THE STEPHAN CO.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held ___ _, 2002
To our Stockholders:
The 2002 Annual Meeting of the Stockholders of The
Stephan Co. (the "Company") will be held on ________,
____________, 2002, at _____ A.M., local time, at
____________________, ______________________________, Ft.
Lauderdale, FL 33309 for the following purposes:
1. To elect the two Class I and two Class III members
of the Company's Board of Directors; and
2. To transact such other business as may properly
come before the Annual Meeting or any
adjournment(s) thereof.
The Company's Board of Directors has fixed the close of
business on _________ _, 2002 as the record date for the
determination of stockholders entitled to notice of, and to vote
at, the Company's 2002 Annual Meeting of Stockholders (the
"Meeting"). Only stockholders of record at the close of business
on this date will be entitled to notice of, and to vote at, the
Meeting or any adjournment(s) thereof.
By Order of the Board of Directors
PETER FEROLA
Secretary
____________ , 2002
YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH
HAS BEEN PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
IN PERSON. THE PROXY MAY BE REVOKED BY YOU AT ANY TIME PRIOR TO
EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING YOU MAY, IF YOU
WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE YOUR RIGHT TO
VOTE YOUR SHARES PERSONALLY.
PROXY STATEMENT
of
THE STEPHAN CO.
Annual Meeting of Stockholders
To Be Held on ________, 2002
GENERAL INFORMATION
This proxy statement is furnished in connection with the
solicitation of proxies by the Board of Directors of The Stephan
Co. (the "Company"), a Florida corporation, for use at its 2002
Annual Meeting of Stockholders to be held on __________, 2002 and
at any adjournment(s) thereof (the "Meeting"), for the purposes
set forth in the accompanying Notice of Annual Meeting of
Stockholders. The Meeting is to be held at _________________,
_______________________, Ft. Lauderdale, FL 33309 at _________
A.M., local time.
The principal executive offices of the Company are located
at 1850 West McNab Road, Fort Lauderdale, Florida 33309
(telephone no. 954-971-0600). The enclosed proxy card and this
proxy statement are being first sent to stockholders of the
Company on or about __________, 2002.
Quorum; Received Votes; Solicitation and Revocation.
Proxies in the form enclosed are being solicited by, and on
behalf of, the Company's Board of Directors. The persons named
in the proxy have been designated as proxies by the Board of
Directors. If a quorum, consisting of the presence (in person or
by proxy) of holders of a majority of the outstanding shares of
common stock, $.01 par value, of the Company (the "Common
Stock"), exists at the Meeting, (i) the two Class I directors and
the two class III directors shall be elected by the affirmative
vote of a plurality of the shares of Common Stock cast at the
Meeting; and (ii) approval of any other matters which may
properly come before the Meeting shall, subject to applicable
Florida law, be approved if the number of votes cast in favor of
the matter at the Meeting exceeds the number of votes cast
opposing such matter at the Meeting. With regard to the election
of the Class I and Class III directors, votes may be cast in
favor of, or withheld from any or all nominees. Votes that are
withheld with respect to this matter will be excluded entirely
from the vote and will have no effect.
Brokers who hold shares in "street name" ("Broker Shares")
for customers have the authority under the rules of the various
stock exchanges to vote, at their discretion, on certain items
when they have not received instructions from the beneficial
owners. Brokers that do not receive instructions are entitled to
vote those shares with respect to the election of directors.
Shares represented by properly executed proxies received by
the Company will be voted at the Meeting in the manner specified
therein or, if no specification is made, will be voted "FOR" the
election of the four Class I and Class III nominees for director
named herein in the class as set forth herein. Proxies solicited
by the Board of Directors will be voted for the election of the
four Class I and Class III nominees named herein, each to serve
until the expiration of his term, or until his successor has been
duly elected and qualified. Abstentions and Broker Shares that
are voted on any matter will be included in determining the
existence of a quorum. Broker Shares that are re-voted on any
matter will not be included in determining the existence of a
quorum. Neither abstentions nor non-voted Broker Shares will
have an effect on the election of Class I and Class III nominees
for director.
In the event that any other matters are properly presented
at the Meeting for action, the persons named in the enclosed
proxy will vote the proxies (which confer authority upon them to
vote on any such matters) in accordance with their judgment. Any
proxy given pursuant to this solicitation may be revoked by the
record stockholder at any time before it is exercised by written
notification delivered to the Secretary of the Company, by voting
in person at the Meeting, or by duly executing and delivering
another proxy bearing a later date. Attendance by a stockholder
at the Meeting does not alone serve to revoke his or her proxy.
The solicitation of proxies will be made primarily by mail
but, in addition, may be made by directors, officers and
employees of the Company personally or by telephone or telegraph,
without extra compensation therefor. Brokers, nominees and
fiduciaries will be reimbursed for their out-of-pocket and
clerical expenses in transmitting proxies and any related
material to beneficial owners. The costs of soliciting proxies
will be borne by the Company. It is estimated that these costs
will be nominal.
The Company's Annual Report to Stockholders for the fiscal
year ended December 31, 2001, which contains audited financial
statements, is being mailed with this proxy statement to all
persons who were stockholders of record as of the close of
business on __________, 2002. Additional copies of the Annual
Report will be provided, free of charge, upon written request to
the Company, at 1850 West McNab Road, Fort Lauderdale, Florida
33309, Attn.: Secretary.
Record Date; Voting
The Company's Board of Directors has fixed the close of
business on ________, 2002 as the record date (the "Record Date")
for the determination of stockholders of the Company who are
entitled to receive notice of, and to vote at, the Meeting. At
the close of business on the Record Date, 4,410,577 shares of
Common Stock were issued and outstanding, each share of which is
entitled to one vote on each matter to be voted upon at the
Meeting. The Company's stockholders do not have cumulative
voting rights. The Company has no other class of voting
securities entitled to vote at the Meeting.
SECURITY OWNERSHIP
Security Ownership by Certain Beneficial Owners
The following table sets forth, as of the Record Date,
certain information as to the stockholders (other than directors
and executive officers of the Company) which are known by the
Company to beneficially own more than 5% of the Common Stock
(based solely upon filings by said holders with the Securities
and Exchange Commission (the "Commission") on Schedule 13G
pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act")):
Number of Shares
Name and Address Beneficially Percent
of Beneficial Owner Owned (1) of Class
------------------- ---------------- ---------
FMR Corp.(2) 453,500 10.28%
82 Devonshire St.
Boston, MA 02109-7614
Dalton, Greiner, Hartman, 201,800 4.57%
Maher & Company
1100 Fifth Avenue South,
Ste. 301
Naples, FL 34102
Dimensional Fund Advisors, Inc. (3) 239,400 5.43%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
(1) Beneficial ownership, as reported in the above table, has
been determined in accordance with Rule 13d-3 under the
Exchange Act.
(2) Fidelity Management & Research Company ("Fidelity"), a
wholly-owned subsidiary of FMR Corp., is a beneficial owner
of the shares reflected above as a result of acting as a
registered investment adviser to various registered
investment companies. One such company, Fidelity Low-Priced
Stock Fund, owns the shares of Common Stock reflected above.
FMR Corp., through its control of Fidelity, has sole voting
power with respect to none of the above indicated shares,
but has sole power to dispose of all the above indicated
shares.
(3) Dimensional Fund Advisors Inc. ("Dimensional"), an
investment adviser 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 referred
to herein as the "Funds." In its role as investment adviser
or manager, Dimensional possesses voting and investment
power over the shares of the Company indicated above that
are directly owned by the Funds.
Ownership by Management
The following table sets forth, as of the Record Date,
certain information concerning beneficial ownership of Common
Stock by each nominee for election as a director of the Company
(all of whom are currently directors of the Company), each other
director, the Named Executives, as defined below, and all current
directors of the Company and executive officers of the Company as
a group (based solely upon information furnished by such
persons):
Number of Shares
Name of Beneficially Percent
Beneficial Owner (1) Owned (1)(2) of Class
-------------------- ---------------- --------
Thomas M. D'Ambrosio. . . . . . . . . . . . 240,964 5.43%
John DePinto. . . . . . . . . . . . . . . . 133,514 3.01%
Frank F. Ferola . . . . . . . . . . . . . . 919,935 (3) 19.17%
Curtis Carlson. . . . . . . . . . . . . . . 25,310 (4)
Leonard Genovese. . . . . . . . . . . . . . .26,310 (4)
Shouky Shaheen . . . . . . . . . . . . . . .327,306 7.39%
Peter Ferola. . . . . . . . . . . . . . . . 132,050 2.91%
David Spiegel . . . . . . . . . . . . . . . .11,400 (4)
Franc Ferola . . . . . . . . . . . . . . . .132,050 2.91%
All executive officers and directors
as a group (9 persons) . . . . . . . . 1,948,839 7.51%
----------- -------
(1) Beneficial ownership, as reported in the above table,
has been determined in accordance with Rule 13d-3 under
the Exchange Act. Unless otherwise indicated,
beneficial ownership includes both sole voting and sole
dispositive power.
(2) Includes the following shares that may be acquired upon
the exercise of options held by the specified person
within 60 days of the Record Date: Mr. Thomas
D'Ambrosio - 24,250; Mr. John DePinto - 25,310; Mr.
Frank Ferola - 387,000; Mr. Curtis Carlson - 25,310;
Mr. Leonard Genovese - 25,310; Mr. Shouky Shaheen -
20,248; Mr. Peter Ferola - 132,050; Mr. David Spiegel -
11,400; Mr. Franc Ferola - 132,050; and all executive
officers and directors as a group - 782,928.
(3) Includes 14,305 shares owned by Mr. Frank Ferola's
personal charitable foundation, of which Mr. Ferola is
a co-trustee.
(4) Represents less than 1%.
PROPOSAL I: ELECTION OF DIRECTORS
The Company's directors are elected on a staggered basis,
with each class of director consisting of one-third of the entire
Board of Directors, and each standing for election for a three-
year term. As a result of the Company's failure to hold a
meeting of stockholders during 2001, all Class I and Class III
directors are being elected at the Meeting. The Class I
directors elected at the Meeting will have terms that will expire
in 2005 and the Class III directors elected at the Meeting will
have terms that will expire in 2004. The Company's By-Laws
provide that the number of directors shall be set from time to
time by resolution of the Board of Directors and must be a
minimum of one. The Board of Directors has set the size of the
Board at six members. Only Class I and Class III directors are
being elected at the Meeting. Each of the Class I and Class III
nominees listed below has consented to being named in this proxy
statement and to serving as a Class I or Class III director, as
appropriate, if elected. In the unexpected event that any of
such nominees become unable to or will not serve, it is intended
that proxies will be voted for substitute Class III nominee(s)
designated by the current Board of Directors. The Company has no
reason to believe that any of the named Class I or Class III
nominees will be unable or unwilling to stand for election. Both
the Class I and Class III nominees for director were previously
elected at the Company's 1998 Annual Meeting.
At the Meeting, shares of Common Stock represented by
the proxies, unless otherwise specified, will be voted FOR the
election of each of the Class I and Class III nominees listed
thereon. Proxies may not be voted for a greater number of
persons than the two Class I and two Class III nominees named
thereon. Directors will be elected by a plurality of the votes
cast by the holders of shares of Common Stock at the Meeting
(assuming a quorum exists).
Set forth below is certain information with respect to the
Class I and Class III nominees for election as directors of the
Company at the Meeting and Class II directors of the Company
(based solely on information furnished by such persons):
Year of
Age First Principal Occupation(s)
(as of Election as During Past Five Years;
Name 4-1-02) a Director Other Directorships
----------- ------- ----------- -----------------------------
Class I nominees
-----------------
John DePinto 84 1981 Retired executive for more
(1)(2) than the past five years.
Shouky A. 72 1998 For more than the past five
Shaheen (2) years, President of Shaheen
and Co. Mr. Shaheen is also
the former owner of Morris
Flamingo, L.P., which was
acquired by the Company in
March 1998.
Class III nominees
------------------
Frank F. 59 1981 For more than the past five
Ferola five years, Chairman of the
Board, President and Chief
Executive Officer of the
Company.
Thomas M. 72 1981 For more than the past five
D'Ambrosio (3) years, Vice President and
Treasurer of the Company;
practicing attorney.
The Board of Directors unanimously recommends a vote "FOR"
the election of the four Class I and Class III nominees named
above as directors of the Company.
Class II directors
------------------
Leonard 67 1997 For more than the past five
Genovese (1)(2) years through June 14, 1999,
when he retired, Mr.Genovese
was Chairman and Chief
Executive Officer of
Genovese Drug, Inc., an
American Stock Exchange
listed company. Mr. Genovese
is a director of two other
publicly-traded companies:
Kellwood Company and Roslyn
Bancorp, as well as Eckerd
Drug, a wholly-owned
subsidiary of JC Penney Co.
Curtis 49 1996 For more than the past five
Carlson (1) years, partner in various
law firms. Currently a
partner in the Miami-based
law firm of Payton &
Carlson, PA.
The Class II directors are subject to election at the annual
meeting to be held in the year 2003.
(1) Member of the Audit Committee.
(2) Member of the Stock Option and Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal year 2001, the Company paid to Payton & Carlson,
P.A., a law firm of which Curtis Carlson is a partner,
approximately $190,000 for legal services rendered by such firm
to the Company. The Company also paid $4,500 per month as a
retainer to Thomas D'Ambrosio, a director of the Company, for
certain legal services rendered throughout the year.
Board of Directors; Committees of the Board
The Board of Directors met eight times during fiscal year
2001. During fiscal year 2001, no director attended fewer than
75% of the total number of meetings of the Board and of the
committees of the Board on which he served. The Company does not
have a nominating committee. The Board has established two
standing committees, consisting of an Audit Committee and a Stock
Option and Compensation Committee. The current functions of such
Committees are as follows:
The Audit Committee, which held numerous informal meetings
during fiscal 2001, reviews the internal and external audit
functions of the Company and makes recommendations to the Board
of Directors with respect thereto. It also has primary
responsibility for the formulation and development of the
auditing policies and procedures of the Company, and for making
recommendations to the Board of Directors with respect to the
selection of the Company's independent auditing firm. The Audit
Committee is governed by the Company's Audit Committee Charter, a
copy of which is set forth as Appendix A (as previously filed) to
this Proxy Statement. The Board of Directors of the Company has
determined that the current composition of the Audit Committee
satisfies AMEX's requirements regarding the independence,
financial literacy and experience of audit committees. The
Chairman of this Committee is Curtis Carlson. The other members
of this Committee are Leonard Genovese and John DePinto.
The Stock Option and Compensation Committee (the
"Compensation Committee"), which held various informal meetings,
has primary responsibility for the administration of the
Company's 1990 Key Employee Stock Incentive Plan, including
primary responsibility for the granting of options thereunder.
The Compensation Committee is also responsible for establishing
the overall philosophy of the Company's executive compensation
program and overseeing the executive compensation plan developed
to execute the Company's compensation strategy. The Chairman of
the Compensation Committee is Shouky Shaheen. The other members
of the Committee are Leonard Genovese and John DePinto.
Compensation of Directors
All directors of the Company are compensated for their
services by payment of $300 for each Board meeting attended.
During fiscal year 2001, options to purchase an aggregate of
20,248 shares of Common Stock, at an exercise price of $3.05 per
share, were granted by the Company to the four directors of the
Company who were not employees or regularly retained consultants
of the Company (each, an "Outside Director") pursuant to the
Company's 1990 Outside Directors' Stock Option Plan.
Under such Plan, each Outside Director is automatically
granted, upon such person's election or re-election to serve as a
director of the Company, an option exercisable over five years,
to purchase shares of Common Stock. Upon initial election to the
Board of Directors, an Outside Director is granted an option to
purchase 5,062 shares of Common Stock at an exercise price equal
to the fair market value of the Common Stock on the date of
grant. An option to purchase an additional 5,062 shares of
Common Stock (at an exercise price equal to the fair market value
of such Common Stock on the date of such grant) is granted to
each incumbent Outside Director during each fiscal year of the
Company thereafter on the earlier of (i) June 30 or (ii) the date
on which the stockholders of the Company elect directors at an
annual meeting of such stockholders or any adjournment thereof.
The aggregate number of shares of Common Stock reserved for grant
under the Outside Directors' Stock Option Plan (as adjusted for
stock splits) is 202,500, of which options covering 141,364
shares have been granted.
Executive Officers
The five executive officers of the Company consist of Mr.
Frank F. Ferola, President, Chairman of the Board and Chief
Executive Officer; Thomas M. D'Ambrosio, Vice President and
Treasurer; David A. Spiegel, Chief Financial Officer; Peter
Ferola, Vice President/Administration and Secretary; and Franc
Ferola, Vice President/Operations.
The following sets forth certain information with respect to
the executive officers of the Company who are not also directors
(based solely on information furnished by such persons):
Mr. David A. Spiegel, 54, was appointed as Chief Financial
Officer in January 1994. For more than the five years prior to
1994, Mr. Spiegel was the independent public accountant for the
Company.
Mr. Peter Ferola, 33, was appointed as Vice
President/Administration in January 1996. For more than the past
five years Mr. Ferola had been employed by the Company in various
capacities. In February 1997, Mr. Ferola was selected as
Secretary of the Company. Mr. Ferola had previously been the
Company's Assistant Secretary.
Mr. Franc Ferola, 36, was appointed as Vice
President/Operations in January 1996. For more than the past
five years Mr. Ferola had been employed by the Company in various
capacities.
Peter Ferola and Franc Ferola are brothers and are the sons of
Frank F. Ferola.
Other Transactions
The Company entered into a separation agreement with a former
executive officer in the amount of approximately $380,000 for
health reasons.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal
years ended December 31, 2001, December 31, 2000 and December 31,
1999, with respect to compensation earned by the Company's Chief
Executive Officer and the four other most highly compensated
executive officers of the Company whose total annual salary and
bonus exceeded $100,000 for services rendered in all capacities
to the Company and its subsidiaries during fiscal year 2001
(collectively, the "Named Executives").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Name and Other Securities
Principal Fiscal Annual Underlying All Other
Position(s) Year Salary Bonus CompensationOptions(#)Compensation
Frank F. 2001 $622,242 $0 $0 50000 (1) $0
Ferola, 2000 $565,675 $0 $0 107,000 (1) $0
President, 1999 $514,250 $0 $0 50,000 (1) $0
Chairman of
the Board
and Chief
Executive
Officer
David 2001 $166,375 $0 $0 -0- $0
Spiegel, 2000 $148,349 $0 $0 11,400 $0
Chief 1999 $134,137 $0 $0 -0- $0
Financial
Officer
Franc 2001 $166,375 $0 $0 10,000 (1) $0
Ferola, 2000 $151,250 $0 $0 47,050 (1) $0
Vice 1999 $137,500 $0 $0 10,000 (1) $0
President/
Operations
Peter 2001 $166,375 $0 $0 10,000 (1) $0
Ferola, 2000 $151,250 $0 $0 47,050 (1) $0
Vice 1999 $137,500 $0 $0 10,000 (1) $0
President/
Administration
(1) Reflects options granted pursuant to employment agreements.
Stock Option Grants in the Last Fiscal Year
The following table sets forth certain information concerning
stock options granted to Named Executives who received stock
options in fiscal year 2001.
Potential Realizable
Value At Assumed Annual
Number of Percentage of Rates of Stock Appreciation
Securities Total Options for Option Term (2)
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted(#) Fiscal Year(%) Share($) Date 5% 10%
-------- ---------- -------------- --------- -------- ----- ---
Frank F.
Ferola 50,000(1) 72% $3.00 1/01/2012 $244,334
$255,969
Peter
Ferola 10,000(1) 14% $3.00 1/01/2012 $ 48,866
$ 77,812
Franc
Ferola 10,000(1) 14% $3.00 1/01/2012 $ 48,866
$ 77,812
(1) Options granted pursuant to applicable employment
agreements.
(2) Potential realizable value is based on the assumption that
the Common Stock appreciates at the annual rates shown
(compounded annually) from the date of grant until the
expiration of the option term. These numbers are calculated
based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect any estimate or
prediction by the Company of future Common Stock trading
prices.
As of April 15, 2002, an aggregate of 631,000 options had
been granted to the Named Executives under the 1990 Key Employee
Stock Incentive Plan and 942,970 options have been granted to all
employees under the Plan, including current officers who are not
executive officers. Included in the above total are options that
have been granted and subsequently retired and/or expired over
the life of the plan. Non-employee directors of the Company are
not granted Options under the 1990 Key Employee Stock Incentive
Plan, but are granted Options under the 1990 Outside Directors'
Stock Option Plan.
Year-End Option Values
The following table sets forth certain information as of
December 31, 2001, in respect of the year-end numbers and values
of unexercised stock options held by the Named Executives. The
Named Executives did not exercise any stock options in fiscal
year 2001. The table also includes the value of the "in-the-
money" unexercised stock options which reflects the spread
between the exercise price of the existing stock options and the
year-end price of the Common Stock.
Value of
Number of Unexercised In-the-
Unexercised Options Money Options at
Held at December 31, 2001 at December 31, 2001(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Frank F.
Ferola 387,000 0 $0 $0
Peter
Ferola 132,050 0 $0 $0
David A.
Spiegel 11,400 0 $0 $0
Thomas
D'Ambrosio 24,250 0 $0 $0
Franc
Ferola 132,050 0 $0 $0
(1) Based on the closing price of the Common Stock on December
31, 2001 ($3.00).
Employment and Termination Arrangements
In January 1997, the Company entered into an employment
agreement with Mr. Frank F. Ferola. The term of the agreement is
three years, expiring in January 2000. In March 2002, pursuant
to the terms of his employment agreement, Mr. Ferola renewed his
agreement with the Company for an additional three-year term.
Under such agreement, Mr. Ferola is to receive compensation in
the amount of $425,000 per annum, subject to an annual increase
of 10%, and an annual stock option grant of 50,000 shares of the
Company's Common Stock at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant.
In addition, Mr. Ferola is entitled to receive an annual
performance bonus based on increases of at least 10% in the
Company's earnings per share, as determined by comparison to a
base year of 1996 and pursuant to a formula set forth in the
employment agreement.
In the event of a change in control (as defined in the
employment agreement) of the Company, Mr. Ferola is entitled to
receive an amount equal to his base salary for the remaining term
of the contract plus an additional 24 months' salary. In
addition, upon such an event, Mr. Ferola is to receive from the
Company, in a lump sum payment, an amount equal to the most
recent annual bonus paid multiplied by the sum of the number of
years (including fractions thereof) remaining in the term of his
agreement plus two.
In July 1998, the Company entered into an amended employment
agreement with Franc Ferola. Such amended agreement extended the
term of his agreement to January 2001 and provided Mr. Ferola
with a base salary of $125,000 per annum subject to an annual
increase of 10% and an annual stock option grant of 10,000 shares
of the Company's Common Stock at an exercise price equal to the
fair market value of the Company's Common Stock on the date of
grant. In September 2000, pursuant to the terms of his
employment agreement, Franc Ferola renewed his agreement with the
Company for an additional three-year term. In addition, for the
remaining term of the agreement, Franc Ferola is entitled to
receive an annual performance bonus based on increases of at
least 10% in the Company's earnings per share as determined by a
formula set forth in his employment agreement calculated by
comparison to a base year of 2000 (See page 12).
In the event of a change in control, including a sale,
merger or acquisition (as defined in the employment agreement) of
the Company, Franc Ferola is entitled to receive an amount equal
to his base salary for the remaining term of the contract plus an
additional twelve months' salary. In addition, upon such an
event, Franc Ferola is entitled to receive from the Company, in a
lump sum payment, an amount equal to the most recent annual bonus
paid multiplied by the sum of the number of years (including
fractions thereof) remaining in the term of his agreement plus
one.
In July 1998, the Company entered into an amended employment
agreement with Peter Ferola. Such amended agreement extended the
term of his agreement to January 2001 and provided Mr. Ferola
with a base salary of $125,000 per annum subject to an annual
increase of 10% and an annual stock option grant of 10,000 shares
of the Company's Common Stock at an exercise price equal to the
fair market value of the Company's Common Stock on the date of
grant. In September 2000, pursuant to the terms of his
employment agreement, Peter Ferola renewed his agreement with the
Company for an additional three-year term. In addition, for the
remaining term of the agreement, Peter Ferola is entitled to
receive an annual performance bonus based on increases of at
least 10% in the Company's earnings per share as determined by a
formula set forth in his employment agreement calculated by
comparison to a base year of 2000.
In the event of a change in control, including sale, merger
or acquisition (as defined in the employment agreement) of the
Company, Mr. Ferola is entitled to receive an amount equal to his
base salary for the remaining term of the contract plus an
additional twelve months' salary. In addition, upon such an
event, Mr. Ferola is entitled to receive from the Company, in a
lump sum payment, an amount equal to the most recent annual bonus
paid multiplied by the sum of the number of years (including
fractions thereof) remaining in the term of his agreement plus
one.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is
composed entirely of non-employee directors. The Compensation
Committee is responsible for reviewing and approving policies and
programs pursuant to which compensation is paid or awarded to the
Company's executive officers and key employees and for
administration of the Company's 1990 Key Employee Stock Option
Incentive Plan (the "Incentive Plan").
Compensation Strategy
The Company's executive compensation program has been
designed to (i) align executive compensation with stockholder
interests, (ii) attract, retain and motivate a highly competent
executive team, (iii) link compensation to individual and Company
performance and (iv) achieve a balance between incentives for
short-term and long-term performance and results. The Company's
executive compensation package consists of the payment of base
salary, annual bonus, and stock options awarded through
participation in the Incentive Plan. The Compensation Committee
reviews annually the compensation to be paid to the Company's
executive officers. In making such review, the Compensation
Committee evaluates information supplied by management. The
Compensation Committee also participates in the negotiation of
employment contracts, including provisions for salary and
bonuses, with the Company's executive officers. Currently,
pursuant to the Company's employment agreements with certain of
its executive officers, each such executive officer receives a
fixed annual base salary and certain of such executive officers,
including the Chief Executive Officer, are entitled to receive a
bonus amount determined by a formula based on the Company's net
earnings per share for each fiscal year during the term of the
agreement.
Base Salary
Base salary for executive officers is generally determined
by reference to written employment agreements between the Company
and such executives. The Compensation Committee's policy is to
negotiate salaries in relation to industry norms, the principal
job duties and responsibilities undertaken by such executives,
individual performance and other relevant criteria. A base
salary comparison for the Company's Chief Executive Officers was
made to a group of public companies which the Compensation
Committee believes provides a meaningful comparison to the
Company. Several of these companies are included in the custom
composite of companies in the Standard & Poor's Midcap Consumer
Products Index. See "Stock Performance Chart" below. The base
salary paid to the Company's Chief Executive Officer for fiscal
year 2001 was in the middle of the range of base salary paid by
such companies.
Annual Bonus
Annual bonuses for the Chief Executive Officer and two other
Named Executives (Peter Ferola and Franc Ferola) are determined
by reference to specific bonus formulae set forth in written
employment agreements between the Company and such officers. If
the Company's net earnings per share increase by more than 10%
compared to the executives' base years (i.e. 1996 for the Chief
Executive Officer and 2000 for the two other Named Executives),
the Chief Executive Officer is entitled to receive $20,000 and
the two other Named Executives are each entitled to receive
$5,000 for each 1% increase in net earnings per share above the
10% threshold. In addition, the Chief Executive Officer is
entitled to receive a $100,000 bonus and the two other Named
Executives are entitled to each receive a $25,000 bonus for
reaching the 10% increase in net earnings per share compared to
the base year. The Chief Executive Officer is also entitled to
receive a $150,000 bonus payment and the two other Named
Executives are entitled to each receive an additional $25,000
bonus payment upon the Company's attaining a 15% increase in net
earnings per share compared to the base year. Payment of annual
bonuses for other executives is at the discretion of the
Compensation Committee.
Stock Options
Long-term incentive compensation of executives is granted
through participation in the Incentive Plan. The Incentive Plan
permits the Company to grant stock options to executive officers
at a price not less than 100% of the fair market value of the
Common Stock on the date of the grant. In addition to
contractual obligations, stock options may be granted in the
Compensation Committee's discretion to executive officers based
upon its appraisal of the ability of such executive officers to
influence the long-term growth and profitability of the Company.
The Compensation Committee believes that providing a portion of
the executive's annual incentive compensation in the form of
stock options encourages the officers to share with the Company's
stockholders the goals of increasing the value of the Company's
stock and contributing to the success of the Company.
Compensation Committee's Actions for Fiscal Year 2001
After various informal meetings during 2001, the
Compensation Committee did not award discretionary stock options
to any key employees and did not grant salary increases or award
any bonuses. Options were granted only pursuant to employment
agreement obligations.
The Chief Executive Officer Compensation
The Compensation Committee approved an employment agreement
in 1997 for Mr. Frank F. Ferola. In approving such agreement,
the Compensation Committee authorized a base annual salary of
$425,000, an annual 10% increase in such salary, and an annual
grant of options to purchase 50,000 shares of the Common Stock at
an exercise price equal to the fair market value of the Common
Stock on the date of grant for Mr. Ferola. Based on the earnings
formula described above, Mr. Ferola was not entitled to receive a
bonus in fiscal 2001.
Section 162(m) Compliance
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") generally disallows a tax deduction to a
public company for compensation over $1 million annually paid to
its chief executive officer and four other most highly
compensated executive officers. Qualifying performance based
compensation will not be subject to the deduction limitation if
certain requirements are met. The Compensation Committee's
current policy is to structure the performance-based portion of
the compensation of the Company's executive officers (currently
consisting of stock option grants and cash bonuses) in a manner
that complies with Section 162(m) of the Code whenever
practicable and appropriate in the judgment of the Compensation
Committee.
Members of the Compensation Committee:
Shouky Shaheen, Chairman
John DePinto
Leonard Genovese
Compensation Committee Interlocks and Insider Participation
The Compensation Committee conducted deliberations through
various informal meetings concerning executive compensation
during the last completed fiscal year. None of the Compensation
Committee members are or ever were officers or employees of the
Company. During the last fiscal year, none of the executive
officers of the Company has served on the board of directors or
on the compensation committee of any other entity, any of whose
executive officers served on the Board of Directors of the
Company.
Section 16(a) Beneficial Ownership Reporting Compliance
As a public company, the Company's directors, executive
officers and more than 10% beneficial owners are subject to
reporting requirements under Section 16(a) of the Exchange Act.
None of the Company's directors, executive officers or such 10%
beneficial owners delinquently filed, to the Company's knowledge,
any reports required under Section 16(a) of such Act during
fiscal year 2001.
AUDIT COMMITTEE REPORT
Management is responsible for the Company's internal
controls and the financial reporting process. Deloitte & Touche,
the Company's independent auditor, is responsible for performing
an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing
standards. The Audit Committee's responsibility is to monitor
and oversee these processes.
In this context, the Audit Committee reviewed and discussed
the audited financial statement with both Company management and
Deloitte & Touche. Specifically, the Audit Committee has
discussed with Deloitte & Touche matters required to be discussed
by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380)
The Audit Committee received from Deloitte & Touche the
written disclosures and the letter required by Independent
Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and has discussed with Deloitte & Touche the
issue of its independence from the Company.
Based on the Audit Committee's review of the audited
financial statements and its discussions with both management and
Deloitte & Touche noted above, the Audit Committee recommended to
the Board of Directors that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 2001.
Audit Fees
The Company paid to-date Deloitte & Touche $118,000 in
aggregate fees for professional services rendered for the audit
of the Company's fiscal year 2001 annual financial statements and
review of financial statements included in the Company's
quarterly reports on Form 10-Q.
Financial Information Systems Design and Implementation Fees
All Other Fees
The Company paid Deloitte & Touche an additional $847.00 for
other services, including tax compliance and tax consultation,
provided to the Company in fiscal year 2001.
The Audit Committee has considered whether the provision of
non-audit services by Deloitte & Touche was compatible with
maintaining its independence and has determined that the nature
and substance of the non-audit services did not impair the status
of Deloitte & Touche as the Company's independent auditors.
AUDIT COMMITTEE:
Curtis Carlson
Leonard Genovese
John DePinto
STOCK PERFORMANCE CHART
December 31,
-----------------------------------------
1996 1997 1998 1999 2000 2001
The Stephan Co $100 $104 $ 81 $ 30 $ 24 $ 25
S&P 500 $100 $133 $171 $208 $189 $166
Custom Composite $100 $ 46 $ 22 $ 32 $ 18 $ 22
Index (four stocks)
The 4 Stock Custom Composite Index is comprised of Carson
Inc., Parlux Fragrances, Inc., Azurel Ltd. and Lamaur Corp.
OTHER MATTERS
At the date of this proxy statement, the Board of Directors
has no knowledge of any business that will be presented for
consideration at the Meeting, other than as described above. If
any other matter or matters are properly brought before the
Meeting or any adjournment(s) thereof, it is the intention of the
persons named in the accompanying form of proxy to vote all
proxies on such matter(s) in accordance with their judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
In accordance with Rules 14a-4(c) and 14a-5(e) promulgated
under the Exchange Act, the Company hereby notifies its
stockholders that it did not receive by January 19, 2002 notice
of any proposed matter to be submitted for stockholder vote at
the Meeting and, therefore, any proxies received in respect of
the meeting will be voted in the discretion of the Company's
management on other matters which may properly come before the
Meeting.
The Company further notifies its stockholders that if the
Company does not receive notice by January 19, 2003 of a proposed
matter to be submitted for stockholder vote at the 2003 Annual
Meeting of Stockholders, then any proxies held by members of the
Company's management in respect of such meeting may be voted at
the discretion of such management members on such matter if it
shall properly come before such meeting, without any discussion
of such proposed matter in the proxy statement to be distributed
in respect of such meeting.
Any proposal which is intended to be presented by any
stockholder for action at the 2003 Annual Meeting of Stockholders
must be received in writing by the Secretary of the Company at
1850 West McNab Road, Fort Lauderdale, Florida 33309, not later
than January 19, 2003, in order for such proposal to be
considered for inclusion in the Company's proxy statement and
form of proxy relating to the 2003 Annual Meeting of
Stockholders.
By Order of the Board of Directors
Peter Ferola
Secretary
Dated: ________, 2002
APPENDIX A
AUDIT COMMITTEE CHARTER
Organization
There shall be a committee of the board of directors to be known
as the audit committee. The audit committee of the board of
directors shall be comprised of at least three directors who are
independent of management and the Company. Members of the audit
committee shall be considered independent if they have no
relationship with the Company that may interfere with the
exercise of their independence from management and the Company as
specified in Rule 4200(a)(15) of The NASDAQ Stock Market. All
audit committee members will be financially literate and at least
one member will have accounting or related financial management
expertise. The determination of the independence of a director
and his or her qualifications to serve as a member of the audit
committee shall be determined by the board of directors in its
discretion.
Statement of Policy
The audit committee shall provide assistance to all directors in
fulfilling their responsibility to the Stockholders relating to
corporate accounting, reporting practices of the Company, and the
quality and integrity of financial reports of the Company. In so
doing, it is the responsibility of the audit committee to
maintain free and open communication between the directors, the
independent auditors, the internal auditors and the financial
management of the Company.
Responsibilities
In carrying out its responsibilities, the audit committee
believes its policies and procedures should remain flexible, in
order to best react to changing conditions and to ensure to the
directors and Stockholders that the corporate accounting and
reporting practices of the Company are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
Obtain the full board of director's approval of this Charter
and review and reassess this Charter as conditions dictate and
at least annually.
Review and recommend to the directors the independent auditors
to be selected to audit the financial statements of the Company
and its divisions and subsidiaries.
Have a clear understanding with the independent auditors that
they are ultimately accountable to the board of directors and
the audit committee, as the Stockholders' representatives, who
have the ultimate authority in deciding to engage, evaluate,
and if appropriate, terminate their services.
Review and confirm the independence of the Company's auditors.
Meet with the independent auditors and financial management of
the Company to review the scope of the proposed audit for the
current year and the procedures to be utilized, the adequacy of
the independent auditor's compensation, and at the conclusion
thereof review such audit, including any comments or
recommendations of the independent auditors.
Review with the independent auditors and financial and
accounting personnel the adequacy and effectiveness of the
accounting and financial controls of the Company, and elicit
any recommendations for the improvement of such internal
controls or particular areas where new or more detailed
controls or procedures are desirable. Particular emphasis
should be given to the adequacy of internal controls to expose
any payments, transactions, or procedures that might be deemed
illegal or otherwise improper. Further, the committee
periodically should review Company policy statements to
determine their adherence to the applicable laws and
regulations.
Review reports received from regulators and other legal and
regulatory matters that may have a material effect on the
financial statements or related Company compliance policies.
Inquire of management and the independent auditors about
significant risks or exposures and assess the steps management
has taken to minimize such risks to the Company.
Review the financial statements and management's discussion and
analysis contained in the annual report to Stockholders with
management and the independent auditors to determine that the
independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
Stockholders. Review with financial management and the
independent auditors the results of their timely analysis of
significant financial reporting issues and practices, including
changes in, or adoptions of, accounting principles and
disclosure practices, and discuss any other matters required to
be communicated to the committee by the auditors. Also review
with financial management and the independent auditors their
judgements about the quality of accounting principles and the
clarity of the financial disclosure practices used or proposed
to be used by the Company.
Provide sufficient opportunity for the independent auditors to
meet with the members of the audit committee. Among the items
to be discussed in these meetings are the independent auditors'
evaluation of the Company's financial, accounting and auditing
personnel, and the cooperation that the independent auditors
received during the course of audit.
Report the results of the annual audit to the board of
directors and recommend whether or not the audited financial
statements should be included in the Company's Annual Report on
Form 10-K. If requested by the board, invite the independent
auditors to attend the full board of directors meeting to
assist in reporting the results of the annual audit or to
answer other directors' questions.
On an annual basis, obtain from the independent auditors a
written communication delineating all their relationships and
professional services as required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit
Committees. In addition, review with the independent auditors
the nature and scope of any disclosed relationships or
professional services and take, or recommend that the board of
directors take appropriate action in response to the auditor's
report to satisfy itself or the outside auditor's independence.
Submit the minutes of all meetings of the audit committee to,
or discuss the matters discussed at each committee meeting
with, the board of directors.
Investigate any matter brought to its attention within the
scope of its duties, with the power to retain outside counsel
for this purpose if, in its judgment, that is appropriate.