Timothy J. Stabosz
1307 Monroe Street
LaPorte, IN 46350
Board of Directors
Scott's Liquid Gold-Inc.
4880 Havana Street
Denver, CO 80239
Gerald J. Laber
Philip A. Neri
Jeffrey R. Hinkle
Jeffry B. Johnson
Dennis H. Field
May 23, 2013
Gentlemen:
As you know, I own 7.2% of Scott's Liquid Gold-Inc. ("SLGD," or "the
company"). I also happen to be the company's largest individual
shareholder, after Chairman and CEO Mark Goldstein.
You will notice that I specifically excluded Mark Goldstein from the inside
address of this letter. There is a reason for my excluding him. Besides
proving himself to be an atrociously incompetent CEO, and a master destroyer
of shareholder value over the last 15 years, it is clear to me that Mr.
Goldstein has acted in a dishonest and corrupt fashion as a fiduciary.
Outrageously, with your blessing, Scott's Liquid Gold continues to be
operated primarily as a Goldstein family piggy bank, with the board allowing
Goldstein to maintain an attitude of contempt, dismissal, and derision
towards the rightful concerns of the outside shareholder base.
You have stood by as a board, and, year after year, countenanced Mr.
Goldstein's defiled relationship with this company, allowing him to take out
upwards of $400,000 in compensation annually, and maintain his spouse on the
payroll, exclusively because he is the SLGD family scion, and because you
"feel sorry for him"...despite his abject lack of any qualifications to run
this company, his causing the company to lose money for, astonishingly, ALL
TEN OF THE LAST TEN YEARS (and 14 out of the last 15 years), and his causing
the company's annual sales to shrink nearly 70% over that same 15 year time
period.
As a result, Scott's Liquid Gold, the company, and the board, has become a
laughingstock in the annals of the corporate governance space, and has
caused extreme pain, angst, and resentment of Goldstein and this derelict
board, amongst its outside shareholder base. In exchange for giving
Goldstein what he wants, you each take home your measly $13,500 in base
board pay...making yourselves look "for sale" (to this shareholder) at the
very lowest of prices. In so doing, you enable a man who relates to this
company, in my view, in an avaricious, covetous, possessive, and
narcissistically entitled fashion, lacking any sense of personal propriety,
accountability, or shame. YOU recklessly provide a "safe world" for Mr.
Goldstein, and a mechanism of personal denial for his failings, his
cowardice, his incompetence, his pretense, his hubris...and, worst of all, his
delusions.
The proof of a corrupt CEO, and a do-nothing board, lies clearly in the way
you have handled expressions of interest in purchasing the company over the
years. In this regard, the evidence is quite damning. As the largest
outside shareholder, I have spoken with NUMEROUS parties that have had an
interest in purchasing this company over the years, at substantial premiums
to the common stock's trading price. In all cases, I was told that
Goldstein essentially "blew them off," with no one ever being able to get
beyond the "Goldstein portcullis." Let me note 3 specific examples:
1) At the 2011 shareholder meeting, a highly respected money manager, and
major shareholder, reported to the board how, in 1999, he presented (flying
out to meet Goldstein in Denver multiple times) a proposal by a major
consumer products firm, to buy the company for $3 a share, a sizable premium
to the then current trading price in the $1's. Incredulously (apparently, in
order to "kill" the possibility of any deal), Goldstein countered back with
a "fantasy" price of $12. This money manager again approached the
company in 2000, after Goldstein's father Jerome died (the ostensible
reason why Goldstein couldn't sell the company). With Goldstein
ultimately refusing to entertain bonafide offers for the company, the money
manager got sick and tired of wasting his time, and threw up his hands,
realizing that Goldstein simply didn't want to sell the company for anything
other than an "Alice in Wonderland" price. Said money manager stated that
he also had retained a series of emails, extensively documenting his
contacts with Goldstein in this matter. This written documentation
notwithstanding, Goldstein initially claimed that the multiple contacts
NEVER HAPPENED, but then backed down and said that he didn't "remember"
them. None of the board members at this meeting (including those on the
board at the time in 1999-2001) admitted to being informed or aware of the
expressions of interest in the company, suggesting that Goldstein, in
violation of his fiduciary duty, kept this substantive process "secret" from
the board.
I was in attendance at the 2011 shareholder meeting, and witnessed the money
manager's testimony. Days later, I demanded, in a private phone
conversation with Director Bud Laber, that the independent board members
begin a formal investigation of Goldstein. Unsurprisingly, nothing ever
happened. Laber refused to follow up with me on my request...and the board
stuck its head in the sand, maintaining its primary loyalty to Goldstein,
and ignoring its duty of loyalty and due care to the entire shareholder
base.
2) In the last year or two, I've had conversations with the CEO of a 20 year
old private equity firm out of San Diego. The CEO, whose namesake firm has
completed $3 billion in transactions over the years, made a number of calls
to Goldstein, expressing interest in buying the company. Instead of talking
to the private equity firm, Goldstein kept "putting them off." When the CEO
of the firm kept calling, instead of handing him off to an INDEPENDENT board
member, Goldstein told the CEO he had "no interest." When the CEO of this
private equity firm sought a meeting with company management, Goldstein
stopped returning his phone calls and ignored him.
3) Recently, I had a conversation with the president of a diversified New
York City based investor and operator in the consumer products space. This
individual told me, despite a willingness to pay a substantial premium over
the current trading price of SLGD common stock, that "Goldstein has been
ignoring me for 8 years," and was never willing to discuss any proposals, or
entertain any offers.
IN ALL CASES, DESPITE NUMEROUS PEOPLE TALKING TO GOLDSTEIN OVER THE YEARS, I
AM NOT AWARE, EVEN ONCE, OF GOLDSTEIN PASSING THESE INDIVIDUALS ON TO AN
INDEPENDENT COMMITTEE OR BOARD MEMBER. SUCH ACTIONS ON THE PART OF
GOLDSTEIN ARE UTTERLY SELF-SERVING, DISLOYAL, AND A BLATANT VIOLATION OF HIS
FIDUCIARY OBLIGATIONS TO THE OUTSIDE SHAREHOLDER BASE. THE BOARD'S
COUNTENANCING OF SUCH BEHAVIOR IS REPUGNANT, AND A BETRAYAL OF THE COMPANY'S
SHAREHOLDERS, AS WELL. THIS IS ESPECIALLY TRUE, CONSIDERING THE FACT THAT I
HAVE BEEN TELLING DIRECTOR BUD LABER FOR TWO YEARS ABOUT GOLDSTEIN'S
"BLOWING OFF" OF INTERESTED PARTIES, AND PLEADING WITH HIM TO STOP ALLOWING
GOLDSTEIN TO BE THE EXCLUSIVE "GATEKEEPER" FOR BONAFIDE M&A OPPORTUNITIES.
I tell you all of this because, as you are well aware, the recent sale of
the company's Denver real estate now has SLGD in a position where it has $3
million in cash on the balance sheet, and no debt. Yet, reflecting Wall
Street's utter lack of faith in Goldstein to grow the business, the common
stock barely trades at a premium to this $3 million in cash! With this in
mind, the board is now in an enviable position to maximize value for
shareholders, by engaging in a formal process of putting the company up for
sale. As you know, I will be introducing a shareholder proposal, from the
floor, at the June 14th annual meeting, that calls for the company to
establish a Special Committee, charged with formally "shopping" the company,
with the goal of finding a buyer for the company in whole or in part.
Personally, I believe any bid for the entire company, that meets or exceeds
50 cents per share, should be accepted by the board...as long as a full, fair,
and robust process is engaged in.
Over the years, I have talked to a number of parties interested in bidding
for the company, and they all tell me the same thing: despite Mr.
Goldstein's breathtaking failures, the core Liquid Gold brand, in
particular, retains substantial brand equity. Since my most recent stock
purchase, I have talked to a handful of people, who have told me that they
are prepared to buy the company for a substantial premium to recent stock
trading prices, because they are convinced they can reinvigorate the
company's brands. With this in mind, the notion of continuing to let Mr.
Goldstein fumble around, helplessly trying to turn this thing around, and
burning through all the cash, would be the height of insanity. And I can
only think of one reason why this board would endorse that: YOU ARE
BEHOLDEN TO GOLDSTEIN.
In closing, I want to put you on notice that the "business judgement rule"
does not allow the board to cavalierly ignore its responsibilities to
shareholders, and let the CEO "pocket" legitimate offers for, or expressions
of interest in, the company. If this board should continue to subjugate its
self-respect to Mr. Goldstein's will, facilitating the CEO in having his
sordid way with this company, and burying its head in the sand, without
establishing a Special Committee to vet offers, rest assured that this
shareholder will not hesitate to avail himself of the remedy of hauling this
derelict board into court, and suing you for breach of fiduciary
responsibility. (The fact that Goldstein cronies Jeffry Johnson, Jeffrey
Hinkle, and Dennis Field, are stepping down from the board...a long overdue
event...does not absolve them from responsibility for their willful and
wanton blindness over the years, and handing over all M&A responsibilities
to their patron, the CEO.)
If Goldstein wants to keep running this thing, and sucking it dry, the board
should force him to use the company's cash to make a bid...or do a 50 cent
tender offer to everyone who wants to get out. This "stacked" board has
served as a rubber stamp to Goldstein from time immemorial. It's high time
for you to stop treating the outside shareholders like roadkill, stop
continuing to kowtow to your master...and start acting responsibly, about
maximizing this company's value for its ENTIRE shareholder base.
The world is watching, and your reputations are at stake, now more than
ever. Can we finally count on you to do the right thing, defend your honor
as a board, and hold Mark Goldstein accountable?
Very truly yours,
Timothy J. Stabosz
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