Item
1
.0
1
Entry into a Material Definitive Agreement
On January 18, 2019, SPAR Group, Inc. ("SGRP", the "Corporation" or the "Registrant"), Robert G. Brown, a substantial stockholder of SGRP and former Executive Chairman and director of SGRP, and William H. Bartels, a substantial stockholder of SGRP and current Vice Chairman and director and officer of SGRP (together with Robert G. Brown, the "Majority Stockholders"), and Christiaan Olivier, Chief Executive Officer, President and a Director of SGRP, and all four of the members of the Governance Committee, namely Lorrence T. Kellar, Chairman, and Jack W. Partridge, Arthur B. Drogue and R. Eric McCarthey (together with Mr. Olivier, the "225 Defendants"), reached a settlement (the "Settlement") in the By-Laws Action and the 225 Action as such terms are defined below (collectively, the "Actions) and had the Actions then dismissed.
Following the Settlement, the Corporation commented: "The Corporation and other parties are happy to have the settled actions dismissed and behind them so that all can return to work and focus on the business of the Corporation and continuing to build value for all stockholders. Through their settlement discussions, the parties came to better understand that they each believed they undertook, pursued and defended the Actions in the ways they perceived to be in the best interest of the Corporation's stockholders, and they agreed that the negotiated compromise to restate the Corporation's By-Laws was in the best interests of the Corporation's stockholders."
Although many contributed to the Settlement, the Corporation wants to especially thank its Chairman, Arthur B. Drogue, and its Vice-Chairman, William H. Bartels, for their considerable efforts in bringing the parties together to lay the foundation for the Settlement.
The Parties are hopeful that, having reached a negotiated compromise through considerable effort and expense, all parties will support those restated By-Laws and not seek to change them.
In connection with the Settlement, on January 18, 2019, Lorrence T. Kellar retired from the Board of Director of the Corporation (the "Board") and Jeffrey Mayer was appointed and seated as a director by the Board. See Item 5.02 below.
The Corporation and the Board wish to thank Mr. Kellar for his many years of thoughtful and tireless service to the Corporation and all of its stockholders as a director and as Chairman of the Board's Audit Committee through 2016 and (most recently) as Chairman of its Governance Committee, and they wish him all the best.
The Settled Actions
:
On September 4, 2018, SGRP filed in the Court of Chancery of the State of Delaware (the "Court") a claim, C.A. No. 2018-0650, which it amended on September 21, 2018 (the "By-Laws Action "), in a Verified Complaint Seeking Declaratory Judgment and Injunctive Relief (the "Original Complaint") against the Majority Stockholders, in which SGRP opposed the proposed amendments to SGRP's By-Laws put forth in a written consent by the Majority Stockholders (the "Proposed Amendments"). Please see Note 9 to the Company's Condensed Consolidated Financial Statements –
Commitments and Contingencies -- Legal Matters - Stockholder By-Laws Litigation
, in the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on November 19, 2018, and the Corporation's Current Report on Form 8-K as filed with the SEC on September 28, 2018.
On September 18, 2018, Robert G Brown (one of the Majority Stockholders) commenced an action in the Court pursuant to 8 Del. C. §225(a) from (C.A. No. 2018-00687-TMR) (the "225 Action") against the 225 Defendants seeking to remove Lorrence T. Kellar from the Board and add Jeffrey Mayer to the Board. Please see Note 9 to the Company's Condensed Consolidated Financial Statements –
Commitments and Contingencies -- Legal Matters - Board Seating Litigation
, in the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on November 19, 2018, ant the Corporation's Current Report on Form 8-K as filed with the SEC on September 28, 2018.
On September 20, 2018, the Court issued a Status Quo Order in the 225 Action (the" Status Quo Order ") that (among other things) seated Jeffrey Mayer on the Board, provided for Lorrence T. Kellar to remain seated on the Board, and effectively increased the Board size from seven to eight for the duration of the order.
Settlement Terms
:
In the 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 preserves 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, which is unchanged). The Board approved and adopted the 2019 Restated By-Laws on January 18, 2018. The Governance Committee and the Board believe that those changes in the 2019 Restated By-Laws will help the Corporation maintain the independent Board desired by them.
The descriptions of the negotiated compromise 2019 Restated By-Laws above and in Item 5.03 below are qualified in their entirety by reference to the 2019 Restated By-Laws, a copy of which is filed herewith as Exhibit 3.3 and is incorporated herein by reference.
As part of the Settlement, the parties to the Actions executed a Limited Mutual Release Agreement limited to the Actions and subject to specific exclusions (the "Release"). The foregoing description of the Release is qualified in its entirety by reference to the copy of the Release that is filed herewith as Exhibit 10.1 and is incorporated herein by reference.
As part of the Settlement, the parties to the Actions mutually agreed upon Stipulations of Dismissal ending those actions without prejudice and without admission or retraction of any fact cited therein, and the parties caused them to be filed with the Court on January 18, 2019. The foregoing description of the Stipulations of Dismissal is qualified in their entirety by reference to the Stipulations of Dismissal, copies of which are filed herewith as Exhibit 10.2 and Exhibit 10.3 and are incorporated herein by reference.
The By-Laws Action was dismissed upon the filing of the Stipulation of Dismissal. On January 23, 2019, the Court granted the dismissal of the 225 Action and vacated its previously entered Status Quo Order entered in that action.
Finally, as part of the Settlement, the Board agreed to appoint Mr. Mayer to the Board and accept Mr. Kellar's retirement from the Board. See Item 5.02, below.
Non-Settled Matters:
The Releases are limited to matters related to those actions described therein and subject to specific exclusions, and the parties expressly preserved all unrelated actions and claims. Accordingly, there remain a number of unresolved claims and actions (each a "Non-Settled Matter") between the Corporation and the following Related Parties (as defined below), including (without limitation), post termination claims by and against SPAR Business Services, Inc. (which is now in a voluntary bankruptcy proceeding in Nevada), and SPAR Administrative Services, Inc., the lawsuit by SPAR Infotech, Inc., against the Corporation, and the legal action by Mr. Bartels in Delaware against the Corporation seeking advancement of his proportionate share of the legal fees and expenses incurred in the By-Laws Case, and the claim by Mr. Brown for a similar advancement. Please see Part II, Item IA -
Risk Factors -
Dependence Upon and Cost of Services Provided by Affiliates
and Use of Independent Contractors
,
Risk Factors -
Risks Related to the Company
'
s Significant Stockholders: Potential Voting Control and Conflicts
, and Note 9 to the Company's Condensed Consolidated Financial Statements –
Commitments and Contingencies -- Legal Matters
, in the Corporation's Quarterly Report on Form 10-Q as filed with the SEC on November 19, 2018, the Corporation's Current Report on Form 8-K as filed with the SEC on September 28, 2018, the Corporation's Current Report on Form 8-K as filed with the SEC on December 3, 2018.