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
Filed by the Registrant /X/ Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SPAR Group, Inc.
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
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and 0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
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SPAR GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 7, 2003
To The Stockholders of spar group, inc.
The 2003 Annual Meeting of Stockholders (the "2003 Annual Meeting") of
SPAR Group, Inc. (f/k/a PIA Merchandising Services, Inc.) (the "Company" or
"SPAR"), will be held at 10:00 a.m., Eastern Standard Time, on August 7, 2003,
at 580 White Plains Road, Tarrytown, New York 10591, for the following purposes:
1. To elect seven Directors of the Company to serve during the ensuing year
and until their successors are elected and qualified.
2. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the year ending December 31, 2003.
3. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
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 June 20, 2003, will be entitled to notice of and to vote at the
2003 Annual Meeting or any adjournment or postponement thereof.
A copy of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 2002, 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
Charles Cimitile, Secretary
July 9, 2003
Tarrytown, New York
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YOU ARE URGED TO VOTE UPON THE MATTERS PRESENTED AND TO SIGN, DATE AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED. 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 CHARLES CIMITILE, SECRETARY AND CHIEF FINANCIAL OFFICER, AT THE
OFFICES OF THE COMPANY: SPAR GROUP, INC., 580 WHITE PLAINS ROAD, TARRYTOWN, NEW
YORK 10591.
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SPAR GROUP, INC.
580 White Plains Road
Tarrytown, New York 10591
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PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 7, 2003
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of SPAR GROUP, INC. , a
Delaware corporation (the "Company"), for use at the 2003 Annual Meeting of
Stockholders (the "2003 Annual Meeting") to be held on Thursday, August 7, 2003,
at 10:00 a.m., Eastern Standard Time, at the principal office of the Company
located at 580 White Plains Road, Tarrytown, New York 10591, and any adjournment
or postponement thereof. This Proxy Statement and the form of proxy to be
utilized at the 2003 Annual Meeting were mailed or delivered to the stockholders
of the Company on or about July 9, 2003.
MATTERS TO BE CONSIDERED
The 2003 Annual Meeting has been called to (1) elect seven Directors of
the Company to serve during the ensuing year and until their successors are
elected and qualified, (2) ratify the appointment by the Company's Audit
Committee of Ernst & Young LLP as the Company's independent auditors for the
year ending December 31, 2003, and (3) transact such other business as may
properly come before the meeting or any adjournment or postponement thereof.
RECORD DATE AND VOTING
The Board has fixed the close of business on June 20, 2003, as the
record date (the "Record Date") for the determination of stockholders entitled
to vote at the 2003 Annual Meeting and any adjournment or postponement thereof.
As of the Record Date, there were 18,858,972 shares outstanding of the Company's
common stock, $.01 par value (the "Common Stock").
QUORUM AND VOTING REQUIREMENTS
The holders of record of a majority of the outstanding shares of Common
Stock entitled to vote at the 2003 Annual Meeting will constitute a quorum for
the transaction of business at the 2003 Annual Meeting. As to all matters, each
stockholder is entitled to one vote for each share of Common Stock held. Under
Delaware law, shares not voted by brokers (called "broker non-votes") are
considered not entitled to vote. However, abstentions and broker non-votes are
counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business.
A plurality (that is, the seven persons receiving the most votes) of
votes cast at the 2003 Annual Meeting in person or by proxy is required for the
election of each nominee to serve as a director. The affirmative vote of a
majority of votes cast at the 2003 Annual Meeting in person or by proxy is
required to ratify the selection of Ernst & Young LLP as the Company's
independent auditors for fiscal 2003. Votes withheld, in the case of the
election of directors, and abstentions and any broker non-votes with respect to
the ratification of independent auditors, are not considered votes cast with
respect to that matter and, consequently, will have no effect on the vote on
that matter, but, as noted above, are counted in determining a quorum. Brokers
who are members of the New York Stock Exchange have discretion to vote the
shares of their clients that the broker holds of record (in "street name") for
its customers with respect to non-contested elections of directors and certain
other matters. Stockholders are not entitled to cumulate votes. Votes against a
candidate and votes withheld have no legal effect.
-1-
All proxies that are properly completed, signed and returned prior to
the 2003 Annual Meeting will be voted in accordance with the specifications made
thereon or, in the absence of specification: (a) for the election of all
nominees named herein to serve as directors, and (b) in favor of the proposal to
ratify the appointment of Ernst & Young LLP as the Company's independent
auditors. Management does not intend to bring before the 2003 Annual Meeting any
matters other than those specifically described above and knows of no other
matters to come before the 2003 Annual Meeting. If any other matters or motions
come before the 2003 Annual Meeting, 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, including any matter dealing with the conduct of
the 2003 Annual Meeting. Proxies may be revoked at any time prior to their
exercise (1) by written notification to the Secretary of the Company at the
Company's principal executive offices located at 580 White Plains Road,
Tarrytown, New York 10591, (2) by delivering a duly executed proxy bearing a
later date, or (3) by the stockholder attending the 2003 Annual Meeting and
voting his or her shares in person.
PROPOSAL 1--ELECTION OF DIRECTORS
Seven Directors are to be elected at the 2003 Annual Meeting to serve
on the Company's Board of Directors (the "Board") until the next annual meeting
of Stockholders and until their respective successors have been elected and
qualified. The nominees for election are Mr. Robert G. Brown, Mr. William H.
Bartels, Mr. Robert O. Aders, Mr. Jack W. Partridge, Mr. George W. Off, Mr.
Jerry B. Gilbert, and Mr. Lorrence T. Kellar, all of whom are currently
Directors of the Company. The age, principal occupation and certain other
information respecting each nominee are stated on pages 4 and 5, below. In the
absence of instructions to the contrary, proxies covering shares of Common Stock
will be voted in favor of the election of each of those nominees.
Each nominee has consented to being named in this Proxy Statement as a
nominee for Director and has agreed to serve as a Director of the Company if
elected. In the event that any 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 the Company.
Management has no present knowledge that any of the persons named will be
unavailable to serve. The Board has fixed the number of Directors at seven for
the term commencing with the 2003 Annual Meeting. Each Director is elected to
hold office until the next annual meeting of stockholders and until his
respective successor is elected and qualified.
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. However, Messrs.
Brown and Bartels are executive officers of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY
RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES IDENTIFIED ABOVE.
PROPOSAL 2 -- RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board has appointed Ernst & Young LLP
("Ernst & Young") as independent public accountants to audit the financial
statements of the Company for its fiscal year ending December 31, 2003, subject
to the Audit Committee's review of the final terms of Ernst & Young's engagement
and plans for their audit. A resolution will be submitted to stockholders at the
2003 Annual Meeting for the ratification of such appointment. Commencing in May
of 2003, all audit and permitted non-audit services to be performed by the
Company's auditor require approval by the Company's Audit Committee. Shareholder
ratification of the appointment of Ernst & Young or anyone else for non-audit
services is not required and will not be sought.
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Ernst & Young served as the Company's independent public accountants
for its fiscal years ended December 31, 2002, 2001 and 2000. Ernst & Young had
previously served as the independent public accountants for the SPAR Marketing
Companies (the acquirer of PIA Merchandising Services, Inc., for accounting
purposes) for more than two years preceding such fiscal years of the Company.
AUDIT FEES
During the Company's fiscal year ended December 31, 2002, and 2001,
respectively, fees billed by Ernst & Young for all audit services rendered to
the Company and its subsidiaries were $143,000 and $159,700, respectively. Audit
services principally include fees for the Company's audits and 10-Q filing
reviews.
NON-AUDIT SERVICES AND FEES
The Company and its subsidiaries did not engage Ernst & Young to
provide advice regarding financial information systems design or implementation,
but did engage Ernst & Young for consulting services related to the ESOP during
2002 (for which Ernst & Young was paid $13,700) and for tax services in 2002 and
2001 (for which Ernst & Young was paid $13,500 and $107,952 respectively). No
other non-audit services were performed by Ernst & Young in 2002 or 2001.
Commencing in May of 2003, all non-audit services to be performed by
the Company's auditor require approval by the Company's Audit Committee, either
individually or through policies and procedures for particular types of services
to be performed within specified periods.
In connection with the standards for independence of the Company's
independent public accountants promulgated by the Securities and Exchange
Commission, the Audit Committee has considered whether and determined that the
provision of such services is compatible with maintaining the independence of
Ernst & Young.
ANTICIPATED ATTENDANCE BY ERNST & YOUNG AT THE 2003 ANNUAL MEETING
Ernst & Young has indicated to the Company that it intends to have a
representative available during the 2003 Annual Meeting who will respond to
appropriate questions. This representative will have the opportunity to make a
statement if he or she so desires.
REQUIRED VOTE
A resolution will be submitted to stockholders at the 2003 Annual
Meeting for the ratification of the Audit Committee's appointment of Ernst &
Young as the independent auditors to audit the Company's financial statements
for the fiscal year ending December 31, 2003. The affirmative vote of a majority
of the votes cast at the 2003 Annual Meeting in person or by proxy will be
required to adopt this resolution. Proxies solicited by the Board will be voted
in favor of ratification unless stockholders specify otherwise. Abstentions and
broker non-votes will have no effect on the outcome of the vote on this
proposal.
If the resolution selecting Ernst & Young as independent public
accountants is adopted by stockholders, the Audit Committee and Board of
Directors nevertheless retain the discretion to select different auditors should
they then deem it in the Company's best interests. Any such future selection
need not be submitted to a vote of stockholders.
If the stockholders do not ratify the appointment of Ernst & Young, or
if Ernst & Young should decline to act or otherwise become incapable of acting,
or if Ernst & Young's employment is discontinued, the Audit Committee will
appoint independent public accountants for fiscal 2003 (which may nevertheless
be Ernst & Young should they then deem it in the Company's best interests).
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THE BOARD AND AUDIT COMMITTEE EACH BELIEVE THAT THE APPOINTMENT OF ERNST & YOUNG
LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR ENDING DECEMBER 31,
2003, IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND EACH
UNANIMOUSLY RECOMMEND A VOTE "FOR" APPROVAL THEREOF. PROXIES WILL BE VOTED FOR
THIS PROPOSAL UNLESS OTHERWISE SPECIFICALLY INDICATED.
THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors (the "Board") is responsible for the management
and direction of the Company and establishing its corporate policies. The
current members of the Board are set forth below, and each is a nominee for
election at the 2003 Annual Meeting:
NAME AGE POSITION WITH SPAR GROUP, INC.
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Robert G. Brown............. 60 Chairman, Chief Executive Officer,
President and Director
William H. Bartels.......... 59 Vice Chairman and Director
Robert O. Aders (1)......... 76 Director, Chairman - Governance
Committee
Jack W. Partridge (2)....... 57 Director, Chairman - Compensation
Committee
Jerry B. Gilbert (1)........ 69 Director
George W. Off (3)........... 56 Director
Lorrence T. Kellar (2) 66 Director, Chairman - Audit
Committee
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(1) Member of the Compensation and Governance Committees
(2) Member of the Audit and Compensation Committees
(3) Member of the Audit and Governance Committees
ROBERT G. BROWN serves as the Chairman, the Chief Executive Officer,
the President and a Director of the Company and has held such positions since
July 8, 1999, the effective date of the merger of the SPAR Marketing Companies
with PIA Merchandising Services, Inc. (the "Merger"). Mr. Brown served as the
Chairman, President and Chief Executive Officer of the SPAR Marketing Companies
(SPAR/Burgoyne Retail Services, Inc. ("SBRS") since 1994, SPAR, Inc. ("SINC")
since 1979, SPAR Marketing, Inc. ("SMNEV") since November 1993, and SPAR
Marketing Force, Inc. ("SMF") since SMF acquired its assets and business in
1996).
WILLIAM H. BARTELS serves as the Vice Chairman and a Director of the
Company and has held such positions since July 8, 1999 (the effective date of
the PIA Merger). Mr. Bartels served as the Vice-Chairman, Secretary, Treasurer
and Senior Vice President of the SPAR Marketing Companies (SBRS since 1994, SINC
since 1979, SMNEV since November 1993 and SMF since SMF acquired its assets and
business in 1996), and has been responsible for the Company's sales and
marketing efforts, as well as for overseeing joint ventures and acquisitions.
ROBERT O. ADERS serves as a Director of the Company and has done so
since July 8, 1999. Mr. Aders has served as Chairman of The Advisory Board,
Inc., an international consulting organization since 1993, and also as President
Emeritus of the Food Marketing Institute ("FMI") since 1993. Immediately prior
to his election to the Presidency of FMI in 1976, Mr. Aders was Acting Secretary
of Labor in the Ford Administration. Mr. Aders was the Chief Executive Officer
of FMI from 1976 to 1993. He also served in The Kroger Co., in various executive
positions from 1957-1974 and was Chairman of the Board from 1970 to 1974. Mr.
Aders also serves as a Director of Source-Interlink Co., Checkpoint Systems,
Inc., Sure Beam Corporation and Telepanel Systems, Inc.
-4-
JACK W. PARTRIDGE serves as a Director of the Company and has done so
since January 29, 2001. Mr. Partridge is President of Jack W. Partridge &
Associates. He previously served as Vice Chairman of the Board of The Grand
Union Company from 1998 to 2000. Mr. Partridge's service with Grand Union
followed a distinguished 23-year career with The Kroger Company, where he served
as Group Vice President, Corporate Affairs, and as a member of the Senior
Executive Committee, as well as various other executive positions. Mr. Partridge
has been a leader in industry and community affairs for over two decades. He has
served as Chairman of the Food Marketing Institute's Government Relations
Committee, the Food and Agriculture Policy Task Force, and as Chairman of the
Board of The Ohio Retail Association. He has also served as Vice Chairman of the
Cincinnati Museum Center and a member of the boards of the United Way of
Cincinnati, the Childhood Trust, Second Harvest and the Urban League.
JERRY B. GILBERT serves as a Director of the Company and has done so
since June 4, 2001. Mr. Gilbert served as Vice President of Customer Relations
for Johnson & Johnson's Consumer and Personal Care Group of Companies from 1989
to 1997. Mr. Gilbert joined Johnson & Johnson in 1958 and from 1958-1989 held
various executive positions. Mr. Gilbert served on the Advisory Boards of the
Food Marketing Institute, the National Association of Chain Drug Stores and the
General Merchandise Distributors Council (GMDC) where he was elected the first
President of the GMDC Educational Foundation. He was honored with lifetime
achievement awards from GMDC, Chain Drug Review, Drug Store News and the Food
Marketing Institute. He is the recipient of the prestigious National Association
of Chain Drug Stores (NACDS) Begley Award, as well as the National Wholesale
Druggists Association (NWDA) Tim Barry Award. In June 1997, Mr. Gilbert received
an Honorary Doctor of Letters Degree from Long Island University.
GEORGE W. OFF serves as a Director of the Company and has done so since
July 1, 2001. Mr. Off is Chairman and Chief Executive Officer of Checkpoint
Systems, Inc., and has held such positions since August 2002. He serves as a
Director of Telephone and Data Systems since 1997. Mr. Off was Chairman of the
Board of Directors of Catalina Marketing Corporation, a New York Stock Exchange
listed company, from July 1998 until he retired in July 2000. He served as
President and Chief Executive Officer of Catalina from 1994 to 1998. Prior to
that, Mr. Off was President and Chief Operating Officer from 1992 to 1994 and
Executive Vice President from 1990 to 1992. Catalina is a leading supplier of
in-store electronic scanner-activated consumer promotions.
LORRENCE T. KELLAR serves as a Director and the Chairman of the Audit
Committee of the Company and has done so since April 2, 2003. Mr. Kellar had a
31-year career with The Kroger Company, where he served in various financial
capacities, including Group Vice President for real estate and finance, and
earlier, as Corporate Treasurer. He was responsible for all of Kroger's real
estate activities, as well as facility engineering, which coordinated all store
openings and remodels. Mr. Kellar subsequently served as vice president, real
estate, for K-Mart. He currently is Vice President of Continental Properties
Company, Inc. Mr. Kellar also serves on the boards of Frisch's Restaurants and
Multi-Color Corporation. He also is a major patron of the arts and has served as
Chairman of the Board of the Cincinnati Ballet.
BOARD MEETINGS
The Board meets regularly to receive and discuss operating and
financial reports presented by management of the Company and its advisors.
During the year ended December 31, 2002, the Board held four meetings in person
and [2] meetings by telephone and took various actions by written consent. Each
Director (other than Mr. Kellar, who became a director as of April 2, 2003)
attended all non-telephonic meetings in person and participated in all
telephonic meetings, except that Mr. Off was not able to attend the November
2002 meeting.
COMMITTEES
From time to time the Board establishes permanent standing committees
and temporary special committees to assist the Board in carrying out its
responsibilities. Certain committees from time to time also may be required by
the Nasdaq Stock Market, Inc., or National Association of Securities Dealers
(collectively, "Nasdaq"), the Securities and Exchange Commission (the "SEC"), or
applicable law, all of which currently require the Company to have an audit
committee.
-5-
The standing committees of the Board are the Audit Committee (the
"Audit Committee") and the Compensation Committee (the "Compensation
Committee"). In its May 2003 meeting, the Board voted to establish a Governance
Committee (the "Governance Committee"). The Company does not have a standing
nominating committee or any committee performing the functions thereof. Those
functions have been performed by the entire Board and may be delegated to the
newly formed Governance Committee.
At the May 2003 meeting, at the request of the Company's independent
directors, the Board also reorganized the membership of its standing Committees
so that directors would not have to serve on more than two committees.
Accordingly, the Audit Committee currently consists of Messrs. Kellar (its
Chairman), Off and Partridge, the Compensation Committee currently consists of
Messrs. Partridge (its Chairman), Aders, Gilbert and Kellar, and the Governance
Committee currently consists of Messrs. Aders (its Chairman), Gilbert and Off.
AUDIT COMMITTEE
The Audit Committee of the Board (the "Audit Committee") assists the
Board in fulfilling its responsibilities respecting the Company's accounting,
auditing and financial reporting policies, practices and controls and has done
so since June of 2000. The Audit Committee has certain direct oversight and
other responsibilities, and provides assistance to the entire Board in
fulfilling its oversight and other responsibilities, respecting the Company's
accounting, auditing and financial reporting policies, practices and controls
and the audits of the financial statements of the Company and its subsidiaries.
The specific functions and responsibilities of the Audit Committee are set forth
in the written charter of the Audit Committee adopted by the Board of Director
on June 8, 2000 (the "Audit Charter"), in the rules and regulations of Nasdaq
("Nasdaq Rules"), and in the rules and regulations of the SEC (the "SEC Rules").
The Audit Charter was furnished to the stockholders of the Company as an exhibit
to its 2001 Proxy Statement. The Audit Committee reviews and reassesses the
Audit Charter annually and recommends any needed changes to the Board for
approval. The Audit Charter is currently being revised to reflect recent changes
in applicable securities law, SEC Rules and Nasdaq Rules pertaining to audit
committees, but the Audit Charter revision cannot be finalized until the
material portions of such laws and rules are finalized.
The Audit Committee currently consists of Messrs. Kellar (its
Chairman), Off and Partridge, each of whom has been determined by the Board to
meet the independence requirements for audit committee members under Nasdaq
Marketplace Rule 4200(a)(14). In connection with his appointment as a Director,
the Board determined that Mr. Kellar was qualified to be the "audit committee
financial expert" required by applicable law and the SEC Rules, and at the May
2003 Board meeting Mr. Kellar was elected Chairman of the Audit Committee by the
entire Board.
Pursuant to the Audit Charter, applicable law, SEC Rules and Nasdaq
Rules, the Audit Committee (among other things): (1) 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; (2) reviews with such independent public accountants the plans for
and scope of the audit, the audit procedures to be utilized and results of the
audit; (3) reviews and approves, in advance, all permitted non-audit services to
be performed by the Company's independent public accountants, either
individually or through policies and procedures for particular types of services
to be performed within specified periods; (4) reviews the independence of the
independent public accountants; and (5) reviews the adequacy and effectiveness
of the Company's internal accounting and reporting control systems.
During the year ended December 31, 2002, the Audit Committee met four
times in person and [2] times by telephone, and then consisted of Messrs. Aders,
Partridge, Gilbert, and Off.
See "Report of the Audit Committee of the Board of Directors", below.
COMPENSATION COMMITTEE
The Compensation Committee of the Board (the "Compensation Committee")
determines and administers the Company's executive compensation programs and
policies and the Company's stock incentive and purchase plans, through which the
Company endeavors to attract, motivate and retain
-6-
the executive talent needed to optimize stockholder value in a competitive
environment while facilitating the business strategies and long-range plans of
the Company. The Compensation Committee currently does not have a written
charter, but the Compensation Committee and Board are in the process of
preparing a written charter for it.
The Compensation Committee currently consists of Messrs. Partridge (its
Chairman), Aders, Gilbert and Kellar, all of whom are non-employees of the
Company and have been determined by the Board to be independent directors in
accordance with Nasdaq Marketplace Rules (see "Audit Committee", above). At the
May 2003 meeting, Mr. Partridge was elected Chairman of the Compensation
Committee by the entire Board.
During the year ended December 31, 2002, the Compensation Committee met
four times in person, and then consisted of Messrs. Aders, Partridge, Gilbert,
and Off.
See "Report of the Compensation Committee of the Board of Directors",
below.
GOVERNANCE COMMITTEE
As a newly formed committee, the Governance Committee of the Board (the
"Governance Committee") has not yet met. The Governance Committee currently
consists of Messrs. Aders (its Chairman), Gilbert and Off, all of whom are
non-employees of the Company and have been determined by the Board to be
independent directors in accordance with Nasdaq Marketplace Rules (see "Audit
Committee", above). The Board is in the process of determining the Governance
Committee's responsibilities and developing a written charter for it.
AUDIT AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Board's Audit, Compensation or Governance Committee
was at any time during the year ended December 31, 2002, or at any other time an
officer or employee of the Company. No executive officer or Board member of the
Company 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 member of the Company's Board, Audit Committee, Compensation
Committee or Governance Committee, except for the positions of Messrs. Brown and
Bartels as directors and officers of the Company (including each of its
subsidiaries) and as directors and officers of each of its affiliates, including
SMS, SMSI and SIT (see "Certain Relationships and Related Transactions" below).
COMPENSATION OF DIRECTORS
The Compensation Committee administers the compensation plan for its
outside Directors. Each member of the Company's Board who is not otherwise an
employee or officer of the Company or any subsidiary or affiliate of the Company
(each, an "Eligible Director") is eligible to receive the compensation
contemplated under such plan.
In January 2001, the Company adopted the Director Compensation Plan,
which was amended by the Compensation Committee in February of 2003. Under the
amended plan, each non-employee director receives thirty thousand dollars
($30,000) per annum (increased from twenty thousand dollars ($20,000) per annum
for 2002 and 2001) and the Chairman of the Audit Committee will receive an
additional $5,000 per annum. Payments are made quarterly in equal installments.
It is intended that each quarterly payment will be 50% in cash ($3,750, up from
$2,500 for 2002 and 2001) and 50% ($3,750, up from $2,500 for 2002 and 2001) in
stock options to purchase shares of the Company's common stock with an exercise
price of $0.01 per share (plus an additional $1,250 per quarter for the Chairman
of the Audit Committee, half in cash and half in $.01 stock options). The number
of shares of the Company's common stock that can be purchased under each $.01
stock option granted will be determined based upon the closing stock price at
the end of each quarter. In addition, each non-employee director has received or
will receive options to purchase 10,000
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shares of the Company's common stock upon acceptance of the directorship, 10,000
additional options to purchase shares of the Company's common stock after one
year of service and 10,000 additional options to purchase shares of the
Company's common stock for each additional year of service thereafter. These
options will have an exercise price equal to the closing price of the Company's
common stock on the day of grant. All of the options have been and will be
granted under the 2000 Plan described below, under which each member of the SPAR
Board is eligible to participate. Non-employee directors will be reimbursed for
all reasonable expenses incurred during the course of their duties. There is no
additional compensation for committee participation, phone meetings, or other
Board activities.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a company will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the company 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 redemptions as provided in Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's Bylaws provide that the Company may indemnify its
officers and directors and may indemnify its employees and other agents to the
fullest extent permitted by law. The Company's Bylaws also permit it to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification. The Company maintains director
and officer liability insurance.
The Board is considering making mandatory the indemnification of the
Company's officers and directors in order to conform to the current practices of
most public companies and to attract and maintain quality candidates for the
Company's management and Board.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company in which indemnification
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 20, 2003, by: (i) each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Company's Common Stock; (ii) each of the Company's
directors; (iii) each of the executive officers named in the Summary
Compensation Table; and (iv) the Company's directors and executive officers 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 Stock shown as
beneficially owned by them, subject to community property laws where applicable.
-8-
NUMBER OF SHARES
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE
- -------------- ------------------------------------ ------------------ ----------
Common Shares Robert G. Brown (1) 8,693,294(2) 45.3%
Common Shares William H. Bartels (1) 5,613,891(3) 29.4%
Common Shares James H. Ross (1) 127,865(4) *
Common Shares Charles Cimitile (1) 92,500(5) *
Common Shares Robert O. Aders (1) 84,053(6) *
Common Shares George W. Off (1) 27,542(7) *
Common Shares Jack W. Partridge (1) 26,018(8) *
Common Shares Jerry B. Gilbert (1) 21,859(9) *
Common Shares Lorrence T. Kellar (1) 1,802(10) *
Common Shares Richard J. Riordan 1,209,922(11) 6.4%
300 S. Grand Avenue, Suite 2900
Los Angeles, CA 90071
Common Shares Heartland Advisors, Inc. 1,401,600(12) 7.4%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Common Shares Executive Officers and Directors 14,688,824 74.8%
* Less than 1%
(1) The address of such owners is c/o SPAR Group, Inc. 580 White Plains Road,
Tarrytown, New York.
(2) Includes 1,800,000 shares held by a grantor trust for the benefit of
certain family members of Robert G. Brown over which Robert G. Brown,
James R. Brown, Sr. and William H. Bartels are trustees. Includes 325,539
shares issuable upon exercise of options.
(3) Excludes 1,800,000 shares held by a grantor trust for the benefit of
certain family members of Robert G. Brown over which Robert G. Brown,
James R. Brown, Sr. and William H. Bartels are trustees, beneficial
ownership of which are disclaimed by Mr. Bartels. Includes 229,275 shares
issuable upon exercise of options.
(4) Includes 44,000 shares issuable upon exercise of options.
(5) Includes 92,500 shares issuable upon exercise of options.
(6) Includes 34,053 shares issuable upon exercise of options.
(7) Includes 21,042 shares issuable upon exercise of options.
(8) Includes 15,050 shares issuable upon exercise of options.
(9) Includes 21,859 shares issuable upon exercise of options.
(10) Includes 802 shares issuable upon exercise of options.
(11) Represents record ownership as of June 20, 2003.
(12) Information regarding share ownership was provided by Eric Miller on June
20, 2003.
-9-
EQUITY COMPENSATION PLANS
The following table contains a summary of the number of shares of
Common Stock of the Company to be issued upon the exercise of options, warrants
and rights outstanding at December 31, 2002, the weighted-average exercise price
of those outstanding options, warrants and rights, and the number of additional
shares of Common Stock remaining available for future issuance under the plans
as at December 31, 2002.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to Weighted average Number of securities
be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, future issuance of
Plan category warrants and rights warrants and rights ($) options, warrants and rights
------------- ------------------- ----------------------- ----------------------------
Equity compensation plans 2,098,181 1.52 1,079,614
approved by security
holders
Equity compensation plans
not approved by security
holders - - -
Total 2,098,181 1.52 1,079,614
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Robert G. Brown, a Director, the Chairman and the Chief Executive
Officer of the Company, and Mr. William H. Bartels, a Director and the Vice
Chairman of the Company (collectively, the "SMS Principals"), are the sole
stockholders and executive officers and directors of SPAR Marketing Services,
Inc. ("SMS"), SPAR Management Services, Inc. ("SMSI"), SPAR Infotech, Inc.
("SIT"), and certain other affiliated companies.
SMS and SMSI (through SMS) provided approximately 71% of the Company's
field representatives (through its independent contractor field force) and
substantially all of the Company's field management services at a total cost of
approximately $30.5 million and $15.1 million for the twelve months ended
December 31, 2002, and 2001, respectively. Under the terms of the Field Service
Agreement, SMS provides the services of approximately 6,600 field
representatives and SMSI provides approximately 90 full-time national, regional
and district managers to the SPAR Marketing Companies as they may request from
time to time, for which the Company has agreed to pay SMS for all of its costs
of providing those services plus 4%. However, SMS may not charge the Company for
any past taxes or associated costs for which the SMS Principals have agreed to
indemnify the SPAR Companies. Although the SMS Principals were not paid any
salaries as officers of SMS or SMSI, these Companies are "Subchapter S"
corporations, and accordingly the SMS Principals benefit from any income of such
companies allocated to them (see Executive Compensation - Summary Additional
Compensation Table - Affiliated Companies below).
SIT provided Internet and other computer programming services to the
Company at a total cost of approximately $1,626,000 and $1,185,000 for the
twelve months ended December 31, 2002, and 2001, respectively. Under the terms
of the programming agreement between SMF and SIT effective as of October 1, 1998
(the "Programming Agreement"), SIT continues to provide programming services to
SMF as SMF may request from time to time, for which SMF has agreed to pay SIT
competitive hourly wage rates and to reimburse SIT's out-of-pocket expenses.
Although the SMS Principals were not paid any salaries as officers of SIT, SIT
is a "Subchapter S" corporation, and accordingly the SMS Principals would
benefit from any income allocated to them if SIT were to be profitable.
-10-
The Company owed the following amounts to SMS and SIT for the above
services as at December 31, 2002:
DECEMBER 31,
2002 2001
------------------------------------
Balance due to affiliates included in accrued liabilities:
SPAR Marketing Services, Inc. $ 932 $ 611
SPAR Infotech, Inc. 26 -
------------------------------------
$ 958 $ 611
====================================
In July 1999, SMF, SMS and SIT entered into a Software Ownership
Agreement with respect to Internet job scheduling software jointly developed by
such parties. In addition, SPAR Trademarks, Inc. ("STM"), SMS and SIT entered
into trademark licensing agreements whereby STM has granted non-exclusive
royalty-free licenses to SIT, SMS and SMSI for their continued use of the name
"SPAR" and certain other trademarks and related rights transferred to STM, a
wholly-owned subsidiary of the Company.
The SMS Principals also owned an indirect minority (less than 5%)
equity interest in Affinity (f/k/a Infinity) Insurance Ltd. ("Affinity"), which
provides certain insurance to the Company. Through the services of Affinity, the
Company purchased insurance coverage for its casualty and property insurance
risk for approximately $1,128,000 and $1,085,000 for the fiscal years ended
December 31, 2002 and 2001, respectively.
At December 31, 2002, the Company owed a total of $4.0 million to
Messrs. Brown and Bartels . As of this date, the entire amount has been repaid.
In the event of any material dispute in the business relationships
between the Company and SMS, SMSI, or SIT, it is possible that Messrs. Brown or
Bartels may have one or more conflicts of interest with respect to these
relationships and such dispute that could have a material adverse effect on the
Company.
EXECUTIVE OFFICERS, COMPENSATION 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. For biographical information
regarding Robert G. Brown and William H. Bartels, see Current Members of the
Board of Directors, above.
NAME AGE POSITION WITH THE COMPANY
- ----------------------- ---- ---------------------------------------------
Robert G. Brown 60 Chairman, Chief Executive Officer, President
and Director
William H. Bartels 59 Vice Chairman and Director
Charles Cimitile 48 Chief Financial Officer and Secretary
James H. Ross 70 Treasurer
CHARLES CIMITILE serves as the Chief Financial Officer and Secretary of
the Company and has done so since November 24, 1999. Mr. Cimitile served as
Chief Financial Officer for GT Bicycles from 1996 to 1999 and Cruise Phone, Inc.
from 1995 through 1996. Prior to 1995, he served as the Vice President Finance,
Treasurer and Secretary of American Recreation Company Holdings, Inc. and its
predecessor company.
JAMES H. ROSS serves as the Treasurer of the Company and has held such
position since July 8, 1999 (the effective date of the Merger). Mr. Ross has
been the Chief Financial Officer of the SPAR Marketing Companies since 1991, and
was the General Manager of SBRS from 1994-1999. In September 2001, Mr. Ross
retired from full-time employment. Mr. Ross continues to serve the Company on a
consulting basis.
-11-
EXECUTIVE COMPENSATION
The following table sets forth all compensation received for services
rendered to the Company in all capacities for the fiscal years ended December
31, 2002, 2001 and 2000 (i) by the Company's Chief Executive Officer, and (ii)
each of the other three most highly compensated executive officers of the
Company who were serving as executive officers at December 31, 2002
(collectively, the "Named Executive Officers").
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) OPTIONS(#)(1) ($)(2)
- ---------------------------- ---- ---------- --------- ------------- ------
Robert G. Brown 2002 164,340 -- -- 2,040
Chief Executive Officer, Chairman of 2001 141,203 -- 765,972 --
the Board, President, and Director 2000 16,800 -- -- --
William H. Bartels 2002 164,340 -- -- 2.040
Vice Chairman and Director 2001 139,230 -- 471,992 --
2000 16,800 -- -- --
Charles Cimitile 2002 215,564 15,000 20,000 2,040
Chief Financial Officer and 2001 188,000 -- 25,000 --
Secretary 2000 188,000 -- -- --
James H. Ross (3) 2002 72,043 -- -- --
Treasurer 2001 101,773 7,500 43,000 1,557
2000 94,800 9,000 5,000 3,337
(1) In January 2001, each of the above officers voluntarily surrendered for
cancellation their options for the purchase of the following numbers of
shares of common stock under the 1995 Plan: Mr. Brown - 765,972; Mr.
Bartels - 471,992; Mr. Cimitile - 75,000; and Mr. Ross - 40,000.
(2) Other compensation represents the Company's 401k contribution.
(3) In September 2001, Mr. Ross retired from full-time employment. Mr. Ross
continues to serve the Company on a consulting basis.
SUMMARY ADDITIONAL COMPENSATION TABLE (FROM AFFILIATED COMPANIES)
Robert G. Brown and William H. Bartels (the "SMS Principals") are the
sole owners of SPAR Marketing Services, Inc. ("SMS"), SPAR Management Services,
Inc. ("SMSI"), and SPAR Infotech, Inc. ("SIT"), which provide significant
services to the Company as more fully described in "Certain Relationships and
Related Transactions" above. Although the SMS Principals were not paid any
salaries as officers of SMS, SMSI or SIT, each of those companies are
"Subchapter S" corporations, and accordingly the SMS Principals benefit from any
income of such companies allocated to them, all of which income (or
substantially all of which income, but not loss, in the case of SIT) is earned
from the performance of services for the Company. The following table sets forth
all income allocated to the SMS Principals by SMS, SMSI or SIT for the years
ended December 31, 2002, 2001 and 2000.
-12-
SMS SMSI SIT
INCOME ($) INCOME ($) LOSS ($) (1)
NAME YEAR --------------- ----------------- ----------------
Robert G. Brown 2002 494,987 174,092 (85,183)
2001 211,117 16,477 (227,370)
2000 262,744 150,685 (318,034)
William H. Bartels 2002 314,992 110,787 (54,208)
2001 134,348 10,486 (144,690)
2000 167,202 95,891 (202,387)
(1) The subchapter "S" income/loss allocated to the SMS Principals by SIT
includes losses on activities unrelated to the Company's business.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each grant of
stock options made during the fiscal year ended December 31, 2002, to each of
the Named Executive Officers. No stock appreciation rights ("SAR's") were
granted during such period to such person.
INDIVIDUAL GRANTS
----------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS POTENTIAL REALIZABLE VALUE AT
SECURITIES GRANTED TO EXERCISE ASSUMED ANNUAL RATES OF STOCK
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION PRICE APPRECIATION FOR OPTION (1)
OPTIONS PERIOD SHARE DATE ----------------------------------
NAME GRANTED (%) ($) 5% ($) 10% ($)
------------ ------------- --------- ---------- --------------- --------------
Charles Cimitile 10,000 (2) 3.0 1.78 2/14/12 11,194 28,369
10,000 (2) 3.0 2.45 5/09/12 15,408 39,047
------------ ------------- --------------- --------------
20,000 6.0 26,602 67,416
- ------------
(1) The potential realizable value is calculated based upon the term of the
option at its time of grant. It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option.
(2) These options vest over four-year periods at a rate of 25% per year,
beginning on the first anniversary of the date of grant.
-13-
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth the number of shares of Common Stock of
the Company purchased by each of the Named Executive Officers in the exercise of
stock options during the year ended December 31, 2002, the value realized in the
purchase of such shares (the market value at the time of exercise less the
exercise price to purchase such shares), the number of shares associated with
exercisable and unexercisable options and the value of exercisable and
unexercisable options (the market value at December 31, 2002 less the exercise
price to exercise such options) held by each of the Named Executive Officers at
December 31, 2002.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
YEAR-END YEAR-END ($)
---------------------------------- --------------------------------
NUMBER OF VALUE
NAME SHARES ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ON EXERCISE ($)
----------------- ---------------- ---------------- ---------------- -------------- ----------------
Robert G. Brown 95,746 100,533 -- 478,733 -- 179,047
William H. Bartels 58,999 61,949 -- 294,995 -- 110,328
Charles Cimitile -- -- 68,750 51,250 137,000 87,975
James H. Ross -- -- 33,250 14,750 63,965 29,570
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The following is the Compensation Committee's report submitted to the
Board addressing the compensation of the Company's executive officers for 2002:
COMPENSATION POLICY
The Company's executive compensation policy is (i) designed to
establish an appropriate relationship between executive pay and the Company's
annual performance, its long-term growth objectives and its ability to attract
and retain qualified executive officers; and (ii) based on the belief that the
interests of the executives should be closely aligned with the Company's
stockholders. The Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries with (i) annual incentive bonuses
based on corporate performance and individual contribution, and (ii) stock
options through the Company's 2000 stock option plan. The Compensation Committee
believes that cash compensation in the form of salary and performance-based
incentive bonuses provides Company executives with short term rewards for
success in operations, and that long-term compensation through the award of
stock options encourages growth in management stock ownership which leads to
expansion of management's stake in the long-term performance and success of the
Company. The Compensation Committee considers all elements of compensation 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
and stock options.
BASE SALARY
In establishing base salary levels for executive officer positions, the
Committee and Robert G. Brown, 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 Mr. Brown consider individual
performance, including the accomplishment of short-term and long-term
objectives, and various subjective criteria including initiative, contribution
to overall corporate performance and leadership ability. The Compensation
Committee reviews
-14-
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
The Company's executive officers are eligible for annual bonuses upon
recommendations made by Mr. Brown (as to the other executive officers), and the
Compensation Committee (as to Mr. Brown) based upon their individual performance
and the Company's achievements of certain operating results. Amounts of
individual awards are based principally upon the results of the Company's
financial performance during the prior year. The amount of awards for senior
officers are within guidelines established by the Committee and Mr. Brown as a
result of their review of total compensation for senior management of peer
companies. The actual amount awarded, within these guidelines, will be
determined principally by the Committee and Mr. Brown's assessment of the
individual's contribution to the Company's overall financial performance.
Consideration is also given to such factors such as the individual's successful
completion of a special project, any significant increase or decrease in the
level of the participant's ability to discharge the responsibilities of his
position.
STOCK OPTIONS AND PURCHASE PLANS
The Company has four stock option plans: the 2000 Stock Option Plan
("2000 Plan"); the Special Purpose Stock Option Plan; the Amended and Restated
1995 Stock Option Plan ("1995 Plan"): and the 1995 Director's Plan ("Director's
Plan").
On December 4, 2000, the Company adopted the 2000 Plan, as the
successor to the 1995 Plan and the Director's Plan with respect to all new
options issued. The 2000 Plan provides for the granting of either incentive or
nonqualified stock options to specified employees, consultants, and directors of
the Company for the purchase of up to 3,600,000 (less those options still
outstanding under the 1995 Plan or exercised after December 4, 2000 under the
1995 Plan). The options have a term of ten years, except in the case of
incentive stock options granted to greater than 10% stockholders for whom the
term is five years. The exercise price of nonqualified stock options must be
equal to at least 85% of the fair market value of the Company's common stock at
the date of grant (although typically the options are issued at 100% of the fair
market value), and the exercise price of incentive stock options must be equal
to at least the fair market value of the Company's common stock at the date of
grant. During 2002, options to purchase 332,792 shares of the Company's common
stock were granted, options to purchase 230,463 shares of the Company's common
stock were exercised and options to purchase 481,250 shares of the Company's
stock were cancelled under this Plan. At December 31, 2002, options to purchase
1,980,431 shares of the Company's common stock remain outstanding under this
Plan and options to purchase 1,079,614 shares of the Company's common stock were
available for grant under this Plan.
On July 8, 1999, in connection with the merger, the Company established
the Special Purpose Stock Option Plan of PIA Merchandising Services, Inc. to
provide for the issuance of substitute options to the holders of outstanding
options granted by SPAR Acquisition, Inc. There were 134,114 options granted at
$0.01 per share. Since July 8, 1999, the Company has not granted any new options
under this plan. During 2002, no options to purchase shares of the Company's
common stock were exercised under this Plan. At December 31, 2002, options to
purchase 25,750 shares of the Company's common stock remain outstanding under
this Plan
The 1995 Plan provided for the granting of either incentive or
nonqualified stock options to specific employees, consultants, and directors of
the Company for the purchase of up to 3,500,000 shares of the Company's common
stock. The options had a term of ten years from the date of issuance, except in
the case of incentive stock options granted to greater than 10% stockholders for
which the term was five years. The exercise price of nonqualified stock options
must have been equal to at least 85% of the fair market value of the Company's
common stock at the date of grant. Since 2000, the Company has not granted any
new options under this Plan. At December 31, 2002, options to purchase 72,000
shares of the Company's common stock remain outstanding under this Plan. The
1995 Plan was superceded by the 2000 Stock Option Plan with respect to all new
options issued.
-15-
The Director's Plan was a stock option plan for non-employee directors
and provided for the purchase of up to 120,000 shares of the Company's common
stock. Since 2000, the Company has not granted any new options under this Plan.
During 2002, no options to purchase shares of the Company's common stock were
exercised under this Plan. At December 31, 2002, 20,000 options to purchase
shares of the Company's common stock remained outstanding under this Plan. The
Director's Plan has been replaced by the 2000 Plan with respect to all new
options issued.
In 2001, the Company adopted its 2001 Employee Stock Purchase Plan (the
"ESP Plan"), which replaces 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 its subsidiaries, and
the CSP Plan allows employees of the affiliates of the Company (see Item 13-
Certain Relationships and Related Transactions, below), to purchase the
Company's Common Stock from the Company without having to pay any brokerage
commissions. On August 8, 2002, the Company's Board of Directors approved a 15%
discount for employee purchases of Common Stock under the ESP Plan and a 15%
cash bonus for affiliate consultant purchases of Common Stock under the CSP
Plan.
INTERNAL REVENUE CODE SECTION 162(M)
Under Section 162(m) of the Internal Revenue Code (the "Code"), 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, to the extent
reasonably possible, the Company's ability to obtain a corporate tax deduction
for compensation paid to executive officers of the Company to the extent
consistent with the best interests of the Company and its stockholders.
COMPENSATION COMMITTEE
(for the period ending December 31, 2002)
Robert O. Aders
Jack W. Partridge
Jerry B. Gilbert
George W. Off
-16-
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The following is the Audit Committee's report submitted to the Board.
REPORT
The Committee has reviewed and discussed with management of the Company
and Ernst & Young LLP ("Ernst & Young"), the independent auditing firm of the
Company, the audited financial statements of the Company as of December 31,
2002, for each of the two years in the period ended December 31, 2002 (the
"Audited Financial Statements").
In addition, the Committee has discussed with Ernst & Young the matters
required by Codification of Statements on Auditing Standards No. 61, as amended
by Statement on Auditing Standards No. 90.
The Committee expects to receive and review the written disclosures and
the letter from Ernst & Young required by Independence Standards Board Standard
No. 1 prior to the 2003 Annual Meeting. The Committee has discussed E & Y's
independence from the Company with E & Y. The Committee also discussed with
management of the Company and the auditing firm such other matters and received
such assurances from them, as the Committee deemed appropriate.
Management is responsible for the Company's internal controls and the
financial reporting process. Ernst & Young is responsible for performing an
independent audit of the Company's financial statements in accordance with
generally accepted auditing standards and issuing a report thereon. The
Committee's responsibility is to monitor and oversee these processes.
Based on the foregoing review and discussions and a review of the
report of Ernst & Young with respect to the Audited Financial Statements, and
relying thereon, the Committee has recommended to the Company's Board of
Directors the inclusion of the Audited Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
AUDIT COMMITTEE
(for the period ending December 31, 2002)
Robert O. Aders
Jack W. Partridge
Jerry B. Gilbert
George W. Off
-17-
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The management of the Company is responsible for the integrity and
objectivity of the consolidated financial statements and other related financial
Information included in this report. These financial statements were prepared in
accordance with generally accepted accounting principles, as appropriate under
the circumstances and consistently applied. Some of the amounts included in the
financial statements are necessarily based on management's best estimates and
judgment.
INTERNAL FINANCIAL CONTROLS AND PROCEDURES
To fulfill its responsibilities, management has developed and maintains
systems of accounting and other controls which provide reasonable assurance that
assets are safeguarded and that the books and records reflect authorized
transactions. These systems are augmented by written policies and procedures,
organizational structures providing for division of responsibilities, qualified
financial personnel, and the careful selection and training of employees. There
are, however, inherent limitations in every control system. The cost of
maintaining a control system should not exceed the benefits provided. Management
believes that the Company's accounting and other control systems recognize this
cost/benefit relationship.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer, Robert Brown, and Chief
Financial Officer, Charles Cimitile, have reviewed the Company's disclosure
controls and procedures within 90 days prior to the filing of this report. Based
upon this review, these officers believe that the Company's disclosure controls
and procedures are effective in ensuring that material information related to
the Company is made known to them by others within the Company.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls during the
twelve months covered by this report or from the end of the reporting period to
the date of this Proxy Statement.
COMPANY'S FINANCIAL STATEMENTS
The Audit Committee of the Board is responsible is for reviewing and
monitoring the Company's financial statements and practices to ascertain that
they are appropriate in the circumstances. The Audit Committee currently
consists of three independent directors and consisted of four independent
directors during 2002. It meets at least four times a year with representatives
of financial management and the independent accountants, both together and
separately, to review and discuss audit and financial reporting matters. The
independent accountants have direct access to the Audit Committee to review the
results of their audit. In addition, at the regular meetings of the Board of
Directors, management and the Board discuss, among other things, financial and
related matters, as appropriate. See Audit Committee at page17, above.
The Company's financial statements have been audited by Ernst & Young
LLP, independent accountants, as stated in their report. The independent
accountants are appointed annually by the Audit Committee, commencing with 2003
(and by the Board in prior years). Their audit of the Company's consolidated
financial statements was made in accordance with generally accepted auditing
standards, and such audit included a study and evaluation of the Company's
system of internal accounting controls they considered necessary to determine
the nature, timing, and extent of the auditing procedures required for
expressing an opinion on the Company's financial statements.
ROBERT G. BROWN CHARLES CIMITILE
Chairman of the Board, Chief Financial Officer and Secretary
Chief Executive Officer and President
-18-
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for
the Company, the Nasdaq Stock Market (U.S. Companies) Index and the Nasdaq
Stocks (SIC 7380-7389 U.S. Companies) Miscellaneous Business Services Index,
Russell 2000 and S&P Advertising for the period during which the Company's
Common Stock has been registered under Section 12 of the Securities Exchange Act
of 1934, 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 December 31, 1997,
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.
GRAPH OMITTED
-19-
Cumulative Total Return
--------------------------------------------------------------------------------
12/31/97 1/1/99 7/8/99 12/31/99 12/31/00 12/31/01 12/31/02
SPAR GROUP, INC. 100.00 50.00 100.00 67.50 16.26 35.80 63.40
NASDAQ STOCK MARKET (U.S.) 100.00 140.99 172.77 261.48 157.42 124.89 86.34
RUSSELL 2000 100.00 97.45 106.50 118.17 114.60 117.45 93.39
S & P ADVERTISING 100.00 158.77 195.15 252.31 200.74 175.06 101.19
PEER GROUP 100.00 97.04 119.55 126.85 144.35 90.64 28.62
Copyright(C) 2002 Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
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 the Company's Common Stock (collectively, "Insiders"), to file reports of
ownership and changes in their ownership of the Company's Common Stock 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
for the year ended December 31, 2002, or written representations from certain
reporting persons for such year, the Company believes that its Insiders complied
with all applicable Section 16(a) filing requirements for such year, with the
exception that Robert G. Brown, William H. Bartels, Jack W. Partridge, Robert O.
Aders, Jerry B. Gilbert and George W. Off untimely filed certain Statements of
Changes in Beneficial Ownership on Form 4. All such Section 16(a) filing
requirements have since been completed by each of the aforementioned
individuals.
OTHER BUSINESS
The Company is not aware of any other business to be presented at the
2003 Annual Meeting. All shares represented by Company proxies will be voted in
favor of the proposals of the Company described herein unless otherwise
indicated on the form of proxy. If any other matters properly come before the
meeting, Company proxy holders will vote thereon according to their best
judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the 2004
annual meeting of stockholders of the Company and who wishes to have it set
forth in the corresponding proxy statement and identified in the corresponding
form of proxy prepared by management must notify the Company no later than March
16, 2004 in such form as required under the rules and regulations promulgated by
the Securities and Exchange Commission. Notices of stockholder proposals
submitted outside the processes of Rule 14a-18 of the Securities Exchange Act of
1934 (relating to proposals to be presented at the meeting but not included in
the Company's proxy statement and form of proxy), will be considered untimely,
and thus the Company's proxy may confer discretionary voting authority on the
persons named in the proxy with regard to such proposals, if received after May
30, 2004.
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ANNUAL REPORTS
A COPY OF THE COMPANY'S 2002 ANNUAL REPORT FOR THE YEAR ENDED DECEMBER
31, 2002, IS BEING MAILED TO EACH STOCKHOLDER OF RECORD TOGETHER WITH THIS PROXY
STATEMENT.
THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ITS
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002. A COPY OF THIS
REPORT IS INCLUDED IN THE COMPANY'S ANNUAL REPORT (EXCEPT AS OTHERWISE
REPORTED). THE ANNUAL REPORT AND FORM 10-K ARE NOT PART OF THE COMPANY'S
SOLICITING MATERIAL.
PROXIES AND SOLICITATION
The proxy accompanying this Proxy Statement is solicited on behalf of
the Company's Board of Directors. Proxies for the 2003 Annual Meeting are being
solicited by mail directly and through brokerage and banking institutions. The
Company will pay all expenses in connection with the solicitation of proxies. In
addition to the use of mails, proxies may be solicited by Directors, officers
and regular employees of the Company (who will not be specifically compensated
for such services) personally or by telephone. The Company 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 of the Board of Directors
Charles Cimitile, Secretary
Tarrytown, New York
July 9, 2003
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PROXY
SPAR GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
MEETING OF STOCKHOLDERS ON THURSDAY, AUGUST 7, 2003
The undersigned hereby appoints ROBERT G. BROWN and WILLIAM H. BARTELS,
and each of them, with full power of substitution, as the undersigned's proxy
and attorney-in-fact to vote all shares of Common Stock of SPAR Group, Inc. (the
"Company"), held of record by the undersigned as of June 20, 2003, the record
date with respect to this solicitation, at the Annual Meeting of Stockholders of
the Company to be held at 580 White Plains Road, Tarrytown, New York 10591,
beginning at 10:00 a.m., Eastern Standard Time, on Thursday, August 7, 2003, and
at any postponements and adjournments thereof (the "2003 Annual Meeting"), upon
the following matters:
1. ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
FOLLOWING NOMINEES FOR DIRECTOR:
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY listed
(except as noted below) to vote for all nominees
(INSTRUCTIONS: To withhold authority to vote for any nominee, draw a line
through or otherwise strike out the nominee's name below.)
Robert G. Brown
William H. Bartels
Robert O. Aders
Jack W. Partridge
Jerry B. Gilbert
George W. Off
Lorrence T. Kellar
2. RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2003
THE BOARD OF DIRECTORS AND THE AUDIT COMMITTEE EACH UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THIS PROPOSAL
|_| FOR |_| AGAINST |_| ABSTAIN
3. OTHER MATTERS
In their discretion, Robert G. Brown and William H. Bartels, and each
of them, are authorized to consider such other business as may properly come
before the 2003 Annual Meeting and to vote either for or against such other
business (in whole or in part) as he may determine in his sole discretion.
THIS PROXY (WHEN PROPERLY EXECUTED AND DELIVERED) WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE NOMINEES NAMED IN PROPOSAL 1 ABOVE, FOR
PROPOSAL 2 ABOVE, AND EITHER FOR OR AGAINST ANY OTHER MATTER IN THE
DISCRETION OF THE PERSON NAMED AS PROXY. IF ANY NOMINEE DECLINES OR IS
UNABLE TO SERVE AS A DIRECTOR, THEN THE PERSON NAMED AS PROXY SHALL
HAVE FULL DISCRETION TO VOTE FOR OR AGAINST ANY OTHER PERSON DESIGNATED
BY THE BOARD OF DIRECTORS.
Dated _________________, 2003
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(Signature)
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(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 the
2003 Annual Meeting, including any
adjournments thereof.