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:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.14a-12
Gilman + Ciocia, Inc.
- --------------------------------------------------------------------------------
(Name of the Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[GILMAN & CIOCIA, INC. LETTERHEAD]
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 __________________, 200__, at the offices of Bingham McCutchen LLP, 399
Park Avenue, New York, New York 10022, beginning at 10:30 a.m., local time. To
be admitted to the 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 Ryan
Michael Ryan, Chief Executive Officer
Poughkeepsie, New York
_________________
[GILMAN & CIOCIA, INC. LETTERHEAD]
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 Bingham McCutchen LLP, 399 Park Avenue, New York, New York
10022
DATE AND TIME: _________________, 200__ at 10:30 a.m., local time
ITEMS OF BUSINESS:
1. To elect two Class A directors;
2. To consider and vote upon a proposed amendment to the Company's
Certificate of Incorporation to change the name of the Company from
Gilman + Ciocia, Inc. to Gilman Ciocia, Inc.;
3. To ratify the appointment of Sherb & Co., LLP as the Company's
independent registered public accounting firm for the fiscal year
ending June 30, 2008; and
4. 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 ________, 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 Ciocia
James Ciocia
Chairman of the Board
Poughkeepsie, New York
_________________
PROXY STATEMENT
GILMAN + CIOCIA, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD _________________, 200__
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 ___________________, 2008, at the offices of Bingham McCutchen
LLP, 399 Park Avenue, New York, New York 10022, 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 _________________.
WHEN IS THE RECORD DATE FOR THE MEETING? WHO IS ELIGIBLE TO VOTE?
___________, 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, ___________ 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 two Class A 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 Class A directors of the Company. Broker non-votes
and abstentions will have no effect on the election of Class A directors.
The affirmative vote of the holders of a majority of the shares of Common Stock
outstanding and entitled to vote at the Meeting is necessary to approve the
proposed amendment to the Company's Certificate of Incorporation to change the
name of the Company from Gilman + Ciocia, Inc. to Gilman Ciocia, Inc.
Accordingly, broker non-votes and abstentions from voting on proposal 2, to
approve the proposed amendment to the Company's Certificate of Incorporation,
have the same effect as a vote against that proposal.
The affirmative vote of a majority of the votes cast at the Meeting, provided a
quorum is present, is necessary to approve the ratification of the appointment
of Sherb & Co., LLP. Broker non-votes and abstentions will have no effect on
proposal 3, the ratification of our independent registered public accounting
firm.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
The Board recommends that you vote:
(1) FOR the election of the two Class A directors nominated by the Board, upon
recommendation of the Nominating and Corporate Governance Committee;
(2) FOR the approval of the proposed amendment to the Company's Certificate of
Incorporation to change the name of the Company from Gilman + Ciocia, Inc. to
Gilman Ciocia, Inc.; and
(3) FOR the ratification of the appointment of Sherb & Co., LLP as the Company's
independent registered public accounting firm for the fiscal year ending June
30, 2008, upon the recommendation of the Audit Committee of the Board.
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.
2
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 officer designated to vote the
proxies returned pursuant to this solicitation is Ted Finkelstein, Vice
President and General Counsel.
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 two Class A directors nominated by the Board, upon
recommendation of the Nominating and Corporate Governance Committee;
(2) FOR the approval of the proposed amendment to the Company's Certificate of
Incorporation to change the name of the Company from Gilman + Ciocia, Inc. to
Gilman Ciocia, Inc.; and
(3) FOR the ratification of the appointment of Sherb & Co., LLP as the Company's
independent registered public accounting firm for the fiscal year ending June
30, 2008, upon the recommendation of the Audit Committee of the Board.
IF I SUBMIT A PROXY, MAY I STILL VOTE MY SHARES AT THE MEETING?
Yes. Submitting a proxy does 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 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
3
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 amendment to the Company's
Certificate of Incorporation is 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 ratify the appointment of Sherb & Co.
LLP as the Company's independent registered public accounting firm. "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 officers
designated to vote the proxies.
WHO WILL COUNT THE VOTE?
It is expected that Ted Finkelstein, Vice President and General Counsel 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
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
On August 20, 2007, the Company closed the sale (the "Investment Purchase
Closing") of 40,000,000 shares of its common stock, par value $.01 per share,
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 "Investment Purchasers"). In addition, on August 20, 2007, the
Company closed the sale (the "Private Placement") of 40,000,000 shares of its
common stock, par value $.01 per share, with other purchasers (the "Private
Placement Purchasers") including officers, directors and employees of the
Company.
4
On August 20, 2007, Michael Ryan (the Company's Chief Executive Officer), Carole
Enisman (the Company's Executive Vice President of Operations), Ted Finkelstein
(the Company's Vice President and General Counsel), Dennis Conroy, a Company
employee, Prime Partners, Inc. and Prime Partners II, LLC (holding companies
owned in part by Michael Ryan), and the Investment Purchasers entered into a
Shareholders Agreement concerning the voting of their shares of the Company's
common stock. As of the date of this Proxy Statement, these stockholders
collectively own approximately 68.9% of the Company's issued and outstanding
shares of common stock. Pursuant to the Shareholders Agreement, these
stockholders will have the ability to influence certain actions requiring a
stockholder vote, including, the election of directors.
The Company's Certificate of Incorporation provides that the Company's Board of
Directors (the "Board") is divided into three classes (Class A, Class B and
Class C) with overlapping three-year terms. At the Company's Annual Meeting of
Stockholders held on July 19, 2007, the Board nominated, and the stockholders
approved, Edward H. Cohen as a 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"), James Ciocia and
Michael Ryan as 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"), and John Levy and Allan Page as
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"). Each director was elected to serve until his
successor is duly elected and qualified.
Also on July 19, 2007, the Company's Board appointed Frederick Wasserman as a
Class A director of the Company and Nelson Obus as a Class C director of the
Company, subject to, and beginning upon, the consummation of the Investment
Purchase Closing. Messrs. Wasserman and Obus became directors of the Company on
August 20, 2007 following consummation of the Investment Purchase Closing.
The stockholders are being asked to elect Messrs. Cohen and Wasserman as Class A
directors at the Meeting. As Class A directors, Messrs. Cohen and Wasserman will
serve until the Annual Meeting of Stockholders with respect to the fiscal year
ending June 30, 2010 (the "Fiscal 2010 Stockholder Meeting"), and in each case
until a successor is elected and qualified or until his earlier death,
resignation or removal. On September 25, 2007, the Nominating and Corporate
Governance Committee recommended that Messrs. Cohen and Wasserman be nominated
as Class A directors, which recommendations were approved by the Board on
September 25, 2007.
Management expects that each of the nominees will be available for election, but
if either of them is unable to serve at the time the election occurs, the
proxies will be voted for the election of another nominee to be designated by
the Board.
CLASS A DIRECTORS (term expires at the Fiscal 2010 Stockholder Meeting)
EDWARD COHEN, 69 - 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 prior to that time was a partner in its
5
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.
FREDERICK WASSERMAN, 53 - Mr. Wasserman has been a director of the Company since
August 2007. Mr. Wasserman currently provides financial and management
consulting services to small and micro-cap companies. From August 2005 until
December 31, 2006, Mr. Wasserman served as the Chief Operating and Chief
Financial Officer for Mitchell & Ness Nostalgia Co., a privately-held
manufacturer and distributor of licensed sportswear and authentic team apparel.
Prior to his employment at Mitchell & Ness, Mr. Wasserman served as the
President of Goebel of North America, a U.S. subsidiary of W. Goebel
Porzellanfabrik GmbH & Co., an international manufacturer of collectibles, gifts
and home decor. Mr. Wasserman held several positions, including Chief Financial
Officer and President with Goebel of North America from 2001 to 2005. Prior to
his employment at Goebel, Mr. Wasserman held several positions, including
Interim President and Chief Financial Officer with Papel Giftware, a privately
owned giftware company, from 1995 to 2001. He has also served in senior
executive and managerial roles at Chelsea Marketing and Sales, a specialty
products distributor and The Score Board, Inc., a distributor of sports and
entertainment memorabilia. 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 The AfterSoft Group, Inc., Acme Communications, Inc., Allied
Defense Group, Inc., Breeze-Eastern Corporation, Crown Crafts, 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.
RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR the election of
Messrs. Cohen and Wasserman as Class A directors.
PROPOSAL 2
TO AUTHORIZE THE BOARD OF DIRECTORS TO AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO CHANGE THE NAME OF THE COMPANY FROM GILMAN + CIOCIA, INC. TO
GILMAN CIOCIA, INC.
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 A attached hereto, to change the name of the Company from Gilman
+ Ciocia, Inc. to Gilman Ciocia, Inc.
6
Reason for the Change of Name
On February 28, 1995, the Company obtained a trademark for Gilman + Ciocia, Inc.
Over time, the Company has on its letterhead, on signage and in advertising used
the name Gilman Ciocia with its logo inserted between Gilman and Ciocia. On
August 7, 2007, the Company renewed and modified its trademark to reflect the
name Gilman Ciocia with its logo inserted between Gilman and Ciocia. The name
change from Gilman + Ciocia, Inc. to Gilman Ciocia, Inc. will make the use of
the Gilman Ciocia name and logo consistent with the Company's registered name
with the State of Delaware Secretary of State. There will not be any significant
expense to the Company from the change of the name.
RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR proposal 2 to
authorize the Board of Directors, in its discretion, to amend the Company's
Certificate of Incorporation to change the name of the Company from Gilman +
Ciocia, Inc. to Gilman Ciocia, Inc.
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Company's Audit Committee has engaged Sherb & Co., LLP ("Sherb") to serve as
the Company's independent registered public accounting firm for the year ending
June 30, 2008. Sherb has audited the financial statements of the Company since
the fiscal year ended June 30, 2006. 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 the Company's independent registered public accounting firm to
provide a forum for stockholders to express their views with regard to the Audit
Committee's selection. If the stockholders do not ratify the selection of Sherb,
the selection of an independent registered public accounting firm 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, 2008, 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
7
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
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 Company's 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 its internal control letter regarding the Company's consolidated
financial statements for the fiscal years ended June 30, 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
8
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 a 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
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 continued its efforts to remediate these conditions and continued 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 Finkelstein as general counsel on February 1,
2007 and by implementing a stronger review process between the accounting and
legal department regarding such reserves.
At the end of fiscal 2007, the Company carried out an evaluation under the
supervision and with the participation of the Company's management, including
its Chief Executive Officer and its Principal Financial and Chief Accounting
Officer, of the disclosure controls and procedures of the Company as defined in
Exchange Act Rule 13(a)-15(e). As noted in the Company's Annual Report on Form
10-K, as amended, as of June 30, 2007, management concluded that the Company's
disclosure controls and procedures were effective.
The following table sets forth the aggregate fees billed by Sherb & Co., LLP,
for the fiscal years ended June 30, 2006 and 2007 and for 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
9
services rendered on behalf of the Company during those fiscal years. All of
such fees were pre-approved by the Company's Audit Committee or Board in the
absence of an Audit Committee. The Audit Committees 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 2007 Fiscal 2006
----------- -----------
Audit Fee $ 222,500 $ 207,500
Tax Fees $ -- $ --
Audit-Related Fees $ -- $ --
All Other Fees $ -- $ --
RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR proposal 3 to
ratify the appointment of Sherb & Co., LLP as the Company's independent
registered public accounting firm for the fiscal year ending June 30, 2008, upon
the recommendation of the Audit Committee of the Board.
10
DIRECTORS
The following table sets forth the directors of the Company as of the Record
Date, their ages, the year their Board terms will expire and certain other
information.
Year Board
Term Will
Name Age Position Expire Class
- ---------------- ----- -----------------------------------------------------------------------
James Ciocia 51 Chairman of the Board and Director 2008 B
Michael Ryan 49 Chief Executive Officer, President and Director 2008 B
Edward Cohen 69 Director 2007 A
John Levy 52 Lead Director 2009 C
Allan Page 60 Director 2009 C
Frederick Wasserman 53 Director 2007 A
Nelson Obus 60 Director 2009 C
JAMES CIOCIA, CHAIRMAN. Mr. Ciocia has been a director of the Company since
1993. Mr. Ciocia 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, Mr. Ciocia is a
registered representative of PCS. Mr. Ciocia holds a B.S. in Accounting from St.
John's University.
MICHAEL RYAN, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. Mr. Ryan has been
a director of the Company since August 2002. Mr. Ryan was appointed the
Company's President and Chief Executive Officer in August 2002. Mr. Ryan
co-founded PCS and has served as its President since it's 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 FINRA 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 in 1999. Mr. Ryan is
married to Ms. Enisman, the Company's Executive Vice President of Operations.
EDWARD COHEN, DIRECTOR. 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 prior to that time was a partner in
the predecessor firm (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
passive RF and microwave components for industry, government and science
JOHN LEVY, LEAD DIRECTOR. Mr. Levy has been a director of the Company since
October 2006 and was appointed Lead Director in September 2007. 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.
Mr. Levy served as Interim Chief Financial Officer from November 2005 to March
2006 of Universal Food & Beverage Company, which filed a voluntary petition
11
under the provisions of Chapter 11 of the United States Bankruptcy Act on August
31, 2007. From November 1997 to May 2005, 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 PAGE, DIRECTOR. 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.
FREDERICK WASSERMAN, DIRECTOR. Mr. Wasserman has been a director of the Company
since August 2007. Mr. Wasserman currently provides financial and management
consulting services to small and micro-cap companies. From August 2005 until
December 31, 2006, Mr. Wasserman served as the Chief Operating and Chief
Financial Officer for Mitchell & Ness Nostalgia Co., a privately-held
manufacturer and distributor of licensed sportswear and authentic team apparel.
Prior to his employment at Mitchell & Ness, Mr. Wasserman served as the
President of Goebel of North America, a U.S. subsidiary of W. Goebel
Porzellanfabrik GmbH & Co., an international manufacturer of collectibles, gifts
and home decor. Mr. Wasserman held several positions, including Chief Financial
Officer and President with Goebel of North America from 2001 to 2005. Prior to
his employment at Goebel, Mr. Wasserman held several positions, including
Interim President and full-time Chief Financial Officer with Papel Giftware, a
privately owned giftware company, from 1995 to 2001. He has also served in
senior executive and managerial roles at Chelsea Marketing and Sales, a
specialty products distributor and The Score Board, Inc., a distributor of
sports and entertainment memorabilia. 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 The AfterSoft Group, Inc., Acme Communications, Inc.,
Allied Defense Group, Inc., Breeze-Eastern Corporation, Crown Crafts, 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.
12
NELSON OBUS, DIRECTOR. Mr. Obus has been a director of the Company since August
2007. 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 deny the allegations and
are contesting the case, which remains in the early stages of discovery.
Shareholders Agreement
In connection with the Investment Purchase Closing and the Private Placement,
the Company entered into a Shareholders Agreement dated August 20, 2007 with the
Investment Purchasers and with Michael Ryan, Carole Enisman (the Company's
Executive Vice President of Operations), Ted Finkelstein (the Company's Vice
President and General Counsel), Dennis Conroy, and Prime Partners, Inc. and
Prime Partners II, holding companies owned in part by Michael Ryan
(collectively, the "Existing Shareholders").
Pursuant to the terms of the Shareholders Agreement:
o on August 20, 2007, the Investment Purchasers were given the right
to designate two directors (the "Investor Directors") for election
to the Board;
o so long as the Existing Shareholders own at least 10% of the
outstanding shares of Common Stock, the Existing Shareholders have
the right to nominate two directors (the "Existing Shareholder
Directors") for election to the Board;
o the Investor Directors and the Existing Shareholder Directors shall
jointly nominate three independent directors;
o the Investment Purchasers and the Existing Shareholders agreed to
take such action as may be reasonably required under applicable law
to cause the Investment Purchasers' designees and the Existing
Shareholders' designees to be elected to the Board;
o the Company agreed to include each of the director designees of the
Investment Purchasers and the Existing Shareholders on each slate of
nominees for election to the Board proposed by the Company, to
recommend the election of such designees to the shareholders of the
Company, and to use commercially reasonable efforts to cause such
designees to be elected to the Board;
13
o one of the Investor Directors shall be appointed as a member of the
Compensation Committee of the Board and one of the Investor
Directors shall have the right to attend all Audit Committee
meetings;
o the consent of one of the Investor Directors is required for certain
Company actions above designated thresholds, including the issuance,
redemption or purchase of equity or debt, the adoption of an omnibus
stock plan, the creation of any new class of securities, certain
affiliate transactions, changes to the Company's certificate of
incorporation or bylaws, entering into a merger, reorganization or
sale of the Company or acquiring any significant business assets, or
material changes to the business line of the Company;
o the Investment Purchasers agreed to a one year standstill agreement
concerning the acquisition of Company assets, Company securities,
proxy solicitations, voting trusts or tender offers;
o the Investment Purchasers were granted a right of first refusal for
future securities issued by the Company; and
o the Company was granted a right of first refusal for sales of Common
Stock by the Investment Purchasers and by the Existing Shareholders.
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 the Company is therefore not subject to the rules and regulations
of Nasdaq, the Board has determined that Messrs. Cohen, Wasserman, Levy, Page
and Obus are "independent directors" 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.
Board Meetings
During the fiscal year ended June 30, 2007, the Board held 10 meetings. In
addition, the Board took action twice by unanimous written consent in lieu of a
meeting. During 2007, each of the Company's directors attended at least 75% of
the aggregate of the number of meetings of the Board and the committees on which
they served.
Board Committees
The Board established a separately-designated standing Audit Committee in
accordance with Section 3(a)58A of the Exchange Act in October 2006. The members
of the Audit Committee are John Levy (Chairman), Frederick Wasserman and Allan
14
Page, each of whom is independent. The Board has determined Mr. Levy to be an
audit committee "financial expert" as defined in Item 407 of Regulation S-K.
During the fiscal year ended June 30, 2007, the Audit Committee held 3 meetings.
The Audit Committee has a written charter which is available on our website at
www.gilcio.com. 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.
On July 19, 2007, the Board formed a standing Compensation Committee comprised
of Edward Cohen and John Levy, each of whom is independent. On August 20, 2007
the Board appointed Frederick Wasserman as the Chairman of the Compensation
Committee. The Compensation Committee is in the process of adopting a written
charter which will be finalized in calendar 2008.
On July 19, 2007, the Board formed a standing Nominating and Corporate
Governance Committee comprised of Edward Cohen, as Chairman, and Allan Page. On
August 20, 2007 Nelson Obus was appointed as a member of the Nominating and
Corporate Governance Committee by the Board. Each of Messrs. Cohen, Page and
Obus is independent. The Nominating and Corporate Governance Committee will
consider Board nominees recommended by shareholders. The Nominating and
Corporate Governance Committee is in the process of adopting a written charter
which will be finalized in calendar 2008.
Stockholders wishing to recommend director candidates must submit their
recommendations in writing to Ted Finkelstein, Vice President and General
Counsel, Gilman + Ciocia, Inc., 11 Raymond Avenue, Poughkeepsie, New York 12603.
The Nominating Committee will consider nominees recommended by the Company's
stockholders provided that the recommendation contains sufficient information
for the Nominating Committee 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 Nominating Committee 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 Nominating Committee. The
Nominating Committee 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 Nominating Committee
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)
15
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, as determined by the Nominating Committee.
The Company's directors are encouraged to attend the Company's Annual Meeting of
Stockholders, but there is no formal policy requiring the directors to attend.
The following directors attended the Company's Meeting of Stockholders held on
July 19, 2007: Michael Ryan, Edward Cohen, John Levy and Frederick Wasserman
(who was appointed to the Board on August 20, 2007).
EXECUTIVE OFFICERS
All officers serve at the discretion of the Company's Board. The Board elects
the Company's officers on an annual basis and its officers serve until their
successors are duly elected and qualified.
The 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:
Name Age Position
- ----------------- ----------- ------------------------------------------------
Michael Ryan 49 Chief Executive Officer and President
Carole Enisman 48 Executive Vice President of Operations
Ted Finkelstein 54 Vice President and General Counsel
Kathryn Travis 59 Secretary
Karen Fisher 41 Principal Financial and Chief Accounting Officer
MICHAEL RYAN, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR, 49 - Mr. Ryan was
appointed the Company's President and Chief Executive Officer in August 2002.
Mr. Ryan co-founded Prime Capital Services, Inc., the Company's wholly owned
broker dealer subsidiary ("PCS") and has served as its President since it's
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 FINRA 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 in
1999. Mr. Ryan is married to Ms. Enisman.
CAROLE ENISMAN, EXECUTIVE VICE PRESIDENT OF OPERATIONS, 48 - Ms. Enisman was
appointed the Executive Vice President of Operations of the Company in November
16
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 FINKELSTEIN, VICE PRESIDENT AND GENERAL COUNSEL, 54 - 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.
KAREN FISHER, PRINCIPAL FINANCIAL AND CHIEF ACCOUNTING OFFICER, 41 - Ms. Fisher
has been the Controller of the Company since March 2005, was appointed Treasurer
on May 25, 2007 and was appointed Principal Financial and Chief Accounting
Officer on July 4, 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 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.
COMPENSATION DISCUSSION AND ANALYSIS
The paragraphs that follow provide a detailed overview and analysis of the
Company's compensation programs and policies, the material compensation
decisions the Company has made under those programs and policies, and the
material factors that the Company has considered in making those decisions.
Later in this Compensation Discussion and Analysis under the heading "Summary
Compensation Table" is specific information about the compensation earned by or
paid during fiscal 2007 to the following individuals, which include the
Company's Chief Executive Officer, Principal Financial and Chief Accounting
Officer and its three other most highly paid executive officers in 2007, who are
referred to as the Company's Named Executive Officers. Karen Fisher replaced
Dennis Conroy as the Principal Financial and Chief Accounting Officer on July 4,
2007.
17
o Michael Ryan, President, Chief Executive Officer and Director
o Carole Enisman, Executive Vice President of Operations
o Kathryn Travis, Secretary and Director
o Dennis Conroy, Former Principal Financial and Chief Accounting Officer
o Ted Finkelstein, Vice President and General Counsel
The discussion below is intended to help stockholders understand the detailed
information provided in those tables and to put that information into context
within the Company's overall compensation program.
Overview
The Board, in the absence of a Compensation Committee in fiscal 2007, was
responsible, among other things, for reviewing and approving the compensation
for the Chief Executive Officer and the other Named Executive Officers. The
Board also reviewed and approved various other compensation policies and
programs of the Company, including long-term incentive programs and benefits.
On July 19, 2007, the Board formed a standing Compensation Committee comprised
of Edward Cohen and John Levy. On August 20, 2007 Frederick Wasserman was
appointed by the Board as the Chairman of the Compensation Committee.
The Compensation Committee makes recommendations for establishing salaries,
administrating the Company's incentive programs and determining the total
compensation for the Chief Executive Officer and the other Named Executive
Officers. The Compensation Committee seeks to achieve the following goals
through the Company's executive compensation programs:
o to attract, motivate and retain key executives;
o to support the maintenance of a performance driven environment conducive
to the successful attainment of corporate goals;
o to ensure that the Company's employees are focused on the interests of its
shareholders, specifically the creation of value; and
o to demonstrate the Company's commitment to its key employees.
Objectives
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 shareholder value through the attraction, motivation and
retention of the executives who will contribute to the Company's success.
18
The Company employs the following methodologies to attain the above goals:
o The executive compensation programs encompass four primary elements: base
salary, cash bonuses, equity incentives and other benefits, which include
health insurance, severance payments and change of control payments.
o Executive compensation is market competitive with the Company's peer group
based on position, experience, geographic location, performance and other
selected factors.
o A significant portion of each key executive's compensation is tied to the
achievement of performance targets that are important to the Company and
its shareholders.
o Compensation programs are designed to be clear and straight forward.
o Performance based compensation will be tied to results which the employee
can reasonably expect to achieve through their efforts.
Methods for Determining and Assessing Compensation Levels and Programs
The financial services industry is extremely competitive with regard to
attracting and retaining qualified personnel at all levels. That competition is
even more intense for senior management. The Company competes for employees and
management with companies possessing far greater resources. The Company seeks to
meet this challenge by granting incentive based bonuses to its Named Executive
Officers.
Annual Review of Market Data
In the past, the Company periodically reviewed data from third party
compensation surveys. Since the Company has not been profitable for the past
several years, an in-depth analysis has not been necessary, as executive
compensation has remained unadjusted.
The Company expects the Compensation Committee to conduct benchmark studies, as
well as other various analyses of the Company's executive compensation packages
during fiscal 2008.
Elements of the Company's Compensation Program
Prior to the formation of the Compensation Committee on July 19, 2007, the
Company's compensation program for its Named Executive Officers consisted of the
following elements:
o Base salary, which was determined annually; and
o Annual incentive compensation in the form of cash bonuses, which
were based on the achievement of pre-determined financial
objectives.
On September 4, 2007, the Board and the Compensation Committee approved the
Company's compensation program for its Named Executive Officers for fiscal 2008,
which will consist of the following elements:
o Base salary;
19
o Annual incentive compensation in the form of cash bonuses, which are
based one-third on the achievement of pre-determined financial
objective and two-thirds based upon criteria to be established by
the Chief Executive Officer;
o Severance benefits;
o Change of control compensation; and
o Stock Options.
The Company expanded its compensation program to incorporate performance-based
compensation including, stock options, and long-term incentives in the Company's
2007 Stock Incentive Plan adopted at the Company's shareholders meeting on July
19, 2007.
These elements are considered both individually and, more importantly, as
components of a total package. When the Compensation Committee reviews the
competitiveness of the Company's total compensation package for its Named
Executive Officers, the Compensation Committee recognizes that each individual
element may be slightly above or below competitive targets. The Compensation
Committee seeks to ensure that the entire package, viewed together, remains
competitive.
Base Salary (other than Chief Executive Officer)
Base salary for the Company's Named Executive Officers is intended to be
competitive with the base salaries offered for similar executive positions at
other companies in the financial services industry and related industries, and
reflects scope of responsibility, external compensation data, the Company's
financial performance and individual performance. For fiscal 2007, the Board did
not change base salaries for its Named Executive Officers. For the fiscal year
ending June 30, 2008, base salary adjustments for the Company's Named Executive
Officers, except for the Chief Executive Officer, were approved on September 4,
2007 taking into account competitive information and the Company's earnings
performance. However, for fiscal years beginning after June 30, 2008, the base
salary adjustments for the Company's Named Executive Officers, except for the
Chief Executive Officer, will be approved annually prior to June 30, with
changes effective July 1.
Incentive Bonus Compensation 2007
On September 4, 2007, based on profitability in fiscal 2007, the Compensation
Committee and the Board approved discretionary incentive bonus compensation to
the Company's Named Executive Officers equal to approximately 16% to 19% of base
salary.
Incentive Bonus Compensation 2008 (other than Chief Executive Officer)
On September 4, 2007, the Compensation Committee set bonuses for the fiscal year
ended June 30, 2008 for the Named Executive Officers, except the Chief Executive
Officer, to be one-third based upon the Company's earnings before interest,
taxes, depreciation and amortization ("EBITDA") budget for the fiscal year, and
20
two-thirds based upon criteria to be established by the Chief Executive Officer.
The bonuses will range from 10.0% to 40.0% of base salary if actual EBITDA
results for a fiscal year exceed at least 85.0% of the EBITDA budgeted for such
fiscal year. EBITDA means the Net Income (as defined below) of the Company for
the fiscal year, plus an amount which, in the determination of the "net income"
of the Company for such fiscal year, has been deducted for (i) interest expense,
(ii) total federal, state, local and foreign income taxes, and (iii)
depreciation and amortization expenses, each of (i) through (iii) as calculated
in accordance with GAAP. "Net Income" shall mean the net income for such fiscal
year as determined in accordance with GAAP. "GAAP" shall mean United States
generally accepted accounting principles. However, for fiscal year 2008, EBITDA
shall exclude the one time impact of the recorded gain from the debt forgiveness
with Met Life Insurance Company of Connecticut.
Severance and Change of Control (other than Chief Executive Officer)
The Named Executive Officers, except the Chief Executive Officer, will receive
severance compensation if their employment with the Company is terminated other
than for cause or by voluntary termination by the executive. Severance will be
one month of compensation for each year of service, up to a maximum of one year
of severance payments. Severance will be conditioned upon the Executive's
execution of a general release. The severance will be paid as payroll in the
normal course of business and not in a lump sum. Health insurance will continue
to be provided on the same terms as to other employees during the severance
period.
The Named Executive Officers, except the Chief Executive Officer, will receive
compensation if there is a voluntary or involuntary change of control. If there
is change of control, the executive will be paid one year of compensation in a
lump sum. The Compensation Committee may elect to increase the payment to a
maximum of two years of compensation for selected executives.
Named Executive Officer Compensation Determination Process (other than Chief
Executive Officer)
The Chief Executive Officer quantitatively evaluated each of the other Named
Executive Officer's performance against the Company and individual goals and
objectives set in the prior year. Beginning in fiscal 2008, the Chief Executive
Officer recommended to the Compensation Committee a base salary increase, taking
into account:
21
o Each Named Executive Officer's individual performance against
pre-determined goals;
o The Company's performance against the predetermined goals;
o The appropriateness of each Named Executive Officer's compensation
relative to other Named Executive Officers and the Chief Executive
Officer;
o Retention considerations; and
o The Named Executive Officer's potential future contributions to the
success of the Company.
The Compensation Committee reviewed and discussed with the Chief Executive
Officer the performance of each Named Executive Officer and the reason for the
Chief Executive Officer's recommendations for such Named Executive Officer. The
Compensation Committee and the Board approved the fiscal 2008 base salary and
bonus targets for each Named Executive Officer.
Employment Agreement with Chief Executive Officer Including Change of Control
On August 20, 2007, the Company entered into an employment agreement with
Michael Ryan, its Chief Executive Officer (the "Employment Agreement"). The term
of the Employment Agreement is from July 1, 2007 to June 30, 2011. Mr. Ryan's
base salary is $0.4 million per year. A bonus will be awarded to Mr. Ryan
ranging from 40% of base salary to 100% of base salary if actual EBITDA results
for a fiscal year exceed at least 85% of the EBITDA budgeted for such fiscal
year. Any commissions paid to Mr. Ryan for personal production will reduce the
bonus. In fiscal 2007 Mr. Ryan was paid $0.1 million in commissions. If he earns
comparable commissions in fiscal 2008, he will be paid a portion of his bonus
regardless of the Company's performance. In addition, Mr. Ryan agreed to a one
year covenant not to compete with the Company and a two year covenant not to
solicit customers or employees of the Company or registered representatives of
the Company's broker-dealer subsidiary.
The Company may terminate the Employment Agreement for cause as defined in the
Employment Agreement. If the Employment Agreement is terminated for cause, the
Company shall pay to Mr. Ryan his base salary through the date of termination
but no bonus for the fiscal year other than his commissions earned. In addition,
Mr. Ryan will be paid any bonus earned but not yet paid for a prior fiscal year.
If the Employment Agreement is terminated by the Company without cause,
including a voluntary change of control, Mr. Ryan will be paid an amount equal
to his base salary and a bonus computed at 100% of his base salary for a period
measured as the greater of one year from the date of termination or the ending
date of the term of the Employment Agreement. Termination without cause includes
a termination by Mr. Ryan for good reason. Voluntary change of control and for
good reason are defined in the Employment Agreement.
22
If Mr. Ryan's Employment Agreement is terminated by the Company due to an
involuntary change of control, Mr. Ryan will be paid an amount equal to his base
salary and a bonus computed at 100% of his base salary for a period measured as
the greater of three years from the date of termination, or the ending date of
the term. Involuntary change of control is defined in the Employment Agreement.
2007 Stock Incentive Plan
The Company's 2007 Stock Incentive Plan was adopted at the Company's
stockholders meeting on July 19, 2007 (the "2007 Plan"). The 2007 Plan provides
that it will be administered by the Board, or a committee of two or more members
of the Board appointed by the Board (the "Stock Plan Committee"). The Board or
the Stock Plan Committee will generally have the authority to administer the
2007 Plan, determine participants who will be granted awards under the 2007
Plan, the size and types of awards, the terms and conditions of awards and the
form and content of the award agreements representing awards.
The 2007 Plan provides for the grant of any or all of the following types of
awards: (a) common stock options, (b) restricted common stock, (c) deferred
common stock and (d) other common stock-based awards. Awards may be granted
singly, in combination, or in tandem. Subject to anti-dilution adjustments as
provided in the 2007 Plan, (i) the 2007 Plan provides for a total of 16,128,106
shares of the Company's common stock to be available for distribution pursuant
to the 2007 Plan, and (ii) the maximum number of shares of the Company's common
stock with respect to which stock options, restricted stock, deferred stock, or
other stock-based awards may be granted to any participant under the 2007 Plan
during any calendar year or part of a year may not exceed 564,483 shares.
Awards under the 2007 Plan may be granted to employees, directors, consultants
and advisors of the Company and its subsidiaries. However, only employees of the
Company and its subsidiaries will be eligible to receive options that are
designated as incentive stock options.
With respect to options granted under the 2007 Plan, the exercise price must be
at least 100% (110% in the case of an incentive stock option granted to a ten
percent shareholder within the meaning of Section 422(b)(6) of the Internal
Revenue Code of 1986) of the fair market value of the common stock subject to
the award, determined as of the date of grant. Restricted stock awards are
shares of common stock that are awarded subject to the satisfaction of the terms
and conditions established by the administrator. In general, awards that do not
require exercise may be made in exchange for such lawful consideration,
including services, as determined by the administrator.
Impact of Tax and Accounting Treatment on Executive Compensation
In order to calculate the true cost of executive compensation to the Company,
the Compensation Committee must consider the tax and accounting treatment of
various forms of compensation. The Internal Revenue Code and related regulations
23
provide generally that in order to qualify for a tax deduction, compensation in
excess of $1.0 million paid to a public corporation's executive offers must
qualify as performance-based compensation. There are other provisions in the
Internal Revenue Code and related regulations which must be considered by the
Company, including Internal Revenue Code Section 409A. Compensation that does
not qualify for a tax deduction is, in effect, more expensive for the Company.
The Board seeks to ensure that virtually all compensation paid to executive
officers is tax deductible under federal law.
The Compensation Committee also considers the impact of accounting treatment on
compensation expense. With the requirement under SFAS No. 123-R to expense stock
options, the Compensation Committee now considers issues, such as vesting
schedules, that impact the amount of compensation expense recognized in a
financial reporting period creating additional complexities in compensation
planning. In addition, the Compensation Committee reviews the accounting impact
of different forms of equity compensation, including stock options and
restricted stock.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the Chief Executive Officer,
and the four other most highly compensated executive officers (collectively, the
"Named Executive Officers"), and information with respect to annual and
long-term compensation earned during fiscal year 2007:
Fiscal Other Total
Name and Principal Position Year Salary Bonus Compensation (2) Compensation
- --------------------------- --------------------------------------------------------------------
Michael Ryan
President, Chief Executive Officer and Director 2007 $ 288,000 $ 50,000 $ 30,637 $ 379,715
Carole Enisman
Executive Vice President of Operations 2007 $ 204,000 $ 35,000 $ 16,551 $ 263,397
Kathryn Travis
Secretary and Director 2007 $ 204,000 $ 20,000 $ 8,247 $ 232,247
Dennis Conroy
former Principal Financial and Chief
Accounting Officer (1) 2007 $ 120,000 $ 24,000 $ 144,000
Ted Finkelstein
Vice President and General Counsel 2007 $ 111,551 $ 27,000 $ 138,551
Daniel Wieneke
former General Counsel 2007 $ 85,440 $ -- $ 85,440
(1) Mr. Conroy was the Company's Chief Accounting Officer as of June 30, 2007,
the end of the Company's fiscal year. Karen Fisher became Chief Accounting
Officer of the Company on July 4, 2007, following the end of the Company's
fiscal year. In compliance with SEC rules, compensation information for Ms.
Fisher is not included in the compensation tables included in this proxy
statement.
(2) Other Compensation includes the following:
Car Club Total Other
Name Allowance Membership Commissions Compensation
- ---------------------------------------------------------------------------------------------------------------------------
Michael Ryan, President, Chief Executive Officer and Director $ 17,139 $ 13,498 $ -- $ 30,637
Carole Enisman, Executive Vice President of Operations $ 13,531 $ -- $ 3,020 $ 16,551
Kathryn Travis, Secretary and Director $ 8,247 $ -- $ -- $ 8,247
24
Option Grants
The Company did not grant any options to purchase shares of Common Stock to the
Named Executive Officers during fiscal 2007.
Outstanding Equity Awards at Fiscal Year-End
The following table shows outstanding equity awards at June 30, 2007 for each
named executive officer:
Number of Number of
Securities Securities
Underlying Underlying
Unexercised Unexercised Option Option
Stock Options Stock Options Exercise Expiration
Name Exercisable Unexercisable Price Date
- ---------------------------------------------------- --------------- ---------- ------------
Ted Finkelstein,
Vice President and General Counsel 10,000 -- $6.00 05/31/2011
Potential Payments Upon Termination Including Change Of Control
Voluntary Termination Termination
Termination Without Termination with Following Voluntary Following Involuntary
Cause (1) Good Reason (1) Change of Control (1) Change of Control (2)
--------------------------------------------------------------------------------------------
Payment due upon termination:
Cash Severance
Michael Ryan
Base Salary $1,400,000 $1,400,000 $1,400,000 $1,400,000
Bonus 1,400,000 1,400,000 1,400,000 1,400,000
--------------------------------------------------------------------------------------------
Total Cash Severance $2,800,000 $2,800,000 $2,800,000 $2,800,000
(1) Mr. Ryan will be paid an amount equal to his base salary and a bonus
computed at 100% of his base salary for a period measured as the greater
of one year from the date of termination or the June 30, 2011 ending date
of the term of his Employment Agreement.
(2) Mr. Ryan will be paid an amount equal to his base salary and a bonus
computed at 100% of his base salary for a period measured as the greater
of three years from the date of termination or the June 30, 2011 ending
date of the term of his Employment Agreement.
Voluntary Termination Termination
Termination Without Termination with Following Voluntary Following Involuntary
Cause (1) Good Reason (1) Change of Control (2) Change of Control (2)
--------------------------------------------------------------------------------------------
Payment due upon termination:
Cash Severance - Base Salary
Carole Enisman $235,000 $235,000 $235,000 $235,000
Ted Finkelstein $ 92,500 $ 92,500 $185,000 $185,000
Karen Fisher $ 26,000 $ 26,000 $125,000 $125,000
(1) Named Executive Officers will receive one month of compensation for each
year of service, up to a maximum of one year.
(2) Named Executive Officers will receive one year of compensation in a lump
sum.
25
DIRECTOR COMPENSATION
The Company uses a combination of cash and equity incentive compensation for its
non-employee directors. In developing the compensation levels and mix for
non-employee directors, the Company considers a number of factors, including the
significant time commitment required of Board and committee service as well as
the need to attract highly qualified candidates for Board service.
The table below summarizes the compensation earned by the Company's directors in
fiscal 2007:
Fees earned or Common Stock
Name paid in cash Share Awards Total
- -------------------------------------------- -------------- -------------
Edward Cohen $ 17,136 $ 300 $ 17,436
John Levy $ 34,625 $ 150 $ 34,775
Allan Page $ 22,750 $ 150 $ 22,900
Cash Compensation
The Company's non-employee directors received the following cash compensation in
fiscal 2007:
Fee Per Meeting
Retainer Attended Additional Fee
--------------------------------------------------
Board of Directors $ 12,500 $ 500 $ 500
Audit Committee Chairman $ 5,000 $ -- $ --
Audit Committee member $ 2,500 $ -- $ --
Finance Committee Chairman $ 7,500 $ -- $ 5,000
Finance Committee member $ 2,500 $ -- $ 2,500
The Company's compensation for non-employee directors and James Ciocia, as a
director of the Board, in fiscal 2008 will be:
Annual Grant of
Options
Annual Grant of Five-Year
Retainer Shares (1) Vesting Term (2)
--------------------------------------------------
Board of Directors $ 24,000 $ 5,000 $ 5,000
Lead Director $ 24,000 $ -- $ --
Audit Committee member $ 3,000 $ -- $ --
Compensation Committee member $ 3,000 $ -- $ --
Nominating and Corporate
Governance Committee member $ 3,000 $ -- $ --
Notes:
(1) Annual grant of shares of restricted common stock with a fair market value
at time of grant with a one year vesting period.
(2) Annual grant of common stock options with a five-year term and vesting as
to 20% of the shares annually commencing one year after the date of grant
and having a Black-Scholes value at time of grant determined based on the
closing price on the date of such grant.
26
Equity Compensation
On August 22, 2007, the following shares of restricted stock were issued for
accrued director's compensation: Edward Cohen received 9,000 shares, John Levy
and Allan Page each received 3,000 shares.
In fiscal 2008, each non-employee director and James Ciocia will receive $5,000
per year in restrictive stock based upon its then fair market value, and $5,000
per year in stock options using Black-Scholes valuation.
James Ciocia, an employee director, does not receive a salary as an employee.
His employment compensation is 100% commission based. The time Mr. Ciocia
devotes to Board activities reduces his efforts to generate commission income.
Therefore, the Board has determined that Mr. Ciocia will receive compensation
for his activities as a director equivalent to that of non-employee directors.
For the fiscal year 2008 this will be cash compensation of $24,000 and the
$5,000 grant of shares and $5,000 grant of options.
Compensation Committee Interlocks and Insider Participation
The Board of Directors did not have a Compensation Committee until July 19,
2007. Prior to July 19, 2007, the entire Board undertook 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.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis contained in this Proxy Statement with management and,
based on such review and discussions, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included
in this Proxy Statement.
Respectfully submitted,
Edward Cohen, Compensation Committee
John Levy, Compensation Committee
Frederick Wasserman, Chairman
27
AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's financial reporting process on behalf
of the Board of Directors. The Company's management has the primary
responsibility for the financial statements, for maintaining effective internal
control over financial reporting, and for assessing the effectiveness of
internal control over financial reporting. In fulfilling its oversight
responsibilities, the Committee reviewed and discussed the audited consolidated
financial statements in the Company's Annual Report on Form 10-K, as amended,
with Company management, including a discussion of the quality, not just the
acceptability, of the accounting principles; the reasonableness of significant
judgments; and the clarity of disclosures in the financial statements.
The Committee reviewed with the independent registered public accounting firm,
which is responsible for expressing an opinion on the conformity of those
audited consolidated financial statements with U.S. generally accepted
accounting principles, its judgments as to the quality, not just the
acceptability, of the Company's accounting principles and such matters as are
required to be discussed with the Committee by Statement on Auditing Standards
No. 61, Communication With Audit Committees, (as amended), other standards of
the Public Company Accounting Oversight Board (United States), rules of the
Securities and Exchange Commission, and other applicable regulations. In
addition, the Committee has discussed with the independent registered public
accounting firm the firm's independence from Company management and the Company,
including the matters in the letter from the firm required by Independence
Standards Board Standard No.1, Independence Discussion with Audit Committees,
and considered the compatibility of non-audit services with the independent
registered public accounting firm's independence.
The Committee discussed with the Company's independent registered public
accounting firm the overall scope and plans for their audit. The Committee meets
with representatives of the independent registered public accounting firm, with
and without management present, to discuss the results of their examination;
their evaluation of the Company's internal control, including internal control
over financial reporting; and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors, and the Board approved, that the audited
consolidated financial statements and management's assessment of the
effectiveness of the Company's internal control over financial reporting be
included in the Annual Report on Form 10-K, as amended, for the year ended June
30, 2007 filed by the Company with the Securities and Exchange Commission
("SEC").
Respectfully submitted,
Audit Committee Chair, John Levy
Audit Committee Member, Alan Page
Audit Committee Member, Frederick Wasserman
28
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Board of Directors, executive officers and persons who own more than 10% of the
Company's common stock to file reports of their ownership and changes in
ownership of the Company's common stock with the SEC. Based solely on a review
of these forms, the Company believes that all reports required by Section 16(a)
of the Exchange Act to be filed by the Company's Board of Directors, executive
officers and greater than 10% owners during the last fiscal year were filed on
time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 the tables
pursuant to applicable community property laws, the Company believes that the
persons named in the tables have sole voting and investment power with respect
to all shares of Common Stock. For each individual or group included in the
tables, 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. Unless otherwise
indicated, the business address for each such person is c/o Gilman + Ciocia,
Inc., 11 Raymond Ave., Poughkeepsie, NY 12603. For each individual or group
included in the tables, percentage ownership is calculated by dividing the
number of shares beneficially owned by such person or group by the sum of the
89,719,050 shares of Common Stock outstanding as of the Record Date and the
number of shares of Common Stock that such person or group had the right to
acquire within 60 days of the Record Date, including, but not limited to, upon
the exercise of options.
5% Holders
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- -------------
Michael Ryan 17,098,338 (1) 19.1%
11 Raymond Avenue
Poughkeepsie, NY 12603
Ralph Porpora 17,078,798 (2) 19.0%
11 Raymond Avenue
Poughkeepsie, NY 12603
Prime Partners II, LLC 15,420,000 17.2%
11 Raymond Avenue
Poughkeepsie, NY 12603
Wynnefield Partners Small Cap Value LP 8,000,000 (3) 8.9%
450 Seventh Avenue, Suite 509
New York, NY 10123
Wynnefield Small Cap Value Offshore Fund, Ltd 12,000,000 (3) 13.4%
450 Seventh Avenue, Suite 509
New York, NY 10123
Wynnefield Partners Small Cap Value LP I 10,000,000 (3) 11.1%
450 Seventh Avenue, Suite 509
New York, NY 10123
WebFinancial Corporation 10,457,940 11.7%
61 East Main Street
Los Gatos, CA 95031
29
(1) Includes 6,000 shares which are beneficially owned by Mr. Ryan personally;
13,540 shares which 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; 1.7 million shares which
are beneficially owned by Prime Partners, Inc. of which Mr. Ryan is a
shareholder, officer and director; and 15.4 million shares which are
beneficially owned by Prime Partners II, LLC of which Mr. Ryan is a member
and manager.
(2) Includes 1.7 million shares which are beneficially owned by Prime
Partners, Inc. of which Mr. Porpora is a shareholder, officer and
director; and 15.4 million shares which are beneficially owned by Prime
Partners II, LLC of which Mr. Porpora is a member and manager.
(3) Wynnefield Capital Management, LLC, a New York limited liability company
("WCM") is the sole general partner of each of Wynnefield Partners Small
Cap Value LP, a Delaware limited partnership ("Wynnefield Partners") and
Wynnefield Partners Small Cap Value LP I, a Delaware limited partnership
("Wynnefield Partners I"). Nelson Obus and Joshua Landes are the
co-managing members of WCM and by virtue of such positions with WCM, have
the shared power to vote and dispose of the shares of the Company's common
stock that are beneficially owned by each of Wynnefield Partners and
Wynnefield Partners I. Wynnefield Capital, Inc., a Delaware corporation
("WCI"), is the sole investment manager of Wynnefield Small Cap Value
Offshore Fund, Ltd., Cayman Islands company ("Wynnefield Offshore").
Messrs. Obus and Landes are the co-principal executive officers of WCI and
by virtue of such positions with WCI, have the shared power to vote and
dispose of the shares of the Company's common stock that are beneficially
owned by Wynnefield Offshore. Each of WCM, WCI and Messrs. Obus and Landes
disclaims any beneficial ownership of the shares of the Company's common
stock that are directly beneficially owned by each of Wynnefield Partners,
Wynnefield Partners I and Wynnefield Offshore, except to the extent of
their respective pecuniary interest in such shares. Mr. Obus, was
appointed as a director of the Company effective on August 20, 2007.
30
Directors and Executive Officers
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- -------------------- -------------
James Ciocia 2,854,784 (1) 3.2%
3812 Gunn Highway
Tampa, FL 33618
Michael Ryan 17,098,338 (2) 19.1%
11 Raymond Avenue
Poughkeepsie, NY 12603
Edward Cohen 510,000 *
45 Club Pointe Drive
White Plains, NY 10605
Allan Page 103,000 *
9 Vassar Street
Poughkeepsie, NY 12603
John Levy 3,000 *
110 Oak Tree Pass
Westfield, NJ 07090
Kathryn Travis 607,980 *
375 North Broadway
Suite 203
Jericho, NY 11753
Carole Enisman 13,540 *
11 Raymond Avenue
Poughkeepsie, NY 12603
Ted Finkelstein 3,748,788 (3) 4.2%
11 Raymond Avenue
Poughkeepsie, NY 12603
Karen Fisher 30,000 *
11 Raymond Avenue
Poughkeepsie, NY 12603
Nelson Obus 30,000,000 (4) 33.4%
450 Seventh Avenue, Suite 509
New York, NY 10123
Frederick Wasserman -- --
4 Nobadeer Drive
Pennington, NJ 08534
Directors and Named Executive 54,955,890 61.3%
Officers as a Group (eleven persons)
* Less than 1.0%
31
(1) 0.6 million 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.
(2) Includes 6,000 shares which are beneficially owned by Mr. Ryan personally;
13,540 shares which 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; 1.7 million shares which
are beneficially owned by Prime Partners, Inc. of which Mr. Ryan is a
shareholder, officer and director; and 15.4 million shares which are
beneficially owned by Prime Partners II, LLC of which Mr. Ryan is a member
and manager.
(3) Includes 10,000 shares issuable upon the exercise of options at a price of
$6.00.
(4) Includes 8.0 million shares beneficially owned by Wynnefield Partners
Small Cap Value LP, a Delaware limited partnership ("Wynnefield Partners")
and 10.0 million shares beneficially owned by Wynnefield Partners Small
Cap Value LP I, a Delaware limited partnership ("Wynnefield Partners I").
Wynnefield Capital Management, LLC, a New York limited liability company
("WCM") is the sole general partner of Wynnefield Partners and Wynnefield
Partners I. Mr. Obus is a co-managing member of WCM and by virtue of his
position with WCM, has the shared power to vote and dispose of the shares
of the Company's common stock that are beneficially owned by each of
Wynnefield Partners and Wynnefield Partners I. Includes 12.0 million
shares beneficially owned by Wynnefield Small Cap Value Offshore Fund,
Ltd., Cayman Islands company ("Wynnefield Offshore"). Wynnefield Capital,
Inc., a Delaware corporation ("WCI"), is the sole investment manager of
Wynnefield Offshore. Mr. Obus is a co-principal executive officer of WCI,
and by virtue of his position with WCI, has the shared power to vote and
dispose of the shares of the Company's common stock that are beneficially
owned by Wynnefield Offshore. Mr. Obus disclaims beneficial ownership of
the shares of the Company's common stock that are directly beneficially
owned by each of Wynnefield Partners, Wynnefield Partners I and Wynnefield
Offshore, except to the extent of his pecuniary interest in such shares.
Transactions with Related Persons
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 and under which he received an aggregate of $0.5 million in
fiscal 2007.
On December 26, 2001, James Ciocia and Michael Ryan, the Company's President and
Chief Executive Officer, personally guaranteed the repayment of the Company's
$7.0 million loan from Wachovia Bank, National Association ("Wachovia"). Messrs.
Ciocia and Ryan did not receive any consideration for such guarantees other than
their salaries and other compensation. As of September 1, 2007, the Company was
current with its monthly payments to Wachovia and the outstanding principal
balance was $0.7 million.
Michael Ryan is one of the general partners in a limited partnership named Prime
Income Partners, L.P., which previously owned the building in Poughkeepsie, New
York occupied by the Company's executive headquarters. During the fiscal year
ended June 30, 2006, the Company paid $0.4 million 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 to an independent third party. On July 1, 2006, Prime Income Partners,
L. P. sold the building to a third party. At the closing, the Company entered
into new market rate leases for the office space for its executive headquarters.
32
During fiscal 2007, Prime Partners, Inc. ("Prime Partners, Inc.") loaned the
Company an aggregate of $1.7 million at an interest rate of 10%. During fiscal
2007, the Company repaid $0.7 million to Prime Partners, Inc. As of June 30,
2007, the Company owed Prime Partners, Inc. $2.8 million. Michael Ryan is a
director, an officer and a significant shareholder of Prime Partners, Inc. On
August 16, 2007, Prime Partners, Inc. sold to Prime Partners II, LLC $1.5
million of the $2.8 million owed to it by the Company. Prime Partners II, LLC is
a limited liability company. Michael Ryan is a significant member and a manager
of Prime Partners II, LLC. On August 20, 2007, Prime Partners II, LLC converted
the $1.5 million of Company debt into 15.4 million shares of Company common
stock. As of the date of this Proxy Statement, the Company owed Prime Partners,
Inc., $1.4 million.
At June 30, 2007, the Company owed to related parties $3.6 million respectively.
In December 2006, the Company assigned to Prime Partners, Inc. two promissory
notes to the Company related to the sale of its Colorado Springs, Colorado and
Westport, Connecticut businesses as consideration for the reduction of $0.3
million against the then $3.1 million of outstanding principal owed to Prime
Partners, Inc. The balance of the notes was $0.3 million.
On April 29, 2005, a loan in the amount of $1.0 million, together with 0.8
million shares of Company common stock were sold to a group of Company
management and employees ("Purchasing Group") for $0.8 million. Since the
resulting debt reduction of $0.3 million agreed to by the Purchasing Group
resulted from a related party transaction, paid-in-capital was appropriately
increased. On August 20, 2007, $0.7 million of the loan was converted to 7.1
million shares of Company common stock, leaving a de minimis debt balance to a
member of the Purchasing Group, who was paid on October 25, 2007.
A trust, of which Ted Finkelstein is the trustee ("the Trust"), made a
short-term loan to Prime Partners for $0.3 million 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 $0.2 million, which accrues
interest at 10% per annum. As of June 30, 2007 and as of the date of this Proxy
Statement, Prime Partners owed the Trust $0.5 million in principal. As security
for the loan, Prime Partners gave the Trust a security interest in the note
related to the sale of two of its 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.
On August 20, 2007, $0.2 million of debt owed to Mr. Ciocia, including $8,881
from his note, was converted to 2.3 million shares of Company common stock. As
of the date of this Proxy Statement, the Company owes Mr. Ciocia $58,786 in
principal on the promissory note.
33
Steven Gilbert, a former director of the Company until July 19, 2007, received
in his capacity as national sales manager a base salary of $156,456 and in
addition earned commissions based on a percentage of his own business
production. Mr. Gilbert received an aggregate of $0.5 million in fiscal 2007.
On August 20, 2007, the Company sold 40.0 million shares of Company common stock
to the Private Placement Purchasers, including officers, directors and employees
of the Company and Prime Partners II, LLC, a holding company owned in part by
Michael Ryan. See additional disclosure regarding this transaction in the
section of this proxy statement entitled "Proposal 1 - Election of Directors."
As provided in the Audit Committee Charter, the Audit Committee is charged with
reviewing and approving all transactions between the Company and any related
person that are required to be disclosed pursuant to SEC Regulation S-K, Item
404. The terms "related person" and "transaction" are the meanings given to such
terms in Item 404, as may be amended from time to time.
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 2008 Stockholder Meeting, 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 September 15, 2008 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 September 15, 2008 deadline but
still wishes to present the proposal at the Company's Fiscal 2008 Stockholder
Meeting (but not in the Company's proxy statement) for the Fiscal 2008
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, 2008. If the Company does not receive notice by October 1,
2008 of a proposed matter to be submitted by a stockholder for stockholders vote
at the Fiscal 2008 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 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.
34
OTHER INFORMATION
A copy of the Company's Annual Report on Form 10-K, as amended, for the year
ended June 30, 2007, as amended, is being furnished herewith to each stockholder
of record as of the close of business on _________, 2007. Additional copies of
such annual report will be provided for a nominal charge upon written request
to:
Gilman + Ciocia, Inc.
11 Raymond Avenue
Poughkeepsie, New York 12603
Attention: Ted Finkelstein, Vice President and General Counsel
35
EXHIBITS
EXHIBIT A Amendment to the Company's Certificate of Incorporation changing the
name of the Company from Gilman + Ciocia, Inc. to Gilman Ciocia, Inc.
36
EXHIBIT A
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 FIRST thereof as it
now exists and inserting in lieu and instead thereof a new Article FIRST,
reading as follows:
"FIRST": Name. The name of the corporation shall be Gilman Ciocia,
Inc. (herein after referred to as the "Corporation").
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: Ted Finkelstein
Title: Vice President
37
[GILMAN & CIOCIA, INC. LETTERHEAD]
Corporate Headquarters
11 Raymond Avenue o Poughkeepsie, NY 12603
845.485-5278 tel o 845.622.3638 fax
GILMAN + CIOCIA, INC.
MEETING OF STOCKHOLDERS
___________, 2008, 10:30 A.M. LOCAL TIME
BINGHAM MCCUTCHEN LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GILMAN + CIOCIA, INC.
I hereby appoint Ted Finkelstein as proxy 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 Bingham McCutchen, LLP, 399 Park Avenue, New York, New York 10022, on
_____________ at 10:30 a.m., local time, or any adjournment or postponement of
the Meeting.
THE PROXY SHALL VOTE SUBJECT TO THE DIRECTIONS INDICATED ON THE REVERSE SIDE OF
THIS PROXY CARD, AND THE PROXY IS AUTHORIZED TO VOTE IN HIS DISCRETION UPON
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT OF THE MEETING. THE PROXY WILL VOTE AS THE BOARD OF DIRECTORS
RECOMMENDS WHERE A CHOICE IS NOT SPECIFIED. THE PROXY 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 __________, Proxy Statement, and the Company's Annual Report for the year
ended June 30, 2007.
VOTE BY MAIL
GILMAN + CIOCIA'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR
PROPOSALS 2 AND 3:
I. Election of Nominees for Director:
1. 01 - Edward Cohen 02 - Frederick Wasserman
(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.) _____________
II. Proposals:
2. To approve the proposed amendment to the Company's Certificate of
Incorporation to change the name of the Company from Gilman + Ciocia, Inc. to
Gilman Ciocia, Inc.
3. To ratify the appointment of Sherb & Co., LLP as the Company's independent
registered public accounting firm for the fiscal year ending June 30, 2008.
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 his discretion,
the proxy is 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
Mark, sign and date your proxy card and return it in the postage paid envelope
provided.
Address Changes: Dated: _________________________
________________________________
Print Name
________________________________
Signature
________________________________
Signature, if held jointly
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 the
full name of the corporation and
the title of the authorized
officer signing the proxy.