UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only as permitted by Rule 14a-
6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (ss.) 240.14a-11(c) or (ss.) 240.14a-12
The Stephan Co.
(Name of Registrant as Specified In Its Charter)
Merlin Partners, L.P.
(For further information contact: Phillip Goldstein, 60 Heritage Drive,
Plesantville,
NY 10570, 914-747-5262-Phone, 914-747-5258-Fax)
(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:
(1) Form, Schedule or Registration Statement No.:
(2) Filing Party:
(3) Date Filed:
PROXY STATEMENT IN OPPOSITION TO THE BOARD OF DIRECTORS OF THE STEPHAN CO. BY
MERLIN PARTNERS, L. P.
ANNUAL MEETING OF SHAREHOLDERS (TO BE HELD ON -----------, 2004)
Merlin Partners, L.P., a shareholder of The Stephan Co. ("Stephan"), is sending
this proxy statement and the enclosed GREEN proxy card to shareholders of
record on ------- 2004 (the "Record Date"). We are soliciting a proxy to vote
your shares at the 2004 Annual Meeting of Shareholders of Stephan (the
"Meeting") and at any and all adjournments or postponements of the Meeting.
Please refer to Stephan's proxy soliciting material for additional information
concerning the Meeting and the matters to be considered by shareholders
including the election of directors and approval of a proposed "Going Private"
transaction.
This proxy statement and the enclosed GREEN proxy card are first being sent to
shareholders of Stephan on or about ------------, 2004.
INTRODUCTION
There are three matters that Stephan has scheduled to be voted upon at the
Meeting:
1. The approval and adoption of a "Going Private" Transaction via a merger
by and among Eastchester Enterprises, Inc., Gunhill Enterprises, Inc.
and Stephan.
2. The election of six persons to serve as directors.
3. Approval of the independent auditors.
In addition, we intend to submit the following proposal at the Meeting:
4. No extraordinary disbursements shall be made before the board of
directors elected at the Meeting has met.
With respect to these matters, we are soliciting a proxy to vote your shares
AGAINST Proposal 1, FOR the election of our five nominees and one of the
board's nominees, Frank F. Ferola (Stephan's Chief Executive Officer, President
and Chairman of the Board), FOR Proposal 3, and FOR Proposal 4.
HOW PROXIES WILL BE VOTED
All of the proposals scheduled by Stephan to be voted upon at the Meeting are
included on the enclosed GREEN proxy card in addition to Proposal 4 which we
intend to submit for a vote at the Meeting. If you wish to vote FOR the
election of our nominees and/or on any other matters to be considered at the
Meeting, you may do so by completing and returning a GREEN proxy card.
If you return a GREEN proxy card to us or to our agent, your shares will be
voted on each matter as you indicate. If you do not indicate how your shares
are to be voted on a matter, they will be voted AGAINST Proposal 1, FOR the
election of our five nominees and Frank F. Ferola, Stephan's Chief Executive
Officer, President and Chairman of the Board, and FOR Proposals 3 and 4. If
you return a GREEN proxy card, you will be granting the proxy holder(s)
discretionary authority to vote on any other matters that may come before the
Meeting including matters relating to the conduct of the Meeting. Please refer
to Stephan's proxy soliciting material for additional information concerning
adjourning the Meeting. We do not intend to propose an adjournment. If an
adjournment of the Meeting is proposed, we will vote for or against such
adjournment in our discretion.
VOTING REQUIREMENTS
The presence in person or by proxy of at least a majority of Stephan's
outstanding shares shall constitute a quorum at the Meeting. Proposal 1
requires the affirmative vote of a majority of Stephan's outstanding shares for
approval. Proposal 2 requires the affirmative vote of a plurality of votes
cast at the Meeting for approval. Proposals 3 and 4 each require the
affirmative vote of a majority of votes cast at the Meeting for approval.
REVOCATION OF PROXIES
You may revoke any proxy prior to its exercise by (i) delivering a written
revocation of your proxy at the meeting; (ii) executing and delivering a later
dated proxy; or (iii) voting in person at the Meeting. (Attendance at the
Meeting will not in and of itself revoke a proxy.) There is no limit on the
number of times you may revoke your proxy prior to the Meeting. Only your
latest dated proxy will be counted.
INFORMATION CONCERNING THE SOLICITING SHAREHOLDER
Merlin Partners, L.P., the soliciting shareholder, is a private investment
partnership. Ancora Advisors LLC is the General Partner of Merlin Partners,
L.P. Richard Barone controls Ancora Advisors and is the portfolio manager of
Merlin Partners. Additional information about these entities and other
affiliates of Mr. Barone are contained in his Schedule 13D filings made on July
22, 2004 and August 16, 2004 at http://www.sec.gov/. The address of Merlin
Partners, Ancora Advisors and Mr. Barone is One Chagrin Highlands, 2000 Auburn
Drive, Suite 430, Cleveland, OH 44122
As of ------------, 2004, Merlin Partners owned --------- shares of Stephan.
In addition, Mr. Barone and affiliates of Mr. Barone are deemed to be the
beneficial owners of ------------- shares of Stephan owned by Mr. Barone's
clients (including Merlin Partners). All of Mr. Barone's and Merlin Partners'
shares have been purchased since ------------------. There have been no sales.
REASONS FOR THE SOLICITATION
We do not believe the proposed going private transaction is fair to
shareholders. We also believe that the primary reason that superior offers for
Stephan have not materialized from potential acquirers is an excessive
severance provision of the employment agreement of Frank F. Ferola, Stephan's
Chief Executive Officer. Finally, we believe that in order to maximize
shareholder value, it is necessary that Stephan have a board of directors that
is more independent than the current board.
If elected, our nominees will explore alternatives to enhance shareholder
value, including, but not limited to (i) payment of a sizable cash distribution
to shareholders; (ii) increasing the quarterly dividend rate, (iii)
repurchasing Stephan's common stock in the open market; (iv) conducting a self-
tender offer; (v) analyzing all strategic options, including retaining the
status quo, the sale of certain real estate assets and/or brands, or a sale of
the Company and consolidation of operations; and (vi) renegotiation of certain
management contracts on more favorable terms for Stephan.
PROPOSAL 1: TO APPROVE THE PROPOSED "GOING PRIVATE" TRANSACTION
Management has serious conflicts of interest with respect to the proposed
transaction. We believe these conflicts have resulted in a proposed
transaction that is not in the best interest of Stephan's shareholders. If the
merger is adopted, shareholders will receive only $4.60 per share, which is far
below Stephan's book value of roughly $8.50 and far below the price that we
think shareholders could receive an arm's length transaction if an acquirer did
not have to contend with Mr. Ferola's large severance package. Please refer to
Stephan's proxy soliciting material for complete information about the proposed
merger. In the absence of contrary instructions, the proxy holder(s) will vote
your shares AGAINST this proposal.
PROPOSAL 2: TO ELECT SIX DIRECTORS
Please refer to Stephan's proxy soliciting material for complete information
about this proposal. At the Meeting, we intend to nominate the following five
persons for election as directors. In addition, in the absence of contrary
instructions, the proxy holder(s) will vote your shares FOR Frank F. Ferola,
Stephan's Chief Executive Officer, President and Chairman of the Board, whom
the board intends to nominate for election as a Class III director. Each of
our nominees has consented to being named in this proxy statement and to serve
as a director if elected. None of our nominees has any arrangement or
understanding with any person with respect to any future employment by Stephan
or by any affiliate of Stephan. None of our nominees owns any shares of
Stephan except Mr. Zucker and Mr. Hopkins, who are affiliated with entities
controlled by Mr. Barone and who own 301 and 299 shares, respectively. We do
not know of any material conflicts of interest that would adversely affect any
of our nominees from acting in the best interest of Stephan and we believe that
all of our nominees would be considered independent directors if elected.
Phillip Goldstein (Age 59) -- Mr. Goldstein has been an investment advisor
since 1992; He has been a director of Brantley Capital Corporation since 2002
and of The Mexico Equity and Income Fund since 1999. (Class I)
David Pawl (Age 56) -- Mr. Pawl is a retired business executive since 2002.
From 1997 until 2002, Mr. Pawl was the President of GE Quartz, Inc. (a division
of GE Specialty Materials), a subsidiary of General Electric Company ("GE").
Mr. Pawl was made an Officer of GE in conjunction with being named President of
GE Quartz in 1997. GE Quartz manufactures materials sold into the semiconductor
equipment, fiber optics and lighting markets. In this role, Mr. Pawl was
responsible for all sales, marketing and distribution operations of the
business. The business employed approximately 1,000 people while reaching $275
million of annual revenues at its peak in 2000. GE Quartz had four
manufacturing facilities during Mr. Pawl's tenure, including three in Ohio and
one in Germany. Prior to his role with GE Quartz, Mr. Pawl held numerous
operational roles with GE beginning in 1976, including General Manager of
Distribution Services for GE Lighting and General Manager of Global Sourcing
for GE Lighting. Mr. Pawl holds a Bachelor of Science in Business
Administration from State University of New York in Albany. (Class I)
Bradley Zucker (Age 31) -- Mr. Zucker is currently a Vice President and The
Chief Financial Officer for all Ancora entities (including Ancora Capital,
Inc., Ancora Securities, Inc. and Ancora Advisors, LLC). Before joining Ancora
in 2002, Mr. Zucker was the Corporate Controller for International Total
Services, a publicly traded international provider of aviation and commercial
security services. His responsibilities included managing accounting and
finance matters, including various SEC filings. Mr. Zucker was promoted to this
position after serving simultaneously as both the Company's International
Controller and Acquisition Controller. Prior to joining International Total
Services in 1999 Mr. Zucker worked in Ernst & Young, LLC's auditing practice in
Cleveland. Mr. Zucker graduated from Emory University with a degree in
Accounting. He also holds a Masters in Business Administration from Case
Western Reserve University and is a Certified Public Accountant (CPA). (Class
II)
Brian Hopkins (Age 28) -- Mr. Hopkins is currently a Vice President and
Principal with Ancora Advisors, LLC ("Ancora"), a money management firm based
in Cleveland, Ohio. Ancora invests in public equities and fixed income
securities for its clients through multiple vehicles, including mutual funds,
managed accounts and a private investment partnership. Mr. Hopkins focuses on
due diligence of Ancora's new investments and monitoring of active investments.
Mr. Hopkins is also the Co-Portfolio Manager of Merlin Partners, L.P., a
long/short private investment partnership managed by Ancora. Prior to joining
Ancora in 2003, Mr. Hopkins was an Investment Associate with Primus Venture
Partners in Cleveland, where he focused on due diligence of potential private
equity investments and the monitoring of portfolio investments. Before joining
Primus in 2001, Mr. Hopkins worked in the Investment Banking Division of
Deutsche Banc Alex. Brown as an Associate in London after completing the
Financial Analyst program in Baltimore. Mr. Hopkins graduated with honors from
Georgetown University with a degree in Finance and additional concentration in
Economics. (Class II)
Chad Arfons (Age 33) - Mr. Arfons is currently an attorney at the Cleveland,
Ohio office of the law firm of Roetzel & Andress, LPA since 2003. Mr. Arfons
focuses his practice on corporate and business services, with an emphasis in
banking and finance. Mr. Arfons regularly represents financial institutions
and borrowers in secured debt, bond and securitized loan financing and
represents investors and syndicates in private placement transactions. From
2001 to 2003, Mr. Arfons served as General Counsel and Operating Manager to
Standard Jig Boring Inc., a closely-held manufacturer of precision components
for the aerospace, defense and power-generation industries, in which capacities
he was responsible for operational, financial and legal decision-making for the
company. From 1999 to 2001 Mr. Arfons was an attorney with Roetzel & Andress
in the Akron office. Mr. Arfons is a graduate of Tulane University School of
Law and he also graduated with an undergraduate degree from the University of
Akron. He is authorized to practice law before the courts of the State of Ohio
and the United States Tax Court. (Class III)
PROPOSAL 3: TO APPROVE THE INDEPENDENT AUDITORS
Please refer to Stephan's proxy soliciting material for complete information
about this proposal. In the absence of contrary instructions, the proxy
holder(s) will vote your shares FOR this proposal.
PROPOSAL 4: NO EXTARORDINARY DISBURSEMENTS SHALL BE MADE UNTIL THE BOARD OF
DIRECTORS ELECTED AT THE MEETING HAS MET.
Stephan has not held an annual meeting of its stockholders since September 1,
2000, in contravention of Florida law and American Stock Exchange rules. Any
extraordinary disbursements made before a board that is properly elected at the
Meeting has met could be subject to a legal challenge. To reduce the
possibility of costly litigation, we intend to propose that no extraordinary
disbursements be made until the newly elected board of directors has met. In
the absence of contrary instructions, the proxy holder(s) will vote your shares
FOR this proposal.
THE SOLICITATION
Merlin Partners, the soliciting shareholder, is making this solicitation.
Persons affiliated with or employed by us or our affiliates may assist us in
the solicitation of proxies. They will not receive any special compensation
for their services. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward this proxy statement and the enclosed
GREEN proxy card to the beneficial owners of shares of Common Stock for whom
they hold shares of record. We will reimburse these organizations for their
reasonable out-of-pocket expenses.
In addition, we have hired Phillip Goldstein, one of our nominees for director,
to assist us in this solicitation for a success fee of $25,000 plus out-of-
pocket expenses. Mr. Goldstein is not a shareholder of Stephan.
Initially, Merlin Partners will bear all of the expenses related to this proxy
solicitation. Because we believe that all shareholders will benefit from this
solicitation through an enhanced opportunity to exercise their franchise
rights, we intend to seek reimbursement of our expenses from Stephan.
Shareholders will not be asked to vote on the reimbursement of our solicitation
expenses which we estimate will be $30,000 if successful and $5,000 if
unsuccessful.
There is no arrangement or understanding involving us or any of our affiliates
that relates to future employment by or any future transaction with Stephan or
any of its affiliates.
DATED: ----------, 2004
PROXY CARD
PROXY SOLICITED IN OPPOSITION TO THE BOARD OF DIRECTORS OF THE STEPHAN CO. BY
MERLIN PARTNERS, L. P. FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Phillip Goldstein and Brian Hopkins and each of
them, as the undersigned's proxies, with full power of substitution, to attend
the Annual Meeting of Shareholders of The Stephan Co. on -----, 2004, (the
"Meeting"), and any adjournment or postponement thereof, and to vote on all
matters that may come before the Meeting and any such adjournment or
postponement the number of shares that the undersigned would be entitled to
vote if present in person, as specified below.
With respect to these matters, we are soliciting a proxy to vote your shares
AGAINST Proposal 1, FOR the election of our five nominees and Frank F. Ferola,
Stephan's Chief Executive Officer, President and Chairman of the Board, FOR
Proposal 3, and FOR Proposal 4.
(INSTRUCTIONS: Mark votes by placing an "x" in the appropriate [ ].)
1. TO APPROVE THE PROPOSED "GOING PRIVATE" TRANACTION.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. ELECTION OF SIX DIRECTORS
[ ] FOR PHILLIP GOLDSTEIN [ ] WITHHOLD AUTHORITY
[ ] FOR DAVID PAWL [ ] WITHHOLD AUTHORITY
[ ] FOR BRADLEY ZUCKER [ ] WITHHOLD AUTHORITY
[ ] FOR BRIAN HOPKINS [ ] WITHHOLD AUTHORITY
[ ] FOR CHAD ARFONS [ ] WITHHOLD AUTHORITY
[ ] FOR FRANK F. FEROLA [ ] WITHHOLD AUTHORITY
3. TO APPROVE THE INDEPENDENT AUDITORS.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4: NO EXTRAORDINARY DISBURSEMENTS SHALL BE MADE UNTIL THE BOARD OF DIRECTORS
ELECTED AT THE MEETING HAS MET.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE SIGN AND DATE BELOW. YOUR SHARES WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED AGAINST PROPOSAL 1, FOR THE
ELECTION OF THE NOMINEES NAMED ABOVE IN PROPOSAL 2 AND FOR PROPOSALS 3 AND 4.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE PROXY STATEMENT DATED ------
------, 2004 OF MERLIN PARTNERS L.P. AND REVOKES ANY PROXY PREVIOUSLY EXECUTED.
(IMPORTANT - PLEASE BE SURE TO ENTER DATE.)
SIGNATURE (S)_________________________________ Dated: _______________