SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
Scotts Liquid Gold Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
SCOTT'S LIQUID GOLD-INC.
4880 Havana Street
Denver, Colorado 80239
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
To Be Held May 2, 2001
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 2, 2001 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) Approval of an amendment to increase shares available under the 1998
Stock Option Plan by 750,000 shares;
(3) Such other matters as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on March 7, 2001 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 23, 2001
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.
SCOTT'S LIQUID GOLD-INC.
4880 HAVANA STREET
DENVER, COLORADO 80239
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 2001
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 2, 2001 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 23, 2001.
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 voting 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 7, 2001, the record
date for shareholders entitled to vote at the meeting, the Company had
10,103,058 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.
Approval of the amendment of the 1998 Stock Option Plan to increase the
available shares under that Plan requires that the votes cast in favor of the
amendment exceed the votes cast in opposition. 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 approval of the amendment to the 1998 Stock Option Plan or for these other
matters, if any, so long as a quorum is present.
1
The following persons are the only persons known to the Company who on
March 7, 2001, owned beneficially more than 5% of the Company's common stock,
its only class of outstanding voting securities:
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- --------
Mark E. Goldstein 2,646,875 (1)(2) 25.9%
4880 Havana Street
Denver, Colorado 80239
Scott's Liquid Gold-Inc 1,112,268 (3) 11.0%
Employee Stock
Ownership Plan
4880 Havana Street
Denver, Colorado 80239
(1) Includes 2,126,473 shares held by the Goldstein Family Partnership, Ltd., a
limited partnership of which the general partner is the Goldstein Family
Corporation and whose limited partners include Mark E. Goldstein, his
children, a sister, and certain other relatives. Mr. Goldstein is the sole
director and sole executive officer of the Goldstein Family Corporation,
and he owns 80% of the outstanding stock of the Goldstein Family
Corporation in his individual name and owns as a trustee 20% of the
outstanding stock of the Goldstein Family Corporation. Mr. Goldstein has
the sole voting and disposition powers with respect to these shares of the
Company owned by the Goldstein Family Partnership, Ltd. Also includes
120,500 shares underlying stock options granted by the Company, and 76,002
shares held by Mr. Goldstein's minor children. Does not include 28,890
shares of the Company's common stock owned by Mr. Goldstein's spouse, as to
which Mr. Goldstein disclaims any beneficial ownership.
(2) Does not include 92,560 shares held by the Company's Employee Stock
Ownership Plan attributable to Mr. Goldstein's vested interest in the Plan
as of December 31, 2000.
(3) The four-person committee administering the Employee Stock Ownership Plan
directs the voting of shares held under such Plan. Three of the Company's
four executive officers are members of this four-person committee.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows as of March 7, 2001, 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:
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership (1) of Class
------------------------ ------------------------ --------
Mark E. Goldstein 2,646,875 (2)(3)(4) 25.9%
Carolyn J. Anderson 338,460 (3)(4) 3.3%
Jeffrey R. Hinkle 228,878 (3)(4)(5) 2.2%
Jeffry B. Johnson 85,000 (3)(4)(6) .8%
Carl A. Bellini 55,000 (3) .5%
Dennis H. Field 176,833 (3) 1.7%
James F. Keane 130,833 (3) 1.3%
All Directors and executive officers
as a Group (seven persons) 3,661,879 (4) 33.6%
(1) Beneficial owners listed have sole voting and disposition power with
respect to the shares shown unless otherwise indicated.
(2) For information regarding Mr. Goldstein's beneficial ownership of shares,
see footnote 1 under the table in "Voting Securities and Principal
Shareholders."
2
(3) For each named person, includes the following number of shares underlying
stock options granted by the Company: 120,500 for Mr. Goldstein; 120,500
for Ms. Anderson; 129,000 for Mr. Hinkle; 58,000 for Mr. Johnson; 55,000
for Mr. Bellini; 173,333 for Mr. Field; and 128,333 for Mr. Keane.
(4) Does not include shares owned by the Company's Employee Stock Ownership
Plan under which, at December 31, 2000, Mark E. Goldstein had a vested
interest in 92,560 shares, Carolyn J. Anderson had a vested interest in
133,135 shares, Jeffrey R. Hinkle had a vested interest in 52,174 shares,
and Jeffry B. Johnson had a vested interest in 49,704 shares.
(5) Of Mr. Hinkle's shares, 64,100 are held jointly by Mr. Hinkle and his wife.
(6) Of Mr. Johnson's shares, 27,000 are held jointly by Mr. Johnson and his
wife.
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.
Jerome J. Goldstein was the Company's founder, a director, and Chairman of
the Company's Board of Directors from the time of the Company's founding through
the entire year of 1999. As a result of the death of Jerome J. Goldstein in
January, 2000, Mark E. Goldstein became the beneficial owner of 2,126,473 shares
of the Company's common stock held by the Goldstein Family Partnership, Ltd.,
representing approximately 21.0% of the outstanding common stock of the Company.
On January 21, 2000, Mark E. Goldstein acquired 800 shares of the common stock
of the Goldstein Family Corporation, representing 80% of the outstanding common
stock of the Goldstein Family Corporation. He also became the sole director, the
President and the sole executive officer of the Goldstein Family Corporation on
that date. As a result, Mark E. Goldstein controls the Goldstein Family
Corporation. The Goldstein Family Corporation controls the voting and
disposition of common stock of the Company owned by the Goldstein Family
Partnership, Ltd. Mr. Goldstein paid no consideration for the shares of the
Goldstein Family Corporation. The shares were transferred to him by a Trust
created by Jerome J. Goldstein; the Trust provided for this transfer of the
shares upon the death of Jerome J. Goldstein.
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
NOMINEES
The Company's Board of Directors consists 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 to serve 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
3
elected and qualified. The nominees for director, each of whom has consented to
serve if elected, are as follows:
Name of Nominee and Position Director Principal Occupation for
in the Company Age Since Last Five Years
---------------------------- --- -------- -------------------------------------------------------------
Mark E. Goldstein 44 1983 Chairman of the Board of the Company since February 22, 2000,
(President and Chief Executive President and Chief Executive Officer of the Company since
Officer) August, 1990. From 1982 to 1990, Vice President-Marketing of
Company. Employed by the Company since 1978.
Carolyn J. Anderson 62 1974 Executive Vice President since 1974, Chief Operating Officer of
(Executive Vice President, Chief the Company since 1982 and Corporate Secretary since 1973.
Operating Officer and Employed by the Company since 1970.
Corporate Secretary)
Jeffrey R. Hinkle 47 2000 Vice President-Marketing of the Company since February 2000,
(Vice President - Marketing) Vice President of Marketing for the Company's subsidiaries from
November 1992 to 2000. Employed by the Company since 1981.
Jeffry B. Johnson 55 2000 Treasurer and Chief Financial Officer of the Company since
(Treasurer and Chief November 2000. From 1981 to 2000, Controller of Company.
Financial Officer) Employed by the Company since 1976.
Carl A. Bellini 67 2000 Management Consultant since 1997. From 1987 to 1997, Executive
Vice President and Chief Operating Officer of Revco D.S., Inc. (a
large drug store chain).
Dennis H. Field 68 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 67 1993 Independent businessman since 1987. Founder of firms in auto
parts and home furnishings. 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).
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.
There are no family relationships among the executive officers or directors
of the Company. There are no arrangements or understandings pursuant to which
any of these persons were elected as an executive officer or director.
4
DIRECTORS' MEETINGS AND COMMITTEES
During the year ended December 31, 2000, the Company had seven directors
meetings, plus four actions by unanimous written consent. Mr. Bellini attended
less than 75% of the aggregate number of meetings of the Board of Directors and
Board committees during the period for which he was a director in 2000 because
he missed one day of meetings. 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 three outside directors of the Company
and, in addition, the President of the Company. Current members of the
Compensation Committee are Dennis H. Field (Chairperson), Carl A. Bellini, James
F. Keane, and Mark E. Goldstein (with Mr. Goldstein having no vote). The
Compensation Committee met four times during 2000.
The Audit Committee has as its primary responsibilities the recommendation
of an independent public accountant to audit the annual financial statements of
the Company, the review of internal and external audit functions, the review of
the systems of internal accounting controls, and the review of financial
information which is provided to the shareholders and others. A copy of the
Audit Committee Charter is included as an exhibit to this proxy statement. The
Audit Committee consists of three outside directors. The current members of the
Audit Committee are James F. Keane (Chairperson), Carl A. Bellini and Dennis H.
Field. The Audit Committee met four times during 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dennis Field serves on both the Compensation Committee and the Audit
Committee. From 1978 to 1982, Mr. Field was President and Chief Operating
Officer of Aquafilter Corporation, a wholly owned subsidiary of the Company
which manufactured cigarette filters. 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.
5
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 at December 31, 2000, and of Barry Shepard who served as an
executive officer during part of 2000 and in previous years, for services in all
capacities provided to the Company and its subsidiaries for the past three
years.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------- ---------------------------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year $ $(2) $ Options (#) ($)(3)
------------------------------------- ---- -------- ----- ------------ ----------- ------------
Mark E. Goldstein 2000 $350,000 - $ 96,908 50,000 $ 4,242
Chairman of the Board, President and 1999 $350,000 - $ 25,023 20,500 $ 1,767
Chief Executive Officer 1998 $350,000 - $ 23,293 50,000 $ 2,850
Carolyn J. Anderson 2000 $300,000 - $ 22,176 50,000 $ 4,242
Executive Vice President, 1999 $300,000 - $ 28,138 20,500 $ 1,767
Chief Operating Officer, 1998 $300,000 - $ 77,296 50,000 $ 2,850
Corporate Secretary
Barry Shepard (1) 2000 $110,300 - $ 16,590 -- $ 4,242
Former Treasurer and 1999 $220,000 - $ 45,103 20,500 $ 1,767
Assistant Secretary 1998 $220,000 - $ 45,585 50,000 $ 2,850
Jeffrey R. Hinkle (4) 2000 $200,000 - $ 92,122 50,000 $ 4,242
Vice President - Marketing
Jeffry B. Johnson (4) 2000 $147,600 - $ 7,087 50,000 $ 3,841
Treasurer and Chief Financial Officer
Note: There were no restricted stock awards or long term incentive payouts
during the last three fiscal years. During 1998, options to purchase 50,000
shares of the Company's common stock were awarded to each of the Company's then
executive officers at an average price of $1.77 a share. In 1999, options to
purchase 20,500 shares of the Company's common stock were awarded to each of the
Company's then executive officers at an average price of $1.64 a share. With
regard to 2000, see Option Grants in Last Fiscal Year.
(1) Deceased.
(2) The Company has adopted a bonus plan for its executive officers for the
year 2001. 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 million, excluding items that are infrequent, unusual, or
extraordinary. Such amount, if any, for 2001 will be divided among the
Company's executive officers as follows: President, 35%, Executive Vice
President, 25%, Vice President-Marketing, 20% and Treasurer, 20%. In no
event is a bonus paid unless pre-tax profits, excluding the above-mentioned
items, exceed $1,000,000 for the fiscal year, nor is any bonus paid on the
first $1,000,000 of pre-tax earnings, excluding the above mentioned items.
The Company had a similar plan in 2000, 1999, and 1998.
6
(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.
(4) Mr. Hinkle and Mr. Johnson became executive officers of the Company in
2000.
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 1998 through 2000 is comprised of the
following:
Mark E. Goldstein Carolyn J. Anderson Barry Shepard
----------------------------- ----------------------------- -----------------------------
1998 1999 2000 1998 1999 2000 1998 1999 2000
------- ------- ------- ------- ------- ------- ------- ------- -------
Automobile purchase (1) $ -- $ -- $36,733 $25,000 $ -- $ -- $ -- $ -- $ --
Income taxes on automobile
purchase (1) -- -- 35,012 24,068 -- -- -- -- --
Other automobile expenses 1,318 1,785 2,204 806 537 707 2,809 2,473 170
Memberships 12,429 13,017 14,170 5,404 5,417 3,673 5,655 5,849 2,227
Life insurance 2,446 2,387 2,328 8,926 8,497 8,069 15,733 16,683 5,827
Income taxes on life insurance 2,285 2,286 2,142 7,680 8,338 7,423 14,699 14,699 5,361
Medical plan (2) 2,494 3,227 2,015 3,091 3,028 -- 4,368 3,078 3,005
Other 2,321 2,321 2,304 2,321 2,321 2,304 2,321 2,321 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Total other compensation $23,293 $25,023 $96,908 $77,296 $28,138 $22,176 $45,585 $45,103 $16,590
======= ======= ======= ======= ======= ======= ======= ======= =======
Jeffrey R. Hinkle Jeffry B. Johnson
2000 2000
------- -------
Automobile purchase (1) $44,016 $ 1,100
Income taxes on automobile
purchase (1) 41,952 1,012
Other automobile expenses 461 2,625
Memberships -- --
Life insurance 1,344 1,146
Income taxes on life insurance 1,236 1,054
Medical plan (2) 3,113 150
Other -- --
------- -------
Total other compensation $92,122 $ 7,087
======= =======
7
(1) Every three to five years, the Company provides funds needed, plus an
amount to pay resulting income taxes, to each executive officer for the
purchase of an automobile. In the case of Mr. Johnson, the amounts shown
represent the lease value, and income taxes on that value, for his use in
2000 of a vehicle owned by the Company.
(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. The plan further provides that, for a period of five years
following an executive officer's voluntary retirement, or involuntary
retirement in the event of a change in control of the Company, the Company
will, at no cost to the executive or his or her surviving dependents, cover
the executive and/or such dependents under the Company Health Plan and
shall also provide, at no cost to the executive, for the payment of
additional medical coverage of up to $50,000 a year.
The Company maintains a Key Executive Disability Plan, which is not
reflected in the table above. The purpose of this Plan is to provide the
executive with his or her regular salary during periods of long-term disability
in excess of 90 days to age 70, or to date of death, whichever first occurs. The
benefits available under this Plan will cease upon termination of employment as
an executive officer of the Company other than during a period of disability.
The Plan is partially funded by disability insurance maintained by the Company
under which the Company is the beneficiary.
Option Grants in Last Fiscal Year
The following table concerns the grant of options during the year ended
December 31, 2000 to executive officers of the Company:
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------------------------------------ ---------------------------
Number of
Securities % of Total Options Exercise
Underlying Granted to or Base
Options Granted Employees in Price
Name (#)(2)(3) Fiscal Year ($/Share) Expiration Date 5%($)(1) 10%($)(1)
---- --------------- ----------- --------- --------------- -------- ---------
Mark E. Goldstein 50,000 11.4% 0.7557 December 4, 2005 $ 6,100 $17,500
Carolyn J. Anderson 50,000 11.4% 0.687 December 4, 2005 $ 9,500 $21,000
Jeffrey R. Hinkle 50,000 11.4% 0.687 December 4, 2005 $ 9,500 $21,000
Jeffry B. Johnson 50,000 11.4% 0.687 December 4, 2005 $ 9,500 $21,000
(1) Assumes 5% and 10% growth per year based upon December 5, 2000 price of
$0.687/share.
(2) The options shown in the table above were issued under the Company's 1998
Stock Option Plan. Under that Plan, no option may be exercised more than
ten years after it is granted. If the option grant is for an incentive
stock option, the exercise price must be at least 100% of the fair market
value of the Company's stock on the date of grant. The exercise price for a
nonqualified stock option must be no less than 85% of the fair market value
of the Company's stock on the date of grant. If the grantee owns more than
10% of the Company's outstanding stock, then these limitations for an
incentive stock option are five years from the date of grant and 110% of
the fair market value. No incentive option may be granted to any person in
any year to purchase shares having an aggregate fair market value greater
than $100,000 at the date of the option grant. Payment for shares purchased
upon the exercise of any option must be made in cash.
(3) The shares underlying the options granted in 2000 are part of the amendment
increasing on December 4, 2000 the number of shares authorized for the 1998
Stock Option Plan. The Board of Directors has determined that these options
will remain granted under a new plan having substantially the same terms as
the 1998 Plan if for any reason the amendment is not approved by the
shareholders at the Annual Meeting.
8
Outstanding Options
No options were exercised by any of the Company's executive officers during
2000. The following table summarizes information with respect to the value of
each officer's unexercised stock options at December 31, 2000.
Fiscal Year End Option Values
Number of Securities In-the-Money
Underlying Unexercised Value of Unexercised
Options at Year End Options at Year End (1)
---------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Mark E. Goldstein 120,500 0 0 0
Carolyn J. Anderson 120,500 0 0 0
Barry Shepard 70,500 0 0 0
Jeffrey R. Hinkle 129,000 0 0 0
Jeffry B. Johnson 58,000 0 0 0
(1) The in-the-money value of unexercised options is equal to the excess of the
per share market price of the Company's stock at December 31, 2000 over the
per share exercise price multiplied by the number of unexercised options.
However, the per share exercise price was higher than the market price of
the Company's stock at year end
COMPENSATION COMMITTEE REPORT
Background
The Compensation Committee of the Board of Directors is currently comprised
of the Company's three outside directors and the Company's President (who serves
as a non-voting member of the Committee). In February, 2000, when action was
initially taken by the Committee on executive compensation, the Compensation
Committee consisted of Dennis H. Field and James F. Keane, both of whom are
outside directors, as well as the Company's President, Mark E. Goldstein. The
responsibilities of the Compensation Committee include the origination of all
executive compensation proposals.
In making decisions regarding executive compensation, the Compensation
Committee considers a number of factors. The Compensation Committee has also
determined that an outside consultant on compensation matters should be used
once every three years.
Organization Philosophy
The Committee believes that the Company's organization and the specific
responsibilities of its executive officers are an essential part of analyzing
compensation levels. The first important point concerning the management of the
Company is that each executive subscribes to a team concept of executive
management, and operates 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, if any, 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.
9
Mark E. Goldstein became President and Chief Executive Officer of the
Company in 1990 and Chairman of the Board in February, 2000. Mark E. Goldstein
has the responsibilities associated with these positions at a public company. He
is also actively involved in the sales and marketing efforts of the Company and
its development of new products. For example, Mark Goldstein is the primary
contact with the Company's largest account, Wal-Mart Stores, Inc.; and he,
together with Jeffrey R. Hinkle, directs the Company's advertising and
promotional efforts. He ultimately is responsible for the day-to-day operations
of the Company, although he relies on the Company's other executive officers for
advice and counsel.
Carolyn J. Anderson has been employed by the Company for 31 years. She
became Corporate Secretary in 1973; she was promoted to Executive Vice President
in 1974; and Ms. Anderson was given the additional title and responsibilities of
Chief Operating Officer in 1982. As Chief Operating Officer, Ms. Anderson has a
direct responsibility for decision-making 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 and quality control activities.
Ms. Anderson is responsible for the Company's "human resources" decisions.
Further, Ms. Anderson is, together with Mr. Johnson, the primary contact for the
Company's legal matters. (Prior to the death of Barry Shepard in June, 2000, Ms.
Anderson shared these last two functions with Mr. Shepard.)
Jeffrey R. Hinkle has been employed by the Company for 20 years. He joined
the Company as a regional sales manager in 1981, held various sales positions at
the Company's subsidiaries, including Vice President-Marketing of subsidiaries,
and became Vice President-Marketing of the Company in February, 2000. Mr. Hinkle
is responsible for the Company's sales force, marketing and, together with Mr.
Goldstein, the Company's advertising and promotional efforts.
Jeffry B. Johnson was elected as the Company's Treasurer and Chief
Financial Officer in November, 2000. These positions were previously held by
Barry Shepard who died in June, 2000. Mr. Johnson has served the Company for 25
years. He joined the Company as internal auditor in 1976, was promoted to
Controller in 1981, and to Chief Accounting Officer on October 1, 2000. Mr.
Johnson performs all of the functions of Treasurer and Chief Financial Officer,
including negotiations and maintenance of relationships with creditors. He also
supervises back office functions relating to accounting and, together with Mr.
Goldstein, data processing and computer operations.
Factors and Policies
In determining its recommendations on executive 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 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;
(h) Comparison of salary to distributions to stockholders;
(i) Prevailing economic conditions;
(j) Compensation paid to other employees of the corporation; and
(k) The amount previously paid to the executive.
10
The Company and the Compensation Committee have viewed the base salary as
an important part of the compensation for the Company's executive officers as
well as other employees. It is the general philosophy of the Company that good
employees who are paid well are more likely to stay with the Company and
contribute significantly to the successes of the Company's businesses.
The Company's 2000 executive bonus plan provided for a bonus pool based on
10% of pre-tax profits (excluding items that are infrequent, unusual or
extraordinary) for a year in excess of $1 million. Any bonus amount payable
under the plan would have been divided as follows: Mark E. Goldstein, 35%;
Carolyn J. Anderson, 25%; Barry Shepard, 25%; and Jeffrey R. Hinkle, 15%. The
Company had substantially the same plan in prior years and has implemented
substantially the same plan for the year 2001. 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 stated above.
The Company provides certain other benefits and perquisites to the
executive officers. The Committee believes that the types of benefits offered to
Company executives and the value of these benefits are similar to benefit
packages provided by competitors. A number of the benefits are provided by the
Company not only to the executive officers but also to other Company employees.
The Company believes that these benefits are 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.
Application of Factors
Utilizing these factors and policies, the Compensation Committee in
February, 2000 recommended that the base salaries of the Company's executive
officers remain the same in 2000 as in 1999 and that the components of other
compensation provided to the Company's executive officers also remain the same
in 2000 as in 1999. These recommendations were adopted by the Company's Board of
Directors.
In making its recommendations for the compensation of executives in 2000,
the Compensation Committee noted, among other things, that: (1) The executive
officers devote considerable time to the Company, often more than full-time; (2)
with respect to base salaries, the base salaries of Mr. Goldstein and Ms.
Anderson prior to 1995 had not changed since October 30, 1988, and then, was
part of an aggregate increase for the then four executive officers of 13.5%; (3)
the bonus plan has been in effect for a number of years, with a result of
decreasing compensation in recent years because of the Company's performance;
(4) the Company's bonus plan emphasizes performance and successes achieved by
executives; (5) the levels of the bonus plan and other components of
compensation have been in effect for a number of years; (6) the Company's
officers were awarded only modest stock options in 1998 and 1999, having
received none since 1994 and those options replaced options that either had
expired or were about to expire; and (7) the anticipated amounts paid for the
base salary and bonus in 2000 were and 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. The
Committee believed that the roles of the Company's officers continue to be
difficult because of decreasing sales of the Company's products and competitive
and market factors, including the consolidation of manufacturers, the
consolidation of retailers and the state of art in business practices.
In terms of performance by the executives in 1999, the Committee noted in
February, 2000, a number of
11
factors, including, among others, the following:
- The Company reduced its loss in 1999 to approximately $500,000, and
was profitable in the third and fourth quarters;
- The management developed a new advertising approach for the Company's
products, which costs less and should result in more exposure to
potential customers;
- The Company developed new TV commercials;
- The Company continued a cost containment program;
- The Company developed a relationship with a television home shopping
venue as another channel of distribution;
- The Company began an effort to rejuvenate Touch of Scent;
- The Company introduced three new products;
- The Company commenced a consolidation of its network of brokers for
product sales to customers; and
- The Company has discussed with retailers and manufacturers contract
manufacturing by the Company.
In establishing Mr. Hinkle's compensation as an executive officer in May,
2000, the Committee considered the points stated above and Mr. Hinkle's
involvement in them through his responsibilities for marketing the Company's
products, maintaining relationships with certain customers and instigating the
use of one national broker by the Company. The Committee recommended that the
base salary of Mr. Hinkle be continued and that he be provided with the
perquisites made available to executive officers. In November, 2000, the
Committee considered the compensation of Jeffry B. Johnson as an executive
officer. The Committee recommended no change in his base compensation, from the
amount that he started to receive on November 1, 2000, as Chief Accounting
Officer, and the addition of the fringe benefits made available to executive
officers. The Committee took into account, among other things, his level of
responsibilities, the amount paid to the previous Chief Financial Officer and
actions taken by Mr. Johnson while acting as a Chief Financial Officer after the
death of Mr. Shepard.
Since 1992, the Compensation Committee has engaged a consultant on
compensation matters every three years. The consultant used by the Committee has
been the Hay Group. In 1997, the Hay Group was asked to assess the
competitiveness of the executive compensation levels of the Company. Their
report, issued in July, 1997, concluded that overall the total direct
compensation practices of the Company fall within a peer group competitive
range, with competitiveness of the pay packages varying by executive. Base
salaries were viewed as in line with competitive practices; annual incentive
awards were below competition, with the size of the annual
12
incentive being a direct result of Company performance; and long-term incentive
awards, such as stock options, were below competitive practices.
The Hay Group was engaged again in 2000 and issued a report in February,
2001. The report concluded that:
- In the aggregate the Company's executive compensation levels were
within 10% of the median of a peer group used for the report and just
over 10% above the median of a general industry group in terms of
total direct compensation.
- The base salary and the total cash compensation for the four executive
officers in the aggregate were each between the median and the 75th
percentile for the peer group; their aggregate base salary was above
the 90th percentile for the general industry group; and their total
cash compensation in the aggregate was between the 75th and 90th
percentile for the general industry group.
The comparison groups were a peer group comprised of perfumes, cosmetics, and
other toilet preparation companies and selected specialty chemical companies
with an average annual revenue of $39.25 million and a general industry group
comprised of companies from a broad range of industries. The report stated that
the Company's executive compensation places a greater emphasis on base salary
than the comparison groups.
In conclusion, the Compensation Committee believes that the levels of
compensation for the Company's executive officers have been fair and
appropriate.
COMPENSATION COMMITTEE
Dennis H. Field, Chairman
Carl A. Bellini
James F. Keane
Mark E. Goldstein
13
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 Media General Composite Index (see below), and to a selected peer group.
[GRAPH]
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Scott's Liquid Gold 100.00 52.17 110.87 51.21 25.61 20.04
Peer Group 100.00 134.69 198.70 239.62 275.11 211.36
Media General Composite Index 100.00 120.77 156.82 191.71 233.86 211.11
Fiscal year ended December 31
Assumes $100 invested on January 1, 1996
in the Company, the Peer Group,
The Media General 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 companies which use the standard industrial classification of
specialty cleaning and sanitation and which are publicly held, and other
publicly held companies which are partially or entirely engaged in the cosmetics
business. The Company believes that, within its industry classes, the assembly
of a peer group is difficult because the Company competes with other companies
that are significantly larger than Scott's Liquid Gold-Inc., including two major
companies which are not publicly traded.
The following companies comprise the peer group: Avon Products, Inc., CCA
Industries, Inc., Chattem, Inc., Clorox Co. (includes Armor All Products,
acquired by Clorox Co. in 1997), Del Laboratories, Inc., .and Procter & Gamble.
The Media General Composite Index is based on the market value of all common
stocks listed on the NYSE, AMEX and Nasdaq National Market. The index is
adjusted for all stock splits and dividends.
14
COMPENSATION OF DIRECTORS
Four directors are full-time executive officers of the Company and receive
no additional compensation for service as a director. Carl A. Bellini, 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. The
Company also pays Mr. Keane $1,667 per month as a consultant to the Company in
regard to the marketing, advertising and packaging of the Company's products.
This payment is made under a Consulting Agreement which has a term of one year
ending June 30, 2001.
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. 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 on account 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 7, 2001, options to purchase 399,999 shares of the Company's
common stock had been granted under the Plan, of which 48,333 were surrendered
during 1999. Except for the exercise of options for 100,000 shares by a
director, who resigned from the Board during 1999, no options had been exercised
at or prior to March 7, 2001. The directors are also eligible to receive grants
of options under the 1998 Stock Option Plan. On December 5, 2000, each
non-employee director (Messrs. Bellini, Field and Keane) received an option for
25,000 shares of common stock with an exercise price of $0.687 per share and an
expiration date of December 4, 2005. These options are fully vested.
The following table summarizes information with respect to the value of
each non-employee director's unexercised stock options at December 31, 2000:
Year End Option Values
-------------------------------------------------------------------
Number of Securities Underlying In-the-Money Value of Unexercised
Unexercised Options at Year End Options at Year End (1)
------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Carl A. Bellini 55,000 0 0 0
Dennis H. Field 173,333 0 0 0
James F. Keane 128,333 0 0 0
(1) The in-the-money value of unexercised options is equal to the excess of the
per share market price of the Company's stock at December 31, 2000 over the
per share exercise price multiplied by the number of unexercised options.
However, the per share exercise price was higher than the market price of
the Company's stock at year end.
15
TRANSACTIONS WITH MANAGEMENT
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 for 2000.
COMPANY ACCOUNTANTS
Arthur Andersen LLP were selected by the Board of Directors as the
Company's independent auditors for the fiscal year ended December 31, 2000. The
Company selected the same firm as the Company's independent auditors for the
fiscal year ending December 31, 1999. 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.
REPORT OF AUDIT COMMITTEE
March 23, 2001
To the Board of Directors of Scott's Liquid Gold-Inc.:
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, 2000. We have
discussed with Arthur Andersen, LLP, its independent auditors, the matters
required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants. We have received and
reviewed the written disclosures and the letter from the independent auditors
required by Independence Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT
COMMITTEES, as amended, by the Independence Standards Board, and have discussed
with the auditors the auditors' independence.
Based on the reviews and discussions referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31, 2000
and filed with the Securities and Exchange Commission.
The Audit Committee is composed of the three directors named below, all of
whom are independent directors as defined in Rule 4200(a)(14) of the National
Association of Securities Dealers listing standards.
The Board has adopted a written charter for the Audit Committee. The
charter will be included as an
16
exhibit to the Proxy Statement for the 2001 Annual Meeting of Shareholders.
Submitted by the members of the Audit Committee of the Board of Directors.
James F. Keane, Chairman
Carl A. Bellini
Dennis H. Field
DISCLOSURE OF AUDITOR FEES
The following is a description of the fees billed to the Company by Arthur
Andersen, LLP during the year ended December 31, 2000:
- Audit Fees - Audit fees paid and/or billed to the Company by Arthur
Andersen in connection with Arthur Andersen's review and audit of the
Company's annual financial statement for the year ended December 31,
2000 and Arthur Andersen's review of the Company's interim financial
statements included in the Company's Quarterly Reports on Form 10-Q
during the year ended December 31, 2000 totaled approximately $71,000.
- Financial Information Systems Design and Implementation Fees - The
Company did not engage Arthur Andersen to provide advice to the
Company regarding financial information systems design and
implementation during the year ended December 31, 2000.
- All other fees - Fees billed to the Company by Arthur Andersen during
the year ended December 31, 2000 for all other non-audit services
rendered to the Company (which consisted of tax related services)
totaled approximately $26,000.
APPROVAL OF AMENDMENT TO INCREASE SHARES
UNDER THE 1998 STOCK OPTION PLAN
AMENDMENT
The Company's Board of Directors amended on December 4, 2000, the Company's
1998 Stock Option Plan (the "Plan") to increase the number of shares of common
stock available under the Plan by 750,000 shares of common stock. The total
number of shares available under the Plan is 1,100,000 shares after the
amendment and was, prior to the amendment, 350,000 shares. The amendment
increasing the number of shares under the Plan is subject to approval of the
Company's shareholders. The reasons for the amendment to the Plan include:
- The Company's Board of Directors believes that the Company must have
available and grant options to employees in order to retain employees
in a competitive environment, particularly employees who are subject
to the Company's salary and wage freeze;
- Options reward persons who have stayed with the Company;
- Options provide an incentive on the part of officers and other
employees, as well as directors, to improve the Company's performance;
- The grant of options aligns the goals of the optionees with those of
the shareholders; and
17
- The options provide to directors and executive officers a meaningful
stake in the Company.
The Company currently has three stock option plans. They are the 1993 Stock
Option Plan for Outside Directors, the 1997 Stock Option Plan (for which the
executive officers and directors are ineligible), and the Company's 1998 Stock
Option Plan. The number of shares available under the Plans are shown in the
following table:
SHARES UNDER ALL PLANS
AS OF FEBRUARY 28, 2001
1993 Plan 1997 Plan 1998 Plan Total
--------- --------- --------- ---------
Shares authorized 400,000 300,000 1,100,000 (1) 1,800,000
Shares subject to outstanding options 281,666 254,200 728,300 (2) 1,264,166 (2)
Shares previously issued upon exercise of options 100,000 -- -- 100,000
Shares available for options 18,334 45,800 371,700 435,834
(1) Includes shares added by the amendment being submitted to the shareholders
for approval.
(2) Includes 497,000 granted in December, 2000 after amendment of the Plan.
There is described below the Company's 1998 Stock Option Plan as currently
in effect and as it will be in effect after the amendment which solely increases
the number of shares.
GENERAL
On November 9, 1998, the Company's Board of Directors adopted the Company's
1998 Stock Option Plan and the Company's shareholders approved the Plan on May
5, 1999. The Plan provides for the granting of options to employees and
directors of the Company. (The word "Company" as used in the Plan refers to
Scott's Liquid Gold-Inc. and its subsidiaries.) Under the Plan, the Board, in
its sole discretion, may issue either Nonqualified Stock Options (those which do
not qualify as Incentive Stock Options under Section 422 of the Internal Revenue
Code of 1986 - the "Code") or Incentive Stock Options (those which qualify for
favorable federal income tax treatment under the Code). With respect to
non-employee directors of the Company, stock option awards are limited to
Nonqualified Stock Options. The purpose of the Plan is to further the growth and
development of the Company through affording the opportunity for stock ownership
to selected employees.
SHARES AVAILABLE FOR ISSUANCE
A maximum of 1,100,000 shares of Common Stock after the amendment, and
350,000 shares of the
18
Company's Common Stock prior to the amendment, 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 on account of
stock dividends, stock splits, mergers, consolidations, recapitalizations,
combinations or exchanges of stock, or other similar occurrences effecting a
change in the outstanding shares without the receipt of additional consideration
by the Company. 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.
ADMINISTRATION OF THE PLAN
The Plan is administered by the Company's Board of Directors or a committee
appointed by and serving at the pleasure of the Board, consisting of no fewer
than two directors. The Plan is currently administered by the Board of
Directors. The Board or committee, whichever is appointed to administer the
Plan, is called the "committee". Subject to the terms of the Plan, after
considering the recommendation of any administering committee, the Board of
Directors determines which Company employees and directors will receive options,
the type of options to be awarded (whether Incentive Stock Options or
Nonqualified Stock Options), the exercise price of the options, the number of
shares to be subject to each option, and other terms of the options. The Board
has full authority to interpret the Plan and to prescribe rules for its
administration.
Under the Plan, all full-time employees of the Company and non-employee
members of the Company's Board of Directors are eligible to receive options.
Non-employee directors are only eligible to receive Nonqualified Stock Options
and can elect not to be eligible for grants of options during any period of
time.
OPTION EXERCISE PRICE AND OTHER TERMS
Options may be granted under the Plan through November 8, 2008. The option
price per share for Incentive Stock Options granted under the Plan must be not
less than 100% of the fair market value (as of the date of grant) of the shares
subject to the option. The option price for Nonqualified Stock Options granted
under the Plan must not be less than 85% of the fair market value (as of the
date of grant) of the shares subject to the option. The fair market value is
determined by reference to closing prices on the public market. The full price
for shares must be paid in cash at the time the option is exercised. Each option
must expire no later than ten years after the date it is granted. In the case of
incentive stock options granted to employees who own more than 10% of the
outstanding voting stock of the Company, the exercise price must be at least
110% of the fair market value on the date of grant and the term of the incentive
stock option cannot exceed five years.
Upon termination of employment or a director's service for reasons other
than death, disability or for cause, an optionee may at any time within three
months after the date of termination, and prior to any expiration of the option,
exercise the option. A period of one year is permitted for exercise by the
optionee's heirs if the optionee's employment or service as a director is
terminated due to death or disability. Options terminate immediately upon
termination of employment for cause.
Options may include vesting restrictions on the exercise based on the
passage of time, the achievement of goals or the occurrence of events. Options
granted under the Plan may not be transferred other than by will or the laws of
descent and distribution.
AMENDMENT AND TERMINATION
The Company's Board of Directors may at any time amend, suspend or
terminate the Plan except that no action by the Board may impair outstanding
options. No amendment to the Plan may be made without
19
shareholder approval that would increase the total number of shares under the
Plan (except for any adjustments as described above for stock dividends and
other events), reduce the minimum exercise price of options or materially modify
the eligibility requirements. Subject to the terms of the Plan, the Board may
modify, extend or renew any outstanding option under the Plan, accept the
surrender of outstanding options, and authorize the grant of substitute options.
FEDERAL INCOME TAX CONSEQUENCES
The grant of an Incentive Stock Option under the Plan does not produce
taxable income to the optionee or a tax deduction to the Company. Upon exercise
of an Incentive Stock Option, the employee will not realize taxable income and
the Company will not be entitled to a compensation deduction; however, the
excess of the fair market value over the exercise price may be taxed to the
employee under the alternative minimum tax provisions of the Code. The Code
imposes a statutory holding period for Incentive Stock Options, which is the
later of (1) one year after the shares were transferred to an employee upon
exercise of an option or (2) two years after the date of grant. If an employee
sells or otherwise disposes of shares acquired upon the exercise of an Incentive
Stock Option prior to meeting the statutory holding period requirements, all or
a portion of any gain will be taxed as ordinary income to the employee; in that
case, the Company will be entitled to deduct an equal amount as a compensation
expense. The amount of ordinary income is the lesser of (1) the difference
between the fair market value at the date of exercise and the exercise price, or
(2) the gain on the sale (the amount realized less the exercise price).
Otherwise, an optionee's disposition of shares acquired upon the exercise of an
Incentive Stock Option (including a disposition after the expiration of the
statutory holding period) will result in short-term or long-term capital gain or
loss measured by the difference between the disposition price and the employee's
tax basis in the shares (the tax basis is generally the exercise price plus the
amount previously recognized as ordinary income).
The grant of a Nonqualified Stock Option under the Plan does not produce
taxable income to the optionee or a tax deduction to the Company. Upon exercise
of a Nonqualified Stock Option, the excess of the fair market value of the
shares acquired over the exercise price will be taxable to the optionee as
ordinary income and will be deductible by the Company as a compensation expense.
GRANT OF OPTIONS
As of March 7, 2001, the Company had granted options for the following
number of shares as a result in the increase in the shares available under the
Plan, all which options were granted on December 5, 2000:
- 50,000 shares for each of the four executive officers, who are Mr.
Goldstein, Ms. Anderson, Mr. Hinkle and Mr. Johnson;
- 25,000 shares to each of the Company's non-employee directors, who are
Mr. Bellini, Mr. Field and Mr. Keane; and
- 222,000 shares for other employees of the Company.
Each of these options has an exercise price of $0.687 per share, except the
option for Mr. Goldstein has an exercise price of $0.7557 per share. These
options expire on December 4, 2005. Please see tables regarding these options
for executive officers and directors in earlier parts of this proxy statement.
As indicated above, on December 5, 2000, the Board of Directors granted
options for a total of 497,000 shares under the 1998 Plan. The Board also
determined that the options will remain with the optionees whether
20
or not the amendment is approved by the shareholders at the Annual Meeting. If
the amendment is not approved by the shareholders at the Annual Meeting, the
options will be issued under a new plan with substantially the same terms as the
1998 Plan. The reasons for this determination is that a grant of options must be
final in order to avoid potentially adverse accounting treatment and that the
Board wanted to assure the optionees of receiving the options. The Company would
plan to ask for shareholder approval of any new plan covering these options.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT
INCREASING THE SHARES AVAILABLE UNDER THE 1998 PLAN. PROXIES SOLICITED BY THE
BOARD OF DIRECTORS WILL BE VOTED "FOR" APPROVAL OF THE AMENDMENT TO THE SCOTT'S
LIQUID GOLD-INC. 1998 STOCK OPTION PLAN.
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 23, 2001. Also, persons named in the proxy
solicited by the Board of Directors of the Company for its year 2002 annual
meeting of shareholders may exercise discretionary authority on any proposal
presented by a shareholder of the Company at that meeting if the Company has not
received notice of the proposal by February 7, 2002.
2000 ANNUAL REPORT ON FORM 10-K
THE COMPANY'S FORM 10-K REPORT FOR 2000 CONSISTS PRIMARILY OF CROSS
REFERENCES TO INFORMATION IN THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS AND
THIS PROXY 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, 2000 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.
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 pocket expenses incurred by them in so doing.
21
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
March 23, 2001
22
EXHIBIT TO PROXY STATEMENT
DATED MARCH 23, 2001
AUDIT COMMITTEE CHARTER
The Board of Directors of Scott's Liquid Gold-Inc. (the "Corporation") has
established an Audit Committee comprised of at least two independent directors
appointed by the Board. The membership qualifications, authority, responsibility
and specific duties of the Audit Committee are described below:
MEMBERSHIP QUALIFICATIONS
To serve on the Audit Committee, a director must be independent as
described below. The members of the Audit Committee are appointed by the Board
of Directors.
To be considered independent, a director must have no relationship with the
Corporation that may interfere with the exercise of his/her independence from
management and the Corporation. Examples of relationships that would preclude
service on the Audit Committee would be:
- A director employed by the Corporation or any of its affiliates during
the current year or any of the past three years;
- A director receiving compensation from the Corporation or any of its
affiliates in excess of $60,000 during a fiscal year other than for
board service;
- A director who is an immediate family member of an individual who has
been an officer of the Corporation during any of the past three years;
- A director who is a partner in, controlling shareholder or executive
officer of, any for-profit business organization to which the
Corporation made, or from which the Corporation received, payments
that exceed 5% of the Corporation's or business organization's
consolidated gross revenues for that year, or $200,000, whichever is
more, during any of the past three years;
- A director who is the executive of another company where any of the
Corporation's executives serves on that company's compensation
committee.
AUTHORITY
The Board of Directors has granted the Audit Committee authority to
investigate any activity of the Corporation and its subsidiaries. The Committee
has been granted unrestricted access to all information and all employees are
directed to cooperate as requested by members of the Committee. The Committee is
empowered to retain persons having special competencies as necessary to assist
the Committee in fulfilling its responsibility.
RESPONSIBILITY
The primary responsibility for financial and other reporting, internal
controls, and compliance with laws, regulations, and ethics rests with the
executive management of the Corporation. The primary function of the Committee
is to assist the Board in fulfilling its oversight responsibilities by
reviewing: The financial information
23
which will be provided to the shareholders and others; the systems of internal
controls which management have established; and the audit process.
The Committee's responsibilities are:
- Monitor the integrity of the financial reporting process and that the
financial statements adequately represent the Corporation's financial
condition and results of operations.
- Review compliance with corporate policies that provide processes,
procedures and standards to follow in accomplishing the Company's
goals and objectives.
- Review the Corporation's financial reporting risks and the internal
control structure.
The Committee also reviews the independence and objectivity of the
independent public accountants and the internal auditors. Each audit group shall
have direct and unrestricted access to the Committee as well as the opportunity
to meet with the entire Board of Directors. The Audit Committee shall meet no
less than three times annually. Additional or special meetings may be held at
the Committee's discretion.
SPECIFIC DUTIES
In discharging its responsibilities, the Audit Committee is expected to
perform the following duties:
1. Recommend to the Board of Directors the retention or non-retention of the
independent public accountants.
2. Communicate to the independent public accountants that they are ultimately
accountable to the Audit Committee and Board of Directors.
3. Review, prior to the annual audit, the scope of the independent public
accountants' audit examination, including their proposed fees. Such fees
are to be arranged with management and summarized for Committee review.
4. Review with the director of internal audit the qualifications and staffing
of the internal audit department and the scope of the internal audits.
5. Review with the independent public accountants, the director of internal
auditing and management the Corporation's policies and procedures relative
to the adequacy of internal accounting and financial reporting controls,
including controls over quarterly financial reporting, computerized
information systems and security. Further, the Committee is to make, or
cause to be made, all necessary inquiries of management, the independent
public accountants and the internal auditors concerning compliance with
established standards of corporate conduct.
6. Review with management the accounting and reporting principles and
practices applied by the Corporation in preparing its financial statements.
7. Review with management and the independent public accountants, upon
completion of their audit, the financial results for the year. This review
is to include the Corporation's annual financial statements, related
footnotes, the results of the audit and the independent public accountants'
management recommendations. In addition, review significant transactions
which occurred during the year, any significant adjustments, management
judgments and accounting estimates,
24
new accounting policies and any disagreements between management and the
independent public accountants.
8. Annually receive from the independent public accountants a written
statement delineating all their relationships with the Corporation,
consistent with the Independence Standards Board Standard I, which is to
include all non-audit services provided and related fees. The Audit
Committee will discuss with the independent public accountants any
disclosed relationships or services that may impact the objectivity and
independence of the accountants and take, or recommend the Board of
Directors take, appropriate action to ensure the independence of the
accountants.
9. Prior to the release of quarterly earnings, at least the chairman of the
Audit Committee discuss with management and the independent public
accountants the results for the quarter, including any significant
transactions which occurred during the quarter, any significant
adjustments, management judgments and accounting estimates, new accounting
policies and any disagreements between management and the independent
public accountants.
10. Approve the Audit Committee Report to shareholders required by the rules of
the Securities and Exchange Commission to be included in the Company's
annual proxy statement.
11. Review and reassess the adequacy of this charter on an annual basis.
12. Apprise the Board of Directors of significant developments in the course of
performing the above duties.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent accountants. Except
as specifically expressed herein, it is not the duty of the Audit Committee to
conduct investigations, to resolve disagreements, if any, between management and
the independent accountants or to assure compliance with laws and regulations
and the Company's corporate policies.
25
PROXY SCOTT'S LIQUID GOLD-INC. PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 2001
The undersigned hereby appoints Mark E. Goldstein, Carolyn J. Anderson,
Jeffrey R. Hinkle, or Jeffry B. Johnson, 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 2, 2001, at 10:00 a.m. and at
any and all adjournments thereof for the following purposes:
(1) Election of Directors: FOR all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY BELOW) / / TO VOTE FOR ALL NOMINEES LISTED BELOW / /
Mark E. Goldstein Carolyn J. Anderson Jeffrey R. Hinkle Jeffry B.
Johnson Carl A. Bellini Dennis H. Field James F. Keane
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NOMINEE'S NAME ON THE LINE IMMEDIATELY BELOW.)
--------------------------------------------------------------------------------
(2) Approval of an amendment to increase shares available under the 1998 Stock
Option Plan by 750,000 shares:
/ / FOR / / AGAINST / / ABSTAIN
(3) In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the meeting.
/ / FOR / / AGAINST / / ABSTAIN
(BACK OF CARD)
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, AND "FOR"
APPROVAL OF THE AMENDMENT TO THE 1998 STOCK OPTION PLAN.
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 ______________________, 2001
__________________________________
__________________________________
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.
APPENDIX
SCOTT'S LIQUID GOLD-INC.
1998 STOCK OPTION PLAN
AS AMENDED THROUGH DECEMBER 4, 2000
SECTION 1: PURPOSE
The purpose of the Scott's Liquid Gold-Inc. 1998 Stock Option Plan (the
"Plan") is to further the growth and development of Scott's Liquid Gold-Inc.
(the "Company") by affording an opportunity for stock ownership to selected
employees and Directors of the Company and its Subsidiaries who are responsible
for the performance of various duties for the Company or its Subsidiaries and/or
who are involved in endeavors significant to the success of the Company or its
Subsidiaries.
SECTION 2: DEFINITIONS
Unless otherwise indicated, the following words when used herein shall have
the following meanings:
(a) "Board of Directors" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(c) "Common Stock" shall mean the Company's common stock (par value
$0.10 per share) and any share or shares of the Company's capital stock
hereafter issued or issuable in substitution for such shares.
(d) "Director" shall mean a member of the Board of Directors.
(e) "Incentive Stock Option" shall mean any option granted to an
eligible employee under the Plan, which the Company intends at the time the
option is granted to be an Incentive Stock Option within the meaning of
Section 422 of the Code.
(f) "Nonqualified Stock Option" shall mean any option granted to an
eligible employee or Director under the Plan which is not an Incentive
Stock Option.
(g) "Option" shall mean and refer collectively to Incentive Stock
Options and Nonqualified Stock Options.
(h) "Option Agreement" shall mean the agreement specified in Section
7.2.
1
(i) "Optionee" shall mean any employee or Director who is granted an
Option under the Plan. "Optionee" shall also mean the personal
representative of an Optionee and any other person who acquires the right
to exercise an Option by bequest or inheritance.
(j) "Parent" shall mean a parent corporation of the Company as defined
in Section 424(e) of the Code.
(k) "Subsidiary" shall mean a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.
(l) "Termination for Cause" shall mean an involuntary severance of
employment on account of: (1) refusal to obey written or verbal directions
of a lawful and/or moral nature issued by a supervisor or corporate officer
or by the Board of Directors; (2) fraud or dishonesty directed against the
Company or any of its Subsidiaries; (3) breach of any material obligation
of nondisclosure or confidentiality owed to the Company or any of its
Subsidiaries, including any such breach pertaining to rules and regulations
of the Securities and Exchange Commission; (4) commission of any criminal
offense which constitutes a felony in the jurisdiction in which the offense
is committed; or (5) violation of any Company rules or regulations, such as
those pertaining to attendance, which constitutes grounds for dismissal.
SECTION 3: EFFECTIVE DATE
The effective date of the Plan is November 9, 1998; provided, however, that
the adoption of the Plan by the Board of Directors is subject to approval and
ratification by the shareholders of the Company within twelve months of the
effective date. Options granted under the Plan prior to approval of the Plan by
the shareholders of the Company shall be subject to approval of the Plan by the
shareholders of the Company.
SECTION 4: ADMINISTRATION
4.1 ADMINISTRATIVE COMMITTEE. The Plan shall be administered by a Committee
appointed by and serving at the pleasure of the Board of Directors, consisting
of not fewer than two Directors (the "Committee"). The Committee may, but need
not, be the existing Compensation Committee of the Board of Directors. The Board
of Directors may from time to time remove members from or add members to the
Committee, and vacancies on the Committee, howsoever caused, shall be filled by
the Board of Directors.
4.2 COMMITTEE MEETINGS AND ACTIONS. The Committee shall hold meetings at
such times and places as it may determine. A majority of the members of the
Committee shall constitute a quorum, and the acts of the majority of the members
present at a meeting or a consent in writing signed by all members of the
Committee shall be the acts of the Committee.
2
4.3 POWERS OF COMMITTEE AND BOARD OF DIRECTORS. The Committee shall
recommend to the Board of Directors specific Option grants and the terms and
conditions of Options granted under the Plan. The Committee shall recommend to
the Board of Directors rules and regulations for administration of the Plan. In
recommending Option grants, the Committee shall take into consideration the
contribution the Optionee has made or may make to the success of the Company or
its Subsidiaries and such other factors as the Committee shall determine. The
Board of Directors, after considering recommendations by the Committee, shall
have the full and exclusive right to grant and determine terms and conditions of
all Options granted under the Plan and to prescribe, amend, and rescind rules
and regulations for administration of the Plan. The actions of the Board of
Directors with respect to the Plan shall be final, binding and conclusive upon
all persons, including the Company, its Subsidiaries, its shareholders, and all
persons having any interest in Options which may be or have been granted
pursuant to the Plan.
4.4 INTERPRETATION OF PLAN. The determination of the Board of Directors as
to any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final, binding and conclusive upon all
persons, including the Company, its Subsidiaries, its shareholders, and all
persons having any interest in Options which may be or have been granted
pursuant to the Plan.
4.5 INDEMNIFICATION. Each person who is or shall have been a member of the
Committee or of the Board of Directors shall be indemnified and held harmless by
the Company against and from any loss, cost, liability or expense that may be
imposed upon or reasonably incurred in connection with or resulting from any
claim, action, suit or proceeding to which such person may be a party or in
which such person may be involved by reason of any action taken or failure to
act under the Plan and against and from any and all amounts paid in settlement
thereof, with the Company's approval, or paid in satisfaction of a judgment in
any such action, suit or proceeding against him, provided such person shall give
the Company an opportunity, at its own expense, to handle and defend the same
before undertaking to handle and defend it on such person's own behalf. The
foregoing right of indemnification shall not be exclusive of, and is in addition
to, any other rights of indemnification to which any person may be entitled
under the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
SECTION 5: STOCK SUBJECT TO THE PLAN
5.1 NUMBER. The aggregate number of shares of Common Stock which may be
issued under Options granted pursuant to the Plan shall not exceed 1,100,000
shares. Shares which may be issued under Options may consist, in whole or in
part, of authorized but unissued stock or treasury stock of the Company not
reserved for any other purpose.
3
5.2 UNUSED STOCK. If any outstanding Option under the Plan expires or for
any other reason ceases to be exercisable, in whole or in part, other than upon
exercise of the Option, the shares which were subject to such Option and as to
which the Option had not been exercised shall continue to be available under the
Plan.
5.3 ADJUSTMENT FOR CHANGE IN OUTSTANDING SHARES. If there is any change,
increase or decrease, in the outstanding shares of Common Stock which is
effected without receipt of additional consideration by the Company, by reason
of a stock dividend, recapitalization, merger, consolidation, stock split,
combination or exchange of stock, or other similar circumstances, then in each
such event, the Board of Directors shall make an appropriate adjustment in the
aggregate number of shares of stock available under the Plan, the number of
shares of stock subject to each outstanding Option and the Option prices in
order to prevent the dilution or enlargement of any Optionee's rights. In making
such adjustments, fractional shares shall be rounded to the nearest whole share.
The determinations of the Board of Directors in making adjustments shall be
final and conclusive.
5.4 REORGANIZATION OR SALE OF ASSETS. If the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, or if all or substantially all of the assets of the Company are
acquired by another entity, or if the Company is liquidated or reorganized (each
of such events being referred to hereinafter as a "Reorganization Event"), the
Board of Directors shall, as to outstanding Options, either: (1) make
appropriate provision for the protection of any such outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation, which will be
issuable in respect of the Common Stock, provided that no additional benefits
shall be conferred upon Optionees as a result of such substitution, and provided
further that the excess of the aggregate fair market value of the shares subject
to the Options immediately after such substitution over the purchase price
thereof is not more than the excess of the aggregate fair market value of the
shares subject to such Options immediately before such substitution over the
purchase price thereof; or (2) upon written notice to all Optionees, which
notice shall be given not less than twenty days prior to the effective date of
the Reorganization Event, provide that all unexercised Options must be exercised
within a specified number of days (which shall not be less than ten) of the date
of such notice or such Options will terminate. In response to a notice provided
pursuant to clause (2) of the preceding sentence, an Optionee may make an
irrevocable election to exercise the Optionee's Option contingent upon and
effective as of the effective date of the Reorganization Event. The Board of
Directors may, in its sole discretion, accelerate the exercise dates of
outstanding Options in connection with any Reorganization Event.
SECTION 6: ELIGIBILITY
All full-time employees of the Company and its Subsidiaries shall be
eligible to receive both Incentive Stock Options and Nonqualified Stock Options
under the Plan. For purposes of this Section 6, a full-time employee shall be
any employee of the
4
Company or any of its Subsidiaries who is regularly scheduled to work at least
forty hours per week. Directors who are not employees of the Company or its
Subsidiaries shall be eligible to receive Nonqualified Stock Options, but not
Incentive Stock Options, under the Plan. Any Director who is otherwise eligible
to participate, who makes an election in writing not to receive any grants under
the Plan, shall not be eligible to receive any such grants during the period set
forth in such election.
SECTION 7: GRANT OF OPTIONS
7.1 GRANT OF OPTIONS. The Board of Directors may from time to time in its
discretion determine which of the eligible employees and Directors of the
Company or its Subsidiaries should receive Options, the type of Options to be
granted (whether Incentive Stock Options or Nonqualified Stock Options), the
number of shares subject to such Options, and the dates on which such Options
are to be granted. No employee may be granted Incentive Stock Options to the
extent that the aggregate fair market value (determined as of the time each
Option is granted) of the Common Stock with respect to which any such Incentive
Stock Options are exercisable for the first time during a calendar year (under
all incentive stock option plans of the Company and its Parent and Subsidiaries)
would exceed $100,000.
7.2 OPTION AGREEMENT. Each Option granted under the Plan shall be evidenced
by a written Option Agreement setting forth the terms upon which the Option is
granted. Each Option Agreement shall designate the type of Options being granted
(whether Incentive Stock Options or Nonqualified Stock Options), and shall state
the number of shares of Common Stock, as designated by the Board of Directors,
to which that Option pertains. More than one Option may be granted to an
eligible person.
7.3 OPTION PRICE. The option price per share of Common Stock under each
Option shall be determined by the Board of Directors and stated in the Option
Agreement. The option price for Incentive Stock Options granted under the Plan
shall not be less than 100% of the fair market value (determined as of the day
the Option is granted) of the shares subject to the Option. The option price for
Nonqualified Stock Options granted under the Plan shall not be less than 85% of
the fair market value (determined as of the day the Option is granted) of the
shares subject to the Option. Notwithstanding the foregoing, in no event shall
the option price per share be less than the par value of the Common Stock.
7.4 DETERMINATION OF FAIR MARKET VALUE. If the Common Stock (which is
currently listed on the New York Stock Exchange) is listed upon an
established stock exchange, then the fair market value per share shall be
deemed to be the quoted closing price of the Common Stock on such stock
exchange on the day for which the determination is made, or if no sales of
the Common Stock shall have been made on the stock exchange on that day, on
the next preceding day on which there was such a sale. If the Common Stock is
listed upon more than one established stock exchange, the fair market value
per share shall be deemed to be the average of the quoted closing prices of
the Common Stock on all such stock exchanges on the day for which the
determination
5
is made, determined for each such stock exchange in accordance with the
preceding sentence. If the Common Stock is not listed upon any established
stock exchange but is traded in the NASDAQ National Market System, the fair
market value per share shall be deemed to be the closing price of the Common
Stock in the National Market System on the day for which the determination is
made, or if there shall have been no trading of the Common Stock on that day,
on the next preceding day on which there was such trading. If the Common
Stock is not listed upon any established stock exchange and is not traded in
the National Market System, the fair market value per share shall be deemed
to be the mean between the dealer "bid" and "ask" closing prices of the
Common Stock on the NASDAQ System on the day for which the determination is
made, or if there shall have been no trading of the Common Stock on that day,
on the next preceding day on which there was such trading. If none of these
conditions apply, the fair market value per share shall be deemed to be an
amount as determined in good faith by the Board of Directors by applying any
reasonable valuation method.
7.5 DURATION OF OPTIONS. Each Option shall be of a duration as specified in
the Option Agreement; provided, however, that the term of each Option shall be
no more than ten years from the date on which the Option is granted and shall be
subject to early termination as provided herein.
7.6 ADDITIONAL LIMITATIONS ON GRANT. No Incentive Stock Option shall be
granted to an employee who, at the time the Incentive Stock Option is granted,
owns stock (as determined in accordance with Section 424(d) of the Code)
representing more than 10% of the total combined voting power of all classes of
stock of the Company or of any Parent or Subsidiary, unless the option price of
such Incentive Stock Option is at least 110% of the fair market value
(determined as of the day the Incentive Stock Option is granted) of the stock
subject to the Incentive Stock Option and the Incentive Stock Option by its
terms is not exercisable more than five years from the date it is granted.
7.7 OTHER TERMS AND CONDITIONS. The Option Agreement may contain such other
provisions, which shall not be inconsistent with the Plan, as the Board of
Directors shall deem appropriate, including, without limitation, provisions that
relate the Optionee's ability to exercise an Option to the passage of time or
the achievement of specific goals established by the Board of Directors or the
occurrence of certain events specified by the Board of Directors.
SECTION 8: EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. Subject to the limitations and conditions of the
Plan or the Option Agreement, an Option shall be exercisable, in whole or in
part, from time to time, by giving written notice of exercise to the Secretary
of the Company, which notice shall specify the number of shares of Common Stock
to be purchased and shall be accompanied by: (1) payment in full to the Company
of the purchase price of the shares to be purchased; plus (2) payment in full of
such amount as the Company shall determine to be sufficient to satisfy any
liability it may have for any withholding of federal, state or local income or
other taxes incurred by reason of the exercise of the
6
Option; and (3) a representation meeting the requirements of Section 11.2 if
requested by the Company.
8.2 PAYMENT OF PURCHASE PRICE. Payment for shares and withholding taxes
shall be in the form of either: (1) cash; or (2) a personal check to the order
of the Company; or (3) in any combination thereof.
SECTION 9: EFFECT OF TERMINATION OF EMPLOYMENT
9.1 TERMINATION OF EMPLOYMENT OTHER THAN UPON DEATH OR DISABILITY AND OTHER
THAN TERMINATION FOR CAUSE. Upon termination of an Optionee's employment with
the Company or a Subsidiary other than upon death or disability (within the
meaning of Section 22(e)(3) of the Code) and other than a Termination for Cause,
an Optionee may, at any time within three months after the date of termination
but not later than the date of expiration of the Option, exercise the Option to
the extent the Optionee was entitled to do so on the date of termination. Any
Options not exercisable as of the date of termination and any Options or
portions of Options of terminated Optionees not exercised within the period
specified herein shall terminate.
9.2 TERMINATION BY DEATH OF OPTIONEE. If an Optionee shall die while in the
employ of the Company or a Subsidiary or within a period of three months after
the termination of employment with the Company or a Subsidiary under
circumstances to which Section 9.1 applies, the personal representatives of the
Optionee's estate or the person or persons who shall have acquired the Option
from the Optionee by bequest or inheritance may exercise the Option at any time
within the year after the date of death but not later than the expiration date
of the Option, to the extent the Optionee was entitled to do so on the date of
death. Any Options not exercisable as of the date of death and any Options or
portions of Options of deceased Optionees not exercised within the period
specified herein shall terminate.
9.3 TERMINATION BY DISABILITY OF OPTIONEE. Upon termination of an
Optionee's employment with the Company or a Subsidiary by reason of the
Optionee's disability (within the meaning of Section 22(e)(3) of the Code), the
Optionee may exercise the Option at any time within one year after the date of
termination but not later than the expiration date of the Option, to the extent
the Optionee was entitled to do so on the date of termination. Any Options not
exercisable as of the date of termination and any Options or portions of Options
of disabled Optionees not exercised within the period specified herein shall
terminate.
9.4 TERMINATION OF DIRECTORS. For purposes of this Section 9, a termination
of employment shall be deemed to include the termination of a Director's service
as a member of the Board of Directors.
9.5 OTHER TERMINATIONS. Upon termination of an Optionee's employment with
the Company or a Subsidiary under circumstances other than those set forth in
Sections
7
9.1, 9.2 or 9.3, including without limitation a Termination for Cause, Options
granted to the Optionee shall terminate immediately.
9.6 EXTENSION OF OPTION TERMINATION DATE. No Option granted under this Plan
may be extended by either the Committee or the Board of Directors.
SECTION 10: NON-TRANSFERABILITY OF OPTION
Options granted pursuant to the Plan are not transferable by the Optionee
other than by Will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option contrary to the provisions hereof, or upon the levy of any attachment or
similar process upon the Option, the Option shall immediately become null and
void.
SECTION 11: ISSUANCE OF SHARES
11.1 TRANSFER OF SHARES TO OPTIONEE. As soon as practicable after the
Optionee has given the Company written notice of exercise of an Option and has
otherwise met the requirements of Section 8.1, the Company shall issue or
transfer to the Optionee the number of shares of Common Stock as to which the
Option has been exercised and shall deliver to the Optionee a certificate or
certificates therefor, registered in the Optionee's name. In no event shall the
Company be required to transfer fractional shares to the Optionee, and in lieu
thereof, the Company may pay an amount in cash equal to the fair market value
(as determined in accordance with Section 7.4) of such fractional shares on the
date of exercise. If the issuance or transfer of shares by the Company would for
any reason, in the opinion of counsel for the Company, violate any applicable
federal or state laws or regulations, the Company may delay issuance or transfer
of such shares to the Optionee until compliance with such laws can reasonably be
obtained. In no event shall the Company be obligated to effect or obtain any
listing, registration, qualification, consent or approval under any applicable
federal or state laws or regulations or any contract or agreement to which the
Company is a party with respect to the issuance of any such shares.
11.2 INVESTMENT REPRESENTATION. Upon demand by the Company, the Optionee
shall deliver to the Company a representation in writing that the purchase of
all shares with respect to which notice of exercise of the Option has been given
by the Optionee is being made for investment only and not for resale or with a
view to distribution, and containing such other representations and provisions
with respect thereto as the Company may require. Upon such demand, delivery of
such representation promptly and prior to the transfer or delivery of any such
shares and prior to the expiration of the option period shall be a condition
precedent to the right to purchase such shares.
8
SECTION 12: AMENDMENTS
The Board of Directors may at any time and from time to time alter, amend,
suspend or terminate the Plan or any part thereof as it may deem proper, except
that no such action shall diminish or impair the rights under an Option
previously granted. Unless the shareholders of the Company shall have given
their approval, the total number of shares for which Options may be issued under
the Plan shall not be increased, except as provided in Section 5.3, and no
amendment shall be made which reduces the price at which the Common Stock may be
offered under the Plan below the minimum required by Section 7.3, except as
provided in Section 5.3, or which materially modifies the requirements as to
eligibility for participation in the Plan. Subject to the terms and conditions
of the Plan, the Board of Directors may modify outstanding Options granted under
the Plan, or accept the surrender of outstanding Options to the extent not
theretofore exercised and authorize the granting of new Options in substitution
therefor, except that no such action shall diminish or impair the rights under
an Option previously granted without the consent of the Optionee.
SECTION 13: TERM OF PLAN
This Plan shall terminate on November 8, 2008; provided, however, that the
Board of Directors may at any time prior thereto suspend or terminate the Plan.
SECTION 14: RIGHTS AS STOCKHOLDER
An Optionee shall have no rights as a stockholder of the Company with
respect to any shares of Common Stock covered by an Option until the date of the
issuance of the stock certificate for such shares.
SECTION 15: NO EMPLOYMENT RIGHTS
Nothing contained in this Plan or in any Option granted under the Plan
shall confer upon any Optionee any right with respect to the continuation of
such Optionee's employment by the Company or any Subsidiary or interfere in any
way with the right of the Company or any Subsidiary, subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the Optionee from the
rate in existence at the time of the grant of the Option.
SECTION 16: GOVERNING LAW
This Plan, and all Options granted under this Plan, shall be construed and
shall take effect in accordance with the laws of the State of Colorado, without
regard to the conflicts of laws rules of such State.
9