UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
SCHEDULE 14A
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HERCULES INCORPORATED
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July 1, 2003 Dear Hercules Employees and Retirees: Over the past two years, the
people of Hercules have done an outstanding job in improving the Company. It
is unfortunate that, despite this achievement, dissident Board director Sam
Heyman is waging another proxy contest this year through what he calls the “Hercules
Shareholders’ Committee for New Management.” In his effort to gain control of the Board and Hercules, Heyman is attacking
what all of us have accomplished. When Heyman derides and attacks Hercules, he
also hurts employees. As we said in our Proxy Statement,
“. . . the efforts and progress of the people of Hercules over the last
two years have simply been outstanding.” Heyman wants to gain control of Hercules by soliciting proxies in support of
his four nominees whom he is paying and agreeing to indemnify to run in this
year’s election. If elected, these nominees, together with the four Heyman
directors elected in 2001, would constitute a majority of the Board, giving
Heyman control of Hercules. That is why I am writing to you directly to stress the importance of our
winning this contest for you and for Hercules. We have a sound plan for the
future and together we will continue to improve and grow the Company. Our business continues to
improve at a strong and sustainable rate, as evidenced in our first quarter
2003 performance—which followed significant improvement in 2002. Growth
in sales and operating profits from our ongoing businesses has far outpaced
the average performance of our chemical industry peers. In addition, new product introductions are very strong, with key innovations
in Pulp and Paper, Aqualon and FiberVisions. We have re-established
a strong foundation to grow, improve and add value to the Company—and we
cannot let Heyman stop this momentum.
While many of the issues related to Heyman’s contest are outlined in our
proxy statement and letters to shareholders, I would like to discuss a few
important issues that directly impact you, your dependents, and your future. First, I will address the recent increases in medical costs for employees
and retirees. I am not happy about having employees and retirees pay an
increased share of their medical costs this year. But, as you know, Hercules
offers a comprehensive health care program to meet the needs of employees and
retirees, and the cost of the program continues to rise. In fact, it is
estimated that health care costs are expected to increase six times the
inflation rate for 2003. In order to continue to offer this essential program, we had to take
measures to manage our costs. Our competitors are facing similar rising costs
and have also moved to increase cost sharing. Another issue for the Company is the challenge we face as a result of the
poor performance of the stock market in the last few years and the adverse
effect it has had on our pension portfolio. I can assure you
that the pension plan is one of our top priorities and must be safeguarded. Heyman has attacked the performance and management of our pension plan
assets. The facts are: While Heyman attacks Hercules’ performance, he fails to tell you what he has
done at his company, International Specialty Products (ISP), about health and
pension benefits for his employees and retirees. As described in ISP’s
2002 annual report, ISP employees receive between $50 and $750 per year (the
equivalent of $4.17 to $62.50 per month) in their
Hercules’ actuary estimates that, based on reasonable actuarial assumptions and
current commercial rates, an ISP employee with a spouse, retiring at age 60
after working for ISP for 30 years, will only have sufficient pre-tax funds to
pay for two years of health care premiums. In contrast, Hercules
today provides pre-Medicare eligible retirees access to the Company’s medical
plan and subsidizes approximately 50% to 70% of the cost, or between $225
to $275 per month per person, even after recently announced adjustments
to contain escalating health care costs. Hercules subsidizes a similar percentage
of the costs for Medicare-eligible retirees. Hercules employees and retirees also enjoy a defined benefit pension plan
that helps to provide a decent standard of living in retirement. This plan is
comparable to an average of 12% of pay contribution to a 401(k) plan for our
current employees. In addition, we match employee contributions to the 401(k)
plan at the rate of 50% of employee contributions up to 6% of pay, or a Company
contribution of up to 3%. On the other hand, for
the majority of its employees, ISP no longer offers a defined benefit pension
plan; it only provides a 401(k) plan with contributions of up to 7% of salary.1 Hercules’ combined contributions to its pension and 401(k) plans, on
average, are more than twice the value of ISP's contributions. You should ask yourself
if Heyman's track record at ISP shows any real commitment to the health and
welfare of employees and retirees. Compare that to Hercules’ commitment to you. We have excellent medical and
retirement plans and have made significant efforts to protect your pensions. In
2002, we contributed $97 million to our pension funds and will further improve
pension funding by contributing approximately $40 million each year over the
next six to seven years. Although we are not
legally required to make contributions to the pension funds at this time, we
think it is the right thing to do, as well as prudent business practice. We
were able to make these contributions and will be able to contribute more in
the future only because of the turnaround of Hercules—thanks to the hard
work of its people. I thought you would be interested in the enclosed letter2 from former
Hercules Chairman Werner Brown, who also recognizes the part employees have
played in rejuvenating the Company.
It is important that
Heyman not be allowed to succeed in his efforts to gain
control of Hercules and stop the progress that has been made. I am confident you can determine for yourself whether Sam Heyman is looking
out for his own interests or whether he is concerned with your welfare and that
of Hercules. I thank you for your continued dedication and loyalty to Hercules and ask
that you show that support by voting for Hercules’ four excellent nominees on
the GOLD proxy card.
Enclosure 105 Madison Avenue
WERNER BROWN Dear Bill: Your May 19th letter to Hercules shareholders was most heartening. Over recent
months I've spoken with a number of active as well as recently retired company
officials, also with money managers and analysts. I've also read numerous
financial reports regarding Hercules. And as a result I'm thoroughly convinced
that the Company is well on the road to complete financial recovery. Having spent an adult lifetime in many supervisory roles within the organization
I know exactly what it takes to formulate good strategy and instill inspiration
and drive to a family of loyal employees. It takes superior management. And
that's something that has been missing for a number of years. But, thank God,
you and your team have brought it back. Congratulations!
•
our pension plan was self-funding and had a surplus
from 1986 through 2001;
•
our pension asset allocation is reviewed by outside pension
consultants and is consistent with the vast majority of U.S. corporations;
and
•
our U.S. pension fund is managed by outside specialists and
has outperformed the benchmarks for comparable portfolios over the 1, 2,
3, 5 and 10 year periods ended December 31, 2002.
401(k) towards post-retirement medical coverage. Upon retirement, they must
secure medical coverage on their own. This level of contribution, even over
many years, would only buy limited coverage and would be subject to taxation
upon withdrawal. For example,
1
This information was obtained from ISP's website, www.ispcorp.com
2
The letter from Werner Brown dated May 28, 2003 was received by the Company
on
an unsolicited basis. It is being disseminated with his permission.
Sincerely,
William H. Joyce
Chairman and Chief Executive Officer
If you have any questions about our proxy solicitation
or need additional information about the Hercules shareholder meeting,
please call MacKenzie
Partners, Inc. at the phone numbers listed below.
New York, NY 10016
proxy@mackenziepartners.com
(212) 929-5500 (call collect)
or
TOLL FREE (800) 322-2885
May 28, 2003
Sincerely,
Werner Brown