UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
HERCULES INCORPORATED
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
--------------------------------------------------------------------------------
HERCULES INCORPORATED
Hercules Plaza
1313 North Market Street
Wilmington, DE 19894-0001
[HERCULES LOGO]
March __, 2001
Dear Shareholder:
We are pleased to invite you to attend the 2001 annual meeting of
shareholders of Hercules Incorporated, which will be held on Thursday, April 26,
2001, at 11:00 a.m., local time, at the Delaware Art Museum, 2301 Kentmere
Parkway, Wilmington, Delaware.
The items to be considered and voted on at the meeting are described in the
notice of the 2001 annual meeting of shareholders and proxy statement
accompanying this letter.
You may have already received proxy-soliciting materials from International
Specialty Products Inc. in connection with items ISP intends to present at the
meeting. For the reasons given in the accompanying proxy statement, YOUR BOARD
OF DIRECTORS BELIEVES THAT THE ELECTION OF ISP'S NOMINEES AND THE ADOPTION OF
ISP'S PROPOSALS ARE NOT IN YOUR BEST INTERESTS. WE STRONGLY URGE YOU TO VOTE FOR
THE NOMINEES PROPOSED BY YOUR BOARD USING THE ENCLOSED WHITE PROXY CARD AND
AGAINST ISP'S NOMINEES AND PROPOSALS.
Your vote is important. We encourage you to vote your shares as soon as
possible. If you have any questions or need assistance in voting your shares,
please call our proxy solicitor, MacKenzie Partners, Inc., toll free at (800)
322-2885.
Sincerely,
Thomas L. Gossage
Chairman and Chief Executive Officer
HERCULES INCORPORATED
Hercules Plaza
1313 North Market Street
Wilmington, DE 19894-0001
To: Our Shareholders
Subject: Notice of 2001 Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Hercules Incorporated will be held
on April 26, 2001, at 11:00 a.m., at the Delaware Art Museum, 2301 Kentmere
Parkway, Wilmington, Delaware, to consider and take action on the following
proposals:
1. Re-election of the following four directors to each serve for
three-year terms expiring at the 2004 annual meeting of shareholders:
Thomas L. Gossage, Ralph L. MacDonald, Jr., John A. H. Shober and
Paula A. Sneed. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE REELECTION OF THE HERCULES DIRECTOR NOMINEES AND AGAINST
THE ELECTION OF ISP'S DIRECTOR NOMINEES.
2. Ratification of the selection of PricewaterhouseCoopers LLP as
independent accountants for 2001. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
3. An amendment proposed by International Specialty Products Inc. to the
Company Bylaws requiring that directors be elected by a plurality vote
of the shares present in person or by proxy and entitled to vote. YOUR
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
4. An amendment proposed by ISP to the Company Bylaws requiring the Board
of Directors to redeem the rights distributed under the Company's
Rights Agreement, dated as of August 4, 2000, terminate such rights
plan and not adopt a new rights plan without shareholder approval.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
5. An amendment proposed by ISP to the Company Bylaws (which would become
effective in 12 months after the Annual Meeting) to cause Hercules to
opt out of Section 203 of the Delaware General Corporation Law, which
restricts certain transactions between Hercules and a shareholder
owning 15% or more of its common stock. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
6. A shareholder resolution proposed by ISP repealing any and all
amendments made by your Board to the Company Bylaws after March 29,
2000. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST
THIS PROPOSAL.
7. To transact such other business as may properly come before the
meeting or at any adjournments or postponements thereof.
Shareholders of record as of March 6, 2001, will be entitled to vote at
the Annual Meeting. Seating is limited. THIS ANNUAL MEETING IS OF PARTICULAR
IMPORTANCE TO ALL SHAREHOLDERS OF THE COMPANY IN LIGHT OF THE COMPANY'S ONGOING
VALUE MAXIMIZATION PROCESS BEGUN IN NOVEMBER 2000. WHETHER OR NOT YOU PLAN TO
ATTEND THE ANNUAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES OF
COMMON STOCK YOU OWN, YOUR BOARD URGES YOU TO COMPLETE, SIGN, DATE AND RETURN
THE WHITE PROXY CARD IN THE ACCOMPANYING ENVELOPE, WHICH IS POSTAGE PAID IF
MAILED IN THE UNITED STATES.
YOUR BOARD ALSO URGES YOU NOT TO SIGN ANY BLUE PROXY CARDS SENT TO YOU BY
ISP. EVEN IF YOU HAVE PREVIOUSLY SIGNED A PROXY CARD SENT TO YOU BY ISP, YOU CAN
REVOKE IT BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD IN THE
ENVELOPE PROVIDED.
An admission ticket, which is required for entry into the Annual Meeting,
is attached to your proxy card. If you plan to attend the Annual Meeting, please
vote your proxy but keep the admission ticket and bring it to the Annual
Meeting. If your shares are held in the name of a bank, broker or other holder
of record and you plan to attend the Annual Meeting, you can obtain an admission
ticket in advance by contacting the Office of the Corporate Secretary at (800)
441-9274.
By order of the Board of Directors,
Israel J. Floyd
Executive Vice President, Secretary
and General Counsel
-2-
PRELIMINARY PROXY MATERIALS DATED MARCH 12, 2001
SUBJECT TO COMPLETION
PROXY STATEMENT
Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, DE 19894-0001
March ___, 2001
The accompanying proxy is solicited on behalf of the Board of Directors of
Hercules Incorporated for use at the Annual Meeting of Shareholders to be held
on April 26, 2001, and at any adjournments or postponements thereof. Throughout
this document we refer to our company as Hercules or the Company. This proxy
statement and the accompanying proxy are first being mailed to shareholders on
or about March ___, 2001. Hercules' Annual Report will be mailed to shareholders
not later than April 6, 2001, a date at least 20 calendar days before the date
of the 2001 Annual Meeting.
THE ISP PROPOSALS
International Specialty Products Inc. ("ISP"), a company controlled by Mr.
Samuel J. Heyman, is conducting a proxy solicitation in opposition to your Board
of Directors. ISP has notified the Company and has filed a preliminary proxy
statement with the Securities and Exchange Commission stating that ISP will:
o Nominate four individuals for election to the Board of Directors in
opposition to Hercules' nominees for election as directors (the
"Director Election Proposal").
o Present the following proposals to the shareholder meeting:
- A new bylaw that would require your Board of Directors to redeem
the rights distributed under the Hercules Rights Agreement, dated
as of August 4, 2000, terminate such rights plan and not adopt
any new rights plan unless approved by the shareholders (the
"Rights Plan Repeal Bylaw Proposal").
- A bylaw amendment that would require that directors be elected by
a plurality vote of the shares present in person or by proxy and
entitled to vote (the "Director Election Bylaw Amendment").
- A new bylaw (which would become effective 12 months after the
Annual Meeting) to opt Hercules out of Section 203 of the
Delaware General Corporation Law, which restricts certain
transactions between Hercules and
shareholders owning 15% or more of its common stock (the "Section
203 Bylaw Proposal").
- A shareholder resolution to repeal any Bylaw amendments that may
be adopted unilaterally by the Board after March 29, 2000, and
prohibiting the Board from adopting certain new amendments to the
Company Bylaws without the approval of shareholders (the "Future
Bylaw Amendment Repeal Proposal").
- A resolution providing the order of voting on the proposals at
the 2000 annual meeting (the "Omnibus Proposal").
Your Board of Directors is soliciting votes FOR Hercules' slate of nominees
for election to the Board of Directors, FOR ratification of the appointment of
the firm of PricewaterhouseCoopers LLC as the Company's independent accountants
for the year 2001 and AGAINST ISP's Director Election Proposal, Director
Election Bylaw Amendment, Rights Plan Repeal Bylaw Proposal, Section 203 Bylaw
Proposal and Future Bylaw Amendment Repeal Proposal (collectively, the "ISP
Proposals"). YOU SHOULD BE AWARE THAT HERCULES BELIEVES THAT THE RIGHTS PLAN
REPEAL BYLAW PROPOSAL IS INVALID AND UNENFORCEABLE UNDER DELAWARE LAW.
Unless contrary instructions are indicated on the WHITE proxy card, all
shares represented by valid proxies received pursuant to this solicitation (and
not revoked) will be voted:
o FOR the election of all of the Hercules' nominees for directors named
in this proxy statement,
o FOR the ratification of the appointment of PricewaterhouseCoopers LLC
as the Company's independent accountant for the year 2001, and
o AGAINST each of the ISP Proposals.
If you specify a different choice on the proxy card, your shares will be
voted as specified. Signing and dating Hercules' proxy card will have the effect
of revoking any ISP proxy card you signed on an earlier date, and will
constitute a revocation of all previously granted authority to vote for every
proposal included on the ISP proxy card.
WHO IS ENTITLED TO VOTE
Shareholders of record as of the close of business on March 6, 2001, will
be entitled to vote for each share registered in the shareholder's name. As of
that date, there were outstanding 108,115,824 shares of Hercules common stock.
HOW YOU MAY VOTE
You may vote by completing and returning the enclosed WHITE proxy card by
mail, by using the [Internet] or by telephone. To vote your proxy by mail, mark
your
-2-
selections on the enclosed WHITE proxy card, date and sign your name
exactly as it appears on your card. [To vote your proxy using the Internet,
follow the instructions on the proxy card which you must have available when you
access the Internet Website. Once you have accessed the Internet website you
will be prompted to enter your control number and then will be instructed to
mark your selections and finally to register your vote.] You may also vote your
proxy by telephone as described on the proxy card.
If you sign your WHITE proxy card but do not make any selections, you will
give authority to Thomas L. Gossage and Israel J. Floyd to vote on the proposals
and any other matter that may arise at the Annual Meeting. It is Messrs.
Gossage's and Floyd's intention to use that authority to vote for the election
of all of the Hercules' nominees, for the appointment of PricewaterhouseCoopers
LLC as the Company's 2001 independent accountants, and against each of the ISP
proposals.
VOTE REQUIRED AND VOTING PROCEDURES
A majority of the shares entitled to vote, present in person or
represented by proxy, constitutes a quorum. Votes will be counted and certified
by independent inspectors of election. Under the rules of the SEC, boxes and a
designated blank space are provided on the proxy card for you to mark if you
wish to vote "for" or "against" or "abstain" from voting on one or more of the
proposals or to withhold authority for one or more of the nominees for director.
Abstentions are counted in determining whether a quorum is present but are not
counted in determining the votes cast for or against any proposal. Votes
withheld in connection with the election of one or more nominees for director
will not be counted as votes cast for those individuals. Broker non-votes, which
occur when brokers do not receive voting instructions from their customers on
non-routine matters and, consequently, have no discretion to vote on those
matters, are not counted as votes cast for any proposal.
Because, as described below, approval of the Director Election Bylaw
Amendment Proposal will require the affirmative vote of the holders of not less
than 80% of all shares issued and outstanding and entitled to vote at the
meeting, abstentions and broker non-votes will have the effect of a vote against
such proposals. Similarly, because, as described below, approval of the Section
203 Bylaw Proposal will require the affirmative vote of the holders of not less
than a majority of all shares issued and outstanding and entitled to vote at the
meeting, abstentions and broker non-votes will have the effect of a vote against
such proposals.
If a quorum is present, the proposals presented at the meeting (other than
the election of nominees, which is described below) would require the following
vote in order to be adopted:
o Ratification of Selection of PricewaterhouseCoopers LLP as independent
accountants for 2001 - affirmative vote of the holders of a majority
of the shares present in person or by proxy and entitled to vote at
the 2001 Annual Meeting.
o Rights Plan Repeal Bylaw Proposal - affirmative vote of the holders of
a majority of the shares present in person or by proxy and entitled to
vote at the 2001 Annual Meeting. YOU SHOULD BE AWARE THAT HERCULES
BELIEVES THAT
-3-
THE RIGHTS PLAN REPEAL BYLAW PROPOSAL IS INVALID AND UNENFORCEABLE
UNDER DELAWARE LAW.
o Director Election Bylaw Amendment Proposal - affirmative vote of the
holders of not less than 80% of all shares issued and outstanding and
entitled to vote at the 2001 Annual Meeting.
o Section 203 Bylaw Proposal - affirmative vote of the holders of a
majority of all shares issued and outstanding and entitled to vote at
the 2001 Annual Meeting.
o Future Bylaws Amendment Repeal Proposal - affirmative vote of the
holders of a majority of the shares present in person or by proxy and
entitled to vote at the 2001 Annual Meeting.
Pursuant to the Company Bylaws, directors are elected by a majority vote
of all issued and outstanding Hercules shares.
You are urged to sign and date the enclosed WHITE proxy card and return it
in the enclosed prepaid envelope whether or not you plan to attend the meeting.
A person giving any proxy has the power to revoke it (even if such proxy was not
solicited by the Board of Directors or ISP) at any time before the voting by
submitting to the Company or to ISP a written revocation or duly executed proxy
bearing a later date. In addition, any shareholder who attends the meeting in
person may vote by ballot at the meeting, thereby canceling any proxy previously
given.
EMPLOYEE SAVINGS PLANS
Your proxy card will include full shares credited to your savings plan as
of March 6, 2001. Fractional shares are not included. The plan trustee will vote
your shares after consideration of your preferences as indicated on your proxy
card. If you do not vote, the plan trustee will vote your shares in proportion
to the other proxies received from plan participants.
SHAREHOLDER PROPOSALS
To be included in Hercules' 2002 Proxy Statement, shareholder proposals
must be submitted in writing and received by Israel J. Floyd, Esquire, Corporate
Secretary, Hercules Incorporated, Hercules Plaza, 1313 North Market Street,
Wilmington, Delaware 19894-0001, no later than November [__], 2001. Upon receipt
of a proposal, the Company will determine whether or not to include the proposal
in the Proxy Statement in accordance with applicable law.
SHAREHOLDER NOMINATION OF DIRECTORS
-4-
Shareholders may submit written recommendations with respect to director
nominees (accompanied by a notarized statement from the nominee indicating
willingness to serve if elected and principal occupations or employment over the
past five years) to the Chairman of the Nominating Committee, c/o Israel J.
Floyd, Esquire, Corporate Secretary, Hercules Incorporated, Hercules Plaza, 1313
North Market Street, Wilmington, Delaware 19894-0001.
BACKGROUND OF ISP'S PROXY CONTEST
On October 17, 2000, the Board of Directors of the Company named Thomas L.
Gossage Chairman and Chief Executive Officer of the Company. Mr. Gossage
retired in 1996 as Hercules' Chairman and Chief Executive Officer. Upon his
appointment, Mr. Gossage stated that he and the Board would consider all
strategic alternatives available to the Company.
On November 28, 2000, Hercules announced its intention to pursue a sale or
merger of the Company in the belief that over the long-term becoming part of a
larger enterprise is the best strategic path for the Company, one that will
provide the maximum value and opportunity for shareholders, employees and
customers. The Company hired financial and legal advisors who are leaders in
their respective businesses to assist it in pursuing this strategic path. The
Company's financial advisors are Goldman, Sachs & Co. and Credit Suisse First
Boston Corporation. The Company, with the assistance of those advisors, has
contacted many potential purchasers of all or part of the Company's business,
and has entered into confidentiality agreements and supplied information to
numerous such potential transaction partners.
Shortly after Mr. Gossage was named Chairman and Chief Executive Officer
and stated that the Company would consider its strategic alternatives,
representatives of the Company were in contact with ISP regarding ISP's
participation in the process the Company was pursuing with respect to its
strategic alternatives. ISP indicated that it was interested in receiving the
confidential information memorandum prepared by the Company and expressed an
interest in potentially making a proposal to acquire all of the Company. In the
course of negotiating the form of confidentiality agreement, Hercules offered to
amend the standard form to permit ISP to conduct a proxy contest if it chose to
do so. Despite the Company's willingness to accommodate ISP's concerns about
restricting its future options in this fashion, ISP declined to enter into such
a form of confidentiality agreement. In February 2001, a representative of ISP
informed representatives of Hercules that ISP did not wish to receive
confidential information because it was no longer interested in acquiring the
Company.
On January 23, 2001, Mr. Gossage received a letter from Samuel J. Heyman,
the Chairman of ISP, expressing ISP's willingness to purchase 25 million shares,
or approximately 23%, of the Company's common stock at a price of $17.50 per
share, which would result in ISP owning approximately 33% of the Company. That
letter followed an October 11 letter, in which Mr. Heyman had stated that he was
prepared to commence a partial tender offer on the terms reiterated in the
January 23 letter. On February 7, 2001, the Company received another letter
from Mr. Heyman asking that, if Hercules did not promptly allow ISP to
-5-
proceed with its partial tender offer, the Company consider an alternative ISP
proposal to raise the threshold under the rights plan to 20% and exempt any such
purchase from the provisions of the Delaware takeover statute. The next day, Mr.
Gossage stated publicly that Mr. Heyman's proposals were being reviewed by the
Board as part of the entire process of considering alternatives for the Company
and that the Board would respond to these proposals in due course. At that time,
Mr. Gossage stated that whatever course the Board decided to pursue, it would
decide on the basis of what is in the best interest of all of the Company's
shareholders, rather than pursuing a course that benefits any single shareholder
or group of shareholders to the detriment of others.
On February 20, 2001, Mr. Heyman sent a letter to Mr. Gossage stating that,
in addition to his previous proposals for shareholder action at the Company's
annual meeting, ISP would also be nominating a slate of directors to run for the
four Board seats held by directors whose terms expire in 2001. On February 21,
ISP announced it was withdrawing its proposal to make a partial tender offer. On
February 23, Mr. Gossage wrote to Mr. Heyman to advise him that at its February
22 meeting, the Board had considered ISP's request to amend the rights plan, and
had unanimously concluded that such an amendment would not be in the best
interests of the Company's shareholders, in light of the purposes served by the
rights plan and, in particular, the ongoing process to consider a sale or merger
of the Company as announced in November 2000. Mr. Gossage also pointed out that
he considered Mr. Heyman's recent public statements detrimental to the Company's
efforts to achieve this goal, particularly in light of concerns expressed by
third parties with respect to Mr. Heyman's statements and activities, which
could negatively impact their continuing participation in that process. Mr.
Gossage stated that, should Mr. Heyman submit a proposal to acquire the entire
Company rather than a significant minority interest, it would be considered
along with other potential offers. Because ISP had withdrawn its partial tender
offer shortly before the Board meeting, the Board did not take any action with
respect to it. In a February 28, 2001 letter to Mr. Gossage, Mr. Heyman
reiterated his intention to present ISP's proposals to the Company's
shareholders at the upcoming Annual Meeting and, on March 5, 2001, ISP filed
with the SEC a preliminary proxy statement soliciting proxies from the Company's
shareholders to vote on the proposals described below.
Since announcing its intention to pursue strategic alternatives, the
Company has, with the assistance of its financial and legal advisors,
strenuously and continuously pursued what it believes to be a shareholder value
maximization strategy by focusing on the sale or merger of the Company. Hercules
believes that Mr. Heyman has been interfering with the Company's efforts to
maximize value by his highly public actions, which raise concerns among third
parties participating in the Board's value-maximization process, or considering
participating in that process, concerning ISP's real intentions with respect to
the Company. Mr. Heyman has repeatedly been invited to enter into a
confidentiality agreement on terms even more favorable than those offered to
other participants in the process and, like such other participants, submit an
offer for the entire Company.
-6-
PROPOSAL (1) ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide for
three classes of directors, with the term of one class expiring at each annual
meeting of the shareholders. Pursuant to the authority granted to the Board in
Article Six of the Restated Certificate of Incorporation, your Board of
Directors has determined that, effective on the date of the 2001 Annual Meeting,
the number of directors is fixed at 12: 4 in the class whose term expires in
2002, 4 in the class whose term expires in 2003 and 4 in the class whose
term expires in 2004. At the 2001 annual meeting, four directors are to be
elected, all of whom shall constitute the class whose term will expire in 2004.
Your Board of Directors has nominated Mr. Thomas L. Gossage (director since
2000), Mr. Ralph L. MacDonald, Jr. (director since 1989), Mr. John A. H. Shober
(director since 1998) and Ms. Paula A. Sneed (director since 1994), who are
currently serving as directors. Dr. Robert G. Jahn, whose term expires in 2001,
has reached the retirement age of 70 under the Company's Board policies and,
accordingly, is not seeking reelection. Each nominee has consented to serve for
the specified term. It is intended that the shares represented by the
accompanying proxy will be voted for the election of Messrs. Gossage, MacDonald
and Shober and Ms. Sneed.
If for any reason any nominee should be unavailable to serve as a director
at the time of the meeting, a contingency which your Board of Directors does not
expect, the shares represented by the accompanying proxy may be voted for the
election in his or her stead of such person as may be determined by the holders
of the proxy, unless the proxy withholds authority to vote for all director
nominees. The majority vote of the outstanding shares of common stock entitled
to vote at the Annual Meeting is required to elect each director. We
unanimously recommend a vote "FOR" each of the nominees.
ISP is seeking to elect its own slate of four directors in opposition to
the nominees proposed by your Board. YOUR BOARD BELIEVES THAT THE ELECTION OF
ISP'S NOMINEES WOULD NOT BE IN YOUR BEST INTERESTS AND OPPOSES SUCH ELECTION FOR
SEVERAL REASONS. We continue to have grave concerns about Mr. Heyman's
intentions with respect to the Company, notwithstanding Mr. Heyman's public
declarations that his intentions are consistent with the Company's desire to
maximize value for all our shareholders. ISP has declined to submit a proposal
to acquire the entire Company, indicating instead an interest in increasing its
ownership in the Company from its current 9.9% to approximately 33%, in an
attempt, we believe, to obtain effective control of the Company without paying a
premium to all of the Company shareholders. We are also concerned because,
although we have told Mr. Heyman that his highly public statements and
activities with respect to the Company are interfering with the process of
dealing with potential buyers, Mr. Heyman has rejected our requests to refrain
from statements and activities that potential buyers may consider disruptive of
their efforts to formulate a purchase proposal.
Your Board continues to believe that it is in the best position to be an
impartial auctioneer for the sale of the Company - in its entirety or by
business unit - in order to maximize value for all of the Company shareholders.
Your Board believes that independence is a key qualifications for a director of
the Company, particularly in light of the Company's announced decision to
explore all strategic
-7-
alternatives that may be available to maximize shareholder value. Your Board
believes that the ISP nominees lack independence. Two of ISP's nominees -
Samuel J. Heyman and Sunil Kumar - are officers and directors of ISP. Your Board
believes they would be committed first and foremost to furthering the interests
of ISP and its shareholders, by virtue of their affiliation with ISP and legal
duties to ISP and its shareholders, rather than your interests. The potential
for conflicts of interests is exacerbated in this case by the fact that both
Hercules and ISP operate in the same industry, and the ISP nominees' promotion
of ISP's interests may be detrimental to Hercules and its shareholders.
We have retained Goldman, Sachs & Co. and Credit Suisse First Boston
Corporation as our financial advisors to assist us in carrying out our strategic
plan and are fully committed to bringing it to fruition. We have given both
Goldman Sachs and Credit Suisse First Boston a clear mandate to this effect, and
each of them has conducted and is conducting thorough and extensive searches,
within the United States and internationally, for potential business combination
candidates. We know of no reason, nor has ISP disclosed any such reason, why
ISP's nominees would be better positioned than your Board to achieve these
objectives. Based on ISP's prior activities and conflicts of interest, we
believe the ISP nominees are not the right people for the job.
Your Board believes that the Company's nominees are independent, familiar
with the Company and its businesses and operations and are committed to
exploring all strategic alternatives that may be available to maximize
shareholder value. Unlike the ISP nominees, they would have no conflicts of
interest when pursuing discussions with third parties.
FOR THESE REASONS, YOUR BOARD BELIEVES YOU WOULD BE FAR BETTER SERVED BY
ELECTING THE COMPANY'S NOMINEES - THOMAS L. GOSSAGE, RALPH L. MACDONALD, JR.,
JOHN A.H. SHOBER AND PAULA A. SNEED - TO THE BOARD, AND YOU ARE URGED TO VOTE
FOR THESE INDIVIDUALS ON THE ENCLOSED WHITE PROXY CARD. THE BOARD OF DIRECTORS
URGES YOU NOT TO SIGN ANY BLUE PROXY CARD SENT TO YOU BY ISP.
The following information relates to the Company's nominees for reelection
at the 2001 annual meeting, the other directors and the named executive officers
of the Company, who include the chief executive officer and the other four most
highly compensated executive officers of the Company. There are no family
relationships among the directors and executive officers of the Company. The
Board of Directors held 20 meetings in 2000.
HERCULES NOMINEES FOR DIRECTORS
THOMAS L. GOSSAGE - Director since 2000
Mr. Gossage, age 66, is Chairman and Chief Executive Officer of Hercules
Incorporated. Mr. Gossage became Chairman and Chief Executive Officer on October
17, 2000. He is a native of Nashville, Tennessee, and earned his B.S. and M.S.
degrees in Chemical Engineering from the Georgia Institute of Technology in 1956
and 1957, respectively. Mr. Gossage joined Hercules in 1988 as President,
Hercules Specialty Chemicals
-8-
Company, after serving 26 years with Monsanto Company. He was named President
and Chief Executive Officer of Aqualon Company in 1989. Later that year, he was
named Senior Vice President of Hercules and was elected to the Hercules Board of
Directors. Mr. Gossage became Chairman and Chief Executive Officer of Hercules
in 1991 and was also President from 1992 to 1995. Mr. Gossage stepped down as
Chief Executive Officer on August 1, 1996, and as Chairman on December 31, 1996.
He retired from Hercules in January 1997. In May 1997, The American Section of
the Societe de Chimie Industrielle awarded Mr. Gossage the International
Palladium Medal. Mr. Gossage is a member of the Board of Directors of The Dial
Corporation, Alliant Techsystems Inc., and Fluor Corporation.
RALPH L. MACDONALD, JR. - Director since 1989
Mr. MacDonald, age 59, has been a principal in Amelia Investment Corp. (AIC), a
private investment firm dedicated to the acquisition and development of small-
to medium-sized industrial manufacturing and distribution companies, since July
1996. Prior to AIC, he was a principal in Island Capital Corporation, a similar
firm, and managing director, Global Corporate Finance, Bankers Trust Company. He
is also a director of Gaylord Container Corporation.
JOHN A. H. SHOBER - Director since 1998
Mr. Shober, age 67, is a private investor. He served as vice chairman of the
board of directors of Penn Virginia Corporation, a natural resources company,
from 1992 to 1996. Mr. Shober is a director of Airgas, Inc., Anker Coal Company,
C&D Technologies, Inc., Ensign Bickford Industries, Inc., First Reserve
Corporation, MIBRA GmbH, Penn Virginia Corporation, and several other
organizations including The Eisenhower Exchange Fellowships.
PAULA A. SNEED - Director since 1994
Ms. Sneed, age 53, is group vice president, president e-Commerce and Marketing
Services, Kraft Foods, Inc., the nation's largest packaged foods company. She
joined General Foods (which later merged with Kraft Foods) in 1977 and has held
a variety of management positions, including vice president, Consumer Affairs;
senior vice president and president, Foodservice Division; executive vice
president and general manager, Desserts Division; executive vice president and
general manager, Dinners and Enhancers Division; senior vice president,
Marketing Services and chief marketing officer; and executive vice president,
president e-Commerce Division. She is also a director of Airgas, Inc.
-9-
DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING IN 2002:
JOHN G. DROSDICK - Director since 1998
Mr. Drosdick, age 57, is Chairman, Chief Executive Officer and President of
Sunoco, Inc., an independent petroleum refiner-marketer in the United States. He
was president and COO of Sunoco from 1996 to 2000. Mr. Drosdick was president of
Ultramar Corporation from 1992 to 1996. He is a director of Sunoco, Inc., and
serves on the board of Lincoln National Corporation.
GAYNOR N. KELLEY - Director since 1989
Mr. Kelley, age 69, retired as Chairman and Chief Executive Officer of The
Perkin-Elmer Corporation, a manufacturer of biotechnology instrumentation and
systems, in June 1996. He is a member of the boards of directors of Alliant
Techsystems Inc. and Prudential Insurance Co. of America.
PETER MCCAUSLAND - Director since 1997
Mr. McCausland, age 51, is chairman and Chief Executive Officer of Airgas, Inc.
(a distributor of industrial, medical, and specialty gases and related
equipment), a company he founded in 1982. He served as general counsel for MG
Industries, Inc., an industrial gas producer. He was a partner in the firm of
McCausland, Keen & Buckman that specialized in mergers, acquisitions, and
financings. He is a director of the Independence Seaport Museum and The
Eisenhower Exchange Fellowships.
GEORGE MACKENZIE - Director since 2000
Mr. MacKenzie, age 51, is Vice Chairman of the Board of Directors of Hercules
Incorporated. Mr. MacKenzie joined Hercules in 1979, in 1988 was named Vice
President and Controller and in 1991 became Vice President and Treasurer. In
1995, he was named Vice President, Finance, and later that year he was named
Vice President and Chief Financial Officer. In 1996, he was named Senior Vice
President and Chief Financial Officer, and in 1999 became Executive Vice
President, Hercules Incorporated, President, Chemical Specialties Segment and
Chief Financial Officer. Mr. MacKenzie became Executive Vice President and Chief
Financial Officer in April 2000. He assumed his current position in November
2000. Mr. MacKenzie is a member of the Board of Trustees of the Medical Center
of Delaware and the Investment Committee at the University of Delaware as well
as Manufacturers' Alliance. Mr. MacKenzie is also on the Board of Directors of
C&D Technologies, Inc., Blue Bell, Pennsylvania, where he is chair of the Audit
Committee.
TERMS EXPIRING IN 2003:
RICHARD FAIRBANKS - Director since 1993
Mr. Fairbanks, age 60, is a Counselor at the Center for Strategic &
International Studies. He was Ambassador-at-Large under President Reagan. He is
a member of the board of directors of SEACOR Smit, Inc., GATX Corporation, and
SPACEHAB, Inc.; member, Council on Foreign Relations, Council of American
Ambassadors; and founder, The American Refugee Committee of Washington.
ALAN R. HIRSIG - Director since 1998
Mr. Hirsig, age 61, retired as president and Chief Executive Officer of ARCO
Chemical Company, which was bought by Lyondell Chemical Company, in 1998. He is
a director of Philadelphia Suburban Corporation, Celanese A.G., and Checkpoint
Systems Corporation. Additionally, he is a director or trustee of Bryn Mawr
College, Curtis Institute of Music, Rosenbach Museum and Library, as well as a
chairman of the YMCA of Philadelphia. Mr. Hirsig served as past chairman of the
Chemical Manufacturers Association.
EDITH E. HOLIDAY - Director since 1993
Ms. Holiday, age 49, is an attorney. She was assistant to the President of the
United States and Secretary of the Cabinet from 1990 until early 1993 and served
as general counsel of the U.S. Treasury Department from 1989 through 1990. She
served as counselor to the Secretary of the Treasury and Assistant Secretary for
Public Affairs and Public Liaison, U.S. Treasury Department from 1988 to 1989.
Ms. Holiday is a director of Amerada Hess Corporation, H. J. Heinz Company,
Beverly Enterprises, Inc., RTI International Metals, Inc., and member of RTI's
stock plan committee, and director or trustee of various investment companies in
the Franklin Templeton Group of Funds.
H. EUGENE MCBRAYER - Director since 1992
Mr. McBrayer, age 69, retired as president of Exxon Chemical Company in January
1992, after 37 years of service. He is a former chairman of the board of the
Chemical Manufacturers Association.
-10-
DIRECTORS RETIRING FROM OFFICE
ROBERT G. JAHN - Director since 1985
Professor Jahn, age 70, has taught at Princeton University, Department of
Mechanical and Aerospace Sciences since 1962. He was Dean of the School of
Engineering and Applied Science at Princeton, 1971-1986. Professor Jahn is a
trustee, fellow, and a member of several academic and professional societies.
He is a vice president and a founding member of the Society for Scientific
Exploration.
Professor Jahn, whose term expires in 2001, is not seeking reelection and
will be retiring after 16 years of service.
-11-
BOARD OF DIRECTORS
The members of our Board of Directors are: J. G. Drosdick, R. Fairbanks, T.
L. Gossage, A. R. Hirsig, E. E. Holiday, R. G. Jahn, G. N. Kelley, R. L.
MacDonald, Jr., G. MacKenzie, H. E. McBrayer, P. McCausland, J. A. H. Shober,
and P. A. Sneed. Mr. Gossage was appointed a director on October 17, 2000 and is
the Chairman of the Board. Mr. MacKenzie was appointed a director on April 5,
2000, and became Vice Chairman of the Board on November 15, 2000. Dr. Jahn,
whose term expires in 2001, is not seeking reelection and will be retiring as of
the 2001 Annual Meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT-- Reviews and discusses auditing, accounting, financial reporting and
internal control functions with management. Recommends our independent
accountant, reviews its services and receives written disclosures from the
independent auditors. Our Audit Committee is governed by a charter. All members
are independent as independence is defined in the NYSE listing standards. The
members of the Audit Committee are: H. E. McBrayer, A. R. Hirsig, R. L.
MacDonald, Jr. and J. A. H. Shober. Mr. McBrayer is the Chairman of the Audit
Committee. The Audit Committee held 8 meetings in 2000.
COMPENSATION-- Administers executive compensation programs, policies and
practices. Acts in an advisory role on employee compensation. All members are
nonemployee directors. The members of the Compensation Committee are: J. G.
Drosdick, G. N. Kelley, P. McCausland and P. A. Sneed. Mr. Kelley is the
Chairman of the Compensation Committee. The Compensation Committee held 7
meetings in 2000.
EMERGENCY-- Has limited powers to act on behalf of the Board whenever the
Board is not in session. Meets only as needed and acts only by unanimous vote.
If any nonemployee director wants a matter to be addressed by the Board rather
than the Emergency Committee, then such matter is submitted to the Board. The
members of the Emergency Committee are: J. G. Drosdick, T. L. Gossage, R. G.
Jahn, A. R. Hirsig, P. McCausland, and J. A. H. Shober. Mr. Shober is the
Chairman of the Emergency Committee. The Emergency Committee held no meetings in
2000.
FINANCE-- Reviews Hercules' financial affairs. Has full and final authority
on certain financial matters. Serves as the named fiduciary for all of Hercules'
employee benefit plans. The members of the Finance Committee are: R. Fairbanks,
T. L. Gossage, E. E. Holiday, R. L. MacDonald, Jr. and P. A. Sneed. Mr.
MacDonald is the Chairman of the Finance Committee. The Finance Committee held 3
meetings in 2000.
INTERNATIONAL-- Reviews Hercules' international business, programs and
activities with a focus on opportunities for expansion. The members of the
International Committee are: R. Fairbanks, E. E. Holiday, H. E. McBrayer and J.
A. H. Shober. Mr. Fairbanks is the Chairman of the International Committee. The
International Committee held 3 meetings in 2000.
NOMINATING-- Considers and recommends nominees for election as directors
and officers. Conducts an annual evaluation of the Board. All members are
nonemployee
-12-
directors. The members of the Nominating Committee are: J. G. Drosdick, E. E.
Holiday, R. G. Jahn, G. N. Kelley and P. McCausland. Mr. Holiday is the Chairman
of the Nominating Committee. The Nominating Committee held 8 meetings in 2000.
SOCIAL RESPONSIBILITY-- Reviews Hercules' policies, programs and practices
on equal employment opportunity; environmental, safety and health matters;
ethics; and community affairs. The members of the Social Responsibility
Committee are: T. L. Gossage, A. R. Hirsig, R. G. Jahn and P. A. Sneed. Ms.
Sneed is the Chairman of the Social Responsibility Committee. The Social
Responsibility Committee held 3 meetings in 2000.
TECHNOLOGY-- Reviews the strategic direction of Hercules' intellectual
property, research and development and emerging technologies. The members of the
Technology Committee are: T. L. Gossage, A. R. Hirsig, R. G. Jahn, G. N. Kelley
and H. E. McBrayer. Dr. Jahn is the Chairman of the Technology Committee. The
Technology Committee held 4 meetings in 2000.
During 2000, each of the directors attended at least 75% of the
aggregate number of meetings of the Board of Directors and committees of the
Board of Directors.
COMPENSATION OF DIRECTORS
o Employee directors receive no additional compensation other than their
normal salary for serving on the Board or its Committees.
o During 2000, nonemployee directors received a right to defer
compensation in exchange for restricted stock under the Non-employee
Director Stock Accumulation Plan; a $23,000 annual fee; $1,000 for
each meeting attended; $3,000 for chairing a committee; $1,000 per day
for special assignments; and reimbursement for out-of-pocket expenses.
NON-EMPLOYEE DIRECTOR STOCK ACCUMULATION PLAN. Directors can defer all or
part of their compensation in exchange for stock (restricted until retirement
from the Board) at 85% of the fair market value of such stock on the date of
exchange.
Each director annually receives a nonqualified stock option to purchase
3,000 shares of common stock. The option price is the fair market value of the
common stock on the date of grant. As each nonemployee director received an
accelerated grant of 9,000 stock options in 1998 in lieu of any annual stock
option grant for the next three years, no grant was made during 2000. Vesting
occurs in three equal annual increments beginning one year after the grant date.
EQUITY AWARD. A director has a single opportunity to purchase 750 shares
of common stock at fair market value when first elected to the Board. Upon the
purchase, Hercules awards an additional 1,500 shares that cannot be transferred
until retirement or resignation from the Board.
-13-
RESTRICTED STOCK UNITS. Upon election to the Board, each director receives
1,100 restricted stock units, which are placed in an unfunded account where they
accrue dividend equivalents and interest. Each unit represents the right to
receive one share of Hercules stock at retirement. Units do not carry any voting
rights. Of these units, 200 immediately vest. Thereafter, for every year served
on the Board, 100 additional units vest (up to a maximum of nine years). Upon
retirement from the Board, all vested units are paid in shares in a lump sum or
spread over a period not to exceed ten years.
CHARITABLE AWARD PROGRAM. This program is designed to promote charitable
giving. It is available to directors and is funded by life insurance policies on
directors. Upon the retirement or death of a director, Hercules will donate
common stock, with an expected aggregate value of $1,000,000, to one or more
designated charitable institutions over a ten-year period. The actual number of
shares delivered to the charitable institutions will be based on a projected
share price growth. The first installment will be paid immediately after the
director's retirement or death, but no sooner than April 1, 2002.
Directors derive no financial benefit from this program since all
charitable deductions accrue solely to Hercules. Furthermore, the insurance
funding is structured so that the program results in nominal cost to Hercules
over time.
CERTAIN TRANSACTIONS AND LEGAL MATTERS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the SEC and
the New York Stock Exchange reports of beneficial ownership and changes in
beneficial ownership of the common stock and other equity securities of the
Company. These persons are required by SEC rules to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of those reports furnished to the Company, the Company believes that,
during 2000, its directors, executive officers and holders of more than 10% of
the Company's common stock complied with all applicable Section 16(a) filing
requirements.
PROPOSAL (2) RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS FOR 2001
The Audit Committee and the Board believe that PricewaterhouseCoopers LLP
("PWC") has invaluable knowledge about Hercules. Partners and employees of PWC
are periodically changed, providing Hercules with new expertise and experience.
Representatives of PWC have direct access to the Audit Committee and regularly
attend the Audit Committee's meetings. Representatives of PWC will attend the
Annual Meeting to answer questions. The affirmative vote of the majority of
shares present in person or by proxy and entitled to vote at the Annual Meeting
is required to ratify PWC as independent accountants for 2001.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS.
-14-
PROPOSAL (3) FUTURE BYLAW AMENDMENT REPEAL PROPOSAL
ISP is proposing to repeal any Bylaw amendments adopted by the Board
between March 29, 2000 and the April 2001 Annual Meeting.
The Company Bylaws provide that the directors may alter, amend or repeal
any bylaw other than bylaws adopted by the Company shareholders that expressly
provide they may not be altered, amended or repealed by the directors. The Board
has not adopted, amended or repealed any provisions of its Bylaws since March
29, 2000. In addition, the Board has not taken any other action during this time
period with respect to the Bylaws. Moreover, the Board does not intend to take
any action in connection with its Bylaws that would frustrate any third party
proposal that the Board believes will maximize the value of your shares.
Accordingly, in your Board's view this proposal is unwarranted.
Although the Board has no current intention to adopt any amendment to the
Bylaws, it reserves the right to do so should it deem such action to be in the
best interests of the Company and its shareholders, as is permitted under
Delaware corporation law, the Restated Certificate of Incorporation and the
Bylaws.
By restricting your Board's ability to respond to unforeseen
circumstances, ISP's proposed bylaw could damage the interests of the Company
and its shareholders.
YOUR BOARD [UNANIMOUSLY] RECOMMENDS A VOTE AGAINST THE FUTURE BYLAW
AMENDMENT REPEAL PROPOSAL (PROPOSAL 3).
PROPOSAL (4) DIRECTOR ELECTION BYLAW AMENDMENT PROPOSAL
Article II, Section 2 of the Company Bylaws states that "[a]t each annual
meeting, there shall be elected by ballot, by the majority vote of the stock
then issued and outstanding and entitled to vote thereat, the number of
directors necessary to fill the class of those whose term then expires." ISP
proposes, instead, the adoption of a bylaw providing for election of directors
by a plurality vote - that is, based on the number of votes cast at the Annual
Meeting. (ISP had also claimed that the voting requirement for electing
directors stated in this provision is supposedly "ambiguous," and that the
existing bylaw provision should be interpreted to mean, regardless of whether
its proposal is adopted, that directors may be elected by plurality vote). The
complete text of ISP's proposed resolution implementing the Director Election
Bylaw Amendment Proposal is attached to this Proxy Statement as Annex II.
The Company believes that ISP's proposal is without merit. The provisions
of Article II, Section 2 plainly state that directors are to be elected by a
majority vote of the outstanding shares: "[a]t each annual meeting, there shall
be elected by ballot, by the majority vote of the stock then issued and
outstanding and entitled to vote thereat, the number of directors necessary to
fill the class of those whose term then expires." There is no ambiguity in that
provision.
Your Board believes that a requirement that new directors acquire their
seats on the Company's Board only if a majority of the outstanding shares vote
in favor of the nominee
-15-
continues to be desirable because Board composition should not be affected
unless a genuine majority of the equity of the Company supports the election of
a particular nominee or nominees. We do not believe there is anything unfair, or
contrary to shareholder interests, in requiring that a nominee secure the
affirmative support of a majority of the equity of the Company in order to be
elected. We also believe that such a bylaw is consistent with the requirements
of Delaware law.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE DIRECTOR ELECTION
BYLAW AMENDMENT PROPOSAL (PROPOSAL 4).
PROPOSAL (5) RIGHTS PLAN REPEAL BYLAW PROPOSAL
ISP is proposing the adoption of a new bylaw that would require your Board
to redeem the rights issued under the rights plan, to terminate the rights plan
and not adopt any new rights agreement without shareholder approval. The
complete text of ISP's proposed resolution implementing the Rights Plan Repeal
Bylaw Proposal is attached to this Proxy Statement as Annex II.
In August 2000, after it became aware that ISP had accumulated an
approximately 9.9% position in the Company's common stock, the Board adopted a
rights plan. At that time, the Board stated "[t]he Rights are intended to enable
all Hercules stockholders to realize the long-term value of their investment in
the Company. The Rights will not prevent a takeover, but should encourage anyone
seeking to acquire the Company to negotiate with the Board prior to attempting a
takeover."
ISP'S RIGHTS PLAN REPEAL BYLAW PROPOSAL IS NOT IN THE BEST INTEREST OF THE
COMPANY OR ITS SHAREHOLDERS
The purpose of the rights plan is to protect the interests of all of the
Company's shareholders. The rights plan allows your Board to negotiate more
effectively with a potential acquiror on behalf of all shareholders. The rights
plan is designed to protect against attempts to acquire the Company for an
inadequate price and other abusive practices that do not treat all shareholders
equally. In particular, the Company's rights plan is intended to:
o preserve your Board's negotiating position and flexibility to deal
with third parties, enabling it to respond in an orderly manner to
unsolicited bids by providing sufficient time to carefully evaluate
the fairness of an unsolicited offer and the credibility of the bidder
and thereby giving the board the flexibility to explore alternative
strategies for maximizing shareholder value;
o defend against persons who through open market and/or private
purchases of Company common stock may attempt to achieve a position of
substantial influence or control over the Company without paying a
control premium to all of the shareholders;
-16-
o defend against two-tiered, front-end loaded or partial offers or other
coercive takeover tactics; and
o otherwise maximize value for all shareholders by providing incentives
for a potential bidder to negotiate in good faith with the Board,
thereby soliciting the highest possible price from the bidder.
It is important to remember that the Board's use of the rights plan is
subject to its fiduciary duties to shareholders and to review by the courts. The
Delaware courts have made clear that a board's decision to refuse to make a
rights plan inapplicable to an acquisition proposal is subject to review
under well established principles of Delaware law.
We believe that ISP is incorrect in contending that rights plans
generally serve to deter credible acquisition proposals. There is no evidence
that the Company's rights plan has in any way deterred credible acquisition
proposals or had any sort of negative effect on the process undertaken by the
Company. In fact, empirical studies demonstrate quite the contrary. Those
studies, including two conducted by J.P. Morgan & Co. in 1995 and 1997, show
that companies with rights agreements receive higher takeover premiums than
those without such plans and that rights agreements do not decrease the
likelihood that takeover bids will be made or completed. For example, the 1997
J.P. Morgan & Co. study found that:
o premiums paid to companies with rights agreements were nearly 10%
higher on average than premiums paid to purchase target companies that
did not have such rights plans;
o the presence of a rights agreement did not increase the likelihood
that a hostile takeover bid would be defeated or that a friendly bid
would be withdrawn; and
o a rights agreement did not reduce the likelihood that a company would
become a takeover target.
We believe that this is particularly applicable to Hercules where the
Board is actively seeking a value-maximization transaction.
Your Board is actively continuing its efforts to seek an offer for the
purchase of the Company. None of the entities that have engaged in discussions
with the Company in connection with a potential purchase of the Company or its
businesses have expressed the view that the existence of the Company's rights
plan is in any way an impediment to their interest in the Company or their
ability to formulate a proposal. Not one of them has asked the Company to remove
its rights plan in advance of making a bid or entering into a transaction. It is
ironic, in the Board's view, that it is ISP -- which has stated it has no
current interest in making a proposal to acquire the Company -- which is seeking
to have the Company's rights plan dismantled, and NOT any actual potential
buyer.
-17-
Moreover, because of the reasons stated in the preceding paragraphs,
repeal of the Company's rights plan would not have any positive effect on the
Company's efforts to maximize shareholder value through a sale. Your Board does
believe, however, that adoption of the proposed ISP bylaw purporting to
dismantle the rights plan would in fact upset and hinder the sale process. To
the extent that such an affirmative vote could cause a potential buyer to
conclude that the Board may not be able to effectively conclude a transaction,
your Board believes adoption of the Rights Plan Repeal Bylaw Proposal would
damage the sale process.
YOUR BOARD HAS CLEARLY AND UNAMBIGUOUSLY DECLARED THAT IT IS EXPLORING
ALTERNATIVES TO MAXIMIZE SHAREHOLDER VALUE. THIS DECLARATION NECESSARILY
EXCLUDES ANY ATTEMPT TO UTILIZE ITS RIGHTS PLAN TO BLOCK A BUSINESS COMBINATION
OR OTHER TRANSACTION THAT IS FAIR TO AND IN THE BEST INTEREST OF ALL OF THE
SHAREHOLDERS AND IS REASONABLY CAPABLE OF BEING CONSUMMATED. If a proposal to
acquire Hercules at a fair price on terms fair to all shareholders is received,
your Board is committed to approving such a transaction and would, under such
circumstances, render the rights plan ineffective.
Your Board believes that it is in the best position to negotiate with a
potential acquiror of the Company on the shareholders' behalf, to evaluate the
adequacy of any potential offer and to protect shareholders against potential
abuses during a takeover.
THE RIGHTS PLAN REPEAL BYLAW PROPOSAL IS INVALID
In addition to its belief that adoption of the Rights Plan Repeal Bylaw
Proposal would not be in the best interests of the Company or its shareholders,
and would, in fact, disrupt the ongoing sale process and expose shareholders to
coercive tender offers and undervalued takeover bids without adequate
protection, your Board believes that the proposal is invalid.
Although no Delaware case directly addresses a bylaw such as the one
proposed by ISP, the Delaware Supreme Court has recognized that the powers
conferred upon a board of directors under Section 141(a) of Delaware corporation
law include the power to adopt and maintain defensive measures, specifically
including a shareholder rights plan prior to or in response to a takeover
proposal.
Under the Delaware corporation law, directors are empowered to manage the
business and affairs of the Company, and shareholders participate in corporate
governance through the election of directors. Section 141(a) of Delaware
corporation law provides that "[t]he business and affairs of every corporation
organized under this chapter shall be managed by or under the direction of a
board of directors, except as may be otherwise provided in this chapter or in
its certificate of incorporation," and Section 157 confers on a corporation's
board of directors the authority to issue rights and to establish the terms of
such rights. Both of these sections provide that the authority of a
corporation's board of directors may be limited by the corporation's certificate
of incorporation, but neither section provides that such authority may be
limited by a bylaw. Delaware courts have repeatedly held that boards of
directors may adopt rights plans without shareholder
-18-
approval. The Company believes that the extensive body of Delaware case law
regarding the fiduciary duties of directors and rights plans is inconsistent
with a bylaw providing for direct shareholder control over the use of a
rights plan.
The Company notes ISP's asserted belief that its bylaw proposal is
authorized by Section 109 of the Delaware Corporation Law, which gives
shareholders the power to "adopt, amend or repeal bylaws," and which states that
"[t]he bylaws may contain any provision, not inconsistent with law or with the
certificate of incorporation, relating to the business of the corporation, the
conduct of its affairs, and its rights or powers or the rights or powers of its
shareholders, directors, officers or employees." The Company believes that ISP's
asserted belief cannot be reconciled with established principles of Delaware law
and is incorrect. The "except as may be otherwise provided in this chapter"
language of Section 141(a) refers only to specific provisions of the Delaware
corporation law which expressly authorize a departure from the statutory grant
of management authority to directors, and not to general provisions such as
Section 109(b). Moreover, Section 157 deals with the authority of a board of
directors to issue rights does not contain any such exception. Finally, while
Section 141(a) allows for a company's charter to provide exceptions to the
general principle that the business and affairs of a company are managed by or
under the direction of the board of directors, our Restated Certificate of
Incorporation does not provide for any such exceptions. Therefore, even assuming
that the Rights Plan Repeal Bylaw Amendment is permitted under the Section 109,
it would still be contrary to our Restated Certificate of Incorporation.
Your Board opposes the Rights Plan Repeal Bylaw Proposal because, by
precluding us from using the rights plan under circumstances in which we believe
it would benefit shareholders, such proposal, if enacted, could actually require
us to act in a manner inconsistent with what we believe to be our fiduciary
duties. As repeatedly stated by the Delaware courts, a board of directors has
the affirmative legal duty to respond to and resist takeover attempts that it
determines in good faith to be contrary to the best interests of the corporation
and its shareholders. Now that the Board has determined that a sale at a fair
price is in the best interests of the Company and its shareholders, the Board
believes that it is in the best position to negotiate and conclude such a
transaction.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE RIGHTS PLAN REPEAL
BYLAW PROPOSAL (PROPOSAL 5).
PROPOSAL (6) SECTION 203 BYLAW PROPOSAL
ISP proposes that shareholders adopt its Section 203 Bylaw Proposal,
electing not to be governed by Section 203 of the Delaware Corporation Law. If
the proposal is adopted at the 2001 Annual Meeting, Section 203 itself provides
that the bylaw would not become effective until the 12-month anniversary of the
2001 Annual Meeting. The complete text of ISP's proposed resolution implementing
the Section 203 Bylaw Proposal is attached to this Proxy Statement as Annex II.
By virtue of being incorporated in Delaware, the Company became subject to
the provisions of Section 203 of the General Corporation Law when that statute
became
-19-
effective on February 2, 1988. Section 203 provides, in effect, that if any
person acquires beneficial ownership of 15% or more of the Company's outstanding
shares (thereby becoming an "Interested Shareholder"), the Company may not
engage in a "business combination" or certain other types of transactions, with
the Interested Shareholder for three years thereafter, subject to certain
exceptions. The exceptions are:
o the Board's prior approval of the business combination or the
transaction by which such person became an Interested Shareholder;
o the acquisition of at least 85% of the Company's shares (subject to
certain exclusions) in the transaction in which such person becomes an
Interested Shareholder; or
o the approval of such business combination by the Board of Directors
and by the holders of 66 2/3% of the outstanding stock not owned by
the Interested Shareholder.
Your Board believes that adopting this resolution would not be in the best
interests of the Company and its shareholders. Section 203 protects public
shareholders from self-dealing transactions that may be proposed by a
shareholder with more than 15% of the Company' stock. Section 203 is a deterrent
only to
o persons who wish to propose self dealing transactions between
themselves and the Company, and
o persons who expect any offer they make for the whole Company to be
acceptable to less than 85% of the outstanding shares (including the
shares they own).
Since ISP has informed representatives of the Company that it has no
intention of making an offer for the Company, it is, in our view, logical to
believe that ISP's interest in obtaining the Company's exemption from Section
203 could result from a desire to potentially propose the kind of related-party
transaction prohibited by Section 203.
Your Board believes that Section 203 enhances the likelihood that
shareholders will receive full and fair consideration if an offer is to be made,
because it better enables a board to negotiate to improve the terms of any such
offer on behalf of all shareholders. There is no evidence that the protections
of Section 203 deter good-faith offers from being made for companies that are
subject to Section 203, or that being within the statute hurts shareholder
interests in any way. Your Board believes that the great majority of Delaware
companies have chosen to remain under the protections of Section 203, and that
the statute has well served the interests of both Delaware corporations and
shareholders of such Companies. No participant in the current sale exploration
process has indicated that the Company being subject to Section 203 is in any
way an impediment to a potential transaction.
-20-
Accordingly, your Board believes that "opting out" of Section 203 could
expose shareholders to the risk of unfair treatment and would not be in your
best interests as shareholders of Hercules.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE SECTION 203 BYLAW
PROPOSAL (PROPOSAL 6).
OTHER MATTERS
ISP has also proposed that each of the ISP Proposals be voted upon by the
Company shareholders at the 2001 Annual Meeting in the following order: (1) this
Omnibus Proposal; (2) the Future Bylaw Amendment Repeal Proposal; (3) the
Director Election Bylaw Amendment Proposal; (4) Election of Directors; (5) the
Rights Plan Repeal Bylaw Proposal; and (6) the Section 203 Bylaw Proposal.
The Board has established that matters coming before the Annual Meeting
will be considered and voted upon in the order in which they are presented in
this proxy statement and the accompanying notice. Therefore the Company believes
the Omnibus Proposal not to be an appropriate matter for shareholder action and
has not included such proposal in its proxy card. Although the Director Election
Bylaw Amendment Proposal will be voted on following the Election of Directors
Proposal, if that proposal were to be adopted, it is the Company's intention to
apply the related bylaw, as so amended, to the election of directors at the 2001
Annual Meeting.
The Board is not aware of any matters, other than those described above,
that will be presented for consideration at the Annual Meeting. If other matters
properly come before the Annual Meeting, it is the intention of the persons
named in the enclosed proxy to vote thereon in accordance with their best
judgment. Moreover, the Board reserves the right to adjourn or postpone the
Annual Meeting, depending on circumstances and the Board's belief that such
adjournments or postponements would be in the best interests of the Hercules
shareholders.
AUDIT COMMITTEE REPORT
The Board of Directors has charged the Audit Committee with a number of
responsibilities, including review of the adequacy of the Company's financial
reporting and accounting systems and controls. The Committee has a direct line
of communication with the Company's independent accountants and the Director,
Auditing Services. The Committee is composed entirely of independent directors
as defined by the listing standards of the New York Stock Exchange. The Board
has adopted a written Audit Committee charter, a copy of which is included as
Annex III to this Proxy Statement.
In the discharge of its responsibilities, the Audit Committee has reviewed
and discussed with management and the independent accountants the audited
consolidated financial statements for fiscal 2000. In addition, the Committee
has discussed with the independent accountants matters such as the quality (in
addition to acceptability), clarity, consistency and completeness of the
Company's financial reporting, as required by Statement on Auditing Standards
No. 61, Communication with Audit Committees.
-21-
The Audit Committee has received from the independent accountants written
disclosures and a letter concerning the independent accountants' independence
from Hercules, as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. These disclosures have been
reviewed by the Committee and discussed with the independent accountants.
Based on these reviews and discussions, the Committee has recommended to
the Board that the audited consolidated financial statements be included in the
Hercules 2000 Annual Report on Form 10-K, for filing with the SEC.
FEES OF INDEPENDENT AUDITORS
AUDIT FEES. The aggregate fees billed by our independent auditors for
professional services rendered to us in connection with the audit of the
company's financial statements for the year ended December 31, 2000 and the
review conducted by the independent auditors of the financial statements
included in the Quarterly Reports on Form 10-Q that we were required to file
during 2000 were approximately $________.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Our
independent auditors did not render information technology services to us during
fiscal 2000.
ALL OTHER FEES. The aggregate fees billed by our independent auditors for
professional services tendered to us during 2000, other than the audit services
referred to above, were approximately $_______, and primarily include services
rendered to us in connection with ___________________.
The following report of the audit committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other of our filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent we specifically incorporate this report by
reference therein
Audit Committee
H.E. McBrayer, Chair
A.R. Hirsig
R.L. MacDonald, Jr.
J.A.H. Shober
REPORT OF THE COMPENSATION COMMITTEE
The Hercules Executive Compensation Policy, as set by the Compensation
Committee, is to pay a competitive base salary component adjusted for individual
performance while linking annual incentive compensation to achievement of
specific corporate goals, which are identified as necessary components in
achieving the Business Plan of the Company. The Executive Compensation Policy
also includes a long-term incentive component that is directly linked to
shareholder interest through grants of
-22-
stock-based awards. The total potential value of these components is then
benchmarked against competitive norms for our industry group. Additionally, it
is the policy of the Compensation Committee to recognize extraordinary
achievements through special stock-based awards.
BASE SALARY
In 1999, Dr. Corbo, consistent with his executive team concept, requested
Compensation Committee approval to adjust the base salaries of team members to
the same level. Following approval, salary adjustments were made in 1999 and in
early 2000 taking into consideration competitive pay levels for similar level
positions in the chemical and general industry segments, including those
designated in the Standard & Poor's Chemical and Specialty Chemical Indices.
Since 1999, there have been no merit increases granted or performance
adjustments made to such salaries.
In 2000, the Company's performance did not meet the goals established at
the beginning of the year. Accordingly, Dr. Corbo's salary was not adjusted from
the level that was established in 1999. Effective November 1, 2000, Dr. Corbo
retired from Hercules.
In accordance with his agreement to return to Hercules on October 17,
2000, as Chairman of the Board and Chief Executive Officer, the Compensation
Committee entered into an Agreement with Mr. Gossage under which Mr. Gossage
agreed to forego a base monthly salary (other than one dollar per week for
benefit participation purposes).
ANNUAL INCENTIVE
The Management Incentive Compensation Plan ("MICP") is based upon the
achievement of predetermined financial, corporate, organizational unit and
individual goals. For 2000, corporate and business unit performance was measured
by earnings per share (weighted 30%), net cash flow (weighted 30%), revenue
growth (weighted 10%) and earnings before interest, taxes, depreciation and
amortization (weighted 30%) against business plan goals established at the
beginning of the year. Individual performance is measured primarily by
performance against goals formally established at the beginning of the year. For
the Chief Executive Officer and other executive officers, the Compensation
Committee reviews these individual objectives versus results achieved, and
determines MICP payouts accordingly. MICP awards are paid in cash up to the
target bonus level and in Restricted Stock if performance warrants payouts above
the target level. No payouts occur under the Plan unless certain minimum
performance levels are exceeded. The maximum payout under the Plan is 200% of
the target pool at outstanding levels of performance. The Compensation Committee
intends that payouts at target levels result in executive compensation at
competitive market levels.
-23-
For the performance year 2000, plan thresholds were not achieved.
Therefore, no payouts were made under the plan for the Chief Executive Officer,
named officers or any other participant in the Management Incentive Compensation
Plan.
Mr. Gossage has agreed not to be eligible for any MICP award.
LONG-TERM INCENTIVES
The focus of the Long-Term Incentive Compensation Plan is to place pay at
risk and to align its value directly with shareholder value. Under this plan the
Compensation Committee grants to officers and other key employees stock and/or
stock options that vest at predetermined intervals and/or on an accelerated
basis upon achievement of predetermined objectives. The Plan permits the Chief
Executive Officer to approve all awards for other eligible employees.
In 2000, the Compensation Committee granted stock options to Messrs.
Corbo, DiDonna, MacKenzie, Floyd and Tucci and to Ms. Barry, as listed in the
Summary Compensation Table. In addition, Messrs. MacKenzie and Floyd were
granted restricted stock in the year 2000. In determining the above grants, the
Compensation Committee considered the individual executives' responsibilities,
accountabilities, position in the Company, and competitive compensation data
provided by an outside consulting firm.
In lieu of receiving a fixed salary or annual incentive award (other than
the previously referenced salary of one dollar per week), Mr. Gossage was
granted restricted stock and stock options, listed in the Summary Compensation
Table, as his total compensation package.
IRS LIMITS ON THE DEDUCTIBILITY OF COMPENSATION
IRC Code ss.162(m) provides that compensation in excess of $1 million paid
to named executives is not deductible unless it is performance-based
compensation and satisfies the conditions of the available exemption. Base
salary does not qualify as performance-based compensation for purposes of IRC
ss.162(m) while option grants made to the Chief Executive Officer and other
named executives qualify for deductibility under ss.162(m).
STOCK OWNERSHIP GUIDELINES
In 1997, Hercules established formal stock ownership guidelines for
executives. The guidelines reinforce the practice of encouraging executives to
hold Hercules stock and to closely link their interests with those of
shareholders.
PERFORMANCE GRAPH
The following graph shows how an initial investment of $100 in the
Company's common stock would have compared to an equal investment in the S&P 500
Index, the S&P Specialty Chemicals Index or the S&P Chemical Index over the
five-year period beginning December 31, 1995 and ending December 31, 2000. The
graph reflects reinvestment of all dividends.
The total shareholder return shown on the graph below is not necessarily
indicative of future returns on the Company's common stock.
-24-
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURNS
(ASSUMING AN INVESTMENT OF $100 ON DECEMBER 31, 1995)
[GRAPH OMITTED]
Hercules Incorporated S&P 500 Index S&P Specialty Chemicals Index S&P Chemical Index
--------------------- ------------- ----------------------------- ------------------
1995 $100.00 $100.00 $100.00 $100.00
1996 $ 78.06 $122.96 $102.57 $132.11
1997 $ 92.28 $163.98 $127.01 $162.37
1998 $ 51.80 $210.85 $108.16 $147.89
1999 $ 54.96 $255.21 $119.73 $193.45
2000 $ 39.06 $231.98 $106.50 $161.82
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of four members: J.G. Drosdick,
G. N. Kelley (Chairman), P. McCausland and P. A. Sneed. None of the members
of the Compensation Committee is an officer, employee or former officer or
employee of the Company or its subsidiaries. In 2000, none of the members of the
Compensation Committee had any relationship requiring disclosure in accordance
with Item 402(j)(3) of Regulation S-K of the SEC.
-25-
BENEFICIAL OWNERSHIP OF STOCK
The following table sets forth information, as of March 6, 2001, with
respect to the beneficial ownership of shares of the common stock of the Company
by
o beneficial owners of more than five percent of the Common Stock of the
Company,
o each director and nominee for director of the Company,
o each of the executive officers named in the Summary Compensation Table
set forth below, and
o all directors, nominees and executive officers of the Company as a
group.
Such beneficial ownership is reported in accordance with the rules of the
SEC, under which a person may be deemed to be the beneficial owner of shares of
such common stock if such person has or shares the power to vote or dispose of
such shares or has the right to acquire beneficial ownership of such shares
within 60 days (for example, through the exercise of an option). Accordingly,
the shares shown in the table as beneficially owned by certain individuals may
include shares owned by certain members of their respective families. Because of
such rules, more than one person may be deemed to be the beneficial owner of the
same shares. The inclusion of the shares shown in the table is not necessarily
an admission of beneficial ownership of those shares by the person indicated.
OPTIONS
SHARES EXERCISABLE RESTRICTED
BENEFICIALLY WITHIN 60 STOCK PERCENT
NAME OWNED (1) DAYS UNITS OF SHARES
--------------------------------- ---------- ---------- ----- --------
DIRECTORS AND OFFICERS
Thomas L. Gossage, Director and
Officer (2) 129,003 264,000 0 *
J. Barry, Officer 71,954 7,200 0 *
D. W. DiDonna, Officer 44,637 148,100 0 *
J. G. Drosdick, Director 9,423 6,000 1,100 *
R. M. Fairbanks, III, Director 12,088 21,000 1,253 *
I. J. Floyd, Officer 65,944 71,800 0 *
A.R. Hirsig, Director 6,554 6,000 1,100 *
E. E. Holiday, Director 3,999 18,000 1,376 *
R. G. Jahn, Director 14,236 27,000 0 *
G. N. Kelley, Director 9,744 27,000 2,185 *
R. L. MacDonald, Jr., Director 15,421 27,000 1,928 *
G. MacKenzie, Officer 125,997 170,280 1,299 *
H. E. McBrayer, Director 77,324 24,000 1,527 *
P. McCausland, Director 7,784 9,000 1,100 *
J. A. H. Shober, Director 5,250 6,000 1,100 *
P. A. Sneed, Director 11,925 18,000 1,253 *
V.J. Corbo, Director and Officer (3) 109,119 275,200 0 *
H.J. Tucci, Officer (4) 53,231 209,200 0 *
ALL DIRECTORS AND OFFICERS AS A
GROUP 773,633 1,448,520 15,221 2%
-26-
OPTIONS
SHARES EXERCISABLE RESTRICTED
BENEFICIAL WITHIN 60 STOCK PERCENT
NAME OWNED (1) DAYS UNITS OF SHARES
--------------------------------- ---------- ---------- ----- --------
5% SHAREHOLDERS
International Specialty Products, 10,719,200 9.98%
Inc. (5)
ISP Investments Inc.
ISP Opco Holdings Inc.
c/o ISP Management Company, Inc.
1361 Alps Road
Wayne, New Jersey 07670
T. Rowe Price Associates, Inc. (6) 6.7%
100 E. Pratt Street 7,198,428
Baltimore, Maryland 21202
Mario J. Gabelli and related 6,707,400 6.23%
entities(7)
c/o Gabelli Asset Management Inc.
One Corporate Center
Rye, New York 10580
--------------------------------
* Less than 1% of Hercules' outstanding shares of common stock
(1) Includes shares, as of December 31, 2000, in the Savings and Investments
Plan as follows: J. Barry, 2,351; D.W. DiDonna, 1,276; I.J. Floyd, 1,372;
and G. MacKenzie, 3,421; and all directors and officers as a group, 8,420.
Includes shares with restrictions and forfeiture risks as specified under
the Long-Term Incentive Compensation Plan: T.L. Gossage, 128,003; J. Barry,
38,000; D.W. DiDonna, 39,747; G. MacKenzie, 76,270; I.J. Floyd, 45,910;
H.J. Tucci, 1,821; and all directors and officers as a group, 274,956.
Owners have the same voting and dividend rights as other shareholders of
Hercules, except for the right to sell or transfer. Included in the
non-employee directors' totals is a one-time equity award. Mr. Kelley's
total includes 1,594 shares that he holds jointly with his spouse.
(2) Named Chairman and Chief Executive Officer on October 17, 2000.
(3) Resigned as President, Chairman and Chief Executive Officer on October 17,
2000.
(4) Retired as officer on December 1, 2000.
(5) Share holding as of March 6, 2001, as reported on Amendment No. 7 to the
Schedule 13D filed by such shareholder.
(6) Share holding as of March 6, 2001, as reported on Schedule 13G most
recently filed by such shareholder.
(7) Share holding as of March 6, 2001, as reported on Amendment No. 1 to the
Schedule 13D filed by such shareholder.
-27-
COMPENSATION OF EXECUTIVE OFFICERS
The following table contains information concerning compensation paid or
to be paid to the chief executive officer and the other four most highly
compensated executive officers of the Company for services rendered to the
Company and its subsidiaries during the past three completed fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM
COMPENSATION AWARDS
------------------------------------------ ------------------------------------
ALL OTHER
SALARY BONUS OTHER RESTRICTED OPTIONS INCENTIVE COMPEN-
YEAR ($) ($) ($) STOCK(6)($) (SHARES) PAYOUTS($) SATION(7)
--- ---------- -------- --------- ------------ -------- --------- --------
T. L. Gossage 2000 (1) 27,995 1,848,043 1,000,000 63,588(8)
Chief Executive Officer 1999
and Chairman 1998
V. J. Corbo(2) 2000 687,500 281,217 387,500 2,718,000 6,181,087
Chairman, President 1999 721,878 160,679 3,548,500 112,500 102,116
and Chief Executive 1998 494,273 320,000 90,493 2,367,602 93,048
Officer
G. MacKenzie 2000 500,004 17,601 639,375 50,000 29,649
Vice Chairman(3) 1999 359,170 20,910 893,000 37,470
1998 271,670 200,000 19,514 160,000 37,581
D. W. DiDonna 2000 400,008 22,029 142,000 5,100
Executive Vice President 1999 357,420 27,508 893,000 33,375 9,669
Corporate Development 1998 260,402 120,000 11,260 181,375 7,855
H. J. Tucci(4) 2000 400,006 31,566 50,000 16,355
Executive Vice President 1999 341,670 72,618 893,000 33,000 29,966
and Chief Development 1998 245,850 185,000 18,707 50,083 175,000 27,369
Officer
I. J. Floyd 2000 383,340 24,029 256,000 50,000 9,926
Executive Vice President, 1999 225,259 3,110 517,000 9,375 10,647
Secretary, and General 1998 165,328 33,000 50,375 7,274
Counsel
J. B. Barry(5) 2000 400,000 18,167 50,000 12,447
Executive Vice President 1999 323,519 9,824 893,000 39,000 5,536
Corporate Resources 1998 46,851 20,000
-----------------
(1) Effective October 17, 2000, Mr. Gossage succeeded Dr. Corbo as Chief
Executive Officer and Chairman. Mr. Gossage received a nominal salary of
$1.00/week for benefit participation purposes. Mr. Gossage received no
other cash compensation (base or annual incentive).
(2) Dr. Corbo retired effective on November 1, 2000. His base salary reflects
the period through October 31, 2000. Other ($) column includes $90,272 for
use of the company plane for Dr. Corbo. Dr. Corbo's termination of
employment arrangements are described more fully below under "Employment
Contracts". Dr. Corbo's "All Other Compensation" includes, pursuant to
the severance agreement outlined under "Employment Contracts",
48 semi-monthly payments of $65,213 each, totaling $3,135,000,
plus a cash payment of $2,830,754. Amounts also included in this column
are $22,250, the total value of the annual company contributions to the
defined contribution plans plus earnings thereon, $47,096, the dividends
and interest on stock options, and $143,987, dividends on restricted
stock units.
(3) Prior to December 1, 2000, Mr. MacKenzie was Executive Vice President and
Chief Financial Officer.
(4) Mr. Tucci retired on December 1, 2000. His base salary reflects the period
through November 30, 2000.
(5) Ms. Barry became a Hercules employee on October 15, 1998. Salary and bonus
for 1998 reflect period from October 15, 1998, to December 31, 1998.
(6) These values are determined by multiplying the number of shares of
restricted stock awarded by the closing market price of Hercules common
stock on the date of grant and subtracting the consideration, if any, paid
by the executive officer. Dividends may be paid on a current basis or
accrued. Mr. Floyd's restricted stock grant for the year 2000 will vest
only if Hercules stock price reaches $50 before 11/4/2002.
-28-
The number and value (determined by taking the number of shares of restricted
stock multiplied by the year-end closing market price, $19.0625, net of any
consideration paid) of aggregate restricted stock holdings is shown below.
Included in the table are restricted shares that each executive officer
purchased under the terms of the Hercules Long-Term Incentive Compensation
Plan as well as shares that have been granted outright. The aggregate amount
paid for restricted shares by executive officers was $1,071,907.
(7) Major components of All Other Compensation are listed below in addition to
components indicated in footnotes 2 & 8:
COMPANY MATCH DIVIDEND AND
AGGREGATE (DEFINED INTEREST
RESTRICTED CONTRIBUTION CREDITS ON STOCK
NAME SHARES NET VALUE PLANS) OPTIONS
---------------- ---------- ------------- ---------------- --------------
T. L. Gossage 128,003 $2,440,057 0 0
V. J. Corbo 0 0 22,250 47,096
G. MacKenzie 99,492 1,542,175 18,334 11,314
D. W. DiDonna 39,747 724,375 5,100 0
H. J. Tucci 0 0 11,846 4,509
I. J. Floyd 42,910 741,531 9,926 0
J. B. Barry 38,000 724,375 12,447 0
(8) When Mr. Gossage retired from Hercules in 1997, as reported in Hercules'
1997 proxy statement, he was granted a special pension benefit to be paid
over the period from his retirement through the end of 2001. In connection
with his return to Hercules effective October 17, 2000, the remaining 14
monthly payments under this arrangement were settled in a lump sum, as
reflected in Annex A. The value to Mr. Gossage of this lump sum payment
without discount was $63,588, as shown in the table above.
OPTION GRANTS IN LAST FISCAL YEAR
The following table discloses information concerning individual grants of
stock options made during the last completed fiscal year to the executive
officers named in the Summary Compensation Table.
NO. OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE OR
OPTIONS GRANTED TO BASE PRICE EXPIRATION GRANT VALUE GRANT DATE
NAME GRANTED EMPLOYEES ($/SH) DATE DATE VALUE(1)
----------------------- ------------ ------------ ----------- ---------- ---------- ----------
T. L. Gossage 500,000(2) 13.9% 14.4375 (2) 10/17/2000 $2,130,500
500,000(2) 13.9% 17.325 (2) 10/17/2000 1,636,550
V. J. Corbo 200,000(3) 5.5% 17.25 10/17/2005 2/18/2000 1,469,580
187,500(4) 5.2% 14.0625 10/17/2005 6/30/2000 1,097,888
G. MacKenzie 50,000(3) 1.4% 17.25 2/18/2010 2/18/2000 442,385
D. W. DiDonna 50,000(3) 1.4% 17.25 2/18/2010 2/18/2000 442,385
92,000(5) 2.5% 16.00 4/27/2010 4/27/2000 746,442
H. J. Tucci 50,000(3) 1.4% 17.25 12/1/2005 2/18/2000 367,395
I. J. Floyd 40,000(3) 1.1% 17.25 2/18/2010 2/18/2000 353,908
10,000(5) 0.3% 16.00 4/27/2010 4/27/2000 81,135
J. B. Barry 50,000(3) 1.4% 17.25 2/18/2010 2/18/2000 442,385
(1) The Black-Scholes option-pricing model was used to determine the fair value
of employee stock options in the table above as of the date of the grant.
-29-
No adjustments for risk of forfeiture have been made. Significant
assumptions are as follows:
REGULAR
OPTIONS PASOS
------- -------
Dividend yield 0.0% 0.0%
Risk free interest 5.9% 6.2%
rate
Expected life 3.6 years 5 years
Expected volatility 41.3% 35.6%
(2) Vesting date is the earlier of October 15, 2001, or retirement, death or
termination because of disability, or a change of control. The expiration
date is the first anniversary of retirement, death or termination because
of disability.
(3) Vesting schedule is as follows: 40% on 2/19/01; 40% on 2/18/02; and 20% on
2/18/03.
(4) Performance-accelerated stock options (PASOs) become exercisable upon the
achievement of predetermined performance goals. If goals are not achieved,
the options become exercisable at 9.5 years and expire at 10 years;
however, due to retirement, the expiration date for this award is October
17, 2005.
(5) Vesting schedule is as follows: 40% on 4/27/01; 40% on 4/29/02; and 20% on
4/28/03.
-30-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table set forth below discloses certain information concerning the
exercise of stock options (exercised and unexercised) during the last completed
fiscal year by the executive officers named in the Summary Compensation Table as
well as certain information concerning the number and value of unexercised
options. The value of options is calculated using the difference between the
option exercise price and $19.0625 (year-end stock price) multiplied by the
number of shares underlying the option.
NO. OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NO. OF SHARES OPTIONS AT YEAR-END AT YEAR-END
ACQUIRED ON VALUE -------------------------- --------------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
-------------- ---------- ----------- ----------- ------------- --------------- -----------------
T. L. Gossage 0 264,000 1,174,000 0 3,181,250
V. J. Corbo (1) 0 275,200 807,000 444,376 937,500
G. MacKenzie 0 170,820 353,500 3,231 90,625
D. W. DiDonna 0 148,100 331,175 0 372,375
H. J. Tucci 9,900 33,825 322,400 120,000 176,975 0
I. J. Floyd 0 71,800 112,575 35,812 103,125
J. B. Barry 0 7,200 81,800 0 90,625
--------------------
(1) Dr. Corbo resigned from the Company on October 17, 2000. As a result of
his retirement 187,500 of Dr. Corbo's options became exercisable as of
November 1, 2000.
PENSION PLANS
The following table shows the estimated annual pension benefits payable to
a covered participant at normal retirement age under Hercules' qualified
benefits pension plan (the "Pension Plan"), as well as nonqualified supplemental
benefits, based on the stated remuneration and years of service with Hercules
and its subsidiaries.
REMUNERATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
------------- ----------- --------- ----------- --------- -----------
$200,000 $45,714.00 $60,952.00 $76,190.00 $91,428.00 $106,666.00
250,000 57,714.00 76,952.00 96,190.00 115,428.00 134,666.00
300,000 69,714.00 92,952.00 116,190.00 139,428.00 162,666.00
350,000 81,714.00 108,952.00 136,190.00 163,428.00 190,666.00
400,000 93,714.00 124,952.00 156,190.00 187,428.00 218,666.00
450,000 105,714.00 140,952.00 176,190.00 211,428.00 246,666.00
500,000 117,714.00 156,952.00 196,190.00 235,428.00 274,666.00
600,000 141,714.00 188,952.00 236,190.00 283,428.00 330,666.00
700,000 165,714.00 220,952.00 276,190.00 331,428.00 386,666.00
750,000 177,714.00 236,952.00 296,190.00 355,428.00 414,666.00
800,000 189,714.00 252,952.00 316,190.00 379,428.00 442,666.00
900,000 213,714.00 284,952.00 356,190.00 427,428.00 498,666.00
1,000,000 237,714.00 316,952.00 396,190.00 475,428.00 554,666.00
1,500,000 357,714.00 476,952.00 596,190.00 715,428.00 834,666.00
2,000,000 477,714.00 636,952.00 796,190.00 955,428.00 1,114,666.00
-31-
Annual contributions by Hercules to its qualified pension plan, if any are
required, are determined statistically by an independent actuary, and no amount
is attributed to an individual employee. Due to the funded status of the Pension
Plan, there was no Hercules contribution to the Pension Plan in 2000.
Except in special cases, the aggregate retirement benefit, under both the
qualified and nonqualified plans, is an amount determined by taking the sum of
(i) 1.2% of the employee's average annual earnings (based on the highest sixty
consecutive months during the last 10 years of employment) up to one-half the
Social Security Tax Base ($76,200 in 2000), and (ii) 1.6% of the employee's
average annual earnings (as determined above) in excess of one-half of the
Social Security Tax Base, multiplied by the employee's total years and months of
credited service. For this purpose, "average annual earnings" consist of salary
plus annual incentive or bonus compensation.
For Ms. Barry, who participates in the former BetzDearborn Retirement
Plan, the aggregate retirement benefit is determined by taking the sum of (i)
1.2% of the employee's average annual earnings (based on the highest three
consecutive calendar years during the last 10 calendar years of employment) up
to the Social Security Covered Compensation (average of 35 years of the Social
Security Taxable Wage Base), and (ii) 1.8% of the employee's average annual
earnings (as determined above) in excess of to the Social Security Covered
Compensation, multiplied by the employee's total years of credited service.
For Messrs. Gossage, Corbo, MacKenzie, DiDonna, Tucci and Floyd and Ms.
Barry, the compensation amounts used for average annual earnings for 2000 are
shown under the "Salary" and "Bonus" columns of the foregoing Summary
Compensation Table. The estimated credited years of service for Messrs. Gossage,
Corbo, MacKenzie, DiDonna, Tucci and Floyd and Ms. Barry are 35, 31, 21, 20, 23,
27 and 9, respectively.
Until attainment of age 55, Ms. Barry is entitled to, upon retirement or
termination for reason other than cause, an enhancement of pension benefits of
approximately $750,000 with interest, payable in a lump sum, which represents
her years of service to BetzDearborn prior to becoming an employee of Hercules.
If Ms. Barry remains with the company until she attains 55 years of age, she is
entitled to 50% of her final average earnings.
In February 2000, Hercules granted to Mr. MacKenzie an enhancement of
pension benefits upon retirement if he is employed through March 31, 2004, which
provides for a supplemental retirement benefit of $4,166.67 per month for 120
consecutive months plus an additional 3 years of service credit and the
elimination of the early retirement reduction, if otherwise applicable.
EMPLOYMENT CONTRACTS
On October 17, 2000, Hercules entered into a written agreement with Mr.
Gossage which provides for him to suspend his regular Hercules retirement
benefits and serve as our Chairman and Chief Executive Officer. Mr. Gossage's
compensation consists of (i) a nominal salary of $1.00 per week to cover
employee benefit participation requirements plus employment-related benefits
available to other salaried employees and
-32-
(ii) the grant under the terms of our Long Term Incentive Compensation Plan of
(a) a stock option to purchase 1,000,000 shares of our stock, half at a per
share exercise price of $14.4375 (the price of our common stock on the date of
grant) and the balance at a per share exercise price of $17.325 and (b) 128,003
shares of restricted stock. The stock options and restricted stock vest at the
earlier of October 15, 2001, or his retirement, death or termination because of
disability or a change in control. Hercules also agreed to accelerate payment of
the balance of a special pension benefit of $1,300,000 per year over 5 years,
which became effective January 1, 1997. This special pension was reported in the
1997 Proxy Statement.
On October 17, 2000, Dr. Corbo resigned from all of his positions
at Hercules and its subsidiaries including his positions as Chief Executive
Officer and Chairman of Board of Directors of Hercules. Dr. Corbo has received
and he (or in the event in his death, his estate or named beneficiary) is
entitled to receive certain severance payments and continuing benefits pursuant
to a resignation agreement between Dr. Corbo and Hercules dated October 17, 2000
(the "Resignation Agreement"). Specifically, Dr. Corbo received a lump sum cash
payment of $2,832,753.83 upon his resignation and Dr. Corbo (or in the event of
his death, his estate or named beneficiary) will receive (i) two times his then
current salary and target annual bonus (or a total of $3,135,000), which
amount is paid over 48 semi-monthly equal installments beginning November 1,
2000, (ii) certain continuing rights and accelerated vesting schedules under
Hercules' various stock option plans and Long Term Compensation Plans, (iii)
certain continuing pension benefits based on granting three additional years of
service credits plus elimination of early retirement reduction and (iv) certain
one-time perquisites, such as, reimbursement for legal fees incurred in
connection with the Resignation Agreement and reimbursement for tax return
preparation and advice. Additionally, Dr. Corbo and his immediate family will
receive medical, dental and vision benefits until the earlier of his death and
December 31, 2002 and life insurance benefits payable at his death. Many of the
above listed items are contingent upon Dr. Corbo's adherence to certain
covenants regarding confidentiality, non-competition and non-disparagement.
On December 1, 2000, Mr. Tucci resigned from his positions at the Company
to become the Chairman, Chief Executive Officer and President of CP Kelco, a
joint venture in which Hercules is involved. In conjunction with Mr. Tucci's
resignation, Hercules agreed to make certain severance payments to Mr. Tucci.
Mr. Tucci will receive (i) 120 consecutive monthly payments of $7,000, (ii) an
additional four full years of pension service credit as well as additional
pension payments depending upon the number of years of service to CP Kelco,
(iii) reimbursement for certain equity interests in Hercules held by Mr. Tucci,
which were forfeited upon his resignation and (iv) reimbursement for certain
other perquisites. Additionally, Hercules will pay, in the event of Mr. Tucci's
death, his named beneficiary or estate an amount equal to two times his final
twelve-month salary plus average of his last two calendar year MICP awards.
-33-
CHANGE IN CONTROL AGREEMENTS
Since 1986, Hercules has entered into Change in Control Agreements with
its senior executives. These agreements seek to ensure the stability of
Hercules' management during a period of transition within Hercules and only
become effective upon a change in control event. Hercules' Compensation
Committee periodically reviews these agreements and revises them, if necessary,
to reflect contemporary business practices in change in control situations.
During fiscal year 2000, Hercules entered into Change in Control Agreements
with each of Ms. Barry, Messrs. DiDonna, Floyd and MacKenzie. Under the terms
of the agreements, a change in control occurs if:
o Any person, entity or group (with certain exceptions) becomes the
beneficial owner of 20% or more of the outstanding shares of Hercules
common stock;
o There is a change in a majority of the Board of Directors other than
by election or nomination by a vote of the majority of directors
comprising the Incumbent Board;
o Upon consummation of a reorganization, merger, consolidation or sale
that results in Hercules' shareholders owning less than 60% of the
combined voting power of the surviving corporation following the
transaction; or
o Hercules' shareholders approve a complete liquidation of the Company.
Under the terms of the agreements, upon a change in control, Hercules is
required to continue to employ the above named executives, in substantially the
same position and level of compensation (including benefits) as that executive
held immediately before the change in control, for a period of three years
following the change in control.
If Hercules terminates the executive (within the three year period
following a change in control) for any reason other than cause, death or
disability, or if Hercules takes actions which permit the executive to terminate
his or her employment for good reason, such as diminishing the executive's
responsibilities or requiring the executive to relocate, during such three year
period, the executive is entitled to the following:
o a lump sum cash payment equal to:
- any unpaid prorated portion of the executive's bonus;
- three times the executive's base salary and bonus; and
- the difference between the amount the executive would be entitled
to if Hercules contributed for up to an additional six years of
service and five years of age to the executive's benefit plans
and that amount the
-34-
executive was actually entitled to under these plans on the date
of termination.
o three years of continued welfare benefits and perquisites;
o outplacement services equal to $50,000;
o full vesting of all stock options held by or previously granted
to the executive; and
o payment for any IRS excise taxes for excess parachute payments,
as defined under the Internal Revenue Code.
SEVERANCE AGREEMENTS
In addition to the Change in Control Agreements, Hercules has entered into
a severance agreement with Mr. MacKenzie which provides for the payment of two
years' base salary plus two years' target bonus in the event of Mr. MacKenzie's
termination by Hercules other than for cause or change of control.
ANNUAL REPORT
PURSUANT TO RULE 14A-13 UNDER THE EXCHANGE ACT, THE COMPANY UNDERTAKES TO
FURNISH A COPY OF THE COMPANY'S ANNUAL REPORT CONTAINING AUDITED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2000, PREPARED IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, TO HERCULES SHAREHOLDERS NOT LATER
THAN APRIL 6, 2001, A DATE 20 CALENDAR DAYS BEFORE THE DATE OF THE 2001 ANNUAL
MEETING.
A copy of the Company's Annual Report on Form 10-K, as filed with the SEC,
will be sent without charge to any shareholder upon written request directed to:
Hercules Incorporated
Hercules Plaza
1313 North Market Street
Wilmington, DE 19894-0001
Attention: Secretary
METHOD AND COST OF PROXY SOLICITATION
Proxies may be solicited, without additional compensation, by directors,
officers or employees of the Company by mail, telephone, telegram, in person or
otherwise. The Company will bear the costs of the solicitation of proxies, which
may include the cost of preparing, printing and mailing the proxy materials. In
addition, the Company will request banks, brokers and other custodians, nominees
and fiduciaries to forward proxy materials to the beneficial owners of common
stock and obtain their voting instructions. The Company will reimburse those
firms for their expenses in accordance with the rules of the SEC and the New
York Stock Exchange. In addition, the Company has retained MacKenzie Partners,
Inc., 156 Fifth Avenue, New York, NY 10010, to assist in soliciting
-35-
proxies, for which services the Company will pay a fee expected not to exceed
$_______ plus out-of-pocket expenses. MacKenzie will employ approximately __
persons in connection with its solicitation of proxies.
Expenses related to the solicitation of shareholders, in excess of those
normally spent for an annual meeting and excluding the costs of litigation, are
expected to aggregate approximately $_______, of which approximately $_______
has been spent to date. ANNEX I SETS FORTH CERTAIN INFORMATION RELATING TO THE
COMPANY'S DIRECTORS, NOMINEES, OFFICERS AND OTHER EMPLOYEES OF THE COMPANY WHO
WILL BE SOLICITING PROXIES ON THE COMPANY'S BEHALF ("PARTICIPANTS").
YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS ESPECIALLY IMPORTANT. PLEASE
SIGN AND DATE THE ENCLOSED
WHITE PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY.
WE URGE YOU NOT TO SIGN OR RETURN ANY PROXY CARD THAT MAY BE SENT TO YOU BY
ISP, EVEN AS A PROTEST VOTE AGAINST ISP. IF YOU PREVIOUSLY VOTED ON AN ISP BLUE
PROXY CARD, YOU HAVE EVERY LEGAL RIGHT TO CHANGE YOUR VOTE. YOU CAN DO SO SIMPLY
BY SIGNING, DATING AND RETURNING THE ENCLOSED WHITE PROXY CARD. A PERSON GIVING
ANY PROXY HAS THE POWER TO REVOKE IT (WHETHER SUCH PROXY WAS SOLICITED BY THE
BOARD OF DIRECTORS OR BY ISP) AT ANY TIME BEFORE THE VOTING BY SUBMITTING TO
HERCULES OR TO ISP A WRITTEN REVOCATION OR DULY EXECUTED PROXY CARD BEARING A
LATER DATE. ONLY YOUR LATEST DATED PROXY CARD WILL COUNT. PLEASE REFER TO "VOTE
REQUIRED AND VOTING PROCEDURES" ON PAGE __ FOR A DISCUSSION OF HOW TO REVOKE
YOUR PROXY.
IMPORTANT: If your shares of the Company's stock are held in the name of a
brokerage firm, bank, nominee or other institution, only it can sign a WHITE
proxy card with respect to your shares and only upon specific instructions from
you. Please contact the person responsible for your account and give
instructions for a WHITE proxy card to be signed representing your shares of the
Company's stock. We urge you to confirm in writing your instructions to the
person responsible for your account and to provide a copy of such instructions
to the Company's proxy solicitor, MacKenzie Partners, Inc., at the address
indicated below so that MacKenzie Partners can attempt to ensure that your
instructions are followed. If you have any questions about executing your proxy
or require assistance, please contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Call Toll Free: (800) 322-2885
or Call Collect: (212) 929-5500
-36-
ANNEX I
INFORMATION CONCERNING THE DIRECTORS AND CERTAIN OFFICERS
OF THE COMPANY WHO MAY ALSO SOLICIT PROXIES
The following table sets forth the name, principal business address and the
present office or other principal occupation or employment, and the name,
principal business and the address of any corporation or other organization in
which their employment is carried on, of the directors and certain officers of
the Company ("Participants") who may also solicit proxies from shareholders of
the Company. Unless otherwise indicated, the principal occupation refers to such
person's position with the Company and the business address is Hercules
Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, DE
19894-0001.
DIRECTORS
The principal occupations of the Company's directors who are deemed Participants
in the solicitation are set forth under "Proposal (1) Election of Directors" in
this Proxy Statement. The principal business address of Mr. Gossage is that of
the Company. The name, business and address of the director-Participants'
organization of employment are as follows:
NAME ADDRESS
---- -------
Thomas L. Gossage Hercules Incorporated, 1313 N. Market Street,
Wilmington, DE 19894-0001
John G. Drosdick Sunoco, Inc., Ten Penn Center, 1801 Market Street,
Philadelphia, PA 19103-1699
Richard M. Fairbanks, III Center for Strategic & International Studies, Suite
400, 1800 K Street, N.W., Washington, DC 20006-2202
Alan R. Horsig *
Edith E. Holiday *
Gaynor N. Kelley *
Ralph L. MacDonald Amelia Investment Corp., 1890 South 14th Street,
Suite 110, Amelia Island, FL 32034-4730
George MacKenzie Hercules Incorporated, 1313 N. Market Street,
Wilmington, DE 19894-0001
H. Eugene McBrayer *
Peter McCausland Airgas, Inc., PO Box 6675, Radnor, PA 19087-8675
John A.H. Shober ESU Associates, 12 Bugle Lane, Blue Bell, PA 19422
Paula A. Sneed Kraft Foods, 3 Lakes Drive, Northfield, IL 60093-9999
----------------
* Unless otherwise indicated, the Director's address is c/o Hercules
Incorporated, 1313 N. Market Street, Wilmington, Delaware 19894-0001
I-1
EXECUTIVE OFFICERS AND CERTAIN CORPORATE OFFICERS
NAME PRINCIPAL OCCUPATION
---- ------------------------------------------------------
Thomas L. Gossage Chairman and Chief Executive Officer
Israel J. Floyd Executive Vice President, Secretary and General
Counsel
George MacKenzie Vice Chairman
J. Neil Stalter Vice President, Corporate Communications
Allen A. Spizzo Vice President, Corporate Affairs and Strategic
Planning
INFORMATION REGARDING OWNERSHIP OF THE COMPANY'S SECURITIES BY PARTICIPANTS
None of the Participants owns any of the Company's securities of record but
not beneficially. The number of shares of common stock of the Company held by
directors and the named executive officers is set forth on page __ of this proxy
statement. The number of shares of common stock of the Company held by the other
Participants as of ________, 2001 is set forth below. The information includes
shares that may be acquired by the exercise of stock options within 60 days of
such date:
NAME SHARE OWNERSHIP
---- ------------------------------------------------------
Allen A. Spizzo 3,056
J. Neil Stalter 12,339
-------------------
(*) Includes shares as of December 31, 2000, in the Savings and Investments
Plans as follows: A.A. Spizzo, 1,201 and J.N. Stalter, 485. Includes shares with
restrictions and forfeiture risks as specified under the Long-Term Incentive
Compensation Plan: A.A. Spizzo, 1,055 and J.N. Stalter, 8,854.
I-2
INFORMATION REGARDING TRANSACTIONS IN THE COMPANY'S SECURITIES BY PARTICIPANTS
The following table sets forth purchases and sales of the Company's securities
by the Participants listed below during the past two years. Unless otherwise
indicated, all transactions are in the public market.
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED OR (SOLD) NOTES
------------------------ ---------- ------------------- ---------
DIRECTORS
---------
John G. Drosdick 2/18/1999 1,419 (1)
5/11/1999 750 (1)
5/11/1999 1,500 (1)
2/8/2000 2,754 (1)
Richard Fairbanks 2/18/1999 1,711 (1)
11/30/1999 82 (1)
2/8/2000 2,754 (1)
Thomas L. Goassage 10/17/2000 128 (2)
Alan R. Hirsig 2/18/1999 1,419 (1)
5/11/1999 750 (1)
5/11/1999 1,500 (1)
2/8/2000 2,885 (1)
Edith E. Holiday 2/18/1999 417 (1)
2/8/2000 655 (1)
Robert G. Jahn 1/18/1999 1,836 (1)
2/8/2000 3,148 (1)
Gaynor N. Kelley 2/18/1999 918 (1)
2/8/2000 1,605 (1)
Ralph L. MacDonald 2/18/1999 1,711 (1)
2/8/2000 2,557 (1)
George MacKenzie 2/1/1999 (609) (3)
2/18/1999 751 (2)
11/2/1999 38,000 (2)
1/20/2000 30,000 (2)
H. Eugene McBrayer 2/18/1999 1,878 (1)
2/8/2000 3,017 (1)
Peter McCausland 2/18/1999 1,419 (1)
2/8/2000 2,754 (1)
Paula A. Sneed 2/18/1999 1,878 (1)
2/8/2000 3,148 (1)
I-3
NUMBER OF SHARES
OF COMMON STOCK
NAME DATE PURCHASED OR (SOLD) NOTES
------------------------ ---------- ------------------- ---------
EXECUTIVE OFFICERS
------------------
June B. Barry 6/15/1999 (3,778) (3)
11/2/1999 38,000 (2)
2/15/2000 (6,612) (3)
2/15/2000 7,512 (4)
10/16/2000 (7,901) (3)
10/16/2000 11,453 (3)
Vincent J. Corbo 2/1/1999 (1,170) (3)
11/2/1999 151,000 (2)
11/1/2000 (2,722) (3)
11/1/2000 (64,024) (3)
Dominick W. DiDonna 2/1/1999 (539) (3)
11/2/1999 38,000 (2)
Israel J. Floyd 2/1/1999 697 (2)
5/3/1999 900 (2)
11/2/1999 22,000 (2)
3/1/2000 16,000 (2)
5/1/2000 1,500 (2)
Harry J. Tucci 2/1/1999 (833) (3)
2/18/1999 3,957 (2)
5/13/1999 8,400 (5)
11/2/1999 38,000 (2)
6/2/2000 (597) (3)
12/1/2000 (13) (3)
12/1/2000 (177) (3)
12/1/2000 (14) (3)
12/1/2000 (57) (3)
12/1/2000 (8,230) (3)
12/1/2000 (38,000) (3)
----------------
(1) Acquisition of restricted shares pursuant to the Company's Nonemployee
Director Stock Accumulation Plan.
(2) Acquisition of restricted shares pursuant to the Company's Long-Term
Incentive Compensation Plan.
(3) Surrender of shares to pay withholding tax on restricted shares whose
restrictions lapsed.
(4) Acquired under the Company's Long-Term Incentive Compensation Plan.
(5) Acquired upon exercise of options.
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Annex I or in the proxy statement, none of the
participants nor any of their respective affiliates or associates (together, the
"Participant Affiliates"), (i) directly beneficially owns any shares of common
stock of the Company or any securities of any subsidiary of the Company or (ii)
has had any relationship with the
I-4
Company in any capacity other than as a shareholder, employee, officer or
director. Furthermore, except as described in this Annex I or in the proxy
statement, no Participant or Participant Affiliate is either a party to any
transaction or series of transactions since December 31, 1999, or has knowledge
of any currently proposed transaction or series of transactions, (i) to which
the Company or any of its subsidiaries was or is to be a party, (ii) in which
the amount involved exceeds $60,000, and (iii) in which any Participant or
Participant Affiliate had or will have, a direct or indirect material interest.
Except as described in this Annex I or in the proxy statement, no participant or
Participant Affiliate has any arrangement or understanding with any person (i)
with respect to any future employment by the registrant or its affiliates; or
(ii) with respect to any future transactions to which the registrant or any of
its affiliates will or may be a party.
I-5
ANNEX II
PROPOSAL (4) DIRECTOR ELECTION BYLAW AMENDMENT PROPOSAL
RESOLVED, that the stockholders hereby exercise their right under Section
109 of the Delaware General Corporation Law to amend the Bylaws of Hercules
Incorporated, effective at the time this resolution is approved by the
stockholders of Hercules Incorporated, to delete the first sentence of Article
II, Section 2 in its entirety and replace it with the following two sentences:
"At each annual meeting, there shall be elected the number of directors
necessary to fill the class of those whose term then expires. To be elected as a
director, a nominee must receive the affirmative vote of a plurality of the
shares present in person or represented by proxy and entitled to vote on the
election of directors."
PROPOSAL (5) RIGHTS AGREEMENT REPEAL BYLAW PROPOSAL
RESOLVED, that the stockholders hereby exercise their right under Section
109 of the Delaware General Corporation Law to amend the Bylaws of Hercules
Incorporated, effective at the time this resolution is approved by the
stockholders of Hercules Incorporated, to add a new Article VIII which shall
read as follows:
ARTICLE VIII
Shareholder Rights Plans
Section 1. The Corporation shall not adopt or maintain a poison pill,
shareholder rights plan, rights agreement or any other form of "poison pill"
which is designed to or has the effect of making acquisitions of large holdings
of the Corporation's shares of stock more difficult or expensive (such as the
"Rights Agreement" adopted by the Board of Directors on August 4, 2000), unless
such a plan or agreement is first approved by the affirmative vote of the
holders of a majority of the shares of the Corporation's common stock present in
person or represented by proxy at a regular or special meeting of the
stockholders. The Corporation shall promptly redeem the rights distributed under
the Rights Agreement dated as of August 4, 2000, between Hercules Incorporated
and ChaseMellon Shareholder Services L.L.C., and terminate such Rights
Agreement.
Section 2. If any particular provision of this Bylaw be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable so that
the provisions of this Bylaw are enforced to the maximum extent possible.
Section 3. Notwithstanding any other provision of these Bylaws, this Bylaw
may not be amended, altered or repealed in any way except by vote of the
Corporation's stockholders.
II-1
PROPOSAL (6) SECTION 203 BYLAW PROPOSAL
RESOLVED, that pursuant to Section 203(b)(3) of the Delaware General Corporation
Law, the stockholders of Hercules Incorporated hereby amend the Company's Bylaws
by adding a new Article IX which shall read as follows:
ARTICLE IX
Delaware General Corporation Law Section 203
Section 1. The Corporation shall not be governed by Section 203 of the
Delaware General Corporation Law.
Section 2. If any particular provision of this Bylaw be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable so that
the provisions of this Bylaw are enforced to the maximum extent possible.
II-2
ANNEX III
HERCULES INCORPORATED
AUDIT COMMITTEE CHARTER
ORGANIZATION
MEMBERSHIP
The Committee is composed of non-employee members of the Board of
Directors. Membership is determined by the Board on the recommendation of
the Nominating Committee. As needed, the Audit Committee should consider
training and education programs to ensure that its membership has the
proper background and knowledge base and stays current as to relevant
developments in accounting and finance. At least one member of the Audit
Committee should have accounting or related financial management expertise.
MEETINGS
The Committee generally meets once a quarter, or more frequently as
circumstances require. Regular meetings are scheduled in accordance with
the annual schedule approved by the Board. Minutes are recorded by the
Secretary to the Committee. The Chairman and Chief Executive Officer, the
other Senior Officers of the Company, the Director of Auditing Services
(internal auditors), and representatives of the Company's independent
public accountant (PricewaterhouseCoopers) attend meetings at the
invitation of the Committee.
BASIC FUNCTION AND PURPOSE
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. The Committee reviews and discusses the
adequacy of the Company's internal controls; accounting practices;
financial reports; and the scope, specific plans, and effectiveness of the
audits performed by the internal auditors and the independent accountants.
The Audit Committee should conduct candid discussions with management, the
internal auditors, and outside auditors regarding issues implicating
judgment and impacting quality.
At least annually, the Audit Committee should consider the relevance of
this Charter.
RESPONSIBILITIES
INDEPENDENT PUBLIC ACCOUNTANTS
The Committee shall:
1. Recommend to the Board of Directors the selection and retention of
independent public accountants, subject to ratification by
shareholders, to perform the annual
III-1
audit of financial statements and the appropriate fees to compensate
the independent public accountant. In this regard, the outside auditor
is ultimately accountable to the Board of Directors and the Audit
Committee.
2. Consider, in consultation with the independent public accountant and
management, the planned scope of the annual audit of financial
statements, including a review of coordination of audit efforts
between the independent public accountant and Auditing Services
Division (internal auditors), and reliance of the independent public
accountant on the work of Auditing Services.
3. Confirm and ensure the independence of the independent public
accountant, including a review of any significant out-of-scope
services and related compensation provided by the independent public
accountant.
4. Consider and review with the independent public accountant and
management: a) the adequacy of the Company's internal controls; b) the
Company's annual financial statements and related footnotes including
the quality of accounting principles as applied and the Company's
compliance with "Generally Accepted Accounting Principles" in all
material respects; c) emerging accounting standards and issues
affecting the Company; d) any significant and related findings and
recommendations of the independent public accountant, together with
management's response.
5. At least annually, at a regularly scheduled meeting of the Committee,
meet privately with the independent public accountant without members
of management in attendance to discuss any necessary matters.
6. Prior to public release of quarterly earnings, require that the
outside auditor, in conjunction with SAS 71 Interim Financial Review
related to the Company's future filing of its form 10-Q, discuss with
the Committee whenever possible or with the chair of the Audit
Committee or his/her designee if not possible with the Committee, and
a representative of financial management, in person or by telephone
conference call, the matters described in AU Section 380,
Communications with the Audit Committee.
INTERNAL AUDITING
The Committee shall:
1. Consider and review with management the annual work plan and planned
activities of Auditing Services, the budget and staffing for the
internal audit function, the charter of Auditing Services, and
compliance of the internal audit function with the STANDARDS FOR THE
PROFESSIONAL PRACTICE OF INTERNAL AUDITING (IIA).
2. Consider and review the coordination of audit efforts between Auditing
Services and the independent public accountant to ensure completeness
of coverage and efficient use of audit resources, including internal
audit assistance to the independent public accountant.
III-2
3. Consider and review with management and Auditing Services significant
internal auditing findings and recommendations related to the adequacy
of internal controls, compliance with policies and procedures, and
effective and efficient use of Company resources; also consider and
review management's response.
4. Meet privately with Auditing Services as required, but at least
annually, at a regularly scheduled meeting of the Committee.
OFFICERS AND DIRECTORS EXPENSES AND SIGNIFICANT MANAGEMENT ESTIMATES
The Committee shall:
1. Review policies and procedures with respect to expense accounts and
perquisites of officers and directors, including their use of
corporate assets; and consider the results of an annual review of
expenses and perquisites of officers and directors by Auditing
Services or the independent public accountant.
2. Review policies and procedures with respect to the adequacy of
significant management estimates particularly with respect to
recognition of contingent liabilities, such as those resulting from
identified environmental problems, and legal matters, including the
use of outside counsel.
REPORTING RESPONSIBILITY
All action taken by the Audit Committee shall be reported to the Board of
Directors at its next meeting succeeding such action.
Note: The revision of paragraph No. "6" under "Responsibilities" was
approved at the Audit Committee meeting of February 21, 2001.
III-3
[PROXY CARD: FRONT SIDE]
HERCULES INCORPORATED
2001 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF HERCULES'S BOARD OF DIRECTORS FOR THE
2001 ANNUAL MEETING OF SHAREHOLDERS ON APRIL 26, 2001.
The undersigned hereby appoints Thomas L. Gossage and Israel J. Floyd, and
each of them, as proxies, acting jointly and severally and with full power of
substitution, for and in the name of the undersigned to vote all shares of
common stock of Hercules Incorporated that the undersigned is entitled to vote
at the Annual Meeting of Shareholders to be held on Thursday, April 26, 2001, at
11:00 A.M., local time, at the Delaware Art Museum, 2301 Kentmere Parkway,
Wilmington, Delaware, or at any adjournments or postponements thereof, as
directed, upon the matters set forth in the Hercules Proxy Statement and upon
such other matters as may properly come before the Annual Meeting.
Signing and dating Hercules's proxy card will have the effect of revoking
any ISP proxy card you signed on an earlier date, and will constitute a
revocation of all previously granted authority to vote for every proposal
included on the ISP proxy card.
(CONTINUED AND TO BE MARKED, DATED AND SIGNED ON REVERSE SIDE)
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
YOUR VOTE IS VERY IMPORTANT!
MARK, SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
[PROXY CARD: FIRST HALF OF REVERSE SIDE]
--------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN PLEASE MARK
THE MANNER DIRECTED HEREIN. IF NO CHOICE IS VOTES AS IN
SPECIFIED AND THE PROXY IS RETURNED WITH THE THIS
STOCKHOLDER'S SIGNATURE(S), THEN THE PROXY WILL BE SAMPLE:
VOTED FOR APPROVAL OF EACH OF PROPOSALS 1 AND 2 AND --------------
AGAINST EACH OF PROPOSALS 3, 4, 5 AND 6, AND IN THE
DISCRETION OF THE PROXIES ON ANY OTHER MATTERS AS
MAY PROPERLY COME BEFORE THE ANNUAL MEETING. /X/
--------------
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. Election of the following director nominees for a three-year term
Nominees are: 1. Thomas L. Gossage
2. Ralph L. MacDonald, Jr.
3. John A. H. Shober
4. Paula A. Sneed
FOR WITHHOLD
/ / / /
Withhold vote only from ______________________________.
2. Ratification of PricewaterhouseCoopers LLP as independent accountants
FOR AGAINST ABSTAIN
/ / / / / /
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSALS 3, 4, 5, 6 AND 7.
3. ISP Director Election Bylaw Amendment
FOR AGAINST ABSTAIN
/ / / / / /
4. ISP Rights Plan Repeal Bylaw Proposal
FOR AGAINST ABSTAIN
/ / / / / /
-2-
5. ISP Section 203 Bylaw Proposal
FOR AGAINST ABSTAIN
/ / / / / /
6. ISP Future Bylaw Amendment Repeal Proposal
FOR
AGAINST ABSTAIN
/ / / / / /
Mark here if your address has changed New Address:
and provide us with your new address in _________________________________
the space provided to the right: / / ________________________________
_________________________________
Mark here if you plan to attend the Annual Meeting: / /
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED PROXY RETURN
ENVELOPE.
Signature(s): Dated: , 2001
----------------------------- --------
Title: ______________________________
IMPORTANT: Please sign exactly as name or names appear on this proxy. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title as such. When
signing as a corporation or a partnership, please sign in the name of the entity
by an authorized person.
PLEASE SIGN THIS PROXY AND RETURN PROMPTLY WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING.
--------------------------------------------------------------------------------
-- FOLD AND DETACH HERE --
-3-
[PROXY CARD: SECOND HALF OF REVERSE SIDE]
[HERCULES LOGO]
--------------------------------------------------------------------------------
VOTE BY TELEPHONE VOTE BY INTERNET
It's fast, convenient and immediate! It's fast, convenient and your vote is
Call Toll-Free on a Touch-Tone Phone. immediately confirmed and posted.
--------------------------------------------------------------------------------
FOLLOW THESE FOUR EASY STEPS: FOLLOW THESE FOUR EASY STEPS:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and proxy card. Statement and proxy card.
2. Call the toll-free number 2. Go to the website
1-800-___-____. Stockholders HTTP://WWW.________
residing outside the United States
can call collect on a touch-tone 3. Enter your Control Number
phone at 1-___-___-____. There is located on your proxy card above
NO CHARGE for this call. your name.
3. Enter your Control Number located 4. Follow the online instructions
on your proxy card above your name. provided.
4. Follow the recorded instructions.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-800-___-____ anytime! Go to HTTP://WWW__________ anytime!
--------------------------------------------------------------------------------
IF YOU ARE VOTING BY TELEPHONE OR INTERNET, THERE
IS NO NEED TO MAIL BACK YOUR PROXY CARD.
THANK YOU FOR VOTING
--------------------------------------------------------------------------------