AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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HERCULES INCORPORATED
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THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
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NEWS RELEASE
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The Hercules Shareholders' Committee For NEW Management * 17 State Street * New
York, New York 10004
Contact: Chris Hayden
212-440-9850
FOR IMMEDIATE RELEASE
COMMITTEE SENDS LETTER TO HERCULES SHAREHOLDERS
NEW YORK--July 2, 2003-- The Hercules Shareholders' Committee For NEW Management
announced today that it sent the following letter to Hercules (NYSE: HPC)
shareholders:
THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
17 State Street, New York, NY 10004
July 2, 2003
Fellow Hercules Shareholders:
Joyce continues to ignore the issues of real importance to Hercules
shareholders: Joyce's record, the future direction of Hercules, and a program
for enhancing values for all Hercules shareholders. He persists instead with his
personal attacks on the Committee and Mr. Heyman and pronouncements concerning
his own credibility and trustworthiness - terrain on which we would suggest he
is on no firmer footing.
Joyce's June 27th letter regarding his $9 per share offer is filled
with partial and misleading disclosures in the form of convoluted, carefully
couched denials (the $9 offer was not an OFFER but rather an "INDICATION OF
INTEREST," neglecting to mention that it was a serious proposal coming after
three months of intense due diligence and seven separate Board meetings/calls on
the subject; he never "RETAINED AN INVESTMENT BANKER" but he did RENEW A
CONTRACT WITH the Company's investment bankers WITHOUT THE KNOWLEDGE OF THE
BOARD; and he never "advocated" the $9 per share offer, leaving that to his
financial partner), and we have no intention of engaging in a debate over the
parsing of every word and phrase. Suffice it to say, we stand by each and every
one of our statements, they were very carefully reviewed and vetted by the
Committee and its professionals prior to the release of our letter, and we have
never made a single statement to shareholders that was not more than amply
substantiated by the facts.
If Joyce does in fact wish to "set the record straight," he should
disclose to Hercules shareholders the facts and complete background concerning
the $9 per share offer, WHICH HE HAS NOW ONLY ACKNOWLEDGED FOR THE FIRST TIME.
In doing so, he should include all information concerning the discussions which
led to the offer and explain: WHY, IF HIS PARTICIPATION WAS NOT PART OF THE
OFFER, WAS HE REQUIRED TO DISQUALIFY HIMSELF FROM THE BOARD PROCESS; WHY, IF
JOYCE WERE NOT A PART OF THE OFFER, DID THE BOARD HAVE TO RETAIN INDEPENDENT
COUNSEL; AND WHY, NOW IN "AGREEMENT" WITH THE BOARD'S DECISION TO REJECT THE
OFFER (WHAT OTHER POSITION COULD HE NOW TAKE!), DID HE NOT DISAVOW IT PRIOR TO
THE BOARD'S REJECTION OF THE OFFER.
Joyce's credibility is further called into question when he makes the
astonishing statement that, even with the benefit of hindsight, the BetzDearborn
sale was advantageous for Hercules shareholders, stating, "that was true then
and CONTINUES TO BE TRUE NOW" (emphasis added). You should be aware that Joyce
argued to the Board in February 2002 that the risks of operating a more
leveraged company under the refinancing alternative were too great given the
possibility of a serious downturn in our remaining businesses, notwithstanding
the fact that the Company's business projections for 2002 and beyond
demonstrated more than ample coverage. Our minority directors, with an
investment of $140 million in the Company, as well as other major Hercules
shareholders, were perfectly comfortable assuming what we saw to be no more than
a nominal risk, and we believe that the sale decision even as of that time
represented remarkably poor business judgment.
BUT FOR JOYCE TO CONTEND TODAY THAT THE TRANSACTION WAS A GOOD ONE FOR
THE COMPANY'S SHAREHOLDERS IS SIMPLY INTELLECTUALLY DISHONEST. FOR HERCULES'
REMAINING BUSINESSES HAVE REMAINED STABLE, THE BETZDEARBORN BUSINESS HAS BEEN
GROWING AT THE RATE OF 20% PER ANNUM, AND WHO CAN SERIOUSLY ARGUE THAT HERCULES
SHAREHOLDERS ARE BETTER OFF TODAY WITH A COMPANY APPROXIMATELY 50% OF ITS FORMER
SIZE, AFTER HAVING SOLD ITS BEST BUSINESS AT THE WORST POSSIBLE TIME. THIS IS
ESPECIALLY SO NOW THAT THE COMPANY'S 2003 PROJECTED EARNINGS, ACCORDING TO WALL
STREET CONSENSUS ESTIMATES, ARE ONLY 72(CENT) PER SHARE INSTEAD OF, HAD JOYCE
RETAINED THE BETZDEARBORN BUSINESS, APPROXIMATELY $1.13-$1.39 PER SHARE
(DEPENDING ON WHETHER YOU TAKE JOYCE'S FEBRUARY 2002 ESTIMATE FOR BETZDEARBORN'S
2003 OPERATING PERFORMANCE OR GE'S 2003 ESTIMATE) - AMOUNTING TO INCREASED
EARNINGS AS A RESULT OF THE RETENTION ALTERNATIVE OF 60-90%.
While the BetzDearborn sale is illustrative we believe of Joyce's poor
business judgment, even more importantly, GE's experience with the business over
the past 14 months dramatically illustrates HOW SERIOUSLY MISMANAGED HERCULES'
BUSINESSES HAVE BEEN UNDER JOYCE AND WILL NO DOUBT CONTINUE TO BE IN THE EVENT
THAT HE IS PERMITTED TO REMAIN AT THE COMPANY. While it is often difficult for a
third party observer to assess the relative merits of two parties' contentions
regarding operating strategies for the management of the Company's businesses,
the BetzDearborn example offers a unique
case study demonstrating the difference between how Hercules' largest and most
attractive business was viewed and managed by Joyce prior to the April 2002
sale, and how it has been operated under GE's management over the past 14
months. MOREOVER, WE BELIEVE THAT THE SAME LESSONS PERTAIN TO THE REMAINING
HERCULES BUSINESSES, UNDERSCORING THE CRITICAL IMPORTANCE THAT THEY BE MANAGED,
AS WE HAVE BEEN URGING FOR SOMETIME, AS HIGH-VALUE ADDED, SPECIALTY CHEMICALS
BUSINESSES INSTEAD OF AS COMMODITY CHEMICALS BUSINESSES WHICH JOYCE WAS USED TO
OPERATING AT UNION CARBIDE.
You should be aware of the following FACTS which have come to light
regarding BetzDearborn in the wake of a recent (June 20) GE investor conference:
o GE regards the BetzDearborn business, for which Joyce had predicted
relatively flat operating performance for 2003 and beyond, as the
lynchpin of a platform for future growth.
o BetzDearborn is now part of GE's Water Technologies business and
comprises $1.1 billion in sales out of a total of $1.4 billion in
sales in 2003 - or approximately 80% of GE's entire Water
Technologies business. While Joyce prior to the sale had forecast
BetzDearborn's revenues to increase from $1.04 billion in 2002 to
only $1.18 billion in 2006 (an average annual increase of 3.1%), GE
has projected internally generated revenue growth of an additional
$800 million for its Water Technologies business by 2006 - an
increase of approximately 12% per annum.
o While Joyce predicted BetzDearborn's EBITDA to be almost flat over
the four-year period, increasing from $262 million in 2002 to $286
million in 2006 (an average annual increase of 2.2%), GE projects
that operating income for its Water Technologies business will
increase by approximately 20% per annum, with operating margins for
the business estimated to increase from 15% in 2002 to 20% in 2006.
o Nicole Parent, a security analyst at Bank of America Securities,
wrote in a June 22nd report entitled "GE - Going for Growth,"
"Compared to the period prior to being acquired, Betz customer
churn has declined to 3% from 10%, sales rep turnover has declined
to 2% from 10%, and growth has increased to 5%+ from (4%) ... GE is
also placing more of a focus on technological innovation - capX as
A percentage of sales is expected to be approximately 4% in '03 and
to increase to 6% in '04 vs. an estimated 2% at Betz prior to the
acquisition which was not making the investments needed to spur
growth."
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o Robert Cornell, a security analyst at Lehman Brothers, observed in
a June 23rd report, "We were impressed with the potential of these
new growth platforms" (of which GE's Water Technologies business
was one). Mr. Cornell went on to observe that the Water
Technologies business has "potential for 2-3x GDP organic growth,
15% ROTC, and free cash flow conversion of 150%," concluding that
the reason for GE's success with BetzDearborn was the application
of a "services model" to what was a "more transactions-based
business" under Hercules.
o A leading GE executive observed at the conference, "I think the big
difference there was that Hercules was not investing in growth,
they were not investing in the resources they were putting into the
field and, most importantly, they were not investing in the
technology..."
With the sole exception of his efforts in connection with his work
process redesign project which has now largely run its course, JOYCE HAS BEEN A
CARETAKER CEO FOR THE LAST TWO YEARS, PROVIDING NO BUSINESS JUDGMENT, NO
LEADERSHIP, NO BUSINESS STRATEGY, NO VISION, AND NO PROGRAM TO ENHANCE
SHAREHOLDER VALUES FOR HERCULES SHAREHOLDERS. IF YOU BELIEVE AS WE DO THAT
VOTING FOR THE BOARD'S NOMINEES AND ALLOWING JOYCE TO REMAIN AT HERCULES FOR
ANOTHER YEAR IS LIKE RENEWING HIS DRIVERS' LICENSE ON THE BASIS OF HIS POOR
ACCIDENT RECORD, PLEASE SIGN, DATE AND RETURN OUR WHITE PROXY CARD TODAY!
Sincerely,
THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
/s/ SAMUEL J. HEYMAN /s/ HARRY FIELDS /s/ ANTHONY T. KRONMAN /s/ SUNIL KUMAR
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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.
Note: Permission to use above-cited materials was neither sought nor obtained.
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ADDENDUM
You should know that, in another transparent election ploy, which we
believe was designed to placate outraged shareholders and rehabilitate the
Company's corporate governance image in the closing weeks of the proxy contest,
a Special Committee comprised of all majority directors, EXCEPT JOYCE, announced
its support just last week for an amendment to the Company's election Bylaw to
provide that directors may be elected by a plurality vote, instead of requiring
the vote of a majority of ALL OUTSTANDING SHARES, STARTING WITH THE 2004 ANNUAL
MEETING.
IS THIS LATEST "FLIP-FLOP" AN INSULT TO THE INTELLIGENCE OF HERCULES
SHAREHOLDERS OR WHAT? The Committee's June 27, 2003 press release, excerpts of
which are shown below, outlines the FACTS concerning this matter, and we ask you
to decide for yourself.
"Hercules' announcement yesterday exemplifies in our view the Company's
lack of respect for its shareholders. While in effect acknowledging that the
Committee has been right all along regarding the Bylaw, a position which we have
maintained for more than two years now, yesterday's announcement is nothing but
a transparent election ploy to spruce up the Company's corporate governance
image in the closing weeks of our proxy contest.
Hercules shareholders should be aware of these FACTS:
o The Hercules Board attempted unsuccessfully to use the Company's often
criticized, highly unusual, if not unique, election Bylaw to try and
resist our proxy contest in 2001.
o When our minority directors joined the Board, we asked it to rescind
the Bylaw, pointing out in a February 14, 2002 letter to Joyce as
follows:
"In connection with next week's Board meeting, I would request
that the Board consider taking whatever action necessary to
rescind the Company's outrageously discriminatory election
Bylaw, which it has interpreted to require the affirmative
vote of the holders of a majority of ALL OUTSTANDING SHARES
for the election of directors.
As you know, by way of hypothetical, in the event a challenger
received votes representing 50 million Hercules shares and the
incumbent director received 0 shares, the incumbent director
would be entitled to retain his seat under the Bylaw as
interpreted by the Company. Obviously, no one can seriously
contend that this would be a fair and equitable result. In
this connection, we believe that the entire Bylaw operates to
disenfranchise Hercules shareholders, is highly unusual, if
not unique, in the annals of corporate America as being
inconsistent with good corporate governance,
is legally unenforceable and would most likely be struck down
in the courts, and is an absolute embarrassment to the
Company."
o In response, the Hercules Board appointed a Special Committee,
comprised solely of majority directors, to "study" the Bylaw, which
Committee recommended shortly thereafter that the Bylaw be retained,
after which its recommendation was approved by the Board over the
objection of our minority directors.
o In the current proxy contest, the Committee has again been highly
critical of the Company's Bylaw, while the Company defended its Bylaw
in its proxy materials filed AS RECENTLY AS JUST LAST WEEK, stating
that it was not only lawful but FAIR AND IN THE INTEREST OF
SHAREHOLDERS.
o Only after shareholders expressed their outrage over the Bylaw, did
Hercules just yesterday recommend that the Bylaw be changed IN THE
FUTURE. You should know that the majority directors did so only after
disingenuously attempting to wash their hands of any responsibility for
the Bylaw, emphasizing that "none of the Company's current directors
were members of the Board when the Bylaw provision was put into place
more than 15 years ago." WHAT THE MAJORITY DIRECTORS FAILED TO MENTION,
HOWEVER, WAS THAT FOR THE LAST TWO YEARS THEY HAVE ALL STRONGLY
SUPPORTED RETENTION OF THE BYLAW.
o Finally, according to yesterday's announcement, any change would not
affect this year's proxy contest, and even if changed after the proxy
contest, the Bylaw provision could then be reinstated in the event of
another proxy contest sometime in the future. In other words, Hercules
is willing to change the Bylaw only when it doesn't matter in terms of
its effect on the control of the majority directors. This is in
keeping, for example, with the Company's June 3rd announcement of
modest revisions to the Company's poison pill, WHICH WOULD AGAIN NOT
TAKE EFFECT UNTIL AFTER THIS YEAR'S ANNUAL MEETING."
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