<PAGE>
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 Section 240.14a-11(c) or Section 240.14a-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] No fee required
[_] 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:
-------------------------------------------------------------------------
[_] 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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Notes:
<PAGE>
STEPAN COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 1997
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 Tuesday, May 6,
1997, 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 1997.
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 7,
1997, 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 1996 is enclosed with
this notice.
By Order of the Board of Directors
JEFFREY W. BARTLETT
Secretary
Northfield, Illinois
March 28, 1997
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 28, 1997
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 6, 1997
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 7, 1997, the record date for the meeting,
there were 776,764 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, assuming the Preferred Stock were converted, there would be
10,735,347 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 28, 1997. 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 7, 1997, 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
VOTING AND OF
INVESTMENT POWER OUTSTANDING
--------------------------- TOTAL SHARES OF
NAME(1) SOLE SHARED SHARES COMMON STOCK
------- --------- ------- --------- ------------
<S> <C> <C> <C> <C>
F. Quinn Stepan (4)...... 1,816,864(6)(7)(10) 661,224(3) 2,478,088 23.0%
Paul H. Stepan (4)....... 223,799 661,224(3) 885,023 8.2%
Plan Committee for Stepan
Company Qualified Plans. 842,909(5)(8) 842,909 7.8%
Dimensional Fund Advisors
Inc..................... 554,700(11) 554,700 5.1%
</TABLE>
1
<PAGE>
As of March 7, 1997, 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 21.4%
Paul H. Stepan (4)............ 159,616 166,480(3) 326,096 41.9%
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) Except as otherwise set forth herein, 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 7, 1997.
Number of shares owned includes shares held by the spouses of F. Quinn
Stepan and Paul H. Stepan and shares held by the persons listed in the
table, as trustee or custodian for the benefit of 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 4,149 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.
(7) Includes 467,000 shares which F. Quinn Stepan has the right to acquire
within 60 days through the exercise of stock options granted pursuant to
the Company's stock option plans.
(8) Represents shares held by Citibank, F.S.B. (Citibank) as Trustee for the
Company's Trust for Qualified Plans. Citibank is also the Trustee for the
Company's Employee Stock Ownership Plan. Citibank expressly denies 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 219,407 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.
(11) Dimensional Fund Advisors Inc. ("Dimensional"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, a registered investment advisor,
is deemed to have beneficial ownership of 554,700 shares of Company stock
as of December 31, 1996, all of which shares are held in portfolios of
DFA Investment Dimensions Group Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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
2
<PAGE>
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 New York 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 Walter J. Klein and Paul H. Stepan each filed one late report of
one transaction and M. Mirghanbari filed two late reports of two transactions.
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 the year 2000.
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.
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>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE
DURING YEAR OF NUMBER AND PERCENT
THE PAST FIVE YEARS, FIRST OF SHARES OF COMMON
OTHER ELECTION AS STOCK BENEFICIALLY
NAME OF NOMINEE DIRECTORSHIPS AND AGE DIRECTOR OWNED (1)
--------------- ------------------------ ----------- -----------------------
<C> <S> <C> <C> <C>
Robert D. Cadieux........... Currently self-employed. 1992 19,028(2) *
From 1993 to January
1995, 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.
Age-- 59
Paul H. Stepan.............. Executive Director, 1977 885,023(2) 8.2%
Mesirow Financial, an (3)
investment banking (4)
operation, 1993 to
present. 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. Vice
Chairman, Hostmark
Management Company from
November 1993 to
October 1994.
President, Merchant
Banking, Mesirow
Capital Markets, an
investment banking
operation, from January
1990 to 1993.
Age--53
</TABLE>
*Less than one percent of outstanding shares.
3
<PAGE>
- --------
(1) Represents number of shares beneficially owned as of March 7, 1997. 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) Includes 3,426 shares that such Director has the right to acquire within
60 days through the exercise of stock options granted pursuant to the
Company's 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>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE NUMBER AND PERCENT
DURING OF SHARES OF
THE PAST FIVE YEARS, YEAR OF COMMON STOCK
OTHER FIRST ELECTION TERM BENEFICIALLY OWNED
NAME OF DIRECTOR DIRECTORSHIPS AND AGE AS DIRECTOR EXPIRES (1)
---------------- ------------------------ -------------- ------- ------------------
<C> <S> <C> <C> <C> <C>
Thomas F. Grojean....... Chairman and Chief 1977 1999 32,250(2) *
Executive Officer of
Burlington Motor
Carriers, Inc.
Chairman, Chief
Executive Officer and
sole owner of Schanno
Transportation, Inc.
Both firms are
nationwide truckload
freight carriers.
Age--58
James A. Hartlage....... Senior Vice President-- 1984 1999 970,968(3) 9.0%
Technology and (4)
Operations of the (6)
Company since 1995; (9)
Senior Vice President--
Technology of the
Company from 1992 to
1995; Vice President--
Technology of the
Company from 1980 to
1992.
Age--59
Robert G. Potter........ Corporate Executive Vice 1995 1998 2,786(10) *
President and Member,
Management Board, of
Monsanto Company, a
manufacturer of
agricultural products,
performance chemicals,
prescription
pharmaceuticals and
food ingredients, since
February 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
Southdown, Inc.
Age--57
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND
BUSINESS EXPERIENCE NUMBER AND PERCENT
DURING OF SHARES OF
THE PAST FIVE YEARS, YEAR OF COMMON STOCK
OTHER FIRST ELECTION TERM BENEFICIALLY OWNED
NAME OF DIRECTOR DIRECTORSHIPS AND AGE AS DIRECTOR EXPIRES (1)
---------------- --------------------- -------------- ------- ------------------
<C> <S> <C> <C> <C> <C>
F. Quinn Stepan......... Chairman and Chief 1967 1998 2,478,088(5) 23.0%
Executive Officer of (7)
the Company since (8)
November 1984. (11)
President and Chief
Operating Officer of
the Company since
1973.
Age--59
</TABLE>
*Less than one percent of outstanding shares.
- --------
(1) See Note (1) to table under Nominees for Director.
(2) See Note (2) to table under Nominees for Director.
(3) 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 June 1, 1996, with Citibank, F.S.B.
See Principal Stockholders.
(4) Includes 67,600 shares of Common Stock which J.A. Hartlage has the right
to acquire within 60 days through the exercise of stock options granted
pursuant to the Company's stock option plans, 2,439 shares allocated to
J.A. Hartlage under the Employee Stock Ownership Plan, and 5,867 shares
credited to J.A. Hartlage's stock account under the 1992 Management
Incentive Plan.
(5) See Note (3) to tables under Principal Stockholders.
(6) See Note (5) to tables under Principal Stockholders.
(7) See Note (6) to tables under Principal Stockholders.
(8) See Note (7) to tables under Principal Stockholders.
(9) See Note (9) to tables under Principal Stockholders.
(10) Includes 994 shares that such Director has the right to acquire within 60
days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(11) See Note (10) to tables under Principal Stockholders.
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth as of the close of business on March 7, 1997,
the stock ownership of those Officers listed in the Compensation Table who are
not Directors and the stock ownership of 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>
Jeffrey W. Bartlett................................... 32,683(2) *
Ronald L. Siemon...................................... 68,462(3) *
M. Mirghanbari........................................ 77,877(4) *
All Directors and Officers(5)......................... 4,135,667 38.5%
</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 granted pursuant to
the Company's stock option plans or conversion of Preferred Stock.
5
<PAGE>
(2) Includes 2,008 shares allocated to Jeffrey W. Bartlett under the Employee
Stock Ownership Plan, 8,000 shares that Jeffrey W. Bartlett has the right
to acquire under a stock option plan, and 6,213 shares credited to Jeffrey
W. Bartlett's stock account under the 1992 Management Incentive Plan.
(3) Includes 1,595 shares allocated to Ronald L. Siemon under the Employee
Stock Ownership Plan, 36,800 shares that Ronald L. Siemon has the right to
acquire under stock option plans, and 10,643 shares credited to Ronald L.
Siemon's stock account under the 1992 Management Incentive Plan.
(4) Includes 1,922 shares allocated to M. Mirghanbari under the Employee Stock
Ownership Plan and 59,000 shares that M. Mirghanbari has the right to
acquire under stock option plans.
(5) As of March 7, 1997, all Directors and Officers as a group beneficially
owned 335,724 shares of Preferred Stock, which represented 43% of the
outstanding Preferred Stock and were convertible into 383,312 shares
(3.5%) of Common Stock. As of March 7, 1997, Company-employed Directors
and Officers as a group had the right to acquire 780,200 shares of Common
Stock under stock options exercisable within 60 days, 16,687 shares of
Common Stock were allocated to Company-employed Directors and Officers
under the Employee Stock Ownership Plan, and 252,311 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 1996. During 1996, 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
1996. 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, Grojean and Potter.
The Board of Directors has a Compensation Committee which held two meetings
in 1996. 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, Grojean, Potter and P. Stepan.
The Board of Directors has no Nominating Committee.
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 PRINCIPAL AWARDS OF ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- ------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
F. Quinn Stepan......... 1996 $ 431,667 $ 0 65,250 shs $18,875
Chairman, President 1995 418,333 308,750 -0- 20,469
and CEO 1994 400,000 92,250 200,000 shs 17,606
Jeffrey W. Bartlett.....
Vice President, General 1996 $ 173,333 $200,000 15,000 shs $ 7,792
Counsel and Regulatory 1995 163,000 59,100 -0- 8,224
Affairs 1994 151,000 41,500 8,000 shs 8,391
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------- ------------
NAME AND PRINCIPAL AWARDS OF ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- ------ ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James A. Hartlage.......
Senior Vice President - 1996 $ 241,667 $38,650 15,600 shs $10,655
Technology and 1995 221,875 120,350 -0- 11,017
Operations 1994 196,333 72,850 40,000 shs 10,086
Ronald L. Siemon........
Vice President and 1996 $ 169,000 $67,600 10,950 shs $ 7,414
General Manager 1995 154,667 73,850 -0- 7,662
Polymers 1994 146,667 56,300 24,000 shs 8,020
M. Mirghanbari..........
Vice President-- 1996 $ 181,000 $28,650 11,550 shs $ 8,045
Manufacturing and 1995 170,333 92,050 -0- 8,505
Engineering 1994 161,667 52,100 16,000 shs 8,713
</TABLE>
- --------
(1) For 1996, represents awards to each listed individual of a forfeiture
allocation of $65 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: $2,102; Mr. Bartlett: $1,017; Mr.
Hartlage: $1,235; Mr. Siemon: $807; and Mr. Mirghanbari: $973. Also
includes awards of $5,807 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: $10,901; Mr. Bartlett: $903; Mr.
Hartlage: $3,548; Mr. Siemon: $735; and Mr. Mirghanbari: $1,200. The $65
ESOP forfeiture allocation amount and the $5,807 Profit Sharing amount
were restricted due to limitations imposed by the Revenue Reconciliation
Act of 1993.
The following table provides information concerning individual grants during
1996 of stock options made to each of the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------------------- ------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% 10%
- ---- ----------- ---------------- ---------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
F. Quinn Stepan......... 65,250 24.6% $19.75 5-06-06 $ 810,449 $ 2,053,836
Jeffrey W. Bartlett..... 15,000 5.6% 19.75 5-06-06 186,310 472,146
James A. Hartlage....... 15,600 5.8% 19.75 5-06-06 193,762 491,032
Ronald L. Siemon........ 10,950 4.1% 19.75 5-06-06 136,006 344,667
M. Mirghanbari.......... 11,550 4.3% 19.75 5-06-06 143,459 363,553
OPTION GRANTS IN LAST FISCAL YEAR
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.
All common
stockholders........... N/A N/A N/A N/A $ 133,340,190 $ 337,910,222
All above optionees..... 118,350 44.6% $19.75 5-06-06 $ 1,469,986 $ 3,725,234
Above optionees gain
as % of all
stockholders gain...... N/A N/A N/A N/A 1.1% 1.1%
</TABLE>
7
<PAGE>
The following table provides information concerning exercises during 1996 of
stock options and as to option values at year-end.
1996 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT 1996 YEAR-END 1996 YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ---------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
F. Quinn Stepan......... -0- -0- 467,000/65,250 shs $3,535,782/40,781
Jeffrey W. Bartlett..... 8,000 shs $ 29,000 8,000/15,000 shs 17,251/9,375
James A. Hartlage....... 6,000 shs 59,250 67,600/15,600 shs 373,283/9,750
Ronald L. Siemon........ 12,000 shs 120,000 36,800/10,950 shs 213,233/6,844
M. Mirghanbari.......... 2,200 shs 12,168 59,600/11,550 shs 453,875/7,219
</TABLE>
DIRECTORS' FEES
Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $32,000 plus $1,100 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 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 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.
8
<PAGE>
RETIREMENT PLANS
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 1996,
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
Company also has a nonqualified supplemental retirement plan (the "SERP") for
designated executives. The SERP replaces benefits under the qualified plan
that would otherwise be denied due to Internal Revenue Code limits on
qualified plan benefits. The following table sets forth the maximum annual
retirement income payable under the Retirement Plan and the SERP, 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 50,025 62,475 75,000
175,000........................................ 43,750 58,363 72,888 87,500
225,000........................................ 56,250 75,037 93,712 112,500
400,000........................................ 100,000 133,400 166,600 200,000
450,000........................................ 112,500 150,075 187,425 225,000
</TABLE>
The years of credited service and the 1996 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....................................... 35 $431,667
Jeffrey W. Bartlett................................... 13 173,333
James A. Hartlage..................................... 19 241,667
Ronald L. Siemon...................................... 27 169,000
M. Mirghanbari........................................ 27 181,000
</TABLE>
9
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since December
31, 1991, 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 1996.
The graph assumes $100 was invested on December 31, 1991, and shows the
cumulative total return as of each December 31 thereafter.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stepan Company $100.00 $125.78 $109.17 $119.76 $136.22 $171.28
---------------------------------------------------------------------
Dow Jones Chemical
Industry Index $100.00 $109.13 $120.79 $131.56 $172.26 $214.73
---------------------------------------------------------------------
Russell 2000 Index $100.00 $118.41 $140.80 $138.32 $177.52 $206.82
</TABLE>
- --------
* Assumes $100.00 invested on December 31, 1991, in Stepan Company common
stock, Dow Jones Chemical Industry Index and Russell 2000 Index.
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, Grojean, Potter and P.
Stepan. During 1996, Mr. Grojean served as Chairman for the Committee. All
issues pertaining to corporate officer compensation are submitted to the
Committee for approval prior to implementation. Non-officer compensation for
those reporting to the Chief Executive Officer is reviewed by the Committee as
requested.
10
<PAGE>
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 1996, merit increases for executive officers approximated the
Company's merit guideline and averaged 5.1%, except in the case of four
officers who were granted additional increases to position them more
appropriately within their salary ranges. The average of these
adjustments exceeded the merit guidelines by 7%.
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 Committee
in accordance with the salary merit increase guideline. During 1996,
the CEO's base earnings increased by 2.3% 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 overall (measured in Net
Income) against performance targets approved by the Committee for each
calendar year period.
In 1996 the previously defined Net Income results of the Company, as
adjusted for bonus purposes, were $16.6 million, which was below the
Marginal level of the incentive target set by the Committee. As a
result, no bonuses were paid to executive officers for this factor for
1996.
During 1996, a secondary measure of Return on Invested Capital was
implemented for certain officers and executives. The primary goal of
this measurement tool is to recognize positive results in improving
overall corporate Return on Invested Capital. We believe this will be a
positive improvement in our methods of recognizing performance results
in future years; however, in 1996, the Company's result was 6.78%,
adjusted, and against the targets was Below Marginal. No incentive
bonuses were paid to executives 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 CEO. The average incentive bonus for executive
officers under this part of the plan was 11.6%. In 1996, a supplemental
bonus was paid to one executive officer in recognition of extraordinary
efforts. The supplemental bonus was $166,700 and was paid in addition
to his earned incentive bonus.
11
<PAGE>
The CEO's incentive compensation is determined solely by the financial
results of the Company for the year. In 1996, 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 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 1996, stock options were granted to some
eligible executives.
In addition, stock options are granted at other times based on other
factors that the Committee determines to be relevant. Such actions are
occasioned by election, promotion or extraordinary job performance
results.
(d) Under current levels of compensation and because certain plans are
"grandfathered" under current IRS regulations, 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 Committee intends to consider this matter if circumstances warrant.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
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 1997. 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--1998 ANNUAL MEETING
In order for proposals from Company stockholders to be included in the Proxy
Statement and Form of Proxy for the 1998 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 28, 1997.
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.
12
<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 28, 1997
13
<PAGE>
PROXY STEPAN COMPANY PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 6, 1997
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 6, 1997, 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 LLP as independent
auditors for the Company for 1997.
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.)
<PAGE>
STEPAN COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
[ ]
The Board of Directors recommends a vote "FOR" 1 and 2.
<TABLE>
<CAPTION>
1. Election of Directors-- For Withhold For (Except withhold for Nominees written below)
<S> <C> <C> <C>
Nominees: Robert D. Cadieux and [ ] [ ] [ ]
Paul H. Stepan ---------------------------------------------
For Against Abstain
2. Ratification of independent auditors. [ ] [ ] [ ]
</TABLE>
Dated:
--------------------------------------- 1997
Signature(s)
--------------------------------------
---------------------------------------------------
Please date and sign exactly as your name appears
hereon. Joint owners should each sign. When signing
as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- --------------------------------------------------------------------------------
