As filed with the Securities and Exchange Commission on May 28, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
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HERCULES INCORPORATED
(Name of Registrant as Specified in Its Charter)
Hercules Shareholders' Committee for New Management
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THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
17 State Street, New York, NY 10004
May 27, 2003
Mr. Mario Gabelli
Gabelli Asset Management
401 Theodore Fremd Avenue
Rye, NY 10580
Dear Mario:
I am in receipt of a copy of your May 27th letter to Dr. Joyce.
As to your first point, our minority directors, myself, and indeed
the entire Hercules Shareholders' Committee for New Management could not be
more opposed to Hercules' poison pill. We took precisely that position in the
2001 proxy contest, and I am enclosing excerpts from our 2001 Proxy Statement
which articulate our position in greater detail. Since our four minority
directors were elected to the Hercules Board in June, 2001, we attempted to
have the Board first rescind, and then modify, the poison pill, and even our
ultimate watered-down proposal to increase the trigger point to 15% was
defeated by a 7-6 vote, with Dr. Joyce casting the deciding vote in favor of
retention of the pill without change.
Incidentally, at the time of the vote, Joyce indicated that he would
only consider a change in the poison pill threshold to 15% should the minority
directors agree not to contest the reelection of himself and his fellow
majority directors at the 2002 Annual Meeting, which I think you will agree
was inappropriate for obvious reasons. Parenthetically, in casting the
deciding vote against the proposal, you should know that, Dr. Joyce reported
to the Board, incredibly enough, his intention at the same time to solicit
other Hercules shareholders with the same proposition - namely, that he would
consider supporting changes to the poison pill only in return for assurances
of support in connection with his candidacy for election at the 2002 Annual
Meeting!
I am enclosing excerpts from our 2003 Preliminary Proxy Statement
which recount our efforts in this regard and the fact that rescission of the
poison pill is one of the Committee's proposed courses of action should its
nominees be elected in this year's proxy contest. Finally, Mario, we only
asked you to withdraw your proposal because of the fact that it is non-binding
on the Board, the Hercules Board has a history of disregarding shareholder
resolutions regarding the poison pill, and that under the circumstances the
proposal as it stands could serve in our view as an unnecessary distraction in
the proxy contest.
We are not only in total agreement with your position on this, but we
propose to go one step further. The Hercules Board is scheduled to meet in the
very near term, and, in view of your initiative, the minority directors intend
at that time to try once more by proposing that the Board redeem the pill.
Obviously, if you can get Joyce and his majority directors to withdraw their
previous opposition, that would be of great benefit to all Hercules
shareholders.
On your second point, I would certainly be willing to participate in
a debate with Dr. Joyce, which you would moderate, regarding Hercules and the
Company's future direction.
Thank you for your interest in these matters and all the best.
Sincerely,
/s/ Samuel J. Heyman
SJH:kjc
cc: Dr. William H. Joyce
enclosures
ADDITIONAL INFORMATION
International Specialty Products Inc., Samuel J. Heyman, Raymond S. Troubh,
Sunil Kumar, Gloria Schaffer, Harry Fields, Anthony T. Kronman, Vincent Tese
and Gerald Tsai, Jr. and certain other persons may be deemed participants in
the solicitation of proxies from the shareholders of Hercules Incorporated
("Hercules") in connection with Hercules' 2003 Annual Meeting of Shareholders
Information concerning such participants is available in the Hercules
Shareholders' Committee for New Management's (the "Committee") revised
preliminary proxy statement on Schedule 14A (the "Preliminary Proxy
Statement") filed by the Committee with the Securities and Exchange Commission
(the "SEC") on May 15, 2003.
SHAREHOLDERS OF HERCULES ARE ADVISED TO READ THE COMMITTEE'S DEFINITIVE PROXY
STATEMENT (THE "DEFINITIVE PROXY STATEMENT") IN CONNECTION WITH THE
COMMITTEE'SSOLICITATION OF PROXIES FROM HERCULES SHAREHOLDERS WHEN IT BECOMES
AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Shareholders of
Hercules and other interested parties may obtain, free of charge, copies of
the Preliminary Proxy Statement and the Definitive Proxy Statement (when
available) and any other documents filed by the Committee with the SEC, at the
SEC's Internet website at www.sec.gov. The Preliminary Proxy Statement and the
Definitive Proxy Statement (when available) and these other documents may also
be obtained free of charge by contacting Georgeson Shareholder Communications
Inc., the firm assisting the Committee in the solicitation of proxies,
toll-free at 1-866-288-2190.
[EXCERPT FROM REVISED PRELIMINARY PROXY STATEMENT OF THE COMMITTEE,
FILED MAY 15, 2003]
management's poor business judgment was in no small measure responsible for
the Company's almost $570 million pension fiasco.
The Committee's four director-nominees, if elected, will, when
combined with our four minority directors, constitute a majority of the Board
and will be in a position to not only avoid the mistakes of the past but cause
the Hercules Board to take positive actions designed to increase shareholder
value, such as:
o Focus on the "hands-on" management of Hercules' businesses and
successful, bottom-line operating and growth strategies, both short and
long term, and strengthen the Hercules management team. We intend to
elect a new, highly qualified, full-time, "roll up your sleeves" Chief
Executive committed to the turnaround of the Company's businesses, who
will reside in the Wilmington area and whose compensation will be
designed to closely align his or her interests with those of Hercules
shareholders. Finally, we will devote high-level attention to not only
the turnaround of Hercules' operating businesses but also the management
of the Company's critical, non-operating issues, such as the minimization
of its pension exposure.
o Remove or substantially modify the Company's poison pill, which prevented
Hercules shareholders, in October 2000, from accepting ISP's $17.50 per
share offer for 25 million shares - thereby costing Hercules shareholders
more than $190 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 $9.75 per share, as of May 14, 2003.
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 MORE THAN $190 MILLION
In October 2000, in order to increase its investment in the Company,
ISP proposed a tender offer to all Hercules shareholders to purchase 25
million additional shares of Hercules stock for $17.50 per share in cash.
However, because of the Company's poison pill, its offer required Board
consent. Despite repeated requests that Hercules permit it to proceed, the
Board refused to do so - thereby costing Hercules shareholders more than $190
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.
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(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%.
[EXCERPT FROM ISP'S DEFINITIVE PROXY STATEMENT FOR
HERCULES' 2001 ANNUAL MEETING OF SHAREHOLDERS]
REASONS FOR OUR SOLICITATION
We are the largest stockholder of the Company. As the owner of more
than 10.7 million shares of Hercules common stock, we have an investment of
$150 million at stake. Our interests are clearly aligned with yours. We want
to maximize value for all Hercules stockholders. Our four nominees for
directorships are committed, subject to their fiduciary duties if elected, to
urge the Hercules Board to:
o bring about the sale or merger of the Company, in the most timely,
effective and efficient manner possible;
o remove barriers to offers for your shares, so that you can make your
own decisions; and
o reverse the Company's position with regard to a Hercules Bylaw which
it claims requires the affirmative vote of the holders of a majority
of all outstanding shares for the election of directors.
Our nominees, if elected, will not constitute a majority of the Board. As a
result, our nominees will not be in a position by themselves to cause the
Hercules Board to take the foregoing actions. However, we believe that the
election of our nominees will send a clear message to the remaining incumbent
directors that these actions are necessary and in the best interest of
Hercules stockholders.
THE COMPANY'S PERFORMANCE OVER THE LAST FIVE YEARS HAS, IN OUR
OPINION, BEEN DISASTROUS FOR STOCKHOLDERS
When measured by virtually any financial yardstick, Hercules'
performance over the last five years, has, in our opinion, been disastrous for
the Company's stockholders. Consider the following:
o Hercules' stock price in the last five years has lost nearly 80% of
its value since reaching its high of $66.25 on March 19, 1996, wiping
out more than $5.5 billion in stockholder value, notwithstanding one
of the greatest bull markets in the history of the American stock
market;
o Based on total return to shareholders over the past five years,
Hercules was recently ranked by The Wall Street Journal (February 26,
2001) as 6th worst out of 1,000 major public companies;
o Hercules first cut and then totally eliminated your dividend last
year despite earlier assurances that the dividend would be
maintained;
o Hercules' $3.1 billion acquisition of BetzDearborn in 1998 has been
characterized by Paul Leming, an ING Barings security analyst, as
"one of the worst acquisitions in the history of the chemical
industry" (July 18, 2000);
o You should know that all eight of the current incumbent Hercules
directors who served on the Hercules Board at the time of the
BetzDearborn acquisition in 1998 voted to approve the transaction.
Three of the other current Hercules directors are former BetzDearborn
directors;
o As a result of the BetzDearborn acquisition and the poor operating
performance of Hercules' businesses since that time, the Company's
debt, including preferred stock, has increased eleven-fold over the
last five years - from less than $300 million, at the end of 1995, to
approximately $3.2 billion, at the end of 2000. During that period of
time, Hercules' debt ratings have been reduced (six grade levels by
Moody's and seven at Standard and Poor's) to non-investment grade -
thereby severely impacting the Company's borrowing costs;
o Leslie Ravitz, a chemicals industry security analyst at Morgan
Stanley Dean Witter, referring to the continued deterioration in
Hercules' financial performance, observed, "It just seems to get
worse and worse" (March 23, 2000). Since that time, Hercules'
performance has deteriorated even further; and
o Just this past February, Hercules reported fourth quarter 2000 profit
from operations of $68 million and a net loss of $6 million, or $0.05
per diluted share, excluding nonrecurring items. This result was in
sharp contrast to Hercules' own projection (off more than 30%) given
on October 26th, only two months before the end of the quarter, that
fourth quarter profit from operations would be in the range of $100
million. The results also reflected a significant decline from
Hercules' fourth quarter earnings per share of $0.46 in the previous
year.
HERCULES HAS DISREGARDED, IN OUR VIEW, THE INTERESTS OF ITS
STOCKHOLDERS BY ERECTING A FORTRESS OF ANTI-TAKEOVER DEFENSES
Hercules has erected over time a fortress of anti-takeover defenses,
which include a poison pill, staggered board, interpretation of a Company
Bylaw to require an affirmative vote of a majority of all outstanding shares
for election of directors, "blank check" preferred stock, an 80% super
majority vote requirement to amend certain Bylaws and charter provisions and
approve certain merger transactions, and the ability to add directors without
stockholder approval.
Consider the following examples of how the Hercules Board has
utilized these defenses in disregard, in our opinion, of the interests of its
stockholders:
(1) In October 2000, in order to increase our investment in the
Company, we proposed to purchase 25 million additional shares of Hercules
stock for $17.50 per share in cash, a premium of almost 50% over the closing
price on the day before our Hercules share ownership was first publicly
announced. Parenthetically, we made this offer at the same time we recommended
that the Hercules Board entertain a sale of the Company. In so doing, we
acknowledged that "Hercules shares should be worth more in a sale of the
Company," and stated that the offer was an "expression of our confidence" in
the proposed sale course of action and was designed to "provide those Hercules
shareholders who wished to sell their shares now with an opportunity to do so
at a 25% premium above the current market price." However, because of the
Company's poison pill our offer required Board consent, and despite repeated
requests that Hercules permit us to proceed, the Board refused to do so.
You should know that the Hercules poison pill was adopted last August
notwithstanding the fact that Hercules stockholders have in the past voiced
their strong opposition to poison pills. In 1991, a non-binding proposal to
redeem Hercules' then-existing poison pill, or submit it to a stockholder
vote, was approved by stockholders. Despite this stockholder mandate, the
Hercules Board never put the redemption of the poison pill to a definitive
vote and refused to terminate the pill until three years later, allowing it to
terminate only two years prior to its expiration.
With regard to the poison pill currently in effect at the Company,
which has a low 10% threshold, the Hercules Board rushed to adopt it last
year, without stockholder approval, less than two weeks after ISP had publicly
announced its ownership position in Hercules. When we later proposed a
compromise whereby the poison pill would be amended to permit anyone,
including ISP, to purchase up to 20% of the Company's outstanding shares (20%
being a more customary threshold for Companies with poison pills), our
proposal was rejected by the Board.
In its proxy statement, Hercules cites studies conducted by J.P.
Morgan & Co. in 1995 and 1997 that "show that companies with rights plans
receive higher takeover premiums than those without such plans and that rights
plans do not decrease the likelihood that takeover bids will be made or
completed." An IRRC publication "Corporate Governance Service 2000 Background
Report -- Poison Pills" published on March 6, 2000 discussed various poison
pill studies and noted that "[s]ome observers downplay the importance of the
various studies, saying that they provide generalized descriptions but that
specific companies use pills differently - sometimes for management
entrenchment" and that "some observers said their view of the studies depended
in part on their view of those producing them." We believe that the critical
point here is that because Hercules has reinstated its poison pill, its
stockholders have been deprived of the right to decide whether or not to
accept offers for their shares.
(2) Similarly, Hercules' disregard for the interests of the Company's
stockholders is demonstrated by a Hercules 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 the 2001 Annual Meeting (a plurality vote). This would mean,
for example, that even if each ISP nominee receives 50,000,000 votes and each
incumbent director receives 10,000,000 votes, the incumbents would retain
their seats on the Board because our nominees would not have received a
majority vote of approximately 108 million outstanding shares of Hercules
common stock.
AS THE COMPANY'S LARGEST STOCKHOLDER, WE ARE COMMITTED
TO MAXIMIZING VALUE FOR ALL HERCULES STOCKHOLDERS
ISP is the owner of more than 10.7 million shares of Hercules common
stock and has an investment of $150 million at stake. Our interests are
clearly aligned with yours. We want to maximize value for all Hercules
stockholders. Two of our nominees, Messrs. Heyman and Kumar, are ISP's
Chairman and its President and Chief Executive Officer, respectively, and
accordingly have a strong interest in maximizing the value of Hercules shares.
In contrast, the four incumbent nominee directors up for reelection this year
have in the aggregate purchased at market value only approximately 10,000
shares.(2)
We seek the opportunity for our nominees to participate
constructively as directors, and particularly with respect to any sale process
involving Hercules. We are not seeking to acquire or control the Company.
Rather, our concern is to safeguard stockholder interests and help ensure that
a sale be executed in an efficient and timely manner for the best price. In
our view, the performance of the current Board and its continued maintenance
of a wide variety of anti-takeover devices have not served the interests of
the stockholders and raise serious question as to whether the incumbent
directors can provide the best solution to the Company's problems. Their
record speaks for itself.
OUR NOMINEES WILL SEEK TO REMOVE ANTI-TAKEOVER DEVICES
If elected, our nominees will urge the Hercules Board to remove the
anti-takeover devices, which, in our view, threatens to disenfranchise your
voting rights and prevent you from making your own decisions as to offers for
your shares. Our nominees will seek, among other things, to:
o redeem the poison pill rights plan adopted by the Hercules Board last
year;
o urge the Board to reverse the Company's position with regard to a
Hercules Bylaw which it claims requires the affirmative vote of the
holders of a majority of all outstanding shares for the election of
directors;
o present stockholders with the opportunity to opt out of Section 203
of the Delaware General Corporation Law (which generally prohibits
certain business combination transactions with a beneficial owner of
more than 15% of Hercules' voting stock for three years unless
Hercules' Board has previously approved the business combination
transaction or the initial 15% acquisition); and
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(2) The Hercules nominees own in the aggregate approximately 162,000 shares,
having acquired approximately 152,000 shares through outright grants and
Company subsidized stock purchases.