8.	Commitments and Contingencies

Legal Matters

The Company is a party to various legal actions and administrative proceedings arising in the normal course of business. In the opinion of Company's management, resolution of these matters is

not

anticipated to have a material adverse effect on the Company or its estimated or desired affiliates, assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs, liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition.

RELATED PARTIES AND RELATED PARTY LITIGATION:

SBS, SPAR Administrative Services, Inc. ("

SAS

"), and SPAR InfoTech, Inc. ("

Infotech

"), have provided services from time to time to the Company and are related parties and affiliates of SGRP, but are

not

under the control or part of the consolidated Company. SBS is an affiliate because it is owned by an entity controlled by Robert G. Brown and prior to

November 2018

was owned by Robert G. Brown and William H. Bartels. SAS is an affiliate because it is owned by William H. Bartels, Peter W. Brown and certain other relatives of Robert G. Brown or entities controlled by them (each of whom are considered affiliates of the Company for related party purposes). Infotech is an affiliate because it is owned by Robert G. Brown. Messrs. Brown and Bartels (including, as applicable, certain related parties, the "

Majority Stockholders

") collectively own approximately

53.2%

of SGRP's common stock and are the founders of SGRP. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels. Mr. Bartels is Vice Chairman and a director of SGRP. Mr. Bartels retired as an employee of the Company as of

January 1, 2020 (

in accordance with the actions of SGRP's Compensation Committee on

January 22, 2020).

See

Bartels' Retirement and Director Compensation,

above. Messrs. Brown and Bartels also are stockholders, directors and/or executive officers of various affiliates of SGRP.

SGRP claims against SAS re Affinity

The Company has prepared the draft of a compliant to be filed in the Supreme Court of the State of New York in Westchester County, NY, seeking appropriate relief and recovery from SAS and other related parties, which it prepared with the support of SGRP's Audit Committee (which has certain oversight responsibilities respecting related party matters). However, because of the pending changes in the SGRP CEO and CFO positions, the Audit Committee recommended that management delay filing the complaint until it can be reviewed and pursued by SGRP's new CEO and CFO (upon their selection and appointment) if and as they determine appropriate. See

Affinity Insurance

Related Part Transactions

in Note

above.

Delaware Litigation Settlement

September 4, 2018,

SGRP filed in the Court of Chancery of the State of Delaware (the "

Chancery Court

") a claim, which it amended on

September 21, 2018 (

the "

By-Laws Action

"), in a Verified Complaint Seeking Declaratory Judgment and Injunctive Relief against the Majority Stockholders. SGRP sought to invalidate the proposed amendments to SGRP's By-Laws put forth in a written consent by the Majority Stockholders (the "

Proposed Amendments

") because the Board's Governance Committee believed that the Proposed Amendments would have negatively impacted all stockholders (particularly minority stockholders) by (among other things) weakening the independence of the Board through new supermajority requirements, eliminating the Board's independent majority requirement, and subjecting various functions of the Board respecting vacancies on the Board to the prior approval of the holders of a majority of the Common Stock (i.e., the Majority Stockholders), and thus also potentially reducing the representation of SGRP's minority stockholders.

September 18, 2018,

Robert G. Brown (

one

of the Majority Stockholders) commenced an action in the Chancery Court pursuant to

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.

January 18, 2019,

SGRP, Messrs. Brown and Bartels, Christiaan Olivier (Chief Executive Officer, President and a Director of SGRP), and all

four

of the members of the Governance Committee at that time, namely Lorrence T. Kellar (Chairman), Jack W. Partridge, Arthur B. Drogue and R. Eric McCarthey (together with Mr. Olivier, the "

225

Defendants

"), reached a settlement (the "

Delaware Settlement

") in the By-Laws Action and the

225

Action (together, the "

Delaware Actions

") and had the Delaware Actions then dismissed.

In the Delaware Settlement, the parties agreed to amend and restate SGRP's By-Laws (the "

2019

Restated By-Laws

") with negotiated changes to the Proposed Amendments that preserved the current roles of the Governance Committee and Board in the location, evaluation, and selection of candidates for director and in the nominations of those candidates for the annual stockholders meeting and appointment of those candidates to fill Board vacancies (other than those under a stockholder written consent making a removal and appointment, which is unchanged). The Board approved and adopted the

2019

Restated By-Laws on

January 18, 2019.

The Governance Committee and the Board intended that those changes in the

2019

Restated By-Laws will help the Corporation maintain the independent Board desired by them.

Additionally, as part of the Delaware Settlement, the parties to the Delaware Actions executed a Limited Mutual Release Agreement limited to the Delaware Actions and subject to specific exclusions (the "

Delaware Releases

"), and the parties to the Delaware 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 Chancery Court on

January 18, 2019.

The Delaware 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 Company and certain related parties, including (without limitation) post termination claims by and against SBS (which has been resolved in a voluntary bankruptcy proceeding in Nevada by SBS -- see

SBS Bankruptcy, Settlement, and

March 2020

Claim,

below) and SAS and the lawsuit by Infotech against the Company (which has been resolved in a settlement – see

Infotech Litigation and Settlement

, below), and the claims by Messrs. Brown and Bartels for advancement and indemnification of legal fees and expenses in connection with the Delaware Actions and certain related party claims (see

Advancement Claims

, below).

Advancement Claims

From

October 2018

through

January 2019,

the Majority Stockholders, in a series of correspondence, demanded from SGRP advancement and indemnification of their respective shares of legal fees and expenses incurred by them in connection with the By-Laws Action and the

225

Action and other related party litigation matters.

November 2, 2018,

in a letter from his counsel, Mr. Bartels demanded advancement of his proportionate share of the legal fees and expenses incurred in his defense of the By-Laws Action against him.

SGRP's Audit Committee determined on

November 5, 2018,

that Mr. Bartels was

not

entitled to indemnification by SGRP for his fees and expenses incurred in his defense of the By-Laws Action because (among other things) Mr. Bartels was sued predominately as a stockholder in the By-Laws Action and

not

as a director and the By-Laws Action alleged numerous instances of improper conduct by Mr. Bartels that could preclude indemnification under the Corporation's By-Laws. However, the Audit Committee made

determination regarding improper conduct or the issue of advancement.

November 28, 2018,

Mr. Bartels filed with the Court a Verified Complaint For Advancement against SGRP (the "

Bartels Advancement Complaint

") seeking advancement of his proportionate share of the legal fees and expenses incurred in the By-Laws Case against him ("

Allocated By-Laws Expenses

"). In evaluating the Bartels Advancement Complaint, counsel advised SGRP that generally advancement was somewhat different than indemnification in that money was advanced on the condition (which Bartels have accepted in writing) that the advances be repaid if indemnification was determined to be improper on the grounds of improper conduct or otherwise.

December 2018

SGRP reached an agreement with Mr. Bartels through counsel to conditionally make his reasonably documented Allocated By-Laws Expenses (the "

Bartels Advancement Settlement

"), pursuant to which payment to Mr. Bartels of the accepted Allocated By-Laws Expenses was paid approximately

$106,000

April 2019.

If Mr. Bartels is ultimately determined to

not

be entitled to indemnification, he could still be obligated to return all amounts advanced to him by SGRP.

December 3, 2018,

Robert G. Brown sent an email to Mr. McCarthey, Chairman of SGRP's Audit Committee, demanding advancement from SGRP for his proportionate share of the legal fees and expenses incurred by him in the By-Laws Action against him (the "

Brown Advancement Demand

").

Counsel advised that Brown had been sued as a stockholder and conspirator in the By-Laws Action against him, and

not

as a director, and they didn't believe Brown could reasonably and successfully bring or wage a lawsuit for advancement. SGRP, with the support of its Audit Committee, rejected the Brown Advancement Demand, stating that "The bylaw action does

not

sue you in your capacity as an officer or director of the company. Section

6.02

of the bylaws requires the proceeding subject to advancement to be brought "by /reason of the Indemnitee's position with the Corporation or any of its subsidiaries … at the request of the Corporation …." This provision does

not,

and was

not

intended to, cover shareholders for advancement.

January 27, 2019,

Mr. Robert G. Brown sent a draft of his proposed Delaware litigation complaint in an email to Arthur Drogue, SGRP's Chairman, threatening to sue SGRP respecting the Brown Advancement Demand, which he repeated in an email to Mr. McCarthey on

February 2, 2019.

March 21, 2020,

Mr. Robert G. Brown repeated the Brown Advancement Demand and sent a slightly revised draft complaint that would purportedly change the contemplated litigation jurisdiction from Delaware to Massachusetts.

explanation was given for this alleged change in jurisdiction. On

August 1, 2020,

Robert G. Brown sent a slightly revised complaint to William H. Bartels (who forwarded it to Arthur H. Baer, Chairman of the Board and Audit Committee) changing the contemplated litigation jurisdiction from Massachusetts back to Delaware. Although it was signed and notarized and said by Robert G. Brown in his email to be in the process of being filed,

such complaint has been filed by Mr. Brown through

August 11, 2020,

and SGRP continues to deny the Brown Advancement Demand. In addition, SGRP believes that the Delaware Court has exclusive jurisdiction pursuant to SGRP's

2019

Restated By-Laws and the Settlement. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.

SBS Bankruptcy, Settlement and

March 2020

Claim

November 23, 2018,

SBS petitioned for bankruptcy protection under chapter

of the United States Bankruptcy Code in the U.S. District for Nevada (the "

SBS Chapter

Case

"). On

March 18, 2019,

the Company filed claims in the SBS Chapter

Case seeking reimbursement for

$378,838

for SMF's funding of the Affinity Security Deposits and

$12,963

for SMF's funding of the field payment checks that would have otherwise bounced, and

$1,839,459

for indemnification of SGRP for its settlement (see below) of the Clothier class action case in California ("

Clothier

") and legal costs and an unspecified amount for indemnification of SGRP for the Hogan action (see below) and other to be discovered indemnified claims.

August 6, 2019,

SGRP, and its subsidiaries SPAR Marketing Force, Inc. ("

SMF

"), a Nevada corporation, and SPAR Assembly & Installation, Inc., f/k/a SPAR National Assembly Services, Inc., a Nevada corporation, submitted to the U.S. District Court in Nevada (the "

Bankruptcy Court

") their Compromise and Settlement Agreement, dated

July 26, 2019 (

the "

Settlement Agreement

"), with SBS, a Nevada corporation formerly known as SPAR Marketing Services, Inc., debtor and debtor-in-possession, and SBS, LLC, a Nevada limited liability company. The Settlement Agreement was submitted in the SBS Chapter

Case. Pursuant to the Settlement Agreement, the Company settled its claims for (among other things) indemnification from SBS in Clothier and the Rodgers class action case in Texas ("

Rodgers").

August 6, 2019,

the Bankruptcy Court approved the Settlement Agreement and the SBS reorganization pursuant to SBS' First Amended Chapter

Plan of Reorganization, as amended by the Settlement Agreement (the "

Plan of Reorganization

"). Pursuant to its Plan of Reorganization, SBS also settled its potential liability in the Clothier and Rodgers cases, but the Company believes that Robert G. Brown and William H. Bartels were

not

released from Clothier, any related case or Rodgers. See

SBS Rodgers Litigation,

below

In the Settlement Agreement, except for the carve out described in the next paragraph, SBS completely released the Company from all obligations that

may

be owed to SBS.

August 6, 2019,

with the support of (among others) the Clothier and Rodgers plaintiffs and the Company, the Court approved the SBS Settlement Agreement and the SBS Reorganization pursuant to the SBS Plan (as defined in the SBS Settlement Release). The SBS Settlement Agreement provides for a mutual release of claims (including the SBS Claims and the SGRP Claims, as defined therein), except for the following:

(i) the Company's

$2.2

million in claims were settled for

$174,097.34

payable by SBS over

monthly installments of

$7,254.06

per month starting

January 1, 2020,

and without any interest (collectively, the "

Discounted Claim Payments

"), as such terms are defined in the SBS Settlement Agreement; and

(ii) SMF will pay to SBS the Proven Unpaid A/R (as defined in the SBS Settlement Agreement) upon its determination (as described below).

In the SBS Settlement Agreement, the parties agreed to have a

third

party financial and accounting services firm, independently determine the Proven Unpaid A/R based on parameters set forth in the SBS Settlement Agreement. In the SBS Settlement Agreement, the parties will accept the determination of the

third

party financial and accounting services firm as final and binding, and all other claims and amounts are released. The

third

party financial and accounting services firm, has determined that the Company had paid all amounts due to SBS and has

further obligation.

The Company has recorded the total settlement amount of

$174,097

as of

December 31, 2019.

This settlement amount is payable in

equal monthly payments of

$7,254

starting

January 1, 2020.

To date SBS is in default of the

first

six

payments totaling

$43,524

and formal default notices have been sent to SBS. SBS has responded and claimed an offset respecting its undocumented and unproven claims. As of this date the Company believes these SBS payments must ultimately be paid by SBS and will continue to evaluate its collectability from SBS and establish reserves as appropriate. As of

June 30, 2020,

the total settlement has been reserved.

March 6, 2020,

Robert G. Brown on behalf of SBS sent an email communication to Arthur B. Drogue, to which he copied Arthur H. Baer, demanding payment of

$1,707,374

to SBS from SMF SGRP pursuant to (among other things) the SBS Settlement Agreement (the "

March 2020

Claim

"). The Company has reviewed the

March 2020

Claim in detail (although Brown has provided

backup or proof) and the Company strongly disagrees that any such amount is owed. The Company believes that the robust and comprehensive mutual releases and other provisions in the SBS Settlement Agreement provide valuable relief from such claims and potential future claims and litigation by SBS respecting the Company's past involvement with SBS, including the

March 2020

Claim. However, Robert G. Brown, president, director and indirect owner of SBS, since and notwithstanding the Court's approval of the SBS Settlement Agreement, has continued to make unproven and undocumented claims that amounts that were fully released pursuant to the SBS Settlement Agreement and approved by the bankruptcy court are nevertheless due to SBS from the Company, and the Company strongly disagrees. The Company is prepared to take action in Nevada Bankruptcy Court by reopening the SBS bankruptcy case and petitioning official settlement of this matter. Since all such claims have been completely released by SBS (with Mr. Robert G. Brown's approval), the Company owes nothing and has

not

accrued anything respecting Mr. Robert G. Brown's renewed claims. Mr. Robert G. Brown is significant stockholder of SGRP, and member of a

13D

control group, SGRP's former Chairman and director of SGRP, and became a director again on

April 24, 2020,

pursuant to the written consents of the Brown Group and Mr. Bartels.

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. Brown believe are owed by the Company. 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

million. The Company has completely rejected these claims, and believes it was released from all such claims by SBS in the SBS bankruptcy reorganization.

The

March 2020

Claim includes estimates for the individual legal defenses of Robert G. Brown and William H. Bartels in the private attorney general action in California ("

PAGA

") and Texas ("

Rodgers

") in cases that do

not

involve and never included the Company and for which the Company believes it has

liability. The

March 2020

Claim also includes defense expenses for SBS Clothier case, which expenses SBS settled for a highly discounted amount in its bankruptcy reorganization but now wants the Company to pay in full. SBS in its bankruptcy reorganization settled its potential liability in the Rodgers and Clothier cases has, and since

July 2018

had,

more defense expenses in those cases. SGRP settled Clothier separately and was never in the Rodgers case. However, the alleged continued willful misclassification by SBS of its independent contractors after the Clothier misclassification determination is the basis for the PAGA lawsuit against Brown and Bartels.

See Legal Proceedings -- SBS Field Specialist Litigation, SBS Clothier Litigation

, and

SGRP Hogan Litigation

in this note. Mr. Bartels' list also includes payments of

$500,000

per year to Robert G. Brown for extended retirement and advisory fees, although the Company has never proposed, committed or agreed to them and on several occasions specifically rejected Mr. Brown's proposals in various forms for them.

Infotech Litigation and Settlement

September 19, 2018,

SGRP was served with a Summons and Complaint by SPAR InfoTech, Inc. ("

Infotech

"), an affiliate of SGRP that is owned principally by Robert G. Brown (

one

of the Majority Stockholders) as plaintiff commencing a case against SGRP (the "

Infotech Action

"). The Infotech Action sought payment from SGRP of approximately

$190,000

for alleged lost tax benefits and other expenses that it claims to have incurred in connection with SGRP's acquisition of its Brazilian subsidiary and that were previously denied on multiple occasions by both management and SGRP's Audit Committee (whose approval was required because Infotech is a related party).

2016,

SGRP acquired SPAR Brasil Serviços de Merchandising e Tecnologia S.A. ("

SPAR BSMT

"), its Brazilian subsidiary, with the assistance of Robert G. Brown (while he was still Chairman and an officer and director of SGRP) and his nephew, Peter W. Brown, who became an indirect

10%

owner of SPAR BSMT, and later became a director of SGRP on

May 3, 2018.

Robert G. Brown used his private company, Infotech and undisclosed foreign companies to structure the acquisition for SGRP.

Robert G. Brown incurred his alleged expenses associated with the transaction through Infotech, including salary allocations for unauthorized personnel and claims for his "lost tax breaks". Robert G. Brown submitted his unauthorized and unsubstantiated "expenses" to SGRP, and SGRP's Audit Committee allowed approximately

$50,000

of them (which was paid by the Company) and disallowed approximately

$150,000

of them. His claim increased to over

$190,000

in the Infotech Action. The Company vigorously denied owing any of those amounts.

2018,

Infotech also threatened to sue the Company in Romania for approximately

$900,000

for programming services allegedly owed to the Company's former Romanian subsidiary (sold at book value to Infotech in

2013

) and

not

provided to Infotech (the "

Romanian Claim

"). Infotech gave a draft complaint to the Company in

2018.

The Company also vigorously denied owing any of those obligations or amounts.

In order to avoid the expenses of protracted litigation, SGRP's Management and the Audit Committee agreed that it would be in the best interest of all stockholders to reach a reasonable settlement of both the Infotech Action and the Romanian Claim for installment payments in reasonable amounts and mutual releases of all other related claims. Management had offed

$225,000

to settle both, but at the urging of the Board and assurances of several Board members that it would help them persuade Robert G. Brown to settle, management agreed to increase the settlement offer to a total of

$275,000.

After extensive negotiation between the Company and Infotech, Robert G. Brown accepted the

$275,000

offer and the parties entered into the Confidential Settlement Agreement and Mutual Release on

October 8, 2019 (

the "

Infotech Settlement Agreement

"), which was approved and ordered by the Court on

October 30, 2019,

and the Infotech Action was discontinued (dismissed) with prejudice.

The Infotech Settlement Agreement requires the Company to make payments totaling

$275,000

four

installments: (i)

$75,000

following Court approval (which Payment has already been made); (ii)

$75,000

within

days following discontinuance of the Infotech Action (which was discontinued on

October 30, 2019); (

iii)

$75,000

within

days following discontinuance of the Infotech Action; and (iv)

$50,000

within

days following discontinuance of the Infotech Action. The Company has paid all the installments including the final payment to Infotech in

January 2020.

The Company believes that the robust and comprehensive mutual releases in the Infotech Settlement Agreement

provide valuable relief from potential future claims and litigation by Infotech respecting the Company's past involvement with Infotech in the Brazilian and Romanian transactions.

SBS Field Specialist Litigation

The Company's merchandising, audit, assembly and other services for its domestic clients are performed by field merchandising, auditing, assembly and other field personnel (each a "

Field Specialist

") furnished by others and substantially all of whose services were provided to the Company prior to

August 2018

by SBS, the Company's affiliate, SBS is

not

a subsidiary or in any way under the control of SGRP, SBS is

not

consolidated in the Company's financial statements, SGRP did

not

manage, direct or control SBS, and SGRP did

not

participate in or control the defense by SBS of any litigation against it. The Company terminated its relationship with SBS and received

services from SBS after

July 27, 2018.

For affiliation, termination, contractual details and payment amounts, see

Related Party Transactions

, above.

The appropriateness of SBS' treatment of Field Specialists as independent contractors had been periodically subject to legal challenge (both currently and historically) by various states and others. SBS' expenses of defending those challenges and other proceedings generally were, through but

not

after the termination of the SBS services, reimbursed by the Company after and to the extent the Company determined (on a case by case basis) that those defense expenses were costs of providing services to the Company.

The Company settled its potential liability (as a current or former party) under

two

class action lawsuits against SBS, namely Clothier and Hogan. SBS was separately dismissed from the Hogan class action prior to the Company's settlement. SBS settled with Clothier and Rodgers in the SBS Bankruptcy, but Robert G. Brown and William H. Bartels were

not

released from Clothier, any related case or Rodgers (see above). The Company has never been a party to the Rodgers case.

Any claim made and proven by Robert G. Brown, William H. Bartels, SBS, SAS, any other related party or any

third

party that the Company is somehow liable (through indemnification or otherwise) for any judgment or similar amount imposed against Mr. Brown, Mr. Bartels, SBS or SAS or any other related party, in each case in whole or in part, could have a material adverse effect on the Company or its performance or condition (including its assets, business, clients, capital, cash flow, credit, expenses, financial condition, income, legal costs liabilities, liquidity, locations, marketing, operations, prospects, sales, strategies, taxation or other achievement, results or condition), whether actual or as planned, intended, anticipated, estimated or otherwise expected.

SBS Clothier Litigation

Melissa Clothier was engaged by SBS (then known as SPAR Marketing Services, Inc.) and provided services pursuant to the terms of an "Independent Merchandiser Agreement" with SBS (prepared solely by SBS) acknowledging her engagement as an independent contractor. On

June 30, 2014,

Ms. Clothier filed suit against SBS and the Company styled Case

No.

RG12

639317,

in the Superior Court in Alameda County, California (the "

Clothier Case

"), in which Ms. Clothier asserted claims on behalf of herself and a putative class of similarly situated merchandisers in California who are or were classified by SBS as independent contractors at any time between

July 16, 2008,

and

June 30, 2014.

Ms. Clothier alleged that she and other class members were misclassified by SBS as independent contractors (instead of as employees) and that, as a result of this misclassification, the defendants improperly underpaid them in violation of various California minimum wage and overtime laws. The Company was originally a defendant in the Clothier Case but was subsequently dismissed from the action without prejudice (meaning it could have joined back into the case).

The court ordered that the case be heard in

two

phases. Phase

one

was limited to the determination of whether members of the class were misclassified as independent contractors. After hearing evidence, receiving post-trial briefings and considering the issues, the Court issued its Statement of Decision on

September 9, 2016,

finding that the class members had been misclassified by SBS as independent contractors rather than employees (the "

Clothier Misclassification Determination

"). The plaintiffs and SBS then moved into phase

two

to determine damages (if any), which has included discovery as to the measure of damages in this case.

Facing significant potential damages in the Clothier Case, SGRP chose, and on

June 7, 2018,

entered into mediation with the plaintiffs and plaintiff's counsel in the Clothier Case to try to settle any potential future liability for any possible judgment against SGRP in that case. SGRP asked SBS to participate financially and provide its knowledge in that mediation, but SBS and its stockholders wanted SGRP to bear the full cost of any settlement and on several occasions they declined or failed to participate in that mediation. SGRP disagreed, insisting on the Majority Stockholders' and SBS' economic participation. After extensive discussions, SGRP reached a settlement and entered into a memorandum of settlement agreement, subject to the final court approval (the "

Clothier Settlement

"). Final approval was granted on

September 20, 2019,

and the Company was released by plaintiff and the settlement class from all other liability under the Clothier Case. The Company recorded a

$1.3

million charge for the Clothier Settlement during

2018,

when the agreement in the Clothier Settlement was reached. Pursuant to the Clothier Settlement SGRP will pay a maximum settlement amount of

$1.3

million, payable in

four

equal annual installments that commenced with the

first

payment of

$325,000

December 2019.

The

$975,000

balance was accrued as of

June 30, 2020.

Since SGRP has

further involvement in the Clothier Case, SGRP stopped paying (as of

June 7, 2018)

for SBS' legal expenses (defense and appeal) in the Clothier Case and notified SBS. Defendants continue to demand that those expenses be reimbursed by SGRP. SBS did

not

participate in the Clothier Settlement and was

not

released. Rather than proceed to the damage portion of the trial respecting trial the Clothier Misclassification Determination, SBS filed for bankruptcy protection.

SBS and SGRP Hogan Litigation

Paradise Hogan was engaged by and provided services to SBS as an independent contractor pursuant to the terms of an "Independent Contractor Master Agreement" with SBS (prepared solely by SBS) acknowledging his engagement as an independent contractor. On

January 6, 2017,

Hogan filed suit against SBS and SGRP (and part of the Company), styled Civil Action

No.

1:17

-cv-

10024

-LTS, in the U.S. District Court for District of Massachusetts. Hogan initially asserted claims on behalf of himself and an alleged nationwide class of similarly situated individuals who provided services to SBS and SGRP as independent contractors. Hogan alleged that he and other alleged class members were misclassified by SBS as independent contractors (instead of as employees), and as a result of this purported misclassification, Hogan asserted claims on behalf of himself and the alleged Massachusetts class members under the Massachusetts Wage Act and Minimum Wage Law for failure to pay overtime and minimum wages, as well as state law claims for breach of contract, unjust enrichment, quantum meruit, and breach of the covenant of good faith and fair dealing. In addition, Hogan asserted claims on behalf of himself and the nationwide class for violation of the Fair Labor Standards Act's overtime and minimum wage provisions. On

March 28, 2017,

SGRP moved to refer Hogan's claim to arbitration pursuant to his agreement, to dismiss or stay Hogan's case pending arbitration, and to dismiss Hogan's case for failure to state a specific claim upon which relief could be granted.

March 12, 2018,

the Court denied the Motion to Compel Arbitration as to SGRP because as drafted by SBS, the arbitration clause did

not

reference or protect SGRP according to the Court. However, the Court eventually granted SBS the right to arbitrate without SGRP. SGRP appealed to the First Circuit contesting the District Court's decision that the arbitration clause (as written by SBS) did

not

protect SGRP.

January 25, 2019,

the First Circuit issued a judgment affirming the District Court's decision that the arbitration clause (as written by SBS) did

not

protect SGRP and remanding the case back to the District Court for further proceedings. As a result, SGRP would have been required to go to trial without SBS.

Facing lengthy and costly litigation and significant potential damages in the Hogan Case, on

March 27, 2019,

SGRP entered into mediation with the plaintiffs and plaintiff's counsel in the Hogan Case to try to settle any potential future liability for any possible judgment against SGRP in that case. SBS and its stockholders were

longer involved in that case and so were

not

involved in that mediation. After extensive discussions, SGRP reached a settlement and entered into a memorandum of settlement agreement (the "

Hogan Settlement

"), which was approved by the court and became final in

November 2019,

and the Company was released by plaintiff and the settlement class from all other liability under the Hogan Case. Pursuant to the Hogan Settlement, SGRP agreed to a maximum settlement amount of

$250,000

(in

three

installments), which payments commenced in

December 2019

with the

first

payment of

$150,000,

$50,000

paid in

March 2020

and the remaining

$50,000

paid in

June 2020.

SBS Rodgers Litigation

Maceo Rodgers was engaged by and provided services to SBS pursuant to the terms of his "Master Agreements" with SBS acknowledging his engagement as an independent contractor. On

February 21, 2014,

Rodgers filed suit against SBS, Robert G. Brown and William H. Bartels, styled Civil Action

No.

3:14

-CV-

00055,

in the U.S. District Court for the Southern District of Texas (Galveston Division). Plaintiff asserted claims on behalf of himself and an alleged class of similarly situated individuals who provided services to SBS as independent contractors at any time on or after

July 15, 2012,

claiming they all were misclassified by SBS independent contractors and that, as a result of this misclassification, the Defendants improperly underpaid them in violation of the Fair Labor Standards Act's overtime and minimum wage provisions. Although the Court conditionally certified the class on

December 8, 2015,

individuals joined the action as opt-in plaintiffs, and all but

of them have potentially disqualifying arbitration provisions, residences outside the class's geographic area, or late opt-in filings, and were challenged by the Defendants in various motions, including a motion to decertify the class. The Court, however, did

not

rule on these motions and instead stayed the case on

September 19, 2017

to allow the parties to mediate. On

October 24, 2017,

the Court granted the parties' joint motion to extend the stay order until

January 31, 2018.

Rodgers settled for a claim of approximately

$618,000

against SBS (but

not

any claims against Brown or Bartels), in the SBS bankruptcy case, and in full settlement of that claim they agreed upon a discounted payment amount of approximately

$48,000,

payable in equal quarterly installments over a

five

(

) year period. See SBS Bankruptcy, Settlement and

March 2020

Claim, above.