<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 11, 1999
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 11,
1999, at 9:00 a.m., for the following purposes:
1. To elect three Directors to the Board.
2. To approve an amendment to the Company's Certificate of Incorporation
to increase the authorized Common Stock of the Company to 30,000,000
shares.
3. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the Company for 1999.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has designated the close of business on March 12,
1999, 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 1998 is enclosed with
this notice.
By Order of the Board of Directors
JEFFREY W. BARTLETT
Secretary
Northfield, Illinois
March 30, 1999
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 30, 1999
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 11, 1999
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 12, 1999, the record date for the
meeting, there were 650,013 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 10,410,027 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 30, 1999. 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 12, 1999, 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>
Percentage
Number of Shares of
of Common Stock Outstanding
Beneficially Total Shares of
Owned(2)(9) Shares Common Stock
------------------------------- --------- ------------ ---
Voting and
Investment Power
-------------------------------
Name(1) Sole Shared
- ------- --------- -------
<S> <C> <C> <C> <C> <C>
F. Quinn Stepan(4)...... 1,849,018(6)(7)(10)(11) 612,217(3) 2,461,235 23.6%
Plan Committee for
Stepan Company
Qualified Plans........ 872,778(5)(8) 872,778 8.3%
Paul Stepan(4).......... 85,921 612,217(3) 698,138 6.7%
</TABLE>
1
<PAGE>
As of March 12, 1999, 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 Percentage of
Stock Outstanding
Beneficially Total Shares of
Owned(2) Shares Preferred Stock
-------------------- ------- --------------- ---
Voting and
Investment
Power
--------------------
Name(1) Sole Shared
------- ------ -------
<S> <C> <C> <C> <C> <C>
F. Quinn Stepan(4)(11)..... 166,480(3) 166,480 25.6%
Paul H. Stepan(4).......... 34,143 166,480(3) 200,623 30.8%
Plan Committee for Stepan
Company Qualified Plans... 96,728(5)(8) 96,728 14.8%
Estate of Mary Louise
Stepan(4)................. 76,872 76,872 11.8%
Mary Louise Wehman(4)...... 76,872 76,872 11.8%
John Stepan(4)............. 76,872 76,872 11.8%
</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 12, 1999.
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 422,139 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) F. Quinn Stepan, Paul H. Stepan, John Stepan and Mary Louise Wehman are
the children of the late Mary Louise Stepan.
(5) The members of the Plan Committee are J. A. Hartlage, W. J. Klein and F.
Q. Stepan, Jr., all of whom are employees of the Company. Due to C. O.
Gardiner's retirement from the Company in February 1999, he was no longer
a member of the Plan Committee effective February 16, 1999. Mr. F. Q.
Stepan, Jr. was elected a member of the Plan Committee by the Company's
Board of Directors on February 16, 1999.
(6) Includes 4,319 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.
(7) Includes 470,250 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 235,246 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) Mr. F. Quinn Stepan is the sole executor of the estate of Mary Louise
Stepan. As of March 12, 1999, there were 261,432 shares of Common Stock
and 76,872 shares of Preferred Stock held by the estate of Mary Louise
Stepan. The shares owned by the estate of Mary Louise Stepan are not
included in the tables for F. Quinn Stepan.
2
<PAGE>
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 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 Earl H. Wagener filed one
late report of one transaction, Paul H. Stepan filed three late reports of
three transactions and M. Mirghanbari filed two late reports of three
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 2002.
Under the Company's Certificate of Incorporation and By-laws, 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 Number and Percent
During Year of of Shares of
the Past Five Years, First Common
Other Directorships and Election as Stock Beneficially
Name of Nominee Age Director Owned(1)
--------------- ------------------------ ----------- ------------------
<C> <S> <C> <C> <C>
Thomas F. Grojean.... Chairman and Chief 1977 38,112(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--60
James A. Hartlage.... Senior Vice President-- 1984 1,006,070(3) 9.6%
Technology and (4)
Operations of the (6)
Company since 1995; (7)
Senior Vice President--
Technology of the
Company from 1992 to
1995.
Age--61
F. Quinn Stepan, Jr.. President and Chief N/A 1,042,409(3) 10.0%
Operating Officer of the (5)
Company since February (6)
1999; Vice President and
General Manager--
Surfactants of the
Company from 1997 to
1999; Vice President,
Global Laundry and
Cleaning Products of the
Company from 1996 to
1997; Director--Business
Management of the
Company from 1992 to
1996.
Age--38
</TABLE>
3
<PAGE>
*Less than one percent of outstanding shares.
- --------
(1) Represents number of shares beneficially owned as of March 12, 1999.
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 5,046 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) Includes all shares deemed beneficially owned by the Plan Committee, of
which J.A. Hartlage and F.Q. Stepan, Jr. are members. 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 75,600 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 plan and 2,539 shares allocated to
J.A. Hartlage under the Employee Stock Ownership Plan.
(5) Includes 70,000 shares of Common Stock which F. Quinn Stepan, Jr. has the
right to acquire within 60 days through the exercise of stock options
granted pursuant to the Company's stock option plan, 1,012 shares
allocated to F. Quinn Stepan, Jr. under the Employee Stock Ownership Plan,
and 4,411 shares credited to F. Quinn Stepan, Jr.'s stock account under
the 1992 Management Incentive Plan. F. Quinn Stepan, Jr. is the son of F.
Quinn Stepan and the nephew of Paul H. Stepan.
(6) See Note (5) to tables under Principal Stockholders.
(7) 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
Principal Occupation and Percent of
Business Experience Shares
During Year of of Common
the Past Five Years, First Stock
Other Directorships and Election as Term Beneficially
Name of Director Age Director Expires Owned(1)
---------------- ------------------------ ----------- ------- -----------------
<C> <S> <C> <C> <C> <C>
Robert D. Cadieux.. Private Investor. From 1992 2000 24,505(2) *
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. From 1983
to 1991, President of
Amoco Chemical Company.
Trustee of Illinois
Institute of Technology.
Age--61
Robert G. Potter... Chairman and Chief 1995 2001 6,123(3) *
Executive Officer of
Solutia Inc., the former
chemical businesses
of Monsanto Company,
since September 1997.
Solutia Inc. is a
manufacturer of
performance chemicals
and specialty chemicals.
Corporate Executive Vice
President and Member,
Management Board, of
Monsanto Company from
February 1995 to August
1997.
Corporate Executive Vice
President of Monsanto
Company and President of
The
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Number and
Percent of
Principal Occupation and Year of Shares
Business Experience During First of Common Stock
the Past Five Years, Election as Term Beneficially
Name of Director Other Directorships and Age Director Expires Owned(1)
---------------- ------------------------------------------- ----------- ------- ------------------
<C> <S> <C> <C> <C> <C>
Chemical Group of Monsanto Company from
1992 to 1995. Director of Solutia Inc. and
Southdown, Inc.
Age--59
F. Quinn Stepan.... Chairman and Chief Executive Officer of the 1967 2001 2,461,235(4) 23.6%
Company since November 1984. President (5)
and Chief Operating Officer of the Company (6)
from 1973 to February 1999. (8)
Age--61 (9)
Paul H. Stepan..... Chairman of SA Inc., a real estate 1977 2000 698,138(2) 6.7%
development firm. President and Director of (4)
Paul Stepan & Associates, Inc., a real (7)
estate development firm, since June 1985.
General Partner of Stepan Venture which is
involved in various venture capital
investments. Executive Director, Mesirow
Financial, an investment banking operation,
1993 to May 1998. Vice Chairman, Hostmark
Management Company from November 1993 to
October 1994.
Age--55
</TABLE>
*Less than one percent of outstanding shares.
- --------
(1) See Note (1) to table under Nominees for Director.
(2) Includes 5,046 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) Includes 2,614 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.
(4) See Note (3) to tables under Principal Stockholders.
(5) See Note (6) to tables under Principal Stockholders.
(6) See Note (7) to tables under Principal Stockholders.
(7) See Note (9) to tables under Principal Stockholders.
(8) See Note (10) to tables under Principal Stockholders.
(9) See Note (11) to tables under Principal Stockholders.
Stock Ownership of Directors and Officers
The following table sets forth as of the close of business on March 12,
1999, 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
Name Beneficially Owned(1)
---- ----------------------------
<S> <C> <C>
Charles W. Given.............................. 15,561 *
Ronald L. Siemon.............................. 69,691(2) *
M. Mirghanbari................................ 81,549(3) *
Jeffrey W. Bartlett........................... 12,804(4) *
All Directors and Officers(5)................. 4,085,294 39.2%
</TABLE>
*Less than one percent of outstanding shares.
5
<PAGE>
- --------
(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.
(2) Includes 1,661 shares allocated to Ronald L. Siemon under the Employee
Stock Ownership Plan, 34,950 shares that Ronald L. Siemon has the right to
acquire under a stock option plan, and 11,104 shares credited to Ronald L.
Siemon's stock account under the 1992 Management Incentive Plan.
(3) Includes 2,001 shares allocated to M. Mirghanbari under the Employee Stock
Ownership Plan and 57,550 shares that M. Mirghanbari has the right to
acquire under stock option plans.
(4) Includes 2,091 shares allocated to Jeffrey W. Bartlett under the Employee
Stock Ownership Plan.
(5) As of March 12, 1999, all Directors and Officers as a group beneficially
owned 210,351 shares of Preferred Stock, which represented 32% of the
outstanding Preferred Stock and were convertible into 240,168 shares
(2.3%) of Common Stock. As of March 12, 1999, Company-employed Directors
and Officers as a group had the right to acquire 780,700 shares of Common
Stock under stock options exercisable within 60 days, 16,530 shares of
Common Stock were allocated to Company-employed Directors and Officers
under the Employee Stock Ownership Plan, and 260,521 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 1998.
During 1998, 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
1998. 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 and Development Committee
(formerly known as the Compensation Committee) which held two meetings in
1998. The functions of the Compensation and Development 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 and
Development Committee are Messrs. Cadieux, Grojean, Potter 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 who were serving as such at the end of 1998, for the
years indicated. Also included is Mr. Charles W. Given who would have been one
of the four most highly compensated executive officers but was not serving as
such at the end of 1998.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------- ------------
Awards of All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
- --------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
F. Quinn Stepan ........... 1998 $464,000 $ 42,350 48,436 shs $24,872
Chairman and CEO 1997 446,333 256,500 65,000 shs 24,457
1996 431,667 0 65,250 shs 18,875
James A. Hartlage.......... 1998 $266,667 $ 75,700 12,916 shs $14,332
Senior Vice President-- 1997 256,667 140,650 -0- 14,103
Technology and Operations 1996 241,667 38,650 15,600 shs 10,655
Charles W. Given........... 1998 $206,667 $ 97,850 -0- $11,036
Vice President--Corporate 1997 202,667 83,900 -0- 11,061
Development(2) 1996 196,000 11,750 12,500 shs 8,549
Ronald L. Siemon........... 1998 $191,000 $ 90,450 11,302 shs $10,174
Vice President and General 1997 180,333 19,850 -0- 9,856
Manager Polymers 1996 169,000 67,600 10,950 shs 7,414
M. Mirghanbari............. 1998 $199,000 $ 53,500 9,687 shs $10,759
Vice President-- 1997 190,333 90,800 -0- 10,524
Manufacturing and 1996 181,000 28,650 11,550 shs 8,045
Engineering
Jeffrey W. Bartlett........ 1998 $187,667 $ 57,150 9,687 shs $10,243
Vice President, General 1997 180,333 63,750 -0- 10,070
Counsel and Regulatory 1996 173,333 200,000 15,000 shs 7,792
Affairs
</TABLE>
- --------
(1) For 1998, represents awards to each listed individual of a forfeiture
allocation of $1 under the Company's Employee Stock Ownership Plan
("ESOP") as well as dividends on shares in each listed individual ESOP
account as follows: Mr. Stepan: $2,547; Mr. Hartlage: $1,498; Mr. Given:
$1,088; Mr. Siemon: $980; Mr. Mirghanbari: $1,180; and Mr. Bartlett:
$1,233. Also includes awards of $7,702 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: $14,622; Mr. Hartlage: $5,131;
Mr. Given: $2,245; Mr. Siemon: $1,491; Mr. Mirghanbari: $1,876; and Mr.
Bartlett: $1,307. The $1 ESOP forfeiture allocation amount and the $7,702
Profit Sharing amount were restricted due to limitations imposed by the
Revenue Reconciliation Act of 1993.
(2) Mr. Given was no longer an executive officer effective August 31, 1998.
Mr. Given retired from the Company on December 31, 1998.
7
<PAGE>
The following table provides information concerning individual grants
during 1998 of stock options made to each of the named executive officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
-------------------------------------------------------- ---------------------------
Number of
Securities Percent of Total
Underlying Options Granted
Options to Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% 10%
- ---- ----------- ---------------- ---------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
F. Quinn Stepan......... 48,436 21.1% $30.96875 5-4-08 $ 943,343 $ 2,390,617
James A. Hartlage....... 12,916 5.6% 30.96875 5-4-08 251,553 637,485
Charles W. Given........ -0- 0% -- -- -0- -0-
Ronald L. Siemon........ 11,302 4.9% 30.96875 5-4-08 220,119 557,824
M. Mirghanbari.......... 9,687 4.2% 30.96875 5-4-08 188,665 478,114
Jeffrey W. Bartlett..... 9,687 4.2% 30.96875 5-4-08 188,665 478,114
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 $ 202,746,533 $ 513,799,521
All above optionees..... 92,028 40.1% $30.96875 5-4-08 $ 1,792,345 $ 4,542,154
Above optionees gain as
% of all stockholders
gain................... N/A N/A N/A N/A 1.0% 1.0%
</TABLE>
The following table provides information concerning exercises during 1998
of stock options and as to option values at year-end.
1998 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 1998 Year-End 1998 Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ---------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
F. Quinn Stepan......... -0- -0- 405,250/113,436 shs $4,765,157/479,376
James A. Hartlage....... -0- -0- 75,600/12,916 shs 780,376/0
Charles W. Given........ 51,300 shs $607,936 21,200/-0- shs 267,650/0
Ronald L. Siemon........ 11,200 shs 126,780 34,950/11,302 shs 378,281/0
M. Mirghanbari.......... 600 shs 10,312 66,950/9,687 shs 835,469/0
Jeffrey W. Bartlett..... 15,000 shs 128,750 -0-/9,687 shs 0/0
</TABLE>
8
<PAGE>
DIRECTORS' FEES
Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $35,000 plus $1,250 for attendance at each Board of
Directors meeting, Audit Committee meeting and Compensation and Development
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
calendar year 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, but not 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 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 ($160,000 in 1998, 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.
9
<PAGE>
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
BASE SALARY 15 20 25 30
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$160,000........................................ 40,000 53,333 66,667 80,000
200,000........................................ 50,000 66,667 83,333 100,000
300,000........................................ 75,000 100,000 125,000 150,000
400,000........................................ 100,000 133,400 166,600 200,000
500,000........................................ 125,000 166,667 208,333 250,000
</TABLE>
The years of credited service and the 1998 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.................................... 37 $464,000
James A. Hartlage.................................. 21 266,667
Charles W. Given................................... 29 206,667
Ronald L. Siemon................................... 29 191,000
M. Mirghanbari..................................... 29 199,000
Jeffrey W. Bartlett................................ 15 187,667
</TABLE>
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since December
31, 1993, 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 1998. The graph assumes
$100 was invested on December 31, 1993, and shows the cumulative total return
as of each December 31 thereafter.
Cumulative Value at December 31*
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stepan Company $100.00 $109.70 $124.78 $156.90 $233.43 $213.95
- ------------------------------------------------------------------------------------
Dow Jones Chemical Industry Index $100.00 $108.92 $142.62 $177.61 $217.75 $200.45
- ------------------------------------------------------------------------------------
Russell 2000 Index $100.00 $ 98.24 $126.08 $146.88 $179.73 $175.14
</TABLE>
- --------
* Assumes $100.00 invested on December 31, 1993, in Stepan Company common
stock, Dow Jones Chemical Industry Index and Russell 2000 Index.
11
<PAGE>
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES
The present capital structure of the Company authorizes 15,000,000 shares
of Common Stock, par value $1 per share. The Board of Directors believes this
capital structure is inadequate for the present and future needs of the
Company. Therefore, the Board of Directors has unanimously approved the
amendment and restatement of the Company's Fourth Article of its Certificate
of Incorporation (the "Certificate") to increase the authorized number of
shares of Common Stock from 15,000,000 shares to 30,000,000 shares. The Board
believes this capital structure more appropriately reflects the present and
future needs of the Company and recommends such amendment and restatement to
the Company's shareholders for adoption. On March 12, 1999, 9,667,875 shares
of Common Stock were outstanding (10,410,027 shares assuming conversion of all
of the Preferred Stock) and 650,013 shares of Preferred Stock were
outstanding. In addition, 1,600,000 shares have been reserved for issuance
under the 1992 Stock Option Plan.
Purpose of Authorizing Additional Common Stock
Authorizing an additional 15,000,000 shares of Common Stock would give the
Board of Directors the express authority, without further action of the
shareholders, to issue such Common Stock from time to time as the Board of
Directors deems necessary. The Board of Directors believes it is necessary to
have the ability to issue such additional shares of Common Stock for general
corporate purposes. Potential uses of the additional authorized shares may
include acquisition transactions, equity financings, stock dividends or
distributions, and issuance of options pursuant to the Company's 1992 Stock
Option Plan without further action by the shareholders, unless such action
were specifically required by applicable law or rules of any stock exchange on
which the Company's securities may then be listed.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's shareholders depending upon
the exact nature and circumstances of any actual issuance of authorized but
unissued shares. While the Company has no present intention of issuing shares
for such purposes, the increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable
law) in one or more transactions that could make a change in control or
takeover of the Company more difficult. For example, additional shares could
be issued by the Company so as to dilute the stock ownership or voting rights
of persons seeking to obtain control of the Company. Similarly, the issuance
of additional shares to certain persons allied with the Company's management
could have the effect of making it more difficult to remove the Company's
current management by diluting the stock ownership or voting rights of persons
seeking to cause such removal. In addition, an issuance of additional shares
by the Company could have an effect on the potential realizable value of a
shareholder's investment. In the absence of a proportionate increase in the
Company's earnings and book value, an increase in the aggregate number of
outstanding shares of the Company caused by the issuance of the additional
shares would dilute the earnings per share and book value per share of all
outstanding shares of the Company's Common Stock. If such factors were
reflected in the price per share of Common Stock, the potential realizable
value of the shareholder's investment could be adversely affected. The Common
Stock carries no preemptive rights to purchase additional shares.
The proposed amendment and restatement of the Company's Certificate was
approved by a vote of the Board of Directors of the Company on February 16,
1999.
The Proposal
The first paragraph of the Fourth Article of the Company's Certificate of
Incorporation would be amended to provide as follows:
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue is Thirty Two Million (32,000,000) shares, of which
Thirty Million (30,000,000) shares shall be Common Stock of a par value of
$1.00 per share, and Two Million (2,000,000) shares shall be Preferred
Stock without par value.
12
<PAGE>
Vote
The affirmative vote of at least a majority of the votes which all
stockholders are entitled to cast at the meeting is required for adoption of
the Certificate amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENT TO
THE COMPANY'S CERTIFICATE OF INCORPORATION.
----------------
REPORT OF THE COMPENSATION AND DEVELOPMENT COMMITTEE
The Company's executive compensation program is administered by the
Compensation and Development Committee of the Board of Directors, which is
composed of the following non-employee Directors: Messrs. Cadieux, Grojean,
Potter and P. Stepan. During 1998, 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.
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 guideline.
During 1998, merit increases for executive officers slightly exceeded
the Company's merit guideline and averaged 6.6%. One corporate officer
received a promotional increase approximating 18.9%.
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 1998,
the CEO's base earnings increased by 4.0% 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 their incentive bonus
based on the performance of the Company overall measured against
targets for (a) Net Income and (b) Return on Invested Capital approved
by the Committee for each calendar year period. The typical arrangement
is that half of the total is measured against Net Income targets and
half against targets for overall Corporate Return on Invested Capital.
In 1998, the Net Income results of the Company were $23.4 million,
which was 73% above the Marginal level of the incentive target as set
by the Committee. As a result, awards were made to executives for this
factor for 1998. The average award for executive officers under this
factor was 3.5%.
13
<PAGE>
During 1998, the Company's result measured by Return on Invested
Capital was 7.8%, and against the targets was Below Marginal. No
incentive awards were made 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. During 1998, the average incentive bonus for
executive officers under this part of the plan was 27.2%.
The CEO's incentive compensation is determined solely by the financial
results of the Company for the year. For 1998, an incentive bonus of
$42,350, or 9.1%, 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 1998, stock options were granted to some
eligible executives.
In addition, stock options are granted to executive officers 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. During 1998, no such stock
options were granted to executive officers.
(d) The Board of Directors believes that ownership of Company stock by
executives and executive officers is desirable in order to focus both
short and long-term decision making on the best interests of the
Company. To this end, during 1998, the Committee maintained the
following policy guidelines:
1. Executive officers of the Company should own a minimum of Company
stock approximating two times their annual base salary paid by the
Company; and
2. Other executives (defined as those who are participants in the
Company Management Incentive Plan) should own a minimum of Company
stock approximating one times their annual base salary paid by the
Company.
Stock may be owned either directly, through the Company Stock Purchase
Plan, the Company Employee Stock Ownership Plan, or in shares held in a
deferred Management Incentive Plan account. Stock options not exercised
are not considered "owned stock" for the purpose of this policy.
The Committee realizes that time must be allowed to realize this
targeted goal, but expects executives and executive officers to achieve
such ownership within a three year time frame.
(e) Under current levels of compensation and because certain plans,
including grants under stock option plans prior to May 6, 1997, 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 ("the Code") on the deductibility
of compensation for purposes of calculating federal income tax.
However, with respect to future years, the Committee intends to
consider the application of Section 162(m) of the Code to the Company's
compensation plans and practices, and will consider possible changes
thereto that may be necessary to qualify future compensation paid to
executive officers for deductibility under Section 162(m) of the Code
to the extent that such changes would be consistent with the Company's
compensation philosophy and in the best interests of the Company.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
Paul H. Stepan
THE COMPENSATION AND DEVELOPMENT COMMITTEE
14
<PAGE>
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 1999. 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--2000 ANNUAL MEETING
In order for proposals from Company stockholders to be included in the Proxy
Statement and Form of Proxy for the 2000 Annual Meeting in accordance with
Securities and Exchange Commission Rule 14a-8, the Company must receive the
proposals at its administrative offices at Edens Expressway and Winnetka Road,
Northfield, Illinois 60093, no later than December 1, 1999.
A stockholder that intends to present business at the 2000 Annual Meeting
other than pursuant to Rule 14a-8 must comply with the requirements set forth
in the Company's By-laws. Among other things, to bring business before an
annual meeting, a stockholder must give written notice thereof, complying with
the By-laws, to the Secretary of the Company not later than 90 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders. Therefore, because the 1999 Annual Meeting is scheduled for May
11, 1999, the Company must receive notice of a stockholder proposal submitted
other than pursuant to Rule 14a-8 no later than February 11, 2000.
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 30, 1999
15
<PAGE>
ADMISSION CARD REQUEST
STEPAN COMPANY
ANNUAL STOCKHOLDERS' MEETING
22 West Frontage Road
Northfield, Illinois 60093
May 11, 1999 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 Meeting of Stockholders to be held May 11, 1999
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 11, 1999, 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, 2 and
3, set forth below.
1. Election of Directors, Nominees: Thomas F. Grojean, James A. Hartlage
and F. Quinn Stepan, Jr.
2. Approval of an amendment to the Company's Certificate of Incorporation
to increase the authorized Common Stock of the Company to 30,000,000
shares.
3. Ratification of the appointment of Arthur Andersen LLP as independent
auditors for the Company for 1999.
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>
The Board of Directors recommends a vote "FOR" 1, 2 and 3.
For Withhold
1. Election of Directors-
Nominees: Thomas F. Grojean, James A. Hartlage and
F. Quinn Stepan, Jr. [_] [_]
For (Except withhold for nominee(s) written below).
[_] _____________________________________________________
For Against Abstain
2. Approval to increase authorized shares of Common
Stock. [_] [_] [_]
3. Ratification of independent auditors. [_] [_] [_]
Dated:______________________________, 1999
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.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM PROMPTLY USING THE ENCLOSED
ENVELOPE.
