STEPAN CO, DEF 14A, 1995-03-28

STEPAN CO
DEF 14A, 1995-03-28
SOAP, DETERGENTS, CLEANG PREPARATIONS, PERFUMES, COSMETICS

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant /X/

Filed by a party other than the registrant / /

Check the appropriate box:

/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

/X/ Definitive proxy statement

/ / Definitive additional materials

/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Stepan Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of filing fee (Check the appropriate box):

/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

(5) Total fee paid: $125.00

- --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

- --------------------------------------------------------------------------------

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

- --------------------------------------------------------------------------------

(3) Filing party:

- --------------------------------------------------------------------------------

(4) Date filed:

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<PAGE> 2

STEPAN COMPANY

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 1, 1995
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 Monday, May 1,
1995, 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 LLP as independent auditors
for the Company for 1995.

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 2,
1995, 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 1994 is enclosed with
this notice.

By Order of the Board of Directors

JEFFREY W. BARTLETT
Secretary

Northfield, Illinois
March 31, 1995

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> 3

March 31, 1995

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 MAY 1, 1995

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 2, 1995, the record date for the meeting,
there were 778,988 shares of 5 1/2% Convertible Preferred Stock ("Preferred
Stock") outstanding, each share of which is convertible into 1.14175 shares of
Common Stock and is entitled to 1.14175 votes on each matter to be voted on at
the meeting, and, including Preferred Stock, there were 10,833,673 shares of
Common Stock outstanding, each share of which is entitled to one vote on each
matter to be voted on at the meeting. The Common Stock was split two-for-one on
December 15, 1994.

This proxy statement and proxy are being sent or given to stockholders
commencing on March 31, 1995. 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 2, 1995, 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)
------------------------------------------------- PERCENTAGE
OF
VOTING AND INVESTMENT POWER OUTSTANDING
------------------------------ TOTAL SHARES OF
NAME(1) SOLE SHARED SHARES COMMON STOCK
- ----------------------------------- --------- ------- ------------ ------------
<S> <C> <C> <C> <C>
F. Quinn Stepan(4)................. 1,591,332(6)(7)(10) 661,224(3) 2,252,556 20.8%
Paul H. Stepan(4).................. 256,295 661,224(3) 917,519 8.4%
Plan Committee for Stepan Company
Qualified Plans.................. 790,961(5)(8) 790,961 7.3%
</TABLE>

1
<PAGE> 4

As of March 2, 1995, 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 21.3%
Paul H. Stepan(4).......................... 159,616 166,480(3) 326,096 41.8%
Plan Committee for Stepan Company
Qualified Plans.......................... 96,728(5)(8) 96,728 12.4%
Mary Louise Stepan(4)...................... 76,872 76,872 9.8%
Mary Louise Wehman(4)...................... 76,872 76,872 9.8%
John Stepan(4)............................. 76,872 76,872 9.8%
</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 2, 1995. 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 471,146 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 3,919 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.

(7) Includes 285,800 shares which F. Quinn Stepan has the right to acquire
under a stock option plan.

(8) On February 21, 1995, 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 197,423 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 Paul H. Stepan filed three late
reports of five transactions.

2
<PAGE> 5

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 1998.

Under the Company's Certificate of Incorporation and Bylaws, Directors are
elected by a plurality of the voting power of the shares of Preferred Stock and
Common Stock present in person or represented by proxy at the meeting and
entitled to vote, voting together as a single class. 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 the nominees for
Director:

<TABLE>
<CAPTION>
NUMBER AND
PRINCIPAL OCCUPATION AND YEAR OF PERCENT 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>
F. Quinn Stepan............... Chairman and Chief Executive 1967 2,252,556(2) 20.8%
Officer of the Company since (3)
November 1984. President and (4)
Chief Operating Officer of the (5)
Company since 1973.
Age--57

Robert G. Potter.............. Corporate Executive Vice N/A 0 0%
President and Member, Management
Board, of Monsanto Company
since February 1995. Corporate
Executive Vice President of
Monsanto Company and President
of The Chemical Group of
Monsanto Company from 1992 to
1995. Corporate Executive Vice
President of Monsanto Company
and President of Monsanto
Chemical Company from 1990 to
1992. Advisory Director of
Monsanto Company and Director
of G.D. Searle & Company and
Cray Research, Inc.
Age--55
</TABLE>

- ------------
(1) Represents number of shares beneficially owned as of March 2, 1995. Number
of shares includes shares 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) See Note (3) to tables under Principal Stockholders.

(3) See Note (6) to tables under Principal Stockholders.

3
<PAGE> 6

(4) See Note (7) to tables under Principal Stockholders.

(5) See Note (10) 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
PERCENT OF
PRINCIPAL OCCUPATION AND YEAR OF SHARES OF COMMON
BUSINESS EXPERIENCE DURING FIRST STOCK
THE PAST FIVE YEARS, OTHER ELECTION AS TERM BENEFICIALLY
NAME OF DIRECTOR DIRECTORSHIPS AND AGE DIRECTOR EXPIRES OWNED(1)
- ------------------------- --------------------------------- ----------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Robert D. Cadieux........ From 1993 to January 1995, 1992 1997 10,103(2) *
President 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--57
Thomas F. Grojean........ Chairman, Chief Executive Officer 1977 1996 24,860(2) *
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--56
James A. Hartlage........ Senior Vice President--Technology 1984 1996 900,590(4) 8.3%
and Operations of the Company
since 1995; Senior Vice (5)
President--
Technology of the Company from (6)
1992 to 1995; Vice President--
Technology of the Company from (7)
1980 to 1992.
Age--57
</TABLE>

4
<PAGE> 7

* Less than one percent of outstanding shares.
- ---------------
(1) See Note (1) to table under Nominees for Director.

(2) Includes 1,426 shares that such Director has the right to acquire under a
stock option plan.

(3) See Note (3) to tables under Principal Stockholders.

(4) 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.

(5) Includes 33,600 shares of Common Stock which J.A. Hartlage has the right to
acquire under a stock option plan, 2,300 shares allocated to J.A. Hartlage
under the Employee Stock Ownership Plan, and 5,577 shares credited to J.A.
Hartlage's stock account under the 1992 Management Incentive Plan.

(6) See Note (5) to tables under Principal Stockholders.

(7) See Note (9) to tables under Principal Stockholders.

OWNERSHIP OF PREFERRED STOCK AND COMMON STOCK BY DIRECTORS AND OFFICERS

The following table sets forth as of the close of business on March 2,
1995, 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 W. Given..................................... 38,169(2) *
Charles P. Riley, Jr................................. 76,154(3) *
M. Mirghanbari....................................... 57,010(4) *
All Directors and Officers(5)........................ 4,339,333 40.0%
</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

5
<PAGE> 8

(b) shares of Common Stock which may be acquired within 60 days through the
exercise of stock options or conversion of Preferred Stock.

(2) Includes 1,669 shares allocated to Charles W. Given under the Employee Stock
Ownership Plan and 24,000 shares that Charles W. Given has the right to
acquire under a stock option plan.

(3) Includes 2,244 shares allocated to Charles P. Riley, Jr. under the Employee
Stock Ownership Plan and 8,600 shares that Charles P. Riley, Jr. has the
right to acquire under a stock option plan.

(4) Includes 1,810 shares allocated to M. Mirghanbari under the Employee Stock
Ownership Plan and 48,200 shares that M. Mirghanbari has the right to
acquire under a stock option plan.

(5) As of March 2, 1995, all Directors and Officers as a group beneficially
owned 335,128 shares of Preferred Stock, which represented 43% of the
outstanding Preferred Stock and were convertible into 382,632 shares (3.5%)
of Common Stock. As of March 2, 1995, Company-employed Directors and
Officers as a group had the right to acquire 529,504 shares of Common Stock
under stock options exercisable within 60 days, 18,073 shares of Common
Stock were allocated to Company-employed Directors and Officers under the
Employee Stock Ownership Plan, and 215,363 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 and one special meeting of the Board of
Directors during 1994. During 1994, 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
1994. 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 1994. 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> 9

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>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
NAME AND -------------------- AWARDS OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
F. Quinn Stepan........................ 1994 $400,000 $ 92,250 200,000 shs $17,606
Chairman, President 1993 386,000 0 -0- 12,230
and CEO 1992 372,000 196,950 70,000 shs 14,470

James A. Hartlage...................... 1994 $196,333 $ 72,850 40,000 shs $10,086
Senior Vice President-- 1993 186,000 23,250 -0- 9,301
Technology and Operations 1992 173,333 74,150 20,000 shs 10,693

Charles W. Given....................... 1994 $173,333 $ 31,050 40,000 shs $ 9,042
Vice President and General 1993 153,333 38,950 -0- 7,561
Manager Surfactants 1992 131,300 27,250 17,200 shs 8,070

Charles P. Riley, Jr................... 1994 $172,000 $ 37,150 -0- $ 9,247
Vice President-- 1993 166,000 11,950 -0- 8,373
Administration and Regulatory Affairs 1992 159,500 59,400 8,600 shs 9,892

M. Mirghanbari......................... 1994 $161,667 $ 52,100 16,000 shs $ 8,713
Vice President-- 1993 151,667 13,650 -0- 7,544
Manufacturing and Engineering 1992 132,250 47,250 -0- 8,180
</TABLE>

- ------------
(1) For 1994, represents awards to each listed individual of a maximum
contribution of $2,595 under the Company's Employee Stock Ownership Plan
("ESOP") as well as dividends on shares in each listed individual's ESOP
account as follows: Mr. Stepan: $1,614; Mr. Hartlage: $915; Mr. Given:
$642; Mr. Riley: $891; and Mr. Mirghanbari: $703. Also includes awards of
$5,024 under the Company's Profit Sharing Plan ("Profit Sharing") as well
as awards under the Company's Supplemental Profit Sharing Plan as follows:
Mr. Stepan: $8,373; Mr. Hartlage: $1,552; Mr. Given: $781; Mr. Riley: $737;
and Mr. Mirghanbari: $391. The $2,595 ESOP contribution amount and the
$5,024 Profit Sharing amount were restricted due to limitations imposed by
the Revenue Reconciliation Act of 1993.

7
<PAGE> 10

The following table provides information concerning individual grants
during 1994 of stock options made to each of the named executive officers.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------ AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED FOR OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE OF BASE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 5% 10%
- ------------------------ ---------- --------------- ---------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
F. Quinn Stepan......... 200,000 43.8% $14.00 5-01-04 $ 1,760,905 $ 4,462,479
James A. Hartlage....... 40,000 8.7% 14.00 5-01-04 352,181 892,496
Charles W. Given........ 40,000 8.7% 14.00 5-01-04 352,181 892,496
Charles P. Riley,
Jr. .................. -0- -0- -0- -- -0- -0-
M. Mirghanbari.......... 16,000 3.5% 14.00 5-01-04 140,872 356,998
</TABLE>

The following additional computations are examples of hypothetical gains by all
common stockholders and the above optionees on the same assumptions set forth
above, that is, at assumed annual rates of common stock appreciation of 5% and
10%, respectively, for the term of the above options. Such assumed rates are
prescribed by rules of the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the Company's
Common Stock prices. The Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
factors.

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
All common
stockholders.......... N/A N/A N/A N/A $95,385,342 $241,725,185
All above optionees..... 296,000 64.8% $14.00 5-01-04 $ 2,606,139 $ 6,604,469
Above optionees gain
as % of all
stockholders gain..... N/A N/A N/A N/A 2.7% 2.7%
</TABLE>

The following table provides information concerning exercises during 1994
of stock options and as to option values at year-end.

1994 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT 1994 YEAR-END 1994 YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
F. Quinn Stepan............. 35,440 shs $315,136 285,800/200,000 shs $ 1,171,444/200,000
James A. Hartlage........... -0- -0- 33,600/40,000 shs 75,557/40,000
Charles W. Given............ 4,900 shs 40,118 24,000/40,000 shs 35,138/40,000
Charles P. Riley, Jr. ...... 7,400 shs 52,618 8,600/0 shs 0/0
M. Mirghanbari.............. -0- -0- 48,200/16,000 shs 140,419/16,000
</TABLE>

DIRECTORS' FEES

Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $30,000 plus $900 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

8
<PAGE> 11

receipt of his Director's fees and such deferred fees are (i) used to purchase
shares of the Company's Common 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 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 ten 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 15 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

9
<PAGE> 12

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 1994 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
NAME OF INDIVIDUAL CREDITED SERVICE BASE SALARY
- ------------------------------------------------------------------ ---------------- -----------
<S> <C> <C>
F. Quinn Stepan................................................... 33 $ 400,000
James A. Hartlage................................................. 17 196,333
Charles W. Given.................................................. 25 173,333
Charles P. Riley, Jr. ............................................ 37 172,000
M. Mirghanbari.................................................... 25 161,667
</TABLE>

STOCK PERFORMANCE GRAPH

The following performance graph compares the yearly change since December 31,
1989, 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 20 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 1994. The graph assumes $100 was invested
on December 31, 1989, and shows the cumulative total return as of each December
31 thereafter.

<TABLE>
<CAPTION>
Dow Jones
Measurement Period Stepan Com- Chemical In- Russell 2000
(Fiscal Year Covered) pany dustry Index Index
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 115.74 91.28 80.49
1991 149.18 122.29 117.56
1992 187.63 133.46 139.20
1993 162.85 147.72 165.52
1994 178.65 160.89 162.61
</TABLE>

- ------------
* Assumes $100.00 invested on December 31, 1989, in Stepan Company common stock,
Dow Jones Chemical Industry Index and Russell 2000 Index.

10
<PAGE> 13

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 1994, merit increases for executive officers approximated the
Company's 4% 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 4%. These executives all assumed their present
positions within the last twenty-four to thirty 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
1994, the CEO's base earnings increased by 3.6% 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 1994, the net income results of the Company measured Marginal +93%,
i.e., just below the Competent rating of $14 million, or a return of
13.3% on beginning Stockholder Equity, according to the target for this
factor of the incentive bonus as set by the Compensation Committee. As a
result, awards were made to executive officers for this factor ranging
from 4.6% to 23.1% of base earnings.

The remainder of each individual executive officer's incentive bonus is
based on performance measures set by mutual agreement between the
executive and the CEO. The average incentive award for executive
officers under this part of the plan was 17.9%.

The CEO's incentive compensation is determined solely by the financial
results of the Company for the year. In 1994, an incentive bonus of
$92,250 was paid to the CEO.

11
<PAGE> 14

(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. During 1994, options were granted to
some eligible executives.

(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 LLP ("Andersen"), independent public accountants,
auditors for the Company and its subsidiaries for the year 1995. 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--1996 ANNUAL MEETING

In order for proposals from Company stockholders to be included in the
Proxy Statement and Form of Proxy for the 1996 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 December 1, 1995.

12
<PAGE> 15

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.

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 31, 1995

13
<PAGE> 16
- --------------------------------------------------------------------------------
PROXY PROXY
STEPAN COMPANY

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 1, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS

I, the undersigned hereby appoints 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 May 1, 1995, 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: F. Quinn Stepan and Robert G.
Potter.

2. Ratification of the appointment of Arthur Andersen LLP as
independent auditors for the Company for 1995.

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.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

STEPAN COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]

[ ]

The Board of Directors recommends a vote "FOR" 1 and 2.

<TABLE>
<S> <C> <C> <C> <C>
1. Election of Directors-- FOR AGAINST FOR (Except withhold for Nominee written below)
Nominees: F. Quinn Stepan and Robert G. Potter / / / / / / ________________________________________

2. Ratification of independent auditors.
</TABLE>

Dated:_____________________, 1995

(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.

- --------------------------------------------------------------------------------