SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark one)
___
| X | ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
|___| SECURITIES EXCHANGE ACT OF 1934 {FEE REQUIRED}
For the Fiscal Year Ended December 31, 1996
OR
___
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
|___| OF THE SECURITIES EXCHANGE ACT OF 1934 {NO FEE REQUIRED}
For the transition period from _______ to ______
Commission File No. 1-4436
THE STEPHAN CO.
_______________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Florida 59-0676812
________________________________ _________________
(State or Other Jurisdiction of (I.R.S Employer
Incorporation or Organization) Identification No.)
1850 West McNab Road, Fort Lauderdale, Florida 33309
_______________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (954) 971-0600
_____________
Securities Registered Pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
___________________ _________________________________________
Common Stock, $.01 AMERICAN STOCK EXCHANGE
Par Value
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to the filing requirements for at least the past 90 days.
YES X NO
____ _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy
or Information statements incorporated by reference in Part III of this
form 10-K. (X)
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of filing.
$ 45,622,000 as of March 31, 1997
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of the latest practicable date:
4,147,466 Shares of Common Stock, $.01 Par Value,
as of March 31, 1997
List hereunder the following documents if incorporated by reference
and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: (1) Any Annual Report to security holders; (2)
Any proxy or information statement; and (3) Any prospectus filed pursuant
to Rule 424(b) or (c) under the Securities Act of 1933:
Portions of the Company's proxy statement for the 1997 annual meeting
to be filed no later than 120 days after the Company's fiscal year are
incorporated by reference in Part III.
The undersigned hereby amends Item 1 of Part I and Item 14 of Part IV
of its Annual Report on Form 10-K for the fiscal year ended December 31,
1996 to read as follows:
Item 1. Business
GENERAL
The Stephan Co.(the "Registrant" or the "Company"), founded in 1897
and incorporated in the State of Florida in 1952, is engaged in the
manufacture, sale and distribution of hair care and personal care products
on both a wholesale and retail level. The Registrant is comprised of The
Stephan Co. ("Stephan") and its wholly-owned subsidiaries, Foxy Products,
Inc., Old 97 Company, Williamsport Barber and Beauty Corp., Stephan & Co.,
Scientific Research Products, Inc. of Delaware, and Trevor Sorbie of
America, Inc. The Company considers itself to be in a single line of
business for reporting purposes.
The Stephan Co.
Located in Fort Lauderdale, Florida, Stephan is engaged in the
manufacturing and distribution of hair and skin care products, as well as
the manufacturing of custom "private label" products, which is the
manufacturing of products marketed and sold under the brand names of
customers. In addition, the Fort Lauderdale location serves as the
Registrant's corporate headquarters, providing general management services
to its subsidiaries. Only one customer accounted for more than 10% of the
Company's consolidated net sales for the year ended December 31, 1996, down
from three in 1995 principally due to the acquisition of Trevor Sorbie of
America, Inc. on June 28, 1996 (see "-- Trevor Sorbie of America, Inc.")
and the loss of the private label manufacturing business of Martin Himmel,
Inc. That customer, Vogue International, accounted for approximately 12%
of the Company's consolidated net sales. Sales of products acquired from
Colgate on December 31, 1995 were $5,600,000 in 1996, which also had a
significant effect of reducing the Registrant's dependency on major
customers.
Changes started in 1995 to distribution methods and channels used by
the Frances Denney line of cosmetics, a division of The Stephan Co.,
continued in 1996, decreasing sales to J.C. Penney, and other retailers.
The Company continues to circulate a full color mail-order catalog as well
as actively advertising and appearing on television shop-at-home programs.
In addition, the Company also signed a Trademark License and Supply
Agreement in the first quarter of 1996 that gives exclusive rights to a
company to market and distribute certain Denney products to several retail
chains, including J.C. Penney, in the United States and Canada.
Stephan also manufactures and sells products under the name
"STEPHAN'S". Such products consist of different types of shampoos, hair
treatments, after shave lotion, dandruff lotion, hair conditioners and hair
spray which are distributed throughout the United States to approximately
350 beauty and barber distributors. The Registrant's trademark "STEPHAN'S"
and the design utilized thereby has been registered with the United States
Patent and Trademark Office, which registration is not due for renewal
until 2001. Sales of Stephan and Denney products, combined with the
private label manufacturing sales of the Stephan Co., accounted for
approximately 33% of consolidated revenues.
Old 97 Company.
Old 97 Company ("Old 97"), located in Tampa, Florida, was purchased in
1988 by the Registrant. Old 97 markets products under brand names such as
OLD 97, KNIGHTS, and TAMMY. In addition to selling more than 100 different
products, including hair and skin care products, fragrances, personal
grooming aids and household items, Old 97 serves as the Company's second
manufacturing facility. The Tampa facility manufactures most of the
products sold by the Frances Denney line, all the talc manufactured for the
Cashmere Bouquet and Quinsana brands, as well as all the other hair and
skin care brands acquired from Colgate on December 31, 1995, in addition to
a significant amount of private label manufacturing. Old 97 is also
responsible for distributing the Frances Denney products, as well as the
distribution of the brands acquired from Colgate.
Williamsport Barber and Beauty Corp.
Williamsport Barber and Beauty Corp. ("Williamsport") was acquired in
January, 1992 and is located in Williamsport, Pa. Williamsport is a large
mail order beauty and barber supply company and accounted for over 12% of
the Company's consolidated revenues for the year ended December 31, 1996.
Stephan & Co.
Formerly known as Heads or Nails, Inc. and acquired in August, 1993,
Stephan & Co. has focused its attention on the manufacture and supply of
personal care amenity products for cruise ships, with production and
shipping commencing in December, 1995. Consolidated revenues for the year
ended December 31, 1996 were not material.
Scientific Research Products, Inc. of Delaware.
Purchased by the Company in April, 1994, Scientific Research Products
was one of the Registrant's largest private label customers and is a
distributor of ethnic hair care products. Scientific Research Products
accounted for 30% of the Registrant's consolidated revenues, with sales
approximating $8,100,000. In addition to the above, Scientific is
responsible for the distribution of the "Magic Wave" product line, formerly
marketed by Foxy Products, Inc., a Company acquired by the Registrant in
1986. Consolidated revenues for Foxy Products, Inc. for the year ended
December 31, 1996 were not material.
Colgate Palmolive and Mennen Company Products
On December 31, 1995, the Registrant entered into asset purchase
agreements (collectively, the "Acquisition Agreements") with each of
Colgate Palmolive Company and its subsidiary, The Mennen Company
(collectively, the "Sellers"), for the acquisition by the Registrant of
certain consumer product brands of the Sellers, as well as a licensing
agreement for the domestic distribution of Colgate-Palmolive's Cashmere
Bouquet Talc product line (the "U.S. Trademark License"). The aggregate
purchase price for the brands and the U.S. Trademark License was a minimum
of $12,000,000, comprised of a $2,000,000 cash down payment, five-year 8%
promissory notes in an aggregate amount of $6,000,000 and an 8% royalty
payment based upon "net sales" of the acquired/licensed products (as
defined in the Acquisition Agreements) for a period of eight years (the
"Deferred Payments"), with a minimum aggregate royalty payment of
$4,000,000. In June 1996, the Registrant refinanced the existing notes
payable to the Sellers by securing a five-year term loan with a bank. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
The Registrant purchased the Wildroot product line of men's hair care
products from, and executed a licensing agreement for the manufacture and
domestic distribution of the Cashmere Bouquet Talc line with, Colgate
Palmolive Company. Protein 29 and Protein 21, both men's hair grooming
preparations; Balm Barr, a hand and body lotion and creme product for
women; Stretch Mark, a massage creme for women; and Quinsana, a medicated
anti-fungal talc, were purchased from The Mennen Company.
In December 1996, the Registrant entered into a Settlement Agreement
and Amendment with the Sellers (the "Settlement Agreement") to resolve
certain outstanding disputes between them in respect of the Acquisition
Agreements. In general, the Settlement Agreement (i) terminated an
agreement which granted the Registrant the right to cause the Sellers to
repurchase certain products if certain minimum net sales (as defined in the
Settlement Agreement) were not achieved, (ii) required the Sellers to remit
$500,000 in cash to the Registrant, and (iii) provided for the licensing to
the Registrant of certain trademarks in Canada pursuant to a trademark
license agreement (the "Canadian Trademark License"). Additionally, the
Settlement Agreement provided that (i) Deferred Payments would be made with
respect to products sold under the Canadian Trademark License, (ii) total
Deferred Payments would be subject to a maximum of $4,000,000, and (iii)
the Registrant is required to pay the greater of $150,000 and 50% of such
Deferred Payments in immediately available funds, with the balance payable,
at the option of the Registrant, by wire transfer or a five-year promissory
note. The Registrant has made two of such payments in cash since execution
of the Settlement Agreement. In the event that the $4,000,000 maximum
amount is not paid by January 31, 2004, the Registrant must pay the
difference in cash between that amount and Deferred Payments made prior to
such date.
The U.S. Trademark License grants the Registrant an exclusive license
to use certain trademarks relating to the Cashmere Bouquet product line in
connection with the manufacture and distribution of such product line in
the United States. The Canadian Trademark License grants the Registrant an
exclusive license to use certain trademarks relating to the Cashmere
Bouquet powder product line in Canada. Each of the U.S. Trademark License
and the Canadian Trademark License has an initial term of ten years and is
automatically renewable for successive ten-year periods unless earlier
terminated by breach, mutual agreement or upon certain other specified
events. Any products sold under the License Agreement are included in net
sales for purposes of determining the Deferred Payments. Sales of products
acquired from Colgate on December 31, 1995 were $5,600,000 in 1996.
Color Me Beautiful, Inc.
In March 1996, the Registrant entered into a Trademark License and
Supply Agreement with Color Me Beautiful, Inc. ("CMB") to license select
products of the Registrant's Frances Denney Line and to supply the
requirements of CMB for such products. The agreement provides CMB with the
exclusive right to market and distribute specified Denney products in
certain retail chain stores in the United States and Canada. The agreement
provides for royalty payments by CMB based upon net sales (as defined in
the agreement). The agreement also provides for guaranteed minimum annual
royalty payments throughout the term of the Agreement which are credited
against accrued royalties. The agreement also provides for the Registrant
to be the exclusive supplier of products sold under the agreement. The
agreement continues in effect unless terminated (i) by the Registrant, upon
the occurrence of certain events including, among others, bankruptcy or a
change of control (as defined in the agreement) of CMB, (ii) by either
party, upon the occurrence of a material breach, (iii) by CMB, on 180 days
prior notice or (iv) by mutual agreement.
Trevor Sorbie of America, Inc.
On June 28, 1996, the Company entered into a Stock Purchase Agreement
with Sorbie Acquisition Co. ("Sorbie"), and the stockholders of Sorbie,
including the President and principal stockholder, as well as related
agreements described below with the President, Trevor Sorbie International,
Mr. Trevor Sorbie, Samson Arms, Inc. and Redken Laboratories.
Pursuant to the agreements, the Company exchanged 13,733 shares of its
restricted Common Stock, valued at approximately $218,000, and additional
consideration as described below, for all the outstanding common and
preferred stock of Sorbie. The Company issued an additional 18,899 shares
of restricted stock, valued at approximately $300,000, to terminate an
existing royalty agreement between Samson Arms, Inc. and Sorbie.
Additionally, the Company (i) terminated a secured subordinated debenture
of Sorbie held by the Company in the principal amount of $500,000, (ii)
assumed liabilities due to the President of Sorbie under a pre-existing
employment contract and (iii) replaced a certain secured promissory note of
Sorbie in favor of Redken Laboratories in the principal amount of
$3,250,000 with a $2,500,000 cash payment.
In separate agreements, the Company amended the existing royalty
contract between Sorbie, Trevor Sorbie International, Sorbie Trading
Limited and Mr. Trevor Sorbie. In accordance with the amended agreement,
the royalty payment percentage rates payable upon future sales were
reduced. The amended agreement also provides for the supply to Sorbie
Trading Limited and Trevor Sorbie International, at their option, by Sorbie
of such companies' requirements of certain products. The amended agreement
contains certain non-competition provisions, effective until December 31,
1999, relating to the Sorbie Products (as defined in the amended
agreement). The amended agreement expires in December 31, 2044, but any
party thereto may renew it for successive ten-year periods until December
31, 2093.
RAW MATERIALS AND INVENTORY
The raw materials utilized by the Registrant and its subsidiaries in
the manufacture of its products consist primarily of chemicals, alcohol,
perfumes, paper labels, plastic bottles and caps. All materials are
readily available at competitive prices from numerous sources and have been
purchased from domestic suppliers. Neither the Registrant nor any of its
subsidiaries has ever experienced any shortage in supplies thereof nor are
any such shortages anticipated by the Registrant and its subsidiaries in
the reasonably foreseeable future.
The Registrant and its subsidiaries have followed the practice of
maintaining a level of inventory of their products sufficient for a period
of not less than two months. The Registrant does not anticipate any change
in such practice during the reasonably foreseeable future.
BACKLOG
As of March 31, 1997, the dollar amount of backlog orders was not
material.
RESEARCH AND DEVELOPMENT
During each of the three fiscal years ending December 31, 1996,
expenditures by the Registrant and its subsidiaries on Company sponsored
research relating to the development of new products, services or
techniques or the improvement of existing products, services or techniques
as determined in accordance with generally accepted accounting principles
were not material and were expensed as incurred.
COMPETITION
The hair care and personal grooming business is highly competitive in
terms of price and product quality. Products manufactured by the
Registrant and its subsidiaries compete with numerous varieties of other
such products, many of which bear well known, respected and heavily
advertised brand names and are produced by companies having substantially
greater financial, technical, personnel and other resources than does the
Registrant. Products produced by the Registrant and its subsidiaries
account for a relatively insignificant portion of the total hair care and
personal grooming products manufactured and sold annually in the United
States.
EMPLOYEES
As of March 31, 1997, in addition to its 6 officers, the Registrant
and its subsidiaries employed approximately 150 people engaged in the
production, warehousing, and distribution of their products. Although the
Registrant and its subsidiaries do not anticipate the need to hire a
material number of additional employees during the remainder of 1997, the
Company believes that any such employees, if needed, would be readily
available. The employees are not covered by any collective bargaining
agreement and the Company believes its employee relationships are
satisfactory.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) Exhibits
10.1 Acquisition Agreement, dated December 31, 1995, between
Colgate-Palmolive Company and The Stephan Co., with exhibits, including the
Transition Agreement, included with the Form 8-K filed January 16, 1996 and
as amended on January 22, 1996, is incorporated herein by reference.
10.2 Acquisition Agreement, dated December 31, 1995, between The
Mennen Company and The Stephan Co., with exhibits, included with the Form 8-
K filed January 16, 1996 and as amended on January 22, 1996 is incorporated
herein by reference.
10.3 Letter agreement, dated December 31, 1995, between Colgate-
Palmolive Company, The Mennen Company and The Stephan Co., included with
the Form 8-K filed January 16, 1996 and as amended on January 22, 1996, is
incorporated herein by reference.
10.4 Settlement Agreement and Amendment, dated December 5, 1996,
between The Stephan Co., The Mennen Company and Colgate-Palmolive Company,
included with the Form 10-K filed April 15, 1997, is incorporated herein by
reference.
10.5 The Trademark License Agreement, dated December 5, 1996,
between Colgate-Palmolive Canada, Inc. and The Stephan Co., included with
the Form 10-K filed April 15, 1997, is incorporated herein by reference.
10.6 Trademark License and Supply Agreement, dated March 7,
1996, between Color Me Beautiful, Inc. and The Stephan Co., included with
the Form 8-K filed March 20, 1996, is incorporated herein by reference.
10.7 Agreement, dated June 28, 1996, for the acquisition of
Sorbie Acquisition Co. and Subsidiaries, with exhibits, included with the
Form 8-K filed July 15, 1996, and as such was amended on August 21,
September 16 and October 9, 1996, is incorporated herein by reference.
10.8 Amended and Restated Sorbie Products Agreement, dated
June 27, 1996, among Sorbie Acquisition Co., Sorbie Trading Limited, Trevor
Sorbie International, PLC and Trevor Sorbie, included with the Form 8-K/A
filed August 21, 1996, is incorporated herein by reference.
(b) Financial Statements and Financial Statement Schedules
(i) Financial Statements
Independent Auditors' Report for the years ended
December 31, 1996 and 1995.
Independent Auditors' Report for the year ended
December 31, 1994.
Consolidated Balance Sheets as of December 31, 1996
and 1995.
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995, and 1994.
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
(ii) Financial Statement Schedules
All schedules are omitted because they are not applicable or
the required information is shown in the consolidated
financial statements or notes thereto.
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K (Continued)
(c) Reports on Form 8-K
(i) Form 8-K, filed January 16, 1996, in connection with the
acquisition of certain brands from Colgate-Palmolive
Company, and as amended on January 22, 1996.
(ii) Form 8-K, filed March 20, 1996, in connection with the
Trademark License and Supply Agreement between the
Registrant and Color Me Beautiful, Inc.
(iii)Form 8-K, filed July 15, 1996, in connection with
the acquisition of Sorbie Acquisition Company and
Subsidiaries, and as amended on August 21, September 16 and
October 9, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf
by the undersigned, thereunto, duly authorized.
THE STEPHAN CO.
/s/ Frank F. Ferola
By:___________________________________
Frank F. Ferola
President, Chairman of the Board and
Principal Executive Officer
September 22, 1997
/s/ David A. Spiegel
By:___________________________________
David A. Spiegel
Principal Financial Officer and
Principal Accounting Officer
September 22, 1997
Pursuant to the requirements of Section 13 or 15(d) the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated:
/s/ Frank F. Ferola
By:______________________________
Frank F. Ferola, Principal
Executive Officer and Director
Date: September __, 1997
