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1998 Proxy Statement and Notice of Annual Meeting of Shareholders
[HERCULES LOGO] [PICTURE OF CHEMICALS]
Hercules Incorporated
EPS$3.27 What have we done...
ROE 41% ...for
Sales up 6% shareholders
Gross Margin 38% lately?
Operating Margin 22%
We have committed to managing
the business for growth
Annual Report
1997
PROXYWORKS(TM)
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[HERCULES LOGO]
WHAT HAVE WE DONE
FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Letter to Shareholders
[HERCULES LOGO]
To: Our Shareholders March 20, 1998
From: R. Keith Elliott
Subject: Invitation to the Hercules 1998 Annual Meeting
Please come to our Annual Meeting on April 30 to find out what we have done
for our shareholders lately. You will have the opportunity to ask questions and
make comments. Enclosed with this Proxy Statement are your voting card and the
1997 Annual Report.
You will notice that our Proxy Statement is again written in "plain
English." We are pleased that so many of our shareholders liked the new format
last year and found the proxy easier to read.
This year we are taking another new initiative with the introduction
of on-line voting. If you have access to a computer, it's an easy way to cast
your vote. Whether you choose to vote by proxy card, telephone or computer, it
would help if you voted as soon as possible.
I look forward to seeing you at the Annual Meeting.
/s/ R. Keith Elliott
Chairman and
Chief Executive Officer
[PHOTO OF R. KEITH ELLIOTT]
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[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Letter to Shareholders
FRANCAIS
Nous vous invitons a participer a l'assemblee generale du 30 avril qui vous
permettra de decouvrir ce que nous avons accompli dernierement pour nos
actionnaires. Vous pourrez y poser vos questions et nous communiquer vos
commentaires. Veuillez trouver, joint a cette circulaire de procuration, votre
bulletin de vote ainsi que le rapport annuel de 1997.
Vous remarquerez que notre circulaire de procuration est redigee en langage
simple. Nous sommes enchantes de voir que les actionnaires ont apprecie le
nouveau format l'annee derniere et ont trouve que la procuration etait ainsi
plus facile a lire.
Nous prenons cette annee une nouvelle initiative avec l'introduction du vote
en ligne. Cette methode vous permettra, si vous avez acces a un ordinateur, de
voter facilement. Mais que vous decidiez de voter par procuration, par telephone
ou par ordinateur, nous vous serions extremement reconnaissants de votre
promptitude.
En attendant de vous rencontrer a l'assemblee generale, je vous prie
d'agreer, cher actionnaire, l'expression de mes salutations distinguees.
R. Keith Elliott
DEUTSCH
Hiermit mochten wir Sie gerne zu unserer Jahreshauptversammlung am 30. April
einladen, damit Sie sehen konnen, was wir in letzter Zeit fur unsere Aktionare
getan haben. Sie werden Gelegenheit haben, Fragen zu stellen und Kommentare
abzugeben. Als Anlage zu dieser Stimmrechtsvollmacht finden Sie Ihre
Stimmabgabekarte und den Jahresbericht 1997.
Sie werden feststellen, da(beta) unsere Stimmrechtsvollmacht wieder in
"klarem Deutsch" geschrieben ist. Erfreulicherweise gefiel unseren Aktionaren
das neue Format im letzten Jahr, und sie fanden die Stimmrechtsvollmacht
leichter zu lesen.
In diesem Jahr starten wir eine neue Initiative mit der Einfuhrung der
Online-Stimmabgabe. Wenn Sie uber einen Computer verfugen, konnen Sie auf diese
Weise muhelos Ihre Stimme abgeben. Gleich ob Sie per Stimmrechtskarte, Telefon
oder Computer abstimmen, wurden wir es sehr begru(beta)en, wenn Sie so bald als
moglich abstimmen konnten.
Ich wurde mich freuen, Sie auf unserer Hauptversammlung begru(beta)en zu
konnen.
R. Keith Elliott
[PARAGRAPH IN ASIAN]
ESPANOL
Queremos aprovechar esta oportunidad para extenderles una invitacion a la
Asamblea Anual que se llevara a cabo el 30 de abril, a fin de comunicarles
nuestros esfuerzos mas recientes en beneficio de los accionistas. Tendran la
oportunidad hacer preguntas y hacer comentanos. Adjuntamos a la Declaracion
del Apoderado su tarjeta de votacion por poder y el Informe Anual de 1997.
Podran observar que nuevamente nuestra Declaracion del Apoderado esta
escrita en un lenguaje muy sencillo. Nos complace que muchos de nuestros
accionistas quedaran conformes con el nuevo formato utilizado el ano pasado y
que les resultara mas facil leer la declaracion.
Este ano estamos tomando una nueva iniciativa con la introduccion del
voto en-linea. Si tiene acceso a una computadora, es una manera facil de votar.
Ya sea que decida votar por medio de la tarjeta de votacion por poder, por
telefono o computadora, nos ayudaria que votara lo antes posible.
Espero verlos en la Asamblea Anual.
R. Keith Elliott
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[HERCULES LOGO]
WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Letter to Shareholders
1 Questions and Answers
2 Proposals
3 Voting Methods
5 Board of Directors
11 Top Five Compensated Officers
12 Performance Graph
13 Report of the Compensation Committee
19 Stock Ownership of Directors and Officers
20 Summary Compensation Table
21 Option Grants Table
22 Option Exercises Table
23 Pension Plan Table
[HERCULES LOGO]
To: Our Shareholders March 20, 1998
From: Israel J. Floyd, Esquire
Subject: Notice of 1998 Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Hercules Incorporated will be held
on Thursday, April 30, 1998, at 11:00 a.m., at Winterthur Museum, Garden &
Library, Winterthur, Delaware, to consider and take action on the following
proposals:
1. Re-election of three directors: Robert G. Jahn; Ralph L. MacDonald,
Jr.; and Paula A. Sneed, each for a term of three years;
2. Ratification of Coopers & Lybrand L.L.P. as independent accountants
for 1998; and
3. Transact any other business properly before the Annual Meeting.
Shareholders as of March 2, 1998, will be entitled to vote at the Annual
Meeting. Seating is limited and admission is by ticket. If you plan to attend
the Annual Meeting, please mark the appropriate area when you vote either on
your Proxy Card or our Web site. An admission ticket will be mailed to you. If
you vote by telephone or your shares are held in the name of a broker or other
nominee, please contact the Corporate Secretary (800-441-9274) to request a
ticket.
This Proxy Statement, voting instruction card and Hercules' 1997 Annual
Report are being distributed on or about March 20, 1998.
By order of the Board of Directors,
/s/ Israel J. Floyd
Assistant General Counsel
and Corporate Secretary
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[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Questions and Answers
Q: WHAT AM I VOTING ON?
A: Re-election of three directors (Robert G. Jahn, Ralph L. MacDonald, Jr.,
and Paula A. Sneed), and ratification of Coopers & Lybrand L.L.P. as
Hercules' independent accountants.
Q: WHO IS ENTITLED TO VOTE?
A: Shareholders as of the close of business on March 2, 1998 (the Record
Date). Each share of common stock is entitled to one vote.
Q: HOW DO I VOTE?
A: There are three methods. This year on-line voting is available via the
Intranet/Internet. If you have access to the Internet, we encourage you to
vote at the following web address: http://hercules.proxyvoting.com. You
may also vote by telephone (800-840-1208) or by completing and mailing
your proxy card. (See page 4 for more details.)
Q: HOW DOES DISCRETIONARY AUTHORITY APPLY?
A: If you sign your proxy card, but do not make any selections, you give
authority to R. Keith Elliott and Richard G. Dahlen to vote on the two
proposals and any other matter that may arise at the meeting.
Q: IS MY VOTE CONFIDENTIAL?
A: Yes. Only the inspector, ChaseMellon Shareholder Services, and certain
employees will have access to your card. All comments will remain
confidential, unless you ask that your name be disclosed.
Q: WHO WILL COUNT THE VOTES?
A: ChaseMellon Shareholder Services will tabulate the votes and act as
inspector of election.
Q: WHAT SHARES ARE INCLUDED IN THE PROXY CARD?
A: Shares held in the Hercules' automatic dividend reinvestment plan, the
executive compensation plans, employee benefit plans, and shares credited
to your savings plan account held in custody by the trustee, Bankers
Trust, are included.
Q: HOW DO I VOTE IF I PARTICIPATE IN THE SAVINGS PLANS?
A: If your proxy card is signed, but does not indicate your voting
preferences, the plan trustee will vote your shares in favor of the
proposals. If you do not vote, the plan trustee will vote your shares in
proportion to the other proxies received. Shares credited to your savings
plan account as of March 2, 1998, are included on your card. Fractional
shares are not.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares are probably registered differently or are in more than one
account. Sign and return all proxy cards to ensure that all your shares
are voted. Please have all of your accounts registered in the same name
and address. You may do this by contacting our transfer agent, ChaseMellon
Shareholder Services, (800-237-9980).
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WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Questions and Answers
Q: WHAT CONSTITUTES A QUORUM?
A: As of March 2, 1998, 97,588,430 shares of Hercules common stock were
issued and outstanding. A majority of the outstanding shares, present or
represented by proxy, constitutes a quorum. If you vote by proxy card,
telephone or computer, you will be considered part of the quorum. If you
are present or represented by a proxy at the Annual Meeting and you
abstain, your abstention will have the same effect as a vote against the
proposals.
Q: WHAT PERCENTAGE OF STOCK DO THE DIRECTORS AND OFFICERS OWN?
A: Approximately 1.9% of our common stock as of March 2, 1998. (See page 19
for more details.)
Q: WHO ARE THE LARGEST PRINCIPAL SHAREHOLDERS?
A: Oppenheimer Group, Inc. (Oppenheimer Tower, World Financial Center, New
York, NY) owned 20,500,000 shares, or 21%, as of February 1, 1998.
Fidelity Management & Research Co. (82 Devonshire, Boston, MA) owned
5,895,619 shares, or 6.1%, as of February 14, 1998.
Delaware Investment Advisers (2005 Market Street, Philadelphia, PA) owned
4,831,503 shares, or 5%, as of February 5, 1998.
Q: WHEN ARE THE 1999 SHAREHOLDER PROPOSALS DUE?
A: Shareholder proposals must be submitted in writing by November 16, 1998,
to Israel J. Floyd, Esq., Corporate Secretary, Hercules Incorporated,
Hercules Plaza, 1313 North Market Street, Wilmington, DE 19894-0001.
Q: HOW DOES A SHAREHOLDER NOMINATE A DIRECTOR OF HERCULES?
A: Submit a written recommendation (accompanied by a notarized statement from
the nominee indicating willingness to serve if elected and principal
occupations or employment over the past five years) to the Chairman of the
Nominating Committee, c/o Corporate Secretary, Hercules Incorporated,
Hercules Plaza, 1313 North Market Street, Wilmington, DE 19894-0001.
Q: WHAT ARE THE SOLICITATION EXPENSES?
A: Morrow & Co., Inc. was hired for $9,000, plus out-of-pocket expenses to
assist in the distribution of proxy materials and solicitation of votes.
Hercules will reimburse stockbrokers and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and solicitation material to the owners of common stock.
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WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Proposals
1. RE-ELECTION OF DIRECTORS
Nominees for re-election this year are:
- Robert G. Jahn (director since 1985)
- Ralph L. MacDonald, Jr. (director since 1989)
- Paula A. Sneed (director since 1994)
Each has consented to serve a three-year term. (See page 5 for more
information.)
If any director is unable to stand for re-election, the Board may provide for a
lesser number of directors or designate a substitute. In the latter event,
shares represented by proxies may be voted for a substitute director.
The affirmative vote of a majority of the outstanding shares of common stock is
needed to elect a director. Abstentions and votes withheld for a director will
have the same effect as votes against.
2. RATIFICATION OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT ACCOUNTANTS
The Audit Committee and the Board believe that Coopers & Lybrand's (C&L)
knowledge of Hercules is invaluable. Partners and employees of C&L are
periodically changed, providing Hercules with new expertise and experience.
Representatives of C&L have direct access to the Audit Committee and regularly
attend the Committee's meetings. Representatives of C&L will attend the Annual
Meeting to answer questions.
The affirmative vote of the majority of shares present (in person or by proxy
and entitled to vote at the Annual Meeting) is needed to ratify C&L as
independent accountants for 1998.
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WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Voting Methods
YOU HAVE THE RIGHT TO VOTE AND, IF DESIRED, TO REVOKE YOUR PROXY ANY TIME BEFORE
THE ANNUAL MEETING. SHOULD YOU HAVE ANY QUESTIONS, PLEASE CALL CHASEMELLON
(800-237-9980).
[COMPUTER GRAPHIC]
Computer Voting
1. Go to website http//hercules.proxyvoting.com
2. Enter your Control Number (found in the lower
right-hand corner of your proxy card)
3. Mark your selections
4. Click on "register vote"
[TELEPHONE GRAPHIC]
Telephone Voting
[BALLOT BOX GRAPHIC]
1. Dial 1-800-840-1208
[VOTE]
2. Enter your Control Number (found in the lower ChaseMellon
right-hand corner of your proxy card) Vote Tabulation
3. Follow voice prompts
[US MAIL MAIL BOX GRAPHIC]
Proxy Card Voting
1. Mark your selections
2. Date and sign your name exactly as it appears on your card
3. Mail to ChaseMellon Shareholder Services in the return
envelope
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[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Board of Directors - Standing for Re-election
[PHOTO OF ROBERT G. JAHN]
ROBERT G. JAHN -- Director since 1985
Professor Jahn, age 67, has taught at Princeton University, Department of
Mechanical and Aerospace Sciences since 1967. He was Dean of the School of
Engineering, Applied Science at Princeton, 1971-1986. Professor Jahn is a
trustee, fellow and a member of several academic and professional societies. He
is vice president and a founding member of the Society for Scientific
Exploration. He was a director of Roy F. Weston, Inc., an environmental services
firm, from 1990 to early 1998.
RALPH L. MacDONALD, JR. -- Director since 1989
Mr. MacDonald, age 56, is a principal in Amelia Investment Corp. (AIC), a
private investment firm dedicated to the acquisition and development of small to
medium-sized industrial manufacturing and distribution companies. Prior to AIC,
he was a principal in Island Capital Corporation, a similar firm, and managing
director, Global Corporate Finance, Bankers Trust Company. He is also a director
of Gaylord Container Corporation.
[PHOTO OF RALPH L. MACDONALD, JR.]
[PHOTO OF PAULA A. SNEED]
PAULA A. SNEED -- Director since 1994
Ms. Sneed, age 50, is senior vice president, Marketing Services, Kraft Foods,
Inc., the nation's largest packaged foods company. She joined General Foods in
1977, and has held a variety of management positions including vice president,
Consumer Affairs; senior vice president and president, Foodservice Division;
executive vice president and general manager, Desserts Division; and executive
vice president and general manager, Dinners and Enhancers Division. In 1993, she
was cited by Black Enterprise Magazine as one of the 40 most influential African
Americans in Corporate America.
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[HERCULES LOGO]
WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Board of Directors - Continuing as Directors
[PHOTO OF R. KEITH ELLIOTT]
R. KEITH ELLIOTT -- Director since 1991
Mr. Elliott, age 56, is chairman and chief executive officer of Hercules
Incorporated. In 1995, Mr. Elliott held the position of executive vice president
and chief financial officer, and later that year was named president and chief
operating officer. Mr. Elliott joined Hercules in 1991 from Engelhard
Corporation, a producer of catalysts, engineered materials, precious metals and
derivative products. He is a director of Wilmington Trust Company and PECO
Energy, Inc.
VINCENT J. CORBO -- Director since 1997
Dr. Corbo, age 54, is president and chief operating officer of Hercules
Incorporated. He held positions in research engineering and business management,
including executive vice president, responsible for Technology and the Paper
Technology and Fibers businesses, 1996; group vice president and president, Food
& Functional Products, 1993, and Materials, 1992. Dr. Corbo serves on the
following: Deputy Chairman of the Board of Managers of Fibervisions L.L.C.; the
Advisory Board of Georgia Tech College of Sciences; the Advisory Council of the
Department of Engineering, Princeton University; and Engineering College
Advisory Council of the University of Delaware.
[PHOTO OF VINCENT J. CORBO]
[PHOTO OF RICHARD M. FAIRBANKS, III]
RICHARD M. FAIRBANKS, III -- Director since 1993
Mr. Fairbanks, age 57, is managing director for Domestic and International
Issues, Center for Strategic & International Studies. He was Ambassador-at-Large
under President Reagan. He is a member of the board of directors of SEACOR Smit,
Inc. and GATX Corporation; vice chairman of the U.S. National Committee of the
Pacific Economic Cooperation Council; member, Council on Foreign Relations,
Council of American Ambassadors; and founder, The American Refugee Committee of
Washington.
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[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Board of Directors - Continuing as Directors
[PHOTO OF EDITH E. HOLIDAY]
EDITH E. HOLIDAY -- Director since 1993
Ms. Holiday, age 46, is an attorney. She was Assistant to the President of the
United States and Secretary of the Cabinet from 1990 until early 1993 and served
as General Counsel of the U.S. Treasury Department from 1989 through 1990. She
served as Counselor to the Secretary of the Treasury and Assistant Secretary for
Public Affairs and Public Liaison, U.S. Treasury Department from 1988 to 1989.
Ms. Holiday is a director of Amerada Hess Corporation, H. J. Heinz Company,
Beverly Enterprises, Inc., and director or trustee of various investment
companies in the Franklin Templeton Group of Funds.
GAYNOR N. KELLEY -- Director since 1989
Mr. Kelley, age 66, is the retired chairman and chief executive officer of the
Perkin-Elmer Corporation, a manufacturer of analytical and biotechnology
instrumentation. He is a member of the board of directors of Alliant Techsystems
Inc. and Prudential Insurance Co. of America. He is on the advisory board of the
Center for Management Development at Northeastern University.
[PHOTO OF GAYNOR N. KELLEY]
[PHOTO OF H. EUGENE McBRAYER]
H. EUGENE McBRAYER -- Director since 1992
Mr. McBrayer, age 66, retired as president of Exxon Chemical Company in January
1992, after 37 years of service. He is a former chairman of the board of the
Chemical Manufacturers Association and is currently a director of American Air
Liquide, Inc. and Air Liquide International. He is also a member of the Advisory
Committee for the Pacific Northwest National Laboratory.
PETER McCAUSLAND -- Director since 1997
Mr. McCausland, age 48, is chairman and chief executive officer of Airgas, Inc.
(a distributor of industrial, medical, and specialty gases and related
equipment), a company he founded in 1987. He served as general counsel for MG
Industries, Inc., an industrial gas producer. He was a partner in the firm of
McCausland, Keen & Buckman which specializes in mergers, acquisitions and
financings. He is a director of the Fox Chase Cancer Center and the Independence
Seaport Museum.
[PHOTO OF PETER MCCAUSLAND]
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WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Board of Directors - Highlights
HOW IS THE BOARD COMPENSATED?
- - Employee directors receive no additional compensation other than their
normal salary for serving on the Board or its Committees.
- - Nonemployee directors receive:
-- Annual grant of 3,000 stock options;
-- Right to defer compensation in exchange for stock;
-- $23,000 annual fee;
-- $1,000 for each meeting attended;
-- $3,000 for chairing a committee;
-- $1,000 per day for special assignments;
-- Reimbursement for out-of-pocket expenses;
-- In 1997, nonemployee directors received $470,412 as a group.
HOW IS THE BOARD EVALUATED?
- - Self evaluation process, started in 1994, continues
- - Increased communication between members and management
- - Implemented peer evaluation of performance
- - Solicited written commentary from members regarding critical matters
HOW MUCH HERCULES STOCK DOES THE BOARD OWN?
Stock Ownership for Nonemployee
Directors (as a group)
[PIE CHART]
RSU Shares 10,622
Restricted Shares 51,645
Record Shares 74,258
Option Shares 126,000
WHAT ARE THE NONEMPLOYEE DIRECTOR PROGRAMS?
-- Nonemployee Director Stock Accumulation Plan
-- Equity Award Program
-- Restricted Stock Units Program
-- Charitable Award Program (See page 10 for more information)
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WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Board of Directors - Committees
<TABLE>
<CAPTION>
SOCIAL
BOARD MEMBER BOARD AUDIT COMPENSATION EXECUTIVE FINANCE NOMINATING RESPONSIBILITY TECHNOLOGY
- ------------ ----- ----- ------------ --------- ------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. K. Elliott X* X* X X
V. J. Corbo X X X X
R. M. Fairbanks, III X X X X
E. E. Holiday X X X X*
R. G. Jahn X X X X*
G. N. Kelley X X X* X
P. McCausland X X X
R. L. MacDonald, Jr. X X* X X
H. E. McBrayer X X X X* X
P. A. Sneed X X* X X
Meetings Held in 1997 10 4 5 1 6 4 4 5
</TABLE>
* Chairperson
AUDIT: Reviews auditing, accounting, financial reporting and internal control
functions. Recommends our independent accountant and reviews their services. All
members are nonemployee directors.
COMPENSATION: Administers executive compensation programs, policies, and
practices. Acts in an advisory role on employee compensation. All members are
nonemployee directors.
EXECUTIVE: Limited powers to act on behalf of the Board whenever the Board is
not in session. Meets only as needed and acts only by unanimous vote. If any
nonemployee director wants a matter to be addressed by the Board rather than the
Executive Committee, then such matter is submitted to the Board.
FINANCE: Reviews Hercules' financial affairs. Has full and final authority on
certain financial matters and serves as the named fiduciary for all of Hercules'
employee benefit plans.
NOMINATING: Considers and recommends nominees for election as directors and
officers. Reviews and evaluates the Board and its members. All members are
nonemployee directors.
SOCIAL RESPONSIBILITY: Reviews Hercules' policies, programs and practices on
equal employment opportunity; environmental, safety and health matters; ethics;
and community affairs/relations.
TECHNOLOGY: Reviews the strategic direction of Hercules' intellectual property
estate, research and development, and emerging technologies.
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[HERCULES LOGO]
PROXYWORKS(TM)
What have we done for shareholders lately?
Board of Directors - Other Information
NONEMPLOYEE DIRECTOR PROGRAMS
NONEMPLOYEE DIRECTOR STOCK ACCUMULATION PLAN. Directors can defer all or part of
their compensation in exchange for stock (restricted until retirement from the
Board) at 85% of the fair market value of such stock on the date of exchange.
In addition, each director annually receives a non-qualified stock option
(exercisable after a one-year holding period) to purchase 3,000 shares of common
stock. The option price is the fair market value of the common stock on the date
of grant.
EQUITY AWARD. A director has a single opportunity to purchase 750 shares of
common stock when first elected to the Board. Upon the purchase, Hercules awards
an additional 1,500 shares which cannot be transferred until retirement or
resignation from the Board.
RESTRICTED STOCK UNITS. Upon election to the Board, each director receives 1,100
restricted stock units, which are placed in an unfunded account where they
accrue dividend equivalents and interest. Each unit represents the right to
receive one share of Hercules stock at retirement. Units do not carry any voting
rights. Two hundred units immediately vest. Thereafter, for every year served on
the Board, 100 additional units vest yearly for each director (up to a maximum
term of nine years). Upon retirement from the Board, all vested units are paid
in shares as a lump sum or spread over a period not to exceed ten years.
CHARITABLE AWARD PROGRAM. This program is designed to promote charitable giving.
It is available to all directors and is funded by life insurance policies on
directors. Upon the retirement or death of a director, Hercules will donate its
common stock, with an expected aggregate value of $1,000,000, to one or more
designated charitable institutions over a ten-year period. The actual number of
shares delivered to the charitable institutions will be based on a projected
share price growth. The first installment will be paid immediately after the
director's retirement or death, but no sooner than April 1, 2001.
Directors derive no financial benefit from this program since all charitable
deductions accrue solely to Hercules. Furthermore, the insurance funding is
structured so that the program results in nominal cost to Hercules over time.
BOARD PERFORMANCE EVALUATION
In 1994, the Board charged the Nominating Committee with the development and
oversight of a viable process for self-evaluation of the Board's performance in
keeping with its stated commitment to shareholders. The first evaluation process
was completed in early 1995.
Results of this evaluation were reviewed by the Nominating Committee and then
presented to the full Board. Based upon feedback, the Board changed its
operating procedures to ensure increased communication between members and
management, and to enhance reporting and follow-up procedures.
To further improve the evaluation process, the Nominating Committee in 1997
developed a revised format which solicited written commentary from Board members
to questions regarding critical matters such as succession planning; strategic
planning processes; Board Committee activities; safety, health and environment;
ethics; social responsibility; management communication with the Board; and peer
evaluation of individuals in their role as board or committee members. This
evaluation was completed in early 1998. A presentation was given to the
Nominating Committee and the Board.
This evaluation process will continue to be refined in subsequent years as
appropriate issues arise.
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WE HAVE COMMITTED TO
MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Top Five Compensated Officers
[PHOTO]
R. Keith Elliott
Chairman and Chief
Executive Officer
[PHOTO]
George MacKenzie
Senior Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
[1997 Compensative Highlights Bar Graph]
R.K. Elliott V.J. Corbo G. MacKenzie C.D. Miller D.W. DiDonna
------------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Salary $750,000 $433,334 $260,004 $305,004 $226,984
Bonus $910,000 $550,000 $468,000 $228,750 $190,000
Other Compensation $70,106 $43,064 $4,043 $15,872 $2,421
Restricted Stock $3,770,000 $1,306,153 $607,960 $0 $0
Incentive Payouts $2,433,671 $0 $608,393 $0 $0
</TABLE>
[PHOTO]
C. Doyle Miller
Senior Vice President
[PHOTO]
Vincent J. Corbo
President and Chief
Operating Officer
[PHOTO]
Dominick W. DiDonna
Senior Vice President, International and
General Manager, Paper Technology
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[HERCULES LOGO]
WHAT HAVE WE DONE
FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE RETURN*
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Hercules Incorporated (NYSE trading symbol HPC) 100 183.56 190.40 283.64 221.41 261.75
S&P 500 100 110.08 111.53 153.45 188.68 251.63
S&P Chemical Index 100 111.83 129.47 169.12 223.43 274.61
</TABLE>
Assumes $100 invested on December 31, 1992
*Total return assumes reinvestment of dividends
12
<PAGE> 17
[HERCULES LOGO]
WE HAVE COMMITTED TO
MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Report Of The Compensation Committee
HIGHLIGHTS
COMPENSATION PHILOSOPHY
- Link executive compensation with shareholder returns
- Guidelines for substantial stock ownership for executives
- Attract and retain talented employees through
competitive compensation
1997 BONUS RESULTS
- Earnings per share -- $3.27
- Return on Equity -- 41%
- Free Cash Flow -- $239M
STOCK OWNERSHIP GUIDELINES
- Chairman & CEO: 5 times salary plus target bonus
- President & COO: 4 times salary plus target bonus
- Management Committee: 3 times salary plus target bonus
- Senior Management: 2 times salary plus target bonus
EXECUTIVE COMPENSATION STRUCTURE
- Base pay
- Annual incentive
- Long-term incentive
- Recognition awards
MR. ELLIOTT'S 1997 TARGET BONUS
- 80% based on corporate performance
- 20% based on individual accountabilities
EMPLOYEE STOCK AND COMPENSATION PROGRAMS
- Worldwide stock option grant
- Employee incentive plan
- Employee Stock Purchase Plan
- 401(k) Plan
- Accountability system and awards
13
<PAGE> 18
[HERCULES LOGO]
WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Report of the Compensation Committee
WHAT IS OUR COMPENSATION PHILOSOPHY?
Our philosophy is to align compensation of both management and employees with
the long-term interests of our shareholders. Executive compensation is
structured to motivate management to create sustained shareholder value by:
- linking executive compensation with the returns realized by
shareholders,
- aligning the interests of management and shareholders through
substantial stock ownership for executives, and
- ensuring the continued growth and performance of Hercules by
attracting, retaining, and motivating talented executives and
employees through competitive compensation.
WHAT IS THE STRUCTURE OF EXECUTIVE COMPENSATION?
The elements of executive compensation programs are:
- base pay,
- annual incentive,
- long-term incentives, and
- special awards in recognition of extraordinary achievement or
significant appointments.
Increasing the link to performance-based pay for key executives continued in
1997, with fixed base salary levels and a greater percentage of the total
compensation in short- and long-term incentives for key employees.
HOW IS BASE PAY DETERMINED?
Base pay is determined by individual performance and comparisons to similar
positions in chemical and general industry companies, including those designated
in the Standard & Poors Chemical Index. With an increased emphasis on
performance-based pay in October 1996, salaries were frozen for three years for
Messrs. Elliott, Corbo, MacKenzie and Miller. Their salaries are adjusted only
in the event of a significant appointment.
When Dr. Corbo was named President and Chief Operating Officer in February 1997,
his base salary was increased to $450,000 and, in this position, will not be
adjusted during the original three-year period. In establishing his pay level,
the Compensation Committee considered:
- an analysis of competitive chief operating officer compensation in
diversified chemical companies,
- input from outside consulting firms, and
- the relationship of base pay levels of the chief executive officer and
the chief operating officer.
Additionally, the Committee took this opportunity to adjust some of Dr. Corbo's
potential future compensation to variable pay, both short- and long-term.
OTHER HIGHLY COMPENSATED EXECUTIVES' BASE PAY
Base pay was determined by considering competitive compensation data from other
chemical companies, published industry surveys for comparable positions, and
individual performance.
14
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[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Report of the Compensation Committee
HOW ARE ANNUAL BONUSES DETERMINED?
Under our annual Management Incentive Compensation Plan, bonuses are paid in a
combination of cash and restricted stock based on the achievement of
predetermined corporate, business or corporate staff unit, and individual goals.
The plan provides that no payouts will occur unless the minimum level of
performance, as established by the Compensation Committee, is exceeded. A
maximum of 200% of the total target pool may be paid upon achievement of
outstanding performance. Once established, the Committee may adjust the expected
performance level only upon the occurrence of an extraordinary event. In the
last four years, the Committee has not waived the minimum level of performance
nor adjusted the target or maximum goals required for payout.
1997 BONUS PAYOUT LEVEL
The Compensation Committee approved the 1997 bonus pool at 150% of the
target level. In order to enhance the long-range decision-making of the
management team, the number of measures of corporate performance were increased
from one to three in 1997. Specifically, the Committee used earnings per share,
return on equity, and free cash flow. In determining the payout, these measures
were weighted 50%, 25%, and 25%, respectively. The financial results were as
follows:
<TABLE>
<CAPTION>
MEASURE 1996 PERFORMANCE 1997 PERFORMANCE
<S> <C> <C>
Earnings per Share $3.10 $3.27
Return on Equity 33% 41%
Cash flow $205 Million $239 Million
</TABLE>
Additionally, the 1997 bonus pool reflected:
- Long-term portfolio management
- Strong financial management
- Improved management development and succession planning
MR. ELLIOTT'S 1997 BONUS
Consistent with the focus on performance-based compensation, Mr. Elliott's
target bonus opportunity was set at 70% of his salary for 1997. In his position,
80% of Mr. Elliott's target bonus is directly attributable to corporate
performance. With respect to the remaining 20% of target bonus, the Compensation
Committee considered Mr. Elliott's individual accountabilities, including:
- Long-term portfolio management
- Continued implementation of cost improvement and growth initiatives
- Management development
- Cash management
In light of such considerations, Mr. Elliott's 1997 bonus payout was $910,000.
OTHER HIGHLY COMPENSATED EXECUTIVES' 1997 BONUSES
The final 1997 bonuses for the other four executives were an aggregate of
$1,436,750. The Compensation Committee considered Hercules corporate and
business unit performance, and individual contributions to our success.
15
<PAGE> 20
[HERCULES LOGO]
PROXYWORKS(TM)
WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
REPORT OF THE COMPENSATION COMMITTEE
HOW IS COMPENSATION USED TO FOCUS MANAGEMENT ON LONG-TERM VALUE CREATION?
The focus of the Long-Term Incentive Compensation Plan is to increase
shareholder value yearly. Under this plan, the Compensation Committee approves
pools of regular stock options and performance accelerated stock options.
Performance options are nonqualified stock options that normally vest 9 1/2
years from the date of grant. Vesting can be accelerated upon the achievement of
specific goals. The Committee also approves specific awards for officers and
other key employees. In accordance with provisions of this plan, the Chief
Executive Officer approves all awards for other eligible employees.
1997 LONG-TERM INCENTIVES FOR MESSRS. ELLIOTT, CORBO, AND MACKENZIE
Under the agreements reached in 1996, no regular long-term incentives were
granted to Messrs. Elliott, Corbo, and MacKenzie in 1997.
However, with his appointment to President and Chief Operating Officer, Dr.
Corbo received 150,000 performance options with conditions similar to those
granted in 1996. These options were granted in lieu of any regular long-term
incentives for the next three years. The normal vesting of these options will
occur 9 1/2 years from the date of grant. Accelerated vesting of three
substantially equal increments can occur subject to achievement of ongoing 12%
annual compounded stock price growth. For example, the earliest vesting date is
October 1999, provided our stock has reached a price of $66.03. If our annual
stock price growth falls below 12%, these options will not vest at that time. In
order to vest in subsequent years, the stock price must exceed the 12% annual
compounded stock price growth from the date of grant to future vesting dates. In
the event of termination for reasons other than reduction in force, disability,
death, change in control, and retirement, unvested increments will be forfeited.
[GRANT ACCELERATED VESTING GRAPH]
Based on Average Stock Price for Preceding 60 Trading Days
Oct 96 47 62.39 Oct 01 82.83 109.96
47.45 62.99 83.62 111
47.9 ` 63.58 84.41 112.06
48.35 64.19 85.21 113.12
48.81 64.8 86.02 114.19
49.27 65.41 86.84 115.28
49.74 Oct 99 66.03 87.66 Oct 04 116.37
50.21 66.66 88.49 117.47
50.69 67.29 89.33 118.59
51.17 67.93 90.18 119.71
51.66 68.57 91.03 120.85
52.15 69.22 91.9 122
Oct 97 52.64 69.88 Oct 02 92.77 123.15
53.14 70.54 93.65 124.32
53.64 71.21 94.54 125.5
54.15 71.89 95.44 126.69
54.67 72.57 96.34 127.9
55.19 73.26 97.26 129.11
55.71 Oct 00 73.96 98.18 Oct 05 130.33
56.24 74.66 99.11 131.57
56.77 75.37 100.05 132.82
57.31 76.08 101 134.08
57.85 76.8 101.96 135.35
58.4 77.53 102.93 136.64
Oct 98 58.96 78.27 Oct 03 103.9 137.93
59.52 79.01 104.89 139.24
60.08 79.76 105.88 Oct 06 145.97
60.65 80.52 106.89
61.23 81.28 107.9
61.81 82.05 108.93
MESSRS. MILLER AND DIDONNA
In 1997, the Compensation Committee also approved an aggregate of 52,625
performance options and 46,500 stock options for Messrs. Miller and DiDonna. The
Committee considered competitive compensation, the number of stock options
granted in the prior year, and the current accountabilities and responsibilities
of the executives.
These performance options also have a normal vesting period of 9 1/2 years which
can be accelerated upon the achievement of 12% annual compounded stock price
growth over the three-year performance
16
<PAGE> 21
[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Report of the Compensation Committee
period. These options, which represent approximately half of the value of the
award package, are structured in two components. First, the target component of
the performance options will have accelerated vesting at three years if the
price of our stock increases to $60.75 from the May 1, 1997 grant price of
$39.50 and total shareholder return is in excess of the S&P Chemical Index for
the three-year performance period. Second, the outstanding component of the
performance options will have accelerated vesting at three years if the price of
our stock increases to $69.25 and the relative total shareholder return goals
are achieved.
PAYOUT OF SPECIAL AWARDS
From time to time, special awards are granted in recognition of extraordinary
results.
Under the Long-Term Incentive Compensation Plan, awards were made in 1995 to
certain executives who were instrumental in the sale of Hercules Aerospace
Company to Alliant Techsystems, Inc. The awards recognized the link between the
Aerospace divestiture and future returns to Hercules shareholders. The
Compensation Committee certified that (1) the outstanding performance goal of
achieving a price above $40 per share in Alliant stock had been met; and (2) the
performance period was completed with the secondary offering of Hercules
holdings in Alliant. As a result, these awards vested on December 17, 1997.
STOCK OWNERSHIP GUIDELINES
Guidelines have been established for the stock ownership levels of our
executives. These guidelines, which apply to 30 executives, reinforce our
compensation approach of linking management's interests with those of our
shareholders. The guidelines specify stock ownership as a multiple of base
salary plus target bonus for the following levels:
Chairman and Chief Executive Officer: 5 times salary plus target bonus
President and Chief Operating Officer: 4 times salary plus target bonus
Hercules Management Committee: 3 times salary plus target bonus
Others in Executive Management: 2 times salary plus target bonus
Two-thirds of these 30 executives already meet the ownership target multiples,
and the others will do so within three years.
STOCK OWNERSHIP PROGRAM
As discussed in last year's proxy statement, Messrs. Elliott, Corbo and
MacKenzie (in recognition of their new positions) were provided an opportunity
to receive a matching grant of restricted stock against new purchases of
Hercules stock. These stock purchases are made either outright or through salary
and/or bonus reduction over a period of up to four years. In the event of
termination, prior to three years from date of grant, all matching grant shares,
associated dividends and interest are forfeited.
In 1997, Mr. Elliott made an irrevocable election to purchase 40,000 restricted
stock units through a combination of salary and bonus reductions during 1997,
1998, 1999, and 2000. The Compensation Committee approved the matching grant of
80,000 shares of restricted stock for Mr. Elliott.
In 1997, Messrs. Corbo and MacKenzie made an irrevocable election to purchase
26,529 and 10,321 restricted stock units, respectively, through salary and/or
bonus reductions. They received matching grants of restricted stock in the
amount of 33,161 and 12,901 shares, respectively.
17
<PAGE> 22
[HERCULES LOGO]
WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Report of the Compensation Committee
HOW HAVE WE RESPONDED TO IRS LIMITS ON DEDUCTIBILITY OF COMPENSATION?
Under Section 162(m) of the Internal Revenue Code, the Company may not deduct
certain forms of compensation in excess of $1,000,000 paid to a highly
compensated executive. Based upon a review of our current compensation plans and
practices, including the stock ownership program mentioned, the Compensation
Committee concluded that no action would be taken at this time and that further
review would be made during 1998.
HOW HAS THIS COMPENSATION PHILOSOPHY BEEN EXTENDED TO EMPLOYEES?
In May 1997, non-qualified stock options were granted to essentially all
Hercules employees worldwide. The grants ranged in size from 100 to 300 options,
with a staggered three-year vesting schedule of 40%, 40%, and 20%. This grant
has provided an additional tool to focus our employees on how their individual
and combined contributions can affect the overall corporate performance.
In 1998, we are expanding our worldwide emphasis on pay-for-performance with
broader incentive opportunities. Our objective is to motivate all employees to
achieve certain corporate, business unit and department, team and plant results.
Those employees eligible for the plan in 1998 will have the opportunity to earn
additional income when corporate earnings exceed expectations set for the
executive bonus program.
In most areas of the world, our employees are encouraged to build ownership in
Hercules stock by participation in our Employee Stock Purchase Plan. This plan
allows employees to purchase stock quarterly at a 15% discount through payroll
deduction. Domestic employees who participate in the 401(k) Savings and
Investment Plan receive their company match in the form of Hercules stock. This
contribution must remain in stock until the account is paid out or upon reaching
the age of 60. These programs encourage our employees to think and act like
shareholders.
Our accountability system provides a link between compensation and Hercules'
overall performance. This goal-setting and measurement system provides direction
and guidance in efforts that will best support the business and corporate
objectives. Outstanding performance against accountabilities is recognized in
the form of cash and stock option awards.
Compensation Committee
/s/ R. L. MacDonald, Jr.
---------------------------------
R. L. MacDonald, Jr., Chairperson
/s/ G. N. Kelley
---------------------------------
G. N. Kelley
/s/ H. E. McBrayer
---------------------------------
H. E. McBrayer
18
<PAGE> 23
[HERCULES LOGO]
WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Stock Ownership of Directors and Officers
Compliance With Section 16(a) Reporting: The rules of the Securities and
Exchange Commission require that Hercules disclose late filings of reports of
stock ownership (and changes in stock ownership) by its directors and executive
officers. To the best of Hercules' knowledge, there were no late filings during
1997.
Special Agreements: Hercules has entered into agreements with certain key
executives (reported in prior proxy statements) that become operative only upon
a change in control of Hercules or other specified event. These agreements
provide for the continuation of salary and benefits for a maximum period of
three years. If the executive takes an unreduced early retirement, five years
are added to his age (no credit accrues beyond age 65).
<TABLE>
<CAPTION>
Shares Options Percent
Beneficially Exercisable Restricted of
Name Owned(1) Within 60 Days Stock Units Shares
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
R. K. Elliott, Director and Officer 241,080 299,000 40,000 *
V. J. Corbo, Director and Officer 61,741 70,000 26,529 *
D.W. DiDonna 6,450 37,800 -- *
R. M. Fairbanks, III, Director 7,302 12,000 1,253 *
E. E. Holiday, Director 2,927 9,000 1,376 *
R. G. Jahn, Director 9,252 18,000 -- *
G. N. Kelley, Director 7,030 18,000 2,185 *
R. L. MacDonald, Jr., Director 11,153 18,000 1,928 *
G. MacKenzie, Officer 61,323 58,620 10,321 *
H. E. McBrayer, Director 77,729 15,000 1,527 *
P. McCausland, Director 3,611 -- 1,100 *
C. D. Miller, Officer 21,068 100,800 -- *
P. A. Sneed, Director 6,899 9,000 1,253 *
Directors and Officers as a Group (24) 694,531 1,108,670 87,472 1.9%
- ---------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Less than 1% of Hercules' outstanding shares of common stock.
(1) Includes shares, as of March 2, 1998, in the Savings and Investment Plan as
follows: R. K. Elliott, 680; V. J. Corbo, 2,482; D.W. DiDonna, 550; G.
MacKenzie, 2,520; and C. D. Miller, 6,451; and all directors and officers
as a group, 22,100.
Includes shares with restrictions and forfeiture risks as specified under
the Long-Term Incentive Compensation Plan: R. K. Elliott, 153,258; V. J.
Corbo, 42,635; D.W. DiDonna, 3,103; G. MacKenzie, 22,074; and C. D. Miller,
7,599; and all directors and officers as a group, 393,673. Owners have the
same voting and dividend rights as do other shareholders of Hercules,
except for the right to sell or transfer.
Included in the non-employee directors' totals is the one-time equity award
described on page 10.
Mr. Kelley's total includes 1,631 shares that he holds jointly with his
spouse.
19
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WHAT HAVE WE DONE FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Summary Compensation Table
<TABLE>
<CAPTION>
1997 Annual Compensation for the Top Five Officers Long-Term Compensation Awards
- ------------------------------------------------------------------------------------------------------------------------
Name and Position Year Salary Bonus Other Restricted Options Incentive All Other
Stock(1) (Shares) Payouts Compensation(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. K. Elliott 1997 750,000 910,000 70,106 3,770,000 -- 2,433,671 34,300
Chairman and Chief 1996 600,004 232,800 38,556 106,747 1,191,300 -- 46,787
Executive Officer 1995 450,833 500,000 34,878 1,340,131 194,500 1,266,435 34,841
V. J. Corbo 1997 433,334 550,000 43,064 1,306,153 150,000 -- 66,061
President and Chief 1996 298,751 145,000 42,357 27,351 356,000 -- 63,000
Operating Officer 1995 264,334 290,000 28,867 1,579,358 51,000 675,773 55,221
G. MacKenzie 1997 260,004 468,000 4,043 607,960 -- 608,393 23,591
Sr. Vice President and 1996 242,501 72,000 7,101 14,111 245,000 -- 21,634
Chief Financial Officer 1995 195,253 155,000 9,369 383,775 42,500 821,906 12,994
C. D. Miller 1997 305,004 228,750 15,872 -- 51,000 -- 68,638
Sr. Vice President 1996 275,082 66,500 16,446 19,852 51,000 -- 73,910
1995 251,666 240,000 26,724 1,100,266 51,000 675,773 60,575
D. W. DiDonna 1997 226,984 190,000 2,421 -- 48,125 -- 7,366
Sr. Vice President, International and 1996 185,430 67,475 -- 11,568 39,000 -- 7,450
General Manager, Paper Technology 1995 177,860 142,000 133 13,951 39,000 874,872 15,734
</TABLE>
(1) Each value is determined by multiplying the number of shares by the closing
market price of common stock on the date of grant and subtracting the
consideration, if any, paid by the executive officer. Dividends may be paid on a
current basis or accrued on restricted stock. As discussed on page 17 of the
Compensation Committee Report, this column includes the matching grants against
the irrevocable purchase elections for Messrs. Elliott, Corbo and MacKenzie.
The aggregate number (determined by taking the number of shares multiplied by
the year-end closing market price, net of any consideration paid) is shown
below. Included in the chart are restricted shares that each Executive Officer
purchased under the terms of the Hercules Long-Term Incentive Compensation Plan.
The aggregate amount paid for restricted shares by executive officers was
$7,005,915.
<TABLE>
<CAPTION>
(2) Major components of All Other Compensation include:
Aggregate Restricted Company Match Dividend & Interest Credits Premium Paid
Shares Net Value (Defined Contribution Plans) on Stock Options (Life Insurance)
-------------------- ---------- ---------------------------- --------------------------- ----------------
<S> <C> <C> <C> <C> <C>
R. K. Elliott 202,294 $5,793,082 $ 16,388 -- $ 17,912
V. J. Corbo 77,663 2,430,387 14,743 $ 43,484 7,834
G. MacKenzie 26,835 675,795 9,213 11,346 3,032
C. D. Miller 20,319 795,233 24,047 34,091 10,500
D. W. DiDonna 3,538 32,510 4,750 -- 2,616
</TABLE>
20
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[HERCULES LOGO]
WE HAVE COMMITTED TO
MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Option Grants Table
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
NO. OF SECURITIES PERCENT OF TOTAL EXERCISE OR
UNDERLYING OPTIONS GRANTED BASE PRICE GRANT DATE
NAME OPTIONS GRANTED TO EMPLOYEES ($/SH) EXPIRATION DATE VALUE(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
R. K. Elliott -- -- -- -- --
V. J. Corbo 150,000(2, 4) 6.0% $ 45.125 2/7/07 $1,516,815
G. MacKenzie -- -- -- -- --
C. D. Miller 24,000(3) 45.125 2/7/07 305,054
21,600(4) 2.0% 45.125 2/7/07 218,421
5,400(4) 45.125 2/7/07 54,605
D. W. DiDonna 22,500(3) 257,009
20,500(4) 1.9% 39.50 5/1/07 186,630
5,125(4) 46,657
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Black-Scholes option-pricing model was used to determine the fair value
of employee stock options as of the date of grant. No adjustments for risk
of forfeiture have been made. Significant assumptions are as follows:
Regular Performance
Options(3) Options(4)
---------- -----------
Dividend yield 3.0% 3.0%
Risk-free interest rate 6.6% 6.2%
Expected life 8 yrs. 5 yrs.
Expected volatility 22.9% 22.2%
(2) Dr. Corbo received a performance stock option award to reflect his
promotion to president and chief operating officer in February 1997.
(3) Vesting schedule is as follows: 40% on 5/1/98; 40% on 5/3/99; and 20% on
5/1/00.
(4) Performance accelerated stock options (target and outstanding) become
exercisable upon the achievement of predetermined performance goals. If
goals are not achieved, the options become exercisable at 9 1/2 years.
21
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WHAT HAVE WE DONE
FOR SHAREHOLDERS LATELY?
PROXYWORKS(TM)
Option Exercises Table
This table shows the number and value of stock options (exercised and
unexercised) for the Executive Officers during 1997. Value is calculated using
the difference between the option exercise price and $50.0625 (year-end stock
price) multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
NO. OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT YEAR-END
NO. OF SHARES ----------------------------------------------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
R. K. Elliott -- -- 260,200 1,314,600 $5,029,309 $3,436,469
V. J. Corbo -- -- 54,800 527,400 1,109,785 1,748,813
G. MacKenzie -- -- 47,220 267,100 571,526 1,059,856
C. D. Miller 69,000 $2,557,563 76,800 124,200 1,009,999 341,250
D. W. DiDonna -- -- 18,000 104,525 73,425 577,508
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
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WE HAVE COMMITTED TO MANAGING THE BUSINESS FOR GROWTH.
PROXYWORKS(TM)
Pension Plan Table
This table shows the estimated annual pension benefits payable to a covered
participant at normal retirement age under Hercules' qualified benefits Pension
Plan, as well as non-qualified supplemental benefits, based on the stated
remuneration and years of service with Hercules and its subsidiaries.
<TABLE>
<CAPTION>
Years of Service
--------------------------------------------------------------------------------
Remuneration 15 Years 20 Years 25 Years 30 Years 35 Years
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 46,038 $ 61,384 $ 76,730 $ 92,076 $107,422
400,000 94,038 125,384 156,730 188,076 219,422
500,000 118,038 157,384 196,730 236,076 275,422
700,000 166,038 221,384 276,730 332,076 387,422
800,000 190,038 253,384 316,730 380,076 443,422
1,000,000 238,038 317,384 396,730 476,076 555,422
1,500,000 358,038 477,384 596,730 716,076 835,422
1,750,000 418,038 557,384 696,730 836,076 975,422
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Annual contributions by Hercules to the Pension Plan, if required, are
determined by an independent actuary, and no amount is attributed to an
individual employee. Due to the funded status of the Pension Plan, there was no
Hercules contribution in 1997.
Except in special cases, the aggregate retirement benefit, under both the
qualified and nonqualified plans, is a monthly amount determined by taking the
sum of 1) 1.2% of the employee's average monthly earnings (based on the highest
five consecutive calendar years during the last ten calendar years of
employment) up to one-half the Social Security Tax Base ($65,400 in 1997), and
2) 1.6% of the employee's average monthly earnings (as determined above) in
excess of one-half of the Social Security Tax Base, multiplied by the employee's
total years and months of credited service. For this purpose, "average monthly
earnings" consist of salary plus annual incentive or bonus compensation.
For Messrs. Elliott, Corbo, MacKenzie, Miller, and DiDonna, compensation used
for calculating retirement income benefits consists of the highest five
consecutive years of average monthly earnings. These amounts for 1997 are shown
under the "Salary" and "Bonus" columns of the Summary Compensation Table. The
estimated credited years of service for Messrs. Elliott, Corbo, MacKenzie,
Miller, and DiDonna are 16, 28, 18, 32 and 17, respectively.
The amounts reflected in this chart may be reduced due to voluntary elections
made under the Long-Term Incentive Compensation Plan to exchange nonqualified
pension rights for discounted restricted stock.
23
<PAGE> 28
[HERCULES LOGO]
[GRAPHIC OF LIQUID CHEMICALS]
Hercules Incorporated, established in 1912, is a global manufacturer of
chemical specialties used in a variety of home, office, and industrial products.
Hercules' focus is on sustainable, long-term growth in shareholder value, driven
by new products and continuous improvement in manufacturing costs.
Core businesses and key products are:
- - Aqualon, for thickeners used in water-based products such as latex paint;
- - Paper Technology, for strength and sizing aids used in manufacturing paper;
- - Resins, for hydrocarbon and rosin resins used in adhesives; and
- - Food Gums, for natural gum ingredients in food and beverages.
Hercules holds a majority ownership interest in FiberVisions L.L.C., a joint
venture in polypropylene fiber for the nonwovens market.
For more information about Hercules, please visit our web site at www.herc.com
Special thanks to Israel J. Floyd, Carol M. Kelleher, Sherry L. Read, Marilyn
Picot, and John R. Macedo at Hercules and Jean Gardner at Bowne of Philadelphia
for their contributions to this 1998 Proxy Statement.
<PAGE> 29
Online Voting Template Page 1 of 1
[HERCULES LOGO]
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WELCOME TO THE HERCULES ONLINE PROXY VOTING SITE FOR 1998!
This year we are offering our shareholders the opportunity to vote their proxy
card via the Internet for the 1998 Annual Shareholders Meeting.
Please follow these steps:
1. Press LOGIN below to Login.
2. Take the opportunity to read the 1998 Proxy Statement and the 1997
Annual Report.
3. VOTE! An electronic version of the Proxy Card appears in this site.
MARK your voting preferences on this electronic proxy card and press the
button to vote.
As with all forms of proxy voting, you may CHANGE your vote prior to the close
of the ballots on APRIL 30, 1998. Simply repeat the steps above.
Though this site is sponsored by Hercules Incorporated, all information
relative to you and your vote remains CONFIDENTIAL. This site is owned and
operated by CHASEMELLON SHAREHOLDER SERVICES who warrants the confidentiality
of your vote.
Also within this site is an opportunity for you to complete an anonymous survey
about Online Proxy Voting. Participation in the survey is voluntary and the
tabulation of the survey will be returned anonymously to Hercules Incorporated.
Thank you for choosing to vote online.
/ LOGIN /
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<PAGE> 30
ACCESSACCESSACCESS PAGE 1 OF 1
[HERCULES LOGO]
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PROXY/VOTING INSTRUCTION CARD
HERCULES INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Keith Elliot and Richard G. Dahlen, and each
of them, acting jointly or severally and with full power of substitution, for
and in the name of the undersigned to vote all shares of common stock of
Hercules Incorporated that the undersigned is entitled to vote at the Annual
Meeting of Shareholders to be held on Thursday, April 30, 1998, at 11:00 A.M.
at Wintherthur Museum, Garden and Library, Wilmington, DE, or at any
adjournment thereof.
The undersigned also hereby revokes previous proxies and acknowledges receipt
of Hercules' Notice of the Annual Meeting and Proxy Statement. This card
further provides voting instructions for shares held for the undersigned in the
Hercules' Dividend Reinvestment Plan and to the trustee of the Employee Savings
Plans sponsored by Hercules or any of it subsidiaries.
Unless otherwise specified, this proxy will be voted FOR items 1 and 2, and
will be voted in the discretion of the proxies on such other matters as may
properly come before the meeting or any adjournment thereof. For shares held in
the Employee Savings Plans, please refer to page 1 of the Proxy statement for
voting information.
The Board recommends a vote FOR Items 1 and 2
1. Election of Directors for a three-year term....../ / FOR ALL
/ / WITHHOLD ALL
NOMINEES ARE: Robert G. Jahn, Ralph L. MacDonald, Jr., and
Paula A. Sneed
WITHHOLD VOTE ONLY FROM: / /
/ / Robert G. Jahn / / Ralph L. MacDonald, Jr. / / Paula A. Sneed
2. Ratification of Coopers & Lybrand L.L.P. ....../ / FOR / /AGAINST
/ / ABSTAIN
As seating is limited to a first come, first served basis, please check this
box if you would like an admission ticket to attend the meeting. / /
Enter your 11-digit control number here: / /
It is located in the lower right of the
Proxy Card.
/Register This Vote/ /Clear Vote/
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<PAGE> 31
access Page 1 of 2
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[HERCULES LOGO]
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ONLINE PROXY VOTING
PROXY FINAL SUBMISSION
YOUR REGISTRATION NUMBER:
HERCULES INCORPORATED ANNUAL MEETING
TO BE HELD ON APRIL 30, 1998 FOR HOLDERS AS OF MARCH 2, 1998
DIRECTORS:
YOU VOTED:
RATIFICATION OF COOPERS & LYBRAND L.L.P.
YOU VOTED:
ADMISSION TICKET
You [WOULD/WOULD NOT] like an Admission Ticket for the 1998 Shareholder's
meeting.
IF ANY OF THE ABOVE INFORMATION IS INCORRECT, RETURN TO THE PROXY BALLOT FORM
BY USING THE BACK FEATURE OF YOUR BROWSER PROGRAM.
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SURVEY FORM
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Did you like the option of being able to vote your shares online? [ ] Yes [ ] No
Would you like to receive your proxy materials online next year instead of in
the mail? [ ] Yes [ ] No
Please enter any comments you would like us to pass along to Hercules
Incorporated in the space below.
COMMENTS
COMMENTS: (150 CHARACTERS)
- --------------------------------------------------------
THANK YOU for taking the time to complete this survey. The information you have
recorded in this survey will be sent to Hercules Incorporated anonymously.
Press RECORD SURVEY to save this survey and Exit the voting system or press
ABORT SURVEY AND EXIT to leave the
<PAGE> 32
access Page 1 of 2
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[HERCULES LOGO]
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ONLINE PROXY VOTING
PROXY FINAL SUBMISSION
YOUR REGISTRATION NUMBER:12500000000
HERCULES INCORPORATED ANNUAL MEETING
TO BE HELD ON APRIL 30, 1998 FOR HOLDERS AS OF MARCH 2, 1998
DIRECTORS:
YOU VOTED: FOR ALL
RATIFICATION OF COOPERS & LYBRAND L.L.P.
YOU VOTED: FOR
ADMISSION TICKET
You WOULD NOT like an Admission Ticket for the 1998 Shareholder's meeting.
IF ANY OF THE ABOVE INFORMATION IS INCORRECT, RETURN TO THE PROXY BALLOT FORM
BY USING THE BACK FEATURE OF YOUR BROWSER PROGRAM.
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SURVEY FORM
- --------------------------------------------------------------------------------
Did you like the option of being able to vote your shares online? [x] Yes [ ] No
Would you like to receive your proxy materials online next year instead of in
the mail? [x] Yes [ ] No
Please enter any comments you would like us to pass along to Hercules
Incorporated in the space below.
COMMENTS
COMMENTS: (150 CHARACTERS)
- --------------------------------------------------------
THANK YOU for taking the time to complete this survey. The information you have
recorded in this survey will be sent to Hercules Incorporated anonymously.
Press RECORD SURVEY to save this survey and Exit the voting system or press
ABORT SURVEY AND EXIT to leave the
<PAGE> 33
access Page 2 of 2
system without saving your survey.
/ Record Survey /
/ Abort Survey and Exit /
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BACK
- ----
<PAGE> 34
access Page 1 of 1
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[HERCULES LOGO]
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THANK YOU for taking the time to complete this survey. The information you have
recorded in this survey will be sent to Hercules Incorporated anonymously.
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/ Hercules Home Page /
<PAGE> 35
TELEPHONE VOTING VOICE PROMPTS
VOICE PROMPT: Welcome, please enter the control number located in
the lower-right hand corner of the form.
To vote as the Hercules Board recommends; press 1 now. To vote
on each proposal separately, press 0 now.
(To vote with management -- option 1)
VOICE PROMPT: You voted as the Board recommends. If this is correct,
press 1; if incorrect, press 0.
If you plan to attend the Annual Meeting, press 1; if no,
press 0.
Thank you for voting.
(If selections are incorrect -- option 0)
VOICE PROMPT: Proposal 1 - To vote for all nominees, press 1; to withhold
for all nominees, press 9; to withhold for an individual
nominee, press 0. Make your selection now.
Proposal 2 - To vote for, press 1, against, press 9, abstain,
press 0.
Your votes have been cast as follows:
Proposal 1 (selections repeated)
Proposal 2 (selections repeated)
If this is correct, press 1; if incorrect, press 0.
If you plan to attend the Annual Meeting, press 1; if not,
press 0.
Thank you for voting.
(If voting separately on each proposal)
VOICE PROMPT: Proposal 1 -- To vote for all nominees, press 1. To withhold
for all nominees, press 9. To withhold for an individual
nominee, press 0. Make your selection now.
<PAGE> 36
(To withhold from a nominee)
VOICE PROMPT: Please enter the two-digit number that appears next to the
nominee you do not wish to vote for. Please make your
selection now.
(01 Robert G. Jahn)
(02 Ralph L. MacDonald, Jr.)
(03 Paula A. Sneed)
Press 1 if you wish to withhold from another nominee or press
0 if you have completed voting on directors.
VOICE PROMPT: Proposal 2 -- To vote for, press 1; against, press 9;
abstain, press 0.
Your votes have been cast as follows:
(Selections repeated)
If this is correct, press 1; if incorrect, press 0.
If you plan to attend the Annual Meeting, press 1; if not,
press 0.
Thank you for voting.
<PAGE> 37
PROXY/VOTING INSTRUCTION CARD
HERCULES INCORPORATED
THIS PROXY CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints R. Keith Elliott and Richard G. Dahlen,
and each of them, acting jointly or severally and with full power of
substitution, for and in the name of the undersigned to vote all shares of
common stock of Hercules Incorporated that the undersigned is entitled to vote
at the Annual Meeting of Shareholders to be held on Thursday, April 30, 1998, at
11:00 a.m. at Winterthur Museum, Garden & Library, Winterthur, DE, or at any
adjournment thereof.
The undersigned also hereby revokes previous proxies and acknowledges
receipt of Hercules' Notice of the Annual Meeting and Proxy Statement. This card
further provides voting instructions for shares held for the undersigned in the
Hercules' Dividend Reinvestment Plan and to the trustee of the Employee Savings
Plans sponsored by Hercules or any of its subsidiaries.
Unless otherwise specified, this proxy will be voted FOR Items 1 and 2,
and will be voted in the discretion of the proxies on such other matters as may
properly come before the meeting or any adjournment thereof. For shares held in
the Employee Savings Plans, please refer to page 1 of the Proxy Statement for
voting information.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND MAIL PROMPTLY OR VOTE BY TELEPHONE
OR THE INTERNET.
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- FOLD AND DETACH HERE -
DIRECTIONS TO
WINTERTHUR MUSEUM,
GARDEN & LIBRARY
[PICTURE OF MAP]
TAKE U.S. INTERSTATE 95 TO WILMINGTON EXIT 7 (ROUTE 52 NORTH). FOLLOW ROUTE 52
(PENNSYLVANIA AVENUE) ACROSS ROUTE 141 (CENTRE ROAD) TO RIGHT ONTO PAVILION
DRIVE. (LOOK FOR THE WINTERTHUR MUSEUM, GARDEN & LIBRARY SIGN.) FOLLOW TO
VISITOR PAVILION AND VISITOR PARKING. ENTER VISITOR PAVILION AND PROCEED TO
COPELAND LECTURE HALL.
<PAGE> 38
Please mark
your votes /X/
as this
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
FOR WITHHOLD
1. ELECTION OF DIRECTORS for a three- / / / /
year term.
Nominees are: 01 Robert G. Jahn, 02 Ralph L. MacDonald, Jr., and 03 Paula A.
Sneed.
Withhold vote only from
_________________________________
FOR AGAINST ABSTAIN
2. Ratification of Coopers & Lybrand / / / / / /
L.L.P. as independent accountants.
As seating is limited to a first-come, first-served basis,
please check this box if you would like an admission ticket / /
to attend the meeting
Signature(s) ___________________________________________ Date _______________
NOTE: Please sign as name appears above. When signing as attorney, executor,
administrator, trustee, guardian or officer of a corporation, please give full
title.
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- Fold and detach here -
VOTE BY INTERNET
1. Read the accompanying Proxy Statement and proxy card.
2. Go to website http://hercules.proxyvoting.com
3. Enter your CONTROL NUMBER located on your proxy card below.
4. Follow the on-line instructions.
VOTE BY TELEPHONE
1. Read the accompanying Proxy Statement and proxy card.
2. Call the toll-free number 1-800-840-1208
3. Enter your CONTROL NUMBER located on your proxy card.
4. Follow the voice prompt instructions.
YOUR VOTE IS IMPORTANT!
Do not return the proxy card if you are voting by Internet or telephone.
