UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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☐ | Definitive Proxy Statement |
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☐ | Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 |
SPAR Group, Inc.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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This Preliminary Proxy Statement Amends, Restates, Replaces and Supersedes
the Preliminary Proxy Statement filed with the SEC on December 11, 2019
NOTICE OF ANNUALSPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
TO THE STOCKHOLDERS OF PIA MERCHANDISING SERVICES, INC.
To Be Held March 5, 2020
To the Stockholders of SPAR Group, Inc.:
The 1998 Annual
You are invited to attend a Special Meeting of the Stockholders (the "1998 Annual Meeting") of PIA Merchandising Services,SPAR Group, Inc. (the "Company" ("SGRP" or "PIA"the "Corporation", and together with its subsidiaries, the "SPAR Group" or the "Company"), which will be held at 10:1:00 a.m., Pacificpm, Eastern Time, on Tuesday, May 12, 1998March 5, 2020, at The Sutton Place Hotel, 4500
MacArthur Boulevard, Newport Beach, California 92660,the Tampa Airport Marriott, 4200 George J. Bean Parkway, Tampa, FL 33607, for the following purposes:
1. To elect sevenconsider and vote on the stockholder proposal to remove Arthur B. Drogue, currently one of five independent directors and Chairman of SGRP, from the Board of Directors of the Company to serve during the
ensuing year and until their successors are elected and
qualified.
SGRP (the "Board"), without cause, effective immediately (See Proposal 1, below);
2. To consider and vote on the stockholder proposal to remove R. Eric McCarthey, currently one of five independent directors of SGRP and Chairman of its Audit Committee, from the Board, without cause, effective immediately (See Proposal 2, below);
3. To consider and approve anthe stockholder proposed Amendment No. 1 to SGRP's current By-Laws to reduce the previously agreed upon period of time during which the Board may exclusively fill any vacancies on the Board from 90 days to 30 days (See Proposal 3, below);
4. To consider and approve the stockholder proposed Amendment No. 2 to SGRP's current By-Laws that would require the Board to have a majority of "Independent Directors" as newly defined in the proposed amendment (See Proposal 4, below);
5. To consider and grant authority to the 1995 Stock Option PlanBoard to increase the numbersize of shares that may be issued pursuantthe Board without further stockholder action if the Board deems it reasonably necessary for majority board independence (See Proposal 5, below);
6. To consider, ratify and approve the Board's adoption of the 2019 Plan Amendment to suchSGRP's 2018 Stock Compensation Plan from 1,000,000(See Proposal 6, below); and
7. To consider and vote on the stockholder proposal to 1,300,000.
3. To ratifyincrease the appointmentsize of Deloitte & Touche LLPthe Board by one additional director if no vacancy then exists on the Board and to elect James R. Brown Sr. as a Director of SGRP to serve until the Company's independent auditors for the year ending December 31,
1998.
4. To transact such other business as may properly come before thenext annual meeting or any adjournment or postponement thereof.
of stockholders and until his successor is elected and qualified (See Proposal 7, below).
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only the stockholders of record at the close of business on March 13, 1998December 24, 2019, will be entitled to notice of and to vote at the 1998 AnnualSpecial Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Stockholders
/s/James R. Segreto
James R. Segreto
Secretary, Treasurer and Form 10-K for
the fiscal year ended December 31, 1997 is being mailed with this Notice but is
not to be considered part of the proxy soliciting material.
By Order of the Board of Directors
CATHY L. WOOD
Secretary
April 1, 1998
Irvine, California
Chief Financial Officer
February [●], 2020
White Plains, New York
IMPORTANT NOTICE REGARDING AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL STOCKHOLDERS MEETING TO BE HELD ON MARCH 5, 2020: THE PROXY STATEMENT IS AVAILABLE AT investors.sparinc.com/sec-filings. YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND RETURN PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED.PROVIDED, OR CAST YOUR PROXY VOTES BY TELEPHONE OR INTERNET, AS PROVIDED IN THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD. IT IS IMPORTANT FOR YOU TO BE REPRESENTED AT THE MEETING. PROXIES ARE REVOCABLE AT ANY TIME AND THE EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING. REQUESTS FOR ADDITIONAL COPIES OF PROXY MATERIALS SHOULD BE ADDRESSED TO CATHY L. WOOD, EXECUTIVE VICE PRESIDENT,MR. JAMES R. SEGRETO, SECRETARY, TREASURER AND CHIEF FINANCIAL OFFICER, AND SECRETARY, AT THE OFFICES OF THE COMPANY, 19900 MACARTHUR BOULEVARD,CORPORATION: SPAR GROUP, INC., 333 WESTCHESTER AVENUE, SOUTH BUILDING, SUITE 900, IRVINE,
CALIFORNIA 92718.
2
PIA MERCHANDISING SERVICES,204, WHITE PLAINS, NEW YORK 10604
This Preliminary Proxy Statement Amends, Restates, Replaces and Supersedes
the Preliminary Proxy Statement filed with the SEC on December 11, 2019
SPAR GROUP, INC.
19900 MACARTHUR BOULEVARD, SUITE 900
IRVINE, CALIFORNIA 92718
333 Westchester Avenue
South Building, Suite 204
White Plains, New York 10604
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
Special Meeting of Stockholders
To Be Held On March 5, 2020
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (the "Board""Board") of PIA Merchandising Services,SPAR Group, Inc., a Delaware corporation (the "Company"("SGRP" or the "Corporation", and together with its subsidiaries, the "SPAR Group" or the "Company"), for use at the 1998 AnnualSpecial Meeting of Stockholders (the "1998 Annual Meeting") to be held on Tuesday, May 12, 1998March 5, 2020, at 10:1:00 a.m., Pacificpm, Eastern Time, at The Sutton Place Hotel, 4500 MacArthur
Boulevard, Newport Beach, California 92660,the Tampa Airport Marriott, 4200 George J. Bean Parkway, Tampa, FL 33607 (the "Special Meeting"), and any adjournment or postponement thereof. This Proxy Statement and the form of proxy to be utilized at the 1998
AnnualSpecial Meeting were mailed or delivered to the stockholders of the CompanySGRP on or about April 8, 1998.
February [●], 2020, as filed on February [●], 2020, with the Securities and Exchange Commission (the "SEC").
MATTERS TO BE CONSIDERED
The 1998 AnnualSpecial Meeting has been called to: (1) consider and vote on the stockholder proposal to (1) elect seven Directorsremove Arthur B. Drogue, currently one of five independent directors of SGRP and its Chairman, from the Board, without cause, effective immediately (See Proposal 1, below); (2) consider and vote on the stockholder proposal to remove R. Eric McCarthey, currently one of five independent directors of SGRP and Chairman of its Audit Committee, from the Board, without cause, effective immediately (See Proposal 2, below); (3) consider and approve the stockholder proposed Amendment No. 1 to SGRP's current By-Laws to reduce the previously agreed upon period of time during which the Board may exclusively fill any vacancies on the Board from 90 days to 30 days (See Proposal 3, below); (4) consider and approve the stockholder proposed Amendment No. 2 to SGRP's current By-Laws that would require the Board to have a majority of "Independent Directors" as newly defined in the proposed amendment (See Proposal 4, below); (5) consider and grant authority to the Board to increase the size of the CompanyBoard without further stockholder action if the Board deems it reasonably necessary for majority board independence (See Proposal 5, below); (6) consider, ratify and approve the adoption by the Board of the 2019 Plan Amendment to SGRP's 2018 Stock Compensation Plan (See Proposal 6, below); and (7) consider and vote on the stockholder proposal to increase the size of the Board by one additional director if no vacancy then exists on the Board and to elect James R. Brown Sr. as a Director of SGRP to serve duringuntil the ensuing yearnext annual meeting of stockholders and until their successors arehis successor is elected and qualified (2) approve an amendment to the 1995 Stock Option Plan to
increase the number of shares that may be issued pursuant to such Plan from
1,000,000 to 1,300,000, (3) ratify the appointment of Deloitte & Touche LLP as
the Company's independent auditors for the year ending December 31, 1998 and (4)
transact such other business as may properly come before the meeting or any
adjournment or postponement thereof.
(See Proposal 7, below).
RECORD DATE AND VOTING
The Board has fixed the close of business on March 13, 1998December 24, 2019, as the record date (the "Record Date""Record Date") for the determination of stockholders entitled to vote at the 1998 AnnualSpecial Meeting and any adjournment or postponement thereof. As of the Record Date, there were 21,102,335 shares outstanding 5,392,558 shares of the Company'sSGRP's common stock, $.01$0.01 par value (the "Common Stock""Common Stock"), and there were no shares outstanding of SGRP's series "A" preferred stock, $0.01 par value (the "Preferred Stock").
QUORUM AND VOTING REQUIREMENTS
Each stockholder of record is entitled to one vote for each share of Common Stock on any matter coming before the Special Meeting. The holders of record of a majorityat least one-half of the outstanding shares of Common Stock entitled to vote at the Special Meeting (10,551,168 shares) must be present at such Special Meeting (in person or by proxy) and will constitute a quorum for the transaction of business at the 1998
AnnualSpecial Meeting. As to all matters, each stockholder is entitled to one vote for
each shareShares of Common Stock held. Abstentionsentitled to vote and broker non-votesrepresented by properly executed, returned and unrevoked proxies, including shares with respect to which votes are countedwithheld or abstentions are cast or shares that are "broker non-votes" (as discussed below), will be considered present at the Special Meeting for purposes of determining a quorum.
Brokers holding shares of Common Stock for beneficial owners in "street name" must vote those shares according to any specific instructions they receive from the presence or absencebeneficial owner of the shares. However, brokers have discretionary authority to vote on "routine" proposals, (e.g., the vote to ratify the selection of the principal independent registered accounting firm at SGRP's annual stockholder meetings), which means that a broker may vote on behalf of a quorumbeneficial owner for such "routine" proposals in the broker's discretion if the beneficial owner does not provide specific instructions to the broker. However, in the case of the Special Meeting, all of the proposals to be voted on by SGRP's stockholders of record are "non-routine" proposals. Therefore, a broker may not vote on any proposals at the Special Meeting unless it receives specific instructions from the beneficial owner. A "broker non-vote" occurs when a broker does not vote on a particular proposal because the broker does not have discretionary voting authority for that particular proposal and has not received specific instructions from the beneficial owner or otherwise does not vote. Under applicable rules, if you hold your shares through a broker and do not instruct your broker how to vote with respect to each of the proposals to be voted on at the Special Meeting, your broker may not vote with respect to any such proposals.
In accordance with SGRP's By-Laws, votes cast for any proposal do not include abstentions, non-votes (including broker non-votes) or inconclusive votes (i.e., no box clearly checked, multiple boxes checked, and the like) respecting any candidate or matter, are not counted as votes "FOR" or "AGAINST", and will have no effect on the outcome of any such proposal (each a "Non-Vote").
A majority of shares of Common Stock (50% or 10,551,168 shares) entitled to vote must vote in favor of the removal of either Messrs. Drogue and McCarthey from the Board for the transactionapplicable proposal to pass (See Proposals 1 and 2, below). Mr. Drogue has agreed to immediately retire if a majority of business. the shares of Common Stock votes in favor of his removal; and Mr. McCarthey has agreed to immediately retire if a majority of the shares of Common Stock votes in favor of his removal.
The Director nominees who receive the greatest numberaffirmative vote of a majority of votes cast at the 1998 AnnualSpecial Meeting will be electedin person or by proxy is required to approve the adoption of the proposed Amendment No. 1 to SGRP's current By-Laws to reduce the period of time during which the Board may fill any vacancies on the Board from 90 days to 30 days (See Proposal 3, below).
The affirmative vote of a majority of votes cast at the Special Meeting in person or by proxy is required to approve the adoption of the proposed Amendment No. 2 to SGRP's current By-Laws to require the Board to have a majority of "Independent Directors" as newly defined in the proposed amendment (See Proposal 4, below).
The affirmative vote of a majority of votes cast at the Special Meeting in person or by proxy is required to approve the proposal granting authority to the Board to increase the size of the Company.
Stockholders are not entitledBoard without further stockholder action if the Board deems it reasonably necessary for majority board independence (See Proposal 5, below).
The affirmative vote of a majority of votes cast at the Special Meeting in person or by proxy is required to cumulate votes. Votes against a candidate and
votes withheld have no legal effect. In matters other thanapprove the election of
Directors, abstentions are counted as votes against in tabulationsadoption of the vote's2019 Plan Amendment (as defined below) to SGRP's 2018 Stock Compensation Plan (See Proposal 6, below).
The affirmative vote of a majority of votes cast at the Special Meeting in person or by proxy is required to approve the stockholder proposal to increase the size of the Board by one additional director if no vacancy then exists on proposals presentedthe Board and to stockholders, whereas broker non-votes are not
counted for purposes of determining whetherelect James R. Brown Sr. to serve as a proposal has been approved.
Director (See Proposal 7, below).
All proxies whichthat are properly completed, signed and returned (or registered, completed, authenticated and submitted if by telephone or internet) prior to the 1998 AnnualSpecial Meeting will be voted. Any proxy givenvoted in accordance with the directions made thereon or, in the absence of directions (other than a Non-Vote): (1) against the removal of Mr. Drogue from the Board (See Proposal 1, below), (2) against the removal of Mr. McCarthey from the Board (See Proposal 2, below), (3) against the proposed Amendment No. 1 to SGRP's current By-Laws to reduce the period of time during which the Board may fill any vacancies on the Board from 90 days to 30 days (See Proposal 3, below), (4) against the proposed Amendment No. 2 to SGRP's current By-Laws to require the Board to have a majority of "Independent Directors" as newly defined in the proposed amendment (See Proposal 4, below), (5) for the proposal to grant the Board authority to increase the Board size if the Board deems it reasonably necessary to comply with majority board independence (See Proposal 5, below), (6) for the approval of the 2019 Plan Amendment (See Proposal 6, below), and (7) against the stockholder proposal to increase the size of the Board by one additional director if no vacancy then exists on the Board and to elect James R. Brown Sr. to serve as a stockholderDirector (See Proposal 7, below).
In accordance with SGRP's By-Laws, no proposals or matters other than those specifically described above are permitted to come before the Special Meeting. If any other matters or motions are attempted to be presented at the Special Meeting, they will be ruled out of order and denied. It is the intention of the persons named in the accompanying form of Proxy to vote Proxies in accordance with their judgment on those matters or motions to the greatest extent permitted by applicable law, including any matter dealing with the conduct of the Special Meeting.
Proxies may be revoked at any time before it is exercised,prior to their exercise (1) by filing withwritten notification to the
-2-
3 Secretary of the Company an instrument revoking it,SGRP at SGRP's principal executive offices located at 333 Westchester Avenue, South Building, Suite 204, White Plains, New York 10604, (2) by delivering a duly executed proxy bearing a later date, or (3) by the stockholder attending the 1998
AnnualSpecial Meeting and voting his or her shares in person.
PROPOSAL 1 – STOCKHOLDER PROPOSAL TO REMOVE ARTHUR B. DROGUE AS AN INDEPENDENT DIRECTOR AND CHAIRMAN OF SGRP WITHOUT CAUSE, EFFECTIVE IMMEDIATELY
Background
One of the co-founders of SPAR Group, Inc. ("SGRP" and, together with its subsidiaries, the "Company"), Mr. Robert G. Brown ("Mr. Brown"), who retired as the Chairman and an officer and director of SGRP on May 3, 2018, and SP/R, Inc. Defined Benefit Pension Trust (the "SP/R Trust" and, together with Mr. Brown, the "Brown Group"), which is a trust for the benefit (in part) of Mr. Brown and controlled by Mr. Brown's children as its trustees, filed an amendment to Schedule 13D as a group on August 19, 2019 (the "Brown Group 13D"), with the Securities and Exchange Commission (the "SEC"), announcing their joint efforts in facilitating the Brown Group Special Meeting Request (defined below) and the Brown Group Written Consents (defined below). Mr. Brown and the SP/R Trust are significant holders of SGRP Shares and in the Brown Group 13D reported sole ownership of and voting power respecting 5,236,018 SGRP Shares by Mr. Brown and ownership of and shared voting power respecting 1,109,625 SGRP Shares by the SP/R Trust. Together, the SGRP Shares of Mr. Brown and the SP/R Trust (the "Brown Group Shares") total 6,345,643 SGRP Shares, or approximately 30.1% of the 21,093,762 outstanding SGRP Shares as of November 13, 2019 (as reported in SGRP's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as filed with the SEC on November 14, 2019).
Mr. Brown and Mr. William H. Bartels, who also is a co-founder and currently is Vice Chairman and a director and officer of SGRP, have filed Schedule 13Ds as a group with the SEC, most recently on October 18, 2019, and have taken collective action through their written consents. Mr. Bartels individually owns 5,288,693 shares 25.1% of SGRP Shares (the "Bartels Shares"). Together, the Brown Group and Mr. Bartels (the "Majority Stockholders") beneficially own a total of approximately 55.2% (or 11,634,336 shares) of the total SGRP Shares issued and outstanding as of November 13, 2019 (as reported in SGRP's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as filed with the SEC on November 14, 2019). For a description of the past written consents submitted by the Majority Stockholders as a group, see SGRP's Current Reports on Form 8-K as filed with the SEC on July 6, 2018 (removal of Laurence T. Kellar as an independent director), and on September 28, 2018 (challenge of proposed By-Law amendments).
The "Brown Group Special Meeting Request" is, individually and collectively, the Written Request of Stockholders of SPAR Group, Inc. to Call a Special Meeting received by SGRP on August 20, 2019, the Written Request of Stockholders of SPAR Group, Inc. to Call a Special Meeting received by SGRP on September 13, 2019, and the Written Request of Stockholders of SPAR Group, Inc. to Call a Special Meeting received by SGRP on December 17, 2019, and January 9, 2020, as described below.
On August 20, 2019, SGRP physically received from the Brown Group: (1) a Written Request of Stockholders of SPAR Group, Inc. to Call a Special Meeting respecting (A) the removal of Mr. Arthur B. Drogue and Mr. R. Eric McCarthey as directors from the Board (who are each independent directors) and (B) certain amendments to SGRP's current By-Laws (see Proposal 3 and Proposal 4, below); and (2) Written Consents of Stockholders seeking to appoint Panos Lazaretos (see Appointment and Election of Panagiotis ("Panos") N. Lazaretos as a Director, below)as a director of SGRP (the "Brown Group Written Consents"). The Brown Group Written Consents were not then effective because signatures by a majority (more than 50%) of the outstanding SGRP Shares is required for stockholder written consents to be effective.
Mr. Bartels did not participate in the Brown Group Written Consents. However, on October 14, 2019, SGRP physically received a written consent action from Mr. Bartels in substantially the same form as the Brown Group Written Consents, which consent action increased the Board size to create a vacancy and filled such vacancy by appointing Mr. Lazaretos as a director of SGRP (together with the Brown Group Written Consents, the "Written Consents").
On September 13, 2019, SGRP received physical delivery of a second Written Request of Stockholders of SPAR Group, Inc. to Call a Special Meeting from the Brown Group for the following purposes: (1) to consider the removal of two independent directors, Messrs. Drogue and McCarthey, (2) to consider amending SGRP's current By-Laws to reduce the period of time during which the Board may fill any vacancies on the Board from 90 days (as agreed to by Mr. Brown with the Board as part of the Delaware Settlement (as defined below)) to 30 days and (3) to consider amending SGRP's current By-Laws to require the Board to have a majority of "Independent Directors" as newly and narrowly defined in the proposed amendment (see Proposal 4, below). The Brown Group Special Meeting Request also asked that the stockholders consider the election of Panagiotis ("Panos") N. Lazaretos as a Director, but since he is already a director at this time, that ballot item is no longer necessary and has been omitted (see Appointment and Election of Panagiotis ("Panos") N. Lazaretos as a Director, below).
On December 17, 2019, SGRP received delivery of a third Written Request of Stockholders of SPAR Group, Inc. to Call a Special Meeting from the Brown Group and International Global Technologies, LLC, which was corrected and delivered on January 9, 2020 (completing such request), to be Innovative Global Technologies, LLC, for the following purposes: (1) to consider the removal of two independent directors, Messrs. Drogue and McCarthey, (2) to consider certain amendments to SGRP's current By-Laws (see Proposal 3 and Proposal 4, below),(3) to consider a grant of authority to increase the size of the Board (see Proposal 5, below), and (4) to consider and vote on the stockholder proposal to increase the size of the Board by one additional director if no vacancy then exists on the Board and to elect James R. Brown Sr. ("Mr. Brown") as a Director (see Proposal 7, below).
If the Majority Stockholders act as such group and vote together, they can approve any of the Special Meeting proposals.
SGRP did not participate in and did not and does not support the unilateral Brown Group Special Meeting Request and did not participate in the unilateral Written Consents.
Increase of the Size of the Board of Directors
The Written Consents included resolutions to increase the size of the Board from seven to eight in order to create a vacancy to be filled by the Mr. Lazaretos, which became effective on December 10, 2019.
Appointment and Election of Panagiotis ("Panos") N. Lazaretos as a Director
Panagiotis ("Panos") N. Lazaretos was unilaterally selected, appointed and elected by the Majority Stockholders pursuant to the Written Consents (as defined above) to serve on the Board until the next annual meeting of stockholders and until his respective successor has been duly elected and qualified, which became effective on December 10, 2019.
The Written Consents were delivered in escrow pending the Board meeting on October 13, 2019, in which the five Board members present approved a resolution, conditioned upon release of the Written Consents, confirming the following (the "Confirmation"): (1) receipt of the Written Consents; the increase in Board size from seven to eight and the election of Mr. Lazaretos to the Board pursuant to the Written Consents, effective following completion of the definitive information statement on Schedule 14C required to be delivered to SGRP's stockholders pursuant to applicable SEC rules (the "Definitive Information Statement") and after all of the other notices, filings and other conditions required under applicable law have been satisfied (which occurred on December 10, 2019); (2) the appointment of Mr. Lazaretos as a non-voting Board "Observer" so he could immediately begin to join in Board meetings in order to bridge the timing gap (which ended on December 10, 2019); (3) the Board's desire that the Information Statement will be started as soon as reasonably possible; and (4) the Board's desire to have a majority of independent directors as required by applicable Nasdaq rules and to take such actions as may be necessary to respond to any Nasdaq deficiency notice that may be triggered by the appointment of Mr. Lazaretos as a non-independent director (which was later changed to independent by the Governance Committee on January 23, 2020, as described below) , which appointment resulted in SGRP having less than a majority (four out of eight) of independent directors as required by applicable Nasdaq rules (see below for discussion of January 7, 2020 8-K disclosing receipt of Deficiency Letter (as defined below)). Christiaan Olivier, Chief Executive Officer, President and a directorof SGRP and Mr. Jeffery Mayer, a directorof SGRP, could not attend the October 13, 2019 Board meeting and did not participate in such vote. The Written Consents were released on October 13, 2019, shortly after Board meeting was held. Because the Written Consents were released on a Sunday, the Written Consents were effectively delivered to SGRP on the next business day (Monday, October 14, 2019).
In order to provide the notices and information required by the SEC and Delaware law, SGRP's definitive Information Statement respecting the appointment of Panos Lazaretos to the Board by Written Consents on Schedule 14C was filed with the SEC and mailed to stockholders on November 20, 2019 (the "Information Statement"), and on Tuesday December 10, 2019 (the 20th day following such filing and mailing in accordance with SEC Rules), Mr. Lazaretos was automatically seated as a Director on the Board. As reported in the Information Statement and other SEC filings, the Governance Committee and the independent directors of the Board previously determined that when Mr. Lazaretos became a director, he would not be independent pursuant to applicable Nasdaq rules and the Governance Committee Charter (which was later changed to independent by the Governance Committee on January 23, 2020, as described below). See Determining Independence and Re-determining Status of Messrs. Mayer and Lazaretos in Proposal 1, below. The age, principal occupation and certain other information respecting Mr. Lazaretos are stated under the caption THE BOARD OF DIRECTORS OF THE CORPORATION, below.
Removal would Violate Nasdaq's Board Independence Rule
If Mr. Drogue and Mr. McCarthey are removed or forced to retire, SGRP may be in violation of Nasdaq's Board Independence Rule (as defined below) and the Governance Committee Charter's independence requirements (see below respecting regaining compliance and possible Nasdaq cure periods):
The Board would only have three independent directors (Mr. Mayer, Mr. Baer and Mr. Lazaretos).
SGRP's Audit Committee and Special Subcommittee would have only one member (Mr. Baer).
SGRP's Compensation Committee and Governance Committee would consist of only two directors, namely Mr. Mayer and Mr. Baer.
The resulting composition of the Board and its committees may be in violation of Nasdaq's Board Independence Rule and each such committees' respective charters if either Mr. Drogue or Mr. McCarthey are removed or forced to retire as a result of the Special Meeting. There can be no assurance that Nasdaq would grant any grace period if either Mr. Drogue or Mr. McCarthey (or both) are removed or forced to retire. In any case, SGRP believes that the Board size may have to be increased (requiring stockholder approval or passage of Proposal 5) and additional independent directors would need to be located, vetted and added to satisfy Nasdaq's Board Independence Rule in order to cure all such deficiencies.
Determining Independence
The Board and the Governance Committee have determined that the Board should always have a majority of independent directors as required by applicable Nasdaq and SEC rules. SGRP's Statement of Policy Regarding Director Qualifications and Nominations dated as of May 18, 2004, requires that (among other things) a majority of the directors of the Board, and all of the members of its Audit Committee, Compensation Committee and Governance Committee, be independent directors as required by applicable Nasdaq and SEC rules and the Governance Committee's Charter. Counsel has advised that Proposal 4, if approved, will not override that Policy, applicable Nasdaq and SEC rules, other applicable law or the Governance Committee's Charter.
Each charter of each committee of the Board requires that each member of any such committee be an independent director, free from any relationship that, in the opinion of the Board or relevant committee of the Board, would interfere with the exercise of his or her independent judgment as a member of the committee, and be an independent director in accordance with applicable SEC and Nasdaq Rules.
Nasdaq Listing Rule 5605(b)(1) requires a majority of the board of directors of a listed company to consist of independent directors, as defined in Rule 5605(a)(2) (together, the "Board Independence Rule").
The Governance Committee's charter requires that it determine and "confirm that a majority of the Board and all of the members of the Audit Committee, Compensation Committee and Governance Committee are Independent Directors". The Charter specifies that an "Independent Director" is one who is free from (i) all relationships that would disqualify him or her as an independent director under Nasdaq rules, and (ii) all other significant relationships with the Company or any of its affiliates, customers, vendors or competitors, and (iii) all other significant relationships that would be reasonably likely to adversely affect his or her independence or objectivity.
The Governance Committee is required to report its conclusions to the Board and recommend corrective actions (such as recommending that the Board seek to increase the Board size and add another Independent Director). Since there is no presumption of independence, Nasdaq's Board Independence Rule requires an affirmative determination that, in the opinion of the board (SGRP's Governance Committee), the person has no relationship that could interfere with the exercise of independent judgment in carrying out the responsibilities of a director (i.e., an "independent decision making ability").
Counsel has advised (and Nasdaq has confirmed) that: there is no presumption of independence; an affirmative determination of the director's ability to act independently must be made by the Board (which has delegated the independence determination to its Governance Committee); and the applicable standards establish minimum rather than maximum standards for independence, so that higher independence standards are consistent with Nasdaq and other rules. SGRP has received the same advice from counsel respecting applicable securities laws and rules and Delaware law.
Mr. Olivier is the Chief Executive Officer of SGRP, and Mr. Bartels is the Vice Chairman and significant stockholder of SGRP. Accordingly, the Governance Committee and the independent directors on the Board have determined that Messrs. Olivier and Bartels are not independent directors.
Peter Brown has been considered non-independent by the Governance Committee because he is an affiliate and related party with respect to the Corporation and was proposed by Mr. Robert G. Brown to represent the Brown family interests. He was an employee and is a representative and stockholder of SPAR Administrative Services, Inc. ("SAS") and certain of its affiliates, the nephew of Mr. Robert G. Brown (a current significant stockholder of SGRP, a member of a 13D control group, and SGRP's former Chairman and director), is a director of SPAR BSMT and owns EILLC, which owns 10% interest in SGRP's Brazilian subsidiary. Peter Brown also is, and since 2013 has been, representing SAS as a director of Affinity Insurance, Ltd. (see the caption Affinity Insurance, below). Peter Brown also is the son of director candidate James R. Brown Sr. (see Proposal 7, below).
Arthur B. Drogue, R. Eric McCarthey, Jeffrey A. Mayer (except with respect to matters regarding related party transactions – which was later changed to remove that limitation as described below) and Arthur H. Baer have previously been determined to be independent by the Governance Committee.
Since Panagiotis ("Panos") N. Lazaretos had previously been determined and reported to be non-independent, on December 31, 2019, SGRP received a notification letter from Nasdaq (the "Nasdaq Board Independence Deficiency Letter"), stating that SGRP was no longer in compliance with the Board Independence Rule as a result of Mr. Lazaretos being added to the Board by the written consent of the Majority Stockholders. See SGRP's Current Reports on Form 8-K as filed with the SEC on January 31, 2020, and January 7, 2020. See also SGRP's Current Reports on Form 8-K as filed with the SEC on January 31, 2020, September 16, 2019, August 23, 2019 and August 12, 2019.
On January 23, 2020, the Governance Committee re-evaluated the independence of Mr. Lazaretos, Mr. Mayer and Peter W. Brown, which included their re-evaluation of information previously provided.
The Governance Committee discussed the information, reviewed the status of Mr. Brown, Mr. Lazaretos, and Mr. Mayer and recognized that each director, according to their duty of care and loyalty to the public company, will operate and vote appropriately, including their responsibility to recuse themselves from voting on any issue they deem appropriate given any past or current relationships or dealings on any matter brought before the board.
Accordingly, the Governance Committee unanimously re-determined Mr. Lazaretos to be independent without regard to any related party restrictions, re-determined Mr. Mayer to be fully independent without regard to any (and removed all) related party restrictions, and confirmed Mr. Brown to be non-independent. (Mr. Mayer recused himself and abstained from the vote on his status.)
As a result, pursuant to that determination and the applicable previous Governance Committee's determinations, there are five independent directors on the Board (Arthur B. Drogue, Arthur H. Baer, R. Eric McCarthey, Jeffrey A. Mayer and Panagiotis ("Panos") N. Lazaretos) and three non-independent directors on the Board (Christiaan M. Olivier, William H. Bartels, and Peter W. Brown), which constitutes more than a majority of independent directors.
Accordingly, the Governance Committee believes that the Board now has a majority of independent directors and satisfies Nasdaq Listing Rule 5605(b)(1) and has advised Nasdaq of the above in a letter on February __, 2020. Although no assurance can be given, SGRP is hopeful that Nasdaq will concur that SGRP is no longer in violation of the Board Independence Rule.
Since there is no presumption of independence under Nasdaq Rules or the Charter of the Governance Committee (see Determining Independence and Re-determining Status of Messrs. Mayer and Lazaretos in Proposal 1, above), James R. Brown Sr. will be considered non-independent unless and until determined otherwise by the Governance Committee (if ever), and the Corporation may be in violation of Nasdaq's Board Independence Rule if he is elected. Mr. Brown may never be considered an independent director because he is a related party in respect of SGRP: Mr. Brown is the brother of Robert G. Brown (who was Chairman and a director and officer of SGRP through May 3, 2018, and is a significant stockholder of SGRP and part of a control group), and the father of Peter W. Brown (who joined the Board of SGRP in May 2018 to represent the Brown family interests).
Although the results of the Special Meeting cannot be predicted, if some or all of Mr. Brown's proposals respecting director removals and addition are approved, the Board may be left with less than a majority of independent directors.
Failure to Maintain a Majority of Independent Directors on the Board
See Determining Independence,above. When similar circumstances occurred in the past with the forced retirement of independent directors, SGRP received notification letters from Nasdaq stating that SGRP no longer complied with Nasdaq's Board Independence Rule and had a stipulated grace period to regain compliance therewith. See SGRP's Current Reports on Form 8-K as filed with the SEC on December 14, 2018, July 31, 2019, October 18, 2019 and January 7, 2020.
At the time, the eight-member Board had three wholly independent directors and one director classified as independent on all but related party matters, which violated Nasdaq's Board Independence Rule. See SGRP's Current Report on Form 8-K respecting such compliance as filed with the SEC on September 16, 2019, and for details respecting Mr. Baer's appointment as an independent director, see SGRP's Current Report on Form 8-K as filed with the SEC on September 6, 2019. See SGRP's Current Report on Form 8-K respecting SGRP's non-compliance with the Board Independence Rule and the Nasdaq Deficiency Letter as filed with the SEC on January 7, 2020. The Deficiency Letter indicates that having four independent directors out of eight as a result of Mr. Lazaretos' appointment and then classification as non-independent has caused SGRP to fail to comply with the Board Independence Rule. On January 23, 2020, the Governance Committee re-evaluated the independence of Mr. Lazaretos and declared him to be independent, Appointment and Election of Panagiotis ("Panos") N. Lazaretos as a Director. SGRP has asked Nasdaq to accept this re-determination.
Given the uncertainty surrounding the Board's composition, including with respect to the independence of its directors, SGRP is still asking its shareholders in the Special Meeting (see Proposal 5, below) to consider and grant authority to the Board to increase the size of the Board without further stockholder action if reasonably necessary for compliance with Nasdaq's Board Independence Rule and other requirements.
Removal Vote
Pursuant to the Brown Group Special Meeting Request, the Board is presenting to the SGRP stockholders entitled to vote at the Special Meeting a proposal to remove Arthur B. Drogue, currently one of five independent directors of SGRP, without cause.
As provided in the Restated By-Laws (as defined below) pursuant to the Settlement (see 2019 Restated By-Laws, below), Mr. Drogue has signed and delivered to the Corporation a written irrevocable letter of resignation and retirement (which shall constitute an irrevocable resignation for purposes of DGCL Section 141(b)), pursuant to which he shall be deemed to have retired for all purposes (including all plans and other benefits, but excluding indemnification and severance rights) which letter shall be effective as and when, and effective upon, Mr. Drogue being removed as a director by the required majority affirmative vote of the stockholders entitled to vote thereon at the Special Meeting.
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board), and Mr. Olivier donot support the removal of Mr. Drogue from the Board. Messrs. Bartels, Brown and Lazaretos abstained.
A MAJORITY OF THE BOARD OF DIRECTORS AND THE GOVERNANCE COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE "AGAINST" THE PROPOSAL TO REMOVE ARTHUR B. DROGUE AS AN INDEPENDENT DIRECTOR OF SGRP (PROPOSAL 1).
PROPOSAL 2 – STOCKHOLDER PROPOSAL TO REMOVE R. ERIC MCCARTHEY AS AN INDEPENDENT DIRECTOR OF SGRP AND CHAIRMAN OF ITS AUDIT COMMITTEE WITHOUT CAUSE, EFFECTIVE IMMEDIATELY
Background
The information contained under the caption "Background" in Proposal 1 – Stockholder Proposal To Remove Arthur B. Drogue as an Independent Director and Chairman of SGRP, Effective Immediately, above, is incorporated herein by reference. See also Appointment and Election of Panagiotis ("Panos") N. Lazaretos as a Director, Determining Independence, Removal would Violate Nasdaq's Board Independence Rule,Failure to Maintain a Majority of Independent Directors on the Board, andRemoval Vote in Proposal 1, above.
As provided in the Restated By-Laws (as defined below) pursuant to the Settlement (see 2019 Restated By-Laws, below), Mr. McCarthey has signed and delivered to the Corporation a written irrevocable letter of resignation and retirement (which shall constitute an irrevocable resignation for purposes of DGCL Section 141(b)), pursuant to which he shall be deemed to have retired for all purposes (including all plans and other benefits, but excluding indemnification and severance rights) which letter shall be effective as and when, and effective upon, Mr. McCarthey being removed as a director by the required majority affirmative vote of the stockholders entitled to vote thereon at the Special Meeting.
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board), and Mr. Olivier donot support the removal of Mr. McCarthey from the Board. Messrs. Bartels, Brown and Lazaretos abstained.
A MAJORITY OF THE BOARD OF DIRECTORS AND THE GOVERNANCE COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE "AGAINST" THE PROPOSAL TO REMOVE R. ERIC MCCARTHEY AS AN INDEPENDENT DIRECTOR OF SGRP (PROPOSAL 2).
PROPOSAL 3 — APPROVAL OF AMENDMENT NO. 1 TO THE BY-LAWS TO REDUCE THE PERIOD OF TIME DURING WHICH THE BOARD MAY FILL ANY VACANCIES ON THE BOARD FROM 90 DAYS TO 30 DAYS
Currently, SGRP's By-Laws require any board vacancies to be filled by SGRP's stockholders or by the Board, but if any such vacancy remains unfilled by the Board after 90 days, then SGRP's stockholders may vote to appoint a director to fill such vacancy (the "Original Board Vacancy Procedure"). Pursuant to the Delaware Settlement (see INTEREST OF CERTAIN PERSONS IN THE MATTERS TO BE ACTED UPON - Recent Actions of the Majority Stockholders and their Control Group, below), the Majority Stockholders previously agreed to the Original Board Vacancy Procedure.
However, as set forth in the Brown Group Special Meeting Request, Mr. Brown and the SP/R Trust have proposed an amendment to the Original Board Vacancy Procedure, despite the fact that Mr. Brown had previously agreed to the Original Board Vacancy Procedure pursuant to the Delaware Settlement (see 2019 Restated By-Laws, below). The proposed amendment to the Original Board Vacancy Procedure provides that any board vacancies shall be filled by SGRP's stockholders or by the Board, but if any such vacancy remains unfilled by the Board after 30 days, then SGRP's stockholders may appoint a director to fill such vacancy by the Written Consent of more than 50% of SGRP's stockholders, as set forth in its entirety in Annex B attached to this Proxy Statement (the "Amended Board Vacancy Procedure").
A majority the Board and all of the Governance Committee members (who constitute all of the five independent directors on the Board), Mr. Olivier and SGRP's management do not support the approval of the Amended Board Vacancy Procedure because it significantly reduces the amount of time the Board may use to identify, research and evaluate director candidates to determine if their appointment would be in the best interests of SGRP and all of its stockholders and would overturn the previous settlement agreement of the Majority Stockholders.
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board), and Mr. Olivier and Mr. Bartels do not support the Amended Board Vacancy Procedure (Proposal 3). Mr. Brown and Mr. Lazaretos support the Amended Board Vacancy Procedure (Proposal 3).
A MAJORITY OF THE BOARD OF DIRECTORS AND THE GOVERNANCE COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE "AGAINST" THE PROPOSED AMENDMENT NO. 1 TO THE BY-LAWS (PROPOSAL 3).
PROPOSAL 4 – STOCKHOLDER PROPOSAL TO APPROVE THEIR AMENDMENT NO. 2 TO THE BY-LAWSTHAT WOULD REQUIRE THE BOARD TO HAVE A MAJORITY OF "INDEPENDENT DIRECTORS" AS NEWLY DEFINED IN THE AMENDED BY-LAWS, BUT WITHOUT REFERENCE TO AND POTENTIALLY WITHOUT REGARD TO all of the Corporation's By-Laws, Charters and policies andALL APPLICABLE LAW
The second proposed amendment to SGRP's current By-Laws proposed in the Brown Group Special Meeting Request is the inclusion of a new Section 3.13 that reads as follows (the "Board Independence Amendment") (see Annex B):
Section 3.13. Director Independence. A majority of the members of the Board shall be Independent Directors as and when required by the Nasdaq Stock Market Rules. For purposes of this Section 3.13, "Independent Director" shall mean a person who (1) is not an Executive Officer or employee of the Company (as such terms are defined in the Nasdaq Stock Market Rules), (2) is not a Family Member (as such term is defined in Rule 5605(a)(2) of the Nasdaq Stock Market Rules) of an individual who is, or at any time during the past three years was, employed by the Company as an Executive Officer, and (3) otherwise satisfies the independence criteria set forth in Rule 5605(a)(2) of the Nasdaq Stock Market Rules. The standards of independence applicable to members of the Audit Committee, Compensation Committee and Governance Committee shall be consistent with the independence standards set forth for each such Committee in the applicable Nasdaq Stock Market Rules and rules promulgated under the Securities and Exchange Act of 1934, as amended, subject to any exemptions or cure periods under such rules.
The Governance Committee's charter requires that it determine and "confirm that a majority of the Board and all of the members of the Audit Committee, Compensation Committee and Governance Committee are Independent Directors". The Charter specifies that an "Independent Director" is one who is free from (i) all relationships that would disqualify him or her as an independent director under Nasdaq rules, and (ii) all other significant relationships with the Company or any of its affiliates, customers, vendors or competitors or other significant relationships that would be reasonably likely to adversely affect his or her independence or objectivity; The Governance Committee is required to report its conclusions to the Board and recommend corrective actions (such as increasing Board size and adding another Independent Director). Since there is no presumption of independence, Nasdaq Rule 5605(a)(2) requires an affirmative determination that, in the opinion of the board (SGRP's Governance Committee), the person has no relationship that could interfere with the exercise of independent judgment in carrying out the responsibilities of a director (i.e., an "independent decision making ability").
Counsel has advised (and Nasdaq has confirmed) that: there is no presumption of independence; an affirmative determination of the director's ability to act independently must be made by the Board (which has delegated the independence determination to its Governance Committee); and the applicable standards establish minimum rather than maximum standards for independence, so that higher independence standards are consistent with Nasdaq and other rules. SGRP has received the same advice from counsel respecting applicable securities laws and rules and Delaware law.
Counsel also has advised that Proposal 4, if approved, will not override that Policy, applicable Nasdaq and SEC rules, other applicable law or the Governance Committee's Charter.
Messrs. Drogue, McCarthey, Mayer, and Baer (who constitute four of five independent directors on the Board), and Mr. Olivier do not support the approval of the Board Independence Amendment because (1) the Board Independence Amendment is an attempt by Mr. Brown and SP/R Trust to limit the Board's discretion in determining the independence of directors and director nominees, (2) the Board Independence Amendment only accounts for certain rules of Nasdaq and under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), but potentially does not cover all of the Corporation's By-Laws, Charters and policies and all other applicable law regarding director independence, and (3) as a Nasdaq-listed company, SGRP is already bound by the Exchange Act and Nasdaq Rule 5605, including the rules regarding director independence contained therein (which give the Board, as delegated to the Governance Committee, the discretion to determine whether directors and director nominees are independent pursuant to applicable Nasdaq rules) and referenced in the Board Independence Amendment, rendering the Board Independence Amendment redundant.
The Corporation will comply with all of the Corporation's By-Laws, Charters and policies and all applicable law. Accordingly, this provision is not expected to alter any independence or non-independence previously made respecting any director. See also Determining Independence, Removal would Violate Nasdaq's Board Independence Rule, Determining Independence, and Failure to Maintain a Majority of Independent Directors on the Boardin Proposal 1, above.
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board), and Mr. Olivier donot support the Board Independence Amendment (Proposal 4). Mr. Bartels and Mr. Brown support the Board Independence Amendment (Proposal 4). Mr. Lazaretos abstained.
A MAJORITY OF THE BOARD OF DIRECTORS AND THE GOVERNANCE COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE"AGAINST" THE PROPOSED AMENDMENT NO. 2 TO THE BY-LAWS (Proposal 4).
PROPOSAL 5 – GRANT AUTHORITY TO THE BOARD TO INCREASE THE SIZE OF THE BOARDWITHOUT FURTHER STOCKHOLDER ACTION IF THE BOARD DEEMS IT REASONABLY NECESSARY FOR COMPLIANCE WITH NASDAQ'S MAJORITY BOARD INDEPENDENCE RULE
SGRP's current By-Laws require stockholder approval for any change in the size of the Board. Given the effectiveness of the appointment of Mr. Lazaretos to the Board (via the Written Consents), SGRP is no longer compliant with Nasdaq's majority board independence rule. To comply with Nasdaq's majority board independence rule, the size of the Board must be increased in order to create a vacancy on the Board to be filled by an independent director. To avoid another special stockholder meeting and satisfy applicable cure periods, the Board needs the authority to increase the Board size to correct all independence deficiencies. The resolution of SGRP's stockholders to give such authority to the Board to increase the size of the Board is as follows:
"RESOLVED, that the size of the Board of Directors (the "Board") of SPAR Group, Inc. (the "Company") be, and it hereby is, granted the authority to increase the size of the Board without further stockholder action if the Board deems it reasonably necessary to create a vacancy on the Board in order to comply with Nasdaq Rule 5605, including the rules regarding director independence contained therein, or to comply with any of the Corporation's By-Laws, Charters or policies or other applicable law.
See Determining Independence, Removal would Violate Nasdaq's Board Independence Rule,Determining Independence, andFailure to Maintain a Majority of Independent Directors on the Boardin Proposal 1, above.
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board),and Mr. Olivier support the increase in board size if the Board deems it reasonably necessary (Proposal 5). Messrs. Bartels, Brown and Lazaretos donot support the increase in board size if the Board deems it reasonably necessary (Proposal 5).
A MAJORITY OF THE BOARD OF DIRECTORS AND THE GOVERNANCE COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE"FOR" THE PROPOSAL TO GRANT THE BOARD ATHORITY TO INCREASE IN THE SIZE OF THE BOARD WITHOUT FURTHER STOCKHOLDER ACTION IF THE BOARD DEEMS IT REASONABLY NECESSARY FOR COMPLIANCE WITH NASDAQ'S MAJORITY BOARD INDEPENDENCE RULEor any of the Corporation's By-Laws, Charters OR policies OR other applicable law (PROPOSAL 5).
PROPOSAL 6 – APPROVAL OF THE 2019 PLAN AMENDMENT TO THE 2018 STOCK COMPENSATION PLAN
Background
At the May 2018 annual meeting of stockholders, the stockholders approved the 2018 Stock Compensation Plan of SPAR Group, Inc. (the "Original 2018 Plan"). No new Awards can be issued under the Original 2018 Plan after May 31, 2019, unless the Original 2018 Plan is amended and the initial term is extended with stockholder approval as described below.
At the Special Meeting, the Corporation's stockholders will be asked to ratify and approve an amendment to the 2018 Stock Compensation Plan of SPAR Group, Inc. (the "2019 Plan Amendment") in order to amend and extend the Original 2018 Plan (as so amended and extended, the "2018 Plan") to (i) extend the term of the Original 2018 Plan from the 2019 Plan Amendment Effective Date through May 31, 2024 (the "19-24 Period"), and (ii) provide for a total of 1,000,000 shares of SGRP's Common Stock available for future Awards during the 19-24 Period as outlined below (the "19-24 Maximum") under the 2018 Plan (as amended and extended).
The share quantity in the 19-24 Period will be specific to that period and if an issued grant is cancelled or forfeited, its shares are not rolled over into any subsequent or other period and grants not issued in the 19-24 Period will expire and are therefore not available for future grants.
The 2019 Plan Amendment would not otherwise change the Original 2018 Plan. Under the 2018 Plan, the Corporation (through its Compensation Committee) may from time to time grant restricted SGRP Shares, stock options to purchase SGRP Shares (either incentive or nonqualified), and restricted stock units, stock appreciation rights and other awards based on SGRP Shares (collectively, "Awards") to SGRP Directors and the Company's specified executives, employees and consultants providing services to the Company. A copy of the 2019 Plan Amendment is attached to this Proxy Statement and incorporated herein by reference.
The Corporation's Board of Directors (the "Board") in December 2019, authorized and approved the 2019 Plan Amendment to be submitted to the Corporation's stockholders for ratification and approval. If ratified and approved by the Corporation's stockholders, the 2018 Plan Amendment will become effective immediately (the "2019 Plan Amendment Effective Date"), and the 2018 Plan (as so amended) will govern all options issued thereafter. Capitalized terms used and not otherwise defined herein shall have the meanings respectively assigned to them in the 2018 Plan.
As of September 30, 2019, there were Awards respecting 600,000 shares of SGRP's Common Stock that had been granted under the Original 2018 Plan (580,000 of which remained outstanding), and Awards respecting 3,044,927 shares of SGRP's Common Stock outstanding under the 2008 Plan. As of September 30, 2019, there were no Awards available for grant under the 2018 Plan.
Summary of the 2018 Stock Compensation Plan
The 2019 Plan Amendment and 2018 Plan and information regarding options, stock appreciation rights, restricted stock and restricted stock units granted thereunder are summarized below, but these descriptions are subject to and are qualified in their entirety by the full text of the 2019 Plan Amendment, which is attached as Annex A to and is hereby incorporated by reference into this Proxy Statement, and the full text of the 2018 Original Plan, which is hereby incorporated by reference into this Proxy Statement from SGRP's Current Report on Form 8-K, as filed with the SEC on May 8, 2018). Unless again amended and extended (as approved by SGRP's stockholders), the 2018 Plan (as amended and extended by the 2019 Plan Amendment) terminates on May 31, 2024, and thereafter no further Awards may be made under it. Awards granted prior to the end the final term of the 2018 Plan shall continue to be governed by the 2018 Plan (which 2018 Plan shall continue in full force and effect for that purpose).
No Awards will be granted under the 2018 Plan (as amended and extended by the 2019 Plan Amendment) until the 2019 Plan Amendment is approved by the Corporation's stockholders.
The 2019 Plan Amendment (upon approval) will extend the initial term of the 2018 Plan through May 31, 2024, and no Award may be granted thereafter under the 2018 Plan, unless a further extension or elimination of such initial term is approved by stockholders of the Corporation if and as required pursuant to the 2018 Plan and Applicable Law. In any event, no Award may be granted under the 2018 Plan on or after the tenth (10th) anniversary of the Effective Date of the 2018 Original Plan unless an extension is approved by stockholders of the Corporation if and as required pursuant to the 2018 Plan and Applicable Law. Awards granted prior to the end of the final term of the 2018 Plan shall continue to be governed by the 2018 Plan (which 2018 Plan shall continue in full force and effect for that purpose).
The 2019 Plan Amendment (upon approval) will reset and limit the maximum number of shares of Common Stock that may be issued pursuant to Awards made under the 2018 Plan to the 19-24 Maximum during the 19-24 Period, subject to adjustment as provided in the 2018 Plan (see above).
The Board and Compensation Committee have recommended ratification and adoption of the 2019 Plan Amendment to amend, extend and continue the 2018 Plan (as amended and extended) as an important tool in equity-based compensation. See EXECUTIVE COMPENSATION, DIRECTORS AND OTHER INFORMATION - Stock Based Compensation Plans, below.
Under the 2018 Plan (as amended and extended), employees, officers and directors of the Corporation or any of its subsidiaries (collectively, the "Company") or their consultants providing services to the Company (collectively, the "Participants") may be granted certain Equity Compensation Awards ("Awards"). The Participants providing such consulting services include the employees of and consultants to certain non-subsidiary affiliates and licensees of SGRP providing services to the Company (see Certain Relationships and Related Transactions, below) and other affiliates of the Corporation ("SPAR Affiliates").
The 2018 Plan (as amended and extended) will permit the granting of Awards consisting of options to purchase shares of Common Stock ("Options"), stock appreciation rights ("SARs"), restricted stock ("Restricted Stock"), and restricted stock units ("RSUs"). The 2018 Plan Amendment permits the granting of both Options that qualify under Section 422 of the United States Internal Revenue Code of 1986 as amended (the "Code") for treatment as incentive stock options ("Incentive Stock Options" or "ISOs") and Options that do not qualify under the Code as Incentive Stock Options ("Nonqualified Stock Options" or "NQSOs"). ISOs may only be granted to employees of the Corporation or its subsidiaries.
The shares of Common Stock that may be issued pursuant to the Options, SARs, Restricted Stock and RSUs under the 2018 Plan (as amended and extended) are all subject to the 19-24 Maximum per year as noted above.
PURPOSE OF THE 2018 PLAN (AS AMENDED AND EXTENDED BY THE 2019 PLAN AMENDMENT)
The purpose of the 2018 Plan (as amended and extended by the 2019 Plan Amendment) is to promote the interests of the Corporation and its stockholders by providing stock-based incentives to certain employees, directors, officers and consultants. Under the 2018 Plan, the mutuality of interest between those participants and the Corporation is strengthened because they have a proprietary interest in pursuing the Corporation's long-term growth and financial success. In addition, by allowing participation in the Corporation's success, the Corporation is better able to attract, retain and reward quality employees, directors, officers and consultants. In selecting the participants to whom Awards may be granted, consideration is given to factors such as employment position, duties and responsibilities, ability, productivity, length of service, morale, interest in the Corporation and recommendations of supervisors.
SHARES AVAILABLE AND RESERVED
The 2018 Plan (as amended and extended by the 2019 Plan Amendment) limits the number of shares of Common Stock that may be issued pursuant to Awards made thereunder to the 19-24 Maximum, and further limits the number of shares of Common Stock that may be issued pursuant to new Awards made on a particular grant date during the 19-24 Period under the 2018 Plan (the "19-24 Plan Availability") to the remainder of (a) the 19-24 Maximum per period minus (b) the sum at such time of the number of shares of Common Stock covered by all outstanding Awards granted during each year within the 19-24 Period under the 2018 Plan. The 19-24 Maximum and 19-24 Plan Availability are subject to certain adjustments that may be made by the Compensation Committee of the Board upon the occurrence of certain changes in the Corporation's capitalization or structure.
AWARDS
Future Participants in the 2018 Plan (upon approval) and the amounts of their future allotments will be determined by the Compensation Committee in its discretion subject to any restrictions in the 2018 Plan or the applicable individual written agreement containing the Award terms (the "Contract"). Because no such determinations have yet been made, it is not possible to state the terms of any individual Awards that may be issued under the 2018 Plan or the names or positions of or respective amounts of the allotment to any individual who may participate.
The vesting, duration and other terms of future awards also will be determined by the Compensation Committee in its discretion subject to any restrictions in the 2018 Plan and the Code. The terms may be different for the same or similar Awards or Participants. No SARs or RSUs were issued under the 2008 Plan or 2018 Original Plan. Restricted Stock Awards granted under the 2008 Plan and 2018 Original Plan generally vested over four years (i.e., one fourth per year of service after the grant date). Option Awards granted under the 2008 Plan and 2018 Original Plan were generally Non-Qualified Options, generally vested over four years (i.e., one fourth per year of service after the grant date), had ten year terms, and had exercise prices set at fair market value on the grant date.
GRANT DATES AND CONTRACTS
The grant date for an Award is generally the date the Award is approved by the Compensation Committee. However, the Compensation Committee may in its discretion specify a later grant date in its approval, which it may do in order to (among other things) coordinate the grant date with a new employee's start date or permit public dissemination of a pending earnings press release. Each Award granted under the 2018 Plan will be evidenced by a Contract in a form approved by the Compensation Committee and executed by the Corporation and the Participant receiving the Award. Each Contract will contain the terms, provisions and conditions pertaining to the applicable Award, including (as applicable) exercise price.
CONSIDERATION
Participants receive Awards in return for the past and future rendering of services and are not required to pay the Corporation for such Awards (except for applicable tax withholding when due and any exercise price in the case of Options) or purchase price (if any) established by the Compensation Committee in the applicable Contract.
AWARD REPRICING
The 2018 Plan continuing the provisions of the 2008 Plan (adopted in 2009) that gives SGRP's Compensation Committee the full authority and complete flexibility from time to time to designate and modify (in its discretion) one or more of the outstanding Awards (including their exercise and base prices and other components and terms) to (among other things) restore their intended values and incentives to their holders. However, the exercise price, Base Value (as defined in the 2018 Plan) or similar component (if equal to SGRP's full stock price at issuance) of any Award cannot be lowered to an amount that is less than the Fair Market Value (as defined in the 2018 Plan) on the date of the applicable modification, and no modification can adversely affect an awardee's rights or obligations under an Award without the awardee's consent.
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board), and Mr. Olivier support the 2019 Plan Amendment (Proposal 6). Mr. Bartels, Mr. Brown and Mr. Lazaretos abstained.
A MAJORITY OF THE BOARD OF DIRECTORS AND THE COMPENSATION COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE ADOPTION OF
THE FIRST AMENDMENT TO THE 2018 STOCK COMPENSATION PLAN (Proposal 6).
PROPOSAL 7 – STOCKHOLDER PROPOSAL TO INCREASE THE SIZE OF THE BOARD BY ONE ADDITIONAL DIRECTOR IF NO VACANCY THEN EXISTS ON THE BOARD AND TO ELECT JAMES R. BROWN SR. AS A DIRECTOR
Background
The information contained under the caption "Background" in Proposal 1 – Stockholder Proposal To Remove Arthur B. Drogue as an Independent Director and Chairman of SGRP, Effective Immediately, above, is incorporated herein by reference.
This is a two-part stockholder proposal that would first increase the size of the Board by one additional director if no vacancy then exists on the Board as a result of Proposal 1 or 2, and to elect James R. Brown Sr. as a Director of SGRP to serve until the next annual meeting of stockholders and until his successor is elected and qualified.
The nominee for election in this stockholder proposal is Mr. James R. Brown Sr., age 73. Mr. Brown retired in 2015 from his position as Labor Counsel for the Public Massachusetts Community College System, a system comprised of fifteen individual colleges. Mr. Brown represented the community college system in labor and other areas of law, including serving as chief spokesperson and negotiator during collective bargaining contract negotiations, impact bargaining, grievance hearings, and arbitrations at the American Arbitration Association. He represented the community colleges before administrative agencies in both state and appellate courts and advised on labor and employee matters including discipline and appointments. Mr. Brown also advised the community colleges regarding business contracts, compliance with the commonwealth's ethics' and public records' laws, and campus safety. Mr. Brown served in his position as Labor Counsel since 1997. Prior to that, Mr. Brown was a part-time labor and employment consultant to individual public higher education community colleges as well as Boston State University. Mr. Brown received a BS in Finance and an MBA from Boston University. Mr. Brown received a JD from New England Law-Boston. Mr. Brown is the brother of Robert G. Brown (see Background in Proposal 1, above) and the father of director Peter W. Brown (see THE BOARD OF DIRECTORS OF THE CORPORATION, below).
Since there is no presumption of independence under Nasdaq Rules or the Charter of the Governance Committee (see Determining Independence and Re-determining Status of Messrs. Mayer and Lazaretos in Proposal 1, above), Mr. Brown will be considered non-independent unless and until determined otherwise by the Governance Committee (if ever), and the Corporation will be in violation of Nasdaq's Board Independence Rule. Mr. Brown may never be considered an independent director because he is a related party in respect of SGRP: Mr. Brown is the brother of Robert G. Brown (who was Chairman and a director and officer of SGRP through May 3, 2018, and is a significant stockholder of SGRP and part of a control group), and the father of Peter W. Brown (who joined the Board of SGRP in May 2018 to represent the Brown family interests).
In absence of instructions to the contrary, proxies covering shares of Common Stock will be voted against the election of the nominee.
The nominee has consented to being named in this Proxy Statement as a nominee for Director and has agreed to serve as a Director of SGRP if elected. In the event the nominee for election as Director should become unavailable to serve, it is intended that votes will be cast, pursuant to the enclosed proxy, for such substitute nominee as may be nominated by SGRP. Management has no present knowledge that the person named will be unable to serve.
No arrangement or understanding exists between the nominee and any other person or persons pursuant to which any nominee was or is to be selected as a Director or nominee. Mr. Brown is the brother of Robert G. Brown (who was Chairman and a director and officer of SGRP through May 3, 2018, and is a significant stockholder of SGRP), and the father of Peter W. Brown (who joined the Board of SGRP in May 2018).
Messrs. Drogue, McCarthey, Mayer and Baer (who constitute four of the five independent directors on the Board), and Mr. Olivier do not support this proposal or the election of Mr. Brown as a Director. Mr. Bartels, Mr. Brown and Mr. Lazaretos abstained.
A MAJORITY OF THE BOARD OF DIRECTORS AND THE GOVERNANCE COMMITTEE EACH RECOMMENDS THAT THE STOCKHOLDERS VOTE "AGAINST" THE PROPOSAL AND NOMINEE IDENTIFIED ABOVE (Proposal 7).
THE BOARD OF DIRECTORS OF THE CORPORATION
The Board is responsible for overseeing the management, policies and direction of the Corporation and its subsidiaries (collectively, the "Company"), both directly and through its committees (see "Corporate Governance" below). The current members of the Board and nominees for election to the Board are set forth below:
Name | Age | Position with SPAR Group, Inc. | ||
Arthur B. Drogue (1) | 73 | Chairman of the Board, Governance Committee and of the Special Subcommittee of the Audit Committee | ||
Christiaan M. Olivier | 55 | Chief Executive Officer, President and Director | ||
William H. Bartels | 75 | Vice Chairman and Director | ||
Arthur H. Baer (1) | 73 | Director | ||
R. Eric McCarthey (1) | 64 | Director and Chairman of the Audit Committee | ||
Peter W. Brown | 38 | Director | ||
Jeffrey A. Mayer (2) | 68 | Director and Chairman of the Compensation Committee | ||
Panagiotis ("Panos") N. Lazaretos | 47 | Director | ||
(1) | Member of the Governance, Compensation, Audit Committees and Special Subcommittee of the Audit Committee | |
(2) | Member of the Compensation Committee and Governance Committees |
Arthur B. Drogue serves as a Chairman of the Board of SGRP for the past 16 months and has been an independent Director of the company since January 2013. He has served as the Lead Director, as the Chairman of the Governance Committee of SGRP since May 2015, and as Chairman of the Special Subcommittee of the Audit Committee since April 2017. Mr. Drogue also is a member of the Audit Committee and Compensation Committee. Mr. Drogue has earned the Board Fellow distinction in the National Association of Corporate Directors (a/k/a NACD) having completed the Board Professional and Board Masters courses. Mr. Drogue was Senior Vice President of Sales and Customer Development for the America's at Unilever during 2009 and 2010. Prior to that, he led Unilever's U.S. Sales and Customer Development organization through eight years of outstanding growth and earnings success while merging six separate companies into one of the U.S.'s preeminent consumer packaged goods companies with over $12 billion in annual sales. His previous professional experience includes senior management positions at Best Foods, Nabisco, Northeastern Organization (a/k/a NEO), and General Mills. Mr. Drogue also has held positions on several corporate and industry boards and has received numerous awards for his achievements. He has served on the board of GS1 U.S., has served as Chairman of the Global Marketing Committee of the Consumer Goods Forum ( previously named CIES), has served as Chairman of the Board of Apollo Foods, has served as an Operating Partner at Raptor Consumer Fund, and in addition to his board service at SGRP, he has served on the board of J.M. Global Holdings, serves as Chairman of the Board of Demers Foods, serves on the board of Ruiz Foods chairing the Governance committee and serves on the Audit committee. Mr. Drogue is also a founding partner of The Resource Team, a consulting practice focusing on the consumer package goods industry. The Board concluded that Mr. Drogue should be a director of the Corporation because of his extensive experience as a director and senior manager of companies in the retail industry.
Christiaan M. Olivier serves as the Chief Executive Officer, President and a Director of SGRP and has held such positions since his appointment as Chief Executive Officer of SGRP on September 5, 2017. With over 25 years as a retail executive he has successfully led global organizations bringing positive transformation in the areas of strategy, business development, sales, marketing, client service and operations. His ability to unite groups and executives have continually grown revenue and client base within each company he has served. Prior to joining SGRP, Mr. Olivier served as President of Retail Activation with the Omnicom Group, during his tenure there he considerably increased new business. Before that, he was President at Advantage Sales and Marketing. Mr. Olivier was also Chief Executive Officer at the Smollan Group, a sales and marketing service firm located in South Africa. The Board concluded that Mr. Olivier should be a director of the Corporation because he serves as the Chief Executive Officer of the Corporation and because of his extensive experience in senior management in retail marketing and services.
William H. Bartels serves as Vice Chairman and a Director of SGRP and has held these positions since July 8, 1999 (the effective date of the Merger). He retired as an employee of the Company as of December 31, 2019, where he most recently led domestic M&A activity, expanding SPAR's presence and building relationships throughout the industry. Recently, he located and assisted in the acquisition of Resource Plus and their affiliated marketing service and related technology and fixture manufacturing companies. Prior to the Merger, he served as Vice Chairman, Secretary, Treasurer and Senior Vice President of the SPAR Marketing Companies (a business he co-founded) since 1967. From 1967 to 1999, he was responsible for sales and marketing of the SPARLINE technology and its related consulting business for evaluating trade promotion spending and strategies for the top tier of CPG companies, domestic and international. He gained industry wide recognition for SPARLINE (which ceased being a Company product and became a related party product in 1999) as reported through numerous industry publications, while negotiating partnerships with research companies in the U.K and Australia for using the system. He has spoken at conferences in the U.S., Europe, and South America such as: Advertising Research Foundation, Promotion Marketing Association of America, European Society of Marketing Research, Advertising Age and American Management Association. When SPAR began its marketing service business, Mr. Bartels again assumed a business development role and was individually responsible for signing a significant portion of SPAR's customer revenue. The Board concluded that Mr. Bartels should be a director of the Corporation because of his proven track record in developing new business, experience in retail marketing services, proven track record in developing new business, and his in-depth knowledge of the Corporation.
R. Eric McCarthey joined the Board of SGRP as of November 2015, has served as the Chairman of the Audit Committee since May 2016, and serves as a member of the Compensation and Governance Committees and the Special Subcommittee of the Audit Committee. Mr. McCarthey is currently CEO of Shelty-Viking Capital Group, LLC, a private equity holding company with principal ownership in various firms. He is a past Chairman of the Atlanta chapter of National Association of Corporate Directors. Mr. McCarthey had a 30-year career with The Coca-Cola Company and was most recently Senior Vice President, Global Commercial/Customer Strategic Planning & Execution. He had served in several global leadership roles throughout his career with The Coca-Cola Company. Mr. McCarthey also serves on the boards of two privately held companies, Interra International, where he is Chairman of the Strategy Committee and Saulsbury Industries, where he is Chairman of the Governance Committee. He had previously served on the boards of Standard Register as Chairman of the Strategy Committee until the company was sold in 2016 and Global Imaging as Chairman of the Audit Committee until the company was sold in 2007. The Board concluded that Mr. McCarthey should be a director of the Corporation because of his extensive experience in senior management and financial matters in retail marketing and services.
Mr. Jeffrey A. Mayer joined the Board of SGRP in January 2019 and is the Chairman of the Compensation Committee and serves as a member of the Governance Committees. Mr. Mayer has had a long career as an entrepreneur and executive in the energy industry. Since 2018 Mr. Mayer has served as the executive chairman of Oasis Charger Corporation, the manufacturer and distributor of the Juice Bar EV charger systems. Since 2011 Mr. Mayer founded and served as Present and CEO of Soluxe Inc., and chairman of its subsidiaries, Solomon Energy Inc. Solomon Energy Advisors LLC, and Solomon Community Solar LLC. Since 2015 Mr. Mayer served as advisor to and venture partner of Oak Investment Partners. In addition to SPAR Group he is a member of the Boards of Directors of Photobucket Corp. and Tomorrow Energy Inc. He serves on a number of not-for-profit boards including Kingsley Trust Association and Social Venture Partners of Connecticut. In 1999 Mr. Mayer founded, and through 2011 served as CEO and President of, and chairman or a member of the Board of, MXenergy, Inc., which was an SEC reporting entity. From 1993 through 1999, Mr. Mayer served as a managing director of AIG Trading Corporation and Sempra Energy Trading Company and as President of AIG Securities Corporation and AIG Clearing Corporation. From 1999 through 2005, Mr. Mayer served as a member of the Risk Oversight Committee of Northeast Utilities and consultant to Northeast Utilities and to Chicago Board of Trade Clearing Corporation. From 1987 through 1993, Mr. Mayer served as a Vice President of Goldman Sachs & Co., and from 1984 through 1987, Mr. Mayer served as the chief counsel of the J. Aron Commodities Division of Goldman Sachs & Co. From 1979 through 1983 Mr. Mayer served as an attorney with Barrett Smith Schapiro Simon & Armstrong in New York, NY. Mr. Mayer is a graduate of Yale University (B.A. 1973) and New York University (L.L.B. 1978).
Arthur H. Baer serves as a Director of SGRP, serves as a member of the Audit, Compensation and Governance Committees and the Special Subcommittee of the Audit Committee, and has done so since September 3, 2019. He was a Legislator in Columbia County, New York until 2015 and previously served as the Chairman of the Board of Supervisors from January 2008 to December 2009 and as County Executive during the same period. Mr. Baer was Dean of the College of Business and Administration at Drexel University in Philadelphia from 1993 to 1996. For 20 years (from 1998 through August of 2018), he was also a Director and Audit Committee Chair for Seneca Foods, Inc., a multi-billion dollar international food company. Mr. Baer's business background also includes experience in managing businesses, senior leadership development and the evaluation of strategic opportunities and challenges. He was President of Hudson Valley Publishing from 2003 to 2008 and also held the position from 1998 to 1999. He was President of Arrow Electronics Europe from 2000 to 2002 and President of XYAN Inc. from 1996 to 1998. Mr. Baer has also served as a senior executive at Standard Brands, Northwest Industries, and Cablevision Systems. He holds a B.A. and M.B.A. from Columbia University. The Board concluded that Mr. Baer should be a director of the Corporation because of his extensive experience in senior management and financial matters and the evaluation of strategic opportunities and challenges.
Peter W. Brown joined the Board of SGRP in May 2018, served as a Board Observer to the Corporation's Board of Directors from 2014 through December 2016, serves as a director of the Corporation's Brazilian subsidiary, SPAR BSMT and owns EILLC (which owns 10% of SPAR BSMT). See Transactions with Related Persons, Promoters and Certain Control Persons - International Related Party Services, below). He also has served as a director of Business Ideas Provider, LTD, since 2012, and represented SAS as a director of Affinity Insurance, LTD, since 2013. Mr. Brown received a BS from the University of Massachusetts's School of Natural Science and an MBA from the University of Massachusetts's Isenberg School of Management.
Panagiotis ("Panos") N. Lazaretos. Mr. Lazaretos joined the SGRP Board on December 10, 2019, when his appointment under the Written Consents became effective (see Appointment and Election of Panagiotis ("Panos") N. Lazaretos as a Director, above). Mr. Lazaretos has over 15 years of international business development experience focusing on retail service operations and on Central and Eastern Europe, Russia, the Middle East and North Africa. Mr. Lazaretos is a co-founder and significant shareholder of and since November 2017 has been the Chief Executive Officer and Chairman of the Board of Directors of Thenablers, Inc., a non-operational international business development organization that will be focused on the design and execution of new market strategies for its clients. Robert G. Brown, William H. Bartels and a number of their related parties are investors in Thenablers (although they collectively own less than one-half percent of the Thenablers outstanding stock). According to its most recent SEC Filings, Thenablers, Inc. is a development-stage company and has recorded no revenue through June 30, 2019. From time to time, Mr. Lazaretos has provided consulting services to SPAR InfoTech, Inc., an affiliate of the Corporation owned by Robert G. Brown, who retired as the Chairman and an officer and director of SGRP on May 3, 2018, and who is part of a control group with Mr. Bartels and others (see Background, above). Feb 2017 to June 2019, Mr. Lazaretos was a Director of Business Development at Sales Service International. From June 2013 to November 2016, Mr. Lazaretos was a Regional Director for Field Marketing Services for Adecco Group. From June 2002 to May 2013, Mr. Lazaretos was a Vice President of International Operations for SGRP where he worked from Greece and helped SGRP's President of International Operations and Chief Executive Officer in dealing with SGRP's largely autonomous joint venture subsidiaries and related expansions. From July 1999 to June 2002, Mr. Lazaretos was a Director of Technology at SGRP, and held the same position with one of its pre-merger predecessors from June 1997 to July 1999, where he began his career and helped them transition from a paper process to a web-based data collection and reporting platform. In May 1997, Mr. Lazaretos received a BS in Computer Science from the State University of New York, New York, at New Paltz, and from 1999 to 2001 attended MBA classes focused on information technology at Pace University.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Robert G. Brown's Previous Threatened Removals of SGRP's Independent Directors
The Majority Stockholders are the co-founders of SPAR Group, Inc. and are significant stockholders of SGRP. Mr. Brown was Chairman and an officer and director of SGRP through May 3, 2018 (when he retired), and Mr. Bartels is Vice Chairman and a director and officer of SGRP. Together, the Majority Stockholders beneficially own as a group a total of approximately 55% of the Common Stock.
On July 10, 2019, Mr. Robert G Brown wrote in an email communication to Arthur B. Drogue, an independent director and Chairman of the SGRP Board, to which he copied Mr. Bartels, Mr. Peter W. Brown and Mr. Jeffery Mayer (each a director), expressing Mr. Brown's concerns with the positions of certain of SGRP's directors (the "July 10 Email"), including the independent directors. The concerns listed in the July 10 Email include SGRP's: (1) initiation of the legal proceedings to maintain the independence of the Board and which lead to the Delaware Settlement (as defined below); (2) opposition to the terms and conditions of the reorganization of SPAR Business Services, Inc., a Nevada corporation formerly known as SPAR Marketing Services, Inc. ("SBS"), that the Board and management of SGRP deemed to be unfavorable to SGRP and its stockholders without appropriate settlement terms and releases (see SGRP's Current Report on Form 8-K as filed with the SEC on August 8, 2019, respecting the negotiated SBS bankruptcy settlement); (3) opposition to the election or appointment of director candidates to the Board whom the independent directors deemed not independent under applicable NASDAQ and SEC rules, including opposing the nomination of Mr. Panos Lazaretos, a long-time associate of Robert G. Brown and his companies and the Majority Stockholders' preferred director candidate; and (4) refusal to reimburse the alleged expenses of entities owned by, or affiliated with, the Majority Stockholders, that have not been approved by the Audit Committee and SGRP's management (collectively, the "Brown Demands"). Mr. Brown further demanded in the July 10 Email that the directors change their positions and accept the Brown Demands or resign. The Company believes that neither the acquiescence to the Brown Demands nor the resignations of directors who oppose the Brown Demands would be in the best interests of SGRP and all of its stockholders. See SGRP's Current Report on Form 8-K, as filed with the SEC on August 12, 2019 for further information regarding the foregoing matters.
Recent Actions of the Majority Stockholders and their Control Group
On June 1, 2018, June 29, 2018, July 5, 2018, August 6, 2018 and January 25, 2019, the Majority Stockholders each filed an amended Schedule 13D with the Securities and Exchange Commission (the "SEC"), in which they each acknowledged that they "may be deemed to comprise a 'group' within the meaning of [the Securities Exchange Act of 1934]" and "may act in concert with respect to certain matters", including various listed items. Pursuant to those Schedule 13D filings, the Majority Stockholders have acted as a control group and adopted written consents to unilaterally, and without the participation of SGRP's Board of Directors (the "Board"), Governance Committee or other stockholders, endeavoring to: approve the selection, appointment and election of Mr. Jeffrey A. Mayer as a director of SGRP; remove Lorrence T. Kellar as an independent director of SGRP; and change SGRP's By-Laws in order to (among other things) remove authority from the Board through new supermajority requirements and stockholder only approvals (the "Proposed Amendments"), which the Governance Committee believed weakened the Board's independence, and which were contested by SGRP and ultimately concluded in a negotiated settlement that included Mayer's appointment, Mr. Kellar's forced retirement, and the adoption of SGRP's Amended and Restated By-Laws on January 18, 2019 (the "Delaware Settlement"). See Part II, Item 1 -- Legal Proceedings - RELATED PARTIES AND RELATED PARTY LITIGATION,in the Q3 2019 Quarterly Report. Pursuant to the Delaware Settlement, the parties agreed to amend and restate SGRP's By-Laws (the "2019 Restated By-Laws") with negotiated changes to the Proposed Amendments that preserved the current roles of the Governance Committee and Board in the location, evaluation, and selection of candidates for director and in the nominations of those candidates for the annual stockholders' meeting and appointment of those candidates to fill Board vacancies other than those under a stockholder written consent making a removal and appointment. See 2019 Restated By-Laws, below.
Majority Stockholders' Affiliation with Panos Lazaretos
Panos Lazaretos is a long-time associate of Robert G. Brown and his companies and was the preferred director candidate of the Majority Stockholders prior to his appointment to the Board as of December 10, 2019. The Governance Committee and the independent directors of the Board have determined that Mr. Lazaretos is not independent pursuant to applicable Nasdaq rules because Mr. Lazaretos was at one time an employee of the Company, was later and recently engaged by Mr. Brown's company, SPAR InfoTech, Inc., an affiliate of SGRP (see Transactions with Related Persons, Promoters and Certain Control Persons, below) , and his other relationships with Brown and Bartels that in their opinion preclude his independence. Since Mr. Lazaretos was seated on the Board, the majority of the Board is no longer independent as required by the applicable Nasdaq rules.
EXECUTIVES AND OFFICERS OF THE CORPORATION
Set forth in the table below are the names, ages and offices held by all Executives and Officers of the Corporation as of December 31, 2019. For biographical information regarding Christiaan M. Olivier and William H. Bartels, see The Board of Directors of the Corporation, above.
Name | Age | Position with SPAR Group, Inc. (1)(2) |
Christiaan M. Olivier | 55 | Chief Executive Officer, President and a Director |
William H. Bartels (3) | 75 | Vice Chairman and a Director |
James R. Segreto | 71 | Chief Financial Officer, Secretary and Treasurer |
Kori G. Belzer | 54 | Chief Operating Officer |
Gerard Marrone | 57 | Chief Revenue Officer |
Steven J. Adolph | 53 | President International |
(1) | Under the Corporation's Restated By-Laws and the resolutions of the Board, each of the following individuals have been designated as both an "Executive" and an "Officer" of the Corporation except as otherwise noted below. An Executive is generally an executive officer of the Corporation and part of its senior management. |
(2) | Each named individual is an "at will" employee of the Company. Their nominal terms as Executives and Officers are for one year, lasting from one annual stockholders meeting to the next. |
(3) | Mr. Bartels retired as an officer and employee of the Corporation as of December 31, 2019. |
James R. Segreto serves as Chief Financial Officer, Secretary and Treasurer of SGRP and has done so since December 14, 2007. Prior to his current position, Mr. Segreto served as Vice President and Controller of SGRP since July 8, 1999, the effective date of the Merger. Mr. Segreto served as Chief Financial Officer for Supermarket Communications Systems, Inc. from 1992 to 1997 and LM Capital, LLP from 1990 to 1992. Prior to 1992, he served as Controller of Dorman Roth Foods, Inc.
Kori G. Belzer serves as the Chief Operating Officer of SGRP and has done so since January 1, 2004. From 2000 through 2003, Ms. Belzer served as the Chief Operating Officer of SPAR Administrative Services, Inc. (then known as SPAR Management Services, Inc.) ("SAS"), and SPAR Business Services, Inc. (then known as SPAR Marketing Services, Inc.), each an affiliate of SGRP (see Transactions with Related Persons, Promoters and Certain Control Persons, below). From 1997 to 2000, Ms. Belzer served as Vice President Operations of SAS and as Regional Director of SAS from 1995 to 1997. Prior to 1995, she served as Client Services Manager for SPAR/Servco, Inc.
Gerard (Gerry) Marrone joined SPAR Group, Inc. as SVP Sales & Marketing in January 2017 and was promoted to Chief Revenue Officer in December of the same year. As Chief Revenue Officer he oversees all revenue generation and marketing activities for the company. He is responsible for strategic growth initiatives and expansion of the domestic business. His role includes seeking and leading strategic alliances and joint ventures and he is responsible for developing capabilities and best practices within the sales and marketing function that will be shared and implemented across the organization and the international network.
Steven J. Adolph serves as the President International of SGRP and has done so since June 21, 2016. Prior to his current position, Mr. Adolph served in several executive roles including: President of Kalamazoo Outdoor Gourmet, CEO Asia/Pacific for Invacare, Vice President International for SentrySafe and Vice-President Asia/Pacific for Equal/NutraSweet. Mr. Adolph graduated Magna Cum Laude from Duke University and has an MBA with distinction from the Kellogg School of Management at Northwestern University.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of the Company'sSGRP's Common Stock as of March 1, 1998December 24, 2019, by: (i) each person (or group of affiliated persons) who is known by the CompanySGRP to own beneficially more than 5% of the Company'sSGRP's Common Stock;Stock; (ii) each of the Company's
directors;SGRP's directors; (iii) each of the executive officers namedNamed Executive Officers in the Summary Compensation Table;Table; and (iv) the Company'sSGRP's directors and executive officersExecutives as a group. Except as indicated in the footnotes to this table, the persons named in the table, based on information provided by such persons, have sole voting and sole investment power with respect to all shares of Common Stockcommon stock shown as beneficially owned by them, subject to community property laws where applicable.
Title of Class | Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | See | Percentage |
Common Shares | William H. Bartels (1) | 11,213,478 | (2) | 53.2% |
Common Shares | Christiaan M. Olivier (1) | 270,640 | (3) | 1.3% |
Common Shares | Jack W. Partridge (1) | 128,432 | (4) | * |
Common Shares | Arthur B. Drogue (1) | 41,500 | (5) | * |
Common Shares | R. Eric McCarthey (1) | 24,000 | (6) | * |
Common Shares | Jeffrey A. Mayer (1) | 10,000 | (7) | * |
Common Shares | Peter W. Brown (1) | 122,502 | (8) | * |
Common Shares | James R. Segreto (1) | 161,251 | (9) | * |
Common Shares | Kori G. Belzer (1) | 188,221 | (10) | * |
Common Shares | Gerard Marrone (1) | 27,760 | (11) | * |
Common Shares | Steven J. Adolph (1) | 92,500 | (12) | * |
Common Shares | Robert G. Brown | 11,213,478 | (2) | 53.2% |
Common Shares | Whittier Holdings, Inc. 100 Liberty Street, Suite 890 Reno, NV 89501 | 1,105,455 | (13) | 5.24% |
Common Shares | All Executives and Directors | 12,280,284 | - | 58.2% |
* | Less than 1% |
(1) | The address of such owners is c/o SPAR Group, Inc. 333 Westchester Avenue, |
(2) | These shares are owned beneficially by a control group consisting of Mr. William H. |
(3) | Mr. Olivier's beneficial ownership includes 262,500 shares issuable upon exercise of options. |
(4) | Mr. Partridge's beneficial ownership includes 60,000 shares issuable upon exercise of options. |
(5) | Mr. Drogue's beneficial ownership includes 37,500 shares issuable upon exercise of options. |
(6) | Mr. McCarthey's beneficial ownership includes 20,000 shares issuable upon exercise of options. |
(7) | Mr. Jeffrey Mayer's beneficial ownership includes 10,000 shares issuable upon exercise of options. |
(8) | Mr. Peter Brown's beneficial ownership includes 47,500 shares issuable upon exercise of options. |
(9) | Mr. Segreto's beneficial ownership includes 161,250 shares issuable upon exercise of options. |
(10) | Ms. Belzer's beneficial ownership includes 176,250 shares issuable upon exercise of options. |
(11) | Mr. Marrone's beneficial ownership includes 27,500 shares issuable upon exercise of options. |
(12) | Mr. Adolph's beneficial ownership includes 92,500 shares issuable upon exercise of options. |
(13) | Percentage ownership is based on the total number of shares of Common Stock outstanding (21,102,335 shares) and the number of shares of Common Stock beneficially owned (including Common Stock currently obtainable under vested options, indirectly owned through retirement plans and beneficially owned by certain family members) by such person or group, in each case as |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act ("Section 16(a)") requires SGRP's directors and certain of its officers and persons who own more than 1%10% of SGRP's Common Stock (collectively, "Insiders") to file reports of ownership and changes in their ownership of SGRP's Common Stock with the Commission. Insiders are required by Commission regulations to furnish SGRP with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it for the year ended December 31, 2019, or written representations from certain reporting persons for such year, SGRP believes that its Insiders complied with all applicable Section 16(a) filing requirements for such year.
Transactions with Related Persons, Promoters and Certain Control Persons
SGRP's policy respecting approval of transactions with related persons, promoters and control persons is contained in the SPAR Group Code of Ethical Conduct for its Directors, Executives, Officers, Employees, Consultants and other Representatives Amended and Restated (as of) March 15, 2018 (the "Ethics Code"). (1) SharesThe Ethics Code is intended to promote and reward honest, ethical, respectful and professional conduct by each director, executive, officer, employee, consultant and other representative of any of SGRP and its subsidiaries (together with SGRP, the "Company") and each other Covered Person (as defined in the Ethics Code) in his or her position with the Company anywhere in the world, including (among other things) serving each customer, dealing with each vendor and treating each other with integrity and respect, and behaving honestly, ethically and professionally with each customer, each vendor, each other and the Company. Article II of the Ethics Code specifically prohibits various forms of self-dealing (including dealing with relatives) and collusion and Article V of the Ethics Code generally prohibits each "Covered Person" (including SGRP's officers and directors) from using or disclosing the Confidential Information of the Company or any of its customers or vendors, seeking or accepting anything of value from any competitor, customer, vendor, or other person relating to doing business with the Company, or engaging in any business activity that conflicts with his or her duties to the Company, and directs each "Covered Person" to avoid any activity or interest that is inconsistent with the best interests of the SPAR Group, in each case except for any "Approved Activity" (as such terms are defined in the Ethics Code). Examples of violations include (among other things) having any ownership interest in, acting as a director or officer of or otherwise personally benefiting from business with any competitor, customer or vendor of the Company other than pursuant to any Approved Activity. Approved Activities include (among other things) any contract with an affiliated person (each an "Approved Affiliate Contract") or anything else disclosed to and approved by SGRP's Board of Directors (the "Board"), its Governance Committee or its Audit Committee, as the case may be, as well as the ownership, board, executive and other positions held in and services and other contributions to affiliates of SGRP and its subsidiaries by certain directors, officers or employees of SGRP, any of its subsidiaries or any of their respective family members. The Company's senior management is generally responsible for monitoring compliance with the Ethics Code and establishing and maintaining compliance systems, including those related to the oversight and approval of conflicting relationships and transactions, subject to the review and oversight of SGRP's Governance Committee as provided in clause IV.11 of the Governance Committee's Charter, and SGRP's Audit Committee as provided in clause I.2(l) of the Audit Committee's Charter. The Governance Committee and Audit Committee each consist solely of independent outside directors (see Domestic Related Party Services, International Related Party Services, Related Party Transaction Summary, Related Party Transaction Summary, Affinity Insurance, and Other Related Party Transactions and Arrangements, below).
SGRP's Audit Committee has the specific duty and responsibility to review and approve the overall fairness and terms of all material related-party transactions. The Audit Committee receives affiliate contracts and amendments thereto for its review and approval (to the extent approval is given), and these contracts are periodically (often annually) again reviewed, in accordance with the Audit Committee Charter, the Ethics Code, the rules of the Nasdaq Stock Market LLC ("Nasdaq"), and other applicable law to ensure that the overall economic and other terms will be (or continue to be) no less favorable to the Company than would be the case in an arms-length contract with an unrelated provider of similar services (i.e., its overall fairness to the Company, including pricing, payments to related parties, and the ability to provide services at comparable performance levels). The Audit Committee periodically reviews all related party relationships and transactions described below.
The Special Committee also has been involved in the review of the Proposed Amendments to SGRP's By-Laws and the By-Laws Action and 225 Action (see Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Delaware Litigation Settlement, in SGRP's Quarterly Report on Form 10-Q, as filed with the SEC on November 14, 2019 (the "Q3 2019 Quarterly Report").
Domestic Related Party Services:
SPAR Business Services, Inc. ("SBS"), SPAR Administrative Services, Inc. ("SAS"), and SPAR InfoTech, Inc. ("Infotech"), have provided services from time to time to the Company and are related parties and affiliates of SGRP, but are not under the control or part of the consolidated Company. SBS is an affiliate because it is owned by RVM/PIA, a California limited partnership managed by
Riordan, Lewis & Haden ("RLH").
-3-
4
(2) Includes 29,729 shares issuable upon exercise of certain warrantsRobert G. Brown and prior to purchase Common StockDecember 2018 was owned by RLH.
(3) Includes 498,394 shares heldWilliam H. Bartels. SAS is an affiliate because it is owned by Clinton E.William H. Bartels and Mary Ann Owens as
Trusteescertain relatives of The Owens Family Trust dated June 20, 1994, 9,300 shares
heldRobert G. Brown or entities controlled by Clinton E. Owens as Trusteethem (each of whom are considered affiliates of the Welch TrustCompany for Marcia
Browningrelated party purposes). Infotech is an affiliate because it is owned principally by Robert G. Brown. Mr. Brown and 227,026 shares issuable uponMr. Bartels are the exerciseMajority Stockholders (see below), members of optionsa 13D control group and founders of SGRP, Mr. Brown was Chairman and an officer and director of SGRP through May 3, 2018 (when he retired), and Mr. Bartels was and continues to be Vice Chairman and a director and officer of SGRP. Mr. Brown and Mr. Bartels also have been and are stockholders, directors and executive officers of various other affiliates of SGRP. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies – Legal Matters, in the Q3 2019 Quarterly Report. See also SBS Bankruptcy and Settlement and Infotech Litigation and Settlement, in the Q3 Quarterly Report.
The Company executes its domestic field services through the services of field merchandising, auditing, assembly and other field personnel (each a "Field Specialist"), substantially all of whom are provided to the Company and engaged by independent third parties and located, scheduled, deployed and administered domestically through the services of local, regional, district and other personnel (each a "Field Administrator"), and substantially all of the Field Administrators are in turn are employed by other independent third parties.
SBS provided substantially all of the Field Specialist services in the U.S.A. to the Company from January 1 through July 27, 2018, and an independent vendor and licensee provided them for the balance of 2018. The Company paid $13.3 million during the nine months ended September 30, 2018, to SBS for its provision as needed of the services of approximately 4,500 of SBS's available Field Specialists in the U.S.A. (which amounted to approximately 43% of the Company's total domestic Field Specialist service expense for the nine months ended September 30, 2018).
Since the termination of the Amended and Restated Field Service Agreement with SBS on December 1, 2014 (as amended, the "Prior SBS Agreement"), the Company and SBS agreed to an arrangement where the Company reimbursed SBS for the Field Specialist service costs and certain other approved reimbursable expenses incurred by SBS in performing services for the Company and paid SBS a revised fixed percentage of such reimbursable expenses (the "Cost Plus Fee") equal to 2.96% of those reimbursable expenses, subject to certain offsetting credits. The Company had offered a new agreement to SBS confirming that reimbursable expenses were subject to review and approval by the Company, but SBS rejected that proposal.
Due to (among other things) the Clothier Determination (as defined in the Q3 2019 Quarterly Report) and the ongoing proceedings against SBS (which could have had a material adverse effect on SBS's ability to provide future services needed by the Company), SBS' continued higher charges and expense reimbursement disputes, and the Company's identification of an experienced independent third party company (the "Independent Field Vendor") who would provide comparable services on substantially better terms, the Company terminated the services of SBS effective July 27, 2018, and the Company has engaged that Independent Field Vendor to replace those field services previously provided by SBS (other than in California). The Company similarly terminated SAS and has engaged another independent third party company on substantially better terms to replace those administrative services formerly provided by SAS, effective August 1, 2018 (the "Independent Field Administrator").
The Company believes it has saved approximately $1.1 million since August 1, 2018 through September 30, 2019, or approximately $900,000 on an annualized basis, by using the Independent Field Vendor and Independent Field Administrator instead of using SBS and SAS, respectively, and the Company's increase in domestic earnings are due at least in part to those savings.
Even though the Company believes it had paid SBS for all services provided through July 27, 2018, the Company received notice that there may not have been sufficient funds in SBS' bank accounts to honor all payments SBS had made by check to their Field Specialists. Based on this notice, the Company withheld approximately $112,000 of final mark-up compensation due SBS and had made payments, on a daily basis, into the SBS bank account designated for Field Specialist payments to ensure all SBS Field Specialists that had provided services to the Company were properly compensated for those services. The $112,000 had been completely exhausted and the Company was required to fund an additional $13,000 to cover these duplicate Field Specialist payments. See SBS Bankruptcy and Settlement, in the Q3 2019 Quarterly Report.
The Company has reached a non-exclusive agreement on substantially better terms than SBS with an experienced independent third-party vendor to provide substantially all of the domestic Field Specialist services used by the Company. The Company has also reached a separate non-exclusive agreement on substantially better terms than with SAS with another independent third-party vendor to provide substantially all of the domestic Field Administrator services used by the Company. The Company transitioned to such new vendors during July 2018, and such transition was virtually unnoticeable to the Company's clients.
SAS provided substantially all of the Field Administrators in the U.S.A. to the Company from January 1 through September 30, 2018. The Company paid $2.7 million to SAS for its provision of its 57 full-time regional and district administrators (which amounted to approximately 91% of the Company's total domestic field administrative service cost for the nine month period ended September 30, 2018.
In addition to these field service and administration expenses, SAS also incurred other administrative expenses related to benefit and employment tax expenses of SAS and payroll processing, and other administrative expenses and SBS incurred expenses for processing vendor payments, legal defense and other administrative expenses (but those expenses were only reimbursed by SGRP to the extent approved by the Company as described below).
No SAS compensation to any officer, director or other related party (other than to Mr. Peter W. Brown, a related party as noted below, pursuant to previously approved budgets) had been reimbursed by the Company. This was not a restriction on SAS since SAS is not controlled by the Company and could have paid any compensation to any person that SAS desires out of its own funds. Since SAS is a "Subchapter S" corporation, all income from SAS is allocated to its stockholders (see above).
On May 7, 2018, the Company gave a termination notice to SAS specifying July 31, 2018, as the end of the Service Term under (and as defined in) SAS Agreement signed in 2016. The Company has reached a non-exclusive agreement with an independent third party vendor to provide substantially all of the domestic Independent Field Administrators used by the Company. The Company transitioned to such new vendor during July 2018, and it was virtually unnoticeable to the Company's clients.
Although SAS has not provided or been authorized to perform any services to the Company after their terminations described above effective on or before July 31, 2018, SAS has apparently continued to operate and claim that the Company owes them for all of their post-termination expenses for the foreseeable future. For the period from August, 2018 through September 30, 2019, SAS has invoiced the Company over $200,000. All such invoices have been rejected by the Company. The Company has determined that it is not obligated to reimburse any such post-termination expense (other than for potentially reimbursing SAS for mutually approved reasonable short term ordinary course transition expenses in previously allowed categories needed by SAS to wind down its business, if any), and that such a payment would be an impermissible gift to a related party under applicable law, which determinations have been supported by SGRP's Audit Committee. See SAS Settlement Discussions and Arbitration, in the Q3 2019 Quarterly Report.
The Company expects that SBS and SAS may use every available means to attempt to collect reimbursement from the Company for the foreseeable future for all of their post-termination expense, including repeated litigation. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Legal Matters and See also SBS Bankruptcy and Settlement and SAS Settlement Discussions and Arbitration, in the Q3 2019 Quarterly Report.
Any claim by Robert G. Brown, William H. Bartels, SAS, any other related party or any third party that the Company is somehow liable for any judgment or similar amount imposed against SBS or SAS or any other related party, any judicial determination that the Company is somehow liable for any judgment or similar amount imposed against SBS or SAS or any other related party, or any increase in the Company's use of employees (rather than the services of independent contractors provided by third parties) to perform Field Specialist services domestically, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition), whether actual or as planned, intended, anticipated, estimated or otherwise expected. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Legal Matters, in the Q3 2019 Quarterly Report.
Current material and potentially material legal proceedings impacting the Company are exercisabledescribed in Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies - Legal Matters, in the Q3 2019 Quarterly Report. These descriptions are based on an independent review by the Company and do not reflect the views of SBS, its management or its counsel. Furthermore, even though SBS was solely responsible for its operations, methods and legal compliance, in connection with any proceedings against SBS, SBS continues to claim that the Company is somehow liable to reimburse SBS for its expenses in those proceedings. The Company does not believe there is any basis for such claims and would defend them vigorously.
Infotech sued the Company in New York seeking reimbursement for approximately $190,000 respecting alleged lost tax benefits and other expenses it claims to have incurred in connection with SGRP's acquisition of its Brazilian subsidiary and previously denied on multiple occasions by both management and SGRP's Audit Committee, whose approval was required because Infotech is a related party. Infotech also threatened to sue the Company in Romania for approximately $900,000 for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in 2013) and not provided to Infotech, for which the Company vigorously denies liability. See Infotech Litigation and Settlement, in the Q3 2019 Quarterly Report.
Peter W. Brown was appointed as a Director on the SGRP Board as of May 3, 2018, replacing Mr. Robert G. Brown upon his retirement from the Board and Company at that date. He is not considered independent because Peter Brown an affiliate and related party in respect of SGRP and was proposed by Mr. Robert G. Brown to represent the Brown family interests. He worked for and is a stockholder of SAS (see above) and certain of its affiliates, he is the nephew of Mr. Robert G. Brown (a current significant stockholder of SGRP, a member of a 13D control group and SGRP's former Chairman and director), he is a director of SPAR Brasil Serviços de Merchandising e Tecnologia S.A., a Brazilian corporation and SGRP subsidiary ("SPAR BSMT") and owns Earth Investments LLC, ("EILLC"), which owns 10% interest in the SGRP's Brazilian subsidiary.
National Merchandising Services, LLC ("NMS"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the NMS membership interests and by National Merchandising of America, Inc. ("NMA"), through its ownership of the other 49% of the NMS membership interests. Mr. Edward Burdekin is the Chief Executive Officer and President and a director of NMS and also is an executive officer and director of NMA. Ms. Andrea Burdekin, Mr. Burdekin's wife, is the sole stockholder and a director of NMA and a director of NMS. NMA is an affiliate of the Company but is not under the control of or consolidated with the Company. Mr. Burdekin also owns 100% of National Store Retail Services ("NSRS"). Since September 2018, NSRS provided substantially all of the domestic merchandising specialist field force used by NMS. For those services, NMS agrees to reimburse NSRS the total costs for providing those services and to pay NSRS a premium equal to 1.0% of its total cost.
Also, NMS leases office and operational space that is owned personally by Mr. Burdekin. The Lease expense is $2,000 a month, which is representative of current market rates. While there is no formal signed agreement, there is no expected change to the arrangement.
On August 10, 2019, NMS, to protect continuity of its Field Specialist nationwide, petitioned for bankruptcy protection under chapter 11 of the United States Bankruptcy Code in the U.S. District for Nevada (the "NMS Chapter 11 Case"), and as a result, the claims of NMS' creditors must now generally be pursued in the NMS Chapter 11 Case. On August 11, 2019, NSRS and Mr. Burdekin also filed for reorganization in the NMS Chapter 11 Case NMS is part of the consolidated Company. Currently the Company believes that the NMS Chapter 11 Case is not likely to have a material adverse effect on the Company, and the Company's ownership of and involvement in NMS is not likely to change as a result of the NMS Chapter 11 Case or any resulting NMS reorganization.
Resource Plus of North Florida, Inc. ("RPI"), is a consolidated domestic subsidiary of the Company and is owned jointly by SGRP through its indirect ownership of 51% of the RPI membership interests and by Mr. Richard Justus through his ownership of the other 49% of the RPI membership interests. Mr. Justus has a 50% ownership interest in RJ Holdings which owns the buildings where RPI is headquartered and operates. Both buildings are subleased to RPI at local market rates.
SBS Bankruptcy and Settlement
On November 23, 2018, SBS petitioned for bankruptcy protection under chapter 11 of the United States Bankruptcy Code in the U.S. District for Nevada (the "SBS Chapter 11 Case").
Management recommended, and the Audit Committee agreed, that it would be in the best interest of all stockholders to oppose SBS's proposed reorganization unless a reasonable settlement could be reached, and that any settlement should include a reasonable disposition of the SGRP Claims (as defined in the SBS Settlement Agreement) and mutual releases of all other claims. After extensive negotiation between the SBS Parties and the SGRP Parties, the parties entered into the Compromise and Settlement Agreement dated as of July 26, 2019, and was signed and released over the succeeding weekend (the "SBS Settlement Agreement"). The Settlement was described in, filed with and incorporated into SGRP's Current Report on Form 8-K as filed with the SEC on August 8, 2019 (the "SBS Settlement Release").
The SBS Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims, as defined therein), except for the following:
(i) SBS will become exercisablepay to the applicable SGRP Parties the SGRP Claims (before discount, $2,231,260) discounted to their pro rata share (among all creditors of the same class) of the New Value Contribution (after discount, est. $111,563) and of the Settlement Contribution in twenty-four (24) equal monthly amounts (after discount, est. $61,370), starting January 2020 and without any interest (collectively, the "Discounted Claim Payments"), as such terms are defined in the SBS Settlement Agreement.
(ii) SMF will pay to SBS the Proven Unpaid A/R upon its determination (as described below).
In the SBS Settlement Agreement, the parties agreed to have Rehmann Robson ("Rehmann "), a financial and accounting services firm, independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement. In the SBS Settlement Agreement, the parties will accept the determination of Rehmann as final and binding, and all other claims and amounts are released. Rehmann has preliminarily determined that the Company had paid all amounts due to SBS and that the Proven Unpaid A/R equals zero. The final Rehmann report is expected by the end of November 2019.
The Company has recorded the total settlement amount of $172,933 as of September 30, 2019, and will continue to evaluate its collectability from SBS and establish reserves as appropriate.
The Company believes that the robust and comprehensive mutual releases in the SBS Settlement Agreement provide valuable relief from potential future claims and litigation by SBS respecting the Company's past involvement with SBS. However, Robert G. Brown, president, director and indirect owner of SBS, has since the Court's approval of the SBS Settlement Agreement has continued to allege that the claims and amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are due to SBS from the Company, and the Company strongly disagrees. Since all such claims have been completely released by SBS (with Mr. Brown's approval), the Company owes nothing and will not accrue anything respecting Mr. Brown's renewed claims.
On August 6, 2019, with the support of (among others) the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release). See the Company's SBS Settlement Release.
Infotech Litigation and Settlement
On September 19, 2018, SGRP was served with a Summons and Complaint by SPAR InfoTech, Inc. ("Infotech"), an affiliate of SGRP that is owned principally by Robert G. Brown ("Mr. Brown") (one of the Majority Stockholders) as plaintiff commencing a case against SGRP (the "Infotech Action"). The Infotech Action sought payment from SGRP of approximately $190,000 for alleged lost tax benefits and other expenses that it claims to have incurred in connection with SGRP's acquisition of its Brazilian subsidiary and that were previously denied on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).
In 2016, SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("SPAR BSMT"), its Brazilian subsidiary, with the assistance of Mr. Brown(while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect 10% owner of SPAR BSMT, and later became a director of SGRP on May 3, 2018. Mr. Brown used his private company, Infotech and undisclosed foreign companies to structure the acquisition for SGRP.
Mr. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks". Mr. Brown submitted his unauthorized and unsubstantiated "expenses" to SGRP, and SGRP's Audit Committee allowed approximately $50,000 of them (which was paid) and disallowed approximately $150,000 of them. His claim increased to over $190,000 in the Infotech Action. The Company vigorously denied owing any of those amounts.
In 2018, Infotech also threatened to sue the Company in Romania for approximately $900,000 for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in 2013) and not provided to Infotech (the "Romanian Claim"). Infotech gave a draft complaint to the Company in 2018. The Company also vigorously denied owing any of those obligations or amounts.
In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims. Management had offed $225,000 to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Mr. Brown to settle, management agreed to increase the settlement offer to a total of $275,000. After extensive negotiation between the Company and Infotech, Mr. Brown accepted the $275,000 offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on October 8, 2019 (the "Infotech Settlement Agreement"), which was approved and ordered by the Court on October 30, 2019, and the Infotech Action was discontinued (dismissed) with prejudice.
The Infotech Settlement Agreement requires the Company to make payments totaling $275,000 in four installments: (i) $75,000 following Court approval (which Payment has already been made); (ii) $75,000 within 30 days following discontinuance of the Infotech Action (which was discontinued on October 30, 2019); (iii) $75,000 within 60 days following discontinuance of March 1, 1998.
(4)the Infotech Action; and (iv) $50,000 within 90 days following discontinuance of the Infotech Action. The Company has made appropriate accruals for those installment obligations.
The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreement provide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.
SAS Settlement Discussions and Arbitration
SAS provided substantially all of the Field Administrators in the U.S.A. to the Company from July 1999 through July 31, 2018. For the seven month period ended July 31, 2018, the Company paid $2.7 million to SAS for its provision of its 57 full-time regional and district administrators, which amounted to approximately 91% of the Company's total domestic field administrative service cost.
In addition to field administration expenses, SAS also incurred other administrative expenses related to benefit and employment tax expenses, payroll processing, rent and other similar administrative expenses but those expenses were only reimbursed to the extent approved by the Company.
On May 7, 2018, the Company gave a termination notice to SAS specifying July 31, 2018, as the end of the Service Term under (and as defined in) the restated SAS Field Administration Agreement signed in 2016 (the "SAS Agreement"). The Company transitioned to its new Independent Field Administrator (see above) during July 2018. See Domestic Related Party Services, above.
Although SAS has not provided or been authorized to perform any services to the Company after their termination described above (effective on or before July 31, 2018), SAS has apparently continued to operate and claims that the Company owes them for all of their post-termination expenses for the foreseeable future. For the period from August 2018 through June 30, 2019, SAS has invoiced the Company over $200,000. All information regarding share ownershipsuch invoices have been rejected by the Company. While the Company has determined that it is takennot obligated to reimburse any such post-termination expenses, it has, in good faith, entered into settlement discussions with SAS to resolve these matters. Part of the settlement discussions include an offsetting recovery by the Company for cash advances it has provided to SAS to meet its insurance obligations.
Due to a shortfall in its bank accounts and its inability to pay Affinity approximately $215,000 in premium adjustments, SAS alleged that the Company had failed to pay the required Affinity premiums to SAS. The parties agreed to have Rehmann Robson ("Rehmann"), a financial and accounting services firm, independently determine whether the Company had made all such payments to SAS. Rehmann has determined that the Company had paid all amounts due to SAS except for $26,000. In the process, the parties learned from Robert G. Brown that he had caused SAS to transfer approximately $200,000 to SBS from the SAS bank accounts for "SBS Affinity adjustments". The final Rehmann report addressing other items is expected by the end of November 2019. See Affinity Insurances, below.
These advances were essential support to ensure SAS satisfied its insurance carriers premium advance requirements. The offsetting amount due the Company is approximately $226,000. See Affinity Insurances, below.
At this time, settlement discussions have halted and furnishedthe Company is seeking resolution though arbitration as permitted under the SAS Field Administration Agreement.
International Related Party Services:
SGRP Meridian (Pty), Ltd. ("Meridian") is a consolidated international subsidiary of the Company and is owned 51% by SGRP and 23% by FRIEDSHELF 401 Proprietary Limited (owned by Mr. Brian Mason and Mr. Garry Bristow) and 26% by Lindicom Proprietary Limited. Mr. Mason is President and a director and Mr. Bristow is an officer and director of Meridian. Mr. Mason is also an officer and director and 50% shareholder of Merhold Property Trust ("MPT"). Mr. Mason and Mr. Bristow are both officers and directors and both own 50% of Merhold Cape Property Trust ("MCPT"). Mr. Mason and Mr. Bristow are officers and owners of Merhold Holding Trust ("MHT") which provides similar services like MPT. MPT owns the building where Meridian is headquartered and also owns 20 vehicles, all of which are subleased to Meridian. MCPT provides a fleet of 172 vehicles to Meridian under a 4 year lease program. These leases are provided to Meridian at local market rates included in reliance upon the Schedule 13G (Amendment No. 2)summary table below.
SPAR Todopromo is a consolidated international subsidiary of the Company and is owned 51% by SGRP and 49% by the following individuals: Mr. Juan F. Medina Domenzain, Juan Medina Staines, Julia Cesar Hernandez Vanegas, and Jorge Medina Staines. Mr. Juan F. Medina Domenzain is an officer and director of SPAR Todopromo and is also majority shareholder (90%) of CONAPAD ("CON") which supplied administrative and operational consulting support to SPAR Todopromo in 2016.
Mr. Juan F. Medina Domenzain ("JFMD"), partner in SPAR Todopromo, leased a warehouse to SPAR Todopromo. The lease expires on December 31, 2020.
SPAR Brasil Serviços de Merchandising e Tecnologia S.A., a Brazilian corporation ("SPAR BSMT" is owned 51% by the Company, 39% by JK Consultoria Empresarial Ltda.-ME, a Brazilian limitada ("JKC"), and 10% by Earth Investments, LLC, a Nevada limited liability company ("EILLC").
JKC is owned by Mr. Jonathan Dagues Martins, a Brazilian citizen and resident ("JDM") and his sister, Ms. Karla Dagues Martins, a Brazilian citizen and resident. JDM is the Chief Executive Officer and President of each SPAR Brazil company pursuant to a Management Agreement between JDM and SPAR BSMT dated February 2,
1998, filedSeptember 13, 2016. JDM also is a director of SPAR BSMT. Accordingly, JKC and JDM are each a related party in respect of the Company. EILLC is owned by Heartland Advisors, Inc.
(5) Includes 66,666 shares issuable upon exerciseMr. Peter W. Brown, a citizen and resident of the USA ("PWB") and a director of SPAR BSMT and SGRP and nephew of SGRP"s largest shareholder and member of a warrant13D control group, Robert G. Brown. Accordingly, PWB and EILLC are each a related party in respect of the Company.
SPAR BSMT has contracted with Ms. Karla Dagues Martins, a Brazilian citizen and resident and JDM's sister and a part owner of SPAR BSMT, to purchase
Common Stock.
(6)handle the labor litigation cases for SPAR BSMT and its subsidiaries. These legal services are being provided to them at local market rates by Ms. Martins' company, Karla Martins Sociedade de Advogados ("KMSA"). Accordingly, Mr. Jonathan Dagues Martins and Ms. Karla Dagues Martins are each an affiliate and a related party in respect of the Company.
Summary of Certain Related Party Transactions:
The following costs of affiliates were charged to the Company annually for the fiscal years ended December 31, 2018 and December 31, 2017 (in thousands):
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Services provided by affiliates: | ||||||||
Field Specialist Service expenses* (SBS) | $ | 15,404 | $ | 25,866 | ||||
Field Administration Service expenses* (SAS) | 2,738 | 4,215 | ||||||
National Store Retail Services (NSRS) | 986 | - | ||||||
RJ Holdings | 247 | - | ||||||
Office and vehicle rental expenses (MPT) | 66 | 62 | ||||||
Vehicle rental expenses (MCPT) | 1,248 | 1,146 | ||||||
Office and vehicle rental expenses (MHT) | 228 | 170 | ||||||
Field Administration expenses* (NDS Reklam) | 2 | 2 | ||||||
Consulting and administrative services (CON) | 220 | 244 | ||||||
Warehouse Rental (JFMD) | 49 | 47 | ||||||
Legal Services (KMSA) | 135 | 10 | ||||||
Total services provided by affiliates | $ | 21,323 | $ | 31,762 | ||||
* Includes 2,703 shares issuable uponsubstantially all overhead (in the exercisecase of options, which are
exercisableSAS and SBS), or related overhead, plus any applicable markup. The services provided by SAS and SBS were terminated as of July 2018.
Due to affiliates consists of the following (in thousands): | December 31, | |||||||
2018 | 2017 | |||||||
Loans from local investors:(1) | ||||||||
Australia | $ | 226 | $ | 250 | ||||
Mexico | 1,001 | 1,001 | ||||||
Brazil | 139 | 139 | ||||||
China | 2,130 | 719 | ||||||
South Africa | 618 | 24 | ||||||
Resource Plus | 531 | - | ||||||
Accrued Expenses due to affiliates: | ||||||||
SBS/SAS | – | 893 | ||||||
Total due to affiliates | $ | 4,645 | $ | 3,026 | ||||
(1) Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements.
The following costs of affiliates were charged to the Company during the periods noted below (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Services provided by affiliates: | ||||||||||||||||
Field merchandiser and other expenses (SBS)* | $ | - | $ | 2,063 | $ | - | $ | 15,353 | ||||||||
Field administration and other expenses (SAS)* | - | 475 | - | 2,738 | ||||||||||||
National Store Retail Services (NSRS) | 4,088 | - | 4,473 | - | ||||||||||||
Office lease expenses (Mr. Burdekin) | 6 | 6 | 18 | 18 | ||||||||||||
Office lease expenses (RJ Holdings) | 162 | - | 361 | - | ||||||||||||
Office and vehicle lease expenses (MPT) | 16 | 15 | 48 | 44 | ||||||||||||
Vehicle rental expenses (MCPT) | 294 | 292 | 881 | 839 | ||||||||||||
Office and vehicle rental expenses (MHT) | 73 | 53 | 205 | 142 | ||||||||||||
Consulting and administrative services (CON) | 29 | 49 | 103 | 160 | ||||||||||||
Legal Services (KMSA) | 21 | 40 | 64 | 93 | ||||||||||||
Warehousing rental (JFMD) | 13 | 13 | 37 | 37 | ||||||||||||
Total services provided by affiliates | $ | 4,702 | $ | 3,006 | $ | 6,190 | $ | 19,424 | ||||||||
* | Includes substantially all overhead (in the case of SAS and SBS), or related overhead, plus any applicable markup. The services provided by SAS and SBS were terminated as of July 2018. |
Due to affiliates consists of the following (in thousands): | September 30, | December 31, | ||||||
2019 | 2018 | |||||||
Loans from local investors:(1) | ||||||||
Australia | $ | 429 | $ | 226 | ||||
Mexico | 1,001 | 1,001 | ||||||
Brazil | 139 | 139 | ||||||
China | 2,200 | 2,130 | ||||||
South Africa | 624 | 618 | ||||||
Resource Plus | 531 | 531 | ||||||
Total due to affiliates | $ | 4,924 | $ | 4,645 | ||||
(1) | Represent loans from the local investors into the Company's subsidiaries (representing their proportionate share of working capital loans). The loans have no payment terms and are due on demand and as such have been classified as current liabilities in the Company's consolidated financial statements. |
Affinity Insurance:
In addition to the above, through August 1, 2018, SAS purchased insurance coverage from Affinity Insurance, Ltd. ("Affinity") for worker compensation, casualty and property insurance risk for itself, for SBS on behalf of Field Specialists that require such insurance coverage (if they do not provide their own), and for the Company. SAS owns a minority (less than 1%) of the common stock in Affinity. Based on informal arrangements between the parties, the Affinity insurance premiums for such coverage were ultimately charged (through SAS) for their fair share of the costs of that insurance to SMF, SAS (which then charges the Company) and SBS. Since August 1, 2018, the new independent vendor providing the Company's Field Administrators also is a member of and provided such insurance through Affinity for itself and on behalf of the Field Specialists that require such insurance coverage (if they do not provide their own), and the Company is obtaining its own such insurance through Affinity (in which the Company is also now a member).
In addition to those required periodic premiums, Affinity also requires payment of cash collateral deposits ("Cash Collateral"), and Cash Collateral amounts are initially determined and from time to time re-determined (upward or will become exercisable within 60 daysdownward) by Affinity. From 2013 through August 1, 2018, SAS deposited Cash Collateral with Affinity that now totals approximately $965,000; approximately $379,000 of March 1,
1998.
(7) Includes 12,838 shares issuable uponthat Cash Collateral was allocable to SBS and approximately $296,000 of that Cash Collateral was allocable to SMF and the exercisebalance of options, which are
exercisableapproximately $290,000 was allocated to other affiliates of the Company. The $379,000 Cash Collateral deposits allocable to SBS were paid by SAS on behalf of SBS, SAS received advances to make such payments from SBS, and SBS in turn received advances to make such payments from SMF. The SGRP Claims for this debt in the SBS Chapter 11 Case were settled at a substantial discount as part of the overall Settlement Agreement. See Note 8 to the Company's Consolidated Financial Statements, Commitments and Contingencies - Legal Matters - SBS Bankruptcy and Settlement -- Settlement Agreement in the Q3 2019 Quarterly Report) The Cash Collateral deposits allocable to SMF have been paid by SAS on behalf of SMF, and SAS received advances to make such payments from SMF. At the time those advances were requested by Mr. Brown be made by the Company to SAS and SBS, they were not specifically disclosed by Mr. Robert G. Brown (then SGRP executive Chairman), Mr. William H. Bartels (SGRP Vice Chairman then and now) or will become exercisable within 60 daysMr. James R. Segreto (Chief Financial Officer), to or approved by the Audit Committee or Board (as a related party transaction or otherwise), and at the time Mr. Brown and Mr. Bartels were the sole owners and executives of March 1,
1998.
(8) Includes 500 shares issuable uponSAS and SBS. In addition to funding such Cash Collateral, the exerciseCompany believes that it has provided (after 1999) all of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(9) Includes 93,920 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(10) Includes 59,054 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(11) Includes 1,637,151 shares owned by RLH. Mr. Haden, a director offunds for all premium payments to and equity investments in Affinity and that the Company may be deemedowed related amounts by SAS, SBS and their affiliates.
The Company also has advanced money to SAS to prepay Affinity insurance premiums (which in the case of workers compensation insurance are a percentage of payroll). The Company had advanced approximately $226,000 to SAS for the 2019-2020 Affinity plan year based on estimates that assumed SBS and SAS would be providing services to the Company for the full plan year ("Premium Advances"). However, the Company terminated their services at the end of July 2018 therefore, that insurance was required for only one month's payroll. Upon completion of the Affinity audit for the Affinity 2018-2019 plan year, the Company anticipates that SAS will receive a premium refund from Affinity of approximately $150,000 and will be obligated to repay that amount to the Company.
Affinity from time to time may (in the case of a downward adjustment in such periodic premiums or the Cash Collateral) make refunds, rebates or other returns of such periodic premiums and Cash Collateral deposits to SAS for the benefit of itself, SBS and SMF (including any premium refund, as returned or returnable, "Affinity Returns"). The Company believes that SAS is obligated to return to SMF any and all Affinity Returns allocable to SMF in repayment of the corresponding advances from SMF and allocable to SAS in repayment of the corresponding advances from SMF. The Company also believes that SAS is obligated to return to SBS, and SBS is obligated to return to SMF, any and all Affinity Returns allocable to SBS in repayment of the corresponding advances. The Company believes that SBS and SAS will have limited operations after August 1, 2018, that the litigation and likely resulting financial difficulties facing SBS are significant, and that without adequate security, those circumstances puts such repayments to the Company at a material risk.
In July 2017, SAS gave SR Services, Inc. ("SRS"), an enforceable reimbursement and security agreement respecting the approximately $180,000 in Cash Collateral SAS owed SRS. However, SAS did not disclose that transaction to the Company for over a year and did not offer the same terms to the Company until the Company finally received a copy in July 2018.
SMF had been in negotiations with SAS (represented by William H. Bartels, Vice Chairman of SGRP and one of the Majority Stockholders) since November 2017 for an enforceable reimbursement and security agreement to document and secure those Cash Collateral advances and Premium Advances and SAS' corresponding repayment obligations, which advances total approximately $516,000 ($290,000 for Cash Collateral advances and $226,000 for Premium Advances).
The Company offered settlement terms to SAS subject to first finalizing an enforceable reimbursement and security agreement between them (based on the SRS Agreement) and finalizing an Intercreditor Agreement with SRS and SBS recognizing and protecting their respective interests. SBS and SRS have never accepted the Intercreditor agreement.
According to the SBS reorganization plan and subsequent actions, SBS plans to market SAS' Affinity insurance connection to provide Affinity insurance to others, which would likely put the Company's Cash Collateral at risk. SAS also allowed SBS to withdraw approximately $200,000 from SAS' bank accounts, which had prevented SAS' repayment to the Company of the Premium Advances.
Negotiations have recently broken down over SAS' refusal to protect the Cash Collateral, as well as their demands for post-termination payments and offsets potentially larger than the Cash Collateral. As a result the Company has recorded a reserve for $901,000 (which includes such receivables) in 2018.
The Company expects that SAS may use every available means to attempt to collect reimbursement from the Company for the foreseeable future for post-termination expense, including service provided to SBS post-reorganization. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies – Legal Matters, in the Q3 2019 Quarterly Report. See also SBS Bankruptcy and Settlement, above.
The Company believes that SAS will have limited operations and the likely resulting financial difficulties facing SBS are significant, and that without adequate security, those circumstances puts any such repayments to the Company at a material risk.
The Company has decided that the issues with SAS can only be resolve through binding arbitration as provided in the SAS Agreement.
The SGRP Claims against SBS for this debt in the SBS Chapter 11 Case were settled at a substantial discount as part of the overall Settlement Agreement. See Note 8 to the Company's Consolidated Financial Statements, Commitments and Contingencies - Legal Matters - SBS Bankruptcy and Settlement -- Settlement Agreement in the Q3 2019 Quarterly Report).
Other Related Party Transactions and Arrangements:
In July 1999, SMF, SBS and SIT entered into a perpetual software ownership agreement providing that each party independently owned an undivided share votingof and investment powerhas the right to unilaterally license and exploit certain portions of the Company's proprietary scheduling, tracking, coordination, reporting and expense software (the "Co-Owned Software") are co-owned with SBS and Infotech and each entered into a non-exclusive royalty-free license from the Company to use certain "SPAR" trademarks in the United States (the "Licensed Marks"). As a result of the SBS Chapter 11 Case, SBS' rights in the Co-Owned Software and Licensed Marks are assets of SBS' estate, subject to sale or transfer in any court approved reorganization or liquidation. See Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies -- Legal Matters, Related Party Litigation in the Q3 2019 Quarterly Report and SBS Bankruptcy, below.
Through arrangements with the Company, SBS (owned by Mr. Brown and prior to December 2018 was owned by Mr. Bartels), SAS (owned by Mr. Bartels and family members of Mr. Brown), and other companies owned by Mr. Brown participate in various benefit plans, insurance policies and similar group purchases by the Company, for which the Company charges them their allocable shares of the costs of those group items and the actual costs of all items paid specifically for them. All such transactions between the Company and the above affiliates are paid and/or collected by the Company in the normal course of business.
CORPORATE GOVERNANCE
Board Structure, Leadership and Risk Oversight
The Board of Directors of the Corporation (the "Board") is responsible for overseeing the management, policies and direction of the Corporation and its subsidiaries (collectively, the Company"), both directly and through its committees (as described below), pursuant to the authority conferred by the Corporation's Restated By-Laws, charters and policies and by applicable law. The Board's responsibilities include (without limitation) the appointment and oversight of the Company's executive officers. The Board also is actively involved in the oversight of risks that could affect the Company, both directly and through its committees with respect to allthe most significant risks facing the Company (including material strategic, market or operational risks). Pursuant to their respective charters, the Board has established and delegated various oversight and other responsibilities to the Audit Committee (and its Special Subcommittee), the Compensation Committee, and the Governance Committee, as such sharescommittees are defined and more fully described below under the headings "Audit Committee and its Special Subcommittee", "Compensation Committee" and "Governance Committee".
The Board believes its leadership role for the Company is strengthened by having a majority of its members be independent directors, who meet regularly as a general partner of RLH. No other person, other
than J. Christopher Lewis, a directoran independent body and provide leadership through their industry experience and knowledge and the actions of the Company, has voting power
or investment power with respect to such shares. Also includes 2,500
shares issuable upon the exercise of an option heldindependent committees they chair, and by Mr. Haden, which
is exercisablehaving its second largest stockholder and Chief Executive Officer as of, or will become exercisable within 60 days of March
1, 1998.
(12) Includes 5,405 shares held by Joseph H. Coulombe as Trustee of The
Coulombe Family Trust dated July 26, 1980 and 10,405 shares issuable
upon the exercise of options, which are exercisable as of, or will
become exercisable within 60 days of March 1, 1998.
(13) Includes 10,405 shares issuable upon the exercise of options, which are
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
(14) Includes 1,637,151 shares owned by RLH. Mr. Lewis, a directormembers of the Company, may be deemed to share voting and investment power with respect
to all such shares as a general partner of RLH. No other person, other
than Patrick C. Haden, a director of the Company,Board. The Board also has voting power or
investment power with respect to such shares. Also includes 2,500 shares
issuable upon the exercise of an option held by Mr. Lewis, which is
exercisable as of, or will become exercisable within 60 days of March 1,
1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
Seven Directors are to be elected at the 1998 Annual Meeting to serve
until the next Annual Meeting of Stockholders and until their respective
successors have been elected and qualified. In the absence of instructions to
the contrary, proxies covering shares of Common Stock will be voted in favor of
the election of the persons listed below. In the event that any nomineeestablished separate positions for
election as Director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated
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by the Company. Management has no present knowledge that any of the persons
named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any other
person or persons pursuant to which any nominee was or is to be selected as a
Director or nominee. None of the nominees has any family relationship to any
other nominee or to any executive officer of the Company.
INFORMATION CONCERNING NOMINEES TO BOARD OF DIRECTORS
Information is set forth below concerning the nominees for election as
Directors. Each nominee has consented to being named in this Proxy Statement as
a nominee for Director and has agreed to serve as a Director if elected.
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
Clinton E. Owens 53 Chairman of the Board and Director
Terry R. Peets 56 Chief Executive Officer, President and Director
Patrick W. Collins 69 Director
John A. Colwell 47 Director
Joseph H. Coulombe(2) 67 Director
Patrick C. Haden(1)(2) 45 Director
J. Christopher Lewis 42 Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Owens has been the Chairman of the Company since its acquisition in
August 1988,Board (the "Chairman"), which is a non-executive position, for the Lead Director of the Board (the "Lead Director"), and served asfor SGRP's Chief Executive Officer until August 1997. Mr. Owens
has over 30 years experience in(who also is its President), which the merchandising servicesBoard believes better enables the Chairman to focus his efforts on long term strategic governance and packaged goods
industries. Mr. Owens previously has served as Senior Vice President of Salesplanning for the Company, the Lead Director (who also its Chairman) to provide Board leadership and Marketing of Coca Cola Foods,facilitate meaningful communications between the Board and has also served in variousthe Company's management, positions with RJR Foods and Procter & Gamble, among others.
Mr. Peets joined PIA in August 1997 asthe Chief Executive Officer Presidentto focus his time and Director.energy on managing the Company's sales and operations. The Board believes this leadership structure has enhanced its ability to effectively carry out its responsibilities on behalf of the Corporation's stockholders as well as its oversight of the Company's management and overall corporate governance. Mr. Peets servedArthur B. Drogue is the Corporation's Chairman (as well as Lead Director, Chairman of the Governance Committee and Special Subcommittee of the Audit Committee), and Mr. Christiaan M. Olivier is the Company's Chief Executive Vice PresidentOfficer and President.
To assist the Board and its Committees in their respective oversight roles, the Company's Chief Executive Officer brings members of the Company's management from various business or administrative areas into meetings of the Board or applicable Committee from time to time to make presentations, answer questions and provide insight to the members, including insights into areas of potential risk. Each Committee endeavors to satisfy its responsibilities through: (i) its receipt and review of regular reports directly from officers responsible for oversight of particular risks within the Company, (ii) direct communications by the Committee or its Chairman with the Corporation's senior management, (iii) independent principal accountants (in the case of the Audit Committee) and counsel respecting such matters and related risks, (iv) its executive sessions, (v) its reports (generally through its Chairman) to the full Board respecting the Committee's considerations and (vi) if applicable, actions and recommendations regarding such matters and risks as deemed appropriate.
Risk oversight is conducted primarily through the Audit Committee, but also is conducted through the Compensation Committee or Governance Committee, as applicable. The Vons
CompaniesAudit Committee is responsible for overseeing the accounting, auditing and financial reporting and disclosure principles, policies, practices and controls of the Company and regularly considers (among other things) financial, reporting, internal control, related party, legal and other issues and related risks and uncertainties material to the Company. The Compensation Committee is responsible for overseeing and regularly considers the performance and compensation of the executives, director compensation and the other compensation, equity incentive, related policies, and benefits of the Company. The Governance Committee is responsible for overseeing and regularly considers the finding, vetting and nomination of directors and committee members for the Board and senior Executives for SGRP, and the content and application of the 'Ethics Code, corporate documents and governance policies and practices.
The Audit Committee, its Special Committee, the Compensation Committee and the Governance Committee each consist solely of independent outside directors. Mr. R. Eric McCarthey is Chairman of the Audit Committee, Mr. Jeffrey A. Mayer is Chairman of the Compensation Committee, and Mr. Arthur B. Drogue is Chairman of the Governance Committee as well as the Special Subcommittee of the Audit Committee.
Board Meetings
The Board meets regularly to receive and discuss operating and financial reports presented by management of SGRP and its advisors. During the year ended December 31, 2019, the Board held four regular meetings in person and eight special meetings by telephone. Each incumbent Director is required to attend 75% of the board meetings. In 2019, all incumbent members attended at least 75% of the meetings.
Board Size
The current Board size has been fixed at eight directors and can only be changed by the action of the stockholders pursuant to the Restated By-Laws (see below). See also PROPOSAL 5 – GRANT AUTHORITY TO THE BOARD TO INCREASE THE SIZE OF THE BOARD WITHOUT FURTHER STOCKHOLDER ACTION IF THE BOARD DEEMS IT REASONABLY NECESSARY FOR COMPLIANCE WITH NASDAQ'S MAJORITY BOARD INDEPENDENCE RULE, above.
Board Committees
From time to time the Board may establish permanent standing committees and temporary special committees to assist the Board in carrying out its responsibilities. Under the Restated By-Laws (see below), a "super majority" vote of at least 75% of all SGRP directors is now required for any new committee, change in any committee, or appointment to or removal from 1995 to April 1997. Prior to joining Vons, Mr. Peets served in
various sales, marketingany committee (meaning any such Board action brought before a Board consisting of eight directors can be blocked by any three directors). Currently, SGRP has three permanent standing committees; the Audit Committee, the Compensation Committee and operation roles as Senior Vice President for Ralphs
Grocery Company from 1977 to 1994, until he was named Executive Vice President
in 1994. Mr. Peets also serves as a director of Supermarkets Online, a division
of Catalina Marketing Corporation, a provider of in-store electronic marketing
services.
Mr. Collins served as Chief Operating Officer of Ralphs Grocery Company
for 18 years, 17 of which he served and Presidentthe Governance Committee and one yeartemporary Special Subcommittee of the Audit Committee as Vice Chairman.
Mr Collins also servesnoted below. An audit committee is required by the Nasdaq Stock Market, Inc. ("Nasdaq"), the SEC, and applicable law. While SGRP is not similarly required to have either a compensation committee or governance committee, certain responsibilities assigned to these committees in their respective charters are required to be fulfilled by independent directors by Nasdaq Rules or SEC Rules. Each of the charters for those Committees requires that all of its members be independent directors.
The standing committees of the Board are the Audit Committee of the Board (the "Audit Committee"), the Compensation Committee of the Board (the "Compensation Committee"), the Governance Committee of the Board (the "Governance Committee"), and the special subcommittee of the Audit Committee (the "Special Subcommittee"), as a directorprovided in the Corporation's Restated By-Laws and their respective charters (see Limitation of Catalina Marketing Corporation, a
providerLiability and Indemnification Matters below).
The Compensation Committee has four independent directors, and each other Committee has three independent directors.
Audit Committee
The Audit Committee assists the Board in fulfilling its oversight responsibilities respecting the accounting, auditing and financial reporting and disclosure principles, policies, practices and controls of in-store electornic marketing services,the Company, the integrity of the Company's consolidated financial statements, the audits of the financial statements of the Company and New Bristol Farms, Inc.,
a gourmet food grocery chain.
Mr. Colwell has been a memberthe Company's compliance with legal and regulatory requirements and disclosure. The specific functions and responsibilities of the Audit Committee are set forth in the written Amended and Restated Charter of the Audit Committee of the Board of Directors of SPAR Group, Inc., Dated (as of) May 18, 2004 (the "Audit Charter"), approved and recommended by the Company
since March 1991,Audit Committee and Governance Committee and adopted by the Board on May 18, 2004. The Audit Committee also is given specific functions and responsibilities by and is subject to Nasdaq Rules, SEC Rules, the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), and other applicable law, which are reflected in the Audit Charter. You can obtain and review a current copy of the Audit Charter on the Company's web site (www.sparinc.com), which is posted and available to stockholders and the public under the Investor Relations tab and Corporate Governance sub- tab. The Audit Charter was amended and restated to reflect the evolution of the Audit Committee's expanding responsibilities, the adoption of Sarbanes-Oxley, and changes in Nasdaq Rules, SEC Rules, securities laws and other applicable law pertaining to all audit committees. The Audit Committee reviews and reassesses the Audit Charter annually and recommends any needed changes to the Board for approval. The Audit Committee's most recent review was in November of 2018, when it determined no changes were then needed in the Audit Charter.
The Audit Committee (among other things and as more fully provided in the Audit Charter):
(a) | Serves as an independent and objective party to monitor the Company's financial reporting process and internal accounting and disclosure control system and their adequacy and effectiveness; |
(b) | Is directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company (hereinafter referred to as the "Company's Independent Accountants"); |
(c) | Resolves disagreements between the Company's senior management and the Company's Independent Accountants regarding financial reporting; |
(d) | Communicates directly with the Company's Independent Accountants; |
(e) | Reviews and appraises the audit efforts of the Company's Independent Accountants, including the plans for and scope of the audit, the audit procedures to be utilized and results of the audit; |
(f) | Provides an open avenue of communication among the Company's Independent Accountants, the Company's financial and senior management and the Board; |
(g) | Reviews and approves, in advance, all non-audit services to be performed by the Company's Independent Accountants, either individually or through policies and procedures for particular types of services to be performed within specified periods; |
(h) | Reviews the performance, qualifications and independence of the Company's Independent Accountants; |
(i) | Reviews the financial reports and other financial information provided by SGRP to any governmental body or the public; |
(j) | Encourages continuous improvement of, and fosters adherence to, the Company's accounting controls, disclosure controls, risk management and similar policies, procedures and practices at all levels; |
(k) | Reviews and approves the overall fairness of all material related-party transactions; and |
(l) | May retain independent counsel, accountants or others to assist it in the conduct of an investigation or such other action as the Audit Committee may otherwise determine as necessary to carry out its duties under its Charter and applicable law, the fees and expenses of all of which will be paid by the Corporation. |
The Audit Committee currently servesconsists of Messrs. McCarthey (its Chairman), Drogue and as of September 3, 2019, Mr. Baer, each of whom has been determined by the Governance Committee and the Board to meet the independence requirements for Audit Committee members under Nasdaq Rules and SEC Rules. In connection with his re-nomination as a consultantDirector, the Governance Committee and the Board re-determined that Mr. McCarthey was qualified to PIA. From February
1997 through August 1997, he servedbe the "Audit Committee financial expert" as interim Vice Chairmanrequired by Nasdaq Rules, SEC Rules and other applicable law.
During the year ended December 31, 2019, the Audit Committee met four times in regular meetings in person and nine times in special meetings by telephone. All incumbent members attended at least 75% of the Board. Mr.
Colwell is sole proprietor of a consultingmeetings.
Compensation Committee
The Compensation Committee assists the Board in fulfilling its oversight responsibilities respecting the performance and interim management firm bearing
his
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name, and President of Facility Development Corporation. Since 1991, he has
served as a Managing Director of Lineberger & Co., a private equity investment
firm. From November 1991 through February 1997, he was Senior Vice President of
River City Plastics, Inc., a manufacturer of polyvinyl chloride pipe.
Mr. Coulombe has been a membercompensation of the Board of Directorsexecutives and the other compensation, equity incentive and related policies of the Company, since May 1993. Mr. Coulombe isthrough which the founderCompany endeavors to attract, motivate and former Chief Executive Officer
of Trader Joe's,retain the executive talent needed to optimize stockholder value in a specialty food grocery chain that was founded in 1958. Mr.
Coulombe sold Trader Joe's in 1979competitive environment while facilitating the business strategies and remained the Chief Executive Officer of
Trader Joe's until January 1989. From February 1995 to April 1995, Mr. Coulombe
served as President and Chief Executive Officer of Sport Chalet, and served as a
director of Sport Chalet from February 1993 to June 1994. From February 1994 to
January 1995, Mr. Coulombe served as Chief Executive Officer of Provigo Corp.,
the Northern California subsidiary of Provigo Inc., of Montreal. From June 1992
to January 1994, Mr. Coulombe served as a memberlong-range plans of the BoardCompany. The specific functions and responsibilities of Directors of
Imperial Bank, a subsidiary of Imperial Bancorp. From March 1992 to October
1992, Mr. Coulombe served as Executive Vice President of Pacific Enterprises in
charge of Thrifty Corporation, and also served as Co-Chairman of Thrifty
Corporation. From June 1989 through March 1992, Mr. Coulombe acted as an
independent business consultant. Mr. Coulombe also serves as a director of Cost
Plus World Market, a home furnishings store chain, and New Bristol Farms, Inc.,
a gourmet food grocery chain.
Mr. Haden became a member of the Board of Directors of the
Company in August 1988 in connection with PIA's acquisition. Since 1987, Mr.
Haden has been a general partner of Riordan, Lewis & Haden, a Los Angeles based
partnership, which invests in management buy-out and venture capital
transactions. Mr. Haden also serves as a director of Tetra Tech, Inc., an
environmental engineering and consulting firm, Data Processing Resources
Corporation, a provider of information technology specialty staffing services,
and several privately held companies.
Mr. Lewis has been a member of the Board of Directors of the Company
since April 1997. Since 1982, Mr. Lewis has been a general partner of Riordan,
Lewis & Haden. Mr. Lewis also serves as a director of Tetra Tech, Inc., an
environmental engineering and consulting firm, Data Processing Resources
Corporation, a provider of information technology specialty staffing services,
Steven Myers & Associates, a proposal management and consultant firm, California
Beach Restaurants, Inc., an owner and operator of restaurants, and several
privately-held companies.
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board of Directors (the "Board") are the
Audit Committee (the "Audit Committee") and the Compensation Committee (the
"Compensation Committee"). PIA does not have a standing nominating committee or
any committee performingare set forth in the functions thereof.
The Audit Committee, which presently consists of Messrs. Haden and
Coulombe, met once during 1997. The Audit Committee makes recommendations
concerning the engagement of independent public accountants; reviews with the
independent public accountants the plans for and scope of the audit, the audit
procedures to be utilized and results of the audit; approves the professional
services provided by the independent public accountants; reviews the
independence of the independent public accountants; and reviews the adequacy and
effectiveness of the Company's internal accounting controls.
The Compensation Committee, which presently consists of Messrs. Haden
and Epstein, met twice during 1997. The Compensation Committee determines
compensation for the Company's executive officers and administers the Company's
stock incentive plans. See "Reportwritten Charter of the Compensation Committee of the Board of Directors."
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither memberDirectors of SPAR Group, Inc., Dated (as of) May 18, 2004 (the "Compensation Charter"), approved and recommended by the Compensation Committee and Governance Committee and adopted by the Board on May 18, 2004. The Compensation Committee also is given specific functions and responsibilities by and is subject to Nasdaq Rules, SEC Rules, Sarbanes-Oxley and other applicable law. You can obtain and review a current copy of the Compensation Charter on the Company's web site (www.sparinc.com), which is posted and available to stockholders and the public under the Investor Relations tab and Corporate Governance sub-tab. The Compensation Charter was adopted to reflect the evolution of the Compensation Committee's informal responsibilities, the adoption of Sarbanes- Oxley, and changes in Nasdaq Rules, SEC Rules, securities laws and other applicable law pertaining to compensation committees. The Compensation Committee reviews and reassesses the Compensation Charter annually and recommends any needed changes to the Board for approval. The Compensation Committee's most recent review was atin November of 2018, when it determined no changes were then needed in the Compensation Charter.
The Compensation Committee (among other things and as more fully provided in the Compensation Charter):
(a) | Oversees the existing and proposed compensation plans, policies and practices of the Company, and reviews and recommends to the Board any necessary or desirable changes or additions to any such plan, policy or practice, all in order to (i) attract and retain quality directors, executives and employees, (ii) provide total compensation competitive with similar companies, (iii) reward and reinforce the attainment of the Company's performance objectives, and (iv) align the interests of SGRP's directors and the Company's executives and employees with those of SGRP's stockholders (the "Company's Compensation Objectives"); |
(b) | Reviews the Company's existing and proposed Compensation Objectives from time to time and recommends to the Board any necessary or desirable changes or additions to such objectives; |
(c) | Reviews the performance of and establishes the compensation for the Company's senior executives; |
(d) | Oversees the Company's stock option, stock purchase and other benefit plans and severance policies, and reviews and recommends to the Board any necessary or desirable changes or additions to any such plan, policy or practice; and |
(e) | May retain independent counsel, accountants or others to assist it in the conduct of an investigation or such other action as the Compensation Committee may otherwise determine as necessary to carry out its duties under its Charter and applicable law, the fees and expenses of all of which will be paid by the Corporation. |
The Compensation Committee currently consists of Messrs. Mayer (its Chairman), Drogue, McCarthey, and as of September 3, 2019, Mr. Baer all of whom are non-employees of the Company and have been determined by the Governance Committee and the Board to be independent directors in accordance with Nasdaq Rules and SEC Rules. However, Mr. Mayer (A) will be an independent director for all purposes other than any time duringRelated Party Matter, (B) will be a non-independent director respecting any Related Party Matter, and (C) may participate in discussions but will be excluded and shall recuse himself from any and all decisions of the Board and applicable Board Committees respecting any Related Party Matter. "Related Party Matter" shall mean any payment to or for, or any transaction or litigation with, Robert G. Brown, William H. Bartels, any of their respective family members, or any company or other business or entity directly or indirectly owned or controlled by any one or more of Mr. Brown, Mr. Bartels or their respective family members.
During the year ended December 31, 1997 or at any other time an officer or employee of2019, the Company. No executive officer of the Company serves asCompensation Committee met four times in regular meetings in person and once in a member of the Board of
Directors or compensation committee of any other entity, which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
MEETINGS AND REMUNERATION
During 1997, the Board held six meetings and took various actionsspecial meeting by written consent. Eachtelephone. All incumbent Directormembers attended at least 75% of the aggregatemeetings.
Governance Committee
The Governance Committee assists the Board in fulfilling its oversight responsibilities respecting the nomination of (i)directors and committee members for the total numberBoard and the corporate documents and governance policies and practices of meetings heldthe Corporation. The specific functions and responsibilities of the Governance Committee are set forth in the written Charter of the Governance Committee of the Board of Directors of SPAR Group, Inc., Dated (as of) May 18, 2004 (the "Governance Charter"), approved and recommended by the Governance Committee and adopted by the Board during 1997on May 18, 2004. The Governance Committee also is given specific functions and (ii)responsibilities by and is subject to the total number of meetings held by all committeesNasdaq Rules, SEC Rules, Sarbanes-Oxley, and other applicable law, which are reflected in the Governance Charter. You can obtain and review a current copy of the Board during that period
withinGovernance Charter on the Company's web site (www.sparinc.com), which heis posted and available to stockholders and the public under the Investor Relations tab and Corporate Governance sub-tab. The Governance Charter was a Director or member of such committeeadopted to reflect the evolution of the Board. Each
Director is electedGovernance Committee's informal responsibilities, the adoption of Sarbanes-Oxley, and changes in Nasdaq Rules, SEC Rules, securities laws, and other applicable law pertaining to hold office untilgovernance committees. The Governance Committee reviews and reassesses the next annual meetingGovernance Charter, Nomination Policy and Ethics Code (as such terms are defined below), as well as the By-Laws of stockholdersthe Corporation and until his respective successor is electedthe other Committee Charters, annually and qualified.
recommends any needed changes to the Board for approval. The Governance Committee's most recent review was in November of 2018, when it determined no changes were then needed in the Governance Charter, Nomination Policy, Ethics Code, and the By-Laws of the Corporation and the other Committee Charters.
The Governance Committee (among other things and as more fully provided in the Governance Charter):
(a) | Oversees the identification, vetting and nomination of candidates for directors and senior Executives of SGRP and the selection of committee members, reviews their qualifications (including outside director independence) and recommends any proposed nominees to the Board; |
(b) | Oversees SGRP's organizational documents and policies and practices on corporate governance and recommends any proposed changes to the Board for approval; |
(c) | Oversees the 'Ethics Code and other internal policies and guidelines and monitors the Corporation's enforcement of them and incorporation of them into the Corporation's culture and business practices; and |
(d) | May retain independent counsel, accountants or others to assist it in the conduct of an investigation or such other action as the Governance Committee may otherwise determine as necessary to carry out its duties under its Charter and applicable law, the fees and expenses of all of which will be paid by the Corporation. |
The Governance Committee currently consists of Messrs. Drogue (its Chairman), Baer and McCarthey, all of whom are non- employees of the Company and have been determined by the Governance Committee and the Board to be independent directors in accordance with Nasdaq Rules and SEC Rules.
During the year ended December 31, 1997,2019, the Governance Committee met four times in regular meetings in person, and nine times in special meetings by telephone. All incumbent members attended at least 75% of the meetings.
Special Subcommittee
In addition, in order to (among other things) assist the Board and the Audit Committee in connection with an overall review of the Company's related party transactions and certain worker classification-related litigation matters, in April 2017 the Board formed a special subcommittee of the Audit Committee (the "Special Subcommittee") to (among other things) review the structure, documentation, fairness, conflicts, fidelity, appropriateness, and practices respecting each of the relationships and transactions discussed in the description of the Company's Transactions with Related Persons, Promoters and Certain Control Persons in this Proxy Statement and in Note 5 to the Company's Consolidated Financial Statements - Related Party Transactions in the Q3 2019 Quarterly Report (including those described in such description and in such Note under Domestic Related Party Services ). The Special Subcommittee has commenced that review with the assistance of special auditors and counsel currently being retained by such Subcommittee. See also Item 1A - Risk Factors – Dependence Upon and Cost of Services Provided by Affiliates and Use of Independent Contractors, Potential Conflicts in Services Provided by Affiliates, and Risks Related to the Company's Significant Stockholders: Potential Voting Control and Conflicts, and Part II, Item 1 - Legal Proceedings -- RELATED PARTIES AND RELATED PARTY LITIGATION, in the Q3 2019 Quarterly Report.
The Special Subcommittee engaged Morrison Valuation & Forensic Services, LLC ("Morrison"), to perform a third-party financial evaluation of certain domestic related party relationships and transactions (principally with SAS and SBS of the Company, paidwhich included the review of certain financial records of the Company (but not those of its affiliates) and discussions with management of the Company. Their task included (among other things) the identification and mapping of and apparent purposes for and benefits from cash flows between the Company and its affiliates. Morrison identified a number of transactions between the parties, while not material, were inefficient, time consuming and of limited business value to the parties. They included expense reimbursement for indirect charges for supply purchases, corporate vendor service cost and use of corporate credit cards in the payment of vendor services. These inefficiencies have been and will continue to be addressed by the Company. The Special Subcommittee also engaged Holland & Knight to provide legal advice on related party issues, and Paul Hastings to provide legal advice on independent contractor classification issues, including the SBS Clothier Case (see Note 8 to the Company's Consolidated Financial Statements - Commitments and Contingencies – Legal Matters, in the Q3 2019 Quarterly Report), and their advice is ongoing.
The Special Subcommittee currently consists of Messrs. CoulombeDrogue (its Chairman), McCarthey, and Epstein an aggregateas of $6,000September 3, 2019, Mr. Baer, each of whom has been determined by the Governance Committee and $24,750, respectively,the Board to meet the independence requirements for servicesAudit Committee members under Nasdaq Rules and SEC Rules.
During the year ended December 31, 2019, the Special Subcommittee met seven times in special meetings by telephone. All incumbent members attended at least 75% of the meetings.
The Company is currently unable to predict the remaining duration and final results of this review by the Special Subcommittee.
Director Nominations: Experience, Integrity, Diversity and other Criteria
The Governance Committee oversees the identification, vetting and nomination of candidates for directors and the selection of committee members, the review of their qualifications (including outside director independence), and recommends any proposed nominees to the Board in accordance with the Governance Charter and with the SPAR Group, Inc. Statement of Policy Regarding Director Qualifications and Nominations dated as of May 18, 2004 (the "Nomination Policy"), as approved and recommended by the Governance Committee and adopted by the Board on May 18, 2004. You can obtain and review a current copy of this policy on the Company's web site (www.sparinc.com), which is posted and available to stockholders and the public under the Investor Relations tab and Corporate Governance sub-tab.
The Nomination Policy, applicable law and exchange rules require that a majority of the directors of the Board and all members of the Company'sAudit Committee (and its Special Subcommittee), Compensation Committee and Governance Committee satisfy the independence requirements applicable to Audit Committee members under the applicable Nasdaq Rules and SEC Rules. Each of the Audit Charter, Compensation Charter and Governance Charter also contain the same requirements that all of their respective members satisfy such independence requirements.
The Nomination Policy identifies numerous characteristics believed important by the Board for any nominee for director and provides that each nominee for director should possess as many of them as practicable. These desirable characteristics include (among other things) the highest professional and personal ethics and integrity, sufficient time and attention to devote to Board and as consultants,Committee duties and responsibilities, strong relevant business and industry knowledge and contacts, and business and financial sophistication, common sense and wisdom, the contribution to the diversity of perspectives in the Board and its Committees, and the ability to make informed judgments on a wide range of issues, the ability and willingness to exercise and express independent judgments, and the apparent ability and willingness to meet or exceed the Board's performance expectations. The Nomination Policy specifically recognizes the desirability of ethnic, racial, gender and geographic diversity for the Board but does not specify any metrics for evaluating potential candidates in that regard. However, the Governance Committee takes all relevant factors (including such diversity) into account when identifying and evaluating candidates for Board membership.
Performance expectations for each director have also reimbursed Messrs. Coulombe and Epsteinbeen established by the Board in the Nomination Policy, including (among other things) the director's regular preparation for, certain expenses in connection with
their attendance at Board and committee meetings. Messrs. Hadenparticipation in all meetings (including appropriate questioning), support and Lewis
received no compensation for their services as directors. In addition, Mr
Colwell received a salaryadvice to management in his areas of $16,667 per month. Commencingexpertise, maintenance of focus on April 1, 1998, Mr
Colwell will receive a salarythe Board's agenda, understanding the business, finances, plans and strategies of $50,000 annually for consulting services. Mr
Colwell is also entitled to receive a success fee payableCompany, professional and collegial interaction, acting in the event certain
transactions are completed by the Company.
1995 Stock Option Plan for Nonemployee Directors. The Company adopted
its 1995 Stock Option Plan for Nonemployee Directors in December 1995 (the
"Nonemployee Directors Plan"). The purpose of the Nonemployee Directors Plan is
to promote thebest interests of the Company and itsthe stockholders, by strengtheningand compliance with the Company's abilityEthics Code.
Candidates for vacant positions on the Board may be suggested to attract and retain the services of experienced and
knowledgeable nonemployee directors. The Nonemployee Directors Plan provides for
the grant of non-qualified stock options only. A reserve of 100,000 sharesGovernance Committee from time to time by its members or by officers or other directors of the Company's Common Stock has been established for issuance underCorporation. The Governance Committee generally will consider recommending the Nonemployee Directors Plan. Eachre-nomination of Messrs. Haden, Coulombe, Epsteinincumbent directors in accordance with the Nomination Policy, provided that they continue to satisfy the applicable personal characteristic criteria and Lewis
holds an optionperformance expectations. The Nomination Policy reflects the Board's belief that qualified incumbent directors are generally uniquely positioned to purchase 1,500 sharesprovide stockholders the benefit of Common Stock under the Nonemployee
Directors Plan that will become exercisable on the datecontinuity of the 1998 Annual
Meeting if the optionee is reelectedleadership and seasoned judgment gained through experience as a director of SGRP, and that the Company.value of these benefits may outweigh many other factors. However, the Governance Committee is not required to recommend to the Board the nomination of any eligible incumbent director for re-election (see Stockholder Communications - Submission of Stockholder Proposals and Director Nominations, below).
In considering the potential director nominee slate (including incumbent directors) to recommend to the Board, the Nomination Policy directs the Governance Committee to take into account: (i) the benefits of incumbency, as noted above; (ii) any perceived needs of Board, any Committee or the Company at the time for business contacts, skills or experience or other particular desirable personal characteristics; (iii) the collegiality of Board members; (iv) the need for independent directors or financial experts under that Policy or applicable law for the Board or its Committees; (v) any other requirements of applicable law or exchange rules; and (vi) the desirability of ethnic, racial, gender and geographic diversity. The Nonemployee Directors Plan is administeredGovernance Committee will consider proposed nominees from any source, including those properly submitted by stockholders (see Stockholder Communications - Submission of Stockholder Proposals and Director Nominations, below).
Each nominee for director in May of 2019 was required to complete and submit an officers' and directors' questionnaire as part of the process for making director nominations and preparation of SGRP's 2018 Annual Report and this Proxy Statement. Messrs. Baer and Lazaretos have more recently completed and submitted an officers' and directors' questionnaire and were the subject of interviews and background checks.
The seven nominees for director in May of 2019 were reviewed, approved and recommended by the Company's
Compensation Committee. Each memberGovernance Committee and nominated by the Board. All such seven nominees were incumbents, although that is the first year that Mr. Mayer and Mr. Peter Brown were nominees at an annual stockholder's meeting. Mr. Lazaretos was appointed to the Board by the Written Consents, which became effective on December 10, 2019. Based on their respective officers' and directors' questionnaires, as required by the Nominations Policy and the committee charters, the Governance Committee and Board each determined that, under Nasdaq Rules and SEC Rules:(i): Mr. Arthur H. Baer, Mr. Arthur B. Drogue, and Mr. R. Eric McCarthey are independent directors; (ii) Mr. R. Eric McCarthey is an "audit committee financial expert" under SEC Rules, as required by such rules and the Audit Charter; and (iii) Mr. Mayer (A) will be an independent director for all purposes other than any Related Party Matter, (B) will be a non-independent director respecting any Related Party Matter, and (C) may participate in discussions but will be excluded and shall recuse himself from any and all decisions of the Company's Board and applicable Board Committees respecting any Related Party Matter. "Related Party Matter" shall mean any payment to or for, or any transaction or litigation with, Robert G. Brown, William H. Bartels, any of Directors who is
not otherwise an employeetheir respective family members, or any company or other business or entity directly or indirectly owned or controlled by any one or more of Mr. Brown, Mr. Bartels or their respective family members.
2019 Restated By-Laws
On January 18, 2019, the Corporation settled the By-Laws Action (the "Settlement") between SGRP, Robert G. Brown, a substantial stockholder of SGRP and former Executive Chairman and director of the Corporation, and William H. Bartels, a substantial stockholder of the Corporation and current Vice Chairman and director and officer of the Company or any subsidiaryCorporation (together with Robert G. Brown, the "Majority Stockholders"). See Part II, Item 1, -- Legal Proceedings -- -- RELATED PARTIES AND RELATED PARTY LITIGATION-- Delaware Litigation Settlement in the Q3 2019 Quarterly Report.
In the By-Laws Action, the Corporation had sought to invalidate the proposed amendments to SGRP's By-Laws put forth in a written consent by the Majority Stockholders (the "Proposed Amendments") because the Board's Governance Committee believed that the Proposed Amendments would have negatively impacted all stockholders (particularly minority stockholders) by (among other things) weakening the independence of the Company (each an "Eligible Director") is eligible to participate inBoard through new supermajority requirements, eliminating the Nonemployee Directors Plan. Directors who are consultants of, but not otherwise
employees or officersBoard's independent majority requirement, and subjecting various functions of the Company are Eligible Directors.
UnderBoard respecting vacancies on the Nonemployee Directors Plan, an optionBoard to purchase 1,500 shares
of Common Stock is granted to each Eligible Director immediately following each
annual meeting of stockholdersthe prior approval of the Company. Each option vests and becomes
exercisable in full at the next annual meetingholders of stockholders, provided that
the optionee is reelected as a director of the Company. The maximum term of
options granted under the Nonemployee Directors Plan is ten years and one day,
subject to earlier termination following an optionee's cessation of service with
the Company.
The exercise price of stock options granted under the Nonemployee
Directors Plan will be the fair market valuemajority of the Common Stock (i.e., the Majority Stockholders), and thus also potentially reducing the representation of SGRP's minority stockholders. Please see Part II, Item 1, – Legal Proceedings ----RELATED PARTIES AND RELATED PARTY LITIGATION -- Delaware Litigation Settlement in the Q3 2019 Quarterly Report.
As part of the Settlement, on January 18, 2019, the Governance Committee and Board accepted certain of the Proposed Amendments of the Majority Stockholders with negotiated changes and clarifications, and adopted the Amended and Restated By-Laws of SPAR Group, Inc. (the "Restated By-Laws"). A current copy of the Restated By-Laws is posted and available to stockholders and the public on the date of
grant. The exercise price is immediately payable upon exerciseCorporation's web site (www.sparinc.com).
In Restated By-Laws the negotiated changes to the Proposed Amendments preserved the current roles of the option.
Such payment may be madeGovernance Committee and Board in cash, by check orthe location, evaluation, and selection of candidates for director and in such other formthe nominations of lawful
consideration (including promissory notes or sharesthose candidates for the annual stockholders meeting and appointment of Common Stock then held)
as the Compensation Committee may approve from timethose candidates to time.
Options grantedfill Board vacancies (other than those under the Nonemployee Directors Plan are
non-transferable except to immediate family members, a trust for their benefit
or a partnership in which such family members are the only partners. Such
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options generally expire three months after the termination of any optionee's
service to the Company. In general, if an optionee is permanently disabled or
dies during his service to the Company, such option may be exercised up to six
months after such disability or death; provided, however, that the Compensation
Committee may in its discretion extend the period for up to five years, provided
that such extension does not extend the period during which the option may be
exercised beyond the original term of the option.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the Nonemployee Directors Plan and each outstanding option granted thereunder
shall terminate; provided, that each optionee to whom no substitute option has
been tenderedwritten consent by the surviving corporation will haveMajority Stockholders making a removal and appointment, which is unchanged).
The Restated By-Laws now also include the right to exercise in
whole or in part any unexpired option or options issued to him, without regard
to the vesting provisions thereof.
following:
● | Any vacancy that results from the death, retirement or resignation of a director that remains unfilled by the directors for more than 90 days may be filled by the stockholders. |
● | Certain stockholder proposals may now be made up to the 90th day prior to the first anniversary of the preceding year's Annual Meeting. |
● | The Board size has been fixed at eight and can only be changed by the stockholders (as provided in such proposed amendments). |
● | The section requiring majority Board independence has been removed (as provided in such proposed amendments). |
● | The By-Laws now require that each candidate for director sign a written irrevocable letter of resignation and retirement effective upon such person failing to be re-elected by the required majority stockholder vote. |
● | A "super majority" vote of at least 75% of all directors is now required for (and on a Board consisting of eight directors, any three directors can block) any of the following (as provided in such proposed amendments): |
o | Issuance of more than 500,000 shares of stock (other than under the Corporation's stock compensation plans); |
o | Issuance of any preferred stock; |
o | Declaration of any non-cash dividend on the shares of capital stock of the Corporation; |
o | By-Laws modification; |
o | Formation or expansion of the authority of any Committee or subcommittee; or |
o | Appointment or removal of any Committee director. |
Limitation of Liability and Indemnification Matters
The Board of Directors may amend or modify the Nonemployee Directors
Plan and outstanding options at any time, including but not limited to
accelerating the time at which an option may be exercised, provided that no such
amendment or modification may adversely affect the rights and obligations of the
participants with respect to their outstanding options without their consent.
The Nonemployee Directors Plan will terminate in December 2005, unless sooner
terminated by the Board.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company'sCorporation's Certificate of Incorporation, limitsas amended, eliminates the liability of all directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a company will not be personally liableCorporation and its stockholders for monetary damages for breachbreaches of their fiduciary duties as directors to the maximum extent such liability can be eliminated or limited under the Delaware General Corporation Law, as amended (the "DGCL"), which applies to the Corporation as a Delaware corporation. The DGCL permits a certificate of incorporation to include a provision eliminating such personal liability of its directors, and such elimination is effective under the DGCL, except forthat such liability currently may not be eliminated or limited under the DGCL (i) for any breach of their duty of loyalty to the companyCorporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemption'sredemptions as provided in Section 174 of the Delaware
General Corporation Law,DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.
The Company's BylawsRestated By-Laws (unchanged in this regard by the latest restatement) provide that the Company shallCorporation must indemnify each of its current and former directors, executive officers and directorsother designated persons (including those serving its affiliates in such capacities at the Corporation's request), and may in the Board's discretion indemnify itsthe other current and former officers, employees and other agents of the Company, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit or proceeding against them in such capacity to the fullest extent permitted by law.DGCL. The Company's BylawsRestated By-Laws also permit itprovide that the Corporation must advance the expenses (including attorneys' fees) actually and reasonably incurred by any such person in defending any such action, suit or proceeding, subject to securesuch person's agreement to the extent required by the DGCL under the circumstances to reimburse the Corporation if such person is not entitled to indemnification. The Restated By-Laws and these mandatory indemnification provisions were approved and recommended by the Governance Committee and adopted by the Board of Directors of the Corporation in order to conform to the current practices of most public companies and to attract and maintain quality candidates for its directors and management, and are included in the Restated By-Law (see above). A current copy of the Restated By-Laws is posted and available to stockholders and the public on the Corporation's web site (www.sparinc.com).
Section 145 of the DGCL provides that the Corporation (as a Delaware corporation) has the power to indemnify under various circumstances anyone who is or was serving as a director, officer, employee or agent of the Corporation or (at its request) another corporation, partnership, joint venture, trust or other enterprise, which includes indemnification against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), but only if (i) such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Corporation, (ii) in the case of any criminal action or proceeding, such person had no reasonable cause to believe his or her conduct was unlawful, and (iii) in the case of any suit by or in the right of the Corporation in which the person is adjudged to be liable to the Corporation, the applicable court determines such person is nevertheless fairly and reasonably entitled to such indemnification under the circumstances. Section 145 of the DGCL also permits the Corporation to pay or advance the expenses (including attorneys' fees) actually and reasonably incurred by any such person in defending any such action, suit or proceeding, and requires that the Corporation indemnify such person for such unpaid expenses upon a successful defense of such action, suit or proceeding.
The Company maintains director and officer liability insurance on behalfthat (subject to deductibles, maximums and exceptions) covers most liabilities arising out of the acts or omissions of any officer, director, employee or other agentcovered person, both for any
liability arising outthe benefit of his or her actions in such capacity,the Company and the direct benefit of its directors and officers, regardless of whether the BylawsRestated By-Laws or DGCL Section 145 would permit indemnification.indemnification of the matters covered by such insurance. The Company maintains directorRestated By-Laws (and DGCL Section 145 expressly permit the Corporation to secure such insurance and officer liabilityexpressly provide that their respective indemnification provisions are not exclusive of any other rights to which the indemnified party may be entitled, including such insurance.
At present, except for demands for advancement of legal fees related to the Delaware action by Messrs. Brown and Bartels, there is no pending litigationaction, suit or proceeding involving any director, officer, employee or agent of the Company in such capacity in which indemnification will be required or permitted. See Advancement Claims in Part II, Item 1 -- Legal Proceedings-- RELATED PARTIES AND RELATED PARTY LITIGATION, in the Q3 2019 Quarterly Report.
The Company is not aware of any pending or threatened litigationaction, suit or proceeding whichthat may result in a claim for such indemnification. -8-
9
However, please see the 2018 Annual Report, Item IA Risk Factors -- Potential Conflicts with Affiliates and Risks Related to the Company's Significant Stockholders and Potential Voting Control and Conflicts, and the Q3 2019 Quarterly Report, Part II Item 1, -- Legal Proceedings -- RELATED PARTIES AND RELATED PARTY LITIGATION.
Ethics Codes
SGRP has adopted codes of ethical conduct applicable to all of its directors, officers and employees, as approved and recommended by the Governance Committee and Audit Committee and adopted by the Board, in accordance with Nasdaq Rules and SEC Rules. These codes of conduct (collectively, the "Ethics Code") consist of: (1) the SPAR Group Code of Ethical Conduct for its Directors, Executives, Officers, Employees, Consultants and other Representatives Amended and Restated (as of) March 15, 2018 (the "Restated Ethical Code"); and (2) Statement of Policy Regarding Personal Securities Transactions in SGRP Stock and Non-Public Information, as amended and restated on May 1, 2004, and as further amended through March 10, 2011. Both Committees were involved because general authority over the Ethics Codes shifted from the Audit Committee to the Governance Committee with the adoption of the committee charters on May 18, 2004. However, the Audit Committee retained the express duty to review and approve the overall fairness of all material related-party transactions. You can obtain and review current copies of such code and policy on the Company's web site (www.sparinc.com), which are posted and available to stockholders and the public under the Investor Relations tab and Corporate Governance sub-tab.
EXECUTIVE OFFICERS, COMPENSATION, DIRECTORS AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices
held by all executive officers of the Company.
Stock Based Compensation Arrangement. See "-- Compensation Plans -- 401(k)
Plan" and "-- Deferred Compensation Arrangement."
(2) Consists of contributions to the 401(k) Plan made by the Company on
behalf of each of Messrs. Peets, Owens, Skinner, Colwell, Werner, Dorr
and Olofson, respectively. Also includes an aggregate of $4,236 in
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insurance premiums paid by the Company on behalf of Mr. Peets during the
year ended December 31, 1997 for certain life insurance and disability
insurance policies of which Mr. Peets is the sole beneficiary. Also
includes an aggregate of $18,826, $29,820 and $14,891 in insurance
premiums paid by the Company on behalf of Mr. Owens during the years
ended December 31, 1995, 1996 and 1997, respectively, for certain life
and disability insurance policies of which Mr. Owens is the sole
beneficiary.
(3) Mr. Peets was named Chief Executive Officer and President in August
1997.
(4) Mr. Owens also served as Chief Executive Officer until August 1997.
(5) Mr. Colwell became a consultant on January 1, 1998.
(6) This option was cancelled in December 1997.
(7) Mr. Werner retired from the Company as of January 26, 1998.
(8) Mr. Smyre was named Senior Vice President -- General Manager in December
1997.
(9) Mr. Dorr was named Senior Vice President - Non Foods in October 1997.
(10) Mr. Olofson resigned from the Company as of June 10, 1997.
Mr. Peets entered into an employment agreement with the Company on June
25, 1997. Such agreement is terminable by the Company at any time, subject,
among other things, to severance payments as provided in the employment
agreement. From June 25, 1997 through August 10, 1997, Mr. Peets received a
fixed salary of $1,200 per day. Thereafter, throughout the term of the
employment agreement, Mr. Peets will receive a fixed salary of $20,834 per
month, subject to annual review by the Board for possible increases, with a
minimum increase tied to the Los Angeles-Long Beach-Anaheim, consumer price
index. Mr. Peets is also entitled to a yearly bonus of up to 100% of his base
salary based upon the Company achieving certain operating income targets.
The Company currently has no employment contracts with anybelieves that it is desirable to align the interests of the Named
Executive Officers other than Mr. Peets. As described below under "--
Compensation Plans," under certain circumstances, the exercisability of options
granted to the Named Executive Officers may be accelerated in the event of a
merger.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each grant of stock
options made during the year ended December 31, 1997 to each of the Named
Executive Officers. No stock appreciation rights ("SARs") were granted during
such period to such persons.
SGRP has granted stock option and the compensation policy
when determining individual components of pay.
EXECUTIVE COMPENSATION COMPONENTS
As discussed below, the Company's executive compensation package is
primarily comprised of three components: base salary, annual incentive bonuses
andrestricted stock options.
Base Salary. In establishing base salary levels for executive officer
positions, the Committee and the Company's Chief Executive Officer, consider
levels of compensation at comparable companies, levels of responsibility and
internal issues of consistency and fairness. In determining the base salary of a
particular executive, the Committee and the Chief Executive Officer consider
individual performance, including the accomplishment of short- and long-term
objectives, and various subjective criteria including initiative, contribution
to overall corporate performance and leadership ability. The Compensation
Committee reviews executive officer salaries annually and exercises its judgment
based on all the factors described above. No specific formula is applied to
determine the weight of each criteria.
Annual Incentive Bonuses. For 1997, the Company's executive officers
were eligible for annual bonuses based upon recommendations made by the Chief
Executive Officer based upon their individual performance and the Company's
achievement of certain operating results. Amounts of individual awards were
based principally upon the results of the Company's financial performance during
the year. The amount of awards for senior officers were within guidelines
established by the Committee and the Chief Executive Officer as a result of
their review of total compensation for senior management of peer companies. The
actual amount awarded, within these guidelines, was determined principally by
the Committee's and the Chief Executive Officer's assessment of the individual's
contribution to the Company's overall financial performance. Consideration was
also given to such factors such as the individual's successful completion of a
special projecteligible directors, officers and any significant increase or decrease in the level of the
participant's ability to discharge the responsibilities of his position. No
bonuses were paid to executive officers in 1997.
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For 1998, the Compensation Committee has approved the 1998 Incentive
Compensation Plan (the "ICP") which is based upon the Company's 1998 Business
Plan (the "Business Plan"). Under the ICP, 75% of the specified bonuses will be
payable in the event the Company meets its earnings per share goal, as specified
in the Plan,employees and earnings per share in the fourth quarter of 1998 satisfy the
specified goal; and 100% of the specified bonuses will be payable in the event
the Company meets it earnings per share goal, as specified in the Plan, and
earnings per share in the fourth quarter of 1998 satisfy the specified goal. In
the event bonuses are payable under the ICP, the Company will then determine
whether the executive officer met his or her previously established annual
performance goal. An executive officer's failure to achieve this goal will
disqualify that officer from earning payment under the ICP.
Stock Options. Stock options encourage and reward effective management
which results in long-term corporate financial success, as measured by stock
price appreciation. Stock options covering 631,500 shares were granted to the
executive officers of the Company and stock options covering 300,825 shares were
granted to other employees of the Company during 1997 under the 1995 Plan. The
number of options that each executive officer or employee was granted was based
primarily on the executive's or employee's ability to influence the Company's
long-term growth and profitability. The Compensation Committee believes that
option grants afford a desirable long-term compensation method because they
closely ally the interests of management with stockholder value and that grants
of stock options are the best way to motivate executive officers to improve
long-term stock market performance. The vesting provisions of options granted
under the 1995 Plan are designed to encourage longevity of employment with the
Company and generally extend over a four-year period.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that its current Chief Executive
Officer, Terry R. Peets provides valuableconsultants providing services to the Company and that his
compensation should therefore be competitive with that paid to executives at
comparable companies. In addition, the Compensation Committee believes that an
important portion of his compensation should be based on Company performance.
Mr. Peets' base salary and bonus are determinedpurchase SGRP Shares pursuant to his employment
agreement,SGRP's 2018 Stock Compensation Plan (the "Original 2018 Plan") and SGRP's 2008 Stock Compensation Plan (as amended, the "2008 Plan"). SGRP's stockholders approved and adopted the Original 2018 Plan in May 2018 and the 2008 Plan in May 2008, as described under "Executive Officers, Compensation and Other
Information." In 1997, Mr. Peets' base salary was $111,757 and he did not
receivethe successor to various predecessor stock option plans (including the 2008 Plan, each a bonus for his performance in 1997.
Mr. Owens served as Chief Executive Officer from January 1 through
August, 1997. The factors which the Compensation Committee considered in setting
his annual base salary were his individual performance and pay practices of peer
companies relating to executives of similar responsibility. Mr. Owens' annual
base salary for 1997 was $400,000 and he did not receive a bonus for his
performance in 1997.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162(m) of the Internal Revenue Code (the "Code""Prior Plan"), the
amount of compensation paid to certain executives that is deductible with respect to the Company's corporate taxes is limited to $1,000,000 annually. It
is the current policy of the Compensation Committee to maximize,all new Awards granted, and an amendment to the extent
reasonably possible,2008 Plan in May 2009, permitting the Company's abilitydiscretionary repricing of existing awards. SGRP also has granted stock options that continue to obtain a corporate tax deduction
for compensation paidbe outstanding under the Prior Plans. Each the Original 2018 Plan and each Prior Plan will continue to executive officers of the Company to the extent
consistent with the best interests of the Company and its stockholders.
COMPENSATION COMMITTEE
Patrick C. Haden
Edwin E. Epstein
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COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returnsbe active for the Company, the NASDAQ Stock Market (U.S. Companies) Indexpurposes of any remaining outstanding options and the NASDAQ
Stocks (SIC 7380-7389 U.S. Companies) Miscellaneous Business Services Indexother Awards granted under it for the period during which the Company's Common Stock has been registered under
Section 12 of the Securities Exchange Act of 1934,so long as amended (the "Exchange
Act"). The graph assumes that the value of an investment in Common Stock and in
each such index was $100 on February 29, 1996 (the date the Company's Common
Stock was registered under the Exchange Act), and that all dividends have been
reinvested.
The comparison in the graph below is based on historical data and is not
intended to forecast the possible future performance of the Company's Common
Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
PIA, NASDAQ STOCK MARKET (U.S. COMPANIES)
AND THE NASDAQ STOCKS (SIC 7380-7389 U.S. COMPANIES)
MISCELLANEOUS BUSINESS SERVICES INDEX
Company Market Peer
Date Index Index Index
---------- ------- ------- -------
12/31/92 -- 61.230 51.288
1/29/93 -- 62.972 51.637
2/26/93 -- 60.623 49.321
3/31/93 -- 62.378 49.586
4/30/93 -- 59.716 47.485
5/28/93 -- 63.281 45.122
6/30/93 -- 63.572 46.399
7/30/93 -- 63.648 50.680
8/31/93 -- 66.937 48.705
9/30/93 -- 68.931 50.951
10/29/93 -- 70.479 53.922
11/30/93 -- 68.379 51.483
12/31/93 -- 70.286 52.678
1/31/94 -- 72.419 52.964
2/28/94 -- 71.743 52.653
3/31/94 -- 67.331 45.999
4/29/94 -- 66.457 47.591
5/31/94 -- 66.619 46.220
6/30/94 -- 64.182 46.323
7/29/94 -- 65.499 46.391
8/31/94 -- 69.674 49.001
9/30/94 -- 69.496 51.044
10/31/94 -- 70.862 52.332
11/30/94 -- 68.511 49.976
12/30/94 -- 68.703 51.647
1/31/95 -- 69.088 52.587
2/28/95 -- 72.742 52.696
3/31/95 -- 74.899 52.301
4/28/95 -- 77.258 54.418
5/31/95 -- 79.251 55.176
6/30/95 -- 85.673 57.485
7/31/95 -- 91.971 64.985
8/31/95 -- 93.836 70.176
9/29/95 -- 95.994 72.697
10/31/95 -- 95.443 76.471
11/30/95 -- 97.684 87.043
12/29/95 -- 97.164 89.145
1/31/96 -- 97.643 99.098
2/29/96 -- 101.359 99.029
3/1/96 100.000 100.000 100.000
3/29/96 120.161 101.695 109.537
4/30/96 169.355 110.132 125.605
5/31/96 104.839 115.189 132.691
6/28/96 93.548 109.997 131.553
7/31/96 94.355 100.202 117.580
8/30/96 92.742 105.816 130.236
9/30/96 82.258 113.910 146.904
10/31/96 77.419 112.652 131.105
11/29/96 58.065 119.616 131.031
12/31/96 67.742 119.508 121.456
1/31/97 70.161 128.001 127.105
2/28/97 56.452 120.925 107.668
3/31/97 33.065 113.031 89.217
4/30/97 39.516 116.565 77.944
5/30/97 35.484 129.780 99.810
6/30/97 37.097 133.751 101.707
7/31/97 35.484 147.869 98.212
8/29/97 48.387 147.644 93.061
9/30/97 45.565 156.379 100.351
10/31/97 50.806 148.284 92.513
11/28/97 45.161 149.027 86.381
12/31/97 32.258 146.686 87.073
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
PIA Merchandising Services, Inc. 67.7 32.3
Nasdaq Stock Market (US Companies) 61.2 70.3 68.7 97.2 119.5 146.7
NASDAQ Stocks (SIC 7380-7389 US Companies) 51.3 52.7 51.6 89.1 121.5 87.1
Miscellaneous Business Services
Notes:
a. The lines represent monthly index levels derived from compounded daily
returns that include all dividends
b. The indexesoptions are reweighted daily, using the market capitalization on the
previous trading day
c. If the monthly interval, based on the fiscal year-end is not a trading day
the preceding trading day is used.
d. The index level for all series was set to $100.00 on 03/01/96.
-18-
19
[PERFORMANCE GRAPH]
Comparison of Five Year-Cumulative Total Returns
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- -------- -------- -------- -------- -------- --------
67.7 32.3
61.2 70.3 68.7 97.2 119.5 146.7
51.3 52.7 51.6 89.1 121.5 87.1
20
PROPOSAL 2 -- AMENDMENT OF 1995 STOCK OPTION PLAN
outstanding.
At the 19982019 Annual Meeting, the Corporation's stockholders will be asked to ratify and approve an
amendmentthe 2019 Amendment to the 2018 Stock Compensation Plan of SPAR Group, Inc. (the "Amendments""2019 Plan Amendment") in order to amend and extend the Original 2018 Plan (as so amended and extended, the "2018 Plan") to (i) extend the term of the Original 2018 Plan from the 2019 Plan Amendment Effective Date through May 31, 2020 (the "19-20 Period"), and (ii) provide for a total of 500,000 shares of SGRP's common stock available for future Awards during the 19-20 Period (the "19- 20 Maximum") under the 2018 Plan (as amended and extended). The 2019 Plan Amendment would not otherwise change the Original 2018 Plan. Under the 2018 Original Plan as amended and extended ("2018 Plan"), the Corporation (through its Compensation Committee) may from time to time grant restricted SGRP Shares, stock options to purchase SGRP Shares (either incentive or nonqualified), and restricted stock units, stock appreciation rights and other awards based on SGRP Shares (collectively, "Awards") to SGRP Directors and the Company's 1995 Stock Option Plan (the "1995
Plan"). Such approval will require the affirmative vote of a majority of the
voting power of all outstanding shares of the Company's Common Stock present or
representedspecified executives, employees and entitled to vote at the 1998 Annual Meeting. On February 20,
1998, the Board adopted the Amendment, subject to stockholder approval as
described herein, to increase the number of shares that may be issued pursuantconsultants providing services to the Company.
The 2019 Plan from 1,000,000 to 1,300,000. The 1995Amendment and 2018 Plan (as amended and extended) and information regarding options, stock appreciation rights, restricted stock and restricted stock units granted thereunder isare summarized below, but these descriptions are subject to and are qualified in their entirety by the full text of the 19952019 Plan as amended by the proposed Amendments,Amendment, which is attached as Appendix 1Annex A to and is hereby incorporated by reference into this Proxy Statement.
SUMMARY OF THE 1995 PLAN
The 1995Statement, and the full text of the 2018 Original Plan, was initially adoptedwhich is hereby incorporated by reference into this Proxy Statement from SGRP's Current Report on Form 8-K, as filed with the SEC on May 8, 2018). Unless again amended and extended (as approved by SGRP's stockholders), the 2018 Plan (as amended and extended by the Board2019 Plan Amendment) terminates on May 31, 2020, and thereafter no further Awards may be made under it. Awards granted prior to the end the final term of Directorsthe 2018 Plan shall continue to be governed by the 2018 Plan (which 2018 Plan shall continue in full force and effect for that purpose).
No Awards will be granted under the 2018 Plan (as amended and extended by the 2019 Plan Amendment) unless and until the 2019 Plan Amendment is approved by the Corporation's stockholders.
As of December 31, 2019, there were Awards respecting 600,000 shares of SGRP's Common Stock that had been granted under the Original 2018 Plan (555,000 of which remained outstanding), and Awards respecting 2,227,211 shares of SGRP's Common Stock outstanding under the 2008 Plan. As of December 31, 2019, there were no Awards available for grant under the 2018 Plan.
The 2019 Plan Amendment (upon approval) will extend the initial term of the 2018 Plan through May 31, 2024, and no Award may be granted thereafter under the 2018 Plan, unless a further extension or elimination of such initial term is approved by stockholders of the Company in December 1995. Under the 1995 Plan, employees,
certain directors, officersCorporation if and consultants (collectively referred to as "Participants") providing servicesrequired pursuant to the Company or its subsidiaries2018 Plan and Applicable Law. In any event, no Award may be granted options to purchase shares of common stockunder the 2018 Plan on or after the tenth (10th) anniversary of the Company ("Common
Stock"). The 1995 Plan permits the granting of both options that qualify for
treatment as incentive stock options ("Incentive Stock Options") under Section
422Effective Date of the Code, and/or options that do not qualify as Incentive Stock Options
("Nonqualified Stock Options"). Incentive Stock Options may only be granted to
employees2018 Original Plan unless an extension is approved by stockholders of the Company.
The purposeCorporation if and as required pursuant to the 2018 Plan and Applicable Law. Awards granted prior to the end of the 1995 Plan and of granting options to specified
persons is to promote the interestsfinal term of the Company2018 Plan shall continue to be governed by the 2018 Plan (which 2018 Plan shall continue in full force and its stockholders, by
providing stock-based incentives to certain Participants. Undereffect for that purpose).
The 2019 Plan Amendment (upon approval) will reset and limit the 1995 Plan,
Participants can receive certain options ("Options") to purchase Common Stock,
thus strengthening the mutuality of interests between Participants and the
Company because the Participants have a proprietary interest in pursuing the
Company's long-term growth and financial success. In addition, by allowing
Participants to participate in the Company's success, the Company is able to
better attract, retain and reward quality employees, directors, officers and
consultants.
Persons eligible to participate in the 1995 Plan are Participants
providing services to the Company and/or its subsidiaries (collectively referred
to as the "Company") who are in positions which enable them to make significant
contributions to the Company's long-term performance and growth. In selecting
Participants to whom Options may be granted, consideration is given to factors
such as employment position, duties and responsibilities, ability, productivity,
length of service, morale, interest in the Company and recommendations of
supervisors. The maximum number of shares of Common Stock that may be issued pursuant to a single
Employee is 1,000,000.
Awards made under the 2018 Plan to the 19-24 Maximum during the 19-24 Period, subject to adjustment as provided in the 2018 Plan (see below).
The 19952018 Plan is administered(as amended and extended by the Compensation Committee (the
"Committee"). The members of the Committee must qualify as "outside directors"
under Section 162(m) of the Code, and the Committee must be constituted so as to
permit the 19952019 Plan to comply with Rule 16b-3 of the Exchange Act.
The Committee has full and complete authority, in its discretion, but
subject to the express provisions of the 1995 Plan (1) to select the
Participants, to specifyAmendment) limits the number of shares of Common Stock with respectthat may be issued pursuant to which Options are granted to each Participant, to specify the terms of the
Options and whether such Options shall be Incentive Stock Options or
Nonqualified Stock Options, and in general to grant Options; (2) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with the 1995 Plan, which terms and conditions
need not be identical asAwards made thereunder to the various Options granted; (3) to interpret the
1995 Plan; (4) to prescribe, amend19-24 Maximum, and rescind rules relating to the 1995 Plan;
(5) to authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the
Committee; (6) to determine the rights and obligations of Participants under the
1995 Plan; (7) to specify the Option price; (8) to accelerate the time during
which an Option may be exercised, including, but not limited to, upon a change
of control of the Company, and to otherwise accelerate the time or extend the
post-termination exercise period during which an Option may be exercised; and
(9) to make all other determinations deemed necessary or advisable for the
administration of the Plan.
-19-
21
The number of shares of Common Stock in respect of which options may be
granted under the 1995 Plan shall not exceed 1,000,000 shares. In the event of
certain changes in the Company's capitalization or structure, an appropriate
adjustment shall be made by the Committee in the number, kind or exercise price
of shares as to which options may thereafter be granted and as to shares covered
by unexercised outstanding options.
Each option granted under the 1995 Plan shall be evidenced by a written
agreement ("Option Agreement") in a form approved by the Committee and executed
by the Company and the Participant to whom the Option is granted. Options are
exercisable at such time(s) and are subject to such terms and conditions as may
be set forth in the Option Agreement between the Participant and the Company.
The purchase price of shares of Common Stock subject to each Option
which is intended to qualify as an Incentive Stock Option shall be equal to the
fair market value of such shares (110% of fair market value in the case of a
holder of more than 10% of the Company's Common Stock) on the date of grant of
such Option. The purchase price of any Option which shall not qualify as an
Incentive Stock Option shall be determined by the Committee, but shall not be
less than the fair market value of the Common Stock in the case of a Stock
Option granted to an individual who is a "covered employee" under 162(m) of the
Code. The fair market value of such shares is the closing price of the Common
Stock on the date of grant on the NASDAQ National Market System.
Options granted under the 1995 Plan may be exercised, to the extent
vested, by the Participant by payment of the full purchase price therefor in
cash, by cashier's or certified check or by surrender of outstanding shares of
the Company's Common Stock. Options granted to a Participant are not
transferable during the individual's lifetime, other than to the Employee's
immediate family members, a trust for their benefit or a partnership in which
such family members are the only partners, and may be transferred in the event
of death only by will or the laws of descent and distribution.
Each option granted under the 1995 Plan shall set forth a termination
date thereof, which shall be not later than ten years (five years in the case of
a holder of more than 10% of the Company's Common Stock) from the date such
option is granted subject to earlier termination or forfeiture as set forth
below, or as otherwise set forth in each particular Option Agreement.
Unless earlier terminated by the Board, the 1995 Plan shall terminate on
December 5, 2005. The Board may at any time amend the 1995 Plan; provided,
however, that no amendment or modification may be adopted without approval of
the stockholders which would (1) increasefurther limits the number of shares of Common Stock whichthat may be issued pursuant to new Awards made on a particular grant date during the 19-24 Period under the 2018 Plan (the "19-24 Plan Availability") to the remainder of (a) the 19-24 Maximum minus (b) the sum at such time of the number of shares of Common Stock covered by all outstanding Awards granted during the 19-24 Period under the 2018 Plan. The 19-24 Maximum and 19-24 Plan Availability are subject to certain adjustments that may be made by the Compensation Committee (see "Administration", below) upon the occurrence of certain changes in the Corporation's capitalization or structure.
As of the Record Date, there were Awards respecting 555,000 shares of SGRP's Common Stock outstanding under the Original 2018 Plan, and Awards respecting 2,227,211 shares of SGRP's Common Stock outstanding under the 2008 Plan.
The Board on October 15, 2019, authorized and approved the 2019 Plan Amendment to be submitted to the Corporation's stockholders for ratification and approval. If ratified and approved by the Corporation's stockholders, the 2018 Plan Amendment will become effective immediately (the "2019 Plan Amendment Effective Date"), and the 2018 Plan (as so amended) will govern all options issued thereafter. Capitalized terms used and not otherwise defined herein shall have the meanings respectively assigned to them in the 2018 Plan.
Stock options granted under the 2008 Plan or the 2018 Plan (if approved) have a maximum term of ten years, except in the case of incentive stock options granted to employee's who are greater than 10% stockholders (whose terms are limited to a maximum of five years), and SGRP has generally issued options having those maximum terms.
The 2018 Plan and the 2008 Plan (as amended in 2009) each gives SGRP's Compensation Committee authority to adjust the 2018 Plan Awards and availability upon the occurrence of certain changes in the Corporation's capitalization or structure, and the full authority and complete flexibility from time to time to designate and modify (in its discretion) one or more of the outstanding Awards (including their exercise and base prices and other components and terms) to (among other things) restore their intended values and incentives to their holders. However, the exercise price, base value or similar component (if equal to SGRP's full stock price at issuance) of any Award cannot be lowered to an amount that is less than the Fair Market Value (as defined in the 2008 Plan) on the date of the applicable modification, and no modification can adversely affect an awardee's rights or obligations under an award without the awardee's consent. No further consent of SGRP's stockholders is required for any repricing or other modification of any outstanding or other award under the 2008 Plan, including those previously issued under the Prior Plans. To date, Awards have only been repriced once (in 2009) pursuant to this authority. The 2018 Plan (if approved) will contain the same authority for any repricing or other modification of any outstanding or other award.
Restricted stock, stock options and other stock-based awards may be issued under the 1995 Plan (except for adjustments due to a change
in capitalization), (2) modify the requirements as to eligibility for receipt of
Incentive Stock Options or (3) modify the 1995 Plan such that it fails to meet
the requirements of Section 16(b) of the Exchange Act.
Future Participants in the 1995amended and extended 2018 Plan, and the amounts of their allotments
are to be determined by the Committee subject to any restrictions outlined
above. Since no such determinationsmay have yet been made, it is not possible to
state the terms of any individual awards which may be issued under the 19952008 Plan, from time to time by SGRP in its discretion to the Company's executives and other employees and generally are included in the annual incentive plans of SGRP's executives. Each year the Compensation Committee establishes (with recommendations from management) a budget for the maximum number of SGRP Shares that may be awarded in the applicable year (although Awards to new employees may not be covered by such budget in the Committee's discretion). The Company's management may present recommendations for such awards to the Compensation Committee at any of its regular quarterly meetings, although recently most recommendations have been made at the August meeting other than those for new employees. The Chairman of the Board or the namesCompensation Committee may make those recommendations respecting the Company's Chief Executive Officer, and the Chief Executive Officer makes those recommendations respecting the Company's other executive and senior officers, as well as for any new officer or positionsemployee, and each of those executive officers in turn are allocated potential award shares for their departments and make recommendations respecting those under their supervision (subject to review and approval by the Chief Executive Officer). In recommending to the Compensation Committee the actual number of restricted stock, stock options (and options shares covered) or respective amountsother stock-based Award to be granted to each individual, the person making the recommendation makes an assessment of the allotmentindividual's contribution to any
individual who may participate.
FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THE 1995 PLAN
Incentive Stock Options. No taxable incomethese or decrease in the participant's abilities, responsibilities and performance of his or her duties. The Compensation Committee will review and discuss managements' recommendations at its meeting and determines whether and to what extent to approve and grant the proposed restricted stock, stock options (and options shares covered) or other stock-based Awards to executives, employees and consultants of the Company and its consultants pursuant to the 2018 Plan (if approved by stockholders) and did so pursuant to the 2008 Plan.
The stock option Awards granted under the 2008 Plan were typically "nonqualified" (as a tax matter), had a ten (10) year maximum life (term) and vest during the first four years following issuance at the rate of 25% on each anniversary date of their issuance so long as the holder continues to be recognizedemployed by an
optionee uponthe Company, and will likely be the same under the 2018 Plan (if approved), but "nonqualified" Awards have must generally have at least a three vesting period (other than for independent directors). Stock-based compensation cost is measured on the grant or exercisedate, based on the fair value of any Incentivethe stock options Award calculated at that date, and is recognized as compensation expense on a straight-line basis over the requisite service period, which generally is the options' vesting period. Fair value is calculated using the Black-Scholes option pricing model.
The Restricted Stock OptionAwards granted under the 1995
Plan. The Company will not be entitled to any income tax deduction2008 Plan vest during the first four years following issuance at the rate of 25% on each anniversary date of their issuance so long as the resultholder continues to be employed by the Company, and will likely be the same under the 2018 Plan (if approved), but "nonqualified" Awards have must generally have at least a three vesting period (other than for independent directors). Restricted Stock is measured at fair value on the date of the grant, or exercisebased on the number of any incentive stock option.
Gain or loss resulting fromshares granted and the subsequent salequoted price of the Company's common stock. The shares of stock acquired upon
exerciseare issued and value is recognized as compensation ratably over the requisite period which generally is the Award's vesting period.
2008 Plan Summary
Following are the specific valuation assumptions used for options granted in 2019 for the 2008 Plan:
Expected volatility | 0.0 | % | ||
Expected dividend yields | 0 | % | ||
Expected term (in years) | 2 | |||
Risk free interest rate | 0.0 | % | ||
Expected forfeiture rate | 5 | % |
2008 Plan Stock option Award activity for the years ended December 31, 2019 and 2018 is summarized below:
Option Awards | Covered Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (thousands) | ||||||||||||
Outstanding at January 1, 2018 | 3,334,177 | $ | 0.96 | 5.17 | $ | 1,221 | ||||||||||
Granted | 45,000 | 1.67 | – | – | ||||||||||||
Exercised/cancelled | 306,750 | 0.40 | – | – | ||||||||||||
Forfeited or expired | 37,500 | – | – | – | ||||||||||||
Outstanding at December 31, 2018 | 3,044,927 | $ | 1.01 | 4,55 | $ | 103 | ||||||||||
Granted | – | – | – | – | ||||||||||||
Exercised | 804,580 | 0.44 | – | – | ||||||||||||
Forfeited or expired | 13,136 | – | – | – | ||||||||||||
Outstanding at December 31, 2019 | 2,227,211 | $ | 1.22 | 4.83 | $ | 452 | ||||||||||
Exercisable at December 31, 2019 | 1,723,961 | $ | 1.27 | 4.06 | $ | 321 | ||||||||||
The weighted-average grant-date fair value of an Incentive Stock Optionstock option Awards granted during the year ended December 31, 2019 was $0.00. The total intrinsic value of stock option Awards exercised during the year ended December 31, 2019 and 2018 was $257,000 and $274,000, respectively.
The Company recognized $139,000 and $155,000 in stock-based compensation expense relating to stock option Awards during the years ended December 31, 2019 and 2018, respectively. The recognized tax benefit on stock based compensation expense related to stock options during the years ended December 31, 2019 and 2018, was approximately $35,000 and $38,000, respectively.
As of December 31, 2019, total unrecognized stock-based compensation expense related to stock options was $182,000. This expense is expected to be recognized over a weighted average period of approximately 2.0 years, and will be long-term capital gainadjusted for changes in estimated forfeitures.
2018 Plan Summary
Following are the specific valuation assumptions used for options granted in 2019 for the 2018 Plan:
Expected volatility | 39 | % | ||
Expected dividend yields | 0 | % | ||
Expected term (in years) | 3 | |||
Risk free interest rate | 2.3 | % | ||
Expected forfeiture rate | 5 | % |
2018 Plan Stock option Award activity for the years ended December 31, 2019 and 2018 are summarized below:
Option Awards | Covered Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (thousands) | |||||||||||||
Outstanding at January 1, 2018 | – | $ | – | – | – | ||||||||||||
Granted | 245,000 | 1.23 | – | – | |||||||||||||
Exercised/cancelled | – | – | – | – | |||||||||||||
Forfeited or expired | 10,000 | – | – | – | |||||||||||||
Outstanding at December 31, 2018 | 235,000 | $ | 1.23 | 9.35 | $ | – | |||||||||||
Granted | 320,000 | 0.64 | – | – | |||||||||||||
Exercised | – | – | – | – | |||||||||||||
Forfeited or expired | – | – | – | – | |||||||||||||
Outstanding at December 31, 2019 | 555,000 | $ | 0.89 | 8.88 | $ | 6 | |||||||||||
Exercisable at December 31, 2019 | 88,750 | $ | 1.23 | 8.35 | $ | 6 | |||||||||||
The weighted-average grant-date fair value of stock option Awards granted during the year ended December 31, 2019 was $0.27. The total intrinsic value of stock option Awards exercised during the year ended December 31, 2019 and 2018 was $0.
The Company recognized $90,000 and $31,000 in stock-based compensation expense relating to stock option Awards during the years ended December 31, 2019 and 2018, respectively. The recognized tax benefit on stock based compensation expense related to stock options during the years ended December 31, 2019 and 2018, was approximately $22,000 and $8,000, respectively.
As of December 31, 2019, total unrecognized stock-based compensation expense related to stock options was $122,000. This expense is expected to be recognized over a weighted average period of approximately 2.0 years, and will be adjusted for changes in estimated forfeitures.
Restricted Stock- 2008 Plan
The restricted stock Awards previously issued under the 2008 Plan vested during the first four years following issuance at the rate of 25% on each anniversary date of their issuance so long as the holder continues to be employed by the Company. Restricted stock granted under the 2008 Plan is measured at fair value on the date of the grant, based on the number of shares granted and the quoted price of the Company's common stock. The shares of stock are issued and value is recognized as compensation expense ratably over the requisite service period which generally is the Award's vesting period. In 2018, the Company did not issue restricted stock Awards to its employees or lossDirectors.
The following table summarizes the activity for restricted stock Awards during the years ended December 31, 2019 and 2018:
Shares | Weighted- Average Grant Date Fair Value per Share | |||||||
Unvested at January 1, 2018 | 68,400 | $ | 1.38 | |||||
Granted | – | – | ||||||
Vested | (18,900 | ) | 1.48 | |||||
Forfeited | (48,500 | ) | 1.35 | |||||
Unvested at December 31, 2018 | 1,000 | 1.36 | ||||||
Granted | – | – | ||||||
Vested | (1,000 | ) | 1.36 | |||||
Forfeited | – | – | ||||||
Unvested at December 31, 2019 | – | $ | – | |||||
During the years ended December 31, 2019 and 2018, the Company recognized approximately $1,200 and $15,000, respectively, of stock-based compensation expense related to restricted stock. The recognized tax benefit on stock based compensation expense related to restricted stock during the years ended December 31, 2019 and 2018 was approximately $0 and $4,000, respectively. During the years ended December 31, 2019 and 2018, the total fair value of restricted stock vested was $1,000 and $23,000, respectively.
As of December 31, 2019, total unrecognized stock-based compensation expense related to unvested restricted stock Awards was $0.
Restricted Stock - 2018 Plan
The restricted stock Awards previously issued under the 2018 Plan (like those under the 2008 Plan) vested during the first four years following issuance at the rate of 25% on each anniversary date of their issuance so long as the holder continues to be employed by the Company. Restricted stock granted under the 2018 Plan (like those under the 2008 Plan) is measured at fair value on the date of the grant, based on the number of shares granted and the quoted price of the Company's common stock. The shares of stock are issued and value is recognized as compensation expense ratably over the requisite service period which generally is the Award's vesting period. In 2019, there were no restricted stock Awards issued to its Directors.
The following table summarizes the activity for restricted stock Awards during the years ended December 31, 2019 and 2018:
Shares | Weighted- Average Grant Date Fair Value per Share | |||||||
Unvested at January 1, 2018 | 20,000 | $ | 1.23 | |||||
Granted | – | – | ||||||
Vested | (10,000 | ) | 1.23 | |||||
Forfeited | – | – | ||||||
Unvested at December 31, 2018 | 10,000 | 1.23 | ||||||
Granted | – | – | ||||||
Vested | (10,000 | ) | 1.23 | |||||
Forfeited | – | – | ||||||
Unvested at December 31, 2019 | – | $ | – | |||||
During the years ended December 31, 2019 and 2018, the Company recognized approximately $4,000 and $20,000, respectively, of stock-based compensation expense related to restricted stock. The recognized tax benefit on stock based compensation expense related to restricted stock during the years ended December 31, 2019 and 2018 was approximately $1,000 and $5,000, respectively.
During the years ended December 31, 2019 and 2018, the total fair value of restricted stock vested was $7,000 and $12,000, respectively.
As of December 31, 2019, total unrecognized stock-based compensation expense related to unvested restricted stock Awards was $0.
Stock Purchase Plans
In 2001, SGRP adopted its 2001 Employee Stock Purchase Plan (the "ESP Plan"), which replaced its earlier existing plan, and its 2001 Consultant Stock Purchase Plan (the "CSP Plan"). These plans were each effective as of June 1, 2001. The ESP Plan allows employees of the Company, and the CSP Plan allows employees of the affiliates of the Company to purchase SGRP's Common Stock from SGRP without having to pay any brokerage commissions. On August 8, 2002, SGRP's Board approved a 15% discount for employee purchases of Common Stock under the ESP Plan and recommended that its affiliates pay 15% of the value of the stock purchased as a cash bonus for affiliate consultant purchases of Common Stock under the CSP Plan.
Potential Severance Payments upon a Change-In-Control and Termination
In order to retain and motivate certain highly qualified executives in the event of a "Change-in-Control", the Corporation entered into a separate Amended and Restated Change in Control Severance Agreement (each a "CICSA") in substantially the same form (each a "CICSA") in 2018 an Amended and Restated Change in Control Severance Agreement dated as of September 5, 2017, with each of Christiaan M. Olivier, SGRP's Chief Executive Officer, President and a Director, James R. Segreto, SGRP's Chief Financial Officer, Secretary and Treasurer, Kori G. Belzer, SGRP's Chief Operating Officer, Gerard Marrone, SGRP's Chief Revenue Officer, Steven J. Adolph, President International, and Lawrence David Swift, SGRP's General Counsel, all of which are still in effect, and which each were amended as of November 8, 2018. William H. Bartels, SGRP's Vice Chairman and a Director, also has an Amended and Restated Change in Control Severance Agreement dated as of December 22, 2008, which also is still in effect. The Corporation also has a separate Executive Officer Severance Agreement (each an "EOSA") with Mr. Olivier dated as of September 5, 2017, and with Mr. Adolph dated as of June 17, 2016.
Each CICSA provides that the applicable executive will receive a lump sum severance payment if both (1) a "Change in Control" occurs (which includes certain changes in ownership as well as the hiring of a new Chairman or Chief Executive Officer who was not an executive on the date of the CICSA), and (2) within the "Protected Period" the executive either resigns for "Good Reason" (such as an adverse change in duties or compensation) or is terminated other than in a "Termination For Cause" (as such saleterms are defined in the applicable CICSA). The Protected Period is made after two yearsequal to the greater of 36 months from the date of the grantCICSA or 24 months from the then most recent Change in Control (which could begin after the end of such 36 month period). The CICSA severance payment is equal to the sum of (i) the employee's monthly salary times the number of remaining months in the Protected Period following such resignation or termination, plus (ii) the maximum bonus if any that would have been paid to such employee for any bonus plan then in effect (not to exceed 25% of the optionemployee's annual salary).
No EOSA requires a "Change in Control" but does require a resignation for "Good Reason" (such as an adverse change in duties or compensation) or termination other than in a "Termination For Cause" within the applicable "Protected Period for severance to be applicable, as such terms are defined in the applicable EOSA. Severance payments under an EOSA are generally equal to 6 months of his salary (but without duplication of any payment due under the applicable CICSA).
EXECUTIVE COMPENSATION, EQUITY AWARDS AND OPTIONS
Executive and Officer Compensation
The following table sets forth all compensation for services rendered to the Company in all capacities for the years ended December 31, 2019 and 2018, except for amounts paid to or by SAS, SBS and SIT (see - Transactions with Related Persons, Promoters and Certain Control Persons, above), by (i) the Corporation's current Chief Executive Officer, and former Chief Executive Officer, and (ii) each of the other persons named below, which include the two most highly compensated Executives or other Officers of the Company (each a "Named Executive or Officer", and collectively, the "Named Executives and Officers"). "Named Executive Officers" shall mean Christiaan M. Olivier, the Corporation's Chief Executive Officer, James R. Segreto, the Corporation's Chief Financial Officer, Kori G. Belzer, the Corporation's Chief Operating Officer, Gerard Marrone, the Corporation's Chief Revenue Officer, and Steven J. Adolph, the Corporation's President International and the term does not include any of the other persons listed below in the Summary Compensation Table. The Company does not have any Non-Equity Incentive Compensation Plans other than as part of its individual Incentive Bonus Plans, any pension plans or any non-qualified deferred compensation plans, and accordingly those columns have been omitted.
Summary Compensation Table
Name and Principal Positions | Year | Salary ($) | Bonus ($) | Stock Awards | Option Awards ($)(1) | All Other Compensation ($) (2) | Total ($) | |||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||
Christiaan M. Olivier | 2019 | 300,000 | 100,000 | 6,738 | – | 20,800 | 431,538 | |||||||||||||||||||
Chief Executive Officer, President and Director | 2018 | 300,000 | 12,261 | 63,566 | 4,800 | 380,627 | ||||||||||||||||||||
Robert G. Brown | 2018 | 100,000 | – | – | – | 13,867 | (3) | 113,867 | ||||||||||||||||||
Retired May 2018 as Chairman (Non-Executive) and Director | ||||||||||||||||||||||||||
William H. Bartels | 2019 | 150,000 | 4,800 | 154,800 | ||||||||||||||||||||||
Vice Chairman and Director | 2018 | 150,000 | 4,800 | 154,800 | ||||||||||||||||||||||
James R. Segreto | 2019 | 204,749 | – | – | 38,560 | 4,800 | 248,109 | |||||||||||||||||||
Chief Financial Officer, Treasurer and Secretary | 2018 | 200,000 | 22,000 | 3,163 | 4,755 | 4,800 | 234,817 | |||||||||||||||||||
Kori G. Belzer | 2019 | 220,106 | – | – | 35,174 | 4,800 | 260,080 | |||||||||||||||||||
Chief Operating Officer | 2018 | 215,000 | 30,100 | 3,163 | 4,672 | 4,800 | 257,735 | |||||||||||||||||||
Steven J. Adolph | 2019 | 204,749 | 100,000 | – | – | – | 304,749 | |||||||||||||||||||
President International | 2018 | 200,000 | 4,755 | – | 204,755 | |||||||||||||||||||||
Gerard Marrone | 2019 | 204,749 | – | – | 9,500 | – | 214,249 | |||||||||||||||||||
Chief Revenue Officer | 2018 | 200,000 | – | – | 14,424 | 214,424 | ||||||||||||||||||||
(1) | These are not amounts actually paid to or received by the Named Executive or Officer. These are "compensation expenses" for restricted stock or stock option awards recognized by the Corporation under generally accepted accounting principles computed in accordance with ASC-718- 10. |
(2) | "Other Compensation" represents amounts paid for car allowances, 401(k) matching contributions, and medical, life and long term disability insurance premiums. Additional elements of "Other Compensation", if any, are noted separately below. |
(3) | Effective January 1, 2014, the Compensation Committee approved retirement payments to Mr. Brown of $100,000 per year through 2018 plus the annual cash compensation paid as a non-employee director in "All Other Compensation". |
All Other Compensation
The Corporation also provides a 401(k) plan, healthcare plan and certain other benefits to all of the Company's employees (including its executives). The Company does not provide any perquisites or other benefits to its Named Executives and Officers other than as described above. The only retirement plan the Company maintains in the United States is its 401(k) Profit Sharing Plan, which is available to all of its eligible employees (see Pension Benefits, below).
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth unexercised options, unvested stock options, restricted stock awards and certain related information for each Named Officer outstanding as of December 31, 2019.
Stock Option Awards | Restricted Stock Awards | ||||||||||||||||||||||
Name | Grant | Number of Securities Underlying Unexercised Options Exercisable at 12/31/19 (#) | Number of Securities Underlying Unexercised Options Not Exercisable at 12/31/19 (#) | Option Exercise Price ($) | Option Expiration Date | Number of shares of stock that have not vested at 12/31/19 (#) | Market value of shares of stock that have not vested at 12/31/19 ($) | ||||||||||||||||
Christiaan Olivier | 09/05/17 | 250,000 | 250,000 | (2) | $ | 1.08 | 09/05/27 | – | – | ||||||||||||||
05/03/18 | 12,500 | 37,500 | (3) | $ | 1.23 | 05/03/28 | |||||||||||||||||
04/05/19 | – | 75,000 | (4) | $ | 0.64 | 04/05/29 | |||||||||||||||||
James Segreto | 08/05/10 | 30,000 | – | $ | 1.00 | 08/05/20 | |||||||||||||||||
08/04/11 | 30,000 | – | $ | 1.23 | 08/04/21 | ||||||||||||||||||
08/01/12 | 30,000 | – | $ | 1.09 | 08/01/22 | ||||||||||||||||||
08/06/13 | 35,000 | – | $ | 2.14 | 08/06/23 | ||||||||||||||||||
08/07/14 | – | – | |||||||||||||||||||||
08/13/15 | – | – | |||||||||||||||||||||
08/11/16 | 18,750 | 6,250 | (1) | $ | 0.92 | 08/11/26 | |||||||||||||||||
08/09/17 | 12,500 | 12,500 | (2) | $ | 1.05 | 08/09/27 | |||||||||||||||||
05/03/18 | 5,000 | 15,000 | (3) | $ | 1.23 | 05/03/28 | |||||||||||||||||
04/05/19 | – | 20,000 | (4) | $ | 0.64 | 04/05/29 | |||||||||||||||||
Kori Belzer | 08/05/10 | 35,000 | – | $ | 1.00 | 08/05/20 | |||||||||||||||||
08/04/11 | 35,000 | – | $ | 1.23 | 08/04/21 | ||||||||||||||||||
08/01/12 | 35,000 | – | $ | 1.09 | 08/01/22 | ||||||||||||||||||
08/06/13 | 35,000 | – | $ | 2.14 | 08/06/23 | ||||||||||||||||||
08/07/14 | – | – | |||||||||||||||||||||
08/13/15 | – | – | |||||||||||||||||||||
08/11/16 | 18,750 | 6,250 | (1) | $ | 0.92 | 08/11/26 | |||||||||||||||||
05/07/17 | 12,500 | 12,500 | (2) | $ | 0.90 | 05/17/27 | |||||||||||||||||
05/03/18 | 5,000 | 15,000 | (3) | $ | 1.23 | 05/03/28 | |||||||||||||||||
04/05/19 | – | 25,000 | (4) | $ | 0.64 | 04/05/29 | |||||||||||||||||
Gerard Marrone | 01/09/17 | – | 50,000 | (2) | $ | 1.00 | 01/09/27 | ||||||||||||||||
05/03/18 | 5,000 | 15,000 | (3) | $ | 1.23 | 05/03/28 | |||||||||||||||||
04/05/19 | – | 20,000 | (4) | $ | 0.64 | 04/05/29 | |||||||||||||||||
Steven Adolph | 06/20/16 | 75,000 | 25,000 | (1) | $ | 0.99 | 06/20/26 | ||||||||||||||||
08/09/17 | 12,500 | 12,500 | (2) | $ | 1.05 | 08/09/27 | |||||||||||||||||
05/03/18 | 5,000 | 15,000 | (3) | $ | 1.23 | 05/03/28 | |||||||||||||||||
04/05/19 | – | 20,000 | (4) | $ | 0.64 | 04/05/29 | |||||||||||||||||
(1) | Amounts, as otherwise noted, vest in 2020. | |
(2) | Amounts vest one half in 2020 and 2021. | |
(3) | Amounts vest one third in each 2020, 2021, and 2022. | |
(4) | Amounts vest one fourth in each 2020, 2021, 2022, and 2023. |
Pension Benefits
The Company does not currently have a pension or retirement plan available to its executives or other employees other than its 401(k) Profit Sharing Plan, which is a tax-qualified defined contribution plan. The plan has both pre-tax and Roth features, has numerous investment options, generally permits eligible executives and other employees to participate after their first 30 days of employment, is subject to the contribution limits imposed by applicable law, and generally permits withdrawals from time to time in accordance with the plan and applicable law. Although it is not required to match any contribution, the Company has from time to time made a voluntary fractional match of all contributions. In 2018, the Company did not contribute any funds to the plan. In 2019, the Company contributed a total of $75,000 to that plan, which was shared by its 197 participants in proportion to their respective contributions. The Company believes that such plan is an important part of its compensation structure, although the Company currently has no unfunded liabilities or other material obligations under such plan.
Non-Qualified Deferred Compensation
The Company does not currently have any non-qualified deferred compensation plans available to its executives or other employees, and accordingly this table has been omitted.
Compensation of Directors
The following table sets forth all compensation costs of the Corporation for services rendered to it by its directors (other than any Named Officer), and certain other amounts that may have been received by or allocated to them, for the year ended December 31, 2019. The Corporation has not given restricted stock awards to its directors and does not have pension plans or non-qualified deferred compensation plans for its directors, so those columns have been omitted.
Name | Year | Fees | Restricted Stock (expense) | All Other Compensation ($) |
Total ($) | |||||||||||||||
Jack W. Partridge(2) | 2019 | 31,250 | – | – | 31,250 | |||||||||||||||
Lorrence T. Kellar(3) | 2019 | 3,125 | – | – | 3,125 | |||||||||||||||
Arthur B. Drogue | 2019 | 95,250 | – | – | 95,250 | |||||||||||||||
R. Eric McCarthey | 2019 | 65,000 | 1,071 | – | 66,071 | |||||||||||||||
Peter W. Brown | 2019 | 55,000 | – | – | 55,000 | |||||||||||||||
Jeffery A. Mayer | 2019 | 64,179 | – | – | 64,179 | |||||||||||||||
Arthur H. Baer | 2019 | 17,949 | – | – | 17,949 | |||||||||||||||
Panagiotis N. Lazaretos | 2019 | 3,288 | – | – | 3,288 | |||||||||||||||
(1) | These are not amounts actually paid to or received by the named director. These are "compensation expenses" for restricted stock or stock option awards recognized by the Corporation under generally accepted accounting principles computed in accordance with ASC- 718-10. |
(2) | Mr. Partridge's tenure as a director of SGRP ended in May 2018. |
(3) | Mr. Kellar's tenure as a director of SGRP ended in January 2019 |
Discussion of Directors' Compensation
The Compensation Committee administers the compensation of directors pursuant to SGRP's Director Compensation Plan for its outside Directors, as approved and amended by the Committee from time to time (the "Directors Compensation Plan"), as well as the compensation for SGRP's executives. The Directors Compensation Plan was modified in the March 16, 2017, quarterly meeting of the Compensation Committee, effective April 1, 2017.
Under the Directors Compensation Plan in effect through March 31, 2017 (including 2016): each member of SGRP's Board who is not otherwise an employee, Executive or Officer of SGRP or any subsidiary or affiliate of SGRP (each an "Independent Director"), or who (although not an Independent Director) is not otherwise an employee or Executive of SGRP or any subsidiary of SGRP (each a "Non-Employee Director"), was entitled to receive director's fees of $50,000 per annum; and each applicable Independent Director was entitled to receive for chairing the applicable committee an additional $7,500 per annum fee in the case of the Audit Committee Chairman, an additional $5,000 per annum fee in the case of the Compensation Committee Chairman, and an additional $5,000 per annum fee in the case of the Governance Committee Chairman; in each case payable quarterly in cash.
Under the Directors Compensation Plan taking effect for all periods on and after April 1, 2017: each Independent Director and Non- Employee Director is entitled to receive director's fees of $55,000 per annum; each applicable Independent Director is entitled to receive for chairing the applicable committee an additional $10,000 per annum fee in the case of the Audit Committee Chairman and an additional $7,500 per annum fee in the case of the Compensation Committee Chairman and Governance Committee Chairman; and the Independent Director serving as Lead Director is entitled to receive an additional $10,000 per annum; in each case payable quarterly in cash. The Compensation Committee in May 2018 approved total compensation of $90,000 per year for the Corporation's Chairman following the retirement of Robert G. Brown as Chairman.
In addition to their cash compensation, in the past each Independent Director received options to purchase 10,000 SGRP Shares upon acceptance of the directorship, options to purchase 10,000 additional SGRP Shares after one year from the transfer of such stockservice, and options to the optionee upon exercise,
provided that the optionee is an employee of the Company from the date of grant
until three months before the date of exercise. In the event of the optionee's
death or disability prior to exercise of an Incentive Stock Option, special
rules apply in
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determining whether gain or loss upon sale of the stock acquired upon exercise
of such option will be taxable as long-term capital gain or loss.
If the subsequent sale of stock is made prior to the expiration of such
two-year or one-year periods, the optionee will recognize ordinary income in thepurchase 10,000 additional SGRP Shares for each additional year of sale inservice thereafter (typically granted by the Corporation at the regularly scheduled board meeting which coincided with the Annual Meeting). All such options have an amountexercise price equal to the difference between the exercise price and100% of the fair market value of the stock ona SGRP Share at the date of exercise, provided that if
such sale isgrant and vest 100% on the first anniversary of the Award's grant date. When restricted stock awards are used, each Independent Director would receive 4,000 restricted SGRP Shares upon acceptance of the directorship, 4,000 additional SGRP Shares after one year of service, and 4,000 additional restricted SGRP Shares for each additional year of service thereafter (typically granted by the Corporation at the regularly scheduled board meeting which coincided with the Annual Meeting). All restricted SGRP Shares vest 25% on the first anniversary of the Award's grant date for a transaction in which a loss (if sustained) wouldperiod of four years.
All of those options to Independent Directors have been recognized bygranted under the optionee, the amount of ordinary income recognized by the
optionee will not exceed the excess (if any)2018 Plan and Prior Plans, under which each member of the amount realized onBoard is eligible to participate. Independent Directors will be reimbursed for all reasonable expenses incurred during the sale
overcourse of their duties. There is no additional compensation for committee participation, phone meetings, or other Board activities.
COMPENSATION PLANS
Equity Compensation Plans
The following table contains a summary of the option price. The Company will then be entitled to an income tax
deduction of like amount. Any excess gain recognized by the optionee upon such
sale would then be taxable as capital gain, either long-term or short-term
depending upon whether the stock had been held for more than one year prior to
sale.
If an individual salenumber of shares of Common Stock receivedof SGRP to be issued upon exercise
of an option qualifies for long term capital gain treatment, the capital gain
from such sale would be taxed at the current maximum federal tax rate of 28% if
the Common Stock has been held for more than one year but less than 18 months,
and at a rate of 20% if the Common Stock has been held for more than 18 months.
Ordinary income is currently taxed at a maximum federal income tax rate of
39.6%. The amount by which the fair market value of stock purchased upon
exercise of an incentive stock option exceeds the option price of such stock
constitutes an item of tax preference which could then be subject to the
alternative minimum tax in the year that the option is exercised.
Nonqualified Stock Options. Generally, at the time of the grant of any
option under the 1995 Plan, no taxable income will be recognized by the optionee
and the Company will not be entitled to a deduction. Upon the exercise of such
option,stock options outstanding at December 31, 2019, under the optionee generally will recognize taxable income,2018 Plan and 2008 Plan and the Company
will then be entitled to a deduction, inPrior Plans, the amount by whichweighted-average exercise price of those outstanding stock options, and the then fair
market valuenumber of theadditional shares of Common Stock issued to such optionee exceeds the
option price.
Income recognized by the optionee upon exerciseremaining available for future issuance of a Nonqualified Stock
Option will be taxed as ordinary income up to the current maximum rate of 39.6%.
Such income constitutes "wages" with respect to which the Company is required to
deductstock options and withhold federalother stock based awards.
Equity Compensation Plan Information | ||||||||||||
Plan category | Number of securities to be issued upon exercise of outstanding stock options and stock rights (#) | Weighted average exercise price of outstanding stock options and stock rights ($) | Number of securities remaining available for future issuance of options, rights and other stock based awards (#) | |||||||||
Equity compensation plans approved by security holders: | ||||||||||||
2008 Plan | 2,227,211 | $ | 1.22 | – | ||||||||
2018 Plan | 555,000 | $ | 0.89 | – | ||||||||
Audit and state income tax. Such deductions will be made
from the wages, salary, bonus or other income to which the optionee would
otherwise be entitledCompensation Committee Interlocks and at the Company's election, the optionee may be
required to pay to the Company (for withholding on the optionee's behalf) any
amount not so deducted but required to be so withheld.
Upon the subsequent disposition of shares acquired upon the exercise of
an option other than an incentive stock option, the optionee will recognize
capital gain or loss in an amount equal to the difference between the proceeds
received upon disposition and the fair market value of such shares at the time
of exercise. If such shares have been held for more than one year at the time of
such disposition, the capital gain or loss will be long-term.
Exercising Options with Shares of Common Stock. To the extent an
optionee pays all or partInsider Participation
No member of the option price by tendering shares of Common
Stock owned byBoard's Audit Committee, Compensation Committee or Governance Committee was at any time during the optionee, the tax consequences described above generally
would apply. However, the number of shares received (upon exercise) equal to the
number of shares surrendered in paymentyear ended December 31, 2019, or at any other time an officer or employee of the aggregate option price will have
the same basis and tax holding period as the shares surrendered. The additional
shares received upon such exercise will have a tax basis equal to the amount of
ordinary income recognized and any cash paid on such exercise and a holding
period which commences on the date of exercise.
If an optionee exercises an option by tendering shares previously
acquired on the exercise of an Incentive Stock Option, a disqualifying
disposition will occur if the applicable holding period requirements have not
been satisfied with respect to the surrendered stock. The consequences of such a
disqualifying disposition is that the optionee may recognize ordinary income at
the time.
Acceleration of Stock Options Upon a Transfer of Control. If, upon a
reorganization, merger, sale or other transaction resulting in a change in
controlCompany. No executive officer of the Company or Board member serves as a member of the board of directors, audit, compensation or governance committee of any other entity that has one or more executive officers serving as a substantial portionmember of SGRP's Board, Audit Committee, Compensation Committee or Governance Committee, except for the positions of Messrs. Brown and Bartels as directors and officers of SGRP and as directors and officers of each of its assets, the
exercisability of stock options held by certain employees (generally officers,
stockholdersaffiliates, including SBS, SAS and highly compensated
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employees of the Company) is accelerated (or payments are made to cancel
unexercisable options of such employees)SIT (see Transactions with Related Persons, Promoters and Certain Control Persons, such acceleration or payment will be
determined to be a "parachute payment" for federal income tax purposes. If the
present value of all of the optionee's parachute payments exceeds three times
the optionee's average compensation for the past five years, the optionee will
be subject to a 20% excise tax on the amount of such parachute payment which is
in excess of the greater of such average compensation of the optionee or an
amount which the optionee establishes as reasonable compensation. In addition,
the Company will not be allowed a deduction for such excess parachute payment.
Limitation on Compensation Deduction. Upon exercise, options granted to
a "covered employee" with an option price equal to or greater than the fair
market value of the Common Stock at the time of grant should not be subject to
the $1.0 million deduction cap for compensation paid to certain executives of
publicly held corporations such as the Company. The Plan should satisfy the
rules governing exemption from the deduction cap for "performance based"
compensation since (1) stockholders should have received adequate disclosure of
the terms of the Plan in this Proxy Statement and (2) the Plan has been approved
by a compensation committee consisting solely of two or more "Outside Directors"
of the Company.
Upon exercise, options granted to a covered employee with an option
price less than the fair market value of the Common Stock at the time of grant
would be subject to the $1.0 million deduction cap for the Company. A "covered
employee" is an optionee who, on the last day of the taxable year of the
Company, is the Chief Executive Officer or one of the four other most highly
compensated executive officers for proxy disclosure purposes. An "Outside
Director" is a Director who is not (1) a current employee of the Company or
related entity, (2) a former employee who is receiving compensation for prior
services, (3) a former officer or (4) receiving compensation from the Company
for personal services other than regular directors' compensation.
The foregoing summary of the effects of federal income taxation upon
optionees, holders of restricted stock and the Company with respect to shares
issued under the Plan does not purport to be complete and reference is made to
the applicable provisions of the Code.
THE BOARD BELIEVES THAT THE AMENDMENTS ARE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL
THEREOF. PROXIES WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE SPECIFICALLY
INDICATED.
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24
PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board has selected Deloitte & Touche LLP as
independent public accountants to audit the financial statements of the Company
for 1998. Deloitte & Touche LLP served as the Company's independent pubic
accountants for 1997. A member of that firm is expected to be present at the
1997 Annual Meeting, will have an opportunity to make a statement if so desired,
and will be available to respond to appropriate questions. If the stockholders
do not ratify the selection of Deloitte & Touche LLP, if it should decline to
act or otherwise become incapable of acting, or if its employment is
discontinued, the Audit Committee will appoint independent public accountants
for 1998. Proxies solicited by the Board will be voted in favor of ratification
unless stockholders specify otherwise.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS
FOR 1998. PROXIES WILL BE VOTED FOR THIS PROPOSAL UNLESS OTHERWISE SPECIFICALLY
INDICATED.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's directors and certain of its officers, and persons who own more than
10% of a registered class of the Company's equity securities (collectively,
"Insiders"), to file reports of ownership and changes in ownership with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons that no Forms 5s were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16(a) filing requirements for 1997.
above).
OTHER BUSINESS
The Company
SGRP is not aware of any other business to be presented at the 1998 AnnualSpecial Meeting. All shares represented by CompanySGRP proxies will be voted in favor of the proposals of the CompanySGRP described herein unless otherwise indicated on the form of proxy. If any other matters properly come before the meeting, CompanySGRP proxy holders will vote thereon according to their best judgment.
SUBMISSION OF
STOCKHOLDER PROPOSALSCOMMUNICATIONS
Communications with SGRP and the Directors
Generally, a stockholder who has a question or concern regarding the business or affairs of SGRP should contact the Chief Financial Officer of SGRP. However, if a stockholder would like to address any such question directly to the Board, to a particular Committee, or to any individual director(s), the stockholder may do so by sending his or her question(s) in writing addressed to such group or person(s), c/o SPAR Group, Inc., 333 Westchester Avenue, South Building, Suite 204, White Plains, New York 10604, and marked "Stockholder Communication".
SGRP has a policy of generally responding in writing to each bona fide, non-frivolous, written communication from an individual stockholder. This policy is reflected in the SPAR Group, Inc. Statement of Policy Respecting Stockholder Communications with Directors dated as of May 18, 2004, approved and recommended by the Governance Committee and adopted by the Board on May 18, 2004. You can obtain and review a current copy of this policy on the Company's web site (www.sparinc.com), which is posted and available to stockholders and the public under the Investor Relations tab and Corporate Governance sub-tab.
In addition, questions may be asked of any director at the Special Meeting and all of SGRP's directors are expected to attend the Special Meeting. Additionally, the Corporation believes its directors should attend all possible meetings of the Board and its committees and stockholders, but has not specified any required minimum attendance.
Submission of Stockholder Proposals and Director Nominations for Annual Meetings
For any business, nominee or proposal to be properly brought before any annual meeting by a stockholder (acting in his or her capacity as stockholder), the Restated By-Laws require that such stockholder must give timely written notice thereof by physical delivery to the Secretary of SGRP. Any stockholder who wishes to present aany business, nominee or proposal for action at the 1998
Annual Meeting and who wishes to have it set forth in the corresponding proxy
statement and identified in the corresponding form2020 annual meeting of proxy prepared by
managementstockholders of SGRP (the "Annual Meeting") must notify the CompanySGRP by no later than December 9, 1998February 15, 2020. Such stockholder's notice shall be in suchthe form asand contain the substance required under the Restated By-Laws and the rules and regulations promulgated by the Securities and Exchange Commission. ANNUALAccordingly, notices of stockholder proposals and nominations submitted after February 15, 2020, or that do not conform to the requirements of the Restated By-Laws or Rule 14a-18 of the Securities Exchange Act of 1934 (relating to proposals to be presented at the meeting but not included in SGRP's proxy statement and form of proxy) will be considered untimely or incomplete, respectively, and thus such matters will not be brought before the 2020 Annual Meeting of stockholders.
Stockholder proposals submitted under Rule 14a-18 of the Securities Exchange Act of 1934 (relating to proposals to be presented at the meeting but not included in SGRP's proxy statement and form of proxy) can be submitted by no later than the 90th day preceding the scheduled stockholder meeting. Since such a proposal does not have to be in the Proxy Statement, this provision was added to the Restated By-Laws pursuant to the Settlement (see 2019 Restated By-Laws, above) and principally benefits those who make such a proposal and have sufficient votes to approve it, such as the Majority Stockholders. However, the Corporation may choose to voluntarily include such a proposal in its Proxy Statement to provide actual notice to all of its stockholders.
The Restated By-Laws provide that a stockholder's notice to the Secretary must set forth as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the business, nominee or proposal desired to be brought before the Annual Meeting and the reasons for considering the same at the Annual Meeting, (ii) the name and address, as they appear on SGRP's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of SGRP's stock which are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (iv) any financial interest of such stockholder (or any affiliate or family member of such stockholder), whether current or at any time within the past three years, in such business, nominee or proposal. In addition, if the notice is a nomination of a candidate for director, the stockholder's notice also must contain (A) the proposed nominee's name and qualifications, including five year employment history with employer names and a description of the employer's business, whether such individual can read and understand basic financial statements, and board memberships (if any), (B) the reason for such recommendation, (C) the number of shares of stock of SGRP that are beneficially owned by such nominee, (D) a description of any business or other relationship, whether current or at any time within the past three years, between such nominee (or any affiliate or family member of such nominee) and either the Company, any of its directors or officers, its auditor, or any of its customers or vendors, and (E) a description of any financial or other relationship, whether current or at any time within the past three years, between the stockholder (or any affiliate or family member of such stockholder) and such nominee (or any affiliate or family member of such nominee).
If it is determined by the Governance Committee or the presiding officer of the Annual Meeting that a stockholder proposal was not made in accordance with the terms of the Restated By-Laws or the applicable SEC Rules or is not under the circumstances required to be considered thereunder, such proposal will not be acted upon at the Annual Meeting.
OTHER REPORTS
A COPY OF THE COMPANY'S 19972018 ANNUAL REPORT, THE Q3 2019 QUARTERLY REPORT ON FORM 10-Q AND THE CURRENT REPORTS ON FORM 10-K8-K REFERENCED IN THIS PROXY STATEMENT ARE AVAILABLE AT INVESTORS.SPARINC.COM/SEC-FILINGS. THE 2018 ANNUAL REPORT INCLUDES A CONFORMED COPY OF SGRP'S 2018 ANNUAL REPORT ON FORM 10-K/A FOR THE YEAR ENDED DECEMBER 31, 1997 ARE BEING MAILED2018, AS FILED WITH THE SEC ON APRIL 24, 2019.
SGRP WILL PROVIDE EACH PERSON TO EACH STOCKHOLDER OF RECORD TOGETHER
WITHWHOM THIS PROXY STATEMENT.STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT (EXCLUDING ALL EXHIBITS NOT EXPLICITLY INCORPORATED BY REFERENCE HEREIN). REQUESTS FOR COPIES OF THE 2018 ANNUAL REPORT MUST BE SENT TO C/O SPAR GROUP, INC., ATTN: JAMES R. SEGRETO, 333 WESTCHESTER AVENUE, SOUTH BUILDING, SUITE 204, WHITE PLAINS, NEW YORK 10604.
THE 2018 ANNUAL REPORT (INCLUDING FORM 10-K/A), THE Q3 2019 QUARTERLY REPORT ON FORM 10-Q AND THE CURRENT REPORTS ON FORM 10-K8-K REFERENCED IN THIS PROXY STATEMENT ARE NOT PART OF THE
COMPANY'SSGRP'S SOLICITING MATERIAL.
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PROXIES AND SOLICITATION
The proxy accompanying this Proxy Statement is solicited on behalf of the SGRP's Board of Directors. Proxies for the 1998 AnnualSpecial Meeting are being solicited by mail directly and through brokerage and banking institutions. The CompanySGRP will pay all expenses in connection with the solicitation of proxies. In addition to the use of mails, proxies may be solicited by Directors,directors, officers and regular employees of the CompanySGRP (who will not be specifically compensated for such services) personally or by telephone. The CompanySGRP will reimburse banks, brokers, custodians, nominees and fiduciaries for any reasonable expenses in forwarding proxy materials to beneficial owners.
All stockholders are urged to complete, sign and promptly return the enclosed proxy card.
By Order
/s/ James R. Segreto | |||
James R. Segreto | |||
Secretary, Treasurer and Chief Financial Officer | |||
White Plains, New York
February [●], 2020
ANNEX A
2019 Amendment to 2018 Stock Compensation Plan
Dated as of DECEMBER 11, 2019
This 2019 Amendment to 2018 Stock Compensation Plan (this "Amendment" or the "2019 Plan Amendment), is dated as of December 11, 2019 (the "Amendment Date"), was adopted and approved on April 22, 2019, by the Board of Directors CATHY L. WOOD
Secretary
Irvine, California
April 1, 1998
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APPENDIX-1
PIA MERCHANDISING SERVICES, INC.
1995 STOCK OPTION PLAN, AS AMENDED
Section 1. Description(the "Board") of Plan. This is the 1995 Stock Option Plan,
dated December 5, 1995 (the "Plan"), of PIA Merchandising Services,SPAR Group, Inc., a Delaware corporation (the "Company"("SGRP" or the "Corporation"). Under
SGRP, through the Plan, officers, certain
directors, key employees and consultantsaction of the CompanyBoard and its Compensation Committee on April 10, 2018, authorized, approved and established the 2018 Stock Compensation Plan of SPAR Group, Inc. (as the same may be supplemented, modified, amended or its wholly-owned
Subsidiaries (as definedrestated from time to time in the manner provided herein, the "2018 Original Plan"), which was submitted to and approved by SGRP's stockholders at their annual meeting on and became effective as of May 2, 2018 (the "2018 OriginalEffective Date").
At the 2020 Special Meeting of SGRP's stockholders (the "2020Special Meeting"), SGRP's stockholders will be asked to ratify and approve the 2019 Amendment to the 2018 Plan in order to (i) extend the term of the Original 2018 Plan through May 31, 2024, and (ii) increase the shares of SGRP's common stock available for future Awards by an additional total of 1,000,000 shares for the period starting on the 2019 Plan Amendment Effective Date (see below) and continuing through May 31, 2024. If so approved the Amendment shall become effective on that date (the "2019 Amendment Effective Date").
NOW, THEREFORE, to be selected asin consideration of the mutual covenants and agreements set forth below,in this Amendment and the 2018 Original Plan, and other good and valuable consideration (the receipt and adequacy of which is hereby acknowledged by SGRP), and upon approval of this Amendment, the 2018 Original Plan is hereby supplemented and amended as follows, effective as of the 2019 Amendment Effective Date:
1. Certain Definitions. Except as otherwise provided herein, all capitalized terms used and not otherwise defined or amended in this Amendment shall have the meanings respectively given to them in the 2018 Original Plan.
2. Certain Definitions.
(a) The defined term: "2018 Original Plan" shall mean the 2018 Stock Compensation Plan of SPAR Group, Inc., as authorized, approved and established by SGRP's Board and its Compensation Committee on April 10, 2018, and submitted to and approved by SGRP's stockholders at their annual meeting May 2, 2018, when it became effective (the "2018 OriginalEffective Date").
(b) The defined term: "2019 Plan Amendment" shall mean the 2019 Amendment to 2018 Stock Compensation Plan dated as of May 15, 2019, and if so approved the Amendment shall become effective on that date (the "2019 Amendment Effective Date").
(c) The defined term: "2018 Plan" or "Plan" shall mean the 2018 Original Plan, or the 2018 Original Plan as amended by the 2019 Plan Amendment (if and when approved by SGRP's stockholders), as applicable, ineachcase and as the same may be grantedsupplemented, modified, amended, restated or replaced from time to time in the manner provided pursuant to this Plan and Applicable Law.
(d) The defined term: "Effective Date shall mean the 2018 Original Effective Date or the 2019 Amendment Effective Date, as applicable.
3. In Section 2 ("Stock Subject to this Plan"), subsection (a) is hereby deleted in its entirety, and the following new amended and restated subsection is hereby inserted in its place (without the deletion or modification of any other material):
(a) Subject to adjustment under and the other provisions of Sections 11 and 12, the Corporation from time to time may grant new options (including ISOs), SARs, Restricted Stock, RSUs and other Awards under this Plan ("Options"New Awards") to, purchase shares of the common stock of the
Company ("Common Stock"). The Plan permits the granting of both Options that
qualify for treatment as incentive stock options ("Incentive Stock Options")
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and Options that do not qualify as Incentive Stock Options ("Nonqualified Stock
Options"). For purposes of the Plan, the term "Subsidiary" shall mean any
corporationin or other entity of which 50% or more of the voting stock (or
equivalent thereof) is owned by the Company or by another Subsidiary (as so
defined) of the Company.
Section 2. Purpose of Plan. The purpose of the Plan and of granting
Options to specified persons is to further the growth, development and financial
success of the Company and the Subsidiaries by providing additional incentives
to certain officers, directors, key employees and consultants of the Company. By
assisting such persons in acquiring shares of the Company'sotherwise respecting its Common Stock ("New Award Shares") so long as the Company can ensure that such persons will themselves benefit directly fromNew Award Shares covered by each proposed New Award or group of New Awards in the Company's and the Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
grants of Options under the Plan shall be,aggregate do not at the time of the grant,proposed issuance exceed the officers, certain directors, key employeesapplicable remaining unused availability for New Award Shares under this Plan for the applicable period (the "Remaining Availability").
(i) | For clarity and historical purposes, from the Effective Date through the first to occur of the 2019 Amendment Effective Date, or May 31, 2019 (the "18-19 Period"), the Remaining Availability at a particular calculation time during the 18-19 Period (the "18-19 Remaining Availability") was equal to the remainder of the following: (A) 600,000 shares; minus (B) the sum at the calculation time of the cumulative aggregate number of New Award Shares covered by Awards issued during the 18-19 Period under this Plan (including all options to acquire Common Stock and SARs, RSUs payable in Common Stock or Restricted Stock issued pursuant to this Plan). For additional clarity, 595,000 New Awards were issued during the 18-19 Period, and no New Awards can be issued from the 18-19 Remaining Availability from and after the end of the 18-19 Period. |
(ii) | From the 2019 Amendment Effective Date (if it occurs), through May 31, 2024 (the "19-24 Period"), the Remaining Availability at a particular calculation time during the 19-24 Period (the "19-24 Remaining Availability") shall be equal to the remainder of the following: (A) 500,000 shares; minus (B) the sum at the calculation time of the cumulative aggregate number of New Award Shares covered by Awards issued during the 19-24 Period under this Plan (including all options to acquire Common Stock and SARs, RSUs payable in Common Stock or Restricted Stock issued pursuant to this Plan). For clarity, New Awards issued during the 18-19 Period have no effect on and do not reduce the 19-24 Remaining Availability. For additional clarity, no New Awards can be issued from the 19-24 Remaining Availability from and after the end of the 19-24 Period. |
(iii) | Notwithstanding clause (iii) above, the Corporation may issue options for 10,000 New Award Shares to Arthur H. Baer with a grant date as of September 3, 2019, the date he became a director of the Corporation, which shall be deemed issued during the 19-24 Period from the 19-24 Remaining Availability. |
4. In Section 12 ("Repricing and consultantsother Award Modifications; Amendments and Termination of the Companythis Plan), subsection (b) is hereby deleted in its entirety, and the Subsidiaries, excluding those directorsfollowing new amended and restated subsection is hereby inserted in its place (without the deletion or modification of the Companyany other material):
(b) This Plan shall have an extended initial term that ends on May 31, 2024, and its Subsidiaries
who serve on the Committee (as defined in Section 4). Notwithstanding the
preceding sentence, only persons who are employees of the Company and the
Subsidiaries shall be eligible to receive grants of Incentive Stock Options
under the Plan. In addition, a person who holds an Option is herein referred to
as a "Participant." More than one Optionno Award may be granted thereafter under this Plan, unless an extension or elimination of such initial term Plan is approved by stockholders of the Corporation if and as required pursuant to Section 27. In any Participant,
grants of Optionsevent, no Award may be madegranted under this Plan on more than one occasion to any Participant and
any individual Participant may receive grants of Options on up to 1,000,000
shares of Common Stock. Such grants of Options underor after the Plan may include an
Incentive Stock Option, Nonqualified Stock Option, or any combination thereof.
Notwithstanding the foregoing, the Board of Directorstenth (10th) anniversary of the Company (the
"Board") may at any time or from timeEffective Date of this Plan (i.e., May 2, 2028) unless an extension of the term of this Plan is approved by stockholders of the Corporation if and as required pursuant to time designate one or more Directors as
ineligible for selection as a Participant underSection 27. Awards granted prior to the Plan for any period or
periodsend the term of time. The designation by the Board of a Director as ineligible for
selection as a Participant under thethis Plan shall not affect Options previously
grantedcontinue to such Director underbe governed by this Plan (which shall continue in full force and effect for that purpose).
5. Continuing Agreement, Binding upon Successors. The 2018 Original Plan, as supplemented and amended by this Amendment, shall remain and continue in full force and effect after the Plan.
Section 4. Administration. The Plan2019 Amendment Effective Date. This Amendment's provisions shall be administered bybinding upon SGRP, the Compensation Committee (the "Committee") established byNew Award recipients and their respective heirs, successors, assigns and legal representatives and shall inure to the Board. The Committeebenefit of their respective heirs, successors, assigns and legal representatives.
6. Governance and Entire Agreement. This Amendment shall be constituted so as to permit the Plan to complygoverned by and construed in accordance with the applicable provisions of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act2018 Original Plan, which provisions are hereby incorporated herein by reference into this Amendment, and shall be interpreted as if this Amendment were the "Plant" referred to in those incorporated provisions. This Amendment and the 2018 Original Plan Agreement together contain the entire agreement and understanding of 1934 (the
"Exchange Act")SGRP and so that each membersupersede and completely replace all prior and other representations, warranties, promises, assurances and other agreements, understandings and information, whether written, electronic, oral, express, implied or otherwise, from a Party or between them with respect to the matters contained in the 2018 Original Plan as modified and extended by this Amendment.
ANNEX B
AMENDMENTS TO BY-LAWS
Proposed Amendment No. 1 (Amendment to Existing Section 3.04):
Proposed Amendment No. 2 (Addition of the Committee would be an "outside
director" within the meaning of CodeNew Section 162(m)3.13):
Section 3.13. Director Independence. The Committee shall meet at
such times and places as it determines and may meet through a telephone
conference call. A majority of its members shall constitute a quorum, and the
decision of a majority of those present at any meeting at which a quorum is
present shall constitute the decision of the Committee. A memorandum signed by
all the members of the Committee shall constitute the decision of the Committee
without necessity, in such event, for holding an actual meeting. The Committee
is authorized and empowered to administer the Plan and, subject to the Plan (a)
to select the Participants, to specify the number of shares of Common Stock with
respect to which Options are granted to each Participant, to specify the terms
of the Options and whether such OptionsBoard shall be IncentiveIndependent Directors as and when required by the Nasdaq Stock OptionsMarket Rules. For purposes of this Section 3.13, "Independent Director" shall mean a person who (1) is not an Executive Officer or Nonqualified Stock Options, and in general to grant Options; (b) to determine
the dates upon which Options shall be granted and the terms and conditions
thereof in a manner consistent with the Plan, which terms and conditions need
not be identical as to the various Options granted; (c) to interpret the Plan;
(d) to prescribe, amend and rescind rules relating to the Plan; (e) to authorize
any person to execute on behalfemployee of the Company any instrument required to
effectuate the grant of an Option
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previously granted by the Committee; (f) to determine the rights and obligations
of Participants under the Plan; (g) to specify the Option Price (as hereinafter
defined); (h) to accelerate the time during which an Option may be exercised,
including, but not limited to, upon a change of control of the Company, and to
otherwise accelerate the time or extend the post-termination exercise period
during which an Option may be exercised, in each case notwithstanding the
provisionssuch terms are defined in the Option Agreement (as defined in Section 13) stating the time
during which it may be exercised; and (i) to make all other determinations
deemed necessary or advisable for the administration of the Plan. The good faith
interpretation and construction by the Committee of any provision of the Plan or
of any Option granted under it shall be final, conclusive and binding. No member
of the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
Section 5. Shares Subject to the Plan. The number of shares of CommonNasdaq Stock in respect of which Options may be granted under the PlanMarket Rules), (2) is 1,300,000,
subject to adjustment as provided in Section 12 hereof. Upon the expiration or
termination, in whole or in part, for any reason of an outstanding Option or any
portion thereof which shall not have vested or shall not have been exercised in
full, any shares of Common Stock then remaining unissued which shall have been
reserved for issuance upon such exercise shall again become available for the
granting of additional Options under the Plan. Notwithstanding the foregoing,
shares subject to a terminated Option shall continue to be considered to be
outstanding for purposes of determining the maximum number of shares that may be
issued to a Participant. Similarly, the repricing of an Option will be
considered the grant of a new Option for this purpose.
Section 6. Option Price. Except as provided in Section 12 hereof, the
purchase price per share (the "Option Price") of the shares of Common Stock
underlying each Incentive Stock Option shall be not less than the fair market
value of such shares on the date of granting of the Incentive Stock Option;
provided, however, that if the Participant is a ten percent (10%) stockholder of
the Company as detailed in Code Section 422(b)(6) at the time such Option is
granted (determined after taking into account the constructive ownership rules
of Section 424(d) of the Code), the Option Price shall be not less than 110
percent (110%) of said fair market value. The Option Price of the shares of
Common Stock underlying each Nonqualified Stock Option shall be not less than
eighty-five percent (85%) of the fair market value of such shares on the date of
granting of the Nonqualified Stock Option; provided, however, that with respect
to any Nonqualified Stock Option granted to a "covered employee"Family Member (as such term is defined in Section 162(m)Rule 5605(a)(2) of the Code),Nasdaq Stock Market Rules) of an individual who is, or at any time during the Option Price of the shares of
Common Stock underlying such Nonqualified Stock Option shall be not less than
the fair market value of such shares on the date of granting of such
Nonqualified Stock Option. The fair market value of such shares shall be
determinedpast three years was, employed by the Committee onCompany as an Executive Officer, and (3) otherwise satisfies the basis of the average, rounded to the nearest
eighth, of the Quoted Prices of a share of Common Stock for the five consecutive
business days prior to the day as of which the fair market value of the Common
Stock is being determined. The "Quoted Price" of a share of Common Stock shall
be the last reported sales price of the Common Stock as reported by the NASDAQ
National Market System ("NASDAQ") or, if the Common Stock is listed on a
securities exchange, the last reported sales price of the Common Stock on such
exchange which shall be for consolidated trading if applicable to such exchange
or, if the Common Stock is not so reported or listed, the average of the last
reported bid and asked price of the Common Stock.
Section 7. Restrictions on Grants; Vesting of Options. Notwithstanding
any other provisions set forth herein or in any Option Agreement, no Options may
be granted under the Plan subsequent to ten (10) years from December 5, 1995.
All Options granted pursuant to the Plan shall be granted pursuant to Option
Agreements, as described in Section 13 hereof. The vesting of all Options may be
based on the Company's attaining of performanceindependence criteria as specified at the
time of the granting thereof and/or may also be based on the passage of time.
The Committee shall determine the performance criteria, the performance
measurement period and the vesting schedule applicable to each Option or group
of Options in a schedule, a copy of which shall be filed with the records of the
Committee and attached to each Option Agreement to which the same applies. The
performance criteria, the performance measurement period and the vesting
schedule and period of exercisability need not be identical for all Options
granted hereunder. Following the conclusion of each applicable performance
measurement period, the Committee shall determine, in its sole good faith
judgment, the extent, if at all, that each Option subject thereto shall have
vested based upon the applicable performance criteria and vesting schedule. To
the extent each such Option shall not have vested, because the applicable
performance criteria has not been met, and does not also vest based on the
passage of time, it shall, to that extent, automatically terminate and cease to
be
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exercisable to such extent notwithstanding the stated term during which it may
be exercised. The Committee shall promptly notify each affected Participant of
such determination. The Committee may periodically review the performance
criteria applicable to any Option or Options and, in its sole good faith
judgment, may adjust the same to reflect unanticipated major events, such as
catastrophic occurrences, mergers, acquisitions and the like.
Section 8. Special Limitations on Incentive Stock Options. To the extent
that the aggregate fair market value (determined at the time the respective
Incentive Stock Option is granted) of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by a Participant
during any calendar year under all incentive stock option plans of the Company
and the Subsidiaries exceeds $100,000, or such other limit as may be required by
the Code, such excess Incentive Stock Options shall be treated as Nonqualified
Stock Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Participant's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Participant of such determination as soon as practicable after such
determination.
Section 9. Exercise of Options. Subject to all other provisions of the
Plan, once vested, each Option shall be exercisable for the full number of
shares of Common Stock subject thereto, or any part thereof, in such
installments and at such intervals as the Committee may determine in granting
such Option, provided that no option may be exercisable subsequent to its
termination date. Once vested, and prior to its termination date, an Option may
be exercised by the Participant by giving written notice to the Company
specifying the number of full shares to be purchased and accompanied by payment
of the full purchase price therefor in cash, by check or in such other form of
lawful consideration as the Committee may approve from time to time, including,
without limitation and in the sole discretion of the Committee, the assignment
and transfer by the Participant to the Company of outstanding shares of Common
Stock theretofore held by the Participant in a manner intended to comply with
the provisions of Rule 16b-3, if applicable. In connection with such assignment
and transfer, the Company shall have the right to deduct any fractional shares
to be paid to the Participant. Once vested, and prior to its termination date,
an Option may only be exercised by the Participant or, in the event of death of
the Participant, by the person or persons (including the deceased Participant's
estate) to whom the deceased Participant's rights under such Option shall have
passed by will or the laws of descent and distribution. Notwithstanding the
foregoing in the immediately preceding sentence, in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of a Participant, a
designee, or if the Participant has no designee, the legal representative, of
such Participant may exercise the Option on behalf of such Participant (provided
such Option would have been exercisable by such Participant) until the right to
exercise such Option expires, as set forth in such Participant's particular
Option Agreement. No Option granted to a person subject to Section 16Rule 5605(a)(2) of the Exchange ActNasdaq Stock Market Rules. The standards of independence applicable to members of the Audit Committee, Compensation Committee and Governance Committee shall be exercisable during the first six (6) months after the date
such Option is granted.
Section 10. Issuance of Common Stock. The Company's obligation to issue
shares of its Common Stock upon exercise of an Option is expressly conditioned
upon the compliance by the Company with any registration or other qualification
obligations with respect to such shares under any state or federal law or
rulings and regulations of any government regulatory body and the making of such
investment representations or other representations and undertakings by the
Participant (or the Participant's legal representative, heir or legatee, as the
case may be) in order to complyconsistent with the requirements of any exemption from anyindependence standards set forth for each such registration or other qualification obligations with respect to such shares
which the Company in its sole discretion shall deem necessary or advisable. Such
required representations and undertakings may include representations and
agreements that such Participant (or the Participant's legal representative,
heir or legatee): (a) is purchasing such shares for investment and not with any
present intention of selling or otherwise disposing of such shares; and (b)
agrees to have a legend placed upon the face and reverse of any certificates
evidencing such shares (or, if applicable, an appropriate data entry made in the
ownership records of the Company) setting forth (i) any representations and
undertakings which such Participant has given to the Company or a reference
thereto, and (ii) that, prior to effecting any sale or other disposition of any
such shares, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable. The Company, during the term
of the Plan, will at all times reserve and keep available, and will use its
reasonable efforts to obtain from any regulatory body having jurisdiction any
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requisite authority in order to issue and sell such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan. Inability
of the Company to obtain, from any regulatory body having jurisdiction,
authority reasonably deemed by the Company's counsel to be necessary for the
lawful issuance and sale of any shares hereunder shall relieve the Company of
any liability in respect of the non-issuance or sale of such shares as to which
such requisite authority shall not have been obtained.
Section 11. Non-transferability.
(a) Except as provided in Section 11(b), an Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution.
(b) The Committee may, in its discretion, authorize all or a portion of
the Nonqualified Stock Options to be granted to a Participant to be on terms
which permit transfer by such Participant to (a) the spouse, children or
grandchildren of the optionee ("Immediate Family Members"), (b) a trust or
trusts for the exclusive benefit of such Immediate Family Members, or (c) a
partnership in which such Immediate Family Members are the only partners,
provided that (i) there may be no consideration for any such transfer, (ii) the
Option Agreement (defined below) pursuant to which such Options are granted must
be approved by the Committee, and must expressly provide for transferability in
a manner consistent with this Section 11, and (iii) subsequent transfers of
transferred Options shall be prohibited except those in accordance with Section
11(a). Following transfer, any such Options shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of Sections 9 and 10 hereof the term "Participants"
shall be deemed to refer to the transferee. The events of termination of
employment of Section 25 hereof shall continue to be applied with respect to the
original Participant, following which the Options shall be exercisable by the
transferee only to the extent, and for the periods specified in the Option
Agreement. Any permitted transferee shall be required prior to any transfer of
an Option or shares of Common Stock acquired pursuant to the exercise of an
Option to execute a written undertaking to be bound by the provisions of the
applicable Option Agreement.
Section 12. Adjustments Upon Capitalization and Corporate Changes;
Substitute Options. Subject to Section 15(b) hereof, if the outstanding shares
of the Common Stock of the Company are changed into, or exchanged for, a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization or reclassification, or if the number
of outstanding shares is changed through a stock split, stock dividend, stock
consolidation or like capital adjustment, or if the Company makes a distribution
in partial liquidation or any other comparable extraordinary distribution with
respect to its Common Stock, an appropriate adjustment shall be made by the Committee in the number, kind or Option Price of shares as to which Options may
be granted. A corresponding adjustment shall likewise be made in the number,
kind or Option Price of shares with respect to which unexercised Options have
theretofore been granted. Any such adjustment in an outstanding Option, however,
shall be made without change in the total price applicable to the unexercised
portion of the Option but with a corresponding adjustment in the price for each
share covered by the Option. In making such adjustments, or in determining that
no such adjustments are necessary, the Committee may rely upon the advice of
counselNasdaq Stock Market Rules and accountants to the Company, and the good faith determination of the
Committee shall be final, conclusive and binding. No fractional shares of stock
shall be issuedrules promulgated under the Plan on account of any such adjustment.
If the Company at any time should succeed to the business of another
corporation through a merger or consolidation, or through the acquisition of
stock or assets of such corporation or its subsidiaries, Options may be granted
under the Plan to option holders of such corporation or its subsidiaries, in
substitution for options to purchase stock of such corporation held by them at
the time of succession. The Committee, in its soleSecurities and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such corporation), the number of Options to be received
by each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code in the case of an Incentive Stock Option), the
economic benefit provided by such Option is not greater
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30
than the economic benefit represented by the option in the acquired corporation
as of the date of the Company's acquisition of such corporation. Notwithstanding
anything to the contrary herein, no Option shall be granted, nor any action
taken, permitted or omitted, which would cause the Plan, or any Options granted
hereunder as to which Rule 16b-3 under the Exchange Act may apply, not to comply
with such Rule 16b-3.
Section 13. Option Agreement. Each Option granted under the Plan shall
be evidenced by a written stock option agreement ("Option Agreement") executed
by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall indicate whether such Option is to be an Incentive Stock Option or a
Nonqualified Stock Option, and if an Incentive Stock Option, shall contain terms
and conditions permitting such Option to qualify for treatment1934, as an incentive
stock option under Section 422 of the Code; and (c) may contain such other terms
and conditions as the Committee deems desirable and which are not inconsistent
with the Plan.
Section 14. Rights as a Stockholder. A Participant or permitted
transferee of a Participant shall have no rights as a stockholder with respectamended, subject to any shares covered by an Option until the date of an entry evidencingexemptions or cure periods under such ownership is made in the stock transfer books of the Company (the "Exercise
Date"). No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the Exercise Date.
Section 15. Termination of Options, Acceleration of Options.
(a) Each Option shall terminate and expire, and shall no longer be
subject to exercise, as the Committee may determine in granting such Option, and
each Option granted under the Plan shall set forth a termination date thereof,
which, subject to earlier termination as set forth in Section 7 or this Section
15 hereof, or as otherwise set forth in each particular Option Agreement, with
respect to Nonqualified Stock Options, shall be no later than ten years from the
date such Option is granted, and with respect to Incentive Stock Options, shall
also be no later than ten years from the date such Option is granted, unless the
Participant is a ten percent (10%) stockholder of the Company (as described in
Section 422(b)(6) of the Code, and determined after taking into account the
constructive ownership rules of Section 424(d) of the Code) at the time such
Option is granted, in which case the Option shall terminate and expire no later
than five years from the date of the grant thereof. An Incentive Stock Option
shall contain any additional termination events required by Section 422 of the
Code.
(b) Subject to Section 15(c) hereof, unless the Committee shall, in its
sole discretion, determine otherwise, upon (i) the dissolution, liquidation or
sale of all or substantially all of the business, properties and assets of the
Company, (ii) upon any reorganization, merger or consolidation in which the
Company does not survive, (iii) upon any reorganization, merger, consolidation
or exchange of securities in which the Company does survive and any of the
Company's stockholders have the opportunity to receive cash, securities of
another corporation and/or other property in exchange for their capital stock of
the Company, or (iv) upon any acquisition by any person or group (as defined in
Section 13(d) of the Securities Act of 1934) of beneficial ownership of more
than fifty percent (50%) of the Company's then outstanding shares of Common
Stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein individually as an "Extraordinary Event"), the Plan and each
outstanding Option shall terminate. In such event each Participant shall have
the right until 10 days before the effective date of the Extraordinary Event to
exercise, in whole or in part, any unexpired Option or Options issued to the
Participant, to the extent that said Option is then vested and exercisable
pursuant to the provisions of said Option or Options and of Section 7 hereof.
The termination of employment of, or the termination of a consulting
relationship with, a Participant for any reason shall not accelerate or
otherwise affect the number of shares with respect to which an Option may be
exercised; provided, however, that the Option may only be exercised with respect
to that number of shares which could have been purchased under the Option had
the Option been exercised by the Participant on the date of such termination.
(c) Notwithstanding the provisions of Section 7 or paragraphs (a) or (b)
of this Section 15, or any provision to the contrary contained in a particular
Option Agreement, the Committee, in its sole discretion, at any
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31
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding. The decision by the Committee to
accelerate an Option or to decline to accelerate an Option shall be final,
conclusive and binding. In the event of the acceleration of the exercisability
of Options as the result of a decision by the Committee pursuant to this Section
15(c), each outstanding Option so accelerated shall be exercisable for a period
from and after the date of such acceleration and upon such other terms and
conditions as the Committee may determine in its sole discretion; provided,
however, that such terms and conditions (other than terms and conditions
relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such stated
period shall terminate automatically and become null and void.
Section 16. Withholding of Taxes. The Company, or a Subsidiary, as the
case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company or such Subsidiaries to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
Common Stock issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiaries')
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company (or such Subsidiaries) by the
Participant of the required withholding tax, as the Committee may determine. The
Company may permit the Participant to elect to surrender, or authorize the
Company to withhold, shares of Common Stock (valued at their fair market value
on the date of surrender or withholding of such shares) in satisfaction of the
Company's withholding obligation, subject to such restrictions as the Committee
deems necessary to satisfy the requirements of Rule 16b-3. However, no
fractional shares of Common Stock shall be delivered, nor shall any cash in lieu
of fractional shares be paid, by the Company. The Company shall have the right
to deduct fractional shares to be paid to the Participant as a result of such
surrender or withholding of shares.
Section 17. Effectiveness and Termination of Plan. The Plan shall be
effective on the date on which it is adopted by the Board, provided the Plan is
approved by the stockholders of the Company within twelve (12) months of
December 5, 1995 and on or prior to the date of the first annual meeting of
stockholders of the Company held subsequent to the acquisition of an equity
security by a Participant hereunder for which exemption is claimed under Rule
16b-3. Notwithstanding any provision of the Plan or in any Option Agreement, no
Option shall be exercisable prior to such stockholder approval. The Plan shall
terminate at the earliest of the time when all shares of Common Stock which may
be issued hereunder have been so issued, or at such time as set forth in Section
15(b) hereof; provided, however, that the Board may in its sole discretion
terminate the Plan at any other time. Unless earlier terminated by the Board,
the Plan shall terminate on December 5, 2005. Subject to Section 15(b) hereof,
no such termination shall in any way affect any Option then outstanding.
Section 18. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 19. Amendment of Plan. The Board may (a) make such changes in
the terms and conditions of granted Options as it deems advisable, provided each
Participant adversely affected by such change consents thereto, and (b) make
such amendments to the Plan as it deems advisable. Such amendments and changes
shall include, but not be limited to, acceleration of the time at which an
Option may be exercised, but may not, without the written consent or approval of
the holders of a majority of that voting stock of the Company which is
represented and is entitled to vote at a duly held stockholder's meeting (i)
increase the maximum number of shares subject to Options, except pursuant to
Section 12 hereof, (ii) change the designation of the class of employees
eligible to receive Incentive Stock Options, or (iii) in any manner modify the
Plan such that it fails to meet the requirements of Rule 16b-3 of the Exchange
Act for the exemption of the acquisition, cancellation, expiration or surrender
of Options from the operation of Section 16(b) of the Exchange Act.
Section 20. Transfers and Leaves of Absence. For purposes of the Plan,
(a) a transfer of a Participant's employment or consulting relationship, without
an intervening period, between the Company and a Subsidiary
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32
shall not be deemed a termination of employment or a termination of a consulting
relationship, and (b) a Participant who is granted in writing a leave of absence
shall be deemed to have remained in the employ of, or in a consulting
relationship with, the Company (or a Subsidiary, whichever is applicable) during
such leave of absence. Notwithstanding the foregoing, for purposes of
determining the exercisability of an Incentive Stock Option, a Participant who
is on a leave of absence that exceeds ninety (90) days will be considered to
have terminated his or her employment on the ninety-first (91st) day of the
leave of absence, unless the Participant's rights to reemployment are guaranteed
by statute or contract.
Section 21. No Obligation to Exercise Option. The granting of an Option
shall impose no obligation on the Participant to exercise such Option.
Section 22. Governing Law. The Plan and any Option granted pursuant to
the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 23. Not an Employment or Other Agreement. Nothing contained in
the Plan or in any Option Agreement shall confer, intend to confer or imply any
rights of employment or any rights to any other relationship or rights to
continued employment by, or rights to a continued consulting relationship with,
the Company or any Subsidiaries in favor of any Participant or limit the ability
of the Company or any Subsidiaries to terminate, with or without cause, in its
sole and absolute discretion, the employment of, or relationship with, any
Participant, subject to the terms of any written employment or other agreement
to which a Participant is a party.
Section 24. Rule 16b-3. It is intended that the Plan and any grant of an
Option made to a person subject to Section 16 of the Exchange Act meet all of
the requirements of Rule 16b-3. If any provision of the Plan or any such grant
would disqualify the Plan or such grant under, or would not otherwise comply
with, Rule 16b-3, such provision or grant shall be construed or deemed amended
to conform to Rule 16b-3.
Section 25. Termination of Employment. The terms and conditions under
which an Option may be exercised after a Participant's termination of employment
shall be determined by the Committee and shall be specified in the Option
Agreement. The conditions under which such post-termination exercises shall be
permitted with respect to Incentive Stock Options shall be determined in
accordance with the provisions of Section 422 of the Code.
Section 26. Indemnification. In addition to such other rights of
indemnification as they may have as directors, the members of the Board or
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including reasonable attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is not entitled to
indemnification under applicable law; provided that within 60 days after
institution of any such action, suit or proceeding such Committee member shall
in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
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33
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[X] 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 PURSUANT TO SECTION 240.14a-11(c) OR SECTION 240.14a-12
PIA MERCHANDISING SERVICES, INC.
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] NO FEE REQUIRED
[ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(1) AND 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
-----------------------------------------------------------------------------
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
-----------------------------------------------------------------------------
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT TO
EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING FEE IS
CALCULATED AND STATE HOW IT WAS DETERMINED):
-----------------------------------------------------------------------------
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
-----------------------------------------------------------------------------
5) TOTAL FEE PAID:
-----------------------------------------------------------------------------
[ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(a)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS
PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT
NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID:
-----------------------------------------------------------------------------
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
-----------------------------------------------------------------------------
3) FILING PARTY:
-----------------------------------------------------------------------------
4) DATE FILED:
-----------------------------------------------------------------------------
A2-3
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APPENDIX-2
FORM OF PROXY
PROXY
PIA MERCHANDISING SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Terry R. Peets and Cathy L. Wood, and each of
them, proxies with full power of substitution, to vote all shares of Common
Stock of PIA Merchandising Services, Inc. (the "Company") held of record by the
undersigned as of March 13, 1998, the record date with respect to this
solicitation, at the Annual Meeting of Stockholders of the Company to be held at
The Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California
92660, beginning at 10:00 a.m., Pacific Time, on Tuesday, May 12, 1998, and at
any adjournments thereof, upon the following matters:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as noted below) for all nominees listed below
(Instructions: To withhold authority to vote for any nominee, line
through or otherwise strike out the nominee's name below.)
Clinton E. Owens Joseph H. Coulombe
Terry R. Peets Patrick C. Haden
Patrick W. Collins J. Christopher Lewis
John A. Colwell
2. APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1995 STOCK OPTION PLAN, AS
DESCRIBED IN THE PROXY STATEMENT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. OTHER MATTERS
In their discretion, Terry R. Peets and Cathy L. Wood are authorized to
vote upon such other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3 ABOVE. IF ANY NOMINEE
DECLINES OR IS UNABLE TO SERVE AS A DIRECTOR, THEN THE PERSONS NAMED AS PROXIES
SHALL HAVE FULL DISCRETION TO VOTE FOR ANY OTHER PERSON DESIGNATED BY THE BOARD
OF DIRECTORS.
Dated _________________________________, 1998
_______________________________________
(Signature)
_______________________________________
(Signature)
Please sign exactly as your name appears
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee, guardian or
corporate officer, please give full
title as such.
The signer hereby revokes all proxies
heretofore given by the signor to vote
at said meeting or any adjournments
thereof.
A2-1