AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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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 19, 2003
Dear Hercules Employee Plan Participant:
While we will also communicate with you through our letters to all
Hercules shareholders, we are writing to you separately as Hercules employees
and retirees, as well as owners, in order to address questions you may have
regarding the Committee and its plans as they might impact the future of our
Company and yourselves.
(1) Our four minority directors have been advocates of a pro-growth policy
at Hercules. You should know that we opposed the sale of BetzDearborn
because of the fact that attractive refinancing of the Company's debt
was available at the time without the necessity of asset sales, and we
believed that Dr. Joyce and the majority directors were selling a
promising business at the worst possible time. While it is public
knowledge that for much of the last three years the Company has sought
to sell itself, in whole or in part, beginning shortly after taking
their seats on the Board in June 2001, our minority directors have
advocated "taking the for sale signs down" and focusing on the growth
of our businesses.
While as major Hercules shareholders we would always support a sale of
the Company at an attractive price, we have long held the view that it
was unlikely that the Company could be sold during this period of time
at a price attractive to shareholders. As a result, we accurately
predicted that the pursuit of "wild goose chases" by Joyce and his
predecessor would needlessly divert management attention and focus -
jeopardizing the morale of our employees, the value of our business
franchises, and indeed the whole fabric of our Company.
(2) Although we have been largely supportive of management's cost cutting
program, it is axiomatic that businesses cannot "cost cut their way to
prosperity" and that successful turnaround strategies can never rely on
cost reduction alone. Unfortunately, management's almost exclusive
preoccupation has been on cost reduction. But dynamic leadership isn't
just about cutting costs or staying afloat. Given the experience of
members of our Committee in the specialty chemicals industry, we would
place the very highest priority on avoiding the commodization of
Hercules' businesses. In so doing, we would focus on new products,
acquisitions, expanded field technical services, new alliances with
other manufacturers to add complementary products, and a pricing
strategy which emphasizes profitability rather than modest market share
gains.
(3) We could not be more opposed to the outrageous compensation practices
at the Company, pursuant to which a succession of failed CEOs and other
senior executives are awarded multi-million dollar golden parachutes,
bonuses, and severance packages. While Joyce will have been paid,
should our nominees prevail in the proxy contest, more than $25 million
for his two years on the job,
many Hercules employees have at the same time been laid off, had their
salaries frozen, or received skimpy increases. Moreover, under
management's "pay for non-performance" philosophy, compensation appears
to bear no relationship to individual, Company, or shareholder
performance. Earlier this year, for example, Joyce was awarded a bonus
of $1.9 million while other top executives received another $8 million
-- following a year in which the Company registered a loss of almost
$250 million (excluding a $360 million write-down of goodwill) and
Hercules shareholders lost approximately $400 million in the market
value of their investments in the 12 month period prior to the bonus
awards.
Just recently, at an April 17th Board meeting, the Board took the
outrageous action to authorize a grant of 750,000 restricted shares of
Hercules stock to 137 Company executives at a cost to the Company of
$7-1/2 million -- which grant will fully vest in the event that the
Committee's nominees are elected at this year's Annual Meeting! In
addition to the 750,000 share grant, the Board's Compensation Committee
proposed that Joyce be given a grant of 211,000-500,000 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
$10.02 per share, as of the close of business on May 16, 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 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 Board meeting to be scheduled in
the near future.
(4) On the subject of employee benefits, we, as well as the majority
directors, have agreed that the Company's pension obligations to
retirees and pension benefits for actives must be preserved and
safeguarded. Where we disagree with the majority directors, however, is
that we believe that the Hercules pension plans have been terribly
mismanaged, resulting in last year's $570 million pension fiasco. As we
outline in our Proxy Statement, we favor reducing the risk profile of
the pension plan investments -- believing that this not only makes
sound business sense, but that it will have the added affect of
allaying the concerns of Hercules employees and retirees for the safety
of their pensions.
With respect to health and medical benefits, while all Hercules
directors regret having had to make such a move because of its impact
on our employees, both majority and minority directors have approved
cost reductions in health and
2
medical programs in keeping with what hundreds of other companies in
corporate America have already done.
(5) In response to misconceptions regarding members of our Committee, which
management has attempted to foster by innuendo, you should be aware of
the following FACTS:
Mr. Heyman (together with Mr. Kumar with respect to Dexter and Life
Technologies) has been involved as a shareholder activist with respect
to five public companies, helping to create more than $7 billion of
increased wealth for ALL shareholders of those companies, as
illustrated below:1
Realized Value
Time per Share for
Period Initial all Subject Stockholder
(initial purchase - value Cost Company Percentage Value Created
Company realization) Per Share Shareholders2 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
===============
While these efforts have resulted in substantial profits for GAF and
ISP, for which we trust we need make no apology, they have created far
more wealth for other public shareholders of these five companies.
Moreover, neither Mr. Heyman nor any of his companies or associates
have ever taken "greenmail". In fact, Mr. Heyman has been a leader for
more than 20 years in efforts to improve corporate governance practices
in Corporate America and has consistently taken public positions
strongly criticizing greenmail.
* * * * * * * * * *
We remain convinced that there are still substantial underlying values
at Hercules and that the Company's two remaining, primary businesses, Aqualon
and
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1 There is, of course, no assurance that either the efforts of the
Committee or Mr. Heyman will result in similar benefits for Hercules
shareholders.
2 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.
3
the pulp and paper businesses, are not only extremely attractive but, under the
right direction, have substantial potential for growth. Should the Committee's
nominees be elected at the Annual Meeting this year, we will recruit an
outstanding Chief Executive who will not only be committed to creating
shareholder value but focused on the long-term health and growth of the
Company's businesses.
If you are as dissatisfied as we are with the disastrous performance of
the Company and its stock price and are as concerned as we are about Hercules'
future direction, we urge you to support our efforts on behalf of ALL Hercules
shareholders.
We estimate that approximately 7% of the Company's outstanding shares
are owned by current Hercules employees and retirees. Your vote is all the more
important because of the Company's director election Bylaw, which the majority
directors claim requires an affirmative vote of a majority of ALL outstanding
shares to unseat an incumbent director. This means in effect that a vote not
cast is the equivalent of a vote for the Hercules nominees. Regardless of the
number of shares you own, we urge, in your own best interest, that you support
our shareholder nominees for election as Hercules directors.
Please note that Hercules' employee plan participants can be assured of
the confidentiality of their votes, as shares voted by plan participants will be
counted by an independent, third party proxy tabulator on a strictly
confidential basis. Furthermore, you should know that it is unlawful for
Hercules or its management to discriminate against you in any way because of how
you vote under an employee plan.
Joyce and the Hercules Board have refused as of this date to set a
record date for, and schedule, the annual meeting. we are therefore not
currently in a position to solicit your proxy but intend to do so shortly. In
the meantime, if you have any questions, please call Georgeson Shareholder
Communications Inc., our proxy solicitation agent, toll-free, at 1-866-288-2190.
Sincerely,
THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
/s/ Samuel J. Heyman /s/ Harry Fields /s/ Anthony T. Kronman /s/ Sunil Kumar
-------------------- ---------------- ---------------------- ---------------
Samuel J. Heyman Harry Fields Anthony T. Kronman Sunil Kumar
/s/ Gloria Schaffer /s/ Vincent Tese /s/ Raymond S. Troubh /s/ Gerald Tsai, Jr.
------------------- ---------------- --------------------- --------------------
Gloria Schaffer Vincent Tese Raymond S. Troubh Gerald Tsai, Jr.
4
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'S
SOLICITATION 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.