THE STEPHAN CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held August 21,1998
To the Stockholders:
The Annual Meeting of the Stockholders of The Stephan Co. (the
"Company") will be held on Friday, August 21, 1998, at 10:00 A.M., local time,
at The Fort Lauderdale Marriott North, 6650 North Andrews Avenue, Fort
Lauderdale, Florida, 33309, for the following purposes:
I. To elect members of the Company's Board of Directors;
II. To consider and approve an amendment to the Company's By-Laws to
provide for the classification of the Board of Directors into three classes;
and
III. To transact such other business as may properly come before the
meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on June 30,1998 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the Company's 1998 Annual Meeting of Stockholders
(the "Meeting"). Only stockholders of record at the close of business on this
date will be entitled to notice of, and to vote at, the Meeting or any
adjournment(s) thereof.
By Order of the Board of Directors
PETER FEROLA
Secretary
July 10, 1998
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY AND RETURN IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE
WHICH HAS BEEN PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING IN PERSON. THE PROXY MAY BE REVOKED BY YOU AT ANY
TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING
YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE YOUR RIGHT TO VOTE YOUR SHARES PERSONALLY
PROXY STATEMENT
THE STEPHAN CO.
Annual Meeting of Stockholders
To Be Held on August 21, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Stephan Co. (the "Company"), a Florida
corporation, for use at the 1998 Annual Meeting of Stockholders to be held on
August 21, 1998 and at any adjournment(s) thereof (the "Meeting"), for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The Meeting is to be held at The Fort Lauderdale Marriott North, located at 6650
North Andrews Avenue, Fort Lauderdale, Florida, 33309, at 10:00 A.M., local
time.
The principal executive offices of the Company are located at 1850 West McNab
Road, Fort Lauderdale, Florida (telephone no. 954-971-0600). The enclosed
proxy and this proxy statement are being first sent to stockholders of the
Company on or about July 10, 1998.
Quorum; Received Votes; Solicitation and Revocation.
Proxies in the form enclosed are solicited by, or on behalf of, the Company's
Board of Directors. The persons named in the proxy have been designated as
proxies by the Board of Directors. If a quorum, consisting of the presence
(in person or by proxy) of holders of a majority of the outstanding shares of
common stock, $.01 par value, of the Company (the "Common Stock"), exists at the
Meeting, (i) the directors shall be elected by the affirmative vote of a
plurality of the shares of Common Stock cast at the Meeting; (ii) the amendment
to the Company's By-Laws to provide for the classification of the Board of
Directors shall be approved by the affirmative vote of a majority of the shares
of common stock present in person or by proxy at the Meeting; and (iii) approval
of any other matters which may properly come before the Meeting shall, subject
to applicable law, require that the affirmative votes favoring such matter
exceed the votes cast opposing such matter at the Meeting. Abstentions and
shares of record held by a broker or nominee ("Broker Shares") that are voted
on any proposal will be included in determining the existence of a quorum.
Broker Shares that are not voted on any matter will be treated as shares as
to which voting power has been withheld by the beneficial owner of such
shares and, therefore, as shares not entitled to vote on the proposal, and
will not be included in determining the existence of a quorum. Because only
a plurality of shares is required, abstentions and non-voted Broker Shares
will not have an effect on the outcome of the election of the six nominees for
directors. A "withheld" vote will be treated equivalent to an abstention.
Shares represented by properly executed proxies received by the Company will be
voted at the Meeting in the manner specified therein or, if no specification is
made, will be voted (i) "FOR" the election of all six of the nominees for
directors named herein in the classes as set forth herein; and (ii) "FOR" the
approval of the amendment to the Company's By-Laws to provide for the
classification of the Board of Directors. If the proposal with respect to
the classification of the Board of Directors is not adopted, proxies
solicited by the Board of Directors will be voted for the election of the six
nominees named herein, each to serve until the next Annual Meeting of
Stockholders or until their respective successors have been duly elected and
qualified.
In the event that any other matters are properly presented at the Meeting for
action, the persons named in the enclosed proxy will vote the proxies (which
confer authority upon them to vote on any such matters) in accordance with
their judgment. Any proxy given pursuant to this solicitation may be revoked by
the stockholder at any time before it is exercised by written notification
delivered to the Secretary of the Company, by voting in person at the Meeting,
or by duly executing and delivering another proxy bearing a later date.
Attendance by a stockholder at the Meeting does not alone serve to revoke his
or her proxy.
The solicitation of proxies will be made primarily by mail but, in addition, may
be made by directors, officers and employees of the Company personally or by
telephone or telegraph, without extra compensation. Brokers, nominees and
fiduciaries will be reimbursed for their out-of-pocket and clerical expenses in
transmitting proxies and related material to beneficial owners. The costs of
soliciting proxies will be borne by the Company. It is estimated that said
costs will be nominal.
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1997, which contains audited financial statements, is being mailed
with this Proxy Statement to all persons who were stockholders of record as of
the close of business on June 30, 1998. Additional copies of the Annual Report
will be provided free of charge upon written request to the Company, at 1850
West McNab Road, Fort Lauderdale, Florida 33309, Attn.: Secretary.
Record Date; Voting
The Company's Board of Directors has fixed the close of business on June 30,
1998 as the record date (the "Record Date") for the determination of
stockholders of the Company who are entitled to receive notice of, and vote at,
the meeting. At the close of business on the Record Date, an aggregate of
4,725,858 shares of Common Stock were issued and outstanding, each of which is
entitled to one vote on each matter to be voted upon at the Meeting. The
Company's stockholders do not have cumulative voting rights. The Company has
no other class of voting securities entitled to vote at the Meeting.
SECURITY OWNERSHIP
Security Ownership by Certain Beneficial Owner
The following table sets forth, as of the Record Date, certain information as to
the stockholder (other than directors, nominees and executive officers of the
Company) which is known by the Company to beneficially own more than 5% of the
Common Stock (based solely upon a filing on Schedule 13G made by said holder
with the Securities and Exchange Commission on February 14, 1998, pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act")):
Number of Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned (1) of Class
FMR Corp.(2) 412,200 8.72%
82 Devonshire St.
Boston, Mass. 02109-7614
(1) Beneficial ownership, as reported in the above table, has been determined in
accordance with Rule 13d-3 under the Exchange Act.
(2) Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR Corp., is a beneficial owner of the shares reflected above as
a result of acting as a registered investment adviser to various registered
investment companies. One such company, Fidelity Low-Priced Stock Fund,
owns the shares reflected above. FMR Corp., through its control of Fidelity,
has sole voting power with respect to none of the above indicated shares and
sole power to dispose of all the above indicated shares.
Ownership by Management
The following table sets forth, as of the Record Date, certain information
concerning beneficial ownership of Common Stock by each nominee for election as
a director of the Company, the Named Executives, as defined below, and all
current directors and executive officers of the Company as a group (based
solely upon information furnished by such persons):
Number of Shares
Beneficially Percent
Name and Address of Beneficial Owner (1) Owned(1) of Class
Thomas M. D'Ambrosio. . . . . . 216,714(2) 4.58%
John DePinto. . . . . . . . . . 134,452(2) 2.83%
Frank F. Ferola . . . . . . . . 585,935(2)(4)(5) 12.27%
Curtis Carlson. . . . . . . . . 14,150(2) (3)
Leonard Genovese. . . . . . . . 6,062(2) (3)
Shouky Shaheen . . . . . . . . . 307,058(6) 6.49%
Peter Ferola . . . . . . . . . . 45,000(2) (3)
David Spiegel . . . . . . . . . 9,000(2) (3)
Franc Ferola . . . . . . . . . . 45,000(2) (3)
Sam Lazar. . . . . . . . . . (3) (3)
Lucille Murphy. . . . . . . . . 22,500(2) (3)
John Incitti. . . . . . . . . . 3,000(2) (3)
All executive officers and directors
as a group (12 persons). . . . 1,388,871(2) 28.15%
(1) Beneficial ownership, as reported in the above table, has been determined in
accordance with Rule 13d-3 under the Exchange Act. Unless otherwise indicated,
beneficial ownership includes both sole voting and sole dispositive power. The
business address of each person, for purposes hereof, is C/O The Stephan Co.,
1850 West McNab Road, Fort Lauderdale, Florida, 33309.
(2) Includes the following shares that may be acquired upon the exercise of
options by the specified person(s) within 60 days of the Record Date: Mr. John
DePinto - 21,248; Mr. Frank Ferola - 50,000; Mr. Curtis Carlson - 10,124; Mr.
Leonard Genovese - 5062; Mr. Peter Ferola - 45,000; Mr. David Spiegel -
9,000; Mr. Franc Ferola - 45,000; Ms. Lucille Murphy - 22,500; and all
executive officers and directors as a group 207,934.
(3) Represents less than 1%.
(4) Does not include 79,195 shares covered by options granted to Mr. Ferola,
whose exercise is contingent on certain increases in the Company's Common Stock
price, as more fully set forth in the "Executive Compensation" section hereof.
(5) Includes 15,305 shares owned by Mr. Frank Ferola's personal charitable
foundation, of which Mr. Ferola is a co-trustee.
(6) Includes 214,941 shares issued to Shaheen & Co., Inc. and SAS Co., Inc.
and 92,117 shares held in escrow issued to Shaheen & Co., Inc. and SAS Co., Inc.
pursuant to the Asset Purchase Agreement by and among Morris Flamingo-Stephan,
Inc., The Company, Morris-Flamingo, L.P., Morris-Flamingo Beauty Products, Inc.,
Shaheen & Co., Inc. and Shouky A. Shaheen, as to which Mr. Shaheen has sole
voting power.
PROPOSAL I: ELECTION OF DIRECTORS
The entire Board of Directors, presently consisting of five members, is to be
elected at the Meeting. The Company's By-Laws provide that the number of
directors shall be set from time to time by resolution of the Board of Directors
and must be a minimum of one director. The Board of Directors has, by
resolution, set the size of the Board at six members effective as of the date of
the meeting. Each of the six nominees listed below, including a nominee who is
not a member of the Board, has consented to being named in this Proxy Statement
and to serving as directors if elected. In the unexpected event that any of
such nominees should become unable to or for good cause will not serve, it is
intended that proxies will be voted for substitute nominee(s) designated by
the current Board of Directors. The Board has no reason to believe that any
of the named nominees will be unable or unwilling to stand for election.
At the Meeting, the shares represented by the proxies in the accompanying form,
unless otherwise specified, will be voted in favor of the election of each of
the six nominees, which includes a nominee which is currently not a member of
the board, listed on the accompanying form of proxy. If Proposal II with
respect to the classification of the Board of Directors is adopted, it is
intended that proxies solicited by the Board of Directors will be voted for
the election of Messrs. DePinto and Shaheen to Class I of the Board of
Directors for an initial term expiring at the 1999 Annual Meeting of
Stockholders; the election of Messrs. Genovese and Carlson to Class II of the
Board of Directors for an initial term of two years expiring at the 2000 Annual
Meeting; and the election of Messrs. Ferola and D'Ambrosio to Class III of the
Board of Directors for an initial term of three years expiring at the 2001
Annual Meeting of stockholders. See "Proposal II: Amendment of the Company's
By-Laws to Provide for Classification of the Board of Directors". If
Proposal II is not adopted it is intended that proxies solicited by the Board
of Directors will be voted for the election of six nominees named each until
such time until the Annual Meeting of Stockholders or until their respective
successors are duly elected. Proxies cannot be voted for a greater number of
persons than the number of nominees named. Directors will be elected by a
plurality of the affirmative votes cast by the holders of shares of Common Stock
at the Meeting (assuming a quorum exists).
Set forth below is certain information with respect to
each nominee for election as a director of the Company at the Meeting (based
solely on information furnished by such persons):
Age Year of First Principal Occupations
(as of Election as During Past Five Years;
Name 7-1-98) a Director Other Directorships
Class I
John DePinto 80 1980 Retired executive for
(1)(2) more than the last five
years.
Shouky A. Shaheen 66 For more than the past
(3) five years, President of
Shaheen and Co. Mr.
Shaheen was also the former
Owner of Morris Flamingo,
L.P. which was acquired by
the Company in March 1998.
Class II
Leonard Genovese 63 1997 For more than the past
(1)(2)(4) five years, Chairman &
Chief Executive Officer of
Genovese Drug, Inc., an
American Stock Exchange listed
company. Mr. Genovese is a
director of three other
publicly listed companies:
T.R. Financial, Aid Auto
Stores, and Kellwood Co.
Curtis Carlson 45 1996 For more than the past
(1)(2) five years, partner in
the law firm of Carlson &
Bales, PA, a Miami-based
law firm.
Class III
Frank F. Ferola 55 1980 For more than the past
five years, Chairman of
the Board, President and
Chief Executive Officer
of the Company.
Thomas M. 69 1980 For more than the past five
D'Ambrosio(5) years, Vice President and, since
March 1989, Treasurer of the
Company; practicing attorney.
(1) Member of the Audit Committee.
(2) Member of the Stock Option and Compensation Committee
(3) Mr. Shaheen has been nominated for the first time as a director.
It is expected that if Mr. Shaheen is elected as a director he will be
selected by the Company's full Board to serve on the Stock Option and
Compensation Committee.
(4) Mr. Genovese was selected as a director to fill the vacancy caused by the
resignation of W. Gregg Baldwin in 1997.
(5) Mr. D'Ambrosio has stated that he intends to devote approximately 30%
of his business time to the affairs of the Company.
The Board of Directors unanimously recommends a vote "FOR" the election
of all the six nominees named above as directors of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 1997, the Company paid to Carlson & Bales, P.A., a law firm of
which Mr. Carlson is a partner, approximately $88,000 for legal services
rendered by such firm to the Company.
Board of Directors; Committees of the Board
The Board of Directors met five times during fiscal year 1997. During fiscal
year 1997, no director attended fewer than 75% of the total number of meetings
of the Board and of the committees of the Board on which he served. The Board
has established two standing committees, consisting of an Audit Committee, and
a Stock Option and Compensation Committee. The current functions of such
committees are as follows:
The Audit Committee, which held one meeting during fiscal 1997, reviews the
internal and external audit functions of the Company and makes recommendations
to the Board of Directors with respect thereto. It also has primary
responsibility for the formulation and development of the auditing policies and
procedures of the Company, and for making recommendations to the Board of
Directors with respect to the selection of the Company's independent auditing
firm. The Chairman of this Committee is Curtis Carlson.
The Stock Option and Compensation Committee, which held one meeting during
fiscal 1997, has primary responsibility for the administration of the Company's
1990 Key Employee Stock Incentive Plan, including primary responsibility for the
granting of options thereunder. The Committee is also responsible for
establishing the overall philosophy of the Company's executive compensation
program and overseeing the executive compensation plan developed to execute the
Company's compensation strategy. The Chairman of this Committee is Curtis
Carlson.
Compensation of Directors
All directors of the Company are compensated for their services by payment of
$300 for each Board Meeting attended.
During fiscal 1997, options to purchase an aggregate of 15,186 shares of
Common Stock, at exercise prices of $10.75 per share for 10,124 shares and
$12.19 for 5,062 shares respectively, were granted by the Company to directors
of the Company who were not employees or regularly retained consultants of the
Company (each, an "Outside Director") pursuant to the Company's 1990 Outside
Directors' Stock Option Plan.
Under such Plan, each Outside Director is automatically granted, upon such
person's election or re-election to serve as a director of the Company, an
option exercisable over five years, to purchase Common Stock. Upon initial
election to the Board of Directors, an Outside Director is granted an option
to purchase 5,062 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock as of the date of grant. An option to purchase
an additional 5,062 shares of Common Stock is granted to each incumbent Outside
Director during each fiscal year of the Company thereafter on the earlier of (i)
June 30, or (ii) the date on which the stockholders of the Company elect
directors at an Annual Meeting of such stockholders or any adjournment
thereof. The aggregate number of shares of Common Stock reserved for grant
under the Outside Directors' Stock Option Plan (as adjusted for stock splits)
is 202,500, of which options covering 49,558 shares are outstanding.
Executive Officers
The executive officers of the Company consist of Mr. Frank Ferola, President,
Chairman of the Board and Chief Executive Officer; Thomas M. D'Ambrosio, Vice
President and Treasurer; David A. Spiegel, Chief Financial Officer; Peter
Ferola, Vice President/Administration and Secretary; Lucille Murphy, President/
Old 97 Company, a wholly-owned subsidiary of the Company; Franc Ferola, Vice
President/Operations; Gerald Kotch, President/Trevor Sorbie of America, Inc., a
wholly-owned subsidiary of he Company; Mr. John Incitti, President/Williamsport
Barber and Beauty Supply Corporation; and Samuel Lazar, President/Scientific
Research Products, Inc. of Delaware, a wholly-owned subsidiary of the
Company.
The following sets forth certain information with respect to the executive
officers of the Company who are not directors (based solely on information
furnished by such persons):
Mr. David A. Spiegel, 49, was appointed as Chief Financial Officer in January
1994. For more than the past four years prior to 1994, Mr. Spiegel had been a
certified public accountant, engaged in private practice. For more than the
five years prior to 1994, Mr. Spiegel was the independent public accountant for
the Company.
Mr. Peter Ferola, 29, was appointed as Vice President/Administration in January
1996. For more than the past five years, Mr. Ferola has been employed by the
Company in various capacities. In February 1997, Mr. Ferola was selected as
Secretary of the Company to fill the vacancy caused by the death of Mr. Stephen
Letizia. Mr. Ferola had previously been the Company's Assistant Secretary.
Ms. Lucille Murphy, 50, was appointed as President of Old 97 Company in
January 1996. For more than the past five years Ms. Murphy has been employed
by Old 97 Company, a wholly-owned subsidiary of the Company.
Mr. Sam Lazar, 52, was appointed as President of Scientific Research Products,
Inc. of Delaware, a wholly-owned subsidiary of the Company, in April 1994,
when such company was acquired by the Company, a position which he held for
over five years prior to the acquisition.
Mr. John Incitti, 53, was appointed to President of Williamsport Barber and
Beauty Corporation, a wholly-owned subsidiary of the Company, in August 1997.
For more than the past five years, Mr. Incitti has been employed by
Williamsport Barber and Beauty Corporation.
Mr. Franc Ferola, 32, was appointed as Vice President/Operations in January
1996. For more than the past five years, Mr. Ferola has been employed by the
Company in various capacities.
Mr. Gerald Kotch, 62, was appointed President of Trevor Sorbie of America,
Inc., a wholly-owned subsidiary of the Company, in March 1998, to fill the
vacancy caused by the resignation of Charles V. Hall.
Peter Ferola and Franc Ferola are brothers and sons of Frank Ferola.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended December
31, 1997, December 31, 1996 and December 31, 1995, with respect to compensation
earned by the Company's Chief Executive Officer and the six other executive
officers of the Company serving at the end of fiscal year 1997 who received a
total of salary and bonus in excess of $100,000 during fiscal 1997 (the "Named
Executives").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Name and Other Securities
Principal Fiscal Annual Underlying All Other
Position(s) Year Salary Bonus Compensation Options(#) Compensation
Frank F. 1997 $425,000 $0 $0 59,195(1) $0
Ferola, 1996 $173,353 $677,030 $0 70,000(1) $0
President, 1995 $157,594 $335,538 $0 -0- $0
Chairman of
the Board
and Chief
Executive Officer
Sam Lazar, 1997 $134,456 $0 $0 -0- $0
President, 1996 $130,800 $21,976 $0 -0- $0
Scientific 1995 $130,800 $22,501 $0 -0- $0
Research
Products, Inc.
Of Delaware
Franc Ferola 1997 $85,542 $25,000 $0 10,000 $0
Vice President/ 1996 $77,765 $0 $0 10,000 $0
Operations 1995 $75,000 $ 7,500 $0 -0- $0
0
David Spiegel, 1997 $100,000 $0 $0 -0- $0
Chief Financial 1996 $ 90,000 $15,000 $0 5,000 $0
Officer 1995 $ 80,000 $ 5,000 $0 4,000 $0
Peter Ferola, 1997 $85,542 $25,000 $0 10,000 $0
Vice President/ 1996 $77,765 $0 $0 10,000 $0
Administration 1995 $75,000 $ 7,500 $0 -0- $0
Lucille Murphy 1997 $79,310 $25,000 $0 -0- $0
President/ 1996 $72,100 $15,000 $0 7,500 $0
Old 97 Company 1995 $65,000 $0 $0 -0- $0
John Incitti 1997 $85,891 $18,310 $0 -0- $0
President/
Williamsport
B & B
(1)Reflects the grant of options covering 79,195 shares of Common Stock, whose
exercise is contingent on certain increases in the Company's Common Stock
trading price. See - "Employment and Termination Arrangements."
Stock Option Grants in the Last Fiscal Year
The following table sets forth certain information concerning stock options
granted to the Chief Executive Officer and other Named Executives in fiscal year
1997. No other Named Executives were awarded options in fiscal 1997.
Potential Realizable
Value At Assumed Annual
Number of Percentage of Rates of Stock Appreciation
Securities Total Options for Option Term (1)
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted(#) Fiscal Year(%) Share($) Date______ 5% 10%
Frank F. Ferola 50,000 74.7% $12.88 January 207 $405,000 $1,026,000
9,195(2) $10.88 April 2002 0 0
Peter Ferola 10,000 12.6% $12.88 January 2007 81,000 205,000
Franc Ferola 10,000 12.6% $12.88 January 2007 81,000 205,000
(1) Potential realizable value is based on the assumption that the Common Stock
appreciates at the annual rates shown (compounded annually) from the date of
grant until the expiration of the option term. These numbers are calculated
based on the requirements promulgated by the Securities and Exchange
Commission and do not reflect any estimate or prediction by the Company of
future Common Stock price increases.
(2) Reflects options covering 9,195 shares of Common Stock whose exercise
price is contingent upon the Company's Common Stock trading for 20 consecutive
business days at a 30% increase over its price on the date of grant.
Options Exercised in Last Fiscal Year and Year-End Option Values
The following table sets forth certain information at December 31, 1997,
respecting exercisable and non-exercisable stock options held by the Chief
Executive Officer and the other Named Executives. The Chief Executive Officer
and other Named Executives did not exercise any stock options in fiscal year
1997. The table also includes the value of the "in-the-money" unexercised
stock options which reflects the spread between the exercise price of the
existing stock options and the year-end price of the Common Stock.
Value of
Number of Unexercised In-
Unexercised Options the-Money Options
Held at December 31, at December 31,
1997 1997(1)
Non- Non-
Name Exercisable Exercisable Exercisable Exercisable
Frank F. Ferola 79,195(2) 50,000(2) $0 $0
Sam Lazar -0- -0- - -
Peter Ferola 45,000 -0- $4,300 -
David A. Spiegel 9,000 -0- $0 -
Franc Ferola 45,000 -0- $4,300 -
John Incitti -0- -0- - -
Lucille Murphy 22,500 -0- $0 -
(1)Based on the closing price of the Common Stock on December 31, 1997 ($13.31)
(2)Includes options covering 79,195 shares of Common Stock whose exercise is
contingent on certain increases in the trading price of the Company's Common
Stock. See - "Employment and Termination Arrangements."
Employment and Termination Arrangements
In 1996, Mr. Frank Ferola conditionally relinquished $335,000 (approximately
50%) of the 1995 annual bonus to which he was otherwise entitled. In
consideration thereof, the Compensation Committee awarded him a five-year option
to purchase 70,000 shares of the Company's Common Stock, whose exercise is
contingent on the Company's Common Stock trading for 20 consecutive business
days at $19.175, a 30% increase over its price on the date of grant ($14.75).
If this condition were met, Mr. Ferola would also receive a cash payment of
$335,000, as a result of the increased stock price.
In 1997, Mr. Ferola conditionally relinquished $100,000 of the 1996 annual
bonus to which he was otherwise entitled. In consideration thereof, the
Compensation Committee awarded him a five-year option to purchase 9,195 shares
of the Company's Common Stock, whose exercise is contingent on the Company's
Common Stock trading for 20 consecutive business days at $14.138, a 30% increase
over its price on the date of grant ($10.875). If this condition were met, Mr.
Ferola would also receive a cash payment of $100,000, as a result of the
increased stock price.
In January 1997, the Company entered into a new employment agreement with
Mr. Ferola. The term of the agreement is three years, expiring in January
2000. Under such agreement, Mr. Ferola is to receive compensation in the
amount of $425,000 per annum, subject to an annual increase of 10%, and an
annual stock option grant of 50,000 shares of the Company's Common Stock at
an exercise price equal to the fair market value of the Company's Common Stock
on the date of grant. In addition, Mr. Ferola is entitled to receive an
annual performance bonus based on increases of at least 10% in the Company's
earnings per share, as determined, by comparison to a base year of 1996, by a
formula set forth in the employment agreement.
In the event of a change in control (as defined in the employment agreement) of
the Company, Mr. Ferola is entitled to receive an amount equal to his base
salary for the remaining term of the contract plus an additional twenty-four
months' salary. In addition, under the terms of the agreement, Mr. Ferola
will receive from the Company, in a lump sum payment, an amount equal to the
most recent annual bonus paid multiplied by the sum of the number of years
(including fractions thereof) remaining in the term of his agreement plus two.
In January 1996, the Company entered into an employment agreement with Mr.
Peter Ferola, effective for three years until January 1999. Pursuant to such
agreement, Peter Ferola is to receive compensation of $77,765 per annum subject
to an annual increase of 10% and an annual stock option grant of 10,000 shares
of the Company's Common Stock at an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. In addition, Peter
Ferola is entitled to receive an annual performance bonus based on increases of
at least 10% in the Company's earnings per share calculated by comparison to a
base year of 1995, as determined by a formula set forth in his employment
agreement. In 1998 Peter Ferola unconditionally relinquished $20,000 of his
1997 annual bonus to which he was otherwise entitled.
In the event of a change in control (as defined in the employment agreement) of
the Company, Peter Ferola is entitled to receive an amount equal to his base
salary for the remaining term of the contract plus an additional twelve months'
salary. In addition, under the terms of the agreement, Mr. Ferola is entitled
to receive from the Company, in a lump sum payment, an amount equal to the most
recent annual bonus paid multiplied by the sum of the number of years
(including fractions thereof) remaining in the term of his agreement plus one.
In January 1996, the Company entered into an employment agreement with Ms.
Lucille Murphy, effective for three years until January 1999. Pursuant to such
agreement, Ms. Murphy is entitled to receive compensation of $72,100 per
annum subject to an annual increase of 10%. Under the terms of the contract,
Ms. Murphy is also entitled to an annual bonus, the amount shall be determined
each year by the Option and Compensation Committee.
In the event of a change in control (as defined in the employment agreement) of
the Company, Ms. Murphy is entitled to receive an amount equal to her base
salary for the remaining term of the contract plus an additional twelve months'
salary. In addition, under the terms of the agreement, Ms. Murphy will
receive from the Company, in a lump sum payment, an amount equal to the most
recent annual bonus paid multiplied by the sum of the number of years
(including fractions thereof) remaining in the term of her agreement plus
one.
In January 1996, the Company entered into an employment agreement with Mr.
Franc Ferola, effective for three years until January 1999. Pursuant to such
agreement, Franc Ferola is to receive compensation of $77,765 per annum
subject to an annual increase of 10% and an annual stock option grant of
10,000 shares of the Company's Common Stock at an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant. In
addition, Franc Ferola is entitled to receive an annual performance bonus
based on increases of at least 10% in the Company's earnings per share, as
determined by a formula set forth in his employment agreement calculated by
comparison to a base year of 1995. In 1998 Franc Ferola unconditionally
relinquished $20,000 of his 1997 annual bonus to which he was otherwise
entitled.
In the event of a change in control (as defined in the employment agreement) of
the Company, Franc Ferola is entitled to receive an amount equal to his base
salary for the remaining term of the contract plus an additional twelve
months' salary. In addition, under the terms of the agreement, Mr. Ferola is
entitled to receive from the Company, in a lump sum payment, an amount equal
to the most recent annual bonus paid multiplied by the sum of the number of
years (including fractions thereof) remaining in the term of his
agreement plus one.
The Company is currently negotiating an employment agreement with Mr. David
A. Spiegel.
STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The Stock Option and Compensation Committee of the Board of Directors (the
"Committee") is composed entirely of non-employee directors. The Committee is
responsible for reviewing and approving policies and programs pursuant to which
compensation is paid or awarded to the Company's executive officers and key
employees and for administration of the Company's 1990 Key Employee Stock
Option Incentive Plan (the "Incentive Plan").
Compensation Strategy
The Company's executive compensation program has been designed to (i) align
executive compensation with shareholder interests, (ii) attract, retain and
motivate a highly competent executive team, (iii) link compensation to
individual and Company performance and (iv) achieve a balance between
incentives for short-term and long-term results. The Company's executive
compensation package consists of the payment of base salary, annual bonus,
and stock options awarded through participation in the Incentive Plan. The
Committee reviews annually the compensation to be paid to the Company's
executive officers. In making such review, the Committee evaluates information
supplied by management. The Committee participates in the negotiation of
employment contract, including provisions for salary and bonuses, with the
Company's executive officers. Currently, pursuant to the Company's employment
agreements with its executive officers, each executive officer receives a
fixed annual base salary and certain executive officers, including the Chief
Executive Officer, are entitled to receive a bonus amount determined by a
formula based on the Company's net earnings per share for each fiscal year
during the term of the agreement.
Base Salary
Base salary for executive officers is generally determined by reference to
written employment agreements between the Company and such executives. The
Committee's policy is to negotiate salaries in relation to industry norms, the
principal job duties and responsibilities undertaken by such executives,
individual performance and other relevant criteria. A base salary comparison
for the Company's Chief Executive Officers was made to a group of public
companies which the Committee believes provides a meaningful comparison to
the Company. Several of these companies are included in the custom composite
of companies in the Standard & Poor's Midcap Consumer Products Index. See
"Stock Performance Chart" below. The base salary paid to the Company's
Chief Executive Officer for fiscal year 1997 was in the middle of the range of
base salary paid by such companies.
Annual Bonus
Annual bonus for the Chief Executive Officer and two other Named Executives is
determined by reference to specific bonus formulae set forth in written
employment agreements between the Company and such executives. If the
Company's net earnings per share increase by more than 10% compared to the
executives base year (i.e. 1996 for the Chief Executive Officer and 1995 for
the two other Named Executives), the Chief Executive Officer is entitled to
receive $20,000 and the two other Named Executives are each entitled to
receive $5,000 for each 1% increase in net earnings per share above the 10%
threshold. In addition, the Chief Executive Officer is entitled to receive a
$100,000 bonus and the two other Named Executives are entitled to each receive
a $25,000 bonus for reaching the 10% increase in net earnings per share. The
Chief Executive Officer is also entitled to receive a $150,000 bonus payment
and the two other Named Executives are entitled to each receive an additional
$25,000 bonus payment upon the Company's attaining a 15% increase in net
earnings per share compared to the base year. Annual bonus for other
executives is in the discretion of the Committee.
Stock Options
Long-term incentive compensation of executives is granted through participation
in the Incentive Plan. The Incentive Plan permits the Company to grant stock
options to executives at a price no less than 100% of the fair market value of
the Common Stock on the date of the grant. Notwithstanding contractual
obligations, stock options are granted in the Committee's discretion to
executive officers based upon its perception of the ability of such
executive officers to influence the long-term growth and profitability of
the Company. The Committee believes that providing a portion of the
executive's annual incentive compensation in the form of stock options
encourages the executive to share with outside shareholders the goals of
increasing the value of the Company's stock and contributing to the success
of the Company.
Committees Actions for Fiscal Year 1997
In determining the amount and form of executive officer compensation to be paid
or awarded for fiscal year 1997, the Committee considered the criteria
discussed above. In light of the Company's operating results, Peter Ferola
and Franc Ferola, each unconditionally relinquished $20,000 of the annual
bonus of $45,000 to which they were otherwise entitled to receive pursuant
to their employment agreements. The Committee awarded stock options to
Frank F. Ferola, Peter Ferola, and Franc Ferola in consideration
of their overall performance and to increase the incentive for them to
contribute to the financial success of the Company.
The Chief Executive Officer Compensation
The Committee approved an employment agreement in 1997 for Mr. Frank F.
Ferola. In approving such agreement, the Committee authorized a base annual
salary of $425,000 and an annual grant of options to purchase 50,000 shares
of the Common Stock at an exercise price equal to the fair market value of the
Common Stock on the date of grant for Mr. Ferola. Based on the earnings
formula described above, Mr. Ferola was not entitled to receive a bonus in
fiscal 1997.
Section 162(m) Compliance
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
generally disallows a tax deduction to a public company for a compensation
over $1 million annually paid to its chief executive officer and four other
most highly compensated executive officers. Qualifying performance based
compensation will not be subject to the deduction limitation if certain
requirements are met. The Committee's current policy is to structure the
performance-based portion of the compensation of the Company's executive
officers (currently consisting of stock option grants and cash bonuses) in a
manner that complies with Section 162(m) of the Code whenever possible and
appropriate, in the judgment of the Committee.
Members of the Stock Option and Compensation Committee:
Curtis Carlson, Chairman
John DePinto
Leonard Genovese
Compensation Committee Interlocks and Insider Participation
The Compensation Committee conducted deliberations concerning executive
compensation during the last completed fiscal year. None of the Compensation
Committee members are or ever were officers or employees of the Company.
During the last fiscal year, none of the executive officers of the Company
has served on the board of directors or on the compensation committee of any
other entity, any of whose executive offers served on the Board of Directors
of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
As a public company, the Company's directors, executive officers and more than
10% beneficial owners are subject to reporting requirements under Section
16(a) of the Securities and Exchange Act of 1934, as amended. None of the
Company's directors, executive officers or such 10% beneficial owners
delinquently filed, to the Company's knowledge, any reports required under
Section 16(a) of such Act during fiscal year 1997.
STOCK PERFORMANCE GRAPH
The line graph below compares the cumulative total stockholder return
(assuming reinvestment of dividends) on the Company's Common Stock over the
most recent five-year period versus the return of the Standard & Poor's
Composite 500 Stock Index and a custom composite of the companies in the
Standard & Poor's Midcap Consumer Products Index upon its termination in
July, 1996.
Dec. 92 Dec. 93 Dec. 94 Dec. 95 Dec. 96 Dec. 97
The Stephan Co. $100 $123 $77 $95 $79 $82
S&P 500 $100 $110 $112 $153 $189 $252
Custom Composite $100 $99 $70 $80 $84 $100
Index (10 Stocks)
The 10 Stock Custom Composite is made up of the companies that comprises the S&P
Midcap Consumer Products Index upon its termination in July, 1996. The ten
stocks are Carter-Wallace, Church & Dwight, A.T. Cross Co., First Brands Corp.,
Gibson Greetings, Lancaster Colony, National Presto, Perrigo Co., Stanhome Inc.
and Tambrands Inc. (thru 2Q97; Co. acquired).
PROPOSAL II: AMENDMENT OF THE COMPANY'S BY-LAWS
TO PROVIDE FOR CLASSIFICATION OF THE BOARD OF DIRECTORS
The Board of Directors has evaluated the potential vulnerability of the
Company's stockholders to the threat of unfair or coercive takeover tactics and
has considered certain possible responses to such threat. As a result of this
review, the Board of Directors unanimously approved, and recommends to the
Company's stockholders for their approval, a resolution amending Article VI,
Section 2 of the Company's By-Laws (the "By-Laws") to provide for a classified
board of directors and staggered three-year terms for directors. The following
description of the proposed amendment does not purport to be complete and is
qualified in its entirety by reference to the text of the amendment to the
By-Laws attached as Exhibit A hereto.
DESCRIPTION OF PROPOSED AMENDMENT
The By-Laws currently provide for a single class of directors with a term of
office of one year. The proposed amendment would operate to divide the Board
into three separate classes of directors, as nearly equal in number as
possible, with each class to serve a three-year term and to be elected at
different annual stockholder meetings. Following effectiveness if this
Proposal, Class I will consist of two directors who will serve an initial
term of one year expiring at the 1999 Annual Meeting of Stockholders, Class
II will consist of two directors who will serve for an initial term of two
years expiring at the 2000 Annual Meeting of Stockholders, and Class III will
consist of two directors who will serve for an initial term of three years
expiring at he 2001 Annual Meeting of Stockholders. See "Proposal I: Election
of Directors." Beginning with the 1999 Annual Meeting of Stockholders, at
each annual meeting the Company's stockholders directors will be elected to
succeed those whose terms them expire and each newly elected director will
serve for a three-year term. If the amendment is not approved, the six
nominees named herein will be nominated to serve for a one year term ending
at the 1999 Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified. See "Proposal I:
Election of Directors," for information regarding the individual nominees
for directors.
REASON FOR PROPOSED AMENDMENT
The Board of Directors has observed the use of certain coercive takeover
tactics in recent years, including the accumulation of substantial common
stock positions as a prelude to a threatened takeover or corporate
restructuring, proxy fights and partial tender offers. The Board of
Directors believes that the use of these tactics can place undue
pressure on a corporation's board of directors and stockholders to act
hastily and on incomplete information, and, therefore, can be highly
disruptive to a corporation as well as result in unfair differences in
treatment of stockholders who act immediately in response to an announcement
of takeover and those who choose to act later, if at all.
The Board of Directors believes that a classified board of directors would
serve the best interests of the Company and its stockholders by promoting the
stability of the Company and its business. Because directors will be serving
for longer terms which expire at different times, the Board of Directors
believes that a classified board will promote continuity of management and,
thereby enhance the ability of the Company to carry out long-range plans and
goals for its benefit and the benefit of stockholders. Although the Company
has not experienced difficulties in the past in maintaining continuity of the
Board and management, the Board of Directors believes that a classified
Board will assist the Company in maintaining this continuity of management in
the future. In addition, the proposed amendment has certain anti-takeover
effects that the Board believes will deter unsolicited takeover attempts and
protect the value of each stockholder's investment in the Company.
A classified board of directors would also extend the time it would take for a
majority stockholder to obtain control of the Board of Directors, thereby
limiting abusive takeover tactics. Assuming each class of directors is equal
in size, a majority stockholder could not obtain control of the Board until
the second annual meeting of the stockholders after it acquired a majority of
the Common Stock. During such time, the Board of Directors would have a
better opportunity to negotiate with any such majority stockholder to obtain
more favorable price and terms in any merger or tender offer.
The amendment is not being recommended in response to any specific effort of
which the Company is aware to accumulate the Common Stock or to obtain control
of the Company or the Board of Directors.
POSSIBLE CONSEQUENCES OF THE ANTI-TAKEOVER EFFECTS OF THE
PROPOSAL
While the proposed amendment to the By-Laws gives added protection to the
Company's stockholders, it may also have the effect of making more difficult
and discouraging a merger, tender offer or proxy fight, even if such
transaction or occurrence may be favorable to the interests of some or all of
the Company's stockholders. The amendment may also delay the assumption of
control by a holder of a large block of the Common Stock and the removal of
incumbent management, even if such removal might be beneficial to some or all
of the stockholders. Furthermore, the amendment may have the effect of
frustrating certain types of future takeover attempts that might not be
approved by the incumbent Board of Directors, but that the holders of a
majority of the shares of Common Stock may deem to be in their best interests
or in which the stockholders may receive a substantial premium over prevailing
market prices for their stock. By having the effect of discouraging takeover
attempts, the proposed amendment also could have the incidental effect of
inhibiting certain changes in management (some or all of the members of which
might be replaced in the course of a change in control) and also the
temporary fluctuations in the market price of the Common Stock that could
result from actual or rumored takeover attempts.
The Board of Directors recognizes that a takeover might in some circumstances
be beneficial to some or all of the Company's stockholders but, nevertheless,
believes that the stockholders as a whole will benefit from the adoption of
the amendment to the By-Laws. The Board of Directors further believes that
it is preferable to act on the proposed amendment when it can be considered
carefully rather than during an unsolicited bid for control.
VOTE REQUIRED FOR APPROVAL
Approval of the amendment to the By-Laws will require the affirmative vote of
the holders of a majority of the shares of Common Stock present in person or
by proxy at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE BY-LAWS TO PROVIDE FOR
THE CLASSIFICATION OF THE BOARD OF DIRECTORS.
INDEPENDENT AUDITORS
Pursuant to a recommendation of the Audit Committee, the Board of Directors
has selected and retained the firm of Deloitte & Touche to act as independent
certified public accountants for the Company for the 1998 fiscal year.
Representatives of Deloitte & Touche are expected to be present at the Meeting,
to have the opportunity to make a statement, if they so desire, and to be
available to respond to appropriate questions.
OTHER MATTERS
At the date of this Proxy Statement, the Board of Directors has no knowledge of
any business which will be presented for consideration at the Meeting, other
than as described above. If any other matter or matters are properly brought
before the Meeting or any adjournment(s) thereof, it is the intention of the
persons named in the accompanying form of proxy to vote all proxies on such
matter(s) in accordance with their judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposal which is intended to be presented by any stockholder for action at
the 1999 Annual Meeting of Stockholders must be received in writing by the
Secretary of the Company at 1850 West McNab Road, Fort Lauderdale, Florida
33309, not later than January 19, 1999, in order for such proposal to be
considered for inclusion in the Company's Proxy Statement and form of proxy
relating to the 1999 Annual Meeting of Stockholders.
By Order of the Board of Directors
Peter Ferola
Secretary
Dated: July 10, 1998
