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 Marriott North
Fort Lauderdale, 665 North Andrews Avenue, Fort Lauderdale,
Florida, 33309, for the following purposes:
I. To elect members of the Company's Board of
Directors; and
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 ,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
, 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 Marriott North Fort Lauderdale, located at
665 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 , 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 five 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 five 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 five 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 , 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 , 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 4,418,800(1) 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.
(1) Includes 125,000 shares held in escrow pursuant to
the terms of the Asset Purchase Agreement by and between New Image
Laboratories, Inc. and the Company which are contingently returnable.
SECURITY OWNERSHIP
Security Ownership by Certain Beneficial Owner
The following table sets forth, as of the close of
business on the Record Date, certain information as to the
stockholder (other than directors 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 9.3%
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 (all of whom are currently the directors 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) 4.90%
John DePinto. . . . . . . . . . 134,452(2) 3.03%
Frank F. Ferola . . . . . . . . 585,935(2)(4)(5) 13.11%
Curtis Carlson. . . . . . . . . 14,150(2) (3)
Leonard Genovese. . . . . . . . 6,062(2) (3)
Peter Ferola . . . . . . . . . . 45,000(2) 1%
David Spiegel . . . . . . . . . 9,000(2) (3)
Franc Ferola . . . . . . . . . . 45,000(2) 1%
Samuel Lazar. . . . . . . . . . (3) (3)
Lucille Murphy. . . . . . . . . 22,500(2) (3)
John Incitti. . . . . . . . . . (3) (3)
All executive officers and directors
as a group (12 persons). . . . 1,056,313(2) 23%
(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.
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 five members. Each of the five nominees listed below 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 five
nominees 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 Mr. DePinto 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
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 five
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
(3)(4) more than the last five
years.
Class II
Leonard Genovese 63 1997 For more than the past
(3)(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
(3)(4) 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. D'Ambrosio 69 1980 For more than the past five years,
Vice President and, since March 1989,
Treasurer of the Company; practicing
attorney.
______________
(1) Mr. D'Ambrosio has stated that he intends to
devote approximately 30% of his business time to
the affairs of the Company.
(2) Mr. Genovese was selected as a director to fill
the vacancy caused by the resignation of W. Gregg
Baldwin in 1997.
(3) Member of the Audit Committee.
(4) Member of the Stock Option and Compensation
Committee.
The Board of Directors unanimously recommends a
vote "FOR" the election of all the five 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 the 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. Samuel 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
Samuel 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
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 2007 $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
Samuel 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, whose amount shall be determined each year by the
Stock 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 CHART
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. Dec. Dec. Dec. Dec. Dec.
1992 1993 1994 1995 1996 1997
The Stephan Co. $100 $123 $77 $95 $79 $82
S&P 500 100 110 112 153 189 252
S&P Custom 100 99 70 80 84 100
Composite
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 t
be elected at different annual stockholder meetings.
Following effectiveness if this Proposal, Class I will
consist of one director 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 five 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 he 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 he
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 REQUIRES 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, is 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: , 1998
