U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): July 12, 2002
GILMAN + CIOCIA, INC.
(Exact name of registrant as specified in its charter.)
Delaware 000-22996 11-2587324
(State or jurisdiction Commission (I.R.S.Employer
of incorporation or file Identification
organization) number No.)
1311 Mamaroneck Avenue, White Plains, NY 10602
(Address of principal executive offices) (Zip Code)
(914) 397-4829
(Issuer's Telephone Number, Including Area Code)
ITEM 5. OTHER EVENTS.
On June 18, 2002 Gilman + Ciocia, Inc. (the "Company"), entered into a
confidential Proposed Terms of Investment (the "Terms of Investment") with
a third party investor (the "Investor")with respect to the issuance by the
Company of up to $3,240,000 of Series A Convertible Preferred Stock (the
"Transaction").
Under the Terms of Investment (a copy of which is annexed hereto as Exhibit 1),
the Company and the Investor agreed not to make any public disclosure of the
Transaction until such time as the Company and the Investor executed definitive
agreements unless otherwise required by law.
Although negotiations between the Company and the Investor are continuing, the
parties have not executed definitive agreements. The Company is nonetheless
disclosing the Terms of Investment because of the unauthorized and
selective disclosure of the Transaction on Friday, July 12, 2002, by Michael
Ryan, a shareholder of the Company and the President
of its wholly-owned subsidiary, Prime Financial Services, Inc.
The annexed Terms of Investment does not contain all of the terms that will be
set forth in the definitive agreements, including conditions to closing. There
can be no assurance that the investment will close at all or on the terms set
forth in the Terms of Investment.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit No. Description
----------- -----------
1 Proposed Terms of Investment, dated June 18,
2002 with Respect to the Issuance of up to
$3,240,000 of Convertible Preferred Stock
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: July 17, 2002
GILMAN +CIOCIA, INC.
By:/s/ Thomas Povinelli
-------------------
Thomas Povinelli
President(authorized signatory)
EXHIBIT 1
GILMAN & CIOCIA, INC.
(the "Company")
June 18, 2002
Proposed Terms of Investment
[REDACTED TO PROTECT CONFIDENTIALITY OF INVESTOR]
Type of Security: Series A Convertible Preferred Stock ("Preferred Stock").
Closing Date: Estimated as July 12, 2002, or prior subject to the
conditions set forth herein.
Gross Proceeds: Up to $3,240,000 in Series A Preferred Stock.
Purchasers: [Confidential]
Optional Conversion: The Preferred Stock shall be convertible at any time
after Closing at the option of the holder.
Closing Price: The "Closing Price" will be the lesser of the 30-day
average closing bid price of the Common Stock or the
3-day average closing bid price of the Common Stock
ending on the day prior to Closing.
Dividend: The Preferred Stock shall accrue and receive,
prior and in preference to any payments of
dividends to holders of common stock or any other
equity securities (including all other preferred
stock) of the Company, dividends at a rate of 7.5%
per annum for years 1 and 2. The dividend shall
increase to 10% in year 3 and shall increase to 15%
in year 4 and thereafter. Dividends shall be paid
quarterly in arrears, in cash or stock at the option
of the Company for years 1, 2, and 3. The dividend
shall be payable in cash beginning in year 4 and
thereafter. For the purposes of calculating the
dividend paid in common stock, the trailing 30-day
average closing bid price will be used.
Liquidation Preference: Upon a liquidation, dissolution, winding-up, merger
or consolidation of the Company or a sale of all or
substantially all of the Company's assets (each of
the foregoing being a "Liquidation Event"), the
Preferred Stock shall receive prior and in
preference to the holders of common stock and any
other equity securities (including all other
preferred stock) of the Company an amount equal to
the Purchase Price per share, plus all accrued and
unpaid dividends (including any common stock issued
pursuant to the Series A); provided, further, that
holders of Preferred Stock may elect not to receive
their liquidation preference upon the occurrence of a
Liquidation Event and, instead, to convert into
common stock and receive proceeds from the
Liquidation Event accordingly. (Language to exclude
sale of Prime/Northridge)
Conversion Price: The Conversion Price equals 120% of the Closing
Price; provided that in no event shall the Conversion
Price be greater than $1.80 per share.
Protective Provisions: For so long as the shares of the Preferred Stock
remain outstanding, consent of the holders of a
majority of the Preferred Stock shall be required for
any action which (i) alters or changes the rights,
preferences or privileges of the Preferred Stock,
(ii) increases or decreases the authorized number of
shares of Common or Preferred Stock, (iii) creates
(by reclassification or otherwise) any new class
or series of shares having rights, preferences or
privileges senior to or on a parity with the Series A
Preferred, (iv) results in the redemption of any
shares of Common Stock, (v) incurs additional
indebtedness beyond what is currently outstanding
(vi) amends or waives any provision of the Company's
Certificate of Incorporation or Bylaws relative to
the Series A Preferred, (vii) or pays or declares
any dividends on junior equity securities
Redemption: The Series A Preferred is not redeemable.
Antidilution
Provisions: The number of shares of Common Stock into which the
Preferred Stock are convertible shall be adjusted
fully upon (i) any stock splits, dividends,
recapitalization, or other pro rata issuances of
securities of the Company, including the payment of
dividends in securities of the Company or (ii) the
issuance after the date of Closing of any shares of
common stock, warrants, rights, options or
convertible securities that have an exercise or
conversion price lower than the Conversion Price,
such adjustment to be calculated such that Investor
would maintain its ownership percentage of the fully
diluted equity of the Company. This provision shall
not apply to board approved employee options.
Forced Conversion: The Company, after 24 months, can force
the conversion of the Preferred Stock so long as the
common stock has a closing bid price of at least 200%
of the conversion price and trading volume of at
least 80,000 shares for forty (40) consecutive
trading days with an effective "shelf" registration
filed with the Securities Exchange Commission. The
effectiveness of this registration must be maintained
until all of the commons stock is sold and the
Company is traded on the NASDAQ National Market.
Voting Rights: The Preferred Stock will vote together with
the Common Stock and not as a separate class. Each
share of the Preferred Stock shall have a number of
votes equal to the number of shares of Common Stock
then issuable upon conversion of such share of the
Preferred Stock.
Registration Rights: At any time after 12 months from the Closing
Date, any holder or group of holders of at least 25%
of the shares of Common Stock issued to the
Purchasers on the Closing Date and/or shares of
common stock issued or issuable as a result of the
conversion of the Preferred Stock ("Preferred Stock
Holders") may request registration of their shares,
as well as any dividend shares they may hold
(collectively, "Registrable Securities"), by the
Company, and the Company will use its best efforts to
cause such Registrable Securities to be registered.
The demand right above shall include the right to
demand a "shelf" registration pursuant to Rule 415 of
the Securities Act of 1933, as amended.
The Preferred Stock Holders will have the right to
(a) two demand registrations with minimum gross
proceeds of $1 million each; (b) unlimited S-3
registrations with minimum gross proceeds of $500,000
(but no more than one every six months); and (c)
unlimited "piggy-back" rights subject to pro-rata
cutback at the discretion of the Company's
underwriters in consideration of prevailing market
conditions (whereby the holders of Preferred Stock
are cut back last).
The Company shall bear registration expenses
(exclusive of underwriting discounts and commissions)
of all such demands, piggy-backs, and registrations
(including the expense of one special counsel of the
selling shareholders), but not in excess of $75,000
total.
Transfer of Rights: The registration rights may be transferred
to (i) any partner or retired partner of any holder
which is a partnership, (ii) any family member or
trust for the benefit of any individual holder, or
(iii) any transferee who acquires at least 500,000
shares of Registrable Securities; provided the
Company is given written notice thereof, and (iv) as
provided by restrictions required by law.
Information Rights: Information furnished by the Company to the
Purchasers shall include, but not be limited to:
(i) audited yearly financial statements within 90
days of year end, quarterly financial statements
within 45 days of the end of each quarter (except
Q4) and monthly financial statements, within 30
days of the end of each month; (ii) all management
letters of accountants; (iii) an annual budget for
the following year 30 days before the prior year's
end; (iv) notification of defaults under material
agreements; (v) notification of material litigation;
(vi) copies of all filings made with the Securities
and Exchange Commission; (vii) profit and loss
statements, budgets and initial projections, and
(viii) information that may be reasonably requested.
Board Representation: The Board of Directors shall include
one (1) non-executive Chairman of the Board, two (2)
Company Insiders, two (2) Series A Representatives,
and three (3) independent directors. The size of the
Board shall be set at a maximum of eight (8)
directors. So long as the majority of the Preferred
Stock remains outstanding, the Purchasers shall,
voting as a separate class, nominate and elect two
representatives to the Company's Board of Directors.
This shall initially be [Confidential] and an
Investor representative to be named prior to closing.
Preemptive Rights: The Purchasers shall have the right to
participate, on a pro rata basis, in any future
issuances by the Company of additional securities of
any kind on the same terms as such securities are
offered to other purchasers.
Purchase Agreement: The Preferred Stock shall be purchased
pursuant to a Securities Purchase Agreement drafted
by [Investor Counsel] to the Purchasers and shall
contain representations, warranties and covenants of
the Company and conditions to closing customary for a
transaction of this kind.
Voting Agreement: Management including Thomas Povinelli
shall enter into a Voting Agreement, providing for,
among other provisions: (i) the right of the
purchasers to tag along in the event of any
significant sales of Common Stock by significant
shareholders or management; (ii) the right to drag
along significant shareholders in proposed sales to
third parties on terms to be mutually agreed to by
the parties; and (iii) the right of first refusal in
any proposed sale by significant shareholders or
management.
Legal Expenses: The Purchasers shall be reimbursed by the Company
for all reasonable expenses, not in excess of
$50,000, incurred related to the proposed transaction
including those of [Investor Counsel]
legal counsel for the Purchasers and other advisors
retained by the Purchasers. The Company shall pay
Investor a break-up fee in amount equal to the
expenses incurred by Investor (including
without limitation attorney's fees), but not in
excess of $75,000, in its due diligence review if the
Company fails to close on the terms hereunder as a
result of the Company's inability or refusal to
provide information or documentation required to
effectuate a closing on or before July 12, 2002.
Conditions Precedent
To Closing: [Confidential] and another Investor
representative shall be elected to the Company's
Board of Directors.
Investor will review and approve the Company's
D&O insurance policy prior to joining the Board.
A board approved Fiscal 2003 Budget has been reviewed
and approved by Investor.
The Proposed Deferred Compensation Plan and
Restricted Stock Plan are acceptable to the
Purchasers.
The Company shall cure any and all Defaults with its
Lenders.
The Deferred Compensation Plan and Restricted Stock
Plan has been approved by 80% of the top 20% of
Producers of Fiscal 2001 and 2002, including those
who will join Prime and no longer be producing for
the Company. The Company will provide a list of the
highest 20% of Producers of tax and financial
planning revenues during Fiscal 2001
and 2002. It will identify which producers will be
joining Prime in the event of its sale. The Deferred
Compensation Plan and Restricted Stock Plan shall
only be offered to those representatives who remain
with the Company.
The Company shall remain listed and traded on the
NASDAQ National Market.
The Company will initiate an executive search with a
mutually agreeable search firm for a National Sales
Manager and a non-executive Chairman, which must be
approved by the Board of Directors including the
Series A Directors. Compensation for the
non-executive Chairman shall be consistent with
industry standards. The National Sales Manager,
reporting to Tom Povinelli, shall have titular and
salary equivalence to its current CFO.
The Voting Agreement, Registration Rights Agreement,
opinion of Company's counsel and other agreements,
documents, instruments shall have been validly
executed and delivered to the Purchasers.
The Purchasers shall be have completed its due
diligence review of the Company and must be
acceptable to the Purchasers in its sole discretion.
Exclusivity: The parties hereby agree to use all reasonable
efforts to cause the initial closing of the
transactions contemplated hereby to occur on or
before July 12, 2002, subject to the terms and
conditions of this letter. From the date hereof
until July 12, 2002, the Company agrees that it
shall not institute, pursue or enter into any
negotiations or agreements (whether preliminary or
definitive) with any person or entity concerning any
merger, acquisition, purchase or sale of a
significant amount of the assets or capital stock
of the Company or other business combinations or
change of control of the Company or any agency,
brokerage, consignment or similar arrangement with
the Company, without the prior written consent of
Investor. The Company further agrees to use
its best efforts to cause its officers, directors,
agents and advisors to comply with the above
restrictions.
No Disclosure: Until a definitive agreement is executed, no public
announcement shall be made by the Purchasers, the
Company or any officer, director, agent, advisor
or affiliate of the Company with respect to the
transactions contemplated hereby without the prior
written approval of the Company and Investor,
unless otherwise required by law. If a definitive
agreement is executed, no public announcement shall
be made by the parties without the prior written
approval of the Company and Investor, unless
otherwise required by law.
Dispute Resolution
Mechanism: Any dispute, controversy or claim arising out
of or relating to this term sheet, or the breach,
termination, or invalidity thereof, shall be settled
by arbitration in accordance with the American
Arbitration Association (AAA) Commercial Rules as
at present in force. The number of arbitrators shall
be one. The arbitrator shall be neutral and
appointed by the AAA. The place of arbitration shall
be in Washington, D.C., and shall commence no
later than thirty (30) days after the
Arbitrator has been appointed. The losing party
shall be responsible for the costs and expenses
incurred by both sides with respect to the
arbitration.
COMPANY:
Gilman & Ciocia, Inc.
By: /s/ Thomas Povinelli
Thomas Povinelli, CEO
PURCHASERS:
[Confidential]
By: /s/ [Confidential]