Exhibit (10) a (2)

STEPAN COMPANY

DIRECTORS DEFERRED COMPENSATION PLAN

AMENDED AND RESTATED AS OF JANUARY 1, 2005

 

1. Name of Plan, History, and Effective Date of Amendment and Restatement:

 

  a. Name of Plan. This Plan shall be known as the Directors Deferred
Compensation Plan (the “Plan”).

 

  b. History. Stepan Company, a Delaware corporation (the “Company”), previously
established this Directors Deferred Compensation Plan. The Plan was previously
amended and restated as of November 3, 1992 and thereafter was amended effective
as of February 14, 2006.

 

  c. Effective Date of this Amendment and Restatement. The following provisions
shall constitute an amendment, restatement and continuation of the Plan as
previously amended and as in effect immediately prior to January 1, 2005, the
Effective Date of the Plan as set forth herein. The following provisions shall
also constitute an amendment, restatement and continuation of the following
deferred compensation agreements between the Company and the individuals named
below, as such agreements were in effect immediately prior to January 1, 2005:

 

  i. The agreement between the Company and Thomas F. Grojean, a non-employee
director of the Company, made and entered into as of April 27, 1977, and as
subsequently amended by agreements made and entered into between said parties as
of August 12, 1982, November 3, 1992, and August 2, 2004 (collectively, the
“Grojean Agreement”), provided however, that numbered paragraphs 1 and 2 of the
August 2, 2004 agreement (regarding the payee) and numbered paragraph 3 of the
August 2, 2004 agreement (prohibiting any sale, assignment, encumbrance, etc. of
any amounts payable under the Grojean Agreement) shall continue in full force
and effect (in the case of said numbered paragraph 3, without regard to its
designation as new section 9) as though said August 2, 2004 agreement (entitled
“Second Amendment of Agreement”) were fully set out in this Plan. The payment
provisions of Section 8 of the Plan shall apply to amounts deferred under the
Grojean Agreement;

 

  ii. The agreement between the Company and Robert G. Potter, a non-employee
director of the Company, made and entered into as of January 1, 1996 (the
“Potter Agreement”). The payment provisions of Section 8 of the Plan shall apply
to amounts deferred under the Potter Agreement; and

 

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  iii. The agreement between the Company and Robert Cadieux, a non-employee
director of the Company, made and entered into as of April 28, 1992 (the
“Cadieux Agreement”). The payment provisions of Section 8 of the Plan shall
apply to amounts deferred under the Cadieux Agreement.

 

2. Purpose of the Plan: The purpose of the Plan is to allow non-employee members
of the Board of Directors of the Company the option of deferring some or all of
their director’s compensation.

 

3. Administration: The authority to control the operation and administration of
the Plan shall be vested in the Board of Directors of the Company (the “Board”),
which shall have full authority to interpret the Plan, to determine all claims
for benefits under the Plan, to decide all questions arising under the Plan, to
prescribe, amend, and rescind rules and regulations pertaining to the Plan, and
to make other determinations necessary or advisable for the administration of
the Plan. Any interpretation of the Plan and any decision on any matter within
the discretion of the Board that is made by the Board, in good faith, is final
and binding on all persons.

 

4. Participation: Any non-employee director is eligible to participate in the
Plan by executing and returning to the Company Secretary, a signed copy of a
Deferred Compensation Election.

 

5. Company Acceptance: The President or any officer of the Company is authorized
to accept, on behalf of the Company, a Deferred Compensation Election.

 

6. Deferrals:

 

  a. Prior to February 14, 2006. This Section 6(a) shall apply to the Plan prior
to February 14, 2006. Upon signing a Deferred Compensation Election, the
compensation of the participating director earned during the period during which
the Deferred Compensation Election is in effect shall be deferred. A Deferred
Compensation Election entered into by a director pursuant to this Section 6(a)
must be made prior to the first year for which compensation is earned and
deferred. The participating director’s compensation shall be credited quarterly
to a Deferred Compensation Account maintained in his name.

 

  b. February 14, 2006 and Thereafter. This Section 6(b) shall apply to the Plan
as of February 14, 2006. Upon signing a Deferred Compensation Election and at
the participating director’s election made prior to the beginning of the year
for which compensation of the participating director is earned, such
compensation shall be deferred. The participating director’s compensation shall
be credited quarterly to a Deferred Compensation Account maintained in his name.

 

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  c. Investment Options. At such time as he makes a Deferred Compensation
Election, a participating director shall elect to have his Deferred Compensation
Account credited to one or more notional investment options (“Investment
Options”) established under the Plan for measuring the income, gain or loss
recorded for the director’s Deferred Compensation Account. In connection
therewith, there shall be established for each participating director, one or
more subaccounts of his Deferred Compensation Account (“Subaccounts”) to reflect
the director’s Investment Option selections. A participating director may change
such election as provided for in Section 7 herein.

 

  i. Each Investment Option shall be a security, mutual fund, common or
collective trust, insurance company pooled separate account, or other notional
benchmark for measuring the income, gain or loss recorded for a Participant
Account that qualifies as a “pre-determined actual investment” within the
meaning of Section 31.3121(v)(2)-1(d)(2)(i)(C) of the U.S. Treasury Regulations.
There shall be at least four (4) Investment Options under the Plan which shall
include the common stock of the Company (“Stepan Common Stock”). The Board may
prospectively change Investment Options at any time upon notice to the
directors.

 

  ii. Each Subaccount shall be adjusted daily to reflect the changes in value
which result from gain, losses, income and expenses as if the deferred
compensation credited to the Subaccount had actually been invested in the
Investment Option for which it has been established. In the case of the Stepan
Common Stock Subaccount, dividends on Stepan Common Stock shall be credited as
dividend equivalents as if they had been actually paid on the dividend payment
date and immediately reinvested in Stepan Common Stock, based upon the average
of the opening and closing price of Stepan Common Stock.

 

  iii. The Investment Options offered under the Plan are for the sole purpose of
providing a performance measurement for adjusting Deferred Compensation Accounts
for income, gain or loss. Notwithstanding anything in this Plan to the contrary,
the Company shall not be required to actually invest monies in any fund
designated as an Investment Option, any decision to so invest shall remain
within the complete discretion of the Company, and any amounts so invested shall
remain the property of the Company. A director whose Deferred Compensation
Account includes a Stepan Common Stock Subaccount shall have no rights of a
shareholder of Stepan Common Stock.

 

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7. Investment Changes:

 

  a. Prior to February 14, 2006. This Section 7(a) shall apply to the Plan prior
to February 14, 2006. Twice a year, by giving written notice to the Company
Secretary, at least seven days in advance of June 30 and December 31, a company
director may transfer amounts between Subaccounts subject to the following:

 

  i. Amounts attributable to compensation earned on or after May 1, 1991 which
is credited to the Stepan Common Stock Subaccount:

 

  1. May not be transferred from such Subaccount prior to January 1, 1993; and

 

  2. May not be transferred from such Subaccount on or after January 1, 1993
unless no amount was credited to such Subacccount, either by reason of the
current deferral of compensation or by reason of the transfer of previously
deferred compensation earned on or after May 1, 1991, during the six months
preceding the date of the transfer.

No amount which is transferred from a Stepan Common Stock Subaccount in
accordance with subparagraph (2) above may thereafter be transferred back to the
Stepan Common Stock Subaccount.

 

  ii. In no event shall a director have an amount credited to more than two
Subaccounts.

 

  b. February 14, 2006 and Thereafter. This Section 7(b) shall apply to the Plan
as of February 14, 2006. At any time, by giving written notice to the Company
Secretary, a participating director may transfer amounts between Subaccounts,
provided however that:

 

  i. No amount which is initially credited to a director’s Stepan Common Stock
Subaccount shall be thereafter transferred from the director’s Stepan Common
Stock Subaccount to another Investment Option.

 

  ii. On or after January 1, 2007, no amount which is transferred from another
Investment Option to the Stepan Common Stock Subaccount shall thereafter be
transferred from the Stepan Common Stock Subaccount to another Investment
Option.

 

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8. Payments: This Section 8 shall apply to payment of amounts credited to the
director’s Deferred Compensation Account but shall not apply to Stock Awards
granted to a director pursuant to Section 9.

 

  a. A director may elect that payment of amounts credited to his Deferred
Compensation Account begin at either one of the following times:

 

  i. Upon the director’s separation from service from the Company; or

 

  ii. At any age attained by the Director that is after age 59.

 

  b. A director may elect the method of payment of amounts credited to his
Deferred Compensation Account from among the following:

 

  i. Annual installments over a 5, 6, 7, 8, 9 or 10 year period, payable
quarterly; or

 

  ii. A single lump sum.

 

  c. Payment of the director’s Deferred Compensation Account shall be made (in
the case of a single lump sum) or commence (in the case of installments):

 

  i. In the first calendar year following the year in which the director has
separated from service from the Company in the case of a director who has
elected in his election form to receive payment upon separation from service
from the Company, or

 

  ii. In the calendar year in which the director has attained the age specified
by the director in his election form, in the case of a director who has elected
to receive payment at a specified age that is after age 59.

 

  d. A director’s payment election shall be made in writing, as directed by the
Board, no later than the December 31 prior to the calendar year for which the
payment election shall first apply to a deferral of director’s compensation and
shall apply to all director’s compensation that is deferred for future calendar
years, if any, until the director is entitled to make a new distribution
election under the Plan for compensation not yet earned, under rules established
by the Board. Any such new payment election (i) must be made no later than
December 31 prior to the calendar year for which such payment election shall
first apply to a deferral of director’s compensation, and (ii) shall only apply
to director’s compensation earned for calendar years following the calendar year
in which such payment election is made.

 

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  e. Special Rules.

 

  i. Notwithstanding anything in the Plan to the contrary, prior to January 1,
2007, amounts credited to a director’s Deferred Compensation Account shall be
paid in quarter-annual installments over a period of ten years, as previously
elected by the director prior to January 1, 2005 (under the provisions of the
Plan then in effect):

 

  1. commencing at any age from 60 – 65, inclusive; or

 

  2. commencing at the close of the first calendar quarter ending after the date
on which the director separates from service from the Company.

Thereafter, unless a director has made an election to change such distribution
election pursuant to Section 8(i), the distribution of a director’s Deferred
Compensation Account that had commenced prior to January 1, 2007 shall continue
to be paid in the manner elected.

 

  ii. A director who has failed to designate the method of payment for his
Deferred Compensation Account shall have his Deferred Compensation Account
distributed to him in the form of 5 substantially equal annual installments
commencing in January of the year following the year in which the director has
separated from service from the Company.

 

  f. All amounts distributed to a director under the Plan shall be subject to
the special delay rule for Specified Employees set forth below.

 

  g. Delay for Specified Employees. Notwithstanding anything in the Plan to the
contrary, no payment that is paid by reason of a director’s separation of
service from the Company shall be made to any director who is a “Specified
Employee” as of the date of such director’s separation from service until the
earlier of (i) the date that is six months after the date of the director’s
separation from service, or (ii) the date of the director’s death. Any payment
that would otherwise have been made during this period shall instead be
aggregated and paid to the director (or, in the case of the director’s death,
his or her beneficiary) in the form of a single lump sum upon the earlier of the
dates specified in the preceding sentence. “Specified Employee” for purposes of
the Plan means a director who at any time during the applicable determination
period established by the Board was a “key employee” of the Company within the
meaning of Code Section 416(i), without regard to subsection (5) thereof.

 

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  h. Permitted Delays in Payment. Payments to a director under the Plan will be
delayed under any of the circumstances specified in Subsections (i) through
(iii) below.

 

  i. Payments that would violate a Contractual Requirement. Payment of a
director’s Deferred Compensation Account will be delayed where the Board
reasonably anticipates that the making of the payment would violate a term of a
loan agreement or any other similar contract to which the Company is a party,
and such violation would cause material harm to the Company; provided, however,
that such payment will be made at the earliest date at which the Board
reasonably anticipates that the making of the payment would not cause such
violation, or such violation would not cause material harm to the Company, and
provided that the facts and circumstances indicate that the Company entered into
such loan agreement or other similar contract for legitimate business reasons,
and not to avoid the requirements of Code Section 409A.

 

  ii. Payments that would violate Applicable Law. Payment of a director’s
Deferred Compensation Account will be delayed where the Board reasonably
anticipates that the making of the payment would violate Federal securities laws
or other applicable law; provided that such payment will be made at the earliest
date at which the Directors reasonably anticipates that the making of the
payment would not cause such violation. For purposes of this subsection (ii),
the making of a payment that would cause inclusion in the director’s gross
income or the application of any penalty or other provision of the Code is not
treated as a violation of applicable law.

 

  iii. Other Payments. The Board shall be permitted to delay a payment of a
director’s Deferred Compensation Account upon such other events and conditions
as may be prescribed under Code Section 409A and any regulations or other
generally applicable official guidance issued thereunder.

 

  i.

Special Opportunity to Make or Change a Distribution Election Before January 1,
2007. A director may elect, at any time during calendar year 2006 to change the
time and form of the payment of his Deferred Compensation Account for amounts
payable in the 2007 calendar year or later, to any time and form of payment
provided by subsections 8(a) and (b). The latest such payment election submitted
to and approved by the Board or its designee on or before December 31, 2006
shall supersede any prior payment election submitted by the director and shall
apply to all

 

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amounts credited to the director’s Deferred Compensation Account and to all
deferrals credited to the Participant’s Deferred Compensation Account for
calendar year 2007 and subsequent calendar years unless and until the Board
shall permit a new payment election for future deferrals pursuant to
Section 8(d).

 

  j. Upon the death of a director after payments have commenced, payment of his
Deferred Compensation Account will be continued to his surviving spouse on the
same basis. If death occurs before payments have commenced, payments will be
made to the director’s surviving spouse in quarter annual installments over a
period of 5 years. Any amount credited to a director’s Deferred Compensation
Account after the last to die of the director or his spouse shall be paid to
such person’s estate in a lump sum as soon as reasonably practicable after such
death but no later than March 15 of the calendar year following the calendar
year in which the the last of the director and his spouse died.

 

  k. Form of Payment.

 

  i. Generally. Except for amounts payable to a director pursuant to
Section 8(k)(ii), payment of a director’s Deferred Compensation Account under
this Section 8 shall be made in cash.

 

  ii. Certain Amounts Credited to a Director’s Stepan Common Stock Account.

 

  1. Payment of amounts initially credited to a director’s Stepan Common Stock
Subaccount on or after February 14, 2006 shall be distributed to the director
solely in shares of Stepan Common Stock.

 

  2. Payment of amounts transferred from another Investment Option to the Stepan
Common Stock Subaccount on or after January 1, 2007 shall be distributed to the
director solely in shares of Stepan Common Stock.

 

9. Stock Award:

 

  a. Notwithstanding any provision in the Plan, commencing at the Company’s
February 2006 Compensation and Development Committee meeting and at every
February Compensation and Development Committee Meeting thereafter, each
non-employee director shall be credited a Stock Award to his Directors Common
Stock Account in the amount of $15,000 (“Stock Award”).

 

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  b. The number of shares credited for the Stock Award shall be determined by
dividing $15,000 by the average of the opening and closing price of Stepan
Company Common Stock on the day of the grant of the Stock Award.

 

  c. No transfer of any Stock Award to any other Subaccount shall be allowed at
any time.

 

  d. Notwithstanding Section 8 of the Plan, the Stock Award shall be payable to
the non-employee director upon termination of service on the Board, in a single
lump sum payment, and shall be made only in shares of Stepan Company Common
Stock.

 

  e. All amounts distributed to a director under the Plan that are attributable
to a Stock Award under this Section 9 shall be subject to the special delay rule
for Specified Employees described in Section 8.

 

  f. No Stock Awards shall be granted after the February, 2015 meeting.

 

10. No Acceleration of Payment. Notwithstanding anything in the Plan to the
contrary, the distribution of any portion of a director’s interest under the
Plan may not be accelerated, whether at the election of the director or at the
discretion of the Board or otherwise, except as may be specifically permitted
under Code Section 409A and any regulations or generally applicable official
guidance issued thereunder.

 

11. Separation of Service. “Separated from Service” and variations thereof for
purposes of the Plan means that the Participant has retired or otherwise
terminated service with the Company for any reason other than death.

 

12. Nontransferability, Nonassignability. The interest of a director under the
Plan is not subject to the claims of his creditors, and may not be voluntarily
or involuntarily assigned, transferred, alienated, pledged or encumbered.

 

13. No Right to Serve as a Director. Nothing in the Plan shall confer upon a
director the right to continue to serve as a member of the Board.

 

14. Source of Benefits. This Plan is an unfunded plan. The Company shall not be
required to establish a trust or otherwise fund its obligations to directors
under the Plan in any way. A director’s interest under the Plan is solely that
of a general, unsecured creditor of the Company.

 

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