Forward Underwriting Agreement,dated 11/12/1998

EXECUTION COPY


FORWARD UNDERWRITING AGREEMENT


dated


November 12, 1998


between


NATIONSBANC MONTGOMERY SECURITIES LLC


and


HERCULES INCORPORATED 2
November 12, 1998


NATIONSBANC MONTGOMERY SECURITIES LLC 600 Montgomery Street San Francisco, California 94111


Ladies and Gentlemen:


INTRODUCTORY. Hercules Incorporated (the "COMPANY"), a Delaware corporation, proposes to issue and sell to NationsBanc Montgomery Securities LLC, as underwriter (the "UNDERWRITER"), an aggregate number of shares (the "PURCHASE SHARES") of its common stock, no par value (the "COMMON STOCK"), with an aggregate Public Offering Price (as defined herein) equal to $200,000,000 (the "AGGREGATE PUBLIC OFFERING PRICE").


The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement on Form S-3 (No. 333-63423) and Pre-effective Amendment No. 1 thereto for the registration of, among other securities, the Purchase Shares under the Securities Act of 1933, as amended (the "1933 ACT"), and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the Commission under the 1933 Act (the "1933 ACT REGULATIONS"). Such registration statement has been declared effective by the Commission, and the Company has filed and will file such post-effective amendments and supplements thereto as may be required prior to the sale of Purchase Shares pursuant thereto, and each such post-effective amendment has been or will be declared effective by the Commission. Such registration statement (as so amended or supplemented, if applicable), including the information, if any, deemed to be a part thereof pursuant to Rule 430A(b) of the 1933 Act Regulations (the "RULE 430A INFORMATION") or Rule 434(d) of the 1933 Act Regulations (the "RULE 434 INFORMATION"), is referred to herein as the "REGISTRATION STATEMENT"; and the final prospectus and the final prospectus supplement relating to the offering of the Purchase Shares, in the form furnished to the Underwriter by the Company for use in connection with each offering of the Purchase Shares, are collectively referred to herein as the "PROSPECTUS"; provided, however, that all 3 references to the "REGISTRATION STATEMENT" and the "PROSPECTUS" shall also be deemed to include all documents incorporated therein by reference pursuant to the Securities Exchange Act of 1934, as amended (the "1934 ACT"), prior to the time the applicable final prospectus and the final prospectus supplement with respect to the offering of Purchase Shares on each Pricing Date are furnished to the Underwriter by the Company; provided, further, that if the Company files a registration statement with the Commission pursuant to Rule 462(b) of the 1933 Act Regulations (the "RULE 462(B) REGISTRATION STATEMENT"), then, after such filing, all references to "REGISTRATION STATEMENT" shall also be deemed to include the Rule 462(b) Registration Statement; and provided, further, that if the Company elects to rely upon Rule 434 of the 1933 Act Regulations, then all references to "PROSPECTUS" shall also be deemed to include the final or preliminary prospectus and the applicable term sheet or abbreviated term sheet (the "TERM SHEET"), as the case may be, in the forms first furnished to the Underwriter by the Company for use in connection with each offering of the Purchase Shares in reliance upon Rule 434 of the 1933 Act Regulations, and all references in this Forward Underwriting Agreement to the date of the Prospectus shall mean the date of the Term Sheet. A "PRELIMINARY PROSPECTUS" shall be deemed to refer to any prospectus used before the Registration Statement became effective and any prospectus that omitted, as applicable, the Rule 430A Information, the Rule 434 Information or other information to be included upon pricing in a form of prospectus filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations that was used after such effectiveness but prior to the delivery of the applicable final prospectus and the final prospectus supplement in the forms first furnished to the Underwriter by the Company. For purposes of this Forward Underwriting Agreement, all references to the Registration Statement, Prospectus, Term Sheet or preliminary prospectus or to any amendment or supplement to any of the foregoing shall be deemed to include any copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").


All references in this Forward Underwriting Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" (or other references of like import) in the Registration Statement, Prospectus or preliminary prospectus shall be deemed to mean and include all such financial statements and schedules and other information which are incorporated by reference in the Registration Statement, Prospectus or preliminary prospectus, as the case may be, prior to the delivery of the applicable final prospectus and the final prospectus supplement in the forms furnished to the Underwriter by the Company with respect to any sales hereunder; and all references in this Forward Underwriting Agreement to amendments or supplements to the Registration Statement, Prospectus or preliminary prospectus shall be deemed to mean and include the filing of any document under the 1934


2 4 Act which is incorporated by reference in the Registration Statement, Prospectus or preliminary prospectus, as the case may be, after the delivery of the applicable final prospectus and the final prospectus supplement in the forms first furnished to the Underwriter by the Company with respect to each sale of Purchase Shares hereunder.


The Company hereby confirms its agreement with the Underwriter as follows:


SECTION 1. Certain Definitions.


As used in this Forward Underwriting Agreement, the following terms shall have the following meanings:


"ADJUSTED EXTRAPOLATED AMOUNT" as of any Trading Day shall mean the amount expressed in dollars obtained by dividing (x) the Settlement Balance as of the Close of Business on the immediately preceding day by (y) the number of scheduled Trading Days from and including such Trading Day to and including the Completion Target Date.


"AGGREGATE NET SALE PRICE" shall mean, with respect to any Pricing Date, the sum of the Net Sale Prices of all shares of Common Stock sold pursuant to Section 2(b) on such Pricing Date.


"AGGREGATE PUBLIC OFFERING PRICE" shall mean $200,000,000.


"BLACKOUT DAY" shall have the meaning specified in Section 2(b)(i).


"BONUS DAY" means any Trading Day on which the difference obtained by subtracting (x) the Extrapolated Amount from (y) $3,000,000 is greater than zero.


"BRING-DOWN DATE" shall mean, collectively, each date during the Dribble-out Period on which any amendment to the Registration Statement or the Prospectus is declared effective by the Commission or any supplement to the Registration Statement or the Prospectus is filed with the Commission and each date on which the Company shall have filed with the Commission any report required or permitted to be filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act.


"BUSINESS DAY" means any day that is not a Saturday, a Sunday or a day on which banking institutions or trust companies in The City of New York are authorized or obligated by law or executive order to close.


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"CLOSE OF BUSINESS" on any day shall mean the later of (x) 5:00 P.M., New York City time, on such day and (y) if such day is a scheduled Trading Day, the time of closing of regular trading on the Relevant Exchange on such day.


"CLOSING PRICE" of the Common Stock on any Trading Day shall mean the reported last sale price on such day of such Common Stock as of the end of the regular session on the NYSE or such other principal securities exchange on which it is listed, or, in case no such sale takes place on such day, the average of the reported last bid and asked prices on such day as of such time, in either case, as reported on the Consolidated Tape maintained by the Consolidated Tape Association or, if the Common Stock is not listed or admitted to trading on any securities exchange which participates in the Consolidated Tape Association, the average of the reported last bid and asked prices of Common Stock on the over-the-counter market on such day as reported by the National Association of Securities Dealers Automated Quotation System or a similar generally accepted reporting service or, if not so reported, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the Underwriter for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Underwriter.


"COMFORT BRING-DOWN DATE" shall mean, collectively, each date during the Dribble-out Period on which any amendment to the Registration Statement or the Prospectus is declared effective by the Commission or any supplement to the Registration Statement or the Prospectus is filed with the Commission (which amendment or supplement includes additional financial information) and each date on which the Company shall have filed with the Commission any report required or permitted to be filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act (which report includes additional financial information).


"COMMENCEMENT DATE" shall mean November 12, 1999, subject to acceleration pursuant to the provisions of Section 7.


"COMMISSION" shall mean the Securities and Exchange Commission.


"COMMON STOCK" shall have the meaning set forth in the First Introductory paragraph of this Agreement.


"COMPANY" shall have the meaning specified in the First Introductory paragraph of this Agreement.


"COMPANY ACCELERATION" shall have the meaning set forth in Section 7(b).


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"COMPLETION TARGET DATE" shall mean the 67th consecutive scheduled Trading Day from and including the Commencement Date.


"CREDIT AGREEMENT" shall mean the Credit Agreement dated as of October 15, 1998 among the Company, the subsidiaries of the Company from time to time parties thereto, the several lenders from time to time parties thereto, NationsBank, N.A., as Administrative Agent, and The Chase Manhattan Bank, Morgan Guaranty Trust Company of New York, and Citibank, N.A., as Co-Syndication Agents, as amended, supplemented, modified or superseded from time to time.


"DAILY NUMBER" shall have the meaning specified in Section 2(b).


"DAILY QUOTA" shall mean, for any Trading Day, the greater of $3,000,000 and the Extrapolated Amount as of such Trading Day, provided that if the Adjusted Extrapolated Amount as of such Trading Day is less than $3,000,000, then the Daily Quota for such day shall be such Adjusted Extrapolated Amount, or any greater amount up to $3,000,000 as the Company may advise the Underwriter by 9:15 A.M., New York City time, on such day, provided, however, that, notwithstanding any of the foregoing, if any such Trading Day is an Illiquidity Day, then the Daily Quota for such day may be reduced by such amount as the Underwriter in its reasonable discretion may determine.


"DEBT REPAYMENT TRIGGER EVENT" means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture or other evidence of indebtedness for borrowed money in excess of $25,000,000 (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its Material Subsidiaries.


"DEFAULT" shall have the meaning specified in Section 3(a)(iv).


"DRIBBLE-OUT PERIOD" shall mean the period consisting of 140 consecutive days, commencing on the Commencement Date.


"EDGAR" shall have the meaning set forth in the Second Introductory paragraph of this Agreement.


"EFFECTIVENESS PERIOD" shall have the meaning specified in Section 5(a).


"ENVIRONMENTAL LAWS" shall mean any and all lawful and applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses,


5 7 agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.


"EXTRAPOLATED AMOUNT" as of any Trading Day shall mean the amount expressed in dollars obtained by dividing (x) the Settlement Balance as of the Close of Business on the immediately preceding day by (y) the number of scheduled Trading Days from and including such Trading Day to and including the last day of the Dribble-Out Period.


"EXISTING INSTRUMENT" shall have the meaning specified in Section 3(a)(iv).


"GAAP" shall have the meaning specified in Section 3(d).


"GOVERNMENTAL LICENSES" shall have the meaning set forth in Section 3(m).


"HAZARDOUS MATERIALS" shall mean any substance, material or waste defined or regulated in or under any Environmental Laws.


"ILLIQUIDITY DAY" shall mean any Trading Day with respect to which the Underwriter, in its sole discretion, determines that there has been a material decline in the liquidity of the Common Stock from the liquidity of the Common Stock on the date hereof; provided that, without limiting the generality of the foregoing, if at any time during the Dribble-out Period the Underwriter shall have designated an aggregate of fifteen Trading Days to be Illiquidity Days, the Underwriter shall consult with the Company prior to designating any additional Trading Day to be an Illiquidity Day.


"INDENTURE" shall mean the Junior Subordinated Debenture Indenture dated as of November 12, 1998 by and between the Company and The Chase Manhattan Bank, as trustee, as supplemented by the First Supplemental Indenture dated as of November 12, 1998, in each case as amended, supplemented, modified or superseded from time to time.


"INITIAL PRICING DATE" shall mean the first Pricing Date to occur hereunder.


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"INVESTMENT COMPANY ACT" shall have the meaning specified in Section 3(n).


"INTELLECTUAL PROPERTY" shall have the meaning specified in Section 3(l).


"MARKET-OUT DAY" shall mean any scheduled Trading Day during the Dribble-out Period on which one or more of the following events occurs or is continuing: (i) trading or quotation in any of the Company's securities shall have been, or continue to be, suspended or limited by the Commission or by the Relevant Exchange, or trading in securities generally on the New York Stock Exchange, Inc. shall have been, or continue to be, suspended or limited, or minimum or maximum prices shall have been generally established on the New York Stock Exchange, Inc. by the Commission; (ii) a general banking moratorium shall have been declared by federal, New York or Delaware authorities and continue to be in effect; (iii) there shall have occurred, or continue to be, any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in the United States' or international political, financial or economic conditions affecting the securities markets generally, as in the reasonable judgment of the Underwriter is material and adverse and makes it impracticable to sell Purchase Shares in the manner and on the terms provided herein or to enforce contracts for the sale of securities; (iv) since the most recent dates as of which information is given in the Registration Statement and the Prospectus, in the reasonable judgment of the Underwriter, there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the reasonable judgment of the Underwriter may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured.


"MARKET SALE" of Purchase Shares shall mean a sale of such Purchase Shares made on the Relevant Exchange or in such other manner as may be agreed by the Company and the Underwriter.


"MATERIAL ADVERSE CHANGE" shall have the meaning specified in Section 3(h).


"MATERIAL SUBSIDIARY" shall mean every subsidiary of the Company that (i) is listed on Schedule I hereto, (ii) together with its subsidiaries on a consolidated basis during the 12 months preceding the date hereof accounts for (or to which may be attributed) 5% or more of the net income or assets (determined


7 9 on a consolidated basis) of the Company and its subsidiaries or (iii) is otherwise necessary for the ongoing business operations of the Company or its subsidiaries.


"NASD" shall mean the National Association of Securities Dealers, Inc.


"NATIONSBANK GROUP" shall mean the Underwriter and its Affiliates (as such term is defined in Rule 405 under the 1933 Act).


"NET SALE PRICE" shall mean, with respect to each share of Common Stock sold pursuant to Section 2 hereof, the sale price of such share, net of any discounts or commissions payable to any persons outside the NationsBank Group incurred in connection with such sale.


"NYSE" shall mean the New York Stock Exchange, Inc.


"POTENTIAL ADJUSTMENT EVENT" means any of the following:


(i) a subdivision, consolidation or reclassification of the
Common Stock (unless as a result of a merger or other similar event) or
a free distribution or dividend of any such Common Stock to existing
holders by way of bonus, capitalization or similar issue;


(ii) a distribution or dividend to existing holders of the
Common Stock of (A) shares of such Common Stock, (B) other share
capital or securities granting the right to payment of dividends and/or
the proceeds of liquidation of the Company equally or proportionately
with such payments to holders of such Common Stock or (C) any other
type of securities, rights or warrants or other assets, in any case for
payment (cash or other) at less than the prevailing market price as
determined by the Underwriter;


(iii) any dividend paid by the Company on the Common Stock
other than ordinary cash dividends (which ordinary cash dividends
include amounts, sometimes called "dividend equivalents", paid under
the Company's employee benefit and compensation plans on the Common
Stock grants (whether options, restricted stock or other) under such
plans, but only to the extent such amounts do not exceed the amounts of
ordinary cash dividends that would be payable were such Common Stock
grants treated as Common Stock);


(iv) a call by the Company in respect of shares of Common
Stock that are not fully paid;


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(v) a repurchase by the Company of shares of Common Stock
whether out of profits or capital and whether the consideration for
such repurchase is cash, securities or otherwise (excluding the
repurchase of up to 8,192,125 shares of Common Stock remaining under
the Company's stock repurchase program authorized by the Board of
Directors of the Company prior to the date hereof).


(vi) any other similar event that may have a diluting or
concentrative effect on the theoretical value of the Common Stock.


"PRELIMINARY PROSPECTUS" shall have the meaning set forth in the Second Introductory paragraph of Agreement.


"PRICING DATE" shall have the meaning specified in Section 2(b)(i).


"PROSPECTUS" shall have the meaning set forth in the Second Introductory paragraph of Agreement.


"PUBLIC OFFERING PRICE" shall have the meaning specified in Section 2(b)(ii).


"PURCHASE DATE" shall have the meaning specified in Section 2(c).


"PURCHASE PRICE" shall have the meaning specified in Section 2(a).


"PURCHASE SHARES" shall have the meaning specified in the First Introductory paragraph of this Agreement.


"REGISTRATION STATEMENT" shall have the meaning set forth in the Secondary Introductory paragraph of this Agreement.


"RELEVANT DATE" shall have the meaning specified in Section 3(r).


"RELEVANT EXCHANGE" shall have the meaning specified in Section 3(k).


"REMARKETING AGREEMENT" shall mean the Remarketing Agreement dated as of November 12, 1998 among the Company, Hercules Trust V and NationsBanc Montgomery Securities LLC.


"RESERVE NUMBER" shall have the meaning specified in Section 6(f).


"RULE 424(b) REGISTRATION STATEMENT" shall have the meaning set forth in the Second Introductory paragraph of this Agreement.


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"RULE 430A INFORMATION" shall have the meaning set forth in the Second Introductory paragraph of this Agreement.


"RULE 434 INFORMATION" shall have the meaning set forth in the Second Introductory paragraph of this Agreement.


"SENIOR BANK DEBT ACCELERATION" shall mean an acceleration under the Credit Agreement resulting in the obligations of the Company under the Credit Agreement becoming or having been declared due and payable under Section 6 of the Credit Agreement before such obligations would otherwise have been due and payable.


"SETTLEMENT BALANCE" shall mean, initially, the Aggregate Public Offering Price and shall be (x) reduced at the Close of Business on each Pricing Date by an amount equal to the Aggregate Net Sale Price on such Pricing Date and (y) increased at the Close of Business on each Purchase Date by the amount of the purchase price of Purchase Shares (if any) that were to have been delivered by the Company and paid for by the Underwriter on such Purchase Date but that have not been so delivered or paid for, for any reason whatsoever.


"STOCK PRICE ACCELERATION EVENT" shall have the meaning specified in Section 7(a).


"SUBORDINATED NOTES" shall mean the Auction Rate Reset Junior Subordinated Notes Series A issued by the Company to Hercules Trust V.


"TERM SHEET" shall have the meaning specified in the Second Introductory paragraph of this Agreement.


"TRADING DAY" shall mean any day, as reasonably determined by the Underwriter, on which the Common Stock is not suspended from trading at any time during such day and is traded at least once on the NYSE or, if not then admitted for trading on the NYSE, on the principal securities exchange or quotation system on which the Common Stock is then listed or admitted for trading.


"TRIGGER PRICE" shall mean, initially, $22 11/16 per share of Common Stock, as adjusted from time to time pursuant to the provisions of Section 8.


"TRUST AGREEMENT" shall mean the Amended and Restated Trust Agreement of Hercules Trust V dated and effective as of November 12, 1998 among the Company, as sponsor, the trustees of Hercules Trust V and the holders, from time to time, of undivided beneficial interest in the assets of the Trust.


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"TRUST PREFERRED SECURITIES" shall mean the Auction Rate Reset Preferred Securities issued by Hercules Trust V.


"UNDERWRITER" shall have the meaning specified in the First Introductory paragraph of this Agreement.


"UNDERWRITING COMMISSION" shall have the meaning specified in Section 2(a).


"1933 ACT" shall have the meaning specified in the Second Introductory paragraph of this Agreement.


"1933 ACT REGULATIONS" shall have the meaning specified in the Second Introductory paragraph of this Agreement.


"1934 ACT" shall have the meaning specified in the Second Introductory paragraph of this Agreement.


SECTION 2. Purchase of Shares.


(a) Purchase and Sale. The Company agrees, upon the terms herein set forth, to issue and sell to the Underwriter on each Pricing Date the Daily Number of Purchase Shares. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriter agrees to purchase from the Company on each Pricing Date such Daily Number of Purchase Shares. The purchase price per Purchase Share to be paid by the Underwriter to the Company shall be the Public Offering Price of such Purchase Share, as determined in the manner set forth in Section 2(b)(ii), minus an amount (the "UNDERWRITING COMMISSION") equal to 0.75% of such Public Offering Price per Purchase Share.


(b) Daily Number of Purchase Shares; Public Offering Prices.


(i) Subject to the provisions of Sections 4 and 12, on each
Trading Day during the Dribble-out Period, the Underwriter shall sell
in Market Sales, and the Company shall sell to the Underwriter, a
number (which may be increased or decreased by up to 10% of such number
by the Underwriter in its sole discretion) (the "DAILY NUMBER") of
Purchase Shares with an Aggregate Net Sale Price equal to the Daily
Quota (or such greater amount as the parties may agree) for such
Trading Day; provided that the Company may, by telephonic notice given
no later than 9:15 A.M., New York City time, on such Trading Day to the
Underwriter, confirmed in writing, designate any such Trading Day to be
a "BLACKOUT


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DAY" or, if the applicable requirements therefor are met, a Bonus Day,
provided that the total number of days designated as Blackout Days may
not exceed 18. On any Blackout Day, Market-Out Day, or Bonus Day, the
Underwriter shall not sell or purchase, and the Company shall not be
obligated to sell, Purchase Shares. Each Trading Day on which sales of
Purchase Shares have been made pursuant to the second immediately
preceding sentence shall be a "PRICING DATE."


(ii) The "PUBLIC OFFERING PRICE" with respect to Purchase
Shares sold on any Pricing Date shall be the amount obtained by
dividing the Aggregate Net Sale Price of Common Stock on such Pricing
Date by the Daily Number of Purchase Shares on such Pricing Date, each
as reported by the Underwriter in accordance with Section 2(b)(iii).

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