Item 8.01. Other Events.
Background Information and Prior Stockholder Actions
Mr. Robert G. Brown ("Mr. Robert Brown"), along with the SP/R, Inc. Defined
Benefit Pension Trust which is a trust for the benefit (in part) of Mr. Robert
Brown and controlled by Mr. Robert Brown's children as its trustees (the "SP/R
Trust"), Innovative Global Technologies, LLC (collectively with Mr. Robert Brown
and the SP/R Trust, the "Brown Group") and Mr. William H. Bartels ("Mr.
Bartels," and together with the Brown Group, the "Majority Stockholders")
together own approximately 54.2% of the outstanding SGRP Shares common stock
issued by Spar Group, Inc.. In addition, Mr. Robert Brown was Chairman and an
officer of SGRP through May 3, 2018 (when he retired), Mr. Robert Brown and Mr.
Bartels are the founders of SGRP and each currently serve as directors of SGRP,
and the Majority Stockholders are members of a 13D control group with respect to
SGRP.
On July 10, 2019, Mr. Robert Brown wrote in an email communication to Arthur B.
Drogue, an independent director and Chairman of the Board of Directors (the
"Board") of the Corporation, to which he copied Mr. Bartels, Mr. Peter W. Brown
and Mr. Jeffery Mayer (each a director), expressing Mr. Robert Brown's concerns
with the positions of certain of the Corporation's directors (the "July 10
Email"), including the independent directors. The concerns listed in the July 10
Email included, among other matters, the Corporation's opposition to Mr. Robert
Brown's preferred director candidate at the time and the Corporation's refusal
to reimburse the alleged expenses of entities owned by, or affiliated with, Mr.
Robert Brown, that have not been approved by the Audit Committee and the
Corporation's management (the "Brown Demands"). Mr. Robert Brown further
demanded in the July 10 Email that the directors change their positions and
accept the Brown Demands or resign. See SGRP's Current Report on Form 8-K, as
filed with the Securities and Exchange Commission (the "SEC") on August 12, 2019
for further information regarding the foregoing matters.
Mr. Robert Brown and his companies are and have been involved in a number of
material adverse demands and actions against the Corporation. On March 6, 2020,
Mr. Robert Brown sent an email communication demanding payment to SBS from the
Corporation of $1,707,374. At SGRP's March 2020 Board meeting, Mr. Bartels was
requested by an independent director to compile a list of claims that he and Mr.
Robert Brown believe are owed by the Corporation. On March 17, 2020, that list
was given to the Audit Committee Chairman and included additional claims, net of
an anticipated reduction, totaling approximately $1.3 million, bringing their
total claims to approximately $3 million. The Corporation has completely
rejected these unfounded and unsubstantiated claims, and believes it was
released from all such claims by SPAR Business Services, Inc. ("SBS") in SBS's
bankruptcy reorganization. For further information regarding this matter, see
Domestic Related Party Services, SBS Bankruptcy and Settlement, March 2020
Claim, and Infotech Litigation and Settlement, in the Corporation's Definitive
Proxy Statement/Information Statement for the Special Meeting filed with the SEC
on April 3, 2020 (the "Special Meeting Proxy Statement").
Retirements
On May 6, 2020, with respect to Mr. R. Eric McCarthey, and May 7, 2020, with
respect to Mr. Arthur B. Drogue, the Board received written notices that each of
Messrs. McCarthey and Drogue, two of the Board's five current independent
directors, intends to retire from the Board. Messrs. Drogue and McCarthey
indicated that their respective retirements (together, the "Retirements"), would
be effective on August 1, 2020 (the "Effective Date"), and that each Retirement
was tendered pursuant to conversations with William H. Bartels and at the
request of Mr. Robert Brown. Messrs. Drogue and McCarthey may postpone their
respective Retirements only with the consent of the Majority Stockholders.
The Board intends to accept the Retirements, and the Board's Governance
Committee will promptly begin a search for two new independent directors to fill
the vacancies that will be created by the Retirements. Messrs. Drogue and
McCarthey won election as directors at the annual meeting of stockholders of
SGRP held on May 13, 2020, and will serve in each of their respective roles on
the Board until the Effective Date. With respect to their respective roles on
the committees of the Board, (1) Mr. Drogue will continue to serve as Chairman
of the Board until the Effective Date, but he will no longer serve on the Audit
Committee, Governance Committee and Compensation Committee, in each case, as of
May 11, 2020, and (2) Mr. McCarthey will continue to serve as a member of the
Audit Committee until the Board selects an independent director to replace him,
but he will no longer serve on the Compensation Committee and the Governance
Committee (of which he was Chairman), in each case, as of May 11, 2020.
Accordingly, effective on May 12, 2020 and until otherwise determined by the
Board, the committees of the Board consist of the following members:
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Following Mr. Igor Novgorodtsev's appointment on May 28, 2020, to the Board and
the committees noted below and the determination of his independence (see SGRP's
Current Report on Form 8-K as filed with the SEC on May 5, 2020), the committees
of the Board currently consist of the following directors:
? SGRP's Audit Committee now (May 28) consists, and through August 1, 2020, will
consist, of: Mr. Arthur H. Baer (Chairman), Mr. Jeffrey A. Mayer, Mr. R. Eric
McCarthey*, and Mr. Igor Novgorodtsev, all of whom are independent directors.
* Mr. R. Eric McCarthey is retiring effective August 1, 2020.
? SGRP's Compensation Committee now (May 28) consists and will consist of: Mr.
Jeffrey A. Mayer (Chairman), Mr. Arthur H. Baer, and Mr. Igor Novgorodtsev,
all of whom are independent directors. Mr. Igor Novgorodtsev will eventually
become chairman of SGRP's Compensation Committee
? SGRP's Governance Committee now (May 28) consists and will consist of: Mr.
Jeffrey A. Mayer (Chairman), Mr. Arthur H. Baer, and Mr. Igor Novgorodtsev,
all of whom are independent directors. The Governance Committee recommended
and the Board approved amending SGRP's By-Laws and the Governance Committee's
Charter to permit a non-independent director to be a member of SGRP's
Governance Committee to the extent permitted by Nasdaq rules and other
applicable law, but to be a non-voting member to the extent prohibited by
Nasdaq rules or other applicable law, to permit Peter W. Brown to serve on
that Committee following such amendments.
Upon the effectiveness of the Retirements and assuming (1) no additional
independent directors are identified and added to the Board prior to the
effectiveness of the Retirements and (2) that Mr. Igor Novgorodtsev was added to
the Board in late May 2020, and the Corporation's Governance Committee has
determined him to be an independent director, therefore SGRP will have four
independent directors and four non-independent directors, in violation of the
applicable Nasdaq rules requiring a majority of independent directors on the
Board (See Information in Connection with Increase of Board Size by Majority
Stockholders and Compliance with NASDAQ Board Independence Rules Following the
Election of Mr. Robert G. Brown as Director in the 2020 Proxy Statement, each of
which is incorporated herein by reference).
First Special Meeting
On December 17, 2019, the Corporation received delivery from the Brown Group of
a Written Request of Stockholders of SPAR Group, Inc. (the "First Special
Meeting Request"), to call a special meeting of the stockholders (the "First
Special Meeting") from Mr. Robert Brown, which request was corrected and
delivered on January 9, 2020 (completing such request), to, among other
proposals, consider and vote on a 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 (the "James Brown Election Proposal"). Mr.
James R. Brown is the brother of Mr. Robert Brown and the father of Peter W.
Brown, who also is a director and was named to the Board to represent the Brown
family interests. The Corporation decided to add a proposal to the First Special
Meeting proposals to consider and grant authority to the Board to increase the
size of the Board without further stockholder action if the Board deems it
reasonably necessary for majority board independence under Nasdaq rules (the
"Nasdaq Board Expansion Proposal").
Due to various material changes and a corona virus adjournment, the First
Special Meeting was then eventually held virtually by the Corporation on April
30, 2020. Among other proposals, the Nasdaq Board Expansion Proposal and the
James Brown Election Proposal did not pass. See the Corporation's Current Report
on Form 8-K respecting the First Special Meeting voting results as filed with
the SEC on May 4, 2020 (the "First Special Meeting Report").
First Special Meeting Proxy Coding Error
At approximately 12:15 pm on April 30, 2020, the polls (i.e., voting period)
closed for the First Special Meeting (the "Poll Closing"). See the First Special
Meeting Report respecting the meeting voting results.
On or around May 1, 2020, long after the Poll Closing, Mr. Robert Brown
contacted Computershare, Inc. and Computershare Trust Company, N.A,
("Computershare"), the Corporation's transfer agent and proxy tabulator for its
stockholder meetings, and Broadridge Financial Solutions, Inc. ("Broadridge"), a
proxy service provider to various brokerage houses, demanding a recalculation of
the voting results of the First Special Meeting. However, neither Computershare
nor Broadridge calculated any votes for the First Special Meeting, which were
tallied by the Corporation after the proxies were voted by the proxy agent at
the First Special Meeting. See the First Special Meeting Report.
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Mr. Robert Brown claimed to Computershare and Broadridge that the stockholder
votes on the Nasdaq Board Expansion Proposal were tabulated incorrectly because
proxies representing 2,935,178 SGRP Shares were delivered by Broadridge (the
"Broadridge Proxies") with specific instructions to vote "NO" on the Nasdaq
Board Expansion Proposal. However, the Broadridge Proxies did not give specific
instructions on any other proposal, and accordingly Delaware law required the
proxy agent to vote the Broadridge Proxies on the other proposals in accordance
with the default instructions in the proxy reflecting the recommendations of the
Board as disclosed under the QUORUM AND VOTING REQUIREMENTS caption in the First
Special Meeting Proxy Statement (the "Default Instructions"), which included the
instruction to vote "NO" on the James Brown Election Proposal).
After Mr. Robert Brown contacted it, Broadridge contacted the NYSE (even though
SGRP Shares are listed on Nasdaq) regarding their guidance. Broadridge
subsequently confirmed to the Corporation on May 18, 2020, that, since the
proposal was a non-routine matter, giving specific instructions on the Nasdaq
Board Expansion Proposal under the NYSE rules (which they nevertheless wish to
apply) would have been a coding error by it on their submission of the
Broadridge Proxies to Computershare (the "Coding Error"). The Corporation
accepts Broadridge's opinion regarding their Coding Error in the Broadridge
Proxies respecting the Nasdaq Board Expansion Proposal.
The Nasdaq Board Expansion Proposal would have been defeated whether or not
Broadridge had given instructions to vote "NO", "YES" or "ABSTAIN" on such
proposal as it did. A change in their instructions likewise would not have
affected the outcome of any other proposal, including the rejection of the James
Brown Election Proposal, as the Delaware law would still have required the proxy
agent to vote the Broadridge Proxies on the other proposals in accordance with
the Default Instructions. Had the Broadridge Proxies not been returned at all,
the James Brown Election Proposal would likely have instead passed.
Alternatively, had the Broadridge Proxies been returned with all blanks, the
proxy agent would have been required by Delaware law to vote the Broadridge
Proxies on the other proposals in accordance with the Default Instructions, and
the James Brown Election Proposal would still have been rejected.
On May 4, 2020, Computershare contacted the Corporation to inform the
Corporation of the possible Coding Error and confirm whether the Corporation
would accept new, corrected Broadridge Proxies, the Corporation instructed
Computershare that it cannot accept any changed proxies after the Poll Closing.
Delaware General Corporation Law Section 231(c) provides [Emphasis added]:
"The date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting shall be announced at the
meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise."
On May 1, 2020, the Corporation received an email from Mr. Robert Brown
demanding a recalculation of the voting results of the First Special Meeting.
Mr. Robert Brown is now requesting that the Corporation permit Broadridge to
change the Broadridge Proxies, for Computershare to accept the Broadridge
changes and retabulate all of the First Special Meeting proxies, for the
Corporation to reopen the polls and recount the First Special Meeting votes,
whether or not the Corporation receives such a Delaware Court Order. Mr. Robert
Brown also has demanded that as a result Mr. James Brown be immediately seated
as a director on the Board.
After review of this issue, consultation with several outside counsel and
discussion with the entities responsible for oversight of the voting process,
the Corporation, believes that the Coding Error was not a calculation error that
can be remedied simply by correcting a typographical, mathematical or similar
error. All votes that were cast (including the Broadridge Proxies) were voted by
the proxy agent in accordance with the proxy and their specific instructions and
Default Instructions and counted correctly. Rather, a change in the Broadridge
Proxies for Broadridge to "correct" its Coding Error would require the
submission of new, corrected proxies-after the Poll Closing -for the Broadridge
Proxies. The Corporation believes that under Delaware law, once voting on a
stockholder meeting has been closed, the Corporation cannot accept new or
changed proxies unless ordered to do so by the Delaware Chancery Court. The
Corporation has not yet received such an order and accordingly cannot yet accept
new proxies as it relates to the Broadridge Proxies and the Nasdaq Board
Expansion Proposal.
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Second Special Meeting Request
On May 28, 2020, SGRP electronically received delivery of a Written Request of
Stockholders from Robert G. Brown, SP/R, Inc. Defined Benefit Pension Trust (the
"Trust"), which is a trust for the benefit (in part) of Robert G. Brown and
controlled by Robert G. Brown's children as its trustees, and Innovative Global
Technologies, LLC, of which Robert G. Brown is a trustee (collectively, with
Robert G. Brown and the Trust, the "Brown Group"). In it, the Brown Group
requested that a special meeting of SGRP's stockholders be called (the "Second
Special Meeting") in order to consider and vote upon the increase the size of
the Board by one director if no vacancy then exists and the appointment to the
Board of James R. Brown Sr. as a director (the " Second Special Meeting
Request"). The Brown Group owns and shares voting power respecting 6,156,918
SGRP Shares, or approximately 29.3% of the 21,000,919 outstanding SGRP Shares
outstanding on May 28, 2020, which exceeds the minimum ownership threshold of
20% required by SGRP's By-Laws to call a special meeting of SGRP's stockholders
(which threshold was 25% prior to the Brown Group requested changes approved by
SGRP's stockholders on May 13, 2020). William H. Bartels did not participate in
the Second Special Meeting Request.
The Brown Group also called for the First Special Meeting to consider (among
other things) at the Brown Group's request the appointment to the Board of James
R. Brown Sr. as a director, but that proposal was not approved, and Mr. James R.
Brown Sr. is not currently a SGRP director. For more information respecting the
First Special Meeting and voting results, see the above and SGRP's Definitive
Proxy Statement/Information Statement and Information Statement on Schedules 14A
and 14C, respectively (the "First Special Meeting Proxy/Information Statement"),
which was filed with the SEC on April 3, 2020, and SGRP's Current Report on Form
8-K as filed with the SEC on May 4, 2020, respectively.
The nominee for election in this stockholder proposal is Mr. James R. Brown Sr.,
age 73. Mr. James 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. James 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. James Brown also advised the
community colleges regarding business contracts, compliance with the
commonwealth's ethics' and public records' laws, and campus safety. Mr. James
Brown served in his position as Labor Counsel since 1997. Prior to that, Mr.
James Brown was a part-time labor and employment consultant to individual public
higher education community colleges as well as Boston State University. Mr.
James Brown received a BS in Finance and an MBA from Boston University. Mr.
James Brown received a JD from New England Law-Boston.
Mr. James Brown is the brother of Robert G. Brown, who was Chairman and a
director and officer of SGRP through May 3, 2018, is a significant stockholder
of SGRP, is part of a 13D control group, and who again became a director on
April 24, 2020, pursuant to the written consents of the Brown Group and Mr.
Bartels (see Information in Connection with Appointment of Robert G. Brown as a
Director and Background in Proposal 1 in the First Special Meeting
Proxy/Information Statement). Mr. James Brown also is the father of director
Peter W. Brown, who joined the Board of SGRP in May 2018 to represent the Brown
family interests (see Determining Independence and Re-determining Status of
Messrs. Mayer and Lazaretos in Proposal 1 and THE BOARD OF DIRECTORS OF THE
CORPORATION in the First Special Meeting Proxy/Information Statement).
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 in the First Special Meeting
Proxy/Information Statement), in the event James R. Brown Sr. is elected as a
director, Mr. James Brown will be considered non-independent unless and until
determined otherwise by the Governance Committee (if ever). SGRP expects the
Governance Committee and the independent directors of the Board to determine
that James R. Brown Sr. would not be independent pursuant to applicable Nasdaq
rules and the Governance Committee Charter.
As a result of Mr. Igor Novgorodtsev's appointment, SGRP currently has six
independent directors out of ten, and thus the Board has a majority of
independent directors. The independent directors are Arthur B. Drogue, R. Eric
McCarthey, Jeffrey A. Mayer, Arthur H. Baer, Panagiotis "Panos" Lazaretos and
Igor Novgorodtsev. However, SGRP received notice from Messrs. Drogue and
McCarthey that they will each retire as directors of SGRP, effective August 1,
2020 (the "Retirements").
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Accordingly, if: (1) the vacancies created by the Retirements are not filled by
new independent directors, (2) James R. Brown Sr. is appointed as a director at
the Second Special Meeting as requested by the Brown Group and (3) the
Governance Committee determines that James R. Brown Sr. is not independent, then
SGRP will only have four independent directors out of nine on the Board, and
therefore, SGRP will no longer have a majority independent Board as required by
applicable Nasdaq rules. Alternatively, if SGRP appoints two independent
directors to fill the vacancies created by the Retirements and James R. Brown is
elected as a non-independent director, SGRP will have six out of eleven
independent directors in compliance with applicable Nasdaq rules on director
independence. The Governance Committee is continuing to identify potential
independent director candidates to fill the vacancies that will be created by
the Retirements. See SGRP's Current Report on Form 8-K, filed with the SEC on
May 12, 2020, for further information regarding the SGRP's risk of future
violations of the applicable Nasdaq rules on director independence, which is
incorporated herein by reference.
Forward Looking Statements
This Current Report on Form 8-K (this "Current Report"), contain
"forward-looking statements" within the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, made by, or respecting, the
Corporation and its subsidiaries (collectively, the "Company"), and this Current
Report has been filed by the Corporation with the SEC. "Forward-looking
statements" are defined in Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and other applicable federal and state
securities laws, rules and regulations, as amended (together with the Securities
Act and the Exchange Act, "Securities Laws").
All statements (other than those that are purely historical) are forward-looking
statements. Words such as "may," "will," "expect," "intend," "believe,"
"estimate," "anticipate," "continue," "plan," "project," or the negative of
these terms or other similar expressions also identify forward-looking
statements. Forward-looking statements made by the Corporation in this Current
Report may include (without limitation) statements regarding: risks,
uncertainties, cautions, circumstances and other factors ("Risks"); and plans,
intentions, expectations, guidance or other information respecting the potential
negative effects of the Retirements, the possible election of James R. Brown as
a director, the novel coronavirus and COVID-19 pandemic on the Company's
business, the Company's potential non-compliance with applicable Nasdaq director
independence rules, the Company's cash flow or financial condition, the
Company's cash flow later this year, or the pursuit or achievement of the
Company's five corporate objectives (growth, customer value, employee
development, greater productivity & efficiency, and increased earnings per
share), building upon the Company's strong foundation, leveraging compatible
global opportunities, growing the Company's client base and contracts,
continuing to strengthen its balance sheet, growing revenues and improving
profitability through organic growth, new business development and strategic
acquisitions, and continuing to control costs.
You should carefully review and consider the Company's forward-looking
statements (including all risk factors and other cautions and uncertainties) and
other information made, contained or noted in or incorporated by reference into
this Current Report, but you should not place undue reliance on any of them. The
results, actions, levels of activity, performance, achievements or condition of
the Company (including its affiliates, assets, business, clients, capital, cash
flow, credit, expenses, financial condition, income, liabilities, liquidity,
locations, marketing, operations, performance, prospects, sales, strategies,
taxation or other achievement, results, Risks, trends or condition) and other
events and circumstances planned, intended, anticipated, estimated or otherwise
expected by the Company (collectively, "Expectations"), and our forward-looking
statements (including all Risks) and other information reflect the Company's
current views about future events and circumstances. Although the Company
believes those Expectations and views are reasonable, the results, actions,
levels of activity, performance, achievements or condition of the Company or
other events and circumstances may differ materially from our Expectations and
views, and they cannot be assured or guaranteed by the Company, since they are
subject to Risks and other assumptions, changes in circumstances and
unpredictable events (many of which are beyond the Company's control). In
addition, new Risks arise from time to time, and it is impossible for the
Company to predict these matters or how they may arise or affect the Company.
Accordingly, the Company cannot assure you that its Expectations will be
achieved in whole or in part, that it has identified all potential Risks, or
that it can successfully avoid or mitigate such Risks in whole or in part, any
of which could be significant and materially adverse to the Company and the
value of your investment in the Company's common stock.
These forward-looking statements reflect the Company's Expectations, views,
Risks and assumptions only as of the date of this Current Report, and the
Company does not intend, assume any obligation, or promise to publicly update or
revise any forward-looking statements (including any Risks or Expectations) or
other information (in whole or in part), whether as a result of new information,
new or worsening Risks or uncertainties, changed circumstances, future events,
recognition, or otherwise.
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