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. ____)
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|_| Preliminary Proxy Statement
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|X| 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)
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[GILMAN CIOCIA, INC. LETTERHEAD]
Corporate Headquarters
11 Raymond Avenue Poughkeepsie, NY 12603
845.485.5278 tel. 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 January 22, 2009 at the Riverside Hotel, 620 East Las Olas Boulevard,
Fort Lauderdale, Florida 33301, beginning at 10:30 a.m., local time. To be
admitted to the Annual Meeting, 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
December 8, 2008
[GILMAN CIOCIA, INC. LETTERHEAD]
Corporate Headquarters
11 Raymond Avenue Poughkeepsie, NY 12603
845.485.5278 tel 845.622.3638 fax
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
PLACE: Riverside Hotel, 620 East Las Olas Boulevard, Fort Lauderdale, Florida
33301
DATE AND TIME: January 22, 2009 at 10:30 a.m., local time
ITEMS OF BUSINESS:
1. To elect two Class B directors;
2. To ratify the appointment of Sherb & Co., LLP as the Company's independent
registered public accounting firm for the fiscal year ending June 30, 2009; and
3. 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 December 5, 2008 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
December 8, 2008
TABLE OF CONTENTS
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Page
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ABOUT THE ANNUAL MEETING 1
PROPOSAL 1: ELECTION OF DIRECTORS 4
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM 5
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS 6
DIRECTOR COMPENSATION 9
EXECUTIVE COMPENSATION 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 15
CORPORATE GOVERNANCE 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 16
AUDIT COMMITTEE REPORT 18
COST OF SOLICITATION 18
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING 18
UNITED STATES SECURITIES AND EXCHANGE COMMISSION REPORTS 19
OTHER MATTERS 19
PROXY STATEMENT
GILMAN CIOCIA, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 22, 2009
ABOUT THE ANNUAL MEETING
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. ("we",
"us", "our" or the "Company"). The proxies will be voted at our 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 January 22, 2009 at the Riverside Hotel, 620 East Las
Olas Boulevard, Fort Lauderdale, Florida 33301, beginning at 10:30 a.m., local
time. Our proxy statement and proxy card are being mailed to stockholders
beginning on or about December 19, 2008.
WHEN IS THE RECORD DATE FOR THE MEETING? WHO IS ELIGIBLE TO VOTE?
December 5, 2008 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, 95,868,611 shares of our 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 our two Class B 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 B directors of the Company. Broker non-votes and abstentions
will have no effect on the election of Class B directors.
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 2, 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 B directors nominated by the Board, upon
recommendation of the Nominating and Corporate Governance Committee; and
(2) FOR the ratification of the appointment of Sherb & Co., LLP as our
independent registered public accounting firm for the fiscal year ending June
30, 2009, 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.
1
HOW ARE PROXIES VOTED?
All properly submitted proxies will be voted at the Meeting according to the
instructions given in the proxy. Our officers designated to vote the proxies
returned pursuant to this solicitation are Ted Finkelstein, Vice President and
General Counsel and Karen Fisher, Treasurer and Chief Accounting Officer.
WHAT IF A PROPERLY EXECUTED PROXY CARD IS RETURNED WITHOUT ANY VOTING
INSTRUCTIONS?
If you are a stockholder of record and return an executed proxy card without
voting instructions, your shares will be voted:
(1) FOR the election of the two Class B directors nominated by the Board, upon
recommendation of the Nominating and Corporate Governance Committee; and
(2) 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, 2009, 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 our 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 only when brokers or other nominees have not
received instructions from the beneficial owner or other person entitled to vote
shares as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote. 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 still may be voted on both of the proposals
to elect directors and to ratify the appointment of Sherb & Co. LLP as our
independent registered public accounting firm.
WHAT IF OTHER BUSINESS IS PRESENTED AT THE MEETING?
We have not received proper notice, and are 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.
2
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: [Board of Directors] [Board Member] c/o Ted Finkelstein, Vice
President and General Counsel, 11 Raymond Avenue, Poughkeepsie, New York 12603.
Communications are directed to the relevant director if addressed to an
individual director, or to the Chairman of our Board if addressed to the Board.
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 our Board of Directors.
3
PROPOSAL 1
ELECTION OF DIRECTORS
Director Composition
On August 20, 2007, the Company, 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"), Michael Ryan,
Carole Enisman, Ted Finkelstein, Dennis Conroy, and Prime Partners, Inc. and
Prime Partners II, holding companies owned in part by Michael Ryan (the
"Existing Shareholders") entered into a Shareholders Agreement as part of a
private placement of the Company's Common Stock (the "Investment Purchase").
Pursuant to the terms of the Shareholders Agreement: at the closing of the
Investment Purchase, the Investment Purchasers were given the right to designate
two directors (the "Investor Directors") for election to our board of directors
(the "Board"); 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; and the Investor Directors and the Existing Shareholder Directors
shall jointly nominate three independent directors. As of the record date, these
stockholders collectively own approximately 66% of our issued and outstanding
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.
Our Board of Directors presently consists of seven directors. Our Certificate of
Incorporation provides that the our Board is divided into three classes (Class
A, Class B and Class C) with overlapping three-year terms. The terms of office
of Classes A, B and C expire at different times in annual succession with one
class being elected at each Annual Meeting of Stockholders. Messrs. Cohen and
Wasserman are Class A members and will serve until the Annual Meeting of
Stockholders with respect to the fiscal year ending June 30, 2010 (the "Fiscal
2010 Stockholder Meeting"). Messrs. Ciocia and Ryan are Class B members and are
up for re-election at this year's Annual Meeting of Stockholders. Messrs. Levy,
Obus and Page are Class C members and will serve until the Annual Meeting of
Stockholders with respect to the fiscal year ending June 30, 2009.
Election of Directors
The stockholders are being asked to elect Messrs. Ciocia and Ryan as Class B
directors at the Annual Meeting. As Class B directors, Messrs. Ciocia and Ryan
will serve until the Annual Meeting of Stockholders with respect to the year
ending June 30, 2011 (the "Fiscal 2011 Stockholder Meeting"), and in each case
until a successor is elected and qualified or until his earlier death,
resignation or removal. On September 23, 2008 the Nominating and Corporate
Governance Committee recommended and the Board of Directors approved that
Messrs. Ciocia and Ryan be nominated as Class B directors.
Management expects that each of the nominees will be available for election, but
if either of them is unable to serve at the time of election occurs, the proxies
will be voted for the election of another nominee to be designated by the Board.
CLASS B DIRECTORS (term expires at the Fiscal 2011 Stockholder Meeting)
JAMES CIOCIA, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Ciocia is a principal
founder of the Company having opened our first tax preparation office in 1981
and has been a director of the Company since its founding. 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 was
appointed our President and Chief Executive Officer in August 2002. Mr. Ryan
co-founded PCS and has served as its President since its founding in 1987. Mr.
Ryan is a founding member and past President of the Mid-Hudson Chapter of the
International Association for Financial Planning. Mr. Ryan is a Registered
Principal with 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.
RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR the election of
Messrs. Ciocia and Ryan as Class B directors.
4
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has engaged Sherb & Co., LLP ("Sherb") to serve as our
independent registered public accounting firm for the year ending June 30, 2009.
Sherb has audited our financial statements 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 our 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 our independent registered public accounting firm for the year
ending June 30, 2009, the Audit Committee retains the right to replace Sherb at
any time without stockholder approval.
The following table sets forth the aggregate fees billed by Sherb for the fiscal
years ended June 30, 2008 and 2007 for professional services rendered to us for
the audit of our annual financial statements, for the reviews of the financial
statements, included in our Quarterly Reports on Form 10-Q for those fiscal
years, and for other services rendered on behalf of us during those fiscal
years. All of such fees were pre-approved by our Audit Committee or Board in the
absence of an Audit Committee. The Audit Committee's policy is to pre-approve
all audit and non-audit services, subject to a de minimis exception for
non-audit services of 8% of the total pre-approved amounts to be paid to outside
auditors.
Fiscal 2008 Fiscal 2007
----------- -----------
Audit Fees $ 222,500 $ 222,500
Other Fees (review other
SEC filings) $ 19,550 $ --
RECOMMENDATION
The Board of Directors recommends that stockholders vote FOR proposal 2 to
ratify the appointment of Sherb as our independent registered public accounting
firm for the fiscal year ending June 30, 2009, upon the recommendation of the
Audit Committee of the Board.
5
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Certain Information Regarding Directors and Executives
The following table sets forth our directors and executive officers as of June
30, 2008, their ages, the positions held by them with the Company, the years
their terms will expire and their classes of director. Our executive officers
are appointed by, and serve at the discretion of the Board. Each executive
officer is a full-time employee of the Company. Michael Ryan and Carole Enisman
are married.
Year Board
Term Will
Name Age Position Expire Class
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James Ciocia 52 Chairman of the Board of Directors 2008 B
Michael Ryan 50 Chief Executive Officer, President and Director 2008 B
Edward Cohen (2)(3) 69 Director 2010 A
John Levy (1)(2)(4) 52 Director 2009 C
Allan Page (1)(3) 61 Director 2009 C
Frederick Wasserman (1)(2) 54 Director 2010 A
Nelson Obus (3) 61 Director 2009 C
Carole Enisman 49 Executive Vice President of Operations n/a n/a
Ted Finkelstein 55 Vice President and General Counsel n/a n/a
Karen Fisher 42 Chief Accounting Officer and Treasurer n/a n/a
Kathryn Travis 60 Secretary n/a n/a
(1) Audit Committee member
(2) Compensation Committee member
(3) Corporate Governance and Nominating Committee member
(4) Lead Director
JAMES CIOCIA, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Ciocia is a principal
founder of the Company having opened our first tax preparation office in 1981
and has been a director of the Company since its founding. In addition to
serving the Company as its Chief Executive Officer until November 6, 2000, Mr.
Ciocia is a registered representative of Prime Capital Services, Inc. ("PCS")
our wholly owned subsidiary. Mr. Ciocia holds a B.S. in Accounting from St.
John's University.
MICHAEL RYAN, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR. 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 its founding in
1987. Mr. Ryan is a founding member and past President of the Mid-Hudson Chapter
of the International Association for Financial Planning. Mr. Ryan is a
Registered Principal with 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.
EDWARD COHEN, DIRECTOR. Mr. Cohen has been a director of the Company since 2003.
Mr. Cohen has been Counsel to the international law firm of Katten Muchin
Rosenman LLP since February 2002, and before that was a partner in the firm
(with which he has been 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, and Merrimac Industries, Inc., a manufacturer of passive RF and
microwave components for industry, government and science. Mr. Cohen is a
graduate of the University of Michigan and Harvard Law School.
JOHN LEVY, DIRECTOR. Mr. Levy has been a director of the Company since October
2006. Since May 2005, Mr. Levy has served as the Chief Executive Officer of
Board Advisory Services, a consulting firm which advises public companies in the
areas of corporate governance, corporate compliance, financial reporting and
financial strategies. Since August 2008, Mr. Levy has served as the Interim
Chief Financial Officer of Photovoltaic Power Corporation, a development stage
company whose goal is to reduce manufacturing costs of solar modules. Mr. Levy
served as Interim Chief Financial Officer from November 2005 to March 2006 of
Universal Food & Beverage Company, which filed a voluntary petition 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, is
a director and Chair of Special Committee of Atlas Mining Company, an
exploration stage natural resource and mining company and is a director of PNG
Ventures, Inc. which through its subsidiaries engages in the production and
wholesale of vehicle-quality liquid natural gas in the western United States.
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.
6
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 September 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. 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 B.S. degree in
Economics from The Wharton School of the University of Pennsylvania in 1976.
NELSON OBUS, DIRECTOR. Mr. Obus has been a director of the Company since
September 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
emphatically deny the allegations and are vigorously contesting the case. Mr.
Obus received a B.A. degree from New York University and an M.A. and A.B.D from
Brandeis University in Politics.
CAROLE ENISMAN, EXECUTIVE VICE PRESIDENT OF OPERATIONS. Ms. Enisman was
appointed the Executive Vice President of Operations of the Company on November
15, 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 5, 1999. Ms. Enisman graduated from the University of
Miami (Florida) with degrees in Economics and Political Science.
TED FINKELSTEIN, VICE PRESIDENT AND GENERAL COUNSEL. Mr. Finkelstein has been
Vice President and General Counsel of the Company since February 1, 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 B.S. degree in
Accounting. He is 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 approximately 30 years of varied legal experience including
acting as outside counsel for PCS for over 15 years.
KAREN FISHER, CHIEF ACCOUNTING OFFICER AND TREASURER. Ms. Fisher had been the
Controller of the Company since March 2005 and was appointed Treasurer on May
25, 2007 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.
7
KATHRYN TRAVIS, SECRETARY. Ms. Travis began her career with the Company in 1986
as an accountant and has served as Secretary since November 1989 and as a
director from November 1989 to July 4, 2007. 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.
Director Designees Pursuant to Shareholders Agreement
As described above, on August 20, 2007, in connection with the Investment
Purchase, the Company entered into a Shareholders Agreement with the Investment
Purchasers and the Existing Shareholders. Pursuant to the terms of the
Shareholders Agreement: at the closing of the Investment Purchase, the
Investment Purchasers were given the right to designate two Investor Directors
for election to our Board; 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 Existing Shareholder Directors for election to the Board;
the Investor Directors and the Existing Shareholder Directors shall jointly
nominate three independent directors; the Investor Purchasers and the Existing
Shareholders agreed to take such action as may be reasonably required under
applicable law to cause the Investor Purchasers' designees and the Existing
Shareholders' designees to be elected to the Board; we agreed to include each of
the Director designees of the Investor 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; 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; 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 issuance of an omnibus stock plan, the creation of any new class of
securities, certain affiliate transactions, changes to our 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; the Investment Purchasers agreed to a one year
standstill agreement concerning the acquisition of our assets, our securities,
proxy solicitations, voting trusts or tender offers; the Investment Purchasers
were granted a right of first refusal for future securities issued by the
Company; and we were granted a right of first refusal for sales of Common Stock
by the Investment Purchasers and by the Existing Shareholders.
Director Independence
A majority of our Board members are independent. The independent members of our
Board are Edward Cohen, John Levy, Allan Page, Nelson Obus, and Frederick
Wasserman, all who have been deemed to be independent as defined in Rule
4200(a)(15) of the listing standards of the Nasdaq Stock Market.
Board Committees
Our Board met eight times during fiscal 2008 and acted by written consent five
times. All directors attended at least 75% of the combined Board and committee
meetings on which they served in fiscal 2008. All directors are encouraged to
attend our annual meeting of stockholders and all of our directors attended last
year's annual meeting.
Audit Committee
On October 19, 2006, the Board formed an Audit Committee comprised of John Levy,
Chair and Allan Page. On August 20, 2007, Frederick Wasserman was appointed to
the Audit Committee. The Audit Committee met six times and acted by written
consent one time during fiscal 2008. The functions of the Audit Committee are as
set forth in the Audit Committee Charter, which can be viewed on our website at
www.gtax.com. Our Board has determined that each of Messrs. Levy, Page and
Wasserman is independent as defined in Rule 4200(a)(15) of the listing standards
of the Nasdaq Stock Market and Rule 10A-3 of the Securities Exchange Act of 1934
(the "Exchange Act"). Our Board also has determined that Mr. Levy is an "audit
committee financial expert" as defined in the applicable rules and regulations
of the Exchange Act. The Audit Committee is required to pre-approve all audit
and non-audit services performed by the independent auditors in order to assure
that the provision of such services does not impair the auditor's independence.
Unless a type of service to be provided has received general pre-approval from
the Audit Committee, it requires specific pre-approval in each instance by the
Audit Committee. Any proposed services exceeding pre-approved cost levels
generally require specific pre-approval by the Audit Committee.
8
Compensation Committee
On July 19, 2007, the Board formed a Compensation Committee comprised of Edward
Cohen and John Levy. On August 20, 2007 Frederick Wasserman was appointed as the
Chairman of the Compensation Committee. The Compensation Committee met three
times during fiscal 2008. The functions of the Compensation Committee are as set
forth in the Compensation Committee Charter, which can be viewed on our website
at www.gtax.com. Our Board has determined that each of Messrs. Cohen, Levy and
Wasserman is independent as defined in Rule 4200(a)(15) of the listing standards
of the Nasdaq Stock Market. In accordance with the compensation committee
charter, the members are "outside directors" as defined in Section 162(m) of the
Internal Revenue Code of 1986, as amended, and "non-employee directors" within
the meaning of Section 16 of the Exchange Act. The Compensation Committee is
required, among other things, to discharge the Board's responsibilities relating
to the compensation and evaluation of our senior executives and to produce the
report that the rules and regulations of the Securities and Exchange Commission
may require to be included in, or incorporated by reference, into our annual
report and proxy statement. The compensation committee has not engaged
compensation consultants to provide advice with respect to the form or amount of
executive or director compensation.
Corporate Governance and Nominating Committee
On July 19, 2007, the Board formed a Corporate Governance and Nominating
Committee comprised of Chairman Edward Cohen and Allan Page. On August 20, 2007
Nelson Obus was appointed as a member of the Corporate Governance and Nominating
Committee. The Corporate Governance and Nominating Committee met two times
during fiscal 2008. The functions of the Corporate Governance and Nominating
Committee are as set forth in the Corporate Governance and Nominating Committee
Charter, which can be viewed on our website at www.gtax.com. Our Board has
determined that each of Messrs. Cohen, Page and Obus is independent as defined
in Rule 4200(a)(15) of the listing standards of the Nasdaq Stock Market and Rule
10A-3 of the Exchange Act. The Corporate Governance and Nominating Committee
will consider nominees recommended by stockholders. Any such recommendations
should be submitted in writing to our General Counsel at our principal executive
offices. Nominees recommended by stockholders will be evaluated in the same
manner as nominees identified by management, the Board or the Corporate
Governance and Nominating Committee. The Corporate Governance and Nominating
Committee, in making its recommendations regarding Board nominees, may consider
some or all of the following factors, among others: judgment, skill, diversity,
experiences with businesses and other organizations of a comparable size, the
interplay of the candidate's experience with that of the other Board members,
the extent to which a candidate would be a desirable addition to the Board and
any committees of the Board and whether or not the candidate would qualify as an
"independent director" under applicable law and listing standards.
DIRECTOR COMPENSATION
The table below summarizes the compensation earned by our directors during
fiscal 2008:
Fees Earned or
Paid In Cash Stock Awards (a)(c) Options Awards (b)(c) Total
------------------------------------------------------------------------
James Ciocia ((1)) $24,000 $5,000 $5,000 $34,000
Edward Cohen ((2)) (3) $29,500 $5,000 $5,000 $39,500
John Levy ((2)) ((4)) ((5)) $49,500 $5,000 $5,000 $59,500
Nelson Obus ((3)) $22,500 $5,000 $5,000 $32,500
Allan Page ((3)) ((4)) $29,500 $5,000 $5,000 $39,500
Frederick Wasserman ((2)) ((4)) $25,000 $5,000 $5,000 $35,000
(a) Annual grant of shares of restricted common stock with a fair market value
at the time of grant. The number of shares of stock is computed and
granted five days after the filing of the 10-K. Each director was awarded
50,000 shares on October 10, 2008.
(b) 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 the time of grant determined based on
the closing price on the date of such grant. The number of stock options
is computed and granted five days after the filing of the 10-K. Each
director was awarded 50,000 stock options on October 10, 2008.
(c) Reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended June 30, 2008 in accordance with SFAS
No. 123R for all stock awards or option awards, as applicable, held by
such director and outstanding on June 30, 2008. The amounts reflect the
accounting expense for these awards and do not correspond to actual value
that may be recognized by the directors with respect to these awards.
(1) Mr. Ciocia is Chairman of the Board of Directors and an employee of the
Company. However, Mr. Ciocia's 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.
9
(2) Mr. Cohen and Mr. Levy are Compensation Committee members. Mr. Wasserman
is Compensation Committee Chair.
(3) Mr. Obus and Mr. Page are Nominating and Corporate Governance Committee
members. Mr. Cohen is Nominating and Corporate Governance Committee Chair.
(4) Mr. Page and Mr. Wasserman are Audit Committee members. Mr. Levy is Audit
Committee Chair.
(5) Mr. Levy is Lead Director of the Board.
We use a combination of cash and equity incentive compensation for our
non-employee directors. In developing the compensation levels and mix for
non-employee directors, we consider 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.
Each non-management director and James Ciocia, as a Board member, receives an
annual retainer fee of $24,000 plus $5,000 per year in restricted stock, based
upon its then fair market value, and $5,000 per year in stock options using
Black-Scholes valuation. The Lead Director receives an additional annual
retainer fee of $24,000. Each member of the Audit Committee, Compensation
Committee, and Nominating and Corporate Governance Committee receives $3,000
annually.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the annual compensation of the Chief Executive
Officer (the "CEO") and the two most highly compensated executive officers other
than the CEO (the "Named Executive Officers") during the fiscal years ended June
30, 2008 and 2007:
Summary Compensation Table
--------------------------
Other
Name and Principal Position Year Salary Bonus Compensation (2) Total
- ----------------------------------------------------------------------------------------------------------------------
Michael Ryan 2008 $350,000 $139,297(1) $ 18,416 $507,713
President, Chief Executive Officer
and Director 2007 $288,000 $ 50,000 $ 30,637 $368,637
Carole Enisman 2008 $235,000 $ -- $ 19,886 $254,886
Executive Vice President of Operations 2007 $204,000 $ 35,000 $ 16,551 $255,551
Kathryn Travis 2008 $220,000 $ -- $ 9,191 $229,191
Secretary and Director 2007 $204,000 $ 20,000 $ 8,247 $232,247
(1) Represents commissions earned as per an employment agreement with Michael
Ryan whereby commissions will be paid as draw against his bonus. As per the
agreement, no commissions will be paid back no matter what bonus is calculated
or if no bonus is paid. In fiscal 2008, no bonus was awarded.
(2) Other Compensation includes the following:
Total Other
Name and Principal Position Year Car Allowance Club Membership Commissions Compensation
- -----------------------------------------------------------------------------------------------------------------------------
Michael Ryan, 2008 $17,289 $ 1,127 $ -- $18,416
President, Chief Executive Officer and Director 2007 $17,139 $13,498 $ -- $30,637
Carole Enisman 2008 $13,630 $ -- $ 6,256 $19,886
Executive Vice President of Operations 2007 $13,531 $ -- $ 3,020 $16,551
Kathryn Travis 2008 $ 9,191 $ -- $ -- $ 9,191
Secretary and Director 2007 $ 8,247 $ -- $ -- $ 8,247
10
Option Grants
We did not grant any options to purchase shares of common stock to the Named
Executive Officers during fiscal 2008.
Outstanding Equity Awards at Fiscal Year-End
None.
2007 Stock Incentive Plan
The Company's 2007 Stock Incentive Plan was adopted at our 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 10%
stockholder 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.
Employment Agreements
On August 20, 2007, we entered into an employment agreement with Michael Ryan,
our President and Chief Executive Officer (the "Employment Agreement"). The
Employment Agreement contains the following salient terms: the term is from July
1, 2007 to June 30, 2011; the base salary is $350,000 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, but under no circumstances should the
commission earned be paid back; a severance payment equal to base salary and
bonus (computed at 100% of base salary) will be paid to Mr. Ryan for the greater
of three years or the ending date of the term if he is terminated as the result
of an involuntary change of control, or the greater of one year or the ending
date of the term if he is terminated as the result of a voluntary change of
control. 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
ours or registered representatives of our broker-dealer subsidiary.
11
Potential Payments Upon Termination Including Change of Control
Voluntary Termination Termination
Termination Termination with Following Voluntary Following Involuntary
Without Cause (1) Good Reason (1) Change of Control (1) Change of Control (2)
-----------------------------------------------------------------------------------------
Michael Ryan
Payment due upon termination:
Cash Severance
Base Salary $1,050,000 $1,050,000 $1,050,000 $1,050,000
Bonus 1,050,000 1,050,000 1,050,000 1,050,000
-----------------------------------------------------------------------------------------
Total Cash Severance $2,100,000 $2,100,000 $2,100,000 $2,100,000
(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 Termination with Following Voluntary Following Involuntary
Without 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
Kathy Travis $220,000 $220,000 $220,000 $220,000
(1) Named Executive Officers will receive one month of compensation for each
year of service with a maximum severance of one year.
(2) Named Executive Officers will receive one year of compensation in a lump
sum.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
5% Holders
The following table sets forth, as of the record date, the holdings of the only
persons known to us to beneficially own more than 5% of our outstanding common
stock, the only class of voting securities issued by us. Except as indicated in
the footnotes to this table and the table following and pursuant to applicable
community property laws, the persons named in the table and the table following
have sole voting and investment power with respect to all shares of common
stock. For each individual or group included in the table and the table
following, percentage ownership is calculated by dividing the number of shares
beneficially owned by such person or group by the sum of the 95,878,611 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.
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
- ------------------------------------ -------------------- -------------------
Michael Ryan 62,992,165(1) 65.7%
11 Raymond Avenue
Poughkeepsie, NY 12603
Carole Enisman 62,992,165(2) 65.7%
11 Raymond Avenue
Poughkeepsie, NY 12603
Ted Finkelstein 62,992,165(3) 65.7%
11 Raymond Avenue
Poughkeepsie, NY 12603
12
Ralph Porpora 62,992,165(4) 65.7%
11 Raymond Avenue
Poughkeepsie, NY 12603
Prime Partners II, LLC 62,992,165(5) 65.7%
11 Raymond Avenue
Poughkeepsie, NY 12603
Nelson Obus 62,992,165(6)(7) 65.7%
450 Seventh Avenue, Suite 509
New York, NY 10123
Wynnefield Partners Small Cap Value LP 62,992,165(8)(9) 65.7%
450 Seventh Avenue, Suite 509
New York, NY 10123
Wynnefield Small Cap Value Offshore Fund, Ltd 62,992,165(8)(10) 65.7%
450 Seventh Avenue, Suite 509
New York, NY 10123
Wynnefield Partners Small Cap Value LP I 62,992,165(8)(11) 65.7%
450 Seventh Avenue, Suite 509
New York, NY 10123
WebFinancial Corporation 62,992,165(12) 65.7%
61 East Main Street
Los Gatos, CA 95031
Dennis Conroy 62,992,165(13) 65.7%
10514 Brookside Road
Pleasant Valley, NY 12569
(1) Includes 256,000 shares which are beneficially owned by Mr. Ryan
personally; 263,541 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; 1,658,798
shares which are beneficially owned by Prime Partners, Inc. of which Mr.
Ryan is a stockholder, officer and director; 15,420,000 shares which are
beneficially owned by Prime Partners II, LLC of which Mr. Ryan is a member
and manager and 45,657,367 shares which are owned by certain of the other
stockholders to the Shareholders Agreement of which both Mr. Ryan and
Prime Partners II, disclaim beneficial ownership.
(2) Includes 62,728,624 shares owned by certain of the other partners to the
Shareholders Agreement of which shares Ms. Enisman disclaims beneficial
ownership.
(3) Includes 10,000 shares issuable upon the exercise of options. Also
includes 58,643,377 shares owned by certain of the other parties to the
Shareholders Agreement and of which shares Mr. Finkelstein disclaims
beneficial ownership.
(4) Includes 1,658,798 shares which are beneficially owned by Prime Partners,
Inc. of which Mr. Porpora is a stockholder, officer and director; and
15,420,000 shares which are beneficially owned by Prime Partners II, LLC
of which Mr. Porpora is a member and manager. Also includes 45,913,367
shares owned by certain of the other parties to the Shareholders Agreement
and of which shares Mr. Porpora disclaims beneficial ownership.
(5) Includes 47,572,165 shares owned by certain of the other parties to the
Shareholders Agreement and Prime Partners II, LLC disclaims beneficial
ownership of these shares.
(6) Includes 62,942,165 shares owned by certain of the other parties to the
Shareholders Agreement and Mr. Obus disclaims beneficial ownership of
these shares.
13
(7) 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 our 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 our 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 our 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.
(8) Includes 8,000,000 shares beneficially owned by Wynnefield Partners Small
Cap Value LP, a Delaware limited partnership ("Wynnefield Partners") and
10,000,000 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 our common stock that are beneficially owned by each of Wynnefield
Partners and Wynnefield Partners I. Includes 12,000,000 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 our common stock that are beneficially owned by
Wynnefield Offshore. Mr. Obus disclaims beneficial ownership of the shares
of our 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.
(9) Includes 54,992,165 shares owned by certain of the other parties to the
Shareholders Agreement and Wynnefield Partners Small Cap Value L.P.
disclaims beneficial ownership of these shares.
(10) Includes 50,992,165 shares owned by certain of the other parties to the
Shareholders Agreement and Wynnefield Small Cap Value Offshore Fund, Ltd.
disclaims beneficial ownership of these shares.
(11) Includes 52,992,165 shares owned by certain of the other parties to the
Shareholders Agreement and Wynnefield Small Cap Value, L.P. I disclaims
beneficial ownership of these shares.
(12) Includes 52,534,225 shares owned by certain of the other parties to the
Shareholders Agreement and WebFinancial Corporation disclaims beneficial
ownership of these shares.
(13) Includes 62,455,067 shares owned by certain of the other parties to the
Shareholders Agreement and Mr. Conroy disclaims beneficial ownership of
these shares.
Directors and Executive Officers
The following table sets forth, as of the record date, the beneficial ownership
of our common stock by (i) each Company director, (ii), each Named Executive
Officer and (iii) the directors and all executive officers as a group.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS
- ------------------------ -------------------- -------------------
James Ciocia 2,904,784(1) 3.0%
Michael Ryan 62,992,165(2) 65.7%
Edward Cohen 560,000 *
Allan Page 253,000 *
14
John Levy 53,000 *
Kathryn Travis 607,980 *
Carole Enisman 62,992,165(3) 65.7%
Nelson Obus 62,992,165(4)(5) 65.7%
Frederick Wasserman 50,000 *
Directors and executive officers as a group (eleven persons) 67,450,929 70.4%
* Less than 1.0%
(1) Includes 600,000 shares which are held jointly with Tracy Ciocia, Mr.
Ciocia's wife; 9,100 shares are held as custodian for Mr. Ciocia's sons.
(2) Includes 256,000 shares which are beneficially owned by Mr. Ryan
personally; 263,541 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; 1,658,798
shares which are beneficially owned by Prime Partners, Inc. of which Mr.
Ryan is a stockholder, officer and director; 15,420,000 shares which are
beneficially owned by Prime Partners II, LLC of which Mr. Ryan is a member
and manager and 45,657,367 shares which are owned by certain of the other
stockholders to the Shareholders Agreement of which both Mr. Ryan and
Prime Partners II, disclaim beneficial ownership.
(3) Includes 62,728,624 shares owned by certain of the other partners to the
Shareholders Agreement of which shares Ms. Enisman disclaims beneficial
ownership.
(4) Includes 62,942,165 shares owned by certain of the other partners to the
Shareholders Agreement of which shares Mr. Obus disclaims beneficial
ownership.
(5) 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 our 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 our 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 our 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive officers and
persons who own more than 10% of our common stock to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock. The
SEC requires such officers, directors and greater than 10% stockholders to
furnish to the Company copies of all forms that they file under Section 16(a).
To our knowledge based solely on a review of Forms 3, 4 and 5 and amendments
thereto, all officers, directors and/or greater than 10% stockholders of ours
complied with all Section 16(a) filing requirements during the fiscal year ended
June 30, 2008.
15
CORPORATE GOVERNANCE
Adoption of Code of Ethics
We have adopted a written Code of Ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer, or
controller, or persons performing similar functions and is consistent with the
rules and regulations of the Exchange Act. A copy of the Code of Ethics is
available on our website at www.gtax.com. We will disclose any amendment to or
waiver of our Code of Ethics on our website.
Communications with our Board
Communications to our Board or to any director individually may be made by
writing to the following address:
Attention: [Board of Directors] [Board Member]
c/o Ted Finkelstein, Vice President and General Counsel
11 Raymond Avenue
Poughkeepsie, NY 12603
Communications sent to the physical mailing address are forwarded to the
relevant director if addressed to an individual director, or to the chairman of
our Board if addressed to the Board.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 given the meanings of such
terms as used in Item 404 of SEC Regulation S-K, as may be amended from time to
time.
James Ciocia, our Chairman of the Board of Directors 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 $0.6 million in
fiscal 2008.
James Ciocia and Michael Ryan personally guaranteed the repayment of our loan
from Wachovia Bank, N.A. ("Wachovia"). Such stockholders received no
consideration for such guarantees other than their salaries and other
compensation.
During fiscal 2007, Prime Partners loaned us an aggregate of $1.7 million at an
interest rate of 10%. During fiscal 2007, we repaid $0.7 million to Prime
Partners and as of June 30, 2007, we owed Prime Partners $2.8 million. Michael
Ryan is a director, an officer and a significant stockholder of Prime Partners.
On August 16, 2007, Prime Partners 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 our debt into 15.4 million shares of our common stock. As of
June 30, 2008, we owed Prime Partners a total of $1.3 million in principal. A
$1.0 million note to Prime Partners dated as of January 31, 2008 was due on June
30, 2008 (the "$1.0 Million Note"). On December 26, 2007, we entered into a
promissory note in the amount of $0.3 million with Prime Partners for related
party debt which was previously included in accrued expenses. The note pays
interest at the rate of 10.0% per annum. The note is payable over 31 months and
the first payment of approximately $11,000 was paid in January 2008 and
continues to be paid monthly.
In December 2006, we assigned to Prime Partners two promissory notes to us
related to the sale of two of our offices as consideration for the reduction of
$0.3 million against the then $3.1 million of outstanding principal owed to
Prime Partners. 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 our common stock were sold to the 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.
On August 28, 2002, we entered into a promissory note in the amount of $0.1
million with James Ciocia, a Director of the Company. The note pays interest at
the rate of 10% per annum. The note is payable on demand and may be prepaid in
whole or in part at any time and from time to time without premium or penalty.
As of June 30, 2007 the principal balance was $0.1 million. 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 our common stock.
16
On December 23, 2003, we entered into a promissory note in the amount of $0.2
million with Ted Finkelstein, our Vice President and General Counsel. The note
paid interest at the rate of 10% per annum payable monthly. At June 30, 2007,
the principal balance we owed Mr. Finkelstein was $25,800. On August 20, 2007,
$30,000 of Mr. Finkelstein's note, including accrued interest, was converted to
0.3 million shares of our common stock. A trust, of which Mr. Finkelstein is the
trustee ("the Trust"), made a short-term loan to Prime Partners for $0.3 million
on July 18, 2006, which paid 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 accrued interest at 10% per annum. As of June 30, 2008, Prime Partners
owed the Trust $0.5 million in principal pursuant to a promissory note dated
January 31, 2008 (the "Old Note"). As security for the total loan in the amount
of $0.5 million, Prime Partners gave the Trust a security interest in the note
related to the sale of two of our offices that we assigned to Prime Partners and
a security interest in the notes that we owed to Prime Partners.
As of September 1, 2008, Prime Partners assigned $0.5 million from the $1.0
Million Note to the Trust in payment of the Old Note. As of September 1, 2008,
we entered into a new $0.5 million promissory note with Prime Partners at 10%
interest with interest and principal due on or before June 30, 2009 (the "New
Prime Partners Note").
As of September 1, 2008, we entered into a new $0.5 million promissory note with
the Trust (the "New Trust Note"). The New Trust Note provides for 10% interest
to be paid in arrears through the end of the previous month on the 15th date of
each month commencing on October 15, 2008. The principal of the New Trust Note
will be paid to the Trust as follows: $55,000 on January 31, 2009; $55,000 on
February 28, 2009; $90,000 on March 31, 2009, April 30, 2009, May 31, 2009 and
June 30, 2009. We gave the Trust a collateral security interest in all of its
assets, including the stock of PCS, subordinate only to the outstanding security
interest of Wachovia. We agreed that the only loan debt principal that we are
permitted to pay until the New Trust Note is paid in full is: the existing
Wachovia debt, the scheduled principal payments on certain executive notes with
de minimis balances and the scheduled principal payments to Prime Partners for
the $0.3 million Promissory Note dated December 26, 2007. No payments of loan
principal can be paid to any other existing or future lenders, including to
Prime Partners on the New Prime Partners Note. Prime Partners and Ted
Finkelstein guaranteed the New Trust Note. The guarantee of Prime Partners is
secured by a collateral assignment of the promissory note dated January 23, 2004
between Daniel R. Levy and the Company in the original amount of $0.9 million
which was assigned to Prime Partners, Inc. on June 26, 2006.
At June 30, 2008 and 2007, we owed to related parties as described above $1.3
million and $3.6 million, respectively.
On August 20, 2007, we sold 40.0 million shares of our common stock to certain
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 (our President and Chief Executive Officer and a member of our Board of
Directors).
17
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 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. The
Committee also received from the independent registered public accounting firm,
written disclosure and the letter required by Independence Standards Board
Standard No. 1 and the information required under Regulation S-X Rule 2-07 of
the Securities Act. 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 the 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 for the year ended June 30, 2008
filed by the Company with the Securities and Exchange Commission ("SEC").
Members of the Audit Committee
John Levy, Chairman
Alan Page
Frederick Wasserman
The information contained in the report above shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Exchange Act or
the Securities Act of 1933, as amended, except to the extent that we
specifically incorporate it by reference in such filing.
COST OF SOLICITATION
We will pay the cost of soliciting proxies. In addition, certain officers and
employees, who will receive no compensation for their services other than their
regular salaries, may solicit proxies. Other proxy solicitation expenses that we
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 our
Fiscal 2009 Stockholder Meeting, must submit the proposal in proper form to us
at our address set forth on the first page of this proxy statement and in
accordance with applicable regulations of the SEC not later than August 15, 2009
in order for the proposition to be considered for inclusion in our proxy
statement and form of proxy relating to such annual meeting. Any such proposals,
as well as any questions related thereto, should be directed to the Secretary of
the Company.
If a stockholder submits a proposal after the August 15, 2009 deadline but still
wishes to present the proposal at our Fiscal 2009 Stockholder Meeting (but not
in our proxy statement) for the Fiscal 2009 Stockholder Meeting, the proposal,
which must be presented in a manner consistent with our By-Laws and applicable
law, must be submitted to our Secretary in proper form at the address set forth
above no later than September 1, 2009. If we do not receive notice by September
1, 2009 of a proposed matter to be submitted by a stockholder for stockholders
vote at the Fiscal 2009 Stockholder Meeting, then, in accordance with Exchange
Act Rule 14a-4(c) any proxies held by persons designated as proxies by our 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.
18
UNITED STATES SECURITIES AND EXCHANGE COMMISSION REPORTS
A copy of our Annual Report on Form 10-K for the year ended June 30, 2008 is
being furnished herewith to each stockholder of record as of the close of
business on December 5, 2008. Additional copies of such Annual Report are
available to stockholders free of charge on our website at www.gtax.com under
the caption "Company - SEC Filings" or by writing to us at 11 Raymond Avenue,
Poughkeepsie, New York 12603, Attention: Ted Finkelstein, Vice President and
General Counsel.
OTHER MATTERS
We know of no other business that will be brought before the Annual Meeting. If
any other matter or any proposal should be properly presented and should
properly come before the meeting for action, the persons named in the
accompanying proxy will, at their discretion and in accordance with their best
judgment, vote upon such proposal.
19
[GILMAN & CIOCIA, INC. LETTERHEAD]
Corporate Headquarters
11 Raymond Avenue Poughkeepsie, NY 12603
845.485.5278 tel 845.622.3638 fax
GILMAN CIOCIA, INC.
MEETING OF STOCKHOLDERS
JANUARY 22, 2009, 10:30 A.M. LOCAL TIME
Riverside Hotel, 620 East Las Olas Boulevard,
Fort Lauderdale, Florida 33301
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GILMAN CIOCIA, INC.
I hereby appoint Ted Finkelstein and Karen Fisher as proxies, each 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 Riverside Hotel, 620 East Las Olas Boulevard, Fort
Lauderdale, Florida 33301, January 22, 2009 at 10:30 a.m., local time, or any
adjournment or postponement of the Meeting.
THE PROXIES SHALL VOTE SUBJECT TO THE DIRECTIONS INDICATED ON THE REVERSE SIDE
OF THIS PROXY CARD, AND THE PROXIES ARE AUTHORIZED TO VOTE IN HIS [OR HER]
DISCRETION UPON OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT OF THE MEETING. THE PROXIES WILL VOTE AS THE BOARD
OF DIRECTORS RECOMMENDS WHERE A CHOICE IS NOT SPECIFIED. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN, DATE AND RETURN THIS PROXY CARD.
I acknowledge receipt of Gilman Ciocia's Notice of Meeting of Stockholders,
dated December 8, 2008, Proxy Statement and the Company's Annual Report for the
year ended June 30, 2008. You can also view the Annual Report on the internet at
www.gtax.com/company
VOTE BY MAIL
GILMAN CIOCIA'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES AND FOR
PROPOSAL 2:
I. Election of Nominees for Director:
1. 01 - James Ciocia FOR |_| WITHHOLD |_|
02 - Michael Ryan FOR |_| WITHHOLD |_|
II. Proposal:
2. To ratify the appointment of Sherb & Co., LLP as the Company's independent
registered public accounting firm for the fiscal year ending June 30, 2009.
FOR |_| AGAINST |_| ABSTAIN |_|
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR THE NOMINEES AND PROPOSAL ABOVE. In their
discretion, the proxies are authorized to vote upon such other business as may
properly come before the Meeting.
Address Change? Mark Box |_| Indicate changes below:
|_| Yes, I plan to attend the Annual Meeting of
Stockholders
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.