UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Stepan Company
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
STEPAN COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on April 30, 2002
at 9:00 a.m.
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of STEPAN
COMPANY will be held at the Company's Administrative and Research Center at
Edens Expressway and Winnetka Road, Northfield, Illinois, on Tuesday, April 30,
2002, at 9:00 a.m., for the following purposes:
1. To elect three Directors to the Board.
2. To transact such other business as may properly come before the
meeting.
The Board of Directors has designated the close of business on March 1,
2002, as the record date for determining holders of 51/2% Convertible Preferred
Stock and Common Stock entitled to notice of and to vote at the meeting.
A copy of the Company's Annual Report for the year 2001 is enclosed with
this notice.
By order of the Board of Directors
KATHLEEN M. OWENS
Assistant Secretary
Northfield, Illinois
March 28, 2002
The Board of Directors of the Company extends a cordial invitation to all
stockholders to be present at the meeting. Whether or not you plan to attend
the meeting, please mark, sign and mail the enclosed proxy card in the return
envelope provided as promptly as possible.
March 28, 2002
PROXY STATEMENT
For the Annual Meeting of Stockholders of
STEPAN COMPANY
Edens Expressway and Winnetka Road
Northfield, Illinois 60093
To be held at 9:00 a.m. on April 30, 2002
The enclosed proxy is solicited by the Board of Directors of the Company and
the entire expense of solicitation will be borne by the Company. Such
solicitation is being made by mail and the Company may also use its Officers
and its regular employees to solicit proxies from stockholders personally or by
telephone or letter. Arrangements will be made with the brokers, custodians,
nominees, or other fiduciaries who so request for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in that connection.
At the close of business on March 1, 2002, the record date for the meeting,
there were 583,469 shares of 51/2% Convertible Preferred Stock ("Preferred
Stock") outstanding, each share of which is convertible into 1.14175 shares of
Common Stock and is entitled to 1.14175 votes on each matter to be voted on at
the meeting, and, assuming the Preferred Stock were converted, there would be
9,503,624 shares of Common Stock outstanding, each share of which is entitled
to one vote on each matter to be voted on at the meeting.
This proxy statement and proxy are being sent or given to stockholders
commencing on or about March 28, 2002. Any proxy given pursuant to this
solicitation may be revoked by the stockholder at any time prior to the voting
of the proxy.
PRINCIPAL STOCKHOLDERS
As of March 1, 2002, the only persons known to the Company to beneficially
own more than five percent of the Company's Common Stock were the following:
Number of Shares of
Common Stock
Beneficially Owned (2)(9)
---------------------------
Percentage of
Voting and/or Investment Power Outstanding
--------------------------- Total Shares of
Name(1) Sole Shared Shares Common Stock
------- --------- ------- --------- -------------
F. Quinn Stepan (4)........................ 1,812,855(6)(7)(10) 609,918(3) 2,422,773 25.4%
Plan Committee for Stepan Company Qualified
Plans.................................... 933,925(5)(8) 933,925 9.8%
Paul H. Stepan (4)......................... 13,922 609,918(3) 623,840 6.5%
Dimensional Fund Advisors Inc.............. 609,800(11) 609,800 6.4%
1
As of March 1, 2002, the only persons known to the Company to beneficially
own more than five percent of the Company's Preferred Stock were the following:
Number of Shares
of Preferred Stock
Beneficially Owned (2)
---------------------------
Percentage of
Voting and/or Investment Power Outstanding
--------------------------- Total Shares of
Name(1) Sole Shared Shares Preferred Stock
------- ------ ------- ------- ---------------
F. Quinn Stepan (4).............. 12,812 166,480(3) 179,292 30.7%
Paul H. Stepan (4)............... 4,193 166,480(3) 170,673 29.2%
Plan Committee for Stepan Company
Qualified Plans................ 96,728(5)(8) 96,728 16.5%
Mary Louise Wehman (4)........... 89,684 89,684 15.3%
John Stepan (4).................. 76,872 76,872 13.1%
Charlotte Stepan Flanagan (4).... 35,244 35,244 6.0%
--------
(1) Except as otherwise set forth herein, the address of all persons named is
Stepan Company, Edens Expressway and Winnetka Road, Northfield, Illinois
60093.
(2) Represents number of shares beneficially owned as of March 1, 2002. Number
of shares owned includes shares held by the spouses of F. Quinn Stepan and
Paul H. Stepan and shares held by the persons listed in the table, as
trustee or custodian for the benefit of children and family members where
the trustee or custodian has voting or investment power.
(3) F. Quinn Stepan and Paul H. Stepan are managing partners of a family-owned
limited partnership which is the sole general partner in another
family-owned limited partnership which owns 419,840 shares of Common Stock
and 166,480 shares of Preferred Stock. The shares owned by the partnership
are included in the tables for both F. Quinn Stepan and Paul H. Stepan.
(4) F. Quinn Stepan, Paul H. Stepan, John Stepan, Mary Louise Wehman and
Charlotte Stepan Flanagan are the children of the late Mary Louise Stepan.
(5) The members of the Plan Committee are J.A. Hartlage, W.J. Klein and F.Q.
Stepan, Jr., all of whom are employees of the Company.
(6) Includes 4,709 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.
(7) Includes 378,686 shares which F. Quinn Stepan has the right to acquire
within 60 days through the exercise of stock options granted pursuant to
the Company's stock option plans.
(8) Represents shares held by Citibank, F.S.B. ("Citibank") as Trustee for the
Company's Trust for Qualified Plans. Citibank is also the Trustee for the
Company's Employee Stock Ownership Plan. Citibank expressly denies any
beneficial ownership in the securities of these Plans.
(9) Includes the number of shares of Common Stock which the specified person
has the right to acquire by conversion of Preferred Stock beneficially
owned by such person.
(10) Includes 271,356 shares of Common Stock credited to F. Quinn Stepan's
stock account under the 1992 Management Incentive Plan. Under the 1992
Management Incentive Plan, amounts credited to an employee's stock account
at termination of his employment may be paid in Common Stock at the
employee's election.
(11) Dimensional Fund Advisors Inc. ("Dimensional"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940, furnishes
investment advice to four investment companies registered under the
Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds". In its role as
investment advisor or manager, Dimensional possesses voting and/or
investment power over 609,800 shares of Company stock as of December 31,
2001. These shares are owned by the Funds. Dimensional disclaims
beneficial ownership of all such shares.
2
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's Officers and Directors, and persons who own
more than 10 percent of the Company's Common Stock or Preferred Stock, to file
reports of beneficial ownership and changes in beneficial ownership of the
Common Stock or Preferred Stock with the Securities and Exchange Commission,
the New York Stock Exchange, the Chicago Stock Exchange and the Company. Based
solely upon a review of the copies of such forms received by it during or with
respect to its most recent fiscal year, or written representations from certain
reporting persons, the Company believes all persons subject to Section 16(a)
reporting filed the required reports on time.
ELECTION OF DIRECTORS
The persons named in the enclosed Proxy will vote for the election of the
nominees named below as Directors of the Company to hold office until the
Annual Stockholders' Meeting to be held in the year 2005.
Under the Company's Certificate of Incorporation and By-laws, Directors are
elected by a plurality of the voting power of the shares of Preferred Stock and
Common Stock present in person or represented by proxy at the meeting and
entitled to vote, voting together as a single class. The outcome of the
election will not be affected by shares that withhold authority to vote in the
election.
In the event any one or more of such nominees shall be unable to serve as
Director, votes will be cast, pursuant to the authority granted in the enclosed
Proxy, for such person or persons as may be designated by the Board of
Directors. The Board of Directors at this time is not aware of any nominee who
is or will be unable to serve as Director, if elected.
3
Nominees For Director
The following table sets forth certain information about the nominees for
Director:
Year of Number and Percent
Principal Occupation and Business First of Shares of Common
Experience During the Past Five Years, Election as Stock Beneficially
Name of Nominee Other Directorships and Age Director Owned(1)
--------------- -------------------------------------- ----------- -------------------
Thomas F. Grojean... Chairman and Chief Executive 1977 48,706(2) *
Officer of Burlington Motor Carriers,
Inc. Chairman, Chief Executive
Officer and sole owner of Schanno
Transportation, Inc. Both firms are
nationwide truckload freight carriers.
Burlington Motor Carriers, Inc. filed
for Chapter 11 bankruptcy protection
in July 2001.
Age--63
James A. Hartlage... Senior Vice President--Technology 1984 1,014,314(3) 10.6%
and Operations of the Company (4)
since 1995; Senior Vice President-- (6)
Technology of the Company from (7)
1992 to 1995.
Age--64
F. Quinn Stepan, Jr. President and Chief Operating 1999 1,186,105(3) 12.4%
Officer of the Company since (5)
February 1999; Vice President and (6)
General Manager--Surfactants of the
Company from 1997 to 1999; Vice
President, Global Laundry and
Cleaning Products of the Company
from 1996 to 1997.
Age--41
* Less than one percent of outstanding shares.
--------
(1) Represents number of shares beneficially owned as of March 1, 2002. Number
of shares includes shares owned by the spouse of a Director and shares held
by a Director or their spouse as trustee or custodian for the benefit of
children and family members where the trustee or custodian has voting or
investment power.
(2) Includes 6,176 shares that such Director has the right to acquire within 60
days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(3) Includes all shares deemed beneficially owned by the Plan Committee, of
which J.A. Hartlage and F.Q. Stepan, Jr. are members. The Plan Committee
selects the investment manager of the Stepan Company Trust for Qualified
Plans under the terms of a Trust Agreement dated June 1, 1996, with
Citibank, F.S.B. See Principal Stockholders.
(4) Includes 12,916 shares of Common Stock which J.A. Hartlage has the right to
acquire within 60 days through the exercise of stock options granted
pursuant to the Company's stock option plans and 2,768 shares allocated to
J.A. Hartlage under the Employee Stock Ownership Plan.
(5) Includes 129,040 shares of Common Stock which F. Quinn Stepan, Jr. has the
right to acquire within 60 days through the exercise of stock options
granted pursuant to the Company's stock option plans, 1,103 shares
allocated to F. Quinn Stepan, Jr. under the Employee Stock Ownership Plan,
and 11,449 shares credited to F. Quinn Stepan, Jr.'s stock account under
the 1992 Management Incentive Plan. F. Quinn Stepan, Jr. is the son of F.
Quinn Stepan and the nephew of Paul H. Stepan.
(6) See Note (5) to tables under Principal Stockholders.
(7) See Note (9) to tables under Principal Stockholders.
4
Directors Whose Terms Continue
The following table sets forth certain information about those Directors who
are not up for reelection as their term of office does not expire this year:
Principal Occupation and Year of Number and Percent
Business Experience During First of Shares of Common
the Past Five Years, Election as Term Stock Beneficially
Name of Director Other Directorships and Age Director Expires Owned (1)
---------------- ------------------------------------------ ----------- ------- ------------------
Robert D. Cadieux Private Investor. From 1993 to January 1992 2003 34,145(2) *
1995, President and Chief Executive
Officer of Air Liquide America
Corporation, a manufacturer of industrial
gases. From 1991 to 1993, Executive
Vice President of Amoco Corporation.
From 1983 to 1991, President of Amoco
Chemical Company. Trustee of Illinois
Institute of Technology.
Age--64
Robert G. Potter. Private Investor. Chairman and Chief 1995 2004 11,074(3) *
Executive Officer of Solutia Inc., the
former chemical businesses of Monsanto
Company, from 1997 to 1999. Chief
Executive of the chemical businesses of
Monsanto Company from 1986 to 1997.
Executive Vice President of Monsanto
Company from 1990 to 1997 and an
Advisory Director of Monsanto Company
from 1986 to 1997. Director of Arch
Coal Inc.
Age--62
F. Quinn Stepan.. Chairman and Chief Executive Officer of 1967 2004 2,422,773(4) 25.4%
the Company since November 1984. (5)
President and Chief Operating Officer of (6)
the Company from 1973 to (7)
February 1999. (8)
Age--64
Paul H. Stepan... Chairman of SA Inc., a real estate 1977 2003 623,840(2) 6.5%
development firm. President and Director (4)
of Paul Stepan & Associates, Inc., a real (7)
estate development firm since June 1985.
General Partner of Stepan Venture which
is involved in various venture capital
investments. General Partner of various
partnerships having an interest in certain
real estate which is unrelated to the
business of the Company; one such
partnership, in which he is an officer of
the general partner, filed for Chapter 11
bankruptcy protection in February 1998
and has been successfully refinanced and
discharged. Executive Director, Mesirow
Financial, an investment banking
operation, from 1993 to May 1998.
Age--58
* Less than one percent of outstanding shares.
5
--------
(1) See Note (1) to table under Nominees for Director.
(2) Includes 6,176 shares that such Director has the right to acquire within 60
days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(3) Includes 3,744 shares that such Director has the right to acquire within 60
days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(4) See Note (3) to tables under Principal Stockholders.
(5) See Note (6) to tables under Principal Stockholders.
(6) See Note (7) to tables under Principal Stockholders.
(7) See Note (9) to tables under Principal Stockholders.
(8) See Note (10) to tables under Principal Stockholders.
Stock Ownership of Directors and Officers
The following table sets forth as of the close of business on March 1, 2002,
the stock ownership of those Officers listed in the Compensation Table who are
not Directors and the stock ownership of Directors and Officers as a group on
such date:
Number and Percent of Shares
of Common Stock
Name Beneficially Owned(1)
---- ----------------------------
Walter J. Klein.............. 945,377(2) 9.9%
Anthony J. Zoglio............ 26,865(3) *
All Directors and Officers(4) 3,907,276 41.1%
* Less than one percent of outstanding shares.
--------
(1) Number of shares for each Officer (and Directors and Officers as a group)
includes (a) shares owned by the spouse of the Director or Officer and
shares held by the Director or Officer or his spouse as trustee or
custodian for the benefit of children and family members where the trustee
has voting or investment power and (b) shares of Common Stock which may be
acquired within 60 days through the exercise of stock options granted
pursuant to the Company's stock option plans or conversion of Preferred
Stock.
(2) Includes 1,765 shares allocated to Walter J. Klein under the Employee Stock
Ownership Plan and 9,687 shares that Walter J. Klein has the right to
acquire under stock option plans. Also includes all shares deemed
beneficially owned by the Plan Committee, of which Walter J. Klein is a
member. The Plan Committee selects the investment manager of the Stepan
Company Trust for Qualified Plans under the terms of a Trust Agreement
dated June 1, 1996, with Citibank, F.S.B. See Principal Stockholders.
(3) Includes 443 shares allocated to Anthony J. Zoglio under the Employee Stock
Ownership Plan, 14,058 shares that Anthony J. Zoglio has the right to
acquire under a stock option plan, and 3,274 shares credited to Anthony J.
Zoglio's stock account under the 1992 Management Incentive Plan.
(4) As of March 1, 2002, all Directors and Officers as a group beneficially
owned 183,985 shares of Preferred Stock, which represented 31% of the
outstanding Preferred Stock and were convertible into 210,064 shares (2.2%)
of Common Stock. As of March 1, 2002, Company-employed Directors and
Officers as a group had the right to acquire 587,610 shares of Common Stock
under stock options exercisable within 60 days, 14,158 shares of Common
Stock were allocated to Company-employed Directors and Officers under the
Employee Stock Ownership Plan, and 300,378 shares of Common Stock were
credited to stock accounts of Company-employed Directors and Officers under
the 1992 Management Incentive Plan.
Board of Directors and Committee Meetings
There were four regular meetings and one special meeting of the Board of
Directors during 2001. During 2001, none of the Directors attended fewer than
75 percent of the total number of meetings of the Board of Directors and
meetings of committees of the Board of Directors of which such Director was a
member.
6
The Board of Directors has an Audit Committee consisting of three outside
independent Directors which held three meetings in 2001. The functions of the
Audit Committee include annual consideration of the selection of independent
auditors, meeting with the auditors before the year-end audit to review the
proposed scope of work of the audit, meeting with the auditors at the
completion of the year-end audit to review the results of the audit, review of
the auditors' memorandum setting forth findings and suggestions regarding
internal control, financial policies and procedures and management's response
thereto, review of the internal audit program of the Company and review of
unusual or significant financial transactions. The members of the Audit
Committee are Messrs. Cadieux, Grojean and Potter.
The Board of Directors has a Compensation and Development Committee which
held two meetings in 2001. The functions of the Compensation and Development
Committee include reviewing the salaries of the Officers of the Company each
year, adjusting them as appropriate, approving all management incentive awards
and approving proposals for granting of stock options. The members of the
Compensation and Development Committee are Messrs. Cadieux, Grojean, Potter and
P. Stepan.
The Board of Directors has no Nominating Committee.
Compensation of Executive Officers and Directors
The following table sets forth a summary of the compensation of the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company for the years indicated.
Long-Term
Annual Compensation Compensation
------------------- ------------
Awards of All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
--------------------------- ---- -------- -------- ------------ ---------------
F. Quinn Stepan................ 2001 $519,333 $ 0 -0- $19,362
Chairman and CEO 2000 500,667 0 69,793 shs 19,673
1999 483,333 284,200 -0- 29,163
F. Quinn Stepan, Jr............ 2001 $370,000 $ 0 -0- $12,185
President and COO 2000 346,667 0 49,237 shs 13,029
1999 307,500 180,810 42,895 shs 17,420
James A. Hartlage.............. 2001 $301,333 $ 18,080 -0- $11,261
Senior Vice President-- 2000 289,667 69,520 20,275 shs 11,768
Technology and Operations 1999 277,333 120,363 -0- 16,783
Walter J. Klein................ 2001 $206,333 $ 49,520 -0- $ 7,618
Vice President---Finance 2000 198,333 0 13,862 shs 8,201
1999 190,333 57,290 -0- 11,446
Anthony J. Zoglio.............. 2001 $204,000 $ 34,762 -0- $ 6,600
Vice President-- 2000 189,083 40,388 18,390 shs 7,086
Manufacturing and Engineering 1999 180,214 60,552 -0- 10,083
--------
(1) For 2001, represents awards under the Company's Employee Stock Ownership
Plan ("ESOP") of dividends on shares in each listed individual's ESOP
account as follows: Mr. Stepan: $3,367; Mr. Stepan, Jr.: $789; Mr.
Hartlage: $1,980; Mr. Klein: $1,263; and Mr. Zoglio: $317. Also includes
awards of $5,236 under the Company's Profit Sharing Plan ("Profit Sharing")
as well as awards under the Company's Supplemental Profit Sharing Plan as
follows: Mr. Stepan: $10,759; Mr. Stepan, Jr.: $6,160; Mr. Hartlage:
$4,045; Mr. Klein: $1,119; and Mr. Zoglio: $1,047. The $5,236 Profit
Sharing amount was restricted due to limitations imposed by the Revenue
Reconciliation Act of 1993.
7
The following table provides information concerning exercises during 2001 of
stock options and as to option values at year-end.
2001 Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options at
Acquired on Value Options at 2001 Year-End 2001 Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
F. Quinn Stepan..... 70,000 shs $418,687 378,686/69,793 shs $2,678,534/176,577
F. Quinn Stepan, Jr. -0- -0- 129,040/49,237 shs $ 456,790/115,481
James A. Hartlage... 30,000 shs $313,250 48,516/20,275 shs $ 191,894/ 51,298
Walter J. Klein..... 24,150 shs $159,609 9,687/13,862 shs $ 0/ 35,072
Anthony J. Zoglio... -0- -0- 14,058/18,390 shs $ 34,428/ 46,528
Directors' Fees
Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $41,000 plus $1,450 for attendance at each Board of
Directors meeting, Audit Committee meeting and Compensation and Development
Committee meeting. No such fees are paid to Directors who are also Officers of
the Company. Under the Company's 1965 Directors' Deferred Compensation Plan,
the Company has entered into agreements with certain of its non-employee
Directors under which a Director, at his election, may defer receipt of his
Director's fees and such deferred fees are (i) used to purchase shares of the
Company's Common Stock and such shares and future distributions thereon are
deposited in the Director's account, (ii) credited to the Stepan Company
Deferred Income Account, (iii) used to purchase shares of selected
publicly-traded mutual funds or (iv) divided equally between the purchase of
shares of the Company's Common Stock, the Stepan Company Deferred Income
Account and shares of selected publicly-traded mutual funds. Funds in the
Stepan Company Deferred Income Account may not be used to purchase shares of
the Company's Common Stock, but earn interest at the same rate as bonds with a
maturity of ten years. At the election of a Director, deferred payments may be
made in shares of Stepan Common Stock or cash based on the fair market value of
the Director's account at distribution, which commences, depending upon the
terms of the agreement with the particular Director, upon retirement as a
Director or from active or professional life or at any time between ages 60 to
70, with payments being made periodically over a period of five to ten years.
In addition, the 2000 Stock Option Plan provides for the granting of a stock
option, as of the date of the annual meeting of the Company's stockholders in
calendar years 2002, 2004, 2006 and 2008 to each non-employee Director serving
as a Director of the Company on such date to purchase the number of shares of
Common Stock determined by dividing the non-employee Director's annual retainer
fee for the applicable year by the fair market value of a share of Common Stock
on the date of the grant. The exercise price of each share of Common Stock
under a stock option granted to a non-employee Director will be equal to the
fair market value of a share of Common Stock on the date of the grant or, if
greater, par value. The exercise price may be paid, upon exercise, in cash, in
shares of Common Stock or in any combination of cash or Common Stock as the
non-employee Director completes two continuous years of service as a
non-employee Director following the date of the grant, but not more than ten
years after the date of the grant. The 2000 Stock Option Plan sets forth
restrictions upon the exercise of stock options by non-employee Directors upon
termination of their service by reason of death, disability, retirement or
otherwise.
The Company has a non-qualified, non-funded retirement income plan for the
benefit of the non-employee Directors. The plan provides for a benefit after
ten years of service of 50 percent of the annual Director's fee at retirement
plus two percent for each year served on the Board in excess of ten years with
a maximum 25 years credit in excess of ten years. Benefits commence at 70 years
of age.
8
Retirement Plans
The Company has a non-contributory retirement plan (the "Retirement Plan")
covering all salaried employees that provides for a maximum pension benefit
equal to 50 percent of the employee's average base compensation, reduced by an
amount equal to 50 percent of the employee's primary Social Security benefit at
age 65, for employees with 30 years of service who retire at or after age 63.
Base compensation is computed on the average base salary for the five highest
consecutive earnings years during the last 15 years prior to retirement. The
amount of salary taken into account for any year is subject to certain
limitations contained in the Internal Revenue Code ($170,000 in 2001, to be
indexed in future years for inflation in accordance with IRS regulations, and
subject to certain transition rules for prior years in which greater amounts of
salary were permitted to be taken into account). The Company also has a
non-qualified supplemental retirement plan (the "SERP") for designated
executives. The SERP replaces benefits under the qualified plan that would
otherwise be denied due to Internal Revenue Code limits on qualified plan
benefits. The following table sets forth the maximum annual retirement income
payable under the Retirement Plan and the SERP, prior to reduction by an amount
equal to 50 percent of projected age 65 Social Security benefits, at age 63 for
indicated salaries and lengths of service.
Years of Service
-------------------------------
Base Salary 15 20 25 30
----------- ------- ------- ------- -------
$170,000.. 42,500 56,667 70,833 85,000
300,000.. 75,000 100,000 125,000 150,000
400,000.. 100,000 133,400 166,600 200,000
500,000.. 125,000 166,667 208,333 250,000
600,000.. 150,000 200,000 250,000 300,000
The years of credited service and the 2001 base salary (determined without
regard to the limitation imposed by the Internal Revenue Code) for each of the
Officers named in the cash compensation table are as follows:
Years of
Name of Individual Credited Service Base Salary
------------------ ---------------- -----------
F. Quinn Stepan..... 40 $519,333
F. Quinn Stepan, Jr. 16 370,000
James A. Hartlage... 24 301,333
Walter J. Klein..... 20 206,333
Anthony J. Zoglio... 10 204,000
9
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since December
31, 1996, in cumulative return on the Common Stock of the Company on a dividend
reinvested basis to the Dow Jones Chemical Industry Index and the Russell 2000
Index. The Dow Jones Chemical Industry Index is a market-capitalization
weighted grouping of 34 chemical companies, including major manufacturers of
both basic and specialty products. Stepan Company is not included in this
Index. The Russell 2000 Index is a market-capitalization weighted grouping of
2,000 small to medium sized companies in a broad range of industries. Stepan
Company was a part of the Russell 2000 Index during 2001. The graph assumes
$100 was invested on December 31, 1996, and shows the cumulative total return
as of each December 31 thereafter.
[CHART]
Stepan Dow Jones Chemical Russell 2000
Company Industry Index* Index
1996 $100.00 $100.00 $100.00
1997 $148.78 $120.78 $122.36
1998 $136.36 $106.83 $119.24
1999 $122.78 $130.95 $144.59
2000 $128.43 $113.88 $140.22
2001 $135.68 $113.54 $143.72
Cumulative Value at December 31**
-----------------------------------------------------------------------------------
December 31
-----------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
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Stepan Company $100.00 $148.78 $136.36 $122.78 $128.43 $135.68
-----------------------------------------------------------------------------------
Dow Jones Chemical Industry Index* $100.00 $120.78 $106.83 $130.95 $113.88 $113.54
-----------------------------------------------------------------------------------
Russell 2000 Index $100.00 $122.36 $119.24 $144.59 $140.22 $143.72
-----------------------------------------------------------------------------------
--------
* The Dow Jones Chemical Industry Index was reconstituted in 2000 in order to
include more companies and reflects restated data for 1996 through 1999.
** Assumes $100.00 invested on December 31, 1996, in Stepan Company Common
Stock, Dow Jones Chemical Industry Index and Russell 2000 Index.
10
REPORT OF THE AUDIT COMMITTEE
The Company's Audit Committee is comprised of the following non-employee
Directors: Messrs. Cadieux, Grojean and Potter. Each of these Directors
satisfies the New York Stock Exchange's definitions for independence. During
2001, Mr. Cadieux served as Chairman of the Committee.
The Audit Committee is governed by a formal, written charter that has been
approved by the full Board of Directors of the Company.
The Audit Committee has:
(a) reviewed and discussed with management the Company's audited financial
statements as of and for the year ended December 31, 2001;
(b) discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with
Audit Committees, as amended, by the Auditing Standards Board of the
American Institute of Certified Public Accountants;
(c) received and reviewed the written disclosures and the letter from the
independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and has discussed with the auditors the
auditor's independence; and
(d) considered whether the provision of non-audit services by the Company's
principal auditor is compatible with maintaining auditor independence.
Based on the reviews and discussions referred to above, we recommended to
the Board of Directors that the financial statements referred to above be
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
AUDIT COMMITTEE
11
REPORT OF THE COMPENSATION AND DEVELOPMENT COMMITTEE
The Company's executive compensation program is administered by the
Compensation and Development Committee of the Board of Directors, which is
composed of the following non-employee Directors: Messrs. Cadieux, Grojean,
Potter and P. Stepan. During 2001, Mr. Grojean served as Chairman for the
Committee. All issues pertaining to corporate officer compensation are
submitted to the Committee for approval prior to implementation. The Committee,
as requested, reviews non-officer compensation for those reporting to the Chief
Executive Officer or the President.
The Company's guiding philosophy in executive compensation is that:
(a) The base pay of executive officers should reflect job responsibilities
and performance, and should be competitive internally, to like or
comparable positions, as well as externally, to like or comparable
positions within the chemical industry. The Company uses job evaluation
and measurement techniques consistent with contemporary industrial
practice. Compensation policy is established in accordance with data
supplied by Watson Wyatt, an independent compensation consulting firm,
for base pay trends and data in the chemical industry.
Within specific position salary ranges, the base salary level for each
executive officer is determined in accordance with performance standards
set by Company policy and in compliance with position in the salary
range and the merit increase guidelines published annually for all
salaried employees. A separate determination is made when an executive
officer is promoted or assumes additional responsibilities, which may
result in an increase in excess of the merit increase guideline.
During 2001, merit increases for executive officers approximated the Company's
merit guideline. Merit increases averaged 4.1%, while one officer's
increase was 9.4% to accommodate a promotion and progress into his
salary range.
The Chairman and Chief Executive Officer's (CEO) salary range is
determined by the same process and procedures as those of other
executive officers. The Committee, in accordance with the salary merit
increase guidelines, adjusts the CEO's salary. During 2001, the CEO's
base earnings increased by 4.0% over the prior year.
(b) The incentive pay of executive officers is directly related to Company
performance and, in the case of all positions reporting to the CEO or
the President, against a set of annual, individual performance targets.
The Committee establishes Company incentive targets at the beginning of
each calendar year. As applicable, individual performance targets are
also established at the beginning of each calendar year. In years where
the Company performs well against its economic targets, significant
performance bonuses may be earned; if targets are not achieved,
incentive bonuses are proportionately lower or may not be paid at all.
All executive officers have a minimum of 25% of their incentive bonus
based on the overall performance of the Company, measured against
targets for (a) Net Income and (b) Return on Invested Capital. The
Committee approves these targets and percents for each calendar year.
The typical arrangement is that half of the total is measured against
Net Income targets and half against targets for Corporate Return on
Invested Capital.
In 2001, the Net Income result for the Company was below the Marginal
level of the incentive target as set by the Committee. As a result, no
incentive awards were made to executives for this factor for 2001.
In 2001, the Return on Invested Capital result for the Company was below
the Marginal level of the incentive target as set by the Committee. As a
result, no incentive awards were made to executives for this factor for
2001.
12
The remainder of each individual executive officer's incentive bonus is
based on performance measures set by mutual agreement between the
executive and the CEO or the President. During 2001, the average
incentive award for executive officers under this part of the plan was
11.2%.
The CEO's and the President's incentive compensation are determined
solely by the annual financial results of the Company. For 2001, no
incentive bonus was paid to the CEO or the President.
(c) Executive officers receive stock option grants on a regular schedule in
order to promote retention of proven executives, to recognize
outstanding job performance and to encourage a focus on corporate
performance results, which in turn enhance the likelihood of increases
in the value of Common Stock.
Stock options are granted in even-numbered years to those executives and
executive officers approved by the Committee and identified as having
significant impact on the financial results and economic success and
well-being of the Company. The Committee approves all stock option
awards. The size of stock option awards is based on two factors: job
performance and the potential of each executive or executive officer to
impact the costs, sales and/or profitability of the Company that may
thus contribute to the value of the Common Stock held by stockholders.
In addition, stock options are granted to executive officers at other
times based on other factors that the Committee determines to be
relevant. Such actions are occasioned by election, promotion or
extraordinary job performance results. During 2001, stock options were
granted to one executive officer due to his election.
(d) The Board of Directors believes that ownership of Company stock by
executives and executive officers is desirable in order to focus both
short and long-term decision making on the best interests of the
Company. In 2001, the Committee maintained the following policy
guidelines:
1. Executive officers of the Company should own a minimum of Company
stock approximating two times their annual base salary paid by the
Company; and
2. Other executives (defined as those who are Level Four participants in
the Company Management Incentive Plan) should own a minimum of
Company stock approximating one times their annual base salary paid
by the Company.
Stock shares may be owned directly, through the Company Stock Purchase
Plan or the Company Employee Stock Ownership Plan, or in shares held in
a deferred Management Incentive Plan account. Stock options not
exercised are not considered "owned stock" for the purpose of this
policy.
The Company realizes that time must be allowed to realize this targeted
goal. In 2000, the Committee approved a five-year time frame for
executives and executive officers to achieve such ownership.
(e) Under current levels of compensation and because certain plans,
including grants under stock option plans prior to May 6, 1997, are
"grandfathered" under current IRS regulations, the Company is unlikely
to be affected by the one million dollar limit set forth in Section
162(m) of the Internal Revenue Code ("the Code") on the deductibility of
compensation for purposes of calculating federal income tax. However,
with respect to future years, the Committee intends to consider the
application of Section 162(m) of the Code to the Company's compensation
plans and practices, and will consider possible changes thereto that may
be necessary to qualify future compensation paid to executive officers
for deductibility under Section 162(m) of the Code to the extent that
such changes would be consistent with the Company's compensation
philosophy and in the best interests of the Company.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
Paul H. Stepan
THE COMPENSATION AND DEVELOPMENT COMMITTEE
13
ACCOUNTING AND AUDITING MATTERS
Upon the recommendation of its Audit Committee in 2001, the Board of
Directors selected and employed Arthur Andersen LLP ("Andersen") as the
Company's independent public accountants to audit the financial statements of
the Company and its subsidiaries for fiscal year 2001. Andersen's report dated
February 11, 2002, on the financial statements of the Company and its
subsidiaries is included in the Company's Annual Report on Form 10-K for fiscal
year 2001. The Company received a letter from Andersen dated March 18, 2002,
stating that Andersen represents that the 2001 audit of the Company was subject
to Andersen's quality control system for the U.S. accounting and auditing
practice to provide reasonable assurance that the engagement was conducted in
compliance with professional standards, that there was appropriate continuity
of Andersen personnel working on the audit, availability of national office
consultation and availability of personnel at foreign affiliates of Andersen to
conduct the relevant portions of the audit.
Upon the recommendation of its Audit Committee on February 11, 2002, the
Board of Directors appointed Andersen as independent public accountants for the
Company and its subsidiaries for fiscal year 2002. In March 2002, following
completion of the 2001 audit, the Company, under the direction of members of
the Audit Committee, commenced an evaluation of the retention of Andersen as
the Company's independent public accountant to audit the financial statements
of the Company and its subsidiaries for fiscal year 2002. As of March 25, 2002,
the Company was continuing to actively evaluate potential candidates for
independent auditors for the 2002 fiscal year. The Audit Committee and the
Board of Directors expect to make a determination on this matter prior to the
Company's Annual Meeting of Stockholders.
Representatives of Andersen are expected to be present at the Annual Meeting
of Stockholders with the opportunity to make a statement, if they desire to do
so, and to be available to respond to appropriate questions from the
stockholders.
Audit Fees
The aggregate fees billed by the Company's independent auditor for
professional services rendered in connection with the audit of the Company's
financial statements included in the Company's Annual Report on Form 10-K for
fiscal year 2001, as well as for the review of the Company's financial
statements included in the Company's Quarterly Reports on Form 10-Q during the
2001 fiscal year, totaled $453,000.
Financial Information Systems Design and Implementation Fees
No fees were billed to the Company by the Company's independent auditor for
professional services related to financial information systems design and
implementation in fiscal year 2001.
All Other Fees
The aggregate fees billed by the Company's independent auditor for
professional services during fiscal year 2001, other than those described
above, totaled $544,200. These services were provided for various miscellaneous
matters, including $179,000 for internal audit fees.
In connection with the audits for the two most recent fiscal years and
through March 25, 2002, there have been no disagreements with Andersen on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Andersen, would have caused Andersen to make reference thereto
in connection with its report on the financial statements of the Company for
such time periods. Also during those time periods, there have been no
"reportable events," as such term is used in Item 304(a)(1)(v) of Regulation
S-K.
Andersen's reports on the financial statements of the Company for the last
two years neither contained an adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles.
14
STOCKHOLDER PROPOSALS--2003 ANNUAL MEETING
In order for proposals from Company stockholders to be included in the Proxy
Statement and Form of Proxy for the 2003 Annual Meeting in accordance with
Securities and Exchange Commission Rule 14a-8, the Company must receive the
proposals at its administrative offices at Edens Expressway and Winnetka Road,
Northfield, Illinois 60093, no later than November 28, 2002.
A stockholder that intends to present business at the 2003 Annual Meeting
other than pursuant to Rule 14a-8 must comply with the requirements set forth
in the Company's By-laws. Among other things, to bring business before an
annual meeting, a stockholder must give written notice thereof, complying with
the By-laws, to the Secretary of the Company not later than 90 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders. Therefore, because the 2002 Annual Meeting is scheduled for April
30, 2002, the Company must receive notice of a stockholder proposal submitted
other than pursuant to Rule 14a-8 no later than January 30, 2003.
OTHER MATTERS
In connection with any other business that may properly come before the
meeting and of which the Board of Directors is not now aware, votes will be
cast pursuant to the authority granted by the enclosed Proxy in accordance with
the best judgment of a majority of the persons present and acting under the
Proxy.
In order to ensure the presence of the necessary quorum at the Annual
Meeting, please mark, sign and return the enclosed Proxy card promptly in the
envelope provided. No postage is required if mailed in the United States. Even
though you sign and return your Proxy card, you are invited to attend the
meeting.
By order of the Board of Directors
KATHLEEN M. OWENS
Assistant Secretary
Northfield, Illinois
March 28, 2002
15
Stepan Company
[_] Mark this box with an X if you have made changes to your name or
address details below.
[BAR CODE APPEARS HERE}
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD 2
ADD 3
ADD 4
ADD 5
ADD 6
000000 0000000000 0 0000
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
000000000.000 ext
Holder Account Number
C 1234567890 J N T
[BAR CODE APPEARS HERE]
Use a black pen. Print in
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CAPITAL letters inside the grey
areas as shown in this example. [A][B][C] [1][2][3] [X]
--------------------------------------------------------------------------------
Annual Meeting Proxy Card
--------------------------------------------------------------------------------
[A] Election of Directors
The Board of Directors recommends a vote "FOR" the listed nominees.
For Withhold
01 - Thomas F. Grojean [_] [_]
02 - James A. Hartlage [_] [_]
03 - F. Quinn Stepan, Jr. [_] [_]
[B] Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
Please date and sign exactly as your name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
Signature 1 Signature 2 Date (dd/mm/yyyy)
---------------------------- ------------------------ __/__/____
[_] A518 1 U P X 007N8C
================================================================================
Proxy - Stepan Company
================================================================================
Annual Meeting of Stockholders to be held April 30, 2002
This proxy is solicited on behalf of the Company's Board of Directors
I, the undersigned, hereby appoint Kathleen M. Owens and James E. Hurlbutt, or
either of them (the "Proxies"), with full power of substitution, to represent
and vote all shares that the undersigned is entitled to vote at the annual
meeting of stockholders of STEPAN COMPANY on April 30, 2002, or at any
adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR the proposal set forth
below:
Election of Directors, Nominees: Thomas F. Grojean, James A. Hartlage and
F. Quinn Stepan, Jr.
In their discretion the Proxies are authorized to vote on such other business as
may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)