DEF 14A 1 slgd-hk_def_14a.htm DEF 14A DEF 14A

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. ___)

Filed by 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))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material under Rule 14a-12

SCOTT’S LIQUID GOLD-INC.

(Name of Registrant as Specified in Its Charter)

Payment of Filing Fee (Check all boxes that apply):

 

No fee required.

 

Fee paid previously with preliminary materials.

 

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 


 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On June 20, 2024

To the Shareholders of Scott’s Liquid Gold-Inc.:

As previously disclosed by the Company in its filings with the Securities and Exchange Commission, the Company entered into a merger agreement with Horizon Kinetics LLC (as amended, the “Merger Agreement”). The closing of the contemplated merger (the “Merger”) is contingent on the approval by our shareholders of the Reverse Stock Split Proposal and the Reincorporation Proposal referenced below. If neither of such proposals is approved, or only one of such proposals is approved, the Merger cannot be completed.

We are therefore pleased to invite you to attend a Special Meeting of Shareholders of Scott’s Liquid Gold-Inc., a Colorado corporation (“Scott’s Liquid Gold” or the “Company”), which will be held virtually at www.virtualshareholdermeeting.com/SLGD2024SM on June 20, 2024 at 2:00 p.m., Eastern Time (the “Special Meeting”), for the purposes of enabling our shareholders to consider and vote on the following proposals:

1.
To effect a reverse stock split of the Company’s outstanding shares of common stock, par value $0.10 per share (the “Common Stock”), at a ratio of 1-for-20 (the “Reverse Stock Split Proposal”);
2.
To (i) approve the reincorporation of the Company in the state of Delaware and (ii) change the name of the Company to “Horizon Kinetics Holding Corporation” (the “Reincorporation Proposal”); and
3.
To approve any adjournment of the Special Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals (the “Adjournment Proposal”).

The Company will transact no other business at the Special Meeting except such business as may properly be brought before the Special Meeting or any adjournments or postponements thereof. Please refer to the proxy statement of which this notice forms a part for further information with respect to the business to be transacted at the Special Meeting.

Our Board of Directors recommends that the Company’s shareholders vote “FOR” the Reverse Stock Split Proposal, “FOR” the Reincorporation Proposal, and “FOR” the Adjournment Proposal if necessary. All of these proposals are described in further detail in the proxy statement.

The Company’s Board of Directors has fixed the close of business on May 7, 2024 as the record date for determination of shareholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof. Only the Company’s shareholders of record at the close of business on the record date are entitled to receive notice of the Special Meeting, attend the Special Meeting and vote on all matters that properly come before the Special Meeting.

Your vote is very important. Whether or not you expect to attend the Special Meeting virtually, we urge you to submit a proxy to vote your shares as promptly as possible. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction form provided by your broker, bank or other nominee.

The enclosed proxy statement provides a detailed description of the Merger and the Merger Agreement. We urge you to read this proxy statement, including any documents incorporated by reference, and the Annexes, carefully and in their entirety. If you have any questions concerning the Merger, the Merger Agreement or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of the Company’s Common Stock, please contact the Company’s President, David Arndt, at investorrelations@slginc.com or (303) 576-6027.

 

By Order of the Board of Directors of the Company

 

 

Daniel J. Roller

Chairman of the Board of Directors

May 13, 2024

 

 


 

SCOTT’S LIQUID GOLD-INC.
720 S. Colorado Blvd., PH N

Denver, Colorado 80246

YOUR VOTE IS VERY IMPORTANT

May 13, 2024

To the Shareholders of the Company:

I am pleased to invite you to attend the Special Meeting of Shareholders of Scott’s Liquid Gold-Inc., a Colorado corporation (“Scott’s Liquid Gold” or the “Company”), which will be held virtually at www.virtualshareholdermeeting.com/SLGD2024SM on June 20, 2024 at 2:00 p.m., Eastern Time (the “Special Meeting”).

The Company, HKNY ONE, LLC., a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub”), and Horizon Kinetics LLC, a Delaware limited liability company (“Horizon Kinetics”), have entered into a merger agreement (as amended, the “Merger Agreement”), providing for the acquisition of Horizon Kinetics by the Company. The terms of the Merger Agreement provide that Merger Sub will be merged with and into Horizon Kinetics (the “Merger”), with Horizon Kinetics being the surviving entity. If the Merger is completed, holders of Horizon Kinetics’ membership interests will receive an aggregate number of shares (the “Merger Consideration”) of the Company’s common stock, par value $0.10 per share (the “Common Stock”) equal to (a) the sum of (i) Horizon Kinetics’ net tangible assets plus (ii) the value of the Horizon Kinetics operating business, (b) divided by 25, subject to a maximum number of shares as provided in the Merger Agreement. Under the Merger Agreement, the value of the Horizon Kinetics operating business is (x) stipulated to be $200 million if and only if Horizon Kinetics’ regulatory assets under management (“AUM”) are between $6 billion and $8 billion, and (y) otherwise calculated by multiplying AUM by a factor of 0.03. The Company currently expects its legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing. When you vote on the proposals in this proxy statement, you will not know what percentage of the combined company your shares will ultimately represent. At the Special Meeting, shareholders of the Company will be asked to consider and vote on the following proposals:

1.
To effect a reverse stock split of the Company’s outstanding shares of Common Stock, at a ratio of 1-for-20 (the “Reverse Stock Split Proposal”);
2.
To (i) approve the reincorporation of the Company in the state of Delaware and (ii) change the name of the Company to “Horizon Kinetics Holding Corporation” (the “Reincorporation Proposal”); and
3.
To approve any adjournment of the Special Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals (the “Adjournment Proposal”).

Your vote is very important, regardless of the number of shares of the Company’s Common Stock you own. Whether or not you expect to attend the Special Meeting virtually, please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the Special Meeting.

Our Board of Directors recommends that the Company’s shareholders vote “FOR” the Reverse Stock Split Proposal, “FOR” the Reincorporation Proposal, and “FOR” the Adjournment Proposal if necessary. All of these proposals are described in further detail in the proxy statement.

The obligations of the Company and Horizon Kinetics to complete the Merger are subject to the satisfaction or waiver of several conditions, including shareholder approval of the Reverse Stock Split Proposal and the Reincorporation Proposal. If neither of such proposals is approved, or only one of such proposals is approved, the Merger cannot be completed. The proxy statement contains detailed information about the Company, Horizon Kinetics, the Special Meeting, the Merger Agreement and the Merger. You should read the proxy statement carefully and in its entirety before voting, including the section entitled “Risk Factors” beginning on page 18.

I sincerely hope that you will be able to attend the Special Meeting. However, whether or not you plan to attend, please complete and return the enclosed proxy in the accompanying envelope or vote your shares by telephone or via the Internet. If you hold your shares through your broker or other nominee, please provide voting instructions to your broker or nominee. If you attend the Special Meeting, you may, if you wish, withdraw any proxy previously given and vote your shares virtually at the meeting.

 

Sincerely,

Daniel J. Roller

Chairman of the Board of Directors

 

 


 

PROXY STATEMENT
of
SCOTT’S LIQUID GOLD-INC.

Special Meeting of Shareholders to be held on June 20, 2024

Scott’s Liquid Gold-Inc., a Colorado corporation (“Scott’s Liquid Gold” or the “Company”), HKNY ONE, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub”), and Horizon Kinetics LLC, a Delaware limited liability company (“Horizon Kinetics”), have entered into a merger agreement (as amended, the “Merger Agreement”), providing for the acquisition of Horizon Kinetics by the Company. The terms of the Merger Agreement provide that Merger Sub will be merged with and into Horizon Kinetics (the “Merger”), with Horizon Kinetics being the surviving entity. If the Merger is completed, holders of Horizon Kinetics’ membership interests will receive an aggregate number of shares (the “Merger Consideration”) of the Company’s common stock, par value $0.10 per share (the “Common Stock”) equal to (a) the sum of (i) Horizon Kinetics’ net tangible assets plus (ii) the value of the Horizon Kinetics operating business, (b) divided by 25, subject to a maximum number of shares as provided in the Merger Agreement. Under the Merger Agreement, the value of the Horizon Kinetics operating business is (x) stipulated to be $200 million if and only if Horizon Kinetics’ regulatory assets under management (“AUM”) are between $6 billion and $8 billion, and (y) otherwise calculated by multiplying AUM by a factor of 0.03. The Company currently expects its legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the number of Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing.

In evaluating the Merger, our Board of Directors (the “Board of Directors”) considered a number of factors including:

the fact that the Board of Directors had periodically discussed and reviewed the Company’s business, strategic direction, performance and prospects, and had periodically reviewed and discussed with management potential strategic alternatives and opportunities with a view towards enhancing shareholder value;
the fact that the Company has acquired and sold a number of brands over the past decade, giving members of the Board of Directors and management frequent opportunity to discuss potential acquisitions and divestitures with other industry participants;
regular reviews by the Board of Directors and management over the course of 2021, 2022, and 2023 of the Company’s portfolio of brands, performance, and financial position, and a resulting determination by the Board of Directors to sell, over the same time period, the Dryel, Scott’s Liquid Gold, Floor Restore, Prell, Biz, Alpha Skin Care, Denorex, Zincon, and Neoteric Diabetic brands to reduce debt and generate cash;
the evaluation by the Board of Directors of (1) the possibility of liquidating the Company and the amount that the Company’s shareholders would receive upon liquidation, (2) the possibility of the Company continuing its operations using only the Company’s pet care brands, and (3) a different strategic transaction or potential recapitalization, and determination that all such alternatives were less favorable to our shareholders than the Merger given the potential risks, rewards and uncertainties associated with those alternatives;
the fact that Horizon Kinetics and the members of the Board of Directors share similar philosophies and approaches to investment and value creation;
the following factors related to Horizon Kinetics and its business:
o
Horizon Kinetics’ financial performance over time;
o
Horizon Kinetics’ greater scale; and
o
Horizon Kinetics’ strong balance sheet.
the historical market prices of our Common Stock;
the expectation that the Merger will significantly strengthen the Company’s financial liquidity and cash flow;
the expectation that a Merger will allow the Company’s shareholders to own shares in a combined company that will have significantly larger market capitalization, with the following associated benefits, each of which could offer the opportunity of increased liquidity for the Company’s shares of Common Stock following the completion of the Merger:
o
The combined company will have a stronger balance sheet compared to the Company on a stand-alone basis, with more working capital than the Company on a stand-alone basis;
o
The potential of the combined company to receive greater interest from institutional investors; and
o
The potential ease of attracting talent by being a larger public reporting entity.

 


 

the belief there are attractive opportunities in the asset management industry where Horizon Kinetics has successfully grown their presence over an extended period of time, and the Board of Directors’ view that those opportunities should be available to the Company’s shareholders.

At the Special Meeting, shareholders of the Company will be asked to consider and vote on the following proposals:

1.
To effect a reverse stock split of the Company’s outstanding shares of Common Stock, at a ratio of 1-for-20 (the “Reverse Stock Split Proposal”);
2.
To (i) approve the reincorporation of the Company in the state of Delaware and (ii) change the name of the Company to “Horizon Kinetics Holding Corporation” (the “Reincorporation Proposal”); and
3.
To approve any adjournment of the Special Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals (the “Adjournment Proposal”).

For the Merger to be consummated, shareholders must approve both the Reverse Stock Split Proposal and the Reincorporation Proposal. If neither of such proposals is approved, or only one of such proposals is approved, the Merger cannot be completed.

The Company’s Common Stock is currently traded on the OTC Pink Market tier of OTC Markets under the symbol “SLGD.” On May 10, 2024, the closing price of the Company’s Common Stock on the OTC Pink Market tier of OTC Markets was $0.89 per share. There is no public market for Horizon Kinetics’ securities.

The obligations of the Company and Horizon Kinetics to complete the Merger are subject to the satisfaction or waiver of several conditions, including shareholder approval of the Reverse Stock Split Proposal and the Reincorporation Proposal. If neither of such proposals is approved, or only one of such proposals is approved, the Merger cannot be completed. A vote in favor of the Reverse Stock Split Proposal and the Reincorporation Proposal is, in effect, a vote in favor of the Merger.

This proxy statement contains detailed information about the Company, Horizon Kinetics, the Special Meeting, the Merger Agreement and the Merger. Shareholders are strongly urged to read and consider carefully this proxy statement in its entirety.

See the section entitled “Risk Factors” beginning on page 18 for a discussion of the risks associated with the Merger and related transactions.

The Company’s Board of Directors has fixed the close of business on May 7, 2024 as the record date for determination of shareholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof. Only the Company’s shareholders of record at the close of business on the record date are entitled to receive notice of the Special Meeting, attend the Special Meeting and vote on all matters that properly come before the Special Meeting.

This proxy statement and the accompanying form of proxy for the Company’s shareholders are first being mailed or delivered to the Company’s shareholders on or about May 15, 2024.

ADDITIONAL INFORMATION

This proxy statement incorporates important business and financial information about the Company from other documents that are not included in or delivered with this proxy statement. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this proxy statement free of charge by requesting them in writing or by telephone from the Company at 720 S. Colorado Blvd, PH N, Denver, Colorado, 80246, Attention: President, or (303) 576-6027.

For a more detailed description of the information incorporated by reference in this proxy statement and how you may obtain it, see “Where You Can Find More Information” beginning on page 95.

 


 

ABOUT THIS PROXY STATEMENT

This proxy statement constitutes a proxy statement for the Company under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the Special Meeting of the Company’s shareholders.

You should rely only on the information contained in or incorporated by reference into this proxy statement. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement. This proxy statement is dated May 13, 2024. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of the incorporated document. Our mailing of this proxy statement to the Company’s shareholders will not create any implication to the contrary.

This proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation.

 


 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

 

4

SUMMARY

 

10

The Companies (See page 68)

 

10

The Merger and the Merger Agreement (see pages 68 and 84)

 

12

Merger Consideration (see page 84)

 

12

Special Meeting of the Company’s Shareholders

 

13

Reasons for Entering into the Merger (see page 73)

 

13

Recommendation of the Company’s Board of Directors (see pages 50, 67 and 94)

 

14

Board and Executive Officers of the Combined Company (see pages 77 and 79)

 

14

Interests and Voting Power of Directors, Executive Officers and their Affiliates (see pages 77 and 79)

 

14

Ownership of Combined Company (see page 79)

 

14

Expected Timing of the Merger

 

15

Representations, Warranties and Covenants in the Merger Agreement (see page 85)

 

15

Restrictions on Soliciting Other Transactions (see page 87)

 

15

Conditions to Completion of the Merger (see page 91)

 

15

Termination of the Merger Agreement (see page 92)

 

15

Risk Factors (see page 18)

 

15

Accounting Treatment (see page 93)

 

15

Certain Material U.S. Federal Income Tax Considerations (see page 93)

 

16

No Dissenters’ Rights of Appraisal (see page 94)

 

16

Market Price and Dividend Information

 

16

Regulatory Approvals

 

16

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

17

RISK FACTORS

 

18

Risks Relating to the Merger

 

18

Risks Relating to the Reverse Stock Split

 

23

Risks Relating to Horizon Kinetics’ Business and Industry

 

24

Regulatory and Litigation Risk

 

27

General Risk Factors

 

29

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

31

HORIZON KINETICS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

36

Overview

 

36

Horizon Kinetics' Primary Sources of Revenue

 

36

Business Highlights in 2023

 

37

Results of Operations

 

37

Contractual Cash Obligations and Other Commercial Commitments

 

40

THE SPECIAL MEETING

 

42

PROPOSAL 1 – APPROVAL OF A REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK

 

45

PROPOSAL 2 – APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM THE STATE OF COLORADO TO THE STATE OF DELAWARE AND NAME CHANGE

 

51

Purpose of Reincorporation and Name Change

 

51

Anti-Takeover Effect

 

52

The Plan of Conversion

 

52

Comparison of the Company’s Shareholders’ Rights Before and After the Reincorporation

 

53

Certain Federal Income Tax Consequences of Reincorporation

 

66

THE MERGER

 

68

The Companies

 

68

Effects of the Merger

 

72

Reasons for Entering into the Merger

 

73

Background of the Merger

 

74

Interests of the Company’s Directors and Executive Officers in the Merger

 

77

Board of Directors of the Combined Company

 

77

Executive Officers of the Combined Company

 

79

Ownership of the Company Pre- and Post-Merger

 

79

THE MERGER AGREEMENT

 

84

General

 

84

Merger Consideration

 

84

Payment and Exchange Procedures for Horizon Kinetics Security Holders

 

85

Representations and Warranties

 

85

 


 

Material Adverse Effect

 

86

Conduct of Business Prior to the Effective Time of the Merger

 

86

No Solicitation

 

87

Special Meeting of Shareholders

 

89

Change in Board Recommendation

 

89

Stock Trading

 

90

Public Announcements

 

90

Notification of Certain Events

 

90

Indemnification

 

90

Tax Treatment

 

91

Employee Matters

 

91

Reincorporation in Delaware

 

91

Other Covenants

 

91

Conditions to Completion of the Merger

 

91

Termination of the Merger Agreement

 

92

Fees and Expenses

 

92

Amendment and Waiver

 

93

Certain Material U.S. Federal Income Tax Considerations

 

93

Accounting Treatment of the Merger

 

93

PROPOSAL 3 – ADJOURNMENT OF THE SPECIAL MEETING

 

94

NO DISSENTERS’ RIGHTS OF APPRAISAL

 

94

SHAREHOLDER PROPOSALS

 

94

OTHER MATTERS PRESENTED AT THE SPECIAL MEETING

 

94

HOUSEHOLDING

 

94

WHERE YOU CAN FIND MORE INFORMATION

 

95

HORIZON KINETICS LLC HISTORICAL FINANCIAL STATEMENTS

 

F-1

 

ANNEX A

 

AGREEMENT AND PLAN OF MERGER, AS AMENDED

ANNEX B

 

PLAN OF CONVERSION

ANNEX C

 

CERTIFICATE OF CONVERSION

ANNEX D

 

FORM OF DELAWARE CERTIFICATE OF INCORPORATION

ANNEX E

 

FORM OF DELAWARE BYLAWS

ANNEX F

 

MERGER CERTIFICATE

 

 


 

SCOTT’S LIQUID GOLD-INC.

720 S. Colorado Blvd, PH N

Denver, Colorado, 80246

QUESTIONS AND ANSWERS ABOUT THE MERGER

AND THE SPECIAL MEETING

The following are some questions that you, as a shareholder of the Company, may have regarding the Merger and the Company’s Special Meeting and brief answers to those questions. We urge you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the Merger and the Special Meeting. Additional important information is also contained in the Annexes to and the documents incorporated by reference into this proxy statement.

Q: Why am I receiving these materials?

A: The Company and Horizon Kinetics have agreed to the acquisition of Horizon Kinetics by the Company under the terms of the Merger Agreement, which is described in further detail under the caption “The Merger Agreement” beginning on page 84 of this proxy statement. In order to complete the Merger, the Company’s shareholders must approve a reverse stock split of the Company’s outstanding shares of Common Stock at a ratio of 1-for-20, as further described in the Reverse Stock Split Proposal, and the reincorporation of the Company in Delaware and a name change, as further described in the Reincorporation Proposal. The Company will hold its Special Meeting to seek this approval. These materials describe the Merger, the Reverse Stock Split Proposal and the Reincorporation Proposal, and are being sent to the Company’s shareholders in connection with the Special Meeting. This document is not a proxy statement or information statement of Horizon Kinetics in connection with any matter upon which Horizon Kinetics may solicit proxies or consents from its security holders.

This document contains important information about the Merger, the Special Meeting, the matters to be considered and voted upon by the Company’s shareholders at the Special Meeting and information about the Company and Horizon Kinetics. You should read it carefully.

Q: What is the Merger?

A: The Merger is the proposed transaction through which the Company and Horizon Kinetics will combine the two companies. The Merger will be accomplished under an Agreement and Plan of Merger dated December 19, 2023, and amended on May 10, 2024, by and among the Company, Merger Sub and Horizon Kinetics. Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with and into Horizon Kinetics, with Horizon Kinetics being the surviving entity. A copy of the Merger Agreement is attached to this proxy statement as Annex A.

Q: Why are the Company and Horizon Kinetics proposing the Merger?

A: The Company and Horizon Kinetics are proposing the Merger because the Company believes that the Merger is a superior path forward for the Company compared to a number of other paths that were considered, including (1) the possibility of liquidating the Company, (2) the possibility of the Company continuing its operations using only the Company’s pet care brands, and (3) a different strategic transaction or potential recapitalization. The Company believes that the Merger will increase its market capitalization, total assets, total shareholder equity, revenue, and profitability.

Q: What is the value of the Merger consideration?

A: The consideration payable to holders of Horizon Kinetics’ membership interests in the Merger, to which we also refer as the “Merger Consideration,” equals an aggregate number of shares of the Company’s Common Stock equal to (a) the sum of (i) Horizon Kinetics’ net tangible assets plus (ii) the value of the Horizon Kinetics operating business, (b) divided by 25, subject to a maximum number of shares as provided in the Merger Agreement. Under the Merger Agreement, the value of the Horizon Kinetics operating business is (x) stipulated to be $200 million if and only if Horizon Kinetics’ regulatory assets under management, to which we also refer as “AUM,” are between $6 billion and $8 billion, and (y) otherwise calculated by multiplying AUM by a factor of 0.03.

We currently expect our legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing. When you vote on the proposals in this proxy statement, you will not know what percentage of the combined company your shares will ultimately represent.

 

4


 

Because Horizon Kinetics is a private company, there is no public trading market for its securities and no market price that may be used in valuing its securities. As a result, Horizon Kinetics’ value is difficult to determine. The formula for the calculation of the number of shares to be issued to Horizon Kinetics security holders as part of the Merger Consideration was determined based on negotiations between the parties, and it may not be indicative of Horizon Kinetics’ actual value. Therefore, the Merger Consideration that security holders of Horizon Kinetics receive may be higher or lower than would be the case if it were possible to determine Horizon Kinetics’ true value. If higher, then the Merger would have the effect of diluting the value of the shares held by the current shareholders of the Company.

In agreeing to the above formula for the calculation of the Merger Consideration, the Board of Directors of the Company did not obtain a fairness opinion or other valuation of either the Company or Horizon Kinetics, and such formula was arbitrarily determined. The Board of Directors considered the advisability and practicality of engaging a financial advisor to obtain either a fairness opinion or an independent valuation, and decided not to do so because of (1) the fact that Horizon Kinetics’ assets are primarily marked-to-market, with significant short-term fluctuations, significantly curtailing the potential benefit of such an opinion or valuation, (2) the absence of any apparent conflict of interest in the contemplated Merger between the members of the Board of Directors, on the one hand, and the Company’s shareholders, on the other hand, (3) the absence of a pre-existing relationship between members of the Board of Directors and Horizon Kinetics or its affiliates, and (4) the cost of obtaining such opinion or valuation in relation to the expected value of the Company’s shareholder’s equity at closing of the Merger.

Q: What will each Horizon Kinetics security holder receive in the Merger?

A: Each member of Horizon Kinetics will receive its pro rata share of the Merger Consideration, calculated in accordance with Horizon Kinetics’ operating agreement.

Q: What are the Company’s shareholders being asked to vote upon in connection with the Special Meeting?

A: The Company’s shareholders will be asked to consider and to vote upon three proposals in connection with the Special Meeting:

The Reverse Stock Split Proposal;
The Reincorporation Proposal; and
The Adjournment Proposal.

 

No separate approval of the Merger Agreement or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon the Merger Agreement or the Merger. However, if either the Reverse Stock Split Proposal or the Reincorporation Proposal is not approved, the Company will not be able to consummate the Merger. A vote in favor of the Reverse Stock Split Proposal and the Reincorporation Proposal is, in effect, a vote in favor of the Merger.

Q: What vote of the Company’s shareholders is required to approve each of the proposals?

A: Proposal No. 1 - Reverse Stock Split Proposal: To approve this proposal, the votes cast “FOR” the proposal must exceed the votes cast “AGAINST” the proposal.

Proposal No. 2 - Reincorporation Proposal: To approve this proposal, the votes cast “FOR” the proposal must exceed the votes cast “AGAINST” the proposal.

Proposal No. 3 - Adjournment Proposal: To approve this proposal, the votes cast “FOR” the proposal must exceed the votes cast “AGAINST” the proposal. If the adjournment is proposed because a quorum is absent, then a majority of the votes present in person (virtually) or represented by proxy and entitled to vote may adjourn as provided in the Bylaws.

Q: How does the Company’s Board of Directors recommend that the Company’s shareholders vote with respect to the proposals?

A: Our Board of Directors recommends that the Company’s shareholders vote “FOR” the Reverse Stock Split Proposal, “FOR” the Reincorporation Proposal, and “FOR” the Adjournment Proposal if necessary.

Q: What happens if the Reverse Stock Split Proposal is not approved?

A: If the Reverse Stock Split Proposal is not approved, the Merger cannot be completed because approval of the Reverse Stock Proposal is a condition to the closing of the Merger and the Company will not have a sufficient number of authorized shares of

 

5


 

Common Stock to issue to Horizon Kinetics security holders as consideration in the Merger. See the section entitled “Effects of Reverse Stock Split” beginning on page 46 for a discussion of the effects of the Reverse Stock Split Proposal.

Q: What happens if the Reincorporation Proposal is not approved?

A: If the Reincorporation Proposal is not approved, the Merger cannot be completed because approval of the Reincorporation Proposal is a condition to the closing of the Merger. In that case, the Company (a) will remain a Colorado corporation and subject to Colorado law and its existing Articles of Incorporation (the “Articles of Incorporation”) and Bylaws (the "Bylaws") and (b) its name will not change. See the section entitled “Effects of Reincorporation and Name Change” beginning on page 52 for a discussion of the effects of the Reincorporation Proposal.

Q: What happens to the Board of Directors if the Company consummates the Merger?

A: If the Merger is completed, the Company is obligated to expand its Board of Directors to seven members, with all but one of its existing directors resigning, and the remaining seats filled by candidates selected by Horizon Kinetics. The Company expects that its current director Daniel J. Roller will continue to serve on the Board of the combined company. Horizon Kinetics expects that its candidates for the Board of the combined company will be Murray Stahl, Steven Bregman, Peter Doyle, Alice Brennan, Allison Nagelberg and Brent Rosenthal. See the biographies on page 77.

Q: What is required to complete the Merger?

A: Important conditions to the completion of the Merger include:

the Company shareholder approval of the Reverse Stock Split Proposal and the Reincorporation Proposal; and
satisfaction or waiver of all of the other conditions to completion of the Merger. For a description of these conditions, see the section entitled “The Merger Agreement” beginning on page 84.

 

Q: Could the Company’s stock price affect the closing of the Merger or the Merger Consideration?

A: No.

Q: When do the Company and Horizon Kinetics expect to complete the Merger?

A: The Company and Horizon Kinetics currently expect to complete the Merger in the first half of July 2024. Completion of the Merger will only be possible, however, after all conditions to the completion of the Merger contained in the Merger Agreement are satisfied or waived, including shareholder approval of the Reverse Stock Split Proposal and the Reincorporation Proposal. It is possible that factors outside of either company’s control could require them to complete the Merger at a later time or not complete it at all.

Q: What are the United States federal income tax consequences of the Merger?

A: The Merger is intended to qualify as a tax-deferred exchange of Horizon Kinetics’ membership interests for the Company’s Common Stock under Section 351(a) of the Internal Revenue Code of 1986, as amended (the “Code”). See page 93 for a further description of the certain material U.S. Federal income tax considerations relating to the Merger.

Q: What effect will the Merger have on the Company’s shareholders?

A: The Company’s shareholders will continue to hold a number of shares of the Company’s Common Stock after the Merger equal to the number of shares they held immediately prior to the Merger, divided by 20 (with fractional shares being cash out in the Reverse Stock Split). The issuance of shares of the Company’s Common Stock to Horizon Kinetics security holders in connection with the Merger will dilute the ownership of the Company’s existing shareholders.

The Company currently expects its legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing.

For a discussion of the effect on the ownership of the Company’s shareholders, please see the section of this proxy statement entitled “Ownership of the Company Pre- and Post-Merger” beginning on page 79.

 

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Q: Are there risks that the Company’s shareholders should consider?

A: Yes. You should carefully review the section entitled “Risk Factors” beginning on page 18 of this proxy statement, which discusses risks and uncertainties related to the Merger, the combined companies and the business and operations of Horizon Kinetics. In addition, you are encouraged to read the Company’s publicly filed documents incorporated by reference into this proxy statement.

Q: When and where will the Special Meeting take place?

A: The Special Meeting will be held virtually at www.virtualshareholdermeeting.com/SLGD2024SM on June 20, 2024 at 2:00 p.m., Eastern Time.

Q: Who may attend and vote at the Special Meeting?

A: All the Company’s shareholders of record as of the close of business on May 7, 2024 may vote at the Special Meeting. Each Company shareholder is entitled to one vote for each share of the Company’s Common Stock owned as of that record date.

Shareholder of Record – If your shares of the Company’s Common Stock are registered directly in your name with the transfer agent, you are the shareholder of record with respect to those shares, and the proxy statement and the Company’s proxy card are being sent directly to you. If you are a shareholder of record, you may attend the Special Meeting and vote your shares virtually. Please refer to “How do I attend the Special Meeting?” and “How do I participate in and vote at the Special Meeting?” below. However, even if you plan to attend the Special Meeting virtually, please sign and return the enclosed proxy card or vote your shares by telephone or via the Internet to ensure that your shares will be represented at the Special Meeting if you are unable to attend.
Beneficial Owner – If your shares of Common Stock are held in a brokerage account or by another nominee, then you are considered the beneficial owner of shares that are held in “street name,” and the proxy statement is being forwarded to you by your broker or other nominee together with a voting instruction form for you to return to your broker or other nominee to direct them to vote on your behalf. As the beneficial owner, you are also invited to attend the Special Meeting. However, because a beneficial owner is not the shareholder of record, you may not vote these shares virtually at the Special Meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the Special Meeting. Please refer to “How do I attend the Special Meeting?” and “How do I participate in and vote at the Special Meeting?” below.

Q: How do I attend the Special Meeting?

The Special Meeting will only be held virtually. Broadridge Financial Solutions, Inc. (“Broadridge”) is hosting the webcast of the Special Meeting. In order to attend the virtual Special Meeting, vote during the Special Meeting and submit questions, please log into the meeting platform at: www.virtualshareholdermeeting.com/SLGD2024SM. You will be prompted to enter the 16-digit control number included on your proxy card or on the instructions that accompanied your proxy materials. Beneficial owners who hold their shares in “street name” will need to follow the instructions provided by the broker, bank or other nominee that holds their shares.

Shareholders may submit live questions on the conference line while attending the virtual Special Meeting.

Q: What if I have technical difficulties or trouble accessing the virtual Special Meeting?

Broadridge will have technicians ready to assist you with any technical difficulties you may have in accessing the virtual Special Meeting. If you encounter any difficulties accessing the virtual meeting during check-in or the meeting, please call Broadridge’s technical support number that will be posted on the virtual meeting platform log-in page.

Q: How do I participate in and vote at the Special Meeting?

If you are a record holder, you can participate and vote your shares in the Special Meeting by visiting www.virtualshareholdermeeting.com/SLGD2024SM and entering the 16-digit control number included on your proxy card.

If you are a beneficial owner of shares held in “street name,” you will need to follow the instructions provided by the broker, bank or other nominee that holds their shares.

Even if you plan to attend the Special Meeting, we recommend that you also vote by proxy as described below so that your vote will be counted if you later decide not to participate in the Special Meeting.

 

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Q: How do I vote without participating in the Special Meeting?

Record holders may vote without participating in the Special Meeting by any of the following means:

By Internet – Shareholders of record with Internet access may direct how their shares are voted by following the “Vote by Internet” instructions on the proxy card until 11:59 p.m. Eastern Time, on June 19, 2024 (have your 16-digit control number, which can be found on your proxy card or on the instructions that accompanied your proxy materials, in hand when you access the website). If you are a Beneficial Owner, please check the voting instructions in the voting instruction card provided by your broker, bank or other intermediary for Internet voting availability.
By telephone – Shareholders of record who live in the United States or Canada may submit proxies by telephone by following the “Vote by Phone” instructions on the proxy card until 11:59 p.m. Eastern Time, on June 19, 2024. If you are a Beneficial Owner, please check the voting instructions in the voting instruction card provided by your broker, bank or other intermediary for telephone voting availability.
By mail – If you elect to vote by mail, please complete, sign and date the proxy card where indicated and return to Vote Processing, C/O Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Proxy cards submitted by mail must be received before the start of the Special Meeting in order for your shares to be voted. If you are a Beneficial Owner, you may vote by mail by following the instructions for voting by mail in the voting instruction card provided by your broker, bank or other intermediary.

* If you vote by Internet or telephone, please do not mail your proxy card.

Whether or not you plan to attend the Special Meeting, we encourage you to vote by proxy as soon as possible. In order to be counted, proxies submitted by Internet or telephone must be received by 11:59 p.m. Eastern Time on June 19, 2024. Because of possible delays with the mail, we recommend you use the Internet or telephone to vote.

Q: What happens if I do not return my proxy card or if I abstain from voting?

A: If you fail to send in a proxy card or vote at the Special Meeting or if your shares are held in “street name” and you fail to instruct your broker how to vote your shares, your shares will not be counted as “present” for the purpose of determining the presence of a quorum, which is required to transact business at the Special Meeting.

When a quorum is present, if you fail to send in your proxy card or fail to instruct your broker how to vote (resulting in a “broker non-vote”), this will have no impact on the vote for any of the proposals.

An abstention occurs when a shareholder attends a meeting, either in person (virtually) or by proxy, but specifically indicates an abstention from voting on one or more of the proposals. If you submit a proxy card or provide proxy instructions to your broker or other nominee and affirmatively elect to abstain from voting, your proxy will be counted as “present” for the purpose of determining the presence of a quorum for the Special Meeting, but will not be voted at the Special Meeting. However, your abstention will have no impact on the vote for any of the proposals.

If you do not hold your shares in “street name” and you do not include any instructions on a properly executed proxy form, your shares will be voted “FOR” the Reverse Stock Split Proposal, “FOR” the Reincorporation Proposal, and “FOR” the Adjournment Proposal if necessary.

Q: May I revoke or change my vote after I have sent in my proxy card or provide proxy instructions to my broker?

A: Yes. If you are a holder of record of the Company’s shares, you may change your vote at any time before your proxy is voted at the Special Meeting by:

delivering a signed written notice of revocation to the Corporate Secretary of the Company at the Company’s address set forth above;
signing and delivering a new, valid proxy bearing a later date; or
attending the Special Meeting and voting virtually, although your attendance alone will not revoke your proxy.

If your shares are held in a “street name” you must contact your broker or other nominee to change your vote.

 

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Q: Do I have dissenters’ or appraisal rights in connection with any of the proposals?

A: No. There are no dissenters’ rights, appraisal rights or similar rights available to the Company’s shareholders in connection with any of the proposals or the Merger.

Q: Who is paying for the Company’s proxy solicitation?

A: The Company will bear the cost of soliciting proxies for the Special Meeting. The Company’s directors, officers and employees may solicit proxies by telephone and facsimile, by mail, over the Internet or in person. They will not be paid any additional amounts for soliciting proxies. The Company also will request that banks, brokerage firms, custodians, trustees, nominees, fiduciaries and other similar record holders forward the solicitation materials to the beneficial owners of Common Stock held of record by such person, and the Company will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.

Q: What should I do if I receive more than one set of voting materials for the Special Meeting?

A: You may receive more than one set of voting materials for the Special Meeting, including multiple copies of this proxy statement and multiple proxy cards or voting instruction form. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record of the Company’s Common Stock and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction form that you receive.

Q: Whom should I contact if I have any questions?

A: You can call the Company's President, David Arndt, at investorrelations@slginc.com or (303) 576-6027 Monday through Friday between the hours of 9:30 and 4:00 Mountain time with any questions.

 

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SUMMARY

This summary highlights certain information contained elsewhere in this proxy statement and may not contain all the information that is important to you. To better understand the Merger and the matters to be considered and voted upon at the Special Meeting, you should read this proxy statement carefully, including the attached Annexes, and the other documents to which we have referred you. In addition, you should read the information the Company has incorporated by reference into this proxy statement, which includes important information about the Company that has been filed with the Securities and Exchange Commission (the “SEC”). See the section entitled “Where You Can Find More Information” beginning on page 95, which describes how you may obtain the information incorporated by reference into this proxy statement without charge. We have included page references in this summary to direct you to a more complete description of the topics presented below.

In this proxy statement “the Company,” “we,” “us,” and “our” refers to Scott’s Liquid Gold-Inc. and where appropriate, its subsidiaries, “Horizon Kinetics” refers to Horizon Kinetics LLC, and where appropriate, its subsidiaries, and “Merger Sub” refers to HKNY ONE, LLC. In addition, the “Merger” refers to the proposed merger of Merger Sub with and into Horizon Kinetics, with Horizon Kinetics being the surviving entity, and “Merger Agreement” refers to the Agreement and Plan of Merger, dated as of December 19, 2023, by and among the Company, Merger Sub and Horizon Kinetics, as amended by the First Amendment to Agreement and Plan of Merger thereto, dated as of May 10, 2024. When this proxy statement refers to the “combined company,” it means the Company and Horizon Kinetics and their respective subsidiaries, collectively, after completion of the Merger.

The Companies (See page 68)

Scott’s Liquid Gold-Inc.

Overview

Scott’s Liquid Gold-Inc. exists to positively impact consumers’ lives in the markets we serve and create shareholder value. We develop, market, and sell high-quality products to mass merchandisers, drugstores, supermarkets, hardware stores, e-commerce retailers, other retail outlets, and to wholesale distributors. Our long history has generated strong consumer and customer loyalty for our brands.

On an ongoing basis, management focuses on a variety of key indicators to monitor our business health and performance. These key indicators include (but are not limited to) the following:

Net sales (collectively and by operating segment);
Profitability, focusing on gross margins and net income; and
Cash flow.

To achieve our business and financial objectives, we focus on initiatives to drive the growth of the key indicators above. Our ability to drive and generate growth depends on consumer demand for our products and retail customers’ willingness to carry our products in a competitive marketplace. In this environment, we intend to continue to focus on our key indicators to remain competitive, sustain our current level of operations, and drive further growth in future periods.

During 2023, the Company achieved objectives focused on optimization, cost reduction, and modernization of our business. These included (but were not limited to) the following:

Selling assets with low margins or limited future growth potential to optimize our product portfolio;
Paying off debt and improving cash flows from operations through optimization of cost structure; and
Restructuring and consolidating business departments to facilitate greater cross-functional teamwork and workplace efficiency.

Outlook

Looking forward, we are focused on both short- and long-term strategies that we believe will enhance our financial health and deliver shareholder value. The Company entered into the Merger Agreement with the purpose of creating meaningful shareholder value for all shareholders of the combined entity.

 

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While the marketplace for household products has always been highly competitive, we expect that the category challenges and the level of competition will continue to rise. We believe that some of the trends in our business and industry could adversely affect our profitability, including the following:

Changes in national and international regulations;
Changes in policies or practices of some of our key retail customers;
Rapid growth of e-commerce and alternative retail channels; and
Inflationary impacts to the costs of products, transportation, and labor associated with our logistics and warehousing partners.

Divestitures

On September 15, 2023, we entered into and consummated a Stock Purchase Agreement with Neoteric Beauty Holdings, LLC (the “Neoteric Buyer”), pursuant to which the Company agreed to sell 100% of the outstanding stock of our wholly-owned subsidiary Neoteric Cosmetics, Inc. (“Neoteric”) to the Neoteric Buyer. Neoteric owned and operated the Denorex®, Zincon®, and Neoteric Diabetic Skin Care® brands. We have reflected the operations of the Neoteric brands as discontinued operations for all periods presented. The Neoteric brands were previously classified under our health and beauty care products segment.
Effective June 30, 2023, we entered into, and in July 2023 we closed, a purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title, and interest in and to certain assets of the Alpha® Skin Care brand. The Alpha product line was previously classified under our health and beauty care products segment.
Effective June 30, 2023, we entered into, and in July 2023 closed, a purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title, and interest in and to certain assets of the of the BIZ® brand. The BIZ® product line was previously classified under our household products segment.
On January 23, 2023, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title, and interest in and to certain assets of the Scott’s Liquid Gold® brand, including the Wood Care and Floor Restore products. We have reflected the operations of the Scott’s Liquid Gold® brand as discontinued operations for all periods presented, which was previously classified under our household products segment.
On December 15, 2022, we entered into an asset purchase agreement with a buyer, pursuant to which we agreed to sell all of our right, title, and interest in and to certain assets of the Prell® product line. We have reflected the operations the Prell® product line as discontinued operations for all periods presented, which was previously classified under our household products segment.

Our Common Stock is currently traded on the OTC Pink Market tier of OTC Markets under the symbol “SLGD.”

The principal executive offices of the Company are located at 720 S. Colorado Blvd, PH N, Denver, Colorado, 80246, and its telephone number is (303) 576-6027.

For more information on the Company, see the reports and other information the Company files with the SEC, including its annual report on Form 10-K for the year ended December 31, 2023. These filings may be viewed on the Internet at www.sec.gov. Additional information about the Company is included in the documents incorporated by reference in this proxy statement. See “Where You Can Find More Information” beginning on page 95.

HKNY ONE, LLC

Merger Sub is a wholly-owned subsidiary of the Company and was formed in Delaware on December 5, 2023, solely for the purpose of facilitating the Merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the Merger Agreement.

Horizon Kinetics LLC

Horizon Asset Management, Inc. was originally formed in 1994 (“Horizon”). Certain principals of Horizon later formed Kinetics Asset Management LLC (“Kinetics”) in 1996. In 2011, Horizon merged with Kinetics and other related entities to form Horizon Kinetics Asset Management LLC (“HKAM”), a wholly-owned subsidiary of Horizon Kinetics LLC.

 

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Horizon Kinetics is an investment advisory and independent research firm. Horizon Kinetics is a fundamental value, contrarian-oriented investment advisor. It was founded on the belief that a short-term investment approach, widely adopted with the modernization of financial markets, ultimately produces sub-optimal returns. Horizon Kinetics believes that investors are better served not by taking more risk, but by extending their investment time horizon, which affords far wider ranges of opportunity and valuation than are available to time-constrained investors.

Horizon Kinetics, through its wholly-owned registered investment adviser, is an independent asset manager with AUM of approximately $6.5 billion as of December 31, 2023. Horizon Kinetics strategies are offered through third-party investment products, including mutual funds, third-party exchange-traded funds (“ETFs”), institutional and retail separate accounts and other private funds or other investment vehicles.

Its principal executive offices are located at 470 Park Avenue South, New York, New York 10016, and its telephone number is (646) 495-7330. Its website is www.horizonkinetics.com. The contents of Horizon Kinetics’ website are not incorporated by reference in this proxy statement.

Horizon Kinetics is a private company and therefore has no established trading market for its membership interests.

The Merger and the Merger Agreement (see pages 68 and 84)

The Merger will be accomplished pursuant to the Merger Agreement. Pursuant to the terms of the Merger Agreement, Merger Sub will be merged with and into Horizon Kinetics, with Horizon Kinetics being the surviving entity.

A copy of the Merger Agreement is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. The Company encourages you to read the entire Merger Agreement carefully because it is the principal document governing the Merger.

Merger Consideration (see page 84)

The consideration payable to holders of Horizon Kinetics’ membership interests in the Merger, to which we also refer as the “Merger Consideration,” equals an aggregate number of shares of the Company’s Common Stock equal to (a) the sum of (i) Horizon Kinetics’ net tangible assets plus (ii) the value of the Horizon Kinetics operating business, (b) divided by 25, subject to a maximum number of shares as provided in the Merger Agreement. Under the Merger Agreement, the value of the Horizon Kinetics operating business is (x) stipulated to be $200 million if and only if Horizon Kinetics’ AUM is between $6 billion and $8 billion, and (y) otherwise calculated by multiplying AUM by a factor of 0.03.

We currently expect our legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing. When you vote on the proposals in this proxy statement, you will not know what percentage of the combined company your shares will ultimately represent.

Because Horizon Kinetics is a private company, there is no public trading market for its securities and no market price that may be used in valuing its securities. As a result, Horizon Kinetics’ value is difficult to determine. The formula for the calculation of the number of shares to be issued to Horizon Kinetics security holders as part of the Merger Consideration was determined based on negotiations between the parties, and it may not be indicative of Horizon Kinetics’ actual value. Therefore, the Merger Consideration that security holders of Horizon Kinetics receive may be higher or lower than would be the case if it were possible to determine Horizon Kinetics’ true value. If higher, then the Merger would have the effect of diluting the value of the shares held by the current shareholders of the Company.

In agreeing to the above formula for the calculation of the Merger Consideration, the Board of Directors did not obtain a fairness opinion or other valuation of either the Company or Horizon Kinetics, and such formula was arbitrarily determined. The Board of Directors considered the advisability and practicality of engaging a financial advisor to obtain either a fairness opinion or an independent valuation, and decided not to do so because of (1) the fact that Horizon Kinetics’ assets are primarily marked-to-market, with significant short-term fluctuations, significantly curtailing the potential benefit of such an opinion or valuation, (2) the absence of any apparent conflict of interest in the contemplated Merger between the members of the Board of Directors, on the one hand, and the Company’s shareholders, on the other hand, (3) the absence of a pre-existing relationship between members of the Board of Directors and Horizon Kinetics or its affiliates, and (4) the cost of obtaining such opinion or valuation in relation to the expected value of the Company’s shareholder’s equity at closing of the Merger.

 

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Special Meeting of the Company’s Shareholders (see page 42)

The Special Meeting of the Company’s shareholders will be held virtually at www.virtualshareholdermeeting.com/SLGD2024SM on June 20, 2024 at 2:00 p.m., Eastern Time. All the Company’s shareholders of record as of the close of business on May 7, 2024 may vote at the Special Meeting. Each shareholder is entitled to one vote for each share of the Company’s Common Stock owned as of that record date.

At the Special Meeting, the Company shareholders will be asked to consider and to vote upon four proposals:

To effect a reverse stock split of the Company’s outstanding shares of Common Stock, at a ratio of 1-for-20 as set forth in the Reverse Stock Split Proposal;
To (i) approve the reincorporation of the Company in the state of Delaware as set forth in the Reincorporation Proposal and (ii) change the name of the Company to “Horizon Kinetics Holding Corporation” as set forth in the Reincorporation Proposal; and
To approve any adjournment of the Special Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals as set forth in the Adjournment Proposal.

No separate approval of the Merger Agreement or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon the Merger Agreement or the Merger. However, if either the Reverse Stock Split Proposal or the Reincorporation Proposal is not approved, the Merger will not be completed. A vote in favor of the Reverse Stock Split Proposal and the Reincorporation Proposal will, in effect, be a vote in favor of the Merger.

Reasons for Entering into the Merger (see page 73)

In evaluating the Merger, including the issuance of the shares of the Company’s Common Stock in connection with the Merger, the Company’s Board of Directors consulted with the Company’s management, and, in reaching its decision to recommend the issuance of shares of our Common Stock in connection with the Merger and approving the Merger, the Board of Directors considered a number of factors including the following:

the fact that the Board of Directors had periodically discussed and reviewed the Company’s business, strategic direction, performance and prospects, and had periodically reviewed and discussed with management potential strategic alternatives and opportunities with a view towards enhancing shareholder value;
the fact that the Company has acquired and sold a number of brands over the past decade, giving members of the Board of Directors and management frequent opportunity to discuss potential acquisitions and divestitures with other industry participants;
regular reviews by the Board of Directors and management over the course of 2021, 2022, and 2023 of the Company’s portfolio of brands, performance, and financial position, and a resulting determination by the Board of Directors to sell, over the same time period, the Dryel, Scott’s Liquid Gold, Floor Restore, Prell, Biz, Alpha Skin Care, Denorex, Zincon, and Neoteric Diabetic brands to reduce debt and generate cash;
the evaluation by the Board of Directors of (1) the possibility of liquidating the Company and the amount that the Company’s shareholders would receive upon liquidation, (2) the possibility of the Company continuing its operations using only the Company’s pet care brands; and (3) a different strategic transaction or potential recapitalization, and determination that all such alternatives were less favorable to our shareholders than the Merger given the potential risks, rewards and uncertainties associated with those alternatives;
the fact that Horizon Kinetics and the members of the Board of Directors share similar philosophies and approaches to investment and value creation;
the following factors related to Horizon Kinetics and its business:
o
Horizon Kinetics’ financial performance over time;
o
Horizon Kinetics’ greater scale; and
o
Horizon Kinetics’ strong balance sheet.
the historical market prices of our Common Stock;
the expectation that the Merger will significantly strengthen the Company’s financial liquidity and cash flow;

 

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the expectation that a Merger will allow the Company’s shareholders to own shares in a combined company that will have significantly larger market capitalization, with the following associated benefits, each of which could offer the opportunity of increased liquidity for the Company’s shares of Common Stock following the completion of the Merger:
o
The combined company will have a stronger balance sheet compared to the Company on a stand-alone basis, with more working capital than the Company on a stand-alone basis;
o
The potential of the combined company to receive greater interest from institutional investors; and
o
The potential ease of attracting talent by being a larger public reporting entity.
the belief that there are attractive opportunities in the asset management industry where Horizon Kinetics has successfully grown their presence over an extended period of time, and the Board of Directors’ view that those opportunities should be available to the Company’s shareholders.

Recommendation of the Company’s Board of Directors (see pages 50, 67 and 94)

After careful consideration, the Company’s Board of Directors determined that: (i) effecting a reverse stock split of the Company’s outstanding shares of Common Stock at a ratio of 1-for-20, while keeping the number of authorized shares unchanged, (ii) reincorporating in Delaware and changing the name of the Company to “Horizon Kinetics Holding Corporation”, and (iii) adjourning the Special Meeting, for any reason, including if necessary, to solicit additional proxies, is each in the best interest of the Company and its shareholders. Our Board of Directors recommends that you vote “FOR” the Reverse Stock Split Proposal, “FOR” the Reincorporation Proposal, and “FOR” the Adjournment Proposal if necessary.

Board and Executive Officers of the Combined Company (see pages 77 and 79)

The Board of Directors of the combined company is expected to consist of Murray Stahl, Steven Bregman, Peter Doyle, Daniel J. Roller, Alice Brennan, Allison Nagelberg, and Brent Rosenthal. The executive officers of the combined company are expected to be Murray Stahl (Chief Executive Officer), Steven Bregman (President), Mark Herndon (Chief Financial Officer), Peter Doyle (Managing Director), Alun Williams (Chief Operating Officer), Jay Kesslen (General Counsel) and Russell Grimaldi (Chief Compliance Officer).

Interests and Voting Power of Directors, Executive Officers and their Affiliates (see pages 77 and 79)

The Company’s directors and executive officers do not have interests in the Merger that may be different from or in addition to the interests of the Company’s shareholders generally, except that Mr. Roller will continue on the Board of Directors of the combined company and Mr. Malhotra has the right to serve on the board of directors of FRMO Corp. See “Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 77 of this proxy statement for more details.

Neither the Company nor any of our executive officers or directors beneficially owns any of Horizon Kinetics’ outstanding securities. As agreed upon in the Merger Agreement, one current director of the Company and six individuals to be designated by Horizon Kinetics are expected to serve as directors of the Company after the closing of the Merger.

The Company’s Board of Directors was aware of and considered the interests described above, among other matters, in reaching its unanimous decision to (i) approve the Merger and the other transactions contemplated by the Merger Agreement, (ii) declare the Merger Agreement and the transactions contemplated by the Merger Agreement as advisable and fair to, and in the best interests of, the Company and the Company’s shareholders, and (iii) resolve to recommend the approval and adoption of the proposals to the Company’s shareholders.

Ownership of Combined Company (see page 79)

As of the effective time of the Merger, the ownership of the Company’s outstanding Common Stock will be a function of Horizon Kinetics’ financial position six business days prior to the effective time. The Merger Consideration equals an aggregate number of shares of the Company’s Common Stock equal to (a) the sum of (i) Horizon Kinetics’ net tangible assets plus (ii) the value of the Horizon Kinetics operating business, (b) divided by 25, subject to a maximum number of shares as provided in the Merger Agreement. Under the Merger Agreement, the value of the Horizon Kinetics operating business is (x) stipulated to be $200 million if and only if Horizon Kinetics’ AUM is between $6 billion and $8 billion, and (y) otherwise calculated by multiplying AUM by a factor of 0.03.

We currently expect our legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance

 

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with the Merger Agreement based on Horizon Kinetics’ financial position at closing. When you vote on the proposals in this proxy statement, you will not know what percentage of the combined company your shares will ultimately represent.

Expected Timing of the Merger

The Company and Horizon Kinetics currently expect to complete the Merger soon following the Special Meeting. Completion of the Merger is subject to all conditions to closing being satisfied or waived. It is possible that factors outside of either company’s control could require the Company and Horizon Kinetics to complete the Merger at a later time or not complete it at all.

Representations, Warranties and Covenants in the Merger Agreement (see page 85)

The Company and Horizon Kinetics have made customary representations, warranties and covenants in the Merger Agreement. Subject to certain exceptions, each of the Company and Horizon Kinetics is required, among other things, to conduct its business in the ordinary course in all material respects during the interim period between the execution of the Merger Agreement and the closing of the Merger.

Restrictions on Soliciting Other Transactions (see page 87)

The Merger Agreement provides that neither the Company nor Horizon Kinetics may solicit alternative business combination transactions and, subject to certain exceptions, may not engage in discussions or negotiations regarding any alternative business combination transaction.

Conditions to Completion of the Merger (see page 91)

The obligations of the Company and Horizon Kinetics to complete the Merger are subject to the satisfaction (or waiver, where permitted) of the following conditions:

the Company shareholder approval of the Reverse Stock Split Proposal and the Reincorporation Proposal; and
the satisfaction or waiver of all of the other conditions to completion of the Merger. For a description of these conditions, see the section entitled “The Merger Agreement” beginning on page 84.

Termination of the Merger Agreement (see page 92)

The Company and Horizon Kinetics may mutually agree to terminate the Merger Agreement at any time prior to effectiveness of the Merger. Either party may also terminate the Merger Agreement if:

any governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any law or order making illegal, permanently enjoining, or otherwise permanently prohibiting the consummation of the Merger; or
the Reverse Stock Split Proposal or the Reincorporation Proposal is not approved by the Company’s shareholders at the Special Meeting.

Finally, either party may terminate the Merger Agreement under other limited circumstances specified in the agreement.

Risk Factors (see page 18)

You should carefully review the section entitled “Risk Factors” beginning on page 18 of this proxy statement, which discusses risks and uncertainties related to the Merger, the Reverse Stock Split, the combined companies and the business and operations of each of the Company and Horizon Kinetics.

Accounting Treatment (see page 93)

The Company prepares its financial statements in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Merger will be accounted for as an acquisition under U.S. GAAP. Because there will be a change of control, the transaction will be treated as a reverse acquisition. Purchase price consideration used in the pro forma condensed combined financial statements is estimated based on the Company’s closing stock price on April 29, 2024. The purchase price and allocation of the purchase price will be finalized based on the stock price on the closing date.

 

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Certain Material U.S. Federal Income Tax Considerations (see page 93)

The Merger is intended to qualify as a tax-deferred exchange of Horizon Kinetics’ membership interests for the Company’s Common Stock under Section 351(a) of the Code, as discussed below under “Certain Material U.S. Federal Income Tax Considerations” on page 93.

No Dissenters’ Rights of Appraisal (see page 94)

Under Colorado law, the holders of shares of the Company’s Common Stock are not entitled to dissenters’ rights of appraisal in connection with any of the proposals to be considered and acted upon at the Special Meeting. In addition, because the Merger is not subject to the Company’s shareholder approval under Colorado law, the holders of shares of the Company’s Common Stock are not entitled to dissenters’ rights of appraisal in connection with the Merger.

Market Price and Dividend Information

On December 22, 2023, the trading day immediately prior to the announcement of the Merger, the Company’s Common Stock closed at $0.40. On May 10, 2024, the Company’s Common Stock closed at $0.89. Immediately following the consummation of the Merger, the Company’s Common Stock, including the shares issued in connection with the Merger, is expected to continue to trade on the OTC Pink Market tier of OTC Markets. Following the Merger, the Company currently intends to retain earnings, if any, to finance the growth and development of its business, but will evaluate its dividend policy from time to time after the completion of the Merger.

Regulatory Approvals

The Company must comply with applicable securities laws in connection with the issuance of shares of the Company’s Common Stock in connection with the Merger.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the documents incorporated by reference into this proxy statement contain “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts, including statements regarding our future results of operations, financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Specific forward-looking statements include, without limitation, statements regarding the following:

the anticipated timing of the completion of the Merger,
the size and financial health of the combined company,
the estimated number of shares issuable in the Merger,
the anticipated impact of the Reverse Stock Split and/or Reincorporation,
the exact Merger Consideration to be issued and corresponding percentage of the combined company expected to be owned by the Company’s current shareholders on a post-transaction basis,
the expected benefits from the Merger, including the creation of value for the shareholders of the combined company and any expected cost savings from the Merger,
the expected federal tax consequences from the Merger, and
the expected costs, fees, expenses and other charges to be incurred in connection with the Merger.

The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements are contained in the risk factors that follow and elsewhere in this proxy statement and the incorporated documents. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the risk factors that follow and or that are disclosed in our incorporated documents.

 

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RISK FACTORS

In addition to the other information included and incorporated by reference in this proxy statement, you should carefully consider the following risks before deciding whether to vote for the Reverse Stock Split Proposal or the Reincorporation Proposal. See the section entitled “Where You Can Find More Information” beginning on page 95. Furthermore, because of differences between the Colorado Revised Statutes (“C.R.S.”), on the one hand, and the Delaware General Corporation Law (“DGCL”), on the other hand, as well as differences between the Company’s governing documents before and after the Reincorporation, the Reincorporation will effect certain changes in the rights of the Company’s shareholders. Shareholders are urged to review “Proposal 2 – Approval of the Reincorporation of the Company from the State of Colorado to the State of Delaware and Name Change – Comparison of the Company’s Shareholders’ Rights Before and After the Reincorporation” for a comparison of their rights before and after the Reincorporation.

Risks Relating to the Merger

The Company and Horizon Kinetics may not realize all of the anticipated benefits of the Merger.

The success of the Merger will depend, in large part, on the ability of the combined company to realize the anticipated benefits from combining the businesses of the Company and Horizon Kinetics, which operate in completely different industries. To realize the anticipated benefits of the Merger, the combined company must be able to manage two distinctly operating entities with a single management team.

The Company has not completed a merger or acquisition comparable in size or scope to the Merger. As a practical matter, including in light of the larger size of Horizon Kinetics, and the different industry in which it operates, the combined company’s operations and workforce after the Merger will consist primarily of the operations and workforce of Horizon Kinetics. However, the combined companies will continue to own and operate the Company’s pet-related businesses, including the Kids N Pets and Messy Pet brands, which are sold at Walmart, Amazon.com, and other retailers across the United States. The failure of the combined company, after the Merger, to realize any of the anticipated benefits of the Merger could cause an interruption of, or a loss of momentum in, the activities of the combined company and could adversely affect its results of operations.

Potential difficulties the combined company may encounter include, among others:

the impact on the combined company’s internal controls, disclosure controls and procedures and compliance with the Exchange Act and SEC regulations, of integrating the accounting systems and internal controls of a much larger private company that was not previously required to comply with such laws and regulations, with that of a small public company (see also “–Both Horizon Kinetics and the Company have identified material weaknesses in their internal control over financial reporting, which make those controls ineffective”);
complexities associated with managing the combined business that minimizes any adverse impact on, customers, employees, service providers, and other constituencies;
performance shortfalls at one or both of the companies as a result of the diversion of management’s attention from day-to-day operations caused by activities surrounding the completion of the Merger and integration of accounting systems and internal controls;
potential unknown liabilities, liabilities that are significantly larger than anticipated, unforeseen expenses or delays associated with the Merger and such integration; and
unanticipated changes in applicable laws and regulations.

Some of these factors are outside the control of either company.

Horizon Kinetics is a private company, making it difficult to determine its value. The formula governing the calculation of the Merger Consideration was determined without obtaining a fairness opinion or independent valuation.

The consideration payable to holders of Horizon Kinetics’ membership interests in the Merger, to which we also refer as the “Merger Consideration,” equals an aggregate number of shares of the Company’s Common Stock equal to (a) the sum of (i) Horizon Kinetics’ net tangible assets plus (ii) the value of the Horizon Kinetics operating business, (b) divided by 25, subject to a maximum number of shares as provided in the Merger Agreement. Under the Merger Agreement, the value of the Horizon Kinetics operating business is (x) stipulated to be $200 million if and only if Horizon Kinetics’ AUM is between $6 billion and $8 billion, and (y) otherwise calculated by multiplying AUM by a factor of 0.03. As of March 31, 2024, Horizon Kinetics’ AUM is approximately $7.1 billion.

 

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We currently expect our legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing.

Because Horizon Kinetics is a private company, there is no public trading market for its securities and no market price that may be used in valuing its securities. As a result, Horizon Kinetics’ value is difficult to determine. The formula for the calculation of the number of shares to be issued to Horizon Kinetics security holders as part of the Merger Consideration was determined based on negotiations between the parties, and it may not be indicative of Horizon Kinetics’ actual value. Therefore, the Merger Considerations that security holders of Horizon Kinetics receive may be higher or lower than would be the case if it were possible to determine Horizon Kinetics’ true value. If higher, then the Merger would have the effect of diluting the value of the shares held by the current shareholders of the Company.

In agreeing to the above formula for the calculation of the Merger Consideration, the Board of Directors did not obtain a fairness opinion or other valuation of either the Company or Horizon Kinetics, and such formula was arbitrarily determined. It is therefore possible that current shareholders of the Company end up with post-Merger ownership in the combined company that does not reflect the true value of their shares pre-Merger.

The pendency of the Merger could adversely affect the Company’s stock price and could adversely affect the Company’s and Horizon Kinetics’ respective businesses, financial condition, results of operations or business prospects.

While neither the Company nor Horizon Kinetics is aware of any significant adverse effects to date, the pendency of the Merger could disrupt either or both of their businesses in a number of ways, including:

the attention of the Company’s and/or Horizon Kinetics’ management may be directed toward the completion of the Merger and related matters and may be diverted from the day-to-day business operations of their respective companies, including from other opportunities that might otherwise be beneficial to them;
certain customers, suppliers, clients, business partners and other persons with whom the Company and/or Horizon Kinetics have a business relationship may delay or defer certain business decisions or seek to terminate, change or renegotiate their relationship with the Company or Horizon Kinetics as a result of the Merger, whether pursuant to the terms of their existing agreements or otherwise; and
current and prospective employees may experience uncertainty regarding their future roles with the combined company, which might adversely affect the Company’s and/or Horizon Kinetics’ ability to retain, recruit and motivate key personnel.

Provisions of the Merger Agreement limit the Company’s and Horizon Kinetics’ ability to pursue other business combinations and may deter third parties from proposing alternative transactions.

The Merger Agreement contains provisions that make it difficult for the Company or Horizon Kinetics to entertain a third-party proposal for an acquisition of the Company or Horizon Kinetics. These provisions include a general prohibition against solicitation or engaging in discussions or negotiations regarding any alternative acquisition proposal by each of the Company and Horizon Kinetics, subject to a limited exception for the Company.

These provisions might discourage a third party that might otherwise be interested in making a proposal from considering or proposing an acquisition of either the Company or Horizon Kinetics, including an acquisition or similar transaction that may be deemed of greater value than the Merger to the Company’s shareholders or Horizon Kinetics security holders.

Future financial results of the combined company may differ materially from the unaudited pro forma combined financial statements presented in this proxy statement and any financial forecasts prepared in connection with discussions concerning the Merger.

The unaudited pro forma combined financial information included in this proxy statement is derived from the Company’s and Horizon Kinetics’ separate historical consolidated financial statements. This pro forma financial information may not necessarily reflect what the Company’s results of operations and financial position would have been had the Merger occurred at the beginning of the periods presented in the pro forma combined financial information, or what the Company’s results of operations and financial position will be in the future.

 

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Both Horizon Kinetics and the Company have identified material weaknesses in their internal control over financial reporting, which make those controls ineffective. If the combined company fails to maintain an effective system of disclosure controls and internal control over financial reporting, its ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

Horizon Kinetics has identified material weaknesses in its internal control over financial reporting as of December 31, 2023 and 2022. A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s financial statements will not be prevented or detected on a timely basis. Specifically, Horizon Kinetics identified (a) instances in which management did not produce timely reconciliations and evaluations of certain significant accounts, including certain intercompany and related party accounts and related elimination entries, (b) a lack of segregation of duties in certain areas of the financial reporting process, including a lack of adequate supervisory review of technical accounting implementations, conclusions over critical accounting estimates, and review of the consolidated financial statements and (c) insufficient supervisory review and approval of key controls over disbursements and accounts payable. As of December 31, 2023, these material weaknesses have not been remediated. As of the date of this proxy statement, full assessment and identification of remediation efforts has not yet been completed.

Furthermore, the Company identified in its quarterly report on Form 10-Q for the quarter ended June 30, 2023 a material weakness in its internal control over financial reporting related to its finance department lacking a sufficient number of trained professionals with technical accounting expertise to process and account for complex, non-routine transactions in accordance with GAAP. This material weakness continued to exist as of March 31, 2024, and caused Company’s management to conclude that the Company’s internal control over financial reporting was not effective as of December 31, 2023.

Horizon Kinetics’ and the Company’s respective material weaknesses will not be considered remediated until a sustained period of time has passed to allow management to test the design and operational effectiveness of the corrective actions.

If the remedial measures are insufficient, or if additional material weaknesses or significant deficiencies in either company’s or the combined company’s internal control over financial reporting occur in the future, the combined company’s future financial statements or other information filed with the SEC may contain material misstatements and could require a restatement of its financial statements, cause it to fail to meet its reporting obligations or cause investors to lose confidence in its reported financial information, leading to a decline in the market value of its securities.

Furthermore, the standards required for a public company under Section 404(a) of the Sarbanes-Oxley Act are significantly more stringent than those previously required of Horizon Kinetics as a privately held company. Management may not be able to timely implement additional disclosure controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements. If the combined company is not able to implement the additional requirements of Section 404(a) in a timely manner or with adequate compliance, it may not be able to assess whether its internal control over financial reporting is effective, which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of its securities. If the combined company fails to maintain an effective system of disclosure controls and internal control over financial reporting, its ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired, and it may be forced to restate its financial statements for prior periods.

The combined company’s independent registered public accounting firm is not required to formally attest to the effectiveness of its internal control over financial reporting until after it is no longer a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. At such time, the combined company’s independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which its internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could harm the combined company’s business and could cause a decline in the price of its common stock.

Failure to complete or delay of the Merger could negatively impact the Company’s and Horizon Kinetics’ respective businesses, financial condition or results of operations.

The completion of the Merger is subject to a number of conditions, as described under “Conditions to Completion of the Merger” beginning on page 91, and there can be no assurance that the conditions to the completion of the Merger will be satisfied. If the conditions are not satisfied or waived, the Merger will not be completed or will be delayed. If the Merger is not completed or is delayed, the Company and Horizon Kinetics will be subject to several risks, including but not limited to:

the current market price of the Company’s Common Stock may reflect a market assumption that the Merger will occur or that it will occur by a certain date, and a failure to complete the Merger or a delay in the Merger could result in a negative perception by the market of the Company generally and a resulting decline in the market price of the Company’s Common Stock;

 

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having sold many of its operating assets, the Company is relying primarily on its pet care brands for revenue generation, while at the same time continuing to face operating expenses; as a result, there is limited time for the Company to enter into an alternative strategic transaction;
the Company or Horizon Kinetics may experience negative reactions from their respective employees, customers, suppliers, clients and other business partners;
there may be substantial disruption to the Company’s and Horizon Kinetics’ businesses and a distraction of their respective management teams and employees from day-to-day operations, because matters related to the Merger have required substantial commitments of time and financial and other resources, which could otherwise have been devoted to other opportunities that might have been beneficial;
if the Merger is not completed, the Company would continue to face the risks that it currently faces as an independent company, including particularly the risk of depleting its limited resources; and
in addition to these factors, failure to complete the Merger will mean that the Company and Horizon Kinetics will not obtain the anticipated benefits of combining the two companies. If the Merger is not completed, the risks described above may materialize and materially adversely affect the Company’s business, financial condition, results of operations and stock price.

The combined company’s future operating results will be adversely affected if it does not effectively manage its expanded operations following the Merger.

Following the Merger, the size of the combined company’s business will be significantly larger than the current business of the Company. The future success of the combined company will depend, in part, upon its ability to manage this expanded business as a public company, which will pose substantial challenges for the combined company’s management. The Company cannot assure you that the combined company will be successful or that the combined company will realize the expected benefits currently anticipated to result from the Merger.

The market price of the Company’s Common Stock after the Merger is likely to be affected by factors different from those affecting the market price of the Company’s shares prior to the Merger.

The businesses of the Company and Horizon Kinetics are vastly different and, accordingly, the results of operations of the combined company and the market price of the Company’s Common Stock following the Merger is likely to be affected by factors different from those existing prior to the Merger. For a discussion of the businesses of the Company and Horizon Kinetics and of certain factors to consider in connection with those businesses, see the documents incorporated by reference into this proxy statement referred to under the section entitled “Where You Can Find More Information” and Horizon Kinetics’ business description beginning on page 69.

The issuance of shares of the Company’s Common Stock to Horizon Kinetics security holders in connection with the Merger will significantly reduce the percentage ownership of the Company’s current shareholders.

Current shareholders of the Company will experience a significant reduction in the relative percentage ownership of the Company’s Common Stock upon completion of the Merger. We currently expect our legacy shareholders to own between approximately 3.2% and 4.3% of the pro forma combined company. However, the exact percentage may be different and will reflect the Merger Consideration calculated in accordance with the Merger Agreement based on Horizon Kinetics’ financial position at closing. When you vote on the proposals in this proxy statement, you will not know what percentage of the combined company your shares will ultimately represent. See “—Horizon Kinetics is a private company, making it difficult to determine its value. The formula governing the calculation of the Merger Consideration was determined without obtaining a fairness opinion or independent valuation.”

Following the closing of the Merger, the ownership of the Company’s Common Stock will be concentrated and our directors and officers will collectively hold enough shares to determine the outcome of shareholder votes.

Following the completion of the Merger, between approximately 60% and 61% of our Common Stock is expected to be beneficially held (as defined in Rule 13d-3 under the Exchange Act) by our post-Merger directors and officers. As a result, our post-Merger directors and officers will collectively hold enough shares to determine the outcome of the shareholder votes, including the outcome of votes for election of directors. Concentrated ownership may limit the ability of our shareholders to influence corporate matters and may also have the effect of delaying, preventing or defeating a change of control.

 

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Retention of key personnel may be difficult.

The future positive performance of the combined company depends to a significant degree upon the continued service of key members of Horizon Kinetics’ and the Company’s management. The loss of one or more of these key personnel could have a material adverse effect on our business, operating results, and financial condition before and after completion of the Merger. Additionally, key personnel within certain departments of the two companies will be important to the combination of the two companies, as well as maintaining certain systems and functional areas of operations.

Given the low national unemployment rate and the natural disruption created in the merger process, there is no certainty that we will be able to retain our key employees or that we will be successful in attracting and retaining similarly situated personnel in the future.

Similarly, in the event the Merger does not close for any reason, the disruption created by the merger process could ultimately cause some or all key personnel to leave their employment with the Company.

The Merger may be completed on different terms from those contained in the Merger Agreement.

Prior to the completion of the Merger, the Company and Horizon Kinetics may amend or alter the terms of the Merger Agreement or waive compliance with the terms and conditions of the Merger Agreement, including closing conditions. Although certain types of amendments, alterations or waivers may not be made after the shareholder vote unless the votes of the Company’s shareholders and Horizon Kinetics security holders are re-solicited, most amendments, alterations and waivers will not require any re-solicitation. Any such amendments or alterations may have negative consequences to the Company’s shareholders and/or Horizon Kinetics security holders or adversely affect the operations of the combined company.

As a result of the Merger, the combined company could record goodwill on its balance sheet, which could result in significant future impairment charges and negatively affect the combined company’s future financial condition, results of operations and stock price.

Because there will be a change of control, the transaction will be treated as a reverse acquisition. Applicable acquisition accounting rules require that to the extent that the purchase price allocated to the Company in the Merger exceeds the net fair value of the Company’s assets acquired and liabilities assumed, the combined company will record such assets as goodwill on its consolidated balance sheet. Goodwill is not amortized, but is tested for impairment at least annually. In testing goodwill for impairment, the combined company’s management will be required to determine its fair value or the fair value of underlying reporting units, if applicable. If the fair value of the combined company, or its applicable reporting units, declines, the combined company may incur significant impairment charges in the future. Any impairment charges will be treated as an expense and negatively affect the combined company’s future financial results. Announcement of such impairment charges may also significantly reduce the price of the Company’s Common Stock.

We will incur significant transaction costs in connection with the Merger.

We have incurred and expect to incur significant, non-recurring costs in connection with consummating the Merger. We may also incur additional costs to retain key employees throughout the transition.

As a result of the Merger, the combined company is not expected to be able to fully use the Company’s net operating loss (NOL) carryforwards.

The Company’s ability to utilize its net operating loss (NOL) carryforwards are expected to be substantially limited due to ownership changes that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the Code), as well as similar state provisions. These ownership changes are expected to limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. Further, if the Company experiences such an ownership change (the Merger will qualify as such a change) and does not satisfy certain requirements in Section 382 of the Code to continue its business enterprise (which generally requires that the Company continue its historic business or use a significant portion of its historic business assets in a business for the two-year period beginning on the date of the ownership change), its NOL carryforwards may be disallowed, subject to certain exceptions. In general, an “ownership change,” as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain stockholders or public groups.

 

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The combined company will continue to be a “smaller reporting company” after the Merger, and the reduced disclosure requirements applicable to smaller reporting companies may make our Common Stock less attractive to investors.

The Company is now, and the combined company immediately after the Merger is expected to be, a “smaller reporting company” as defined under SEC regulations. As a result, we may and do take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies including, among other things, reduced financial disclosure requirements including being permitted to provide only two years of audited financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, reduced disclosure obligations regarding executive compensation and an exemption from providing the auditor attestation of Section 404 of the Sarbanes-Oxley Act. As a result, our shareholders may not have access to certain information that they may deem important. The combined company will be able to take advantage of these scaled disclosures for so long as its voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of its second fiscal quarter, or its annual revenue is less than $100 million during the most recently completed fiscal year and its voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of its second fiscal quarter. The combined company could remain a smaller reporting company indefinitely. As a smaller reporting company, investors may deem its stock less attractive and, as a result, there may be less active trading of its common stock, and its stock price may be more volatile.

Risks Relating to the Reverse Stock Split

A Reverse Stock Split may not result in the desired increase in share price or liquidity, may increase the number of “odd lots,” and may be construed as having an anti-takeover effect.

The dual objectives behind the Reverse Stock Split are (i) to raise the per share trading price of our Common Stock (ii) while at the same time making available a sufficient number of shares of Common Stock for issuance as Merger Consideration to the members of Horizon Kinetics.

Although the Company expects that the Reverse Stock Split will result in an increase in the market price of our Common Stock, the Reverse Stock Split may not increase the market price of our Common Stock in proportion to the reduction in the number of issued shares of Common Stock (ignoring the effect of the Merger Consideration) or result in the permanent increase in the market price. If the Reverse Stock Split is accomplished and the market price of our Common Stock declines, the percentage decline as an absolute number and as a percentage of the Company’s overall market capitalization may be greater than would occur in the absence of a Reverse Stock Split. This risk increases if the Reverse Stock Split Proposal is approved, the Merger does not occur, and the Board subsequently decides to effect the Reverse Stock Split in the absence of a Merger. In that case, the total market capitalization of our Common Stock after the proposed Reverse Stock Split may be lower than the total market capitalization before the proposed Reverse Stock Split and, in the future, the market price of our Common Stock following the Reverse Stock Split may not exceed or remain higher than the market price prior to the proposed Reverse Stock Split.

Furthermore, there can be no assurance that the Reverse Stock Split will result in a per share price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our Common Stock may not necessarily improve.

The Reverse Stock Split may also leave certain shareholders with one or more “odd lots,” which are stock holdings in amounts of fewer than 100 shares of Common Stock. These odd lots may be more difficult to sell than shares of Common Stock in even multiples of 100. Additionally, any reduction in brokerage commissions resulting from the Reverse Stock Split, as discussed above, may be offset, in whole or in part, by increased brokerage commissions required to be paid by shareholders selling odd lots created by the Reverse Stock Split.

Finally, if and only if the Merger does not proceed and the Board decides nevertheless to effect the Reverse Stock Split upon shareholder approval, the resulting increase in the ratio of authorized but unissued shares of Common Stock to issued shares of Common Stock could be construed as having an anti-takeover effect by permitting the issuance of shares to purchasers who might oppose a hostile takeover bid or oppose any efforts to amend or repeal certain provisions of our Articles of Incorporation or Colorado Bylaws. Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company, the Reverse Stock Split is not being proposed in response to any effort of which the Company is aware to accumulate shares of our Common Stock or obtain control of the Company, except pursuant to the Merger Agreement.

 

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Risks Relating to Horizon Kinetics’ Business and Industry

Some of the risks relating to the Merger described above and relating to the Company described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and incorporated by reference may also apply to Horizon Kinetics. In addition, Horizon Kinetics faces the following risks relating to its business and industry, which risks would be faced by the combined company if and when the Merger closes:

Unfavorable market conditions could adversely affect Horizon Kinetics’ business in many ways, including by reducing the fees revenue and distributions received from its funds, if any, or reducing the ability of its funds to raise or deploy capital on favorable terms, or at all.

Horizon Kinetics’ business is materially affected by conditions in the global financial markets and economic and political conditions throughout the world that are outside our control, such as interest rates, availability and cost of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation and asset managers), trade barriers, commodity prices, currency exchange rates and controls, national and international political circumstances (including wars, terrorist acts or security operations), natural disasters and/or pandemics. These factors are outside Horizon Kinetics’ control and may affect the level and volatility of asset prices or securities prices and the liquidity and the value of investments held by its funds, and it may not be able to or may choose not to manage its or its funds’ exposure to these conditions. In the event of a market downturn, including from the impact of the COVID-19 pandemic, the hostilities between Russia and Ukraine or between Hamas and Israel, and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, each of Horizon Kinetics’ businesses and funds will be affected in different ways.

Horizon Kinetics’ existing ETFs and mutual funds could be affected by the inability to find suitable investments for the funds to effectively deploy capital, which could adversely affect its ability to raise new funds and thus its assets under management, or by reduced opportunities to exit and realize value from their investments, which could adversely affect incentive fees earned by Horizon Kinetics’ investment adviser subsidiary. In addition, during periods of adverse economic conditions, Horizon Kinetics and its funds could have difficulty accessing financial markets, which could make it more difficult or impossible to obtain funding and harm assets under management and operating results. Its profitability could also be adversely affected if it or the funds it manages are unable to scale back costs within a time frame or amount sufficient to match decreases in revenue relating to changes in market and economic conditions.

During periods of difficult market conditions or slowdowns in a particular sector, companies in which Horizon Kinetics’ funds invest could experience decreased revenues, financial losses, difficulty in obtaining access to financing and increased funding costs. During such periods, these companies could also have difficulty in expanding their businesses and operations and be unable to meet their debt service obligations or other expenses as they become due (including obligations to Horizon Kinetics’ funds), increasing the risk of default with respect to debt investments held by its funds. As a result, a general market downturn, or a specific market dislocation, could result in lower investment returns for its funds, which would adversely affect Horizon Kinetics’ revenues and results of operations. Poor performance of such funds could result in lower base management and/or incentive fees earned by its investment adviser subsidiary and/or their ability to pay distributions on any investments Horizon Kinetics may hold in such funds, each of which could materially and adversely affect its business and results of operations.

Several of Horizon Kinetics’ funds and separately-managed accounts, or SMAs, hold significant investments in Texas Pacific Land Corp., or TPL. In many cases, such investments represent a material portion of the fund’s or SMA’s total assets. If TPL’s operating or market performance deteriorates for any reason, then Horizon Kinetics’ resulting advisory fees and reputation could be negatively impacted.

Murray Stahl is member of the Board of Directors of Texas Pacific Land Corporation, or TPL, a large holding in SMAs and funds managed by Horizon Kinetics’ investment adviser subsidiary. In many cases, such investments represent a material portion of the SMA’s or fund’s assets. On December 31, 2023 and March 31, 2024, respectively, approximately 32% and 32% of Horizon Kinetics’ AUM consisted of common stock of TPL. This significant investment and corresponding lack of diversification disproportionately exposes Horizon Kinetics’ SMAs and funds to fluctuations in TPL’s stock price, which therefore affects Horizon Kinetics’ subsidiary’s adviser fees and assets under management. In addition, Horizon Kinetics is itself invested in TPL. On December 31, 2023 and March 31, 2024, respectively, approximately $30.1 million and $33.2 million of Horizon Kinetics’ assets consisted of common stock of TPL.

 

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Fluctuations in TPL’s stock price have historically been significant. In the 12 months between May 1, 2023 and April 30, 2024, TPL’s closing stock price has fluctuated from a low of $427.55 on June 23, 2023 to a high of $659.44 on October 18, 2023. As a result, Horizon Kinetics, its SMAs or its funds could realize significantly less than the value at which they recorded their TPL investments if they were required to sell those investments to increase liquidity at a time when stock prices are low.

Furthermore, as a director of TPL, and Chairman, CEO and Chief Investment Strategist of Horizon Kinetics, Murray Stahl may face conflicts of interest. Mr. Stahl has fiduciary and other obligations to both TPL and Horizon Kinetics and/or their clients, and may come into possession of information (including confidential or material non-public information regarding TPL securities), that could give rise to a potentially conflicting division of loyalties and/or responsibilities, which could have an adverse effect on the funds and accounts managed by Horizon Kinetics and could benefit Mr. Stahl, Horizon Kinetics and/or TPL. In addition, Mr. Stahl has substantial personal investments in TPL stock – either directly through personal investment accounts or indirectly through products and accounts managed by Horizon Kinetics’ subsidiary. Furthermore, Horizon Kinetics personnel in addition to Mr. Stahl, including personnel who are or may be involved in the management of advisory accounts managed by Horizon Kinetics, have personal investments in TPL stock, and these personal investments present potential or actual conflicts of interest. For example, directors in a public company are usually expected not to exit their investment position in the public company during their time of service on the board, which could restrict Mr. Stahl’s ability to sell a significant number of TPL shares when doing so would be advantageous to Horizon Kinetics or its accounts or funds.

Horizon Kinetics and its employees may invest in other companies or funds in which its clients also invest, which may create conflicts of interest. Conflicts of interests are also present when Horizon Kinetics receives performance fees.

Horizon Kinetics and its employees may invest in companies or funds in which its clients also invest, either directly or indirectly. For example, officers, directors and employees of Horizon Kinetics may hold substantial interests in securities of TPL in their personal accounts, as described in the immediately preceding risk factor. In addition, certain Horizon Kinetics employees from time to time serve as members of management or the board of directors of companies in which Horizon Kinetics invests, which may create conflicts of interest.

While Horizon Kinetics seeks to address potential conflicts of interest through the adoption of various policies and procedures, which include both electronic and physical safeguards, it can offer no assurances that such policies and procedures will completely neutralize or mitigate any such conflicts. Horizon Kinetics’ failure to either properly disclose or mitigate these conflicts could lead to regulatory and investor scrutiny.

Furthermore, some of Horizon Kinetics’ funds and products receive a performance fee or carried interest, a portion of which may be paid to employees and third-party marketing firms. Performance fee arrangements may create an incentive for Horizon Kinetics to make more speculative investments, or otherwise refrain from taking certain actions that might otherwise be taken in the absence of a performance fee arrangement. Any failure to properly address actual or potential conflicts of interest resulting from an entitlement to receive performance based fees could have a material adverse effect on Horizon Kinetics’ reputation, and ultimately its business.

Horizon Kinetics, and the funds and SMAs managed by its subsidiary, are exposed to risks relating to cryptocurrencies and related investments, either directly or through cryptocurrency-linked ETFs.

Horizon Kinetics has exposure to cryptocurrencies, such as bitcoin, through direct investments (approximately $6 million as of December 31, 2023), and indirectly through investment funds, including the Grayscale Bitcoin Trust ETF and similar exchange-traded funds that offer exposure to bitcoin. In addition, the funds and SMAs managed by its subsidiary have exposure to cryptocurrencies, with approximately 10% and 17% of AUM as of December 31, 2023 and March 31, 2024, respectively, consisting of cryptocurrency investments, which can significantly affect adviser fees and assets under management.

Cryptocurrencies are digital assets designed to act as a medium of exchange and do not represent legal tender. Cryptocurrency generally operates without central authority or banks and is not backed by any government. Cryptocurrencies are susceptible to theft, loss, destruction and fraud. Cryptocurrency is an emerging asset class, and regulation in the United States is still developing, including with respect to market integrity, anti-fraud, anti-manipulation, cybersecurity, surveillance and anti-money laundering. Federal, state and/or foreign governments may restrict the use and exchange of cryptocurrencies.

 

25


 

The value of bitcoins is determined by the supply of and demand for bitcoins in the global market for the trading of bitcoins, which consists of transactions on electronic bitcoin exchanges. Pricing on bitcoin exchanges and other venues can be volatile and can adversely affect the value of bitcoin. Currently, there is relatively small use of bitcoins in the retail and commercial marketplace in comparison to the relatively large use of bitcoins by speculators, thus contributing to price volatility that could adversely affect a portfolio’s direct or indirect investments in bitcoin. Bitcoin transactions are irrevocable, and stolen or incorrectly transferred bitcoins may be irretrievable. As a result, any incorrectly executed bitcoin transactions could adversely affect the value of a portfolio’s direct or indirect investment in bitcoin.

Even when held indirectly, investment vehicles linked to cryptocurrencies, such as Grayscale Bitcoin Trust ETF, may be affected by the high volatility associated with cryptocurrency exposure. Holding a privately offered investment vehicle in its portfolio may cause a cryptocurrency ETF to trade at a discount to its net asset value. If cryptocurrency markets continue to be subject to sharp fluctuations, related ETFs, such as the Grayscale Bitcoin Trust ETF, may be adversely affected. In addition, the share prices of cryptocurrency ETFs and other similar investment vehicles that are not listed on a national securities exchange may be more volatile than listed securities because there is generally less liquidity in these securities and there may be less publicly available information about them or their issuers.

Cryptocurrency exchanges and other trading venues on which cryptocurrencies trade are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure than established, regulated exchanges for securities, derivatives and other currencies. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware, which may also affect the prices of cryptocurrencies. Events that negatively affect cryptocurrencies may negatively affect the performance of Horizon Kinetics’ funds or SMAs that directly or indirectly invest in cryptocurrencies.

Horizon Kinetics’ success depends highly on its senior executives, and the loss of their services would have a material adverse effect on its business, results and financial condition.

Horizon Kinetics depends on the efforts, skill, reputations and business contacts of its senior executives, including its founders, Murray Stahl, Steven Bregman and Peter Doyle, and other key executive officers. Accordingly, its success will depend on the continued service of these individuals, who are not party to employment agreements and are not obligated to remain employed with the combined company after the Merger. The loss of the services of any of these senior executives could have a material adverse effect on Horizon Kinetics’ revenues, net income and cash flows and could harm its ability to maintain or grow assets under management or raise additional funds in the future.

Horizon Kinetics’ senior executives possess substantial experience and expertise and have strong business relationships with investors in its funds and other members of the business community. As a result, the loss of these personnel could jeopardize Horizon Kinetics’ relationships with investors in its funds, its clients and members of the business community and result in the reduction of assets under management or fewer investment opportunities for its funds. Further, if any of the senior executives were to join or form a competing firm, that event could have a material adverse effect on Horizon Kinetics’ business, results of operations and financial condition.

Poor performance of Horizon Kinetics’ funds would cause a decline in its revenue, income and cash flow and could adversely affect its ability to raise capital for future funds.

Horizon Kinetics earns investment advisory fees based on a percentage of the value of its assets, and in certain instances, based on a percentage of the appreciation of the account, if any. When its funds or separately-managed accounts perform poorly, whether as a result of changes in equity market prices, interest rates, cryptocurrency prices, or other assets, or in response to geopolitical conditions, including wars and actions taken by central banks, both domestic and foreign, Horizon Kinetics’ revenue, income and cash flow declines because the value of its assets under management decreases, which results in a reduction in management fees, and it earns less in incentive fees.

Moreover, Horizon Kinetics could experience losses on investments of its own capital (as a result of any ownership from time to time of shares in its proprietary funds) as a result of poor investment performance by such funds.

Poor performance of Horizon Kinetics’ funds could make it more difficult for it to raise new capital, as investors might decline to invest in future funds or sell the shares they already own in the funds. Investors and potential investors in Horizon Kinetics’ funds continually assess its funds’ performance, and its ability to raise capital for existing and future funds will depend on its funds’ continued satisfactory performance.

 

26


 

Horizon Kinetics’ investment philosophy makes a rebalancing of portfolios unlikely, which could result in concentrated positions, adversely impacting Horizon Kinetics’ business and reputation if those positions decline.

Horizon Kinetics seeks to manage market risk exposures through diversification and hedges where applicable; however, as part of its investment philosophy, it does not generally rebalance portfolios. As a result, portfolios may experience concentrated positions through appreciation. Such concentrations could adversely impact Horizon Kinetics’ business and reputation if those positions were to suffer declines, even if temporary.

The asset management business is intensely competitive.

The asset management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, brand recognition and business reputation. Horizon Kinetics’ asset management business competes with other investment managers, wealth managers, index providers and corresponding funds, commercial banks and other financial institutions, and other parties. A number of factors serve to increase its competitive risks:

many of the competitors in some of its businesses have greater financial, technical, marketing and other resources and more personnel than Horizon Kinetics does;
several of Horizon Kinetics’ competitors have recently raised funds, or are expected to raise funds, with significant amounts of capital, which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that many alternative investment strategies seek to exploit;
some of these competitors may also have a lower cost of capital and access to funding sources that are not available to Horizon Kinetics or the funds that it manages;
some of Horizon Kinetics’ competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively for investments that Horizon Kinetics wants to make on behalf of its funds or through proprietary accounts;
competitors that are corporate buyers may be able to achieve synergistic cost savings in respect of an investment, which may provide them with a competitive advantage in bidding for an investment as compared to Horizon Kinetics’ funds;
there are relatively few barriers to entry impeding new investment funds, which can lead to increased competition; and
other industry participants will from time to time seek to recruit investment professionals and other employees away from Horizon Kinetics.

Horizon Kinetics’ funds may lose investment opportunities in the future if they do not match investment prices, structures and terms offered by competitors. Alternatively, Horizon Kinetics may experience decreased rates of return and increased risks of loss if its funds match investment prices, structures and terms offered by competitors. In addition, if interest rates were to continue to rise or there were to be a prolonged bull market in equities, the attractiveness of Horizon Kinetics’ funds relative to investments in other investment products could decrease. This competitive pressure could adversely affect its funds’ ability to make successful investments and limit Horizon Kinetics’ ability to raise future funds, either of which would adversely impact its ability to increase its assets under management and its business, revenue, results of operations and cash flow.

In addition, certain passive products and asset classes, such as index funds and certain types of exchange- traded funds, many of which have lower fee structures, have become increasingly popular with investors. In order to continue to grow its assets under management, Horizon Kinetics must provide investment products and services that are viewed as appropriate in relation to the fees charged, which may require it to demonstrate that its strategies can outperform such passive products. If investors view Horizon Kinetics’ fees as high relative to the market or the returns provided on its funds, it may choose to reduce its fee levels in order to attract additional investors and grow assets under management.

Finally, developments in financial technology, such as blockchain, have the potential to disrupt the financial industry and change the way in which asset managers like Horizon Kinetics do business. If Horizon Kinetics does not adapt to these changes at the same pace as its competitors, its revenue, results of operations and cash flow may suffer.

Regulatory and Litigation Risk.

Extensive regulation of Horizon Kinetics’ businesses affects its activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus could result in additional burdens on its business.

Horizon Kinetics’ asset management business is subject to extensive regulation. In particular, it is subject to regulation by the SEC under the federal securities laws (including the Investment Company Act of 1940, as amended (the “1940 Act”) and the Investment Advisers Act of 1940, as amended (the “Advisers Act”)). In addition, many of the activities that Horizon Kinetics or its

 

27


 

funds engage in are subject to or potentially subject to (in the absence of certain exemptions that it relies on and must comply with) the jurisdiction and regulatory oversight of various other federal regulatory agencies (including the Securities and Exchange Commission and the Department of Labor), various self-regulatory organizations (including the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the National Futures Association) and various state regulatory authorities.

The various legal statutes and regulatory rules to which Horizon Kinetics is subject are extremely complex, and compliance with them can be a time-consuming and difficult task. For example, the Advisers Act imposes numerous obligations on investment advisers, including record keeping, advertising and operating requirements, disclosure obligations and prohibitions on misleading or fraudulent activities. The Advisers Act also imposes an overriding fiduciary duty on investment advisers. The 1940 Act imposes similar operational requirements that must be strictly adhered to by their investment advisers and other service providers. A failure to comply with the obligations imposed by the Advisers Act, the 1940 Act or other regulatory agencies could result in investigations, sanctions and reputational damage. In addition, Horizon Kinetics may from time to time rely on exemptions from various requirements of the 1940 Act and the U.S. Employee Retirement Income Security Act of 1974, as amended, in conducting its asset management activities. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom it does not control. If for any reason these exemptions were to become unavailable to us, Horizon Kinetics could become subject to regulatory action or third-party claims and its business could be materially and adversely affected.

Many of these regulators, including U.S. and self-regulatory organizations, as well as state securities commissions in the U.S., are empowered to conduct investigations and administrative proceedings that can result in fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or investment adviser from registration or memberships. Even if an investigation or proceeding did not result in a sanction or the sanction imposed against Horizon Kinetics or its personnel by a regulator were small in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm its reputation and cause it to lose existing clients or fail to gain new asset management or financial advisory clients. Lastly, the requirements imposed by Horizon Kinetics’ regulators are designed primarily to ensure the integrity of the financial markets and to protect investors in its funds and are not designed to protect holders of the combined company’s common stock. Consequently, these regulations often serve to limit our activities.

In addition, the regulatory environment in which Horizon Kinetics’ funds operate may affect its business. The regulatory environment in which it operates is subject to ongoing changes and further regulation. Horizon Kinetics may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or non-U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. It also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which Horizon Kinetics conducts business.

Horizon Kinetics faces legal, regulatory and contractual risks in case its policies, procedures and controls fail.

To address legal, regulatory and contractual commitments, Horizon Kinetics has implemented a number of policies and procedures. Horizon Kinetics may experience financial loss or regulatory risk in the event of a failure of its policies and procedures, including an operational failure or error, as well as errors made by its vendors and business partners. For example, the failure by Horizon Kinetics or its vendors to properly enter, process or settle trades may result in errors and cause damage to its clients. In addition, Horizon Kinetics’ information technology systems, including those of its business partners, are subject to attacks or unauthorized access and any disruptions to its operations could lead to significant costs and litigation.

In limited instances, certain employees of Horizon Kinetics may serve on the Board of Directors for companies in which it invests. In such cases, Horizon Kinetics employs physical and electronic controls to prevent the sharing or misuse of any material non-public information. The access to and misuse of any non-public information may create legal or regulatory risks and damage its reputation.

Horizon Kinetics may have to sell or retain assets when it would otherwise not wish to do so in order to avoid registration under the 1940 Act.

The 1940 Act regulates companies which are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. Under the 1940 Act, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless an exemption or safe harbor applies. We refer to this test as the “40% Test.” Securities issued by companies other than consolidated companies are generally considered “investment securities” for purposes of the 1940 Act, unless other circumstances exist which actively involve the company holding such interests in the management of the underlying company. Horizon Kinetics is a company that partners with growth-stage companies to build value; it is not engaged primarily in the business of investing, reinvesting

 

28


 

or trading in “investment securities” as that term is defined under the federal securities laws. Horizon Kinetics believes it is in compliance with the 40% Test, and therefore, it is not an investment company under the 1940 Act.

Horizon Kinetics monitors its compliance with the 40% Test and seeks to conduct our business activities to comply with this test. It is not feasible for it to be regulated as an investment company because the 1940 Act rules are inconsistent with its strategy of actively helping its companies in their efforts to build value. In order to continue to comply with the 40% Test, Horizon Kinetics may need to take various actions which it would otherwise not pursue. For example, it may be limited in the manner or timing in which we sell its interests in a company. Its ownership levels also may be affected if its companies are acquired by third parties or if its companies issue stock which dilutes its ownership interest. The actions Horizon Kinetics may need to take to address these issues while maintaining compliance with the 40% Test could adversely affect its ability to create and realize value at its companies.

General Risk Factors

Horizon Kinetics has and will continue to incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.

The combined company faces increased legal, accounting, administrative and other costs and expenses as a public company that Horizon Kinetics did not incur as a private company. The Sarbanes-Oxley Act, including the requirements of Section 404, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Act and the rules and regulations promulgated and to be promulgated thereunder, the PCAOB and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. A number of those requirements requires the combined company to carry out activities that Horizon Kinetics had not done previously. If the combined company experiences any issues in complying with these requirements, it could incur additional costs rectifying those issues, and the existence of those issues could adversely affect its reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with its status as a public company may also make it more difficult to attract and retain qualified persons to serve on the Board of Directors or as executive officers. The additional reporting and other obligations imposed by these rules and regulations have already increased Horizon Kinetics’ legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require the combined company to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.

The capital markets are currently in a period of disruption and economic uncertainty. Such market conditions have materially and adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on Horizon Kinetics’ business and operations.

The U.S. capital markets have experienced extreme disruption in recent years. Such disruptions have been evidenced by volatility in global stock markets as a result of uncertainty regarding the COVID-19 pandemic, the fluctuating price of commodities such as oil, Russia’s military invasion of Ukraine, conflict in the Middle East and recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures. These events have contributed to worsening general economic conditions that are materially and adversely impacting broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole. These conditions could continue for a prolonged period of time or worsen in the future.

Significant changes or volatility in the capital markets may negatively affect the valuations of Horizon Kinetics or its funds’ or SMA’s investments. Valuations, and particularly valuations of private investments and private companies, are inherently uncertain, fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that may not reflect the full impact of public health emergencies, geopolitical unrest and measures taken in response thereto.

Additionally, the recent disruption in economic activity caused by the COVID-19 pandemic, Russia’s military invasion of Ukraine, conflict in the Middle East and recent disruptions in access to bank deposits or lending commitments due to bank failures has had, and may continue to have, a negative effect on the potential for liquidity events involving Horizon Kinetics or the investments of its funds or SMAs. An inability to raise incremental capital could have a material adverse effect on Horizon Kinetics’ business, results of operations and financial condition.

Further, current market conditions may make it difficult to raise equity capital, extend the maturity of or refinance its existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on Horizon Kinetics’ business. The debt capital available to Horizon Kinetics in the future, if available at all, may bear a higher interest rate and may be available only on terms and conditions less favorable than those of its existing debt and such debt may need to be incurred in a rising interest rate environment. Any inability to extend the maturity of or refinance existing debt, or to obtain new debt, could have a material adverse effect on Horizon Kinetics’ business, financial condition or results of operations.

 

29


 

Cybersecurity risks and cyber incidents may adversely affect Horizon Kinetics’ business by causing a disruption to our operations, or the operations of our funds or the businesses in which they invest, compromise or corrupt of confidential information and/or damage to our business relationships, all of which could negatively impact our business, financial condition and operating results.

Maintaining our network security is of critical importance because our systems store highly confidential information about our funds and information about our funds’ portfolio assets. Although we have implemented, and will continue to implement, security measures, our technology platform may be vulnerable to intrusion, computer viruses or similar disruptive problems caused by cyber-attacks. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources or those of our funds or their portfolio companies. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided to us by third-party service providers. We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident. In addition, any such incident, disruption or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage our reputations, resulting in a loss of confidence in our services, which could adversely affect our business.

We are dependent on information systems, and systems failures could significantly disrupt our business.

Horizon Kinetics’ business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:

sudden electrical or telecommunications outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
disease pandemics;
events arising from local or larger scale political or social matters, including terrorist acts; and
cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect our business.

 

30


 

SCOTT’S LIQUID GOLD-INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma financial information presents the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of income based upon the combined historical financial statements of the Company and Horizon Kinetics, after giving effect to the proposed Merger of Merger Sub, a wholly-owned subsidiary of the Company, with and into Horizon Kinetics, the internal reorganization in which Horizon Kinetics will merge with two of its member corporations, Kinetics Common Inc. and Kinetics Holdings, which hold additional investment securities, and the adjustments described in the accompanying notes. The Merger will be accounted for as a reverse acquisition under the acquisition method of accounting, which requires determination of the accounting acquirer. This merger is also reflected in the accompanying pro forma financial information. The accounting guidance for business combinations provides that in identifying the acquiring entity in a combination effected through an exchange of equity interests, all pertinent facts and circumstances must be considered, including but not limited to, the relative voting rights of the shareholders of the constituent companies in the combined company, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of equity securities in the business combination, including payment of any premium.

Because the Horizon Kinetics security holders will be entitled to designate the majority of the Board of Directors of the Company will receive a majority of the equity securities and voting rights of the Company upon closing of the Merger, and will comprise a majority of the senior management of the combined entity, Horizon Kinetics is considered to be the acquirer of the Company for accounting purposes. This means that Horizon Kinetics will allocate the purchase price to the fair value of the Company’s assets acquired and liabilities assumed on the acquisition date, with any excess purchase price being recorded as goodwill.

The unaudited pro forma condensed combined balance sheet as of December 31, 2023 reflects the transaction as if it occurred on December 31, 2023. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2023 reflect the transaction as if it occurred on January 1, 2023, the beginning of the earliest period presented.

The unaudited pro forma condensed combined financial information is for informational purposes only and does not purport to present what our results would actually have been had these transactions actually occurred on the dates presented or to project our results of operations or financial position for any future period. You should read the information set forth below together with the notes to the pro forma condensed combined financial statements, the audited financial statements of the Company for the years ended December 31, 2023 and 2022 included in the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2023, which are incorporated by reference in this proxy statement, and the financial statements of Horizon Kinetics for the years ended December 31, 2023 and 2022 included in this proxy statement.

 

 

31


 

SCOTT’S LIQUID GOLD-INC.

Unaudited Pro Forma Condensed Combined Balance Sheet

December 31, 2023

(in thousands)

 

 

 

 

 

 

 

 

 

Contributed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

assets of Kinetics

 

 

 

 

 

 

Pro forma

 

 

 

Scott's Liquid

 

 

Horizon

 

 

Common Inc. and

 

 

Pro forma

 

 

 

condensed

 

 

 

Gold-Inc.

 

 

Kinetics, LLC

 

 

Kinetics Holdings

 

 

adjustments

 

 

 

combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash

 

$

3,927

 

 

$

10,477

 

 

$

2,438

 

 

$

 

 

 

$

16,842

 

Accounts receivable, net

 

 

307

 

 

 

4,453

 

 

 

 

 

 

 

 

 

 

4,760

 

Investments, at fair value

 

 

 

 

 

37,620

 

 

 

10,022

 

 

 

(18

)

(a)

 

 

47,624

 

Investments in proprietary funds

 

 

 

 

 

103,962

 

 

 

13,470

 

 

 

 

 

 

 

117,432

 

Other current assets

 

 

717

 

 

 

1,882

 

 

 

95

 

 

 

115

 

(b)

 

 

2,809

 

Total current assets

 

 

4,951

 

 

 

158,394

 

 

 

26,025

 

 

 

97

 

 

 

 

189,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

200

 

 

 

 

 

 

 

 

 

 

200

 

Assets of discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets, net

 

 

 

 

 

45,705

 

 

 

 

 

 

1,020

 

(c)

 

 

46,725

 

Goodwill

 

 

 

 

 

19,273

 

 

 

 

 

 

7,566

 

(c)

 

 

26,839

 

Operating lease right-of-use assets

 

 

1,376

 

 

 

5,651

 

 

 

 

 

 

 

 

 

 

7,027

 

Other assets

 

 

40

 

 

 

2,660

 

 

 

 

 

 

 

 

 

 

2,700

 

Total assets

 

$

6,367

 

 

$

231,883

 

 

$

26,025

 

 

$

8,683

 

 

 

$

272,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

563

 

 

$

14,897

 

 

$

127

 

 

$

 

 

 

$

15,587

 

Deferred tax liability

 

 

 

 

 

617

 

 

 

 

 

 

 

 

 

 

617

 

Current portion of long-term debt and lease liabilities

 

 

291

 

 

 

 

 

 

 

 

 

 

 

 

 

291

 

Total current liabilities

 

 

854

 

 

 

15,514

 

 

 

127

 

 

 

 

 

 

 

16,495

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities, net of current

 

 

2,221

 

 

 

7,281

 

 

 

 

 

 

 

 

 

 

9,502

 

Other liabilities

 

 

27

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

Total liabilities

 

 

3,102

 

 

 

22,795

 

 

 

127

 

 

 

 

 

 

 

26,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Scott's Liquid Gold-Inc. shareholders' equity

 

 

3,265

 

 

 

 

 

 

 

 

 

(3,265

)

(d)

 

 

 

Total Horizon Kinetics, LLC members' equity

 

 

 

 

 

209,088

 

 

 

25,898

 

 

 

11,948

 

(a)(d)

 

 

246,934

 

Total shareholders’ equity

 

 

3,265

 

 

 

209,088

 

 

 

25,898

 

 

 

8,683

 

 

 

 

246,934

 

Total liabilities and shareholders’ equity

 

$

6,367

 

 

$

231,883

 

 

$

26,025

 

 

$

8,683

 

 

 

$

272,958

 

 

See notes to pro forma condensed combined financial statements.

 

32


 

SCOTT’S LIQUID GOLD-INC.

Unaudited Pro Forma Condensed Combined Statement of Income for the

Fiscal Year Ended December 31, 2023

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma

 

 

 

Scott's Liquid

 

 

Horizon

 

 

Pro forma

 

 

 

condensed

 

 

 

Gold-Inc.

 

 

Kinetics, LLC

 

 

adjustments

 

 

 

combined

 

Total revenues

 

$

3,403

 

 

$

50,981

 

 

$

 

 

 

$

54,384

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of products

 

 

1,956

 

 

 

 

 

 

115

 

(e)

 

 

2,071

 

Selling, general, and administrative expenses

 

 

4,911

 

 

 

45,641

 

 

 

300

 

(f)

 

 

50,852

 

Depreciation, amortization, and impairments

 

 

1,651

 

 

 

1,828

 

 

 

102

 

(g)

 

 

3,581

 

Total operating expenses

 

 

8,518

 

 

 

47,469

 

 

 

517

 

 

 

 

56,504

 

Income (loss) from operations

 

 

(5,115

)

 

 

3,512

 

 

 

(517

)

 

 

 

(2,120

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(77

)

 

 

826

 

 

 

 

 

 

 

749

 

Other income (expense), net

 

 

 

 

 

(8,952

)

 

 

 

 

 

 

(8,952

)

Total other income (expense):

 

 

(77

)

 

 

(8,126

)

 

 

 

 

 

 

(8,203

)

Loss before income taxes and discontinued
   operations

 

 

(5,192

)

 

 

(4,614

)

 

 

(517

)

 

 

 

(10,323

)

Income tax expense

 

 

(9

)

 

 

122

 

 

 

969

 

(h)

 

 

1,082

 

Income (loss) from continuing operations

 

 

(5,201

)

 

 

(4,492

)

 

 

452

 

 

 

 

(9,241

)

Income (loss) from discontinued operations, net of taxes

 

 

5,581

 

 

 

 

 

 

 

 

 

 

5,581

 

Net income (loss)

 

$

380

 

 

$

(4,492

)

 

$

452

 

 

 

$

(3,660

)

Basic and diluted net income (loss) per common
   shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(8.05

)

 

 

 

 

$

0.03

 

 

 

$

(0.53

)

Income (loss) from discontinued operations

 

$

8.64

 

 

 

 

 

$

 

 

 

$

0.32

 

Net income (loss)

 

$

0.59

 

 

 

 

 

$

0.03

 

 

 

$

(0.21

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

646

 

 

 

 

 

 

16,800

 

(i)

 

 

17,446

 

 

See notes to pro forma condensed combined financial statements.

 

33


 

SCOTT’S LIQUID GOLD-INC.

Notes to Pro Forma Condensed Consolidated Financial Statements

(in thousands, except per share data)

Note 1 – Basis of Presentation

The historical financial information has been adjusted to give pro forma effect to events that are directly attributable to the Merger and expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates. They have been prepared to illustrate the estimated effect of the Merger and certain other adjustments. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed of the Company as of the closing date of Merger and could result in a significant change to the unaudited pro forma condensed combined financial information, including goodwill.

Note 2 – Preliminary Purchase Price Allocation

Because the Merger is considered a reverse acquisition for accounting purposes, the fair value of the purchase consideration is calculated based on the Company’s stock price as it is considered to be a more reliable determination than the fair value of Horizon Kinetics’ private stock. Consideration is estimated based on the Company’s closing stock price on April 29, 2024. The purchase price will be finalized based on the stock price on the closing date.

 

Shares of Scott's Liquid Gold-Inc.

 

 

13,006

 

Share price on April 29, 2024

 

$

0.92

 

Fair value of consideration

 

$

11,966

 

 

The preliminary purchase price as shown in the table above is allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based on their preliminary estimated fair values. The fair value assessments are preliminary and are based upon available information and certain assumptions which the Company believes are reasonable. Actual results may differ materially from the unaudited pro forma condensed combined financial statements.

 

Description

 

Amount

 

Current assets

 

$

4,234

 

Other current assets(1)

 

 

832

 

Other non-current assets

 

 

1,416

 

Intangible assets, net(2)

 

 

1,020

 

Goodwill

 

 

7,566

 

Current liabilities

 

 

(854

)

Non-current liabilities

 

 

(2,248

)

Preliminary purchase price

 

$

11,966

 

 

1)
Preliminary fair value assessments are still in process. However, based on the information received to date, management does not believe the fair value will be materially different from the historical carrying value. As such, the historical carrying value has been used in the preliminary purchase price allocation.
2)
Preliminary fair value adjustments were identified related to customer relationships, trademarks, and formulas. The useful life of all intangible assets was estimated to be ten years. Preliminary adjustments are under review and are subject to change.

Note 3 – Description of Pro Forma Adjustments

Adjustments included in the column under the heading “Pro forma adjustments” relate to the following:

(a)
To eliminate Horizon Kinetics investments in Scott’s Liquid Gold-Inc.
(b)
To record estimated fair value of inventory and related cost of products sold.
(c)
To record the estimated fair value of intangible assets and residual goodwill.
(d)
To eliminate Scott’s Liquid Gold’s historical shareholders’ equity and record fair value of consideration transferred to Horizon Kinetics.
(e)
To record estimated fair value of cost of products sold.
(f)
To estimate professional expenses directly related to the Merger that have not yet been incurred.

 

34


 

(g)
To record additional amortization expense from acquired intangible assets.
(h)
To reflect income tax impact of acquired business results and pro forma adjustments.
(i)
The pro forma basic and diluted earnings per share calculations are based on the basic and diluted weighted average shares of the Company, reflective of the Reverse Stock Split. The pro forma basic and diluted weighted average shares outstanding are a combination of historical weighted average Scott’s Liquid Gold-Inc. shares and the share impact related to the Merger as follows:

 

Historic weighted average number of common shares outstanding

 

 

 

Basic and diluted (reported)

 

 

12,927

 

Impact of Reverse Stock Split (1-for-20)

 

 

(12,281

)

Basic and diluted (pro forma)

 

 

646

 

 

 

 

 

Impact of the Merger on the weighted average number of common shares outstanding

 

 

 

Estimated net tangible assets of Horizon Kinetics, LLC

 

$

220,000

 

Value of operating business based on AUM

 

$

200,000

 

Total value of Horizon Kinetics

 

$

420,000

 

 

 

 

 

Merger Consideration (total value of Horizon Kinetics divided by 25)

 

 

16,800

 

 

 

 

 

Pro forma weighted average number of common shares outstanding

 

 

 

Basic and diluted

 

 

17,446

 

 

 

35


 

HORIZON KINETICS’ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the historical consolidated financial statements of Horizon Kinetics and the related notes included elsewhere in this proxy statement. The historical consolidated financial data discussed below reflect its historical results of operations and financial position. The following discussion and analysis contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in the section entitled “Risk Factors” contained elsewhere in this proxy statement describing key risks associated with the business, operations and industry of Horizon Kinetics. Amounts and percentages presented throughout this section may reflect rounding adjustments and consequently totals may not appear to sum. The items discussed below have had significant effects on many items within Horizon Kinetics’ consolidated financial statements and affect the comparison of the current period’s activity with those of prior periods.

Overview

Horizon Kinetics is a research driven, fundamentals-oriented asset manager serving institutions, individuals and financial professionals. It provides investment management services through its wholly-owned subsidiary and registered investment adviser, Horizon Kinetics Asset Management LLC. Through this subsidiary, it manages a number of strategies, most of which are focused on publicly-traded equity securities, but also private investments and digital assets. To accommodate different investing preferences, Horizon Kinetics’ offerings can be accessed in a variety of ways, including through mutual funds, ETFs, a closed end fund, separately managed accounts that can be customized to the unique investment objectives and risk tolerances of individual clients, and, for qualified investors, via private proprietary partnerships typically known as alternative investments. Horizon Kinetics raises capital for and manages these strategies, and it earns a management fee that varies among products. In certain instances, the fee it earns is tied to the performance of the account. Horizon Kinetics also produces a number of research reports and compendia that are sold mainly to institutions, as it believes that the discipline required to produce written research encourages thorough qualitative and quantitative analysis.

Horizon Kinetics also manages a portfolio of investment securities for its own benefit, which has historically impacted and is expected to impact future results of operations, often significantly so. As of December 31, 2023 and 2022, Horizon Kinetics held investment securities (at fair value) of $37.6 million and $53.3 million, which represented 16% and 21% of its total assets, respectively. In addition, Horizon Kinetics has devoted capital to a variety of the proprietary alternative investment funds it manages. As of December 31, 2023 and 2022, Horizon Kinetics’ investments in these proprietary funds are $104.0 million and $98.2 million, which represented 45% and 39% of total assets, respectively.

In addition to investment management and research activities, Horizon Kinetics operates two wholly-owned, limited purpose broker-dealers, KBD Securities LLC and Kinetics Funds Distributor LLC, both of which are only used for the marketing and promotion of its investment products. Horizon Kinetics pays a portion of the fee it earns to these and other third-party firms who assist it in marketing.

Along with investing on behalf of clients, Horizon Kinetics also uses its own capital to invest along with its clients in many of its proprietary products and makes direct investments in public and private instruments including digital assets. Certain employees do, from time to time, serve as management or as a member of the board of directors of the companies in which Horizon Kinetics invests.

As of December 31, 2023, Horizon Kinetics had regulatory assets under management ("AUM") of $6.5 billion and 75 employees, 21 of which were considered investment professionals, across offices in New York, NY, White Plains, NY, Summit, NJ and Charlotte, NC.

Horizon Kinetics’ Primary Sources of Revenue

Management or advisory fees are Horizon Kinetics’ primary source of revenue.

The management fees for separately managed accounts are generally calculated on the basis of a percentage of the value of each client’s assets (assets under management) and are charged using either an average daily balance or monthly or quarterly ending balance, and either in arrears or advance.

 

36


 

Horizon Kinetics also earns management fees in its proprietary funds (mutual funds, ETFs, closed-end funds and proprietary partnerships) as compensation for internal fund management and advisory services. The management fees for the proprietary funds vary by fund and investment strategy and are typically approximately between 1.0% and 2.0% of the net asset value of the funds’ underlying investments.

Some clients of Horizon Kinetics in certain separately managed accounts may pay performance fees in addition to or in lieu of management fees, if their portfolio achieves positive investment returns, in certain cases, in excess of an agreed benchmark or hurdle rate. Typically, such fees are paid annually upon crystallization or when a client closes their investment and are not accrued prior to being earned.

Horizon Kinetics is also entitled to receive incentive fees on proprietary partnerships if certain performance returns have been achieved as stipulated in the governing documents of the applicable fund. The incentive fees are typically calculated as a percentage of the gains experienced by each partner in the respective fund. Typically, such fees are paid annually upon crystallization or when a client closes their investment and are not accrued prior to being earned. Horizon Kinetics recognizes its incentive fees when it is no longer probable that a significant reversal of revenue will occur. Horizon Kinetics’ incentive fees are not subject to clawback provisions.

Business Highlights in 2023

Management and advisory fees

Horizon Kinetics’ total revenues declined approximately $9.2 million, or 15%, for the year ended December 31, 2023. The decline is primarily the result of a decline in performance fees of approximately $5.1 million due to not meeting investment thresholds in certain underlying proprietary funds. The decline in fair values across the assets under management by Horizon Kinetics resulted in declines in the annual management fees from mutual funds, ETFs, proprietary funds and separately managed accounts.

Assets under management

AUM at December 31, 2023 decreased by approximately $1.5 billion, or 19%, to $6.5 billion, at December 31, 2023 primary driven by the decline in assets at Inflation Beneficiaries ETF (INFL), the Kinetics Paradigm Fund and SMA accounts. The market value of Texas Pacific Land Corp. (“TPL”), which is widely held across Horizon Kinetics’ proprietary funds, declined 32% in 2023 resulting in a general decline in AUM. However, Horizon Kinetics also holds various investment in funds devoted primarily to Bitcoin or related assets, such as the Grayscale Bitcoin Trust. These investments are also held widely across Horizon Kinetics’ proprietary funds and had a partially offsetting impact as the Grayscale Bitcoin Trust grew by 318% during 2023.

Investment performance

Horizon Kinetics maintains a portfolio for investment purposes and has also invested substantial capital in its proprietary funds alongside client investors. For the year ended December 31, 2023 there was a decline of $15.4 million in the value of this portfolio primarily due to the 32% decline in the TPL securities held directly by Horizon Kinetics. The decline in the fair value of Horizon Kinetics’ investments is reported in unrealized gain (loss) on investments, net in the accompanying Consolidated Statement of Operations. For the year ended December 31, 2023, Horizon Kinetics’ equity in earnings (losses) in proprietary funds was $5.7 million. This equity earnings is the result of proprietary funds holding primarily bitcoin or related assets (Horizon Kinetics Equity Fund Opportunities and Horizon Kinetics Multi-Strategy funds) contributing $12.4 million of earnings, while proprietary funds primarily holding TPL assets (Polestar, Horizon Kinetics Hard Assets, Kinetics Institutional Partners and Kinetics Partners) contributed partially offsetting losses of $7.9 million due to the decline in TPL’s fair value during 2023.

Results of Operations

Revenues

Management and advisory fees

Horizon Kinetics’ total revenues declined approximately $9.2 million, or 15.3%, for the year ended December 31, 2023 compared to the prior year. The decline is primarily the result of a decline in performance fees of approximately $5.1 million due to not meeting investment thresholds in certain underlying proprietary funds. The decline in fair values across the assets under management by Horizon Kinetics resulted in declines in the annual management fees from mutual funds, ETFs, proprietary funds and separately managed accounts, which also contributed to the overall decline in revenues.

 

37


 

Operating Expenses

Compensation and employee benefits

Horizon Kinetics’ operating expenses include employee compensation for investment professionals and other management personnel. Horizon Kinetics’ compensation costs for the year ended December 31, 2023 decreased by approximately $0.8 million, or 3.0%, compared to the prior year, due to commissions that were approximately $1.5 million lower resulting from lower average AUM during 2023. Those decreases were partially offset by a $0.5 million increase in expenses for portfolio research staffing and a $0.2 million increase in employee health insurance costs.

Sales, Distribution and Marketing expenses

For the year ended December 31, 2023, sales, distribution and marketing expenses declined $0.4 million, or 3.8%, compared to the prior year, principally the result of lower amounts of $0.3 million due to FRMO pursuant to its revenue sharing agreement with Horizon Kinetics, and a residual commission payment of $0.3 million. These decreases were partially offset by increased sub-advisory and marketing expenses at various mutual funds and ETFs managed by Horizon Kinetics.

Depreciation and amortization

Depreciation and amortization did not vary significant for the year ended December 31, 2023 as compared to the prior year.

General and administrative expenses

For the year ended December 31, 2023, general and administrative expenses increased by $0.8 million, or 9.6%, compared to the prior year, as a result of legal expenses associated with a lawsuit filed on November 23, 2022 by TPL against Horizon Kinetics, Horizon Kinetics Asset Management, LLC and certain other parties to resolve a disagreement over a voting commitment contained in a stockholders’ agreement between the parties. Horizon Kinetics also experienced a $0.4 million increase in insurance premiums and incurred approximately $0.1 million of legal fees associated with the pending merger transaction with Scott’s Liquid Gold. These increases were partially offset due to other decreases in legal fees of $0.2 million and other general expenses.

Equity in income of proprietary funds, net

The Equity in income of proprietary funds decreased by $2.1 million for the year ended December 31, 2023 compared to the prior year. The decrease was due to lower net asset values at proprietary funds whose underlying assets were dominated by holdings of TPL, including Polestar, Horizon Kinetics Hard Assets, Kinetics Partners and Kinetics Institutional Partners. These decreases were substantially offset by increases in net asset values at Horizon Kinetics Hard Assets, whose underlying assets were dominated by holdings of Bitcoin or related investments (such as Grayscale Bitcoin Trust).

Interest and dividend income

Interest and dividend income did not change significantly for the year ended December 31, 2023 as compared to the prior year.

Other income (expense), net.

Other income (expense), net decreased by $0.9 million for the year ended December 31, 2023, compared to the prior year, primarily as a result of a $0.7 million provision for credit losses associated with a note receivable to a related party.

Unrealized gains (losses) on investments, net

For the year ended December 31, 2023, unrealized gains (losses) on investments declined by $33.5 million compared to the prior year. This decrease was due to the $14.0 million unrealized loss on TPL stock during the year ended December 31, 2023 as compared to a $19.7 million unrealized gain for the year ended December 31, 2022 following TPL’s 103% increase in market value during 2022.

Income tax benefit (expense)

Horizon Kinetics is generally not subject to U.S. federal and state corporate income taxes due to its status as a limited liability company taxed at the member level as a partnership. However, Horizon Kinetics is subject to the 4% New York City unincorporated business tax for a portion of its operations. For the years ended December 31, 2023 and 2022, the effective tax rate was primarily impacted by state apportionment.

 

38


 

Regulated Subsidiaries

Many of our principal subsidiaries are subject to extensive regulation in the United States and elsewhere. Horizon Kinetics Asset Management LLC, a registered U.S. investment advisor, is regulated by the Securities and Exchange Commission. Kinetics Funds Distributors LLC and KBD Securities LLC, registered U.S. limited purpose broker dealers, are regulated by the Financial Industry Regulatory Authority. Horizon Kinetics may also be subject to regulation in other jurisdictions where it operates.

Liquidity and Capital Resources

At December 31, 2023, Horizon Kinetics had $10.5 million of cash and cash equivalents. Horizon Kinetics believes that its cash and cash equivalents at December 31, 2023 will be sufficient to fund operations for at least one year from the date of this proxy statement.

Horizon Kinetics also had $37.6 million of investments, at fair value. These investments include $30.1 million held in a single security, approximately 57,000 shares of TPL. During the year ended December 31, 2023 the fair value of Horizon Kinetics’ TPL holdings declined approximately $14.0 million due to the approximately 32% decline in the fair value of TPL common shares. Horizon Kinetics may be limited in its ability to sell this security due to our status as an affiliate of TPL.

In the normal course of business, we may engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications, and potential contingent repayment obligations. We do not have any off-financial position arrangements that would require us to fund losses or guarantee target returns to clients.

The following table and discussion summarize our Consolidated Statement of Cash Flows:

 

 

Year Ended December 31,

 

 

2023

 

 

2022

 

 

Variance

 

 

(dollars in thousands)

 

Net cash provided by operating activities

 

$

10,501

 

 

$

19,362

 

 

$

(8,861

)

Net cash provided by (used in) investing activities

 

 

782

 

 

 

(3,343

)

 

 

4,125

 

Net cash used in financing activities

 

 

(9,620

)

 

 

(14,280

)

 

 

4,660

 

 

$

1,663

 

 

$

1,739

 

 

$

76

 

 

Operating cash flows

Net cash provided by operating activities decreased $8.9 million for the year ended December 31, 2023 compared to the prior year. The decrease was primarily the result of the net loss for the year as compared to net income for the year ended December 31, 2022 offset by various non-cash adjustments, including the $33.5 million increase related to the net change in unrealized gain or loss on investments. Horizon Kinetics also experienced a $6.3 million increase in operating cash flows from the reduction in fees receivable during the year ended December 31, 2023.

Investing cash flows

Net cash provided by (used in) investment activities increased $4.1 million for the year ended December 31, 2023 as compared to the prior year. The increase was primarily the result of lower levels of investment purchases and higher proceeds from the sale of certain investments during the year. Horizon Kinetics also issued additional notes receivable to a related party of $0.5 million during 2023.

Financing cash flows

Horizon Kinetics’ cash flows used in financing activities for the years ended December 31, 2023 and 2022 were exclusively distributions paid to Members. Horizon Kinetics expects to cease the payment of distributions subsequent to the closing of the Merger transaction.

Horizon Kinetics has not made a determination of a dividend policy subsequent to the proposed merger transaction.

 

39


 

Contractual Cash Obligations and Other Commercial Commitments

Horizon Kinetics’ contractual cash obligations and other commercial commitments is limited to certain operating leases for office space as summarized below:

 

 

Payments Due by Period

 

 

Total

 

 

2024

 

 

2025 and
2026

 

 

2027 and 2028

 

 

After 2028

 

 

(dollars in thousands)

 

Contractual Cash Obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

$

7,739

 

 

$

2,358

 

 

$

4,821

 

 

$

560

 

 

 

 

Total contractual obligations (a)

 

$

7,739

 

 

$

2,358

 

 

$

4,821

 

 

$

560

 

 

 

 

 

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with GAAP is based on the selection and application of accounting policies that require us to make significant estimates and assumptions that in certain circumstances affect amounts reported in the audited consolidated financial statements. In preparing these financial statements, our estimates and judgments are based on historical experience, information from third-party valuation professionals and various other assumptions, giving due consideration to materiality. We consider the accounting policy discussed below to be critical to the understanding of our consolidated financial statements. Actual results could differ from our estimates and assumptions, and any such difference could be material to our consolidated financial statements. This significant accounting policy are also described more fully in Note 2, Accounting Policies, to the audited consolidated financial statements.

Revenue recognition

Horizon Kinetics recognizes revenues when its obligations related to the services are satisfied and it is probable that a significant reversal of the revenue amount would not occur in future periods. Horizon Kinetics enters into contracts that can include multiple services, which are accounted for separately if they are determined to be distinct. Management judgment is required in assessing the probability of significant revenue reversal and in identification of distinct services.

Horizon Kinetics derives a substantial portion of its revenue from investment advisory and administration fees which are recognized as the services are performed over time because the customer is receiving and consuming the benefits as they are provided by Horizon Kinetics. Fees are primarily based on agreed-upon percentages of AUM and recognized for services provided during the period, which are distinct from services provided in other periods. Such fees are affected by changes in AUM, including market appreciation or depreciation and net inflows or outflows. AUM represents the broad range of financial assets Horizon Kinetics manages for clients on a discretionary basis pursuant to investment management and trust agreements that are expected to continue for at least 12 months. In general, reported AUM reflects the valuation methodology that corresponds to the basis used for determining revenue (for example, net asset values).

Horizon Kinetics receives investment advisory performance fees, including incentive allocations from certain actively managed investment funds and certain separately managed accounts ("SMAs"). These performance fees are dependent upon exceeding specified relative or absolute investment return thresholds, which vary by product or account, and could include varying measurement periods.

Performance fees are generated on certain management contracts when performance hurdles are achieved. Such performance fees are recognized when the contractual performance criteria have been met and when it is determined that they are no longer probable of significant reversal. Given the unique nature of each fee arrangement, contracts with customers are evaluated on an individual basis to determine the timing of revenue recognition. Significant judgment is involved in making such determination. Performance fees typically arise from investment management services that began in prior reporting periods. Consequently, a portion of the fees Horizon Kinetics recognizes may be partially related to the services performed in prior periods that meet the recognition criteria in the current period. At each reporting date, Horizon Kinetics considers various factors in estimating performance fees to be recognized. These factors include but are not limited to whether: (1) the amounts are dependent on the financial markets and, thus, are highly susceptible to factors outside Horizon Kinetics’ influence; (2) the ultimate payments have a large number and a broad range of possible amounts; and (3) the funds or SMAs have the ability to (a) invest or reinvest their sales proceeds or (b) distribute their sales proceeds, and determine the timing of such distributions.

 

40


 

Consolidations

In addition to its wholly-owned subsidiaries, generally accepted accounting principles in the United States of America (“GAAP”) requires that the assets, liabilities and results of operations of a variable interest entity (“VIE”) be consolidated into the financial statements of the enterprise that has a controlling interest in the VIE. The determination as to whether an entity qualifies as a VIE depends on the facts and circumstances surrounding each entity, and therefore certain of the investment vehicles managed by Horizon Kinetics may qualify as VIEs under the variable interest model, whereas others may qualify as voting interest entities (“VOEs”) under the voting interest model. The granting of substantive kick-out rights is a key consideration in determining whether a limited partnership or similar entity is a VIE and whether or not that entity should be consolidated.

The determination of whether to consolidate a VIE under US GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interests. To make these judgments, we conduct an analysis, on a case-by-case basis, of whether we are the primary beneficiary and are therefore required to consolidate an entity. We continually reconsider whether we should consolidate a VIE. Upon the occurrence of certain events, such as modifications to organizational documents and investment management agreements of our products, we will reconsider our conclusion regarding the status of an entity as a VIE. Our judgment when analyzing the status of an entity and whether we consolidate an entity could have a material impact on individual line items within our consolidated financial statements, as a change in our conclusion would have the effect of grossing up the assets, liabilities, revenues and expenses of the entity being evaluated. In light of certain direct and indirect investments into our products, the likelihood of a reasonable change in our estimation and judgment could result in a change in our conclusions to consolidate or not consolidate any VIEs to which we have exposure.

 

41


 

THE SPECIAL MEETING

What is the time, date, place and purpose of the Special Meeting?

The Special Meeting is scheduled to be held virtually at www.virtualshareholdermeeting.com/SLGD2024SM on June 20, 2024 at 2:00 p.m., Eastern Time, to vote on the following proposals:

1.
To effect a reverse stock split of the outstanding shares of the Company’s Common Stock at a ratio of 1-for-20, as set forth in the Reverse Stock Split Proposal;
2.
To (i) approve the reincorporation of the Company in the state of Delaware, and (ii) change the name of the Company to “Horizon Kinetics Holding Corporation”, as set forth in the Reincorporation Proposal; and
3.
To approve any adjournment of the Special Meeting, for any reason, including, if necessary, to solicit additional proxies if there are not sufficient votes to approve one or more of the proposals, or the Adjournment Proposal.

Other than the foregoing proposals, we do not expect any other matters to be presented for a vote at the Special Meeting. If any other matter is properly brought before the Special Meeting, your proxy gives authority to the proxies described therein to vote on such matters in their discretion.

No separate approval of the Merger Agreement or the Merger by the Company’s shareholders is necessary; the Company’s shareholders are not being asked to vote upon the Merger Agreement or the Merger. However, if either the Reverse Stock Split Proposal or the Reincorporation Proposal is not approved, the Merger cannot be completed. A vote to approve the Reverse Stock Split Proposal and the Reincorporation Proposal will, in effect, be a vote in favor of the Merger.

Representatives of the Company’s independent registered public accounting firm are not expected to be present at the Special Meeting.

What is the record date and who is entitled to vote?

Our Board of Directors has fixed the close of business on May 7, 2024 as the record date for determination of shareholders entitled to receive notice of, and to vote at, the Special Meeting or any adjournments or postponements thereof. Only the Company’s shareholders of record at the close of business on the record date are entitled to (a) receive notice of the Special Meeting, (b) attend the Special Meeting and (c) vote on all matters that properly come before the Special Meeting.

At the close of business on the record date, 13,006,162 shares of our Common Stock were outstanding and entitled to vote. Each share is entitled to one vote on each matter to be voted upon at the Special Meeting. The Company’s Common Stock is the only class of securities entitled to vote at the Special Meeting.

What is the vote required to approve each of the proposals?

 

 

Proposal

Vote Required

1.

Reverse Stock Split Proposal

The votes cast “FOR” the proposal must exceed the votes cast “AGAINST” the proposal.

2.

Reincorporation Proposal

The votes cast “FOR” the proposal must exceed the votes cast “AGAINST” the proposal.

 

 

 

3.

Adjournment Proposal

The votes cast “FOR” the proposal must exceed the votes cast “AGAINST” the proposal. If the adjournment is proposed because a quorum is absent, then a majority of the votes present in person (virtually) or represented by proxy and entitled to vote may adjourn as provided in the Bylaws.

 

How do I attend the Special Meeting?

The Special Meeting will only be held virtually. Broadridge is hosting the webcast of the Special Meeting. In order to attend the virtual Special Meeting, vote during the Special Meeting and submit questions, please log into the meeting platform at: www.virtualshareholdermeeting.com/SLGD2024SM. You will be prompted to enter the 16-digit control number included on your

 

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proxy card or on the instructions that accompanied your proxy materials. Beneficial owners who hold their shares in “street name” will need to follow the instructions provided by the broker, bank or other nominee that holds their shares.

Shareholders may submit live questions on the conference line while attending the virtual Special Meeting.

What if I have technical difficulties or trouble accessing the virtual Special Meeting?

Broadridge will have technicians ready to assist you with any technical difficulties you may have in accessing the virtual Special Meeting. If you encounter any difficulties accessing the virtual meeting during check-in or the meeting, please call Broadridge’s technical support number that will be posted on the virtual meeting platform log-in page.

How do I participate in and vote at the Special Meeting?

If you are a record holder, you can participate and vote your shares in the Special Meeting by visiting www.virtualshareholdermeeting.com/SLGD2024SM and entering the 16-digit control number included on your proxy card.

If you are a beneficial owner of shares held in “street name,” you will need to follow the instructions provided by the broker, bank or other nominee that holds their shares.

Even if you plan to attend the Special Meeting, we recommend that you also vote by proxy as described below so that your vote will be counted if you later decide not to participate in the Special Meeting.

How do I vote without participating in the Special Meeting?

Record holders may vote without participating in the Special Meeting by any of the following means:

By Internet – Shareholders of record with Internet access may direct how their shares are voted by following the “Vote by Internet” instructions on the proxy card until 11:59 p.m. Eastern Time, on June 19, 2024 (have your 16-dgit control number, which can be found on your proxy card or on the instructions that accompanied your proxy materials, in hand when you access the website). If you are a Beneficial Owner, please check the voting instructions in the voting instruction card provided by your broker, bank or other intermediary for Internet voting availability.
By telephone – Shareholders of record who live in the United States or Canada may submit proxies by telephone by following the “Vote by Phone” instructions on the proxy card until 11:59 p.m. Eastern Time, on June 19, 2024. If you are a Beneficial Owner, please check the voting instructions in the voting instruction card provided by your broker, bank or other intermediary for telephone voting availability.
By mail – If you elect to vote by mail, please complete, sign and date the proxy card where indicated and return to Vote Processing, C/O Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Proxy cards submitted by mail must be received before the start of the Special Meeting in order for your shares to be voted. If you are a Beneficial Owner, you may vote by mail by following the instructions for voting by mail in the voting instruction card provided by your broker, bank or other intermediary.

*If you vote by Internet or telephone, please do not mail your proxy card.

Whether or not you plan to attend the Special Meeting, we encourage you to vote by proxy as soon as possible. In order to be counted, proxies submitted by Internet or telephone must be received by 11:59 p.m. Eastern Time on June 19, 2024. Because of possible delays with the mail, we recommend you use the Internet or telephone to vote.

What is an abstention and how is it treated?

An abstention represents a shareholder’s affirmative choice to decline to vote on a proposal. Abstained shares are considered to be “present” and “entitled to vote” at the Special Meeting and therefore are included in determining whether or not a quorum is present at the Special Meeting.

Abstentions will have no impact on the vote for any of the proposals.

 

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What is a broker non-vote and how is it treated?

If your shares are held in “street name” in an account at your broker, bank or another nominee, you must instruct the broker, bank or such other nominee as to how to vote your shares by following the instructions they provide to you.

If you do not provide these voting instructions, your shares (1) will not count as “present” for purposes of determining whether or not a quorum is present at the Special Meeting and (2) will not be voted on any proposal, because your broker or other nominee does not have discretionary authority to vote on any of the proposals. This is called a “broker non-vote.” When a quorum is present, broker non-votes will have no impact on the vote for any of the proposals.

Am I granting any discretionary authority to vote through my proxy?

Yes, you are granting discretionary authority for the proxy holders to vote on any other, non-specified matter that may properly come before the Special Meeting or any adjournment or postponement thereof.

What is considered a quorum at the Special Meeting?

A quorum of shareholders is necessary to validly hold the Special Meeting. A quorum will be present if a majority of the shares entitled to be cast are present at the Special Meeting, either in person (virtually) or by proxy. A quorum is not required to approve Proposal 3, the Adjournment Proposal.

How will proxies be counted?

All shares represented by properly executed proxies received in time for the Special Meeting will be voted at the meeting in the manner specified by the shareholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” each of the proposals.

Is my proxy or voting instruction form revocable?

You may revoke your proxy and change your vote at any time before your proxy is voted at the Special Meeting by giving written notice to the Corporate Secretary of the Company, by delivering a proxy card dated after the date of the proxy or by voting virtually at the special meeting (although your attendance alone at the Special Meeting will not revoke your proxy). All written notices of revocation and other communications with respect to revocations of proxies should be addressed to the Company at 720 S. Colorado Blvd, PH N, Denver, Colorado, 80246, Attention: Corporate Secretary.

If your shares are held in a “street name” you must contact your broker or other nominee to change your vote.

What happens if I sell my shares of Common Stock before the Special Meeting?

The record date for the Special Meeting is earlier than the date of the Special Meeting. If you transfer your shares after the record date but before the Special Meeting date, you will retain your right to vote those shares at the Special Meeting.

Whom can I contact if I have questions about the Special Meeting or the proposals to be voted on?

You can call the Company's President, David Arndt, at investorrelations@slginc.com or (303) 576-6027 Monday through Friday between the hours of 9:30 and 4:00 Mountain time with any questions.

Will the Company be paying proxy solicitation fees in connection with the Special Meeting?

The Company will bear the cost of soliciting proxies for the Special Meeting. In addition to mailing these proxy materials, our directors, officers and employees may solicit proxies by telephone and facsimile, by mail, over the Internet or in person. They will not be paid any additional amounts for soliciting proxies. The Company also will request that banks, brokerage firms, custodians, trustees, nominees, fiduciaries and other similar record holders forward the solicitation materials to the beneficial owners of Common Stock held of record by such person, and the Company will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.

 

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PROPOSAL 1 – APPROVAL OF A REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK

Overview

On May 10, 2024, our Board of Directors approved, and recommended that our shareholders approve, a proposal to effect a reverse stock split of our outstanding shares of Common Stock at a ratio of 1-for-20 (the “Reverse Stock Split”). Pursuant to this Reverse Stock Split Proposal, we are asking our shareholders to approve the Reverse Stock Split.

If the Reverse Stock Split Proposal is approved, and the Merger is completed, the Reverse Stock Split will be accomplished pursuant to the Plan of Conversion without any further action necessary on the part of the shareholders. The Plan of Conversion is further explained in the Reincorporation Proposal.

If the Reverse Stock Split Proposal is approved, and the Merger is not completed for any reason, the Reverse Stock Split may or may not be accomplished at the discretion of our Board of Directors.

Consequences of a Failure to Approve

The closing of the Merger is contingent upon the approval of both this Reverse Stock Split Proposal and the Reincorporation Proposal. These proposals are presented to you separately in this proxy statement in accordance with SEC rules and guidance. If either the Reverse Stock Split Proposal or the Reincorporation Proposal is not approved, the Merger will not proceed.

If the Reverse Stock Split is not approved, the ratio of authorized and unissued shares of Common Stock to authorized and issued shares of Common Stock will remain the same and there will be an insufficient number of shares of Common Stock available for issuance as Merger Consideration.

If the Reincorporation Proposal is not approved, the Company will (a) continue to be incorporated in Colorado and governed by the C.R.S. and the Company’s current Articles of Incorporation and Bylaws and (b) its name will not change.

Purpose of Reverse Stock Split

The dual objectives behind the Reverse Stock Split are (i) to raise the per share trading price of our Common Stock (ii) while at the same time making available a sufficient number of shares of Common Stock for issuance as Merger Consideration to the members of Horizon Kinetics.

Our Board of Directors believes that the Reverse Stock Split could, among other things, (i) enhance the appeal of our Common Stock among investors and (ii) better enable us in the future to list our Common Stock on a stock exchange to enhance the liquidity of our Common Stock.

In addition, and of particular importance in connection with the proposed Merger, by effecting the Reverse Stock Split, the Company will decrease the number of pre-Merger shares of Common Stock issued and outstanding by a factor of 20, while maintaining the number of authorized shares of Common Stock (and preferred stock) unchanged. The resulting temporary increase in the ratio of authorized but unissued shares of Common Stock to issued shares of Common Stock will allow a sufficient number of shares of Common Stock to be issued as Merger Consideration. It should be noted, however, that, once adjusted for the Merger Consideration, the ratio of authorized but unissued shares of Common Stock to issued shares of Common Stock will be less than the pre-Reverse Stock Split ratio.

Our Board of Directors believes that the Reverse Stock Split could enhance the acceptability and marketability of our Common Stock to the financial community, including institutional investors and the general investing public. For example, many institutional investors have policies prohibiting them from holding stocks in their own portfolios that trade at prices below certain levels. We believe that a number of institutional investors and investment funds are reluctant to invest in lower-priced securities and that brokerage firms may be reluctant to recommend lower-priced securities to their clients, which may be due in part to a perception that lower-priced securities are less promising as investments, are less liquid in the event that an investor wishes to sell its shares, or are less likely to be followed by institutional securities research firms and therefore more likely to have less third-party analysis of the company available to investors. We also believe that the investors who are unable to or choose not to invest in the Company because of our share price may be investors who are more oriented towards fundamentals and have a longer-term investment horizon. We believe that a higher share price and lower outstanding share count will increase the perceived quality and appeal of our Common Stock for investment purposes and may expand our audience of potential investors in general and increase our shareholder base of investors with longer-term investment horizons specifically.

 

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If both this Reverse Split Proposal and the Reincorporation Proposal are approved, but the Merger is not consummated, the Board of Directors reserves the right not to proceed with the Reverse Stock Split or Reincorporation, but may also decide to proceed with either or both.

Determination of Ratio

The Reverse Stock Split, if approved and implemented as proposed, will be at an exchange ratio of 1-for-20. In determining the reverse stock split ratio, our Board of Directors considered numerous factors, including:

the maximum number of shares of Common Stock issuable as Merger Consideration under the Merger Agreement;
the historical and projected performance of our Common Stock;
the projected impact of the selected reverse stock split ratio on trading liquidity in our Common Stock;
our capitalization (including the number of shares of our Common Stock issued and outstanding and the number of shares of Common Stock reserved for issuance);
the number of additional authorized, unissued and otherwise unreserved shares of our Common Stock that would be available for issuance for future corporate purposes;
the prevailing trading price for our Common Stock and the volume level thereof;
prevailing market conditions;
general economic and other related conditions prevailing in our industry and in the marketplace; and
potential devaluation of our market capitalization as a result of a reverse stock split.

Effects of Reverse Stock Split

A reverse stock split refers to a reduction in the number of outstanding shares of a class of a corporation’s capital stock, which may be accomplished, as in this case, by reclassifying and combining all of the outstanding shares of our Common Stock into a proportionately smaller number of shares of Common Stock. For example, if the Reverse Stock Split Proposal is approved by shareholders and the Merger proceeds (or the Board otherwise decides to proceed with the Reverse Stock Split), a shareholder holding 20,000 shares of Common Stock before the Reverse Stock Split would hold 1,000 shares of Common Stock immediately after the Reverse Stock Split. In the absence of the Merger, each shareholder’s proportionate ownership of our outstanding shares of Common Stock would remain the same, except that shareholders who would otherwise receive fractional shares as a result of the Reverse Stock Split will receive cash as described in “—Treatment of Fractional Shares.” However, as explained in the section “The Merger,” as a result of the issuance of the Merger Consideration, the proportional ownership of the combined company of each legacy shareholder of the Company will be significantly smaller than in the absence of the Merger.

We are currently authorized to issue up to 50,000,000 shares of Common Stock, par value $0.10 per share, and up to 20,000,000 shares of preferred stock, no par value per share. If we effect the Reverse Stock Split, the number of shares of our authorized Common Stock and preferred stock will remain unchanged. The Reverse Stock Split will not affect the par value of our Common Stock, which, will remain at $0.10 per share, or our preferred stock, which will remain without a par value. However, the Reverse Stock Split will temporarily increase the ratio of authorized but unissued shares of Common Stock to issued shares of Common Stock, so as to permit the Company to issue shares as Merger Consideration. Once adjusted for the Merger Consideration, the ratio of authorized but unissued shares of Common Stock to issued shares of Common Stock will be less than the pre-Reverse Stock Split ratio.

The Reverse Stock Split will also reduce the number of shares of Common Stock reserved for future awards under our 2015 Equity and Incentive Plan. The per share exercise price of all outstanding option awards will be increased proportionately and the number of shares of Common Stock issuable upon the exercise of all outstanding option awards will be reduced proportionately. These adjustments will result in approximately the same aggregate exercise price being required to be paid for all outstanding option awards upon exercise, although the aggregate number of shares issuable upon exercise of such option awards will be reduced proportionately following the Reverse Stock Split.

 

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The following table illustrates the effects of the Reverse Stock Split, without giving effect to any adjustments for fractional shares of Common Stock and without giving effect to the issuance of the Merger Consideration, on our outstanding shares of Common Stock as of May 7, 2024.

 

 

Before Reverse
Stock Split

 

 

After Reverse
Stock Split
1-for-20

 

Shares of Common Stock Issued and Outstanding

 

 

13,006,162

 

 

 

650,308

 

Shares Reserved for Issuance under the 2015
   Equity and Incentive Plan

 

 

1,988,000

 

 

 

99,400

 

Shares Reserved for Issuance Upon Exercise of
   Outstanding Stock Options

 

 

12,000

 

 

 

600

 

Total Number of Shares of Common
   Stock Authorized to be Issued

 

 

50,000,000

 

 

 

50,000,000

 

Total Number of Shares of Common Stock
   Available to be Issued

 

 

34,993,838

 

 

 

49,249,692

 

 

Although the number of our outstanding shares of Common Stock would decrease as a result of the Reverse Stock Split, our Board of Directors does not intend to use the Reverse Stock Split as a part of, or a first step in, a “going private” transaction within the meaning of Rule 13e-3 of the Exchange Act. There is no plan or contemplated plan by the Company to take itself private as of the date of this proxy statement. The Reverse Stock Split will not affect the Company continuing to be subject to the periodic reporting requirements of the Exchange Act.

Effect on Beneficial Shareholders. Shareholders holding our Common Stock through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing the Reverse Stock Split than those that would be put in place by the Company for registered shareholders that hold such shares directly, and their procedures may result, for example, in differences in the precise cash amounts being paid by such nominees in lieu of a fractional share. If you hold your shares with such a bank, broker or other nominee and if you have questions in this regard, you are encouraged to contact your bank, broker or nominee.

Effect on Registered Certificated Shares. Some registered shareholders may hold their shares of Common Stock in certificate form or a combination of certificate and book-entry form. If any of your shares of our Common Stock are held in certificate form, you will receive a letter of transmittal from the Company’s transfer agent as soon as practicable after the effective date of the reverse stock split. The letter of transmittal will contain instructions on how to surrender your certificate(s) representing your pre-split shares to the transfer agent. Upon receipt of your properly completed and executed letter of transmittal and your stock certificate(s), you will be issued the appropriate number of shares either in certificate form or electronically in book-entry form under the direct registration system. If you are entitled to a payment in lieu of any fractional share interest, payment will be made as described below under “—Treatment of Fractional Shares.” No new stock certificates or payments in lieu of fractional shares will be issued to a shareholder until such shareholder has surrendered such shareholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the transfer agent.

Effect on Registered Book-Entry Holders. The company’s registered shareholders may hold some or all of their shares electronically in book-entry form under the direct registration system for securities. These shareholders will not have stock certificates evidencing their ownership of our Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.

If you hold shares in a book-entry form, you do not need to take any action to receive your post-split shares or your cash payment in lieu of any fractional share interest, if applicable. If you are entitled to post-split shares, a transaction statement will automatically be sent to your address of record indicating the number of shares you hold.
If you are entitled to a payment in lieu of any fractional share interest, a check will be mailed to you at your registered address as soon as practicable after the company’s transfer agent completes the aggregation and sale described below in “—Treatment of Fractional Shares.” By signing and cashing this check, you will warrant that you owned the shares for which you receive a cash payment.

 

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Treatment of Fractional Shares

Shareholders will not receive fractional shares in connection with the Reverse Stock Split. Instead, we will pay to each registered shareholder, in cash, the value of any fractional share interest in our Common Stock arising from the Reverse Stock Split. Those registered shareholders who hold their shares in certificated form will receive a cash payment for their fractional interest, if applicable, following the surrender of their pre-Reverse Stock Split stock certificates for post-Reverse Stock Split shares. The cash payment would equal the fraction to which the shareholder would otherwise be entitled multiplied by the closing sales price of the Common Stock as reported on OTC Pink Market tier of OTC Markets (or other market on which the company’s Common Stock is listed), as of the effective date of the Reverse Stock Split. This cash payment may be subject to applicable U.S. federal, state and local income tax.

No transaction costs will be assessed on shareholders for the cash payment. Shareholders will not be entitled to receive interest for the period of time between the effective date of the Reverse Stock Split and the date payment is made for their fractional share interest in our Common Stock. You should also be aware that, under the escheat laws of certain jurisdictions, sums due for fractional interests that are not timely claimed after the funds are made available may be required to be paid to the designated agent for each such jurisdiction. Thereafter, shareholders otherwise entitled to receive such funds may have to obtain the funds directly from the state to which they were paid.

If you believe that you may not hold sufficient shares of our Common Stock at the effective date of the Reverse Stock Split to receive at least one share in the Reverse Stock Split and you want to continue to hold our Common Stock after the split, you may do so by either:

purchasing a sufficient number of shares of our Common Stock; or
if you have shares of Common Stock in more than one account, consolidating your accounts, so that in each case you hold a number of shares of our Common Stock in each of your accounts prior to the Reverse Stock Split that would entitle you to receive at least one share of our Common Stock on a post-Reverse Stock Split basis. Common Stock held in registered form (that is, shares held by you in your own name on the company’s share register maintained by its transfer agent) and Common Stock held in “street name” (that is, shares held by you through a bank, broker or other nominee) for the same investor would be considered held in separate accounts and would not be aggregated when implementing the reverse stock split. Also, shares of Common Stock held in registered form but in separate accounts by the same investor would not be aggregated when implementing the reverse stock split.

After the Reverse Stock Split, then-current shareholders would have no further interest in the Company with respect to their fractional shares. A person otherwise entitled to a fractional share interest would not have any voting, dividend or other rights in respect of his or her fractional interest except to receive the cash payment as described above. Such cash payments would reduce the number of post-split shareholders to the extent that there are shareholders holding fewer than 20 pre-split shares. Reducing the number of post-split shareholders, however, is not the purpose of this proposal or the Reverse Stock Split.

Anti-Takeover Effect

If and only if the Merger does not proceed and the Board decides nevertheless to effect the Reverse Stock Split upon shareholder approval, the resulting increase in the ratio of authorized but unissued shares of Common Stock to issued shares of Common Stock could be construed as having an anti-takeover effect by permitting the issuance of shares to purchasers who might oppose a hostile takeover bid or oppose any efforts to amend or repeal certain provisions of our Articles of Incorporation or Bylaws. Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the Board of Directors or contemplating a tender offer or other transaction for the combination of the Company with another company, the Reverse Stock Split is not being proposed in response to any effort of which the Company is aware to accumulate shares of our Common Stock or obtain control of the Company, except pursuant to the Merger Agreement.

Risks and Potential Disadvantages Associated with the Reverse Stock Split

For risks and potential disadvantages associated with the Reverse Stock Split, please refer to “Risk Factors—Risks Relating to the Reverse Stock Split—A Reverse Stock Split may not result in the desired increase in share price or liquidity, may increase the number of ‘odd lots,’ and may be construed as having an anti-takeover effect.”

Procedure for Effecting the Reverse Stock Split

If our shareholders approve the Reverse Stock Split Proposal and the Reincorporation Proposal, and the Merger proceeds, the Reverse Stock Split will become effective upon the effective time specified in the Plan of Conversion. Please refer to “Proposal 2 –

 

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Approval of the Reincorporation of the Company from the State of Colorado to the State of Delaware and Name Change – The Plan of Conversion” for a description of the Plan of Conversion.

If our shareholders approve the Reverse Stock Split Proposal but the Merger does not proceed, and the Board subsequently decides to effect the Reverse Stock Split in the absence of the Merger, the Reverse Stock Split will become effective upon the effective time specified in an Amendment to our Articles of Incorporation.

Beginning at the effective time of the Reverse Stock Split, each stock certificate representing pre-Reverse Stock Split shares will be deemed for all corporate purposes to evidence ownership of post-Reverse Stock Split shares. The Reverse Stock Split will become effective, and the combination of, and reduction in, the number of our outstanding shares as a result of the Reverse Stock Split will occur automatically, at the effective time set forth in the Plan of Conversion or the Amendment to the Articles of Incorporation, as applicable, without any action on the part of our shareholders and without regard to the date that stock certificates representing any certificated shares prior to the Reverse Stock Split are physically surrendered for new stock certificates. Beginning at the effective time of the Reverse Stock Split, each certificate representing pre-Reverse Stock Split shares will be deemed for all corporate purposes to evidence ownership of post-Reverse Stock Split shares. The text of the Plan of Conversion or the Amendment to our Articles of Incorporation, as applicable, is subject to modification to include such changes as may be required by the office of the Secretary of State of the State of Delaware or Colorado, as applicable, and as our Board of Directors deems necessary and advisable to effect the Reverse Stock Split.

As soon as practicable after the effective time of the Reverse Stock Split, we will notify our shareholders that the Reverse Stock Split has been implemented. Broadridge Corporate Issuer Solutions, Inc., our transfer agent, will act as exchange agent for the purposes of implementing the exchange of common stock certificates. Holders of pre-Reverse Stock Split shares of our common stock will be asked to surrender to the exchange agent certificates representing pre-Reverse Stock Split shares of our common stock in accordance with the procedures to be set forth in a letter of transmittal that will be delivered to our common shareholders. No new certificates will be issued to a shareholder until the shareholder has surrendered to the exchange agent his, her or its outstanding certificate(s) together with the properly completed and executed letter of transmittal. SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO. Shareholders whose shares are held by their broker do not need to submit old stock certificates for exchange. These shares will automatically reflect the new quantity of shares based on the Reverse Stock Split.

Our Board of Directors reserves the right, notwithstanding shareholder approval and without further action by the shareholders, to elect not to proceed with the Reverse Stock Split if, at any time prior to the Reverse Stock Split and Reincorporation, our Board of Directors, in its sole discretion, determines that it is no longer in the best interests of the Company and its shareholders to proceed with the Reverse Stock Split.

Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split

The Company intends for the Reverse Stock Split to be a tax-free recapitalization of the Company under Section 368(a)(1)(E) of the Code (or a tax-free exchange under Section 1036 of the Code). Assuming the Reverse Stock Split so qualifies, neither the Company nor any Company shareholder will recognize any gain or loss as a result of the Reverse Stock Split, except as provided below with respect to cash received in lieu of fractional shares. Each holder’s basis in the shares of Common Stock received pursuant to the Reverse Stock Split (including any fractional share of Common Stock deemed received and sold as discussed below) and holding period in such shares will generally be the same as the holder’s basis and holding period in the corresponding Common Stock held at the time the Reverse Stock Split occurs. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Common Stock surrendered to the shares of Common Stock received pursuant to the Reverse Stock Split, so holders of Common Stock acquired on different dates and at different prices should consult their tax advisor regarding the allocation of the tax basis and holding period of such shares.

A holder that receives cash in lieu of a fractional share of Common Stock pursuant to the Reverse Stock Split will generally be treated as having sold such fractional share for cash and is expected to recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the holder’s tax basis in such fractional share of Common Stock. Such gain or loss will generally be long-term capital gain or loss if the holder’s holding period for its Common Stock exceeds one year at the time of the Reverse Stock Split.

 

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This proxy statement only discusses U.S. federal income tax consequences and has done so only for general information. This proxy statement does not address all of the federal income tax consequences that may be relevant to particular shareholders based upon individual circumstances or to shareholders who are subject to special rules, such as, financial institutions, tax-exempt organizations, insurance companies, dealers in securities, foreign holders or holders who acquired their shares as compensation, whether through employee stock options or otherwise, or holders in which the Common Stock is not a capital asset in its hands. This proxy statement does not address the tax consequences under state, local or foreign laws, or federal non-income tax laws.

This discussion was based on the Code, regulations, rulings and decisions in effect as of the date of this proxy statement, all of which are subject to differing interpretations and change, possibly with retroactive effect. The Company has neither requested nor received a tax opinion from legal counsel or rulings from the Internal Revenue Service regarding the consequences of the Reverse Stock Split. There can be no assurance that future legislation, regulations, administrative rulings or court decisions would not alter the consequences discussed above.

You should consult your own tax advisor to determine the particular tax consequences to you of the Reverse Stock Split, including the applicability and effect of federal, state, local, foreign and other tax laws.

OUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE REVERSE STOCK SPLIT PROPOSAL.

For additional information about the Merger, including a summary of the terms of the Merger Agreement entered into in connection with the Merger, see the sections entitled “The Merger” and “The Merger Agreement” below.

 

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PROPOSAL 2 – APPROVAL OF THE REINCORPORATION OF THE COMPANY FROM THE STATE OF COLORADO TO THE STATE OF DELAWARE AND NAME CHANGE

Overview

On December 15, 2023 and May 10, 2024, our Board of Directors approved, subject to shareholder approval, (a) our conversion from a Colorado corporation to a Delaware corporation and (b) a change in the name of the Company to “Horizon Kinetics Holding Corporation”. We also refer to this conversion as the “Reincorporation” and to the Company after such conversion as the “Delaware Company.” Pursuant to this Reincorporation Proposal, our shareholders are being asked to approve the Reincorporation and name change.

Consequences of a Failure to Approve

The closing of the Merger is contingent upon the approval of both this Reincorporation Proposal and the Reverse Split Proposal. These proposals are presented to you separately in this proxy statement in accordance with SEC rules and guidance. If either the Reverse Stock Split Proposal or the Reincorporation Proposal is not approved, the Merger will not proceed.

If the Reverse Stock Split is not approved, the ratio of authorized and unissued shares of Common Stock to authorized and issued shares of Common Stock will remain the same and there will be an insufficient number of shares of Common Stock available for issuance as Merger Consideration.

If the Reincorporation Proposal is not approved, the Company will (a) continue to be incorporated in Colorado and governed by the C.R.S. and the Company’s current Articles of Incorporation and Bylaws and (b) its name will not change.

Purpose of Reincorporation and Name Change

We currently are a Colorado corporation. Since a conversion to a Delaware corporation is a condition to the completion of the Merger, the Company must so convert in order to complete the Merger.

In addition, the Board of Directors believes that the corporate laws of the State of Delaware are more comprehensive, widely used and extensively interpreted than the corporate laws of other states, including Colorado. As a result of the flexibility and responsiveness of the Delaware corporate laws to the legal and business needs of corporations, many major corporations have incorporated in Delaware or have changed their corporate domiciles to Delaware in a manner similar to the Reincorporation. The Delaware judiciary has become particularly familiar with corporate law matters and a substantial body of court decisions has developed construing the laws of Delaware, thus providing greater clarity and predictability with respect to corporate legal and governance affairs. The Board of Directors believes any benefits provided to the Company by Delaware law directly benefit our shareholders.

Furthermore, Delaware courts, including the Court of Chancery and the Delaware Supreme Court, are highly regarded for their considerable expertise in dealing with corporate legal issues and for producing a substantial body of case law construing the Delaware General Corporation Law (“DGCL”). Because the judicial system is based largely on legal precedents, the abundance of Delaware case law should serve to enhance the relative clarity and predictability of many areas of corporate law, which should offer added advantages to the Company by allowing our Board of Directors and management to make corporate decisions and take corporate actions with greater assurance as to the validity and consequences of those decisions and actions.

The Reincorporation may also make it easier to attract future candidates willing to serve on our Board of Directors because many such candidates are already familiar with Delaware corporate law, including provisions relating to director indemnification, from their past business experience.

Our Board of Directors has furthermore determined that it is in the best interest of the Company and its shareholders to change the Company’s name from “Scott’s Liquid Gold-Inc.” to “Horizon Kinetics Holding Corporation” which our Board of Directors believes will better reflect the Company’s new business focus. Separately, the Company is contractually obligated to change its name pursuant to the Asset Purchase Agreement dated January 23, 2023 by and among Nakoma Products LLC, SLG Chemicals, Inc., and the Company.

If both this Reincorporation Proposal and the Reverse Stock Split Proposal are approved, but the Merger is not consummated, the Board of Directors reserves the right not to proceed with the Reverse Stock Split or Reincorporation, but may also decide to proceed with either or both.

 

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Effects of Reincorporation and Name Change

Assuming that shareholder approval of the Reincorporation Proposal is obtained and the Reincorporation becomes effective:

the affairs of the Company will cease to be governed by the C.R.S. and its existing Articles of Incorporation and Bylaws, and the affairs of the Company will become subject to the Delaware General Corporation Law (the “DGCL”), a new Certificate of Incorporation and new Bylaws, as more fully described below, particularly in the section “Comparison of the Company’s Shareholders’ Rights Before and After the Reincorporation and/or Merger”;
the resulting Delaware corporation (the “Delaware Company”) will (i) be deemed to be the same entity as the Company for all purposes under the laws of Delaware, (ii) continue to have all of the rights, privileges and powers of the Company, (iii) continue to possess all of the properties of the Company, and (iv) continue to have all of the debts, liabilities and obligations of the Company; and
the Company’s name will change from Scott’s Liquid Gold-Inc. to Horizon Kinetics Holding Corporation.

The Reincorporation will not affect the trading of the shares of the Company’s Common Stock on the OTC Pink Market tier of the OTC Markets; however, the ticker symbol is expected to change. The Delaware Company will continue to file periodic reports and other documents as and to the extent required by the rules and regulations of the SEC. Shareholders who own shares of the Company’s Common Stock that are freely tradable prior to the Reincorporation will continue to have freely tradable shares in the Delaware Company after the Reincorporation, and shareholders holding restricted shares of the Company’s Common Stock prior to the Reincorporation will continue to hold their shares in the Delaware Company after the Reincorporation subject to the same restrictions on transfer to which their shares are presently subject. In summary, the Reincorporation will not change the respective positions under federal securities laws of the Company or its shareholders.

Anti-Takeover Effect

Delaware, like many other states, permits a corporation to include in its certificate of incorporation or bylaws or to otherwise adopt measures designed to reduce a corporation’s vulnerability to unsolicited takeover attempts. The Company’s Board of Directors, however, is not proposing the Reincorporation to prevent a change in control and, excluding the Merger, is not aware of any present attempt by any person to acquire control of the Company or to obtain representation on the Company’s Board of Directors. Our Board of Directors has no independent plans to implement any defensive strategies to enhance the ability of the Board of Directors to negotiate with an unsolicited bidder.

With respect to implementing defensive measures, Delaware law is preferable to Colorado law because of the substantial judicial precedent on the legal principles applicable to defensive measures. As either a Colorado corporation or a Delaware corporation, the Company could implement some of the same defensive measures. As a Delaware corporation, however, the Company would benefit from the predictability of Delaware law on these matters.

The Plan of Conversion

If both the Reverse Split Proposal and the Reincorporation Proposal are approved and the Merger proceeds, then the Reincorporation and Reverse Stock Split will be effected pursuant to the Plan of Conversion to be adopted by the Company (the “Plan of Conversion”). The Reverse Stock Split and the Reincorporation both would become effective upon the filing (and acceptance thereof by the Delaware Secretary of State and Colorado Secretary of State, as applicable) of the (i) Certificate of Conversion and (ii) the Articles of Conversion.

The Plan of Conversion provides that the Company will convert into a Delaware corporation and will be subject to all of the provisions of the DGCL. By virtue of the Reincorporation, all of the rights, privileges and powers of the Company, all property owned by the Company, all debts due to the Company and all other causes of action belonging to the Company immediately prior to the Reincorporation will remain vested in the Delaware Company following the Reincorporation. In addition, by virtue of the Reincorporation, all debts, liabilities and duties of the Company immediately prior to the Reincorporation will remain attached to the Delaware Company following the Reincorporation.

The Plan of Conversion also provides that every 20 shares of the Company’s Common Stock held by the Company’s shareholders immediately prior to the effective time specified in the plan will, at such effective time, be exchanged for 1 share of the Delaware Company, subject to cash-out of fractional shares. Each stock certificate representing pre-Reverse Stock Split shares will be deemed for all corporate purposes to evidence ownership of post-Reverse Stock Split shares, without regard to the date that stock certificates representing any certificated shares prior to the Reverse Stock Split are physically surrendered for new stock certificates. The text of the Plan of Conversion is subject to modification to include such changes as may be required by the offices of the

 

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Secretaries of State of the States of Colorado and/or Delaware and as our Board of Directors deems necessary and advisable to effect the Reverse Stock Split and Reincorporation.

If both the Reverse Split Proposal and the Reincorporation Proposal are approved, it is anticipated that our Board of Directors will cause the Reverse Stock Split and Reincorporation to be effected in conjunction with the closing of the Merger. However, the Reverse Stock Split and Reincorporation may be delayed by our Board of Directors or the Plan of Conversion may be terminated and abandoned by action of our Board of Directors at any time prior to the effective time specified in the plan, whether before or after the approval by the Company’s shareholders, if our Board of Directors determines for any reason that such delay or termination would be in the best interests of the Company and its shareholders. If the Board proceeds with the Reverse Stock Split and the Reincorporation, both would become effective upon the filing (and acceptance thereof by the Delaware Secretary of State) of the Certificate of Conversion.

Shareholders should refer to the description in “Proposal 1 – Approval of a Reverse Stock Split of the Company’s Common Stock – Effects of Reverse Stock Split – Effect on Beneficial Shareholders,” “–Effect on Registered Certificated Shares” and “–Effect on Registered Book-Entry Holders” for information on the potential need to exchange share certificates in connection with the Reincorporation and Reverse Stock Split.

Comparison of the Company’s Shareholders’ Rights Before and After the Reincorporation

Because of differences between the C.R.S., on the one hand, and the DGCL on the other hand, as well as differences between the Company’s governing documents before and after the Reincorporation, the Reincorporation will effect certain changes in the rights of the Company’s shareholders. Summarized below are the most significant provisions of the C.R.S. and the DGCL, along with the differences between the rights of the shareholders of the Company immediately before and immediately after the Reincorporation that will be the result of the differences between the C.R.S., the Company’s existing Articles of Incorporation and existing Bylaws, on the one hand, and DGCL and the Certificate of Incorporation and Bylaws that will be in effect immediately following the Merger (substantially in the forms attached as Annex D and E to this proxy statement, to which we also refer as the “Delaware Charter” and the “Delaware Bylaws,” respectively), on the other hand. The summary is not an exhaustive list of all differences or a complete description of the differences described, and is qualified in its entirety by reference to the C.R.S., DGCL, the Company’s existing Articles of Incorporation and Bylaws, the Delaware Charter and the Delaware Bylaws. Copies of the Company’s existing Articles of Incorporation and Bylaws have been filed or incorporated by reference as exhibits to certain of our filings with the SEC. The Delaware Charter and the Delaware Bylaws are attached as annexes to this proxy statement.

Assuming that the Company does not receive shareholder approval to reincorporate in Delaware, the Company will remain a Colorado corporation.

 

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The following is a summary of material parts of the C.R.S., the DGCL and the Company’s governing documents before and after the Reincorporation. In addition, the center column summarizes the Company’s Articles of Incorporation as amended in the event that the Reverse Stock Split Proposal is approved by shareholders, the Merger dos not proceed (either because the Reincorporation Proposal is not approved or for other reasons) and the Board of Directors determines nonetheless to proceed with the Reverse Stock Split.

 

Authorized Capital Stock

Colorado

Colorado Upon Reverse Stock Split Only

Delaware Upon Reincorporation

The Articles of Incorporation authorize 70,000,000 shares of capital stock, comprised of 50,000,000 shares of Common Stock, par value $0.10 per share, and 20,000,000 shares of Preferred Stock, without par value.

Upon the filing of a corresponding charter amendment with the Colorado Secretary of State effecting a 1-for-20 Reverse Stock Split, the Company’s authorized capital stock will continue to consist of 50,000,000 authorized shares of Common Stock, par value $0.10 per share, and 20,000,000 authorized shares of Preferred Stock, without par value.

The Delaware Charter will authorize 70,000,000 shares of capital stock, comprised of 50,000,000 shares of common stock, par value $0.10 per shares, and 20,000,000 shares of preferred stock, without par value.

Blank Check Preferred Stock