restricted Stock Units;
to determine the persons to whom, and the time or times at which grants shall
be granted; to determine the number of Restricted Stock Units to be covered by
each grant; to interpret the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
Agreements (which need not be identical) and to cancel or suspend grants, as
necessary; and to make all other determinations deemed necessary or advisable
for the administration of the Plan.
The Board shall fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional members to the
Committee, and may at any time remove one or more Committee members and
substitute others. The Committee may appoint a chairperson and a secretary and
make such rules and regulations for the conduct of its business as it shall
deem advisable, and shall keep minutes of its meetings. The Committee shall
hold its meetings at such times and places (and its telephonic meetings at
such times) as it shall deem advisable. The Committee may delegate to one or
more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with
respect to any responsibility the Committee or such person may have under the
Plan. All decisions, determinations and interpretations of the Committee shall
be final and binding on all persons, including the Corporation, the
Participant (or any person claiming any rights under the Plan from or through
any Participant) and any stockholder.
No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or
any grant hereunder.
12. Amendment and Termination of the Plan
The Board at any time and from time to time may suspend,
terminate, modify or amend the Plan; provided, however, that an amendment for
which the Board determines stockholder approval is necessary or appropriate
under the circumstances then prevailing shall not be effective unless approved
by the requisite vote of stockholders. Except as provided in Article 7 hereof,
no suspension, termination, modification or amendment of the Plan may
adversely affect any grant previously made to a Participant, unless the
written consent of the Participant is obtained.
13. Governing Law
The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware.
14. Effective Date and Term
The Plan is hereby amended and restated herein as of
________ __, 2003. The Plan shall replace the Management Stock Purchase Plan
in effect immediately prior thereto (the "Prior Plan"), but all Restricted
Stock Units granted under the Prior Plan shall remain outstanding pursuant to
the terms thereof.
The Plan shall terminate on March 31, 2010. No Restricted
Stock Units shall be granted after the termination of the Plan.
APPENDIX E
FORM OF HEXCEL CORPORATION EMPLOYEE STOCK PURCHASE PLAN
as Amended and Restated as of _______ __, 2003
1. Purpose. The Plan is intended to provide Employees (as defined herein)
of the Company and its Designated Subsidiaries, with the opportunity to
apply a portion of their compensation to the purchase of Common Stock of
the Company in accordance with the terms of the Plan, to promote and
increase the ownership of Common Stock by such employees and to better
align the interests of the Company's employees and its stockholders and
to thereby increase overall stockholder value.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Brokerage Firm" means any brokerage firm selected by
the Company, from time to time, to establish Investment Accounts for
the Participants under the Plan.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a committee formed or designated by
the Board to administer the Plan.
(e) "Common Stock" means the Common Stock, $0.01 par value,
of the Company.
(f) "Company" means Hexcel Corporation, a Delaware
corporation.
(g) "Compensation" means all cash compensation, to include
regular straight time gross earnings, overtime, shift premium, cash
bonuses and commissions.
(h) "Continuous Status as an Employee" means the absence of
any interruption or termination of service as an Employee other than
ordinary vacation and short-term disability absences. Continuous
Status as an Employee shall not be considered interrupted in the case
of a leave of absence agreed to in writing by the Company, provided
that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by
contract or statute.
(i) "Contributions" means all amounts credited to the Plan
Account of a Participant pursuant to the Plan.
(j) "Designated Subsidiaries" means the Subsidiaries which
have been designated by the Committee from time to time in its sole
discretion as eligible to participate in the Plan.
(k) "Employee" means any person, excluding any officer or
director or other person or group of persons excluded from the Plan
as provided herein, who is a direct employee and on the payroll of
the Company or one of its Designated Subsidiaries and who is employed
for at least thirty (30) hours per week and more than 1,000 hours in
a calendar year by the Company or one of its Designated Subsidiaries.
The term Employee specifically excludes any person or group of
persons who is classified by the Company or its Designated Subsidiary
as a temporary employee, contract employee, reserve employee or
similar non-direct or temporary designation. It is the intention of
the Company that the definition of Employee in this Plan (as applied
by the Committee in its sole discretion) shall be determinative for
purposes of participation in the Plan, regardless of how a person may
be characterized by the Company or its Designated Subsidiary for any
other purpose.
(l) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(m) "Exercise Date" means the last day of each Offering
Period of the Plan.
(n) "Investment Account" means an Employee Stock Purchase
Plan account at the Brokerage Firm that is established for each
Participant and in which all shares of Common Stock purchased by the
Participant pursuant to the Plan are held.
(o) "Offering Date" means the first business day of each
Offering Period of the Plan.
(p) "Offering Period" means a period of three (3) calendar
months.
(q) "Participant" means any Employee who is eligible to
participate in the Plan who has delivered a Subscription Agreement to
the Company, whose employment has not terminated and who has not
delivered to the Company a Participation Termination Notice.
(r) "Participation Termination Notice" has the meaning given
thereto in Section 10 hereof.
(s) "Plan" means this Employee Stock Purchase Plan.
(t) "Plan Account" means, with respect to each Participant,
an account established by the Company to record Contributions to the
Plan made by such Participant and the use of such Contributions as
they are either (i) applied by the Company for the purchase of Common
Stock under the Plan for the account of such Participant or (ii)
repaid to such Participant pursuant to the Plan.
(u) "Subsidiary" shall mean a corporation, domestic or
foreign, of which more than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists
or is hereafter organized or acquired by the Company or a Subsidiary.
3. Eligibility. Any person who has been continuously employed as an
Employee for six (6) months as of the Offering Date of a given Offering
Period and has reached the age of majority in the state of his or her
residence shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a).
4. Offering Periods. The Plan shall be implemented by a series of
Offering Periods, with a new Offering Period commencing on January 1 of
each year (or at such other time or times as may be determined by the
Committee), and subsequent Offering Periods will commence on the first
day of each calendar quarter (i.e., April 1, July 1, October 1). The Plan
shall continue until terminated in accordance with Section 22 hereof. The
Committee shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings if such
change is announced at least fifteen (15) calendar days prior to the
scheduled beginning of the first Offering Period to be affected.
5. Participation.
(a) An Employee who is eligible to participate in the Plan
pursuant to Section 3 hereof may become a participant in the Plan by
completing a subscription agreement in the form provided by the
Company (a "Subscription Agreement") and filing it with the
appropriate representative of the Company or the Designated
Subsidiary that employs such Employee in accordance with the terms of
the Subscription Agreement at any time during the initial Offering
Period of the Plan or, for subsequent Offering Periods, not later
than fifteen (15) calendar days prior to any Offering Date, unless a
later time for filing Subscription Agreements is established by the
Committee for all eligible Employees with respect to a given Offering
Period. Each eligible Employee's Subscription Agreement shall set
forth either (1) the whole percentage of the Participant's
Compensation (which shall be not less than 1% and not more than 10%)
or (2) the whole dollar amount (that shall not be less than $5.00 and
not more than an amount equal to 10% of such Participant's
Compensation) to be deducted by the Company from the Participant's
Compensation as Contributions to the Plan. Each Subscription
Agreement shall constitute the Employee's (i) election to participate
in the Plan for all subsequent Offering Periods until such time as
(1) the Company has received notice of termination of participation
from such Employee pursuant to Section 10, (2) a new Subscription
Agreement designating a different level of participation is delivered
to the Company by such Employee or (3) such Employee's termination of
employment, and (ii) authorization for the Company to withhold (in
the manner determined by the Company or the applicable Subsidiary)
any taxes that are required to be withheld by the Company or the
applicable Subsidiary due to the Employee's participation in the Plan
or the exercise of any Option or purchase of any Common Stock under
the Plan.
(b) Payroll deductions with respect to each Participant
shall commence on the first payday following the first Offering Date
following the Company's receipt of the applicable Subscription
Agreement and shall end on the last payday on or prior to the
termination of such Employee's employment with the Company, unless
sooner terminated by the Participant as provided in Section 10,
provided that payroll deductions will begin on the first pay period
commencing after the delivery of a Subscription Agreement for
Participants who join the Plan during the initial Offering Period. To
the extent that the Participant elects to have a percentage of his or
her compensation deducted, payroll deductions shall automatically be
increased or decreased to reflect changes in Compensation during such
Offering Period, but a Participant shall not otherwise be entitled to
increase or decrease his or her contribution rate during an Offering
Period.
6. Method of Payment of Contributions.
(a) The Participant shall elect to have payroll deductions
made on each payday during the Offering Period either (1) in a whole
percentage amount of between one percent (1%) and not more than ten
percent (10%) of such Participant's Compensation on each such payday
or (2) in a whole dollar amount (that shall be not less than $5.00
and not more than an amount equal to 10% of such Participant's
Compensation) of such Participant's Compensation on each such payday,
provided that the aggregate of such payroll deductions during the
Offering Period shall not exceed ten percent (10%) of the
Participant's aggregate Compensation during said Offering Period. All
payroll deductions made with respect to a Participant shall be
credited to his or her Plan Account. A Participant may not make any
additional payments into his or her Plan Account or Investment
Account.
(b) A Participant may discontinue his or her participation
in the Plan as provided in Section 10. A Participant may increase or
decrease the rate of his or her Contributions for future Offering
Periods by completing and filing with the Company a new Subscription
Agreement no later than fifteen (15) calendar days prior to the
beginning of the Offering Period for which such change will become
effective. Subject to the prior sentence, the change in rate shall be
effective as of the first pay period ending in the first new Offering
Period following the date of filing of the new Subscription
Agreement.
7. Grant of Option. On the Offering Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date during such Offering
Period a number of shares of Common Stock determined by dividing such
Employee's Contributions accumulated during such Offering Period prior to
such Exercise Date and retained in the Participant's Plan Account as of
the Exercise Date by eighty-five percent (85%) of the closing price of
the Common Stock as determined from the New York Stock Exchange
Consolidated Transaction Tape on the Exercise Date or, if there were no
sales of Common Stock on such date, on the next preceding date on which
such closing price was recorded.
8. Exercise of Option. Unless a Participant withdraws from the Plan
as provided in Section 10, each Participant's option for the purchase of
shares for a particular Offering Period will be exercised automatically
on the Exercise Date of such Offering Period, and the maximum number of
whole and fractional shares subject to option will be purchased for the
Participant at the price described in Section 7 with the Contributions
which were made to the Participant's Plan Account during such Offering
Period. The shares of Common Stock purchased upon exercise of an option
hereunder shall be deemed to be transferred to the Participant on the
Exercise Date. A Participant's option to purchase shares of Common Stock
hereunder will be exercised only during the Participant's lifetime.
9. Delivery. As promptly as reasonably practicable following each
Exercise Date, the Company shall cause the shares purchased by each
Participant to be credited to such Participant's Investment Account. The
Company will deliver to the Brokerage Firm or its nominee a stock
certificate or other evidence representing all of the full and fractional
shares that are to be allocated to the Participant's Investment Accounts,
rounded up to the nearest full share (and taking into account any excess
shares or fractional shares which are then held by the Brokerage Firm
from prior deliveries). Notwithstanding the prior sentence, in lieu of
rounding the number of shares up to the nearest full share, the Company
may round down to the nearest full share and pay to the Brokerage Firm an
amount in cash equal to the value of the fractional share that would
otherwise be delivered. Upon termination of the plan, the Brokerage Firm
will redeliver to the Company all shares (including fractional shares) of
Common Stock that are not allocated to Investment Accounts.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all the
Contributions credited to his or her Plan Account, which have not
been applied to the purchase of Common Stock, prior to the Exercise
Date of the Offering Period, by giving written notice to the Company
(a "Participation Termination Notice") not less than ten (10)
calendar days prior to the Exercise Date of such Offering Period. Any
Participation Termination Notice delivered subsequent to the tenth
calendar day prior to any Exercise Date shall not be effective during
the Offering Period during which it was delivered, but will be
effective as of the first day of the immediately succeeding Offering
Period. Upon the effectiveness of an Employee's Participation
Termination Notice, all of the Participant's Contributions credited
to his or her Plan Account, which have not been applied to the
Purchase of Common Stock, and any taxes that the Company or a
Designated Subsidiary withheld in connection therewith, will be paid
promptly to the Participant, without interest, and his or her
outstanding option will automatically terminate. An Employee who
terminates his or her participation in the Plan will not be again
eligible to participate in the Plan until the commencement of the
first Offering Period following the expiration of the Offering Period
during which the Participant's Participation Termination Notice
becomes effective.
(b) Upon termination of a Participant's Continuous Status as
an Employee prior to the Exercise Date of the then current Offering
Period for any reason, including retirement or death, the
Contributions credited to his or her Plan Account, together with all
taxes that the Company or a Designated Subsidiary has withheld in
connection therewith, will be returned to him or her or, in the case
of his or her death, to the person or persons entitled thereto under
Section 14, without interest, and his or her outstanding option and
future participation in the Plan will automatically terminate.
(c) Other than as set forth in Section 10(a), a
Participant's withdrawal from the Plan, whether voluntary or
involuntary, will not affect his or her eligibility to participate in
the Plan in the future should he or she again qualify for
participation or in any similar plan which may hereafter be adopted
by the Company.
11. Interest. No interest shall accrue on the Contributions of a
Participant in the plan or any taxes withheld in connection therewith.
12. Stock.
(a) The maximum number of shares of Common Stock which shall
be made available for sale under the Plan shall be 604,574 shares,
subject, however, to adjustment upon changes in capitalization of the
Company as provided in Section 18. Such shares shall be reserved from
the Company's authorized but unissued shares and/or treasury shares
that are not otherwise reserved for issuance under any other plan or
with respect to any convertible security. If the total number of
shares which would otherwise be subject to options granted pursuant
to Section 7 hereof on the Offering Date of an Offering Period
exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are
then outstanding), the Committee shall make a pro rata allocation of
the shares remaining available for option grants in as uniform a
manner as shall be practicable and as it shall determine to be
equitable. Any amounts remaining in a Participant's Plan Account not
applied to the purchase of Common Stock pursuant to this Section 12
shall be refunded on or promptly after the applicable Exercise Date.
In such event, the Company shall give written notice of such
reduction of the number of shares subject to the option to each
Employee affected thereby and shall cease future withholdings and
Contributions under the Plan. Only the number of shares that are
issued pursuant to exercised options shall reduce the number of
shares available under the Plan. Shares that become subject to
options which are later terminated shall again be available under the
Plan.
(b) Participants will have no interest (including any
interest in any ordinary or special dividends) or voting right in
shares of Common Stock that are subject to any option until such
option has been exercised.
(c) Upon the written request of the Employee delivered to
the Brokerage Firm, the Brokerage Firm will (i) have a share
certificate issued for any number of whole shares held in the
Employees Investment Account as of the date of such notice and, (ii)
if the Employee is no longer participating in the Plan, pay to the
Employee in cash an amount equal to the value of any fractional
shares held in the Employee's Investment Account as of the date of
such notice. Upon termination of an Employee's employment with the
Company for any reason, the Company will (i) cause the Brokerage Firm
to have a share certificate issued for the full number of whole
shares held in the Employee's Investment Account as of the date of
such termination, and (ii) pay to the Employee in cash an amount
equal to the value of any fractional shares held in the Employee's
Investment Account as of the date of such termination. All amounts to
be paid to an Employee pursuant to this Section 12(c) with respect to
fractional shares shall be determined by reference to the closing
price of the Common Stock determined from the New York Stock Exchange
Consolidated Transaction Tape on the date of the Employee's notice to
the Company or termination, as applicable, or, if there were no sales
of the Common Stock on such date, on the next preceding day on which
such closing price was recorded. With respect to the certification
and delivery to the Employee of the shares held in the Employee's
Investment Account, the Company shall pay the fee charged by the
Brokerage Firm for such service for the issuance of not more than
four certificates per Participant in any calendar year.
13. Administration.
(a) Except as otherwise determined by the Board, the
Committee shall administer the Plan. The Committee shall have the
authority in its discretion, subject to and not inconsistent with the
express provisions of the Plan and the determinations of the Board,
to administer the Plan and to exercise all powers and authorities
either specifically granted to it under the Plan or necessary or
advisable in the administration of the Plan, including, without
limitation, the authority to determine, from time to time, eligible
Employees; to interpret and construe the Plan and the provisions of
the Subscription Agreements; to prescribe, amend and rescind rules
and regulations relating to the Plan; to determine the terms and
provisions of the Subscription Agreements (which need not be
identical) and to cancel or suspend the participation of any Employee
or group of Employees, and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The
Committee or the Board may make any modification or amendment to the
Plan that it deems necessary or advisable in order to implement the
Plan in a manner consistent with any law or regulation applicable to
the Company or any Designated Subsidiary. The Committee shall inform
all Participants and Employees eligible to participate in the Plan,
who would be affected thereby, of any such modification or amendment.
(b) The Board shall fill all vacancies, however caused, in
the Committee. The Board may from time to time appoint additional
members to the Committee, and may at any time remove one or more
Committee members and substitute others. The Committee may appoint a
chairperson and a secretary and make such rules and regulations for
the conduct of its business as it shall deem advisable, and shall
keep minutes of its meetings. The Committee shall hold its meetings
at such times and places (and its telephonic meetings at such times)
as it shall deem advisable. The Committee may delegate to one or more
of its members or to one or more agents such administrative duties as
it may deem advisable, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Committee or
such person may have under the Plan. Except to the extent otherwise
determined by the Board, all decisions, determinations and
interpretations of the Committee shall be final and binding on all
persons, including, without limitation, the Company, the Participants
(or any person claiming any rights under the Plan from or through any
Participant) and any stockholder.
(c) No member of the Board or of the Committee shall be
liable for any action or determination made in good faith, and the
members of the Board or of the Committee shall be entitled to
indemnification and reimbursement in the manner provided in the
Company's Certificate of Incorporation, as it may be amended from
time to time.
14. Designation of Beneficiary.
(a) A Participant may file a written designation of a
beneficiary who is to receive any shares of Common Stock and cash, if
any, from the Participant's Plan Account or Investment Account in the
event of such Participant's death by delivering notice of such
beneficiary to the Company. If a Participant is married and the
designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) The Participant (subject to spousal consent) may change
such designation of beneficiary at any time by written notice
delivered to the Company. In the event of the death of a Participant
and in the absence of a beneficiary validly designated under the Plan
who is living at the time of such Participant's death, the Company
shall deliver such shares and/or cash to the executor or
administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative
is known to the Company, then to such other person as the Company may
designate or as may be required by law.
15. Transferability. Neither Contributions credited to a
Participant's Plan Account nor any rights with regard to the exercise of
an option or to receive shares under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution or as provided in Section 14
hereof) by the Participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance
with Section 10. No Contribution made under this Plan or amount
representing a Participant's Plan Account balance shall be subject to
execution, attachment or process.
16. Use of Funds. The Participants' rights with respect to
Contributions made to the Plan and the balances, from time to time, in
their respective Plan Accounts shall be those of general creditors of the
Company or of the applicable Designated Subsidiary. All Contributions
received or held by the Company or a Designated Subsidiary under the Plan
may be used for any corporate purpose, and the Company or Designated
Subsidiary, as applicable, shall not be obligated to segregate such
Contributions.
17. Reports and Fees of Investment Accounts. Individual Investment
Accounts will be maintained for each Participant. Statements of account
will be given to Participants promptly following each Exercise Date,
which statements will set forth the total amount of Contributions to the
Plan Account during the most recently completed Offering Period, the per
share purchase price and the number of shares purchased on the most
recent Exercise Date, and the total number of shares and fractional
shares held in such Participant's Investment Account. The Company shall
pay the annual and any extraordinary maintenance fees for each Investment
Account and the certification fees referenced in Section 12 above. The
Participant will be responsible for paying all transaction fees and any
certification fee not paid by the Company pursuant to Section 12 hereof.
18. Adjustments Upon Changes in Capitalization.
(a) The number of shares of Common Stock covered by each
unexercised option under the Plan and the number of shares of Common
Stock which have been authorized for issuance under the Plan but
which have not yet been issued and are not subject of an unexercised
option (collectively, the "Reserves"), as well as the price per share
of Common Stock covered by each option under the Plan for which the
exercise price has been determined but which has not yet been
exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration". Such
adjustments shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to
an option.
(b) In the event of the proposed dissolution or liquidation
of the Company, the then current Offering Period will terminate
immediately prior to the consummation of such proposed action, unless
otherwise provided by the Committee. In the event of a proposed sale
of all or substantially all of the assets of the Company, or the
merger of the Company with or into another corporation, each option
under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary
of such successor corporation, unless the Committee determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the
Committee shortens the Offering Period then in progress in lieu of
assumption or substitution in the event of a merger or sale of
assets, the Committee shall notify each participant in writing, at
least ten (10) days prior to the New Exercise Date, that the Exercise
Date for his or her option has been changed to the New Exercise Date
and that his or her option will be exercised automatically on the New
Exercise Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this
Section, an option granted under the Plan shall be deemed to be
assumed if, following the sale of assets or merger, the option
confers the right to purchase, for each share of Common Stock subject
to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock
for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock).
(c) The Committee may, if it so determines in the exercise
of its sole discretion, also make provision for adjusting the
Reserves, as well as the price per share of Common Stock covered by
each outstanding option, in the event that the Company effects one or
more reorganizations, recapitalizations, rights offerings or other
increases or reductions of shares of its outstanding Common Stock,
and in the event of the Company being consolidated with or merged
into any other corporation.
19. Amendment or Termination. The Board may at any time terminate or
amend the Plan; provided, however, that no amendment to the Plan which
requires stockholder approval under applicable law, rule or regulation
shall become effective unless the same shall be approved by the requisite
vote of the Company's stockholders. Except as provided in Section 18, no
such termination may affect options previously granted, nor may an
amendment make any change in any option theretofore granted which
adversely affects the rights of any participant.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt
thereof.
21. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued with respect to an option
unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended (the "Securities
Act"), the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the
shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an option, the Company
may require the person exercising such option to represent and
warrant at the time of any such exercise that the shares are being
purchased only for investment and without any present intention to
sell or distribute such shares if, in the opinion of counsel for the
Company, such a representation is required by any of the
aforementioned applicable provisions of law. If the issuance of any
shares of Common Stock pursuant to the Plan is not so registered
under the Securities Act, certificates for such shares shall bear a
legend reciting the fact that such shares may only be transferred
pursuant to an effective registration statement under the Securities
Act or an opinion of counsel to the Company that such registration is
not required. The Company may also issue "stop transfer" instructions
with respect to such shares while they are subject to such
restrictions.
(c) The Company shall use its best efforts to have the
shares issued under the Plan listed on each securities exchange on
which the Common Stock is then listed as promptly as possible. The
Company shall not be obligated to issue or sell any shares under the
Plan until they have been listed on each securities exchange on which
the Common Stock is then listed.
(d) The Company will promptly file with the Securities and
Exchange Commission a registration statement on Form S-8 covering the
issuance of the shares of Common Stock pursuant to this Plan, cause
such registration statement to become effective, and keep such
registration statement effective for the period that this Plan is in
effect.
22. Term of Plan. The Plan became effective upon its adoption by the
Board on May 22, 1997 and shall continue in effect until the earliest to
occur of (i) purchase of all shares of Common Stock subject to the Plan,
(ii) May 22, 2007, and (iii) the date the Plan is terminated pursuant to
Section 19.
23. Governing Law. To the extent that federal laws do not otherwise
control, the Plan shall be construed in accordance with and governed by
the laws of the State of Delaware.
24. Savings Clause. This Plan is intended to comply in all aspects
with applicable laws and regulations. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable
in any respect under applicable law and regulations, the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby and the invalid, illegal or
unenforceable provisions shall be deemed null and void; however, to the
extent permissible by law, any provision which could be deemed null and
void shall first be construed, interpreted or revised retroactively to
permit this Plan to be construed in compliance with all applicable laws
so as to foster the intent of this Plan.
------------------------------------------------------------------------------
[FORM OF PROXY CARD]
PRELIMINARY COPY -- SUBJECT TO COMPLETION
HEXCEL CORPORATION
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
To be held on ____, 2003
This Proxy is solicited by the Board of Directors of Hexcel Corporation
The undersigned stockholder of Hexcel Corporation ("Hexcel")
hereby appoints David E. Berges, Stephen C. Forsyth and Ira J. Krakower and
each of them, the lawful attorneys and proxies of the undersigned, each with
powers of substitution, to vote all shares of Common Stock of Hexcel held of
record by the undersigned on ______, 2003 at the Special Meeting of
Stockholders (the "Special Meeting") to be held at __, on __, 2003 at _:00
a.m., local time, and at any and all adjournments or postponements thereof,
with all the powers the undersigned would possess if personally present, upon
all matters set forth in the Notice of Special Meeting of Stockholders and
Proxy Statement dated _____, 2003, receipt of which is hereby acknowledged.
[SEE REVERSE SIDE]
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
(Face of proxy card)
[FORM OF PROXY CARD]
Please date, sign and mail your
proxy card back as soon as possible
Special Meeting of Stockholders
HEXCEL CORPORATION
_______, 2003
Please detach and mail in the envelope provided
[X] Please mark your votes as in this example
1. Proposal to approve:
o the issuance and sale of 77,875 shares of Hexcel's series A
convertible preferred stock and 77,875 shares of Hexcel's series B
convertible preferred stock (and the issuance of shares of Hexcel
common stock issuable upon conversion of such shares of series A and
series B convertible preferred stock) to affiliates of Berkshire
Partners LLC and Greenbriar Equity Group LLC for approximately $77.9
million in cash (before giving effect to certain transaction costs);
and
o the issuance and sale of 47,125 shares of Hexcel's series A
convertible preferred stock and 47,125 shares of Hexcel's series B
convertible preferred stock (and the issuance of shares of Hexcel
common stock issuable upon conversion of such shares of series A and
series B convertible preferred stock) to investment partnerships
affiliated with The Goldman Sachs Group, Inc. for approximately $47.1
million in cash (before giving effect to certain transaction costs);
FOR AGAINST ABSTAIN
[_] [_] [_]
The board of directors of Hexcel recommends a vote FOR approval of
the issuances and sales described above.
2. Proposal to approve an amendment to Hexcel's restated certificate of
incorporation to increase the number of shares of common stock that
Hexcel is authorized to issue from 100,000,000 to 200,000,000;
FOR AGAINST ABSTAIN
[_] [_] [_]
The board of directors of Hexcel recommends a vote FOR the amendment
to Hexcel's restated certificate of incorporation.
THE ISSUANCES AND SALES OF SHARES REFERRED TO IN PROPOSAL #1 ABOVE
ARE CONDITIONED ON THE APPROVAL OF BOTH PROPOSAL #1 AND PROPOSAL #2
ABOVE.
3. Proposals to adopt:
(a) the Hexcel Corporation 2003 Incentive Stock Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
(b) an amendment to the Hexcel Corporation Management Stock
Purchase Plan to increase by 200,000 the number of shares
reserved for the grant of restricted stock units under the
Management Stock Purchase Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
(c) an amendment to the Hexcel Corporation Employee Stock
Purchase Plan to increase by 150,000 the number of shares
available for sale under the Employee Stock Purchase Plan
FOR AGAINST ABSTAIN
[_] [_] [_]
The board of directors recommends a vote FOR each of the equity
incentive plans proposals.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Shares represented by all properly executed proxies will be voted in
accordance with the instructions appearing on the proxy and in the discretion
of the proxy holders as to any other matters that may properly come before the
Special Meeting. PROXIES WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY
DIRECTION IS INDICATED OR IN THE ABSENCE OF INSTRUCTIONS, WILL BE VOTED IN THE
DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE ANNUAL MEETING.
Signature(s)________________________ DATED:______, 2003
Note: Please sign exactly as name(s) appear on this proxy, and date this
proxy. If a joint account, each joint owner must sign. If signing for a
corporation, partnership or as agent, attorney or fiduciary, please indicate
the capacity in which you are signing.
(Reverse of proxy card)