AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON APRIL 7, 2003
==============================================================================
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. 1)
Filed by the Registrant [ ]
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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)
Hercules Shareholders' Committee for New Management
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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
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2
REVISED PRELIMINARY COPY - SUBJECT TO COMPLETION
PROXY STATEMENT OF
THE HERCULES SHAREHOLDERS'
COMMITTEE FOR NEW MANAGEMENT
________________________
ANNUAL MEETING OF SHAREHOLDERS
OF
HERCULES INCORPORATED
TO BE HELD ON [___________], 2003
________________________
We are the Hercules Shareholders' Committee for New Management (the
"Committee"). The Committee consists of (i) International Specialty Products
Inc., a Delaware corporation ("ISP") and the second largest shareholder of
Hercules Incorporated, a Delaware corporation ("Hercules" or the "Company"),
(ii) Samuel J. Heyman, Sunil Kumar, Gloria Schaffer and Raymond S. Troubh, four
members of the Company's Board of Directors who were elected at the Hercules'
2001 Annual Meeting of Shareholders (collectively, the "minority directors") and
(iii) Harry Fields, Anthony Kronman, Vincent Tese and Gerald Tsai, Jr., the
Committee's nominees to the Board of Directors.
This solicitation is being conducted by the Committee and is being
funded by ISP. This proxy statement and the enclosed WHITE proxy card are being
furnished by the Committee to holders of shares of common stock of Hercules,
$25/48 stated value per share (the "Shares" or the "Common Stock"), in
connection with the solicitation of proxies to elect four nominees to the Board
of Directors of Hercules (the "Board of Directors") at Hercules' 2003 Annual
Meeting of Shareholders, and at any and all adjournments, postponements,
continuations or reschedulings thereof (the "2003 Annual Meeting").
According to the preliminary proxy statement filed by Hercules (the
"Management Preliminary Proxy Statement") with the Securities and Exchange
Commission on [________], 2003, the 2003 Annual Meeting will be held on [_____],
2003 at [_______] a.m., local time, at [_____________], and the record date for
determining shareholders entitled to notice of and to vote at the 2003 Annual
Meeting is [_____], 2003 (the "Record Date").
According to the Management Preliminary Proxy Statement, at the 2003
Annual Meeting, four members of the Board of Directors will be elected for
three-year terms expiring at the 2006 Annual Meeting of Shareholders (the
"2006 Annual Meeting"). In opposition to the solicitation of proxies by the
Board of Directors, the Committee is proposing and soliciting proxies in
support of a slate of four nominees for the Board of Directors to stand for
election to the Board of Directors. We are soliciting your proxy to vote at
the 2003 Annual Meeting for the election of our nominees, Harry Fields,
Anthony Kronman, Vincent Tese and Gerald Tsai, Jr. (collectively, the
"Nominees") as directors of Hercules in the class with a three-year term
continuing until the 2006 Annual Meeting and until their successors are duly
elected and qualified.
1
THIS SOLICITATION IS BEING MADE BY THE COMMITTEE AND NOT BY OR ON
BEHALF OF THE BOARD OF DIRECTORS OF HERCULES.
As discussed in more detail under the heading "QUORUM AND VOTING" in
this proxy statement, shareholders who vote on the WHITE proxy card furnished by
the Committee will be able to vote for the election of the four Nominees. The
Nominees, if elected, together with the minority directors who were nominated by
ISP in 2001 and became directors of the Company following the 2001 Annual
Meeting of Shareholders (the "2001 Annual Meeting"), will constitute a majority
of the members of the Board of Directors and, since the Company's by-laws
provide that action by the Board of Directors requires a majority vote of the
directors present at a meeting at which a quorum is present, the four Nominees,
together with the minority directors, would be able to cause any action to be
taken or not taken by the Board of Directors.
ISP may be deemed (solely for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) to beneficially own (as
defined in Rule 13d-3 of the Exchange Act) 9,893,700 Shares of Common Stock,
representing approximately 9.1% of the outstanding Shares. Samuel J. Heyman, the
Chairman of the Board of ISP and a director of the Company, may be deemed
(solely for purposes of Rule 13d-3 of the Exchange Act) to beneficially own (as
defined in Rule 13d-3 of the Exchange Act) 100% of the outstanding shares of
common stock of ISP.
This proxy statement and the enclosed WHITE proxy card are first being
furnished to shareholders on or about [_____], 2003.
WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD IN
FAVOR OF THE ELECTION OF OUR NOMINEES DESCRIBED IN THIS PROXY STATEMENT.
YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS VERY IMPORTANT, NO MATTER
HOW MANY OR HOW FEW SHARES YOU OWN. PLEASE SIGN AND DATE THE ENCLOSED WHITE
PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY.
PROPERLY VOTING THE ENCLOSED WHITE PROXY CARD WILL REVOKE ANY PROXY PREVIOUSLY
SIGNED BY YOU.
PLEASE DO NOT RETURN ANY [COLOR] PROXY CARD SENT TO YOU BY HERCULES.
Even if you may have voted on Hercules' [color] proxy card, you can easily
change your vote and revoke that proxy by signing, dating and returning the
enclosed WHITE proxy card. ONLY YOUR LATEST DATED PROXY WILL COUNT AT THE 2003
ANNUAL MEETING.
If you have any questions or need any assistance in voting your Shares,
please call the firm assisting us in the solicitation of proxies:
2
GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 State Street
New York, New York 10004
Call Toll-Free: (866) 288-2190
3
BACKGROUND
By way of background, we have been major Hercules shareholders for
almost three years. As a result of our dissatisfaction with the Hercules Board
and management, ISP waged a proxy contest at the Company's 2001 Annual Meeting,
at which Hercules shareholders elected ISP's four nominees to seats on the
Hercules Board. The minority directors have endeavored to work with Hercules
management and the remaining incumbent directors. Our efforts, however, have
been frustrated by management and the Board's majority directors, who, voting in
lockstep, have rebuffed our almost every initiative.1
Although we continued to be sharply critical of the majority directors
and management for their conduct of the Company's affairs, which in our view has
contributed to the destruction of shareholder values at the Company, primarily
in order to provide the Company with one last opportunity to do the right thing
for shareholders, we decided not to wage a proxy contest for control of the
Board at the 2002 Annual Meeting. At the Annual Meeting last June, the minority
directors issued the following statement: "Hercules' majority directors and
management still have the opportunity to right themselves and maximize the
potential of the Company and its operating businesses, but they cannot do so
without promptly and fully addressing the issues [we have] outlined. We urge
them to accept that challenge."
Unfortunately, that challenge continues to go unheeded, and we have
decided to wage a proxy contest this year for the four seats up for election,
because in our view there is no other way in which to help maximize shareholder
values for all Hercules shareholders. The Hercules Shareholders' Committee for
New Management includes our four current Hercules directors ("minority
directors") and four additional director nominees for this year's Annual
Meeting. Our directors and nominees represent the interests of all Hercules
shareholders, including those of the Company's second largest shareholder,
International Specialty Products Inc., which owns almost 10 million shares of
Hercules stock and has an investment in Hercules of more than $140 million.2
In contrast, the four Hercules incumbent directors running for
reelection this year own in the aggregate only slightly more than 50,000 shares.
You should know that Dr. Joyce, Hercules' Chief Executive, owns 157,230 shares,
156,330 of which were given to him in connection with the Company's bonus
program and 900 of which were given to him in the form of a matching grant in
connection with the Company's 401k program. To our knowledge, Dr. Joyce has not
purchased a single share of Hercules stock for full value since he came to the
Company.
As one of Hercules' major shareholders, our interests are clearly
aligned with yours, and we are committed to maximize value for all Hercules
shareholders as we have invested our own money in Hercules as you have.
--------
1 You should know that our experience prompted us prior to the
2002 Annual Meeting to propose - a proposal which was rebuffed -
that if Dr. Joyce and his majority directors agreed to elect a
new Chairman and CEO, acceptable to both majority and minority
directors, we would abandon consideration of a proxy contest to
acquire control of the Hercules Board at the 2002 Annual
Meeting.
2 ISP's investment is measured at cost.
4
The Hercules Shareholders' Committee for New Management
The Committee's Four Current Hercules Directors
The four minority directors who were ISP's nominees at the 2001 Annual
Meeting are:
Gloria Schaffer - Mrs. Schaffer has had a distinguished career in
Government service, having held major positions in Connecticut, including
Secretary of State, Commissioner of the Department of Consumer Protection, and
State Senator for six terms. Ms. Schaffer was also a Member of the Federal Civil
Aeronautics Board and has served as a Board member of several public and private
companies.
Raymond S. Troubh - Mr. Troubh has had broad financial experience,
including as a General Partner of Lazard Freres & Co. Mr. Troubh has served as
a Governor of the American Stock Exchange and as a Board member of Time Warner,
Inc., Becton, Dickinson and Company, and Starwood Hotels & Resorts, Inc., among
others. Mr. Troubh currently serves as the Non-executive Chairman of Enron
Corp., having joined that company's Board in the wake of its financial problems
last year. Mr. Troubh also currently serves as a director of Diamond Offshore
Drilling, Inc. and Gentiva Health Services, Inc., among others.
Sunil Kumar - Mr. Kumar was Executive Vice President of
Bridgestone-Firestone, heading up that company's $3 billion national retail
store operations. Mr. Kumar served for three years as President and Chief
Operating Officer of Building Materials Corporation of America, the nation's
leading manufacturer of residential and commercial roofing. During this period,
BMCA increased its sales and operating income by approximately 60%. Mr. Kumar
has been Chief Executive of ISP, an international specialty chemicals company,
since June 1999.
Samuel J. Heyman - Mr. Heyman began his career as a lawyer in the
United States Justice Department under Robert F. Kennedy and later served as
Chief Assistant United States Attorney, District of Connecticut (New Haven
Division). In 1968, Mr. Heyman left Government service to run Heyman Properties,
a small but growing family business, which he expanded into a successful,
national real estate development company.
In 1983, Mr. Heyman and a slate of nominees representing shareholder
interests waged a successful proxy contest for control of GAF, in what Barron's
a leading financial publication, characterized as "one of the most striking
achievements in the annals of corporate finance." (Aug. 8, 1983). Mr. Heyman
served as GAF's Chairman and Chief Executive Officer (1983-2000) and is
currently the Chairman of ISP, a leading international specialty chemicals
company. Hercules shareholders should know that Mr. Heyman has been involved as
a shareholder activist or potential acquirer with respect to five public
companies, helping to create more than $7 billion of increased wealth for
shareholders of those companies, as illustrated below:3
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3 There is, of course, no assurance that either the efforts of the
Committee or Mr. Heyman will result in similar benefits for
Hercules shareholders.
5
Realized Value
Time per Share for
Period Initial all Subject Stockholder
(initial purchase - value Cost Company Percentage Value Created
Company realization) Per Share Shareholders4 Increase (rounded)
----------------------- ------------------------------- --------------- ---------------- ------------- ---------------
GAF 1981-1989 $ 6.50 $53.00 715% $ 1.6 billion
Union Carbide 1984-1985 $43.63 $85.00 95% $ 2.9 billion
Borg-Warner 1986-1987 $29.15 $48.50 66% $ 1.7 billion
Dexter 1998-2000 $25.18 $62.50 148% $ .9 billion
Life Technologies 1998-2000 $35.80 $60.00 68% $ .2 billion
---------------
Total Shareholder Value Created: $ 7.3 billion
===============
The Committee's Four Director-Nominees
Harry Fields - Mr. Fields served as an executive for more than forty
years at International Flavors and Fragrances Inc., where he served as
President of the International Flavor Division and as a member of its Board of
Directors. He currently is President of Fields Associates, Ltd., a company
specializing in joint ventures between U.S. and foreign companies, and served
as a director of OPTA Food Ingredients, Inc.
Anthony T. Kronman - Mr. Kronman is currently Dean of Yale Law School.
Mr. Kronman became a director of Adelphia Communications Corporation after its
filing of a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code.
Vincent Tese - Mr. Tese has had a distinguished career in Government
service, having held such prominent positions as New York State Superintendent
of Banks, Director of Economic Development for the State of New York, and
Chairman and Chief Executive Officer of the Urban Development Corporation. Mr.
Tese is currently the Chairman of Wireless Cable International Inc. and is a
member of the Board of Directors of Bear Stearns Companies Inc., Bowne & Co.,
Inc., Cablevision Systems Corp. and Mack-Cali Realty Corp., among others.
Gerald Tsai, Jr. - Mr. Tsai was Chairman and Chief Executive Officer
of Primerica Corporation, a diversified financial services company, and served
as Chairman of the Board, President and Chief Executive Officer of Delta Life
Corporation, a life insurance and annuity company. Mr. Tsai currently serves as
a member of the Board of Directors of Sequa Corporation, Zenith National
Insurance Corporation, Triarc Companies, Inc., and United Rentals, Inc., among
others.
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4 GAF was acquired by Mr. Heyman and a management group in 1989 at
$53 per share. Union Carbide implemented a recapitalization of
its own in response to GAF's premium bid for the Company that
resulted in a market value immediately thereafter of $85 per
share. Borg Warner, Dexter and Life Technologies were acquired
by third parties after GAF or ISP made premium offers for those
companies.
6
Additional information regarding the nominees is contained in this
proxy statement under the heading "THE NOMINEES."
REASONS FOR OUR SOLICITATION
Under Dr. Joyce's management, the Company's financial and stock price
performance have been in our opinion disastrous. Moreover, we believe that
Hercules has been a case study in the failure of corporate governance. In
addition, we believe that Dr. Joyce and the Hercules Board were responsible for
selling the Company's best business at the worst possible time and that
management's poor business judgment was in no small measure responsible for the
Company's almost $570 million pension fiasco.
The Committee's four director-nominees, if elected, will, when combined
with our four minority directors, constitute a majority of the Board and will be
in a position to not only avoid the mistakes of the past but cause the Hercules
Board to take positive actions designed to increase shareholder value, such as:
o Focus on the "hands-on" management of Hercules' businesses and
successful, bottom-line operating and growth strategies, both short and
long term, and strengthen the Hercules management team. We intend to
elect a new, highly qualified, full-time, "roll up your sleeves" Chief
Executive committed to the turnaround of the Company's businesses, who
will reside in the Wilmington area and whose compensation will be
designed to closely align his or her interests with those of Hercules
shareholders. Finally, we will devote high-level attention to not only
the turnaround of Hercules' operating businesses but also the
management of the Company's critical, non-operating issues, such as the
minimization of its pension exposure.
o Remove or substantially modify the Company's poison pill, which
prevented Hercules shareholders, in October 2000, from accepting ISP's
$17.50 per share offer for 25 million shares - thereby costing Hercules
shareholders more than $200 million.5
o Recommend that shareholders remove a Hercules election Bylaw, which the
Company claims requires the affirmative vote of the holders of a
majority of all outstanding shares for the election of directors (the
"Bylaw Vote Provision"). As further detailed in the Section below
captioned "DR. JOYCE AND THE HERCULES BOARD REFUSE TO NULLIFY A COMPANY
BYLAW THAT DISENFRANCHISES ITS SHAREHOLDERS", the Bylaw Vote Provision,
in the Committee's view, disenfranchises shareholders, is highly
unusual (virtually all companies provide for a plurality vote in the
election of directors), and is inconsistent with good corporate
governance. Moreover, the Committee believes that the Bylaw Vote
Provision can have the effect of entrenching the current Board of
Directors, because if no nominee receives a majority vote of the
outstanding Shares, the incumbent directors would remain in place as
"holdover" directors.
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5 Cost to Hercules shareholders calculated on the basis of $17.50
per share less the Company's stock price of $9.10 per share, as
of April 3, 2003
7
THE COMPANY'S PERFORMANCE IN OUR OPINION
HAS GONE FROM BAD TO WORSE UNDER DR. JOYCE
When measured by virtually any financial yardstick, the Company's
record in recent years under Dr. Joyce and his predecessors, has, in our
opinion, been disastrous.
Consider the Following:
o After reaching a high of $66.25 on March 19, 1996, Hercules' stock
price has lost more than 85% of its value, wiping out more than $6
billion in shareholder value. Since Dr. Joyce was named Chief Executive
on May 8, 2001, the price of Hercules stock (which has paid no
dividends since that time), as of April 3, 2003, had lost almost 25% of
its value, while the S&P MidCap Specialty Chemicals Index increased by
3.8% (including dividends) over the same period of time.6
o Hercules' financial performance has in our opinion gone from bad to
worse under Dr. Joyce, prompting a financial columnist (Christopher
Byron, February 17, 2003, New York Post) to characterize Hercules as
"spewing red ink in all directions". Under Dr. Joyce, the Company has
been unprofitable in 5 out of the last 6 reported quarters, registering
almost $320 million in after-tax losses (even excluding a $368 million
write-down of "goodwill"). For the 6 full reported quarters since Dr.
Joyce became CEO, even adjusting for almost $385 million in net,
after-tax, "non-recurring" charges, the Company has managed to register
only $64 million in "pro forma" earnings -- or little more than an
average of $0.39 per share per annum.
o Dr. Joyce, operating as his own Chief Financial Officer, has become in
our opinion the master of the one-time, "non-recurring" charge, taking
substantial "non-recurring" charges in all 6 full reported quarters
since he came to Hercules -- and doing so in a manner which implies
that these charges or "adjustments" are one-time items.
o Even after adjusting for "one-time" charges and goodwill amortization,
Hercules' financial performance has been extremely disappointing, with
2002 earnings being only slightly more than 50% of the results for 2000
(the last full year prior to Dr. Joyce's arrival at Hercules). Pro
forma earnings per share for 2000-2002 have been as follows:7
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6 On May 8, 2001, the day Dr. Joyce was elected Chief Executive
Officer, Hercules shares closed on the New York Stock Exchange
at $12 per share.
We believe that the S&P MidCap Specialty Chemicals Index,
which consists of 8 specialty chemicals companies with a mean
market capitalization of $1.16 billion, is the most relevant
index, although it should be noted that Hercules, starting
more than 20 years ago when it was a completely different and
much larger company, has been listed in the S&P 500 Chemicals
Index. We do not believe that that index, which is comprised
of 14 companies, with Hercules being by far the smallest, and
includes Dupont and Dow and other companies with a mean market
capitalization of $8.94 billion, is an appropriate reference
point with regard to Hercules' performance. Incidentally,
Hercules' stock price has substantially underperformed even
the S&P 500 Chemicals Index over the relevant time frame.
7 The 2000 pro forma earnings per share includes earnings and
related interest expenses for the BetzDearborn business and
excludes goodwill amortization consistent with the Company's pro
forma earnings for 2001 and 2002. The pro forma 2001 and 2002
earnings per share exclude the earnings and related interest
expenses for the BetzDearborn business which was sold.
8
2000 $1.12
2001 $0.04
2002 $0.63
o Moreover, Hercules' financial performance (again even after adjustment
for non-recurring charges and on a pro forma basis) continues to lag
the specialty chemicals industry (as measured by 8 companies in the S&P
MidCap Specialty Chemicals Index). In 2002, for example, Hercules
revenue growth was only 2.5% compared with 5.7% for the weighted
average of companies in the Index, while its return on assets and sales
were only approximately 50% and 70%, respectively, of the returns for
the same 8 companies (excluding goodwill writedowns).
DR. JOYCE'S RECORD AT UNION CARBIDE - DISASTROUS
FINANCIAL PERFORMANCE, BROKEN PROMISES,
AND OUTRAGEOUS COMPENSATION
Prior to coming to Hercules, Dr. Joyce spent his entire business career
at Union Carbide, and you should be aware of these FACTS concerning his record
as Union Carbide's Chief Executive (1995 - 2000):
o Under Dr. Joyce's leadership, Union Carbide's net income declined from
$925 million in 1995 to $162 million in 2000 - down an astounding 82%
- making Union Carbide's performance the worst in the S&P 500
Chemicals Index (consisting of the 15 largest Chemicals companies at
that time).
o Despite Dr. Joyce's cost cutting efforts at Union Carbide, the
Company's operating margins declined from 16.2% to 2.7% from 1995 to
2000, regularly ranking the company in the bottom quartile of the S&P
Chemicals Index for return on assets, including last in Dr. Joyce's
final year.
o Dr. Joyce's credibility with Union Carbide shareholders was undermined
by repeated broken promises.
o In 1997, Dr. Joyce advised analysts that Union Carbide planned to meet
or exceed a 15% return on capital over the course of the chemical
cycle, while earning an 8% return at the trough. In fact, Union
Carbide's returns on capital were actually 3% at the trough of the
chemical industry cycle in 2000.
o In early 1999, Dr. Joyce advised Union Carbide shareholders that the
Company was "in good shape entering 1999". In fact, operating income
was down 30% in 1999 compared with the previous year.
9
o On July 26, 1999, little more than 60 days before the end of the
quarter, Dr. Joyce advised Union Carbide shareholders that "prospects
for improved third quarter
earnings appear encouraging based upon current conditions." In fact,
operating income was down in the third quarter compared to both the
previous quarter and the same quarter in 1998.
o One commitment that Dr. Joyce staked his reputation on was his
often-repeated promise that Union Carbide would earn a minimum of $4
per share in 2000. In a grandstand move, characterized in an October
13, 1997 Business Week article entitled, "Smoke, Mirrors, and the
Boss' Paycheck," as "clever public relations .... unlikely to dent
Joyce's wallet or stoke up Union Carbide's performance," Dr. Joyce
committed to forfeit his salary if Union Carbide did not earn $4 per
share in 2000. As it turned out, Union Carbide's earnings for 2000
were $1.18 per share, and, notwithstanding his public commitment Dr.
Joyce took his full salary and bonus anyway!
o Notwithstanding Union Carbide's dismal performance during the five
years that he was Chief Executive, Dr. Joyce's total annual
compensation increased from $8.8 million per annum in 1995 to $23.3
million per annum in 1999 - up more than 165%.8
o Finally, after five years of Dr. Joyce's leadership at Union Carbide,
the Company was acquired by Dow Chemical. Of Dr. Joyce's tenure at
Union Carbide, James Kelleher of Argus Research observed in a Delaware
News Journal article (May 17, 2001), entitled "Hercules Chief Knows
Trouble," "I think he had a better reputation as a scientist than an
administrator. He did virtually nothing with the Company." Similarly,
in the same article, Paul Leming, an ING Barings security analyst, is
quoted on the subject of Union Carbide's condition at the end of Dr.
Joyce's tenure - "Carbide had to do that deal. The wheels were coming
off." Finally, a Business Week article entitled, "Formula For A
Perfect Marriage" (Diane Brady, August 16, 1999) observed, "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."
THE BETZDEARBORN SALE - DR. JOYCE AND THE HERCULES
BOARD, AFTER REFUSING TO SEEK SHAREHOLDER
APPROVAL, SELL WHAT WE SAW AS THE COMPANY'S
BEST BUSINESS AT THE WORST TIME
Last year's sale of the Company's BetzDearborn business to General
Electric was in our view a major strategic mistake. Moreover, this transaction
has unfortunately had the effect of
--------
8 2000 numbers are not available because of the Dow merger. Total
annual compensation includes, as per Union Carbide's proxy
statements, stock option grants, assuming 10% per annum
appreciation.
10
significantly reducing the future value of the Company and the upside with
respect to all of our investments.
By way of background, Hercules' $3.1 billion acquisition of
BetzDearborn in 1998, which has been characterized by Paul Leming as "one of the
worst acquisitions in the history of the chemicals industry" (July 18, 2000), is
a dramatic example of the Company's "buy high-sell low" strategy. For the
subsequent sale last year consisted of most of the BetzDearborn businesses
originally acquired by Hercules, with the net sale price being the equivalent of
1.7 x sales compared to the 2.4 x sales paid by Hercules in 1998.
You should know that last year's decision to sell BetzDearborn was
taken by an 8-5 vote over the objection of the four minority directors and one
incumbent director (not one of Dr. Joyce's hand-picked directors, but rather a
director elected during the term of a previous management). The sale would have
only made sense, in our opinion, had the Company no other way to refinance its
debt. For private sale multiples in the chemicals industry in 2001 (when the
price was established) were at their lowest levels in more than 10 years.
What Hercules at the time of the sale failed to communicate, to both
its shareholders and Wall Street analysts who follow the Company, is that it had
available what we believe to have been a superior alternative. For, prior to the
Company's decision to sell BetzDearborn, major banks offered the Company an
attractive refinancing package which would not have required the Company to make
ill-timed asset sales.
Sale proceeds, after taxes and transaction costs, amounted to
approximately 6 x estimated 2002 EBITDA, while the Company's public stock price
at the time was trading at a multiple of approximately 7 x EBITDA -- a move
hardly calculated to increase shareholder value! Moreover, the sale was made at
a time when forward operating profits for the business were estimated by
Hercules to increase substantially as a result of cost reductions already
implemented. Finally, the sale of the business has substantially diluted the
Company's earnings due in part to the fact that Hercules was required to utilize
the net sale proceeds to pay down debt carrying relatively low interest rates
(approximately 5% on average).
You should know that the Hercules Board action approving the sale was
taken notwithstanding the fact that other major, institutional Hercules
shareholders, together with ourselves, had urged Dr. Joyce to reject the sale
and retain the BetzDearborn business. Moreover, when the minority directors
requested that the motion approving the transaction be amended to require that
the sale be submitted to a shareholders' vote, they were ruled "out of order",
and the issue of shareholder approval was never submitted to a vote of the
Board.
Don't you believe that, where there is significant question concerning
a course of action involving a substantial sale of assets (at a price the
equivalent, for example, of almost twice the Company's entire market value), Dr.
Joyce and the Board, knowing of significant shareholder opposition, should have
submitted the matter to a vote of Hercules shareholders even when they may not
have been legally required to do so?
11
THE REVOLVING DOOR AT HERCULES - SIX
CHIEF EXECUTIVES IN SIX YEARS
One of the primary responsibilities of a Company's Board of Directors
is to choose, attract, evaluate, retain, properly motivate, and manage by
appropriate objectives capable chief executives. By this standard of
measurement, in our opinion, the Hercules Board in recent years has been an
extraordinary failure.
Between 1996-2001, Hercules had six different Chief Executives,
awarding one an estimated $14.25 9[fn] million severance package for three
years of service and another a $6 million package after only 16 months on the
job. Dr. Joyce came to Hercules in May, 2001 after having retired from Dow
Chemical upon selling Union Carbide in February 2001, lives in Connecticut
more than 200 miles from the Hercules Wilmington headquarters, and has been
unwilling to relocate to the Wilmington area.
Finally, the Hercules Board's dereliction is most starkly illustrated
by its failure to provide Dr. Joyce with sufficient guidance and direction in
terms of establishing the Chief Executive's objectives and then holding him
accountable for meeting them. In fact, the objectives set forth by the Board's
Compensation Committee were limited almost exclusively to cost reduction and
other measurements directly related thereto. By way of just one example,
management of the Company's two principal non-operating issues, Hercules'
pension and asbestos exposures, which resulted last year in pre-tax charges to
earnings of more than $600 million, were not even mentioned in Dr. Joyce's 2002
management objectives.
Consonant with the Board's failure, aside from reductions to an
obviously bloated cost structure, we have seen no evidence of any focus
whatsoever on a turnaround strategy, long range or short term growth strategies,
upgrading of the organization, attracting outstanding people to the Company, or
the hundreds of other matters so basic to operating a large corporation. Even
Dr. Joyce acknowledged in a quarterly earnings call last year that his
management focus has been almost entirely on cost reduction. This short-term
strategy presumably led Leslie Ravitz, a chemicals analyst at Morgan Stanley, to
question Hercules' long-term prospects (November 2, 2001) and has since been
further illustrated by Dr. Joyce's sharp cuts in both research and development
and capital expenditures.
To add insult to injury, in February of this year, after the Company
had posted a loss of $248 million (excluding a $368 million write-down of
goodwill) for the 2002 year, and Hercules shareholders had lost another
approximately $400 million during the previous year, the Hercules Board, over
the objection of the minority directors, awarded executive bonuses to 135 senior
executives in the amount of almost $10 million (representing 193% of their
targeted bonuses) - including a $1.9 million bonus for Dr. Joyce! This followed
action by the Hercules Board in the previous year, notwithstanding the Company's
$58 million loss in 2001, awarding, again over our objection, executive bonuses
to 214 senior executives of almost $9 million - including a $1 million bonus for
Dr. Joyce for his seven months on the job in 2001!
--------
9 Estimate is based on a 20 year life expectancy.
12
HERCULES' $570 MILLION PENSION FIASCO
Over the last three years, including almost two full years under Dr.
Joyce's management, Hercules pension plans, in addition to their failure to earn
their minimum investment hurdle rate, have in fact lost more than $250 million
as a result of negative investment returns. This enormous loss required the
Company earlier this year to take a pre-tax charge to equity of almost $570
million, which has now resulted in a negative equity for the Company of $123
million.
While other Companies to be sure have been plagued in past years by
investment underperformance in their pension plans, the seriousness of the
Hercules' situation was underscored late last year in a Credit Suisse First
Boston report entitled, "The Magic of Pension Accounting," which estimates that
of 360 S&P 500 companies with defined benefit pension plans, Hercules'
underfunded status ranks it in the 14th worst position when compared to its
equity market capitalization. In addition, the report predicted that Hercules
may very well be required to incur the 5th largest after tax charge as a
percentage of equity in the fourth quarter of 2002.10
Hercules' pension performance over the last several years is in no
small measure the result of management's asset allocation decision to invest
approximately 70% of its pension assets in equities, including almost 30% of
that amount in international equities. Incredibly enough, Hercules' investment
policy has allocated nothing to alternative assets, hedge funds, or so-called
"market neutral' investments, which tend to focus on delivering consistent
absolute returns with low correlation to the U.S. stock market or other asset
classes. When one considers the size of the Company's pension assets compared
with the size of Hercules, the fact that the Company's pension liabilities are
essentially fixed and relatively mature inasmuch as retirees and inactives
outnumber actives in the plan by an 8-to-1 ratio, Hercules' asset allocation
policy has been in our opinion wholly inappropriate and unduly risky.
You should know the Hercules pension plan has been largely run on
autopilot for at least the last 10 years. Despite the importance of the pension
plan's performance to the overall financial performance of the Company as a
result of the size of the plan, there is in our view no one at Hercules that has
demonstrated the slightest expertise in this area. What is more, during Dr.
Joyce's tenure, until this issue reached crisis proportions, neither the Board
nor its Finance Committee had ever conducted a meaningful review of management's
investment decisions. While companies normally make pension asset allocation
decisions on as often as a quarterly or at least annual basis, Hercules,
seemingly oblivious to the vicissitudes of the investment climate over the last
10 years, had made no significant change to its investment policy during this
entire period of time, including the last two years under Dr. Joyce. At the very
least, this underscores the Company's need for a CFO, which we urged upon Dr.
Joyce and the Board almost two years ago.
--------
10 The size of Hercules' fourth quarter charge has now materialized
almost as predicted, but whether this charge amounts to the
fifth largest cannot be easily ascertained.
13
DR. JOYCE PACKS THE BOARD WITH FIVE "RUBBER STAMP"
DIRECTORS, CONTINUING A HERCULES "YOU SCRATCH
MY BACK, I'LL SCRATCH YOURS" TRADITION
The record over the years at Hercules is replete with examples of
Boards who in our opinion do very little to safeguard the interests of the
Company's shareholders and are almost always supportive of whatever the Chief
Executive wants, failed Chief Executives who receive what we view as exorbitant
parachute payments, and Board members who until well after our 2001 proxy
contest were permitted to fund with Company monies million dollar gifts to their
favorite charities.11
Taking advantage of a charter provision which permits the addition of
new directors without shareholder approval, no sooner had the votes been counted
in connection with the 2001 proxy contest, when Dr. Joyce, whose own "election"
was not originally submitted to shareholders either, together with the
nominating committee, thumbed their noses at Hercules shareholders by choosing
Paula Sneed, an incumbent director who had been defeated in that contest for
reelection, to fill an existing Board opening. Since that time, Dr. Joyce,
acting in concert with his "rubber stamp" nominating committee, has handpicked
four cronies, Messrs. Wyatt, Kennedy, Lipton, and Hunter (three of whom are
former or current executives in the commodity chemicals industry), to either
replace departing directors or fill existing openings. We believe that these
four directors have one common qualification for the job, a close relationship
with Dr. Joyce, and it should not surprise you that none of the five handpicked
directors (including Paula Sneed who resigned earlier this year) have voted
against Dr. Joyce's positions on a single issue.
As further evidence of Dr. Joyce's view of shareholder democracy, at
the minority directors' first Board meeting in June, 2001, the Nominating
Committee proposed that seven of the eight then majority incumbent directors
each be given one of two major committee assignments - Audit or Compensation.
None of the four minority directors were proposed for membership on either of
these committees.12 When the minority members protested that they were the only
Hercules directors with a real mandate from the Company's shareholders, they
were told that this was the way committee assignments were made at Hercules and
that Board members had, in words to the effect "work their way up" to qualify
for major committee assignments. Parenthetically, Lipton and Kennedy, who were
elected to the Board after the four minority directors, were appointed shortly
thereafter to the Audit and Compensation Committees - so much for the Hercules
seniority system!
--------
11 This last practice was stopped at the insistence of our minority
directors shortly after we joined the Board in 2001.
12 At a later time, one of our minority directors received major
committee assignments, although the three other minority
directors still have not.
14
HERCULES' POISON PILL COSTS HERCULES
SHAREHOLDERS MORE THAN $200 MILLION
In October 2000, in order to increase its investment in the Company,
ISP proposed a tender offer to all Hercules shareholders to purchase 25 million
additional shares of Hercules stock for $17.50 per share in cash. However,
because of the Company's poison pill, its offer required Board consent. Despite
repeated requests that Hercules permit it to proceed, the Board refused to do so
- thereby costing Hercules shareholders more than $200 million.
You should know that the Hercules poison pill, with its unusually low
10% trigger point, was adopted in August, 2000, less than two weeks after ISP
publicly reported acquiring 9.9% of Hercules shares, notwithstanding the fact
that Hercules shareholders in the past had voiced strong opposition to the
poison pill. In 1991, a non-binding proposal to redeem Hercules' then-existing
poison pill, or submit it to a shareholder vote, was approved by shareholders.
Despite this earlier shareholder vote, the Hercules Board refused to seek
shareholder approval for the current pill adopted in 2000.
Ask yourself whether the poison pill device is in your best interest
and whether you need to be "protected" from making your own decision to sell
your shares. We believe that it is paramount that YOU have the right to consider
for yourself the merits of offers for your shares. Our nominees will advocate
that the Board remove, or substantially revise, barriers to offers for your
shares so that you can make your own decisions.
DR. JOYCE AND THE HERCULES BOARD REFUSE TO NULLIFY A
COMPANY BYLAW THAT DISENFRANCHISES ITS SHAREHOLDERS
The disregard of Dr. Joyce and the Hercules Board for the interests of
the Company's shareholders is dramatically demonstrated by their refusal to
rescind a Hercules election Bylaw which the Board claims requires an affirmative
vote of the holders of a majority of all outstanding shares for the election of
directors, instead of the greatest number of votes actually cast at an Annual
Meeting (a plurality vote). This means, for example, that if each Committee
nominee receives 50 million votes and each incumbent director receives only 10
million votes, the incumbents would retain their seats on the Board because the
Committee nominees would not have received a majority vote of approximately 108
million outstanding shares of Hercules common stock.
This voting requirement disenfranchises shareholders, is highly unusual
if not unique, and in our view is inconsistent with good corporate governance.
In fact, we are unaware of a single other public company that has such a
provision with regard to election of directors. In our view, the Hercules Bylaw,
as interpreted by the Company, serves as a mechanism to entrench the current
Board, because if no nominee receives a majority vote of the outstanding shares,
the incumbent directors would remain in place beyond their three-year term, even
if our nominees received a plurality vote.
As early as 2001, after calling to Hercules' attention this obvious
inequity and requesting that it take the necessary action to remedy this
situation in connection with the 2001 Annual Meeting, the Hercules Board
15
refused to do so. As it turned out, three of the four minority directors were
elected at the 2001 Annual Meeting by more than 50% of the outstanding shares,
and Hercules agreed to seat the fourth minority director, who had won by a
plurality of those voting, in order to avoid a court test. After joining the
Board, the minority directors again proposed that Dr. Joyce and the Hercules
Board take action to effectively nullify the Bylaw, but they have refused to
do so.
You should know that in a Delaware News Journal article (March 14,
2001) entitled, "Hercules' Election Method Is Fought", the Hercules voting
requirement prompted the following comments from a Wall Street analyst as well
as a corporate governance expert: Gary Hindes, Managing Director of New York's
Deltec Asset Management stated that, "These people [referring to the Hercules
directors] have managed to destroy what was a wonderful company," and is further
reported to have stated that Hercules should be asking for the resignation of
its directors, not supporting them for re-election; and Charles Elson, Director
of the Center for Corporate Governance at the University of Delaware,
characterized Hercules' voting provision as "highly unusual" and further stated,
"In all my years [of tracking corporate policies], I have not seen that with the
election of a board."
THE COMMITTEE'S PROGRAM TO REALIZE
HERCULES' UNDERLYING VALUES
The Committee is convinced that there are strong underlying values at
Hercules and that the Company's two remaining, primary businesses, the pulp and
paper and Aqualon businesses, under the right direction, have substantial
potential for growth. As major shareholders, we are determined to maximize our
Company's underlying values for all Hercules shareholders.
To this end, we would pursue the following program:
(1) Conduct a thorough search for a new, highly qualified, full-time,
"roll up your sleeves" Chief Executive committed to the turnaround
of the Company's businesses, who will reside in the Wilmington area
and whose compensation will be designed to closely align his or her
interests with those of Hercules shareholders. By making the right
selection and establishing comprehensive goals and objectives, we
intend to avoid the extraordinarily harmful turnover of Chief
Executives at Hercules over the last six years.
(2) Rebuild management ranks which have been allowed to atrophy under
the current Chief Executive and his predecessors. This will include
the election of a first rate Chief Financial Officer, a position
which Dr. Joyce and the Board have inexplicably refused to fill
during his two-year term at the Company despite Hercules' myriad
financial challenges.
(3) Eliminate excessive compensation and bonuses as have been enjoyed
by Dr. Joyce and his Board cronies and make certain that in the
future compensation arrangements at Hercules provide that executive
salaries, bonuses, and benefits be closely related to overall
corporate, individual, and stock performance. In this regard, it is
our view that an effective belt-tightening program must start at
16
the top, and that the kind of compensation enjoyed by Dr. Joyce is
not only unwarranted in and of itself, but serves also to stiffen
the resistance of others at Hercules to the kinds of cost-cutting
measures which may be necessary.
(4) Despite the axiom that businesses cannot "cost cut their way to
prosperity" and that successful turnaround strategies can never
rely on cost reduction alone, management's overriding
preoccupation, as acknowledged by Dr. Joyce, has unfortunately been
on cost reduction alone. But dynamic leadership isn't just about
cutting costs or staying afloat. In addition to cost-reduction, we
would focus on new products, acquisitions, expanded field technical
services, new alliances with other manufacturers to add
complementary products, and a rational pricing strategy which
places a high priority on profitability rather than on small market
share gains.
(5) We believe that incumbent management has neither the qualifications
nor the expertise to address the Company's two principal
non-operating issues - the minimization of its pension and asbestos
exposures. While current management in our view has given these
critical issues short shrift, we would focus the attention of
senior management, assisted by the best outside professionals, on
these areas.
17
QUESTIONS AND ANSWERS ABOUT THIS PROXY SOLICITATION
Q: WHO IS SOLICITING YOUR PROXY?
A: We are the Hercules Shareholders' Committee for New Management
(the "Committee"). The Committee includes: (i) ISP, the second largest
shareholder of Hercules, (ii) Samuel J. Heyman, Sunil Kumar, Gloria Schaffer
and Raymond S. Troubh, four members of the Company's Board of Directors who
became directors following the 2001 Annual Meeting and (iii) Anthony Kronman,
Harry Fields, Vincent Tese and Gerald Tsai, Jr., the Committee's four nominees
to the Board of Directors. The proxy solicitation is being conducted by the
Committee. For more information on the participants in our proxy solicitation,
please see "Certain Information Concerning the Participants" on page [___] and
Annex A hereto.
Q: WHO ARE THE NOMINEES?
A: The Nominees are Harry Fields, Anthony Kronman, Vincent Tese
and Gerald Tsai, Jr. If elected to the Board of Directors, each Nominee would
act in accordance with his fiduciary duties to Hercules shareholders with
respect to any action that he takes as a director. We have no reason to
believe that any of the Nominees will be unable or unwilling to serve if
elected. However, if any of the Nominees are unable to serve or for good cause
will not serve, proxies may be voted for another substitute nominee of the
Committee.
Q: WHO CAN VOTE AT THE 2003 ANNUAL MEETING?
A: If you owned Hercules shares on [_____], 2003 (the "Record
Date"), you have the right to vote at the 2003 Annual Meeting. As of the close
of business on the Record Date, according to the Management Preliminary Proxy
Statement there were [_____] shares of Common Stock of Hercules issued and
outstanding and entitled to vote. Shareholders have one vote for each share of
Common Stock they own with respect to all matters to be considered at the 2003
Annual Meeting.
Q: WHAT SHOULD YOU DO TO VOTE?
A: Sign, date and return the enclosed WHITE proxy card TODAY in
the envelope provided. For more information on how to vote your shares, please
see "Quorum and Voting" on page [___].
Q: WHOM DO YOU CALL IF YOU HAVE QUESTIONS ABOUT THE SOLICITATION?
A: Please call Georgeson Shareholder Communications Inc. toll
free at (866) 288-2190.
18
GENERAL
Proxy Information
As of the Record Date, ISP may be deemed (solely for purposes of Rule
13d-3 of the Exchange Act) to be the beneficial owner of 9,893,700 Shares. The
Shares beneficially owned by ISP represent approximately 9.1% of the Shares
outstanding and entitled to vote on the Record Date. Samuel J. Heyman, ISP's
Chairman and a director of the Company, may be deemed (solely for purposes of
Rule 13d-3 of the Exchange Act) to beneficially own 100% of the outstanding
shares of common stock of ISP. Additional information relating to the ownership
of Shares by the other members of the Committee is set forth in Annex A.
The Shares represented by each WHITE proxy card which is properly
executed and returned will be voted at the 2003 Annual Meeting in accordance
with the instructions marked thereon. Executed but unmarked WHITE proxy cards
will be voted FOR the election of the four Nominees and will ABSTAIN with
respect to the ratification of PricewaterhouseCoopers LLP ("PWC") as the
independent public accountants of Hercules for 2003. An "Abstain" vote on the
ratification of PWC as Hercules' independent public accountants will have the
same effect as a vote against such matter. If any other matter properly comes
before the 2003 Annual Meeting, the named proxies will vote all proxies granted
to them in their sole discretion.
Proxy Revocation
Whether or not you plan to attend the 2003 Annual Meeting, the
Committee urges you to vote FOR the election of the Nominees by signing, dating
and returning to Georgeson Shareholder Communications Inc. ("Georgeson") the
WHITE proxy card in the enclosed envelope. You can do this even if you may have
voted on the [color] proxy card solicited by the Board of Directors. It is only
the latest dated proxy that counts.
Execution of a WHITE proxy card will not affect your right to attend
the 2003 Annual Meeting and vote in person. Any shareholder granting a proxy
(including a proxy given to Hercules) may revoke it at any time before it is
voted by (i) submitting a duly executed new proxy bearing a later date, (ii)
attending and voting at the 2003 Annual Meeting in person, or (iii) at any time
before a previously executed proxy is voted, giving written notice of revocation
either to Hercules Shareholders' Committee for New Management c/o Georgeson
Shareholder Communications Inc., 17 State Street, New York, NY 10004, or to
Hercules, 1313 North Market Street, Wilmington, Delaware, 19894-0001, Attention:
Corporate Secretary. Merely attending the 2003 Annual Meeting without voting at
the 2003 Annual Meeting will not revoke any previous proxy which has been duly
executed by you.
After signing the enclosed WHITE proxy card, do not sign or return the
[color] proxy card unless you intend to change your vote, because only your
latest dated proxy card will be counted.
Please review this document and the enclosed materials carefully. YOUR
VOTE IS VERY IMPORTANT, no matter how many or how few Shares you own.
If you have any questions about giving your proxy or require
assistance, please call:
19
Georgeson Shareholder Communications Inc.
17 State Street
New York, NY 10004
Call Toll-Free: (866) 288-2190
QUORUM AND VOTING
Voting Procedures
You are eligible to execute a WHITE proxy only if you owned the Common
Stock on the Record Date. According to the Management Preliminary Proxy
Statement, the Board of Directors has set [____], 2003 as the Record Date for
determining those shareholders who will be entitled to notice of and to vote at
the 2003 Annual Meeting. Shareholders will have one vote for each Share of
Common Stock they own with respect to all matters to be considered at the 2003
Annual Meeting. You will retain the right to execute a proxy card in connection
with this proxy solicitation even if you sell your shares after the Record Date.
Accordingly, it is important that you vote the Shares held by you on the Record
Date, or grant a proxy to vote such Shares on the WHITE proxy card, even if you
sell such Shares after the Record Date.
Unless otherwise indicated, the WHITE proxy authorizes the persons
named in the proxy to vote, and such persons will vote, properly executed and
duly returned proxies FOR the Nominees. If no instruction is given on your
executed WHITE proxy with respect to the ratification of the appointment of
Hercules' independent public accountants, the persons named in the WHITE proxy
will abstain from voting on such matter.
Vote Required
Hercules will furnish shareholders with a definitive proxy statement
(the "Management Proxy Statement") in connection with the Board of Directors'
solicitation of proxies at the 2003 Annual Meeting. Information concerning the
number of Shares of Common Stock outstanding and entitled to vote on the Record
Date is required to be set forth in the Management Proxy Statement and, in
accordance with Rule 14a-5(c) under the Exchange Act, reference is made to the
Management Proxy Statement for such information. Only shareholders of record at
the close of business on the Record Date are entitled to notice of and to vote
on matters that come before the 2003 Annual Meeting.
According to Hercules' by-laws, a quorum will exist at the 2003 Annual
Meeting if holders of not less than a majority of the Shares of Common Stock
issued and outstanding and entitled to vote at the 2003 Annual Meeting are
present in person or by proxy. If a quorum is present, the election of directors
requires the following vote:
o Hercules' claims that its by-laws require that in order to be
elected, nominees for director must receive the affirmative
vote of a majority of all issued and outstanding Shares
entitled to vote at the meeting. The Committee disagrees with
this interpretation and believes that the four nominees who
receive the greatest numbers of votes cast at the 2003 Annual
Meeting should be elected as directors.
20
Method of Counting Votes
The holders of not less than a majority of the number of Shares of
Common Stock issued and outstanding and entitled to vote at the 2003 Annual
Meeting must be represented in person or by proxy in order to constitute a
quorum for the transaction of business. Abstentions and broker non-votes, if
any, will be counted for purposes of determining whether a quorum exists.
Assuming a quorum is determined to exist at the 2003 Annual Meeting,
because Hercules' by-laws require nominees to receive the affirmative vote of a
majority of the outstanding Shares, abstentions, withhold votes and broker
non-votes, if any, with respect to the election of directors will have the same
effect as voting against the election of directors.
Required information concerning the necessary vote to ratify the
selection of auditors at the 2003 Annual Meeting and the effects, if any, of
abstentions and broker non-votes on such matter, will be set forth in the
Management Proxy Statement and, in accordance with Rule 14a-5(c) under the
Exchange Act, reference is made to the Management Proxy Statement for such
information.
THE COMMITTEE STRONGLY RECOMMENDS THAT YOU
VOTE "FOR" THE ELECTION OF ITS NOMINEES
ELECTION OF DIRECTORS
The Committee is soliciting your proxy for the election of its Nominees
as directors of the Company to serve for a three-year term expiring at the 2006
Annual Meeting and until their successors are duly elected and qualified. We are
soliciting proxies in support of the election to the Board of Directors of the
following Nominees and until their respective successors are duly elected and
qualified: Harry Fields, Anthony Kronman, Vincent Tese and Gerald Tsai, Jr.
In accordance with Hercules Restated Certificate of Incorporation and
by-laws and the Delaware General Corporation Law, the Board of Directors is to
consist of not less than seven and not more than eighteen directors, the exact
number to be specified by the Board of Directors. The directors are to be
divided into three classes as nearly equal in number as possible. At each annual
meeting of shareholders, members of one of the classes, on a rotating basis, are
elected for a three-year term. According to the Management Preliminary Proxy
Statement, thirteen directors currently serve on the Board of Directors, and
four of these directors have terms that expire in 2003, and four directors are
to be elected at the 2003 Annual Meeting. Messrs. Harry Fields, Anthony Kronman,
Vincent Tese and Gerald Tsai, Jr., if elected, would serve for terms expiring at
the 2006 Annual Meeting. Each of the Nominees has consented to serve as a
Nominee, be named in the Committee's proxy soliciting materials as such and
serve as a director of Hercules, if elected.
If any Nominee is unable to serve or otherwise unavailable to stand for
election as a director at the 2003 Annual Meeting, the Committee intends to
nominate a replacement nominee for election. Should one or more replacement
nominees be required, the named proxies will exercise their discretionary
authority to vote for any replacement nominee selected by the Committee. If any
additional directorships are to be voted upon at the 2003 Annual Meeting, the
Committee reserves the right to nominate additional persons to fill such
positions. The
21
Committee does not expect that the Nominees will be unable to stand for
election but, in the event that any Nominee is unable to do so, Shares
represented by WHITE proxy cards will be voted for the other Nominees and any
replacement nominee. In addition, the Committee reserves the right to nominate
substitute or additional persons if the Company makes or announces any changes
to its by-laws or takes or announces any other action that has, or if
consummated would have, the effect of disqualifying any of the Nominees.
If the Nominees are elected and take office as directors, they intend
to discharge their duties as directors of the Company in compliance with all
applicable legal requirements, including the fiduciary obligations imposed on
corporate directors under Delaware law.
If all of the Nominees are elected to the Board of Directors, the
Nominees, together with the minority directors, would constitute a majority of
the thirteen members serving on the Board of Directors and, since the Company's
by-laws provide that action by the Board of Directors requires a majority vote
of the directors present at a meeting at which a quorum is present, the four
Nominees, together with the minority directors, would be able to cause any
action to be taken or not taken by the Board of Directors.
THE NOMINEES
Set forth below are the names of, and certain biographical information
relating to, the Nominees. The information below concerning age, principal
occupation and directorships has been furnished by each respective Nominee.
HARRY FIELDS
Mr. Fields, age 78, was an executive at International Flavors and
Fragrances Inc. for more than forty years, where he served as President of the
International Flavor Division and as a member of that company's Board of
Directors. Since April 1990, he has been President of Fields Associates, Ltd., a
company specializing in joint ventures between U.S. and foreign companies. Mr.
Fields also served as a director of OPTA Food Ingredients, Inc from 1991 to
2002.
ANTHONY T. KRONMAN
Mr. Kronman, age 56, was appointed the Dean of Yale Law School in 1994.
He became a permanent member of the Yale Law School faculty in 1979 and in 1985
was appointed Edward J. Phelps Professor of Law. He previously served on the law
faculty of the University of Minnesota and the University of Chicago. Mr.
Kronman became a director of Adelphia Communications Corporation after its
filing of a voluntary petition for reorganization under Chapter 11 of the United
States Bankruptcy Code.
VINCENT TESE
Mr. Tese, age 60, has been the Chairman of Wireless Cable
International, Inc. since July 1995. Mr. Tese also serves on the Boards of Bear
Stearns & Co., Inc., Cablevision, Inc., Custodial Trust Co., Bowne and Company,
Inc., Lynch Interactive Corporation, Mack-Cali
22
Realty Corp. and National Wireless Holdings, Inc. Mr. Tese served as Chairman
and Chief Executive Officer of the New York State Urban Development
Corporation from 1985 to 1987, and as Director of Economic Development for New
York State from 1987 to December 1994.
GERALD TSAI, JR.
Mr. Tsai, age 74, is a private investor and currently a director of the
Sequa Corporation, Triarc Companies Inc., Zenith National Insurance Corporation
and United Rentals, Inc. From February 1993 to October 1997, he was Chairman of
the Board, President and Chief Executive Officer of Delta Life Corporation, a
life insurance and annuity company. From 1988 to 1991, he was the Chairman of
the Executive Committee of the Board of Directors of Primerica Corporation (a
diversified financial services company); from 1987 to 1988, he was Chairman and
Chief Executive Officer of Primerica; and from 1982 to 1987, he held several
other offices at Primerica.
Except for Mr. Tese who owns 1000 Shares, none of the Nominees
currently owns any Shares of the Company.
Each Nominee, if elected, will be entitled to receive compensation
customarily paid by Hercules to its independent directors, which is described in
the Management Proxy Statement.
The Committee reserves the right to nominate substitute persons as
Nominees if Hercules makes or announces any changes to the by-laws or takes or
announces any other action that has, or if consummated would have, the effect of
disqualifying any of the Nominees. In addition, if Hercules causes any
additional directorships to be voted upon at the 2003 Annual Meeting, the
Committee reserves the right to nominate additional persons to fill the added
positions. Shares represented by the Committee's WHITE proxy cards will be voted
for any such substitute or additional nominees of the Committee.
THE COMMITTEE STRONGLY RECOMMENDS THAT YOU VOTE
"FOR" THE ELECTION OF THE NOMINEES
CERTAIN EFFECTS OF A CHANGE OF CONTROL
If all of the Nominees are elected to the Board of Directors, a "Change
of Control" (as such term is defined in the Indenture (the "Indenture") dated as
of November 14, 2000 between the Company and Wells Fargo Bank Minnesota, N.A.,
as Trustee, with respect to the Company's 11 1/8% Senior Notes due 2007 (the
"Notes")) will occur. According to the Company's public filings, as of September
30, 2002 there was $400 million principal amount of the Notes outstanding.
Pursuant to the terms of the Indenture, if a "Change of Control" occurs each
noteholder shall have the right on the Change of Control Payment Date (as such
term is defined in the Indenture which date shall be no earlier than 30 days and
no later than 60 days after notice is mailed to the holders notifying them of a
change of control) to require the Company to repurchase all or any part of that
holder's Notes at a repurchase price equal to 101% of the aggregate principal
amount of Notes repurchased, plus accrued and unpaid interest and liquidated
damages. As of April 3, 2003, the last reported trading price of the Notes
in the over-
23
the-counter market was $110.5 per $100 principal amount of the
Notes, a price in excess of the repurchase price. As a result, the Committee
believes it is unlikely that noteholders will exercise this right.
The Company has entered into employment agreements with several of its
senior executives. Under these agreements, the election of the Nominees would
constitute a "Change of Control" and therefore in the event that the executive's
employment is terminated during the three-year period following a "Change in
Control" either by the executive with Good Reason or by Hercules other than for
Cause, death or disability (as each such term is defined in the agreements) and,
in certain cases, if the executive terminates his employment with 180 days'
notice for any reason after a "Change in Control", the executive would be
entitled to cash severance equal to three times (two times, in some cases) the
sum of his base salary and the higher of his target annual bonus or the actual
bonus paid or payable in the most recently completed year. The executive would
further be entitled to continued welfare and fringe benefits for three years
(two years, in some cases) following termination of employment. Certain of these
agreements also provide for a cash payment equal to the amount the executive
would have received under Hercules' pension plans (including its supplemental
pension plan) if Hercules had contributed to those plans for an additional three
years. These executives would also be entitled to "gross-up" payments in the
event that any payments or benefits they receive in connection with a change in
control would be subject to "golden parachute" excise taxes imposed under
section 4999 of the Internal Revenue Code of 1986, as amended.
If the Nominees are elected, it would also constitute a "Change in
Control" under the Company's Nonemployee Director Stock Accumulation Plan. Under
such plan, in the event of a "Change in Control", all outstanding options
immediately vest and become exercisable, unless otherwise directed by the
Hercules Board prior to such "Change in Control". In addition, all exchanged
shares and cash balances of all deferral accounts become immediately vested and
payable.
CERTAIN INTERESTS IN THE PROPOSALS AND
WITH RESPECT TO SECURITIES OF HERCULES
Other than certain compensation as disclosed in the Management Proxy
Statement that is received by the minority directors for their service as
directors of the Company, including certain equity awards, to the knowledge of
the Committee, there are no contracts, arrangements, understandings or
relationships (legal or otherwise) among any member of the Committee or its
associates with respect to any securities of Hercules. Reference is hereby made
to such information which, to the extent it may be deemed required, is
incorporated herein pursuant to Rule 14a-5(c) under the Exchange Act.
Each Nominee has entered into a letter agreement with ISP. Pursuant to
the letter agreement, each Nominee will receive a fee of $35,000 from ISP for
his service as a nominee which amount is payable when the Committee files with
the Securities and Exchange Commission its definitive proxy statement. This fee
is not refundable in any manner in connection with the outcome of the
Committee's proxy solicitation or otherwise. The letter agreement also provides
that ISP will indemnify and hold harmless the Nominee from any and all
24
liabilities, losses, claims, damages and out-of-pocket expenses (including
reasonable attorneys' fees and expenses) (collectively, "Losses") based upon
or arising out of the solicitation of proxies from Hercules' shareholders and
the willingness of the Nominee to stand for election as a director of
Hercules, except to the extent that any such Losses (i) may arise out of
inaccurate written information supplied by the Nominee in connection with the
solicitation of proxies or (ii) are found in a final judgment by a court, not
subject to further appeal, to have resulted from bad faith, willful misconduct
or gross negligence on the part of the Nominee.
SOLICITATION OF PROXIES; EXPENSES
The total cost of this proxy solicitation (including fees of attorneys,
proxy solicitors and printing and mailing expenses) will be borne by ISP and is
estimated to be approximately $[________]. Approximately $[________] of such
costs have been incurred to date. The entire expense of the Committee's proxy
solicitation is being borne by ISP. Neither ISP nor the Committee will seek
reimbursement from Hercules for the costs of this proxy solicitation, including
the fees being paid by ISP to the Nominees.
Proxies may be solicited by mail, telephone, telefax, telegraph,
Internet, e-mail, in person or by similar means. Officers and certain employees
of ISP and its affiliates and the other participants listed on Annex A hereto,
may assist in the solicitation of proxies without any additional remuneration.
Proxies will be solicited from individuals, brokers, banks, bank nominees and
other institutional holders. ISP has requested banks, brokerage houses and other
custodians, nominees and fiduciaries to forward all solicitation materials to
the beneficial owners of the Shares they hold of record. ISP will reimburse
these record holders for their reasonable out-of-pocket expenses.
ISP has retained Georgeson on behalf of the Committee for solicitation
and advisory services in connection with the solicitation of proxies relating to
the 2003 Annual Meeting, for which Georgeson will receive a fee of up to
$[_____], plus reimbursement of its reasonable out-of-pocket expenses. Georgeson
will utilize approximately [___] people to solicit proxies from Hercules'
shareholders.
CERTAIN INFORMATION CONCERNING THE PARTICIPANTS
ISP, ISP Investco LLC, a Delaware limited liability company,
International Specialty Holdings Inc., a Delaware corporation, the Nominees, the
minority directors and certain other persons identified in Annex A may be deemed
to be "participants" (collectively, the "Participants," and each, a
"Participant") in the Committee's solicitation of proxies for the 2003 Annual
Meeting within the meaning of the federal securities laws. Information in this
proxy statement and in Annex A about each Participant was provided by such
Participant.
Information relating to the beneficial ownership of Common Stock of
Hercules by the Participants in this solicitation and certain other information
relating to the Participants is contained in Annex A to this proxy statement and
is incorporated in this proxy statement by reference.
25
USE OF PREVIOUSLY PUBLISHED MATERIAL
This proxy statement includes quotations from previously published
material contained in periodicals, newspapers and analyst reports, the source of
which has been cited when used. The Committee did not seek or obtain the consent
of the author or publication to the use of any such material as proxy soliciting
material. The Committee has not directly or indirectly paid or proposed to pay
any consideration in connection with the publication or republication of such
material.
OTHER INFORMATION
Except for the election of directors to the Board of Directors and the
ratification of the selection of PWC as the Company's independent public
accountants for 2003, the Committee is not aware of any other matter to be
presented for consideration at the 2003 Annual Meeting. However, if any other
matter properly comes before the 2003 Annual Meeting, the persons named as
proxies on the WHITE proxy card will exercise their discretionary authority to
vote on such matters in accordance with their best judgment.
The Management Proxy Statement is required to set forth information
regarding, among other things, (a) the beneficial ownership of Shares by (i) any
person known to Hercules to beneficially own more than 5% of any class of voting
securities of Hercules, (ii) each director and nominee, and certain executive
officers of Hercules, and (iii) all directors and executive officers of Hercules
as a group, (b) information concerning Hercules' directors and management,
including information relating to management compensation, and (c) information
concerning the procedures for submitting shareholder proposals for consideration
at Hercules' 2004 Annual Meeting of Shareholders. Reference is hereby made to
such information which, to the extent it may be deemed required, is incorporated
herein pursuant to Rule 14a-5(c) under the Exchange Act.
WE URGE YOU TO SIGN, DATE AND RETURN THE WHITE PROXY CARD VOTING "FOR"
THE ELECTION OF THE NOMINEES DESCRIBED IN THIS PROXY STATEMENT.
Dated: [_____], 2003
Sincerely,
THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
26
If you have any questions or need any assistance in voting your Shares,
please contact Georgeson Shareholder Communications, Inc., the firm assisting us
in our solicitation of proxies:
GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 State Street
New York, NY 10004
Call Toll-Free: (866) 288-2190
27
ANNEX A
INFORMATION CONCERNING PERSONS WHO MAY BE PARTICIPANTS
IN THE COMMITTEE'S SOLICITATION OF PROXIES
The following sets forth the name and the present principal occupation
or employment, and the name and principal business address of any corporation or
other organization in which such employment is carried on, of persons who may be
deemed to be participants (collectively the "Participants") on behalf of the
Committee in the solicitation of proxies from shareholders of Hercules
Incorporated. Information is also given for each of the entities listed on
Schedule A to this Annex A, each of which is an "associate", as defined under
the proxy rules, of ISP.
Nominees for Election to the Board of Directors of Hercules
The present principal occupation or employment of each of the Nominees
listed below is set forth in the Proxy Statement under the heading "THE
NOMINEES"
--------------------------------- ---------------------------
Name Business Address
--------------------------------- ---------------------------
Harry Fields Fields Associates Ltd.
28 Stonewall Lane
Mamaroneck, NY 10543
--------------------------------- ---------------------------
Anthony Kronman 127 Wall Street
New Haven, CT 06511
--------------------------------- ---------------------------
Vincent Tese c/o Bear Stearns & Co. Inc.
383 Madison Avenue
6th Floor
New York, NY 10179
--------------------------------- ---------------------------
Gerald Tsai, Jr. Tsai Management, Inc.
200 Park Ave., Suite 4522
New York, NY 10166
--------------------------------- ---------------------------
The Minority Directors
-------------------- ------------------------------------------------------ ------------------------------------------
Name Principal Occupation Business Address
-------------------- ------------------------------------------------------ ------------------------------------------
Samuel J. Heyman Chairman of ISP. Chief Executive Officer, Manager and c/o ISP Management Company, Inc., 1361
General Partner of a number of closely held real Alps Road, Wayne, New Jersey 07470
estate development companies and partnerships whose
investments include commercial real estate and a
portfolio of publicly traded securities
-------------------- ------------------------------------------------------ ------------------------------------------
Sunil Kumar President and CEO of ISP. c/o ISP Management Company, Inc., 1361
Alps Road, Wayne, New Jersey 07470
-------------------- ------------------------------------------------------ ------------------------------------------
Gloria Schaffer Partner at C.A. White, Inc., a real estate 1211 Chapel Street, New Haven,
development firm Connecticut 06511
-------------------- ------------------------------------------------------ ------------------------------------------
A-1
Raymond Troubh Financial Consultant 10 Rockefeller Plaza, Suite 712 New
York, New York, 10020
-------------------- ------------------------------------------------------ ------------------------------------------
ISP INVESTCO LLC
ISP Investco LLC ("Investco") is a Delaware LLC and its principal place
of business is at 300 Delaware Avenue, Wilmington, Delaware 19801. The business
of Investco consists primarily of holding investments for International
Specialty Holdings Inc. ("Holdings") and ISP, including the shares of the
Company's Common Stock. Investco does not have executive officers and directors.
All actions taken for and on behalf of Investco are done by its sole member,
Holdings. The names and positions of the directors, officers and certain
employees of Holdings who may assist in the solicitation of proxies without any
additional remuneration are set forth below.
INTERNATIONAL SPECIALTY HOLDINGS INC.
Holdings is a Delaware corporation and the sole member of Investco. Its
business consists primarily of owning 100% of the outstanding capital stock of
Investco and ISP Chemco Inc and its principal place of business is at 300
Delaware Avenue, Wilmington, Delaware 19801.
The name and position of the directors, officers and certain employees
of Holdings who may assist in the solicitation of proxies without any additional
remuneration are set forth below. The business address of each director and
executive officer is c/o ISP Management Company, Inc., 1361 Alps Road, Wayne,
New Jersey 07470.
Name Position
Samuel J. Heyman Director and Chairman
Sunil Kumar Director, President and Chief Executive Officer
Richard A. Weinberg Director, Executive Vice President,
General Counsel and Secretary
Susan B. Yoss Executive Vice President-Finance and Treasurer
Neal E. Murphy Senior Vice President and Chief Financial Officer
INTERNATIONAL SPECIALTY PRODUCTS INC.
ISP is a Delaware corporation and has ownership of all of the
outstanding common stock of Holdings. Its principal place of business is at 300
Delaware Avenue, Wilmington, Delaware 19801. The business of ISP consists
primarily of owning 100% of the outstanding shares of the capital stock of
Holdings.
A-2
The name and position of the directors, officers and certain employees
of ISP and its affiliates who may assist in the solicitation of proxies without
any additional remuneration are set forth below. The business address of each
director and executive officer is c/o ISP Management Company, Inc., 1361 Alps
Road, Wayne, New Jersey 07470.
Name Position
Samuel J. Heyman Director and Chairman
Sunil Kumar Director, President and Chief Executive Officer
Richard A. Weinberg Executive Vice President, General Counsel
and Secretary
Susan B. Yoss Executive Vice President-Finance and Treasurer
Neal E. Murphy Senior Vice President and Chief Financial Officer
Stephen R. Olsen Senior Vice President - Marketing and
Corporate Development
Jason Pollack Associate General Counsel
Justin L. Topilow Manager Investments & Financial Analysis
Maria Biggio Senior Investment Analyst
Shares Held by Participants
The Participants and their associates may be deemed to have beneficial
ownership of Shares as set forth immediately below. Except as set forth below,
no associates of any of the Participants owns any shares of Hercules common
stock:
A-3
Number of Shares Approximate Margin
of Hercules Indebtedness With Respect
Name Common Stock to Common Stock
---- ---------------- -------------------------
ISP Investco LLC 9,893,700 (2)
(direct ownership)(1)
International Specialty Holdings 9,893,700 (2)
Inc. (indirect ownership)(1)
International Specialty Products 9,893,700 (2)
Inc. (indirect ownership)(1)
Samuel J. Heyman 9,905,198 (2)
(indirect ownership)(1)(3)(4)
Sunil Kumar 25,987 (3)(4) $ 0
Raymond S. Troubh 19,948 (3)(4) $ 0
Gloria Schaffer 7,828 (3)(4) $ 0
Harry Fields 0 $ 0
Anthony Kronman 0 $ 0
Vincent Tese 1,000 $ 0
Gerald Tsai, Jr. 0 $ 0
Richard A. Weinberg 0 $ 0
Neal E. Murphy 0 $ 0
Susan B. Yoss 0 $ 0
Stephen R. Olsen 0 $ 0
Jason Pollack 0 $ 0
Justin L. Topilow 0 $ 0
Maria Biggio 0 $ 0
(1) ISP Investco LLC ("Investco") has the sole power to vote, direct the voting of, dispose of and direct
the disposition of the Hercules Common Stock. International Specialty Holdings Inc., by virtue of it
being the sole member of Investco, may be deemed to own beneficially (solely for purposes of Rule
13d-3) the Hercules Common Stock owned by Investco. International Specialty Products Inc., by virtue
of its ownership of all of the outstanding common stock of IS Holdings, may be deemed to own
beneficially (solely for purposes of Rule 13d-3) the Hercules Common Stock owned by Investco. Mr.
Heyman, by virtue of his beneficial ownership (as defined in Rule 13d-3) of approximately 100% of the
capital stock of ISP, may be deemed to own beneficially (solely for purposes of Rule 13d-3) the
Hercules Common Stock owned by Investco.
A-4
(2) In the ordinary course of its business, Investco purchases securities for its investment portfolio
with funds obtained from the working capital of Investco, loans from affiliates and borrowings
pursuant to standard margin arrangements. Because the securities from multiple investments are pooled
in one account, the amount of margin indebtedness incurred by ISP in connection with its purchases of
Hercules Common Stock, which purchases were numerous and made over several months, is impossible to
determine with any degree of certainty.
(3) Includes with respect to Mr. Heyman 8,498, Mr. Kumar 22,987, Mr. Troubh 16,948 and Mrs. Schaffer
4,828 shares of the Company's common stock acquired and/or granted to each of them in connection with
their service as members of the Board of Directors of the Company.
(4) Includes 3,000 options granted pursuant to the Non-employee Directors Stock Accumulation Plan which
are exercisable between 11/5/02 and 11/5/11 at an exercise price of $8.52.
Transactions in Hercules Securities Involving Participants
Other than the transactions described below, no Participant has
purchased or sold any securities of Hercules in the past two years.
A. All Transactions in Shares of Hercules Common Stock by Investco
Number of Shares
Nature of of Hercules
Date of Transaction Transaction Common Stock
--------------------------------- ----------------- ------------------
1/23/02 Sell 10,000(1)
2/12/02 Sell 532,000
2/13/02 Sell 115,500
2/14/02 Sell 42,000
2/15/02 Sell 126,000
____________________________________
(1) Private sale to Mr. Kumar.
A-5
B. Transactions in Shares of Hercules Common Stock by Mr. Heyman
Number of Shares
Nature of Hercules Common
Date of Transaction of Transaction Stock
--------------------------- -------------------- -------------------
06/21/01 Grant (1) 1,100
11/05/01 Grant (2) 3,000
02/14/02 Grant (3) 2,250
11/05/02 Grant (4) 3,000
12/13/02 Grant (5) 978
02/18/03 Purchase (6) 4,170
____________________________________
(1) Acquisition of restricted stock units pursuant to the Non-employee
Director Retirement Plan.
(2) Options granted pursuant to the Non-employee Directors Stock
Accumulation Plan which are exercisable between 11/5/02 and 11/5/11 at
an exercise price of $8.52.
(3) Acquired pursuant to the Non-employee Directors Stock Bonus Program.
(4) Options granted which are exercisable between 11/5/03 and 11/5/12 at
an exercise price of $9.49.
(5) Acquisition of restricted stock units pursuant to Board Resolutions on
December 12, 2002.
(6) Purchased pursuant to Non-employee Directors Stock Accumulation Plan
at a price of 85% of fair market value.
A-6
C. Transactions in Shares of Hercules Common Stock by Mr. Kumar
Number of Shares
Nature of Hercules Common
Date of Transaction of Transaction Stock
--------------------------- --------------------- -------------------
06/21/01 Grant (1) 1,100
11/05/01 Grant (2) 3,000
01/23/02 Purchase (3) 10,000
02/05/02 Grant (4) 4,858
02/14/02 Grant (5) 2,250
11/05/02 Grant (6) 3,000
12/13/02 Grant (7) 978
01/06/03 Forfeited (8) 657
02/18/03 Purchase (9) 4,458
____________________________________
(1) Acquisition of restricted stock units pursuant to the Non-employee
Director Retirement Plan.
(2) Options granted pursuant to the Non-employee Directors Stock
Accumulation Plan which are exercisable between 11/5/02 and 11/5/11 at
an exercise price of $8.52.
(3) Private purchase from ISP.
(4) Acquired pursuant to the Non-employee Directors Stock Accumulation
Plan.
(5) Acquired pursuant to the Non-employee Directors Stock Bonus Program.
(6) Options granted which are exercisable between 11/5/03 and 11/5/12 at
an exercise price of $9.49.
(7) Acquisition of restricted stock units pursuant to Board Resolutions on
December 12, 2002.
(8) Forfeited shares granted pursuant to Non-employee Directors Stock
Accumulation Plan.
(9) Purchased pursuant to Non-employee Directors Stock Accumulation Plan
at a price of 85% of fair market value.
A-7
D. Transactions in Shares of Hercules Common Stock by Mr. Troubh
Number of Shares
Nature of Hercules Common
Date of Transaction of Transaction Stock
--------------------------- ---------------------- -------------------
05/09/01 Purchase 7,500
06/21/01 Grant (1) 1,100
11/05/01 Grant (2) 3,000
02/05/02 Grant (3) 5,120
02/14/02 Grant (4) 2,250
11/05/02 Grant (5) 3,000
12/13/02 Grant (6) 978
____________________________________
(1) Acquisition of restricted stock units pursuant to the
Non-employee Director Retirement Plan.
(2) Options granted pursuant to the Non-employee Directors Stock
Accumulation Plan which are exercisable between 11/5/02 and
11/5/11 at an exercise price of $8.52
(3) Acquired pursuant to the Non-employee Directors Stock
Accumulation Plan.
(4) Acquired pursuant to the Non-employee Directors Stock Bonus
Program
(5) Options granted which are exercisable between 11/5/03 and
11/5/12 at an exercise price of $9.49
(6) Acquisition of restricted stock units pursuant to Board
Resolutions on December 12, 2002.
A-8
E. Transactions in Shares of Hercules Common Stock by Ms. Schaffer
Number of Shares
Nature of Hercules Common
Date of Transaction Of Transaction Stock
--------------------------- -------------------- -------------------
5/01 Purchase 500
6/21/01 Grant (1) 1,100
11/05/01 Grant (2) 3,000
2/14/02 Grant (3) 2,250
7/15/02 Sell 500
7/22/02 Purchase 500(4)
11/5/02 Grant (5) 3,000
12/13/02 Grant (6) 978
____________________________________
(1) Acquisition of restricted stock units pursuant to the
Non-employee Director Retirement Plan.
(2) Options granted pursuant to the Non-employee Directors Stock
Accumulation Plan which are exercisable between 11/5/02 and
11/5/11 at an exercise price of $8.52
(3) Acquired pursuant to the Non-employee Directors Stock Bonus
Program
(4) Ms. Schaffer repaid Hercules profits realized from the sale and
purchase that occurred within a period of less than six months.
(5) Options granted which are exercisable between 11/5/03 and
11/5/12 at an exercise price of $9.49
(6) Acquisition of restricted stock units pursuant to Board
Resolutions on December 12, 2002.
A-9
F. Transactions in Shares of Hercules Common Stock by Mr. Murphy
Number of Shares
Nature of Hercules Common
Date of Transaction Of Transaction Stock
--------------------------- -------------------- --------------------
11/19/01 Purchase 300(1)
03/18/02 Sell 300
09/20/02 Purchase 200
10/17/02 Sell 200
12/23/02 Purchase 500
01/14/03 Sell 500
01/27/03 Purchase 500
01/28/03 Sell 500
01/28/03 Purchase 500
01/28/03 Sell 500
____________________________________
(1) Mr. Murphy's employment with ISP began on February 16, 2002.
A-10
G. Transactions in Shares of Hercules Common Stock by Mr. Tese
Number of Shares
Nature of Hercules Common
Date of Transaction Of Transaction Stock
--------------------------- --------------------- -------------------
04/03/03 Purchase 1,000
A-11
Miscellaneous Information Concerning the Participants
Except as described in this Annex A or in the proxy statement, no
Participant nor any of their respective associates or affiliates including the
associates set forth in Schedule A (together, the "Participant Affiliates"), is
either a party to any transaction or series of transactions since January 1,
2002 or has knowledge of any currently proposed transaction or series of
proposed transactions, (i) to which Hercules 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. Furthermore, except as described in this Annex A or
in the proxy statement, no Participant or Participant Affiliate (i) directly or
indirectly beneficially owns any securities of Hercules or any securities of any
subsidiary of Hercules, or (ii) has had any relationship with Hercules in any
capacity other than as a shareholder or in the case of the minority directors,
as a director.
To the best of the knowledge of the Participants and the Participant
Affiliates, none has been, within the past year, a party to any contract,
arrangement or understanding with any person with respect to any securities of
Hercules, including but not limited to joint ventures, loan or option
arrangements, puts or calls, guarantees against loss or guarantees of profits,
division of losses or profits, or the giving or withholding of proxies.
No Participant or Participant Affiliate owns any securities of the
Company of record but not beneficially.
Except as described in this Annex A or in the proxy statement, no
Participant or Participant Affiliate has entered into any agreement or
understanding with any person respecting any future employment by Hercules or
any of its affiliates or any future transactions to which Hercules or any of its
affiliates will or may be a party. Except as described in this Annex A or in the
proxy statement, there are no contracts, arrangements or understandings by any
Participant or Participant Affiliate within the past year with any person with
respect to any securities of Hercules.
ISP and certain of its subsidiaries purchase and sell certain chemical
products to Hercules and/or certain subsidiaries or affiliates of Hercules in
the ordinary course of business in an aggregate amount per year that does not
exceed $750,000. Mr. Kronman's wife, Nancy Greenberg, has been a
consultant/employee of Heyman Properties, an affiliate of Mr. Heyman.
A-12
SCHEDULE A
Associates of International Specialty Products Inc.
Belleville Realty Corp.
International Specialty Holdings Inc.
ISP Investco LLC
International Specialty Products ISP (France) S.A.
ISP (Italia) S.r.l.
ISP Ireland
ISP Chemco Inc.
Bluehall Incorporated
Verona Inc.
ISP Alginates Inc.
ISP Environmental Services Inc.
ISP Management Company, Inc.
ISP Management LLC
ISP Administration Inc.
ISP Realty Corporation
ISP Minerals Inc.
ISP Granule Products Inc.
ISP Minerals LLC
ISP Granules Inc.
ISP Mineral Products Inc.
ISP Real Estate Company, Inc.
ISP Technologies Inc.
International Specialty Products Funding Corporation
ISP Funding Corp. II
ISP Technologies LLC
ISP Tech (Texas) Inc.
ISP Chemicals Inc.
ISP Chemicals LLC
ISP Chemical Products Inc.
ISP Freetown Fine Chemicals Inc.
ISP Investments Inc.
ISP Investments LLC
ISP Capital Inc.
ISP Global Technologies Inc.
ISP Global Technologies LLC
ISP GT Inc.
ISP International Corp.
ISP (Puerto Rico) Inc.
ISP Andina, C.A.
ISP Argentina S.A.
ISP Asia Pacific Pte Ltd.
A-13
ISP (Australasia) Pte Ltd.
ISP (Belgium) N.V.
ISP (Belgium) International N.V.
ISP do Brasil Ltda.
ISP (Canada) Inc.
ISP Global Operations (Barbados) Inc.
ISP Ceska Republika Spol, S.R.O.
ISP (China) Limited
ISP Colombia Ltda.
ISP Freight Service N.V.
ISP HC Limited
ISP Hungary Holdings Limited
ISP Global Technologies (Germany) Holding GmbH
ISP Customer Service GmbH
ISP Global Technologies Deutschland GmbH
ISP Holdings (U.K.) Ltd.
ISP Alginates (U.K.) Ltd.
ISP (Great Britain) Co. Ltd.
ISP (Hong Kong) Limited
ISP (Japan) Ltd.
ISP (Korea) Limited
ISP Marl Holdings GmbH
ISP Acetylene GmbH
ISP Marl GmbH
ISP Mexico, S.A. de C.V.
ISP (Norden) A.B.
ISP (Osterreich) Ges.m.b.h.
ISP (Polska) Sp.z. o.p.
ISP Sales (Barbados) Inc.
ISP Sales (U.K.) Limited
ISP (Singapore) Pte Ltd.
ISP (Switzerland) A.G.
ISP (Thailand) Co., Ltd.
Arramara Teoranta
Chemfields Pharmaceuticals Private Limited
Kelp Industries Pty. Ltd
Thorverk Hf
A-14