SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [ ]
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[X] DEFINITIVE ADDITIONAL MATERIALS COMMISSION ONLY (AS PERMITTED)
[ ] SOLICITING MATERIAL PURSUANT TO BY RULE 14A-6(E)(2)
RULE 14A-12
HERCULES INCORPORATED
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INTERNATIONAL SPECIALTY PRODUCTS INC.
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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INTERNATIONAL SPECIALTY PRODUCTS
May 7, 2001
Fellow Hercules Stockholder:
We have previously addressed the issues of real concern to Hercules
stockholders - the past record of the Hercules Board and whether it can be
relied upon to protect the interests of the Company's stockholders in the
future. The purpose of this letter is to tell you more about ISP's nominees and
what we will seek to do, if you elect us, to work constructively with the other
Hercules directors to realize value for the Company's stockholders.
The ISP Nominees
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Gloria Schaffer - Mrs. Schaffer has had a long and distinguished career
in government service, having held a number of major positions in the State of
Connecticut, including Secretary of State, Commissioner of the Department of
Consumer Protection, and State Senator for six terms. Ms. Schaffer was also a
Member of the Federal Civil Aeronautics Board and has served as a member of the
Board of Directors of the LMH Mutual Fund, Amity Bankcorp, and Mott's, Inc.
Raymond S. Troubh - Mr. Troubh has had broad financial experience with
more than 25 years in financial consulting, including as a General Partner of
Lazard Freres & Co. Mr. Troubh has served as a Governor of the American Stock
Exchange and has been a member of the Board of Directors of Time Warner, Inc.,
Becton, Dickinson and Company, America West Airlines, Inc. and Starwood Hotels &
Resorts, Inc., among others.
Sunil Kumar - Mr. Kumar was Executive Vice President of
Bridgestone-Firestone, heading up that company's $3 billion national retail
store operations. Mr. Kumar served for three years as President and Chief
Operating Officer of Building Materials Corporation of America, the nation's
leading manufacturer of residential and commercial roofing. During this period,
BMCA increased its sales and operating income by approximately 60%. Mr. Kumar
has been ISP's Chief Executive Officer, President and a member of the Company's
Board of Directors since June, 1999.
Samuel J. Heyman - Mr. Heyman began his career as a lawyer in the
United States Justice Department under Robert F. Kennedy and later served as
Chief Assistant United States Attorney, District of Connecticut (New Haven
Division). In 1968, Mr. Heyman left government service to run Heyman Properties,
a small but growing family real estate development firm, which he expanded into
a highly successful, national real estate development company.
In 1983, Mr. Heyman and a slate of nominees representing shareholder
interests waged a successful proxy contest against GAF, in what Barron's, a
leading financial publication, characterized as "one of the most striking
achievements in the annals of corporate finance."
Mr. Heyman currently serves as Chairman of ISP. He has been involved
either as a shareholder activist or potential acquiror with respect to five
public companies, helping to create more than $7 billion of increased wealth for
all stockholders of those companies, as illustrated below:
Time per Share for Realized Value
Period Initial all Subject Stockholder
(initial purchase - value Cost Company Percentage Value Created
Company realization) per Share Stockholders1 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 Stockholder Value Created: $ 7.3 billion
===============
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1 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
our 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 we made premium offers for those companies.
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OUR PROGRAM TO REALIZE HERCULES' UNDERLYING VALUES
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Prompt Resolution of the Sale Process and No More Fire Sales
We have long advocated the sale of the Company, in whole or in parts,
as the best way to realize Hercules' underlying values, never contemplating that
it would take the Hercules Board such a prolonged period to come to this same
conclusion. Further, it is surprising that Hercules would allow its sale process
to go on for so long with so little to show for it, and that it would in the
meantime leave the Company on autopilot.
We urge the Hercules Board to make a prompt decision as to whether an
attractive sale of the Company or a principal business can be promptly achieved.
If not, the Board should take down its "For Sale" signs, presumably until the
time for such transaction is more propitious, and let management get back to
running the Company's businesses under the leadership of a permanent, full-time
Chief Executive.
If a sale of the entire Company cannot be accomplished on acceptable
terms, we believe that a disposition of the Company's BetzDearborn
water-treatment chemicals business should be seriously considered, assuming a
fair price can be obtained. We do not believe that a sale of either of the
Company's other principal businesses - paper-making chemicals and Aqualon
water-soluble chemicals - would make financial sense, barring extraordinarily
attractive terms, because such sales appear extremely tax inefficient.
Of Hercules' three core businesses, a sale of the Company's
water-treatment chemicals business will generate the maximum after-tax cash
proceeds. This cash can then be used to deleverage the Company's balance sheet,
which will enable Hercules to focus its resources on maximizing the value of its
remaining businesses to take full advantage of their industry leadership
positions. In the event of a failure to sell the entire Company, a sale of this
business should be expedited because we believe that Hercules, given its highly
leveraged capital structure, is currently unable to pursue value-creating
opportunities and is being forced instead to subordinate stockholder interests
to the demands of its creditors. A recent Company 10-K filing reveals that
Hercules was required by its lenders to consummate the sale of its resins
business to Eastman Chemical even though it was dilutive to earnings and in our
view far from a financially compelling transaction.
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In considering a sale of assets to deleverage, we are concerned, as you
should be, that the Hercules Board - in an eleventh hour effort to perpetuate
itself in office - will resort to a "fire sale" in order to demonstrate
"progress" with regard to its "value maximazation process." In a recent article
in The Deal (May 4, 2001) entitled, "Hercules races to sell chemicals unit," a
Hercules spokesman stated that the Company is "fully engaged" in an effort to
sell BetzDearborn at a price which the authors of the article believe could be
little more than half of the 3.1 billion dollar price Hercules paid for the
business less than three years ago.
Having just concluded the Eastman transaction at what we believe to
have been a fire sale price, it is high time that the Hercules Board consider
the interests of its stockholders - lest its much trumpeted "value maximization
process" degenerate into a "value minimization process."
Comprehensive Company-Wide Cost Reduction Program
There is hardly a specialty chemicals company in the industry that has
not recently implemented a comprehensive company-wide cost reduction program in
order to stay competitive in an increasingly challenging environment. While we
urged Hercules to take action some time ago, it has so far failed to adopt a
concrete, credible program to reduce costs in any meaningful way.
Although it is difficult to recommend specific cost cutting measures
before obtaining more complete information, if you elect us, we will insist upon
a comprehensive review of every major item of the Company's cost structure.
While the Company's recent sale of its Wilmington guest house and its current
efforts to sell its Hercules Country Club and private Gulfstream jet are steps
in the right direction, it is critical that cost reduction efforts start at the
very top of the Company - not only as a matter of principle but so that the
program will have the necessary support of Hercules' more than 11,000 dedicated
employees. It is simply inappropriate, unfair, and unrealistic to ask the
Company's middle managers and rank-and-file employees to bear the brunt of a
Company-wide cost reduction effort while the Hercules Board continues to dole
out lavish compensation and perks to top executives.
As illustration of what not to do when contemplating a significant cost
reduction program, in what surely must be a novel application of corporate
severance policy, the Hercules Board recently bestowed a 10-year severance
arrangement on a Hercules executive, who, in connection with a promotion, went
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from the Company's payroll to Hercules' CP Kelco joint venture payroll. This
came in the wake of Board grants of an estimated $30 million in retirement
packages to four successive CEOs and $10 million in golden parachute contracts
to four current executives. And in another example of the Hercules Board's "let
them eat cake" approach, the Company's five highest paid executives last year
received increases in their annual base compensation of an average of 30% over
the prior year, compared with increases of 0-3% for most other Hercules
employees.
Select Full-Time CEO and Strengthen Management
We make no claim here that, given the difficult hand he was dealt, Mr.
Gossage has not tried his best as the Company's temporary Chief Executive
Officer. Notwithstanding his efforts, however, no company of the size and
complexity of Hercules can function properly without a full-time, permanent CEO
who is fully committed to providing the company with day-to-day operating
leadership. We believe the selection of a highly qualified Chief Executive
Officer should be the Board's highest priority.
While our quarrel has been with the Hercules Board, we fully appreciate
the fact that there are many competent, hard-working, and dedicated Hercules
employees. If you elect us, we will support whatever is necessary to provide
them with inspired leadership and policies which will serve to motivate and
reward them based upon performance.
* * * * *
With only two weeks to go until Hercules' May 24th Annual Meeting, you
must decide whether you wish to entrust the affairs of the Company and your
investment to the same incumbent directors or add a fresh, stockholder-oriented
perspective to the Board by electing the ISP nominees.
We ask you to join in our effort to establish more responsible Board
representation at Hercules and to realize for all Hercules stockholders the full
potential of our investments in the Company. If you agree with us, please sign,
date, and mail the ISP Nominees' BLUE Proxy Card - today!
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Please do not underestimate the importance of your vote in this
election regardless of the number of shares you own. This is especially the case
given the unprecedented tactics of the Hercules Board in requiring our nominees
- - but not theirs - to receive a majority vote of the outstanding shares in order
to be elected. As the Hercules nominees will remain in office if we fail to
receive a majority vote, a vote not cast is the equivalent of a vote for the
Hercules nominees.
Even if you have already returned a WHITE proxy card to management, you
have every right to change your mind and vote for the ISP Nominees by using the
enclosed BLUE proxy card. Remember, only the latest dated proxy counts.
If you have any questions or need assistance voting your shares, please
call Georgeson Shareholder Communications Inc., toll-free, at (800) 223-2064.
Sincerely,
/s/ Gloria Schaffer /s/ Raymond S. Troubh /s/ Sunil Kumar /s/ Samuel J. Heyman
IF YOU ARE STILL UNDECIDED, WE URGE YOU TO
CONSULT YOUR BROKER, BANKER OR INVESTMENT ADVISOR.
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INVITATION
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The ISP Nominees are hosting a breakfast for all Hercules stockholders
planning to attend the Annual Meeting on May 24, 2001. You are
cordially invited to join us at the Hotel du Pont (The
Christina Room) at 8:00 a.m. We look forward to
seeing you at that time.
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