As filed with the Securities and Exchange Commission
on May 6, 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. 3)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant |X|
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)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule
and the date of its filing.
1
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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
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continuing until the 2006 Annual Meeting and until their successors are duly
elected and qualified.
THIS SOLICITATION IS BEING MADE BY THE HERCULES SHAREHOLDERS'
COMMITTEE FOR NEW MANAGEMENT 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:
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GEORGESON SHAREHOLDER COMMUNICATIONS, INC.
17 State Street
New York, New York 10004
Call Toll-Free: (866) 288-2190
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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, an international specialty chemicals company, 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 that 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 Joyce 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, Joyce has not purchased a single
share of Hercules stock since he came to the Company.
As one of Hercules' major shareholders, our interests are clearly
aligned with yours, and we are committed to maximizing 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, Hercules' Chief Executive, 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.
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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:
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 (New Haven Division), District of
Connecticut. 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 ISP's Chairman and controlling shareholder. He 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)
Realized Value
Time per Share for
Period Initial all Subject Stockholder
(initial purchase - value Cost Company Percentage Value Created
Company realization) Per Share Shareholders(4) 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
===============
Sunil Kumar - Mr. Kumar was formerly 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
--------
(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.
(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.
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Operating Officer of Building Materials Corporation of America, the nation's
leading manufacturer of residential and commercial roofing. Mr. Kumar has been
Chief Executive of ISP since June 1999.
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. Mrs. 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. and Governor of the
American Stock Exchange. He is a Board member of a number of public companies
and 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.
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 was President of
the International Flavor Division and a member of its Board of Directors. He
is currently President of Fields Associates, Ltd. and has served as a director
of other companies.
Anthony T. Kronman - Mr. Kronman is currently Dean of Yale Law
School. Mr. Kronman is a director of Adelphia Communications Corporation,
having been elected to the Board after the Company's bankruptcy filing last
year.
Vincent Tese - Mr. Tese has had a distinguished career in Government
service, having held the positions of 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. He is currently
the Chairman of Wireless Cable International Inc. and is a Board member of a
number of public companies.
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 is currently a
Board member of a number of public companies.
Additional information regarding the nominees is contained in this
proxy statement under the heading "THE NOMINEES."
REASONS FOR OUR SOLICITATION
Under Joyce's management, the Company's financial and stock price
performance have been in our opinion disastrous. Moreover, Hercules has been
in our view a case study in the failure of corporate governance. In addition,
we believe that Joyce and the Hercules Board were responsible for selling the
Company's best business at the worst possible time, and that
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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
$185 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 "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.
UNDER JOYCE, THE COMPANY'S PERFORMANCE IN OUR
OPINION HAS GONE FROM BAD TO WORSE
When measured by virtually any financial yardstick, the Company's
record in recent years under Joyce and his predecessors, has, in our opinion,
been disastrous.
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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 $10.11 per share, as of
May 5, 2003.
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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. Between the time Joyce became Chief Executive, on May
8, 2001, and February 11, 2003, the day prior to ISP's filing of an
amendment to its Form 13D which indicated that it was considering waging
a proxy contest for control of the Hercules Board, the price of Hercules
stock (which has paid no dividends since that time) lost 32% of its
value, while the S&P MidCap Specialty Chemicals Index increased by 3.2%
(including dividends) -- an underperformance of more than 35%.(6)
o Hercules' financial performance has in our opinion gone from bad to worse
under Joyce, prompting a financial columnist (Christopher Byron, February
17, 2003, New York Post) to characterize Hercules as "spewing red ink in
all directions". Under Joyce, the Company has not been profitable in 6 of
the last 7 reported quarters, registering more than $300 million in
after-tax losses (even excluding an almost $400 million "goodwill" and
FAS 143 write-down). For the 7 full reported quarters since Joyce became
CEO, even adjusting for almost $385 million in net, after-tax,
"non-recurring" charges as well as, the almost $400 million of additional
charge-offs, the Company has managed to register only $78
million in "pro forma" earnings -- or little more than an average of
$0.41 per share per annum.
o Just last month, in Business Week's performance ranking of companies in
the S&P 500 index (Business Week, Report Card on 500 S&P Companies,
Spring Issue, 2003), Hercules' performance was ranked 482 out of 500 -
down from 466 in the previous year. In connection with its ranking, the
Company received the following grades:
PERFORMANCE RANKINGS
-----------------------------------------------------------------------------------------------------------
Total Total Sales Profit
Return Return Sales Growth Profit Growth Return
Rank Rank (1 (3 Growth (3 Growth (3 Net on
2003 2002 Year) Years) (1 Year) Years) (1 Year) Years) Margin Equity
-----------------------------------------------------------------------------------------------------------
482 466 Hercules D D D F F F F F
-----------------------------------------------------------------------------------------------------------
Similarly, in Fortune's ranking of the Fortune 1000 industrial companies
(April 4, 2003) in terms of 2002 profitability vs. 2001 and 2002
profitability as a percentage of revenues, assets, and shareholders
equity, Hercules was ranked 35, 36, 36, and 32, respectively, out of 36
chemicals companies.
o 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 7 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 Joyce's arrival at Hercules). Pro forma
earnings per share for 2000-2002 have been as follows:(7)
2000 $1.12
2001 $0.04
2002 $0.63
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(6) On May 8, 2001, Hercules shares closed on the New York Stock Exchange at
$12 per share, and, on February 11, 2003, Hercules shares closed at $8.12
per share. It should be noted that Hercules shares have rallied since
ISP's 13D February 11th filing, and the current price, as of the close on
May 5, 2003, was $10.11 per share. Between May 8, 2001, and May 5, 2003,
Hercules stock lost 16% of its value, while the S&P MidCap Specialty
Chemicals Index increased by 16%(including dividends) -- an
underperformance of 32%.
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 including Dupont and Dow and other companies with a mean
market capitalization of $8.94 billion, with Hercules being by far the
smallest, is an appropriate reference point with regard to Hercules'
performance. Even so, Hercules' stock price has substantially
underperformed the S&P 500 Chemicals Index over the relevant time frame.
(7) 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. Pro forma 2001 and 2002 earnings per share exclude the
earnings and related interest expenses for the BetzDearborn business
which was sold.
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o 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 (excluding
goodwill writedowns) were only approximately 50% and 70%, respectively,
of the returns for the same 8 companies. And Hercules' performance in the
first quarter of 2003 continued to show below-average performance, as the
Company lagged the 8 Index companies with respect to all these metrics.
JOYCE'S RECORD AT UNION CARBIDE - DISASTROUS
FINANCIAL PERFORMANCE, BROKEN PROMISES,
AND OUTRAGEOUS COMPENSATION
Prior to coming to Hercules, 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 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 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 Joyce's
final year.
o Joyce's credibility with Union Carbide shareholders was undermined
by repeated broken promises.
(1) In 1997, 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.
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(2) In early 1999, 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.
(3) On July 26, 1999, little more than 60 days before the end of
the quarter, 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.
(4) One commitment that 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," 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 Joyce took
his full salary and bonus anyway!
o Notwithstanding Union Carbide's dismal performance during the five
years that he was Chief Executive, Joyce's total annual compensation
increased almost three fold -- from $8.8 million per annum in 1995
to $23.3 million per annum in 1999.(8)
o Finally, after five years of Joyce's leadership at Union Carbide,
the Company was acquired by Dow Chemical. Of 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 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."
----------
(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.
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JOYCE'S COMPENSATION CONTINUES TO ESCALATE WHILE THE FORTUNES
OF THE COMPANY AND ITS SHAREHOLDERS SUFFER
To add insult to injury in the face of Hercules' disappointing
financial performance, Joyce enjoys what we believe to be outrageously
excessive compensation - all at the expense of Hercules shareholders.
Consider these facts about Joyce's compensation package in light of
his "track record" and then ask yourself: - DID HE EARN IT?
o When Joyce came to Hercules in May 2001, he was given a golden
parachute agreement which would provide him today with a payment of
almost $10 million in the event of a "change in control," which was
defined to include a shift in the composition of a majority of
directors as a result of a proxy contest.
o For Joyce's seven months on the job in 2001 (he came to Hercules in
May of that year), a year in which the Company registered a $58
million loss, in addition to stock options for 1,250,000 shares,
Joyce was paid a salary at the rate of $1 million per annum and was
given a $1 million bonus for his seven months on the job.
o For 2002, a year in which the Company posted a loss of $248 million
(excluding a $368 million write-down of goodwill), in addition to
his $1 million annual salary, Joyce was given a bonus of $1.9
million ($900,000 of which was given to him in the form of Hercules
stock at a 15% discount) and additional stock options for 600,000
Hercules shares.
o Just last month, the Board's Compensation Committee proposed that
Joyce be given a grant of 211,000-500,000 restricted shares, to vest
upon a "change in control" defined to include, among other things,
the Committee's winning this very proxy contest, with the amount of
restricted shares depending upon the price of Hercules stock at the
time of the change in control. Assuming the Company's current stock
price of $10.11 per share, as of the close of business on May 5th,
Joyce would receive 300,000 shares - at a cost to the Company of
more than $3 million. Based upon a schedule where the amount of the
grant increases with the price of Hercules stock, should the
Hercules stock price, by way of illustration, exceed $12 per share
at the time of a change in control, Joyce would receive 500,000
shares - worth more than $6 million.
You should know that, in discussions with the Compensation Committee
prior to the above-mentioned Board meeting, Joyce had insisted on an even
larger grant than the one the Committee proposed. Only after the
objection of our minority directors and the acknowledgement by one of the
majority directors that the proposed course of action would not "read
well on the front page of The Wall Street Journal," did the Board decide
to defer action on Joyce's grant until a later time.
o For 2002, including the value of Joyce's long-term incentive
compensation, Joyce's total compensation of $6 million easily ranked
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him higher than any CEO of the eight companies in the S&P Mid-Cap
Specialty Chemicals Index - with his compensation being almost 2-1/2
times the average for the eight companies.
You should know that, in the event that Joyce's management is repudiated
in this proxy contest, we estimate that he will have been paid more than $25
million for his two years on the job. Ask yourself whether Hercules is being
run mainly for your benefit or for the benefit of its Chief Executive.
THE BETZDEARBORN SALE - 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 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 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).
12
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 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), 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?
REVOLVING DOOR AT HERCULES, SIX CHIEF EXECUTIVES
IN SIX YEARS, AND NO APPARENT BUSINESS STRATEGY
The primary responsibilities of a Company's Board of Directors are to
attract and manage by appropriate objectives capable chief executives as well
as establish policies and business strategies for the Company. 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) million severance package for three years of
service and another a $6 million package after only 16 months on the job.
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 sorry record in our opinion is most
starkly illustrated by its failure to provide 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
Joyce's 2002 management objectives.
As further evidence of 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 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
----------
(9) Estimate is based on a 20 year life expectancy.
13
Morgan Stanley, to question Hercules' long-term prospects (November 2, 2001)
and has been illustrated by Joyce's sharp cuts in both research and
development and capital expenditures.
With regard to the Company's capital programs, for example, under the
current Hercules Board and management, capital expenditures have been reduced
from $119 million in 2000 to $49 million in 2001 and $43 million in 2002.(10)
Hercules' capital spending last year approximated only 60% of the Company's
depreciation expense of $71 million. This prompted Andrew Cash, a security
analyst at UBS Warburg, to recently observe, after predicting that 2003 will
be the third consecutive year in which capital spending is below depreciation,
"Although we applaud management's frugality, investors need to be aware that
capital spending cannot remain this low into perpetuity, i.e., equipment ages,
new capital must be invested into the business to allow for growth, etc."
(May 2, 2003).
HERCULES' $570 MILLION PENSION FIASCO
Over the last three years, including almost two full years under
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 in a recent Credit Suisse First Boston
report (David Zion, April 14, 2003), which estimates that of 361 S&P 500
companies with defined benefit pension plans, Hercules' underfunded status
ranks it in the 16th worst position when compared to its equity market
capitalization. The report concluded that Hercules' total pension obligations
represent 159% of its market capitalization, ranking it the 20th highest of
the 361 companies in that category. In addition, an earlier Credit Suisse
First Boston report (September 27, 2002) 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.(11)
Hercules' pension performance has been 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. Interestingly 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
------------
(10) The above-mentioned expenditures are adjusted to exclude all divested
businesses.
(11) 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.
14
outnumber actives in the plan by a 10-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 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
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
Joyce. At the very least, this underscores the Company's need for a CFO, which
we urged upon Joyce and the Board almost two years ago.
JOYCE PACKS THE BOARD WITH FIVE HANDPICKED DIRECTORS
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.(12)
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 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,
Joyce, acting in concert with the Board's nominating committee, has
handpicked, 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 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 Joyce's positions on a single issue.
As further evidence of 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
----------
(12) This last practice was stopped at the insistence of our minority
directors some months after we joined the Board in 2001.
15
these committees.(13) 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 to, 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!
HERCULES' POISON PILL COSTS HERCULES SHAREHOLDERS $185 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 $185 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.(14) 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.
JOYCE AND THE HERCULES BOARD REFUSE TO NULLIFY A
COMPANY BYLAW THAT DISENFRANCHISES ITS SHAREHOLDERS
The disregard of 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.
----------
(13) At a later time, one of our minority directors received major
committee assignments, although the three other minority directors still
have not.
(14) According to an Investor Responsibility Research Center study of more
than 2,000 companies with poison pills, only 6% have triggers as low as
10%.
16
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
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 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.
17
(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 Joyce
and the Board have inexplicably refused to fill during his two-year term
at the Company despite Hercules' myriad financial challenges.(15)
(3) Eliminate excessive compensation and bonuses as have been enjoyed by
Joyce and other Company executives 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 the top, and that the
kind of compensation enjoyed by 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 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.
-------------
(15) Parenthetically, of what we believe to be the Company's failures under
Joyce's management, a number of them have come in areas normally the
responsibility of a Company's Chief Financial Officer. In addition to the
pension fiasco referred to earlier and the fact that the Company has
failed to file its periodic, public financial reports (including its
certification last August under the Sarbanes-Oxley Act of 2002) in a
timely fashion on four separate occasions since January 2001, Hercules
has paid, in 2001 and 2002, what we believe to be an astounding $19
million and $21 million, respectively, in fees to the Company's auditors.
The sum paid by Hercules last year, for example, was nearly 8 times the
average expense for the eight companies in the S&P MidCap Specialty
Chemicals Index. In fact, we believe that the only chemicals company that
paid more to its auditors than Hercules last year was DuPont, which is
more than ten times the size of Hercules.
18
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 re-
spect 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.
19
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 Hercules
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:
20
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.
21
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
22
positions. The 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 Realty Corp. and
23
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.
Mr. Tsai currently owns 10,000 Shares while each of the other
Nominees currently owns 1,000 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 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 December 31, 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 May 5, 2003, the last
24
reported trading price of the Notes in the over-the-counter market was $113
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.
According to the Company's Long Term Incentive Plan ("LTIP") pursuant
to which Company employees (including officers and directors who are
employees) are eligible for incentive awards including, stock options and
restricted stock, the Nominees election would constitute a "Change in Control"
(as such term is defined in the LTIP). Until several years ago, the "Change in
Control" definition did not include a change in the composition of the Board.
The LTIP was then amended in August 2000 so that it would be triggered if the
Nominees are elected, although the Company never disclosed this to
shareholders in apparent violation of federal securities law.(16) The fact of
the amendment was never disclosed to the minority directors until April 2003.
The Company failed to disclose the existence of the amendment to the
"Change in Control" definition in the LTIP when it asked shareholders to
approve an extension of the LTIP at last year's Annual Meeting, thereby
raising serious question as to the validity of the extension of the LTIP past
its original termination date of April 30, 2002. Similarly, the failure to
disclose this change to shareholders raises serious question as to the
validity of grants made after the extension of the LTIP, including an April
2003 grant of 750,000 restricted shares of Hercules stock to 137 Company
executives.
In the event the Nominees are elected at the 2003 Annual Meeting, the
provisions of the amendment regarding a "Change in Control" would result in
all validly issued outstanding stock options, SARs and PASOs becoming
immediately exercisable for a period of 60 days and all other validly issued
awards becoming fully payable within 30 days at the maximum level of
performance. In the event that it is finally determined that the questionable
grants discussed above were validly issued, such awards would also become
fully vested upon a "Change in Control."
If the Nominees are elected, it may also constitute a "Change in
Control" (as such term is defined in the Company's Annual Management Incentive
Compensation Plan (amended and restated February 21, 2003) (the "MICP")) under
the MICP, pursuant to which employees of the Company (including officers and
employee directors) are granted bonus awards, which over the last two years
have totaled for the Company $9-10 million per annum.(17) Upon a "Change in
Control", participants in the MICP, within thirty (30) days after the
effective date of such Change in Control, would receive payment in full of
their Individual Target Award (as defined therein) for that Plan Year (as
defined therein) irrespective of when the "Change in Control" occurred during
that year. In the case of a participant whose employment is terminated during
the Plan Year but prior to such Change in Control, the payment would be
pro-rated for the time actually worked. In the case of a participant who is a
party to any individual agreement under which the participant is or may become
entitled to payments with respect to the same Incentive Award as described
above, the Company (or its successor) may make the right of such participant
to receive the payment set forth above conditioned upon the execution by such
participant of a waiver of the right to receive such payments under the
individual agreement to the extent they would duplicate such payment.
-----------------
(16) Under the version of the LTIP still filed with the SEC, a "Change in
Control" would not occur upon election of the Nominees. Members of the
Committee, however, have been informed that the LTIP has been amended
and pursuant to the terms of such amendment the election of the
Nominees would result in a "Change in Control".
(17) In the filed version of the MICP, the term "change in control" is
defined to mean the occurrence of one of certain events, including a
change in the composition of a majority of the members of the Board
after a specified date. However, the provision describing a change in
the composition of the Board is incomplete and therefore makes it
impossible for shareholders to ascertain whether the election of the
Nominees at the 2003 Annual Meeting would result in a "Change in
Control".
CERTAIN INTERESTS IN THE PROPOSALS
AND 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 serving 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, or contingent in any manner, on the outcome of the
Committee's proxy solicitation or otherwise. The letter agreement provides
that ISP will indemnify and hold harmless the Nominee from any and all
25
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. 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 $325,000, plus reimbursement of its reasonable out-of-pocket
expenses. Georgeson will utilize approximately 50 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.
26
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
27
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
28
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 and privately held
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
As of the date hereof, the Participants and their associates may be
deemed to have beneficial ownership of Shares as set forth immediately below.
Except as set forth below, as of the date hereof, 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 1,000 $ 0
Anthony Kronman 1,000 $ 0
Vincent Tese 1,000 $ 0
Gerald Tsai, Jr. 10,000 $ 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. Fields
Number of Shares
Nature of Hercules Common
Date of Transaction Of Transaction Stock
--------------------------- --------------------- -------------------
04/02/03 Purchase 1,000
A-11
H. Transactions in Shares of Hercules Common Stock by Mr. Kronman
Number of Shares
Nature of Hercules Common
Date of Transaction Of Transaction Stock
--------------------------- --------------------- -------------------
04/09/03 Purchase 1,000
A-12
I. 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-13
J. Transactions in Shares of Hercules Common Stock by Mr. Tsai
Number of Shares
Nature of Hercules Common
Date of Transaction Of Transaction Stock
--------------------------- --------------------- -------------------
04/07/03 Purchase 5,000
04/09/03 Purchase 5,000
A-14
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-15
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.
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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-17