HXL » Topics » Stock Options

This excerpt taken from the HXL DEF 14A filed Mar 23, 2009.

Stock Options

        NQOs provide for financial gain derived from the potential appreciation in stock price from the date that the NQO is granted until the date that the NQO is exercised. The exercise price for our NQO grants is set at the closing price of our common stock on the NYSE on the grant date. Our long-term performance ultimately determines the value of NQOs, as gains from NQO exercises are entirely dependent on an increase in our stock price. NQOs granted generally vest and are exercisable at the rate of one-third on each of the first three anniversaries after the grant date and expire ten years from the grant date.

        All NQOs issued to ISP participants since 2005, and NQOs issued to our NEOs prior to 2005, provided for a three-year period to exercise vested NQOs after retirement. "Retirement" for this purpose is defined as age 65, or age 55 with five or more years of service. Effective January 1, 2009, we extended this three-year period to five years for all outstanding NQOs and for all NQOs on a going forward basis.

        The income of an NEO attributed to the exercise of our NQOs is considered performance-based compensation under Section 162(m) of the Internal Revenue Code, so we are generally permitted to deduct, on an unlimited basis, the compensation expense associated with any such income.

    Analysis

        Because financial gain from NQOs is only possible after the price of our common stock has increased, we believe grants encourage NEOs and other employees to focus on behaviors and initiatives that should lead to a longer-term increase in the price of our common stock, which aligns the interests of our NEOs and employees with those of our shareholders.

        The committee determined that NQOs granted by the company should provide for a longer post-retirement exercisability period for all NQO recipients, including named executive officers. This change was implemented in order to enhance the incentive and retentive elements of NQOs by increasing the opportunity for employees approaching retirement eligibility to perceive added value from their NQOs. In determining the value of an NQO for compensation purposes the committee assumes the full ten-year term for exercisability. However, the actual value of the NQO to an employee who may become retirement eligible during the term of the NQO can be considerably less because of the shorter effective term following retirement. The company accounts for NQO expense as though all

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NQOs remained exercisable for ten years. Accordingly, there is no expense incurred as a result of the change to the post-retirement exercisability period. The committee considered whether this change might negatively affect the retentive element of the company's NQOs by encouraging earlier retirement, and determined that extending the post-retirement exercisability period would more likely result in a decision to defer rather than to accelerate retirement.

This excerpt taken from the HXL DEF 14A filed Apr 5, 2007.

Stock Options

Stock options provide for financial gain derived from the potential appreciation in stock price from the date that the option is granted until the date that the option is exercised. The exercise price for our stock option grants is set at the closing price of our common stock on the NYSE on the grant date. Our long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price. Stock options granted generally vest and are exercisable at the rate of one-third on each of the first three anniversaries after the grant date and expire ten years from the grant date. Because financial gain from stock options is only possible after the price of our common stock has increased, we believe grants encourage NEOs and other employees to focus on behaviors and initiatives that should lead to an increase in the price of our common stock, which aligns the interests of our NEOs and employees with those of our shareholders.

As mentioned above, our equity award policy dictates that the grant date for annual equity awards will be the third full trading day after we issue our year-end earnings release. We chose this timing primarily because this gives the market a chance to digest our year-end financial results, and therefore the stock price can reasonably be expected to fairly represent the market’s collective view of our then-current results and prospects. We chose February 7, 2006, the occasion of the first board meeting following our 2005 year-end earnings release, as the grant date for our 2006 annual equity awards. Though this grant date was nine business days following the earnings release, the decision was motivated by the same rationale for choosing the annual equity award date that is now specified in our new equity award policy.

The income of an NEO attributed to the exercise of our stock options is considered performance-based compensation under Section 162(m) of the Internal Revenue Code, and so we are generally permitted to deduct, on an unlimited basis, the compensation expense associated with any such income.

This excerpt taken from the HXL DEF 14A filed Apr 15, 2005.

Stock Options

OPTION/SAR GRANTS IN LAST FISCAL YEAR

 
  Individual Grants
  Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Option Term(1)

 
  Number of
Securities
Underlying
Options/SARS
Granted(#)

  % of Total
Options/SARS
Granted to
Employees in
Fiscal Year

   
   
   
 
   
  Market
Price on
Grant
Date

   
Name

  Exercise or
Base Price
($/Sh)

  Expiration
Date

  5%($)
  10%($)
David E. Berges   145,257   21.6 % $ 7.38   $ 7.38   January 6, 2014   $ 674,173   $ 1,708,487
Stephen C. Forsyth   58,404   8.7 % $ 7.38   $ 7.38   January 6, 2014   $ 271,067   $ 686,937
Ira J. Krakower   47,129   7.0 % $ 7.38   $ 7.38   January 6, 2014   $ 218,737   $ 554,323
William Hunt   27,000   4.0 % $ 7.38   $ 7.38   January 6, 2014   $ 125,314   $ 317,569
Joseph H. Shaulson   33,707   5.0 % $ 7.38   $ 7.38   January 6, 2014   $ 156,442   $ 396,456

(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.

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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES

Name

  Shares
Acquired on
Exercise(#)

  Value Received($)(1)
  Number of Securities
Underlying Unexercised
Options/SARs at
Fiscal Year End(#)(2)
(Exercisable/Unexercisable)

  Value of Unexercised
in the Money
Options/SARs at
Fiscal Year End($)(3)
(Exercisable/Unexercisable)

David E. Berges         791,393/962,394   5,779,556/7,590,796
Stephen C. Forsyth         552,293/191,870   3,274,165/1,534,798
William Hunt   79,388   $ 770,046   179,246/83,275   564,837/634,568
Ira J. Krakower         510,382/155,185   2,680,836/1,578,247
Joseph H. Shaulson         312,243/110,618   1,449,180/1,124,404

(1)
For options exercised in which the underlying shares are sold on the same day, the value is equal to the difference between the price at which the shares were sold and the exercise price; otherwise the value is equal to the difference between the closing price on the date of exercise and the exercise price.

(2)
Includes (i) 825,000 shares underlying options granted to Mr. Berges under his employment agreement; and (ii) shares underlying options outstanding under the 2003 Incentive Stock Plan as follows: Mr. Berges 928,777; Mr. Forsyth 744,163; Mr. Hunt 262,521; Mr. Krakower 666,567; and Mr. Shaulson 422,861.

(3)
Based on the closing price of $14.50 per share of Hexcel common stock as reported on the New York Stock Exchange Composite Tape on December 31, 2004.
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