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In this paper, we develop a theory of modular design and refinement of hierarchical hybrid systems. In particular, we present compositional trace-based semantics for the language Charon that allows modular specification of interacting hybrid systems. For hierarchical description of the system architecture, Charon supports building complex agents via the operations of instantiation, hiding, and parallel composition. For hierarchical description of the behavior of atomic components, Charon supports building complex modes via the operations of instantiation, scoping, and encapsulation. We develop an observational trace semantics for agents as well as for modes, and define a notion of refinement for both, based on trace inclusion. We show this semantics to be compositional with respect to the constructs in the language.