<PAGE> 1
As filed with the Securities and Exchange Commission on September 15, 1998
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------
HERCULES INCORPORATED
HERCULES TRUST I
HERCULES TRUST II
HERCULES TRUST III
HERCULES TRUST IV
(EXACT NAME OF EACH REGISTRANT AS SPECIFIED IN ITS RESPECTIVE CHARTER)
DELAWARE 51-0023450
DELAWARE APPLICATION PENDING
DELAWARE APPLICATION PENDING
DELAWARE APPLICATION PENDING
DELAWARE APPLICATION PENDING
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NOS.)
HERCULES PLAZA
1313 NORTH MARKET STREET
WILMINGTON, DELAWARE 19894-0001
TELEPHONE: 302-594-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF EACH REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------------
Israel J. Floyd, Esquire
Secretary Copy to:
Hercules Incorporated
Hercules Plaza Justin P. Klein, Esquire
1313 North Market Street Ballard Spahr Andrews & Ingersoll, LLP
Wilmington, DE 19894-0001 1735 Market Street, 51st Floor
Telephone: 302-594-5128 Philadelphia, PA 19103
(Agent for service) Telephone: 215-864-8606
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [__]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [__]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [__]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [__]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class Proposed maximum Proposed maximum Proposed maximum Amount of
of securities amount to be offering price aggregate offering registration
to be registered registered(1)(2)(3) per unit (4) price (3)(4) fee(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Debt Securities, Subordinated
Debt Securities and Junior
Subordinated Debentures of
Hercules Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, no par value of
Hercules Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Depositary Shares of Hercules
Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value of
Hercules Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase Contracts of
Hercules Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase Units of
Hercules Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants of
Hercules Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Securities of
Hercules Trust I
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Securities of
Hercules Trust II
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Securities of
Hercules Trust III
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Securities of
Hercules Trust IV
- ------------------------------------------------------------------------------------------------------------------------------------
Guarantees of Preferred Securities of
Hercules Trust I, Hercules Trust II,
Hercules Trust III and Hercules Trust
IV by Hercules Incorporated(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $2,700,000,000 100% $2,700,000,000 $796,500
====================================================================================================================================
</TABLE>
(1) Such indeterminate number or amount of Senior Debt Securities,
Subordinated Debt Securities, Junior Subordinated Debentures, Preferred
Stock, Depositary Shares, Common Stock, Purchase Contracts, Purchase
Units and Warrants of Hercules Incorporated ("Hercules") and Preferred
Securities (the "Trust Preferred Securities") of Hercules Trust I,
Hercules Trust II, Hercules Trust III and Hercules Trust IV (collectively,
the "Hercules Trusts") as may from time to time be issued at indeterminate
prices (collectively, the "Offered Securities"). Junior Subordinated
Debentures may be issued and sold to any of the Hercules Trusts, in which
event such Junior Subordinated Debentures may later be distributed to the
holders of Trust Preferred Securities of the applicable Hercules Trust
upon certain events described in the applicable Trust Agreement of such
Hercules Trust.
(2) Such amount in U.S. dollars or the equivalent thereof in foreign
currencies as shall result in an aggregate initial offering price for
all securities of $3,000,000,000. In addition, this Registration
Statement includes such presently indeterminate number or amount of
Offered Securities as may be issuable from time to time upon conversion
or exchange of other Offered Securities.
(3) An aggregate principal amount of $300,000,000 of unsold debt securities
registered by Hercules on Registration Statement No. 333-29225, which was
declared effective on July 23, 1997, are being carried forward in this
Registration Statement pursuant to Rule 429 under the Securities Act of
1933. The registration fee of $90,909 associated with such securities was
previously paid. Accordingly, the total amount of Offered Securities to
which the Prospectus contained in this Registration Statement relates,
when combined with the unsold debt securities registered on Registration
Statement No. 333-29225, is $3,000,000,000 as of the date of this filing.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 and exclusive of accrued interest and dividends, if
any.
(5) Hercules is also registering under this Registration Statement all other
obligations that it may have with respect to Trust Preferred Securities
issued by any of the Hercules Trusts. No separate consideration will be
received for any Guarantee or any other such obligations.
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE WITHIN PROSPECTUS RELATES TO SECURITIES REGISTERED HEREUNDER AND TO
THE UNSOLD DEBT SECURITIES REGISTERED BY HERCULES UNDER REGISTRATION STATEMENT
NO. 333-29225.
- --------------------------------------------------------------------------------
2
<PAGE> 3
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1998
PROSPECTUS
[HERCULES LOGO]
HERCULES INCORPORATED
HERCULES TRUST I
HERCULES TRUST II
HERCULES TRUST III
HERCULES TRUST IV
Hercules Plaza
1313 North Market Street
Wilmington, Delaware 19894-0001
(302) 594-5000
$3,000,000,000
HERCULES INCORPORATED
Debt Securities
Preferred Stock
Depositary Shares
Common Stock
Purchase Contracts
Purchase Units
Warrants
HERCULES TRUST I, HERCULES TRUST II, HERCULES TRUST III
& HERCULES TRUST IV
Preferred Securities Guaranteed by Hercules Incorporated
Hercules' Common Stock is listed on the New York Stock Exchange under the
ticker symbol "HPC."
------------------------------------------------------------------
We will provide specific terms of these securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest. This prospectus may not be used to sell these securities without a
supplement.
------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined
that this prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any jurisdiction where the offer or sale is not
permitted.
This prospectus is dated ____________________ , 1998.
<PAGE> 4
AVAILABLE INFORMATION
Hercules Incorporated (the "Company" or "Hercules") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 5th Street, N.W., Washington, DC 20549, and at the regional
offices of the SEC, which include: Chicago Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661, and 7 World Trade Center,
Suite 1300, New York, NY 10048. Such material can also be inspected and copied
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
NY 10005, on which certain of the Company's securities are listed. Copies can be
obtained from the SEC by mail, at prescribed rates, or from the SEC's internet
website at http://www.sec.gov.
The Company and the Hercules Trusts (as defined herein) have filed with
the SEC a registration statement on Form S-3 (together with all amendments and
exhibits, referred to as the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto. In
addition, certain documents filed by the Company with the SEC have been
incorporated in this Prospectus by reference. See "Incorporation of Certain
Documents by Reference." Statements contained herein concerning the provisions
of any document do not purport to be complete and, in each instance, are
qualified in all respects by reference to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the SEC. Each such
statement is subject to, and qualified in its entirety by, such reference. For
further information with respect to the Company, the Hercules Trusts and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the documents incorporated herein by
reference.
No separate financial statements of any of the Hercules Trusts have been
included or incorporated by reference herein. The Company and the Hercules
Trusts do not consider that such financial statements would be material to
holders of the Trust Preferred Securities (as defined herein) because (i) all of
the voting securities of each Hercules Trust will be owned, directly or
indirectly, by the Company, a reporting company under the Exchange Act, (ii)
each of the Hercules Trusts is a special purpose entity, has no operating
history, has no independent operations and is not engaged in, and does not
propose to engage in, any activity other than issuing securities representing
undivided beneficial interests in the assets of such Hercules Trust and
investing the proceeds thereof in Junior Subordinated Debentures issued by the
Company and (iii) the Company's obligations described herein and in any
accompanying Prospectus Supplement under the Trust Agreement (as defined herein)
of a Hercules Trust, the Guarantee issued by the Company with respect to the
Trust Preferred Securities issued by such Hercules Trust, the Junior
Subordinated Debentures of the Company purchased by such Hercules Trust and the
Junior Subordinated Debenture Indenture (as defined herein) pursuant to which
such Junior Subordinated Debentures are issued, taken together, constitute
direct obligations of the Company and a full and unconditional guarantee of the
Trust Preferred Securities of each such Hercules Trust. See "The Hercules
Trusts," "Description of the Junior Subordinated Debentures," "Description of
Trust Preferred Securities" and "Description of Guarantees."
2
<PAGE> 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC are incorporated herein by
reference:
(i) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(ii) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998 and June 30, 1998;
(iii) The Company's Current Reports on Form 8-K dated July 24, 1998
and July 30, 1998; and
(iv) The description of the Company's common stock in its
registration statement filed pursuant to Section 12 of the
Exchange Act, and any amendment or report filed for the
purpose of updating any such description.
All documents filed pursuant to Sections 13(a), 13(c), 14, or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
the offering of the securities offered pursuant to the applicable Prospectus
Supplement shall be deemed to be incorporated by reference into this Prospectus
and such Prospectus Supplement and to be a part hereof and thereof from the date
of filing of such documents. Any statement contained herein or therein or in a
document incorporated or deemed to be incorporated by reference herein or
therein shall be deemed to be modified or superseded for purposes of this
Prospectus and such Prospectus Supplement to the extent that a statement
contained therein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein and therein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or such Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus and the applicable Prospectus Supplement is delivered, upon
written or oral request, a copy of any or all of the documents which have been
or may be incorporated by reference in this Prospectus or the applicable
Prospectus Supplement other than exhibits to such documents (unless exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to: Israel J. Floyd, Esquire, Corporate Secretary, Hercules
Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, Delaware
19894-0001 (telephone: 302-594-5128; facsimile: 302-594-7252; Internet e-mail:
[email protected]).
3
<PAGE> 6
THE COMPANY
Hercules operates, both domestically and throughout the world, in two
industry segments: Chemical Specialties and Food & Functional Products. The
Chemical Specialties segment manufactures, markets and sells such products as
wet-strength resins and sizings to improve the properties of paper; resins for
inks and adhesives; and polypropylene fibers and textile yarns used in
disposable hygiene products and home furnishings. Major worldwide manufacturing
locations include Brunswick, Georgia; Franklin, Virginia; Jefferson,
Pennsylvania; Middelburg, the Netherlands; Milwaukee, Wisconsin; Paulinia,
Brazil; Portland, Oregon; Savannah, Georgia; and Zwijndrecht, the Netherlands.
The Food & Functional Products segment manufactures, markets and sells
natural food gums for the food industry and water-soluble polymers used as
thickeners and stabilizers in paints, personal care products, rubber and
coatings. Major worldwide manufacturing locations include Alizay, France; Doel,
Belgium; Hopewell, Virginia; Kenedy, Texas; Lille Skensved, Denmark; and Parlin,
New Jersey.
As of December 31, 1997, Hercules had 6,221 employees worldwide.
Approximately 3,600 were located in the United States.
PROPOSED ACQUISITION OF BETZDEARBORN
On July 30, 1998, Hercules entered into an agreement to acquire
BetzDearborn Inc. ("BetzDearborn"). The purchase price is approximately $2.4
billion in cash and Hercules will assume approximately $700 million in
BetzDearborn debt. The acquisition will be accomplished through a one-step cash
merger transaction. The shareholders of BetzDearborn must approve the
transaction and, subject to receiving such approval and satisfaction or waiver
of all conditions to closing, the transaction is expected to close on October
15, 1998.
BetzDearborn is engaged in the engineered specialty chemical treatment of
water and industrial process systems, operating in a wide variety of industrial
and commercial applications with particular emphasis on the chemical, petroleum
refining, paper, food processing, automotive, steel and power industries.
BetzDearborn develops, produces and markets a wide range of specialty chemical
products, and provides the technical expertise necessary to utilize these
products effectively. Chemical treatment programs are developed for use in
boilers, cooling systems, heat exchangers, paper and petroleum process streams
and both influent and effluent systems. BetzDearborn monitors changing water,
process and plant operating conditions so as to prescribe the appropriate
treatment programs to solve problems such as corrosion, scale, deposit formation
and a variety of process problems.
BetzDearborn's worldwide sales of specialty chemicals and other products
during 1997 amounted to $1,294.8 million, as compared to $1,037.0 million in
1996 and $752.5 million in 1995. Consolidated net earnings for 1997 were $86.2
million, as compared to $64.3 million in 1996 and $68.3 million in 1995.
BetzDearborn has operating subsidiaries in 37 countries, sales in over 90
countries and 12 production plants in the United States and 20 in countries
outside the United States. It employs approximately 6,400 people worldwide.
It is anticipated that the merged enterprise will be a global
specialty chemical company that will operate under the Hercules name and will be
headquartered in Wilmington, Delaware. The BetzDearborn water and industrial
process treatment businesses, excluding paper process, will continue to operate
under the BetzDearborn name.
4
<PAGE> 7
The financial statements of BetzDearborn for each of the three years in
the period ended December 31, 1997 and for the six month periods ended June 30,
1998 and 1997, respectively, and the Unaudited Pro Forma Condensed Combined
Financial Statements of the Company, assuming consummation of the proposed
acquisition of BetzDearborn as of January 1, 1997, for the year ended December
31, 1997 and the six-month period ended June 30, 1998, are included with this
Prospectus.
THE HERCULES TRUSTS
Each of Hercules Trust I, Hercules Trust II, Hercules Trust III and
Hercules Trust IV (collectively, the "Hercules Trusts") is a statutory business
trust created under Delaware law pursuant to (i) a trust agreement (each, as
amended from time to time, a "Trust Agreement") executed by the Company as
sponsor for such Hercules Trust (the "Sponsor") and by the initial trustees of
such Hercules Trust and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on September 14, 1998. Each Hercules Trust exists
for the exclusive purposes of (i) issuing and selling preferred securities
representing undivided beneficial interests in the assets of such Hercules Trust
(the "Trust Preferred Securities") and common securities representing undivided
beneficial interests in the assets of such Hercules Trust (the "Trust Common
Securities" and, together with the Trust Preferred Securities, the "Trust
Securities"), (ii) using the proceeds from the sale of such Trust Securities to
acquire the related Junior Subordinated Debentures (as defined herein) of the
Company and (iii) engaging in only those other activities necessary, advisable
or incidental thereto. The Company's Junior Subordinated Debentures will be the
sole assets of each Hercules Trust and, accordingly, payments under the related
Junior Subordinated Debentures will be the sole revenues of such Hercules Trust.
All of the Trust Common Securities of each Hercules Trust will be owned by the
Company (the "Trust Common Securities Holder") and will rank pari passu, and
payments will be made thereon pro rata, with the Trust Preferred Securities of
such Hercules Trust, except that upon the occurrence and continuance of an Event
of Default (as defined herein) under the applicable Trust Agreement resulting
from an Event of Default under the Junior Subordinated Debenture Indenture (as
defined herein), the rights of the Company as the Trust Common Securities Holder
to payments in respect of distributions and payments upon liquidation,
redemption or otherwise will be subordinated to the rights of the holders of
Trust Preferred Securities of such Hercules Trust. See "Description of Trust
Preferred Securities--Subordination of Trust Common Securities." The Company
will acquire Trust Common Securities of each Hercules Trust in an aggregate
Liquidation Amount (as defined in the applicable Trust Agreement) equal to at
least 3% of the total capital of such Hercules Trust. Each Hercules Trust has a
term of 35 years, but may dissolve earlier as provided in the applicable Trust
Agreement.
Each Hercules Trust's business and affairs are conducted by trustees (the
"Issuer Trustees") who are appointed by the Company as the Trust Common
Securities Holder. Unless otherwise specified in the applicable Prospectus
Supplement, the Issuer Trustees for each Hercules Trust will be The Chase
Manhattan Bank, as Property Trustee (the "Property Trustee"), Chase Manhattan
Bank Delaware, as Delaware Trustee (the "Delaware Trustee"), and three
individual trustees (the "Administrative Trustees") who are officers or other
employees of the Company. The Chase Manhattan Bank, as Property Trustee, will
act as sole indenture trustee under each Trust Agreement. The Chase Manhattan
Bank will also act as indenture trustee under the Guarantees and the Junior
Subordinated Debenture Indenture. See "Description of Guarantees" and
"Description of Debt Securities--Description of Junior Subordinated Debentures."
The Trust Common Securities Holder of a Hercules Trust or, if an Event of
Default under the applicable Trust Agreement has occurred and is continuing, the
holders of a majority in Liquidation Amount of the Trust Preferred Securities of
such Hercules Trust will be entitled to appoint, remove or replace such Hercules
Trust's Property Trustee and/or the Delaware Trustee. In no event will the
holders of Trust Preferred Securities have the right to vote to appoint, remove
or replace the Administrative Trustees; such voting rights will be vested
exclusively in
5
<PAGE> 8
the Company as the Trust Common Securities Holder. The duties and obligations of
each Issuer Trustee will be governed by the applicable Trust Agreement.
The Company, as issuer of the Junior Subordinated Debentures, will pay all
fees, expenses, debts and obligations (other than payments in respect of Trust
Securities) related to the Hercules Trusts and the offering of the Trust
Preferred Securities and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the Hercules Trusts (other than payments in respect
of Trust Securities).
The principal executive office of each Hercules Trust is c/o Hercules
Incorporated, Hercules Plaza, 1313 North Market Street, Wilmington, Delaware
19894-0001.
USE OF PROCEEDS
Unless otherwise indicated in a supplement or supplements to this
Prospectus (a "Prospectus Supplement"), the net proceeds received by the Company
from the sale of the Offered Securities (as defined herein) are expected to be
used for general corporate purposes, which may include repayment of indebtedness
to be incurred to finance the Company's proposed acquisition of BetzDearborn.
The proceeds from the sale of Trust Preferred Securities by the Hercules Trusts
will be invested in the Junior Subordinated Debentures of the Company. Except as
may otherwise be described in the Prospectus Supplement relating to such Trust
Preferred Securities, the Company expects to use the net proceeds from the sale
of such Junior Subordinated Debentures to the Hercules Trusts for general
corporate purposes. Any specific allocation of the proceeds to a particular
purpose that has been made at the date of any Prospectus Supplement will be
described therein.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the Company's consolidated ratios of earnings to fixed
charges for each of the periods indicated:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1998 -------------------------------------
(unaudited) 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges(1) 5x 10x 10x 12x 9x 6x
</TABLE>
- ---------------------
(1) The ratio of earnings to combined fixed charges and preferred stock
dividends for the identified periods are identical to the ratios of earnings to
fixed charges in the table because the Company had no issued and outstanding
preferred stock in any of such periods.
For the purpose of determining earnings in the calculation of the ratio of
earnings to fixed charges, consolidated pre-tax income has been adjusted to
reflect the distributed income of less than 50 percent owned subsidiaries,
increased by the amount of previously capitalized interest amortized during the
period, and increased by the amount of fixed charges, excluding capitalized
interest expense. Fixed charges consist of interest expense on borrowings
(including capitalized interest) and one-third (the proportion deemed
representative of the interest portion) of rent expense.
6
<PAGE> 9
DESCRIPTION OF THE SECURITIES TO BE OFFERED
Hercules may offer and sell from time to time (i) its unsecured senior
debt securities ("Senior Debt Securities") or unsecured subordinated debt
securities ("Subordinated Debt Securities"), consisting of debentures, notes or
other evidences of indebtedness, or its unsecured junior subordinated debentures
("Junior Subordinated Debentures"), (ii) shares of its common stock, without par
value ($25/48 stated value) (the "Common Stock"), (iii) shares of its series
preferred stock, without par value (the "Preferred Stock"), which may be
represented by depositary shares ("Depositary Shares"), (iv) warrants to
purchase Senior Debt Securities, Subordinated Debt Securities, Junior
Subordinated Debentures, Common Stock, Preferred Stock or Depositary Shares (the
"Warrants"), (v) purchase contracts ("Purchase Contracts") to purchase any of
Senior Debt Securities, Subordinated Debt Securities, Junior Subordinated
Debentures, Common Stock, Preferred Stock, Depositary Shares, Warrants and Trust
Preferred Securities (collectively, the "Purchase Contract Securities") or (vi)
purchase units ("Purchase Units"), each representing ownership of a Purchase
Contract and any of (x) Senior Debt Securities, Subordinated Debt Securities or
Junior Subordinated Debentures, (y) debt obligations of third parties, including
U.S. Treasury Securities, or (z) Trust Preferred Securities of a Hercules Trust,
securing the holder's obligation to purchase the applicable Purchase Contract
Securities under the Purchase Contract. Such securities may be offered in one or
more separate classes or series, in amounts, at prices and on terms to be
determined by market conditions at the time of sale and to be set forth in a
Prospectus Supplement. Such securities may be sold for U.S. dollars, foreign
denominated currency or currency units. Amounts payable with respect to any such
securities may likewise be payable in U.S. dollars, foreign denominated currency
or currency units.
Each of the Hercules Trusts may offer and sell, from time to time, its
Trust Preferred Securities. The payment of periodic cash distributions
("distributions") with respect to Trust Preferred Securities of each of the
Hercules Trusts out of monies held by the Property Trustee of each of the
Hercules Trusts and payments on liquidation of each Hercules Trust and on
redemption of the Trust Preferred Securities of such Hercules Trust will be
guaranteed by the Company as and to the extent described herein (each, a
"Guarantee"). See "Description of Guarantees." The Company's obligation under
each Guarantee will be an unsecured obligation of the Company and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Company, including the Senior Debt Securities, the Subordinated Debt Securities
and the Junior Subordinated Debentures, except those liabilities made pari passu
or subordinate by their terms, and (ii) senior to all capital stock now or
hereafter issued by the Company and to any guarantee now or hereafter entered
into by the Company in respect of any of its capital stock. Junior Subordinated
Debentures may be issued and sold from time to time in one or more series by the
Company to a Hercules Trust or a trustee of such Hercules Trust in connection
with the investment of the proceeds from the offering of Trust Preferred
Securities and Trust Common Securities of such Hercules Trust. The Junior
Subordinated Debentures purchased by a Hercules Trust may be subsequently
distributed pro rata to holders of Trust Preferred Securities and Trust Common
Securities under certain circumstances described herein and in an accompanying
Prospectus Supplement.
The Senior Debt Securities, Subordinated Debt Securities, Junior
Subordinated Debentures, Common Stock, Preferred Stock, Depositary Shares,
Warrants, Purchase Contracts, Purchase Units and Trust Preferred Securities
described herein are collectively referred to as the "Offered Securities." The
Offered Securities may be offered in amounts, at prices and on terms to be
determined at the time of offering; provided, however, that the aggregate
initial public offering price of the Offered Securities will be limited to
$3,000,000,000. Specific terms of the Offered Securities will be set forth in an
accompanying Prospectus Supplement or Supplements, together with the terms of
the offering of the Offered Securities and the net proceeds from the sale
thereof.
7
<PAGE> 10
DESCRIPTION OF DEBT SECURITIES
DESCRIPTION OF THE SENIOR DEBT SECURITIES AND SUBORDINATED DEBT SECURITIES
The Company's Senior Debt Securities and Subordinated Debt Securities
(collectively, for purposes of this section of the Prospectus, the "Debt
Securities"), consisting of notes, debentures or other evidences of
indebtedness, may be issued from time to time in one or more series, in the case
of Senior Debt Securities, under a Senior Debt Indenture (the "Senior Debt
Indenture") between the Company and The Chase Manhattan Bank, as Trustee, and in
the case of Subordinated Debt Securities, under a Subordinated Debt Indenture
(the "Subordinated Debt Indenture") between the Company and The Chase Manhattan
Bank, as Trustee. The Senior Debt Indenture and the Subordinated Debt Indenture
are sometimes hereinafter referred to individually as an "Indenture" and
collectively as the "Indentures." The Chase Manhattan Bank, in its capacity as
trustee under either or both of the Indentures, is referred to hereinafter as
the "Trustee."
Each of the Indentures has been qualified under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act") and is subject to, and governed
by, the Trust Indenture Act. The form of master Indentures are included as
exhibits to the Registration Statement of which this Prospectus is a part. The
following description summarizes the material terms of the Indentures and the
Debt Securities and is qualified in its entirety by reference to the detailed
provisions of the Debt Securities and the applicable Indenture, which contains
the full text of such provisions and other information regarding the Debt
Securities, including the definitions of certain terms used in this Prospectus,
and those terms made a part of each of the Indentures by the Trust Indenture
Act. Wherever particular sections or defined terms of the applicable Indenture
are referred to, such sections or defined terms are incorporated herein by
reference as part of the statement made, and the statement is qualified in its
entirety by such reference.
The Indentures are substantially identical except for provisions relating
to subordination. Any Debt Securities offered by this Prospectus and any
accompanying Prospectus Supplement are referred to herein as the "Offered Debt
Securities."
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may be
issued from time to time in one or more series and may be denominated and
payable in U.S. dollars, foreign currencies or units based on or related to
foreign currencies.
The specific terms of a series of Offered Debt Securities will be
established in or pursuant to a resolution of the Board of Directors of the
Company (a "Board Resolution") or in one or more indentures supplemental to an
Indenture (each, an "Indenture Supplement"). Pursuant to the Indentures, the
Company can establish different rights with respect to each series of Debt
Securities issued under such Indentures, including, pursuant to an Indenture
Supplement, different covenants and events of default.
The applicable Prospectus Supplement will provide information regarding
the specific terms of the Offered Debt Securities, including: (i) the
classification as senior or subordinated Debt Securities and the specific title
and designation, aggregate principal amount (including any limit thereon),
purchase price and denominations of such Offered Debt Securities; (ii) currency
or units based on or relating to currencies in which principal of, premium, if
any, on and/or any interest on such Offered Debt Securities will or may be
payable; (iii) the date or dates on which the principal of such Offered Debt
Securities is payable or the
8
<PAGE> 11
method of determining the same, if applicable; (iv) the rate or rates (which may
be fixed or variable) at which such Offered Debt Securities will bear interest,
if any, or the method of determining the same, if applicable; (v) the date or
dates from which such interest, if any, shall accrue or the method of
determining the same, if applicable, the interest payment dates, if any, on
which interest will be payable or the manner of determining the same, if
applicable, and the record dates for the determination of holders to whom
interest is payable on such Offered Debt Securities; (vi) the place or places
where the principal of and premium, if any, on and interest on the Offered Debt
Securities will be payable; (vii) any redemption, repayment or sinking fund
provisions; (viii) whether such Offered Debt Securities are convertible into or
exchangeable for Common Stock or other securities or rights of the Company or
other issuers and, if so, the applicable conversion or exchange terms and
conditions; (ix) whether the Offered Debt Securities will be issuable in
registered form ("Registered Debt Securities") or bearer form ("Bearer Debt
Securities") or both and, if Bearer Debt Securities are issuable, any
restrictions applicable to the place of payment of any principal of and premium,
if any, on and interest on such Bearer Debt Securities, to the exchange of one
form for another and to the offer, sale and delivery of such Bearer Debt
Securities (except that under current United States federal income tax law,
Registered Debt Securities will not be exchangeable into Bearer Debt
Securities); (x) any applicable material United States federal income tax
consequences, including those related to Debt Securities issued at a discount
below their stated principal amount; (xi) the proposed listing, if any, of the
Offered Debt Securities on any securities exchange; and (xii) any other specific
terms pertaining to the Offered Debt Securities, whether in addition to, or
modification or deletion of, the terms described herein.
Unless otherwise specified in a Prospectus Supplement, Registered Debt
Securities shall be issued only in denominations of U.S. $1,000 and any integral
multiple thereof.
Debt Securities will bear interest, if any, at a fixed rate or a floating
rate. Debt Securities bearing no interest or interest at a rate that at the time
of issuance is below the prevailing market rate will be sold at a discount below
their stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to certain
Debt Securities issued at par which are treated as having been issued at a
discount for United States federal income tax purposes will be described in the
relevant Prospectus Supplement.
REGISTRATION AND TRANSFER
Debt Securities may be presented for exchange and Registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions described in the applicable Prospectus Supplement.
Such services will be provided without charge, other than any tax or other
governmental charge payable in connection therewith, but subject to the
limitations described in the applicable Prospectus Supplement. Bearer Debt
Securities and the related coupons, if any, will be transferable by delivery.
GLOBAL DEBT SECURITIES
Registered Debt Securities of a series may be issued in the form of one or
more global securities (a "Global Security") that will be deposited with, or on
behalf of, a depositary (a "Depositary") or with a nominee for a Depositary
identified in the Prospectus Supplement relating to such series. In such case,
one or more Global Securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding Registered Debt Securities of the series to be represented by such
Global Security or Securities. Unless and until it is exchanged in whole for
Registered Debt Securities in definitive registered form, a Global Security may
not be transferred except as a whole by the Depositary for such Global Security
to a nominee of such Depositary or by a nominee of such Depositary
9
<PAGE> 12
to such Depositary or another nominee of such Depositary or by such Depositary
or any such nominee to a successor of such Depositary or a nominee of such
successor.
Bearer Debt Securities of a series may also be issued in the form of one
or more Global Securities (a "Bearer Global Security") that will be deposited
with a Depositary for Euroclear System and Cedel Bank, S.A., or with a nominee
for such Depositary identified in the Prospectus Supplement relating to such
series. The specific terms and procedures, including the specific terms of the
depositary arrangement and any specific procedures for the issuance of Debt
Securities in definitive form in exchange for a Bearer Global Security, with
respect to any portion of a series of Debt Securities to be represented by a
Bearer Global Security will be described in the Prospectus Supplement relating
to such series.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Prospectus Supplement relating to such series. However,
except for Offered Debt Securities issued in foreign currencies, unless
otherwise specified in the applicable Prospectus Supplement, The Depository
Trust Company ("DTC") will be the Depositary and the following depositary
arrangements will apply.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing organization" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participating organizations (collectively, the "Participants") and to facilitate
the clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. The Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of a Global Security representing Debt Securities, DTC
will credit the accounts of the designated Participants with the applicable
portions of the principal amount of such Debt Securities and (ii) ownership of
beneficial interests in a Global Security representing Debt Securities will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests).
Investors in a Global Security representing Debt Securities may hold their
interests therein directly through DTC if they are Indirect Participants or
indirectly through organizations that are Indirect Participants. All beneficial
interests in a Global Security representing Debt Securities will be subject to
the procedures and requirements of DTC. The laws of some states require that
certain persons take physical delivery of securities that they own in definitive
form. Consequently, the ability to transfer beneficial interests in a Global
Security representing Debt Securities to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Security representing Debt Securities to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
10
<PAGE> 13
Payments in respect of a Global Security representing Debt Securities will
be payable in same-day funds by the Trustee to DTC in its capacity as the holder
thereof under the applicable Indenture. Under the terms of each Indenture, the
Trustee will treat the persons in whose names the Debt Securities, including a
Global Security representing Debt Securities, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Trustee nor any agent thereof has
or will have any responsibility or liability for (i) any aspect of DTC's records
or any Participant's or Indirect Participant's records relating to or payments
made on account of beneficial interests in a Global Security representing Debt
Securities, or for maintaining, supervising or reviewing any of DTC's records or
any Participant's or Indirect Participant's records relating to the beneficial
interests in a Global Security representing Debt Securities or (ii) any other
matter relating to the actions and practices of DTC or any of its Participants
or Indirect Participants. DTC has advised the Company that its current practice,
upon receipt of any payment in respect of securities, such as a Global Security
representing Debt Securities, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the owners of beneficial interests
in a Global Security representing Debt Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Trustee or the Company. Neither of the Company nor the Trustee will be
liable for any delay by DTC or any of its Participants in identifying the owners
of beneficial interests in a Global Security representing Debt Securities, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Beneficial interests in a Global Security representing Debt Securities
will trade in DTC's Same-Day Funds Settlement System and secondary market
trading activity in such interests will therefore settle in immediately
available funds, subject in all cases to the rules and procedures of DTC, the
Participants and the Indirect Participants.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to beneficial owners, and vice versa, will be governed by
arrangements among them, subject to statutory or regulatory requirements as may
be in effect from time to time. Neither the Company nor the Trustee will have
any responsibility or liability with respect thereto.
Prior to any redemption of Debt Securities covered by a Global Security,
the Company will provide DTC with notices of redemption containing all
information required by DTC's rules and procedures. Such notices will be
provided to DTC for distribution to Participants within the time periods
established by DTC. If less than the entire principal amount of Debt Securities
of a series represented by a Global Security is to be redeemed, DTC's practice
is to determine by lot the amount of the interest of each Participant to be
redeemed.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Debt Securities only at the direction of one or more
Participants to whose account with DTC interests in a Global Security
representing Debt Securities are credited and only in respect of such portion of
the principal amount of the Debt Securities as to which such Participant or
Participants has or have given such direction.
The foregoing information concerning DTC and its book-entry system has
been obtained from sources that the Company and the Trustee believe to be
reliable, but neither the Company nor the Trustee takes responsibility for the
accuracy thereof.
11
<PAGE> 14
Although DTC has agreed to the foregoing procedures to facilitate
transfers of beneficial interests in a Global Security representing Debt
Securities among Participants in DTC, it is under no obligation to follow or to
continue to follow such procedures, and such procedures may be discontinued at
any time. Neither the Company nor the Trustee will have any responsibility for
the performance by DTC, the Participants or the Indirect Participants of their
respective obligations under the rules and procedures governing DTC's
operations.
Under the applicable Indenture, a Global Security representing Debt
Securities will be exchangeable for Debt Securities in definitive form if (i)
DTC (x) notifies the Company that it is unwilling or unable to continue as
depositary therefor or (y) has ceased to be a clearing agency registered under
the Exchange Act, and the Company thereupon fails to appoint a successor
depositary within 90 days, (ii) the Company in its sole discretion elects to
cause the issuance of its Debt Securities in definitive form or (iii) there
shall have occurred and be continuing an Event of Default under the applicable
Indenture or any event which after notice or lapse of time or both would be an
Event of Default under such Indenture. In addition, beneficial interests in a
Global Security representing Debt Securities may be exchanged by or on behalf of
DTC for Debt Securities in definitive form upon request but only upon at least
20 days' prior written notice given to the Trustee in accordance with DTC's
customary procedures. In all cases, Debt Securities in definitive form delivered
in exchange for a Global Security representing Debt Securities or beneficial
interests therein will be registered in the names, and issued in any approved
principal denominations, requested by or on behalf of DTC (in accordance with
its customary procedures), unless the Trustee determines otherwise in compliance
with applicable law.
RANKING
Senior Debt Securities. Payment of the principal of and premium, if any,
on and interest on Debt Securities issued under the Senior Debt Indenture will
rank pari passu with all other unsecured and unsubordinated debt of the Company.
Subordinated Debt Securities. Payment of the principal of and premium, if
any, on and interest on Debt Securities issued under the Subordinated Debt
Indenture will be subordinate and junior in right of payment, to the extent and
in the manner set forth in the Subordinated Debt Indenture, to all "Senior
Indebtedness" of the Company as defined in the Subordinated Debt Indenture (the
"Senior Indebtedness As Defined In the Subordinated Debt Indenture"). The Senior
Indebtedness As Defined In the Subordinated Debt Indenture is (i) the principal
of and premium, if any, on and interest on all of the Company's indebtedness for
money borrowed, other than the Subordinated Debt Securities, whether outstanding
on the date of execution of the Subordinated Debt Indenture or thereafter
created, assumed or incurred, except such indebtedness as is by its terms
expressly stated to be pari passu or not superior in right of payment to the
Subordinated Debt Securities, (ii) any amounts payable under swap transactions
and (iii) any deferrals, renewals or extensions of the indebtedness referred to
in clause (i) or (ii) above. The term "indebtedness for money borrowed" as used
in the foregoing sentence shall include, without limitation, any obligation of,
or any obligation guaranteed by, the Company for the repayment of borrowed
money, whether or not evidenced by bonds, debentures, notes or other written
instruments, and any deferred obligation for the payment of the purchase price
of property or assets (excluding trade payables arising in the ordinary course
of business). Notwithstanding anything to the contrary in the Subordinated Debt
Indenture or the Subordinated Debt Securities, Senior Indebtedness As Defined In
the Subordinated Debt Indenture shall not include (i) any indebtedness of the
Company which, by its terms or the terms of the instrument creating or
evidencing it, is subordinate in right of payment to or pari passu with the
Subordinated Debt Securities or (ii) any indebtedness of the Company to a
subsidiary of the Company. As of June 30, 1998, the aggregate principal amount
of the Senior Indebtedness As Defined In the Subordinated Debt Indenture was
approximately
12
<PAGE> 15
$948,813,000. The Subordinated Debt Indenture does not contain any limitation on
the amount of Senior Indebtedness As Defined In the Subordinated Debt Indenture
that can be incurred by the Company. Indebtedness to be issued pursuant to the
Junior Subordinated Debenture Indenture between the Company and The Chase
Manhattan Bank, as Debenture Trustee, providing for the issuance of Junior
Subordinated Debentures of the Company, is subordinate in right of payment to
the Subordinated Debt Securities.
In the event (i) of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or its property, or (ii) that Subordinated Debt
Securities of any series are declared due and payable before their expressed
maturity because of the occurrence of an Event of Default under the Subordinated
Debt Indenture (under circumstances other than as set forth in clause (i)
above), then the holders of all Senior Indebtedness As Defined In the
Subordinated Debt Indenture shall first be entitled to receive payment of the
full amount due thereon, before the holders of any of such Subordinated Debt
Securities or related coupons are entitled to receive a payment on account of
the principal of and premium, if any, on or interest on such Subordinated Debt
Securities. In the event and during the continuation of any default in payment
of any Senior Indebtedness As Defined In the Subordinated Debt Indenture or if
any event of default shall exist under any Senior Indebtedness As Defined In the
Subordinated Debt Indenture, no payment of the principal or interest on the
Subordinated Debt Securities or related coupons shall be made.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium, if any, on and interest on the Debt Securities will
be made at the office of the Trustee in the City of New York or at the office of
such Paying Agent or Paying Agents as the Company may designate from time to
time, except that at the option of the Company, payment of any interest may be
made, except in the case of a Global Security representing Debt Securities, by
(i) check mailed to the address of the Person entitled thereto as such address
shall appear in the applicable Securities Register or (ii) transfer to an
account maintained by the Person entitled thereto as specified in such
Securities Register, provided that proper transfer instructions have been
received by the relevant record date. Payment of any interest on any Debt
Securities will be made to the Person in whose name such Debt Securities are
registered at the close of business on the record date for such interest, except
in the case of defaulted interest. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent;
provided, however, the Company will at all times be required to maintain a
Paying Agent in each place of payment for the Debt Securities.
Any moneys deposited with the Trustee or any Paying Agent, or then held by
the Company in trust, for the payment of the principal of and premium, if any,
on or interest on any Debt Securities and remaining unclaimed for two years
after such principal and premium, if any, or interest has become due and payable
shall, at the request of the Company, be repaid to the Company and the holder of
such Debt Securities shall thereafter look, as a general unsecured creditor,
only to the Company for payment thereof.
CONVERSION RIGHTS
The terms and conditions, if any, on which Offered Debt Securities are
convertible into or exchangeable for Common Stock or other securities of the
Company or other issuers will be set forth in the Prospectus Supplement relating
thereto. Such terms will include the conversion or exchange price, the
conversion or exchange date(s) or period(s), provisions as to whether conversion
or exchange will be at the option of the holder or the Company, the events
requiring an adjustment of the conversion or exchange price
13
<PAGE> 16
and provisions affecting conversion or exchange in the event of the redemption
of such Offered Debt Securities.
CONSOLIDATION, MERGER OR SALE OF ASSETS
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Company, unless: (i) in case the Company consolidates with or
merges into another Person or conveys or transfers its properties and assets as
an entirety or substantially as an entirety to any Person, the successor Person
is organized under the laws of the United States or any State or the District of
Columbia, and such successor Person expressly assumes the Company's obligations
on the applicable Debt Securities and under the applicable Indenture; (ii)
immediately after giving effect thereto, no Event of Default under the
applicable Indenture, and no event which, after notice or lapse of time or both,
would become such an Event of Default, shall have occurred and be continuing;
and (iii) certain other conditions under the applicable Indenture are met.
Accordingly, any such consolidation, merger or transfer of assets as an entirety
or substantially as an entirety which meets the conditions described above would
not create any Event of Default which would entitle holders of the Debt
Securities, or the Trustee on their behalf, to take any of the actions described
below under the caption "--Events of Default."
CERTAIN COVENANTS OF THE COMPANY
Restrictions on Creation of Secured Debt. The Company covenants that, so
long as any of the Debt Securities remain outstanding, it will not, nor will it
permit any Restricted Subsidiary (as defined below), to issue, assume or
guarantee any debt for money borrowed (herein referred to as "Debt") if such
Debt is secured by a mortgage, security interest, pledge, lien or other
encumbrance (any of such are hereinafter referred to as a "lien") on any
Principal Property (as defined below), or on any shares of stock or indebtedness
of any Restricted Subsidiary (whether such Principal Property, shares of stock
or indebtedness are now owned or acquired after the date of the Indentures),
without, in any such case, effectively providing concurrently with the issuance,
assumption of or guarantee of any such Debt that the Debt Securities (together
with, if the Company shall so determine, any other indebtedness of or guarantee
of the Company or such Restricted Subsidiary ranking equally with the
Debt Securities issued under the applicable Indenture and then existing or
thereafter created) shall be secured equally and ratably with such Debt. This
restriction, however, shall not apply to Debt secured by liens: (i) on
property, shares of stock or indebtedness of any corporation existing at the
time such corporation becomes a Restricted Subsidiary; (ii) on property
existing at the time that it is acquired or to secure Debt incurred for the
purpose of financing the purchase price of such property or improvements or
construction on the property, which Debt is incurred prior to or within one
year after the later of such acquisition, completion of such construction, or
the commencement of commercial operation of such property; provided, however,
that in the case of any such acquisition, construction or improvement the lien
shall not apply to any property theretofore owned by the Company or a
Restricted Subsidiary, other than, in the case of any such construction or
improvement, any theretofore unimproved real improvement, on which the property
is constructed, or the improvement is located; (iii) securing Debt owed by any
Restricted Subsidiary to the Company or another Restricted Subsidiary; (iv) on
property of a corporation existing at the time such corporation is merged into
or consolidated with the Company or a Restricted Subsidiary or at the time of a
sale, lease or other disposition of the properties of a corporation as an
entirety or substantially as an entirety to the Company or a Restricted
Subsidiary; (v) on advance, partial or progress payments pursuant to contracts
with U.S. federal and state governments for production, research or
development, or on any material or supplies in connection with the performance
of such contracts in order to secure such payments to such governments; and
liens on equipment, tools, machinery, land or buildings constructed or
purchased by the Company or a Restricted Subsidiary for the purpose of
manufacturing a product, or performing any
14
<PAGE> 17
research or development work for such governments to secure indebtedness owing
to such governments for the construction or purchase of such equipment, tools,
machinery, land and buildings (including liens incurred in connection with
pollution control, industrial revenue or similar financings); (vi) existing at
the date of the Indentures; or (vii) on particular property (or any proceeds of
the sale thereof) to secure all or any part of the cost of exploration,
drilling, mining or development thereof (including construction of facilities
for field processing of minerals) intended to obtain or materially increase the
production and sale or other disposition of oil, gas, coal, uranium, copper or
other minerals therefrom, or any indebtedness created, issued, assumed or
guaranteed to provide funds for any or all such purposes; or (viii) any
extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any lien referred to in the foregoing
clauses (i) through (vii) inclusive; provided, however, that the principal
amount of Debt secured thereby shall not exceed the principal amount of Debt so
secured at the time of such extension, renewal or replacement and that such
extension, renewal or replacement shall be limited to all or a part of the
property which secured the lien so extended, renewed or replaced (plus
improvements on such property).
Notwithstanding the above, the Company and one or more Restricted
Subsidiaries may, without securing the Debt Securities, issue, assume or
guarantee secured Debt which would otherwise be subject to the foregoing
restrictions, provided that the aggregate amount of Debt secured by a lien then
outstanding (not including secured Debt permitted under the foregoing
exceptions) does not exceed 5% of the consolidated stockholders' equity of the
Company as of the end of the last preceding year.
For the purposes of the foregoing covenant, the following types of
transactions shall not be deemed to create Debt secured by a lien: the sale or
other transfer of (i) oil, gas, coal, uranium, copper or other minerals in place
for a period of time until, or in an amount such that, the purchaser will
realize therefrom a specified amount of money (however determined) or a specific
amount of such minerals; or (ii) any other interest in property of the character
commonly referred to as a "production payment."
Restrictions of Sale and Leaseback Transactions. Sale and leaseback
transactions by the Company or any Restricted Subsidiary of any Principal
Property are prohibited (except a temporary lease for a term of not more than
three years and except for leases between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries) unless (i) the Company or such
Restricted Subsidiary would be entitled to issue, assume or guarantee Debt
secured by the property involved at least equal to the Attributable Debt
(defined below) in respect of such transaction without equally and ratably
securing the Debt Securities, provided that such Attributable Debt shall then be
deemed for all purposes under the Indentures and the provisions of this covenant
to be Debt subject to the covenant described above under "-- Restrictions on
Creation of Secured Debt", or (ii) an amount in cash equal to such Attributable
Debt is applied to the retirement of Debt then having a maturity of more than
one year.
Certain Definitions.
"Attributable Debt" means the present value (discounted as provided in the
Indentures) of the obligation of a lessee for rental payments during the
remaining term of any lease.
"Consolidated Net Tangible Assets" means as of any particular time the
aggregate amount of assets after deducting therefrom (a) all current liabilities
and (b) all goodwill, patents, copyrights, trademarks, tradenames, unamortized
debt discount and expense and other like intangibles, all as shown in the most
recent consolidated financial statements of the Company and its Subsidiaries
prepared in accordance with generally accepted accounting principles.
15
<PAGE> 18
"Principal Property" means any manufacturing plant or other facility of
the Company or any Restricted Subsidiary, whether owned as of the date of the
Indentures or acquired thereafter, which is located within the continental
United States and, in the opinion of the Board of Directors or an officer
designated by the Board of Directors, is of material importance to the total
business conducted by the Company and its Restricted Subsidiaries taken as a
whole.
"Restricted Subsidiary" means any Subsidiary all the property of which is
located within the continental United States, which owns a Principal
Property or in which the Company's investment, whether in the form of equity or
debt, is in excess of 10% of the Consolidated Net Tangible Assets of the Company
as of the end of the fiscal year preceding the date of determination, provided,
however, that the term "Restricted Subsidiary" shall not include any Subsidiary
principally engaged in financing exports from or operations outside the
continental United States.
EVENTS OF DEFAULT
An "Event of Default" is defined under each Indenture with respect to Debt
Securities of any series issued under such Indenture as being:
(i) default in payment of all or any part of the principal of or
premium on the Debt Securities of such series when due, whether at
maturity, upon any redemption, by declaration of acceleration of maturity
or otherwise; or
(ii) default for 30 days in payment of any interest on any Debt
Securities of such series when due; or
(iii) default in payment of any sinking fund installment when due
by the terms of the Debt Securities of such series; or
(iv) default for 90 days after written notice as provided in such
Indenture in the observance or performance of any other covenant or
agreement in the Debt Securities of such series or such Indenture other
than a covenant or agreement included in such Indenture solely for the
benefit of a series of Debt Securities other than such series; or
(v) certain events of bankruptcy, insolvency or reorganization; or
(vi) any other events of default made applicable to the Debt
Securities of such series.
Each Indenture provides that, for each series of Debt Securities, if an
Event of Default other than an Event of Default referred to in clause (v) above
shall have occurred and be continuing, either the Trustee or the holders of not
less than 25% in principal amount of the Debt Securities of such series then
outstanding may then declare the principal of and accrued interest on all Debt
Securities of such series then outstanding to be due and payable immediately,
which shall then result in the acceleration of such series of Debt Securities.
If an Event of Default referred to in clause (v) above shall have occurred and
be continuing, then the principal of and accrued interest on all Debt
Securities of any series shall ipso facto become and be due and payable
immediately without any declaration or other act on the part of the Trustee or
any holder thereof. The holders of a majority in aggregate outstanding
principal amount of the Debt Securities of any series may annul a declaration
of acceleration of maturity and waive any default in respect of such Debt
Securities if such default (other than the non-payment of the principal and
interest of the Debt Securities of such series which has become due solely by
such acceleration) has been cured and a sum sufficient to pay all matured
installments
16
<PAGE> 19
of interest (and premium, if any) and principal due otherwise than by
acceleration has been deposited with the Trustee.
Each Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the holders of Debt Securities issued under such Indenture
requesting the Trustee to exercise any right or power under such Indenture
before proceeding to exercise any such right or power at the request of such
holders. Subject to such provisions in each Indenture for the indemnification of
the Trustee and certain other limitations, the holders of a majority in
principal amount of the outstanding Debt Securities of each series may, in
respect of such series of Debt Securities, direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee.
Each Indenture provides that no holder of Debt Securities issued under
such Indenture may institute any action against the Company under such Indenture
(except actions for payment of overdue principal, premium, if any, or interest
or for the conversion or exchange of such Debt Securities in accordance with
their terms) unless such holder previously shall have given to the Trustee
written notice of default and continuance thereof and unless the holders of not
less than 25% in principal amount of the Debt Securities of the applicable
series shall have requested the Trustee to institute such action and shall have
offered the Trustee reasonable indemnity, the Trustee shall not have instituted
such action within 60 days of such request and the Trustee shall not have
received any direction inconsistent with such written request by the holders of
a majority in principal amount of the Debt Securities of such series.
Each Indenture contains a covenant that the Company will file annually
with the Trustee a certificate of no default or a certificate specifying any
default that exists.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company can discharge or defease its obligations under each Indenture
as set forth below.
Under terms satisfactory to the Trustee, the Company may discharge certain
obligations to holders of any series of Debt Securities issued under such
Indentures which have not already been delivered to the Trustee for cancellation
and which have either become due and payable or are by their terms due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee cash or Government Obligations (as
defined in such Indenture), as trust funds in an amount certified to be
sufficient to pay when due, whether at maturity, upon redemption or otherwise,
the principal of and premium, if any, on and interest on such Debt Securities.
The Company may also discharge any and all of its obligations to holders
of any series of Debt Securities issued under an Indenture at any time
("defeasance"), but may not thereby avoid its duty to register the transfer or
exchange of such series of Debt Securities, to replace any temporary, mutilated,
destroyed, lost or stolen series of Debt Securities or to maintain an office or
agency in respect of such series of Debt Securities. Under terms satisfactory to
the Trustee, the Company also may be released with respect to any outstanding
series of Debt Securities issued under the relevant Indenture from the
obligations imposed by certain provisions of such Indenture (including covenants
described above limiting consolidations, mergers, and certain dispositions) and
omit to comply with such provisions without creating an Event of Default
("covenant defeasance"). Defeasance or covenant defeasance may be effected only
if, among other things: (i) the Company irrevocably deposits with the Trustee
cash or Government Obligations, as trust funds in an amount certified to be
sufficient to pay at maturity (or upon redemption) the principal of and premium,
if any, on and interest on all outstanding Debt Securities of such series issued
under such Indenture; (ii) the
17
<PAGE> 20
Company delivers to the Trustee an opinion of counsel to the effect that the
holders of such series of Debt Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and that defeasance or covenant defeasance
will not otherwise alter such holders' United States federal income tax
treatment of principal, premium and interest payments on such series of Debt
Securities (it being understood that in the case of a defeasance such opinion
must be based on a ruling of the Internal Revenue Service or a change in United
States federal income tax law occurring after the date of such Indenture, since
such a result would not occur under current tax law); (iii) no Event of Default
or any event which after notice or lapse of time or both would be an Event of
Default has occurred; and (iv) in the case of the Subordinated Debt Indenture no
event or condition shall exist that, pursuant to certain provisions described
under "--Ranking--Subordinated Debt Securities" would prevent the Company from
making payments of principal of and premium, if any, on and interest on the
Subordinated Debt Securities at the date of the irrevocable deposit referred to
above.
MODIFICATION OF THE INDENTURES
Each Indenture provides that the Company and the Trustee may enter into
Indenture Supplements without the consent of the holders of Debt Securities to:
(i) secure the Debt Securities, (ii) evidence the assumption by a successor
corporation of the obligations of the Company, (iii) add covenants or Events of
Default for the protection of the holders of all or any series of Debt
Securities, (iv) cure any ambiguity or correct any inconsistency in such
Indenture, provided that such cure or correction does not adversely affect the
holders of such Debt Securities, (v) establish the forms or terms of Debt
Securities of any series, (vi) evidence the acceptance of appointment by a
successor trustee and (vii) make provisions with respect to the conversion or
exchange terms and conditions applicable to the Debt Securities of any
series.
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Debt Securities of all series issued under such
Indenture then outstanding and affected (voting as one class), to add any
provisions to, or change in any manner or eliminate any of the provisions of,
such Indenture or modify in any manner the rights of the holders of the Debt
Securities of each series so affected; provided that the Company and the Trustee
may not, without the consent of the holder of each outstanding Debt Security
affected thereby, (i) extend the stated maturity of the principal of any Debt
Security, or reduce the principal amount thereof or reduce the rate (or change
the manner of calculating the rate) or extend the time of payment of interest
thereon, or change any of the conversion, exchange or redemption provisions
thereof or change the currency in which the principal of (including any amount
in respect of original issue discount), premium, if any, on or interest on any
Debt Security is payable or reduce the amount of principal of any original issue
discount Debt Security that is payable upon acceleration or provable in
bankruptcy or alter provisions of such Indenture relating to the Debt Securities
issued thereunder not denominated in U.S. dollars or impair the right to
institute suit for the enforcement of any payment on any Debt Security when due
or for the conversion or exchange of any Debt Security in accordance with its
terms or (ii) reduce the aforesaid percentage in principal amount of Debt
Securities of any series issued under such Indenture the consent of the holders
of which is required for any such modification.
The Subordinated Debt Indenture may not be amended to alter the
subordination of any outstanding Subordinated Debt Securities without the
consent of each holder of Senior Indebtedness As Defined In the Subordinated
Debt Indenture then outstanding that would be adversely affected thereby.
18
<PAGE> 21
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed
in accordance with, the laws of the State of Delaware.
INFORMATION CONCERNING THE TRUSTEE
The Chase Manhattan Bank is one of a number of banks with which the
Company and its subsidiaries maintain ordinary banking and trust relationships
and is also the Debenture Trustee under the Junior Subordinated Debenture
Indenture.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
GENERAL
The Junior Subordinated Debentures will be issued in one or more series
under a Junior Subordinated Debenture Indenture, as supplemented from time to
time (as so supplemented, the "Junior Subordinated Debenture Indenture"),
between the Company and The Chase Manhattan Bank as the Debenture Trustee. The
Junior Subordinated Debenture Indenture has been qualified under the Trust
Indenture Act and is subject to, and governed by, the Trust Indenture Act and is
included as an exhibit to the Registration Statement of which this Prospectus is
a part. This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Junior Subordinated Debenture Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of such Junior Subordinated Debentures and the Junior
Subordinated Debenture Indenture, including the definitions therein of certain
terms, and those terms made a part of the Junior Subordinated Debenture
Indenture by the Trust Indenture Act.
The applicable Prospectus Supplement will describe the specific terms of
the Junior Subordinated Debentures offered thereby, including: (i) the specific
title and designation, aggregate principal amount (including any limit thereon),
purchase price and denominations of such Junior Subordinated Debentures; (ii)
the date or dates on which the principal of such Junior Subordinated Debentures
is payable or the method of determining the same, if applicable; (iii) the rate
or rates (which may be fixed or variable) at which such Junior Subordinated
Debentures will bear interest, if any, or the method of determining the same, if
applicable; (iv) the date or dates from which such interest, if any, shall
accrue or the method of determining the same, if applicable, the interest
payment dates, if any, on which interest will be payable or the manner of
determining the same, if applicable, and the record dates for the determination
of holders to whom interest is payable on such Junior Subordinated Debentures;
(v) the duration of the maximum consecutive period that the Company may elect to
defer payments of interest on such Junior Subordinated Debentures; (vi) any
redemption, repayment or sinking fund provisions; (vii) whether such Junior
Subordinated Debentures are convertible into or exchangeable for Common Stock or
other securities or rights of the Company or other issuers, or a combination of
the foregoing, and, if so, the applicable conversion or exchange terms and
conditions; (viii) any applicable material United States federal income tax
consequences; and (ix) any other specific terms pertaining to such Junior
Subordinated Debentures, whether in addition to, or modification or deletion of,
the terms described herein.
RANKING
Each series of Junior Subordinated Debentures will rank pari passu with
all other Junior Subordinated Debentures (collectively, the "Other Debentures")
to be issued by the Company and sold to other trusts or other entities to be
established by the Company that are similar to the Hercules Trusts
19
<PAGE> 22
(collectively, the "Other Hercules Trusts") and will be unsecured and will rank
subordinate and junior in right of payment, to the extent and in the manner set
forth in the Junior Subordinated Debenture Indenture to all Senior Indebtedness
of the Company as defined in the Junior Subordinated Debenture Indenture (the
"Senior Indebtedness As Defined In the Junior Subordinated Debenture
Indenture"). The Junior Subordinated Debenture Indenture will not limit the
amount of secured or unsecured debt, including Senior Indebtedness As Defined In
the Junior Subordinated Debenture Indenture, that may be incurred by the Company
or its subsidiaries. See "--Subordination." As of June 30, 1998, the aggregate
principal amount of the Senior Indebtedness As Defined In the Junior
Subordinated Debenture Indenture was approximately $1,031,813,000.
FORM, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be issued in fully registered
form. Until any dissolution of the applicable Hercules Trust, the Junior
Subordinated Debentures will be held in the name of the Property Trustee in
trust for the benefit of the holders of the related Trust Securities. If the
Junior Subordinated Debentures are distributed to the holders of the related
Trust Securities, the Junior Subordinated Debentures will be issued to such
holders in the same form as the Trust Securities were held. Accordingly, any
depositary arrangements for such Junior Subordinated Debentures are expected to
be substantially similar to those in effect for the Trust Preferred Securities.
See "Description of Trust Preferred Securities -- Global Trust Preferred
Securities."
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium, if any, on and interest on the Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in the City of
New York or at the office of such Paying Agent or Paying Agents as the Company
may designate from time to time, except that at the option of the Company
payment of any interest may be made, except in the case of a global certificate
representing Junior Subordinated Debentures, by (i) check mailed to the address
of the Person entitled thereto as such address shall appear in the applicable
Securities Register for Junior Subordinated Debentures or (ii) transfer to an
account maintained by the Person entitled thereto as specified in such
Securities Register, provided that proper transfer instructions have been
received by the relevant record date. Payment of any interest on any Junior
Subordinated Debenture will be made to the Person in whose name such Junior
Subordinated Debenture is registered at the close of business on the record date
for such interest, except in the case of defaulted interest. The Company may at
any time designate additional Paying Agents or rescind the designation of any
Paying Agent; provided, however, the Company will at all times be required to
maintain a Paying Agent in each place of payment for the Junior Subordinated
Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or
then held by the Company in trust, for the payment of the principal of and
premium, if any, on or interest on any Junior Subordinated Debentures and
remaining unclaimed for two years after such principal and premium, if any, or
interest has become due and payable shall, at the request of the Company, be
repaid to the Company and the holder of such Junior Subordinated Debentures
shall thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Junior Subordinated Debenture
Indenture to defer the payment of interest on the Junior Subordinated Debentures
at any time or from time to time up to the maximum period specified in the
20
<PAGE> 23
applicable Prospectus Supplement for the deferral of interest (each deferral
period being referred to herein as an "Extension Period"), provided that an
Extension Period must end on an interest payment date and may not extend beyond
the stated maturity of such Junior Subordinated Debentures. At the end of an
Extension Period, the Company must pay all interest then accrued and unpaid
(together with interest thereon, to the extent permitted by applicable law).
During an Extension Period, interest will continue to accrue and holders of
Junior Subordinated Debentures (and holders of the related Trust Securities
while such Trust Securities are outstanding) will be required to accrue such
deferred interest income for United States federal income tax purposes prior to
the receipt of cash attributable to such income, regardless of the method of
accounting used by the Holders.
Prior to the termination of any Extension Period, the Company may extend
such Extension Period, provided that such extension does not cause such
Extension Period to exceed the maximum Extension Period, end on a date other
than an interest payment date or extend beyond the stated maturity of the
related Junior Subordinated Debentures. Upon the termination of any Extension
Period (or any extension thereof) and the payment of all amounts then due, the
Company may begin a new Extension Period, subject to the foregoing limitations.
No interest shall be due and payable during an Extension Period except at the
end thereof. The Company must give the Debenture Trustee notice of its election
to begin or extend an Extension Period at least five Business Days prior to the
earlier of (i) the date cash distributions on the related Trust Securities would
have been payable except for the election to begin or extend such Extension
Period or (ii) the date the applicable Hercules Trust is required to give notice
to any securities exchange or to holders of its Trust Preferred Securities of
the record date or the date cash distributions are payable, but in any event not
less than five Business Days prior to such record date. The Debenture Trustee
shall give notice of the Company's election to begin or extend an Extension
Period to the holders of the Trust Preferred Securities. Subject to the
foregoing limitations, there is no limitation on the number of times that the
Company may begin or extend an Extension Period.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant that if at any time (i) there shall have
occurred any event of which the Company has actual knowledge that is, or with
the giving of notice or the lapse of time, or both, would be, a Debenture Event
of Default, (ii) the Company shall be in default with respect to any of its
payment obligations under the Guarantee or (iii) the Company shall have given
notice of its election to exercise its right to begin or extend an Extension
Period as provided in the Junior Subordinated Debenture Indenture and shall not
have rescinded such notice, and such Extension Period, or any extension thereof,
shall have commenced and be continuing, then it will not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (2)
make any payment of principal of or premium, if any, on or interest on or repay
or repurchase or redeem any debt securities of the Company (including Other
Debentures) that rank pari passu with or junior in right of payment to the
Junior Subordinated Debentures or (3) make any guarantee payments with respect
to any guarantee by the Company of the debt securities of any subsidiary of the
Company (including under Other Guarantees (as defined herein)) if such guarantee
ranks pari passu or junior in right of payment to the Junior Subordinated
Debentures (other than (a) dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock of the
Company, (b) any declaration of a dividend in connection with the implementation
of a stockholders' rights plan, or the issuance of stock under any such plan in
the future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the applicable Guarantee, (d) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (e) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or
21
<PAGE> 24
exchanged, and (f) purchases of Common Stock related to the issuance of Common
Stock or rights under any of the Company's benefit plans for its directors,
officers or employees or any of the Company's dividend reinvestment plans).
So long as the Trust Securities remain outstanding, the Company also will
covenant (i) to maintain 100% direct or indirect ownership of the related Trust
Common Securities (it being understood that any permitted successor of the
Company under the Junior Subordinated Debenture Indenture may succeed to the
Company's ownership of such Trust Common Securities), (ii) to use its best
efforts to cause each Hercules Trust (a) to remain a business trust, except in
connection with the distribution of Junior Subordinated Debentures to the
holders of related Trust Securities in liquidation of such Hercules Trust, the
conversion, exchange or redemption of all of such Trust Securities, or certain
mergers, consolidations or amalgamations, each as permitted by the applicable
Trust Agreement, and (b) to otherwise continue to be classified as a grantor
trust for United States federal income tax purposes, (iii) to use its best
efforts to cause each holder of its Trust Securities to be treated as owning an
undivided beneficial interest in the related Junior Subordinated Debentures and
(iv) not to cause, as Sponsor of the Hercules Trusts, or to permit, as the Trust
Common Securities Holder, the dissolution, liquidation or winding-up of any
Hercules Trust, except as provided in the applicable Trust Agreement.
MODIFICATION OF JUNIOR SUBORDINATED DEBENTURE INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Junior Subordinated Debenture Indenture for specified purposes,
including, among other things, curing ambiguities or adding provisions (provided
that any such action does not materially adversely affect the interests of the
holders of the Junior Subordinated Debentures) and maintaining the qualification
of the Junior Subordinated Debenture Indenture under the Trust Indenture Act.
The Junior Subordinated Debenture Indenture will permit the Company and the
Debenture Trustee, with the consent of the holders of a majority in principal
amount of all outstanding Junior Subordinated Debentures affected thereby, to
modify the Junior Subordinated Debenture Indenture in a manner affecting the
rights of the holders of Junior Subordinated Debentures; provided, however, that
no such modification may, without the consent of the holder of each outstanding
Junior Subordinated Debenture so affected, (i) change the stated maturity or
reduce the principal of any such Junior Subordinated Debentures, (ii) change the
interest rate (or the manner of calculation of the interest rate) or extend the
time of payment of interest on any such Junior Subordinated Debentures except
pursuant to the Company's right under the Junior Subordinated Debenture
Indenture to defer the payment of interest as provided therein (see "--Option to
Extend Interest Payment Date"), (iii) change any of the conversion, exchange or
redemption provisions applicable to any such Junior Subordinated Debentures,
(iv) change the currency in respect of which payments of principal of or any
premium or interest on any such Junior Subordinated Debentures are to be made,
(v) change the right of holders of Trust Securities to bring a Direct Action in
respect of any required payments or conversion or exchange rights, (vi) impair
or affect the right of any holder of any such Junior Subordinated Debentures to
institute suit for the payment of the principal thereof or premium, if any, or
interest thereon or for the conversion or exchange of any such Junior
Subordinated Debentures in accordance with their terms, (vii) change the
subordination provisions adversely to the holders of the Junior Subordinated
Debentures, or (viii) reduce the percentage of principal amount of Junior
Subordinated Debentures the holders of which are required to consent to any such
modification of the Junior Subordinated Debenture Indenture.
22
<PAGE> 25
DEBENTURE EVENTS OF DEFAULT
The following described events with respect to any series of Junior
Subordinated Debentures will constitute a "Debenture Event of Default" (whatever
the reason for such Debenture Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) failure for 30 days to pay any interest on that series of Junior
Subordinated Debentures when due (subject to any permitted deferral
thereof); or
(ii) failure to pay any principal of or premium, if any, on that
series of Junior Subordinated Debentures when due, whether at
maturity, upon any redemption, by declaration of acceleration of maturity
or otherwise; or
(iii) if applicable, failure by the Company to deliver the required
securities or other rights upon an appropriate conversion or exchange
election by holders of that series of Junior Subordinated Debentures or
the related Trust Preferred Securities; or
(iv) failure to observe or perform any other agreement or covenant
contained in the Junior Subordinated Debenture Indenture in respect of
that series of Junior Subordinated Debentures for 90 days after written
notice to the Company from the Debenture Trustee or the holders of at
least 25% in aggregate outstanding principal amount of that series of
Junior Subordinated Debentures; or
(v) certain events in bankruptcy, insolvency or reorganization of
the Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures of any series have, subject to certain
exceptions, the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debenture Trustee in respect of such
Junior Subordinated Debentures. The Debenture Trustee or the holders of at least
25% in aggregate outstanding principal amount of the Junior Subordinated
Debentures of any series may declare the principal of and any accrued interest
on such Junior Subordinated Debentures due and payable immediately upon a
Debenture Event of Default, other than a Debenture Event of Default referred to
in clause (v) above, which shall result in the immediate acceleration of the
Junior Subordinated Debentures. The holders of a majority in aggregate
outstanding principal amount of the Junior Subordinated Debentures of any series
may annul such declaration and waive the default in respect of such Junior
Subordinated Debentures if the default (other than the non-payment of the
principal and interest of the Junior Subordinated Debentures which has become
due solely by such acceleration) has been cured and a sum sufficient to pay all
matured installments of interest (and premium, if any) and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures of any series may, on behalf of the holders of
all of the Junior Subordinated Debentures of such series, waive any past
default, except a default in the payment of the principal of or premium, if any,
on or interest on (unless such default has been cured and a sum sufficient to
pay all matured installments of interest (and premium, if any) and principal due
otherwise than by acceleration has been deposited with the Debenture Trustee) or
a default in respect of a covenant or provision which under the Junior
Subordinated Debenture Indenture cannot be modified or amended without the
consent of the holder of each outstanding Junior Subordinated Debenture of such
series.
23
<PAGE> 26
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and is
attributable either to (i) the failure of the Company to pay the principal of or
premium, if any, on or interest on the Junior Subordinated Debentures on the due
date or (ii) the failure by the Company to deliver the required securities or
other rights upon an appropriate conversion or exchange right election, a holder
of the related Trust Preferred Securities may institute a legal proceeding
directly against the Company for enforcement of payment to such holder of the
principal of or premium, if any, on or interest on such Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Preferred Securities held by such holder or for enforcement of such
conversion or exchange rights, as the case may be (a "Direct Action"). The
Company may not amend the Junior Subordinated Debenture Indenture to remove the
foregoing right to bring a Direct Action without the prior written consent of
the holders of all of the Trust Preferred Securities outstanding. If the right
to bring a Direct Action is removed, the applicable Hercules Trust may become
subject to the reporting obligations under the Exchange Act. Notwithstanding any
payments made to a holder of Trust Preferred Securities by the Company in
connection with a Direct Action, the Company shall remain obligated to pay the
principal of and premium, if any, on and interest on the related Junior
Subordinated Debentures, and the Company shall be subrogated to the rights of
the holder of such Trust Preferred Securities with respect to payments on the
Trust Preferred Securities to the extent of any payments made by the Company to
such holder in any Direct Action.
The holders of the Trust Preferred Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the related Junior Subordinated Debentures unless an
Event of Default has occurred and is continuing under the applicable Trust
Agreement. See "Description of Trust Preferred Securities--Events of Default;
Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
as an entirety or substantially as an entirety to the Company, unless: (i) in
case the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets as an entirety or substantially as an
entirety to any Person, the successor Person is organized under the laws of the
United States or any State or the District of Columbia, and such successor
Person expressly assumes the Company's obligations under the Junior Subordinated
Debentures and the Guarantees; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time or
both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Junior
Subordinated Debenture Indenture are met.
SATISFACTION AND DISCHARGE
The Junior Subordinated Debenture Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Junior Subordinated Debenture Indenture and to provide the
officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Junior Subordinated
Debenture Indenture, when, among other things, all Junior Subordinated
Debentures not previously delivered to the Debenture Trustee for cancellation
(i) have become due and payable or (ii) will become due and payable at maturity
or upon redemption within one year, and the Company deposits or causes to be
deposited with the Debenture Trustee funds, in trust, for the purpose and in an
amount sufficient to pay and discharge the entire indebtedness on the Junior
24
<PAGE> 27
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation, for the principal (and premium, if any) and interest to the date
of the deposit or to the stated maturity thereof, as the case may be.
SUBORDINATION
The Junior Subordinated Debentures will rank subordinate and junior in
right of payment to all Senior Indebtedness As Defined In the Junior
Subordinated Debenture Indenture to the extent provided in the Junior
Subordinated Debenture Indenture. Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any bankruptcy,
insolvency, debt restructuring or similar proceedings in connection with any
insolvency or bankruptcy proceeding of the Company, the holders of Senior
Indebtedness As Defined In the Junior Subordinated Debenture Indenture will
first be entitled to receive payment in full of such Senior Indebtedness As
Defined In the Junior Subordinated Debenture Indenture before the holders of
Junior Subordinated Debentures will be entitled to receive or retain any payment
in respect thereof.
In the event of the acceleration of the maturity of Junior Subordinated
Debentures, the holders of all Senior Indebtedness As Defined In the Junior
Subordinated Debenture Indenture outstanding at the time of such acceleration
will first be entitled to receive payment in full of such Senior Indebtedness As
Defined In the Junior Subordinated Debenture Indenture before the holders of
Junior Subordinated Debentures will be entitled to receive or retain any payment
in respect of the Junior Subordinated Debentures.
No payments on account of principal or premium, if any, or interest in
respect of the Junior Subordinated Debentures may be made if there shall have
occurred and be continuing a default in any payment with respect to Senior
Indebtedness As Defined In the Junior Subordinated Debenture Indenture, or an
event of default with respect to any Senior Indebtedness As Defined In the
Junior Subordinated Debenture Indenture resulting in the acceleration of the
maturity thereof, or if any judicial proceeding shall be pending with respect to
any such default.
"Indebtedness" shall mean: (i) every obligation of the Company for money
borrowed; (ii) every obligation of the Company evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of the Company with respect to letters of credit,
banker's acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) all indebtedness of the Company,
whether incurred on or prior to the date of the Junior Subordinated Debenture
Indenture or thereafter incurred, for claims in respect of derivative products,
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; (vii) every obligation of the type
referred to in clauses (i) through (vi) of another Person and all dividends of
another Person the payment of which, in either case, the Company has guaranteed
or is responsible or liable for, directly or indirectly, as obligor or
otherwise; and (viii) obligations of the type referred to in clauses (i) through
(vii) of another Person secured by any lien on any property or asset of the
Company (whether or not such obligation is assumed by the Company); and all
deferrals, renewals, extensions and refundings of, and amendments, modifications
and supplements to, any of the foregoing obligations.
"Indebtedness Ranking on a Parity with the Junior Subordinated Debentures"
shall mean (i) Indebtedness, whether outstanding on the date of execution of the
Junior Subordinated Debenture Indenture or thereafter created, assumed or
incurred, to the extent such Indebtedness specifically by its terms ranks pari
25
<PAGE> 28
passu with and not prior to the Junior Subordinated Debentures in the right of
payment upon the happening of the dissolution, winding-up, liquidation or
reorganization of the Company and (ii) all other debt securities, and guarantees
in respect of those debt securities, issued to any other trust, or a trustee of
such trust, partnership or other entity affiliated with the Company that is a
financing vehicle of the Company (a "financing entity") in connection with the
issuance by such financing entity of equity securities or other securities
guaranteed by the Company pursuant to an instrument that ranks pari passu with
or junior in right of payment to the Guarantee. The securing of any Indebtedness
otherwise constituting Indebtedness Ranking on a Parity with the Junior
Subordinated Debentures shall not be deemed to prevent such Indebtedness from
constituting Indebtedness Ranking on a Parity with the Junior Subordinated
Debentures.
"Indebtedness Ranking Junior to the Junior Subordinated Debentures" shall
mean any Indebtedness, whether outstanding on the date of execution of the
Junior Subordinated Debenture Indenture or thereafter created, assumed or
incurred, to the extent such Indebtedness by its terms ranks junior to and not
pari passu with or prior to the Junior Subordinated Debentures (and any other
Indebtedness Ranking on a Parity with the Junior Subordinated Debentures) in
right of payment upon the happening of the dissolution, winding-up, liquidation
or reorganization of the Company. The securing of any Indebtedness otherwise
constituting Indebtedness Ranking Junior to the Junior Subordinated Debentures
shall not be deemed to prevent such Indebtedness from constituting Indebtedness
Ranking Junior to the Junior Subordinated Debentures.
"Senior Indebtedness As Defined In the Junior Subordinated Debenture
Indenture" shall mean all Indebtedness, whether outstanding on the date of
execution of the Junior Subordinated Debenture Indenture or thereafter created,
assumed or incurred, except Indebtedness Ranking on a Parity with the Junior
Subordinated Debentures or Indebtedness Ranking Junior to the Junior
Subordinated Debentures.
GOVERNING LAW
The Junior Subordinated Debenture Indenture and the Junior Subordinated
Debentures will be governed by and construed in accordance with the laws of the
State of Delaware.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to the foregoing, the Debenture Trustee will not be under
any obligation to exercise any of the powers vested in it by the Junior
Subordinated Debenture Indenture at the request of any holder of Junior
Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby. The
Debenture Trustee will not be required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties if
the Debenture Trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
300,000,000 shares of Common Stock and 2,000,000 shares of Preferred Stock.
Preferred Stock may be issued from time to time in one or more classes or
series of preferred stock with such designations, powers, preferences and rights
of the shares of such class or series and the
26
<PAGE> 29
qualifications, limitations or restrictions thereon, including, but not limited
to, dividend rights, dividend rate or rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions) and the
liquidation preference established by the Board of Directors, without approval
of the stockholders, pursuant to the provisions of the Restated Certificate of
Incorporation of the Company (the "Certificate of Incorporation").
At August 31, 1998, there were outstanding (i) 94,630,404 shares of Common
Stock and (ii) no shares of Preferred Stock.
As described under "Description of Depositary Shares," the Company may
issue Depositary Shares evidenced by depositary receipts ("Depositary
Receipts"), each representing a fractional interest (to be specified in the
Prospectus Supplement relating to the particular class or series of the
Preferred Stock) in a share of a particular class or series of the Preferred
Stock issued and deposited with a Preferred Stock Depositary (as defined
herein).
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Certificate of Incorporation and
the By-Laws of the Company, as amended (the "By-Laws"), copies of which are
filed as exhibits to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Dividends. Subject to the rights of the holders of Preferred Stock,
holders of Common Stock are entitled to receive dividends and other
distributions in cash, stock or property of the Company, when, as and if
declared by the Board of Directors out of assets or funds of the Company legally
available therefor and shall share equally on a per share basis in all such
dividends and other distributions.
Voting Rights. At every meeting of stockholders, every holder of Common
Stock is entitled to one vote per share. Subject to any voting rights which may
be granted to holders of Preferred Stock, any action submitted to stockholders
is approved if the number of votes cast in favor of such action exceeds the
number of votes required by the provisions of the Certificate of Incorporation
or by law, subject to applicable quorum requirements. The Certificate of
Incorporation requires the affirmative vote of at least 80% of the voting power
of all of the stockholders with respect to certain fundamental corporate
transactions. The Certificate of Incorporation also precludes stockholders from
acting by written consent.
Liquidation Rights. In the event of any liquidation, dissolution or
winding-up of the business of the Company, whether voluntary or involuntary (any
such event, a "Liquidation"), the holders of Common Stock are entitled to share
equally in the assets available for distribution after payment of all
liabilities and provision for the liquidation preference of any shares of
Preferred Stock then outstanding.
Miscellaneous. The holders of Common Stock have no preemptive rights,
cumulative voting rights, subscription rights, or conversion rights and the
Common Stock is not subject to redemption.
The Company has a classified Board of Directors with three-year terms. The
directors are divided into three classes as equal in number as possible and the
term of one class expires each year.
The transfer agent and registrar with respect to the Common Stock is Chase
Mellon Shareholder Services.
27
<PAGE> 30
All shares of Common Stock offered pursuant to a Prospectus Supplement, or
issuable upon conversion, exchange or exercise of Offered Securities, will, when
issued, be fully paid and non-assessable. The Common Stock is traded on the New
York Stock Exchange under the symbol "HPC."
Reference is made to the applicable Prospectus Supplement relating to the
Common Stock offered thereby for specific terms, including: (i) the number of
shares offered, (ii) the initial offering price, if any, and market price and
(iii) dividend information.
PREFERRED STOCK
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Certificate of Incorporation (including any future
amendments thereto) and By-Laws, as amended.
GENERAL
Subject to limitations prescribed by Delaware law and the Certificate of
Incorporation, the Board of Directors is authorized to fix the number of shares
constituting each class or series of Preferred Stock and the designations and
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution of the Board of
Directors or duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and non-assessable and will not have, or be subject to,
any preemptive or similar rights.
Reference is made to the Prospectus Supplement relating to the class or
series of Preferred Stock offered thereby for specific terms, including: (i)
the class or series, title and stated value, if any, of such Preferred Stock;
(ii) the number of shares of such Preferred Stock offered and the liquidation
preference per share and the initial offering price, if any, of such Preferred
Stock; (iii) the dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock; (iv)
whether dividends on such Preferred Stock shall be cumulative or not and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate; (v) any voting rights granted to the holders of such Preferred
Stock or required by law; (vi) the procedures for any auction and remarketing,
if any, for such Preferred Stock; (vii) provisions for a sinking fund, if any,
for such Preferred Stock; (viii) provisions for redemption, if applicable, of
such Preferred Stock; (ix) any listing of such Preferred Stock on any
securities exchange; (x) the terms and conditions, if applicable, upon which
such Preferred Stock will be convertible into or exchangeable for other
securities or rights, or a combination of the foregoing, including the name of
the issuer of such securities or rights, the conversion or exchange price or
rate (or manner of calculation thereof) and the conversion or exchange date(s)
or period(s); (xi) whether interests in such Preferred Stock will be
represented by Depositary Shares, and, if so, the terms thereof; (xii) a
discussion of certain material U.S. federal income tax considerations
applicable to such Preferred Stock; and (xiii) any other material terms,
preferences, rights, limitations or restrictions of such Preferred Stock.
28
<PAGE> 31
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to (as applicable) dividend rights and rights upon
liquidation, dissolution or winding-up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company and to all equity securities of
the Company the terms of which provide that such equity securities are
subordinated to the Preferred Stock; (ii) on a parity with all equity securities
of the Company other than those referred to in clauses (i) and (iii); and (iii)
junior to all equity securities of the Company which the terms of such Preferred
Stock provide will rank senior to it.
DIVIDENDS
Holders of shares of the Preferred Stock of each class or series shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the stock transfer books of the Company on such record dates
as shall be fixed by the Board of Directors of the Company.
Dividends on any class or series of the Preferred Stock may be cumulative
or non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will accumulate from and after the date set forth in
the applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any class or
series of the Preferred Stock for which dividends are non-cumulative, then the
holders of such class or series of the Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such class or series are
declared payable on any future dividend payment date.
If any shares of the Preferred Stock of any class or series are
outstanding, no full dividends shall be declared or paid or set apart for
payment on the Preferred Stock of the Company of any other class or series
ranking, as to dividends, on a parity with or junior to the Preferred Stock of
such class or series for any period unless (i) if such class or series of
Preferred Stock has a cumulative dividend, full cumulative dividends on the
Preferred Stock of such class or series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period or (ii) if such class or series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such class or
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment for the then
current dividend period ((i) and (ii) are hereinafter collectively referred to
as "all required dividends are paid"). When dividends are not paid in full (or a
sum sufficient for such full payment is not so set apart) upon the shares of
Preferred Stock of any class or series and the shares of any other class or
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such class or series, all dividends declared upon shares of Preferred
Stock of such class or series and any other class or series of Preferred Stock
ranking on a parity as to dividends with such Preferred Stock shall be declared
pro rata so that the amount of dividends declared per share on the Preferred
Stock of such class or series and such other class or series of Preferred Stock
shall in all cases bear to each other the same ratio that accrued and unpaid
dividends per share on the shares of Preferred Stock of such class or series
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other class or series of Preferred Stock bear to each other.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Preferred Stock of such class or series
which may be in arrears.
29
<PAGE> 32
Except as provided in the immediately preceding paragraph, unless all
required dividends are paid, no dividends (other than in Common Stock or other
stock ranking junior to the Preferred Stock of such class or series as to
dividends and upon liquidation, dissolution or winding-up of the Company) shall
be declared or paid or set aside for payment or other distribution shall be
declared or made upon the Common Stock or any other stock of the Company ranking
junior to or on a parity with the Preferred Stock of such class or series as to
dividends or upon liquidation, nor shall any Common Stock or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such class or series as to dividends or upon liquidation, dissolution or
winding-up of the Company be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other stock of the Company ranking junior to the
Preferred Stock of such class or series as to dividends and upon liquidation,
dissolution or winding-up of the Company).
Any dividend payment made on shares of a class or series of Preferred
Stock shall first be credited against the earliest accrued but unpaid dividend
due with respect to shares of such class or series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a class or series of Preferred Stock
that is subject to mandatory redemption will specify the number of shares of
such Preferred Stock that shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accumulated and unpaid dividends
thereon (which shall not, if such Preferred Stock does not have a cumulative
dividend, include any accumulation in respect of unpaid dividends for prior
dividend periods) to the date of redemption. The redemption price may be payable
in cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of stock of the Company, the terms of such
Preferred Stock may provide that, if no such stock shall have been issued or to
the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into shares of the applicable stock
of the Company pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless provided otherwise for any class or
series of Preferred Stock, unless all required dividends are paid: (i) no
shares of the applicable class or series of Preferred Stock shall be redeemed
unless all outstanding shares of Preferred Stock of such class or series are
simultaneously redeemed and (ii) the Company shall not purchase or otherwise
acquire directly or indirectly any shares of the applicable class or series of
Preferred Stock (except by conversion into or exchange for stock of the Company
ranking junior to the Preferred Stock of such class or series as to dividends
and upon liquidation, dissolution or winding-up of the Company), provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such class or series pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
Preferred Stock of such class or series.
30
<PAGE> 33
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, then, before any distribution or payment shall be made to the
holders of any Common Stock or any other class or series of stock of the Company
ranking junior to such class or series of Preferred Stock in the distribution of
assets upon any liquidation, dissolution or winding-up of the Company, the
holders of each class or series of Preferred Stock shall be entitled to receive
out of assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such class or
series of Preferred Stock does not have a cumulative dividend). After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of such class or series of Preferred Stock will have no right or claim
to any of the remaining assets of the Company. In the event that, upon any
voluntary or involuntary liquidation, dissolution or winding-up of the Company,
the legally available assets of the Company are insufficient to pay the amount
of the liquidating distributions on all outstanding shares of such class or
series of Preferred Stock and the corresponding amounts payable on all shares of
other classes or series of stock of the Company ranking on a parity with such
class or series of Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding-up of the Company, then the holders of such
class or series of Preferred Stock and all other such classes or series of stock
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders
of shares of such class or series of Preferred Stock, the remaining assets of
the Company shall be distributed among the holders of any other classes or
series of stock ranking junior to such class or series of Preferred Stock upon
any liquidation, dissolution or winding-up of the Company, according to their
respective rights and preferences and in each case according to their respective
number of shares.
For such purposes, neither the consolidation or merger of the Company with
or into any other Company nor the sale, lease, transfer or conveyance of all or
substantially all of the property or business of the Company shall be deemed to
constitute a liquidation, dissolution or winding-up of the Company.
VOTING RIGHTS
Holders of such class or series of Preferred Stock will not have any
voting rights, except as set forth below (unless otherwise specified in a
Prospectus Supplement) or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
If specified in the applicable Prospectus Supplement, or as long as the
Preferred Stock is listed on an exchange so requiring, whenever dividends on any
shares of such class or series of Preferred Stock shall be in arrears for six or
more quarterly periods, regardless of whether such quarterly periods are
consecutive, the holders of such shares of such class or series of Preferred
Stock (voting together as a class with all other classes or series of preferred
stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by an officer of the Company at the request
of a holder of such class or series of Preferred Stock or, if such special
meeting is not called by an officer of the Company within 30 days, at a special
meeting called by a holder of such class or series of Preferred Stock designated
by the holders of record of at least 10% of the shares of any such class or
series of Preferred Stock (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of the
stockholders), or at the next annual meeting of stockholders, and at each
subsequent annual meeting
31
<PAGE> 34
until (i) if such class or series of Preferred Stock has a cumulative dividend,
all dividends accumulated on such shares of Preferred Stock for the past
dividend periods and the then current dividend period shall have been fully paid
or declared and a sum sufficient for the payment thereof set apart for payment
or (ii) if such class or series of Preferred Stock does not have a cumulative
dividend, four consecutive quarterly dividends shall have been fully paid or
declared and a sum sufficient for the payment thereof set apart for payment. In
such case, the entire Board of Directors of the Company will be increased by two
directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of Preferred Stock remain outstanding, the Company shall not, without
the affirmative vote or consent of the holders of at least two-thirds of the
shares of each class or series of Preferred Stock outstanding at the time, given
in person or by proxy, either in writing or at a meeting (such class or series
voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of stock ranking senior to
such class or series of Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding-up of the
Company or reclassify any authorized stock of the Company into any such shares,
or create, authorize or issue any obligation or security convertible into or
exchangeable for, or evidencing the right to purchase, any such shares; or (ii)
amend, alter or repeal the provisions of the Certificate of Incorporation in,
respect of such class or series of Preferred Stock, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of such class or series of Preferred Stock
or the holders thereof; provided, however, that any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other class or
series of Preferred Stock, or any increase in the amount of authorized shares of
such class or series, in each case ranking on a parity with or junior to the
Preferred Stock of such class or series with respect to payment of dividends and
the distribution of assets upon liquidation, dissolution or winding-up, shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such class or series of Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect such
redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any class or series
of Preferred Stock are convertible into or exchangeable for other securities or
rights of the Company or other issuers, including, without limitation, Common
Stock, Debt Securities or another series of Preferred Stock, or any combination
of the foregoing, will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the name of the issuer of such other
securities or rights and the number or principal amount of the securities or
rights into which the Preferred Stock is convertible or exchangeable, the
conversion or exchange price or rate (or manner of calculation thereof), the
conversion or exchange date(s) or period(s), provisions as to whether the
conversion or exchange will be at the option of the holders of such class or
series of Preferred Stock or the Company or other issuer and the events
requiring an adjustment of the conversion or exchange price or rate.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of
certain provisions of the Deposit Agreement (as defined below) and of the
Depositary Shares and Depositary Receipts summarizes the material terms of the
Deposit Agreement and of the Depositary Shares and Depositary Receipts, and is
32
<PAGE> 35
qualified in its entirety by reference to the Deposit Agreement and the
Depositary Receipts evidencing the Depositary Shares.
GENERAL
The Company may issue shares of Preferred Stock represented by Depositary
Shares. The shares of any series of the Preferred Stock underlying the
Depositary Shares will be deposited under a separate deposit agreement (the
"Deposit Agreement") between the Company and a bank or trust company selected by
the Company (the "Preferred Stock Depositary"). The Prospectus Supplement
relating to Depositary Shares will set forth the name and address of the
Preferred Stock Depositary. Subject to the terms of the Deposit Agreement, each
holder of a Depositary Receipt evidencing Depositary Shares will be entitled,
proportionately, to all the rights, preferences and privileges of the Preferred
Stock represented by such Depositary Shares (including dividend, voting,
redemption, conversion, exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the applicable
fractional interest in a share of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
A holder of Depositary Receipts evidencing Depositary Shares will be
entitled to receive the shares of Preferred Stock (but only in whole shares of
Preferred Stock) underlying such Depositary Shares. If the Depositary Receipts
delivered by the holder evidence a number of Depositary Shares in excess of the
whole number of shares of Preferred Stock to be withdrawn, the Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares. The Company may also deliver cash in lieu
of delivery of fractional interests in Preferred Stock.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect of the series of Preferred Stock represented by
the Depository Shares to the holders of Depositary Receipts in proportion to
the number of Depositary Receipts owned by such holders. The Preferred Stock
Depositary, however, will distribute only such amounts as can be distributed
without attributing to any Depositary Share a fraction of one cent, and any
balance not so distributed will be added to and treated as part of the next sum
received by that Preferred Stock Depositary for distribution to holders of
Depositary Receipts then outstanding.
In the event of a distribution other than in cash in respect to the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the holders of Depositary Receipts in proportion, insofar as
possible, to the number of Depositary Shares owned by such holders, unless the
Preferred Stock Depositary determines that it is not feasible to make such
distribution, in which case the Preferred Stock Depositary may, with the
approval of the Company, adopt such method as it deems equitable and practicable
for the purpose of effecting such distribution, including public or private sale
of such property and distribution of the net proceeds from such sale to such
holders.
The amounts so distributed in any of the foregoing cases will be reduced
by any amount required by law to be withheld by the Company or the Preferred
Stock Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any Preferred Stock underlying the Depositary Shares is subject to
provisions relating to its conversion or exchange as set forth in the applicable
Prospectus Supplement, each holder of Depositary
33
<PAGE> 36
Receipts will have the right or obligation to convert or exchange the Depositary
Shares represented by such Depositary Receipts pursuant to the terms thereof.
REDEMPTION
If any series of Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Preferred Stock Depositary resulting from the redemption, in
whole or in part, of the related Preferred Stock held by the Preferred Stock
Depositary. The redemption price per Depositary Share will be equal to the
corresponding proportion of the redemption price payable with respect to the
number of shares of Preferred Stock underlying the Depositary Shares. Whenever
the Company redeems Preferred Stock from the Preferred Stock Depositary, the
Preferred Stock Depositary will redeem as of the same redemption date a
proportionate number of Depositary Shares representing the shares of Preferred
Stock that were redeemed. If less than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected by lot or pro
rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Receipts evidencing
such Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
such Depositary Shares will cease, except the right to receive the redemption
price upon such redemption. Any funds deposited by the Company with the
Preferred Stock Depositary for any Depositary Shares which the holders of the
Depositary Receipts evidencing such Depositary Shares fail to redeem shall be
returned to the Company after a period of two years from the date such funds are
so deposited.
VOTING
Upon receipt of notice of any meeting at which the holders of any shares
of Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice to
the holders of the Depositary Receipts evidencing such Depositary Shares. Each
holder of such Depositary Receipts on the record date (which will be the same
date as the record date for such Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the number of shares of Preferred Stock underlying such Depositary
Shares. The Preferred Stock Depositary will endeavor, insofar as practicable, to
vote the number of shares of Preferred Stock underlying such Depositary Shares
in accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the Preferred Stock to the
extent it does not receive specific written instructions from holders of
Depositary Receipts.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion or
redemption of, or any election on the part of the Company to call for the
redemption of, any Preferred Stock, the Preferred Stock Depositary shall in each
such instance fix a record date (which shall be the same as the record date for
the Preferred Stock) for the determination of the holders of Depositary Receipts
who (x) shall be entitled to receive such dividend, distribution, rights,
preferences or privileges or (y) shall be entitled to give instructions for the
exercise of voting rights at any such meeting or to receive
34
<PAGE> 37
notice of such meeting or of such redemption or conversion, subject to the
provisions of the Deposit Agreement.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
Any provision of the Deposit Agreement or any Depositary Receipt may at
any time be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment which imposes or increases any fees, taxes or
other charges payable by the holders of Depositary Receipts (other than taxes
and other governmental charges, fees and other expenses payable by such holders
as stated under "--Charges of Preferred Stock Depositary"), or which otherwise
materially and adversely affects any existing right of holders of Depositary
Receipts, will not take effect as to outstanding Depositary Receipts unless
approved by at least two-thirds of the holders of such outstanding Depositary
Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
holders of all Depositary Receipts then outstanding at least 30 days prior to
the date fixed in such notice for such termination, provided, however, that any
such termination that materially and adversely affects the holders of the
Depositary Receipts must be approved by at least two-thirds of the holders of
the outstanding Depositary Receipts. If any Depositary Receipts remain
outstanding after the date of termination of the Deposit Agreement, the
Preferred Stock Depositary will exchange the Depositary Receipts for shares of
the Preferred Stock underlying the Depositary Shares represented by such
Depositary Receipts, and thereafter, will discontinue the transfer of
Depositary Receipts, suspend the distribution of dividends to the holders
thereof, and not give any further notices (other than notice of such
termination) or perform any further acts under the Deposit Agreement.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary,
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the Preferred Stock, except
for taxes (including transfer taxes, if any) and other governmental charges and
such other charges as are expressly provided in the Deposit Agreement to be at
the expense of holders of Depositary Receipts or persons depositing Preferred
Stock.
35
<PAGE> 38
MISCELLANEOUS
The Preferred Stock Depositary will make available for inspection by
holders of Depositary Receipts at its corporate office and its New York office,
all reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if
prevented or delayed by law or any circumstance beyond its control in performing
its obligations under the Deposit Agreement. The obligations of the Preferred
Stock Depositary under the Deposit Agreement are limited to performing its
duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder without negligence and in good faith. Neither the Company nor the
Preferred Stock Depositary is obligated to prosecute or defend any legal
proceeding in respect of any Depositary Receipts, Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. The Company and the Preferred
Stock Depositary are entitled to rely upon advice of or information from
counsel, accountants or other persons believed to be competent and on documents
believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment as
successor depositary. If a sucessor depositary shall not have been appointed and
accepted its appointment within 45 days after the giving of such notice of
resignation, the resigning Preferred Stock Depositary may petition any court of
competent jurisdiction for the appointment of a successor depositary with
respect to outstanding Depositary Receipts under the Deposit Agreement.
DESCRIPTION OF WARRANTS
The Company may issue Warrants to purchase Senior Debt Securities,
Subordinated Debt Securities, Preferred Stock, Depositary Shares or Common Stock
(collectively, the "Underlying Warrant Securities"), and such Warrants may be
issued independently or together with any such Underlying Warrant Securities and
may be attached to or separate from such Underlying Warrant Securities. Each
series of Warrants will be issued under a separate warrant agreement (each a
"Warrant Agreement") to be entered into between the Company and a warrant agent
("Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency for or with holders or beneficial owners of
Warrants.
The applicable Prospectus Supplement will describe the specific terms of
any Warrants offered thereby, including: (i) the title of such Warrants; (ii)
the aggregate number of such Warrants; (iii) the price or prices at which such
Warrants will be issued; (iv) the currency or currencies, including composite
currencies, in which the exercise price of such Warrants may be payable; (v) the
designation and terms of the Underlying Warrant Securities purchasable upon
exercise of such Warrants; (vi) the price at which the Underlying Warrant
Securities purchasable upon exercise of such Warrants may be purchased; (vii)
the date on which the right to exercise such Warrants shall commence and the
date on which such right shall expire; (viii) whether such Warrants will be
issued in registered form or bearer form; (ix) if applicable, the minimum or
maximum amount of such Warrants which may be exercised at any one time; (x) if
applicable, the designation and terms of the Underlying Warrant Securities with
which such Warrants are issued and the number of such Warrants issued with each
such Underlying Warrant Security; (xi) if applicable, the date on and after
which such Warrants and the related Underlying Warrant Securities will be
separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain United States
federal income tax
36
<PAGE> 39
considerations; and (xiv) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
DESCRIPTION OF TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued by a Hercules Trust under
the applicable Trust Agreement and will represent beneficial interests in such
Hercules Trust. The holders of such beneficial interests will be entitled to a
preference over the Trust Common Securities of such Hercules Trust with respect
to the payment of distributions and amounts payable on redemption of the Trust
Preferred Securities or the liquidation of such Hercules Trust under the
circumstances described under "--Subordination of Trust Common Securities." Each
Trust Agreement has been qualified under the Trust Indenture Act and is subject
to, and governed by, the Trust Indenture Act. This summary of certain terms and
provisions of the Trust Preferred Securities and the Trust Agreements does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of such Trust Preferred Securities and such
Trust Agreement, including the definitions therein of certain terms, and those
made a part of such Trust Agreement by the Trust Indenture Act.
Reference is made to the applicable Prospectus Supplement for a description
of the specific terms of the Trust Preferred Securities offered thereby,
including (i) the particular Hercules Trust issuing such Trust Preferred
Securities; (ii) the specific designation, number and purchase price of such
Trust Preferred Securities; (iii) the annual distribution rate (or method of
calculation of the distribution rate) for such Trust Preferred Securities and,
if applicable, the dates from which and upon which such distributions shall
accumulate and be payable and the record dates therefor, and the maximum
Extension Period for which such distributions may be deferred; (iv) the
Liquidation Amount per Trust Preferred Security which shall be paid out of the
assets of such Hercules Trust to the holders thereof upon voluntary or
involuntary dissolution, winding-up and liquidation of such Hercules Trust; (v)
the obligation or right, if any, of such Hercules Trust to purchase or redeem
its Trust Preferred Securities and the price or prices at which, the date or
dates on which or period or periods within which and the terms and conditions
upon which, such Trust Preferred Securities shall or may be purchased or
redeemed, in whole or in part, pursuant to such obligation or right; (vi) the
terms and conditions, if any, upon which such Trust Preferred Securities may be
converted or exchanged, in addition to the circumstances described herein, into
other securities or rights, or a combination of the foregoing, including the
name of the issuer of such securities or rights, the initial conversion or
exchange price or rate per Trust Preferred Security and the date or dates on
which or period or periods within which such conversion or exchange may be
effected; (vii) if applicable, any securities exchange upon which such Trust
Preferred Securities shall be listed; (viii) whether such Trust Preferred
Securities are issuable in book-entry only form and, if so, the identity of the
depositary and disclosure relating to the depositary arrangements; and (ix) any
other rights, preferences, privileges, limitations or restrictions of such Trust
Preferred Securities consistent with the applicable Trust Agreement or with
applicable law (which may differ from those described herein). Certain material
United States federal income tax considerations applicable to any offering of
Trust Preferred Securities will also be described in the applicable Prospectus
Supplement.
GENERAL
The Trust Preferred Securities of a Hercules Trust will rank pari passu,
and payments will be made thereon pro rata, with the Trust Common Securities of
such Hercules Trust except as described under "--Subordination of Trust Common
Securities." The proceeds from the sale of Trust Preferred Securities and Trust
Common Securities by a Hercules Trust will be used by such Hercules Trust to
purchase an
37
<PAGE> 40
aggregate principal amount of Junior Subordinated Debentures of the Company
equal to the aggregate Liquidation Amount of such Trust Preferred Securities and
Trust Common Securities. Legal title to such Junior Subordinated Debentures will
be held by the Property Trustee of the Hercules Trust for the benefit of the
holders of the related Trust Securities. In addition, the Company will execute a
Guarantee for the benefit of the holders of the related Trust Preferred
Securities. The Guarantees will not guarantee payment of distributions or
amounts payable on redemption of the Trust Preferred Securities or liquidation
of a Hercules Trust when such Hercules Trust does not have funds legally
available for the payment thereof. See "Description of Guarantees."
The revenue of a Hercules Trust available for distribution to holders of
its Trust Preferred Securities will be limited to payments under the related
Junior Subordinated Debentures which such Hercules Trust purchased with the
proceeds from the sale of its Trust Securities. If the Company fails to make a
required payment in respect of such Junior Subordinated Debentures, the
applicable Hercules Trust will not have sufficient funds to make the related
payments, including distributions, in respect of its Trust Preferred Securities.
Each of the Hercules Trusts is a separate legal entity and the assets of one are
not available to satisfy the obligations of any other.
DEFERRAL OF DISTRIBUTIONS
So long as no Debenture Event of Default has occurred and is continuing,
the Company will have the right under the Junior Subordinated Debenture
Indenture to defer the payment of interest on the Junior Subordinated Debentures
at any time or from time to time for up to the maximum Extension Period
specified in the applicable Prospectus Supplement, provided that an Extension
Period must end on an interest payment date and may not extend beyond the stated
maturity of such Junior Subordinated Debentures. If the Company elects to
exercise such right, distributions on the related Trust Preferred Securities
will be deferred during any such Extension Period. Distributions to which
holders of the Trust Preferred Securities are entitled during any Extension
Period will continue to accumulate additional distributions thereon. The Company
has no current intention to exercise its right to defer payments of interest on
the Junior Subordinated Debentures it may issue and, accordingly, distributions
on the related Trust Preferred Securities.
REDEMPTION
Upon the repayment at the stated maturity or redemption (in whole or in
part) prior to the stated maturity of the Junior Subordinated Debentures, the
proceeds from such repayment or redemption shall be applied by the Property
Trustee to redeem an aggregate liquidation amount of the related Trust
Securities equal to the aggregate principal amount of such Junior Subordinated
Debentures so repaid or redeemed, upon not less than 30 nor more than 60 days'
prior written notice, at a redemption price equal to such aggregate liquidation
amount plus accumulated distributions to the redemption date. Any redemption of
Trust Securities shall be made and the applicable redemption price shall be
payable on the redemption date only to the extent that the applicable Hercules
Trust has funds legally available for the payment thereof. See "--Subordination
of Trust Common Securities."
If less than all of the Junior Subordinated Debentures are to be redeemed
prior to the stated maturity thereof, then the proceeds of such redemption shall
be used to redeem the related Trust Securities on a pro rata basis among the
Trust Preferred Securities and the Trust Common Securities of the applicable
Hercules Trust except as described under "--Subordination of Trust Common
Securities." If less than all of the Trust Preferred Securities held in
book-entry form, if any, are to be redeemed, such Trust Preferred Securities
will be redeemed in accordance with the procedures of DTC. See "--Global Trust
Preferred Securities."
38
<PAGE> 41
REDEMPTION PROCEDURES
If a Hercules Trust gives a notice of redemption in respect of its Trust
Preferred Securities, then, by 12:00 noon, New York City time, on the redemption
date, to the extent funds are legally available, (i) with respect to Trust
Preferred Securities held by DTC or its nominee, the Property Trustee will
deposit, or cause the Paying Agent (as defined herein) to deposit, irrevocably
with DTC funds sufficient to pay the applicable redemption price and (ii) with
respect to Trust Preferred Securities held in certificated form, the Property
Trustee will irrevocably deposit with the Paying Agent funds sufficient to pay
the applicable redemption price and will give such Paying Agent irrevocable
instructions and authority to pay the applicable redemption price to the holders
thereof upon surrender of their certificates evidencing the Trust Preferred
Securities. If notice of redemption shall have been given and funds irrevocably
deposited as required, then, upon the date of such deposit, all rights of the
holders of the Trust Preferred Securities called for redemption will cease,
except the right of such holders to receive the applicable redemption price, but
without interest thereon, and such Trust Preferred Securities will cease to be
outstanding. In the event that any redemption date is not a Business Day, then
the applicable redemption price payable on such date will be paid on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), with the same force and effect as if made on such
date. In the event that payment of the applicable redemption price is improperly
withheld or refused and not paid either by the applicable Hercules Trust or by
the Company pursuant to the applicable Guarantee as described under "Description
of Guarantees," (i) distributions on the related Trust Preferred Securities will
continue to accumulate from the redemption date originally established by such
Hercules Trust to the date such applicable redemption price is actually paid and
(ii) the actual payment date will be the redemption date for purposes of
calculating the applicable Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Trust Preferred Securities by tender, in
the open market or by private agreement.
LIQUIDATION OF A HERCULES TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED
DEBENTURES
The Company will have the right at any time to dissolve a Hercules Trust
and cause the related Junior Subordinated Debentures to be distributed to the
holders of the Trust Securities of such Hercules Trust in liquidation of such
Hercules Trust after satisfaction of liabilities to creditors of such Hercules
Trust as required by applicable law. Such right is subject to the Company having
received an opinion of counsel to the effect that such distribution will not be
a taxable event to holders of the Trust Preferred Securities of such Hercules
Trust.
Each Hercules Trust shall automatically dissolve upon the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the Company;
(ii) the distribution of the related Junior Subordinated Debentures to the
holders of the Trust Securities of such Hercules Trust, if the Company, as
Sponsor, has given written direction to the Property Trustee to dissolve such
Hercules Trust (which direction is optional and, except as described above,
wholly within the discretion of the Company, as Sponsor); (iii) the conversion,
exchange or redemption of all of the Trust Securities of such Hercules Trust;
(iv) expiration of the term of such Hercules Trust and (v) the entry of an order
for the dissolution of such Hercules Trust by a court of competent jurisdiction.
If a dissolution occurs as described in clause (i), (ii), (iv) or (v)
above, the applicable Hercules Trust shall be liquidated by the Issuer Trustees
as expeditiously as the Issuer Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of such Hercules
Trust as provided by applicable law, to the holders of the Trust Securities the
related Junior Subordinated Debentures, unless such distribution is
39
<PAGE> 42
determined by the Property Trustee not to be practicable, in which event such
holders will be entitled to receive out of the assets of such Hercules Trust
legally available for distribution to holders, after satisfaction of liabilities
to creditors of such Hercules Trust as provided by applicable law, an amount
equal to the aggregate of the Liquidation Amount per Trust Security specified in
the applicable Prospectus Supplement plus accumulated distributions thereon to
the date of payment (such amount being referred to herein as the "Liquidation
Distribution"). If the Liquidation Distribution can be paid only in part because
the applicable Hercules Trust has insufficient assets legally available to pay
in full the aggregate Liquidation Distribution, then the amounts payable
directly by such Hercules Trust on its Trust Securities shall be paid on a pro
rata basis, except that if a Debenture Event of Default has occurred and is
continuing, the Trust Preferred Securities of such Hercules Trust shall have a
priority over the Trust Common Securities of such Hercules Trust in respect of
such amounts. See "--Subordination of Trust Common Securities."
After a date is fixed for any distribution of Junior Subordinated
Debentures to holders of the related Trust Securities, (i) such Trust Securities
will no longer be deemed to be outstanding, (ii) each registered global
certificate, if any, representing such Trust Securities will be exchanged for a
registered global certificate representing the Junior Subordinated Debentures to
be delivered upon such distribution and (iii) any Trust Securities in
certificated form will be deemed to represent Junior Subordinated Debentures
having a principal amount equal to the liquidation amount of such Trust
Securities, and bearing accrued interest in an amount equal to the accumulated
distributions on such Trust Securities until such certificates are presented to
the Administrative Trustees or their agent for cancellation, whereupon the
Company will issue to such holder, and the Debenture Trustee will authenticate,
Junior Subordinated Debentures in certificated form.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for such Trust Preferred Securities if a dissolution and liquidation of
the applicable Hercules Trust were to occur. Accordingly, the Trust Preferred
Securities that an investor may purchase, or the Junior Subordinated Debentures
that the investor may receive on dissolution and liquidation of the applicable
Hercules Trust, may trade at a discount to the price that the investor paid to
purchase such Trust Preferred Securities.
SUBORDINATION OF TRUST COMMON SECURITIES
Payment of distributions on, and the applicable redemption price of, Trust
Securities shall be made pro rata among the Trust Preferred Securities and the
Trust Common Securities of the applicable Hercules Trust based on their
respective Liquidation Amounts; provided, however, that if on any distribution
date or redemption date a Debenture Event of Default has occurred and is
continuing, no payment of any distribution on, or applicable redemption price
of, any of the Trust Common Securities of the applicable Hercules Trust, and no
other payment on account of the redemption, liquidation or other acquisition of
such Trust Common Securities, shall be made unless payment in full in cash of
all accumulated distributions on all of the outstanding Trust Preferred
Securities of such Hercules Trust for all distribution periods terminating on or
prior thereto, or in the case of payment of the applicable redemption price, the
full amount of such redemption price, shall have been made or provided for, and
all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all distributions on, or applicable redemption price
of, such Trust Preferred Securities then due and payable.
Upon the occurrence and continuance of an Event of Default under the
applicable Trust Agreement, the Company, as the Trust Common Securities Holder
of the applicable Hercules Trust, will be deemed to have waived any right to act
with respect to such Event of Default until the effect of such Event of Default
shall have been cured, waived or otherwise eliminated. Until any such Event of
Default has been so cured, waived or otherwise eliminated, the Property Trustee
shall act solely on behalf of the holders of the Trust
40
<PAGE> 43
Preferred Securities of such Hercules Trust and not on behalf of the Company as
the Trust Common Securities Holder, and only the holders of such Trust Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf.
EVENTS OF DEFAULT; NOTICE
The occurrence of a Debenture Event of Default (see "Description of Junior
Subordinated Debentures--Debenture Events of Default") will constitute an "Event
of Default" under the applicable Trust Agreement. Within ten Business Days after
the occurrence of an Event of Default under the applicable Trust Agreement
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust Preferred Securities
of the applicable Hercules Trust, the Administrative Trustees and the Company,
as Sponsor, unless such Event of Default shall have been cured or waived.
For a discussion of the limited circumstances in which holders of Trust
Preferred Securities may bring a Direct Action against the Company, see
"Description of Junior Subordinated Debentures--Enforcement of Certain Rights by
Holders of Trust Preferred Securities."
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any
Issuer Trustee may be removed at any time by the Company as the Trust Common
Securities Holder of the applicable Hercules Trust. If a Debenture Event of
Default has occurred and is continuing, the Property Trustee and the Delaware
Trustee may be removed at such time only by the holders of a majority in
liquidation amount of the outstanding Trust Preferred Securities of the
applicable Hercules Trust. In no event will the holders of the Trust Preferred
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the Trust Common Securities Holder. No resignation or removal of an
Issuer Trustee, and no appointment of a successor trustee, shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the applicable Trust Agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Issuer Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Issuer Trustee under the
applicable Trust Agreement, provided such Person shall be otherwise qualified
and eligible.
MERGERS, CONVERSIONS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF A
HERCULES TRUST
A Hercules Trust may not merge with or into, convert into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to any corporation or
other Person, except as described below or as otherwise described under
"--Liquidation of a Hercules Trust and Distribution of Junior Subordinated
Debentures." A Hercules Trust may, at the request of the Company, as Sponsor,
with the consent of the Administrative Trustees but without the consent of the
holders of its Trust Preferred Securities, merge with or into, convert into,
consolidate, amalgamate, or be replaced by or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to a trust
organized as such under the laws of any State; provided, that (i) such successor
entity either (a) expressly assumes all of the
41
<PAGE> 44
obligations of such Hercules Trust with respect to the Trust Securities of such
Hercules Trust or (b) substitutes for the Trust Securities of such Hercules
Trust other securities having substantially the same terms as such Trust
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as such Trust Securities rank in priority with respect to distributions
and payments upon liquidation, redemption and otherwise, (ii) the Company
expressly appoints a trustee of such successor entity possessing the same powers
and duties as the Property Trustee with respect to the related Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on each
national securities exchange or other organization on which the Trust Securities
of such Hercules Trust are then listed, if any, (iv) such merger, conversion,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Trust Securities (including any Successor Securities) of such Hercules
Trust or the related Junior Subordinated Debentures to be downgraded or placed
under surveillance or review by any nationally recognized statistical rating
organization, (v) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) of such Hercules Trust in any material respect (other than
any dilution of such holders' interests in the new entity), (vi) such successor
entity has a purpose substantially identical to that of such Hercules Trust,
(vii) prior to such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Company has received an opinion
from independent counsel to such Hercules Trust experienced in such matters to
the effect that (a) such merger, conversion, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) of such Hercules Trust in any material respect (other than
any dilution of such holders' interests in the new entity), and (b) following
such merger, conversion, consolidation, amalgamation, replacement, conveyance,
transfer or lease, neither such Hercules Trust nor such successor entity will be
required to register as an investment company under the Investment Company Act
of 1940, as amended (the "Investment Company Act") and (viii) the Company or any
permitted successor or assignee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the applicable
Guarantee and the applicable guarantee for the benefit of the owner of the
Common Securities of such Hercules Trust. Notwithstanding the foregoing, a
Hercules Trust shall not, except with the consent of each holder of its Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause such Hercules Trust or the successor entity not to be classified as
a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF A TRUST AGREEMENT
Except as provided below and under "--Mergers, Consolidations,
Amalgamations or Replacements of a Hercules Trust" and "Description of
Guarantees--Amendments and Assignment" and as otherwise required by law and the
applicable Trust Agreement, the holders of Trust Preferred Securities will have
no voting rights.
Each Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities of the applicable Hercules Trust, (i) to cure
any ambiguity, correct or supplement any provisions in such Trust Agreement that
may be inconsistent with any other provision, or to make any other provisions
with respect to matters or questions arising under such Trust Agreement, which
shall not be inconsistent with the other provisions of such Trust Agreement, or
(ii) to modify, eliminate or add to any provisions of such Trust Agreement to
such extent as shall be necessary to ensure that such Hercules Trust will be
classified for United States federal income tax purposes as a grantor trust at
all times that any of its Trust Securities are outstanding or to ensure
42
<PAGE> 45
that such Hercules Trust will not be required to register as an "investment
company" under the Investment Company Act; provided, however, that in each case,
such action shall not adversely affect in any material respect the interests of
the holders of such Trust Securities. A Trust Agreement may be amended by the
Issuer Trustees and the Company (i) with the consent of holders of a majority in
Liquidation Amount of the outstanding Trust Securities of the applicable
Hercules Trust, and (ii) upon receipt by the Issuer Trustees of an opinion of
counsel experienced in such matters to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not affect such Hercules Trust's status as a grantor trust for
United States federal income tax purposes or such Hercules Trust's exemption
from status as an "investment company" under the Investment Company Act;
provided, however, that, without the consent of each holder of such Trust
Securities, such Trust Agreement may not be amended to (i) change the
distribution rate (or manner of calculation of the distribution rate), amount,
timing or currency or otherwise adversely affect the method of any required
payment, (ii) change the purpose of the applicable Hercules Trust, (iii)
authorize the issuance of any additional beneficial interests in such Hercules
Trust, (iv) change the conversion, exchange or redemption provisions, (v) change
the conditions precedent for the Company to elect to dissolve such Hercules
Trust and distribute the related Junior Subordinated Debentures to the holders
of such Trust Securities, (vi) change the Liquidation Distribution or other
provisions relating to the distribution of amounts payable upon the dissolution
and liquidation of such Hercules Trust, (vii) affect the limited liability of
any holder of such Trust Securities or (viii) restrict the right of a holder of
such Trust Securities to institute suit for the enforcement of any required
payment on or after the due date therefor or for the conversion or exchange of
such Trust Securities in accordance with their terms.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to such Debenture Trustee, or
execute any trust or power conferred on the Debenture Trustee, with respect to
the Junior Subordinated Debentures, (ii) waive certain past defaults under the
Junior Subordinated Debenture Indenture, (iii) exercise any right to rescind or
annul a declaration of acceleration of the maturity of the principal of such
Junior Subordinated Debentures or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Debenture Indenture or such Junior
Subordinated Debentures where such consent shall be required, without, in each
case, obtaining the prior approval of the holders of a majority in Liquidation
Amount of all outstanding Trust Preferred Securities of the applicable Hercules
Trust; provided, however, that where a consent under the Junior Subordinated
Debenture Indenture would require the consent of each holder of Junior
Subordinated Debentures affected thereby, no such consent shall be given by the
Property Trustee without the prior approval of each holder of the related Trust
Preferred Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of Trust Preferred Securities
except by subsequent vote of such holders. The Property Trustee shall notify
each holder of Trust Preferred Securities of any notice of default with respect
to the related Junior Subordinated Debentures. In addition to obtaining
approvals of holders of Trust Preferred Securities referred to above, prior to
taking any of the foregoing actions, the Issuer Trustees shall obtain an opinion
of counsel experienced in such matters to the effect that the applicable
Hercules Trust will not be classified as an association taxable as a corporation
for United States federal income tax purposes on account of such action.
Any required approval of holders of Trust Preferred Securities may be
given at a meeting of such holders convened for such purpose or pursuant to
written consent. The Property Trustee will cause a notice of any meeting at
which holders of Trust Preferred Securities are entitled to vote to be given to
each holder of record of Trust Preferred Securities in the manner set forth in
the applicable Trust Agreement.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances referred to above, any Trust
Preferred Securities that are owned by the Company or any
43
<PAGE> 46
affiliate of the Company shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
If specified in the applicable Prospectus Supplement, Trust Preferred
Securities may be represented by one or more global certificates deposited with,
or on behalf of, DTC (or other Depositary identified in such Prospectus
Supplement) or a nominee thereof, in each case for credit to an account of a
participant in DTC (or other Depositary). The identity of the Depositary and the
specific terms of the depositary arrangements with respect to the Trust
Preferred Securities to be represented by one or more global certificates will
be described in the applicable Prospectus Supplement. However, unless otherwise
specified in the applicable Prospectus Supplement, DTC will be the Depositary
and the depositary arrangements described with respect to the Debt Securities
will apply to such Trust Preferred Securities as well, except all references to
the Company shall include the Hercules Trusts and all references to the
applicable Indenture will refer to the applicable Trust Agreement. See
"Description of Debt Securities--Description of the Senior Debt Securities and
Subordinated Debt Securities--Global Debt Securities."
PAYMENT AND PAYING AGENT
Payments in respect of any global certificate representing Trust Preferred
Securities shall be made to DTC (or other applicable Depositary), which shall
credit the relevant accounts at DTC (or such other Depositary) on the applicable
payment dates, while payments in respect of Trust Preferred Securities in
certificated form shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the register. The Paying Agent
shall initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and the Company.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
prior written notice to the Property Trustee, the Administrative Trustees and
the Company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and the
Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the applicable Hercules Trust, but upon
payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. A Hercules Trust will not be required
to register or cause to be registered the transfer of its Trust Preferred
Securities after they have been converted, exchanged, redeemed or called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default under the applicable Trust Agreement, will undertake to
perform only such duties as are specifically set forth in such Trust Agreement
and, during the continuance of such Event of Default, must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to the foregoing, the Property
Trustee will not be under any obligation to exercise any of the powers vested in
it by such Trust Agreement at the request of any holder of the related Trust
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no such
44
<PAGE> 47
Event of Default has occurred and is continuing and the Property Trustee is
required to decide between alternative causes of action, construe ambiguous
provisions in such Trust Agreement or is unsure of the application of any
provision of such Trust Agreement, and the matter is not one on which holders of
Trust Preferred Securities or Trust Common Securities are entitled under such
Trust Agreement to vote, then the Property Trustee shall take such action as is
directed by the Company and if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the related Trust
Securities and will have no liability except for its own bad faith, negligence
or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate each Hercules Trust in such a way that (i) such
Hercules Trust will not be deemed to be an "investment company" required to be
registered under the Investment Company Act, (ii) such Hercules Trust will be
classified as a grantor trust for United States federal income tax purposes and
(iii) the related Junior Subordinated Debentures will be treated as indebtedness
of the Company for United States federal income tax purposes. The Company and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the applicable Hercules Trust
or the applicable Trust Agreement, that the Administrative Trustees determine in
their discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
related Trust Securities.
Holders of Trust Preferred Securities will not have any preemptive or
similar rights.
A Hercules Trust may not borrow money, issue debt, execute mortgages or
pledge any of its assets.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by the Company concurrently
with the issuance by a Hercules Trust of its Trust Preferred Securities for the
benefit of the holders from time to time of such Trust Preferred Securities and
will be held for such holders by The Chase Manhattan Bank, as trustee (the
"Guarantee Trustee"). Each Guarantee has been qualified as an indenture under
the Trust Indenture Act and is subject to, and governed by, the Trust Indenture
Act. This summary of certain terms and provisions of a Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of such Guarantee, including the definitions
therein of certain terms, and those made a part of such Guarantee by the Trust
Indenture Act.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the related Trust Preferred Securities, as and when due, regardless
of any defense, right of set-off or counterclaim that the applicable Hercules
Trust may have or assert other than the defense of payment. The following
payments (the "Guarantee Payments") with respect to Trust Preferred Securities,
to the extent not paid by or on behalf of the applicable Hercules Trust, will be
subject to the applicable Guarantee: (i) any accumulated distributions required
to be paid on such Trust Preferred Securities, to the extent that such Hercules
Trust has funds legally available therefor at such time, (ii) the applicable
redemption price with respect to such Trust Preferred Securities called for
redemption, to the extent that such Hercules Trust has funds legally available
therefor at such time, or (iii) upon a voluntary or involuntary dissolution and
liquidation of such Hercules Trust (other than in connection with the
distribution of the related Junior Subordinated Debentures to holders of such
Trust Preferred
45
<PAGE> 48
Securities or the redemption, conversion or exchange of such Trust Preferred
Securities), the lesser of (a) the amounts due upon the dissolution and
liquidation of such Hercules Trust, to the extent that such Hercules Trust has
funds legally available therefor at the time and (b) the amount of assets of
such Hercules Trust remaining available for distribution to holders of its Trust
Preferred Securities after satisfaction of liabilities to creditors of such
Hercules Trust as required by applicable law. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to the holders of the Trust Preferred Securities entitled thereto or
by causing the applicable Hercules Trust to pay such amounts to such holders.
The Company will, through the applicable Guarantee, the applicable Trust
Agreement, the related Junior Subordinated Debentures and the Junior
Subordinated Debenture Indenture, taken together, fully, irrevocably and
unconditionally guarantee all of the applicable Hercules Trust's obligations
under its Trust Preferred Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of a
Hercules Trust's obligations under its Trust Preferred Securities.
RANKING
Each Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Senior Debt Securities, the
Subordinated Debt Securities and the Junior Subordinated Debentures, except
those made pari passu or subordinate by their terms, and (ii) senior to all
capital stock now or hereafter issued by the Company and to any guarantee now or
hereafter entered into by the Company in respect of any of its capital stock.
The Trust Agreements provide that each holder of Trust Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
related Guarantee. Each Guarantee will rank pari passu with all other guarantees
(collectively, the "Other Guarantees") to be issued by the Company with respect
to securities of Other Hercules Trusts.
The Guarantees will not limit the amount of secured or unsecured debt,
including Senior Indebtedness As Defined In the Junior Subordinated Debenture
Indenture, that may be incurred by the Company or any of its subsidiaries.
GUARANTEE OF PAYMENT
Each Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under such Guarantee without first
instituting a legal proceeding against any other person or entity). A Guarantee
will not be discharged except by payment of the related Guarantee Payments in
full to the extent not paid by the applicable Hercules Trust or upon
distribution of its Trust Preferred Securities to the holders of the related
Junior Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of the related Trust Preferred Securities (in which case
no approval will be required), the applicable Guarantee may not be amended
without the prior approval of the holders of a majority of the Liquidation
Amount of such outstanding Trust Preferred Securities. The manner of obtaining
any such approval will be as set forth under "Description of the Trust Preferred
Securities--Voting Rights; Amendment of a Trust Agreement." All
46
<PAGE> 49
guarantees and agreements contained in a Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of the Company and shall inure
to the benefit of the holders of the related Trust Preferred Securities then
outstanding.
EVENTS OF DEFAULT
An event of default under a Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, provided
that, except with respect to a default in respect of any Guarantee Payment, the
Company shall have received notice of such default and shall not have cured such
default within 60 days of such receipt. The holders of a majority in Liquidation
Amount of the related Trust Preferred Securities will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Guarantee Trustee in respect of the applicable Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under such
Guarantee.
If the Guarantee Trustee fails to enforce a Guarantee, any holder of the
related Trust Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under such Guarantee without first
instituting a legal proceeding against the applicable Hercules Trust, the
Guarantee Trustee or any other person or entity.
TERMINATION
A Guarantee will terminate and be of no further force and effect upon full
payment of the applicable redemption price of the related Trust Preferred
Securities, upon full payment of all amounts due upon the dissolution and
liquidation of the applicable Hercules Trust or upon the conversion or exchange
of all of the related Trust Preferred Securities (whether upon distribution of
Junior Subordinated Debentures to the holders of such Trust Preferred Securities
or otherwise). A Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the related Trust Preferred
Securities must restore payment of any sums paid under such Trust Preferred
Securities or such Guarantee.
GOVERNING LAW
The Guarantees will be governed by and construed in accordance with the
laws of the State of Delaware.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of a Guarantee, will undertake to
perform only such duties as are specifically set forth in the Guarantees and,
during the continuance of such default, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or her
own affairs. Subject to the foregoing, the Guarantee Trustee will not be under
any obligation to exercise any of the powers vested in it by a Guarantee at the
request of any holder of the related Trust Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
LIMITED PURPOSE OF THE HERCULES TRUSTS
The Trust Preferred Securities will represent preferred beneficial
interests in the applicable Hercules Trust, and each Hercules Trust exists for
the sole purpose of issuing and selling its Trust Securities, using
47
<PAGE> 50
the proceeds from the sale of its Trust Securities to acquire the related Junior
Subordinated Debentures of the Company and engaging in only those other
activities necessary, advisable or incidental thereto.
RIGHTS UPON DISSOLUTION
Unless the Junior Subordinated Debentures are distributed to holders of
the related Trust Securities, upon any voluntary or involuntary dissolution and
liquidation of the applicable Hercules Trust, after satisfaction of the
liabilities of creditors of such Hercules Trust as required by applicable law,
the holders of such Trust Securities will be entitled to receive, out of assets
held by such Hercules Trust, the Liquidation Distribution in cash. See
"Description of Trust Preferred Securities--Liquidation of a Hercules Trust and
Distribution of Junior Subordinated Debentures." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Junior Subordinated Debentures, would be a creditor of the
Company, subordinated in right of payment to all Senior Indebtedness As Defined
In the Junior Subordinated Debenture Indenture as set forth in the Junior
Subordinated Debenture Indenture, but entitled to receive payment in full of
principal and premium, if any, and interest in respect of such Junior
Subordinated Debentures, before any stockholders of the Company receive payments
or distributions.
DESCRIPTION OF PURCHASE CONTRACTS
AND PURCHASE UNITS
The Company may issue Purchase Contracts, representing contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, Purchase Contract Securities at a future date or dates. The price per
Purchase Contract Security may be fixed at the time the Purchase Contracts are
issued or may be determined by reference to a specific formula set forth in the
Purchase Contracts. The Purchase Contracts may be issued separately or as a part
of units ("Purchase Units") consisting of a Purchase Contract and either (i)
Senior Debt Securities, Subordinated Debt Securities or Junior Subordinated
Debentures, (ii) debt obligations of third parties, including U.S. Treasury
securities, or (iii) Trust Preferred Securities of a Hercules Trust, securing
the holder's obligations to purchase the Purchase Contract Security under the
Purchase Contract. The Purchase Contracts may require the Company to make
periodic payments to the holders of the Purchase Units or vice versa and such
payments may be unsecured or prefunded on some basis. The Purchase Contracts may
require holders to secure their obligations thereunder in a specified manner and
in certain circumstances the Company may deliver newly issued prepaid purchase
contracts ("Prepaid Securities") upon transfer by a holder to the Company of any
collateral securing such holder's obligations under the original Purchase
Contract.
The applicable Prospectus Supplement will describe the terms of any
Purchase Contracts or Purchase Units and, if applicable, Prepaid Securities.
PLAN OF DISTRIBUTION
The Company and/or the Hercules Trusts may sell the Offered Securities
(i) through underwriters or dealers; (ii) through agents; (iii) directly to
purchasers; or (iv) through a combination of any such methods of sale. Any such
underwriter, dealer or agent may be deemed to be an underwriter within the
meaning of the Securities Act. The Prospectus Supplement relating to a series of
the Offered Securities will set forth its offering terms, including the name or
names of any underwriters, dealers or agents, the purchase price of the Offered
Securities and the proceeds to the Company and/or the Hercules Trusts from such
sale, any underwriting discounts, commissions and other items constituting
underwriters' compensation, any initial
48
<PAGE> 51
public offering price and any underwriting discounts, commissions and other
items allowed or reallowed or paid to dealers or agents and any securities
exchanges on which the Offered Securities may be listed.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, or at prices related to such prevailing market prices, or at
negotiated prices. The Offered Securities may be offered to the public either
through underwriting syndicates represented by one or more managing underwriters
or directly by one or more of such firms. Unless otherwise set forth in a
Prospectus Supplement, the obligations of the underwriters to purchase the
Offered Securities will be subject to certain conditions precedent and the
underwriters will be obligated to purchase all the Offered Securities if any are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Any agent involved in the offer or sale of the Offered Securities in
respect of which this Prospectus is delivered will be named, and any commissions
payable by the Company to such agent will be set forth, in a Prospectus
Supplement. Unless otherwise indicated in a Prospectus Supplement, any such
agent will be acting on a reasonable efforts basis for the period of its
appointment.
If so indicated in a Prospectus Supplement, the Company will authorize
underwriters, dealers or agents to solicit offers by certain specified
institutions to purchase Offered Securities from the Company and/or the Hercules
Trusts at the public offering price set forth in such Prospectus Supplement
pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. Such contracts will be subject to any conditions
set forth in a Prospectus Supplement and the Prospectus Supplement will set
forth the commission payable for solicitation of such contracts. The
underwriters and other persons soliciting such contracts will have no
responsibility for the validity or performance of any such contracts.
Offered Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("marketing firms"), acting as principals for their own
accounts or as agents for the Company and/or a Hercules Trust. Any remarketing
firm will be identified and the terms of its agreement, if any, with the Company
and/or a Hercules Trust and its compensation will be described in the Prospectus
Supplement. Remarketing firms may be deemed to be underwriters in connection
with their remarketing of Offered Securities.
Underwriters, dealers, remarketing firms and agents may be entitled
under agreements entered into with the Company and/or the Hercules Trusts to
indemnification by the Company and/or the Hercules Trusts against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
by the Company and/or the Hercules Trusts to payments they may be required to
make in respect thereof, and may be customers of, engage in transactions with or
perform services for the Company in the ordinary course of business.
LEGAL MATTERS
Certain legal matters in connection with the Offered Securities being
offered hereby will be passed upon for the Company by Richard G. Dahlen,
Esquire, Vice President and General Counsel of the Company, and by Ballard Spahr
Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania, and for the Hercules
Trusts by Richards, Layton & Finger, P.A., Wilmington, Delaware, unless
otherwise specified in
49
<PAGE> 52
a Prospectus Supplement. Mr. Dahlen owned beneficially, as of September 11,
1998, 15,333 shares of restricted stock under the Hercules Incorporated Long
Term Incentive Compensation Plan (the "LTICP"), 244 shares of Common Stock under
the Hercules Incorporated Savings and Investment Plan, and the right to acquire
within 60 days hereof 25,200 shares under options held pursuant to the LTICP.
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries which are incorporated by reference in the Company's most recent
Annual Report on Form 10-K have been audited and reported upon by
PricewaterhouseCoopers LLP, independent accountants, and are incorporated by
reference in this Prospectus. Such financial statements are incorporated herein
in reliance on the report of PricewaterhouseCoopers LLP, given on the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of BetzDearborn as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and Registration Statement of the Company and
the Hercules Trusts, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein,
and are included herein in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
50
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
OF
BETZDEARBORN INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996. . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Common Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . F-9
Consolidated Statements of Operations for the six months ended June 30, 1998
and 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997. . . . .F-33
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Notes to Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . . . . . F-36
</TABLE>
F-1
<PAGE> 54
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
BetzDearborn Inc.
We have audited the accompanying consolidated balance sheets of BetzDearborn
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of operations, common shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BetzDearborn Inc.
at December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, at October 1,
1997, the Company changed its method of accounting for certain business process
reengineering costs.
/S/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 2, 1998
F-2
<PAGE> 55
CONSOLIDATED STATEMENTS OF OPERATIONS
BetzDearborn Inc.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------
(in millions, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,294.8 $1,037.0 $ 752.5
Operating Costs and Expenses:
Cost of products sold 518.7 409.3 273.7
Selling, research and administration 570.6 472.0 353.2
Integration/restructuring 15.6 30.0 15.6
-------- -------- -------
1,104.9 911.3 642.5
-------- -------- -------
OPERATING EARNINGS 189.9 125.7 110.0
Other Income (Expense):
Interest (45.5) (25.7) (1.1)
Investment and other income, net (1.5) (0.3) 2.7
-------- -------- -------
(47.0) (26.0) 1.6
-------- -------- -------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 142.9 99.7 111.6
Income Taxes 50.7 35.4 43.3
-------- -------- -------
EARNINGS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 92.2 64.3 68.3
Cumulative effect of change in accounting for
business process reengineering, net of
$3.3 income taxes (6.0) -- --
-------- -------- -------
NET EARNINGS $ 86.2 $ 64.3 $ 68.3
======== ======== =======
Basic Earnings per Common Share:
Before cumulative effect of accounting change $ 3.02 $ 2.13 $ 2.30
Accounting change (.21) -- --
-------- -------- -------
Basic earnings per Common Share $ 2.81 $ 2.13 $ 2.30
======== ======== =======
Diluted Earnings per Common Share:
Before cumulative effect of accounting change $ 2.80 $ 2.01 $ 2.16
Accounting change (.19) -- --
-------- -------- -------
Diluted earnings per Common Share $ 2.61 $ 2.01 $ 2.16
======== ======== =======
Average Number of Common Shares:
(in thousands)
Basic 28,734 27,651 27,574
======== ======== =======
Diluted 31,992 30,736 30,592
======== ======== =======
</TABLE>
1996 and 1995 earnings per share and average number of common shares have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
See notes to consolidated financial statements.
F-3
<PAGE> 56
CONSOLIDATED BALANCE SHEETS
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
December 31
------------------------
(in millions, except share amounts) 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36.9 $ 38.2
Trade accounts receivable, less allowances:
1997 - $7.2; 1996 - $7.6 293.0 243.2
Inventories:
Finished products and goods purchased for resale 49.2 54.5
Raw materials 45.1 42.2
-------- --------
94.3 96.7
Income taxes 19.6 31.1
Prepaid expenses and other 36.2 29.5
-------- --------
TOTAL CURRENT ASSETS 480.0 438.7
PROPERTY, PLANT AND EQUIPMENT --- at cost
Land 33.6 38.9
Buildings 214.3 221.9
Machinery and equipment 562.4 531.0
Construction in progress
(estimated cost to complete - $48.4) 15.8 11.9
-------- --------
826.1 803.7
Less allowance for depreciation (424.3) (374.7)
-------- --------
401.8 429.0
OTHER ASSETS
Investments and other 22.8 16.6
Goodwill - net of accumulated amortization:
1997 - $17.8; 1996 - $7.1 447.7 449.9
Other intangibles - net of accumulated amortization:
1997 - $8.8; 1996 - $4.3 81.3 84.1
-------- --------
551.8 550.6
-------- --------
$1,433.6 $1,418.3
======== ========
</TABLE>
F-4
<PAGE> 57
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
December 31
----------------------------
1997 1996
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 77.7 $ 68.9
Payroll and related taxes 47.7 47.8
Notes payable 26.6 0.8
Accrued restructuring costs 15.9 30.9
Other accrued liabilities 43.7 67.5
Income taxes 7.4 -
Dividends payable 11.2 10.6
Current portion of long-term debt 1.3 1.0
--------- --------
TOTAL CURRENT LIABILITIES 231.5 227.5
LONG-TERM DEBT - less portion classified as current 678.2 744.5
OTHER LONG-TERM LIABILITIES
Income taxes 14.3 12.4
Employee benefit plans 54.5 44.3
Other 2.7 4.1
--------- --------
71.5 60.8
SHAREHOLDERS' EQUITY
Preferred shares, $.10 par value: authorized 1,000,000 shares;
issued 1997 - 475,371 shares; 1996 - 481,780 shares 95.0 96.4
Guarantee of related ESOP debt (88.6) (90.0)
Common shares, $.10 par value: authorized - 90,000,000 shares;
issued 1997 - 33,631,330 shares; 1996 - 33,637,359 shares 3.4 3.4
Capital in excess of par value of shares 131.6 93.8
Retained earnings 501.1 463.9
Cost of common shares in treasury: 1997 - 4,181,807 shares;
1996 - 5,509,124 shares (155.0) (188.0)
Unearned compensation (3.9) (4.2)
Foreign currency translation adjustments (31.2) 10.2
--------- --------
TOTAL SHAREHOLDERS' EQUITY 452.4 385.5
--------- --------
$ 1,433.6 $1,418.3
========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 58
CONSOLIDATED STATEMENTS OF CASH FLOWS
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------
(in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 86.2 $ 64.3 $ 68.3
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 67.8 61.0 48.5
Amortization 15.7 7.8 0.7
Compensation and employee benefit plans 10.6 12.6 10.5
Income taxes 6.4 7.4 (0.2)
Provision for restructuring -- 9.6 15.6
Changes in operating assets and liabilities, net of business
acquisitions:
Accounts receivable (59.8) (24.2) (13.0)
Inventories (2.2) (2.7) (8.0)
Prepaid expenses and other (7.1) (1.0) (10.0)
Accounts payable and accrued expenses (4.1) 7.5 (2.7)
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 113.5 142.3 109.7
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (78.0) (64.9) (64.1)
Proceeds from sales of long-term assets 9.6 3.5 2.0
Purchases of businesses and long-term investments -- (6.6) (34.6)
Purchase of Dearborn, net of cash equivalents acquired -- (549.4) --
Other, net (0.5) 1.0 (0.6)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES (68.9) (616.4) (97.3)
FINANCING ACTIVITIES
Repayments of long-term debt (462.5) (17.0) (1.0)
Borrowings classified as long-term debt 401.1 566.0 --
Net short-term borrowings (repayments) 24.0 (17.7) 17.4
Dividends paid (50.9) (48.9) (48.4)
Proceeds from issuance of common shares, including treasury shares 42.3 14.8 1.0
Purchase of treasury shares -- -- (12.6)
------ ------ ------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (46.0) 497.2 (43.6)
Effect of exchange rate changes on cash 0.1 1.2 1.2
------ ------ ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1.3) 24.3 (30.0)
Cash and Cash Equivalents at Beginning of Year 38.2 13.9 43.9
------ ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 36.9 $ 38.2 $ 13.9
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 59
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Capital in
Number of Shares Excess of
-------------------------- Common Par Value Retained
(dollars in millions, except per share amounts) Common Treasury Stock of Stock Earnings
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 33,649,527 5,784,899 $ 3.4 $ 81.8 $ 423.5
Net earnings 68.3
Dividends on preferred shares ($16.00 per share) (7.8)
Tax benefit on preferred shares dividend 2.9
Dividends on common shares ($1.47 per share) (40.7)
Reacquired common shares 300,000
Impact of shares issued under employee stock plans,
net of tax of $.3 million (5,546) (94,074) 0.8
Currency translation adjustments (0.1)
---------- --------- ----- ------- -------
Balance at December 31, 1995 33,643,981 5,990,825 3.4 82.6 446.1
Net earnings 64.3
Dividends on preferred shares ($16.00 per share) (7.7)
Tax benefit on preferred shares dividend 2.7
Dividends on common shares ($1.49 per share) (41.5)
Impact of shares issued under employee stock plans,
net of tax of $2.1 million (6,622) (481,701) 11.2
Currency translation adjustments
---------- --------- ----- ------- -------
Balance at December 31, 1996 33,637,359 5,509,124 3.4 93.8 463.9
Net earnings 86.2
Dividends on preferred shares ($16.00 per share) (7.7)
Tax benefit on preferred shares dividend 2.6
Dividends on common shares ($1.51 per share) (43.9)
Impact of shares issued under employee stock plans,
net of tax of $6.6 million (6,029) (1,074,717) 28.9
Stock issued for acquisition (252,600) 8.9
Currency translation adjustments
---------- --------- ----- ------- -------
Balance at December 31, 1997 33,631,330 4,181,807 $ 3.4 $ 131.6 $ 501.1
========== ========== ===== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 60
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
BetzDearborn Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Foreign
Unearned Currency
Treasury Compen- Translation
(dollars in millions, except per share amounts) Stock sation Adjustments
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 $(187.5) $ (5.5) $ 2.7
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares dividend
Dividends on common shares ($1.47 per share)
Reacquired common shares (12.6)
Impact of shares issued under employee stock plans,
net of tax of $.3 million 1.9 2.2
Currency translation adjustments 3.5
------- ------ -------
Balance at December 31, 1995 (198.2) (3.3) 6.2
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares dividend
Dividends on common shares ($1.49 per share)
Impact of shares issued under employee stock plans,
net of tax of $2.1 million 10.2 (0.9)
Currency translation adjustments 4.0
------- ------ -------
Balance at December 31, 1996 (188.0) (4.2) 10.2
Net earnings
Dividends on preferred shares ($16.00 per share)
Tax benefit on preferred shares dividend
Dividends on common shares ($1.51 per share)
Impact of shares issued under employee stock plans,
net of tax of $6.6 million 25.9 0.3
Stock issued for acquisition 7.1
Currency translation adjustments (41.4)
------- ------ -------
Balance at December 31, 1997 $(155.0) $ (3.9) $ (31.2)
======= ====== =======
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BetzDearborn Inc.
- --------------------------------------------------------------------------------
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is engaged in the engineered specialty chemical
treatment of water and industrial process systems operating in a wide variety of
industrial and commercial applications with particular emphasis on the chemical,
petroleum refining, paper, food processing, automotive, steel and power
industries. The Company develops, produces and markets a wide range of specialty
chemical products for use in boilers, cooling systems, heat exchangers, paper
and petroleum process streams and both influent and effluent systems. The
Company monitors changing water, process and plant operating conditions so as to
prescribe the appropriate treatment programs to solve problems such as
corrosion, scale, deposit formation and a variety of process problems.
Operations are conducted primarily in the United States, Canada and Europe, and
also in Asia-Pacific and Latin America.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
accounts receivable and interest rate swap agreements. Concentrations of credit
risk with respect to accounts receivable are limited because of the large number
of customers comprising the Company's customer base and their dispersion across
many different industries and geographies. The Company generally does not
require collateral or other security to support customer receivables. The
counterparties to the interest rate swaps are major international financial
institutions. The Company continually monitors the credit ratings of its
counterparties, has established policies for counterparty credit rating
requirements and has limited the amount of agreements with any one party. The
Company believes these procedures minimize the risk of credit losses in the
event of nonperformance by these counterparties.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and all subsidiaries. All significant intercompany
items and transactions are eliminated from the consolidated statements. The
Company follows the practice of using a November 30 fiscal year for all non-U.S.
subsidiaries, excluding Canada, in order to expedite the year-end closing.
Revenue Recognition - Primarily, the Company recognizes revenue upon
shipment and passage of title without right of return. For consignment sales,
revenue is recognized when material is used.
F-9
<PAGE> 62
Cash Equivalents - The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents. The
carrying value of these investments approximates their fair value at December
31, 1997.
Inventories - Inventories are stated at the lower of cost or market. Cost
of approximately 41 percent of the inventory is determined by the last-in,
first-out (LIFO) method, the balance by the first-in, first-out (FIFO) method.
If the FIFO method of inventory accounting had been used for all inventory,
amounts would have been approximately $10.6 million and $10.9 million higher
than reported at December 31, 1997 and December 31, 1996, respectively.
Property, Plant and Equipment - Property, plant and equipment is recorded
at cost. Depreciation is computed principally by the straight-line method over
the estimated useful lives of the related assets. The estimated useful lives of
depreciable assets are as follows: buildings - 20 to 40 years; computer
equipment and software - 3 to 8 years; other machinery and equipment - 5 to 15
years.
Accounting Change - On November 20, 1997, the FASB Emerging Issues Task
Force ("EITF") announced a consensus on Issue No. 97-13, "Accounting for Costs
Incurred in Connection with a Consulting Contract or an Internal Project That
Combines Business Process Reengineering and Information Technology
Transformation." This issue addressed how an entity should account for
third-party or internally generated costs associated with projects that combine
business process reengineering activities and information technology
transformation and how the total costs of a business process reengineering
consulting contract performed by a third party should be allocated to the
project's various individual activities. The EITF reached a consensus that the
cost of business process reengineering activities, whether done internally or by
third parties, is to be expensed as incurred. Also, the EITF reached a consensus
that any unamortized portion of those identifiable costs should be written off
as a cumulative effect type adjustment in the quarter that contains November 20,
1997.
The Company is engaged in a major project that combines business process
reengineering activities and information technology transformation. The business
process reengineering activities are being performed by both internal staff and
by third parties. The amount of business process reengineering activities
capitalized as of September 30, 1997 was $9.3 million, of which approximately
$4.1 million was capitalized prior to 1997. Consequently, the Company recorded a
write-off in the fourth quarter of 1997 for the cumulative effect of this change
in accounting and will prospectively include the continuing costs of business
process reengineering activities as operating expenses.
Investments - Marketable equity securities are recorded at fair value. All
other investments are generally carried at cost, which does not exceed estimated
fair value.
Goodwill and Other Intangible Assets - Goodwill amortization is computed by
the straight-line method mainly over 40 years. Other intangible assets are
F-10
<PAGE> 63
amortized on a straight-line basis ranging between 3 and 40 years in accordance
with the nature of the asset. Goodwill and other intangible assets relate
primarily to the Dearborn acquisition (see Note 2). For all such assets, the
Company evaluates carrying values for impairment by considering the operating
performance and expected future undiscounted cash flows of the underlying
businesses.
Foreign Currency - The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of the income of its non-U.S.
subsidiaries (see Note 4). Occasionally, the Company enters into foreign
currency forward contracts to minimize the effect of fluctuating foreign
currencies on its cash flow and current unremitted income from certain non-U.S.
subsidiaries. The forward contracts generally are marked to market and resulting
adjustments are recorded directly in income. These adjustments had no material
impact on the results of operations for 1997, 1996 and 1995. There were no open
contracts at the end of 1997. Assets and liabilities of non-U.S. operations
where the functional currency is the local currency are translated into U.S.
dollars at the fiscal year-end exchange rates. The related translation
adjustments are recorded as cumulative translation adjustments, a separate
component of shareholders' equity. Revenues and expenses are translated using
average exchange rates prevailing during the year. Foreign currency transaction
gains and losses, as well as translation adjustments for assets and liabilities
of non-U.S. operations where the functional currency is the U.S. dollar, are
included in the results of operations. A foreign currency transaction loss of
$5.6 million was incurred in 1997 and is included in other income, net in the
Consolidated Statements of Operations; such adjustments were not material in
1996 and 1995.
Research and Development - Research and development costs ($38.8 million in
1997, $35.7 million in 1996 and $32.2 million in 1995) are charged to expense as
incurred.
Earnings Per Share - In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings Per Share." Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per Common Share is computed by
dividing net income available to common shareholders by the weighted average
number of shares outstanding. In computing basic earnings per Common Share,
preferred stock dividends, net of related income tax benefits, reduce income
available to common shareholders. In computing diluted earnings per Common
Share, conversion of the Series A ESOP Convertible Preferred Shares is assumed
and the dilutive effect of stock options during the periods presented as well as
the effect of contingently issuable shares also increase the weighted average
number of shares (see Note 5). All earnings per share amounts for all periods
have been presented and, where appropriate, restated to conform to the Statement
128 requirement.
Stock-Based Compensation - The Company follows Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock-based compensation (see
Note 9).
<PAGE> 64
Impact of Pending Accounting Pronouncements - In June 1997, the
Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income," and Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information," both of which are required to be adopted
for fiscal years beginning after December 15, 1997. Statement 130 will require
the Company to report in its financial statements all non-owner related changes
in equity for the periods being reported. Statement 131 will require the Company
to disclose revenues, earnings, and other financial information pertaining to
the business segments by which the Company is managed, as well as what factors
management used to determine these segments. The Company is currently evaluating
the requirements of Statements 130 and 131 to determine how to present the
required information in its financial statements and related disclosures.
F-11
<PAGE> 65
2: ACQUISITIONS
Dearborn - On June 28, 1996, pursuant to the Grace Dearborn Worldwide
Purchase and Sale Agreement (the "Agreement"), the Company acquired the Dearborn
business unit ("Dearborn") of W.R. Grace & Co. - Conn. ("Grace") for $632
million, subject to certain adjustments. Dearborn was a global supplier of
industrial water and process treatment chemicals with 1995 annual net revenues
of $399.1 million. This acquisition was financed by a $750 million Credit
Agreement among the Company and a syndicate of banks (see Note 6).
The Dearborn acquisition is accounted for using the purchase method of
accounting and is included in the Consolidated Statements of Operations since
the date of acquisition. The Company adopted a November 30 fiscal year-end for
non-U.S. Dearborn units except Canada to align the fiscal year-end with the
remainder of the Company's operations. Consequently, Dearborn units except
Canada and the U.S. reported five months of results of operations in 1996. The
Company subsequently integrated Betz and Dearborn, which makes it impractical to
report the results of Dearborn separately from the remainder of the Company's
results of operations.
The Company finalized its Dearborn purchase price allocation during 1997
and increased goodwill by $20.4 million to $440.7 million. Goodwill is
determined as follows (in millions):
<TABLE>
<S> <C>
Cash paid to Grace $ 640.9
Adjustments:
Restructuring provision (see Note 12) 38.8
Transition services cancellation fees 10.0
Professional fees and transaction costs 13.4
Tax effects, net (23.7)
----------
679.4
Less: Fair value of net tangible assets acquired 156.1
Fair value of identifiable intangible assets acquired 82.6
----------
Dearborn goodwill as of the acquisition date $ 440.7
==========
</TABLE>
The $38.8 million restructuring provision (see Note 12) is primarily for
closure of Dearborn facilities and severance costs for Dearborn employees.
During the second quarter of 1997, the Company announced the planned closure of
the Lake Zurich, Illinois plant. The increase in restructuring liabilities and
fixed asset writedowns, as a result of this announcement, are the principal
reasons for the 1997 increase in goodwill. The Company incurred costs of
approximately $10.0 million in accordance with the Agreement relating to the
cancellation of transition services previously provided to the Company,
principally in its Latin American and European regions. Professional fees and
transaction costs amounting to $13.4 million are primarily for acquisition
F-12
<PAGE> 66
consulting, legal and accounting fees. The tax effects, which reduce the
adjusted purchase price, are comprised of the estimated tax effects resulting
from the purchase price adjustments and for the net deferred tax effects of
differences in the allocation of purchase price for financial reporting and tax
purposes.
In accordance with the purchase method of accounting, the adjusted purchase
price was allocated to the estimated fair value of net assets acquired, with the
excess recorded as goodwill, which is amortized on a straight-line basis over 40
years. The $82.6 million allocated to identifiable intangibles is the
independently appraised value of the trademarks, trade names and patents of
Dearborn. Patents are amortized on a straight-line basis over 13 to 15 years and
unlimited-life trademarks and trade names are amortized over 40 years. Total
Dearborn intangible amortization expense of $14.6 million and $6.7 million is
included in the 1997 and 1996 results of operations, respectively.
Had the Acquisition occurred as of January 1, 1995, unaudited pro forma
results would have been (in millions, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Net Sales $1,261.6 $1,151.6
Net Earnings 50.0 25.5
Net Earnings per Common Share:
Basic 1.61 .75
Diluted 1.54 --
</TABLE>
The pro forma results reflect adjustments primarily for the increased
amortization and interest expense attributable to the Dearborn acquisition and
the related tax effects. Potential cost savings, however, from combining
Dearborn with the Company's operations are not reflected. Therefore, the pro
forma results are not indicative of the results that would have occurred had the
acquisition actually been consummated on January 1, 1995, and are not intended
to be a projection of future results or trends. The historical financial results
of operations of Dearborn reflect the "carve out" of Dearborn from Grace.
Certain selling, research and administrative expenses of Grace have been
allocated to Dearborn on various bases which, in the opinion of Grace's
management, are reasonable. However, such expenses are not necessarily
indicative of, and it is not practicable for management to estimate, the nature
and level of expenses which might have been incurred if Dearborn had been
operating as a separate independent company.
Argo Scientific - In November 1997, the Company acquired all the
outstanding common stock of D.W. Walker & Associates, Inc., d.b.a. Argo
Scientific, in exchange for 252,600 of the Company's Common Shares. Argo
Scientific is a leading supplier of highly specialized chemical treatments,
services and technology for membrane separation systems, which are used in the
production of "pure" water from fresh water and sea water.
F-13
<PAGE> 67
The Argo Scientific acquisition is accounted for using the purchase method
of accounting. The goodwill recorded as a result of this acquisition amounted to
$15.7 million, which is amortized on a straight-line basis over 40 years. The
Argo Scientific results of operations are included with the Company's effective
November 1997. This acquisition did not have a material impact on the Company's
1997 results of operations nor its capital resources and liquidity. The pro
forma consolidated results of operations, as if the acquisition had taken place
at the beginning of fiscal 1996, would not have been materially different from
the reported amounts for fiscal 1996 and 1997.
Misan Group and Taiwan Peitz - On May 1, 1995, the Company acquired Taiwan
Peitz Company, Ltd., a water, paper process and refinery process treatment
business, which had been a licensee of the Company's products since 1974. On
November 7, 1995, the Company acquired the Misan Group, an industrial water,
paper process and fuel oil treatment company with headquarters in Naples, Italy
and subsidiaries in Spain and Portugal.
The Taiwan Peitz and Misan acquisitions have also been accounted for using
the purchase method of accounting. The combined purchase price for these
acquisitions was $43.4 million consisting of $32.5 million in cash paid in 1995,
$7.3 million paid in 1996 and $3.6 million paid in 1997. The goodwill resulting
from both acquisitions totaled approximately $25 million, which is amortized on
a straight-line basis over 40 years.
The operating results of these acquired businesses have been included in
the Consolidated Statements of Operations since the dates of acquisition. The
pro forma consolidated results of operations, as if the acquisitions had taken
place at the beginning of fiscal 1995, would not have been materially different
from the reported amounts.
F-14
<PAGE> 68
3: INCOME TAXES
The components of earnings before income taxes and cumulative effect of
accounting change are (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. $106.2 $85.1 $ 75.6
Non-U.S 36.7 14.6 36.0
------ ---- ------
$142.9 $99.7 $111.6
====== ===== ======
</TABLE>
The provision for income taxes consists of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Current:
<S> <C> <C> <C>
Federal $34.6 $22.4 $31.8
State 2.9 4.3 4.4
Foreign 14.5 5.1 10.4
----- ----- -----
Total Current 52.0 31.8 46.6
Deferred:
Federal 0.5 2.9 (4.7)
State 0.1 0.5 (1.0)
Foreign (1.9) 0.2 2.4
----- ----- -----
Total Deferred (1.3) 3.6 (3.3)
----- ----- -----
Total Taxes $50.7 $35.4 $43.3
===== ===== =====
</TABLE>
A reconciliation of the effective income tax rate with the statutory
federal income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal tax rate 35.0% 35.0% 35.0%
State and local taxes, net of
federal income taxes 1.4 3.1 2.0
Foreign tax credits (4.0) (4.8) --
Other items 3.1 2.2 1.8
---- ---- ----
Effective income tax rate 35.5% 35.5% 38.8%
==== ==== ====
</TABLE>
F-15
<PAGE> 69
Deferred income taxes reflect the estimated future tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
Deferred Tax Assets:
<S> <C> <C>
Stock and benefit plans $ 20.0 $ 15.3
Operating loss carryforwards 9.1 4.2
Accrued liabilities not deducted until paid 17.1 19.3
------ ------
Total Deferred Tax Assets 46.2 38.8
Deferred Tax Liabilities:
Tax over book depreciation, net (24.7) (21.7)
Other (11.6) (6.8)
------ ------
Total Deferred Tax Liabilities (36.3) (28.5)
------ ------
Net Deferred Tax Assets $ 9.9 $ 10.3
====== ======
</TABLE>
In 1997, income taxes classified as current and non-current liabilities
include deferred tax liabilities of $0.6 million and $14.3 million,
respectively. In addition, income taxes classified as current assets include
deferred tax assets of $19.6 million and income taxes classified as non-current
assets, which are included within investments and other on the Consolidated
Balance Sheets, include deferred tax assets of $5.1 million. In 1996, income
taxes classified as current assets include deferred tax assets of $22.7 million,
with the remaining deferred tax balance of $12.4 million classified as
non-current liabilities. Included in deferred tax assets are foreign operating
loss carryforwards, which mainly have an unlimited life.
The Company made income tax payments of $36.2 million, $45.8 million and
$46.0 million during the years 1997, 1996 and 1995, respectively.
The Company has not provided United States income taxes on $52.7 million of
unremitted earnings of foreign subsidiaries because management views such
earnings as being indefinitely invested.
F-16
<PAGE> 70
4: GEOGRAPHIC INFORMATION
The Company operates principally in one industry segment which includes the
development, manufacture and sale of specialty chemical products.
The Company's areas of operation outside of the United States and Europe
principally include Canada, Latin America and Asia-Pacific. No single non-U.S.
country in which the Company produces or markets its products comprises more
than 10 percent of the Company's net sales, operating earnings or identifiable
assets. No single customer accounts for more than 10 percent of the Company's
revenues.
Information about the Company's operations in different geographic
locations is (in millions):
<TABLE>
<CAPTION>
United Other
1997 States Europe Foreign Consolidated
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 711.2 $ 319.6 $ 264.0 $ 1,294.8
Operating earnings 120.3 39.4 30.2 189.9
Identifiable assets 706.9 417.9 308.8 1,433.6
- - ------------------------------------------------------------------------------
1996
- - ------------------------------------------------------------------------------
Net sales $ 641.1 $ 218.9 $ 177.0 $ 1,037.0
Operating earnings 90.4 12.2 23.1 125.7
Identifiable assets 702.0 412.8 303.5 1,418.3
- - ------------------------------------------------------------------------------
1995
- - ------------------------------------------------------------------------------
Net sales $ 555.9 $ 111.6 $ 85.0 $ 752.5
Operating earnings 78.6 15.2 16.2 110.0
Identifiable assets 395.7 142.7 92.1 630.5
- - ------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the local currency is the functional currency of
non-U.S. operations representing 45% of consolidated identifiable assets. For
operations in highly inflationary economies, the U.S. dollar is the functional
currency. Identifiable assets of such operations were 6% of consolidated
identifiable assets at December 31, 1997.
United States identifiable assets include $0.3 million, $2.6 million and
$0.8 million of cash and cash equivalents and other investments at December 31,
1997, 1996 and 1995, respectively, that are available for general corporate
purposes.
Direct export sales of $14.2 million, $11.2 million and $10.8 million for
the years 1997, 1996 and 1995, respectively, are included in United States net
sales.
F-17
<PAGE> 71
5: EARNINGS PER SHARE
In compliance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," issued in February 1997, the Company has changed its
method of computing earnings per share effective with the fourth quarter 1997.
All prior periods presented have been restated to conform to the new
requirements which exclude contingently issuable shares and the dilutive effect
of stock options from the number of weighted average shares used in the
computation of basic earnings per share. The effect of Statement 128 on diluted
earnings per share is immaterial compared to previously disclosed fully diluted
earnings per share. Basic and diluted earnings per share are calculated as
follows (in millions, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Basic Earnings per Share:
Net earnings before cumulative effect
of accounting change $ 92.2 $ 64.3 $ 68.3
Effect of preferred stock dividends, net of taxes (5.6) (5.3) (4.9)
-------- -------- --------
86.6 59.0 63.4
Cumulative effect of accounting change, net of taxes (6.0) -- --
-------- -------- --------
Net earnings available to common shareholders $ 80.6 $ 59.0 $ 63.4
======== ======== ========
Average Common Shares outstanding - basic 28.7 27.7 27.6
======== ======== ========
Basic Earnings per Common Share:
Before cumulative effect of accounting change $ 3.02 $ 2.13 $ 2.30
Cumulative effect of accounting change (0.21) -- --
-------- -------- --------
Basic earnings per Common Share $ 2.81 $ 2.13 $ 2.30
======== ======== ========
Diluted Earnings per Share:
Net earnings before cumulative effect
of accounting change $ 92.2 $ 64.3 $ 68.3
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares, net of taxes (2.7) (2.6) (2.1)
-------- -------- --------
89.5 61.7 66.2
Cumulative effect of accounting change, net of taxes (6.0) -- --
-------- -------- --------
Net earnings available to common shareholders $ 83.5 $ 61.7 $ 66.2
======== ======== ========
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Average Common Shares outstanding - basic 28.7 27.7 27.6
Effect of dilutive securities:
Contingently issuable shares 0.2 0.1 0.1
Employee stock options 0.4 0.2 0.1
Assumed conversion of Series A ESOP
Convertible Preferred Shares 2.7 2.7 2.8
-------- -------- --------
Average Common Shares outstanding - diluted 32.0 30.7 30.6
======== ======== ========
Diluted Earnings per Common Share:
Before cumulative effect of accounting change $ 2.80 $ 2.01 $ 2.16
Cumulative effect of accounting change (0.19) -- --
-------- -------- --------
Diluted earnings per Common Share $ 2.61 $ 2.01 $ 2.16
======== ======== ========
</TABLE>
Note 9 contains further disclosures regarding the Company's outstanding
stock options and contingently issuable shares (Incentive Plan). Note 8
describes the conversion provision of the Company's preferred stock in the ESOP.
F-18
<PAGE> 73
6: LONG-TERM DEBT
Long-term debt at December 31 consisted of (in millions):
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
Rate(1) Amount Rate(1) Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revolving credit agreement 5.83% $ 581.9 5.98% $ 548.0
Promissory note to Grace -- -- 5.87 100.0
ESOP debt 8.56 94.5 8.56 95.5
Other indebtedness 6.30 3.1 6.36 2.0
-------- --------
Total debt 679.5 745.5
Less current maturities 1.3 1.0
-------- --------
Long-term debt $ 678.2 $ 744.5
======== ========
</TABLE>
(1) Weighted average interest rate for the year ended December 31.
On October 20, 1997, the Company entered into a Credit Agreement with a
syndicate of banks which provides for a five-year unsecured revolving credit
agreement in an amount of $750 million. The commitments made under the Credit
Agreement expire in October 2002. The Credit Agreement requires the Company,
among other things, to meet certain net worth and indebtedness tests.
Approximately $168.1 million of the Credit Agreement was unused at December 31,
1997.
Borrowings under the Credit Agreement bear interest at various rates based
on the types of borrowings used by the Company. Each type of borrowing bears
interest at a variable rate based on an index plus a margin. The borrowings
outstanding at year end for U.S. dollar loans bear interest at LIBOR plus a
margin and for Canadian dollar loans at market rates for Canadian bankers'
acceptances plus a margin. Margin pricing is dependent on the Company's selected
pricing option of either a specific financial ratio test or the Company's public
debt rating. The Company pays a facility fee based upon the selected pricing
option. At December 31, 1997, the Company is paying a facility fee of .08% of
the total commitment of funds provided by the banks. Commitment fees to maintain
the Credit Agreement totaled $1.3 million and $0.7 million during fiscal years
1997 and 1996, respectively, and are included in interest expense.
In 1989, the Company guaranteed a loan of $100 million to the ESOP Trust,
the proceeds of which were used by the trust for the purchase of the Company's
preferred stock (see Note 8). The loan and guarantee, which mature on June 19,
2009, are recorded in the Company's Consolidated Balance Sheets as long-term
debt and a reduction of shareholders' equity. With respect to the ESOP loan, the
Company is obligated, among other things, to maintain certain financial ratios
and meet certain net worth and indebtedness tests.
F-19
<PAGE> 74
Scheduled maturities of long-term debt are as follows (in millions): 1998
- - $1.3; 1999 - $3.2; 2000 - $1.7; 2001 - $2.8; 2002 - $586.0; and 2003 through
2009 - $84.5.
Interest Rate Swaps - During the second quarter of 1996, the Company
entered into interest rate swap agreements, with maturities ranging from 1.5 to
5.5 years, to effectively convert $400 million of the Company's variable-rate
long-term debt to fixed interest rate obligations, thereby reducing the
Company's exposure to rising interest rates. Over the term of each swap
agreement, the Company exchanges interest payments with the swap counterparty
without exchanging the notional amount upon which the payments are based. The
differential to be paid or received is accrued and recognized as an adjustment
to interest expense. The related amount payable to such counterparties is
included in accrued liabilities.
The Company has designated the series of swaps as hedges against future
interest rate exposure on its variable-rate debt outstanding. The series of
swaps will hedge no more than the aggregate amount of variable-rate debt
outstanding. The Company may also designate individual swaps included in this
series as both a hedge against interest rate exposure and a hedge of the fair
value of future fixed-rate term debt replacing outstanding variable-rate debt.
In the event future fixed-rate term debt is issued, the Company intends to
terminate the designated swaps and amortize the gain or loss on such termination
over the remainder of the hedged period. In the event fixed-rate debt is not
issued for the entire remaining hedged period, a portion of the termination gain
or loss will be included in net earnings.
Fair Value of Debt and Interest Rate Swaps - The fair value of the
Company's short-term notes payable, long-term debt and interest rate swaps, all
of which are held for purposes other than trading, at December 31 is summarized
below (in millions):
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Notes payable $ 26.6 $ 26.6 $ 0.8 $ 0.8
Long-term debt 679.5 692.7 745.5 753.3
Interest rate swap payable 0.5 7.2 0.7 5.6
</TABLE>
The estimated fair values of these financial instruments are generally
based on quoted market prices or on current rates available to the Company for
financial instruments of similar remaining maturities and do not include
potential tax effects or possible expenses incurred in settling the transactions
to terminate the related agreements.
Notes payable are borrowings under uncommitted lines of credit with an
average interest rate of 5.76% at December 31, 1997.
<PAGE> 75
Interest Expense - Net ESOP expense (see Note 8) is characterized as
interest expense in the accompanying financial statements. The effect of the
interest rate swap agreements referred to above was to increase interest expense
by $3.3 million and $2.0 million in 1997 and 1996, respectively. Cash payments
for interest amounted to $50.4 million, $17.8 million and $1.6 million for the
years 1997, 1996 and 1995, respectively. Interest expense is capitalized on
major construction projects. Interest expense components for the years ending
December 31 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross interest expense $45.9 $26.1 $ 1.6
Capitalized interest (0.4) (0.4) (0.5)
----- ----- -----
Interest expense $45.5 $25.7 $ 1.1
===== ===== =====
</TABLE>
F-20
<PAGE> 76
7: LONG-TERM LEASES
Total rental expense for all leases amounted to $23.2 million, $18.8
million and $14.9 million in 1997, 1996 and 1995, respectively. The future
rental commitments, primarily for automobiles, as of December 31, 1997 for all
noncancelable long-term leases are (in millions): 1998 - $12.1; 1999 - $7.0;
2000 - $3.7; 2001 - $1.4; 2002 - $1.1; and $0.2 thereafter.
8: EMPLOYEE STOCK OWNERSHIP (ESOP) AND 401(k) PLAN
In 1989, the Company established an ESOP and a related trust as a
long-term benefit for substantially all of its U.S. employees. This plan
supplements the Company's employee retirement plan. Under this plan, the Company
sold 500,000 shares of a new Series A ESOP Convertible Preferred Stock to the
trust for $100 million. This series of preferred stock has one vote per share
with cumulative dividends at a rate of 8% and is stated at the aggregate
liquidation preference on the Consolidated Balance Sheets. The Company arranged
for and guaranteed a loan of $100 million (see Note 6) to the trust for the
purchase of the preferred stock. Proceeds of the loan were primarily used for
the purchase of common treasury stock to be used for future conversion and
redemption of the preferred stock, which is presently convertible into 2,648,671
shares of common stock. The loan and guarantee are recorded in the Company's
Consolidated Balance Sheets as long-term debt and a reduction in shareholders'
equity.
Effective January 1, 1990, the Company's 401(k) program was integrated
into the Employee Stock Ownership Plan. Employees may invest 2 to 15 percent of
eligible compensation. Company matches, equal to 25 percent of the first 4
percent of employees' investments, fully vest to employees upon the completion
of 5 years of service. The Company's matching contributions, which are included
in ESOP expense, are made in the form of the ESOP Convertible Preferred Stock.
The value of such matching contributions amounted to $1.7 million in 1997, $1.5
million in 1996 and $1.4 million in 1995.
After satisfying the 401(k) matching contributions, the remaining shares
of ESOP stock are allocated to each participant based on the ratio of the
participant's compensation to total compensation of all participants. During
1997, 6,409 shares of the Preferred Stock were converted to Common Shares by
plan participants and permanently retired. The number of shares allocated and
unallocated at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Allocated 134,355 121,911
Unallocated 341,016 359,869
------- -------
Total shares held by ESOP 475,371 481,780
======= =======
</TABLE>
The Company is required to make quarterly contributions to the Plan which
enable the trust to service its indebtedness. Net ESOP cost for the Company is
comprised of the following elements (in millions):
F-21
<PAGE> 77
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ESOP expense $ 9.5 $ 9.3 $ 9.2
Preferred dividends
(charged to retained earnings) (7.7) (7.7) (7.8)
----- ----- -----
ESOP expense charged to earnings $ 1.8 $ 1.6 $ 1.4
===== ===== =====
ESOP contributions $ 9.1 $ 9.0 $ 8.8
===== ===== =====
</TABLE>
The ESOP expense is calculated using the 80-percent-of-shares-allocated
method. To the extent that this expense exceeds the ESOP's annual debt service
requirements, an adjustment is made to the shareholders' equity reduction to
reflect the cumulative effect of the excess charges.
F-22
<PAGE> 78
9: STOCK-BASED COMPENSATION AND SHAREHOLDER RIGHTS PLANS
The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," which results in no compensation expense being recognized
for its stock option plans or its stock purchase plan.
As required by Statement 123, pro forma information regarding net income
and earnings per share has been determined as if the Company had accounted for
its stock options under the fair value method. A weighted average fair value of
$16.96 for options granted in 1997, $9.63 for those granted in 1996 and $9.78
for those granted in 1995 was estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants in 1997, 1996 and 1995, respectively:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dividend yield 2.36% 3.4% 3.4%
Volatility .226 .203 .203
Risk-free interest rate 5.77% 6.22% 6.22%
Weighted average expected life, in years 6.65 6.75 6.75
</TABLE>
Option valuation models use highly subjective assumptions to determine the
fair value of traded options with no vesting or trading restrictions. Because
options granted under the Company's Stock Option Plans have vesting requirements
and cannot be traded, and because changes in the assumptions can materially
affect the fair value estimate, in management's opinion, the existing valuation
models do not necessarily provide a reliable measure of the fair value of its
employee stock options.
For purposes of the pro forma disclosures required by Statement 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. Statement 123 requires only that the income effects of options
granted subsequent to December 31, 1994 be included in the pro forma
disclosures. Since a portion of the Company's stock options vest over one- and
two-year periods, and additional options are granted each year, the pro forma
effect on 1995 and 1996 net income reported below is not representative of the
effect of fair value stock option expense on future years' pro forma net income.
For purposes of the pro forma disclosures, compensation expense is recognized
under the stock purchase plan for the difference in price paid by employees and
the fair value of the Company's stock at the date of purchase. The Company's pro
forma information follows (in millions, except for per share information):
F-23
<PAGE> 79
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Pro forma net income $78.9 $60.5 $64.2
Pro forma earnings per share:
Basic
Before cumulative effect of accounting change 2.76 2.00 2.15
Net earnings 2.55 2.00 2.15
Diluted
Before cumulative effect of accounting change 2.59 1.89 2.03
Net earnings 2.40 1.89 2.03
</TABLE>
Option Plans - Options granted under the Company's Stock Option Plans are
at the fair value at the date of grant. The period during which these options
become exercisable ranges from date of grant to two years after date of grant.
Unexercised options expire ten years after date of grant. No individual may
receive an option if that individual owns (or would own if options were
exercised) stock possessing five percent of the voting power or value of all
classes of stock of the Company.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Price per Share
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995 2,564,269 $48.126
Granted 967,688 43.749
Canceled (40,998) 52.916
Forfeited (5,006) 44.875
Exercised (47,730) 21.606
--------- ---------
Outstanding at December 31, 1995 3,438,223 47.210
Granted 493,841 43.493
Canceled (44,715) 51.838
Forfeited (12,727) 44.450
Exercised (378,120) 39.501
--------- ---------
Outstanding at December 31, 1996 3,496,502 47.470
Granted 687,425 62.676
Canceled (8,191) 57.238
Forfeited (15,773) 50.083
Exercised (965,542) 44.404
--------- ---------
Outstanding at December 31, 1997 3,194,421 51.631
========= =========
Exercisable at December 31, 1997 2,659,399 50.442
========= =========
</TABLE>
F-24
<PAGE> 80
The exercise prices for options outstanding as of December 31, 1997 ranged
from $23.375 to $62.75. The options outstanding and exercisable at December 31,
1997 are segregated into groups based on ranges of exercise price below:
<TABLE>
<CAPTION>
Wtd. Avg. Wtd. Avg.
Exercise Remaining
Shares Outstanding at 12/31/97: Range of Prices Price Life
------------------- -------- ---------
<S> <C> <C> <C>
31,214 $23.375 - $29.125 $23.688 .47 yrs
134,494 33.500 - 39.250 38.517 6.94 yrs
1,467,208 40.500 - 49.625 45.065 6.90 yrs
789,042 50.250 - 59.813 56.668 4.62 yrs
772,463 60.000 - 62.750 62.363 6.56 yrs
---------
3,194,421 $23.375 - $62.750 $51.631 6.68 yrs
=========
<CAPTION>
Wtd. Avg.
Exercise
Shares Exercisable at 12/31/97: Range of Prices Price
------------------ ---------
<S> <C> <C>
31,214 $23.375 - $29.125 $23.688
134,494 33.500 - 39.250 38.517
1,325,518 40.500 - 49.625 45.255
781,506 50.250 - 59.813 56.638
386,667 60.000 - 62.750 62.007
---------
2,659,399 $23.375 - $62.750 $50.442
=========
</TABLE>
At December 31, 1997, the Company had remaining an aggregate of 5,067,205
Common Shares reserved for issuance under its Stock Option Plans.
Employee Stock Purchase Plan - Effective July 1, 1997, the Company
established an Employee Stock Purchase Plan for all employees meeting certain
eligibility criteria. Under the Plan, eligible employees may purchase through a
series of semiannual offerings, each July and January, shares of the Company's
Common Stock, subject to certain limitations. The purchase price of each share
is 85 percent of the lesser of its fair market value on the grant date or on the
exercise date. The aggregate number of whole shares of Common Stock purchasable
under the option shall not exceed 10 percent of the employee's base
compensation. At December 31, 1997, 400,000 shares were available for purchase
under the plan. Based on the market price of common stock on the exercise date,
the Company issued approximately 47,215 shares in January 1998.
F-25
<PAGE> 81
Incentive Plan - The Employee Stock Incentive Plan provides that up to
2,500,000 shares of common stock may be granted through April 13, 2005, at the
discretion of the Board of Directors, to key employees and non-employee
Directors at no cost to the employees or Directors. The Company granted 81,326
shares and 72,407 shares during 1997 and 1996, respectively, at a weighted
average value of $62.64 in 1997 and $43.58 in 1996. Key employees receiving
grants are entitled to receive dividends, but assumption of full beneficial
ownership is contingent at the time of grant. In the event the employee does not
remain in continuous employment for the periods stipulated, the shares are
canceled and revert to the Company for reissuance under the Plan.
The aggregate fair market value of the shares granted under this Plan is
considered unearned compensation at the time of grant and compensation is earned
ratably over the stipulated period. Compensation cost included in net income is
$1.8 million in 1997, $1.9 million in 1996, and $2.5 million in 1995.
At December 31, 1997, the Company had remaining an aggregate of 488,070
Common Shares available for issuance under its Employee Stock Incentive Plan.
Common Stock Shareholder Rights Plan - On September 8, 1988, the Board of
Directors declared a distribution of one Stock Purchase Right for each Common
Share outstanding. Each right will entitle the holder to buy from the Company a
unit consisting of one Common Share at an exercise price of $75 per unit. The
rights become exercisable ten days after a public announcement that a person or
group has acquired 20 percent or more of the Company's Common Shares or has
commenced a tender offer for 20 percent or more of the Common Shares. The rights
may be redeemed prior to becoming exercisable by action of the Board of
Directors at a redemption price of $.01 per right. If more than 20 percent of
the Company's Common Shares become held by a beneficial owner, other than
pursuant to an offer deemed in the best interests of the shareholders by the
Company's independent directors, each right may be exercised for Common Shares,
or other property, of the Company having a value of twice the exercise price of
each right. If the Company is acquired by any person after the rights become
exercisable, each right will entitle its holder to receive common shares of the
acquiring company having a market value of twice the exercise price of each
right. The rights expire on September 19, 1998.
In February 1998, the Board of Directors approved a new Shareholder Rights
Plan having a 10-year term which expires on September 19, 2008 which provides
for the declaration of a distribution of one Share Purchase Right for each
Common Share outstanding effective September 19, 1998. The exercise price of
each new right will be $250.00. This new plan is substantially the same as the
1988 plan.
F-26
<PAGE> 82
10: EMPLOYEE RETIREMENT PLANS
The Company has defined benefit plans to provide pension benefits to
substantially all of its U.S. employees and for employees of several non-U.S.
operations. The benefits are primarily based on years of service and the
employee's final average compensation. The Company's funding policy is to
contribute an amount annually based upon actuarial and economic assumptions
designed to achieve adequate funding of projected benefit obligations. Plan
assets are principally invested in listed common stocks, bonds and common trust
funds.
U.S. Plans
The salary scale assumption is graded by age with an underlying inflation
assumption of 4% for U.S. plans. Other primary assumptions used to develop the
Company's U.S. net periodic pension expense and the actuarial present value of
the benefit obligations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.0%
Long-term rate of return on plan assets 9.5% 9.25% 9.25%
</TABLE>
Net periodic pension expense for the Company's U.S. defined benefit plans
consists of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -------
<S> <C> <C> <C>
Service cost $ 7.3 $ 7.6 $ 5.5
Interest cost 14.0 12.8 11.4
Return on plan assets (37.0) (27.1) (31.2)
Net amortization and deferral 22.8 14.8 20.1
--------- --------- -------
Net periodic pension expense $ 7.1 $ 8.1 $ 5.8
========= ========= =======
</TABLE>
F-27
<PAGE> 83
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31 for the Company's U.S. plans (in
millions):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $(168.6) $(148.4)
Nonvested benefits (9.0) (8.5)
------- --------
Accumulated benefit obligation (177.6) (156.9)
Effect of projected future salary increases (27.9) (25.1)
------- --------
Projected benefit obligation (205.5) (182.0)
Plan assets at fair value 205.3 176.4
------- --------
Projected benefit obligation in excess of plan assets (0.2) (5.6)
Unrecognized net gain (36.7) (25.6)
Unrecognized prior service cost 5.2 6.0
Other (2.8) (2.3)
------- --------
Net pension liability included in the Consolidated Balance Sheets $ (34.5) $ (27.5)
======== ========
</TABLE>
Non-U.S. Plans
Primary assumptions used to develop the Company's non-U.S. net periodic
pension expense and the actuarial present value of the benefit obligations are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Salary increase 3.0-6.5% 3.0-7.0% 4.0-6.5%
Discount rate 6.0-8.5% 6.0-9.0% 6.5-8.5%
Long-term rate of return on plan assets 6.0-9.0% 6.0-9.0% 7.0-9.0%
</TABLE>
Net periodic pension expense for the Company's non-U.S. defined benefit
plans consists of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost $ 3.2 $ 2.2 $ 1.3
Interest cost 4.5 2.8 1.6
Return on plan assets (4.6) (2.8) (2.1)
Net amortization and deferral -- -- 0.5
------- ------- -------
Net periodic pension expense $ 3.1 $ 2.2 $ 1.3
======= ======= =======
</TABLE>
<PAGE> 84
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31 for the Company's non-U.S. plans
(in millions):
<TABLE>
<CAPTION>
Assets Exceed Accumulated
Accumulated Benefits Ex-
Benefits ceed Assets
--------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ (40.7) $ (32.4) $ (4.5) $ (8.3)
Nonvested benefits (4.5) (3.6) (3.3) --
-------- -------- -------- ---------
Accumulated benefit obligation (45.2) (36.0) (7.8) (8.3)
Effect of projected future salary increases (13.8) (14.7) (4.2) (2.6)
-------- -------- -------- ---------
Projected benefit obligation (59.0) (50.7) (12.0) (10.9)
Plan assets at fair value 62.6 55.9 1.7 1.7
-------- -------- -------- ---------
Projected benefit obligation in excess of plan assets 3.6 5.2 (10.3) (9.2)
Unrecognized net gain (1.3) (2.6) 0.8 (0.1)
Unrecognized prior service cost -- -- 0.3 0.4
Other 1.3 1.5 -- 0.1
-------- -------- -------- ---------
Net pension asset (liability) included in the
Consolidated Balance Sheets $ 3.6 $ 4.1 $ (9.2) $ (8.8)
======== ======== ======== =========
</TABLE>
F-28
<PAGE> 85
11: POSTRETIREMENT BENEFITS
The Company pays limited medical and dental insurance premiums on behalf
of certain early retirees as well as providing a small life insurance benefit
for certain retirees.
Employee benefit plans at December 31, 1997 and 1996 include $8.5 million
and $7.8 million, respectively, representing the actuarially determined
liability for these benefits. The actuarially determined expense was $1.7
million, $1.5 million and $1.1 million in 1997, 1996 and 1995, respectively.
12: INTEGRATION/RESTRUCTURING
To achieve reductions in operating costs and to integrate the operations
of the former Betz Laboratories, Inc. (Betz) and the former Dearborn business
(Dearborn), the Company has incurred incremental and non-recurring expenses that
are reported as Integration/Restructuring operating expenses.
Integration expenses are incremental and non-recurring costs necessary to
integrate Dearborn and Betz. Integration expenses amounted to $16.6 million and
$20.4 million for 1997 and 1996, respectively. These expenses are associated
with the activities of integration teams responsible for merging the two
companies for the benefit of future operations and include items such as
consulting and legal fees, integration bonuses, training, travel and Betz
employee relocation expenses. These costs are expensed as incurred. Such
integration activities were completed in 1997.
The provision for restructuring is for estimated exit costs associated
with the decisions to close Betz facilities and severance costs for Betz
employees. These costs are accrued when the decisions are made and announced and
exit costs can be reasonably estimated. A $9.6 million provision for
restructuring, net of the 1995 provision reversal noted below, was recorded in
1996 for the closure of Betz facilities and the severance of Betz employees
located throughout the world. Additionally, $26.0 million and $12.8 million
restructuring provisions for the closure of Dearborn facilities and severance
and relocation costs for worldwide Dearborn employees were also recorded in 1996
and 1997, respectively, which are part of the overall purchase price allocation.
These combined actions include employee termination benefits for approximately
550 technical, production, administrative and support employees, as well as
office consolidations and asset dispositions. All restructuring plans were
completed in 1997.
In connection with the Dearborn acquisition and restructuring decisions,
at December 31, 1997, approximately $11.9 million of assets are held for sale.
These assets, included in property, plant and equipment, are primarily
production facilities of Dearborn. The Company estimates it will complete the
sale of such facilities by 1999.
The $15.6 million provision for restructuring recorded in 1995 was for a
series of actions to reduce operating costs. The provision included the
writedown associated with the closure of two blending plants and other asset
dispositions, and employee termination benefits covering approximately 150
technical, production, administrative and support employees located primarily in
the United States. As a result of the completion of these restructuring actions,
$3.5 million of the 1995 restructuring provision was reversed in 1996. The lower
than anticipated cost resulted from fewer than planned terminations and higher
than planned attrition, along with lower than estimated losses on the closure of
a blending plant.
F-29
<PAGE> 86
A reconciliation of activity with respect to the restructuring accruals is
as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Balance at beginning of year $ 30.9 $ 7.5
Provision:
Included in Goodwill (see Note 2) 12.8 26.0
Charged to Consolidated Statements of
Operations - net (1.0) 9.6
Cash Payments (23.5) (11.4)
Noncash - Fixed asset writedowns and
foreign exchange translation (3.3) (0.8)
------ ------
Balance at end of year $ 15.9 $ 30.9
====== ======
</TABLE>
The remaining reserve at December 31, 1997 is expected to be sufficient to
complete these actions. Cash flows from operations and available financing
sources are expected to be sufficient to meet restructuring liabilities.
F-30
<PAGE> 87
13: QUARTERLY FINANCIAL INFORMATION (unaudited)
The following is a summary of quarterly financial information for the
years ended December 31, 1997 and 1996 (in millions, except for per share data):
<TABLE>
<CAPTION>
1997 Quarter Ended
-----------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 306.4 $ 322.4 $ 331.8 $ 334.2
Gross Profit 184.2 193.5 199.0 199.4
Earnings Before Income Taxes
and Cumulative Effect of
Accounting Change (Note 1) 28.8 32.8 41.4 39.9
Earnings Before
Cumulative Effect of
Accounting Change 18.6 21.1 26.7 25.8
Net Earnings 18.6 21.1 26.7 19.8
Net Earnings Per Common Share:
Basic
Before Cumulative Effect
of Accounting Change .61 .69 .88 .84
Net Earnings .61 .69 .88 .63
Diluted
Before Cumulative Effect
of Accounting Change .57 .64 .81 .78
Net Earnings .57 .64 .81 .59
Cash Dividends Declared
Per Common Share .375 .375 .38 .38
Common Share Market
Prices:
High Price 67-1/4 67-3/8 71 70-1/8
Low Price 55-1/4 61-1/4 59-11/16 57-11/16
<CAPTION>
1996 Quarter Ended
-------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 199.5 $ 210.1 $ 304.2 $ 323.2
Gross Profit 122.6 129.3 183.8 192.0
Earnings Before Income Taxes
and Cumulative Effect of
Accounting Change (Note 1) 31.5 34.9 16.3 17.0
Earnings Before
Cumulative Effect of
Accounting Change 19.7 22.3 10.9 11.4
Net Earnings 19.7 22.3 10.9 11.4
Net Earnings Per Common Share:
Basic
Before Cumulative Effect
of Accounting Change .67 .76 .34 .36
Net Earnings .67 .76 .34 .36
Diluted
Before Cumulative Effect
of Accounting Change .62 .71 .34 .34
Net Earnings .62 .71 .34 .34
Cash Dividends Declared
Per Common Share .37 .37 .375 .375
Common Share Market
Prices:
High Price 47-1/4 48 53-1/2 60-1/8
Low Price 40-1/8 41-3/4 43-1/8 50
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings per Share." The common stock of the Company is traded on the New
York Stock Exchange under the symbol BTL. The approximate number of record
holders of Common Shares as of January 30, 1998, was 3,466.
F-31
<PAGE> 88
BETZDEARBORN INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net Sales $ 619.3 $ 628.8
Operating Costs and Expenses:
Cost of products sold 254.3 251.1
Selling, research and administrative 292.6 277.7
Integration/restructuring - 15.3
--------- ---------
546.9 544.1
OPERATING EARNINGS 72.4 84.7
Other Income (Expense):
Interest (19.7) (23.0)
Investment and other (0.2) (0.2)
--------- ---------
(19.9) (23.2)
--------- ---------
EARNINGS BEFORE INCOME TAXES 52.5 61.5
Income Taxes 18.6 21.8
--------- ---------
NET EARNINGS $ 33.9 $ 39.7
========= =========
Net earnings per Common Share:
Basic $ 1.06 $ 1.30
========= =========
Diluted $ 1.01 $ 1.21
========= =========
Cash dividends declared per Common Share $ .76 $ .75
========= =========
Average number of Common Shares:
Basic 29.4 28.5
========= =========
Diluted 32.4 31.8
========= =========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE> 89
BETZDEARBORN INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22.7 $ 36.9
Trade accounts receivable, less allowances:
1998 -- $7.0; 1997 -- $7.2 272.9 293.0
Inventories:
Finished products and goods purchased for resale 48.1 49.2
Raw materials 47.6 45.1
---------- ----------
95.7 94.3
Income taxes 20.5 19.6
Prepaid expenses and other 29.6 36.2
---------- ----------
TOTAL CURRENT ASSETS 441.4 480.0
PROPERTY, PLANT AND EQUIPMENT -- at cost
Land 50.3 48.9
Buildings 194.6 199.0
Machinery and equipment 578.6 562.4
Construction in progress 38.6 15.8
---------- ----------
862.1 826.1
Less allowance for depreciation (453.5) (424.3)
---------- ----------
408.6 401.8
OTHER ASSETS
Investments and other 20.9 22.8
Goodwill -- net of accumulated amortization:
1998 -- $23.7; 1997 -- $17.8 441.8 447.7
Other intangibles -- net of accumulated amortization:
1998 -- $10.2; 1997 -- $8.8 80.4 81.3
---------- ----------
543.1 551.8
---------- ----------
TOTAL ASSETS $ 1,393.1 $ 1,433.6
========== ==========
</TABLE>
F-33
<PAGE> 90
BETZDEARBORN INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(In millions, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 64.6 $ 77.7
Payroll and related taxes 34.9 47.7
Notes payable 4.7 26.6
Accrued restructuring costs 12.0 15.9
Other accrued liabilities 38.7 43.7
Income taxes 6.8 7.4
Dividends payable 11.3 11.2
Current portion of long-term debt 1.3 1.3
---------- ----------
TOTAL CURRENT LIABILITIES 174.3 231.5
LONG-TERM DEBT -- less portion classified as current 680.1 678.2
OTHER LONG-TERM LIABILITIES
Income taxes 16.4 14.3
Employee benefit plans 57.4 54.5
Other 4.1 2.7
---------- ----------
77.9 71.5
SHAREHOLDERS' EQUITY
Preferred shares, $.10 par value: authorized 1,000,000 shares;
issued 1998 -- 471,751 shares; 1997 -- 475,371 shares 94.4 95.0
Guarantee of related ESOP debt (88.0) (88.6)
Common shares, $.10 par value: authorized -- 250,000,000 shares;
issued 1998 -- 33,630,831 shares; 1997 -- 33,631,330 shares 3.4 3.4
Capital in excess of par value of shares 135.8 131.6
Retained earnings 508.7 501.1
Cost of common shares in treasury: 1998 -- 3,976,208 shares;
1997 -- 4,181,807 shares (149.2) (155.0)
Unearned compensation (4.6) (3.9)
Foreign currency translation adjustments (39.7) (31.2)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 460.8 452.4
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,393.1 $ 1,433.6
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE> 91
BETZDEARBORN INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 33.9 $ 39.7
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 33.2 32.8
Amortization 7.9 7.5
Compensation and employee benefit plans 4.6 5.4
Changes in operating assets and liabilities, net of business
acquisitions:
Accounts receivable 17.6 (41.9)
Inventories (2.8) (9.0)
Prepaid expenses and other 5.1 (6.2)
Accounts payable and accrued expenses (28.7) (16.2)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 70.8 12.1
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (46.0) (30.8)
Proceeds from sales of long-term assets 3.2 6.0
Purchases of businesses and long-term investments (3.5) 0.2
Other, net - (1.0)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (46.3) (25.6)
FINANCING ACTIVITIES
Borrowings under credit facilities 5.8 9.8
Net short-term repayments (21.8) -
Dividends paid (26.3) (25.2)
Proceeds from issuance of common shares,
including treasury shares 5.4 29.5
------- -------
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES (36.9) 14.1
Effect of exchange rate changes on cash (1.8) (1.6)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (14.2) (1.0)
Cash and Cash Equivalents at Beginning of Year 36.9 38.2
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22.7 $ 37.2
======= =======
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE> 92
BETZDEARBORN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
JUNE 30, 1998 AND 1997
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of
BetzDearborn Inc. (the "Company") for the six-month periods ended June 30, 1998
and 1997 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain amounts in the financial statements for
the year ended December 31, 1997 have been reclassified to conform with 1998
classifications. Operating results for the six-month period ended June 30, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the audited
consolidated financial statements and footnotes thereto of the Company included
elsewhere in this Registration Statement and Prospectus of Hercules Incorporated
and Hercules Trust I, Hercules Trust II, Hercules Trust III, and Hercules Trust
IV.
The Company is required starting in 1998 to report information about
comprehensive income in its annual and interim financial statements. Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income,"
requires companies to disclose in their annual reports the total, as well as the
components, of comprehensive income and in their interim reports the total
amount. The Company's components of comprehensive income are net income and
foreign currency translation adjustments which totaled to a gain of $25.4
million and $10.5 million for the first six months of 1998 and 1997,
respectively.
In the fourth quarter of 1997, the Company changed its method of
accounting for business process reengineering costs incurred in connection with
its ongoing major project that combines business process reengineering and
information technology transformation. This accounting change was mandated by
the consensus position of the Financial Accounting Standards Board's Emerging
Issues Task Force (Issue No. 97-13). Effective October 1, 1997, the Company's
policy is that all such costs are expensed as incurred, whereas previously such
costs were capitalized and amortized subsequently. In the fourth quarter of
1997, business process reengineering costs capitalized through September 30,
1997 were written off as a cumulative-effect-type adjustment.
Note 2 - Common Shares Reserved for Stock Plans
At June 30, 1998, 4,986,186 and 425,599 Common Shares were reserved for
possible issuance pursuant to the exercise of stock options and grants under
the Company's Stock Option and Incentive Plans, respectively. An additional
352,785 Common Shares were reserved for purchase through payroll deductions
under the terms of the Employee Stock Purchase Plan. Further, 2,639,000 Common
Shares were reserved for possible conversion of the Series A ESOP Convertible
preferred stock.
Note 3 - Earnings per Share
In compliance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," the Company has changed its method of computing earnings
per share and has restated the prior year to conform to the new requirements.
Basic and diluted earnings per share as calculated under Statement 128 are as
follows (in millions, except per share amounts):
F-36
<PAGE> 93
BETZDEARBORN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Six months ended
June 30, June 30,
-------- --------
1998 1997
-------- --------
<S> <C> <C>
Basic Earnings per Share:
Net earnings $ 33.9 $ 39.7
Effect of preferred stock dividends, net of taxes (2.8) (2.8)
-------- --------
Net earnings available to common shareholders $ 31.1 $ 36.9
======== ========
Average Common Shares outstanding - basic 29.4 28.5
======== ========
Basic Earnings per Common Share $ 1.06 $ 1.30
======== ========
Diluted Earnings per Share:
Net earnings $ 33.9 $ 39.7
Effect of ESOP charge to operations assuming
conversion of Series A ESOP Convertible
Preferred Shares, net of taxes (1.4) (1.3)
-------- --------
Net earnings available to common shareholders $ 32.5 $ 38.4
======== ========
Average Common Shares outstanding - basic 29.4 28.5
Effect of dilutive securities:
Contingently issuable shares 0.2 0.1
Employee stock options 0.2 0.5
Assumed conversion of Series A ESOP Convertible
Preferred Shares 2.6 2.7
-------- --------
Average Common Shares outstanding - diluted 32.4 31.8
======== ========
Diluted Earnings per Common Share $ 1.01 $ 1.21
======== ========
</TABLE>
Note 4 - Pending Accounting Changes
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is required to be adopted for fiscal years beginning after December 15,
1997. Statement 131 will require the Company to disclose revenues and other
financial information pertaining to the business segments by which the Company
is managed, as well as the factors management used to determine these segments.
The Company is currently evaluating the requirements of Statement 131 to
determine how to present the required information in its financial statements
and expects to implement this statement in the fourth quarter of 1998.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," was issued by the Financial Accounting
Standards Board in June 1998. The Standard will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The change in a derivative's fair value related to the ineffective portion of a
hedge, if any, will be immediately recognized in earnings. The Company expects
to adopt this Standard on or before the beginning of its fiscal year 2000. The
effect of adopting the Standard is currently being evaluated, but is not
expected to have a material effect on the Company's financial position or
results of operations.
Note 5 - Subsequent Event - Hercules Merger Agreement
On July 30, 1998, the Company and Hercules Incorporated ("Hercules")
announced that they had entered into an Agreement and Plan of Merger, dated as
of July 30, 1998 (the "Merger Agreement"), pursuant to which a wholly owned
subsidiary of Hercules would be merged with and into the Company (the
"Merger"), with the Company surviving the Merger as a wholly owned subsidiary
of Hercules. In the Merger, all of the Company's Common Shares (including
Company Common Shares received upon conversion of the Company's Series A
ESOP Convertible Preferred Shares) would be converted into the right to receive
$72 per share in cash. In addition, outstanding employee stock options would be
cashed out in the Merger. As a result of the Merger, Hercules will assume all of
the Company's outstanding debt, which is estimated to be approximately $700
million. The Merger is subject to certain conditions, including
F-37
<PAGE> 94
BETZDEARBORN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998 AND 1997
approval of the Merger Agreement and the Merger by the Company's shareholders,
and receipt of regulatory approvals. The Merger is currently expected to be
consummated on or about October 15, 1998.
F-38
<PAGE> 95
Hercules Incorporated
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
reflect the planned acquisition by merger of all of the outstanding equity
securities of BetzDearborn Inc. ("BetzDearborn") by Hercules Incorporated
("Hercules").
The following Unaudited Pro Forma Financial Statements are attached to this
report:
Unaudited Pro Forma Condensed Combined Balance Sheet
at June 30, 1998........................................................ PF-2
Unaudited Pro Forma Condensed Combined Statement of
Income for the year ended December 31, 1997............................. PF-3
Unaudited Pro Forma Condensed Combined Statement of
Income for the six months ended June 30, 1998........................... PF-4
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.................................................... PF-5
The Unaudited Pro Forma Condensed Combined Balance Sheet reflects the planned
acquisition as if it had occurred on June 30, 1998. The Unaudited Pro Forma
Condensed Combined Statements of Income for the year ended December 31, 1997 and
for the six months ended June 30, 1998 reflect the planned acquisition as if it
had occurred at the beginning of the year ended December 31, 1997. The pro forma
information is based on the historical financial statements of Hercules and
BetzDearborn after giving effect to the planned acquisition using the purchase
method of accounting. Under this method of accounting, the aggregate purchase
price is allocated to assets acquired and liabilities assumed based on their
estimated fair values. For purposes of the Unaudited Pro Forma Condensed
Combined Financial Statements, the excess of the purchase price over the book
value of the net assets of BetzDearborn has been recorded as goodwill. The
actual allocation of the purchase price will be determined within a reasonable
time after consummation of such transaction and will be based on a complete
evaluation of the assets acquired and liabilities assumed. Accordingly, the
information presented herein may differ from the final purchase price
allocation. The Unaudited Pro Forma Condensed Combined Financial Statements also
reflect assumptions and adjustments deemed appropriate by Hercules, which are
described in the accompanying notes to the Unaudited Pro Forma Condensed
Combined Financial Statements. Cost savings benefits from synergies to be
derived from the planned acquisition, which may be significant, are not
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements do not purport
to be indicative of Hercules' financial position or results of operations had
the planned acquisition actually occurred on the dates presented nor is it
necessarily indicative of Hercules' future financial position or future
operating results. The Unaudited Pro Forma Condensed Combined Financial
Statements should be read in conjunction with the separate audited historical
consolidated financial statements of Hercules and the notes thereto set forth
in Hercules' 1997 Annual Report on Form 10-K and the unaudited financial
statements of Hercules for the periods ended March 31, 1998 and June 30, 1998,
as set forth in its Quarterly Reports on Form 10-Q for these periods, all of
which are incorporated by reference into this Registration Statement, and the
historical consolidated financial statements of BetzDearborn and the notes
thereto which are included elsewhere in this Registration Statement and
Prospectus.
In the opinion of Hercules' management, subject to finalization of the purchase
price allocation, all adjustments have been made that are necessary to present
fairly the pro forma data.
PF-1
<PAGE> 96
HERCULES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HERCULES BETZDEARBORN ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 32 $ 23 $ 55
Accounts and notes receivable, net 420 273 693
Inventories 267 96 363
Income Taxes 49 20 69
Other Current Assets/Prepaid Expenses 0 29 29
---------------------------------------------------------
Total Current Assets 768 441 1,209
Property, Plant, and Equipment, net 725 409 1,134
Investments and other 602 21 623
Other Assets 555 522 $ 1,826 (A) 2,963
60 (B)
---------------------------------------------------------
Total Assets $ 2,650 $ 1,393 $ 1,886 $ 5,929
===== ===== ===== =====
LIABILITIES
Current Liabilities:
Short-term Debt $ 474 $ 6 $ (480)(C) $ 0
Accounts Payable 128 65 193
Accrued expenses 352 96 25 (A) 473
Income taxes payable 80 7 87
---------------------------------------------------------
Total Current Liabilities 1,034 174 (455) 753
Long-Term Debt 461 680 2,269 (D) 3,890
480 (C)
Accrued Postretirement Benefits 338 57 395
Deferred Income Taxes 169 17 186
Other Liabilities/ Deferred Credits 0 4 4
SHAREHOLDERS' EQUITY 648 461 (461)(A) 701
53 (E)
---------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,650 $ 1,393 $ 1,886 $ 5,929
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-2
<PAGE> 97
HERCULES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HERCULES BETZDEARBORN ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales $ 1,866 $ 1,295 $ 3,161
Cost of sales 1,169 519 1,688
Selling, general and administrative expenses 251 531 $ 57 (F) 828
(11)(G)
Research and development 53 39 92
Other operating expenses (income), net 165 16 181
-------- -------- ------- --------
Profit from operations 228 190 (46) 372
Equity in income of affiliated companies 30 - 30
Interest and debt expense 39 46 187 (H) 272
Other income (expense), net 374 (1) 373
-------- -------- ------- --------
Income before income taxes and effect of
change in accounting principle 593 143 (233) 503
Income tax expense (benefit) 269 51 (66)(I) 254
-------- -------- ------- --------
Income before effect of change in accounting
principle $ 324 $ 92 $ (167) $ 249
======== ======== ======= ========
Basic earnings per common share before effect
of change in accounting principle $ 3.27 $ 2.34
Diluted earnings per common share before effect
of change in accounting principle $ 3.18 $ 2.30
Average common shares outstanding - basic 99.2 106.2
Average common shares outstanding - diluted 102.4 109.4
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-3
<PAGE> 98
HERCULES INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HERCULES BETZDEARBORN ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales $ 875 $ 619 $ 1,494
Cost of sales 529 254 783
Selling, general and administrative expenses 129 271 $ 28 (F) 422
(6)(G)
Research and development 25 21 46
Other operating expenses (income), net (3) 0 (3)
-------- -------- -------- --------
Profit from operations 195 73 (28) 240
Equity in income of affiliated companies 10 0 10
Interest and debt expense 24 20 92 (H) 136
Other income (expense), net (28) 0 (28)
-------- -------- -------- --------
Income before income taxes 153 53 (120) 86
Income tax expense (benefit) 51 19 (32)(I) 38
-------- -------- -------- --------
Net Income $ 102 $ 34 $ (88) $ 48
======== ======== ======== ========
Basic earnings per common share $ 1.07 $ 0.47
Diluted earnings per common share $ 1.06 $ 0.46
Average common shares outstanding - basic 95.3 102.3
Average common shares outstanding - diluted 96.7 103.7
</TABLE>
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed
Combined Financial Statements.
PF-4
<PAGE> 99
HERCULES INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT PER SHARE DATA)
A) The aggregate purchase price as determined by the offer price of $72 per
share is approximately $2,400, plus estimated direct acquisition costs of $25
and assumed debt of $680. The excess of the purchase price over the book value
of the BetzDearborn net assets of $461, plus the fair value of the unearned ESOP
compensation of $138 (see footnote J) is $1,826. This amount has been allocated
to goodwill ($2,400 + $25 - ($461 + $138)).
B) To record estimated debt issuance costs of $60 which will be capitalized.
C) To record refinancing of short term debt of $480 as long term debt.
D) To record debt to finance the purchase price of $2,400, plus estimated debt
issuance costs of $60, less estimated proceeds from the ESOP purchase of
Hercules common stock of $191 (see footnote J).
E) To record additional equity resulting from the purchase of Hercules common
stock by the ESOP. This amount is equal to the total estimated proceeds of $191
from the sale of Hercules shares to the ESOP less unearned compensation of $138,
representing unallocated shares (see footnote J).
F) To record amortization of goodwill of $2,268 ($1,826 of incremental
goodwill, plus $442 of pre-existing goodwill) over its estimated useful life of
40 years.
G) To eliminate historical goodwill amortization of BetzDearborn.
H) To record interest expense on incremental debt of $3,445 (including
refinanced debt of $1,176) at an assumed interest rate of 7.00%, the
approximate borrowing rate for Hercules, plus amortization of debt issuance
costs of $3 and $1.5 for the periods ended December 31, 1997 and June 30, 1998,
respectively.
I) To record the tax effect of the pro forma adjustments at the statutory rate
of 35% for the periods presented. The amortization of goodwill is substantially
non-deductible and accordingly has not been tax affected.
J) Under the terms of the proposed merger between Hercules and BetzDearborn,
the shares in the BetzDearborn ESOP will automatically be converted into common
shares of BetzDearborn immediately prior to the merger. Upon consummation of
the merger, the ESOP will utilize the cash proceeds from the sale of
BetzDearborn stock at $72 per share to purchase Hercules common shares. This
treatment will apply to allocated and unallocated shares. The value of the
allocated shares will be approximately $53 and the value of the unallocated
shares will be approximately $138. For the EPS calculations, the total
approximate amount of 7 million ESOP shares (allocated and unallocated) are
considered outstanding.
PF-5
<PAGE> 100
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated amount of various expenses
in connection with the sale and distribution of the securities being registered:
<TABLE>
<S> <C>
SEC registration fee $ 796,500
Printing and engraving expenses 100,000
Legal fees and expenses 225,000
Accounting fees and expenses 100,000
Trustee fees 100,000
Blue sky fees and expenses 10,000
Rating agency fees --
Miscellaneous 68,500
----------
Total $1,400,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the provisions of the Restated Certificate of Incorporation of
the Company, each person who is or was a director or officer of the Company
shall be indemnified by the Company as of right to the full extent permitted or
authorized by the Delaware General Corporation Law.
Under such law, to the extent that such a person is successful on the
merits or otherwise in defense of any action, suit, or proceeding brought
against him by reason of the fact that he is a director or officer of the
Company, he shall be indemnified against expenses, liability and loss including
attorneys' fees reasonably incurred in connection therewith.
If unsuccessful in defense of a third-party civil suit, or if such a
suit is settled, such a person shall be indemnified under such law against both
(1) expenses (including attorneys' fees) and (2) judgments, fines, penalties and
amounts paid in settlement if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interest of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Company, or if such suit is settled, such a person shall be indemnified under
such law only against expenses including attorney's fees incurred in the defense
or settlement of such suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interest of the
Company except that if such a person is adjudged to be liable in such a suit for
negligence or misconduct in the performance of his duty to the Company, he
cannot be indemnified unless the Court of Chancery of the State of Delaware or
any other court in which such action or suit was brought determines that he is
fairly and reasonably entitled to indemnity for such expenses.
Under provisions of the Restated Certificate of Incorporation, a
director of the Company shall have no personal liability to the Company or its
stockholders for monetary damages for breach of his fiduciary duty as a director
to the full extent permitted by the Delaware General Corporation Law, as it may
be amended from time to time.
II-1
<PAGE> 101
The Company has purchased liability insurance policies which provide
specified coverage for certain liabilities incurred by officers and directors in
their capacities as such.
The stockholders of the Company have also approved a form of
indemnification agreement to be entered into between the Company and its
directors and officers, which provides for indemnification to the extent
permitted by Delaware law and, in addition, sets forth the procedures for
determining entitlement to indemnification, the manner of the advancement of
expenses, remedies of the indemnitee and certain other matters of a similar
nature. The Company has entered into such agreements with all of its officers
and directors.
Each Declaration of Trust (a "Trust Agreement") of a Hercules Trust
provides that no Trustee, affiliate of any Trustee or any officers, directors,
stockholders, members, partners, employees, representatives or agents of any
Trustee or any employee or agent of such Hercules Trust or its affiliates (each,
an "Indemnified Person") shall be liable, responsible or accountable in damages
or otherwise to any employee or agent of such Hercules Trust or its affiliates,
or any officers, directors, stockholders, employees, representatives or agents
of the Company or its affiliates or to any holders of Trust Securities of such
Hercules Trust for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of such Hercules Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by the Trust Agreement of such Hercules Trust or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's gross negligence (or, in the case of the
Property Trustee of such Hercules Trust, negligence) or willful misconduct with
respect to such acts or omissions. Each Trust Agreement also provides that, to
the fullest extent permitted by applicable law, the Company shall indemnify and
hold harmless each Indemnified Person from and against any loss, damage or claim
incurred by such Indemnified Person by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of such Hercules
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of authority conferred on such Indemnified Person by such Trust
Agreement, except that no Indemnified Person shall be entitled to be indemnified
in respect of any loss, damage or claim incurred by such Indemnified Person by
reason of gross negligence (or, in the case of the Property Trustee of such
Hercules Trust, negligence) or willful misconduct with respect to such acts or
omissions. Each Trust Agreement further provides that to the fullest extent
permitted by applicable law, expenses (including legal fees) incurred by an
Indemnified Person in defending any claim, demand, action, suit or the final
disposition of such claim, demand, action, suit or proceeding shall, from time
to time, be advanced by the Company prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Company of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be determined that the Indemnified Person is not entitled to be
indemnified pursuant to such Trust Agreement.
The foregoing summaries are necessarily subject to the complete text of
the relevant statute or document.
Any underwriters, dealers or agents who execute any of the Agreements
referred to in Exhibit 1 to this Registration Statement will agree to indemnify
the Company's directors and its officers who signed the Registration Statement
against certain liabilities which might arise under the Securities Act of 1933,
as amended, (the "Securities Act"), from information furnished to the Company by
or on behalf of such indemnifying party.
II-2
<PAGE> 102
ITEM 16. EXHIBITS
A complete listing of exhibits required is given in the Exhibit Index
which precedes the exhibits filed with this Registration Statement.
ITEM 17. UNDERTAKINGS
Each Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made of the securities registered hereby, a post-effective
amendment to this Registration Statement.
(i) to include any prospectus required by Section
10(a) (3) of the Securities Act.
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement; and
(iii)to include any material information with respect
to the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i)
and (ii) above do not apply if the information required to be included
in a post-effective amendment by those paragraphs is contained in
periodic reports filed by a Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are incorporated by reference in this
Registration Statement.
(2) That, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered hereby which remain
unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of a Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 103
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, trustees and controlling persons of
a Registrant pursuant to the provisions described under Item 15 above or
otherwise, each Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by a Registrant of expenses incurred or paid by a director, officer or
controlling person of a Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer, trustee or controlling
person in connection with the securities being registered, such Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wilmington, State of Delaware, on September 14, 1998.
HERCULES INCORPORATED
By: /s/ R. Keith Elliott
---------------------------
R. Keith Elliott, Chairman
and Chief Executive Officer
We, the undersigned officers and directors of Hercules Incorporated,
hereby severally constitute Richard G. Dahlen and Israel J. Floyd, and either of
them singly, our true and lawful attorneys with full power to them and each of
them singly, to sign for us and in our names in the capacities indicated below,
this Registration Statement on Form S-3 filed herewith and any and all
amendments, including post-effective amendments, to said Registration Statement
and generally to do all such things in our name and on our behalf in our
capacities as officers and directors to enable Hercules Incorporated to comply
with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statements and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ R. Keith Elliott Director, Principal Executive Officer September 14, 1998
- ------------------------ (Chairman and Chief Executive Officer)
R. Keith Elliott
/s/ George MacKenzie Principal Financial Officer September 14, 1998
- ------------------------ (Senior Vice President and
George MacKenzie Chief Financial Officer)
/s/ Vikram Jog Principal Accounting Officer September 14, 1998
- ------------------------ (Vice President and Controller)
Vikram Jog
/s/ Vincent J. Corbo Director September 14, 1998
- ------------------------
Vincent J. Corbo
/s/ Richard M. Fairbanks Director September 14, 1998
- ------------------------
Richard M. Fairbanks
/s/ Edith E. Holiday Director September 14, 1998
- ------------------------
Edith E. Holiday
</TABLE>
II-5
<PAGE> 105
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Robert G. Jahn Director September 14, 1998
- ----------------------------
Robert G. Jahn
/s/ Gaynor N. Kelley Director September 14, 1998
- ----------------------------
Gaynor N. Kelley
/s/ Ralph L. MacDonald, Jr. Director September 14, 1998
- ----------------------------
Ralph L. MacDonald, Jr.
/s/ H. Eugene McBrayer Director September 14, 1998
- ----------------------------
H. Eugene McBrayer
/s/ Peter McCausland Director September 14, 1998
- ------------------------
Peter McCausland
/s/ Paula A. Sneed Director September 14, 1998
- ----------------------------
Paula A. Sneed
</TABLE>
II-6
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Hercules
Trust I, Hercules Trust II, Hercules Trust III and Hercules Trust IV certify
that they have reasonable grounds to believe that they meet all the requirements
for filing on Form S-3 and have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized in the City
of Wilmington, State of Delaware, on September 14, 1998.
Hercules Trust I
By: Hercules Incorporated, as Sponsor
By: /s/ George MacKenzie
---------------------------
Name: George MacKenzie
Title: Senior Vice President and
Chief Financial Officer
Hercules Trust II
By: Hercules Incorporated, as Sponsor
By: /s/ George MacKenzie
---------------------------
Name: George MacKenzie
Title: Senior Vice President and
Chief Financial Officer
Hercules Trust III
By: Hercules Incorporated, as Sponsor
By: /s/ George MacKenzie
---------------------------
Name: George MacKenzie
Title: Senior Vice President and
Chief Financial Officer
Hercules Trust IV
By: Hercules Incorporated, as Sponsor
By: /s/ George MacKenzie
---------------------------
Name: George MacKenzie
Title: Senior Vice President and
Chief Financial Officer
II-7
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1+ Form of Underwriting Agreement (Senior Debt Securities, Subordinated Debt
Securities, Preferred Stock, Depositary Shares, Common Stock and Warrants)
1.2+ Form of Underwriting Agreement (Trust Preferred Securities)
1.3+ Form of Underwriting Agreement (Purchase Contracts)
2.1 Agreement and Plan of Merger, dated as of July 30, 1998, by and among
BetzDearborn Inc., Hercules Incorporated and Water Acquisition Co. (incorporated
by reference to Exhibit 2.1 of BetzDearborn's Current Report on Form 8-K, filed
July 30, 1998)
4.1 Restated Certificate of Incorporation of Hercules Incorporated as revised and
amended July 6, 1988 (incorporated by reference to Exhibit 3-A of Hercules' Annual
Report on Form 10-K, filed March 26, 1993)
4.1a** Certificate of Amendment to the Restated Certificate of
Incorporation of Hercules Incorporated as revised and amended
October 24, 1995
4.2* Form of Senior Debt Indenture between the Company and The Chase Manhattan Bank, as
Trustee
4.3* Form of Subordinated Debt Indenture between the Company and The Chase
Manhattan Bank, as Trustee
4.4* Form of Junior Subordinated Debenture Indenture between the Company and The
Chase Manhattan Bank, as Trustee
4.5** Certificate of Trust of Hercules Trust I
4.6** Certificate of Trust of Hercules Trust II
4.7** Certificate of Trust of Hercules Trust III
4.8** Certificate of Trust of Hercules Trust IV
4.9** Trust Agreement of Hercules Trust I
4.10** Trust Agreement of Hercules Trust II
4.11** Trust Agreement of Hercules Trust III
4.12** Trust Agreement of Hercules Trust IV
4.13* Form of Amended and Restated Trust Agreement of Hercules Trust I
4.14* Form of Amended and Restated Trust Agreement of Hercules Trust II
4.15* Form of Amended and Restated Trust Agreement of Hercules Trust III
4.16* Form of Amended and Restated Trust Agreement of Hercules Trust IV
4.17+ Form of Senior Debt Security
4.18+ Form of Subordinated Debt Security
4.19+ Form of Junior Subordinated Debenture
4.20* Form of Hercules Common Stock Certificate
4.21+ Form of Hercules Preferred Stock Certificate
4.22+ Form of Deposit Agreement
4.23+ Form of Warrant Agreement
4.24+ Form of Trust Preferred Security of Hercules Trust I
4.25+ Form of Trust Preferred Security of Hercules Trust II
4.26+ Form of Trust Preferred Security of Hercules Trust III
</TABLE>
<PAGE> 108
<TABLE>
<S> <C>
4.27+ Form of Trust Preferred Security of Hercules Trust IV
4.28+ Form of Preferred Securities Guarantee with respect to Hercules Trust I
4.29+ Form of Preferred Securities Guarantee with respect to Hercules Trust II
4.30+ Form of Preferred Securities Guarantee with respect to Hercules Trust III
4.31+ Form of Preferred Securities Guarantee with respect to Hercules Trust IV
4.32+ Form of Purchase Contract between Hercules and the Purchase Contract Agent
named therein
4.33+ Form of Purchase Unit
4.34+ Form of Pledge Agreement between Hercules and the Collateral Agent and Purchase
Contract Agent named therein
5.1* Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the legality of the
securities being registered by the Company
5.2* Opinion of Richards, Layton & Finger, P.A. regarding the legality of the securities being
registered by Hercules Trust I
5.3* Opinion of Richards, Layton & Finger, P.A. regarding the legality of the securities being
registered by Hercules Trust II
5.4* Opinion of Richards, Layton & Finger, P.A. regarding the legality of the securities being
registered by Hercules Trust III
5.5* Opinion of Richards, Layton & Finger, P.A. regarding the legality of the securities being
registered by Hercules Trust IV
12.1* Statement re Computation of ratio of earnings to fixed charges
23.1** Consent of PricewaterhouseCoopers, LLP
23.2** Consent of Ernst & Young LLP
23.3* Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in Exhibit 5.1)
23.4* Consent of Richards, Layton & Finger (included in Exhibits 5.2, 5.3, 5.4 and 5.5)
24.1 Powers of Attorney (included on signature page)
24.2 Powers of Attorney for Hercules, as Sponsor, to sign the Registration Statement on
behalf of Hercules Trust I, Hercules Trust II, Hercules Trust III and Hercules Trust IV
(included in Exhibits 4.9, 4.10, 4.11 and 4.12 respectively)
25.1* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank, as Trustee
under the Senior Debt Indenture
25.2* Form T-1, Statement of Eligibility of Trustee of The Chase
Manhattan Bank, as Trustee under the Subordinated Debt Indenture
25.3* Form T-1, Statement of Eligibility of Trustee of The Chase
Manhattan Bank, as Trustee under the Junior Subordinated Debenture Indenture
25.4* Form T-1, Statement of Eligibility of Trustee of The Chase
Manhattan Bank, as Trustee with respect to the Amended and Restated Trust
Agreement of Hercules Trust I
25.5* Form T-1, Statement of Eligibility of Trustee of The Chase
Manhattan Bank, as Trustee with respect to the Amended and Restated Trust
Agreement of Hercules Trust II
25.6* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank,
as Trustee with respect to the Amended and Restated Trust
Agreement of Hercules Trust III
25.7* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank,
as Trustee with respect to the Amended and Restated Trust Agreement of
Hercules Trust IV
25.8* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank,
as Trustee under the Preferred Securities Guarantee of the Company with respect
to the Preferred Securities of Hercules Trust I
25.9* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank,
as Trustee under the Preferred Securities Guarantee of the Company with respect
to the Preferred Securities of Hercules Trust II
</TABLE>
<PAGE> 109
<TABLE>
<S> <C>
25.10* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank,
as Trustee under the Preferred Securities Guarantee of the Company with respect
to the Preferred Securities of Hercules Trust III
25.11* Form T-1, Statement of Eligibility of Trustee of The Chase Manhattan Bank, as
Trustee under the Preferred Securities Guarantee of the Company with respect to
the Preferred Securities of Hercules Trust IV
</TABLE>
+ To be filed by amendment or under a subsequent Current Report on Form 8-K.
* To be filed by amendment.
** Filed herewith.
<PAGE> 110
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
EXHIBITS
TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
HERCULES INCORPORATED
HERCULES TRUST I
HERCULES TRUST II
HERCULES TRUST III
HERCULES TRUST IV
<PAGE> 1
Exhibit 4.1a
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 02:30 PM 10/24/1995
950245171 - 33302
CERTIFICATE OF AMENDMENT
TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
HERCULES INCORPORATED
Under Section 242 of the
Delaware General Corporation Law
HERCULES INCORPORATED, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Hercules
Incorporated held on December 8, 1994, resolutions were duly adopted setting
forth the proposed amendment to the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing that
consideration thereof be made at the Annual Meeting of Stockholders of said
corporation to be held on the 27th day of April, 1995. Resolutions setting forth
the proposed amendment are as follows:
"RESOLVED, that upon the recommendation of the
Finance Committee, the Board of Directors approves of the said
300 million of authorized common stock and submission of the
same to Hercules shareholders for approval at the 1995 Annual
Meeting.
"RESOLVED, that the Board of Directors hereby adopts
an amendment to Hercules' Certificate of Incorporation
pursuant to which (1) the authorized shares of the
Corporation's Common Stock, without par value, (the "Common
Stock") shall be increased from 150,000,000 shares to
300,000,000 shares, and (ii) each issued and outstanding share
of Common Stock shall be split on a three-for-one basis as of
the effective date of the amendment; and, in connection with
such amendment, the Board of Directors hereby amends the first
sentence of Article FOURTH of the Certificate of Incorporation
to read as follows:
"FOURTH: The total number of shares of capital stock
which the Corporation shall have authority to issue
is three hundred two million (302,000,000) shares, of
which three hundred million (300,000,000) shares
shall be Common Stock without par value (hereinafter
"Common Stock") and two million (2,000,000) shares
shall be series Preferred Stock without par value
(hereinafter called "Series Preferred Stock"); and
<PAGE> 2
"RESOLVED FURTHER, that upon approval by the
stockholders at the Annual Meeting being held on April 27,
1995, the Board of Directors hereby authorizes and directs the
Corporation's officers to file the aforesaid amendment to the
Certificate of Incorporation with the Secretary of the State
of Delaware, and to execute and to take all such other action
as may be necessary or required to make the said Certificate
of Incorporation effective; and
"FURTHER RESOLVED, that the items, individually and
collectively, mentioned in the above Resolutions are deemed
"Approved Items", each and all of Hercules' officers, jointly
and severally, is and are hereby designated an "Empowered
Person" and authorized and directed to effectuate such
Approved Items, all subject to and in accordance with the
Standing Resolution For Empowered Persons."
SECOND: At the Annual Meeting of Stockholders of said corporation, duly called
and held on the 27th day of April, 1995, a necessary number of shares as
required by statute were voted in favor of the amendment to replace the first
sentence of Article FOURTH of the Certificate of Incorporation to read as
follows:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is three hundred two
million (302,000,000) shares, of which three hundred million
(300,000,000) shares shall be Common Stock without par value
(hereinafter "Common Stock") and two million (2,000,000)
shares shall be series Preferred Stock without par value
(hereinafter called "Series Preferred Stock")."
THIRD: That said amendment was duly adopted in accordance with the provision of
Section 242 of The General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
2
<PAGE> 3
IN WITNESS WHEREOF, the said HERCULES INCORPORATED has caused
this Certificate to be signed by its President and its corporate seal to be
hereunto affixed and attested by its Secretary this 24th day of October, 1995.
HERCULES INCORPORATED
By /s/ Thomas L. Gossage
Thomas L. Gossage
Chairman of the Board and
Chief Executive Officer
[SEAL]
ATTEST
By /s/ Israel J. Floyd
Israel J. Floyd, Secretary
3
<PAGE> 1
Exhibit 4.5
CERTIFICATE OF TRUST
OF
HERCULES TRUST I
THIS Certificate of Trust of Hercules Trust I (the "Trust"),
dated as of September 14, 1998, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is
Hercules Trust I.
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
are Chase Manhattan Bank Delaware, 1201 Market Street, Wilmington, Delaware
19801, Attention: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first-above
written.
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as trustee of the Trust
By: /s/ Denis Kelly
-----------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual capacity but
solely as trustee of the Trust
/s/ Israel J. Floyd
-------------------------------------
<PAGE> 1
Exhibit 4.6
CERTIFICATE OF TRUST
OF
HERCULES TRUST II
THIS Certificate of Trust of Hercules Trust II (the "Trust"),
dated as of September 14, 1998, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is
Hercules Trust II.
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
are Chase Manhattan Bank Delaware, 1201 Market Street, Wilmington, Delaware
19801, Attention: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first-above
written.
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as trustee of the Trust
By: /s/ Denis Kelly
-------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual capacity but
solely as trustee of the Trust
/s/ Israel J. Floyd
-------------------------------------
<PAGE> 1
Exhibit 4.7
CERTIFICATE OF TRUST
OF
HERCULES TRUST III
THIS Certificate of Trust of Hercules Trust III (the "Trust"),
dated as of September 14, 1998, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is
Hercules Trust III.
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
are Chase Manhattan Bank Delaware, 1201 Market Street, Wilmington, Delaware
19801, Attention: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first-above
written.
CHASE MANHATTAN BANK DELAWARE, not in its
individual capacity but solely as trustee of
the Trust
By: /s/ Denis Kelly
---------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual
capacity but solely as trustee of the Trust
/s/ Israel J. Floyd
-------------------------------------
<PAGE> 1
Exhibit 4.8
CERTIFICATE OF TRUST
OF
HERCULES TRUST IV
THIS Certificate of Trust of Hercules Trust IV (the "Trust"),
dated as of September 14, 1998, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. Section 3801, et seq.).
1. Name. The name of the business trust formed hereby is
Hercules Trust IV.
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
are Chase Manhattan Bank Delaware, 1201 Market Street, Wilmington, Delaware
19801, Attention: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first-above
written.
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as trustee of the Trust
By: /s/ Denis Kelly
-------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual capacity
but solely as trustee of the Trust
/s/ Israel J. Floyd
-------------------------------------
<PAGE> 1
Exhibit 4.9
TRUST AGREEMENT
OF
HERCULES TRUST I
THIS TRUST AGREEMENT is made as of September 14, 1998 (this "Trust
Agreement"), by and among Hercules Incorporated, a Delaware corporation, as
sponsor (the "Sponsor"), and Chase Manhattan Bank Delaware, a Delaware banking
corporation, as trustee, and Israel J. Floyd, as trustee (jointly, the
"Trustees"). The Sponsor and the Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Hercules Trust I" (the
"Trust"), in which name the Trustees or the Sponsor, to the extent provided
herein, may conduct the business of the Trust, make and execute contracts, and
sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. Such amount shall constitute the initial trust estate. It
is the intention of the parties hereto that the Trust created hereby constitute
a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C.
Section 3801, et seq. (the "Business Trust Act"), and that this document
constitute the governing instrument of the Trust. The Trustees are hereby
authorized and directed to execute and file a certificate of trust with the
Delaware Secretary of State in such form as the Trustees may approve.
3. The Sponsor and the Trustees will enter into an amended and restated
Trust Agreement satisfactory to each such party to provide for the contemplated
operation of the Trust created hereby and the issuance of the Preferred or
Capital Securities and Common Securities referred to therein. Prior to the
execution and delivery of such amended and restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect of the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. Notwithstanding the
foregoing, the Trustees may take all actions deemed proper as are necessary to
effect the transactions contemplated herein.
4. The Sponsor, as sponsor of the Trust, is hereby authorized, in its
discretion, (i) to prepare and file with the Securities and Exchange Commission
(the "Commission") and to execute, in the case of the 1933 Act Registration
Statement and 1934 Act Registration Statement (as herein defined), on behalf of
the Trust, (a) a Registration Statement (the "1933 Act Registration Statement"),
including all pre-effective and post-effective amendments thereto, relating to
the registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the Preferred or Capital Securities of the Trust, (b) any preliminary
prospectus or prospectus or supplement thereto relating to the Preferred or
Capital Securities of the Trust required to be filed pursuant to the 1933 Act,
and (c) a Registration Statement on Form 8-A or other appropriate form (the
"1934 Act Registration Statement"), including all pre-effective and
post-effective amendments thereto, relating to the registration of the Preferred
or Capital Securities of the Trust under the Securities Exchange Act of 1934, as
amended; (ii) if and at such time as determined by the Sponsor, to file with the
New York Stock Exchange or other exchange, or the National
<PAGE> 2
Association of Securities Dealers ("NASD"), and execute on behalf of the Trust a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Preferred or Capital Securities of the Trust to be listed on the New York Stock
Exchange or such other exchange, or the NASD's Nasdaq National Market; (iii) to
file and execute on behalf of the Trust, such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process and
other papers and documents that shall be necessary or desirable to register the
Preferred or Capital Securities of the Trust under the securities or "Blue Sky"
laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem
necessary or desirable; (iv) to execute and deliver letters or documents to, or
instruments for filing with, a depository relating to the Preferred or Capital
Securities of the Trust; and (v) to execute, deliver and perform on behalf of
the Trust an underwriting agreement with one or more underwriters relating to
the offering of the Preferred or Capital Securities of the Trust.
In the event that any filing referred to in this Section 4 is required
by the rules and regulations of the Commission, the New York Stock Exchange or
other exchange, NASD, or state securities or "Blue Sky" laws to be executed on
behalf of the Trust by the Trustees, the Trustees, in their capacity as trustees
of the Trust, are hereby authorized to join in any such filing and to execute on
behalf of the Trust any and all of the foregoing, it being understood that the
Trustees, in their capacity as trustees of the Trust, shall not be required to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the New York
Stock Exchange or other exchange, NASD, or state securities or "Blue Sky" laws.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be two and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Sponsor which may
increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Sponsor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Sponsor.
7. The Sponsor hereby agrees to (i) reimburse the Trustees for all
reasonable expenses (including reasonable fees and expenses of counsel and other
experts) and (ii) indemnify, defend and hold harmless the Trustees and any of
the officers, directors, employees and agents of the Trustees (the "Indemnified
Persons") from and against and all losses, damages, liabilities, claims,
actions, suits, costs, expenses, disbursements (including the reasonable fees
and expenses of counsel), taxes and penalties of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with
respect to the performance of this Trust Agreement, the creation, operation or
termination of the Trust or the transactions contemplated hereby; provided,
however, that the Sponsor shall not be required to indemnify any Indemnified
Person for any Expenses
-2-
<PAGE> 3
which are a result of the willful misconduct, bad faith or gross negligence of
such Indemnified Person.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
HERCULES INCORPORATED, as Sponsor
By: /s/ George M. MacKenzie
----------------------------------------
Name: George M. MacKenzie
Title: Senior Vice President and Chief
Financial Officer
CHASE MANHATTAN BANK DELAWARE, not in its
individual capacity but solely as trustee
of the Trust
By: /s/ Denis Kelly
----------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual
capacity but solely as trustee of the Trust
/s/ Israel J. Floyd
-------------------------------------------
-3-
<PAGE> 1
Exhibit 4.10
TRUST AGREEMENT
OF
HERCULES TRUST II
THIS TRUST AGREEMENT is made as of September 14, 1998 (this "Trust
Agreement"), by and among Hercules Incorporated, a Delaware corporation, as
sponsor (the "Sponsor"), and Chase Manhattan Bank Delaware, a Delaware banking
corporation, as trustee, and Israel J. Floyd, as trustee (jointly, the
"Trustees"). The Sponsor and the Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Hercules Trust II" (the
"Trust"), in which name the Trustees or the Sponsor, to the extent provided
herein, may conduct the business of the Trust, make and execute contracts, and
sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. Such amount shall constitute the initial trust estate. It
is the intention of the parties hereto that the Trust created hereby constitute
a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C.
Section 3801, et seq. (the "Business Trust Act"), and that this document
constitute the governing instrument of the Trust. The Trustees are hereby
authorized and directed to execute and file a certificate of trust with the
Delaware Secretary of State in such form as the Trustees may approve.
3. The Sponsor and the Trustees will enter into an amended and restated
Trust Agreement satisfactory to each such party to provide for the contemplated
operation of the Trust created hereby and the issuance of the Preferred or
Capital Securities and Common Securities referred to therein. Prior to the
execution and delivery of such amended and restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect of the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. Notwithstanding the
foregoing, the Trustees may take all actions deemed proper as are necessary to
effect the transactions contemplated herein.
4. The Sponsor, as sponsor of the Trust, is hereby authorized, in its
discretion, (i) to prepare and file with the Securities and Exchange Commission
(the "Commission") and to execute, in the case of the 1933 Act Registration
Statement and 1934 Act Registration Statement (as herein defined), on behalf of
the Trust, (a) a Registration Statement (the "1933 Act Registration Statement"),
including all pre-effective and post-effective amendments thereto, relating to
the registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the Preferred or Capital Securities of the Trust, (b) any preliminary
prospectus or prospectus or supplement thereto relating to the Preferred or
Capital Securities of the Trust required to be filed pursuant to the 1933 Act,
and (c) a Registration Statement on Form 8-A or other appropriate form (the
"1934 Act Registration Statement"), including all pre-effective and
post-effective amendments thereto, relating to the registration of the Preferred
or Capital Securities of the Trust under the Securities Exchange Act of 1934, as
amended; (ii) if and at such time as determined by the Sponsor, to file with the
New York Stock Exchange or other exchange, or the National
<PAGE> 2
Association of Securities Dealers ("NASD"), and execute on behalf of the Trust a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Preferred or Capital Securities of the Trust to be listed on the New York Stock
Exchange or such other exchange, or the NASD's Nasdaq National Market; (iii) to
file and execute on behalf of the Trust, such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process and
other papers and documents that shall be necessary or desirable to register the
Preferred or Capital Securities of the Trust under the securities or "Blue Sky"
laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem
necessary or desirable; (iv) to execute and deliver letters or documents to, or
instruments for filing with, a depository relating to the Preferred or Capital
Securities of the Trust; and (v) to execute, deliver and perform on behalf of
the Trust an underwriting agreement with one or more underwriters relating to
the offering of the Preferred or Capital Securities of the Trust.
In the event that any filing referred to in this Section 4 is required
by the rules and regulations of the Commission, the New York Stock Exchange or
other exchange, NASD, or state securities or "Blue Sky" laws to be executed on
behalf of the Trust by the Trustees, the Trustees, in their capacity as trustees
of the Trust, are hereby authorized to join in any such filing and to execute on
behalf of the Trust any and all of the foregoing, it being understood that the
Trustees, in their capacity as trustees of the Trust, shall not be required to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the New York
Stock Exchange or other exchange, NASD, or state securities or "Blue Sky" laws.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be two and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Sponsor which may
increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Sponsor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Sponsor.
7. The Sponsor hereby agrees to (i) reimburse the Trustees for all
reasonable expenses (including reasonable fees and expenses of counsel and other
experts) and (ii) indemnify, defend and hold harmless the Trustees and any of
the officers, directors, employees and agents of the Trustees (the "Indemnified
Persons") from and against and all losses, damages, liabilities, claims,
actions, suits, costs, expenses, disbursements (including the reasonable fees
and expenses of counsel), taxes and penalties of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with
respect to the performance of this Trust Agreement, the creation, operation or
termination of the Trust or the transactions contemplated hereby; provided,
however, that the Sponsor shall not be required to indemnify any Indemnified
Person for any Expenses
-2-
<PAGE> 3
which are a result of the willful misconduct, bad faith or gross negligence of
such Indemnified Person.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
HERCULES INCORPORATED, as Sponsor
By: /s/ George M. MacKenzie
----------------------------------------------------
Name: George M. Makenzie
Title: Senior Vice President and
Chief Financial Officer
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as trustee of the Trust
By: /s/ Denis Kelly
----------------------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual capacity but
solely as trustee of the Trust
/s/ Israel J. Floyd
-------------------------------------------------------
-3-
<PAGE> 1
Exhibit 4.11
TRUST AGREEMENT
OF
HERCULES TRUST III
THIS TRUST AGREEMENT is made as of September 14, 1998 (this "Trust
Agreement"), by and among Hercules Incorporated, a Delaware corporation, as
sponsor (the "Sponsor"), and Chase Manhattan Bank Delaware, a Delaware banking
corporation, as trustee, and Israel J. Floyd, as trustee (jointly, the
"Trustees"). The Sponsor and the Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Hercules Trust III" (the
"Trust"), in which name the Trustees or the Sponsor, to the extent provided
herein, may conduct the business of the Trust, make and execute contracts, and
sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. Such amount shall constitute the initial trust estate. It
is the intention of the parties hereto that the Trust created hereby constitute
a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C.
Section 3801, et seq. (the "Business Trust Act"), and that this document
constitute the governing instrument of the Trust. The Trustees are hereby
authorized and directed to execute and file a certificate of trust with the
Delaware Secretary of State in such form as the Trustees may approve.
3. The Sponsor and the Trustees will enter into an amended and restated
Trust Agreement satisfactory to each such party to provide for the contemplated
operation of the Trust created hereby and the issuance of the Preferred or
Capital Securities and Common Securities referred to therein. Prior to the
execution and delivery of such amended and restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect of the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. Notwithstanding the
foregoing, the Trustees may take all actions deemed proper as are necessary to
effect the transactions contemplated herein.
4. The Sponsor, as sponsor of the Trust, is hereby authorized, in its
discretion, (i) to prepare and file with the Securities and Exchange Commission
(the "Commission") and to execute, in the case of the 1933 Act Registration
Statement and 1934 Act Registration Statement (as herein defined), on behalf of
the Trust, (a) a Registration Statement (the "1933 Act Registration Statement"),
including all pre-effective and post-effective amendments thereto, relating to
the registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the Preferred or Capital Securities of the Trust, (b) any preliminary
prospectus or prospectus or supplement thereto relating to the Preferred or
Capital Securities of the Trust required to be filed pursuant to the 1933 Act,
and (c) a Registration Statement on Form 8-A or other appropriate form (the
"1934 Act Registration Statement"), including all pre-effective and
post-effective amendments thereto, relating to the registration of the Preferred
or Capital Securities of the Trust under the Securities Exchange Act of 1934, as
amended; (ii) if and at such time as determined by the Sponsor, to file with the
New York Stock Exchange or other exchange, or the National
<PAGE> 2
Association of Securities Dealers ("NASD"), and execute on behalf of the Trust a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Preferred or Capital Securities of the Trust to be listed on the New York Stock
Exchange or such other exchange, or the NASD's Nasdaq National Market; (iii) to
file and execute on behalf of the Trust, such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process and
other papers and documents that shall be necessary or desirable to register the
Preferred or Capital Securities of the Trust under the securities or "Blue Sky"
laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem
necessary or desirable; (iv) to execute and deliver letters or documents to, or
instruments for filing with, a depository relating to the Preferred or Capital
Securities of the Trust; and (v) to execute, deliver and perform on behalf of
the Trust an underwriting agreement with one or more underwriters relating to
the offering of the Preferred or Capital Securities of the Trust.
In the event that any filing referred to in this Section 4 is required
by the rules and regulations of the Commission, the New York Stock Exchange or
other exchange, NASD, or state securities or "Blue Sky" laws to be executed on
behalf of the Trust by the Trustees, the Trustees, in their capacity as trustees
of the Trust, are hereby authorized to join in any such filing and to execute on
behalf of the Trust any and all of the foregoing, it being understood that the
Trustees, in their capacity as trustees of the Trust, shall not be required to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the New York
Stock Exchange or other exchange, NASD, or state securities or "Blue Sky" laws.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be two and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Sponsor which may
increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Sponsor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Sponsor.
7. The Sponsor hereby agrees to (i) reimburse the Trustees for all
reasonable expenses (including reasonable fees and expenses of counsel and other
experts) and (ii) indemnify, defend and hold harmless the Trustees and any of
the officers, directors, employees and agents of the Trustees (the "Indemnified
Persons") from and against and all losses, damages, liabilities, claims,
actions, suits, costs, expenses, disbursements (including the reasonable fees
and expenses of counsel), taxes and penalties of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with
respect to the performance of this Trust Agreement, the creation, operation or
termination of the Trust or the transactions contemplated hereby; provided,
however, that the Sponsor shall not be required to indemnify any Indemnified
Person for any Expenses
-2-
<PAGE> 3
which are a result of the willful misconduct, bad faith or gross negligence of
such Indemnified Person.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
HERCULES INCORPORATED, as Sponsor
By: /s/ George M. MacKenzie
---------------------------------------------------
Name: George M. MacKenzie
Title: Senior Vice President and
Chief Financial Officer
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as trustee of the Trust
By: /s/ Denis Kelly
---------------------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual capacity but
solely as trustee of the Trust
/s/ Israel J. Floyd
---------------------------------------------------
-3-
<PAGE> 1
Exhibit 4.12
TRUST AGREEMENT
OF
HERCULES TRUST IV
THIS TRUST AGREEMENT is made as of September 14, 1998 (this "Trust
Agreement"), by and among Hercules Incorporated, a Delaware corporation, as
sponsor (the "Sponsor"), and Chase Manhattan Bank Delaware, a Delaware banking
corporation, as trustee, and Israel J. Floyd, as trustee (jointly, the
"Trustees"). The Sponsor and the Trustees hereby agree as follows:
1. The trust created hereby shall be known as "Hercules Trust IV" (the
"Trust"), in which name the Trustees or the Sponsor, to the extent provided
herein, may conduct the business of the Trust, make and execute contracts, and
sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets over to the
Trust the sum of $10. Such amount shall constitute the initial trust estate. It
is the intention of the parties hereto that the Trust created hereby constitute
a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C.
Section 3801, et seq. (the "Business Trust Act"), and that this document
constitute the governing instrument of the Trust. The Trustees are hereby
authorized and directed to execute and file a certificate of trust with the
Delaware Secretary of State in such form as the Trustees may approve.
3. The Sponsor and the Trustees will enter into an amended and restated
Trust Agreement satisfactory to each such party to provide for the contemplated
operation of the Trust created hereby and the issuance of the Preferred or
Capital Securities and Common Securities referred to therein. Prior to the
execution and delivery of such amended and restated Trust Agreement, the
Trustees shall not have any duty or obligation hereunder or with respect of the
trust estate, except as otherwise required by applicable law or as may be
necessary to obtain prior to such execution and delivery any licenses, consents
or approvals required by applicable law or otherwise. Notwithstanding the
foregoing, the Trustees may take all actions deemed proper as are necessary to
effect the transactions contemplated herein.
4. The Sponsor, as sponsor of the Trust, is hereby authorized, in its
discretion, (i) to prepare and file with the Securities and Exchange Commission
(the "Commission") and to execute, in the case of the 1933 Act Registration
Statement and 1934 Act Registration Statement (as herein defined), on behalf of
the Trust, (a) a Registration Statement (the "1933 Act Registration Statement"),
including all pre-effective and post-effective amendments thereto, relating to
the registration under the Securities Act of 1933, as amended (the "1933 Act"),
of the Preferred or Capital Securities of the Trust, (b) any preliminary
prospectus or prospectus or supplement thereto relating to the Preferred or
Capital Securities of the Trust required to be filed pursuant to the 1933 Act,
and (c) a Registration Statement on Form 8-A or other appropriate form (the
"1934 Act Registration Statement"), including all pre-effective and
post-effective amendments thereto, relating to the registration of the Preferred
or Capital Securities of the Trust under the Securities Exchange Act of 1934, as
amended; (ii) if and at such time as determined by the Sponsor, to file with the
New York Stock Exchange or other exchange, or the National
<PAGE> 2
Association of Securities Dealers ("NASD"), and execute on behalf of the Trust a
listing application and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Preferred or Capital Securities of the Trust to be listed on the New York Stock
Exchange or such other exchange, or the NASD's Nasdaq National Market; (iii) to
file and execute on behalf of the Trust, such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process and
other papers and documents that shall be necessary or desirable to register the
Preferred or Capital Securities of the Trust under the securities or "Blue Sky"
laws of such jurisdictions as the Sponsor, on behalf of the Trust, may deem
necessary or desirable; (iv) to execute and deliver letters or documents to, or
instruments for filing with, a depository relating to the Preferred or Capital
Securities of the Trust; and (v) to execute, deliver and perform on behalf of
the Trust an underwriting agreement with one or more underwriters relating to
the offering of the Preferred or Capital Securities of the Trust.
In the event that any filing referred to in this Section 4 is required
by the rules and regulations of the Commission, the New York Stock Exchange or
other exchange, NASD, or state securities or "Blue Sky" laws to be executed on
behalf of the Trust by the Trustees, the Trustees, in their capacity as trustees
of the Trust, are hereby authorized to join in any such filing and to execute on
behalf of the Trust any and all of the foregoing, it being understood that the
Trustees, in their capacity as trustees of the Trust, shall not be required to
join in any such filing or execute on behalf of the Trust any such document
unless required by the rules and regulations of the Commission, the New York
Stock Exchange or other exchange, NASD, or state securities or "Blue Sky" laws.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of trustees of the Trust initially shall be two and
thereafter the number of trustees of the Trust shall be such number as shall be
fixed from time to time by a written instrument signed by the Sponsor which may
increase or decrease the number of trustees of the Trust; provided, however,
that to the extent required by the Business Trust Act, one trustee of the Trust
shall either be a natural person who is a resident of the State of Delaware or,
if not a natural person, an entity which has its principal place of business in
the State of Delaware. Subject to the foregoing, the Sponsor is entitled to
appoint or remove without cause any trustee of the Trust at any time. Any
trustee of the Trust may resign upon thirty days' prior notice to the Sponsor.
7. The Sponsor hereby agrees to (i) reimburse the Trustees for all
reasonable expenses (including reasonable fees and expenses of counsel and other
experts) and (ii) indemnify, defend and hold harmless the Trustees and any of
the officers, directors, employees and agents of the Trustees (the "Indemnified
Persons") from and against and all losses, damages, liabilities, claims,
actions, suits, costs, expenses, disbursements (including the reasonable fees
and expenses of counsel), taxes and penalties of any kind and nature whatsoever
(collectively, "Expenses"), to the extent that such Expenses arise out of or are
imposed upon or asserted at any time against such Indemnified Persons with
respect to the performance of this Trust Agreement, the creation, operation or
termination of the Trust or the transactions contemplated hereby; provided,
however, that the Sponsor shall not be required to indemnify any Indemnified
Person for any Expenses
-2-
<PAGE> 3
which are a result of the willful misconduct, bad faith or gross negligence of
such Indemnified Person.
8. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws principles).
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
HERCULES INCORPORATED, as Sponsor
By: /s/ George M. MacKenzie
----------------------------------------------------
Name: George M. MacKenzie
Title: Senior Vice President and
Chief Financial Officer
CHASE MANHATTAN BANK DELAWARE, not in its individual
capacity but solely as trustee of the Trust
By: /s/ Denis Kelly
----------------------------------------------------
Name: Denis Kelly
Title: Trust Officer
ISRAEL J. FLOYD, not in his individual capacity but
solely as trustee of the Trust
/s/ Israel J. Floyd
------------------------------------------------------
-3-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 (No. 333-____) of our report, which includes an explanatory paragraph
regarding a change in the method of accounting for costs incurred in connection
with an enterprise software installation, dated February 13, 1998, on our audits
of the consolidated financial statements of Hercules Incorporated and subsidiary
companies as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997, which report is included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. We also consent
to the reference to our Firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 14, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 2, 1998, with respect to the consolidated
financial statements of BetzDearborn Inc. included in the Registration Statement
(Form S-3, No. 333-_____) and related Prospectus of Hercules Incorporated,
Hercules Trust I, Hercules Trust II, Hercules Trust III, and Hercules Trust IV.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 11, 1998
