UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ____)
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 ss.14a-12
Gilman + Ciocia, Inc.
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(Name of the Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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(G+C LOGO)
Corporate Headquarters
11 Raymond Avenue o Poughkeepsie, NY 12603
845.485-5278 tel o 845.622.3638 fax
To Our Stockholders:
On behalf of the Board of Directors, it is my pleasure to invite you to attend
the Annual Meeting of Stockholders of Gilman + Ciocia, Inc. The meeting will be
held on July 19, 2007, at the offices of Blank Rome LLP, the Chrysler Building,
405 Lexington Avenue, 24th Floor, New York, New York 10174, beginning at 10:30
a.m., local time. To be admitted to the Chrysler Building, please present valid
picture identification.
The purpose of the meeting is to act on the matters listed in the attached
Notice and discussed in the accompanying Proxy Statement.
Your vote is important. You can ensure that your shares are voted at the meeting
by completing, signing and returning the enclosed proxy card.
Thank you for your interest in the affairs of the Company.
Cordially,
/s/ Michael P. Ryan
Michael P. Ryan, Chief Executive Officer
Poughkeepsie, New York
June 18, 2007
(G+C LOGO)
Corporate Headquarters
11 Raymond Avenue o Poughkeepsie, NY 12603
845.485-5278 tel o 845.622.3638 fax
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
PLACE: Offices of Blank Rome LLP, 405 Lexington Avenue, 24th Floor, New York,
New York 10174
DATE AND TIME: July 19, 2007 at 10:30 a.m., local time
ITEMS OF BUSINESS:
1. To elect one Class A director, two Class B directors and two
Class C directors;
2. To consider and vote upon a proposal to authorize the Company
to engage in a financing transaction described in the
accompanying Proxy Statement;
3. To consider and vote upon a proposed amendment of the
Company's Certificate of Incorporation to increase the number
of authorized shares of the Company's common stock from
20,000,000 to 500,000,000;
4. To approve the Company's 2007 Stock Incentive Plan;
5. To ratify the appointment of Sherb & Co., LLP as the Company's
independent auditors for the fiscal year ending June 30, 2007;
and
6. To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
WHO MAY ATTEND: Attendance is not limited to Gilman + Ciocia stockholders or
their representatives, however, to be admitted to the meeting, please present
valid picture identification.
WHO MAY VOTE: You may vote if you were a stockholder of record of Gilman +
Ciocia's common stock at the close of business on June 13, 2007, or if you hold
a proxy from a stockholder of record. Proof of ownership is required.
PROXY VOTING: Your vote is important. Please mark, sign, date and return the
enclosed proxy card in the postage-paid envelope.
By Order of the Board of Directors,
/s/ James C. Ciocia
James C. Ciocia
Chairman of the Board
Poughkeepsie, New York
June 18, 2007
PROXY STATEMENT
GILMAN + CIOCIA, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD July 19, 2007
WHAT IS THE PURPOSE OF THIS PROXY STATEMENT?
This proxy statement is being provided to you in connection with the
solicitation of proxies by the Board of Directors of Gilman + Ciocia, Inc. (the
"Company"). The proxies will be voted at the Company's Annual Meeting of
Stockholders (the "Meeting") and at any adjournment or adjournments thereof for
the purposes set forth in the accompanying Notice of Annual Meeting. The Meeting
will be held on July 19, 2007, at the offices of Blank Rome LLP, 405 Lexington
Avenue, 24th Floor, New York, New York 10174, beginning at 10:30 a.m., local
time. The Company's proxy statement and proxy card are being mailed to
stockholders beginning on or about June 22, 2007.
WHEN IS THE RECORD DATE FOR THE MEETING? WHO IS ELIGIBLE TO VOTE?
June 13, 2007 is the record date (the "Record Date") for determining the
stockholders entitled to notice of and to vote at the Meeting. On the Record
Date, 9,563,578 shares of the Company's common stock $0.01 par value per share
("Common Stock") were outstanding. The Common Stock is the only class of
securities entitled to vote at the Meeting.
Each outstanding share of Common Stock entitles its holder to one vote. Holders
of the Common Stock will vote together as a single class on all matters
presented at the Meeting.
WHAT IS THE QUORUM FOR THE MEETING?
A quorum is present if the holders of at least a majority of the shares of
Common Stock outstanding as of the Record Date are present in person or
represented by proxy at the Meeting. No business may be conducted at the Meeting
if a quorum is not present. Abstentions from voting and "broker non-votes,"
described below, will be counted in determining whether a quorum is present.
HOW MANY VOTES ARE NEEDED TO ACT ON PROPOSALS AT THE MEETING?
The election of the Company's directors requires the affirmative vote of the
holders of a plurality of the shares of Common Stock present in person or
represented by proxy at the Meeting, provided a quorum is present. Therefore,
the nominees receiving the greatest number of votes cast at the Meeting will be
elected as directors of the Company. Broker non-votes and abstentions will have
no effect on the election of directors.
The affirmative vote of a majority of the votes cast at the Meeting, provided a
quorum is present, is necessary to approve: (i) the proposed financing
transaction described in Proposal 2 (the "Proposed Financing"); (ii) the
Company's 2007 Stock Incentive Plan; and (iii) the ratification of the
appointment of Sherb & Co., LLP. The affirmative vote of the holders of a
majority of the shares of Common Stock entitled to vote at the Meeting is
necessary to approve the proposed amendment of the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 20,000,000 to 500,000,000.
An abstention from voting on any proposal described in the paragraph above has
the same effect as a vote against that proposal. Broker non-votes, if any, will
have no effect on the proposals described in Items (i) through (iii) above, but
will have the same effect as a vote "against" the proposed amendment to the
Certificate of Incorporation.
Pursuant to a voting agreement dated April 25, 2007, certain stockholders of the
Company, including Michael P. Ryan, President, Chief Executive Officer and a
director of the Company, Carol Enisman, Executive Vice President of Operations,
Dennis Conroy, Chief Accounting Officer of the Company, Ted H. Finkelstein, Vice
President and General Counsel of the Company and Prime Partners, Inc., a New
York corporation of which Mr. Ryan is a director, an officer and significant
shareholder ("Prime Partners"), whom in the aggregate are the beneficial owners
of 2,044,119 shares of Common Stock of the Company representing approximately
21.3% of the shares entitled to vote on the Record Date, agreed to vote such
shares in favor of Proposal 2 and the transactions contemplated by Proposal 2
and Proposal 3 (the Proposed Financing cannot be consummated unless Proposal 3
is also approved by the stockholders). See Proposal 2 "Voting Agreement".
Pursuant to a noteholder and stockholder agreement dated April 29, 2005, certain
stockholders of the Company, including James Ciocia, Chairman of the Board of
the Company, Dennis Conroy, Ted H. Finkelstein and Prime Partners, whom in the
aggregate are the beneficial owners of 2,702,534 shares of Common Stock of the
Company representing approximately 28.1% (which includes the 21.3% referred to
in the paragraph above) of the shares entitled to vote on the Record Date,
agreed to vote all such shares in favor of all matters recommended by a majority
of the Board of Directors of the Company.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
The Board recommends that you vote:
(1) FOR the election of the directors nominated by the Board;
(2) FOR the Company to engage in the Proposed Financing;
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(3) FOR the approval of the proposed amendment of the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 20,000,000 to 500,000,000;
(4) FOR the approval of the Company's 2007 Stock Incentive Plan; and
(5) FOR the ratification of the appointment of Sherb & Co., LLP as the Company's
independent auditors.
HOW MAY I VOTE SHARES REGISTERED IN MY NAME?
You may vote shares registered in your name in person at the Meeting or by
submitting a proxy before the Meeting.
You may vote by signing, dating and returning the proxy card in the enclosed
postage-paid envelope. Please sign the proxy card exactly as your name appears
on the card. If shares are owned jointly, each joint owner should sign the proxy
card. If a stockholder is a corporation or partnership, the proxy card should be
signed in the full corporate or partnership name by a duly authorized person. If
the proxy card is signed pursuant to a power of attorney or by an executor,
administrator, trustee or guardian, please state the signer's full title and
provide a certificate or other proof of appointment.
HOW ARE PROXIES VOTED?
All properly submitted proxies will be voted at the Meeting according to the
instructions given in the proxy. The Company's officers designated to vote the
proxies returned pursuant to this solicitation are Ted H. Finkelstein, Vice
President and General Counsel, Katherine Travis, Secretary and Dennis Conroy,
Chief Accounting Officer.
WHAT IF A PROPERLY EXECUTED PROXY CARD IS RETURNED WITHOUT ANY VOTING
INSTRUCTIONS?
If you are a stockholder of record and return an executed proxy card without
voting instructions, your shares will be voted:
(1) FOR the election of the directors nominated by the Board;
(2) FOR the Company to engage in the Proposed Financing;
(3) FOR the approval of the proposed amendment of the Company's Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock from 20,000,000 to 500,000,000;
(4) FOR the approval of the Company's 2007 Stock Incentive Plan; and
(5) FOR the ratification of the appointment of Sherb & Co., LLP as the Company's
independent auditors.
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IF I SUBMIT A PROXY, MAY I STILL VOTE MY SHARES AT THE MEETING?
Submitting a proxy will not limit your right to vote at the Meeting if you
decide to attend the Meeting and vote in person.
MAY I REVOKE A PROXY?
You may revoke your proxy prior to the Meeting (1) by providing written notice
to the Company's Vice President and General Counsel, Ted H. Finkelstein, at
Gilman + Ciocia, Inc., 11 Raymond Avenue, Poughkeepsie, New York 12603, or (2)
by submitting a later-dated proxy by mail. You may also revoke your proxy by
attending the Meeting and voting in person. Attending the Meeting will not, by
itself, revoke a proxy.
HOW DO I VOTE MY SHARES HELD IN "STREET NAME"?
If your shares are held in the name of a broker, bank or other record holder,
please provide voting instructions to the stockholder of record. You may also
obtain a proxy from the stockholder of record permitting you to vote in person
at the Meeting.
IF I HOLD SHARES IN A BROKERAGE ACCOUNT AND DO NOT RETURN VOTING INSTRUCTIONS,
WILL MY SHARES BE VOTED?
Brokerage firms may vote in their discretion on certain matters on behalf of
clients who did not provide voting instructions prior to the Meeting. Generally,
brokerage firms may vote on proposals to elect directors and on other routine
matters. A "broker non-vote" occurs when brokers or other nominees have not
received instructions from the beneficial owner or other person entitled to vote
shares as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote. The approval of the Proposed Financing and the 2007
Stock Incentive Plan are not considered routine. This means that, if your shares
are held in a brokerage account and you do not return voting instructions to
your broker by the broker's deadline, your shares may not be voted except on the
proposals to elect directors and to amend the Certificate of Incorporation.
"Broker non-votes" will not be considered in determining the number of votes
cast in connection with non-routine matters.
WHAT IF OTHER BUSINESS IS PRESENTED AT THE MEETING?
The Company has not received proper notice, and is not presently aware of any
business to be transacted at the Meeting other than as described in this proxy
statement. If any other item or proposal properly comes before the Meeting
(including, but not limited to, a proposal to adjourn the Meeting in order to
solicit votes in favor of any proposal contained in this proxy statement), the
proxies received will be voted in accordance with the discretion of the
directors designated to vote the proxies.
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WHO WILL COUNT THE VOTE?
It is expected that an executive of the Company will tabulate the votes and act
as inspector of the election.
HOW MAY I COMMUNICATE WITH THE BOARD OF DIRECTORS?
You may communicate with the Board of Directors individually or as a group by
writing to: The Board of Directors of Gilman + Ciocia, Inc., c/o Ted H.
Finkelstein, Vice President and General Counsel, 11 Raymond Avenue,
Poughkeepsie, New York 12603. You should identify your communication as being
from a Gilman + Ciocia stockholder. The Corporate Secretary may require
reasonable evidence that your communication or other submission is made by a
Gilman + Ciocia stockholder before transmitting your communication to the Board
of Directors.
PROPOSAL 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The Company's Certificate of Incorporation provides that the Company's Board of
Directors is divided into three classes (Class A, Class B and Class C) with
overlapping three-year terms. Because the stockholders have not elected any of
the directors to serve the current terms of their class, the Board has nominated
for stockholder approval one Class A director to hold office for a term expiring
at the Annual Meeting of Stockholders with respect to the fiscal year ending
June 30, 2007 (the "Fiscal 2007 Stockholder Meeting") which is currently
expected to be held in December 2007, two Class B directors to hold office for a
term expiring at the Annual Meeting of Stockholders with respect to the fiscal
year ending June 30, 2008 (the "Fiscal 2008 Stockholder Meeting"), which is
currently expected to be held in 2008 and two Class C directors to hold office
for a term expiring at the Annual Meeting of Stockholders with respect to the
fiscal year ending June 30, 2009 (the "Fiscal 2009 Stockholder Meeting"), which
is currently expected to be held in 2009 and, in each case, until his or her
successor has been duly elected and qualified.
The Board has previously passed a resolution whereby, effective as of this
Meeting, the number of directors shall be reduced from seven to five. Pursuant
to the terms of the Proposed Financing, subsequent to the closing of the
Proposed Financing, the Company shall increase the number of directors from five
to seven and appoint two directors designated by the Investors (defined in
Proposal 2) on terms set forth in a shareholder agreement, one of whom shall be
appointed to the Audit Committee. The Investors have indicated that they will
designate Nelson Obus and Frederick Wasserman (the "Investor Designees"). See
Proposal 2 "Shareholder Agreement".
The stockholders are being asked to elect five directors at the Meeting. The
stockholders are being asked to elect Mr. Cohen as a Class A director to serve
until the Fiscal 2007 Stockholder Meeting, Messrs. Ciocia and Ryan as Class B
directors to serve until the Fiscal 2008 Stockholder Meeting, and Messrs. Levy
and Page as Class C directors to serve until the Fiscal 2009 Stockholder
5
Meeting, in each case until a successor is elected and qualified or until his or
her earlier death, resignation or removal. The full Board nominated the
nominees. Mr. Levy was originally recommended as a director by Carl Vogt who was
at the time an outside auditor of the Company. Mr. Page was recommended by Mr.
Ryan, a management director and owner of Common Stock of the Company. The
accompanying proxy will be voted in favor of the following persons to serve as
directors unless the stockholder indicates to the contrary on the proxy.
Management expects that each of the nominees will be available for election, but
if any of them is unable to serve at the time the election occurs, the proxy
will be voted for the election of another nominee to be designated by the Board
of Directors. Ms. Kathryn Travis and Mr. Steven Gilbert, current directors of
the Company, are not standing for re-election at the Meeting.
CLASS A (term expires at the Fiscal 2007 Stockholder Meeting)
EDWARD H. COHEN, 68 - Mr. Cohen has been a director of the Company since August
2002. Mr. Cohen has been Counsel to the international law firm of Katten Muchin
Rosenman LLP since February 2002, and was prior thereto a partner in its
predecessor firms (with which he was affiliated since 1963). Mr. Cohen is a
director of Phillips-Van Heusen Corporation, a manufacturer and marketer of
apparel and footwear, Franklin Electronic Publishers, Incorporated, an
electronic publishing company, Levcor International, Inc., a marketer of craft
items to mass merchants, and Merrimac Industries, Inc., a manufacturer of RF
Microwave signal processing components and subsystem assemblies for industry,
government and science.
CLASS B (term expires at the Fiscal 2008 Stockholder Meeting)
JAMES CIOCIA, 51 - Mr. Ciocia, the Chairman of the Board, is a principal founder
of the Company having opened the Company's first tax preparation office in 1981.
In addition to serving the Company as its Chief Executive Officer until November
6, 2000, since April 8, 1999, Mr. Ciocia has been a registered representative of
the Company's subsidiary, Prime Capital Services, Inc., a registered securities
brokerage firm ("PCS"). Mr. Ciocia holds a B.S. in Accounting from St. John's
University.
MICHAEL RYAN, 49 - Mr. Ryan has served as the Company's President and Chief
Executive Officer since August 2002 and as a director of the Company since 1999.
Mr. Ryan co-founded PCS and has served as its President since its founding in
1987. Mr. Ryan is a founding member and past President of the Mid-Hudson Chapter
of the International Association for Financial Planning. Mr. Ryan is a
Registered Principal with the National Association of Securities Dealers, Inc.
("NASD") and serves on the Independent Firms Committee of the Securities
Industry Association. Mr. Ryan holds a B.S. in Finance from Syracuse University.
Mr. Ryan was first elected as a director of the Company in 1999. Mr. Ryan is
married to Carole Enisman, the Executive Vice President of Operations of the
Company.
6
CLASS C (term expires at the Fiscal 2009 Stockholder Meeting)
JOHN F. LEVY, 51 - Mr. Levy has been a director of the Company since October
2006. Since May 2005, Mr. Levy has served as the Chief Executive Officer of
Board Advisory Services, a consulting firm which advises public companies in the
areas of corporate governance, corporate compliance, financial reporting and
financial strategies. From November 1997 to August 2004, Mr. Levy served as
chief financial officer of MediaBay, Inc., a NASDAQ company and leading provider
of premium spoken word audio content. While at MediaBay, he also served for a
period as its Vice Chairman. Mr. Levy is a Certified Public Accountant with nine
years experience with the national public accounting firms of Ernst & Young,
Laventhol & Horwath and Grant Thornton. Mr. Levy is a director and Chairman of
the Audit Committee of Take-Two Interactive Software, Inc., a publicly traded
company that develops, markets, distributes and publishes interactive
entertainment software games. Mr. Levy has a B.S. degree in economics from the
Wharton School of the University of Pennsylvania and received his M.B.A. from
St. Joseph's University in Philadelphia.
ALLAN R. PAGE, 60 - Mr. Page has been a director of the Company since October
2006. Mr. Page is the principal of A. Page & Associates LLC, an international
consulting firm he founded in 2002 that is engaged in project development and
advisory work in the energy market sector. Mr. Page is also Chairman and
cofounder of The Hudson Renewable Energy Institute, Inc. a not for profit
corporation promoting market applications for the public use of renewable
energy. Prior to founding A. Page & Associates, Mr. Page spent more than thirty
years with the CH Energy Group Inc., holding a variety of positions including
President. Mr. Page started his employment as a distribution engineer at Central
Hudson Gas and Electric, the principal subsidiary of the CH Energy Group and was
the executive responsible for the development of a family of competitive
business units for CH Energy Group. The competitive businesses included an
electric generation company, an energy services company, and fuel oil companies
operating along the eastern sea board. Mr. Page holds B.S. degrees in physics,
civil engineering and electrical engineering and a masters degree in industrial
administration, all from Union College.
Director Independence
Although its securities are traded over-the-counter on what is known as the
"Grey Market" and are not traded on Nasdaq or any other national securities
exchange and are therefore not subject to the rules and regulations of Nasdaq,
the Board has determined that Edward H. Cohen, Allan R. Page and John F. Levy
would meet the requirements to be an "independent director" under applicable
Nasdaq rules. In making determinations regarding a director's independence, the
Board considers all relevant facts and circumstances, including the director's
commercial, banking, consulting, legal, accounting, charitable and familial
relationships, and such other criteria as the Board may determine from time to
time.
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Board Meetings
During the fiscal year ended June 30, 2006, the Board of Directors held seven
(7) meetings, six (6) of which were by teleconference. In addition, the Board
took action one (1) time by unanimous written consent in lieu of a meeting.
During 2006, each of the Company's directors attended at least seventy-five
percent of the number of meetings of the Board of Directors.
Board Committees
The Company does not have standing compensation or nominating committees of the
Board. Rather, the entire Board undertakes the duties of compensation and
nominating committees. The Board believes it is appropriate not to have a
compensation or nominating committee because the Company's securities are not
listed on any national securities exchange and the Company is not required to
have a compensation or nominating committee.
The Board established a standing Audit Committee in October 2006. The members of
the Audit Committee are John F. Levy (Chairman) and Allan R. Page. The Board has
determined Mr. Levy to be an "audit Committee financial expert" as defined in
Item 407 of Regulation S-K. Since its formation, the Audit Committee has held
three meetings. The Audit Committee's charter provides that the purpose of the
Audit Committee is to represent and assist the Board in its general oversight of
the Company's accounting and financial reporting processes, audits of the
financial statements and internal control and audit functions. A copy of the
Audit Committee's charter is attached to this Proxy Statement as Exhibit A.
The Board established a non-standing Finance Committee in October 2006. The
members of the Finance Committee are John F. Levy (Chairman) and Allan R. Page.
The purpose of the Finance Committee is to review the Company's financial
structure and other ancillary matters and to provide advice and guidance to the
Board regarding such matters. The Finance Committee has reviewed and recommended
to the Board that it approve the Proposed Financing. See Proposal 2.
Compensation Committee Interlocks And Insider Participation
As noted above, the Board of Directors does not have a compensation committee.
The entire Board currently undertakes the duties of a compensation committee.
Mr. Ryan, the President and Chief Executive Officer of the Company, and a
director, participated in deliberations of the Board concerning executive
officer compensation other than with respect to the compensation for himself.
Pursuant to the terms of the Proposed Financing, the Company will be
establishing and maintaining a compensation committee which shall be comprised
of three independent members of the Board, one of whom shall be one of the
Investor Designees, Nelson Obus or Frederick Wasserman. See Proposal 2
"Shareholder Agreement". Mr. Ryan and the Company have agreed to enter into an
employment agreement reasonably satisfactory to the Board and the Investors (as
defined in Proposal 2 under the section entitled "Purchase Agreement").
8
CONSIDERATION OF DIRECTOR NOMINEES
Stockholders wishing to recommend director candidates must submit their
recommendations in writing to Ted H. Finkelstein, Vice President and General
Counsel, Gilman + Ciocia, Inc., 11 Raymond Avenue, Poughkeepsie, New York 12603.
The Board will consider nominees recommended by the Company's stockholders
provided that the recommendation contains sufficient information for the Board
to assess the suitability of the candidate, including the candidate's
qualifications. Candidates recommended by stockholders that comply with these
procedures will receive the same consideration that candidates initially
recommended by the Board receive. The recommendations must also state the name
of the stockholder who is submitting the recommendation. In addition, it must
include information regarding the recommended candidate relevant to a
determination of whether the recommended candidate would be barred from being
considered independent under NASDAQ Marketplace Rule 4200, or, alternatively, a
statement that the recommended candidate would not be so barred. A nomination
which does not comply with the above requirements will not be considered. The
qualities and skills sought in prospective members of the Board are determined
by the Board. The Board generally requires that director candidates be qualified
individuals who, if added to the Board, would provide the mix of director
characteristics, experience, perspectives and skills appropriate for the
Company. Criteria for selection of candidates will include, but not be limited
to: (i) business and financial acumen, as determined by the Board in its
discretion, (ii) qualities reflecting a proven record of accomplishment and
ability to work with others, (iii) knowledge of the Company's industry, (iv)
relevant experience and knowledge of corporate governance practices, and (v)
expertise in an area relevant to the Company. Such persons should not have
commitments that would conflict with the time commitments of a Director of the
Company. Such persons shall have other characteristics considered appropriate
for membership on the Board of Directors, as determined by the Board.
DEADLINE FOR SUBMITTING BOARD NOMINATIONS
A stockholder wishing to nominate a candidate for election to the Board at the
Fiscal 2007 Stockholder Meeting, which is currently expected to be held in
December, is required to give written notice containing the required information
specified above so that it is received by the Company no later than August 15,
2007.
EXECUTIVE OFFICERS
All officers serve at the discretion of the Company's Board of Directors. The
Board of Directors elects the Company's officers on an annual basis and its
officers serve until their successors are duly elected and qualified.
In addition to Mr. Ryan, the other executive officers of the Company, their
positions with the Company and certain other information with respect to these
officers, as of the Record Date, are set forth below:
9
Name Age Position
- ------------------ --- --------------------------------------
Carole Enisman 48 Executive Vice President of Operations
Ted H. Finkelstein 53 Vice President and General Counsel
Kathryn Travis 59 Secretary
Dennis Conroy 35 Chief Accounting Officer
Karen Fisher 41 Controller and Treasurer
CAROLE ENISMAN, EXECUTIVE VICE PRESIDENT OF OPERATIONS, 48 - Ms. Enisman was
appointed the Executive Vice President of Operations of the Company in November
2004. Ms. Enisman began her career with the Company in 1990 as a Financial
Planner. She served as Director of Operations and then Senior Vice President of
Operations of PCS from 1994-1999. Ms. Enisman has been the Chief Operating
Officer of PCS since April 1999. Ms. Enisman graduated from the University of
Miami (Florida) with degrees in Economics and Political Science.
TED H. FINKELSTEIN, VICE PRESIDENT AND GENERAL COUNSEL, 53 - Mr. Finkelstein has
been Vice President and General Counsel of the Company since February 2007. He
was Associate General Counsel of the Company from October 11, 2004 to February
1, 2007. Mr. Finkelstein was Vice President and General Counsel of the Company
from June 1, 2001 to October 11, 2004. Mr. Finkelstein has a Bachelor of Science
degree in Accounting. He is a Cum Laude graduate of Union University, Albany Law
School and also has a Master of Laws in Taxation from New York University Law
School. Mr. Finkelstein has over 25 years of varied legal experience including
acting as outside counsel for PCS for over 15 years.
KATHRYN TRAVIS, SECRETARY AND DIRECTOR, 59 - Ms. Travis began her career with
the Company in 1986 as an accountant and has served as Secretary and a director
since November 1989. Ms. Travis currently supervises all tax preparation
personnel and she is a registered representative of PCS. Ms. Travis holds a B.A.
in Mathematics from the College of New Rochelle.
DENNIS CONROY, CHIEF ACCOUNTING OFFICER, 35 - Mr. Conroy began his career with
the Company in 1998 as an accountant for its subsidiary, Prime Financial
Services, Inc. He was appointed as the Company's Chief Accounting Officer
effective January 6, 2004. He has a Bachelor of Science degree in Accounting. He
is a registered Financial and Operations Principle with the NASD.
KAREN FISHER, CONTROLLER AND TREASURER, 41 - Ms. Fisher has been the Controller
of the Company since March 2005 and was appointed Treasurer on May 25, 2007. Ms.
Fisher is a Certified Public Accountant and holds a B.S. in Accounting from
Arizona State University and an A.A.S. in Computer Information Systems from
10
Dutchess Community College. Prior to joining the Company, Ms. Fisher was
employed by Thomson Financial as Director of Financial Reporting and Accounting
from March 2002 until March 2005 and the New York Times Company as Manager of
Financial Reporting from July 1998 until July 2001. Ms. Fisher has over eight
years of experience in public reporting and accounting. Prior to returning to
New York, Ms. Fisher was the Assistant Controller for an engineering firm in
Phoenix, AZ, where she was employed for over nine years.
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the compensation of the Company's Chief Executive
Officer, and the three other most highly compensated executive officers who
served during the fiscal year ended June 30, 2006 (collectively, the "Named
Executive Officers") and information with respect to compensation earned by the
Named Executive Officers during the last three fiscal years:
Summary Compensation Table
Fiscal Other Annual All Other
Year Salary Bonus Compensation Compensation
------ ------ ----- ------------ ------------
Michael Ryan, Chief
Executive 2006 $299,078 $82,305(3) $- $26,807(1)
Officer and Director 2005 $279,789 $68,166(3) $- $31,117(1)
2004 291,077 19,759(3) $- 29,869(1)
Carole Enisman, Executive Vice 2006 $211,846 $8,207(3) $- $13,631(2)
President of Operations (4) 2005 $201,882 $4,313(3) $- $13,731(2)
2004 208,892 19,816(3) $- 15,283(2)
Kathryn Travis, Secretary and
Director 2005 $204,000 $- $- $8,400(2)
2005 $204,000 $- $- $8,400(2)
2004 204,000 - - 8,658(2)
Dennis Conroy, Chief Accounting 2006 $122,308 $- $- $-
Officer 2005 $126,154 $1,923 $- $-
2004 113,846 - - -
(1) Auto expense and club membership
(2) Auto expense
(3) Compensation earned in prior years
(4) Ms. Enisman was appointed Executive Vice President of Operations on
November 15, 2004
11
Option Grants
The Company did not grant any options to purchase shares of Common Stock to the
Named Executive Officers during fiscal 2006.
Aggregated Option Exercises in the Last Fiscal Year and 2006 Year-End Option
Values
The following table sets forth for each of the Named Executive Officers (i) the
number of options exercised during fiscal 2006, (ii) the total number of
unexercised options for Common Stock (exercisable and unexercisable) held at
June 30, 2006, and (iii) the value of those options that were in-the-money on
June 30, 2006, based on the difference between the closing price of Common Stock
on June 30, 2006 and the exercise price of the options on that date.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED STOCK OPTIONS AT IN-THE-MONEY STOCK OPTIONS AT
JUNE 30, 2006 JUNE 30, 2006
----------------------------- ---------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
Michael Ryan, President and Chief - $ - 250,000 - $ - $ -
Executive Officer and Director
Carole Enisman, Executive Vice - $ - - - $ - $ -
President of Operations
Kathryn Travis, Secretary and - $ - - - $ - $ -
Director
Dennis Conroy, Chief Accounting - $ - - - $ - $ -
Officer
Employment Contracts with Executive Officers
Ted Finkelstein is the only executive who has an employment agreement with the
Company. The Company entered into the agreement with Mr. Finkelstein on October
11, 2004 which provides for his employment as Associate General Counsel for a
term commencing in October 2004 and expiring on October 11, 2007 at an annual
base salary of $100,000. The agreement provides that Mr. Finkelstein shall work
three days per week, for approximately nine hours per day. On February 1, 2007,
Mr. Finkelstein was appointed the Company's Vice President and General Counsel
on a full time basis at an annual base salary of $160,000 and his employment
agreement dated October 11, 2004 for employment as Associate General Counsel was
terminated. Mr. Finkelstein is entitled to participate fully in such employee
stock option plans or employee stock purchase plans applicable to employees of
the Company. Mr. Finkelstein is also entitled to customary benefits, including
participation in employee benefit plans, health plans, and reasonable travel and
entertainment expenses similar to those offered to other employees of the
Company.
12
Director Compensation
Independent directors are paid $12,500 per year plus $500 per meeting attended
(in person or telephonically). In addition, each independent director is
entitled to receive either a five-year option with respect to 3,000 shares or
4,000 shares of restricted stock. Each member of the Audit Committee other than
the Chairman is paid $2,500 per year for his service on the Audit Committee. The
Chairman of the Audit Committee is paid $5,000 per year for his service as
Chairman. Each member of the Finance Committee other than the Chairman is paid
$2,500 per year for his service on the Finance Committee. The Chairman of the
Finance Committee is paid $7,500 per year for his service as Chairman. On
February 1, 2007, the Board authorized an additional $5,000 payment to Mr. Levy
for his services as Chairman of the Finance Committee and authorized the payment
of $5,000 to Mr. Page for his services as a member of the Finance Committee.
Legal Proceedings
On February 4, 2004, a class and derivative action was commenced against the
Company in the Court of Chancery of the State of Delaware in and for New Castle
County under Civil Action No. 188-N by Gary Kosseff, Plaintiff, against James
Ciocia, Thomas Povinelli, Michael Ryan, Kathryn Travis, Seth A. Akabas, Louis P.
Karol, Edward H. Cohen, Steven Gilbert and Doreen Biebusch, Defendants and
Gilman & Ciocia, Inc., as a nominal defendant. Plaintiffs allege that the
Company, the Board of Directors and the management, breached their fiduciary
duty of loyalty in connection with the sale of forty seven offices to Pinnacle
Taxx Advisors, LLC ("Pinnacle", an entity controlled by former executives of the
Company). The action alleges that the Company's sale to Pinnacle was for
inadequate consideration and without a fairness opinion by independent financial
advisors, without independent legal advice and without a thorough evaluation and
vote by an independent committee of the Board of Directors. Plaintiffs request a
declaration that the Company, its Boards of Directors and its management
breached their fiduciary duty and other duties to the plaintiff and to the other
members of the purported class; a rescission of the sale agreement; unspecified
monetary damages; and an award to the plaintiff of costs and disbursements,
including reasonable legal, expert and accountants fees. The case was scheduled
for trial on June 4, 2007, but was adjourned without date pending settlement
negotiations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
5% Holders
The following tables set forth, as of the Record Date, (i) the holdings of the
only persons known to the Company to beneficially own more than 5% of the
Company's outstanding Common Stock, the only class of voting securities issued
by the Company and (ii) the holdings of Common Stock of the Company's executive
officers and directors. Except as indicated in the footnotes to this table and
the table following and pursuant to applicable community property laws, the
Company believes that the persons named in the table and the table following
13
have sole voting and investment power with respect to all shares of Common
Stock. For each individual or group included in the table and the table
following, such person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days from the Record Date. Each
beneficial owner's percentage ownership is determined by assuming that options,
warrants or other rights to acquire securities that are held by such person (but
not those held by any other person) and which are exercisable within 60 days of
the Record Date have been exercised.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- --------------------------------------------------------------------------------
Michael P. Ryan
11 Raymond Avenue
Poughkeepsie, NY 12603 2,511,643 26.2% (1)
Prime Partners, Inc.
11 Raymond Avenue
Poughkeepsie, NY 12603 1,634,716 17.0%
Ralph Porpora
11 Raymond Avenue
Poughkeepsie, NY 12603 1,634,716 17.0% (2)
Rappaport Gamma Limited Partners
Investment Trust
13907 Carrolwood Village Run
Tampa, FL 33624 560,000 5.8%
James Ciocia
35-50 Francis Lewis Blvd. Suite 205
Flushing, NY 11358 593,316 6.2% (3)
Carole Enisman
11 Raymond Avenue
Poughkeepsie, NY 12603 1,098,839 11.4% (4)
(1) 6,000 shares are beneficially owned by Mr. Ryan personally, 13,541 shares
are beneficially owned by Mr. Ryan's wife, Carole Enisman (the Executive Vice
President of Operations of the Company) of which Mr. Ryan disclaims beneficial
ownership; 1,634,713 shares are beneficially owned by Prime Partners, Inc. of
which Mr. Ryan is a shareholder, officer and director,; and includes 857,386
shares to which Mr. Ryan has shared voting power under a Noteholder and
Stockholder Agreement dated April 29, 2005. The 1,634,713 shares include shares
issued as interest on a promissory note (the "Purchasing Group Note") in the
present principal balance of $750,000 between the Company and a group of Company
management and employees (the "Purchasing Group"). The members of the Purchasing
Group include Prime Partners, James Ciocia, the Chairman of the Company,
Christopher Kelly, former General Counsel of the Company, Kathryn Travis, the
Secretary and a director of the Company, Dennis Conroy, the Chief Accounting
Officer of the Company, Ted Finkelstein, the present Vice President and General
Counsel of the Company, and certain other Company employees.
(2) Includes 1,634,716 shares beneficially owned by Prime Partners. Mr. Porpora
is a shareholder, officer and director of Prime Partners.
(3) 593,216 of such shares are held jointly with Tracy Ciocia, Mr. Ciocia's
wife; 9,100 shares are held as custodian for Mr. Ciocia's sons.
(4) Includes 1,085,298 shares to which Ms. Enisman has shared voting power under
the Purchasing Group Note.
14
Directors and Executive Officers
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- --------------------------------------------------------------------------------
Michael P. Ryan
11 Raymond Avenue
Poughkeepsie, NY 12603 2,511,643 26.2% (1)
Steven Gilbert
2420 Enterprise Road, Suite 100
Clearwarter, FL 33763 414,927 4.2% (2)
James Ciocia
35-50 Francis Lewis Blvd. Suite 205
Flushing, NY 11358 593,316 6.2% (3)
Kathryn Travis
375 North Broadway, Suite 203
Jericho, NY 11753 227,246 2.4%
Carole Enisman
11 Raymond Avenue
Poughkeepsie, NY 12603 1,098,839 11.4% (4)
Edward H. Cohen
C/O Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, NY 10022 1,000 *
John Levy - **
11 Raymond Avenue
Poughkeepsie, NY 12603
Allan Page - **
11 Raymond Avenue
Poughkeepsie, NY 12603
Karen Fisher - **
11 Raymond Avenue
Poughkeepsie, N.Y. 12603
Ted Finkelstein
11 Raymond Avenue
Poughkeepsie, NY 12603 333,498 3.5% (5)
Dennis Conroy
11 Raymond Avenue
Poughkeepsie, NY 12603 56,364 0.6%
Executive Officers and Directors as a group 3,436,508 35.8%
(11 Persons)
15
1) 6,000 shares are beneficially owned by Mr. Ryan personally, 13,541 shares are
beneficially owned by Mr. Ryan's wife, Carole Enisman (the Executive Vice
President of Operations of the Company) of which Mr. Ryan disclaims beneficial
ownership; 1,634,713 shares are beneficially owned by Prime Partners, of which
Mr. Ryan is a shareholder, officer and director,; and includes 857,386 shares to
which Mr. Ryan has shared voting power under a Noteholder and Stockholder
Agreement dated April 29, 2005. The 1,634,713 shares include shares issued as
interest on the Purchasing Group Note in the present principal balance of
$750,000 between the Company and the Purchasing Group. The members of the
Purchasing Group include Prime Partners, James Ciocia, the Chairman of the
Company, Christopher Kelly, former General Counsel of the Company, Kathryn
Travis, the Secretary, Treasurer and a director of the Company, Dennis Conroy,
the Chief Accounting Officer of the Company, Ted Finkelstein, the present Vice
President and General Counsel of the Company, and certain other Company
employees.
(2) Includes 30,000 shares held as custodian for Mr. Gilbert's sons; includes
100,000 shares, 75,000 shares, 70,000 shares, and 70,000 shares issuable upon
exercise of options at $4.75, $13.75, $0.33, and $2.15, respectively, per share.
Mr. Gilbert is a director of the Company who is not standing for re-election at
the Meeting.
(3) 593,216 of such shares are held jointly with Tracy Ciocia, Mr. Ciocia's
wife; 9,100 shares are held as custodian for Mr. Ciocia's sons.
(4) Includes 1,085,298 shares to which Ms. Enisman has shared voting power under
the Purchasing Group Note.
(5) Includes 10,000 shares issuable upon the exercise of options at a price of
$6.00.
(*) Less than 1%
(**) No ownership
Certain Relationships and Related Transactions
James Ciocia, the Company's Chairman of the Board and a financial planner for
the Company, receives commissions based on a variable percentage of his own
business production under which he received an aggregate of $469,444 in fiscal
2006 and an aggregate of $477,547 in fiscal 2007 to date.
Michael Ryan, the Company's Chief Executive Officer and President, is one of the
general partners in a limited partnership called Prime Income Partners, L.P.
which owned the building in Poughkeepsie, New York occupied by the home office
of the Company. During fiscal 2006, the Company paid $390,024 to Prime Income
Partners, L.P. for rent and related charges. Management believes the amounts
charged to the Company for rent to be commensurate with the rental rate that
would be charged by an independent third party. On July 1, 2006, Prime Income
Partners, L.P. sold the building to a third party at which time the Company
entered into new market rate leases for the office space for its executive
headquarters with the new owner.
Mr. Ryan is a director, an officer and significant shareholder of Prime
Partners. In fiscal 2006, Prime Partners extended short-term loans to the
Company in the aggregate principal amount of $3.1 million for working capital
purposes. The loans bear 10% interest per annum. As of June 30, 2006, the
outstanding principal balance of these loans was $2.1 million. For the nine
months ended March 31, 2007, Prime Partners provided additional short-term loans
to the Company in the aggregate amount of $1.7 million for working capital
purposes. These loans also bear interest at 10% per annum. As of March 31, 2007,
the outstanding principal balance of all loans made to the Company by Prime
Partners was $2.8 million. These loans are payable on June 30, 2007.
16
A trust, of which Ted H. Finkelstein, the Company's Vice President and General
Counsel, is the trustee ("the Trust"), made a short-term loan to Prime Partners
for $300,000 on July 18, 2006, which accrues interest at 10% per annum. On
October 16, 2006, the Trust made an additional short-term loan to Prime Partners
for $220,000, which accrues interest at 10% per annum. As of March 31, 2007,
Prime Partners owed the Trust $520,000 in principal which was payable on April
15, 2007. The due date has been extended to June 30, 2007. As security for the
$520,000 loans, Prime Partners gave the Trust a security interest in a note
dated January 29, 2004 in the current principal amount of $640,885 related to
the sale of two Company subsidiaries that the Company assigned to Prime Partners
on May 22, 2006 and a security interest in the notes that the Company owes to
Prime Partners which are payable on June 30, 2007.
In connection with the Proposed Financing, Prime Partners delivered a letter
agreement relating to its agreement to purchase shares in the event that certain
shares are not sold otherwise. See Proposal 2 "Placement Purchase Agreement".
REPORT ON EXECUTIVE COMPENSATION
The Board of Directors, in the absence of a Compensation Committee, is
responsible, among other things, for reviewing and approving the compensation
for the Chief Executive Officer and the other executive officers of the Company
(collectively "executives"). The Board also reviews and approves various other
compensation policies and programs of the Company, including long-term incentive
programs and benefits.
The Company operates in a highly competitive and rapidly changing environment
and its success is greatly dependent on its ability to recruit and retain key
executive talent. The primary objective of the Company's executive compensation
program is to enhance stockholder value through the attraction, motivation and
retention of the executives who will contribute to the Company's success.
The Company's current compensation philosophy was developed subsequent to the
change in senior management in September 2002 and encompasses the following
fundamental principles:
o Executive compensation will be market competitive.
o Compensation programs will be clear and performance-based
compensation will be based on the outcome that the executive can
affect.
o Annual base salary will be benchmarked with a peer group of
financial industry companies and competitive with executives in
similar roles.
o The Company's compensation program currently has one element, base
salary. The Company expects to expand its compensation program to
incorporate performance-based compensation including cash bonuses,
stock options, and long-term incentives, once it has returned to
profitability.
17
Chief Executive Officer Compensation
The Chief Executive Officer's base salary was determined by the Board in
September 2002. In fiscal 2006, Mr. Ryan received $288,000 for his annual base
salary and received payment on bonuses earned and accrued in prior fiscal years
of $82,305. Additionally, Mr. Ryan received $11,078 as payment towards
compensation earned and accrued in previous years. In fiscal 2005, Mr. Ryan
received $279,789 of his $288,000 annual base salary and received payment on
bonuses earned in past periods of $68,166. The remaining balance of $8,211 due
Mr. Ryan for his 2005 annual base salary was paid in 2006.
Respectively submitted,
THE BOARD OF DIRECTORS
James C. Ciocia
Michael Ryan
Edward H. Cohen
Allan R. Page
John F. Levy
Kathryn Travis
Steven Gilbert
STOCK PERFORMANCE GRAPH
The following graph sets forth for the five year period ended June 30, 2006, the
cumulative total stockholder return to the Company's stockholders, as well as
the cumulative total return of the NASDAQ Market Index and the cumulative total
return of a peer group consisting of H&R Block and Jackson Hewitt Tax Service.
The performance graph assumes that $100 was invested at the market close on June
30, 2001.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG GILMAN & CIOCIA, INC.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
[PERFORMANCE CHART OMITTED]
[The following table was depicted as a line chart in the printed material.]
FISCAL YEAR ENDING
----------------------------------------------------------------
COMPANY/INDEX/MARKET 6/29/2001 6/28/2002 6/30/2003 6/30/2004 6/30/2005 6/30/2006
Gilman & Ciocia, Inc. 100.00 36.64 5.14 17.12 14.73 6.85
Customer Selected Stock List 100.00 145.16 138.33 155.04 194.38 169.55
NASDAQ Market Index 100.00 67.83 75.43 95.93 95.82 101.99
18
PROPOSAL 2
TO AUTHORIZE THE COMPANY TO ENGAGE IN A FINANCING
The Board of Directors of the Company has unanimously adopted a resolution and
submits to stockholders for approval, a proposal authorizing the Company to
engage in the Proposed Financing as described more fully below.
Description of the Proposed Financing - General
The Company intends to raise $8,000,000 through the issuance and sale of
40,000,000 shares of Common Stock to the Investors (as defined below) and an
additional 40,000,000 shares of Common Stock to certain other purchasers (the
"Additional Purchasers") who may include officers, directors and employees of
the Company. As a result of the Proposed Financing, each current stockholder's
equity interests in the Company will be substantially diluted as described in
"Dilution to Current Stockholders" below.
Reasons for the Proposed Financing
The Proposed Financing will enable the Company to reduce its outstanding debt
and other liabilities by (i) the payment to MetLife Insurance Company of
Connecticut ("MetLife") in the amount of $2,375,000 in full satisfaction of the
Company's outstanding loan which has a current balance of principal and accrued
interest totaling approximately $6,728,600 (the "MetLife Payoff Amount"), (ii) a
principal payment and a fee in such amounts as are mutually agreeable with
Wachovia Bank, National Association ("Wachovia"), the Company's senior lender,
and (iii) the conversion of outstanding debt and other liabilities of the
Company pursuant to the purchase of Common Stock by the Additional Purchasers.
These combined actions will improve the Company's balance sheet by eliminating
approximately $10,778,600 of the approximately $22,748,000 of aggregate
indebtedness outstanding. In addition, the Company is in need of additional
financing to fund its working capital requirements.
Investor Purchase Agreement
On April 25, 2007, the Company entered into an Investor Purchase Agreement (the
"Purchase Agreement") with Wynnefield Small Cap Value Offshore Fund, Ltd.,
Wynnefield Partners Small Cap Value, L.P., Wynnefield Partners Small Cap Value,
L.P. I and WebFinancial Corporation (the "Investors"). Pursuant to the Purchase
Agreement, the Investors agreed to purchase from the Company 40,000,000 shares
of Common Stock at a purchase price of $0.10 per share (the "Purchase"). Upon
the execution of the Purchase Agreement, the aggregate purchase price of
$4,000,000 was placed into an escrow account ("Escrow Account") pending the
closing of the Purchase.
Prior to the Company executing the Purchase Agreement, the Finance Committee
reviewed the terms and conditions of the Proposed Transaction and recommended
that the Company proceed with the Proposed Transaction. The Finance Committee
subsequently negotiated the final terms the transaction with the Purchasers on
behalf of the Company.
19
The Purchase Agreement provides that the closing of the Purchase must take place
on or prior to October 31, 2007 and is subject to a number of closing conditions
including but not limited to (i) approval by the Company's stockholders of the
Purchase Agreement and the transactions contemplated thereby including the
purchase of an additional 40,000,000 shares of the Company's common stock
pursuant to the Placement Purchase Agreement (defined below), (ii) stockholder
approval of an increase in the authorized capital stock of the Company to
500,000,000 shares, (iii) approval of the Proposed Financing by Wachovia, (iv)
the Company directing payment of $2,375,000 from the Escrow Account to MetLife,
(v) the Company, the Investors and the Additional Purchasers will have entered
into a registration rights agreement (described below under "Registration
Rights"), (vi) the Company, the Investors and the Additional Purchasers having
entered into a shareholder agreement simultaneously with the closing (the
"Shareholder Agreement") (described below under "Shareholder Agreement"), and
(vii) the Company having entered into an employment agreement with its Chief
Executive Officer, Michael Ryan, on terms satisfactory to the Board and the
Investors.
Placement Purchase Agreement
As a condition to closing the Purchase, the Company has agreed to enter into a
purchase agreement (the "Placement Purchase Agreement") with the Additional
Purchasers pursuant to which the Additional Purchasers will purchase an
additional 40,000,000 shares of Common Stock at a purchase price of $0.10 per
share payable in cash or upon the conversion of outstanding debt or other
liabilities of the Company owed to the Additional Purchasers (the "Additional
Purchase"). As an inducement to the Investors to enter into the Purchase
Agreement, Prime Partners delivered a letter agreement relating to its agreement
to purchase shares pursuant to the Placement Purchase Agreement. Michael Ryan,
the Company's President and Chief Executive Officer is the President, a director
and a significant shareholder of Prime Partners. The letter agreement requires
Prime Partners to purchase up to an aggregate of 36,000,000 shares of Common
Stock (through the conversion of debt or otherwise) in the event that the
Additional Purchasers do not purchase an aggregate of 40,000,000 shares of
Common Stock to be sold pursuant to the Placement Purchase Agreement. In
addition, Prime Partners, Michael Ryan and Ralph Porpora (a principal
stockholder of Prime Partners) waived any and all rights previously granted to
them by the Company pursuant to a registration rights agreement dated April 5,
1999 as a material inducement for the Investors to enter into the Purchase
Agreement.
Debt Conversion Agreement
At the closing of the Additional Purchase, certain of the Additional Purchasers
will purchase shares of Common Stock either by payment in cash or through the
conversion of debt owed to such Additional Purchaser by the Company pursuant to
a debt conversion agreement (a "Debt Conversion Agreement") or by a combination
of each. Each party to a Debt Conversion Agreement will agree to accept shares
as cancellation of the Company's obligations in full satisfaction of the
Company's obligation to pay the obligations.
20
Registration Rights
In connection with the Proposed Financing, the Company is required to enter into
a registration rights agreement (the "Registration Rights Agreement") with the
Investors and the Additional Purchasers whereby the Company will agree to
register, at its expense, for resale by all such Investors and Additional
Purchasers the shares of Common Stock beneficially owned by such Investors and
Additional Purchasers (the "Registrable Shares"). The Company's obligations
under the Registration Rights Agreement with respect to such registration are as
follows:
Automatic Registration Statement. The Company will use its commercially
reasonable efforts to file with the Securities and Exchange Commission (the
"SEC") a registration statement (the "Automatic Registration Statement") for
such purposes as soon as is practicable following the closing of the Proposed
Financing (but no later than the later of (x) forty-five (45) days after the
closing and (y) thirty (30) days after the Company has filed its annual report
on Form 10-K for the fiscal year ending June 30, 2007).
Demand Registration Statement. In the event that the Company is unable to
register all of the Registrable Shares in the Automatic Registration Statement,
on one occasion, upon the demand by holders of a majority of the then
Registrable Shares, commencing six months after the Automatic Registration
Statement is declared effective by the SEC, the Company will be required to use
commercially reasonable efforts to file with the SEC a registration statement
(the "Demand Registration Statement") relating to the offer and sale of such
Registrable Shares by the holders and to keep the Demand Registration Statement
continuously effective, other than during certain black out periods, in order to
permit the prospectus forming part thereof to be usable by holders of
Registrable Shares for a period of 365 days from the date that the Demand
Registration Statement is declared effective by the SEC.
The Company is required to make pro rata payments to each Investor and
Additional Purchaser if the Company fails to comply with the terms and
conditions of the Registration Rights Agreement with respect to the Automatic
Registration Statement or the Demand Registration Statement, as liquidated
damages. Any such payments will not exceed the aggregate amount paid by such
Investor or Additional Purchaser for their Registrable Shares, as the case may
be, plus certain attorney fees.
Tag-Along Rights. If, at any time during the period commencing on the one year
anniversary of the closing, the Company proposes to prepare and file a
registration statement relating to the sale by the Company of Common Stock in an
underwritten public offering, other than pursuant to SEC Form S-4, Form S-8 or a
successor form the Investors and Additional Purchasers will have rights to
include certain of their Registrable Shares in such registration statement
subject to the underwriter's right to exclude the Registrable Shares under
certain circumstances. In addition, the parties to the Registration Rights
Agreement will have the right to an underwritten demand registration if (i) the
21
Company has failed to file the reports required to be filed by it under the
Securities Exchange Act of 1934, necessary to permit the holders to make sales
of Common Stock under Rule 144 for a period of 60 or more consecutive trading
days (the "Rule 144 Default Period") and (ii) during the Rule 144 Default Period
the Company has not offered to purchase all of the Registrable Shares then held
by the holders at a price per share equal to the average closing sales price of
the Common Stock during the ten (10) trading days ending on the second trading
day immediately preceding the date on which the Company makes a written offer to
purchase, and (iii) the Registrable Shares are not covered by an effective
registration statement.
Shareholder Agreement
Pursuant to the Investor Purchase Agreement and the Placement Purchase
Agreement, the Investors and certain of the Additional Purchasers (the "Existing
Shareholders") have agreed to enter into, on or prior to the closing, a
shareholder agreement (the "Shareholder Agreement") which provides for certain
arrangements relating to the Company and the Registrable Shares, including the
appointment of two directors designated by the Investors and for the Board to
consist of seven directors. Thereafter, during the term of the Shareholder
Agreement, the Existing Shareholders have the right to nominate two directors
and the Investors have the right to nominate two directors. The Investors and
the Existing Shareholders will jointly nominate the remaining three directors
and such directors are required to be "independent" pursuant to the NASD
Marketplace Rules. The Investors have advised the Company that they intend to
propose the following individuals as nominees:
NELSON OBUS, 60 - Mr. Obus has served as president of Wynnefield Capital, Inc.
since November 1992 and as a managing member of Wynnefield Capital Management,
LLC since January 1997. Wynnefield Capital Management manages two private
investment funds and Wynnefield Capital, Inc. manages one private investment
fund, all three of which invest in small-cap value U.S. public equities. Mr.
Obus also serves on the board of directors of Layne Christensen Company. In
April 2006, the Securities and Exchange Commission filed a civil action alleging
that Nelson Obus, the Wynnefield Capital Funds, and two other individuals, in
June 2001 engaged in insider trading in the securities of SunSource, a public
company that had been in the portfolio of the Wynnefield Capital Funds for
years. Mr. Obus, the Wynnefield Capital Funds, and the other defendants
emphatically deny the allegations and are vigorously contesting the case, which
remains in the early stages of discovery.
FREDERICK WASSERMAN, 52 - Mr. Wasserman is currently a financial management
consultant. Until December 31, 2006, Mr. Wasserman was the Chief
Operating/Financial Officer for Mitchell & Ness Nostalgia Co., a privately-held
manufacturer and distributor of licensed sportswear and authentic team apparel.
Prior to Mitchell & Ness, Mr. Wasserman served as the President of Goebel of
North America, a U.S. subsidiary of the German specialty gift maker, from 2001
to 2005. Mr. Wasserman held several positions, including Chief Financial Officer
and President with Goebel of North America in 2001. Prior to Goebel, Mr.
Wasserman held several positions, including Interim President and full-time
Chief Financial Officer with Papel Giftware from 1995 to 2001. He has also
22
served in senior executive and managerial roles at Chelsea Marketing and Sales
and The Score Board, Inc. Mr. Wasserman spent the first 13 years of his career
in the public accounting profession, serving at Most, Horowitz & Company;
Coopers & Lybrand; and Richard A. Eisner & Company. Mr. Wasserman also serves as
a director of Acme Communications, Inc., Allied Defense Group, Inc., and
Teamstaff, Inc. Mr. Wasserman received a BS in Economics from The Wharton School
of the University of Pennsylvania in 1976 where he majored in Accounting.
The Board intends to designate Mr. Wasserman as a Class A director and Mr. Obus
as a Class C director.
In addition, the Investors and the Existing Shareholders will be subject to
certain restrictions with respect to the transfer of the Registrable Shares.
Furthermore, the Investors will be granted a right of first refusal, under
certain circumstances, to purchase future securities which the Company may
propose to issue and sell. The Shareholder Agreement terminates, among other
reasons, if the Investors own of record less than 16,000,000 shares of Common
Stock.
Voting Agreement
Simultaneously with the execution of the Purchase Agreement, the Investors and
certain stockholders of the Company (the "Stockholders") entered into a voting
agreement (the "Voting Agreement") whereby the Stockholders designated and
appointed Ted Finkelstein, Vice President and General Counsel of the Company, as
the true and lawful proxy and attorney-in-fact to vote each of their respective
shares of Common Stock at any time during the period from April 25, 2007 through
the earlier of (i) October 31, 2007 and (ii) approval by the stockholders of the
Company of the proposals set forth in this Proxy, at any annual, special or
other meeting of the stockholders of the Company, and at any adjournment or
postponements thereof, or pursuant to any written consent in lieu of a meeting
or otherwise to (i) vote in favor of approval of the Purchase Agreement, the
Shareholder Agreement, the Registration Rights Agreement and the transactions
contemplated thereby, (ii) against approval of any proposal made in opposition
to or in competition with the consummation of the transactions contemplated by
the Purchase Agreement, and (iii) in favor of any amendment to the Certificate
of Incorporation of the Company to increase the number of shares of authorized
Common Stock to 500,000,000.
Rights Offering
Subsequent to the Proposed Financing, the Company intends to conduct a rights
offering of up to $2,000,000 aggregate amount of Common Stock, subject to
increase with the consent of the Investors, to its stockholders to purchase up
to ten (10) shares of Common Stock for each share of Common Stock held by such
stockholder at a purchase price of $0.10 per share, provided that the amount of
shares shall be reduced on a pro rata basis if the aggregate subscriptions
exceed $2,000,000 (the "Rights Offering"). Each Investor and each Additional
Purchaser has either waived or will waive any rights to participate in such
Rights Offering. The Rights Offering will be made pursuant to a registration
statement to be filed with the SEC and nothing in this Proxy Statement is
intended to constitute an offer of such securities and any offer to sell such
securities will only be made pursuant to a registration statement to be filed
with the SEC.
23
Dilution to Current Stockholders
The Proposed Financing will result in the issuance of 80,000,000 shares of
Common Stock representing approximately 89.3% of the aggregate of the issued and
outstanding shares of Common Stock as of June 13, 2007. The interests of the
Company's existing stockholders will be substantially diluted. In addition, the
proposed Rights Offering will further dilute the interests of the Company's
existing stockholders.
Use of Proceeds
At the closing, the Company will receive $4 million pursuant to the Investor
Purchase Agreement as payment for its sale of 40,000,000 shares of Common Stock.
Pursuant to the Escrow Agreement, a joint notification will direct the payment
of the MetLife Payoff Amount directly from the Escrow Account to MetLife. In
addition, the Company will receive up to $4 million of proceeds for the other
shares of Common Stock sold pursuant to the Placement Purchase Agreement. To the
extent shares of Common Stock are purchased through the conversion of debt, the
Company will not receive any additional proceeds. The gross proceeds to the
Company from the sale of the 80,000,000 shares of Common Stock will be reduced
by approximately $200,000 for counsel fees and certain other expenses.
The Company intends to use the net proceeds of the Proposed Financing to:
o pay to MetLife the MetLife Payoff Amount;
o make payments to Wachovia in a principal amount and a fee to be
mutually agreed upon;
o use any of the cash proceeds received from the sale of shares
pursuant to the Placement Purchase Agreement to repay indebtedness
or accrued and unpaid compensation to management and Company
affiliates; and
o pay the Company's legal fees and other expenses related to the
Proposed Financing.
The Company will use the remaining funds for general working capital purposes.
Interest of Certain Persons in Matters To Be Acted Upon
Directors and Officers. Pursuant to the Placement Purchase Agreement, certain
directors and officers will purchase shares upon the terms and conditions
thereto as described above in the section entitled "Placement Purchase
Agreement". In addition, the directors and officers who purchase such shares
will be parties to the Registration Rights Agreement and the Shareholder
Agreement each of which is described in the sections entitled "Registration
Rights Agreement" and "Shareholder Agreement" above.
24
Michael Ryan, the Company's President and Chief Executive Officer and Director,
Carol Enisman, Mr. Ryan's wife and the Executive Vice President of Operations of
the Company, Ted H. Finkelstein, the Company's Vice President and General
Counsel, Dennis Conroy, the Company's Chief Accounting Officer, and Prime
Partners entered into the Voting Agreement as described above in the section
entitled "Voting Agreement".
Prime Partners agreed to purchase shares pursuant to the Placement Purchase
Agreement as described above in the section entitled "Placement Purchase
Agreement".
Recommendation
The Board of Directors believes that it is in the best interests of the Company
that the stockholders authorize the Company to engage in the Proposed Financing.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 2 TO
AUTHORIZE THE COMPANY TO ENGAGE IN THE PROPOSED FINANCING.
PROPOSAL 3
TO AUTHORIZE THE BOARD OF DIRECTORS TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
20,000,000 TO 500,000,000 SHARES
The Board of Directors has unanimously adopted a resolution, and submits to
stockholders for approval, the authorization for the Board, in its discretion,
to amend the Certificate of Incorporation of the Company, substantially in the
form of Exhibit B attached hereto, to provide for an increase in the authorized
number of shares of Common Stock from 20,000,000 shares to 500,000,000 shares.
Authorized Shares
The authorized capital stock of the Company is 20,100,000 shares of which
20,000,000 shares are par value $0.01 per share common stock and 100,000 shares
are par value $0.001 preferred stock. As of the Record Date, there were
9,563,578 shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding. 788,500 shares have been reserved for
issuance upon exercise of outstanding options and no further shares will be
granted under the Company's existing stock option and incentive stock plans.
There are 75,000 shares reserved for issuance to the Purchasing Group under the
terms of the Purchasing Group Note.
The holders of Common Stock currently possess all voting power and are entitled
to one vote for each share held on all matters submitted to the stockholders for
a vote. There are no cumulative voting rights or preemptive rights except such
preemptive rights pursuant to a loan agreement between the Company and MetLife
which rights will terminate upon the closing of the Proposed Financing.
25
Reasons for the Increase in Authorized Shares of Common Stock
The Board of Directors considers the Proposed Financing to be in the best of
interest of the stockholders and the increase in authorized shares of Common
Stock is necessary in order to issue the required number of shares to be
delivered pursuant to the Proposed Financing. If this proposed amendment is not
approved, the Proposed Financing will not occur. Moreover, the Company will need
the additional shares to implement the proposed Rights Offering described in
Proposal 2, under "Rights Offering."
In addition, the additional authorized but unissued shares of Common Stock will
provide flexibility for potential acquisitions, capital raising and future
capital requirements and for use in employee benefit plans. Moreover, the
Company may seek to raise additional capital in the future through the issuance
of equity securities, such as Common Stock or securities convertible into Common
Stock. Although the Company continuously evaluates potential acquisition
candidates, the Company does not, at this time, have any plans, commitments or
understandings with respect to any acquisitions nor does it have any plans or
commitments or understandings with respect to any equity financing other than
the Proposed Financing. Approval by the stockholders of the increase in
authorized shares of Common Stock at the Meeting will avoid the need to call and
hold additional special meetings for this purpose, thereby enabling the Company
to act quickly when potential acquisition or financing transactions arise.
Once authorized, the additional shares of Common Stock may be issued with
approval of the Board of Directors but without further approval of the
stockholders unless stockholder approval is required by applicable law, rule or
regulation. Accordingly, this solicitation may be the only opportunity for the
Company stockholders to approve these financings, acquisitions, benefit plans
and other corporate transactions.
This proposal could, under certain circumstances, have an anti-takeover effect.
For example, if the Company were the subject of a hostile takeover attempt, it
could try to impede the takeover by issuing shares of Common Stock, thereby
diluting the voting power of the other outstanding shares and increasing the
potential cost of the takeover. The Company's Board of Directors is not aware of
any attempt or plan to acquire control of the Company.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 3 TO
AUTHORIZE THE BOARD OF DIRECTORS, IN THEIR DISCRETION, TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION TO PROVIDE FOR AN INCREASE IN THE AUTHORIZED NUMBER
OF SHARES OF COMMON STOCK OF THE COMPANY FROM 20,000,000 TO 500,000,000 SHARES.
26
PROPOSAL 4
APPROVAL OF THE COMPANY'S 2007 STOCK INCENTIVE PLAN
Subject to stockholder approval at the Meeting, the Board adopted the Gilman +
Ciocia, Inc. 2007 Stock Incentive Plan (the "Stock Incentive Plan" or "2007
Plan") on May 25, 2007. The reason for seeking stock approval of Proposal 4 is
to satisfy certain requirements of the Internal Revenue Code of 1986 (the
"Code"), related to Incentive Stock Options, as defined below.
By approving the 2007 Stock Incentive Plan, stockholders are also approving the
material terms of the performance measures set forth in the Stock Incentive Plan
that form the basis upon which the Board, or applicable Board Committee
responsible for the administration of the Plan may issue Performance-Based
Awards, as defined below. See "Performance-Based Awards and Performance Goals"
below for a description of the performance measures.
As of the Record Date, stock options for 788,500 shares of Common Stock were
outstanding under existing Company stock option plans. As of the Record Date,
the weighted average exercise price of the 788,500 outstanding stock options
under the plans was $7.11. On the Record Date, the closing price of the Common
Stock reported on the Pink Sheets was $0.10 per share.
Because the vast majority of the outstanding stock options are at exercise
prices substantially in excess of the current market price per share of the
Common Stock, the Company would not expect the vast majority of its outstanding
stock options to be exercised unless the market price per share of the Common
Stock appreciates significantly in future periods. The Company does not intend
to implement any stock option exchange or replacement program. If the Plan is
approved, the Company will not issue any additional stock options or other
awards under its existing stock option plans. Assuming no exercise of currently
outstanding options, 708,500 options, or 89.9% of the currently outstanding
options, will expire by December 31, 2008.
The Board believes that, to enable the Company to continue to attract and retain
personnel of the highest caliber, provide incentive for officers, directors,
employees and other key persons and to promote the well-being of the Company, it
is in the best interest of the Company and its stockholders to provide to
officers, directors, employees, consultants and other independent contractors
who perform services for the Company, through the granting of stock options,
restricted stock, deferred stock or other stock-based awards, the opportunity to
participate in the value and/or appreciation in value of the Company's Common
Stock. Accordingly, the Board believes that the 2007 Stock Incentive Plan (a)
will provide the Company with significant means to attract and retain talented
personnel, (b) will result in saving cash, which otherwise would be required to
maintain current employees and adequately attract and reward personnel and
others who perform services for the Company, and (c) consequently, will prove
beneficial to the Company's ability to be competitive. The last sale price of
the Common Stock on June 15, 2007 was $0.10. To date no options or other awards
have been granted under the 2007 Stock Incentive Plan.
27
Participants
Participants in the Plan include any director, officer, employee or registered
representative of the Company or any affiliate and any consultant to the Company
who is selected by the committee administering the Plan to receive an award
under the Plan. There are currently seven directors and six officers, and
approximately 310 employees and approximately 70 registered representatives of
PCS.
The following summary of the 2007 Plan does not purport to be complete, and is
subject to and qualified in its entirety by reference to the full text of the
Stock Incentive Plan, set forth as Exhibit C to this Proxy Statement.
Capitalized terms used in the summary but not defined in it will have the
meanings assigned to them in the 2007 Plan.
Awards
The 2007 Plan provides for the grant of any or all of the following types of
awards (collectively, "Awards"): (a) stock options, (b) restricted stock, (c)
deferred stock and (d) other stock-based awards. Awards may be granted singly,
in combination, or in tandem, as determined by the Board of Directors or the
Committee (as defined below). Subject to anti-dilution adjustments as provided
in the 2007 Plan, (i) a total of 16,128,106 shares of Common Stock have been
reserved for distribution pursuant to the 2007 Plan, and subject to the
provisions of the immediately preceding paragraph, the maximum number of shares
of Stock with respect to which Options, Deferred Stock, Restricted Stock or
Other Stock-Based Awards may be granted or measured to any participant under the
2007 Plan during any calendar year or part thereof shall not exceed 564,483
shares. The maximum number of shares of Common Stock with respect to which
Incentive Stock Options may be granted under the 2007 Plan shall be 16,128,106
shares. If any outstanding Award is canceled, forfeited, delivered to the
Company as payment for the exercise price or surrendered to the Company for tax
withholding purposes, shares of Common Stock allocable to such Award may again
be available for Awards under the Stock Incentive Plan
Administration
The 2007 Plan may be administered by the Board or a Committee (the "Committee")
consisting of two or more members of the Board of Directors appointed by the
Board. Each member of the Committee shall to the extent practicable, be
"non-employee directors" for the purpose of Rule 16b-3 under the Exchange Act
and, if practicable, shall also qualify as "outside directors" for the purpose
of the performance-based compensation exception under Code Section 162(m) except
to the extent that the Board determines that such compliance is not necessary or
that it is not desirable or that it is not practicable. The Board or the
Committee will determine, among other things, the persons to whom Awards will be
granted, the type of Awards to be granted, the number of shares subject to each
Award and the share price. The Board or the Committee will also determine the
28
term of each Award, the restrictions or limitations thereon, and the manner in
which each such Award may be exercised or, if applicable, the extent and
circumstances under which Common Stock and other amounts payable with respect to
an Award will be deferred. The 2007 Plan will become effective upon its approval
and adoption at the Meeting (the "Effective Date") and no Award shall be granted
pursuant to the 2007 Plan on or after the tenth anniversary of the Effective
Date.
Eligibility and Participation
Officers and other employees of the Company or any Parent or Subsidiary (but
excluding any person whose eligibility would adversely affect the compliance of
the Plan with the requirements of Rule 16b-3) who are at the time of the grant
of an award under the Plan employed by the Company or any Parent or Subsidiary
and who are responsible for or contribute to the management, growth and/or
profitability of the business of the Company or any Parent or Subsidiary are
eligible to be granted Options or other Awards under the 2007 Plan. In addition,
Non-Qualified Stock Options and other Awards may be granted under the 2007 Plan
to any person, including, but not limited to, directors, independent agents,
consultants and attorneys who the Board or the Committee, as the case may be,
believes has contributed or will contribute to the success of the Company.
Eligibility under the 2007 Plan shall be determined by the Board or the
Committee, as the case may be.
A participant's right, if any, to continue to serve the Company as a director,
executive officer, other key employee, or otherwise, will not be enlarged or
otherwise affected by his or her designation as a participant under the 2007
Plan. Participants may receive one or more Awards under the 2007 Plan.
Forms of Awards
Stock Options. The 2007 Plan provides for the grant of Incentive Stock Options
and Non-Qualified Stock Options. The Board or the Committee, as the case may be,
shall determine those persons to whom Stock Options may be granted.
Incentive Stock Options granted pursuant to the 2007 Plan are nontransferable by
the optionee during his lifetime. Options granted pursuant to the 2007 Plan will
expire if not exercised within 10 years of the grant (five years in the case of
Incentive Stock Options granted to an eligible employee owning stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or a parent or subsidiary of the Company immediately before the grant
("10% Stockholder")), and under certain circumstances set forth in the 2007
Plan, may be exercised within three (3) months following termination of
employment (one year in the event of death, retirement or disability of the
optionee), unless the term of the option, pursuant to the stock option
agreement, expires earlier or unless the Board or Committee determines to
shorten or extend the exercise periods. Options may be granted to optionees in
such amounts and at such prices as may be determined, from time to time, by the
Board or the Committee. The exercise price of an Incentive Stock Option will not
be less than the fair market value of the shares underlying the option on the
date the option is granted, provided, however, that the exercise price of an
29
Incentive Stock Option granted to a 10% Stockholder may not be less than 110% of
such fair market value. The exercise price of a Non-Qualified Stock Option may
be less than such fair market value on the date of grant.
Under the 2007 Plan, the Company may not, in the aggregate, grant Incentive
Stock Options that are first exercisable by any optionee during any calendar
year (under all such plans of the optionee's employer corporation and its
"parent" and "subsidiary" corporations, as those terms are defined in Section
424 of the Code) to the extent that the aggregate fair market value of the
underlying stock (determined at the time the option is granted) exceeds
$100,000.
The 2007 Plan contains anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to Awards
which expire without being exercised or which are cancelled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued upon the exercise of any option granted under
the 2007 Plan until the full option price has been paid by the optionee. The
Board of Directors or the Committee may grant individual options under the 2007
Plan with more stringent provisions than those specified in the 2007 Plan.
Options become exercisable in such amounts, at such intervals and upon such
terms and conditions as the Board of Directors or the Committee provides. Stock
options granted under the 2007 Plan are exercisable until the earlier of (i) a
date set by the Board of Directors or Committee at the time of grant or (ii) the
close of business on the day before the tenth anniversary of the stock option's
date of grant (the day before the fifth anniversary in the case of an Incentive
Stock Option granted to a 10% Stockholder). The 2007 Plan will remain in effect
until all stock options are exercised or terminated. Notwithstanding the
foregoing, no options may be granted on or after the tenth anniversary of the
Effective Date.
Restricted and Deferred Stock Awards. Under the 2007 Plan, the Board or the
Committee may grant shares of restricted Common Stock either alone or in tandem
with other Awards. Restricted and Deferred Stock awards give the recipient the
right to receive a specified number of shares of Common Stock, subject to such
terms, conditions and restrictions as the Board or the Committee deems
appropriate. Restrictions may include limitations on the right to transfer the
stock until the expiration of a specified period of time and forfeiture of the
stock upon the occurrence of certain events such as the termination of
employment prior to expiration of a specified period of time. In addition, a
participant in the 2007 Plan who has received a Deferred Stock Award may
request, under certain conditions, the Board or the Committee to defer the
receipt of an Award (or an installment of an Award) for an additional specified
period or until the occurrence of a specified event.
Performance-Based Awards and Performance Goals.
Certain Awards made under the 2007 Plan may be granted so that they qualify as
"performance-based compensation" (as this term is used in Code Section 162(m)
and the regulations thereunder) and are exempt from the deduction limitation
imposed by Code Section 162(m) (these Awards are referred to as
"Performance-Based Awards"). Under Code Section 162(m), The Company's tax
30
deduction may be limited to the extent total compensation paid to the Chief
Executive Officer, or any of the four most highly compensated executive officers
(other than the Chief Executive Officer) exceeds $1 million in any one tax year.
Among other criteria, Awards only qualify as Performance-Based Awards if at the
time of grant the Compensation Committee is comprised solely of two or more
"outside directors" (as this term is used in Code Section 162(m) and the
regulations thereunder). In addition, the Company must obtain stockholder
approval of material terms of performance goals for such "performance-based
compensation."
All Stock Options and certain Stock Awards, Performance Awards, and Stock Units
granted under the Stock Incentive Plan, and the compensation attributable to
such Awards, are intended to (i) qualify as Performance-Based Awards or (ii) be
otherwise exempt from the deduction limitation imposed by Code Section 162(m).
The Board or Committee, as the case may be, may use the following performance
measures (either individually or in any combination) to set performance targets
with respect to Awards intended to qualify as Performance-Based Awards: net
sales; pretax income before allocation of corporate overhead and bonus; budget;
earnings per share; net income; division, group or corporate financial goals;
return on stockholders' equity; return on assets; return on net assets; return
on investment capital; gross margin return on investment; gross margin dollars
or percent; payroll as a percentage of sales; employee turnover; sales, general
and administrative expense; attainment of strategic and operational initiatives;
appreciation in and/or maintenance of the price of Common Stock or any other
publicly-traded securities of the Company, if any; market share; gross profits;
earnings before interest and taxes; earnings before interest, taxes,
depreciation and amortization; economic value-added models; comparisons with
various stock market indices; and/or reductions in costs. The foregoing criteria
shall have any reasonable definitions that the Board or Committee, as the case
may be, may specify, which may include or exclude any or all of the following
items as the Board or Committee may specify: extraordinary, unusual or
non-recurring items; effects of accounting changes; effects of financing
activities; expenses for restructuring or productivity initiatives; other
non-operating items; spending for acquisitions; effects of divestitures; and
effects of litigation activities and settlements. Any such performance criterion
or combination of such criteria may apply to the participant's Award opportunity
in its entirety or to any designated portion or portions of the Award
opportunity, as the Board or Committee may specify.
Other Stock Based Awards. Other Stock-Based Awards, which may include
performance shares and shares valued by reference to the performance of the
Company or any parent or subsidiary of the Company, may be granted either alone
or in tandem with other Awards.
31
Effect of a Change of Control.
All outstanding Stock Options which have been outstanding for at least one year
shall become exercisable in full, whether or not exercisable at the time and any
such option shall remain exercisable in full until it expires pursuant to its
terms and all restrictions and deferral limitations contained in any Restricted
Stock Award, Deferred Stock Award and Other Stock-Based Award granted under the
2007 Plan shall lapse.
Termination of Employment. A participant whose employment is terminated for
cause, as defined in the 2007 Plan, forfeits all Awards. The 2007 Plan provides
for certain periods after termination of employment during which a participant
may exercise a Stock Option if employment is terminated due to death or
disability, normal retirement, or without cause, as defined in the 2007 Plan.
Unless otherwise provided in their Award, a participant whose employment is
terminated for any reason, including, without limitation, retirement, other than
for cause, death or disability, forfeits all unvested, unexercisable and
unearned Awards granted to the participant. The 2007 Plan's provisions relating
to termination of employment may be modified at the discretion of the Board or
Committee.
Term and Amendment. If the stockholders approve the 2007 Plan at this Meeting,
the 2007 Plan will become effective as of October 1, 2007 and no award will be
granted more than ten years after October 1, 2007. The Board may at any time,
and from time to time, amend any of the provisions of the 2007 Plan, and may at
any time suspend or terminate the 2007 Plan; provided, however, that no such
amendment shall be effective unless and until it has been duly approved by the
holders of the outstanding shares of Stock if the failure to obtain such
approval would adversely affect the compliance of the 2007 Plan with the
requirements of Rule 16b-3 or any other applicable law, rule or regulation. The
Board or the Committee, as the case may be, may amend the terms of any Stock
Option or other award theretofore granted under the Plan; provided, however,
that subject to certain provisions of the 2007 Plan, no such amendment may be
made by the Board or the Committee, as the case may be, which in any material
respect impairs the rights of the Participant without the Participant's consent,
except for such amendments which are made to cause the 2007 Plan to qualify for
the exemption provided by Rule 16b-3. Moreover, no Stock Option previously
granted under the 2007 Plan may be amended to reduce the exercise price of the
Stock Option.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following information is not intended to be a complete discussion of the
federal income tax consequences of participation in the 2007 Plan and is
qualified in its entirety by references to the Code and the regulations adopted
under the Code. The provisions of the Code described in this section include
current tax law only and do not reflect any proposals to revise current tax law.
The federal income tax consequences applicable to officers, directors, and other
persons who are subject to potential liability under Section 16(b) of the
Exchange Act may be different than the federal income tax consequences
applicable to persons who are not subject to Section 16(b). The federal income
tax consequences applicable to all persons, whether or not subject to Section
16(b), are described below.
32
Incentive Stock Options
Generally, under the Code, an optionee will not realize taxable income by reason
of the grant or exercise of an Incentive Stock Option granted pursuant to the
Stock Incentive Plan (see, however, discussion of alternative minimum tax
below). If an optionee exercises an Incentive Stock Option and does not dispose
of the shares until the later of (i) two years from the date the option was
granted and (ii) one year from the date of exercise, the entire gain, if any,
realized upon disposition of such shares will be taxable to the optionee as
long-term capital gain, and the Company will not be entitled to any deduction.
If an optionee disposes of the shares within the period of two years from the
date of grant or one year from the date of exercise (referred to as a
"disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and the Company will receive a corresponding
deduction in an amount equal to the excess of (i) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (ii) the option price. Any additional
gain realized on the disposition will be short-term or long-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he or she sells, exchanges, makes a
gift of or transfers legal title to the share (except transfers, among others,
by pledge, on death or to a spouse). If the disposition is by sale or exchange,
the optionee's tax basis will equal the amount paid for the shares plus any
ordinary income realized as a result of the disqualifying disposition.
The exercise of an Incentive Stock Option may subject the optionee to the
so-called "alternative minimum tax" (referred to as "AMT"). The amount by which
the fair market value of the shares purchased at the time of the exercise
exceeds the option exercise price is an adjustment for purposes of computing the
AMT. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the Incentive Stock Option, no adjustment is then
required for purposes of the AMT, but regular income tax, as described above,
may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of his or her
Incentive Stock Option generally will not recognize gain or loss on his or her
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is, however, a "disposition" of such stock. If
the Incentive Stock Option holding period requirements described above have not
been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise of an
Incentive Stock Option by surrendering shares will be subject to the Incentive
Stock Option holding period requirements. Of those shares, a number of shares
(referred to as the "Exchange Shares") equal to the number of shares surrendered
33
by the optionee will have the same tax basis for capital gains purposes
(increased by any ordinary income recognized as a result of a disqualifying
disposition of the surrendered shares if they were Incentive Stock Option
shares) and the same capital gains holding period as the shares surrendered.
For purposes of determining ordinary income upon a subsequent disqualifying
disposition of the Exchange Shares, the amount paid for such shares will be
deemed to be the fair market value of the shares surrendered. The balance of the
shares received by the optionee will have a tax basis (and a deemed purchase
price) of zero and a capital gains holding period beginning on the date of
exercise. The Incentive Stock Option holding period for all shares will be the
same as if the option had been exercised for cash.
Non-Qualified Stock Options
Generally, there will be no federal income tax consequences to either the
optionee or the Company on the grant of Non-Qualified Stock Options pursuant to
the Stock Incentive Plan. On the exercise of a Non-Qualified Stock Option, the
optionee has taxable ordinary income equal to the excess of the fair market
value of the shares acquired on the exercise date over the option price of the
shares. The Company will be entitled to a federal income tax deduction (subject
to the limitations contained in Code Section 162(m)) in an amount equal to such
excess, provided that the Company complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock Option,
optionees will realize long-term or short-term capital gain or loss depending
upon their holding period for such stock. For individuals, capital losses are
deductible only to the extent of capital gains for the year plus $3,000. An
optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Stock Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. See "Incentive Stock Options." The optionee will recognize ordinary
income on the exercise of the Non-Qualified Stock Option as described above. Of
the shares received in such an exchange, that number of shares equal to the
number of shares surrendered have the same tax basis and capital gains holding
period as the shares surrendered. The balance of shares received will have a tax
basis equal to their fair market value on the date of exercise and the capital
gains holding period will begin on the date of exercise.
Stock Awards
The taxability of a Stock Award to a participant is dependent upon the extent to
which the award is restricted on the date of grant. If a Stock Award is either
transferable or not subject to a substantial risk of forfeiture, a participant
will recognize taxable ordinary income on the date of grant. If a Stock Award is
both non-transferable and subject to a substantial risk of forfeiture on the
date of grant, then unless an election is made as described below, a participant
will not recognize taxable ordinary income on the date of grant, but will at
such time or times as the Stock Award becomes either transferable or not subject
34
to a substantial risk of forfeiture in an amount equal to the fair market value
of such shares at that time. Within thirty days of receipt of a Stock Award that
is not transferable and subject to a substantial risk of forfeiture, a
participant may file an election with the Internal Revenue Service to include as
taxable ordinary income in the year of receipt an amount equal to the fair
market value of the shares subject to the award at the time of receipt. In such
event, any subsequent appreciation in the value of such shares will not be
taxable as compensation to a participant upon the vesting of shares subject to
the award. However, if shares subject to the award are forfeited subsequent to
such election, a participant will not be entitled to a tax deduction. For
purposes of determining the amount of taxable gain or loss upon a subsequent
disposition of shares issued pursuant to such an award, the amount recognized as
ordinary income to a participant will be treated as the cost basis for such
shares. Shares which are held for more than one year after vesting (or in the
event of an election as described above, the date of receipt) generally will
qualify for long-term capital gain treatment. The Company will be entitled to a
deduction in such amount and at such time as ordinary income becomes taxable to
the participant.
Performance Awards
The tax consequences of a performance award depend upon the nature of the
underlying award and if and when the performance goals are achieved. If a
performance award consists of a promise to deliver common stock at a future date
based upon the satisfaction of certain targets, such awards will be subject to
federal income taxation as ordinary income based upon the fair market value of
the common stock on the date such performance awards are earned by a participant
by satisfying the performance targets, provided such awards are not then subject
to a substantial risk of forfeiture.
Company Deduction
Generally, whenever a participant realizes ordinary income under the Stock
Incentive Plan, a corresponding deduction is available to the Company provided
the Company complies with certain reporting requirements. Under Code Section
162(m), however, the Company will be denied a deduction for certain compensation
exceeding $1,000,000 paid to its Chief Executive Officer and the four other
highest paid executive officers, excluding (among other things) certain
performance-based compensation.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 4 TO
APPROVE THE COMPANY'S 2007 STOCK INCENTIVE PLAN.
35
PROPOSAL 5
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
On October 25, 2005, the Company engaged Sherb & Co., LLP ("Sherb") to serve as
the Company's independent auditors for the year ending June 30, 2006 upon the
approval of the Board of Directors. Sherb has audited and reported upon the
financial statements of the Company for the fiscal year ended June 30, 2006. It
is currently anticipated that Sherb will be selected by the Audit Committee of
the Board of Directors to examine and report upon the financial statements of
the Company for the fiscal year ending June 30, 2007. A representative of Sherb
is expected be present at the Meeting with the opportunity to make a statement
if he or she desires to do so and may be available to respond to appropriate
questions.
Although action by the stockholders on this matter is not required, the Audit
Committee believes it is appropriate to seek stockholder ratification of the
appointment of independent registered public accounting firm to provide a forum
for stockholders to express their views with regard to the Audit Committee's
appointment. If the stockholders do not ratify the appointment of Sherb the
selection of independent registered public accounting firms may be reconsidered
by the Audit Committee; provided, however, that the Audit Committee retains the
right to continue to engage Sherb. Notwithstanding the ratification of Sherb as
the Company's independent registered public accounting firm for the year ending
June 30, 2007, the Audit Committee retains the right to replace Sherb at any
time without stockholder approval.
As previously reported in the Company's Form 8-K filed with the SEC on October
25, 2005 (the "Form 8-K"), the Company's prior independent auditors, Radin Glass
& Co., LLP ("Radin Glass") resigned on October 25, 2005. As noted in the Form
8-K, during the fiscal year ended June 30, 2005 and for the interim period
through October 25, 2005, there were no disagreements with Radin Glass on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which, if not resolved to Radin Glass' satisfaction,
would have caused them to make reference to the subject matter of the
disagreement in connection with their reports. Moreover, the audit reports of
Radin Glass on the Company's consolidated financial statements as of and for the
fiscal year ended June 30, 2005 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the fiscal year ended June 30, 2005
and for the interim period through October 25, 2006, Radin Glass did not advise
the Company of any reportable events under Item 304(a)(1)(v) of Regulation S-K.
However, as reported in the Form 8-K, in performing its audit of the Company's
Consolidated Financial Statements for the fiscal years ended June 30, 2004 and
2005, Radin Glass notified the Board of Directors of several reportable
conditions in internal controls under standards established by the American
Institute of Certified Public Accountants ("AICPA"). Reportable conditions
involve matters coming to the attention of the Company's auditors relating to
36
significant deficiencies in the design or operation of internal controls that,
in their judgment, could adversely affect the Company's ability to record,
process, summarize, and report financial data consistent with the assertions of
management in the Consolidated Financial Statements. Radin Glass stated that,
while none of the items identified by them individually were individually a
material weakness, the combined effect of these issues and the inability to
produce timely accurate financial statements was a material weakness.
Although Radin Glass noted significant improvements in the structure of the
accounting department, and designed its audit procedures to address the internal
control matters in order to obtain reasonable assurance that the financial
statements were free of material misstatement and to issue an unqualified audit
report, certain of the internal control deficiencies noted by Radin Glass were
noted in their internal control letter regarding the Company's Consolidated
Financial Statements for Fiscal 2003 and 2004.
These significant deficiencies in the design and operation of the Company's
internal controls included the needs to hire additional staffing and change the
structure of the finance/accounting department, to provide better coordination
and communication between the legal and finance/accounting departments and to
provide training to existing and new personnel in SEC reporting requirements;
the lack of integration of the general ledger system with other recordkeeping
systems, and the need for formal control systems for journal entries and closing
procedures; the need to document internal controls over financial reporting; the
needs to form an independent audit committee, to form an internal audit
department and to implement budget and reporting procedures; and the need to
provide internal review procedures for schedules, SEC reports and filings prior
to submission to the auditors and/or filing with the SEC.
While the Company implemented specific changes in its internal controls during
the fourth quarter of Fiscal 2004, such as improvement in recording commissions
earned and tax return billings, and regulatory filings filed within the
prescribed due dates, such improvements were partially offset by declines in
other areas. Subsequent to the filing of the Form 8-K, the Company worked to
remediate the reportable conditions identified by Radin Glass, hired Christopher
Kelly as general counsel on October 11, 2004, sought additional independent
directors, hired additional staff in the finance department, including a
Controller, and implemented enhanced procedures to accelerate improvement of the
internal controls.
All of the above deficiencies in internal controls were remediated prior to June
30, 2006.
In performing its audit of the Company's Consolidated Financial Statements for
fiscal 2006, Sherb notified the Company's Board of Directors of a material
weakness in internal controls under standards established by the AICPA. As of
June 30, 2006, the Company did not maintain effective controls over the
completeness and accuracy of its legal and litigation reserves. Specifically,
the Company did not have effective controls over estimating and monitoring the
legal and litigation reserves recorded as a liability. This control deficiency
resulted in a material amount of audit adjustments being recorded as a result of
the fiscal 2006 annual audit. As of June 30, 2006, management believed that such
37
control deficiency represented a material weakness in internal control over
financial reporting that resulted in a reasonable likelihood that a material
misstatement in the Company's financial statements would not be prevented or
detected by the Company's employees in the normal course of performing their
assigned functions. A material weakness is a control deficiency or combination
of control deficiencies that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected.
Sherb designed its audit procedures to address this control deficiency in order
to obtain reasonable assurance that the Company's financial statements audited
by it are free of material misstatement and to issue an unqualified audit
report.
The Company continues its efforts to remediate these conditions and has and will
continue to implement enhanced procedures to accelerate improvement of its
internal controls. In this regard, during the three months ended March 31, 2007,
the Company improved its controls over the completeness and accuracy of its
legal litigation reserves by hiring Ted H. Finkelstein as general counsel on
February 1, 2007 and implementing a stronger review process between the
accounting and legal department regarding such reserves.
The following table sets forth the aggregate fees billed by Sherb & Co., LLP,
for fiscal 2006 and Radin, Glass & Co., LLP for fiscal 2005 professional
services rendered to the Company for the audit of the Company's annual financial
statements for the reviews of the financial statements included in the Company's
Quarterly Reports on Form 10-Q for those fiscal years, and for other services
rendered on behalf of the Company during those fiscal years. All of such fees
were pre-approved by the Company's Board of Directors. The Company's policy is
to pre-approve all audit and non-audit services subject to a de minimis
exception for non-audit services of five percent of the total pre-approved
amounts to be paid to outside auditors.
Fiscal 2006 Fiscal 2005
----------- -----------
Audit Fees $207,500 $230,000
Tax Fees $ 40,000 $ 40,000
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 5 TO
RATIFY THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
38
GENERAL INFORMATION
COST OF SOLICITATION
The Company will pay the cost of soliciting proxies. The Company has retained
Corporate Stock Transfer, Inc. to solicit proxies, by telephone, in person or by
mail, for a fee of approximately $715 plus certain expenses. In addition,
certain officers and employees, who will receive no compensation for their
services other than their regular salaries, may solicit proxies. The Company
will also reimburse banks, brokers and other nominees for their costs in
forwarding proxy materials to beneficial owners of Gilman + Ciocia stock. Other
proxy solicitation expenses that the Company will pay include those for
preparing, mailing, returning and tabulating the proxies.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Stockholders who wish to present proposals appropriate for consideration at the
Company's Fiscal 2007 Stockholder Meeting, which is currently expected to be
held in December 2007, must submit the proposal in proper form to the Company at
its address set forth on the first page of this proxy statement and in
accordance with applicable regulations of the SEC not later than August 15, 2007
in order for the proposition to be considered for inclusion in the Company's
proxy statement and form of proxy relating to such annual meeting. Any such
proposals, as well as any questions related thereto, should be directed to the
Secretary of the Company.
If a stockholder submits a proposal after the August 15, 2007 deadline but still
wishes to present the proposal at the Company's Fiscal 2007 Stockholder Meeting
(but not in the Company's proxy statement) for the Fiscal 2007 Stockholder
Meeting, the proposal, which must be presented in a manner consistent with the
Company's By-Laws and applicable law, must be submitted to the Secretary of the
Company in proper form at the address set forth above no later than October 1,
2007. If the Company does not receive notice by October 1, 2007 of a proposed
matter to be submitted by a stockholder for stockholders vote at the Fiscal 2007
Stockholder Meeting, then, in accordance with Exchange Act Rule 14a-4(c) any
proxies held by persons designated as proxies by the Company's Board of
Directors in respect of such Annual Meeting may be voted at the discretion of
such persons on such matter if it shall properly come before such Annual
Meeting.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended June 30, 2006 and
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2007
are incorporated by reference herein.
39
OTHER INFORMATION
A copy of the Company's Annual Report on Form 10-K for the year ended June 30,
2006 and the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2007 is being furnished herewith to each stockholder of record as of the
close of business on June 13, 2007. Additional copies of such annual report and
quarterly report will be provided for a nominal charge upon written request to:
Gilman + Ciocia, Inc.
11 Raymond Avenue
Poughkeepsie, New York 12603
Attention: Ted H. Finkelstein
The Board of Directors is aware of no other matters, except for those incident
to the conduct of the Annual Meeting, that are to be presented to stockholders
for formal action at the Annual Meeting. If, however, any other matters properly
come before the Annual Meeting or any adjournments thereof, it is the intention
of the persons named in the proxy to vote the proxy in accordance with their
judgment.
By Order of the Board of Directors,
/s/ James C. Ciocia
James C. Ciocia
Chairman of the Board
Poughkeepsie, New York
June 18, 2007
40
EXHIBIT A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
The board of directors (the "Board") of Gilman + Ciocia, Inc., a Delaware
corporation (the "Company") hereby establishes the Audit Committee of the Board
with the following purpose, authority, powers, duties and responsibilities.
I. Purpose
The purpose of the Audit Committee is to represent and assist the Board of
the Company in its general oversight of the Company's accounting and financial
reporting processes, audits of the financial statements, and internal control
and audit functions by reviewing: the financial reports and other financial
information provided by the Company to any governmental body or the public; the
Company's systems of internal controls regarding finance, accounting and legal
compliance that management and the Board have established; and the Company's
auditing, accounting and financial reporting processes generally. Consistent
with this function, the Audit Committee should encourage continuous improvement
of, and should foster adherence to, the Company's policies, procedures and
practices at all levels. The Audit Committee's primary duties and
responsibilities are to:
o Serve as an independent and objective party to monitor the Company's
financial reporting process, audits of financial statements and
internal control system;
o Review and appraise the audit efforts of the Company's independent
registered public accounting firm (the "Independent Auditor") and
internal finance department; and
o Provide an open avenue of communication among the Independent
Auditor, financial and senior management, the internal finance
department, and the Board.
The Audit Committee members are not required to be professional
accountants or auditors and their functions are not intended to duplicate or to
certify the activities of management and the Independent Auditor, nor can the
Audit Committee certify that the Independent Auditor is "independent" under
applicable rules. The Audit Committee serves a board level oversight role where
it oversees the relationship with the Independent Auditor, as set forth in this
charter, receives information and provides advice, counsel and general
direction, as it deems appropriate, to management and the Independent Auditor,
taking into account the information it receives, discussions with the
Independent Auditor, and the experience of the Audit Committee's members in
business, financial and accounting matters.
The Audit Committee will primarily fulfill its responsibilities by
carrying out the activities enumerated in Section III.
41
II. Membership and Structure
The Audit Committee shall consist of at least two directors determined by
the Board to meet the director and audit committee member independence
requirements and financial literacy requirements of the Securities Exchange Act
of 1934 and any national securities exchange or national securities association
on which the Company's securities are listed. At least one member of the Audit
Committee must be financially sophisticated and an Audit Committee financial
expert, as determined by the Board, pursuant to the requirements of Item 401(h)
of Regulation S-K, as amended, and any national securities exchange or national
securities association on which the Company's securities are listed, and no
Audit Committee member may have participated in the preparation of the financial
statements of the Company or any of the Company's current subsidiaries at any
time during the past three years. Appointment to the Audit Committee and the
designation of any Audit Committee members as "audit committee financial
experts" shall be made on an annual basis by the full Board.
Meetings of the Audit Committee shall be held at such times and places as the
Audit Committee shall determine, including by written consent, on at least a
quarterly basis. When necessary or appropriate, the Audit Committee shall meet
in executive session outside of the presence of any senior officer of the
Company. The minutes of the Committee will be in writing and duly entered in the
books of the Corporation. The minutes of the Committee will be circulated to all
other members of the Board, redacted as may be determined necessary by the
Chairman to excise any sensitive personnel information not otherwise material to
the Board.
The Chair of the Audit Committee shall report on activities of the Audit
Committee to the full Board. In fulfilling its responsibilities, the Audit
Committee shall have authority to delegate its authority to subcommittees, in
each case to the extent permitted by applicable law.
III. Responsibilities
The Audit Committee:
o is directly responsible for the appointment, compensation and
oversight of the work of the Independent Auditor (including the
resolution of disagreements between management and the Independent
Auditor regarding financial reporting). The Independent Auditor
shall report directly to the Audit Committee and have ultimate
accountability to the Audit Committee.
o reviews and updates this Charter of the Audit Committee, at least
annually, as conditions dictate.
o reviews and discusses with the Independent Auditor the written
statement from the Independent Auditor concerning any relationship
between the Independent Auditor and the Company or any other
42
relationships that may adversely affect the independence of the
Independent Auditor consistent with the Public Company Accounting
Oversight Board Standards, as they may be modified or supplemented,
and, based on such review, assesses the independence of the
Independent Auditor.
o reviews and discusses with the Independent Auditor annually the
matters required to be discussed by Statement on Audited Standards
("SAS") 71, as it may be modified or supplemented.
o establishes policies and procedures for the review and pre-approval
by the Audit Committee of all auditing services and permissible
non-audit services (including the fees and terms thereof) to be
performed by the Independent Auditor, to the extent required by
Section 202 of the Sarbanes-Oxley Act.
o reviews and discusses with the Independent Auditor on a timely
basis: (a) its audit plans and audit procedures, including the
scope, fees and timing of the audit; (b) the results of the annual
audit examination and accompanying management letters; and (c) the
results of the Independent Auditor's procedures with respect to
interim periods.
o reviews and discusses with the Independent Auditor on a timely
basis: (a) all critical accounting policies and practices used by
the Company; (b) alternative accounting treatments within generally
accepted accounting principles in the United States ("GAAP") related
to material items that have been discussed with management,
including the ramifications of the use of the alternative treatments
and the treatment preferred by the Independent Auditor; and (c)
other material written communications between the Independent
Auditor and management, such as any management letter or schedule of
unadjusted differences.
o reviews and discusses with the Independent Auditor on a timely basis
the Independent Auditor's judgments as to the quality, not just the
acceptability, of the Company's accounting principles, financial
reporting processes, both internal and external, and such further
matters as the Independent Auditor presents to the Audit Committee
under GAAP.
o discusses with the Company's officers and the Independent Auditor
any quarterly earnings press releases, including any interim
financial information and other disclosures included therein,
reviews the year-end audited financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, if deemed appropriate, recommends to the Board of
Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the year.
o reviews and discusses with the Company's officers and the
Independent Auditor various topics and events that may have
significant financial impact on the Company or that are the subject
of discussions between the Company's officers and the Independent
Auditors.
43
o reviews and discusses with the Company's officers the Company's
major financial risk exposures and the steps the Company's officers
have taken to monitor and control such exposures.
o reviews and approves related-party transactions.
o reviews and discusses with the Independent Auditor and the Company's
officers: (a) the adequacy and effectiveness of the Company's
internal controls (including any significant deficiencies and
significant changes in internal controls reported to the Audit
Committee by the Independent Auditor or management); (b) the
Company's internal audit procedures; and (c) the adequacy and
effectiveness of the Company's disclosures controls and procedures,
and management reports thereon.
o reviews the use of auditors other than the Independent Auditor.
o establishes procedures for (i) the receipt, retention and treatment
of complaints received by the Company regarding accounting,
controls, or auditing matters, and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
o establishes policies for the hiring of employees and former
employees of the Independent Auditor.
o establishes regular and separate systems of reporting to the Audit
Committee by each of management and the Independent Auditor
regarding any significant judgments made in management's preparation
of the financial statements and the view of each as to the
appropriateness of such judgments.
o following completion of the annual audit, reviews separately with
each of management and the Independent Auditor any significant
difficulties encountered during the course of the audit, including
any restrictions on the scope of work or access to required
information.
o reviews any significant disagreement among management and the
Independent Auditor in connection with the preparation of the
financial statements.
o reviews with the Independent Auditor and management the extent to
which changes or improvements in financial or accounting practices,
as approved by the Audit Committee, have been implemented. (This
review should be conducted at an appropriate time subsequent to
implementation of changes or improvements, as decided by the Audit
Committee.)
44
o ensures that management has the proper review system in place to
ensure that Company's financial statements, reports and other
financial information disseminated to governmental organizations and
the public satisfy legal requirements.
o reviews activities, organizational structure, and qualifications of
the internal finance department.
o reviews, with the Company's counsel, legal compliance matters,
including corporate securities trading policies.
o reviews, with the Company's counsel, any legal matter that could
have a significant impact on the Company's financial statements.
o publishes the report of the Audit Committee required by the rules of
the United States Securities and Exchange Commission to be included
in the Company's annual proxy statement.
o when appropriate, designates one or more of its members to perform
certain of its duties on its behalf, subject to such reporting to or
ratification by the Audit Committee as the Audit Committee shall
direct.
o performs any other activities consistent with this Charter of the
Audit Committee, the Company's By-laws and governing law, as the
Audit Committee or the Board deems necessary or appropriate.
IV. Advisors; Funding
The Audit Committee shall have the authority to retain independent legal
counsel and independent accountants and other advisors as it deems necessary and
appropriate to carry out its duties and responsibilities hereunder. The Company
shall provide appropriate funding, as determined by the Audit Committee, for (i)
payment of compensation to the Independent Auditor employed by the Company to
render or issue an audit report or to perform other audit, review or attest
services of the Company and the advisors referred to in the immediately
preceding sentence employed by the Audit Committee and (ii) payment of ordinary
administrative expenses of the Audit Committee that are necessary or appropriate
in carrying out its duties.
45
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GILMAN + CIOCIA, INC.
--------------------------------------------------------
Adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware
--------------------------------------------------------
The undersigned, being a duly authorized officer of Gilman + Ciocia,
Inc. (the "Corporation"), a corporation existing under the laws of the State of
Delaware, does hereby certify as follows:
FIRST: That the Certificate of Incorporation of the Corporation has
been amended as follows by striking out the whole of Article FOURTH thereof as
it now exists and inserting in lieu and instead thereof a new Article FOURTH,
reading as follows:
"FOURTH: Capital Stock. The total number of shares of capital stock
that this Corporation shall have authority to issue shall be Five Hundred
Million One Hundred Thousand shares, of which Five Hundred Million
(500,000,000) shares shall be par value $.01 per share Common Stock, and
One Hundred Thousand (100,00) shall be par value $.001 per share Preferred
Stock divided into such series and designations, and with voting powers,
preferences, optional or other special rights, qualifications or
restrictions of each thereof as shall be set forth in the resolution or
resolutions providing for the issue of such Preferred Stock adopted by the
Board of Directors of the Corporation without further consent or approval
of the stockholders of the Corporation, which authority, without further
consent or approval of the stockholders of the Corporation, is hereby
granted."
46
SECOND: That such amendment has been duly adopted by the affirmative
vote of the holders of a majority of the stock entitled to vote at a meeting of
stockholders in accordance with the provisions of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, I have signed this Certificate on
_________________, 2007.
GILMAN + CIOCIA, INC.
By:
---------------------------
Name:
Title:
47
EXHIBIT C
Gilman + Ciocia, Inc.
2007 Stock Incentive Plan
Section 1. Purposes; Definitions.
The purpose of the Gilman + Ciocia 2007 Stock Incentive Plan is to enable
Gilman + Ciocia, Inc. (the "Company") to offer to those of its employees and to
the employees of its Subsidiaries and other persons who are expected to
contribute to the success of the Company, long term performance-based stock
and/or other equity interests in the Company, thereby enhancing their ability to
attract, retain and reward such key employees or other persons, and to increase
the mutuality of interests between those employees or other persons and the
stockholders of Gilman + Ciocia, Inc. For purposes of the Plan, the following
terms shall be defined as set forth below:
(a) "Affiliate" means, with respect to any Person, (i) a manager or
managing member if such Person is a limited liability company, a trustee if such
Person is a trust, a general partner if such Person is a limited partnership,
(ii) a director or executive officer of such Person, (iii) a spouse, parent,
sibling or descendant of such Person (or a spouse, parent, sibling or descendant
of any Person identified in (i) and (ii) hereof), and (iv) any other Person
that, directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such Person.
(b) "Board" means the Board of Directors of Gilman + Ciocia, Inc.
(c) "Cause" shall have the meaning ascribed thereto in Section 5(b)(ix)
below.
(d) "Change of Control" shall have the meaning ascribed thereto in Section
10 below.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time and any successor thereto.
(f) "Committee" means any committee of the Board, which the Board may
designate.
(g) "Company" means Gilman + Ciocia, Inc., a corporation organized under
the laws of the State of Delaware.
(h) "Covered Employee" shall mean any employee of the Company or any of
its Subsidiaries who is deemed to be a "covered employee" within the meaning of
Section 162(m) of the Code.
48
(i) "Deferred Restricted Stock Account" shall mean an account established under
this Plan on behalf of a Participant which shall be credited with Stock Units
(as defined in Section 6 below) as a result of such Participant's election to
defer his/her Restricted Stock (and, if applicable, dividend equivalents with
respect to such shares of Restricted Stock).
(j) "Deferred Stock" means Stock to be received, under an award made pursuant to
Section 7 below, at the end of a specified deferral period.
(k) "Disability" means disability as determined under procedures established by
the Board or the Committee for purposes of the Plan.
(l) "Early Retirement" means retirement, with the approval of the Board or the
Committee, for purposes of one or more award(s) hereunder, from active
employment with the Company or any Parent or Subsidiary prior to age 65.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended, as in
effect from time to time.
(n) "Fair Market Value", unless otherwise required by any applicable provision
of the Code or any regulations issued thereunder, means, as of any given date:
(i) if the principal market for the Stock is a national securities exchange or
the Over The Counter Bulletin Board, the closing sale price of the Stock on such
day as reported by such exchange or market system or quotation medium, or on a
consolidated tape reflecting transactions on such exchange or market system or
quotation medium, or (ii) if the principal market for the Stock is not a
national securities exchange and the Stock is not quoted on the Over The Counter
Bulletin Board, the mean between the closing bid sale price for the Stock on
such day as reported by the National Quotation Bureau, Inc.; provided that if
clauses (i) and (ii) of this paragraph are both inapplicable, or if no trades
have been made or no quotes are available for such day, the Fair Market Value of
the Stock shall be determined by the Board of Directors or the Committee, as the
case may be, which determination shall be conclusive as to the Fair Market Value
of the Stock.
(o) "409A Change" shall mean (i) the acquisition by any one person, or more than
one person acting as a group, of Stock that, together with Stock held by such
person or group, constitutes more than fifty percent (50%) of the total fair
market value or total voting power of the Stock; (ii) (a) the acquisition by any
one person, or more than one person acting as a group (or the acquisition during
the 12-month period ending on the date of the most recent acquisition by such
person or persons) of ownership of Stock possessing fifty percent (50%) or more
of the total voting power of the Stock; or (b) a majority of members of the
Board is replaced during any 12-month period by directors whose appointment or
election is not endorsed by a majority of the members of the Board prior to the
date of the appointment or election; or (iii) the acquisition by any one person
or more than one person acting as a group (or the acquisition during the
12-month period ending on the date of the most recent acquisition by such person
or persons) of assets from the Company resulting in a Change of Control and, in
any event, that have a total gross fair market value equal to or more than forty
percent (40%) of the total gross fair market value of all of the assets of the
49
Company immediately prior to such acquisition or acquisitions. The foregoing
definition of "409A Change" shall be interpreted consistent with Code Section
409A and the Treasury regulations issued thereunder.
(p) "409A Deferred Stock Award" shall mean a Deferred Stock award that is
or has become subject to Section 409A of the Code.
(q) "Identification Date" shall mean each December 31.
(r) "Incentive Stock Option" means any Stock Option which is intended to
be and is designated as an "incentive stock option" within the meaning of
Section 422 of the Code, or any successor thereto.
(s) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(t) "Normal Retirement" means retirement from active employment with the
Company or any Subsidiary on or after age 65.
(u) "Other Stock-Based Award" means an award under Section 8 below that is
valued in whole or in part by reference to, or is otherwise based upon, Stock.
(v) "Participant" shall mean any person who has received an award of an
Option, Deferred Stock, Restricted Stock or an Other-Stock Based-Award under the
Plan.
(w) "Parent" means any present or future parent of the Company, as such
term is defined in Section 424(e) of the Code, or any successor thereto.
(x) "Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, governmental
authority or other entity.
(y) "Plan" means this Gilman + Ciocia 2007 Stock Incentive Plan, as
hereinafter amended from time to time.
(z) "Restricted Stock" means Stock, received under an award made pursuant
to Section 6 below, that is subject to restrictions imposed pursuant to said
Section 6.
(aa) "Retirement" means Normal Retirement or Early Retirement.
(bb) "Rule 16b-3" means Rule 16b-3 of the General Rules and Regulations
under the Exchange Act, as in effect from time to time, and any successor
thereto.
(cc) "Securities Act" means the Securities Act of 1933, as amended, as in
effect from time to time.
(dd) "Specified Employee" means any Participant (as hereinafter defined)
who is (i) an officer of the Company and (ii) receives annual compensation from
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the Company in excess of $130,000 (or such other amount as determined pursuant
to Code Section 416(i)(1)(A)(i)). The term Specified Employee shall also include
any other individual who satisfies the definition of specified employee under
Code Section 409A. A Participant is a Specified Employee if he/she meets the
foregoing requirements at any time during the 12-month period ending on an
Identification Date. If a Participant is a Specified Employee as of an
Identification Date, such Participant is treated as a Specified Employee for the
12-month period beginning on the first day of the fourth month following the
Identification Date.
(ee) "Stock" means the Common Stock of the Company, $.01 par value per
share.
(ff) "Stock Option" or "Option" means any option to purchase shares of
Stock which is granted pursuant to the Plan.
(gg) "Subsidiary" means any present or future (A) subsidiary corporation
of the Company, as such term is defined in Section 424(f) of the Code, or any
successor thereto, or (B) unincorporated business entity in which the Company
owns, directly or indirectly, 50% or more of the voting rights, capital or
profits.
(hh) "Unforeseen Emergency means a severe financial hardship to the
Participant resulting from an illness or accident of the Participant, the
Participant's spouse or a dependent (as defined in Section 152(a) of the Code)
of the Participant, loss of the Participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant.
Section 2. Administration.
The Plan shall be administered by the Board, or at its discretion, the
Committee, the membership of which shall consist solely of two or more members
of the Board, each of whom shall serve at the pleasure of the Board and to the
extent practicable, shall be a "Non-Employee Director," as defined in Rule 16b-3
and shall be at all times constituted so as not to adversely affect the
compliance of the Plan with the requirements of Rule 16b-3 or with the
requirements of any other applicable law, rule or regulation. To the extent
practicable, the members of the Committee shall each be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations thereunder.
The Board or the Committee, as the case may be, shall have the authority
to grant, pursuant to the terms of the Plan, to officers and other employees or
other persons eligible under Section 4 below: (i) Stock Options, (ii) Restricted
Stock, (iii) Deferred Stock, and/or (iv) Other Stock-Based Awards.
For purposes of illustration and not of limitation, the Board or the
Committee, as the case may be, shall have the authority (subject to the express
provisions of the Plan):
(i) to select the officers, other employees of the Company or any
Parent or Subsidiary and other persons to whom Stock Options, Restricted Stock,
Deferred Stock and/or Other Stock-Based Awards may be from time to time granted
hereunder;
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(ii) to determine the Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock, Deferred Stock and/or Other Stock-Based Awards, or
any combination thereof, if any, to be granted hereunder to one or more eligible
persons;
(iii) to determine the number of shares of Stock to be covered by
each award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, share price, any restrictions or limitations, and any vesting
acceleration, exercisability and/or forfeiture provisions);
(v) to determine the terms and conditions under which awards granted
hereunder are to operate on a tandem basis and/or in conjunction with or apart
from other awards made by the Company or any Parent or Subsidiary outside of the
Plan;
(vi) to substitute (A) new Stock Options for previously granted
Stock Options, including previously granted Stock Options having higher option
exercise or purchase prices and/or containing other less favorable terms, and
(B) new awards of any other type for previously granted awards of the same type,
including previously granted awards which contain less favorable terms.
Subject to Section 11 hereof, the Board or the Committee, as the case may
be, shall have the authority to (i) adopt, alter and repeal such administrative
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable, (ii) interpret the terms and provisions of the Plan and
any award issued under the Plan (and to determine the form and substance of all
agreements relating thereto), and (iii) to otherwise supervise the
administration of the Plan.
The Board or the Committee, as the case may be, may delegate to officers
of the Company, pursuant to a written delegation, the authority to perform
specified functions under the Plan that are not inconsistent with Rule 16b-3 or
other rules or regulations applicable to the Plan. Any actions taken by any
officers of the Company pursuant to such written delegation of authority shall
be deemed to have been taken by the Board or Committee, as the case may be.
Subject to the express provisions of the Plan, all decisions made by the
Board or the Committee, as the case may be, pursuant to the provisions of the
Plan shall be made in the Board or the Committee's sole and absolute discretion
and shall be final and binding upon all persons, including the Company, its
Parent and Subsidiaries and the Plan Participants.
52
Section 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 16,128,106 shares. Such shares may consist,
in whole or in part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been optioned cease to be subject to a
Stock Option award for any reason (other than by issuance of such shares upon
exercise of a Stock Option), or if any shares of Stock that are subject to any
Restricted Stock award, Deferred Stock award or Other Stock-Based award are
forfeited or any such award otherwise terminates without the issuance of such
shares such shares shall again be available for distribution under the Plan.
Without limiting the foregoing, (i) any shares of Stock subject to an award that
remain unissued upon the cancellation, surrender, exchange or termination of
such award without having been exercised or settled, (ii) any shares of Stock
subject to an award that are retained by the Company as payment of the exercise
price or tax withholding obligations with respect to an award and (iii) any
shares of Stock equal to the number of previously owned shares of Stock
surrendered to the Company as payment of the exercise price of a Stock Option or
to satisfy tax withholding obligations with respect to an award, shall again be
available for distribution under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
such substitution or adjustments shall be made in the (A) aggregate number of
shares of Stock reserved for issuance under the Plan, (B) number, kind and
exercise price of shares of Stock subject to outstanding Options granted under
the Plan, and (C) number, kind, purchase price and/or appreciation base of
shares of Stock subject to other outstanding awards granted under the Plan, as
determined to be appropriate by the Board or the Committee, as the case may be,
in order to prevent dilution or enlargement of rights; provided, however, that
the number of shares of Stock subject to any award shall always be a whole
number. Such adjusted exercise price shall also be used to determine the amount
which is payable to the optionee upon the exercise by the Board or the
Committee, as the case may be, of the alternative settlement right which is set
forth in Section 5(b)(xi) below.
Subject to the provisions of the immediately preceding paragraph, during
any calendar year or part thereof (i) the maximum number of shares of Stock
which may be granted or awarded under the Plan shall not exceed 3,225,621
shares, (ii) the maximum number of shares of Stock which may be granted, awarded
or measured under the Plan to any individual Participant shall not exceed
564,483 shares of Stock, (iii) the maximum number of shares of Stock which may
be granted or awarded under the Plan to the officers and directors of the
Company or any of their respective Affiliates shall not exceed 1,612,810,
provided, however, that such restriction under this subparagraph (iii) shall not
apply to officers and directors of the Company who derive at least fifty percent
(50%) of their cash compensation from the Company as sales commission. In
addition, the maximum number of shares of Stock with respect to which Incentive
Stock Options may be granted under the Plan shall be 16,128,106 shares of Stock.
53
Section 4. Eligibility.
Officers and other employees of the Company or any Parent or Subsidiary
(but excluding any person whose eligibility would adversely affect the
compliance of the Plan with the requirements of Rule 16b-3) who are at the time
of the grant of an award under the Plan employed by the Company or any Parent or
Subsidiary and who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company or any Parent or Subsidiary
are eligible to be granted Options and awards under the Plan. In addition,
Non-Qualified Stock Options and other awards may be granted under the Plan to
any person, including, but not limited to, directors, independent agents,
consultants and attorneys who the Board or the Committee, as the case may be,
believes has contributed or will contribute to the success of the Company.
Eligibility under the Plan shall be determined by the Board or the Committee, as
the case may be.
The Board or the Committee, as the case may be, may, in its sole
discretion, include additional conditions and restrictions in the agreement
entered into in connection with such awards under the Plan. The grant of an
Option or other award under the Plan, and any determination made in connection
therewith, shall be made on a case by case basis and can differ among optionees
and grantees. The grant of an Option or other award under the Plan is a
privilege and not a right and the determination of the Board or the Committee,
as the case may be, can be applied on a non-uniform (discretionary) basis.
Section 5. Stock Options.
(a) Grant and Exercise. Stock Options granted under the Plan may be of two
types: (i) Incentive Stock Options and (ii) Non-Qualified Stock Options. Any
Stock Option granted under the Plan shall contain such terms as the Board or the
Committee, as the case may be, may from time to time approve. The Board or the
Committee, as the case may be, shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options, and they may be granted alone or in addition to other awards granted
under the Plan. To the extent that any Stock Option is not designated as an
Incentive Stock Option or does not qualify as an Incentive Stock Option, it
shall constitute a Non-Qualified Stock Option. The grant of an Option shall be
deemed to have occurred on the date on which the Board or the Committee, as the
case may be, by resolution, designates an individual as a grantee thereof, and
determines the number of shares of Stock subject to, and the terms and
conditions of, said Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options or any agreement providing for Incentive
Stock Options shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be exercised, so as to disqualify the Plan
under Section 422 of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under said Section 422.
54
(b) Terms and Conditions. Stock Options granted under the Plan shall be
subject to the following terms and conditions:
(i) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Board or the Committee, as the
case may be, at the time of grant but as to Incentive Stock Options and
Non-Qualified Stock Options shall be not less than 100% (110% in the case of an
Incentive Stock Option granted to an optionee ("10% Stockholder") who, at the
time of grant, owns Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its Parent, if any, or its
Subsidiaries) of the Fair Market Value of the Stock at the time of grant.
(ii) Option Term. The term of each Stock Option shall be fixed by
the Board or the Committee, as the case may be, but no Incentive Stock Option
shall be exercisable more than ten years (five years, in the case of an
Incentive Stock Option granted to a 10% Stockholder) after the date on which the
Option is granted.
(iii) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Board or the Committee, as the case may be. If the Board or the Committee,
as the case may be, provides, in its discretion, that any Stock Option is
exercisable only in installments, the Board or the Committee, as the case may
be, may waive such installment exercise provisions at any time at or after the
time of grant in whole or in part, based upon such factors as the Board or the
Committee, as the case may be, shall determine.
(iv) Method of Exercise. Subject to whatever installment, exercise
and waiting period provisions are applicable in a particular case, Stock Options
may be exercised in whole or in part at any time during the option period by
giving written notice of exercise to the Company specifying the number of shares
of Stock to be purchased. Such notice shall be accompanied by payment in full of
the exercise price for the Stock Options exercised, which shall be in cash or,
if provided in the Stock Option agreement referred to in Section 5(b)(xii) below
or otherwise provided by the Board, or Committee, as the case may be, either at
or after the date of grant of the Stock Option, in whole shares of Stock which
are already owned by the holder of the Option or partly in cash and partly in
such Stock. Cash payments shall be made by wire transfer, certified or bank
check or personal check, in each case payable to the order of the Company;
provided, however, that the Company shall not be required to deliver
certificates for shares of Stock with respect to which an Option is exercised
until the Company has confirmed the receipt of good and available funds in
payment of the purchase price thereof. If permitted, payments of the exercise
price and any tax required to be withheld by the Company in the form of Stock
(which shall be valued at the Fair Market Value of a share of Stock on the date
of exercise) shall be made by delivery of stock certificates in negotiable form
which are effective to transfer good and valid title thereto to the Company,
free of any liens or encumbrances. In addition to the foregoing, payment of the
exercise price may be made by delivery to the Company by the optionee of an
executed exercise form, together with irrevocable instructions to a
broker-dealer to sell or margin a sufficient portion of the shares covered by
the option and deliver the sale or margin loan proceeds directly to the Company.
55
Except as otherwise expressly provided in the Plan or in the Stock Option
agreement referred to in Section 5(b)(xii) below or otherwise provided by the
Board or Committee, as the case may be, either at or after the date of grant of
the Option, no Option which is granted to a person who is at the time of grant
an employee of the Company or of a Subsidiary or Parent of the Company may be
exercised at any time unless the holder thereof is then an employee of the
Company or of a Parent or a Subsidiary. The holder of an Option shall have none
of the rights of a stockholder with respect to the shares subject to the Option
until the optionee has given written notice of exercise, has paid in full for
those shares of Stock and, if requested by the Board or Committee, as the case
may be, has given the representation described in Section 13(a) below.
(v) Transferability; Exercisability. No Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, except as may be otherwise provided with respect to a
Non-Qualified Option pursuant to the specific provisions of the Stock Option
agreement pursuant to which it was issued as referred to in Section 5(b)(xii)
below (which agreement may be amended, from time to time). Except as otherwise
provided in the Stock Option agreement relating to a Non-Qualified Stock Option,
all Stock Options shall be exercisable, during the optionee's lifetime, only by
the optionee or his or her guardian or legal representative.
(vi) Termination by Reason of Death. Subject to Section 5(b)(x)
below, if an optionee's employment by the Company or any Parent or Parent or
Subsidiary terminates by reason of death, any Stock Option held by such optionee
may thereafter be exercised, to the extent then exercisable or on such
accelerated basis as the Board or Committee, as the case may be, may determine
at or after the time of grant, for a period of one year (or such other period as
the Board or the Committee, as the case may be, may specify at or after the time
of grant) from the date of death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(vii) Termination by Reason of Disability. Subject to Section
5(b)(x) below, if an optionee's employment by the Company or any Parent or
Subsidiary terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated basis as the Board
or the Committee, as the case may be, may determine at or after the time of
grant, for a period of one year (or such other period as the Board or the
Committee, as the case may be, may specify at or after the time of grant) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided, however,
that if the optionee dies within such one year period (or such other period as
the Board or the Committee, as the case may be, shall specify at or after the
time of grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable to the extent to which it was exercisable at the time
of death for a period of one year from the date of death or until the expiration
of the stated term of such Stock Option, whichever period is the shorter.
56
(viii) Termination by Reason of Retirement. Subject to Section
5(b)(x) below, if an optionee's employment by the Company or any Parent or
Subsidiary terminates by reason of Normal Retirement, any Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated basis as the Board
or the Committee, as the case may be, may determine at or after the time of
grant, for a period of one year (or such other period as the Board or the
Committee, as the case may be, may specify at or after the time of grant) from
the date of such termination of employment or the expiration of the stated term
of such Stock Option, whichever period is the shorter; provided, however, that
if the optionee dies within such one year period (or such other period as the
Board or the Committee, as the case may be, shall specify at or after the date
of grant), any unexercised Stock Option held by such optionee shall thereafter
be exercisable to the extent to which it was exercisable at the time of death
for a period of one year from the date of death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. If an
optionee's employment with the Company or any Parent or Subsidiary terminates by
reason of Early Retirement, the Stock Option shall thereupon terminate;
provided, however, that if the Board or the Committee, as the case may be, so
approves at the time of Early Retirement, any Stock Option held by the optionee
may thereafter be exercised by the optionee as provided above in connection with
termination of employment by reason of Normal Retirement.
(ix) Other Termination. Subject to the provisions of Section 13(g)
below and unless otherwise determined by the Board or Committee, as the case may
be, at or after the time of grant, if an optionee's employment by the Company or
any Parent or Subsidiary terminates for any reason other than death, Disability
or Retirement, the Stock Option shall thereupon automatically terminate, except
that if the optionee is involuntarily terminated by the Company or any Parent or
a Subsidiary without Cause (as hereinafter defined), such Stock Option may be
exercised for a period of three months (or such other period as the Board or the
Committee, as the case may be, shall specify at or after the time of grant) from
the date of such termination or until the expiration of the stated term of such
Stock Option, whichever period is shorter. For purposes of the Plan, "Cause"
shall mean (1) the conviction of the optionee of a felony under Federal law or
the law of the state in which such action occurred, (2) dishonesty by the
optionee in the course of fulfilling his or her employment duties, or (3) the
failure on the part of the optionee to perform his or her employment duties in
any material respect. In addition, with respect to an option granted to an
employee of the Company, a Parent or a Subsidiary, for purposes of the Plan,
"Cause" shall also include any definition of "Cause" contained in any employment
agreement between the optionee and the Company, Parent or Subsidiary, as the
case may be.
(x) Additional Incentive Stock Option Limitation. In the case of an
Incentive Stock Option, the aggregate Fair Market Value of Stock (determined at
the time of grant of the Option) with respect to which Incentive Stock Options
are exercisable for the first time by an optionee during any calendar year
(under all such plans of optionee's employer corporation and its Parent and
Subsidiaries) shall not exceed $100,000.
57
(xi) Alternative Settlement of Option. If provided for, upon the
receipt of written notice of exercise or otherwise provided for by the Board or
Committee, as the case may be, either at or after the time of grant of the Stock
Option, the Board or the Committee, as the case may be, may elect to settle all
or part of any Stock Option by paying to the optionee an amount, in cash or
Stock (valued at Fair Market Value on the date of exercise), equal to the
product of the excess of the Fair Market Value of one share of Stock, on the
date of exercise over the Option exercise price, multiplied by the number of
shares of Stock with respect to which the optionee proposes to exercise the
Option. Any such settlements which relate to Options which are held by optionees
who are subject to Section 16(b) of the Exchange Act shall comply with any
"window period" provisions of Rule 16b-3, to the extent applicable, and with
such other conditions as the Board or Committee, as the case may be, may impose.
(xii) Stock Option Agreement. Each grant of a Stock Option shall be
confirmed by, and shall be subject to the terms of, an agreement executed by the
Company and the Participant.
Section 6. Restricted Stock.
(a) Grant and Exercise. Shares of Restricted Stock may be issued either
alone or in addition to or in tandem with other awards granted under the Plan.
The Board or the Committee, as the case may be, shall determine the eligible
persons to whom, and the time or times at which, grants of Restricted Stock will
be made, the number of shares to be awarded, the price (if any) to be paid by
the recipient, the time or times within which such awards may be subject to
forfeiture (the "Restriction Period"), the vesting schedule and rights to
acceleration thereof, and all other terms and conditions of the awards. The
Board or the Committee, as the case may be, may condition the grant of
Restricted Stock upon the attainment of such factors as the Board or the
Committee, as the case may be, may determine.
(b) Terms and Conditions. Each Restricted Stock award shall be subject to
the following terms and conditions:
(i) Restricted Stock, when issued, shall either be issued in
book-entry form or will be represented by a stock certificate or certificates
registered in the name of the holder to whom such Restricted Stock shall have
been awarded. During the Restriction Period, any certificates representing the
Restricted Stock and any securities constituting Retained Distributions (as
defined below) shall bear a restrictive legend to the effect that ownership of
the Restricted Stock (and such Retained Distributions), and the enjoyment of all
rights related thereto, are subject to the restrictions, terms and conditions
provided in the Plan and the Restricted Stock agreement referred to in Section
6(b)(iv) below. Any such certificates shall be deposited by the holder with the
Company, together with stock powers or other instruments of assignment, endorsed
in blank, which will permit transfer to the Company of all or any portion of the
Restricted Stock and any securities constituting Retained Distributions that
shall be forfeited or that shall not become vested in accordance with the Plan
and the applicable Restricted Stock agreement.
58
(ii) Restricted Stock shall constitute issued and outstanding shares
of Common Stock for all corporate purposes, and the issuance thereof shall be
made for at least the minimum consideration (if any) necessary to permit the
shares of Restricted Stock to be deemed to be fully paid and nonassessable.
Unless the Board or Committee determines otherwise, the holder will have the
right to vote such Restricted Stock, to receive and retain all regular cash
dividends and other cash equivalent distributions as the Board may in its sole
discretion designate, pay or distribute on such Restricted Stock and to exercise
all other rights, powers and privileges of a holder of Stock with respect to
such Restricted Stock, with the exceptions that (A) the holder will not be
entitled to delivery of the stock certificate or certificates representing such
Restricted Stock until the Restriction Period shall have expired and unless all
other vesting requirements with respect thereto shall have been fulfilled; (B)
the Company will retain custody of the stock certificate or certificates
representing the Restricted Stock during the Restriction Period; (C) other than
regular cash dividends and other cash equivalent distributions as the Board may
in its sole discretion designate, pay or distribute, the Company will retain
custody of all distributions ("Retained Distributions") made or declared with
respect to the Restricted Stock (and such Retained Distributions will be subject
to the same restrictions, terms and conditions as are applicable to the
Restricted Stock) until such time, if ever, as the Restricted Stock with respect
to which such Retained Distributions shall have been made, paid or declared
shall have become vested and with respect to which the Restriction Period shall
have expired; (D) the holder may not sell, assign, transfer, pledge, exchange,
encumber or dispose of the Restricted Stock or any Retained Distributions during
the Restriction Period; and (E) a breach of any of the restrictions, terms or
conditions contained in the Plan or the Restricted Stock agreement referred to
in Section 6(b)(iv) below, or otherwise established by the Board or Committee,
as the case may be, with respect to any Restricted Stock or Retained
Distributions will cause a forfeiture of such Restricted Stock and any Retained
Distributions with respect thereto.
(iii) Upon the expiration of the Restriction Period with respect to
each award of Restricted Stock and the satisfaction of any other applicable
restrictions, terms and conditions (A) all or part of such Restricted Stock
shall become vested in accordance with the terms of the Restricted Stock
agreement referred to in Section 6(b)(iv) below, and (B) any Retained
Distributions with respect to such Restricted Stock shall become vested to the
extent that the Restricted Stock related thereto shall have become vested. Any
such Restricted Stock and Retained Distributions that do not vest shall be
forfeited to the Company and the holder shall not thereafter have any rights
with respect to such Restricted Stock and Retained Distributions that shall have
been so forfeited.
(iv) Each Restricted Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
Participant.
(c) Restricted Stock Deferrals.
(i) Deferral Agreement. A Participant who may be or has been awarded
Restricted Stock by the Company may make a deferral election under the Plan by
completing and submitting to the Company a written Stock Deferral Agreement
provided by the Company during the enrollment period. The Stock Deferral
Agreement must comply with the timing conditions of Section (ii) below. The
59
Stock Deferral Agreement shall indicate: (1) the number of shares of Restricted
Stock a Participant elects to defer, (2) the disposition of dividend
equivalents, and (3) the Participant's election of a payment schedule for his or
her Deferred Restricted Stock Account. Notwithstanding any provision to the
contrary in this Plan, a Participant's Deferred Restricted Stock Account is
payable solely in shares of the Company's common stock (with any fractional
share paid in cash). Dividend equivalent payments shall be made with respect to
Stock Units, as defined in Section (iv) below, credited to a Participant's
Deferred Restricted Stock Account in the amount that would have been paid (or
reinvested) as a dividend if each Stock Unit were a share of common stock of the
Company. Subject to the participant's election in Section 6(c)(i)(2) hereof, any
such dividend equivalent shall be credited to the Participant's Deferred
Restricted Stock Account. The number of Stock Units into which the dividend
equivalents are converted shall be calculated based on the price per share of
the Stock of the Company as of the date the dividend is paid.
(ii) Timing of Stock Deferral Agreement. A deferral election
relating to Restricted Stock will be invalid unless the election satisfies one
of the following conditions:
(1) The election may be made at any time that is no later than
December 31 of the year prior to the year in which the
Restricted Stock is granted or, with respect to Restricted
Stock that is subject to a vesting period of at least
twelve (12) months, the election made on or before the
thirtieth (30th) day after the Participant is granted the
Restricted Stock and further provided that the election is
made at least twelve (12) months in advance of the
earliest date on which the vesting period could expire.
Notwithstanding the foregoing to the contrary, a
Participant shall not be permitted to elect to defer the
receipt of Restricted Stock unless such election complies
with Code Section 409A and Treasury Regulations, IRS
Rulings and IRS Notices issued thereunder (a "Pre-Grant
Stock Deferral Election");
(2) The election may be made later than the time or times set
forth in (1) above, provided the deferral election period
shall occur during the period which is at least twelve
(12) months prior to the date on which the Restricted
Stock becomes vested (a "Post-Grant Stock Deferral
Election"). Any Post-Grant Stock Deferral Election must
indicate a distribution date that is at least five (5)
years later than the vesting date of the related
Restricted Stock; or
(3) In the case of Restricted Stock that qualify as
performance-based under Code Section 409A, the election
may be made no later than six (6) months prior to the
vesting date of the Restricted Stock (a "Performance-Based
Stock Deferral Election").
60
(iii) Effect of Deferral Election. Except as provided in Section
6(c)(vi) regarding changing a payment schedule election, deferral elections are
irrevocable.
(iv) Additional Effect of Deferral Election on Restricted Stock.
When a Participant makes a deferral election for Restricted Stock, such
Participant shall continue to hold (or otherwise be credited with ownership of)
the shares of Restricted Stock which are subject to the election, and remains
able to exercise all rights of ownership accorded to him or her as the owner of
unvested Restricted Stock with respect to such shares, as set forth in the
Participant's underlying Restricted Stock award agreement, until the day
immediately prior to the "vesting date" of such deferred Restricted Stock
shares. During such period, any dividends declared with respect to such deferred
Restricted Stock shares shall be distributed in accordance with the provisions
of the plan pursuant to which the Restricted Stock is granted (e.g., paid in
cash to the Participant or reinvested in Stock), as provided in the Company's
Restricted Stock agreement.
On the day immediately prior to the "vesting date" of the deferred
Restricted Stock shares subject to the stock deferral election, such shares are
deemed to be surrendered to the Company by the Participant, and exchanged for
stock units ("Stock Units") which are simultaneously "deferred" (and credited to
the Participant's Deferred Restricted Stock Account pursuant to provisions of
the Plan).
(v) Effect of FICA/FUTA Obligation. As of the applicable vesting
date, Restricted Stock is subject to taxation under the Federal Insurance
Contribution Act ("FICA") and the Federal Unemployment Tax Act ("FUTA"). The
Company, without the Participant's consent, may satisfy the Company's
withholding obligation for FICA and FUTA taxes payable by the Participant with
respect to the Restricted Stock by withholding from the deferral and thus
reducing the deferral amount.
(vi) Changing Payment Schedule Election.
With respect to the portion of a Participant's Account that is a
Post-Grant Stock Deferral Election, the Participant shall be permitted to change
his or her payment schedule election at any time, but only if: (1) such
subsequent election may not take effect until at least twelve (12) months after
the date on which it is made, (2) if such subsequent election relates to a
payment not made on account of the Participant's death, disability or
Unforeseeable Emergency, the payment with respect to which such election is made
must be deferred for a period of not less than five (5) years from the date such
payment would otherwise have been made, and (3) any subsequent election related
to a payment described in Code Section 409A(2)(A)(iv) may not be made less than
twelve (12) months prior to the date of the first scheduled payment.
61
With respect to the portion of a Participant's Account that is a Pre-Grant
Stock Deferral Election or a Performance-Based Stock Deferral Election, the
Participant shall be permitted to change his or her payment schedule election at
any time by filing a new Stock Deferral Agreement, provided such election is
made in accordance with the paragraph above, or prior to the time at which the
election to defer the Restricted Stock must be made pursuant to a Pre-Grant
Stock Deferral Election (Section 6(c)(ii)(1)) or a Performance-Based Stock
Deferral Election (Section 6(c)(ii)(3)), as applicable.
Section 7. Deferred Stock.
(a) Grant and Exercise. Deferred Stock may be awarded either alone or in
addition to or in tandem with other awards granted under the Plan. The Board or
the Committee, as the case may be, shall determine the eligible persons to whom
and the time or times at which Deferred Stock shall be awarded, the number of
shares of Deferred Stock to be awarded to any person, the duration of the period
(the "Deferral Period") during which, and the conditions under which, receipt of
the Deferred Stock will be deferred, and all the other terms and conditions of
the awards. The Board or the Committee, as the case may be, may condition the
grant of the Deferred Stock upon the attainment of such factors or criteria as
the Board or the Committee, as the case may be, shall determine.
(b) Terms and Conditions. Each Deferred Stock award shall be subject to
the following terms and conditions:
(i) Subject to the provisions of the Plan and Deferred Stock
agreement referred to in Section 7(b)(viii) below, Deferred Stock awards may not
be sold, assigned, transferred, pledged or otherwise encumbered during the
Deferral Period. At the expiration of the Deferral Period (or the Additional
Deferral Period referred to in Section 7(b)(vii) below, where applicable), share
certificates shall be delivered to the Participant, or his legal representative,
in a number equal to the shares of Stock covered by the Deferred Stock award.
(ii) As determined by the Board or the Committee, as the case may
be, at the time of award, amounts equal to any dividends declared during the
Deferral Period (or the Additional Deferral Period referred to in Section
7(b)(vi) below, where applicable) with respect to the number of shares covered
by a Deferred Stock award may be paid to the Participant currently or deferred
and deemed to be reinvested in additional Deferred Stock.
(iii) Subject to the provisions of the Deferred Stock agreement
referred to in Section 7(b)(viii) below and this Section 7 and Section 13(g)
below, upon termination of a Participant's employment with the Company or any
Parent or Subsidiary for any reason during the Deferral Period (or the
Additional Deferral Period referred to in Section 7(b)(vii) below, where
applicable) for a given award, the Deferred Stock in question will vest or be
forfeited in accordance with the terms and conditions established by the Board
or the Committee, as the case may be, at the time of grant.
62
(iv) The Board or the Committee, as the case may be, may, after
grant, accelerate the vesting of all or any part of any Deferred Stock award.
(v) In the event of an Unforeseen Emergency of a Participant whose
employment with the Company or any Parent or Subsidiary is involuntarily
terminated (other than for Cause), the Board or the Committee, as the case may
be, may, at the request of the Participant, waive in whole or in part any or all
of the remaining deferral limitations imposed hereunder or pursuant to the
Deferred Stock agreement referred to in Section 7(b)(viii) below with respect to
any or all of the Participant's Deferred Stock.
(vi) In the event of the Participant's Retirement, Disability or
death, or in cases of an Unforeseen Emergency, the Board or the Committee, as
the case may be, shall waive in whole or in part any or all of the limitations
imposed hereunder (if any) with respect to any or all of a Deferred Stock award.
(vii) In the event of the Participant's Retirement, Disability,
death, or a 409A Change, or in cases of an Unforeseen Emergency, the Board or
the Committee, as the case may be, shall waive the limitations imposed hereunder
(if any) with respect to a 409A Deferred Stock Award.
(viii) A Participant and/or the Board or the Committee, as the case
may be, may elect to defer the receipt of an award (or an installment of an
award) for an additional specified period or until a specified period or until a
specified event (the "Additional Deferral Period"); provided however, that (i)
such subsequent election may not take effect until at least twelve (12) months
after the date on which it is made, (ii) if such subsequent election relates to
a payment not made on account of the Participant's death, disability or
Unforeseen Emergency, the payment with respect to which such election is made
must be deferred for a period of not less than five (5) years from the date such
payment would otherwise have been made, and (iii) any subsequent election
related to a payment described in Code Section 409A(2)(A)(iv) may not be made
less than twelve (12) months prior to the date of the first scheduled payment.
(ix) Each Deferred Stock award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and the
Participant.
Section 8. Other Stock-Based Awards.
(a) Grant and Exercise. Other Stock-Based Awards, which may include
performance shares and shares valued by reference to the performance of the
Company or any Parent or Subsidiary, may be granted either alone or in addition
to or in tandem with Stock Options, Restricted Stock or Deferred Stock. The
Board or the Committee, as the case may be, shall determine the eligible persons
to whom, and the time or times at which, such awards shall be made, the number
of shares of Stock to be awarded pursuant to such awards, and all other terms
and conditions of the awards. The Board or the Committee, as the case may be,
may also provide for the grant of Stock under such awards upon the completion of
a specified performance period.
63
(b) Terms and Conditions. Each Other Stock-Based Award shall be subject to
the following terms and conditions:
(i) Shares of Stock subject to an Other Stock-Based Award may not be
sold, assigned, transferred, pledged or otherwise encumbered prior to the date
on which the shares are issued, or, if later, the date on which any applicable
restriction or period of deferral lapses.
(ii) The recipient of an Other Stock-Based Award shall be entitled
to receive, currently or on a deferred basis, dividends or dividend equivalents
with respect to the number of shares covered by the award, as determined by the
Board or the Committee, as the case may be, at the time of the award. The Board
or the Committee, as the case may be, may provide that such amounts (if any)
shall be deemed to have been reinvested in additional Stock.
(iii) Any Other Stock-Based Award and any Stock covered by any Other
Stock-Based Award shall vest or be forfeited to the extent so provided in the
award agreement referred to in Section 8(b)(v) below, as determined by the Board
or the Committee, as the case may be.
(iv) In the event of the Participant's Retirement, Disability or
death, or in cases of an Unforeseen Emergency, the Board or the Committee, as
the case may be, shall waive in whole or in part any or all of the limitations
imposed hereunder (if any) with respect to any or all of an Other Stock-Based
Award.
(v) Each Other Stock-Based Award shall be confirmed by, and shall be
subject to the terms of, an agreement executed by the Company and by the
Participant.
Section 9. Performance-Based Awards.
(a) In General. All Options and certain Restricted Stock awards, Deferred
Stock awards, and Other Stock-Based Awards granted under the Plan, and the
compensation attributable to such awards, are intended to (i) qualify as
Performance-Based Awards (as defined in the next sentence) or (ii) be otherwise
exempt from the deduction limitation imposed by Section 162(m) of the Code.
Certain Awards granted under the Plan may be granted in a manner such that
Awards qualify as "performance-based compensation" (as such term is used in
Section 162(m) of the Code and the regulations thereunder) and thus be exempt
from the deduction limitation imposed by Section 162(m) of the Code
("Performance-Based Awards"). Awards may only qualify as Performance-Based
Awards if they are granted by Committee at a time when the Committee is
comprised solely of two or more "outside directors" (as such term is used in
Section 162(m) of the Code and the regulations thereunder) ("Qualifying
Committee").
(b) Options. Stock Options granted under the Plan with an exercise price
at or above the Fair Market Value of Common Stock on the date of grant should
qualify as Performance-Based Awards.
64
(c) Other Performance-Based Awards. Restricted Stock awards, Deferred
Stock awards, and Other Stock-Based Awards granted under the Plan should qualify
as Performance-Based Awards if, as determined by a Qualifying Committee, in its
discretion, either the granting of such award is subject to the achievement of a
performance target or targets based on one or more of the performance measures
specified in Section 9(d) below. With respect to such awards intended to qualify
as Performance-Based Awards:
(1) the Qualifying Committee shall establish in writing (x)
the objective performance-based goals applicable to a
given period and (y) the individual employees or class of
employees to which such performance-based goals apply no
later than 90 days after the commencement of such period
(but in no event after 25 percent of such period has
elapsed);
(2) no Performance-Based Awards shall be payable to or vest
with respect to, as the case may be, any Participant for a
given period until the Qualifying Committee certifies in
writing that the objective performance goals (and any
other material terms) applicable to such period have been
satisfied; and
(3) after the establishment of a performance goal, the
Qualifying Committee shall not revise such performance
goal or increase the amount of compensation payable
thereunder (as determined in accordance with Section
162(m) of the Code) upon the attainment of such
performance goal.
(d) Performance Measures. The Qualifying Committee may use the following
performance measures (either individually or in any combination) to set
performance targets with respect to awards intended to qualify as
Performance-Based Awards: net sales; pretax income before allocation of
corporate overhead and bonus; budget; earnings per share; net income; division,
group or corporate financial goals; return on stockholders' equity; return on
assets; return on net assets; return on investment capital; gross margin return
on investment; gross margin dollars or percent; payroll as a percentage of
sales; employee turnover; sales, general and administrative expense; attainment
of strategic and operational initiatives; appreciation in and/or maintenance of
the price of Common Stock or any other publicly-traded securities of the
Company, if any; market share; gross profits; earnings before interest and
taxes; earnings before interest, taxes, depreciation and amortization; economic
value-added models; comparisons with various stock market indices; and/or
reductions in costs. The foregoing criteria shall have any reasonable
definitions that the Qualifying Committee may specify, which may include or
exclude any or all of the following items as the Qualifying Committee may
specify: extraordinary, unusual or non-recurring items; effects of accounting
changes; effects of financing activities; expenses for restructuring or
productivity initiatives; other non-operating items; spending for acquisitions;
effects of divestitures; and effects of litigation activities and settlements.
Any such performance criterion or combination of such criteria may apply to the
Participant's award opportunity in its entirety or to any designated portion or
portions of the award opportunity, as the Qualifying Committee may specify.
65
Section 10. Change of Control Provisions.
(a) A "Change of Control" shall be deemed to have occurred on the tenth
day after:
(i) any individual, corporation or other entity or group (as defined
in Section 13(d)(3) of the Exchange Act), becomes, directly or indirectly, the
beneficial owner (as defined in the General Rules and Regulations of the
Securities and Exchange Commission with respect to Sections 13(d) and 13(g) of
the Exchange Act) of more than 50% of the then outstanding shares of the
Company's capital stock entitled to vote generally in the election of directors
of the Company; or
(ii) the commencement of, or the first public announcement of the
intention of any individual, firm, corporation or other entity or of any group
(as defined in Section 13(d)(3) of the Exchange Act) to commence, a tender or
exchange offer subject to Section 14(d)(1) of the Exchange Act for any class of
the Company's capital stock; or
(iii) the stockholders of the Company approve (A) a definitive
agreement for the merger or other business combination of the Company with or
into another corporation pursuant to which the stockholders of the Company do
not own, immediately after the transaction, more than 50% of the voting power of
the corporation that survives, or (B) a definitive agreement for the sale,
exchange or other disposition of all or substantially all of the assets of the
Company, or (C) any plan or proposal for the liquidation or dissolution of the
Company; provided, however, that a "Change of Control" shall not be deemed to
have taken place if beneficial ownership is acquired (A) directly from the
Company, other than an acquisition by virtue of the exercise or conversion of
another security unless the security so converted or exercised was itself
acquired directly from the Company, or (B) by, or a tender or exchange offer is
commenced or announced by, the Company, any profit-sharing, employee ownership
or other employee benefit plan of the Company; or any trustee of or fiduciary
with respect to any such plan when acting in such capacity.
(b) In the event of a "Change of Control" as defined in Section 10(a)
above, awards granted under the Plan will be subject to the following
provisions, unless the provisions of this Section 10 are suspended or terminated
by an affirmative vote of a majority of the Board prior to the occurrence of
such a "Change of Control":
(i) all outstanding Stock Options which have been outstanding for at
least one year shall become exercisable in full, whether or not otherwise
exercisable at such time, and any such Stock Option shall remain exercisable in
full thereafter until it expires pursuant to its terms; and
66
(ii) all restrictions and deferral limitations contained in
Restricted Stock awards, Deferred Stock awards and Other Stock-Based Awards
granted under the Plan shall lapse and the shares of stock subject to such
awards shall be distributed to the Participant. Notwithstanding the foregoing to
the contrary, all restrictions and deferral limitations with respect to a 409A
Deferred Stock Award or with respect to a Participant's Deferred Restricted
Stock Account shall not lapse under this Section 10(b) unless the "Change of
Control" qualifies as a 409A Change.
Section 11. Amendments and Termination.
The Board may at any time, and from time to time, amend any of the
provisions of the Plan, and may at any time suspend or terminate the Plan;
provided, however, that no such amendment shall be effective unless and until it
has been duly approved by the holders of the outstanding shares of Stock if the
failure to obtain such approval would adversely affect the compliance of the
Plan with the requirements of Rule 16b-3 or any other applicable law, rule or
regulation. The Board or the Committee, as the case may be, may amend the terms
of any Stock Option or other award theretofore granted under the Plan; provided,
however, that subject to Section 3 above, no such amendment may be made by the
Board or the Committee, as the case may be, which in any material respect
impairs the rights of the optionee or Participant without the optionee's or
Participant's consent, except for such amendments which are made to cause the
Plan to qualify for the exemption provided by Rule 16b-3. Moreover, no Stock
Option previously granted under the Plan may be amended to reduce the exercise
price of the Stock Option.
Section 12. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing contained herein shall give any
such Participant or optionee any rights that are greater than those of a
creditor of the Company.
Section 13. General Provisions.
(a) The Board or the Committee, as the case may be, may require each
person acquiring shares of Stock pursuant to an Option or other award under the
Plan to represent to and agree with the Company in writing, among other things,
that the optionee or Participant is acquiring the shares for investment without
a view to distribution thereof.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stop transfer orders and other restrictions as the Board or the
Committee, as the case may be, may deem to be advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange or association upon which the Stock is then listed or traded,
any applicable Federal or state securities law, and any applicable corporate
law, and the Board or the Committee, as the case may be, may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
67
(b) Nothing contained in the Plan shall prevent the Board from adopting
such other or additional incentive arrangements as it may deem desirable,
including, but not limited to, the granting of stock options and the awarding of
stock and cash otherwise than under the Plan; and such arrangements may be
either generally applicable or applicable only in specific cases.
(c) Nothing contained in the Plan or in any award hereunder shall be
deemed to confer upon any employee of the Company or any Parent or Subsidiary
any right to continued employment with the Company or any Parent or Subsidiary,
nor shall it interfere in any way with the right of the Company or any Parent or
Subsidiary to terminate the employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes includable
in the gross income of the Participant for Federal income tax purposes with
respect to any Option or other award under the Plan, the Participant shall pay
to the Company, or make arrangements satisfactory to the Board or the Committee,
as the case may be, regarding the payment of, any Federal, state and local taxes
of any kind required by law to be withheld or paid with respect to such amount.
If permitted by the Board or the Committee, as the case may be, tax withholding
or payment obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional upon such payment or
arrangements, and the Company or the Participant's employer (if not the Company)
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant from the Company
or any Parent or Subsidiary.
(e) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware
(without regard to choice of law provisions).
(f) Any Stock Option granted or other award made under the Plan shall not
be deemed compensation for purposes of computing benefits under any retirement
plan of the Company or any Parent or Subsidiary and shall not affect any
benefits under any other benefit plan now or subsequently in effect under which
the availability or amount of benefits is related to the level of compensation
(unless required by specific reference in any such other plan to awards under
the Plan).
(g) A leave of absence, unless otherwise determined by the Board or
Committee prior to the commencement thereof, shall not be considered a
termination of employment. Any Stock Option granted or awards made under the
Plan shall not be affected by any change of employment, so long as the holder
continues to be an employee of the Company or any Parent or Subsidiary.
(h) Except as otherwise expressly provided in the Plan or in any Stock
Option agreement, Restricted Stock agreement, Deferred Stock agreement or any
Other Stock-Based Award agreement, no right or benefit under the Plan may be
alienated, sold, assigned, hypothecated, pledged, exchanged, transferred,
encumbranced or charged, and any attempt to alienate, sell, assign, hypothecate,
68
pledge, exchange, transfer, encumber or charge the same shall be void. No right
or benefit hereunder shall in any manner be subject to the debts, contracts or
liabilities of the person entitled to such benefit.
(i) The obligations of the Company with respect to all Stock Options and
awards under the Plan shall be subject to (A) all applicable laws, rules and
regulations, and such approvals by any governmental agencies as may be required,
including, without limitation, the effectiveness of a registration statement
under the Securities Act, and (B) the rules and regulations of any securities
exchange or association on which the Stock may be listed or traded.
(j) If any of the terms or provisions of the Plan conflicts with the
requirements of Rule 16b-3 as in effect from time to time, or with the
requirements of any other applicable law, rule or regulation, and with respect
to Incentive Stock Options, Section 422 of the Code, then such terms or
provisions shall be deemed inoperative to the extent they so conflict with the
requirements of said Rule 16b-3, and with respect to Incentive Stock Options,
Section 422 of the Code. With respect to Incentive Stock Options, if the Plan
does not contain any provision required to be included herein under Section 422
of the Code, such provision shall be deemed to be incorporated herein with the
same force and effect as if such provision had been set out at length herein.
(k) The Board or the Committee, as the case may be, may terminate any
Stock Option or other award made under the Plan if a written agreement relating
thereto is not executed and returned to the Company within 30 days after such
agreement has been delivered to the optionee or Participant for his or her
execution.
(l) The grant of awards pursuant to the Plan shall not in any way effect
the right or power of the Company to make reclassifications, reorganizations or
other changes of or to its capital or business structure or to merge,
consolidate, liquidate, sell or otherwise dispose of all or any part of its
business or assets.
(m) Notwithstanding anything in this Plan to the contrary, if the
Participant is a Specified Employee and payment of his/her Deferrred Restricted
Stock Account or Deferred Stock is being made on account of his/her separation
from service, such payment shall be made not earlier than the sixth month
anniversary of such Specified Employee's separation from service.
Section 14. Effective Date of Plan.
The Plan shall be effective as of the date of the approval and adoption
thereof at a meeting of the stockholders of the Company.
Section 15. Term of Plan.
No Stock Option, Restricted Stock award, Deferred Stock award or Other
Stock-Based Award shall be granted pursuant to the Plan after the tenth
anniversary of the effective date of the Plan, but awards granted on or prior to
such tenth anniversary may extend beyond that date.
69
(G+C LOGO)
Corporate Headquarters
11 Raymond Avenue o Poughkeepsie, NY 12603
845.485-5278 tel o 845.622.3638 fax
- --------------------------------------------------------------------------------
GILMAN + CIOCIA, INC.
MEETING OF STOCKHOLDERS
July 19, 2007
10:30 A.M. LOCAL TIME
BLANK ROME LLP
405 LEXINGTON AVENUE,
NEW YORK, NEW YORK 10174
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF GILMAN + CIOCIA, INC.
I hereby appoint Ted H. Finkelstein, Katherine Travis and Dennis Conroy, and
each of them, as proxies with full power of substitution, for and in the name of
the undersigned, to vote all shares of Common Stock of Gilman + Ciocia, Inc.
which I would be entitled to vote on all matters which may properly come before
the Meeting of Stockholders of Gilman + Ciocia to be held at Blank Rome LLP, 405
Lexington Avenue, New York, New York 10174, on July 19, 2007 at 10:30 a.m.,
local time, or any adjournment or postponement of the Meeting.
THE PROXIES SHALL VOTE SUBJECT TO THE DIRECTIONS INDICATED ON THE REVERSE SIDE
OF THIS PROXY CARD, AND THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION
UPON OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT
OR POSTPONEMENT OF THE MEETING. THE PROXIES WILL VOTE AS THE BOARD OF DIRECTORS
RECOMMENDS WHERE A CHOICE IS NOT SPECIFIED. THE PROXIES CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN, DATE AND RETURN THIS PROXY CARD.
I acknowledge receipt of Gilman + Ciocia's Notice of Meeting of Stockholders,
dated June 18, 2007, Proxy Statement, the Company's Annual Report for the year
ended June 30, 2006 and the Company's Quarterly Report for the quarter ended
March 31, 2007.
See reverse for voting instructions.
- --------------------------------------------------------------------------------
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
provided or return it to GILMAN + CIOCIA, INC.,
_____________________________________ ______________.
GILMAN + CIOCIA'S BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR ALL NOMINEES AND FOR PROPOSALS 2,3 AND 4:
1. Election of Nominees
for Director: 01 Edward H. Cohen
02 James Ciocia
03 Michael Ryan
04 John F. Levy
05 Allan R. Page
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE,
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
--------------------------------
--------------------------------
-- PLEASE FOLD HERE --
1. To approve the Proposed Financing Transaction
|_| FOR |_| AGAINST |_| ABSTAIN
2. To approve the Restated Certificate of Incorporation.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To approve the Gilman Ciocia 2007 Stock Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. To ratify the appointment of Sherb & Co., Inc. as the Company's independent
auditors for the fiscal year ending June 30, 2007
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR THE NOMINEES AND PROPOSALS ABOVE. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting.
Address Change? Mark Box |_| Indicate changes below: |_| Yes, I plan to attend
the Annual Meeting of Stockholders
Date ________________________
- ---------------------------------------
- ---------------------------------------
Signature(s) in Box
Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy,
all persons should sign. Trustees, administrators, etc., should include title
and authority.
Companies should provide full name of corporation and title of authorized
officer signing the proxy.