SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for use of the Commission only (as permitted
by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-12
HEXCEL CORPORATION
-----------------------------------------------------------------------
(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:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or
schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
April 21, 2003
Dear Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders on
Thursday, May 22, 2003 at 10:30 a.m., in the Community Room, Two Stamford Plaza,
281 Tresser Boulevard, Stamford, Connecticut.
Details of the business to be conducted at the annual meeting are given in
the attached Notice of Annual Meeting of Stockholders and the attached proxy
statement.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the accompanying
reply envelope. If you decide to attend the annual meeting and wish to change
your vote, you may do so by voting in person at the annual meeting.
We look forward to seeing you at the annual meeting.
Sincerely,
/s/ David E. Berges
David E. Berges
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER
AND PRESIDENT
[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2003
--------------
The Annual Meeting of Stockholders of Hexcel Corporation will be held in the
Community Room, Two Stamford Plaza, 281 Tresser Boulevard, Stamford,
Connecticut, on May 22, 2003 at 10:30 a.m. Stockholders will be asked to vote on
the following matters:
1. To elect ten individuals (H. Arthur Bellows, Jr., Joel S. Beckman,
David E. Berges, Sandra L. Derickson, James J. Gaffney, Sanjeev K. Mehra,
Lewis Rubin, Peter M. Sacerdote, Robert J. Small and Martin L. Solomon) to
serve as directors until the next annual meeting of stockholders and until
their successors are duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants for 2003.
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on March 31, 2003 will be
entitled to vote at the meeting and any adjournments. A list of these
stockholders will be available for inspection at the executive office of Hexcel
and will also be available for inspection at the annual meeting.
By order of the Board of Directors
/s/ Ira J. Krakower
Ira J. Krakower
Senior Vice President, General Counsel
and Secretary
Dated: April 21, 2003
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND COMPLETE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
PRE-ADDRESSED, POSTAGE-PAID, RETURN ENVELOPE.
TABLE OF CONTENTS
PAGE
--------
THE MEETING................................................. 1
General................................................... 1
Matters to be Considered at the Meeting................... 1
Record Date; Voting Rights................................ 1
Proxies................................................... 2
ELECTION OF DIRECTORS....................................... 3
Information Regarding the Directors....................... 5
Meetings and Standing Committees of the Board of
Directors............................................... 8
EXECUTIVE OFFICERS.......................................... 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 10
Stock Beneficially Owned by Principal Stockholders........ 10
Stock Beneficially Owned by Directors and Officers........ 11
EXECUTIVE COMPENSATION...................................... 13
Summary Compensation Table................................ 13
Stock Options............................................. 16
Deferred Compensation..................................... 16
Employment and Other Agreements........................... 17
Compensation Committee Report............................. 20
Compensation Committee Interlocks and Insider
Participation........................................... 23
Equity Compensation Plan Information...................... 23
Compensation of Directors................................. 24
PERFORMANCE GRAPH........................................... 25
AUDIT COMMITTEE REPORT...................................... 26
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS........... 27
General................................................... 27
Fees...................................................... 27
Vote Required............................................. 28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 29
General................................................... 29
Relationship with the Goldman Sachs investors and the
Berkshire/Greenbriar investors.......................... 29
Relationship with Ciba.................................... 36
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 37
OTHER MATTERS............................................... 37
STOCKHOLDER PROPOSALS....................................... 37
ANNUAL REPORT............................................... 37
[LOGO]
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901-3238
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 2003
------------------------
THE 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 annual
meeting to be held in the Community Room, Two Stamford Plaza, 281 Tresser
Boulevard, Stamford, Connecticut, on May 22, 2003 at 10:30 a.m., and at any
adjournments. Each copy of this proxy statement is accompanied by a proxy card
for use at the annual meeting.
MATTERS TO BE CONSIDERED AT THE MEETING
The proposals to be considered and acted upon at the annual meeting are
summarized in the accompanying Notice of Annual Meeting of Stockholders. Each
proposal is described in more detail elsewhere in this proxy statement.
The board of directors does not intend to bring any matter before the annual
meeting except as described in the attached notice. The board of directors is
unaware of any matter that anyone else intends to present for action at the
annual meeting. The persons named on the enclosed proxy card, or their duly
constituted substitutes acting at the annual meeting, will be authorized to vote
at their discretion on any matters unknown at this time which properly come
before the meeting.
RECORD DATE; VOTING RIGHTS
The board of directors has fixed the close of business on March 31, 2003 as
the record date for the determination of stockholders entitled to notice of and
to vote at the annual meeting. This proxy statement and the enclosed proxy card
are being mailed on or about April 21, 2003 to holders of record of Hexcel
common stock, Hexcel series A convertible preferred stock and Hexcel series B
convertible preferred stock on the record date. We refer to the series A
convertible preferred stock and series B convertible preferred stock as the
"series A preferred stock" and "series B preferred stock," and we refer to the
series A preferred stock and the series B preferred stock together as the
"preferred stock." We refer to the common stock and the preferred stock together
as Hexcel's "capital stock." On the record date, there were 38,643,766 shares of
Hexcel common stock outstanding held by 1,361 stockholders of record, 125,000
shares of series A preferred stock outstanding held by ten stockholders of
record and 125,000 shares of series B preferred stock held by ten stockholders
of record. Each share of Hexcel common stock entitles the holder to one vote on
each matter to be acted upon at the annual meeting. Each share of series A
preferred stock could, at the holder's option, be converted into
1
333 1/3 shares of common stock, and therefore entitles the holder to
333 1/3 votes on each matter to be acted upon at the annual meeting. Each share
of series B preferred stock could, at the holder's option, be converted into
65.206 shares of common stock, and therefore entitles the holder to 65.206 votes
on each matter to be acted upon at the annual meeting. We refer to the number of
votes a share of capital stock is entitled to cast as its "voting power" and the
aggregate of all votes entitled to be cast by a holder of capital stock as that
holder's "total voting power." In calculating the number of shares of common
stock into which a holder's preferred stock may be converted, any fractional
shares (after aggregating all such shares of such person being converted) will
be disregarded for purposes of calculating the holder's total voting power.
The presence, either in person or by proxy, of the holders of outstanding
common stock and preferred stock representing a majority of the total voting
power of Hexcel entitled to vote at the annual meeting is necessary to
constitute a quorum at the annual meeting.
Investment entities controlled by The Goldman Sachs Group, Inc., which we
refer to as the "Goldman Sachs investors," hold common stock and preferred stock
that together represent approximately 37.7% of Hexcel's total voting power.
Affiliates of Berkshire Partners LLC and Greenbriar Equity Group LLC, which we
refer to collectively as the "Berkshire/Greenbriar investors", hold preferred
stock representing approximately 35.1% of Hexcel's total voting power. The
Goldman Sachs investors acquired their common stock in December 2000 from Ciba
Specialty Chemicals Holding Inc. The Goldman Sachs investors acquired their
preferred stock on March 19, 2003 directly from Hexcel. The Berkshire/Greenbriar
investors also acquired their preferred stock on March 19, 2003 directly from
Hexcel. We refer to the issuance and sale of preferred stock by Hexcel to the
Goldman Sachs investors and to the Berkshire/Greenbriar investors on March 19,
2003 as the "preferred stock sale."
The Goldman Sachs investors are subject to restrictions regarding how they
can vote their shares of capital stock under the terms of a governance agreement
they entered into with us. The Berkshire/ Greenbriar investors are subject to
restrictions regarding how they can vote their shares of preferred stock under
the terms of a stockholders agreement they entered into with us. In accordance
with these restrictions, each of the Goldman Sachs investors and the
Berkshire/Greenbriar investors have indicated they will vote their shares of
capital stock in favor of each of the nominees for election to the board of
directors and in favor of the other proposal described in this proxy statement.
PROXIES
All shares of Hexcel capital stock entitled to vote and represented at the
annual meeting by properly executed proxies received prior to or at the annual
meeting, and not revoked, will be voted at the annual meeting in accordance with
the instructions indicated on the proxies. If no instructions are indicated, the
proxies will be voted as follows:
FOR election of each of the nominees to the board of directors
FOR ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for 2003
If any other matters are properly presented for consideration at the annual
meeting, the persons named on the enclosed proxy card, or their duly constituted
substitutes acting at the annual 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 annual
meeting, or by attendance at the 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 annual meeting. You should send any subsequent proxy or
notice of revocation to Hexcel Corporation,
2
Two Stamford Plaza, 281 Tresser Boulevard, Stamford, Connecticut 06901-3238,
Attention: Secretary, or you may deliver it to the Secretary at the annual
meeting.
We will pay the cost of solicitation of the proxies. In addition to
solicitation by use of the mail, directors, officers and employees of Hexcel 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 Hexcel capital 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.
ELECTION OF DIRECTORS
On March 19, 2003, the board of directors was reconstituted in accordance
with the terms of the governance agreement with the Goldman Sachs investors and
the stockholders agreement with the Berkshire/Greenbriar investors. Each of the
governance agreement and the stockholders agreement provides that the board of
directors shall consist of ten directors. In particular, based on the total
voting power currently held by the Goldman Sachs investors and the
Berkshire/Greenbriar investors, the governance agreement and stockholders
agreement, taken together, require that the board of directors be composed of:
- three directors designated by the Goldman Sachs investors;
- two directors designated by the Berkshire/Greenbriar investors; and
- five directors who are independent of the Goldman Sachs investors and the
Berkshire/ Greenbriar investors. We refer to these directors as
"independent directors."
The governance agreement requires that, so long as the Goldman Sachs
investors own 10% or more of the total voting power of Hexcel, any slate of
nominees for election to the board of directors must include at least one but
not more than three nominees of the Goldman Sachs investors. The stockholders
agreement requires that, so long as the Berkshire/Greenbriar investors own 10%
or more of the total voting power of Hexcel, any slate of nominees for election
to the board of directors must include at least one but not more than two
nominees of the Berkshire/Greenbriar investors. Under both the governance
agreement and the stockholders agreement, the "total voting power" of a person
means the portion of all votes that may be cast in the election of directors
represented by the common stock and preferred stock held by such person, with
the votes represented by the preferred stock equal to the number of shares of
common stock into which the preferred stock could be converted. In addition,
under the governance agreement and stockholders agreement, in determining the
total voting power of a person for the above purpose only, we consider as held
by that person and as outstanding all common stock that could be issued to that
person upon the exercise or conversion of any securities, such as options,
beneficially held by that person.
In particular, the Goldman Sachs investors are entitled to:
- three nominees if they own 20% or more of the total voting power of Hexcel
and continue to hold capital stock representing more than two-thirds of
the total voting power they held upon the closing of the preferred stock
sale
- two nominees if either
- they own 20% or more of the total voting power of Hexcel and hold
capital stock representing two-thirds or less of the total voting power
they held upon the closing of the preferred stock sale, or
3
- they own less than 20% but at least 15% of the total voting power of
Hexcel and continue to hold capital stock representing more than
one-third of the total voting power they held upon the closing of the
preferred stock sale
- one nominee if either
- they own less than 20% but at least 15% of the total voting power of
Hexcel and hold capital stock representing one-third or less of the
total voting power they held upon the closing of the preferred stock
sale, or
- they own less than 15% but at least 10% of the total voting power of
Hexcel.
The Berkshire/Greenbriar investors are entitled to:
- two nominees if they own 15% or more of the total voting power of Hexcel
and continue to hold capital stock representing more than one-third of the
total voting power they held upon the closing of the preferred stock sale
- one nominee if either
- they own 15% or more of the total voting power of Hexcel and hold
capital stock representing one-third or less of the total voting power
they held upon the closing of the preferred stock sale, or
- they own less than 15% but at least 10% of the total voting power of
Hexcel.
Under the governance agreement, each nominee other than the nominees of the
Goldman Sachs investors must be a "non-Goldman Sachs investor nominee," which
means the nominee:
- is not and has never been an officer, partner, employee or director of any
of the Goldman Sachs investors,
- has no affiliation or compensation, consulting or contractual relationship
with any of the Goldman Sachs investors that would cause a reasonable
person to regard the person as likely to be unduly influenced by any such
Goldman Sachs investor, and
- is designated by the directors not nominated to the Board by the Goldman
Sachs investors, including the Chairman if he is an independent director.
However, it has been agreed that, so long as Joel S. Beckman is a director
nominated by the Berkshire/Greenbriar investors, he qualifies as a "non-Goldman
Sachs investor nominee," notwithstanding that Mr. Beckman was previously a
managing director with Goldman Sachs. It has also been agreed that, so long as
Robert J. Small is a director nominated by the Berkshire/Greenbriar investors,
he qualifies as a "non-Goldman Sachs investor nominee," notwithstanding that
Mr. Small was previously employed by Goldman Sachs.
Under the stockholders agreement, each nominee other than the nominees of
the Berkshire/ Greenbriar investors must be a "non-Berkshire/Greenbriar
nominee," which means the nominee:
- is not and has never been an officer, partner, employee or director of any
of the Berkshire/ Greenbriar investors,
- has no affiliation or compensation, consulting or contractual relationship
with any of the Berkshire/Greenbriar investors that would cause a
reasonable person to regard the person as likely to be unduly influenced
by any such Berkshire/Greenbriar investor, and
- is designated by the directors not nominated by the Berkshire/Greenbriar
investors, including the Chairman if he is an independent director.
4
The Goldman Sachs investors are required to vote their shares of capital
stock in favor of the nominees for director determined in accordance with the
governance agreement. The Berskshire/ Greenbriar investors are required to vote
their shares of capital stock in favor of the nominees for director determined
in accordance with the stockholders agreement.
The Goldman Sachs investors and the Berkshire/Greenbriar investors
beneficially own approximately 37.7% and 35.1%, respectively, of the total
voting power of Hexcel. In accordance with the governance agreement and the
stockholders agreement, the following individuals have been nominated for
election to the board of directors:
- Sanjeev K. Mehra, James J. Gaffney and Peter M. Sacerdote (the nominees of
the Goldman Sachs investors)
- Joel S. Beckman and Robert J. Small (the nominees of the
Berkshire/Greenbriar investors)
- H. Arthur Bellows, Jr., David E. Berges (Chairman), Sandra L. Derickson,
Lewis Rubin and Martin L. Solomon (the independent director nominees).
All nominees for election to the board of directors are currently serving as
directors of Hexcel.
Shares represented by an executed and returned proxy card will be voted for
the election of the ten nominees recommended by the board of directors, unless
the proxy is marked to withhold authority to vote. If any nominee for any reason
is unable to serve, the shares of capital stock represented by the proxy card
will be voted for an alternate person designated in accordance with the
governance agreement and the stockholders agreement. We are not aware of any
nominee who will be unable to or will not serve as a director.
A plurality of the votes cast in person or by proxy at the annual meeting is
required to elect directors. Under the rules of the New York Stock Exchange,
brokers who hold shares in "street name" have the authority to vote on some
matters when they do not receive instructions from beneficial owners. Brokers
that do not receive instructions are entitled to vote on the election of
directors. Under applicable Delaware law, in determining whether the proposal to
elect directors has received the requisite vote, abstentions will be disregarded
and will have no effect on the outcome of the vote.
INFORMATION REGARDING THE DIRECTORS
Set forth below is certain information concerning our current directors as
of March 19, 2003. All current directors have been nominated for re-election to
the board of directors. There are no family relationships among any of our
executive officers or directors.
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
---- -------- -------- --------------------------------------
David E. Berges....................... 53 2001 Chairman of the Board; Chief Executive
Officer; President; Director
Joel S. Beckman....................... 47 2003 Director
H. Arthur Bellows, Jr................. 65 2000 Director
Sandra L. Derickson................... 50 2002 Director
James J. Gaffney...................... 62 2000 Director
Sanjeev K. Mehra...................... 44 2000 Director
Lewis Rubin........................... 65 1999 Director
Peter M. Sacerdote.................... 65 2000 Director
Robert J. Small....................... 36 2003 Director
Martin L. Solomon..................... 66 1996 Director
5
DAVID E. BERGES, age 53, has served as Chairman of the board of directors
and Chief Executive Officer of Hexcel since July 2001, and as President of
Hexcel since February 2002. Prior to joining Hexcel, Mr. Berges was President of
the Automotive Products Group of Honeywell International Inc. from 1997 to
July 2001 and Vice President and General Manager, Engine Systems and
Accessories, at AlliedSignal Aerospace from 1994 to 1997. Mr. Berges was
President and Chief Operating Officer of Barnes Aerospace, a division of Barnes
Group Inc., from 1992 to 1994, and President of their Windsor Manufacturing
Division from 1986 to 1992. Mr. Berges spent the first fifteen years of his
career in a variety of managerial and technical positions with the General
Electric Company.
JOEL S. BECKMAN, age 47, has been a director of Hexcel since March 2003.
Mr. Beckman is a Managing Partner of Greenbriar Equity Group LLC, a private
equity fund focused exclusively on making investments in transportation and
transportation-related companies. Prior to founding Greenbriar in 2000,
Mr. Beckman was a Managing Director and Partner of Goldman, Sachs & Co., which
he joined in 1981. Mr. Beckman is a member of the Board of Trustees of the
University of Rochester and is active in various civic organizations.
H. ARTHUR BELLOWS, JR., age 65, has been a director of Hexcel since
December 2000. Mr. Bellows also serves as a member of the Audit and Finance
Committees of Hexcel. He has served as Chairman of Braeburn Associates, a
private merchant banking firm, since 1999, and Chairman of The Finance Network,
a private financial services firm, since 1999. Mr. Bellows was President, Chief
Operating Officer and a director of Audits & Surveys Worldwide, Inc., an
international market research firm, from 1995 to March 1999, and continued to
serve as a director until March, 2002. In 1967, he founded The Triangle
Corporation, a manufacturer of hand tools, aerosol chemicals, diagnostic
equipment for automobiles and various hardware products, and served as its
Chairman, President and Chief Executive Officer from its founding to March,
1995. Mr. Bellows also acts as an officer and director of various civic
organizations.
SANDRA L. DERICKSON, age 50, serves as a member of the compensation
committee of Hexcel. She has also been a director of Hexcel since
February 2002. From July 2002, Ms. Derickson has served as the Group Executive
of Retail Services, Refund Lending and Insurance Services of Household
International, a wholly-owned subsidiary of HSBC Holdings PLC, one of the
largest banking and financial services organizations in the world. From
September 2000 to July 2002, she served as the Chief Executive Officer of
Household Retail Services, the private label credit card business of Household
International. From 1976 to 1999, Ms. Derickson held various management
positions with General Electric Capital Corporation, the last of which was
President of GE Capital Auto Financial Services, the largest non-captive auto
leasing business in the world, from 1991 to 1999. Ms. Derickson was also an
officer of the General Electric Company from 1991 to 1999.
JAMES J. GAFFNEY, age 62, has been a director of Hexcel since
December 2000. Mr. Gaffney also serves as a member of the Audit Committee of
Hexcel. Since 1997 he has served as a consultant to private investment funds
affiliated with Goldman, Sachs & Co. in relation to these funds' investment in
Viking Pacific Holdings and Vermont Investments Limited. Since 1997 he has
served as Vice Chairman of Viking Pacific Holdings Ltd. From 1995 through 1997,
Mr. Gaffney served as Chairman of the Board and Chief Executive Officer of
General Aquatics, Inc., which manufactures swimming pool equipment and
constructs swimming pools. From 1993 through 1995 he was President and Chief
Executive Officer of KDI Corporation, a conglomerate which was involved in
swimming pool construction and manufactured products for a variety of
industries. He also is a director of SCP Pool, Inc. and Imperial Sugar Inc. and
of various private companies.
SANJEEV K. MEHRA, age 44, has been a director of Hexcel since December 2000
and served as Co-Chairman of the board of directors of Hexcel from May 2001
until July 2001. Mr. Mehra also serves as Chairman of the Finance Committee and
is a member of the Compensation and Nominating
6
Committees of Hexcel. Mr. Mehra joined Goldman, Sachs & Co. in 1986, and has
served since 1996 as a Managing Director in the Principal Investment Area of its
Merchant Banking Division and serves on the Principal Investment Area Investment
Committee. Mr. Mehra is a director of Amscan Holdings, Inc., Madison River
Telephone Company, L.L.C. and various privately held companies and is a member
of the Board of Trustees of Trout Unlimited.
LEWIS RUBIN, age 65, has been a director of Hexcel since November 1999. He
also served on Hexcel's Board from 1993 to 1995. Mr. Rubin also serves as
Chairman of the Audit Committee of Hexcel. Mr. Rubin is President, Chief
Executive Officer and a director of XTRA Corporation, a subsidiary of Berkshire
Hathaway Corporation, and has served in those positions since 1990. XTRA leases
on a primary basis over-the-road trailers, marine containers and intermodal
equipment, including intermodal trailers, chassis and domestic containers. From
1988 to 1990, he was a consultant with Lewis Rubin Associates, a consulting firm
advising the transportation equipment industry. From 1984 to 1988, Mr. Rubin
served as President and Chief Executive Officer of Gelco CTI Container Services,
a subsidiary of Gelco Corporation, a diversified international management
services corporation, and as an Executive Vice President of Gelco Corporation.
From 1981 to 1983, Mr. Rubin was President and Chief Executive Officer of
Flexi-Van Corporation, a company engaged in the leasing of intermodal
transportation equipment. Mr. Rubin is a certified public accountant and a
member of the American Institute of Certified Public Accountants.
PETER M. SACERDOTE, age 65, has been a director of Hexcel since
December 2000. Mr. Sacerdote has been an Advisory Director of Goldman, Sachs &
Co. since May 1999 where he also serves as chairman of its Principal Investment
Area's Investment Committee. He joined Goldman, Sachs & Co. in 1964 and served
as a general partner from 1973 through 1990 and a limited partner from 1991
through 1999. He also serves as a director of Qualcomm Incorporated and Franklin
Resources, Inc. He is also a director and/or officer of various civic
organizations.
ROBERT J. SMALL, age 36, has been a director of Hexcel since March 2003.
Mr. Small joined Berkshire Partners LLC in 1992, became a Vice President in
September 1994 and has been a Managing Director of Berkshire Partners since
January 2000. Mr. Small began his career as an Associate Consultant at Bain &
Co. in 1988, where he worked with clients representing industries including
healthcare, paper and packaging, and office equipment. Mr. Small is also a
director of a number of privately held companies and civic organizations.
MARTIN L. SOLOMON, age 66, has been a director of Hexcel since May 1996 and
served as Co-Chairman of the Board of Hexcel from May 2001 until July 2001.
Mr. Solomon also serves as Chairman of the Compensation Committee and is a
member of the Finance Committee of Hexcel. Mr. Solomon has been Co-Chairman of
American County Holdings, Inc., an insurance holding company, since 2000 and,
from 1997 to 2000 he served as its Chairman and Chief Executive Officer.
Mr. Solomon has been a self-employed investor since 1990. Mr. Solomon was a
director and Vice Chairman of the board of directors of Great Dane
Holdings, Inc., which is engaged in the manufacture of transportation equipment,
automobile stamping, the leasing of taxis and insurance, from 1985 to 1996,
Managing Partner of Value Equity Associates I, L.P., an investment partnership,
from 1988 to 1990, and was an investment analyst and portfolio manager of
Steinhardt Partners, an investment partnership, from 1985 to 1987. Mr. Solomon
has been a director of Telephone and Data Systems, Inc. since 1997. Mr. Solomon
is also a director of various privately held corporations and civic
organizations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ELECTION OF THE NOMINEES FOR DIRECTOR
7
MEETINGS AND STANDING COMMITTEES OF THE BOARD OF DIRECTORS
During 2002 there were eleven meetings of the board of directors and 28
meetings in the aggregate of the four standing committees of the board of
directors. Each of the incumbent directors who served on the board of directors
and its committees during 2002 attended or participated in at least 75% of the
aggregate number of board of directors meetings and applicable committee
meetings held during 2002.
The board of directors has established the following standing committees:
audit committee; compensation committee; finance committee; and nominating
committee. The board of directors may establish other special or standing
committees from time to time. Members of committees serve at the discretion of
the board of directors. The governance agreement requires that, as long as the
Goldman Sachs investors have the right to designate at least two directors for
election to the board of directors, each committee of the board of directors
will include at least one director nominated by the Goldman Sachs investors. The
stockholders agreement requires that, as long as the Berkshire/Greenbriar
investors have the right to designate at least two directors for election to the
board of directors, each committee of the board of directors will include at
least one director nominated by the Berkshire/ Greenbriar investors. However, if
under the listing standards of the New York Stock Exchange or any other
applicable law or rule, no Goldman Sachs investor nominee or
Berkshire/Greenbriar nominee is eligible to serve on a particular committee,
then that committee will consist solely of non-Goldman Sachs nominees and/or
non-Berkshire/Greenbriar nominees, as the case may be.
On behalf of the board of directors, the audit committee oversees Hexcel's
financial reporting process. Information regarding the audit committee,
including the specific functions performed by the audit committee, is in the
"AUDIT COMMITTEE REPORT" included elsewhere in this proxy statement. The current
members of the audit committee are Messrs. Rubin (Chairman), Bellows and
Gaffney. During 2002 the audit committee held ten meetings.
The compensation committee makes recommendations to the board of directors
on matters pertaining to the compensation of our employees, executive officers
and directors. The compensation committee also administers our incentive plans
and makes grants of stock options and/or awards of restricted stock units or
other equity based compensation to executive officers, other key employees,
directors and consultants. The current members of the compensation committee are
Mr. Solomon (Chairman), Mr. Mehra and Ms. Derickson. During 2002 the
compensation committee held five meetings.
The finance committee oversees our financial affairs and makes appropriate
recommendations to the board of directors. In certain circumstances it may also
take action on behalf of the board of directors. The current members of the
finance committee are Messrs. Mehra (Chairman), Bellows and Solomon. During 2002
the finance committee held thirteen meetings.
The nominating committee recommends nominees for the board of directors. The
nominating committee does not solicit or consider stockholder recommendations
for nomination. Under the governance agreement and stockholders agreement, the
nominating committee is required to nominate the nominees designated by the
Goldman Sachs investors, the nominees nominated by the Berkshire/ Greenbriar
investors and the independent nominees designated by the independent directors.
The current members of the nominating committee are Mr. Mehra and
Ms. Derickson. During 2002 the nominating committee did not meet, although it
did act once by written consent.
8
EXECUTIVE OFFICERS
Set forth below is certain information concerning our executive officers and
all persons chosen to become executive officers as of March 19, 2003. For
additional information concerning Mr. Berges, see "ELECTION OF DIRECTORS,
Information Regarding the Directors."
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
---- -------- --------- --------------------------------------
David E. Berges....................... 53 2001 Chairman of the Board; Chief Executive
Officer; President; Director
Stephen C. Forsyth.................... 47 1994 Executive Vice President; Chief
Financial Officer
Ira J. Krakower....................... 62 1996 Senior Vice President; General
Counsel; Secretary
William J. Fazio...................... 48 2001 Corporate Controller; Chief Accounting
Officer
Michael J. MacIntyre.................. 42 2003 Treasurer
Joseph H. Shaulson.................... 37 1996 President of the Reinforcements
business unit
William Hunt.......................... 60 1996 President of the Composites business
unit
David R. Tanonis...................... 46 1999 President of the Structures business
unit
STEPHEN C. FORSYTH, age 47, has served as Executive Vice President of Hexcel
since June 1998, Chief Financial Officer since November 1996, and Senior Vice
President of Finance and Administration between February 1996 and June 1998.
Mr. Forsyth also serves as a director of Interglas Technologies AG. Mr. Forsyth
served as Vice President of International Operations of Hexcel from
October 1994 to February 1996 and has held other general management positions
with Hexcel from 1980 to 1994. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 62, has served as Senior Vice President, General
Counsel and Secretary of Hexcel since September 1996. Prior to joining Hexcel,
Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical
Corporation from 1986 to August 1996 and served on the board of directors of and
as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996.
WILLIAM J. FAZIO, age 48, has served as Corporate Controller and Chief
Accounting Officer since April 2001. Mr. Fazio served as Vice President,
Controller of Kodak Polychrome Graphics, a distributor and manufacturer of
graphic arts products owned by Eastman Kodak Company and Sun Chemical
Corporation, from February 1998 to March 2001, and from April 1997 to
January 1998 he was Director, Corporate Financial Services, for Ogden
Corporation, a consumer and industrial service organization serving the
aviation, entertainment and power generation markets. From 1981 to April 1997,
Mr. Fazio held various positions for Coltec Industries Inc., the latest being
Director--Operations Analysis from 1994 to April 1997.
MICHAEL J. MACINTYRE, age 42, has served as Hexcel's Treasurer since
December 2002 and was Assistant Treasurer from October 2000 to December 2002.
Prior to joining Hexcel, Mr. MacIntyre served as Assistant Treasurer of Hitachi
America Capital, Ltd, a US financing subsidiary of Hitachi America, Ltd, a sales
and manufacturing company serving the U.S. electronics markets, from 1998 to
2000, and held various treasury management positions with Hitachi America, Ltd.
from 1988 to 1998.
JOSEPH H. SHAULSON, age 37, has served as President of the Reinforcements
business unit since November 2001. Mr. Shaulson served as Vice President of
Corporate Planning and Chief Information Officer from September 2000 to
November 2001, and as Vice President of Planning and Integration of Hexcel from
November 1998 to September 2000. Mr. Shaulson served as Vice President of
Corporate Development of Hexcel from April 1996 to October 1998. In addition,
Mr. Shaulson served as Acting General Counsel and Acting Secretary of Hexcel
from April 1996 to September 1996.
9
Prior to joining Hexcel, Mr. Shaulson was an associate in the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP, where he was employed from 1991 to
1996.
WILLIAM HUNT, age 60, has served as President of Hexcel's Composites
business unit since November 1998 and as President of the former Hexcel
EuroMaterials business unit from February 1996 to October 1998. Mr. Hunt served
as President of the EuroMaterials unit of the Composites Business of
Ciba-Geigy Ltd. from 1991 to February 1996 and as Managing Director of
Ciba-Geigy Plastics from 1990 to 1991. Prior to joining Ciba-Geigy Ltd. in 1990,
Mr. Hunt held various other technical and managerial positions, including the
position of Managing Director of Illford Limited (Photographic) Co.
DAVID R. TANONIS, age 46, has served as President of Hexcel's Structures
business unit since June 1999. Mr. Tanonis served as Vice President of Hexcel's
Structures and Interiors business unit, responsible for the interiors business,
from February 1996 to June 1999 and as the Vice President of Interiors in the
Heath Tecna Division of Ciba-Geigy Plastics prior to February 1996. Mr. Tanonis
held various technical and managerial positions with Heath Tecna since 1987.
Mr. Tanonis held various management positions with Polymer Engineering, Inc.
from 1978 to 1987.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK BENEFICIALLY OWNED BY PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 19, 2003 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 any class of Hexcel capital stock.
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ------------------- ------------------- PERCENT OF
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT CONSOLIDATED
OF OF OF OF OF OF VOTING
NAME AND ADDRESS SHARES (1) CLASS (1) SHARES CLASS SHARES CLASS POWER (1)(2)
---------------- ---------- --------- -------- -------- -------- -------- ------------
The Goldman Sachs Group, Inc. (3)(4) ..... 33,340,830 58.0% 47,125 37.7% 47,125 37.7% 37.7%
85 Broad Street
New York, NY 10004
Berkshire Partners LLC/Greenbriar
Equity Group LLC (3)(5) .................. 31,042,917 44.5% 77,875 62.3% 77,875 62.3% 35.1%
One Boston Place Suite 3300
Boston, Massachusetts 02108
Ingalls & Snyder LLC (6) ................. 3,836,831 9.8% -- -- -- -- 4.3%
61 Broadway
New York, NY 10006
Estate of John J. Lee (7) ................ 2,805,636 6.9% -- -- -- -- 3.1%
c/o Stewart J. McMillan
McMillan Constabile LLP
2180 Boston Post Road
Larchmont, NY 10538-0300
Dimensional Fund Advisors, Inc. (8) ...... 2,501,000 6.5% -- -- -- -- 2.8%
1299 Ocean Avenue
Santa Monica, CA 90401
Ciba Specialty Chemicals
Holding Inc. (9)........................ 2,290,448 5.8% -- -- -- -- 2.6%
Klybeckstrasse 141
CH 4002
Basel, Switzerland
--------------------------
(1) As required by SEC rules, for each individual investor listed in the chart
above the percentages are calculated assuming that all convertible
securities beneficially held by such investor are converted into
10
common stock to the extent possible, and that no other convertible
securities are converted into common stock. Securities convertible into
common stock include the preferred stock, stock options granted under Hexcel
stock incentive plans, and convertible debt securities.
(2) Consolidated voting power reflects the total voting power represented by all
common stock and preferred stock beneficially owned.
(3) Assumes that all shares of preferred stock held by the Goldman Sachs
investors and the Berkshire/ Greenbriar investors are converted into shares
of common stock in accordance with their terms. The preferred stock held by
the Goldman Sachs investors is convertible into 18,781,162 shares of common
stock. The preferred stock held by the Berkshire/Greenbriar investors is
convertible into 31,036,251 shares of common stock.
(4) Based on information contained in a Statement on Schedule 13D filed with the
Securities and Exchange Commission (the "SEC") on March 21, 2003 by The
Goldman Sachs Group, Inc. and several of its affiliates. Based on
information included in the Schedule 13D, options to purchase an aggregate
of 36,000 shares of common stock granted to Messrs. Mehra and Sacerdote
pursuant to the Hexcel Corporation 2003 Incentive Stock Plan are held for
the benefit of The Goldman Sachs Group, Inc. Options to purchase 34,668 of
the 36,000 shares are currently exercisable and, accordingly, are included
in the number of shares of common stock. In addition, assumes that all
shares of preferred stock held by the Goldman Sachs investors are converted
into shares of common stock in accordance with their terms. The shares of
common stock and preferred stock beneficially owned by the Goldman Sachs
investors are subject to the terms of the governance agreement.
(5) Based on information contained in a Statement on Schedule 13D filed with the
SEC on March 31, 2003 by Berkshire Partners LLC, Greenbriar Equity Group LLC
and several of their affiliates. Based on information included in the
Schedule 13D, options to purchase an aggregate of 20,000 shares of common
stock granted to Messrs. Beckman and Small pursuant to the Hexcel
Corporation 2003 Incentive Stock Plan are held for the benefit of the
Berkshire/Greenbriar investors. Options to purchase 6,666 of the 20,000
shares are currently exercisable and, accordingly, are included in the
number of shares of common stock. In addition, assumes that all shares of
preferred stock held by the Berkshire/ Greenbriar investors are converted
into shares of common stock in accordance with their terms. The shares of
common stock and preferred stock beneficially owned by the
Berkshire/Greenbriar investors are subject to the terms of the stockholders
agreement.
(6) Based on information contained in a Statement on Schedule 13G filed with the
SEC on February 14, 2003. Assumes conversion of $7,535,000 principal amount
of our 7% convertible subordinated notes due 2003.
(7) Based on information contained in a Statement on Schedule 13D filed with the
SEC on November 26, 2001, and includes 2,007,920 shares of common stock
issuable upon the exercise of options that are currently exercisable.
(8) Based on information contained in a Statement on Schedule 13G filed with the
SEC on February 11, 2003.
(9) Based on information provided by Ciba to Hexcel on December 10, 2002.
STOCK BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS
The following table contains information regarding the beneficial ownership
of shares of Hexcel common stock as of March 19, 2003 by our directors, the
executive officers listed in the summary
11
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.
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------------------- ------------------- -------------------
NUMBER
OF PERCENT NUMBER PERCENT NUMBER PERCENT CONSOLIDATED
SHARES OF OF OF OF OF VOTING
NAME (1)(2) CLASS (2)(3) SHARES CLASS SHARES CLASS POWER (2)(3)(4)
---- ---------- ------------ -------- -------- -------- -------- ---------------
David E. Berges................ 486,105 1.2% -- -- -- -- *
Joel S. Beckman (5)............ 31,042,917 44.5% 77,875 62.3% 77,875 62.3% 35.1%
H. Arthur Bellows, Jr.......... 32,320 * -- -- -- -- *
Sandra L. Derickson............ 27,482 * -- -- -- -- *
James J. Gaffney (6)........... 36,891 * -- -- -- -- *
Sanjeev K. Mehra (6) (7)....... 33,340,830 58.0% 47,125 37.7% 47,125 37.7% 37.7%
Lewis Rubin.................... 58,856 * -- -- -- -- *
Peter M. Sacerdote (6) (7)..... 33,340,830 58.0% 47,125 37.7% 47,125 37.7% 37.7%
Robert J. Small (5)............ 31,042,917 44.5% 77,875 62.3% 77,875 62.3% 35.1%
Martin L. Solomon.............. 168,555 * -- -- -- -- *
Stephen C. Forsyth............. 529,491 1.4% -- -- -- -- *
Ira J. Krakower................ 770,041 2.0% -- -- -- -- *
William Hunt................... 386,320 * -- -- -- -- *
Joseph H. Shaulson............. 287,579 * *
All executive officers and
directors as a group (17
persons) (8)................. 67,298,500 74.0% 125,000 100% 125,000 100% 74.0%
------------------------
(1) 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 323,959; Mr. Bellows 32,320; Ms. Derickson 27,482;
Mr. Gaffney 36,891; Mr. Rubin 58,856; Mr. Solomon 153,555; Mr. Forsyth
441,680; Mr. Krakower 681,892; Mr. Hunt 346,382; Mr. Shaulson 245,777; all
other executive officers and directors as a group 109,985.
(2) Based on 38,643,766 shares of common stock outstanding as of March 19, 2003.
As required by SEC rules, for each individual person listed in the chart
above the percentages are calculated assuming that all convertible
securities beneficially held by such person are converted to common stock to
the extent possible, and that no other convertible securities are converted
into common stock. Securities convertible into common stock include the
preferred stock, stock incentives granted under Hexcel stock incentive plans
(such as options and restricted stock units), and convertible debt
securities.
(3) An asterisk represents ownership of less than 1%.
(4) Consolidated voting power reflects the total voting power represented by all
common stock and preferred stock beneficially owned.
(5) Messrs. Beckman and Small serve on the board of directors at the request of
the Berkshire/ Greenbriar investors pursuant to the stockholders agreement.
Includes 3,333 and 3,333 shares of common stock underlying currently
exercisable options granted to Messrs. Beckman and Small, respectively,
which options are held for the benefit of the Berkshire/Greenbriar
investors. Also includes 31,036,251 shares of common stock into which the
preferred stock held by the Berkshire/ Greenbriar investors may be
converted. Messrs. Beckman and Small disclaim beneficial ownership of all of
these shares, except to the extent of their respective pecuniary interests
therein, if any.
(6) Messrs. Gaffney, Mehra and Sacerdote serve on the board of directors at the
request of the Goldman Sachs investors pursuant to the governance agreement.
12
(7) Includes 14,525,000 shares of common stock held by the Goldman Sachs
investors, and 21,334 and 13,334 shares of common stock underlying currently
exercisable options granted to Messrs. Mehra and Sacerdote, respectively,
which options are held for the benefit of The Goldman Sachs Group, Inc. Also
includes 18,781,162 shares of common stock into which the preferred stock
held by the Goldman Sachs investors may be converted. Messrs. Mehra and
Sacerdote disclaim beneficial ownership of all of these shares, except to
the extent of their respective pecuniary interests therein, if any.
(8) Includes as common stock 2,500,115 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. Includes
as common stock 49,817,413 shares issuable upon the conversion of the
preferred stock. If the 14,525,000 shares of common stock owned by the
Goldman Sachs investors, the shares of common stock issuable upon conversion
of the preferred stock and the shares of common stock underlying the options
for which Messrs. Beckman, Small, Mehra and Sacerdote disclaim ownership
were excluded, the number of shares of common stock, the percentage of
common stock and the percentage of voting power would decrease to 2,914,749,
7.1% and 3.2% respectively.
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.
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION AWARDS
---------------------------------- -----------------------
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ ALL OTHER
SALARY BONUSES COMPENSATION 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, Hexcel-Schwebel 2001 240,000 72,000 -- -- -- 27,143
Business Unit 2000 225,000 116,089 -- 85,547 52,586 18,104
------------------------
(1) Annual Compensation includes amounts earned in the fiscal year, whether or
not deferred.
13
(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 2003
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 vested, and the
restrictions thereon lapsed, 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
14
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 HEXCEL PREMIUMS FOR
CONTRIBUTIONS TO CONTRIBUTIONS TO PREMIUMS FOR LONG-TERM
401(K) RETIREMENT 401(K) RESTORATION LIFE INSURANCE IN DISABILITY
NAME YEAR SAVINGS PLAN PLAN EXCESS OF $50,000 INSURANCE
---- -------- ----------------- ------------------ ----------------- ------------
David E. Berges.............. 2002 $15,579 $ 0 $2,823 $336
2001 $ 0 $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 $7,535.
15
STOCK OPTIONS
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
---------------------------------------------------------------------- -----------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS MARKET
OPTIONS/ GRANTED TO EXERCISE OR PRICE ON
SARS EMPLOYEES IN BASE PRICE GRANT EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE DATE 5%($) 10%($)
---- ----------- ------------ ----------- -------- ---------------- --------- -----------
David E. Berges........ 250,000 21.9% $2.74 $2.74 January 10, 2012 $430,793 $1,091,714
Stephen C. Forsyth..... 133,000 11.6% 2.74 2.74 January 10, 2012 229,182 580,792
Ira J. Krakower........ 108,400 9.5% 2.74 2.74 January 10, 2012 186,792 473,367
William Hunt........... 55,600 4.9% 2.74 2.74 January 10, 2012 95,808 242,797
Joseph H. Shaulson..... 76,400 6.7% 2.74 2.74 January 10, 2012 131,650 333,628
------------------------
(1) The amounts shown in these columns are the potential realizable value of
options granted at assumed rates of stock price appreciation (5% and 10%)
set by the executive compensation disclosure provisions of the proxy rules
of the SEC and have not been discounted to reflect the present values of
such amounts. The assumed rates of stock price appreciation are not intended
to forecast the future stock price appreciation of Hexcel common stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN THE MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON REALIZED FISCAL YEAR END (#)(1) FISCAL YEAR END ($)(2)
NAME EXERCISE (#) ($) (EXERCISABLE/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 2003
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
16
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:
- a sign-on award of $200,000;
- an annual base salary of not less than $550,000, subject to annual review
by the compensation committee;
- a target annual bonus opportunity of not less than 100% of 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
- 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 the event of a change of
control of Hexcel, any unvested options immediately vest and become exercisable.
In addition, on July 30, 2001 Mr. Berges received 90,000 restricted shares
of Hexcel common stock. The restricted shares could not be sold or transferred
until they vested and the restrictions lapsed. 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 vested, and the
restrictions on those shares lapsed.
17
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:
- for termination by us other than for disability and other than for cause,
or by Mr. Berges for good reason, Mr. Berges will be entitled to receive a
payment equal to two times the sum of his base salary at that time and
average bonus over the last three years;
- for termination by us other than for disability and other than for cause,
or by Mr. Berges for good reason, in each case during a period which
qualifies as a potential change in control or within two years after a
change in control, Mr. Berges receives three times the sum of his base
salary at that time and average bonus over the last three years; and
- 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, 2003, 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, or 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
18
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:
- 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
- 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.
19
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 REPORT
The compensation committee is made up of four members of the board of
directors who are not employees of Hexcel. We are accountable to the board of
directors to develop, monitor, and manage the compensation and benefit programs
at Hexcel including the administration of all cash and stock incentive plans.
Each year we specifically review and authorize the base salaries, cash and
equity incentives and other forms of compensation for the executive officers of
Hexcel, including all of the named executive officers. In making these reviews,
we consider data available from market surveys provided by independent
compensation consultants. Typically these surveys cover prevailing compensation
practices among a variety of manufacturing companies. These manufacturing
companies are not necessarily companies within the smaller comparator group
described in the performance graph in this proxy statement since we believe that
we compete with a wider spectrum of companies for key talent.
Hexcel's compensation programs are aligned with our beliefs that
- Base salaries in the aggregate should approximate median levels of
compensation for comparable positions within the data reviewed
20
- Annual cash incentives at target performance should represent a
significant portion of total cash compensation for key employees, and
should provide meaningful risk and reward for variations in performance
from target levels
- Long-term cash and stock incentives should represent a significant portion
of total compensation to promote retention of key employees and creation
of long-term stockholder value
- Qualities such as experience, skill level, potential for promotion, and
individual contributions in support of specific corporate and business
unit objectives should also be considered in determining compensation
We believe that utilizing a compensation program reflecting these principles
enables Hexcel to attract and retain highly qualified employees, aligns
management and stockholder interests, and should enhance the financial returns
to Hexcel's stockholders. During 2002, we reviewed the total compensation
provided to executives, including the named executive officers, to ensure that
executive compensation is consistent with these principles. We were guided in
our review by independent compensation consultants. Each component of executive
compensation is described more fully below.
BASE SALARY
We have established base salaries for executives that, in the aggregate,
approximate the median salaries of comparable positions within the market data
reviewed. Effective January 2003 we approved salary increases for the named
executive officers, other than the Chief Executive Officer, which averaged 3.7%
over 2002 salaries.
ANNUAL INCENTIVES
Hexcel maintains the Management Incentive Compensation Plan ("MICP") to
provide for an annual cash bonus opportunity to approximately 170 key employees
including executive officers. At the beginning of each year we establish
performance goals against which potential bonus awards are determined at the
completion of the year. The performance goals for 2002 were based on corporate
and/or business unit adjusted EBITDA, corporate operating cash flow and
achievement of individual objectives. For the named executive officers, other
than the Chief Executive Officer, target awards ranged from 50% to 55% of base
salary according to executive position. Bonus payments could have ranged between
0% and 200% of target awards depending on the degree of attainment of
performance goals. Based on our assessment of attainment of goals, MICP awards
for 2002 to the incumbent named executive officers, other than the Chief
Executive Officer, averaged 115% of their target awards.
EQUITY-BASED INCENTIVES
Hexcel's incentive stock plans authorize, among other things, the grant of
nonqualified stock options and restricted stock units. We have the authority to
determine the terms and conditions of the awards, such as the exercise price and
duration of options, vesting schedules and terms related to termination of
employment.
Grants of stock incentives are based on our assessment of competitive
practices, individual performance and the need to provide retention and
incentive mechanisms. In January 2002, we approved the grant of 297,000
nonqualified stock options and 95,900 restricted stock units to the named
executive officers, not including the Chief Executive Officer. The exercise
prices of the options were at the fair market value of Hexcel common stock on
the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
In determining Mr. Berges' total compensation, with the assistance of our
compensation consultant we consider prevailing compensation practices for
comparable executive positions regarding salaries, short and long-term cash and
stock incentives, and other elements of compensation. We also consider
21
the financial and non-financial performance of Hexcel during the relevant
period. As a result, we determined that Mr. Berges' total compensation was under
what our compensation philosophy would warrant and we adjusted his total
compensation to bring it into alignment with comparable positions including
increasing his base salary effective January 2003 from $572,000 to $700,000.
Mr. Berges' target award under the MICP program for 2002 was 100% of his
2002 base salary, and his performance goals were based on achievement of
adjusted corporate EBITDA and corporate operating cash flow targets. The award
made to Mr. Berges for 2002 achievement against these goals was 105% of his MICP
target award.
In January, 2002 Mr. Berges was awarded a grant of 250,000 nonqualified
stock options and 150,000 restricted stock units as part of the his 2002 annual
compensation review. The exercise prices of the stock options were at the fair
market value of Hexcel common stock on the date of grant.
LONG TERM INCENTIVE PLAN
Historically, Hexcel's long-term compensation program for key employees had
been entirely equity-based. In 2002, we determined that it would be beneficial
to Hexcel to introduce a cash component into the program that would be available
to reduce potential stockholder dilution arising from equity grants. On
February 27, 2002 the board of directors adopted the Hexcel Corporation Long
Term Incentive Plan ("LTIP") to provide cash incentives to, and promote
retention of, key employees who have a direct and measurable opportunity to
advance Hexcel's long-term goals. The LTIP provides for cash incentive payments
based on the attainment of corporate or business unit performance goals
established at the beginning of each performance period. Performance goals may
also take into account individual performance objectives. A performance period
is any period of at least eight fiscal quarters. LTIP participants remain
eligible to receive equity grants but generally in lesser amounts to reflect the
cash incentive payment available under the LTIP.
We have established performance goals under the LTIP for the 2002-2003
performance period for 173 key employees. These performance goals are based on
levels of Hexcel's adjusted EBIDTA for the period from January 1, 2002 to
December 31, 2003. In addition, in January 2002 LTIP participants were awarded
413,000 nonqualified stock options. The exercise prices of the options were at
the fair market value of Hexcel common stock on the date of grant. No executive
officer has been designated to receive an award under the LTIP with respect to
the 2002-2003 performance period.
STOCK OWNERSHIP GUIDELINES
Effective January 1, 1998 the board of directors approved the implementation
of stock ownership guidelines for members of senior management and directors.
The number of shares for any person is calculated at the time the person becomes
a member of senior management or a director. The guideline is five times base
salary for the Chief Executive Officer, three times base salary for certain
members of senior management, one times base salary for other members of senior
management, and three times annual retainer fees for directors. All persons
covered by the guidelines are expected to increase ownership towards the
guideline amounts progressively over three years. However, the board of
directors modified the guidelines to allow Mr. Berges a period of five years to
accumulate a sufficient number of shares of common stock. We believe that
investments in Hexcel common stock at these guideline levels will benefit
shareholders by further aligning the personal financial interests of executives
and directors with those of Hexcel's investors, thereby promoting
decision-making that maximizes shareholder value.
TAX DEDUCTIBILITY OF COMPENSATION
It is our general policy to consider whether particular payments and awards
are deductible to Hexcel for federal income tax purposes, along with other
factors that may be relevant in setting executive compensation practices.
Consistent with this policy and in response to the regulations
22
regarding the deductibility of executive compensation under the Internal Revenue
Code, we take appropriate steps to optimize deductibility except where the best
interests of Hexcel call for a different compensation design.
Martin L. Solomon, Chairman
Sandra L. Derickson
Sanjeev K. Mehra
The Members of the Compensation
Committee
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. Mr. Geller resigned from the board of directors on March 19, 2003. For
information regarding our relationship with the Goldman Sachs investors, an
affiliate of which Mr. Mehra is a Managing Director, see "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS--Relationship with the Goldman Sachs Investors"
contained elsewhere in this proxy statement.
EQUITY COMPENSATION PLAN INFORMATION
(A) (B) (C)
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OF OUTSTANDING OPTIONS, PRICE OF OUTSTANDING (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS(1) OPTIONS, WARRANTS AND RIGHTS(2) REFLECTED IN COLUMN (A))(1)
------------- ----------------------- ------------------------------- ----------------------------
Equity compensation plans
approved by security
holders................. 5,720,624(3) $10.31 1,369,713(4)
Equity compensation plans
not approved by security
holders................. 2,558,166(5) $ 7.09 858,434(6)
Total..................... 8,278,790 $ 9.33 2,228,147
All information provided above is as of December 31, 2002. On March 19,
2003, our shareholders approved the combination, amendment and restatement of
the 1998 Broad Based Incentive Stock Plan and the Incentive Stock Plan into a
new plan called the "2003 Incentive Stock Plan." On this date the shareholders
also approved the 1997 Employee Stock Purchase Plan, as amended and restated.(7)
The only equity compensation arrangements in which equity securities were
authorized that have not been approved by shareholders are two individual option
agreements with our Chief Executive Officer, Mr. Berges. We entered into these
two 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."
------------------------
(1) All numbers in this column refer to shares of Hexcel common stock.
(2) Excludes the restricted stock units referred to in notes 4 and 6 below.
(3) Includes 242,486 shares of common stock issuable upon the vesting and
conversion of restricted stock units.
(4) 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.
Excludes 127,712 shares reserved for issuance under the Management Stock
Purchase Plan upon the conversion of restricted stock units.
23
(5) Includes 154,600 shares of common stock issuable upon the vesting and
conversion of restricted stock units.
(6) Includes (i) 19,846 shares of common stock subject to options as of
December 31, 2002 under, and 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 after December 31, 2002
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 after
December 31, 2002.
(7) A description of the 1997 Employee Stock Purchase Plan and 1998 Broad Based
Incentive Stock Plan appears in our proxy statement relating to the special
meeting of stockholders held on March 18, 2003, which was filed with the SEC
on February 14, 2003.
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 non-employee director
other than Messrs. Mehra and Sacerdote the opportunity to receive his or her
2003 annual retainer 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 2003 Incentive Stock Plan, each person who becomes a
director and who is not also a full-time employee of Hexcel 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 2003 Incentive Stock Plan
further provides that immediately after each annual meeting of stockholders each
director who is not also a full-time employee of Hexcel on such date will be
granted a nonqualified option to purchase an additional 2,000 shares of Hexcel
common 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, (a) the Goldman Sachs investors are the
beneficial owners of all cash and equity-based compensation received by
Messrs. Mehra and Sacerdote for their services as directors of Hexcel and
(b) the Berkshire/Greenbriar investors are the beneficial owners of all cash and
equity-based compensation received by Messrs. Beckman and Small for their
services as directors of Hexcel.
PERFORMANCE GRAPH
The following graph indicates our total return to our stockholders during
the past five years, as compared to the total returns of the Standard & Poor's
500 Composite Stock Price Index, Media
24
General Aerospace/Defense Products and Services Index and a comparator group
consisting of companies chosen by the compensation committee in 2001 to reflect
the labor market and principal operating competitors existing at the time.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
Graphic--Stock Performance Chart
HEXCEL COMPARATOR MEDIA GENERAL
DATE CORPORATION GROUP(1) S&P 500 AEROSPACE/DEFENSE(2)
---- ----------- ---------- -------- --------------------
December 1997............................. $100.00 $100.00 $100.00 $100.00
December 1998............................. $ 33.58 $100.45 $128.52 $ 93.15
December 1999............................. $ 22.31 $118.49 $155.53 $ 74.14
December 2000............................. $ 35.84 $132.57 $141.36 $ 94.10
December 2001............................. $ 12.35 $ 91.78 $124.63 $ 85.68
December 2002............................. $ 12.03 $ 90.43 $ 97.15 $ 83.94
Assumes quarterly reinvestment of dividends.
------------------------
(1) Comparator group consists of Albemarle Corp., Alliant Techsystems Inc.,
Corning Inc., Engelhard Corp., Gencorp Inc., General Dynamics Corp., Great
Lakes Chemical, H.B. Fuller Co., Hercules Inc., Lockheed Martin Corp.,
Millennium Chemicals, Inc., Owens Corning, PPG Industries Inc., Raytech
Corp., Rohm and Haas Company, SPS Technologies Inc. and W.R. Grace and Co.
The return is determined by assuming dividends are reinvested quarterly,
adjusting for spin-offs and other special dividends, and weighing the
issuers for stock market capitalization on a quarterly basis.
(2) Data provided by Media General Financial Services.
25
AUDIT COMMITTEE REPORT
The Audit Committee is responsible for monitoring Hexcel's financial
reporting process and internal control systems and for reviewing and appraising
the audit efforts of Hexcel's independent public accountants and Hexcel's
internal auditors. We also recommend to the board of directors, subject to
shareholder ratification, the selection of Hexcel's independent auditors. We
operate under a written charter adopted and approved by the board of directors
on May 20, 1999, which was included as Annex B to the Proxy Statement for the
Annual Meeting of Stockholders dated April 2, 2002. The board of directors has
determined that each member of the Audit Committee satisfies the requirements of
the NYSE to serve as a member of the Audit Committee. Under these requirements,
each member must be independent and financially literate, and at least one
member must possess accounting or related financial management expertise.
Management is responsible for the financial reporting process, including the
system of internal controls, and for the preparation of consolidated financial
statements in accordance with Generally Accepted Accounting Principles in the
United States. Hexcel's independent auditors are responsible for auditing the
financial statements and expressing an opinion as to their conformity with
Generally Accepted Accounting Principles in the United States. Our
responsibility is to monitor and review these processes.
We held ten meetings in 2002 and held discussions with management and
PricewaterhouseCoopers LLP, Hexcel's independent auditors. We also held
discussions with Protiviti Inc., which performs the internal audit function for
Hexcel. We have reviewed and discussed the consolidated financial statements
with management and the independent auditors. We discussed with the independent
auditors matters required to be discussed by Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
Hexcel's independent auditors also provided the written disclosure and the
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committee), and we discussed with the independent
auditors their independence.
Based on our review and the discussions referred to above, we recommended
that the board of directors include Hexcel's audited consolidated financial
statements in the Annual Report on Form 10-K and as subsequently amended for the
year ended December 31, 2002 filed with the SEC. We have also recommended the
selection of Hexcel's independent auditors and, based on our recommendation, the
board of directors has selected PricewaterhouseCoopers LLP as Hexcel's
independent auditors for 2003, subject to shareholder ratification.
Lewis Rubin, Chairman
H. Arthur Bellows, Jr.
James J. Gaffney
The Members of the Audit Committee
26
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
GENERAL
We are asking the shareholders to ratify the Board of Director's appointment
of PricewaterhouseCoopers LLP as our independent auditors for 2003. In the event
the appointment of PricewaterhouseCoopers LLP is not ratified, the board of
directors will consider the appointment of other independent auditors.
PricewaterhouseCoopers LLP has audited our financial statements annually
since 1997. A representative of PricewaterhouseCoopers LLP is expected to be
present at the annual meeting. The representative will have an opportunity to
make a statement if he desires to do so and will be available to answer
appropriate questions from stockholders.
FEES
AUDIT FEES. The aggregate fees billed by PricewaterhouseCoopers LLP for
professional services rendered for the audit of the Company's annual financial
statements for fiscal year 2002, the reviews of the financial statements
included in the Company's Forms 10-Q for such fiscal year and services provided
in connection with foreign statutory filings relating to such fiscal year were
approximately $765,000. With respect to 2001, the aggregate amount of such fees
was approximately $826,000.
AUDIT-RELATED FEES. The aggregate fees billed by PricewaterhouseCoopers LLP
in 2002 for assurance and related services that are reasonably related to the
performance of the audit or review of our financial statements and which are not
included in the amount for 2002 under "Audit Fees" above was approximately
$490,000. Over half of these fees related to services performed in connection
with the preferred stock sale and valuation services performed in connection
with our sale of a portion of a Japanese joint venture. The remainder of these
fees related primarily to an internal European debt restructuring, certain
European statutory consolidations and benefit plan audits.
The aggregate fees billed by PricewaterhouseCoopers LLP in 2001 for
assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and which are not included in
the amount for 2001 under "Audit Fees" above was approximately $101,000. These
fees related primarily to analysis of goodwill impairment and realizability of
US tax assets, benefits plan audits, accounting relating to foreign currency
contracts, management consulting services in Europe and a change in the legal
form of our Belgian operating subsidiary.
TAX FEES. The aggregate fees billed by PricewaterhouseCoopers LLP in 2002
for professional services rendered for tax compliance, tax advice and tax
planning was approximately $84,000. These fees related primarily to European tax
compliance, review of certain European intercompany distribution agreements, a
German tax audit, and transfer pricing analysis.
The aggregate fees billed by PricewaterhouseCoopers LLP in 2001 for
professional services rendered for tax compliance, tax advice and tax planning
was approximately $130,000. These fees related to European tax compliance,
transfer pricing analysis, deferred compensation matters and analysis of a
valuation allowance relating to an internal technology transfer.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There were no
fees billed by PricewaterhouseCoopers LLP for services rendered in connection
with financial information systems design and implementation during the fiscal
years ended December 31, 2002 and 2001.
ALL OTHER FEES. There were no fees billed by PricewaterhouseCoopers LLP for
professional services rendered to us during the fiscal years ended December 31,
2002 and 2001, other than as described above.
27
The audit committee has determined that the provision of all non-audit
services performed by PricewaterhouseCoopers LLP during the fiscal years ended
December 31, 2002 and 2001 was compatible with maintaining its independence.
VOTE REQUIRED
The ratification of the appointment of PricewaterhouseCoopers LLP requires
the vote of a majority of the votes cast in person or by proxy at the annual
meeting once a quorum is present. Brokers may vote shares held for a customer
without specific instructions from the customer. Abstentions will be disregarded
and will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP
28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
On March 19, 2003, we consummated the preferred stock sale and issued 77,875
shares of series A preferred stock and 77,875 shares of series B preferred stock
to the Berkshire/Greenbriar investors for $77,875,000 in cash. As part of the
preferred stock sale we also issued 47,125 shares of series A preferred stock
and 47,125 shares of series B preferred stock to the Goldman Sachs investors for
$47,125,000 in cash. These purchases were made under the terms of separate stock
purchase agreements we entered into with each of the Goldman Sachs investors and
the Berkshire/Greenbriar investors on December 18, 2002. Each of the Goldman
Sachs investors and the Berkshire/Greenbriar investors obtained the funds for
the purchase of the preferred stock through capital contributions by their
investors.
Upon the consummation of the preferred stock sale, we entered into an
amended and restated governance agreement and an amended and restated
registration rights agreement with the Goldman Sachs investors, and a
stockholders agreement and a registration rights agreements with the Berkshire/
Greenbriar investors. Each of these agreements, and each of the stock purchase
agreements, is summarized below.
On December 19, 2000, LXH, L.L.C. and LXH II, L.L.C., two limited liability
companies which are Goldman Sachs investors, acquired 14,525,000 shares of
Hexcel common stock from Ciba Specialty Chemicals Holding Inc. for an aggregate
purchase price of $159,775,000. We refer to these two limited liability
companies as the "LXH purchasers" and to Ciba Specialty Chemicals Holding Inc.
as "Ciba." The purchase price was comprised of $123,462,500 in cash and two 7.5%
secured promissory notes due 2004 issued by the LXH purchasers to Ciba for an
aggregate principal amount of $36,312,500. At the time of this purchase, we
entered into a governance agreement and registration rights agreement with the
Goldman Sachs investors, each of which was amended and restated upon the closing
of the preferred stock sale. In addition, we entered into an agreement dated
October 11, 2000 in which we made representations and warranties to the LXH
purchasers and provided the LXH purchasers with indemnification, subject to
limitations, for losses suffered as a result of breaches by us of the
representations and warranties. This agreement with the LXH purchasers is
summarized below.
Prior to the purchase by the LXH purchasers, we were party to a governance
agreement with Ciba under which Ciba had the right to designate four members to
our board of directors. In connection with the purchase by the LXH purchasers,
we entered into a consent and termination agreement with Ciba that required Ciba
to cause its four existing board designees to resign from our board of directors
and terminated the governance agreement with Ciba. This agreement is summarized
below. Based on information provided to us by Ciba, Ciba is currently the
beneficial owner of 2,290,448 shares of our common stock, representing
approximately 5.8% of our issued and outstanding common stock and 2.6% of our
total voting power.
RELATIONSHIP WITH THE GOLDMAN SACHS INVESTORS AND THE BERKSHIRE/GREENBRIAR
INVESTORS
STOCK PURCHASE AGREEMENTS
On December 18, 2002, we entered into separate stock purchase agreements
with each of the Goldman Sachs investors and the Berkshire/Greenbriar investors
in which all parties agreed to consummate the preferred stock sale. The stock
purchase agreements contained similar, but not identical, terms including
customary representations and warranties, covenants, closing conditions,
"no-shop" and termination provisions, and provided for the payment by us of
certain fees to, and expenses of, the Goldman Sachs investors and the
Berkshire/Greenbriar investors. The stock purchase agreement with the Goldman
Sachs investors also required the Goldman Sachs investors to vote their common
stock in favor of the preferred stock sale and related matters, subject to
conditions.
29
Under the stock purchase agreements, we agreed to indemnify the
Berkshire/Greenbriar investors and the Goldman Sachs investors for any losses
they incur arising from a breach of any representations, warranties or covenants
made by us, or from any actual or threatened litigation against them in
connection with the preferred stock sale. The Berkshire/Greenbriar investors and
the Goldman Sachs investors agreed to 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 is
responsible only for amounts in excess of $2 million. The maximum amount payable
by a party providing indemnification is $20 million in the case of the
Berkshire/Greenbriar stock purchase agreement, and $10 million in the case of
the Goldman Sachs stock purchase agreement. However, the maximum amount payable
by us for losses incurred due to our breach of the representations and
warranties relating to our SEC filings is equal to the purchase price provided
for in the relevant stock purchase agreement.
GOVERNANCE AGREEMENT AND STOCKHOLDERS AGREEMENT
CORPORATE GOVERNANCE. Under the governance agreement, we have agreed to
cause any slate of nominees for election to the board of directors to consist of
up to three nominees of the Goldman Sachs investors. Under the stockholders
agreement, we have agreed to cause any slate of nominees for election to the
board of directors to consist of up to two nominees of the Berkshire/Greenbriar
investors. The remaining nominees must be independent of the Goldman Sachs
investors and the Berkshire/Greenbriar investors. You should read the discussion
under "Election of Directors" for information regarding exactly how many
directors the Goldman Sachs investors and the Berkshire/ Greenbriar investors
are entitled to nominate, which varies based on the percentage of total voting
power held by the Goldman Sachs investors and the Berkshire/Greenbriar
investors.
The Goldman Sachs investors currently beneficially own approximately 37.7%
of Hexcel's total voting power, and the Berkshire/Greenbriar investors currently
beneficially own approximately 35.1% of Hexcel's total voting power.
Accordingly, the board of directors is comprised of the following persons:
- Sanjeev K. Mehra, James J. Gaffney and Peter M. Sacerdote, each of whom is
a nominee of the Goldman Sachs investors;
- Joel S. Beckman and Robert J. Small, each of whom is a nominee of the
Berkshire/Greenbriar investors; and
- H. Arthur Bellows, Jr., David E. Berges (Chairman), Sandra L. Derickson,
Lewis Rubin and Martin L. Solomon, each of whom is an independent nominee.
The governance agreement further provides that so long as the Goldman Sachs
investors are entitled to designate two or more nominees for election to the
board of directors, each committee of the board of directors shall consist of at
least one director nominated by the Goldman Sachs investors. The stockholders
agreement provides that so long as the Berkshire/Greenbriar investors are
entitled to designate two or more nominees for election to the board of
directors, each committee of the board of directors shall consist of at least
one director nominated by the Berkshire/Greenbriar investors. However, if under
the listing standards of the New York Stock Exchange or any other applicable law
or rule, no Goldman Sachs investor nominee or Berkshire/Greenbriar nominee is
eligible to serve on a particular committee, then that committee will consist
solely of non-Goldman Sachs directors and/or non-Berkshire/Greenbriar directors,
as the case may be. New directors chosen to fill vacancies on the board of
directors are selected as follows:
- if the vacancy is created as a result of a nominee of the Goldman Sachs
investors ceasing to serve as a member of the board of directors, then the
Goldman Sachs investors shall designate the new director;
30
- if the vacancy is created as a result of a nominee of the
Berkshire/Greenbriar investors to serve as a member of the board of
directors, then the Berkshire/Greenbriar investors shall designate the new
director; or
- if the new director is to be an independent director, the remaining
independent directors shall designate the new director.
If the percentage of total voting power held by the Goldman Sachs investors
or the Berkshire/ Greenbriar investors decreases, or the Goldman Sachs investors
or the Berkshire/Greenbriar investors transfer some of the shares of capital
stock held by them, in either case such that the number of directors the Goldman
Sachs investors or the Berkshire/Greenbriar investors is entitled to nominate
would decrease, then the Goldman Sachs investors or the Berkshire/Greenbriar
investors, as the case may be, must cause an appropriate number of directors
nominated by the Goldman Sachs investors or the Berkshire/Greenbriar investors,
as the case may be, to resign. Any vacancies created by these resignations would
be filled by the non-Goldman Sachs directors or non-Berkshire/Greenbriar
directors, as the case may be.
APPROVALS. Pursuant to the stockholders agreement and the governance
agreement, for so long as the Berkshire/Greenbriar investors or the Goldman
Sachs investors 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/Greenbriar investors and/or a majority of the directors nominated by
the Goldman Sachs investors, as the case may be:
- any merger or other business combination involving us, other than a
"buyout transaction" (as defined below under "Buyout Transactions"), if
the value of the transaction, when added together with the value of all
similar transactions during the previous 12 months, exceeds the greater of
$75 million and 11% of our total assets;
- 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
- any issuance by us or any of our significant subsidiaries of equity
securities, with exceptions for employee and director benefit plans,
intercompany issuances, conversion of outstanding securities and issuances
in connection with any mergers or other business combinations involving us
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/Greenbriar investors
or the Goldman Sachs investors are serving on our board of directors, any board
action will require the approval of at least six directors, at least two of whom
must be independent directors. In the event that our board consists of fewer
than six directors, any board action will require the approval of all directors.
Each of the Berkshire/Greenbriar investors 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, such investors will be present for purposes of establishing a
quorum and will vote their shares of our voting securities
- in favor of any nominee for director selected in accordance with the
governance agreement or stockholders agreement, as the case may be, and
- against the removal of any director selected in accordance with the
governance agreement or stockholders agreement, as the case may be.
31
Other than voting for the election of directors and as provided below under
"Standstill," the Berkshire/Greenbriar investors and the Goldman Sachs investors
are free to vote their shares of our voting securities as they wish except:
- in connection with an offer for a buyout transaction, in which case other
restrictions apply, which are described below under "Buyout Transactions";
and
- each of the Berkshire/Greenbriar investors and the Goldman Sachs investors
must vote against any amendment to our certificate of incorporation that
would modify the indemnification provisions in a manner which would
adversely affect the persons who are entitled to indemnification.
STANDSTILL. Each of the Berkshire/Greenbriar investors and the Goldman
Sachs investors has agreed, subject to specified exceptions, that without the
approval of a majority of all of the directors, which majority must include at
least two independent directors, they will not:
- purchase or otherwise acquire any beneficial ownership of our voting
securities, except for
- shares of our common stock issuable upon conversion of our preferred
stock
- shares of our common stock acquired through options granted to
directors nominated by the investors
- in the case of the Goldman Sachs investors, a limited number of shares
of our common stock which may be acquired inadvertently through broker
dealer activities
- in the case of the Berkshire/Greenbriar investors, additional voting
securities so long as the Berkshire/Greenbriar investors never own more
than 39.5% of the total voting power of our voting securities;
- 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, in nonmaterial amounts or in accordance with
the provisions regarding buyout transactions described below;
- 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 and governance agreement;
- form or otherwise participate in a group formed for the purpose of
acquiring, holding, voting, disposing of or taking any action with respect
to the voting securities held by the 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, other than a group made up of only
Berkshire/ Greenbriar investors or a group made up of only members of the
Goldman Sachs investors;
- deposit any of our voting securities in a voting trust or enter into any
voting agreement other than the stockholders agreement or the governance
agreement;
- 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 and the governance agreement;
- make any request to amend or waive any of these standstill provisions,
which would require public disclosure under applicable law, rule or
regulation;
32
- disclose any intent, purpose, plan, arrangement or proposal inconsistent
with the actions listed above, or take any action that would require
public disclosure of any such intent, purpose, plan, arrangement or
proposal;
- take any action challenging the validity or enforceability of the actions
listed above; or
- assist, advise, encourage or negotiate with respect to or seek to do any
of the actions listed above.
Notwithstanding the foregoing, neither the Berkshire/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 action would
result in a default, or acceleration of amounts outstanding, under our senior
secured credit facility or the indenture governing our outstanding 9 3/4% senior
subordinated notes due 2009, unless, prior to such action, any required consents
under these debt instruments are obtained. In addition, the Berkshire/Greenbriar
investors and the Goldman Sachs investors may propose "buyout transactions" (as
defined below) after September 19, 2004, and may participate in buyout
transactions proposed by third parties, provided that their actions are
consistent with the provisions under "Buyout Transactions" below.
BUYOUT TRANSACTIONS. The Berkshire/Greenbriar investors and the Goldman
Sachs investors are prohibited from proposing or participating in a "buyout
transaction" prior to September 19, 2004, except as described below. A "buyout
transaction" is generally defined as a tender offer, merger or any similar
transaction in which a third party would acquire a majority of our voting
securities or a sale of all or substantially all of our assets.
If we become the subject of a buyout transaction proposed by a third party,
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/Greenbriar investors and the
Goldman Sachs investors may act in their sole discretion with respect to the
buyout transaction.
If we become the subject of a buyout transaction proposal made by a third
party prior to September 19, 2004, and such third party offer either fails to be
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/Greenbriar
investors may not, and the Goldman Sachs investors, with respect to the shares
they acquired in the preferred stock sale, may not:
- support the third party offer;
- vote in favor of the third party offer; or
- tender or sell their capital stock 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 March 19, 2003, the restrictions described in the immediately
preceding paragraph will be applicable until December 19, 2003.
If we become the subject of a buyout transaction proposed by a third party
that is made after September 19, 2004, and the offer either fails to be 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/Greenbriar
investors must, and the Goldman Sachs investors, with respect to the shares they
acquired in the preferred stock sale, must:
- 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
33
- 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 preferred stock sale, the restrictions
described in the immediately preceding paragraph will be applicable after
December 19, 2003.
With respect to any buyout transaction, a "disinterested director" is a
director who is not an interested director within the meaning of Section 144 of
the Delaware General Corporation Law with respect to such buyout transaction. No
director nominated by the Berkshire/Greenbriar investors or the Goldman Sachs
investors will be deemed to be a disinterested director with respect to a buyout
proposal made by the Berkshire/Greenbriar investors or the Goldman Sachs
investors, respectively.
ISSUANCE OF ADDITIONAL SECURITIES. For so long as the Berkshire/Greenbriar
investors and the Goldman Sachs investors are entitled to designate one or more
nominees for election to our board of directors, if we issue any additional
voting securities for cash, the Berkshire/Greenbriar investors and the Goldman
Sachs investors, as the case may be, will 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.
Any such purchase would be for the same price and otherwise on the same terms as
those governing the new 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. The Berkshire/Greenbriar investors and the Goldman
Sachs investors may not sell or transfer their voting securities acquired in the
preferred stock sale until September 19, 2004, except for sales or transfers:
- in accordance with the Certificates of Designation governing our preferred
stock;
- from the Berkshire/Greenbriar investors to affiliates of the
Berkshire/Greenbriar investors, or from the Goldman Sachs investors to
affiliates of the Goldman Sachs investors, provided the transferee agrees
to be bound by the terms of the stockholders or governance agreement, as
the case may be;
- of shares of our common stock the beneficial ownership of which is
acquired through options granted to the directors nominated by the
Berkshire/Greenbriar investors or the Goldman Sachs investors; and
- in the case of the Berkshire/Greenbriar investors, of shares of our voting
securities registered pursuant to their piggyback rights under the
Berkshire/Greenbriar registration rights agreement in a registered
offering in which the Goldman Sachs investors sell shares of our common
stock which it held prior to March 19, 2003.
After September 19, 2004, the Berkshire/Greenbriar investors and the Goldman
Sachs investors may not sell or transfer their voting securities acquired in the
preferred stock sale, except for sales or transfers:
- in accordance with any of the four exceptions listed above which are
applicable until September 19, 2004;
- in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act, and otherwise subject to compliance with the
Securities Act;
- in a registered public offering or a non-registered offering subject to an
exemption from the registration requirements of the Securities Act, in a
manner calculated to achieve a broad distribution (generally meaning that
no third party acquiring voting securities in the transaction will hold
more than 5% of our voting securities after the transaction); or
34
- in a buyout transaction proposed by a third party, but only if otherwise
permitted as described above under "Buyout Transactions."
Additionally, the shares of our common stock beneficially owned by the
Goldman Sachs investors prior to March 19, 2003, may be sold or transferred at
any time, provided that the Goldman Sachs investors may only sell or transfer
such shares:
- to affiliates of the Goldman Sachs investors, provided the transferee
agrees to be bound by the terms of the governance agreement;
- in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act, and otherwise subject to compliance with the
Securities Act, provided that prior to any such sale or transfer, the
selling investor shall deliver to Hexcel a certificate stating that, to
the knowledge of such selling investor after due inquiry, after the
proposed sale or transfer the transferee will not beneficially own 5% or
more of the total voting power of Hexcel;
- in a registered public offering or a non-registered offering subject to an
exemption from the registration requirements of the Securities Act, in a
manner calculated to achieve a broad distribution;
- in a buyout transaction proposed by a third party, but only if otherwise
permitted as described above under "Buyout Transactions"; or
- which are a limited number of shares of our common stock that may be
acquired by the Goldman Sachs investors or their affiliates either
inadvertently through broker dealer activities or through options granted
to directors nominated by the Goldman Sachs investors.
TERM. Each of the stockholders agreement and the governance agreement, as
the case may be, will terminate upon the earlier of
- March 19, 2013 and
- an event that causes the percentage of our voting securities beneficially
owned by the Berkshire/ Greenbriar investors or the Goldman Sachs
investors, as the case may be, to be less than 10% or equal to or more
than 90%.
In addition, either party may terminate the stockholders agreement or the
governance agreement, as the case may be, if the other party to such agreement
breaches a material obligation under such agreement, 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
Each of the registration rights agreements grants the Berkshire/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 the shares
of our common stock and, after the third anniversary of the original issuance
date, the shares of our series A preferred stock, held by them. Any demand must
be for a number of shares that represents at least 20% of the total voting power
then held by the investors making the demand and must have an aggregate
anticipated offering price of at least $25,000,000. In addition, no shares of
our common stock issued upon conversion of shares of our preferred stock may be
included in any such demand request prior to September 19, 2004.
The Berkshire/Greenbriar investors and the Goldman Sachs investors also have
"piggyback" registration rights. These rights generally permit the
Berkshire/Greenbriar investors and the Goldman Sachs investors to include their
shares of our common stock and, after March 19, 2006, the shares of our
series A preferred stock, in any other registration by us to sell shares of our
common stock under the Securities Act.
35
The registration rights agreements provide for blackout periods during which
we will not be required to register the shares of our capital stock otherwise
eligible for registration under the registration rights agreements. The
registration rights agreements 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 are generally required to pay for all expenses in connection with these
registrations, except for underwriting discounts and commissions relating to the
shares of our capital stock sold by the investors.
PREFERRED STOCK CERTIFICATES OF DESIGNATION
Each of the Goldman Sachs investors and the Berkshire/Greenbriar investors
have certain rights under the certificates of designation for each of the
series A preferred stock and the series B preferred stock. These rights arise
because the Goldman Sachs investors and the Berkshire/Greenbriar investors own
the preferred stock. Should some or all of the preferred stock be transferred to
a third party or parties, such third party or parties would have these exact
same rights, although the right of the Goldman Sachs investors and the
Berkshire/Greenbriar investors to transfer some or all of the preferred stock is
limited by the terms of the governance agreement and stockholders agreement, as
described above. These rights are not described in this proxy statement.
However, the certificates of designation were filed with the SEC on March 31,
2003 as exhibits to Hexcel's Annual Report on Form 10-K/A for the year ended
December 31, 2002. In addition, a description of these rights appears in
Hexcel's proxy statement for the special meeting of stockholders held on
March 18, 2003. This proxy statement was filed with the SEC on February 14,
2003.
RELATIONSHIP WITH CIBA
On February 29, 1996, we consummated various transactions with Ciba in which
we acquired the composites business of Ciba in exchange for $25 million in cash,
the issuance of $42.8 million worth of notes and the issuance of eighteen
million newly issued shares of our common stock. At the time these shares were
issued, these shares represented approximately 49.9% of our common stock. We
entered into numerous agreements with Ciba in connection with these
transactions, including a governance agreement. Under the terms of the Ciba
governance agreement, Ciba was entitled to designate four members to our
ten-member board of directors and was subject to restrictions in connection with
the transfer of its shares of our common stock.
In connection with the purchase by the LXH purchasers of 14,525,000 shares
of our common stock from Ciba, we entered into a consent and termination
agreement with Ciba. Under the terms of the consent and termination agreement:
- we waived the transfer restrictions on the shares of our common stock held
by Ciba to permit the sale of 14,525,000 shares of our common stock to the
LXH purchasers;
- the Ciba governance agreement was terminated as of the closing date of the
purchase by the LXH purchasers;
- Ciba agreed to cause all four of its designees then serving on our board
of directors to resign as of the closing date of the purchase by the LXH
purchasers; and
- Ciba agreed to be present for purposes of establishing a quorum for any
future vote of our shareholders.
The LXH purchasers entered into two pledge agreements with Ciba. Under these
agreements, the LXH purchasers granted to Ciba a security interest in all shares
of our common stock held by them to secure the payment of the promissory notes
issued by the LXH purchasers as part of the purchase price for the shares.
Absent a default under the promissory notes, the LXH purchasers have the right
to vote all shares of our common stock held by them. If there is a default under
a promissory note, then as long as the default continues, Ciba has the right to
vote all shares of our common stock held by
36
the LXH purchasers that were pledged to Ciba to secure payment under that note.
In addition, after a default under a promissory note, Ciba has the right to
acquire all shares of our common stock held by the LXH purchasers pledged to
Ciba to secure payment under that note. The consent and termination agreement
provides that if Ciba acquires enough shares of our common stock from the LXH
purchasers such that Ciba holds in excess of 10% of our outstanding common
stock, then so long as Ciba holds greater than 10% of our outstanding common
stock Ciba is prohibited from transferring its shares of our common stock except
for
- transfers among Ciba and its subsidiaries; or
- in accordance with the volume and manner-of-sale limitations of Rule 144
under the Securities Act, in a manner designed to achieve a broad
distribution; or
- in a registered public offering or a non-registered offering exempt from
the registration requirements of the Securities Act, in a manner designed
to achieve a broad distribution.
The consent and termination agreement will terminate if our independent
directors vote to enter into an agreement relating to
- a proposal for us to merge, consolidate, or enter into another similar
business combination, with another company, or
- an offer to acquire greater than 50% of our equity, or our assets.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of our
equity securities, to file with the SEC initial reports of ownership and reports
of changes in ownership of Hexcel common stock. Executive officers, directors,
and greater than ten percent stockholders are required by SEC regulations to
furnish us with copies of all Section 16(a) forms they file. To our knowledge,
based solely on a review of the copies of such reports furnished to us and
representations that no other reports were required, for the fiscal year ended
December 31, 2002, all Section 16(a) filing requirements applicable to our
executive officers, directors and greater than ten percent stockholders were
complied with.
OTHER MATTERS
As of the date of this proxy statement, the board of directors does not know
of any other matters to be presented for action by the stockholders at the
annual meeting. However, if any other matters not known are properly brought
before the annual meeting, proxies will be voted at the discretion of the proxy
holders and in accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS
Any proposal that a Hexcel stockholder intends to present at our 2004 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 22, 2004 and no later than March 22, 2004 in order to be
presented at that meeting. Any proposal that a Hexcel stockholder intends to
present at our 2004 Annual Meeting of Stockholders must be submitted to the
Secretary of Hexcel at our offices no later than December 23, 2003 in order to
be considered for inclusion in the proxy statement and proxy relating to that
meeting.
ANNUAL REPORT
Our Annual Report to Stockholders containing audited financial statements
for the year ended December 31, 2002, is being mailed herewith to all
stockholders of record. Additional copies are available without charge on
request. Requests should be addressed to the Secretary, Hexcel Corporation, Two
Stamford Plaza, 281 Tresser Boulevard, Stamford Connecticut, 06901-3238.
HEXCEL CORPORATION
Stamford, Connecticut
April 21, 2003
37
ANNUAL MEETING OF STOCKHOLDERS OF
HEXCEL CORPORATION
MAY 22, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE /X/
--------------------------------------------------------------------------------
1. Election of directors (check one box only):
NOMINEES
/ / FOR ALL NOMINEES O Joel S. Beckman
O H. Arthur Bellows, Jr.
/ / WITHHOLD AUTHORITY O David E. Berges
FOR ALL NOMINEES O Sandra L. Derickson
O James J. Gaffney
/ / FOR ALL EXCEPT O Sanjeev K. Mehra
(See instructions below) O Lewis Rubin
O Peter M. Sacerdote
O Robert J. Small
O Martin L. Solomon
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here:
FOR AGAINST ABSTAIN
2. PricewaterhouseCoopers LLP as Independent Auditors / / / / / /
3. To transact such other business as may properly come before the Annual
Meeting and 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 Annual
Meeting. PROXIES WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED OR IN THE ABSENCE OF INSTRUCTIONS, WILL BE VOTED FOR EACH OF THE
NOMINEES SET FORTH IN ITEM 1 AND FOR ITEM 2 AND IN THE DISCRETION OF THE PROXY
HOLDERS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL
MEETING.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note / /
that changes to the registered name(s) on the account may not be
submitted via this method.
--------------------------------------------------------------------------------
Signature of Stockholder _____________________________________ Date: ___________
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
HEXCEL CORPORATION
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 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 March 31, 2003 at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at the Community Room, Two Stamford Plaza, 281 Tresser
Boulevard, Stamford, Connecticut, on May 22, 2003 at 10:30 a.m., local time, and
at any and all adjournments or postponements thereof, with all the powers the
undersigned would possess if personally present, upon all matters set forth in
the Notice of Annual Meeting of Stockholders and Proxy Statement dated April 21,
2003, receipt of which is hereby acknowledged.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)