SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Stepan Company
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
STEPAN COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 1, 2001
at 9:00 a.m.
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of STEPAN
COMPANY will be held at the Company's Administrative and Research Center at
Edens Expressway and Winnetka Road, Northfield, Illinois, on Tuesday, May 1,
2001, at 9:00 a.m., for the following purposes:
1. To elect two Directors to the Board.
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the Company for 2001.
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has designated the close of business on March 2,
2001, as the record date for determining holders of 5 1/2% Convertible
Preferred Stock and Common Stock entitled to notice of and to vote at the
meeting.
A copy of the Company's Annual Report for the year 2000 is enclosed with
this notice.
By Order of the Board of Directors
KATHLEEN M. OWENS
Assistant Secretary
Northfield, Illinois
March 28, 2001
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, 2001
PROXY STATEMENT
For the Annual Meeting of Stockholders of
STEPAN COMPANY
Edens Expressway and Winnetka Road
Northfield, Illinois 60093
To be held at 9:00 a.m. on May 1, 2001
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 2, 2001, the record date for the meeting,
there were 583,469 shares of 5 1/2% Convertible Preferred Stock ("Preferred
Stock") outstanding, each share of which is convertible into 1.14175 shares of
Common Stock and is entitled to 1.14175 votes on each matter to be voted on at
the meeting, and, assuming the Preferred Stock were converted, there would be
9,496,225 shares of Common Stock outstanding, each share of which is entitled
to one vote on each matter to be voted on at the meeting.
This proxy statement and proxy are being sent or given to stockholders
commencing on March 28, 2001. 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 2, 2001, 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)...... 1,831,773(6)(7)(10)(11) 609,918(3) 2,441,691 25.7%
Plan Committee for
Stepan Company
Qualified Plans........ 911,504(5)(8) 911,504 9.5%
Paul H. Stepan(4)....... 13,922 609,918(3) 623,840 6.5%
Dimensional Fund
Advisors Inc. ......... 609,200(12) 609,200 6.4%
State Street Research &
Management Company..... 587,090(13) 587,090 6.1%
1
As of March 2, 2001, 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 2, 2001.
Number of shares owned includes shares held by the spouses of F. Quinn
Stepan and Paul H. Stepan and shares held by the persons listed in the
table, as trustee or custodian for the benefit of children where the
trustee or custodian has voting or investment power.
(3) F. Quinn Stepan and Paul H. Stepan are managing partners of a family-
owned limited partnership which is the sole general partner in another
family-owned limited partnership which owns 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 4,571 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.
(7) Includes 448,686 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 263,391 shares of Common Stock credited to F. Quinn Stepan's
stock account under the 1992 Management Incentive Plan. Under the 1992
Management Incentive Plan, amounts credited to an employee's stock
account at termination of his employment may be paid in Common Stock at
the employee's election.
(11) Mr. F. Quinn Stepan is the sole executor of the estate of Mary Louise
Stepan. As of March 2, 2001, there were 154,902 shares of Common Stock
held by the estate of Mary Louise Stepan. The shares owned by the estate
of Mary Louise Stepan are not included in the tables for F. Quinn
Stepan.
(12) 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 adviser or manager, Dimensional possesses voting and/or
investment power over 609,200 shares of
2
Company stock as of December 31, 2000. These shares are owned by the
Funds. Dimensional disclaims beneficial ownership of all such shares.
(13) State Street Research & Management Company ("SSRM"), One Financial
Center, Boston, Massachusetts, 02111, is a registered investment advisor
under Section 203 of the Investment Advisors Act of 1940. As of December
31, 2000, the 587,090 shares reported were owned by various clients of
SSRM. SSRM has investment discretion with respect to all 587,090 shares.
SSRM has sole voting discretion with respect to 571,990 shares. The
remaining 15,100 shares are actually voted directly by SSRM clients. SSRM
disclaims any beneficial ownership in any of the 587,090 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's Officers and Directors, and persons who own
more than 10 percent of the Company's Common Stock or Preferred Stock, to file
reports of beneficial ownership and changes in beneficial ownership of the
Common Stock or Preferred Stock with the Securities and Exchange Commission,
the New York Stock Exchange, the Chicago Stock Exchange and the Company. Based
solely upon a review of the copies of such forms received by it during or with
respect to its most recent fiscal year, or written representations from
certain reporting persons, the Company believes that Paul H. Stepan filed one
late report of one transaction and M. Mirghanbari filed two late reports of
two transactions.
ELECTION OF DIRECTORS
The persons named in the enclosed Proxy will vote for the election of the
nominees named below as Directors of the Company to hold office until the
Annual Stockholders' Meeting to be held in the year 2004.
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:
Principal Occupation and
Business Experience
During Year of Number and Percent
the Past Five Years, First of Shares of Common
Other Election as Stock Beneficially
Name of Nominee Directorships and Age Director Owned (1)
--------------- ------------------------ ----------- -----------------------
Robert G. Potter... Private Investor. 1995 9,700(2) *
Chairman and Chief
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.,
effective April 1, 2001.
Age--61
F. Quinn Stepan.... Chairman and Chief 1967 2,441,691(3) 25.7%
Executive Officer of the (4)
Company since November (5)
1984. President and (6)
Chief Operating Officer (7)
of the Company from 1973 (8)
to February 1999.
Age--63
* Less than one percent of outstanding shares.
--------
(1) Represents number of shares beneficially owned as of March 2, 2001.
Number of shares includes shares owned by the spouse of a Director and
shares held by a Director or their spouse as trustee or custodian for the
benefit of minor children where the trustee or custodian has voting or
investment power.
(2) Includes 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.
(3) See Note (3) to tables under Principal Stockholders.
(4) See Note (6) to tables under Principal Stockholders.
(5) See Note (7) to tables under Principal Stockholders.
(6) See Note (9) to tables under Principal Stockholders.
(7) See Note (10) to tables under Principal Stockholders.
(8) See Note (11) to tables under Principal Stockholders.
Directors Whose Terms Continue
The following table sets forth certain information about those Directors
who are not up for reelection as their term of office does not expire this
year:
Principal Occupation and
Business Experience
During Year of Number and Percent
the Past Five Years, First of Shares of Common
Other Election as Term Stock Beneficially
Name of Director Directorships and Age Director Expires Owned (1)
---------------- ------------------------ ----------- ------- ----------------------
Robert D. Cadieux.. Private Investor. From 1992 2003 31,130(2) *
1993 to January 1995,
President and Chief
Executive Officer of Air
Liquide America
Corporation, a
manufacturer of
industrial gases. From
1991 to 1993, Executive
Vice President of Amoco
Corporation. From 1983
to 1991, President of
Amoco Chemical Company.
Trustee of Illinois
Institute of Technology.
Age--63
4
Principal Occupation and Year of Number and Percent of
Business Experience During First Shares of Common
the Past Five Years, Election as Term Stock Beneficially
Name of Director Other Directorships and Age Director Expires Owned (1)
---------------- --------------------------- ----------- ------- -------------------------
Thomas F. Grojean.. Chairman and Chief 1977 2002 45,290(2) *
Executive Officer of
Burlington Motor
Carriers, Inc. Chairman,
Chief Executive Officer
and sole owner of
Schanno Transportation,
Inc. Both firms are
nationwide truckload
freight carriers.
Age--62
James A. Hartlage.. Senior Vice President-- 1984 2002 1,042,950(3) 10.9%
Technology (4)
and Operations of the (7)
Company since 1995; (8)
Senior Vice President--
Technology of the
Company from 1992 to
1995.
Age--63
F. Quinn Stepan, President and Chief 1999 2002 1,162,895(3) 12.2%
Jr. .............. Operating Officer of the (5)
Company since February (7)
1999; Vice President and
General Manager--
Surfactants of the
Company from 1997 to
1999; Vice President,
Global Laundry and
Cleaning Products of the
Company from 1996 to
1997; Director--Business
Management of the
Company from 1992 to
1996. Director of
Transport Capital LLC.
Age--40
Paul H. Stepan..... Chairman of SA Inc., a 1977 2003 623,840(2) 6.5%
real estate development (6)
firm. President and (8)
Director of Paul Stepan
& Associates, Inc., a
real estate development
firm, since June 1985.
General Partner of
Stepan Venture which is
involved in various
venture capital
investments. Executive
Director, Mesirow
Financial, an investment
banking operation, from
1993 to May 1998.
Age--57
* Less than one percent of outstanding shares.
--------
(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 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 68,516 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 2,687 shares allocated
to J.A. Hartlage under the Employee Stock Ownership Plan.
5
(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, 1,071 shares
allocated to F. Quinn Stepan, Jr. under the Employee Stock Ownership
Plan, and 11,112 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 (3) to tables under Principal Stockholders.
(7) See Note (5) to tables under Principal Stockholders.
(8) See Note (9) to tables under Principal Stockholders.
Stock Ownership of Directors and Officers
The following table sets forth as of the close of business on March 2,
2001, 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)
---- ----------------------------
Ronald L. Siemon......................... 13,823(2) *
M. Mirghanbari........................... 67,252(3) *
All Directors and Officers(4)............ 4,086,882 43.0%
*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 minor children where the trustee has voting
or investment power and (b) shares of Common Stock which may be acquired
within 60 days through the exercise of stock options granted pursuant to
the Company's stock option plans or conversion of Preferred Stock.
(2) Includes 11,302 shares that Ronald L. Siemon has the right to acquire
under a stock option plan. Mr. Siemon retired from the Company on
December 31, 2000.
(3) Includes 1,977 shares allocated to M. Mirghanbari under the Employee
Stock Ownership Plan and 54,437 shares that M. Mirghanbari has the right
to acquire under stock option plans.
(4) As of March 2, 2001, 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 2, 2001, Company-employed Directors
and Officers as a group had the right to acquire 817,994 shares of Common
Stock under stock options exercisable within 60 days, 14,436 shares of
Common Stock were allocated to Company-employed Directors and Officers
under the Employee Stock Ownership Plan, and 300,715 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 2000. During 2000, none of the Directors attended fewer than
75 percent of the total number of meetings of the Board of Directors and
meetings of committees of the Board of Directors of which such Director was a
member.
The Board of Directors has an Audit Committee consisting of three outside
independent Directors which held three meetings in 2000. 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.
6
The Board of Directors has a Compensation and Development Committee which
held two meetings in 2000. 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.
Annual Long-Term
Compensation Compensation
----------------- ------------
Name and Principal Awards of All Other
Position Year Salary Bonus Options Compensation(1)
------------------ ---- -------- -------- ------------ ---------------
F. Quinn Stepan......... 2000 $500,667 $ 0 69,793 shs $19,673
Chairman and CEO 1999 483,333 284,200 -0- 29,163
1998 464,000 42,350 48,436 shs 24,872
F. Quinn Stepan, Jr..... 2000 $346,667 $ 0 49,237 shs $13,029
President and COO 1999 307,500 180,810 42,895 shs 17,420
1998 208,333 29,900 16,145 shs 10,625
James A. Hartlage....... 2000 $289,667 $ 69,520 20,275 shs $11,768
Senior Vice President- 1999 277,333 120,363 -0- 16,783
Technology and
Operations 1998 266,667 75,700 12,916 shs 14,332
Ronald L. Siemon........ 2000 $208,333 $ 68,125 14,551 shs $ 8,576
Vice President and
General 1999 200,333 113,989 -0- 12,017
Manager Polymers 1998 191,000 90,450 11,302 shs 10,174
M. Mirghanbari.......... 2000 $215,333 $ 38,760 15,034 shs $ 8,896
Vice President- 1999 207,333 92,263 -0- 12,554
Manufacturing and 1998 199,000 53,500 9,687 shs 10,759
Engineering
--------
(1) For 2000, 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: $2,942; Mr. Stepan, Jr.: $690; Mr.
Hartlage: $1,730; Mr. Siemon: $1,154; and Mr. Mirghanbari: $1,273. Also
includes awards of $6,122 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: $10,609; Mr. Stepan, Jr.: $6,217; Mr.
Hartlage: $3,916; Mr. Siemon: $1,300; and Mr. Mirghanbari: $1,501. The
$6,122 Profit Sharing amount was restricted due to limitations imposed by
the Revenue Reconciliation Act of 1993.
7
The following table provides information concerning individual grants
during 2000 of stock options made to each of the named executive officers.
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
-------------------------------------------- -------------------------
Percent
Number of of Total Exercise
Securities Options or
Underlying Granted to Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10%
---- ----------- ------------ -------- ---------- ------------ ------------
F. Quinn Stepan ........ 69,793 17.0% $21.750 5-8-10 $ 954,661 $ 2,419,297
F. Quinn Stepan, Jr. ... 45,058 10.9% 21.750 5-8-10 $ 616,324 $ 1,561,886
F. Quinn Stepan, Jr. ... 4,179 1.0% 23.925 5-8-05 $ 62,879 $ 159,346
James A. Hartlage....... 20,275 4.9% 21.750 5-8-10 $ 277,331 $ 702,811
Ronald L. Siemon........ 14,551 3.5% 21.750 5-8-10 $ 199,035 $ 504,394
M. Mirghanbari ......... 15,034 4.0% 21.750 5-8-10 $ 205,642 $ 521,137
The following additional computations are examples of hypothetical gains by
all common stockholders and the above optionees on the same assumptions set
forth above, that is, at assumed annual rates of common stock appreciation of
5% and 10%, respectively, for the term of the above options. Such assumed
rates are prescribed by rules of the Securities and Exchange Commission and
are not intended to forecast possible future appreciation, if any, of the
Company's Common Stock prices. The Company is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown factors.
All common stockholders. N/A N/A N/A N/A $129,520,455 $328,230,262
All above optionees..... 168,890 41.4% $21.750/ 5-8-05/ $ 2,315,871 $ 5,868,872
23.925 5-8-10
Above optionees gain as
% of all stockholders
gain................... N/A N/A N/A N/A 1.8% 1.8%
The following table provides information concerning exercises during 2000
of stock options and as to option values at year-end.
2000 Aggregated Option Exercises in Last Fiscal Year and Year-End Option
Values
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options
on Value Options at 2000 Year-End at 2000 Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------- -------- ------------------------- -------------------------
F. Quinn Stepan......... 35,000 shs $457,187 448,686/69,793 shs $2,865,673/135,244
F. Quinn Stepan, Jr. ... -0- -0- 86,145/92,132 shs $ 373,814/103,386
James A. Hartlage....... 10,000 shs $ 76,250 78,516/20,275 shs $ 461,426/39,285
Ronald L. Siemon........ 34,950 shs $288,243 11,302/0 shs $ 0/0
M. Mirghanbari.......... -0- -0- 67,137/15,034 shs $ 533,116/29,129
8
Directors' Fees
Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $39,000 plus $1,350 for attendance at each Board
of Directors meeting, Audit Committee meeting and Compensation and Development
Committee meeting. No such fees are paid to Directors who are also Officers of
the Company. Under the Company's 1965 Directors' Deferred Compensation Plan,
the Company has entered into agreements with certain of its non-employee
Directors under which a Director, at his election, may defer receipt of his
Director's fees and such deferred fees are (i) used to purchase shares of the
Company's Common Stock and such shares and future distributions thereon are
deposited in the Director's account, (ii) credited to the Stepan Company
Deferred Income Account, (iii) used to purchase shares of selected publicly-
traded mutual funds or (iv) divided equally between the purchase of shares of
the Company's Common Stock, the Stepan Company Deferred Income Account and
shares of selected publicly-traded mutual funds. Funds in the Stepan Company
Deferred Income Account may not be used to purchase shares of the Company's
Common Stock, but earn interest at the same rate as bonds with a maturity of
ten years. At the election of a Director, deferred payments may be made in
shares of Stepan Common Stock or cash based on the fair market value of the
Director's account at distribution, which commences, depending upon the terms
of the agreement with the particular Director, upon retirement as a Director
or from active or professional life or at any time between ages 60 to 70, with
payments being made periodically over a period of five to ten years.
In addition, the 1992 Stock Option Plan provided for the granting of a
stock option, as of the date of the annual meeting of the Company's
stockholders in calendar year 2000, and 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 1992
and 2000 Stock Option Plans set forth restrictions upon the exercise of stock
options by non-employee Directors upon termination of their service by reason
of death, disability, retirement or otherwise.
The Company has a non-qualified, non-funded retirement income plan for the
benefit of the non-employee Directors. The plan provides for a benefit after
ten years of service of 50 percent of the annual Director's fee at retirement
plus two percent for each year served on the Board in excess of ten years with
a maximum 25 years credit in excess of ten years. Benefits commence at 70
years of age.
Retirement Plans
The Company has a non-contributory retirement plan (the "Retirement Plan")
covering all salaried employees that provides for a maximum pension benefit
equal to 50 percent of the employee's average base compensation, reduced by an
amount equal to 50 percent of the employee's primary Social Security benefit
at age 65, for employees with 30 years of service who retire at or after age
63. Base compensation is computed on the average base salary for the five
highest consecutive earnings years during the last 15 years prior to
retirement. The amount of salary taken into account for any year is subject to
certain limitations contained in the Internal Revenue Code ($170,000 in 2000,
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.
9
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 2000 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.................................... 39 $500,667
F. Quinn Stepan, Jr. .............................. 15 346,667
James A. Hartlage.................................. 23 289,667
Ronald L. Siemon................................... 31 208,333
M. Mirghanbari..................................... 31 215,333
10
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since December
31, 1995, 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 2000.
The graph assumes $100 was invested on December 31, 1995, and shows the
cumulative total return as of each December 31 thereafter.
[GRAPH]
Cumulative Value at December 31**
December 31
-----------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
-----------------------------------------------------------------------------------------
Stepan Company $100.00 $125.74 $187.07 $171.45 $154.38 $161.48
-----------------------------------------------------------------------------------------
Dow Jones Chemical
Industry Index* $100.00 $118.55 $143.19 $126.64 $155.24 $135.01
-----------------------------------------------------------------------------------------
Russell 2000 Index $100.00 $116.50 $142.55 $138.91 $168.45 $163.36
--------
* The Dow Jones Chemical Industry Index was reconstituted in 2000 in order to
include more companies and reflects restated data for 1995 through 1999.
** Assumes $100.00 invested on December 31, 1995, in Stepan Company Common
Stock, Dow Jones Chemical Industry Index and Russell 2000 Index.
11
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
2000, 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. A copy of this charter
is included as Appendix A.
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, 2000;
(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, 2000.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
AUDIT COMMITTEE
12
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 2000, 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 Hay Associates, 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 2000, merit increases for executive officers were slightly below
the Company's merit guideline. Merit increases averaged 3.95%, while
two officers' increases averaged 11% to accommodate promotions and
progress into their salary ranges.
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 2000, the CEO's
base earnings increased by 3.3% 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 2000, 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 2000.
In 2000, 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 2000.
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 2000, the average
incentive award for executive officers under this part of the plan was
9.95%.
13
The CEO's and the President's incentive compensation are determined
solely by the annual financial results of the Company. For 2000, 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.
During 2000, stock options were approved and granted to some eligible
executives and executive officers.
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 2000, no such stock
options were granted.
(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 2000, 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
14
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AND AUDIT FEE SUMMARY
Upon the recommendation of its Audit Committee, the Board of Directors has
appointed Arthur Andersen LLP ("Andersen"), independent public accountants,
auditors for the Company and its subsidiaries for the year 2001. The Board of
Directors recommends to the stockholders that the appointment of Andersen as
auditors for the Company and its subsidiaries be ratified. If the stockholders
do not ratify the appointment of Andersen, the selection of auditors will be
reconsidered by the Audit Committee and the Board of Directors.
Representatives of Andersen are expected to be present at the Annual Meeting
of Stockholders with the opportunity to make a statement, if they desire to do
so, and to be available to respond to appropriate questions from the
stockholders.
During fiscal year 2000, the Company retained Andersen as its principal
auditor to provide services in the following categories and amounts:
Audit Fees...................................................... $313,125
Financial Information Systems Design And Implementation Fees.... $ 0
All Other Fees.................................................. $363,198
STOCKHOLDER PROPOSALS--2002 ANNUAL MEETING
In order for proposals from Company stockholders to be included in the
Proxy Statement and Form of Proxy for the 2002 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, 2001.
A stockholder that intends to present business at the 2002 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 2001 Annual Meeting is scheduled for May
1, 2001, the Company must receive notice of a stockholder proposal submitted
other than pursuant to Rule 14a-8 no later than January 31, 2002.
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, 2001
15
Appendix A
Stepan Company Board of Directors
Audit Committee Charter
I. PURPOSE
The primary function of the Audit Committee (Committee) is to assist the
Board of Directors (Board) in fulfilling its oversight responsibilities to
shareholders, the investment community, and creditors in relation to the
quality and integrity of the corporation's financial reporting, disclosures,
regulatory compliance, and internal control environment. In performing its
duties, the Committee will provide an open avenue of communication between the
Board, independent auditors, internal auditors, and financial management.
II. COMPOSITION
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent as defined by the NYSE. A
director who does not meet the independence requirements may be appointed to
the Committee if the Board determines that the individual's inclusion is in
the best interest of the corporation and its shareholders--this "override" is
available only to former officers and their immediate family members and is
limited to one member of the Committee.
All members of the Committee shall be financially literate or become
financially literate within a reasonable period of time after appointment to
the Committee. "Financial literacy" is defined as the ability to read and
understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement. Additionally, at least one
member of the Committee shall have accounting or related financial management
expertise--where "expertise" is meant to include being or having been a CEO or
other senior officer with financial oversight responsibilities.
The Board shall elect the members of the Committee and, unless a Chair is
elected by the full Board, the members of the Committee may designate a Chair
by majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet regularly, with special meetings called as
circumstances warrant--at a minimum, the Committee shall meet twice per year.
On an annual basis, at minimum, the Committee shall meet independently with
senior financial management, the director of internal audit, and the
independent auditors to discuss any matters the Committee or one of these
parties believes should be discussed privately.
IV. REPORTING RESPONSIBILITIES
The independent auditor is ultimately accountable to the Committee in their
fiduciary role as representatives of shareholders and the full Board. As such,
the Committee has the ultimate authority and responsibility to select,
evaluate, and where appropriate, replace the independent auditor. In addition,
the director of internal audit has direct reporting responsibility to the
Committee and the Committee shall review and approve any personnel change in
this position.
V. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents and Reports
1. Maintain a formal written charter that is approved by the full Board and
review and reassess the adequacy of this charter on an annual basis.
This charter shall specify the scope of the Committee's responsibilities
and define how it carries out those responsibilities.
A-1
2. Review with senior financial management and the independent auditors the
corporation's annual audited financial statements and the auditor's
opinion rendered with respect to such financial statements. Recommend to
the full Board the inclusion of such financial statements in the annual
report on Form 10-K.
3. Review material findings reported to management by the internal audit
department and management's subsequent responses.
4. Review the ongoing implementation status of all internal audit
recommendations.
5. Review the independent auditor's annual management recommendation
letter, including management responses.
Annual Audit Scope
1. Monitor the coordination of internal/external audit efforts and ensure
adequate audit coverage of key business and financial risk areas.
2. Review and assess the process for developing the annual internal audit
plan and modify the process or plan as necessary.
3. Review the overall scope and focus of the annual external audit plan and
request modifications as necessary.
4. Review progress towards completion of both the internal/external audit
plans at each Committee meeting.
Audit Committee Meetings
1. Review and agree upon meeting agendas in advance of Committee meetings.
The Chair of the Committee may represent the entire Committee when
establishing agendas.
2. Ensure meeting agendas and related supporting documentation are
distributed sufficiently in advance of meetings.
3. Distribute Committee meeting minutes to the full Board for discussion
at such meetings.
Independent Accountants
1. Discuss with the independent auditor the auditor's business
relationships with the corporation and the nature of non-audit services
provided to the corporation that may impact the objectivity and
independence of the auditor. Recommend that the full Board take
appropriate action when required.
2. Require a formal written statement from the independent auditor
delineating all relationships between the auditor and the corporation,
including those that may impact objectivity and independence.
3. Recommend to the full Board the selection of the independent auditor,
considering independence and effectiveness, and approve the fees and
other compensation to be paid to the independent auditor.
4. Discuss with the independent auditor the items required by the Statement
on Auditing Standards (SAS) #61, including (a) discussions about both
the acceptability and quality of the accounting principles applied in
the corporation's financial reporting; (b) the clarity of the company's
financial disclosures; (c) degree of aggressiveness or conservatism of
the company's application of accounting principles and underlying
estimates; (d) all significant differences in opinion between management
and the external auditors; (e) unrecorded audit adjustments, and; (f)
other significant decisions made by management in preparing financial
disclosures.
A-2
5. Periodically consult with the independent auditor outside the presence
of internal management about internal controls and the fullness and
accuracy of the organization's financial statements.
6. Ensure the independent auditors have conducted a SAS #71 interim
financial review prior to the company's filing of its Form 10-Q. SAS #71
reviews consist principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial
and accounting matters. These procedures are substantially less in scope
than an audit made in accordance with generally accepted auditing
standards.
SEC Reporting Requirements
1. Report annually in the proxy that we have (a) reviewed and discussed the
company's audited financial statements with management; (b) discussed
SAS #61 items, including quality of accounting principles, with the
independent auditors; (c) reviewed independence disclosures from the
independent auditors and discussed with the independent auditors their
independence; and (d) based on the foregoing reviews and discussions,
recommended to the Board the inclusion of the financial statements in
the annual report on Form 10-K.
A-3
PROXY PROXY
STEPAN COMPANY
Annual Meeting of Stockholders to be held May 1, 2001
This Proxy is solicited on behalf of the Company's Board of Directors
I, the undersigned hereby appoint Kathleen M. Owens and Walter J. Klein, or
either of them (the "Proxies"), with full power of substitution, to represent
and vote all shares that the undersigned is entitled to vote at the annual
meeting of stockholders of STEPAN COMPANY on May 1, 2001, or at any adjournment
thereof.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR proposals 1 and 2,
set forth below.
1. Election of Directors, Nominees: Robert G. Potter and F. Quinn Stepan.
2. Ratification of the appointment of Arthur Andersen LLP as independent
auditors for the Company for 2001.
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.)
STEPAN COMPANY
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
[ ]
The Board of Directors recommends a vote "FOR" 1 and 2.
1. Election of Directors- For Withhold For All
Nominees: 01-Robert G. Potter and All All (Except withhold for
02-F. Quinn Stepan. nominee written below)
[_] [_] [_]
--------------
For Against Abstain
2. Ratification of independent auditors. [_] [_] [_]
Dated: , 2001
------------------
Signature(s)
-------------------------
--------------------------------------
Please date and sign exactly as your
name appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such.
--------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.