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Scott's Liquid Gold-Inc.
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   22/27/96







                                                              
                                                              
                       SCOTT'S LIQUID GOLD-INC.{PRIVATE }
                               4880 HAVANA STREET
                             Denver, ColoradoDENVER, COLORADO 80239

                              ____________________
                           NOTICE OF ANNUAL MEETING OF
                                  SHAREHOLDERS
                             To Be Held May 3, 1995TO BE HELD MAY 1, 1996
TO OUR SHAREHOLDERS:

     The Annual Meeting of Shareholders of Scott's Liquid Gold-Inc., a Colorado
corporation (the "Company"), will be held at 10:00 a.m., Mountain Time, on
Wednesday, May 3, 19951, 1996 at the Company's offices, 4880 Havana Street, Denver,
Colorado for the purpose of considering and acting upon the following:

     (1) The election of seven directors;
     (2) An amendment to the Company's Articles of Incorporation to increase the
         authorized number of shares of the Company's Common Stock to 50,000,000
         shares;
     (3) An amendment to the Company's Articles of Incorporation to authorize up
         to 20,000,000 shares of Preferred Stock of the Company issuable in one
         or more series;
     (4) An amendment to the Company's Articles of Incorporation to delete a
         provision on indemnification of directors and officers; and
     (5) Such other matters as may properly come before the meeting or any
         adjournment thereof.thereof

     Only shareholders of record at the close of business on March 14, 199511, 1996 are
entitled to notice of and to vote at the meeting.

                         BY ORDER OF THE BOARD OF DIRECTORS



                         CAROLYN J. ANDERSON
                         Corporate Secretary

Denver, Colorado
March 27, 1995

__________________________________________________22 , 1996


THE FORM OF PROXY IS ENCLOSED.  TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE
MEETING, PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN
THE ENCLOSED, POSTAGE PREPAID, ADDRESSED ENVELOPE.  NO ADDITIONAL POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.  THE GIVING OF A PROXY WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.

                               3
                            SCOTT'S LIQUID GOLD-INC.
                               4880 HAVANA STREET
                             DENVER, COLORADO 80239



                                PROXY STATEMENT




                         ANNUAL MEETING OF SHAREHOLDERS
                             TO BE HELD MAY 3, 19951, 1996


     The enclosed Proxy is solicited by and on behalf of the Board of Directors
of Scott's Liquid Gold-Inc., a Colorado corporation (the "Company"), for use at
the Company's Annual Meeting of Shareholders to be held at 10:00 a.m., Mountain
Time, on Wednesday, May 3, 19951, 1996 at the Company's offices, 4880 Havana Street,
Denver, Colorado, or any adjournment thereof.  This Proxy Statement and the
accompanying form of Proxy are first being mailed or given to the shareholders
of the Company on or about March 27, 1995.22 , 1996.

     Any shareholder signing and mailing the enclosed Proxy may revoke it at any
time before it is voted by giving written notice of the revocation to the
Company's Corporate Secretary, by Votingvoting in person at the meeting or by filing
at the meeting a later executed proxy.


               VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS

   
     All voting rights are vested exclusively in the holders of the Company's
$0.10 par value common stock.  Each share of the Company's common stock is
entitled to one vote.  Cumulative voting in the election of directors is not
permitted.  Holders of a majority of shares entitled to vote at the meeting,
when present in person or by proxy, constitute a quorum.  On March 14,
1995,11, 1996, the
record date for shareholders entitled to vote at the meeting, the Company had
9,877,99610,030,900 shares of its $0.10 par value common stock issued and outstanding.
    

     When a quorum is present, in the election of directors, those seven
nominees having the highest number of votes cast in favor of their election will
be elected to the Company's Board of Directors.  Consequently, any shares not
voted (whether by abstention, broker non-vote or otherwise) have no impact in
the election of directors except to the extent the failure to vote for an
individual results in another individual receiving a larger number of votes.
The affirmative vote of 2/3 of the outstanding shares of the Company's common
stock entitled to vote is necessary for approval by the shareholders of the
proposed amendments to the Company's Articles of Incorporation.  Thus, any
shares not voted on the amendments (whether by abstention, broker non-vote or
otherwise) have the same effect as a vote against the amendments.  With respect
to any other matter which may properly come before the Meeting, unless a greater
number of votes is required by law, a matter is approved by the shareholders if
the votes cast in favor of the matter exceed the votes cast in opposition. Any
shares not voted (whether by abstention, broker non-vote or otherwise) have no
impact on the vote for these other matters so long as a quorum is present.

     The following persons are the only persons known to the Company who on
March 14, 1995,11, 1996, owned beneficially more than 5% of the Company's common stock,
its only class of outstanding voting securities:
AMOUNT AND NATURE PERCENT OF OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTBENEFICIAL BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS ---------------- -------------------- -------- Jerome J. Goldstein 2,553,3762,502,279 (1)(2) 25.7%24.8% 4880 Havana Street Denver, Colorado 80239 Goldie S. Goldstein 985,884947,884 (1) 10.0%9.4% 4880 Havana Street Denver, Colorado 80239
4
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS ---------------- -------------------- -------- Scott's Liquid Gold-Inc., 1,119,986Gold- 1,096,562 (3) 11.3%10.9% Inc. Employee Stock Ownership Plan 4880 Havana Street Denver, Colorado 80239
__________ (1) Includes 985,884947,884 shares owned by Mr. Goldstein's wife, Goldie S. Goldstein, over which shares both Mr. and Mrs. Goldstein may be deemed to have shared voting and investment power. Both the amount and percent of class of the shares owned by Goldie S. Goldstein are included in the shares reported for Jerome J. Goldstein. (2) Includes 70,500 shares underlying presently exercisable incentive stock options granted under the Company's 1986 Incentive Stock Option Plan. Does not include 134,348 shares held by the Company's Employee Stock Ownership Plan attributable to Mr. Goldstein's vested interest in the Plan. (3) The committee administering the Employee Stock Ownership Plan directs the voting of shares held under such Plan. The Company's four executive officers are four of seven members of this committee. SECURITY OWNERSHIP OF MANAGEMENT The following table shows as of March 14, 1995,11, 1996, the shares of the Company's common stock beneficially owned by each director and executive officer of the Company and the shares beneficially owned by all of the directors and executive officers as a group:
NAME OFAND AMOUNT AND NATURE OF PERCENT ADDRESS OF BENEFICIAL OWNERSHIP OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS ---------------- -------------------- -------- Jerome J. Goldstein 2,553,3762,502,279 (2)(7) 25.7%24.8% Mark E. Goldstein 441,782479,782 (3) 4.4%(7) 4.7% Carolyn J. Anderson 348,460288,460 (4)(7) 3.5%2.9% Barry Shepard 283,500274,500 (5)(7) 2.9%2.7% Dennis H. Field 148,500 (6) 1.5% James F. Keane 102,500 (6) 1.0% Michael J. Sheets 160,000105,000 (6) 1.6%1.0% All Directors and 3,901,021 (7) 36.8% executive officers as 4,038,118 (7) 38.3% a Group (7 persons)
__________ (1) Beneficial owners listed have sole voting and investment power with respect to the shares shown unless otherwise indicated. (2) Includes 985,884947,884 shares owned by Mr. Goldstein's wife over which shares Mr. Goldstein may be deemed to have shared voting and investment power. Also includes 70,500 shares underlying presently exercisable stock options granted under the Company's 1986 Incentive Stock Option Plan. -2- 5 (3) Includes for Mr. Mark Goldstein 70,500 shares underlying presently exercisable stock options granted under the Company's 1986 Incentive Stock Option Plan. Also includes 62,49292,892 shares held by Mr. Goldstein's wife and minor children. (4) Includes for Ms. Anderson 70,500 shares underlying presently exercisable stock options granted under the Company's 1986 Incentive Stock Option Plan. (5) Includes for Mr. Shepard 70,500 shares underlying presently exercisable stock options granted under the Company's 1986 Incentive Stock Option Plan. (6) Includes for each of Mr. Sheets, and45,000 shares, for Mr. Field 145,000 shares and for Mr. Keane 100,000 shares underlying presently exercisable stock options granted by the Company's Board of Directors under the Company's 1993 Stock Option Plan for Outside Directors. (7) Does not include shares owned by the Company's Employee Stock Ownership Plan under which, at December 31, 1994,1995, Jerome J. Goldstein hadhas a vested interest in 138,618134,348 shares, Mark E. Goldstein hadhas a vested interest in 74,13276,262 shares, Carolyn J. Anderson hadhas a vested interest in 112,942115,816 shares, and Barry Shepard hadhas a vested interest in 66,14468,120 shares. There has been no change in control of the Company since the beginning of the last fiscal year, and there are no arrangements known to the Company, including any pledge of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION NOMINEES The Company's Bylaws provide for a Board of Directors consistingconsists currently of seven directors. Unless authority to vote is withheld, the persons named in the enclosed form of proxy will vote the shares represented by such proxy for the election of the seven nominees for director named below. If, at the time of the Meeting, any of these nominees shall have become unavailable for any reason for election as a director, the persons entitled to vote the proxy will vote for such substitute nominee or nominees, if any, as they determine in their discretion. If elected, the nominees for director will hold office until the next annual meeting of shareholders or until their successors are elected and qualified. The nominees for director, each of whom has consented to serve if elected, are as follows:
NAME OF NOMINEE AND POSITION, IF ANY, DIRECTOR PRINCIPAL OCCUPATION FOR IN THE COMPANYPOSITION, IF ANY, AGE SINCE LAST FIVE YEARS -------------- --- ----- ------------------------IN THE COMPANY Jerome J. Goldstein 7273 1954 Chairman of the Board of the (Chairman of the Company since August, 1990. (Chairman of theFrom Board) From 1954 to 1990, President and Chairman of the Board of the Company. Mark E. Goldstein 3839 1983 President of the Company since (President and Chief August, 1990. From 1982 (President and Chiefto 1990, Executive to 1990,Officer) Vice President-Marketing of Company. Employed Officer) by the Company since 1978. Carolyn J. Anderson 56 1974 Executive Vice President since (Executive Vice 1974, Chief Operating (Executive ViceOfficer of President, Chief the Company since 1982 and Operating Officer Corporate Secretary since 1973. and Corporate Employed by the Company since Secretary) 1970. Barry Shepard 65 1982 Treasurer and Chief Financial (Treasurer and Chief Officer of the Company since 1982 and Corporate Secretary Operating Officer and Corporate since 1973. Employed by the Company since 1970. Secretary) Barry Shepard 64 1982 Treasurer and Chief1981 Financial Officer of the Company since (Treasurer and Chief 1981Officer) when employed by the Company. Financial Officer)
-3- 6
NAME OF NOMINEE AND POSITION, IF ANY, DIRECTOR PRINCIPAL OCCUPATION FOR IN THE COMPANY AGE SINCE LAST FIVE YEARS -------------- --- ----- ------------------------ Dennis H. Field 6263 1991 Management Consultant since 1990. From 1984 to 1990, Executive Vice President/General Manager, Faberge USA, Inc. (mass market health and beauty aids). James F. Keane 6162 1993 Independent businessman since 1987 and founder and President of Engine World Inc. (distributor(distributor of auto and Marinemarine engines) since 1991. From 1990 to 1992, Marketing Professor at Bentley College. From 1974 to 1987, Vice President, S.C. Johnson & Son, Inc. (household and personal care products). Michael J. Sheets 6465 1990 Principal, Schonfeld, Chapman & Pearl,Gerald Schoenfeld, Inc., venture capitalists; (new product concepts) since August, 1994. President, The French Culinary Institute, from February 1994 to August 1994. Consultant, October, 1990 to present, frompresent. From 1975 to 1990, President of Airwick Industries, Inc. (household products).
All of the foregoing persons are currently directors of the Company. Their positions on standing committees of the Board of Directors are shown below under "Directors' Meetings and Committees". The Company's only executive officers are those who are described in the foregoing table. The officers of the Company are elected annually at the first meeting of the Company's Board of Directors held after each annual meeting of shareholders and serve at the pleasure of the Board of Directors. Mark E. Goldstein is the son of Jerome J. Goldstein. With this exception, there are no family relationships among the executive officers or directors, and there are no arrangements or understandings pursuant to which any of them was elected as an executive officer or director. DIRECTORS'DIRECTOR'S MEETINGS AND COMMITTEES During the year ended December 31, 1994,1995, the Company had four directors'five directors meetings, plus tenfour actions by unanimous written consent. The Company's Board of Directors has both a Compensation Committee and an Audit Committee. The primary responsibilities of the Compensation Committee include development of an executive compensation philosophy for the Company; origination of all executive compensation proposals; review of the appropriate mix of variable versus fixed compensation; and review of all transactions between the Company and any executive officer or director, whether or not involving compensation. The Committee consists of at least two or more outside directors of the Company and, in addition, the Chairman of the Board of the Company. Current members of the Compensation Committee are Dennis H. Field (Chairperson), Michael J. Sheets, and Jerome J. Goldstein (with Mr. Goldstein having no vote). The Compensation Committee met two timesone time during 1994.1995. The Audit Committee has as its primary responsibilities the recommendation of an independent public accounting firmaccountant to audit the annual financial statements of the Company, the review of internal and external audit functions, the review of internal accounting controls, the review of annual financial statements, and a review at its discretion of compliance with corporate policies and codes of conduct. The Audit Committee is comprised of outside directors. The current members of the Audit Committee are Michael J. Sheets (Chairperson), James F. Keane, and Dennis H. Field. Carolyn J. Anderson had been a non-voting member of this Committee, but resigned upon the Company's listing on the New York Stock Exchange. The Audit Committee met twothree times during 1994. -4- 71995. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee includes two persons who are or have previously been employed by the Company or its subsidiaries. Jerome J. Goldstein is Chairman of the Board of the Company and, prior to August 1990, was also the President and Chief Executive Officer of the Company. Mr. Goldstein is a non-votingnon- voting member of the Committee. Dennis H. Field was President and Chief Operating Officer of Aquafilter Corporation, a wholly-owned subsidiary of the Company, from 1978 to 1982. After leaving Aquafilter Corporation, Mr. Field had virtually no contact with the Company from the date of his resignation to 1991 when he was asked to join the Company's Board. Prior to 1991, he was Executive Vice President/General Manager, U.S. Division, of Faberge. Mr. Field has a distinguished career with significant consumer product companies. Michael J. Sheets, a director and member of the Compensation Committee, is a consultant to the Company, providing advice primarily in the areas of marketing and advertising. Mr. Sheets became a consultant at the time of joining the Company's Board of Directors in 1990. He is paid $1,667 per month for his services as a consultant. Mr. Sheets was, prior to October, 1990, President and Chief Executive Officer of Airwick Industries (Reckitt and Colman Household Products), a large competitor of the Company, and has a distinguished career in consumer products manufacturing, advertising and sales. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following Summary Compensation Table shows the annual and other compensation of the chief executive officer and all other executive officers of the Company for services in all capacities provided to the Company and its subsidiaries for the past three years. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATIONCOMPENSATI ON ANNUAL COMPENSATION AWARDS -------------------------------------- -------------- ------------------------------------------------------------------------------- SECURITIES NAME AND OTHER ANNUAL UNDERLYING ALL OTHER PRINCIPAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION POSITION YEAR $ $(1) $ (1) $ (No. of Shares)(2)(NO. OF ($)(3) -------------------------------------------------------------------------------------------------------------------SHARES) (2) Mark E. Goldstein 1995 $350,000 $104,097 $23,054 - $4,075 President and 1994 $250,000 $256,148 $ 16,228$16,228 20,500 $ 3,237 President and$3,237 Chief Executive 1993 $250,000 $112,916 $ 18,464$18,464 50,000 $11,144 Executive Officer 1992 $250,000 - $ 85,283 - $ 6,114 Jerome J. 1995 $350,000 $104,097 $93,044 - $4,075 Goldstein Chairman of The 1994 $350,000 $256,148 $ 95,882$95,882 20,500 $ 3,237 Chairman of$3,237 Board 1993 $350,000 $112,916 $132,468 50,000 $11,144 The Board 1992 $350,000 - $ 87,459 $ 6,114 Carolyn J. 1995 $300,000 $104,097 $72,867 - $4,075 Anderson Executive Vice 1994 $275,000 $256,148 $ 23,912$23,912 20,500 $ 3,237 Executive Vice$3,237 President, Chief Operating 1993 $275,000 $112,916 $ 21,477$21,477 50,000 $11,144 Chief Operating Officer, 1992 $275,000 - $ 62,693 - $ 6,114 Corporate Secretary Barry Shepard 1995 $220,000 $104,097 $37,951 - $4,075 Treasurer and 1994 $200,000 $256,148 $ 75,714$75,714 20,500 $ 3,237 Treasurer and$3,237 Assistant Secretary 1993 $200,000 $112,916 $ 35,060$35,060 50,000 $11,144 Secretary 1992 $200,000 - $ 39,931 - $ 6,114
-5- 8 Note: There were no restricted stock awards or long term incentive payouts during the last three fiscal years. (1) The Company has adopted a bonus plan for its executive officers for the 19951996 year. The Plan provides that an amount will be distributed to the Company's executive officers equal to 10% of the annual before tax profit exceeding $1,000,000. Such amount, if any, for 19951996 will be divided equally among the Company's four executive officers. In no event is a bonus paid unless pre-tax profits exceed $1,000,000 for the fiscal year, nor is any bonus paid on the first $1,000,000 of pre-tax earnings. The Company had substantially the same plan in 1995, 1994 1993 and 1992. Of the amount indicated for the 1994 Bonus, $183,600 was paid to each executive officer in 1994, the balance to be paid in 1995.1993. (2) Key employees, including executive officers (but excluding any person who serves only as a director), who from time to time are responsible for the management, growth and protection of the business of the Company, are eligible to be granted options under the Company's 1986 Incentive Stock Option Plan. The Company's 1981 Employee Stock Option Plan expired in 1991 but options still remain outstanding under the 1981 Plan. No option under these Plansthe 1986 Plan may be exercised more than ten years after it is granted, and the exercise price must be at least 100% of the fair market value of the Company's stock on the date of grant. If an employee owns more than 10% of the Company's outstanding stock, then these limitations are five years from the date of grant and 110% of the fair market value. Options may not be granted to any person in any year to purchase shares having an aggregate fair market value greater than $100,000 at the date the option is granted. Payment for shares purchased upon the exercise of any option must be made in cash. (3) All Other Compensation for each of the executive officers consists of Company contributions under an Employee Stock Ownership Plan and Trust Agreement ("ESOP") which provides that the Company may contribute annually to the ESOP cash or common stock in an amount not to exceed 15% of all participants' total compensation. The Board of Directors determines whether any contributions will be made for the year. Benefits are allocated to all eligible employees according to a formula based on compensation, except that any income earned on assets of the Trust is allocated to ESOP participants based upon the value that each participant's account bears to the total value of Trust assets. There were no changes in the base salaries of the Company's four executive officers from October 30, 1988 through December 31, 1994. In the aggregate, executive officers' base salaries are beingwere increased by 13.5% for 1995. The dollar amount of Other Annual Compensation changes from year to year because of fluctuations in the costs of benefits and their timing. Other Annual Compensation in the table above for 19921993 through 19941995 is comprised of the following:
Mark E. Goldstein ($) Jerome J. Goldstein ($) Carolyn J. Anderson ($) Barry Shepard ($) --------------------- ----------------------- ----------------------- ----------------- 1992Goldstein 1993 1994 19921995 1993 1994 1992 1993 1994 1992 1993 1994 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----1995 Automobile 42,383purchase (1) $ - $ - $ - 29,785$29,785 $ - 25,000$ - - - - 24,000 Income taxes on auto- mobile purchase(1) 25,376automobile purchase (1) - - - 23,343 - 14,968 - - - - 21,489 Other automobile expenses 4,339 2,667 3,512 2,3392,364 2,511 2,972 4,984 3,388 2,656 1,985 2,537 3,4601,463 Memberships 4,538 8,116 2,472 17,3997,505 14,711 2,885 2,783 4,492 824 2,993 4,040 9126,655 Life insurance 2,345 2,345 2,345 35,150 39,437 35,150 39,437 7,766Income taxes on life insurance 1,383 1,911 2,022 23,268 28,644 34,017 Medical plan(2) 2,453 3,391 6,382 - 16,512 12,417 Other 1,500 2,597 2,436 3,700 5,432 3,342 Total other compensation $18,464 $16,228 $23,054 $132,468 $95,88 $93,044 2 Carolyn J. Anderson Barry Shepard 1993 1994 1995 1993 1994 1995 Automobile purchase (1) $ - $ - $25,000 $ - 24,000 - - - Income taxes on automobile purchase (1) - - $22,384 - 21,489 - Other automobile expenses 3,388 2,656 3,355 2,537 3,460 2,512 Memberships 4,492 824 3,052 4,040 912 3,352 Life insurance 8,220 8,220 8,220 12,956 12,956 12,956 Income taxes on life insurance 1,114 1,383 1,911 17,666 23,268 28,644 4,357 4,582 6,680 6,9377,089 7,644 7,907 11,174 Medical plan(2) 4,188 2,453 3,391 8,818 - 16,512 1,835 45 4,154 14,0601,870 6,383 2,391 Income tax return preparation 1,000 1,500 2,597 1,800 3,700 5,432 1,0005,521 Other 750 1,378 1,0001,897 1,500 2,599 ------ ------ ------ ------ ------- ------ ------ ------ ------ ------ ------ ------2,436 Total other compensation 85,283 18,464 16,228 87,459 132,468 95,882 62,693 21,477 23,912 39,931 35,060 75,714 ====== ====== ====== ====== ======= ====== ====== ====== ====== ====== ====== ======$21,477 $23,912 $72,867 $35,060 $75,71 $37,951 4
-6- 9 (1) Commencing in 1990, the Company adopted a policy of providing $25,000 for the purchase of an automobile every three years for each executive officer and paying the executive officer an amount to compensate the executive for the additional tax obligations resulting from such compensation.that purchase. (2) In addition to group life, health, hospitalization and medical reimbursement plans which generally are available to all employees, the Company has adopted a plan which provides for additional medical coverage of not more than $50,000 per year to each of the Company's executive officers (up from $20,000 after December 31, 1994).officers. The Company maintains a Key Executive Disability Plan, which is not reflected in the table above. The purpose of this Plan is to provide the executive with his or her regular salary during periods of long-term disability in excess of 90 days to age 70, or to date of death, whichever first occurs; and to provide the Chairman of the Board with the same benefit for life. The benefits available under this Plan will cease upon termination of employment as an executive officer of the Company.Company other than during a period of disability. The Plan is partially funded by disability insurance maintained by the Company under which the Company is the beneficiary. OPTIONS GRANTED The following table summarizes theNo options were granted to the Company's executive officers during the last fiscal year. Information regarding the Company's 1986 Incentive Stock Option Plan under which these options were granted is contained in Note 2 to the Summary Compensation Table. OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Price Individual Grants Appreciation for Option Term ------------------------------------------------------------------------ ---------------------------- Number of Securities % of Total Options Underlying Options Granted to Exercise or Granted Employee in Base Price Expiration (#) Fiscal Year $/Share Date 5%($)(1)(2) 10%($)(1)(2) ------- ----------- ------- ---- ----------- ------------ Mark L. Goldstein 20,500 11.4 $5.36 February 16, 1999 $30,400 $67,100 Jerome J. Goldstein 20,500 11.4 $5.36 February 16, 1999 $30,400 $67,100 Carolyn J. Anderson 20,500 11.4 $4.88 February 16, 1999 $27,600 $61,000 Barry Shepard 20.500 11.4 $4.88 February 16, 1999 $27,600 $61,000
(1) Assumes 5% to 10% growth per year based upon February 17, 1994 price of $5.3625/share for Mark E. and Jerome J. Goldstein and $4.875/share for Carolyn J. Anderson and Barry Shepard. (2) Assuming a growth of 20% per year based upon the option prices set forth above, the Potential Realizable Value for Mark E. and Jerome J. Goldstein would be $163,500, and $148,800 for Carolyn J. Anderson and Barry Shepard. OPTIONS EXERCISES IN 19941995 AND YEAR-END OPTION VALUES The following table summarizes information with respect to options exercised during the 19941995 fiscal year by the named executive officers and the value of each officer's unexercised stock options at December 31, 1994. -7- 101995. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
Number of In-the-Money Securities In-the-Money$ Underlying Unexercised Value of Shares Unexercised $Unexercised Acquired Options at Year End Options at Year End(2) Shares Acquired Value -------------------------------------------------------End (2) Name Exercise(#)Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable ----------------------------------------------------------------------------------------------------- Mark E. Goldstein (3) 50,822 $200,275 119,67849,178 $233,058 70,500 0 $470,800$52,656 0 Goldstein Jerome J. Goldstein 100,000 $320,775- - 70,500 0 $213,200$52,656 0 Goldstein Carolyn J. Anderson 100,000 $356,350- - 70,500 0 $231,600$60,937 0 Anderson Barry Shepard (3) 60,000 $233,475 110,50040,000 $191,875 70,500 0 $443,500$60,937 0 Shepard
(1) Represents the difference between the exercise price of the option and market prices of the Company's stock on dates of exercise. (2) Represents the difference between the exercise price of the options and the closing price of the Company's stock at December 31, 19941995 of $5.875/$2.875/share. (3) In 1995 (prior to March 14, 1995), Mark E. Goldstein exercised an option to purchase 49,178 shares and Barry Shepard exercised an option to purchase 40,000 shares of the Company's stock. COMPENSATION COMMITTEE REPORT The Compensation Committee of the Board of Directors has furnished the following report on executive compensation: COMPENSATION COMMITTEE REPORT INTRODUCTION AND BACKGROUNDCompensation Committee Report{PRIVATE } Introduction and Background The Compensation Committee of the Board of Directors was created in March, 1992 and includes two outside directors. TheseThe responsibilities of Compensation Committee include the origination of all executive compensation proposals. The two outside directors on the Committee were also the two members of a Special Litigation Committee of the Company's Board of Directors (the "SLC")special litigation committee which investigated allegations in a derivative lawsuit brought against the Company's four executive officers in 1991 and dismissed in 1992. The lawsuit, among other things, alleged that excessive1992 considered compensation was being paid by the Company to its four executive officers. The SLC retained special, independent counsel and also hired an expert on compensation issues. This expert was the Hay Group which is a well-known and respected management consulting firm and specializes in executive compensation. The Hay Group submitted a report to the SLC in March, 1992 (the "Hay Report"). With the assistance of its counsel and the Hay Group, which is a well known, respected compensation consultant,and management consulting firm, the SLCspecial litigation committee conducted an intensive investigation and analysis of the Company's executive compensation. The SLC met eleven times (either in person or by telephone) and held numerous other informal meetings and discussions. Special counsel for the SLC, working under instructions of the SLC, spent over 1,200 hours assisting in the investigation and working directly with the SLC. The work of the SLC commenced in late 1991 and was completed with the issuance on March 23, 1992 of a final Report of the SLC (the "Report"). In addition to conclusions regarding executive compensation and other matters involved in the derivative lawsuit, the SLC presented 12 forward-looking recommendations. One of those recommendations was the formation of the present Compensation Committee of the Company's Board of Directors. Part of the Hay Report was a comparison of executive compensation of the Company to the external market place. Multiple sources were used for this comparison. Two sample groups of companies were examined in the Hay Report based on a review of proxy statements for the years 1985 through 1990. One sample group was determined geographically and contained companies identified from Moody's Financial Services as being in the Rocky Mountain Region and having 1991 revenues between $20 to $100 million, with an elimination of companies in unrelated businesses (such as the energy business) and those with less than five years of historical proxy data (the "Mountain Region Group"). The second sample group was based upon an industry group determined by the SLC Code for chemical and allied products. This second group consisted of companies identified from Moody's Financial Services in that Code with 1991 revenues between $20 to $50 million in revenues, excluding those having less than five years of historical proxy data (the "Industry Group"). The first group had 13 companies, and the second -8- 11 group was 14 companies. Compensation comparisons were based on the best possible title matches, and comparisons were not made if a reasonable title match could not be identified. A third data base was the Hay Executive Compensation Report, which has data on 530 industrial organizations for the years 1985 through 1990. Further, a 1991 Hay-Huggins Benefits Report was used to compare current executive plans and deferred compensation plans of the Company to the external market. This 1991 report has data from over 1,000 organizations; a selected sample of 113 of these companies with revenues below $200 million was used for the analysis, 97 of which offered executive benefit plans or perquisites. Overall the SLC concluded that the compensation paid to the director/executive officers from 1985 to 1991 was fair andfair. A report issued by that it was in the best interests of the Company and all of its shareholders that no action on behalf of the Company be continued against the director/executive officers by reason of any of the matters alleged in the derivative lawsuit. Subsequently, the Company and the plaintiffs entered into a settlement. As part of the settlement, the Company agreed not to increase the salaries of the four executive officers of the Company before January 1, 1995 and not to add elements of compensation to compensation packages before that date. It was recognized that certain of the elements of compensation in those packages are variable (for example, a bonus based on the Company's profitability), and total compensation may increase (or decrease) based on variations in those elements pursuant to their customary application. The Compensation Committee has concurred with and adopted both the factors considered by the SLC and the findings of the SLC as stated in the Report with respect to compensation matters of the Company's four executive officers. The Reportcommittee served as the basis for the 1992,19931992, 1993 and 1994 compensation of the executive officers, which continued an existing base salary, a bonus plan and other benefits. In making decisions regarding executive compensation, the Compensation Committee considers a number of factors. The Compensation Committee did not engage the Hay Group or similar outside consultants to assist with determining the compensation of the Company's executive officers for 1994 because retaining outside consultants is relatively expensive and because the Compensation Committee believes that the Hay Report completed in 1992 remains both relevant and helpful. In addition, the Company was viewed as performing well, and the compensation of the Company's executive officers was limited by the settlement of the above mentioned derivative action. The Compensation Committeehas also determined that an outside consultant on compensation matters should be used once every three years. In connection with recommending the compensation of executive officers for 1995, the Compensation Committee did engage the Hay Group for a review of competitiveness of the Company's executive compensation levels. In summary, the Hay Group found that, while some executive's total direct compensation levels are relatively high and others relatively low compared to competition, in total the compensation levels of the Company's executive officers are within competitive ranges. The Compensation Committee also recognized that the compensation level of the Company's officers is affected to a significant extent by the Company's bonus plan which is tied to performance. The following includes a summary of parts of the SLC's Report with respect to executive compensation, with an update regarding certain responsibilities and activities of the officers. Unless expressly stated otherwise, the term Committee when used in this summary refers to the Special Litigation Committee. FACTORS In determining whether executive compensation is fair and appropriate, the Committee considered the following factors, among others: (a) Services performed and time devoted to the Company by the executive; (b) Amounts paid to executives in comparable companies; (c) The size and complexities of the business; (d) Successes achieved by the executive; (e) The executive's abilities; (f) Increase in volume of business during the executive's tenure; (g) Corporate earnings and profits; -9- 12 (h) Comparison of salary with distributions to stockholders; (i) Prevailing economic conditions; (i) Compensation paid to other employees of the corporation; and (k) The amount previously paid to the executive. These factors were examined during interviews and in discussions with the Hay Group. After extensive consideration of the contribution made by each of the four executive officers and the comparison with Industry and Mountain Region Groups of similarly-sized companies, the Committee concluded that the compensation of the Company's officers from 1985 to 1991 met the test of fairness. Utilizing these same factors and the same comparison with similarly-sized companies, the Compensation Committee recommended that the base salary and other compensation elements of the Company's executive officers remain the same in 1994 as in 1993. This recommendation was adopted by the Company's Board of Directors. The Compensation Committee noted, among other things, that the executive officers had pioneered a new product category (cosmetics) for the Company, had obtained excellent distribution of its new products, had successfully extended its cosmetics line over the last two years, and had maintained its core business in household chemical products, all of which had contributed to the increase in the market price of the Company's stock and had led to the Company's qualifying for listing on the New York Stock Exchange. ORGANIZATION AND MANAGEMENT PHILOSOPHYOrganization Philosophy The Committee and its independent advisors believedbelieves that it was important to develop an understanding of the Company's organization and the specific responsibilities of the four executive officers in order to analyze the appropriatenessare an essential part of theiranalyzing compensation levels. The first important point concerning the management of the Company is that the four executives subscribe to a team concept of executive management, and operate in accordance with this concept. Although each of the executive officers has his or her specific areas of responsibility and each is able to and often does make independent decisions, the executive officers operate as a collaborative team, and very few significant decisions are made without input from the group as a whole. Second, each executive officer is responsible for a number of distinct areas and tasks. Each performs many tasks traditionally associated with "middle management" in other companies in addition to their respective duties of top level or executive management. As a result, the Company has very little "middle management" and operates as a fairly lean organization compared to many of its competitors. In a real sense, this management organization has saved the Company substantial amounts of money over the years. Also the few middle managers in the Company have virtually no role in setting Company policy or in making significant management decisions, all of which are handled by one or more of the four executive officers. Jerome J. Goldstein is the founder of the Company and served as its President, Chief Executive Officer and Chairman of the Board until August 1990. In August 1990 he relinquished the titles of President and Chief Executive Officer to Mark E. Goldstein, his son. Mr. Goldstein's relinquishment of the positions of President and CEO was in no sense a retirement, nor a reduction in his contribution to the Company and its performance. Jerome Goldstein remains today the most important driving force behind Company policy. He also spends time each year in Florida for the purpose, among other things, of actively supervising the Company's Aquafilter subsidiary. Finally, the Company still relies greatly on Mr. Goldstein's entrepreneurial skills and his talent with respect to product development and design. Since the Company's success is driven by the quality and marketability of its current products and the development of new products, these skills cannot be minimized when assessing Jerome Goldstein's contributions to the Company, both presently and over time. Recently,In 1994 and 1995, Mr. Goldstein, has, with Carolyn Anderson, spearheaded the Company's physical plant expansion in Denver, a project driven by the rapid expansion of the Company's cosmetics line. Mark E. Goldstein's role and responsibilities in the Company have increased dramatically since he assumed the position of President and CEO in August 1990. First, for a period of time, he continued to perform most of the duties and responsibilities of a vice-president of sales and marketing, which he performed before becoming CEO. He still takes on many of those responsibilities. For example Mark Goldstein continues to be the primary contact with the Company's largest account, Wal-Mart Stores, Inc., and for the last two years has directedhe directs the Company's advertising and promotional efforts. He has also continued to assume a heavy, but reduced, travel schedule as part of the sales -10- 13 responsibilities. Second, Mark Goldstein has assumed all of the basic responsibilities associated with becomingbeing a CEO of a public company. He ultimately is responsible for the day-to-day operations of the Company, although he relies on the other three executive officers for their advice and counsel. Carolyn J. Anderson has been employed by the Company for twenty-fourtwenty-six years, longer than anyone on the executive team other than Jerome Goldstein. She became Corporate Secretary in 1973; she was promoted to Executive Vice President in 1974; and Mrs. Anderson was given the additional title and responsibilities of Chief Operating Officer in 1982. As Chief Operating Officer, Ms. Anderson has the most direct responsibility and decision-making authority with respect to the day-to-day operations of the Company's plant and facilities. Additionally, Ms. Anderson directs the Company's research and development activities and is responsible for handling all trademark and patent matters.activities. Ms. Anderson also plays a major role, in cooperation with Barry Shepard, with respect to the Company's affirmative action plan and all traditional "human resources" decisions. It should be noted that the Company does not have a director of human resources. Further, Ms. Anderson has sharedshares the responsibility for international sales of the Company's products with Mark Goldstein. Recently,In 1994 and 1995, Ms. Anderson has beenwas of invaluable assistance to Jerome Goldstein in directing the Company's physical plant expansion in Denver. Barry Shepard performs all of the traditional functions of Treasurer and Chief Financial Officer, including negotiations and maintenance of relationships with bankscreditors and other lenders.the trustee for the Company's bonds. The Compensation Committee recognized that Mr. Shepard was to play, and he in fact did play,played a leading role in securing a financing during 1994 of $12 million for the Company's expansion of its facilities. Further, he was highly instrumental in successfully listing the Company's stock on the NYSE.New York Stock Exchange. He has been with the Company since 1981, and his role on the executive team has increased steadily during his tenure with the Company. Mr. Shepard supervises all of the back office functions of the Company, including accounting, data processing, computer operations and personnel. In addition, he is responsible foran active participant in the Company's extensive market research program, which he personally developed. SALARIESprogram. Factors In makingdetermining its recommendations on executive salary decisions,compensation, the Committee considered the management organization as described above and the following factors, among others: (a) Services performed and time devoted to the Company priorby the executive; (b) Amounts paid to 1992, generally did not study salariesexecutives in comparable companies or industries. Rather, salary decisions were based on either the performancecompanies; (c) The size and complexities of the individual executive,business; (d) Successes achieved by the performanceexecutive; (e) The executive's abilities; (f) Increase in volume of business during the executive's tenure; (g) Corporate earnings and profits; (h) Comparison of salary with distributions to stockholders; (i) Prevailing economic conditions; (j) Compensation paid to other employees of the Company as a whole, or some combination ofcorporation; and (k) The amount previously paid to the two. Nevertheless,executive. Utilizing these factors, the Compensation Committee recommended that the base salaries of the Company's executive officers from 1985 to 1991 generally were in line with comparable companies usedbe increased for 1995 (although, at his request, there was no increase in the Hay Report, bothbase salary of the Chairman of the Board). The Committee also recommended that the components of other compensation provided to the Company's executive officers remain the same in 1995 as to amount and as to ratein 1994. These recommendations were adopted by the Company's Board of growth. TheDirectors. In making the recommendations, the Compensation Committee believesnoted, among other things, that: The executive officers have pioneered a new product category (cosmetics) for the Company; the Company has obtained excellent distribution of its new products, successfully extended its cosmetics line in 1992 through 1995, and maintained its core business in household chemical products; and the anticipated amounts for the base salary and bonuses are expected to be tax deductible, without being subject to a limitation on the deductibility of certain compensation in excess of $1 million under the Internal Revenue Code. In connection with recommending the compensation of executive officers for 1995, the Compensation Committee did engage the Hay Group for a review of competitiveness of the Company's executive compensation levels. In summary, the Hay Group found that, after consideringwhile some executive's total direct compensation levels are relatively high and others relatively low compared to competition, in total the factors described above,compensation levels of the Company's executive officers are within competitive ranges. With respect to base salaries, the Committee recognized that the base salaries of the Company's four executive officers have not changed since October 30, 1988. Their base salaries were increased in the aggregate by 13.5% for 1995. This modest increase takes into account the performance of each executive as well as the increased responsibilities of Mark E. Goldstein as President and are fair. PERFORMANCE BONUSESChief Executive Officer. The Company's 19941995 executive bonus plan provided for a bonus pool based on 10%100% of pre-tax profits for athe year in excess of $1 million. The four key executive officers shared equally the bonus awarded under the plan. The Company had substantially the same plan in prior years. The Compensation Committee believes that this bonus plan is an important part of the incentives for the Company's executive officers and recognizes directly many of the factors considered important by the Compensation Committee as are stated above. Based on the Hay Report and the business experience and judgment of the Committee members, certain conclusions were reached regarding bonus payments in prior years. First, the amounts of the bonuses from 1985 through 1990 were well within comparable market figures; indeed, if anything, they were, on average, low compared to variable compensation of other companies. Second, while there is evidence in the market of quarterly bonus plans, annual bonus programs were more common for executives in comparable companies. Finally, the Company had paid a much larger portion of its executive compensation in the form of base salary, whereas comparable companies place greater emphasis on variable compensation, including annual bonuses. In 1993 and 1994, the bonuses paid to the Company's four executive officers increased with the Company's record performance. TOTAL CASH COMPENSATION Total cash compensation consists of the base salary and bonus. The Committee reached several conclusions from its analysis of information from the Hay Group on this topic. First, the total cash compensation of the four executives from 1985 through 1990 was generally in line with the relevant market data. Compared to the Mountain Region and Industry Groups, the total cash compensation of the Company's executive officers was generally between the third highest quartile and the maximum. Carolyn Anderson's total cash compensation was somewhat above available comparable market data. However, the number of comparables was much smaller for Ms. Anderson's position and these comparables did not necessarily reflect her significant role over the years as a co-manager, her competence, breadth of experience and responsibilities, and her long service and extraordinary loyalty to the Company. Second, the annual rate of total cash compensation growth for -11- 14 the executive officers generally was in line with available market data. Third, the Company paid a much larger part of its total cash compensation in the form of base salary than do other companies. The Compensation Committee has noted that bonuses have become more significant in 1993 and 1994 as the Company's sales and net income have substantially increased. LONG-TERM INCENTIVE COMPENSATION The Committee and its advisors looked at grants under the Company's 1981 and 1986 Stock Option Plans as well as the Company's Restricted Stock Plan (under which awards may no longer be made). These plans were approved by the shareholders. The Committee reached the following conclusions regarding long-term incentive compensation for the four executive officers. First, the use of long-term incentives for executives has increased over the last several years in United States' industrial companies, and the kinds of plans adopted by the Company are consistent with the types of plans adopted by other companies. Second, the average present value of the long-term incentives for the Company's executives outstanding in the six years from 1985 to 1990 was moderately below the average for available comparable market data. Indeed, the value of the grants for Jerome Goldstein and Mark Goldstein are farther below the average than grants to Carolyn Anderson and Barry Shepard. In 1994, the Company granted to each of its four executive officers options to purchase 20,500 shares of common stock of the Company. The exercise prices for these options are 110% of the fair market value on the date of grant in the case of Jerome J. Goldstein and Mark E. Goldstein and 100% of the fair market value at the date of grant in the case of Carolyn J. Anderson and Barry Shepard. The grant of the options and number of shares subject to the options were recommended by the Compensation Committee based upon the operational performance of the Company in 1993, the performance of the Company's stock, plans for 1994, and the annual limitation under the Company's stock option plan. TOTAL DIRECT COMPENSATION The Committee, for purposes of its 1992 Report, asked the Hay Group to analyze total direct compensation of the Company's executive officers in relation to comparable market data. Total direct compensation is the sum of the present value of the long-term incentive grants plus total cash compensation. In general, the four executives' total direct compensation for the six-year period of 1985 through 1990 was above the average (but below the high) of the available market comparables but was closer to the average than their total cash compensation. This reflects the Company's below average long-term incentive grants at that time. MISCELLANEOUS EXECUTIVE BENEFITS AND PERQUISITES The Company provides certain other benefits and perquisites to the executive officers and, indeed, to other employees of the Company as well.officers. The Committee and its advisors analyzed these various benefits during the course of the Committee's investigations. The Committee's general conclusions and observations on this subject are as follows. First, the Committee findsbelieves that the types of benefits offered to Company executives and the value of these benefits are similar to benefit packages provided by comparable companies reviewed incompetitors. While the Hay Report. Indeed, while theGroup report in 1992 Hay Group Report found that the Company had a comprehensive executive benefits package, there are several other common benefit programs that the Company does not provide to its executives. Second, while some executive benefits are the subject of Board discussion and approval, other benefits (such as reimbursement for personal tax return preparation) are considered operational matters by the Company and historically have not risen to the level of Board consideration. Third, aA number of the benefits are provided by the Company not only to the executive officers but also to other Company employees in addition to the executive officers.employees. These benefits are a valid exercise of business judgment on behalf of the Company to provide these executives and other employees the kinds and levels of benefits appropriate for their positions, to compensate them consistent with market levels and to facilitate performance of their jobs in a more efficient and effective manner. COMPENSATION AND COMPANY PERFORMANCE. At the request of the Committee, the Hay Group looked at various financial performance ratios, including revenue measures and profitability measures and compared the Company's data with comparable market data for the period 1987 to 1990. The Hay Group also looked at productivity indicators, such as revenue per employee and net income per employee, and made the same market comparison. That analysis shows that the Company's financial performance over this time period was in line with that of the Mountain Region and Industry Groups and, in some cases, the Company out-performed the market samples. The Compensation Committee also believes that the Company's performance in 1993 was very favorable. -12- 15 In conclusion, the factors described above remain applicable for 1994,1995, and the Compensation Committee believes that the levels of compensation for the Company's four executive officers have been fair and appropriate. COMPENSATION COMMITTEE Dennis H. Field Michael J. Sheets Jerome J. Goldstein STOCK PERFORMANCE GRAPH There follows a graph, constructed for the Company, comparing the cumulative total shareholder return of Scott's Liquid Gold-Inc. common stock to the NASDAQ Market Index, to the NYSE Composite Index, and to a selected peer group. COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG SCOTT'S LIQUID GOLD-INC. NYSE &NASDAQ MARKET INDEX AND PEER GROUP [GRAPH]
1989 1990 1991 1992 1993 1994Measurement Scott's NYSE NASDAQ Industry Period Liquid Gold- Index Index Index Inc. (Fiscal year covered) Measurement pt. SCOTT'S LIQUID GOLD-INC. 100 41.67 61.11 94.44 377.78 533.51 INDUSTRY INDEX 100 87.58 101.95 119.61 138.64 154.83 BROAD MARKET - NYSE 100 95.92 124.12 129.96 147.56 144.69 BROAD MARKET - NASDAQ 100 81.12 104.14 105.16 126.14 132.4412/31/90 $100.00 $100.00 $100.00 $100.00 Y/E 12/31/91 $146.65 $129.41 $128.38 $114.60 FYE 12/31/92 $226.64 $135.50 $129.64 $134.53 FYE 12/31/93 $906.57 $153.85 $155.50 $145.27 FYE 12/31/94 $1280.30 $150.86 $163.26 $163.18 FYE 12/31/95 $637.67 $195.61 $211.77 $219.52
Fiscal year ended December 31 Assumes $100 invested on December 31, 19891990 in the Company, the Peer Group, the NASDAQ MARKET INDEX, theThe NYSE Composite Index and assumes the reinvestment of any dividends Note: The foregoing graph was prepared for the Company by Media General Financial Services of Richmond, Virginia. The peer group selected by the Company consists of (a) six companies, including Scott's Liquid Gold-Inc., which used the standard industrial classification of specialty cleaning and sanitation and which are publicly held, and (b) four publicly held companies which are partially or entirely engaged in the cosmetics business and are known to the Company's management to be successful companies.business. The Company believes that, within its industry classes, the assembly of a peer group is difficult because the Company competes with other companies which are significantly larger than Scott's Liquid Gold-Inc., including two major companies which are not publicly traded. -13- 16 The following companies comprise the peer group: Armor All Products, Avon Products, Inc., Clorox Co., CPC International Inc. (Revlon), Innovet,Cosmetic Group USA, Inc., NCH CP, Neotrogena CP,Nutramax Products, Inc., Ocean Bio-Chem, Inc. and, Proctor and Gamble.Gamble, and Stephan Co.* *Two peer group companies, Innovet, Inc. and Neutrogena CP, included in prior years are no longer listed on a major stock exchange and one company included in prior years no longer has a cosmetics business. In lieu thereof, the Company has added three other cosmetics businesses, Nutramax Products, Inc., Cosmetic Group USA, Inc. and Stephan Co. COMPENSATION OF DIRECTORS Four directors are full-time executive officers of the Company and receive no additional compensation for services as a director. Michael J. Sheets, Dennis H. Field, and James F. Keane are non-employee directors. The Company pays $2,500 per month to each non-employee director for his services as director. Mr. Michael J. Sheets is also paid $1,667 per month as a consultant to the Company, primarily in the areas of marketing and advertising. On January 15, 1993, the Company's Board of Directors adopted the Company's 1993 Stock Option Plan for Outside Directors (the "Plan"), which was approved by the Company's shareholders on May 5, 1993. The Plan provides for the granting of options to directors who are not employees of the Company. (There are currently three outside directors, but the number of outside directors may change in the future.) The purpose of the Plan is to further the growth and development of the Company by providing an incentive to outside directors of the Company, by increasing their involvement in the business and affairs of the Company, by helping the Company to attract and retain well qualified directors and/or by rewarding directors for their past dedication to the Company. The Plan became effective on January 15, 1993. A maximum of 400,000 shares of the Company's common stock are available for issuance upon the exercise of options granted under the Plan. The number of shares available under the Plan, the number of shares subject to outstanding options, and the exercise price per share of such options are subject to adjustment upon the occurrence of stock dividends, stock splits, mergers, consolidations, recapitalizations, combinations or exchanges of stock, or other similar circumstances. If any option under the Plan terminates or expires, the shares allocable to the unexercised portion of the option will again be available for purposes of the Plan. The Plan is administered by the Board of Directors or a committee appointed by and serving at the pleasure of the Board of Directors, consisting of no fewer than two directors. The Plan is currently administered by the Board of Directors. At March 14, 1995,11, 1996, options to purchase 390,000 shares of the Company's common stock had been granted under the Plan, 145,000 each to Michael J. Sheets and Dennis H. Field (with an exercise price of $1.09 for 100,000 shares and $4.87 for 45,000 shares), and 100,000 to James F. Keane (with an exercise price per share of $1.66 for 5,000 shares, $3.00 for 50,000 shares, and $4.87 for 45,000 shares). NoDuring 1995, Mr. Sheets exercised an option to acquire 100,000 shares of the Company's common stock at $1.095 per share. Other than for Mr. Sheets, no options had been exercised at March 14, 1995.11, 1996. TRANSACTIONS WITH MANAGEMENT From time to time, Goldie S. Goldstein, the wife of the Chairman of the Board, had loaned the Company funds on a relatively short-term basis and in most instances renewed the loans as they fell due. At the time of the Company's issuance of $12 million of First Mortgage Bonds (July 29, 1994), the Company owed Mrs. Goldstein a total of $626,800 which bore interest at 11% per annum. A relative of Mr. and Mrs. Goldstein had also loaned to the Company an amount of $50,000 with interest of 11% per annum, payable upon demand. Both of these loans were repaid in full in July 1994 upon the issuance of the Company's bonds. The aforecited loans were reviewed by the Compensation Committee of the Board of Directors which determined that the terms of such loans were at least as favorable to the Company as an arm's length transaction. The Company has indemnification agreements with each of its directors and executive officers. These agreements provide for indemnification and advancement of expenses to the full extent permitted by law in connection with any proceeding in which the person is made a party because the person is a director or officer of the Company. They also state certain procedures, presumptions and terms relevant to indemnification and advancement of expenses. SECTION 16 REPORTS Section 16(a) of the Securities Exchange Act of 1934 requires directors, executive officers and beneficial owners of more than 10% of the outstanding shares of the Company to file with the Securities and Exchange Commission reports regarding changes in their beneficial ownership of shares in the Company. To the Company's knowledge, there was full compliance with all Section 16(a) filing requirements applicable to those persons. -14- 17PROPOSED AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION (1) TO INCREASE AUTHORIZED COMMON STOCK, (2) TO AUTHORIZE PREFERRED STOCK AND (3) TO DELETE AN INDEMNIFICATION PROVISION The Board of Directors has unanimously approved three amendments to the Company's Articles of Incorporation as follows: (1) The amendment of Article III to increase to 50,000,000 from 20,000,000 the number of shares of Common Stock, par value $.10 per share, which the Company is authorized to issue without further approval of the shareholders of the Company; (2) an additional amendment of Article III to authorize the issuance by the Company of up to 20,000,000 shares of Preferred Stock, without par value, in one or more series, from time to time, and having such rights, preferences, privileges, designations and other terms, as the Board of Directors may determine without further approval of the shareholders of the Company; and (3) to delete Article XI, eliminating the section in the Articles of Incorporation stating a non-exclusive right of indemnification for the Company's directors and officers. The shareholders will be requested to consider and vote upon each of these three amendments separately at the Annual Meeting. These proposed amendments are attached as Exhibit A to this Proxy Statement. The Board of Directors recommends that the shareholders approve these amendments. Proposal to Amend the Company's Articles of Incorporation to Increase the Number of Authorized Shares of Common Stock The Company's Articles of Incorporation currently authorize 20,000,000 shares of Common Stock. Of the 20,000,000 shares of Common Stock currently authorized for issuance, approximately 9,264,842 shares are unissued and unreserved for issuance. The proposed amendment would increase the number of authorized shares of the Company's Common Stock to 50,000,000. If the proposed amendment to the Articles of Incorporation is approved, the authorized shares of Common Stock in excess of those issued and reserved will be available for issuance at such times and for such corporate purposes as the Board of Directors may deem advisable without further action by the Company's shareholders, unless such action is required in a specific case by applicable laws or regulations or stock exchange rules. (As part of the criteria for continued listing of the Common Stock with the New York Stock Exchange, the Company is required to obtain shareholder approval of certain issuances of stock.) The Board of Directors believes that it is in the Company's best interests to increase the number of authorized shares of Common Stock in order to have additional authorized shares available for issuance to meet business needs as they may arise. The Board of Directors believes that the availability of such additional shares will provide the Company with the flexibility to issue Common Stock for proper corporate purposes which may be identified by the Board of Directors in the future, including stock splits, stock dividends, financings or acquisitions. For example, it might be desirable in the future to implement a stock split, which would not be possible on even a two-for-one basis with the current level of authorized shares of Common Stock. Management currently has no arrangements, agreements, understandings or plans for the issuance of the additional shares of Common Stock proposed to be authorized. The issuance of additional Common Stock could have the effect of diluting voting power per share or the book value per share of the outstanding Common Stock. Holders of the Company's Common Stock do not have preemptive rights to purchase shares in future issuances. Also, the existence of unissued and unreserved Common Stock could, in certain instances, render more difficult or discourage a merger, tender offer, or proxy contest, and thus potentially have an "anti-takeover" effect. An issuance of stock can make acquisition of a company more difficult or more costly. An issuance of stock could deter the types of transactions that may be proposed or could discourage or limit the shareholders' participation in certain types of transactions that might be proposed (such as a tender offer), whether or not such transactions were favored by the majority of the shareholders, and could enhance the ability of officers and directors to retain their positions. The Board of Directors of the Company will, however, consider any proposals to acquire control of the Company that may arise in the future in accordance with their fiduciary duties and their judgment as to the best interests of the shareholders of the Company at that time. The Company's Articles of Incorporation and Bylaws do not presently contain provisions having an anti- takeover effect. The proposed amendments to increase the authorized Common Stock and to authorize Preferred Stock are not part of a plan by management of the Company to adopt a series of anti-takeover measures, and management has no present intention or plans to propose anti-takeover measures in future proxy solicitations. The Board of Directors does not intend to issue any Common Stock except on terms which the Board deems to be in the best interests of the Company and its then-existing shareholders. If approved by the shareholders, the proposed amendment to Article III of the Company's Articles of Incorporation regarding its Common Stock will become effective upon filing of Articles of Amendment with the Secretary of State of Colorado, which is expected to be accomplished on May 1, 1996, or as soon thereafter as practicable. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND ARTICLE III OF THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED COMMON STOCK. Proposal to Amend the Company's Articles of Incorporation to Authorize the Issuance of Shares of Preferred Stock In One Or More Series No preferred stock is presently authorized by the Company's Articles of Incorporation. The proposed amendment would authorize the Board of Directors, without any further shareholder action (unless such action is required in a specific case by applicable laws or regulations or stock exchange rules), to issue from time to time shares of Preferred Stock as one class without series or in one or more series and to fix by resolution the designations, preferences,limitations and relative rights of such class or each such series. The class as a whole or any series of Preferred Stock could, as determined by the Board of Directors at the time of issuance, rank, with respect to dividends, limited voting rights, redemption and liquidation rights, senior to the Company's Common Stock. Under the proposed amendment, the Preferred Stock would have no voting rights except for the following: (a) voting rights required by applicable law (which currently provides for a vote of a class or series for certain amendments to the articles of incorporation affecting the class or series); (b) voting rights which the Board of Directors may grant to the class or a series of the Preferred Stock with respect to any amendment of the Company's Articles of Incorporation which adversely affects any right, preference or a limitation of the class or series; and (c) voting rights which the Board of Directors may grant to the class or a series of the Preferred Stock to elect a certain number of directors of the Company if there is a failure to pay dividends on the class or series for a period of time or to make a mandatory redemption payment when due for the class or series. The terms, conditions and limitations of any such voting rights will be determined by the Board of Directors, including the number of directors to be elected and the time period for which there must be a failure to pay any dividends for voting rights to occur. The Board of Directors of the Company believes that the Common Stock should be the only class with unlimited voting power. In the Board of Directors' opinion, the primary reason for authorizing the Preferred Stock is to provide flexibility for the Company's capital structure. The Board of Directors believes that this flexibility is necessary to enable it to tailor the specific terms of a class or series of Preferred Stock that may be issued to meet market conditions and financing opportunities as they arise, without the expense and delay that would be entailed in calling a shareholders meeting to approve the specific terms of the class or any series of Preferred Stock. The Preferred Stock may be used by the Company for any proper corporate purpose. Such purpose might include, without limitation, issuance as part or all of the consideration required to be paid by the Company in the acquisition of other businesses or properties, or issuance in public or private sales for cash as a means of obtaining additional capital for use in the Company's business and operations. The Company currently has no arrangements, agreements, understandings or plans for the issuance of any Preferred Stock. It is not possible to state the precise effects of the authorization of the Preferred Stock upon the rights of the holders of the Company's Common Stock, until the Board of Directors determines the respective preferences, limitations, and relative rights of the holders of the class as a whole or of any series of the Preferred Stock. Such effects might include: (a) reduction of the amount otherwise available for the payment of dividends on Common Stock, to the extent dividends are payable on any issued Preferred Stock; (b) restrictions on dividends on the Common Stock; (c) voting rights of any series or the class of Preferred Stock to vote separately, or to vote with the Common Stock, on limited matters as indicated above; (d) conversion of the Preferred Stock into Common Stock at such prices as the Board determines, which could include issuance at below the fair market value or original issue price of the Common Stock, diluting the book value per share of the outstanding Common Stock; and (e) the holders of Common Stock not being entitled to share in the Company's assets upon liquidation until satisfaction of any liquidation preference granted to holders of the Preferred Stock. In addition, the existence of unissued Preferred Stock could, in certain instances, render more difficult or discourage a merger, tender offer, or proxy contest and thus potentially have an "anti-takeover" effect, especially if stock was issued in response to a potential takeover. Issuances of stock, including preferred stock with conversion rights, can and have been implemented by some companies in a manner intended to make acquisition of the companies more difficult or more costly. Please see a further discussion of such effects under "Proposal to Amend the Company's Articles of Incorporation to Increase the Number of Authorized Shares of Common Stock." If approved by the shareholders, this proposed additional amendment to Article III, with respect to Preferred Stock, will become effective upon filing Articles of Amendment with the Secretary of State of Colorado, which is expected to be accomplished on May 1, 1996, or as soon thereafter as practicable. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND ARTICLE III TO AUTHORIZE THE ISSUANCE OF PREFERRED STOCK. Proposal to Amend the Company's Articles of Incorporation to Delete an Indemnification Provision The deletion of Article XI of the Company's Articles of Incorporation will eliminate the section in the Articles of Incorporation stating a non-exclusive right of indemnification for the Company's directors and officers. The existing Article XI, which would be deleted, is attached as Exhibit B to this Proxy Statement. Article XI of the Company's Articles of Incorporation requires the Company to indemnify the Company's directors and officers against expenses and liabilities incurred in connection with any action, suit or proceeding to which they are made a party by reason of their position, with certain exceptions. The exceptions concern a person who has been adjudged liable for fraud or misconduct and also liabilities under securities laws. Article XI also provides that the right of indemnification stated in the Article does not exclude other rights to which a person indemnified may be entitled, and thus the Board of Directors believes that Article XI is non-exclusive. The proposed amendment would delete Article XI in its entirety. The Board of Directors believes that the indemnification provisions of Article XI are outdated and unnecessary. The indemnification rights stated in Article XI were adopted in 1969. Since that time, the standards for indemnification, as well as statutory exclusions from indemnification, have changed. Under current Colorado law, a director or officer may be indemnified by a corporation if the person acted in good faith and the person reasonably believed (a) in the case of conduct in an official capacity, that the person's conduct was in the corporation's best interests and (b) in all other cases, that his or her conduct was at least not opposed to the best interests of the corporation. In a criminal proceeding, the person must have no reasonable cause to believe that his or her conduct was unlawful. A person may not be indemnified, under current Colorado law, by a corporation in connection with a proceeding by or in the right of a corporation in which the person was adjudged liable to the corporation or in a proceeding in which the person is adjudged liable on the basis that he or she derived an improper personal benefit unless a court specifically finds that the person is fairly and reasonably entitled to indemnification. Also, the validity of any indemnification with respect to liabilities under securities laws is not a well-settled issue, and such indemnification might be permitted by a court under certain circumstances. Accordingly, Article XI is, to an extent, inconsistent with existing law. Further, while Article XI is viewed as a non-exclusive means for indemnification, as indicated above, its deletion will eliminate any potential conflict with other statutory or contractual indemnification provisions. The Board believes that indemnification is best handled by agreements and bylaw provisions which refer to applicable law as in effect from time to time. The indemnification of directors and officers has been an important factor in recent years in the efforts of corporations, including the Company, to attract and retain qualified directors and officers. The Company currently has indemnification agreements with each of its directors and officers, as well as Bylaw sections, which provide for indemnification and advancement of expenses to the full extent permitted by law. See "Election of Directors and Management Information - Transactions With Management." These agreements and the Bylaw provisions will continue unchanged after the deletion of Article XI. If approved by the shareholders, the proposed deletion of Article XI will become effective upon the filing of articles of amendment with the Secretary of State of Colorado, which is expected to be accomplished on May 1, 1996, or as soon thereafter as practicable. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO DELETE ARTICLE XI OF THE COMPANY'S ARTICLES OF INCORPORATION. COMPANY ACCOUNTANTS Arthur Andersen LLP werewas selected by the Board of Directors as the Company's independent auditors for the fiscal year ended December 31, 1994,1995, and it is anticipated that the Company may select the same firm as the Company's independent auditors for the fiscal year ending December 31, 1995.1996. A representative of Arthur Andersen LLP is expected to be present at the Annual Meeting of Shareholders and to have the opportunity to make a statement if he so desires. Such representative also is expected to be available to respond to appropriate questions at that time. SHAREHOLDER PROPOSALS Shareholder proposals for inclusion in the Company's proxy materials relating to the next annual meeting of shareholders must be received by the Company on or before November 28, 1995. 199423, 1996. 1995 ANNUAL REPORT ON FORM 10-K THE COMPANY'S FORM 10-K REPORT FOR 19941995 CONSISTS PRIMARILY OF CROSS REFERENCES TO INFORMATION IN THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS AND THIS PROXY STATEMENT.STATEMENT AND IS FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION. SHAREHOLDERS WHO WISH TO OBTAIN, WITHOUT CHARGE, A COPY OF THE COMPANY'S FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 19941995 IN THE FORM FILED WITH THE SEC SHOULD ADDRESS A WRITTEN REQUEST TO CAROLYN J. ANDERSON, CORPORATE SECRETARY, SCOTT'S LIQUID GOLD-INC., 4880 HAVANA STREET, DENVER, COLORADO 80239-2400. SOLICITATION OF PROXIES The Company will pay the cost of soliciting proxies in the accompanying form. In addition to solicitation by mail, proxies may be solicited by officers and other regular employees of the Company by telephone, telegraph or by personal interview for which employees will not receive additional compensation. Arrangements also may be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation materials to beneficial owners of the shares held of record by such persons, and the Company may reimburse such persons for reasonable out-of-pocketout-of pocket expenses incurred by them in so doing. Also, D.F. King & Co., Inc. has been retained to assist with the solicitation of proxies for a fee of $5,000, an additional fee of $3 per each incoming and outgoing shareholder telephone contact (if any), plus reimbursement of reasonable expenses, OTHER BUSINESS As of the date of this Proxy Statement, Management was not aware that any business not described above would be presented for consideration at the meeting. If any other business properly comes before the meeting, it is intended that the shares represented by proxies will be voted in respect thereto in accordance with the judgment of the persons voting them. The above Notice and Proxy Statement are sent by order of the Board of Directors. CAROLYN J. ANDERSON Corporate Secretary Denver, Colorado Corporate Secretary March 27,1995 -15- 1822,1996 EXHIBIT A TO PROXY STATEMENT DATED MARCH 22, 1996 Text of Proposed Amendments to Articles of Incorporation (1) Article III is hereby amended in its entirety to read as follows: "The corporation shall have the authority to issue 50,000,000 shares of common stock, each having a par value of $0.10 per share, which shall have unlimited voting rights and shall be entitled to receive net assets of the corporation upon dissolution." (2) Article III is hereby further amended by the addition of the following three paragraphs: "In addition, the corporation shall have the authority to issue 20,000,000 shares of preferred stock, without par value. Such preferred stock may be issued in series. Notwithstanding the rights of common stock stated above, the entitlement of the Company's common stock to receive net assets of the corporation upon dissolution, and the voting rights of common stock of the Company, shall be subject to the voting and other rights, if any, provided to the holders of preferred stock by these Articles of Incorporation. Except for and subject to those rights expressly granted to the holders of the preferred stock, or except as may be provided by law, the holders of common stock shall have exclusively all other rights of shareholders. This corporation's Board of Directors shall have the authority, without shareholder action, to determine the preferences, limitations and relative rights of any preferred stock (whether in a series or as a class), including without limitation the following: (i) the designation of any series or class of preferred stock; (ii) the number of shares constituting the series or class; (iii) voting rights, if any, complying with the limitations on voting rights stated in this Article III for preferred stock, except that no condition, limitation, or prohibition on voting shall eliminate any right to vote required by Colorado law; (iv) any redemption rights and, if provided, the terms and conditions of such redemption, including without limitation the date or dates upon or after which any preferred stock shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (v) any sinking fund for the redemption or purchase of shares of a series or class, and, if provided, the terms and amount of such sinking fund; (vi) conversion rights and, if provided, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (vii) distribution rights, including without limitation a dividend rate and the determination of whether such rights are cumulative, noncumulative or partially cumulative; and (viii) preference rights over any other class or series of shares with respect to distributions, including without limitation any priority as to dividends and as to distributions upon the dissolution of the corporation. The preferred stock of the corporation shall have no voting rights except (I) the preferred stock shall have voting rights required by applicable law (which required voting rights may be set forth in the preferences, limitations and relative rights of a class or series), (ii) any preferred stock of a class or series may have voting rights with respect to any amendment, alteration or repeal of any provisions of the corporation's Articles of Incorporation which adversely affects any right, preference or limitation of the class or series, and (iii) any preferred stock of a class or series may have voting rights to elect a certain number of directors of the corporation in the event of the corporation's failure to pay dividends on the class or series for a period of time or to make a mandatory redemption payment when due for the class or series. The Board of Directors shall, in accordance with the authority granted to Board of Directors in this Article III, determine whether any such voting rights, not required by applicable law, shall exist and shall also determine the terms, conditions and limitations of any such voting rights, including without limitation the number of and time period for any such failures to pay dividends necessary for voting rights to occur and the number of directors to be elected by a class or series after such an event.'' (3) Article XI, concerning indemnification, is deleted in its entirety, and subsequent Articles shall be renumbered accordingly. EXHIBIT B TO PROXY STATEMENT DATED MARCH 22, 1996 Text of Existing Article XI The following is the existing Article XI which is proposed to be deleted from the Articles of Incorporation of the Company: ARTICLE XI The corporation shall indemnify each director and each director and each officer, his heirs, executors and administrators against expenses reasonably incurred or liability incurred by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director or officer of the corporation, except in relation (i) to matters as to which he shall be finally adjudged in such action, suit or proceeding to be liable for fraud or misconduct, and (ii) to liabilities under the Securities Act of 1933, as amended, the securities laws of Colorado or other applicable securities laws. In the event of a settlement before or after action or suit, indemnification shall be provided only in connection with such matters covered by the settlement as to which the corporation is advised by counsel that the person to be indemnified was not guilty of such fraud or misconduct. The foregoing right of indemnification shall not exclude other rights to which a person indemnified may be entitled. PROXY CARD PROXY SCOTT'S LIQUID GOLD-INC. PROXY Proxy Solicited by the Board of Directors for the Annual Meeting of Shareholders To Bebe held May 3, 19951, 1996 The undersigned hereby appoints Jerome J. Goldstein, Mark E. Goldstein, Carolyn J. Anderson, or Barry Shepard, and each of them, proxies of the undersigned, with full power of substitution, to vote all shares of common stock of Scott's Liquid Gold-Inc., which the undersigned is entitled to vote, at the Annual Meeting of Shareholders to be held on May 3, 19951, 1996, at 10:00 a.m. and at any and all adjournments thereof for the following purposes: (1) ELECTION OF DIRECTORS: [ ]Election of Directors: ___ FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote (except as marked to the contrary below) ___ WITHHOLD AUTHORITY to vote for all nominees listed below Jerome J. Goldstein Mark E. Goldstein Carolyn J. Anderson Barry Shepard Dennis H. Field James F. Keane Michael J. Sheets (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THE NOMINEE'S NAME ON THE LINE IMMEDIATELY BELOW.) -------------------------------------------------------------------------------- (2) Amendment to the Company's Articles of Incorporation to increase the authorized number of shares of the Company's common stock to 50,000,000 shares. ___ FOR ___ AGAINST ___ ABSTAIN (3) Amendment to the Company's Articles of Incorporation to authorize up to 20,000,000 shares of preferred stock issuable in one or more series. ___ FOR ___ AGAINST ___ ABSTAIN (4) Amendment to the Company's Articles of Incorporation to delete a provision on indemnification of directors and officers. ___ FOR ___ AGAINST ___ ABSTAIN (5) In their discretion, the Proxies are authorized to vote upon such other business as properly may come before the meeting. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING "FOR" ELECTION OF THE NOMINEES FOR DIRECTOR AS SELECTED BY THE BOARD OF DIRECTORS.DIRECTORS AND "FOR" ITEMS 2, 3 AND 4 CONCERNING AMENDMENTS TO THE COMPANY'S ARTICLES OF INCORPORATION. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and the Proxy Statement furnished therewith. The undersigned hereby revokes any proxies given prior to the date reflected below. Dated ,1995 ---------------------------------- -------------------------------------------- --------------------------------------------, 1996 SIGNATURE(S) OF SHAREHOLDER(S) Please complete, date and sign exactly as your name appears hereon. If shares are held jointly, each holder should sign. When signing as attorney, executor, administrator, trustee, guardian or corporate official, please add your title. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.