AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.)
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HERCULES INCORPORATED
(Name of Registrant as Specified in Its Charter)
HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
17 State Street, New York, NY 10004
TIME FOR THE FACTS
June 18, 2003
Fellow Hercules Shareholders:
The Company's preliminary proxy statement and recent letters resort to
unfounded attacks on the Committee and Mr. Heyman as well as misleading,
self-promotional pronouncements concerning Joyce's "accomplishments" at Hercules
and Union Carbide. Unfortunately, Joyce and the majority directors completely
fail to deal with the issues of real importance to Hercules shareholders -
Joyce's record, the future direction of Hercules, and a strategy for enhancing
values for all Hercules shareholders - issues which we have attempted to address
in some detail in our materials.
WE URGE YOU NOT TO BE LED ASTRAY BY JOYCE'S TACTICS AND TO JUDGE FOR
YOURSELF THE ACCURACY OF HIS CLAIMS IN LIGHT OF THE FOLLOWING FACTS.
(1) JOYCE'S CLAIM: The Committee has no plan or strategy as to how to improve
the Company.
FACT: The Committee has a strong and well thought out program for
enhancing shareholder values, as outlined in its June 2nd letter to shareholders
(at pp. 18-19) and Proxy Statement (at pp. 18-19).
In connection with the Committee's program, we would like to make one
additional point. It has been widely reported that since November 2000,
including the last two years under Joyce, the Company has sought to sell itself,
in whole or in part (John Crudele, April 17, 2003, NEW YORK POST, Josh Kosman,
April 10, 2003, THE DAILY DEAL). On the other hand, within less than 90 days of
election to the Hercules Board in June 2001, our minority directors have
consistently advocated "taking the for sale signs down", refinancing the
Company's debt, and FOCUSING ON THE LONG TERM GROWTH OF OUR BUSINESSES. While as
major Hercules shareholders we would always support a sale of the Company at an
attractive price, we have long held the view that it was unlikely that Hercules
could be sold at such a low point in the specialty chemicals cycle at a price
sufficiently attractive to shareholders. As a result, we predicted that the
pursuit of short term strategies and "wild goose chases" by Joyce and his
predecessor would needlessly divert management attention and focus -
jeopardizing the morale of our employees, the value of our business franchises,
and indeed the whole fabric of our Company.
YOU SHOULD KNOW THAT EVEN MAJORITY DIRECTORS HAVE RECENTLY EXPRESSED THE
SAME FRUSTRATION WITH JOYCE'S "WILD GOOSE CHASES" AND THE NEED TO GET BACK TO
BUSINESS. IF ELECTED, THIS WOULD BE OUR FIRST PRIORITY.
(2) JOYCE'S CLAIM: The proxy contest is a referendum on Mr. Heyman and the
Committee in terms of their potential as future leaders of the Company.
FACT: In an effort to divert shareholders' attention from the real issues
at hand, Joyce totally mischaracterizes the role of the Committee and Mr. Heyman
in this proxy contest. Mr. Heyman's role at Hercules is strictly as a major
shareholder, director and catalyst to help Hercules prosper and maximize values
for all Hercules shareholders - and he has no intention of serving in any
executive capacity at the Company.
The Committee's first priority will be to select a new, highly qualified,
full-time, "roll-up-your-sleeves" Chief Executive committed to the turnaround
and long-term growth of the Company's businesses. The principal objective of the
Chief Executive will be to enhance shareholder value, and his compensation will
be designed to closely align his own interests with those of Hercules
shareholders. By making the right selection and establishing comprehensive goals
and objectives, we intend to put an end to the extraordinarily harmful turnover
of six Chief Executives at Hercules in six years - with the Company having been
managed for almost three years now by two INTERIM, "CARETAKER" CEOS, Joyce and
his immediate predecessor.
(3) JOYCE'S CLAIM: Mr. Heyman destroyed values at ISP.
FACT: This claim is false, misleading, and irrelevant.
o We believe that the most relevant analogy to the current Hercules
proxy contest is Mr. Heyman's GAF proxy contest in 1983, in which
Mr. Heyman and a slate of independent nominees, were elected by
the shareholders of GAF, a Fortune 500 company at the time. GAF
shareholders who, by their overwhelming vote, entrusted their
company to Mr. Heyman and the other independent nominees were
vindicated when the company under Mr. Heyman's leadership made a
dramatic turnaround, which BARRON'S, a leading financial
publication, characterized as transforming "one of Wall Street's
ugly ducklings...into a swan" (December 16, 1985). As a result of
his efforts at GAF, Mr. Heyman helped create $1.6 billion of
increased shareholder value (the equivalent of a 715% increase in
GAF's stock price) over GAF's remaining life as a public company.
o While ISP, as a former subsidiary of GAF, did sell a small,
minority position in its stock to the public in the early 90s, and
the stock price fell from $15.50 per share to $10.30, the loss to
public shareholders was about $60 million. This pales in
comparison to the $7.3 billion created by Mr. Heyman and his
companies for the shareholders of five companies in which Mr.
Heyman was either a shareholder activist or potential acquirer.
It is axiomatic that every company with a disappointing stock
price performance is not guilty of "value destruction." For while
ISP's earnings increased over its time as a public company, its
valuation declined principally as a result of the fact that the
company's small public float discouraged
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institutional shareholders from investing in its shares. Unlike
the case of Joyce and his predecessors at Hercules, ISP did not
mismanage the company. For it did not acquire businesses at the
high, sell them at the low, or engage in any of the other
anti-shareholder conduct so typical at Hercules under Joyce and
his predecessor.
o Finally, ISP's response to its disappointing stock price
performance is instructive. With ISP selling at approximately $7
per share last year at this time, the company made an offer to
acquire the remaining public shares for $10 per share, proposing,
in the interest of procedural fairness, that any transaction
require the approval of a majority of the minority shareholders.
After negotiations with an independent committee of the Board, the
acquisition was completed at $10.30 per share - an almost 50%
premium to the market before the offer - with more than 99% of the
minority shareholders voting to approve the transaction. IF ONLY
JOYCE AND THE MAJORITY DIRECTORS WOULD SOLVE THE PROBLEM OF
HERCULES' UNDERPERFORMING STOCK PRICE IN THE SAME WAY!
(4) JOYCE'S CLAIM: He played a "central role" in the creation of more than
$8.2 billion of shareholder value at Union Carbide between 1991 and 1999.
FACT: First, Joyce's record at Union Carbide, as fully set forth in the
Committee's Proxy Statement and June 2nd letter, was disastrous, taking the
company, notwithstanding an investment of $5.2 billion in capital expansions and
acquisitions, from $925 million in net income in 1995 to $162 million in net
income in 2000. Of his leadership at Union Carbide, James Kelleher of Argus
Research observed in a DELAWARE NEWS JOURNAL article (May 17, 2001), "HE DID
VIRTUALLY NOTHING WITH THE COMPANY" (emphasis added). Similarly, in the same
article, Paul Leming, an ING Barings security analyst, had this to say about the
condition of Union Carbide at the conclusion of Joyce's tenure, "THE WHEELS WERE
COMING OFF" (emphasis added).
Second, JOYCE'S CLAIM, IN TYPICAL EXAGGERATED AND MISLEADING FASHION,
OVERSTATES THE CASE BY ALMOST $5.5 BILLION DOLLARS. In doing so, Joyce and the
majority directors FAILED TO DISCLOSE THE FOLLOWING:
(a) Joyce did not become Chief Executive until 1995 and, as only one
of a number of the company's executives, he is not entitled to take credit for
the company's stock price performance prior to that time.
(b) After four years of Joyce's leadership, Union Carbide was in such
desperate condition that the company had little choice but to sell itself to Dow
Chemical. In a BUSINESS WEEK article (Diane Brady, August 16, 1999), Joyce
acknowledged that Union Carbide's poor performance had led to the Dow takeover.
The article went on to observe, "For the team in Danbury, the deal is bound to
be bittersweet. Union Carbide has faced a litany of woes in recent years, from
troubled partnerships in places like Kuwait to delayed plant openings. Joyce
also spent heavily on new facilities, but the payoff eluded his company."
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(c) AT THE TIME OF THE CLOSING, the Dow takeover transaction was worth
$52.52 per share to Union Carbide shareholders. The $66.96 per share value which
the majority director's recent letter refers, assumes the Dow stock price ON THE
DAY PRIOR TO THE ANNOUNCEMENT of the transaction. It is this error, together
with the one referred to in (a) above, that combine to overstate Joyce's claim
by almost $5.5 billion dollars.
(d) For the more than four years that Joyce was Chief Executive prior
to the announcement of the Dow takeover (April 26, 1995 - August 31, 1999),
Union Carbide's stock price lagged the S&P 500 Chemicals Index by more than 28%.
Only as a result of the sale to Dow did Union Carbide outperform the Index over
Joyce's almost six years as CEO -- and then by little more than 22% -- although
the comparison is misleading because it is almost always the case that private
sale values substantially exceed public market values.
(e) Finally, while the sale to Dow was an extraordinarily fortuitous
transaction for Union Carbide shareholders in light of the desperate condition
of the company at the time of the sale and Dow's poor record with the
acquisition since then, unfortunately for Hercules shareholders, Joyce has not
been able to repeat that serendipitous, "rabbit out of the hat" performance at
Hercules.
(5) JOYCE'S CLAIM: When he became Hercules' Chief Executive in May 2001, he
inherited a company that was in a "seriously distressed condition" and viewed by
a number of the Company's creditors as being "near bankruptcy." With the help of
the BetzDearborn sale, without which "the ongoing viability of Hercules would
have been in jeopardy," Joyce has orchestrated a heroic turnaround of the
Company.
FACT:
(a) While Joyce makes this claim today, Hercules' disclosure in an
August 2001 exchange offer made no mention of the Company being in a precarious
position. In point of fact, Hercules was not even close to dire financial
straits when Joyce arrived at the Company in 2001, as Standard & Poor's and
Moody's were rating Hercules' corporate credit BB and Ba2, respectively, the
second highest non-investment grade ratings for those two firms.
Parenthetically, Hercules' ratings have not improved since that time because
while the Company's balance sheet is less leveraged, the sale was substantially
earnings dilutive and the Company no longer has the earnings power of its best
business, BetzDearborn. FINALLY, IN DECEMBER 2001, TWO MAJOR BANKS OFFERED THE
COMPANY ATTRACTIVE REFINANCING PACKAGES.
(b) To our knowledge, none of the analysts quoted in the Hercules'
preliminary proxy statement as expressing affirmative views of the BetzDearborn
sale were aware, at the time of their statements, that the Company had an
attractive refinancing alternative which would have enabled it to avoid selling
Hercules' "CROWN JEWEL."(1)
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(1) Evidence of this fact is demonstrated by the following excerpt from a
February 19, 2002 report written by Gil Yang, a securities analyst at Smith
Barney: "We believe that Hercules could have gotten a higher value for
BetzDearborn in a year. ... However, offsetting the benefit of waiting is THE
COMPANY'S NEED TO REDUCE ITS LIQUIDITY CONCERNS. ... IN THE ABSENCE OF A VIABLE
DEBT RESTRUCTURING PROGRAM, (emphasis added), we feel that sale of BetzDearborn
is reasonable at this time to avoid a time-pressured situation."
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Moreover, Joyce has never disclosed what a home run the BetzDearborn
acquisition has been for GE, including the following:
o The BetzDearborn business at the time of the sale was projected to
register an approximately $50 million increase in EBITDA in 2002 over the
previous year.
o Since the sale to GE, BetzDearborn's performance has substantially
exceeded that of its competitors ("Water Treatment," CHEMICAL WEEK, May
21, 2003).
o According to top GE executives, the BetzDearborn acquisition has proven
to be an extraordinarily advantageous one for GE.
(6) JOYCE'S CLAIM: He has an "ability to substantially grow businesses," and
that he has done so at Hercules as a result of improved cash flow and strong
capital and R&D programs.
FACT:
(a) There is nothing in Joyce's record at either Hercules or Union
Carbide that provides the slightest evidence of an ability to grow businesses.
In two years at Hercules (2001-2002), revenue growth has only been 2.5% - less
than one-half of the 5.7% weighted average sales growth for the Company's
specialty chemicals peers (as measured by the eight specialty chemicals
companies in the S&P MidCap Specialty Chemicals Index), while its returns on
assets and sales (excluding goodwill writedowns) were only approximately 50% and
70%, respectively, of the returns for the same eight companies. By way of
update, Hercules' performance in the first quarter of 2003 continued to lag the
average performance of the eight Index companies with respect to all three
metrics. In a recent report (May 9, 2003) by David Begleiter, a security analyst
at Deutsche Bank, Hercules was ranked last among 16 specialty chemicals
companies with projected yields on invested capital of 3.9% in 2003 and 3.8% in
2004. In terms of estimated growth in operating profits for 2004, Hercules was
ranked second from last.
With regard to Joyce's efforts to grow Union Carbide during his five
years as that Company's Chief Executive, they were nothing short of disastrous
as detailed in the Committee's Proxy Statement and June 2nd letter to
shareholders.
(b) Hercules has registered steadily worsening negative cash flow from
continuing operations since Joyce came to the Company. Net cash flow from
continued operations, even excluding capital expenditures, was ($32) million in
2000, ($100) million in 2001 and ($217) million in 2002. Even adjusting for
payment of a one-time tax on a previous capital gain, negative cash flow in 2002
would have been ($109) million.
(c) The Company has significantly reduced capital expenditures for its
ongoing businesses from $119 million in 2000 to $49 million in 2001 and $43
million in 2002. This prompted Andrew Cash, a security analyst at UBS Warburg,
after predicting that 2003 will be the third consecutive year in which capital
spending is below depreciation, to recently observe, "... investors need to be
aware that capital spending cannot remain this low into
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perpetuity, i.e., equipment ages, new capital must be invested into the business
to allow for growth, etc" (May 2, 2003).
(d) Under Joyce's management, Hercules' R&D effort has atrophied. In
2002, for example, the Company's R&D expenditures were approximately 2.5% of
sales - off 17% from 2001 levels - which is particularly low in our view for a
high-margin specialty chemicals company with two primary, potentially
high-growth businesses. As a result of Hercules' abnormally low R&D expenditures
under Joyce, and we might add under his immediate predecessor, the Company's
current sales as a result of new product introductions over the last several
years have been negligible.
(7) JOYCE'S CLAIM: Joyce implies that there is something irregular about
ISP's payment of a $35,000 fee, and providing an indemnification against legal
liability, to the Committee's director-nominees.
FACT: With regard to director-nominees who challenge incumbent management
in a proxy contest, this is standard operating procedure and will not cost
shareholders a penny. By contrast, Joyce is spending millions of dollars of
shareholders' money in an attempt to entrench himself in office.
Parenthetically, although the Committee has the legal right to request approval
from Hercules shareholders for reimbursement of its proxy expenses should the
Committee prevail, and many proxy contestants have done so, we have VOLUNTARILY
CHOSEN NOT TO SEEK REIMBURSEMENT AS WAS THE CASE WITH REGARD TO THE 2001 PROXY
CONTEST AS WELL.
(8) JOYCE'S CLAIM: With regard to the Committee's contention that the Company
"thumbed their noses" at Hercules shareholders only days after the tabulation of
the vote by choosing Paula Sneed, an incumbent director who had been defeated in
the 2001 Hercules proxy contest, to fill an existing Board opening, the
Committee failed to disclose that the minority directors themselves supported
Sneed to fill the opening.
FACT: The minority directors went along with management's nomination of
Sneed - but only pursuant to an agreement with Joyce and the majority directors
permitting the seating of our nominee, Gloria Schaffer, who had received the
votes of a majority of those voting but not a majority of the outstanding
Hercules shares. In the interests of avoiding a court fight as to the validity
of Hercules' director election Bylaw and seating our fourth minority director,
whom we believe was properly elected by the Company shareholders, the minority
directors believe that it was a reasonable trade-off to permit Joyce and his
majority directors to select whom they preferred for the Board opening.
(9) JOYCE'S CLAIM: The Company's election Bylaw is not only lawful but is
fair and in the interests of shareholders.(2)
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(2) The Company's citation of a Maryland case is without merit. In the
Maryland case, the court upheld an UNAMBIGUOUS Bylaw, while the Hercules Bylaw
is AMBIGUOUS. Finally, the Company's reference to the fact that "the same vote
requirement is the standard under Delaware law in connection with similar
NON-ORDINARY COURSE EVENTS," (emphasis added) is misleading because the election
of directors is a widely recognized ANNUAL, ORDINARY COURSE EVENT.
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FACT: Putting aside the question as to whether Hercules' interpretation
of its Bylaw could withstand a court challenge, who could possibly argue AS A
MATTER OF FAIRNESS, that if, for example, each Committee nominee receives 50
million votes and each of the Company's nominees receives only 10 million votes,
that the incumbent directors should be permitted to retain their Board seats
because the Committee's nominees had not received a majority of the
approximately 108 million of outstanding shares of Hercules stock!
Joyce and his majority directors (at p. 11, Company's preliminary proxy
statement) now acknowledge for the first time the full implication of their
position - asserting that if the Committee's nominees win a majority of the
votes cast, but not a majority of the outstanding shares, Hercules' "lame duck"
directors, rather than the Company's nominees, will retain their seats. This
outrageous contention permits the Company to run in effect two alternative
slates of nominees and treat shareholders who choose not to vote as having voted
to retain the "lame duck" directors. Should the Committee's nominees win a
majority of the votes cast, but not a majority of the outstanding shares, we ask
you to consider the potential ramifications. THE "LAME DUCK" DIRECTORS COULD
RESIGN AT THE CONCLUSION OF THE PROXY CONTEST, AND THE CURRENT COMPANY NOMINEES,
WHO MAY HAVE BEEN SOUNDLY BEATEN, COULD BE APPOINTED BY THE BOARD THE NEXT DAY
-- ALL WITHOUT SHAREHOLDER APPROVAL.
ASK YOURSELF: DOES THIS ACCORD WITH YOUR CONCEPT OF FAIRNESS AND WHAT DO
YOU THINK OF THE CREDIBILITY OF JOYCE AND THE MAJORITY DIRECTORS WHEN THEY
CONTEND WITH A STRAIGHT FACE THAT THE PROCEDURE THEY HAVE GERRYMANDERED IS
PERFECTLY FAIR AND IN THE INTERESTS OF HERCULES SHAREHOLDERS?
(10) JOYCE'S CLAIM: The Committee and Mr. Heyman are seeking to acquire
control of the Company without paying Hercules shareholders a control premium.
FACT: Neither the Committee nor Mr. Heyman is seeking to acquire Hercules
nor have they ever sought to do so. As businesspeople and professionals with
extensive executive and managerial experience, but with no interest in executive
positions for themselves at Hercules, and as shareholders with an investment of
more than $140 million in the Company's shares, we are committed to a program
designed to bring about the maximum realization of Hercules' underlying values
for the benefit of all shareholders.
CONTRARY TO THE APPARENT BELIEF OF JOYCE AND THE MAJORITY DIRECTORS, IF
THIS PROXY CONTEST IS AT ALL ABOUT CONTROL, IT IS ABOUT RETURNING CONTROL OF THE
COMPANY TO ITS SHAREHOLDERS. FOR WHO OWNS HERCULES? - ITS ALMOST 50,000
SHAREHOLDERS WHO HAVE PUT UP THEIR MONEY AND TAKEN THE RISK? - OR JOYCE, WHO HAS
NEVER PURCHASED A SHARE OF HERCULES STOCK, AND THE MAJORITY DIRECTORS WHO IN OUR
VIEW HAVE EXHIBITED A CALLOUS DISREGARD FOR THE BEST INTERESTS OF HERCULES
SHAREHOLDERS AND APPEAR MORE INTERESTED IN POSITIONS, PARACHUTES, AND PERKS?
WE ARE COMMITTED TO THE RETURN OF CONTROL OF THE COMPANY TO ITS
SHAREHOLDERS AND, IF ELECTED, WE WILL DISMANTLE THE ARSENAL OF ANTI-TAKEOVER,
ANTI-SHAREHOLDER DEVICES WHICH HAVE BEEN ERECTED BY HERCULES MANAGEMENT AND ITS
DIRECTORS OVER THE YEARS. IN ORDER TO ENSURE THAT FUTURE HERCULES DIRECTORS ARE
RESPONSIVE TO THE INTERESTS OF THE
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COMPANY'S SHAREHOLDERS, WE PLEDGE THAT ONE OF OUR FIRST ACTIONS WILL BE TO
ELIMINATE THE STAGGERED BOARD SO THAT THE ENTIRE HERCULES BOARD CAN BE HELD
ACCOUNTABLE TO THE COMPANY'S SHAREHOLDERS ON AN ANNUAL BASIS.
When will Joyce and the majority directors address the real issues
regarding Joyce's record, the future direction of Hercules, and a strategy for
maximizing values for all Hercules shareholders -- instead of attempting to
divert your attention with FALSE AND MISLEADING ATTACKS AND SELF-PROMOTIONAL
PROPAGANDA?
IF YOU ARE AS FED UP AS WE ARE WITH JOYCE AND THE MAJORITY DIRECTORS AND
BELIEVE THAT IT IS TIME FOR A CHANGE AT HERCULES - PLEASE SIGN, DATE, AND RETURN
OUR WHITE PROXY CARD - TODAY!
We are sincerely appreciative of the expressions of support our
Committee's nominees have received to date.
Sincerely,
THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
/s/ Samuel J. Heyman /s/ Harry Fields /s/ Anthony T. Kronman /s/ Sunil Kumar
-------------------- ---------------- ---------------------- ----------------
Samuel J. Heyman Harry Fields Anthony T. Kronman Sunil Kumar
/s/ Gloria Schaffer /s/ Vincent Tese /s/ Raymond S. Troubh /s/ Gerald Tsai, Jr.
------------------- ---------------- --------------------- --------------------
Gloria Schaffer Vincent Tese Raymond S. Troubh Gerald Tsai, Jr.
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IMPORTANT
PLEASE RETURN YOUR WHITE PROXY CARD AND DO NOT RETURN ANY
OF THE COMPANY'S GOLD PROXY CARDS, EVEN AS A PROTEST VOTE AGAINST
HERCULES. ONLY YOUR LATEST DATED, SIGNED PROXY CARD WILL BE
COUNTED, AND ANY GOLD PROXY CARD YOU SIGN FOR ANY REASON COULD
INVALIDATE PREVIOUS WHITE PROXY CARDS SENT BY YOU TO SUPPORT THE
COMMITTEE.
Your vote is important. If you have any questions or need
assistance in voting your shares, please call:
GEORGESON SHAREHOLDER COMMUNICATIONS INC.
17 State Street, 10th Floor
New York, New York 10004
(866) 288-2190 (Toll Free)
Banks and Brokerage Firms please call:
(212) 440-9800
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Note: Permission to use above-cited materials was neither sought nor obtained.
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