SPAR Group (SGRP) Discloses Failure to Maintain a Majority of Independent Directors on the Board
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SPAR Group (NASDAQ: SGRP) disclosed:
SPAR Group, Inc. ("SGRP" or the "Corporation", and together with its subsidiaries, the "Company" or "SPAR Group") has listed its shares of Common Stock (the "SGRP Shares") for trading through the Nasdaq Stock Market LLC ("Nasdaq") under the trading symbol "SGRP" and periodically files reports with the Securities and Exchange Commission ("SEC"). SGRP has recently filed the following reports with the SEC: On March 31, 2021, its Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report"); on April 29, 2021, its First Amendment to such Annual Report on Form 10K/A (the "2020 10-K Amendment"), adding new Parts 10, 11, 12, 13 and 14 from Form 10-K to such Annual Report (as so amended, the "Amended 2020 Annual Report"); and on May 13, 2021, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (the "2021 Q1 Report").
Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.
Failure to Maintain a Majority of Independent Directors on the Board
See Resignation of Audit Committee Members from Board, Majority of Board no Longer Independent and Committee Memberships -- No Audit Committee Members Currently in Item 5.02, below, which are incorporated by reference into this Item 3.01.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Resignation of Audit Committee Members from Board
On June 9, 2021, in a letter to the Corporation, all three members of SGRP's Audit Committee, namely Mr. Arthur H. Baer, Mr. Igor Novgorodtsev, and Mr. Jeffrey A. Mayer, resigned from the Corporation's Board of Directors (the "Board"), effective immediately.
Mr. Baer was Chairman of the Corporation's Audit Committee, has been Vice-Chairman of the Board since March 18, 2021, and was Chairman of the Board through March 18, 2021. Mr. Baer joined the Board on September 3, 2019. Mr. Novgorodtsev was Chairman of the Corporation's Compensation Committee and was Vice-Chairman of the Board through March 18, 2021. Mr. Novgorodtsev joined the Board on May 28, 2020. Mr. Mayer was Chairman of the Corporation's Governance Committee through June 9, 2021. Mr. Mayer joined the Board in January 2019. Mr. Baer, Mr. Novgorodtsev, and Mr. Mayer (each a "Resigning Independent Director") each was an independent director both under the general Nasdaq Rules and under Nasdaq's more stringent Audit Committee Rules.
Although the Resigning Independent Directors expressed confidence in the CEO and the management of SGRP as well as their respect and admiration for the fine leadership of SGRP's international and domestic joint venture partners, in their resignation letter to the Corporation dated June 9, 2021 (the "Resignation Letter"), the Resigning Independent Directors said they were concerned over efforts by SGRP's two major shareholders that they believe could weaken Board independence, interfere with the operations of the Company's business, and adversely affect the Company's liquidity and minority shareholders.
The management of the Corporation would like to thank Mr. Baer, Mr. Novgorodtsev, and Mr. Mayer for their service on the Board and their professional contributions. They provided experience and counsel that helped shape the Company for the future and rebuilt the Company's leadership team. Their commitment to governance and board independence was highly valued.
As a result of their resignations, the Board of Directors will immediately begin a search for additional qualified Independent Directors. The management of the Corporation remains committed to an independent board that has oversight and governance on behalf of all shareholders.
The Resignation Letter is attached to and filed with this Current Report as Exhibit 17.1 hereto and is hereby incorporated by reference into this Current Report. The descriptions of the Resignation Letter in this Current Report are subject to and are qualified in their entirety by the full text of the Resignation Letter. Management informed the NASDAQ of the receipt of the Resignation Letter on June 11, 2021.
Majority of Board no Longer Independent
Following the departure of the Resigning Independent Directors, the remaining members of the Board are Mr. Robert G. Brown (Chairman of the Board and one of the majority stockholders), Mr. William H. Bartels (also one of the majority stockholders), Mr. Peter W. Brown, Mr. Panagiotis N. Lazaretos, Mr. James R. Brown, Sr., and Mr. Michael R. Matacunas (CEO and President of SGRP).
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) (the "Board Independence Rule").
As of the date of this filing, two of the remaining members of the Board (Mr. Lazaretos and Mr. Peter W. Brown) have been determined to be independent and it has been determined that Mr. James R. Brown, Sr., will become independent on July 31, 2021.
Accordingly, the Board currently has two independent directors and four non-independent directors, and on August 1, 2021, the Board will have three independent directors and three non-independent directors. In both cases SGRP's Board will not have a majority of independent directors as required by Nasdaq's Board Independence Rule. Please see Item 1A -- Risk Factors -- Risks of a Nasdaq Delisting and Penny Stock Trading in the Amended 2020 Annual Report.
Committee Memberships -- No Audit Committee Members Currently
The Audit Committee has no members at this time. Nasdaq Listing Rule 5605(c) requires that an audit committee have at least three members and the members each possess financial expertise and be independent directors both under the general Nasdaq Rules and under Nasdaq's more stringent audit committee rules. Please see Item 1A -- Risk Factors -- Risks of a Nasdaq Delisting and Penny Stock Trading in the Amended 2020 Annual Report. Mr. Lazaretos and Mr. Peter W. Brown are not eligible to serve on the audit committee due to their paid consultant arrangements with the Corporation.
The Compensation Committee has only two members at this time: Mr. Panagiotis N. Lazaretos, and Mr. Peter W. Brown.
The Governance Committee has three members at this time: Mr. Panagiotis N. Lazaretos, Mr. Peter W. Brown, and Mr. James R. Brown, Sr. Mr. James R. Brown, Sr. became a non-independent member of the Governance Committee on June 2, 2021. His immediate membership as a non-independent director was approved on an emergency basis under Nasdaq Rule 5605(e)(3) by the Board in a 5-4 vote with the independent members of the Audit Committee and Mr. Matacunas voting against the action. The supporters of the need for this immediate action cited the need for legal expertise on the Governance Committee.
Search for New Independent Directors
The Corporation has begun a search for three new directors that would be independent directors both under the general Nasdaq Rules and under Nasdaq's more stringent Audit Committee Rules to fill vacancies on the Board and the Audit and other Committees.
Background on the Ongoing Disputes Between the Company and its Majority Stockholders
For background on the ongoing disputes between the Company and its majority stockholders, please see:
Item 1A -- Risk Factors in the Amended 2020 Annual Report, including Current and Potential Conflicts with Affiliates Risks Related to the Company's Significant Stockholders and Potential Voting Control and Conflicts;
Note 5 -- Related-Party Transactions in the Consolidated Financial Statements in the 2021 Q1 Report, including Domestic Related Party Services, Affinity Insurance and Related Reimbursement Dispute, International Related Party Services, Other Related Party Transactions and Arrangements, SBS Bankruptcy, Settlement and March 2020 Claim, Loan to Majority Shareholders, and Re-determining Independence of Peter W. Brown; and
Note 8 -- Commitments and Contingencies -- Legal Matters in the Consolidated Financial Statements in the 2021 Q1 Report, including Advancement Claims, and SBS Bankruptcy, Settlement and March 2020 Claim.
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