<PAGE>
STEPAN COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 29, 1994
AT 9:00 A.M.
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of STEPAN
COMPANY will be held at the Company's Administrative and Research Center at
Edens Expressway and Winnetka Road, Northfield, Illinois, on Friday, April 29,
1994, at 9:00 a.m., for the following purposes:
1. To elect two Directors to the Board.
2. To ratify the appointment of Arthur Andersen & Co. as independent
auditors for the Company for 1994.
3. To transact such other business as may properly come before the meeting.
The Board of Directors has designated the close of business on March 1, 1994,
as the record date for determining holders of 5 1/2% Convertible Preferred
Stock and Common Stock entitled to notice of and to vote at the meeting.
A copy of the Company's Annual Report for the year 1993 is enclosed with this
notice.
By Order of the Board of Directors
JEFFREY W. BARTLETT
Secretary
Northfield, Illinois
March 29, 1994
THE BOARD OF DIRECTORS OF THE COMPANY EXTENDS A CORDIAL INVITATION TO ALL
STOCKHOLDERS TO BE PRESENT AT THE MEETING. IF YOU DO NOT PLAN TO ATTEND THE
MEETING, PLEASE MARK, SIGN AND MAIL THE ENCLOSED PROXY CARD IN THE RETURN
ENVELOPE PROVIDED AS PROMPTLY AS POSSIBLE. IF YOU PLAN TO ATTEND THE MEETING,
IT WILL BE NECESSARY TO OBTAIN AN ADMISSION CARD AND A REQUEST FORM IS ALSO
ENCLOSED. AN ADMISSION CARD WILL BE ISSUED UPON REQUEST IN THE NAME OF EACH
STOCKHOLDER OF RECORD. EACH ADMISSION CARD IS VALID ONLY FOR THE ADMISSION OF
THE STOCKHOLDER OF RECORD OR BONA FIDE BENEFICIAL OWNER OR A DESIGNATED PROXY.
BONA FIDE BENEFICIAL OWNERS OF SHARES THAT ARE REGISTERED IN THE NAME OF A
BROKER OR OTHER NOMINEE SHOULD BRING PROOF OF BENEFICIAL OWNERSHIP. NO OTHER
PERSONS WILL BE ADMITTED TO THE ANNUAL MEETING OF STOCKHOLDERS.
<PAGE>
March 29, 1994
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
STEPAN COMPANY
EDENS EXPRESSWAY AND WINNETKA ROAD
NORTHFIELD, ILLINOIS 60093
TO BE HELD AT 9:00 A.M. ON APRIL 29, 1994
The enclosed proxy is solicited by the Board of Directors of the Company and
the entire expense of solicitation will be borne by the Company. Such
solicitation is being made by mail and the Company may also use its Officers
and its regular employees to solicit proxies from stockholders personally or by
telephone or letter. Arrangements will be made with the brokers, custodians,
nominees, or other fiduciaries who so request for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in that connection.
At the close of business on March 1, 1994, the record date for the meeting,
there were 790,984 shares of 5 1/2% Convertible Preferred Stock ("Preferred
Stock") outstanding, each share of which is convertible into .57087 shares of
Common Stock and is entitled to .57087 votes on each matter to be voted on at
the meeting, and there were 4,953,266 shares of Common Stock outstanding, each
share of which is entitled to one vote on each matter to be voted on at the
meeting.
This proxy statement and proxy are being sent or given to stockholders
commencing on March 29, 1994. Any proxy given pursuant to this solicitation may
be revoked by the stockholder at any time prior to the voting of the proxy.
PRINCIPAL STOCKHOLDERS
As of March 1, 1994, the only persons known to the Company to beneficially
own more than five percent of the Company's Common Stock were the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK BENEFICIALLY
OWNED(2)(9)
-----------------------------------------
VOTING AND
INVESTMENT PERCENTAGE OF
POWER OUTSTANDING
------------------------- SHARES OF
NAME(1) SOLE SHARED TOTAL SHARES COMMON STOCK
------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C>
F. Quinn Stepan(4)...... 795,265(6)(7)(10) 330,611(3) 1,125,876 20.8%
Paul H. Stepan(4)....... 132,462 330,611(3) 463,073 8.5%
Plan Committee for
Stepan Company
Qualified Plans........ 395,480(5)(8) 395,480 7.3%
Mary Louise Stepan(4)... 286,887 286,887 5.3%
</TABLE>
1
<PAGE>
As of March 1, 1994, the only persons known to the Company to beneficially
own more than five percent of the Company's Preferred Stock were the following:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PREFERRED
STOCK BENEFICIALLY
OWNED(2)
--------------------------------
VOTING AND
INVESTMENT PERCENTAGE OF
POWER OUTSTANDING
--------------------- TOTAL SHARES OF
NAME(1) SOLE SHARED SHARES PREFERRED STOCK
------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C>
F. Quinn Stepan(4)............ 166,480(3) 166,480 21.0%
Paul H. Stepan(4)............. 159,616 166,480(3) 326,096 41.2%
Plan Committee for Stepan
Company Qualified Plans...... 96,728(5)(8) 96,728 12.2%
Mary Louise Stepan(4)......... 76,872 76,872 9.7%
Mary Louise Wehman(4)......... 76,872 76,872 9.7%
John Stepan(4)................ 76,872 76,872 9.7%
</TABLE>
- - --------
(1) The address of all persons named is Stepan Company, Edens Expressway and
Winnetka Road, Northfield, Illinois 60093.
(2) Represents number of shares beneficially owned as of March 1, 1994. Number
of shares owned includes shares held by the spouses of F. Quinn Stepan,
Paul H. Stepan and Mary Louise Wehman and shares held by the persons
listed in the table, as trustee or custodian for the benefit of minor
children where the trustee or custodian has voting or investment power.
(3) F. Quinn Stepan and Paul H. Stepan are managing partners of a family-owned
limited partnership which is the sole general partner in another family-
owned limited partnership which owns 235,572 shares of Common Stock and
166,480 shares of Preferred Stock. The shares owned by the partnership are
included in the tables for both F. Quinn Stepan and Paul H. Stepan.
(4) Mary Louise Stepan is the mother of F. Quinn Stepan, Paul H. Stepan, John
Stepan and Mary Louise Wehman.
(5) The members of the Plan Committee are J. A. Hartlage, W. J. Klein and C.
O. Gardiner, all of whom are employees of the Company.
(6) Includes 1,819 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.
(7) Includes 160,620 shares which F. Quinn Stepan has the right to acquire
under a stock option plan.
(8) On February 22, 1994, the Company received a 13G filing from the Harris
Bancorp Inc., which is the parent company of the Trustee (Harris Trust and
Savings Bank) for the Company's Employee Stock Ownership Plan and Trust
for Qualified Plans. Harris Bancorp Inc. and its subsidiary expressly deny
any beneficial ownership in the securities of these Plans.
(9) Includes the number of shares of Common Stock which the specified person
has the right to acquire by conversion of Preferred Stock beneficially
owned by such person.
(10) Includes 93,511 shares of Common Stock credited to F. Quinn Stepan's stock
account under the 1992 Management Incentive Plan. Under the 1992
Management Incentive Plan, amounts credited to an employee's stock account
at termination of his employment may be paid in Common Stock at the
employee's election.
REPORTS OF BENEFICIAL OWNERSHIP
Section 16(a) of the Securities Exchange Act of 1934 and the rules thereunder
require the Company's officers and directors, and persons who own more than 10
percent of the Company's Common Stock or Preferred Stock, to file reports of
beneficial ownership and changes in beneficial ownership of the Common Stock or
Preferred Stock with the Securities and Exchange Commission, the American Stock
Exchange, the Chicago Stock Exchange and the Company. Based solely upon a
review of the copies of such forms received by it during or with respect to its
most recent fiscal year, or written representations from certain reporting
persons, the Company believes that Mark S. Barg and Charles W. Given each filed
one late report of one transaction.
2
<PAGE>
ELECTION OF DIRECTORS
The persons named in the enclosed Proxy will vote for the election of the
nominees named below as Directors of the Company to hold office until the
Annual Stockholders' Meeting to be held in 1997.
Under the Company's Certificate of Incorporation and Bylaws, Directors are
elected by the vote of holders of Preferred Stock and Common Stock present in
person or represented by proxy at the meeting and entitled to vote in the
election, voting together as a single class, representing a majority of both
the votes cast and the number of shares present or represented at the meeting.
The outcome of the election will not be affected by shares that withhold
authority to vote in the election, however, an abstention will have the effect
of a vote against the nominees named below.
In the event any one or more of such nominees shall be unable to serve as
Director, votes will be cast, pursuant to the authority granted in the enclosed
Proxy, for such person or persons as may be designated by the Board of
Directors. The Board of Directors at this time is not aware of any nominee who
is or will be unable to serve as Director, if elected.
NOMINEES FOR DIRECTOR
The following table sets forth certain information about nominees for
Director:
<TABLE>
<CAPTION>
NUMBER AND PERCENT
PRINCIPAL OCCUPATION AND YEAR OF OF
BUSINESS EXPERIENCE DURING FIRST SHARES OF COMMON
THE PAST FIVE YEARS, OTHER ELECTION AS STOCK BENEFICIALLY
NAME OF NOMINEE DIRECTORSHIPS AND AGE DIRECTOR OWNED(1)
--------------- ---------------------------------- ----------- ----------------------
<S> <C> <C> <C> <C>
Robert D. Cadieux....... From 1993 to present, President 1992 1,713(2) *
and Chief Executive Officer of
Air Liquide America Corporation,
a manufacturer of industrial
gases. From 1991 to 1993,
Executive Vice President of Amoco
Corporation. From 1983 to 1991,
President of Amoco Chemical
Company.
Age--56
Paul H. Stepan.......... Executive Director, Mesirow 1977 463,073(2) 8.5%
Financial, an investment banking (3)
operation, 1993 to present. Vice (4)
Chairman, Hostmark Management
Company from November 1993 to
present. President, Merchant
Banking, Mesirow Capital Markets,
an investment banking operation,
from January 1990 to 1993.
President and director of Paul
Stepan & Associates, Inc., a real
estate development firm, since
June 1985. General Partner of
Stepan Venture which is involved
in various venture capital
investments. Formerly a member of
the Executive Committee of the
Chicago Hotel Venture which owns
the Hyatt Regency Chicago Hotel.
Age--50
</TABLE>
*Less than one percent of outstanding shares.
- - --------
(1) Represents number of shares beneficially owned as of March 1, 1994. Number
of shares includes shares
3
<PAGE>
owned by the spouse of a Director and shares held by a Director or their
spouse as trustee or custodian for the benefit of minor children where the
trustee or custodian has voting or investment power.
(2) Includes 713 shares that such Director has the right to acquire under a
stock option plan.
(3) See Note (3) to tables under Principal Stockholders.
(4) See Note (9) to tables under Principal Stockholders.
DIRECTORS WHOSE TERMS CONTINUE
The following table sets forth certain information about those Directors who
are not up for reelection as their term of office does not expire this year:
<TABLE>
<CAPTION>
NUMBER AND
YEAR OF PERCENT OF
PRINCIPAL OCCUPATION AND FIRST SHARES OF
BUSINESS EXPERIENCE DURING ELECTION COMMON STOCK
THE PAST FIVE YEARS, OTHER AS TERM BENEFICIALLY
NAME OF DIRECTOR DIRECTORSHIPS AND AGE DIRECTOR EXPIRES OWNED(1)
- - ---------------- ---------------------------------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
James J. Gavin, Jr...... Vice Chairman of Borg-Warner 1980 1995 21,113(9) *
Corporation from January 1985 (10)
until his retirement in August
1987. Previously, Senior Vice
President, Finance of Borg-Warner
Corporation, a diversified
manufacturer of chemicals and
plastics, air conditioning,
industrial products and
transportation equipment, and
previously provided financial and
protective services.
Director: Service Corporation
International, a funeral
service/cemetery company; BWIP
International, a supplier of
advanced technology fluid
transfer and control equipment,
systems and services; and Huntco
Inc., an intermediate steel
processor.
Trustee: Benchmark Money Market &
Tax Exempt Funds, which is
advised by The Northern Trust
Company and distributed by
Goldman, Sachs & Co.
Age--71
Thomas F. Grojean....... Chairman, Chief Executive Officer 1977 1996 4,713(9) *
and sole owner of Schanno
Transportation, Inc. since
September 1989. Chairman and
Chief Executive Officer of
Ellsworth Freight Lines, Inc.,
since July 1986. Chairman and
Chief Executive Officer of
Greenfield Transport Co., Inc.
since May 1985. All firms are
nationwide truckload freight
carriers.
Age--55
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
YEAR OF NUMBER AND
PRINCIPAL OCCUPATION AND FIRST PERCENT OF SHARES
BUSINESS EXPERIENCE DURING ELECTION OF COMMON STOCK
THE PAST FIVE YEARS, OTHER AS TERM BENEFICIALLY
NAME OF DIRECTOR DIRECTORSHIPS AND AGE DIRECTOR EXPIRES OWNED(1)
- - ---------------- ---------------------------------- -------- ------- -----------------
<S> <C> <C> <C> <C> <C>
James A. Hartlage....... Senior Vice President-Technology 1984 1996 237,020(6) 4.3%
of the Company; Vice President- (7)
Technology of the Company from (8)
1980 to 1992.
Age--56
F. Quinn Stepan......... Chairman and Chief Executive 1967 1995 1,125,876(2) 20.8%
Officer of the Company since (3)
November 1984. President and (4)
Chief Operating Officer of the (5)
Company since 1973.
Age--56
</TABLE>
*Less than one percent of outstanding shares
- - --------
(1) See Note (1) to tables under Nominees for Director.
(2) See Note (3) to tables under Principal Stockholders.
(3) See Note (6) to tables under Principal Stockholders.
(4) See Note (7) to tables under Principal Stockholders.
(5) See Note (10) to tables under Principal Stockholders.
(6) Includes all shares deemed beneficially owned by the Plan Committee, of
which J.A. Hartlage is a member. The Plan Committee selects the investment
manager of the Stepan Company Trust for Qualified Plans under the terms of
a Trust Agreement dated July 1, 1985, with the Harris Trust and Savings
Bank. See Principal Stockholders.
(7) Includes 16,800 shares of Common Stock which J.A. Hartlage has the right
to acquire under a stock option plan, 1,177 shares allocated to J.A.
Hartlage under the Employee Stock Ownership Plan, and 754 shares credited
to J.A. Hartlage's stock account under the 1992 Management Incentive Plan.
(8) See Note (5) to tables under Principal Stockholders.
(9) Includes 713 shares that such Director has the right to acquire under a
stock option plan.
(10) Includes 10,400 shares owned by The James and Zita Gavin Foundation, a
charitable foundation, of which Mr. Gavin is the President.
OWNERSHIP OF PREFERRED STOCK AND COMMON STOCK BY DIRECTORS AND OFFICERS
The following table sets forth as of the close of business on March 1, 1994,
the Common Stock ownership of those Officers listed in the Compensation Table
who are not Directors and the Common Stock beneficially owned by Directors and
Officers as a group on such date:
<TABLE>
<CAPTION>
NUMBER AND
PERCENT OF
SHARES OF
COMMON STOCK
BENEFICIALLY
NAME OWNED(1)
---- -----------------
<S> <C> <C>
Charles P. Riley, Jr................................... 40,169(2) *
Mark S. Barg........................................... 14,712(3) *
Charles W. Given....................................... 18,976(4) *
All Directors and Officers(5).......................... 1,758,341 32.5%
</TABLE>
*Less than one percent of outstanding shares.
- - --------
(1) Number of shares for each Officer (and Directors and Officers as a group)
includes (a) shares owned by the spouse of the Director or Officer and
shares held by the Director or Officer or his spouse as trustee or
custodian for the benefit of minor children where the trustee has voting or
investment power and (b) shares of Common Stock which may be acquired
within 60 days through the exercise of stock options or conversion of
Preferred Stock.
5
<PAGE>
(2) Includes 1,137 shares allocated to Charles P. Riley, Jr. under the Employee
Stock Ownership Plan and 8,000 shares that Charles P. Riley, Jr. has the
right to acquire under a stock option plan.
(3) Includes 520 shares allocated to Mark S. Barg under the Employee Stock
Ownership Plan and 11,500 shares that Mark S. Barg has the right to acquire
under a stock option plan.
(4) Includes 841 shares allocated to Charles W. Given under the Employee Stock
Ownership Plan and 14,450 shares that Charles W. Given has the right to
acquire under a stock option plan.
(5) As of March 1, 1994, all Directors and Officers as a group beneficially
owned 334,528 shares of Preferred Stock, which represented 42.3% of the
outstanding Preferred Stock and were convertible into 190,972 shares (3.5%)
of Common Stock. As of March 1, 1994, Company-employed Directors and
Officers as a group had the right to acquire 278,622 shares of Common Stock
under stock options exercisable within 60 days, 9,036 shares of Common
Stock were allocated to Company-employed Directors and Officers under the
Employee Stock Ownership Plan, and 95,357 shares of Common Stock were
credited to stock accounts of Company-employed Directors and Officers under
the 1992 Management Incentive Plan.
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
There were four regular meetings of the Board of Directors during 1993.
During 1993, none of the Directors attended fewer than 75 percent of the total
number of meetings of the Board of Directors and meetings of committees of the
Board of Directors of which such Director was a member.
The Board of Directors has an Audit Committee which held two meetings in
1993. The functions of the Audit Committee include annual consideration of the
selection of independent auditors, meeting with the auditors before the year-
end audit to review the proposed scope of work of the audit, meeting with the
auditors at the completion of the year-end audit to review the results of the
audit, review of the auditors' memorandum setting forth findings and
suggestions regarding internal control, financial policies and procedures and
management's response thereto, review of the internal audit program of the
Company and review of unusual or significant financial transactions. The
members of the Audit Committee are Messrs. Cadieux, Gavin and Grojean.
The Board of Directors has a Compensation Committee which held two meetings
in 1993. The functions of the Compensation Committee include reviewing the
salaries of the Officers of the Company each year, adjusting them as
appropriate, approving all management incentive awards and approving proposals
for granting of stock options. The members of the Compensation Committee are
Messrs. Cadieux, Gavin, Grojean and P. Stepan.
The Board of Directors has no Nominating Committee.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth a summary of the compensation of the chief
executive officer and the four other most highly compensated executive officers
of the Company for the years indicated.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------- ------------
NAME AND AWARDS OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
F. Quinn Stepan............ 1993 $386,000 $ 0 -0- $12,230
Chairman, 1992 372,000 196,950 35,000 shs 14,470
President and CEO 1991 354,000 68,300 -0-
James A. Hartlage.......... 1993 $186,000 $ 23,250 -0- $ 9,301
Senior Vice President-- 1992 173,333 74,150 10,000 shs 10,693
Technology 1991 156,157 30,100 -0-
Charles P. Riley, Jr....... 1993 $166,000 $ 11,950 -0- $ 8,373
Vice President-- 1992 159,500 59,400 4,300 shs 9,892
Administration and 1991 152,000 24,300 -0-
Regulatory Affairs
Mark S. Barg............... 1993 $157,500 $ 18,250 -0- $ 7,481
Vice President-- 1992 150,000 50,150 4,300 shs 8,926
Logistics 1991 142,500 18,800 -0-
Charles W. Given........... 1993 $153,333 $ 38,950 -0- $ 7,561
Vice President and General 1992 131,300 27,250 8,600 shs 8,070
Manager 1991 107,455 26,550 -0-
Surfactants
</TABLE>
- - --------
(1) Represents awards under the Company's Employee Stock Ownership Plan and
amounts under the Company's Profit Sharing Plan. Such amounts,
respectively, were as follows for 1993: Mr. Stepan: $5,583 and $6,647; Mr.
Hartlage: $4,059 and $5,242; Mr. Riley: $3,694 and $4,679; Mr. Barg: $3,042
and $4,439; and Mr. Given: $3,239 and $4,322.
The following table provides information concerning exercises during 1993 of
stock options and as to option values at year-end. All options are presently
exercisable.
1993 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT OPTIONS AT
NAME ON EXERCISE REALIZED 1993 YEAR-END 1993 YEAR-END
- - ---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
F. Quinn Stepan................ 0 shs $ 0 160,620 shs $1,266,517
James A. Hartlage.............. 0 $ 0 16,800 $ 62,806
Charles P. Riley, Jr........... 0 $ 0 8,000 $ 26,256
Mark S. Barg................... 0 $ 0 11,500 $ 20,350
Charles W. Given............... 0 $ 0 14,450 $ 76,498
</TABLE>
DIRECTORS' FEES
Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $28,000 plus $800 for attendance at each Board of
Directors meeting, Audit Committee meeting and Compensation Committee meeting.
No such fees are paid to Directors who are also Officers of the Company. Under
the Company's 1965 Directors' Deferred Compensation Plan, the Company has
entered into agreements with certain of its non-employee Directors under which
a Director, at his election, may defer receipt of his Director's fees and such
deferred fees are (i) used to purchase shares of the Company's Common
7
<PAGE>
Stock and such shares and future distributions thereon are deposited in the
Director's account, (ii) credited to the Stepan Company Deferred Income
Account, (iii) used to purchase shares of selected publicly-traded mutual funds
or (iv) divided equally between the purchase of shares of the Company's Common
Stock, the Stepan Company Deferred Income Account and shares of selected
publicly traded mutual funds. Funds in the Stepan Company Deferred Income
Account may not be used to purchase shares of the Company's Common Stock, but
earn interest at the same rate as bonds with a maturity of ten years. At the
election of a Director, deferred payments may be made in shares of Stepan
Common Stock or cash based on the fair market value of the Director's account
at distribution, which commences, depending upon the terms of the agreement
with the particular Director, upon retirement as a Director or from active or
professional life or at any time between ages 60 to 70, with payments being
made periodically over a period of five to ten years.
In addition, the 1992 Stock Option Plan provides for the granting of a stock
option, as of the date of the annual meeting of the Company's stockholders in
each of calendar years 1994, 1996, 1998 and 2000, to each non-employee Director
serving as a Director of the Company on such date to purchase the number of
shares of Common Stock determined by dividing the non-employee Director's
annual retainer fee for the applicable year by the fair market value of a share
of Common Stock on the date of the grant. The exercise price of each share of
Common Stock under a stock option granted to a non-employee Director will be
equal to the fair market value of a share of Common Stock on the date of the
grant or, if greater, par value. The exercise price may be paid, upon exercise,
in cash, in shares of Common Stock or in any combination of cash or Common
Stock as the non-employee Director completes two continuous years of service as
a non-employee Director following the date of the grant, or more than 10 years
after the date of the grant. The 1992 Stock Option Plan sets forth restrictions
upon the exercise of stock options by non-employee Directors upon termination
of their service by reason of death, disability, retirement or otherwise.
The Company has a non-qualified, non-funded retirement income plan for the
benefit of the non-employee Directors. The plan provides for a benefit after
ten years of service of 50 percent of the annual Director's fee at retirement
plus two percent for each year served on the Board in excess of ten years with
a maximum 25 years credit in excess of ten years. Benefits commence at 70 years
of age.
RETIREMENT PLAN
The Company has a non-contributory Retirement Plan (the "Retirement Plan")
covering all salaried employees that provides for a maximum pension benefit
equal to 50 percent of the employee's average base compensation, reduced by an
amount equal to 50 percent of the employee's primary Social Security benefit at
age 65, for employees with 30 years of service who retire at or after age 63.
Base compensation is computed on the average base salary for the five highest
consecutive earnings years during the last fifteen years prior to retirement.
The amount of salary taken into account for any year is subject to certain
limitations contained in the Internal Revenue Code ($150,000 in 1994, to be
indexed in future years for inflation in accordance with IRS regulations, and
subject to certain transition rules for prior years in which greater amounts of
salary were permitted to be taken into account).
The following table sets forth the maximum annual retirement income payable
under the Retirement Plan, prior to reduction by an amount equal to 50 percent
of projected age 65 Social Security benefits, at age 63 for indicated salaries
and lengths of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------
BASE SALARY 15 20 25 30
- - ----------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
$150,000.......................................... 37,500 50,000 62,500 75,000
175,000.......................................... 43,750 58,333 72,917 87,500
200,000.......................................... 50,000 66,667 83,333 100,000
225,000.......................................... 56,250 75,000 93,750 112,500
250,000.......................................... 62,500 83,300 104,167 125,000
</TABLE>
The table has been prepared without regard to the limitation, described in
the preceding paragraph, on salary taken into account under the Retirement
Plan. The table has also been prepared without regard to the
8
<PAGE>
maximum benefit limitations imposed by the Internal Revenue Code. The Internal
Revenue Code also imposes limitations applicable to employees who participate
in more than one plan, but these limitations must be determined on an
individual basis and are not reflected in the table.
The years of credited service and the 1993 base salary (determined without
regard to the limitation imposed by the Internal Revenue Code) for each of the
Officers named in the cash compensation table are as follows:
<TABLE>
<CAPTION>
YEARS OF BASE
NAME OF INDIVIDUAL CREDITED SERVICE SALARY
- - ------------------ ---------------- --------
<S> <C> <C>
F. Quinn Stepan....................................... 32 $386,000
James A. Hartlage..................................... 16 186,000
Charles P. Riley, Jr.................................. 36 166,000
Mark S. Barg.......................................... 5 157,500
Charles W. Given...................................... 24 153,333
</TABLE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since December 31,
1988, in cumulative return on the Common Stock of the Company on a dividend
reinvested basis to the Dow Jones Chemical Industry Index and the Russell 2000
Index. The Dow Jones Chemical Industry Index is a market-capitalization
weighted grouping of 22 chemical companies, including major manufacturers of
both basic and specialty products. Stepan Company is not included in this
Index. The Russell 2000 Index is a market-capitalization weighted grouping of
2,000 small to medium sized companies in a broad range of industries. Stepan
Company was a part of the Russell 2000 Index during 1993. The graph assumes
$100 was invested on December 31, 1988, and shows the cumulative total return
as of each December 31 thereafter.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG STEPAN COMPANY, DOW JONES CHEMICAL INDUSTRY INDEX AND RUSSELL 2000 INDEX
<CAPTION>
DOW JONES
CHEMICAL RUSSELL
Measurement Period STEPAN INDUSTRY 20000
(Fiscal Year Covered) COMPANY INDEX INDEX
------------------- ---------- --------- -------
<S> <C> <C> <C>
Measurement Pt-
12/31/88 $100.00 $100.00 $100.00
FYE 12/31/89 $ 79.78 $127.51 $116.24
FYE 12/31/90 $ 92.24 $116.38 $ 93.56
FYE 12/31/91 $118.71 $155.93 $136.65
FYE 12/31/92 $149.06 $170.17 $161.80
FYE 12/31/93 $129.04 $188.35 $192.40
</TABLE>
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, which is composed of the
following non-employee Directors: Messrs. Cadieux, Gavin, Grojean and P.
Stepan. All issues pertaining to corporate officer compensation are submitted
to the Compensation Committee for approval prior to implementation. Non-officer
compensation for those reporting to the Chief Executive Officer is reviewed by
the Committee as requested.
The Company's guiding philosophy in executive compensation is that:
(a) The base pay of executive officers should reflect job responsibilities
and performance, and should be competitive internally to the like or
comparable positions as well as being competitive externally to the
like or comparable positions within the chemical industry. To this end,
the Company uses job evaluation and measurement techniques consistent
with modern industrial practice and sets pay policy in accordance with
data supplied by Hay Associates, an independent compensation consulting
firm, for base pay trends in the chemical industry.
Within individual salary ranges, base salary levels for each executive
officer are determined in accordance with performance standards set by
Company policy, and in compliance with position in the salary range and
the merit increase guidelines published annually for all salaried
employees. A separate determination is made where an executive officer
is promoted or assumes additional responsibilities which may result in
an increase in excess of the merit increase guidelines.
During 1993, merit increases for executive officers approximated the
Company's 5% merit guideline, except in the case of four recently
elected officers who were granted additional increases to position them
more appropriately within their salary ranges. These adjustments
averaged an additional 6%. These executives all assumed their present
positions within the last eighteen to twenty-four months, and such
adjustments are consistent with salary administration procedures for
other salaried employees in such situations.
The Chairman, President and Chief Executive Officer's (CEO) salary
range is determined by the same process and procedures as those of
other executive officers. The CEO's salary is adjusted by the
Compensation Committee in accordance with the salary merit increase
guideline. During 1993, the CEO's base earnings increased by 3.8% over
the prior year.
(b) The incentive pay of executive officers should be tied directly to the
performance of the Company and to the performance of the individual
executive against a set of individual performance targets in a given
calendar year. In years where the Company performs well against its
economic targets, significant performance bonuses may be earned; if
targets are not achieved or exceeded, incentive bonuses are
proportionately lower or may not be paid at all.
All executive officers have a minimum of 25% of the incentive bonus
based on the performance of the Company (measured in Net Income)
against performance targets approved by the Compensation Committee for
each calendar year period.
In 1993, the net income results of the Company measured Below Marginal,
i.e. less than $14 million, or a return of 14.1% on beginning
Stockholder Equity, which was the minimum target for this factor of the
incentive bonus as set by the Compensation Committee. As a result, no
awards were made to executive officers for this factor.
The remainder of each individual executive officer's incentive bonus is
based on performance measures set by mutual agreement between the
executive and the Chief Executive Officer. The average incentive award
for executive officers under this part of the plan was 11%.
10
<PAGE>
The CEO's incentive compensation is determined solely by the financial
results of the Company for the year. In 1993, the financial results did
not meet the minimum target set by the Compensation Committee and no
incentive bonus was paid to the CEO.
(c) Executive officers receive stock option grants on a regular schedule to
promote retention of proven executives, in recognition of job
performance as an encouragement to advance corporate performance
results which in turn enhance the likelihood of increases in the value
of Common Stock.
In even-numbered years, stock options are granted to those executives
and executive officers approved by the Compensation Committee and
identified as having significant impact on the financial results and
economic success and well-being of the Company. The size of stock
option grants is determined based on job performance and the potential
of each executive or executive officer to impact the costs, sales
and/or profitability of the Company and may thus contribute to the
value of the Common Stock held by stockholders.
(d) Under current levels of compensation, the Company is unlikely to be
affected by the one million dollar limit set forth in Section 162(m) of
the Internal Revenue Code on the deductibility of compensation for
purposes of calculating federal income tax; however, the Compensation
Committee intends to consider this matter if circumstances warrant.
Robert D. Cadieux
James J. Gavin, Jr.
Thomas F. Grojean
Paul H. Stepan
THE COMPENSATION COMMITTEE
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of its Audit Committee, the Board of Directors has
appointed Arthur Andersen & Co. ("Andersen"), independent public accountants,
auditors for the Company and its subsidiaries for the year 1994. The Board of
Directors recommends to the stockholders that the appointment of Andersen as
auditors for the Company and its subsidiaries be ratified. If the stockholders
do not ratify the appointment of Andersen, the selection of auditors will be
reconsidered by the Audit Committee and the Board of Directors. Representatives
of Andersen are expected to be present at the Annual Meeting of Stockholders
with the opportunity to make a statement, if they desire to do so, and to be
available to respond to appropriate questions from the stockholders.
STOCKHOLDER PROPOSALS--1995 ANNUAL MEETING
In order for proposals from Company stockholders to be included in the Proxy
Statement and Form of Proxy for the 1995 Annual Meeting in accordance with
Securities and Exchange Commission rules, the Company must receive the
proposals at its administrative offices at Edens Expressway and Winnetka Road,
Northfield, Illinois 60093, no later than November 29, 1994.
OTHER MATTERS
In connection with any other business that may properly come before the
meeting and of which the Board of Directors is not now aware, votes will be
cast pursuant to the authority granted by the enclosed Proxy in accordance with
the best judgment of a majority of the persons present and acting under the
Proxy.
11
<PAGE>
In order to ensure the presence of the necessary quorum at the Annual
Meeting, please mark, sign and return the enclosed Proxy card promptly in the
envelope provided. No postage is required if mailed in the United States. Even
though you sign and return your Proxy card, you are invited to attend the
meeting. As noted on the cover, a ticket will be required for admission and a
request form is enclosed.
By order of the Board of Directors
JEFFREY W. BARTLETT
Secretary
Northfield, Illinois
March 29, 1994
12
<PAGE>
P R O X Y P R O X Y
STEPAN COMPANY
Annual Meeting of Stockholders to be held April 29, 1994
This Proxy is solicited on behalf of the Company's Board of Directors
I, the undersigned hereby appoint Jeffrey W. Bartlett and Walter J. Klein, or
either of them (the "Proxies"), with full power of substitution, to
represent and vote all shares that the undersigned is entitled to vote at the
annual meeting of stockholders of STEPAN COMPANY on April 29, 1994, or at any
adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR proposals 1 and 2, set
forth below.
1. Election of Directors, Nominees: Robert D. Cadieux and Paul H. Stepan.
2. Ratification of the appointment of Arthur Andersen & Co. as independent
auditors for the Company for 1994.
In their discretion the Proxies are authorized to vote on such other business
as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
- - ------------------------------------------------------------------------------
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
- - ------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" 1 AND 2.
- - ------------------------------------------------------------------------------
FOR WITHHOLD FOR (Except withhold for Nominee
1. ELECTION OF DIRECTORS-- / / / / / / written below)
Nominees: Robert D. Cadieux
and Paul H. Stepan -----------------------------
FOR AGAINST ABSTAIN
2. Ratification of independent / / / / / /
auditors.
Dated:_____________________, 1994
(Signature(s))___________________
_________________________________
Please date and sign exactly as
name appears hereon, Joint Owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
<PAGE>
ADMISSION CARD REQUEST
STEPAN COMPANY
ANNUAL STOCKHOLDERS' MEETING
22 WEST FRONTAGE ROAD
NORTHFIELD, ILLINOIS 60093
APRIL 29, 1994, AT 9:00 A.M.
Admission to Stepan Company's Stockholders' Meeting will be by Admission Card
only. Seating is limited and only one admission card will be issued for each
stockholder account. To obtain an Admission Card, please complete and return
this form in the enclosed envelope. A sequenced and numbered Admission Card
will be mailed to you. Please allow at least two weeks for receipt of the
Admission Card.
Please complete the information below:
Beneficial Owner: Record Owner
Shares held by
- - --------------------------------- ----------------------------------
Name
- - ---------------------------------- ----------------------------------
Street
- - ---------------------------------- ----------------------------------
Class of Stock: Common City/Town State Zip
Preferred
<PAGE>
STEPAN COMPANY
ANNUAL STOCKHOLDERS' MEETING
22 WEST FRONTAGE ROAD
NORTHFIELD, ILLINOIS 60093
APRIL 29, 1994, AT 9:00 A.M.
TO: INSTITUTIONS/BANKS/TRUSTS/BROKERS/DEPOSITORIES
Seating is limited for the Annual Meeting of Stepan Company. Therefore, it is
imperative that only one sequenced and numbered admission card be available to
each account holder. Please notify each account holder that they must provide
proof of said ownership as of March 1, 1994 (record date), in order to receive
such admission card, and such proof must accompany them with the admission card
to the meeting on April 29, 1994. Please allow at least two weeks for receipt
of Admission Cards.
<PAGE>
ADMISSION CARD
No.
----------------
This card admits one Stepan Company stockholder to the Annual Stockholders'
Meeting to be held at 22 West Frontage Road, Northfield, Illinois, April 29,
1994, 9:00 a.m.
