October 6, 2000
Gilman & Ciocia, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
Re: $6,000,000 line of credit
Gentlemen:
European American Bank ("EAB") is pleased to advise you it holds
available for Gilman & Ciocia, Inc. (the "Borrower"), a corporation organized
and in good standing under the laws of the State of New York, a line of credit
in the amount of $6,000,000 (the "Line"), subject to the following terms and
conditions:
1. Description of the Line:
-----------------------
Loans provided under the Line shall be evidenced by EAB's
standard Master Note (the "Note") in the amount of the Line. Each advance
thereunder shall bear interest at a rate to be elected by the Borrower at the
time of each request for an advance equal to either:
(i) Prime Rate Option.
----------------- A floating rate of interest equal to
3/4% in excess of EAB's Prime Rate (the rate of interest stated by EAB to be its
Prime Rate in effect from time to time and adjusted when said Prime Rate
changes) computed on the basis of actual days elapsed in a 360 day year; or
(ii) LIBOR Rate Option.
----------------- A fixed rate of interest equal to the
Reserve Adjusted LIBOR, as such term is defined in the Note plus a margin of 275
basis points for interest periods of 30, 60 or 90 days.
Interest on the unpaid principal balance of the Note from time
to time outstanding shall be payable monthly in arrears commencing on the first
day of the month following the date of the first advance under the Note. Any
advance under the Line made by EAB in its discretion shall be in an amount not
less than $250,000 for both Prime Rate and LIBOR Rate advances.
In the event that an advance bears interest at the Prime Rate
Option, such advance may be prepaid, in whole or in part, in increments of not
less that $250,000, without premium or penalty.
The Borrower agrees to indemnify EAB and hold EAB harmless
from any loss or expense that EAB may sustain or incur, in accordance with the
terms set forth in the Note should the Borrower make any prepayment of the
principal of an advance hereunder bearing interest at the LIBOR Rate or in the
event of a default by the Borrower in the payment or performance of any terms of
the Note or this line letter.
The Borrower acknowledges and agrees that the Line is
uncommitted and requests for advances or extensions of credit thereunder shall
be approved in the discretion of EAB, which may refuse to make an extension of
credit under the Line at any time without prior notice to the Borrower, and that
the performance or compliance by the Borrower of the agreements contained in
this letter, or in any other document or agreement evidencing or securing such
advances or extensions of credit, shall not obligate EAB to make an advance or
provide an extension of credit thereunder.
Subject to the terms and conditions hereof, the Line shall be
available until October 30, 2001.
2. Guarantors:
----------
Repayment of all loans, extensions of credit and financial
accommodations provided under the Line together with interest and costs thereon
shall be guaranteed, jointly and severally, by James Ciocia, Michael Ryan,
Thomas Povinelli and Kathryn Travis (collectively, the "Individual Guarantors")
and each subsidiary of the Borrower now or hereafter created or acquired
pursuant to EAB's standard Guarantee of All Liability (the "Guarantee").
Alternatively, in lieu of the guarantee(s) of such subsidiary(ies), the Borrower
may pledge and assign to EAB, as security for the Line, all of its right, title
and interest in and to the shares of capital stock it owns in all such
subsidiaries pursuant to EAB's standard Pledge Agreement.
3. Purpose of the Line:
-------------------
The purpose of the Line shall be used to support the
Borrower's working capital needs.
4. Security for the Line:
---------------------
The Line shall be secured by a first priority security
interest in all assets and personal property of the Borrower including, without
limitation, its trademarks pursuant to EAB's standard General Security
Agreement, duly filed UCC-1 Financing Statements and all documents necessary to
perfect EAB's security interest in the Borrower's trademarks.
5. Conditions Precedent:
--------------------
Prior to the Borrower's initial request for an advance under
the Line, it shall have provided to EAB, if it has not already done so:
(i) A copy of the resolutions passed by the Borrower's Board of
Directors certified by its Secretary as being in full force and
effect authorizing the borrowing described herein and the
execution of all documents and agreements required by EAB to
evidence and secure the Line;
(ii) A certified copy of the certificate of incorporation of the
Borrower; and
(iii)Subordination agreements, in form and substance satisfactory to
EAB, pursuant to which the Borrower shall subordinate to the
prior payment of all amounts due under the Line, its loan
indebtedness to its officers in the amount of $1,000,000 and
other creditors in an amount not less than $5,000,000.
6. Financial Reporting:
-------------------
The Borrower shall provide to EAB:
(i) As soon as available, but in any event within one hundred five
(105) days after the last day of each fiscal year, the 10K Report
of the Borrower, filed or to be filed with the Securities and
Exchange Commission, which shall include statements of income and
retained earnings and cash flows for such fiscal year, each
prepared in accordance with generally accepted accounting
principles consistently applied, in reasonable detail, such
statements to be audited by a firm of independent certified
public accountants satisfactory to EAB.
(ii) As soon as available, but in any event within sixty (60) days
after the end of each fiscal quarter, copies of the 10Q Report
filed or to be filed with the Securities and Exchange Commission.
Each of the financial statements specified in Sections (i) and (ii) above shall
be accompanied by a certificate signed by the president or chief financial
officer of the Borrower to the effect that such statements fairly present the
financial condition of the Borrower as of the balance sheet date and results of
the operations of the Borrower for the period(s) then ended in accordance with
generally accepted accounting principles consistently applied.
(iii)Within one hundred twenty (120) days after the last day of the
2000 calendar year, the personal financial statements of each
Individual Guarantor, on EAB's standard form.
(iv) Such other financial or additional information as EAB may
from time to time request.
7. Special Requirements:
--------------------
a. The Borrower agrees to maintain:
(i) a capital base (the sum of capital surplus, earned surplus,
capital stock and such other items as are allowable under
generally accepted accounting principles and subordinated
liabilities minus deferred charges, intangibles, receivables due
from stockholders, officers or affiliates and treasury stock) in
an amount not less than $7,250,000 at December 31, 2000 and not
less than $9,000,000 at June 30, 2001 increasing incrementally at
each fiscal year end thereafter by $1,500,000.
(ii) a maximum leverage ratio (the ratio of total unsubordinated
liabilities to capital base) of not greater than 1.5 to 1.0 at
June 30, 2001.
(iii)a debt service coverage ratio, the ratio of earnings before
interest, taxes, depreciation and amortization to the sum of the
current portion of all long term indebtedness and interest
expense on all indebtedness of not less than 2.0 to 1.0 at the
end of each fiscal quarter.
b. The Borrower shall maintain hazard insurance on its
inventory and equipment with a financially sound and reputable insurance company
in such amounts as are necessary to cover not less than the replacement cost of
such inventory and covering such risks as are usually carried by companies
engaged in the same or similar business which insurance policy shall be endorsed
to name EAB lender loss payee.
c. The Borrower agrees not to pay or accrue any dividends or
distributions to any of its shareholders or officers in any fiscal year, without
the prior written consent of EAB.
d. The Line shall be supported by negative pledge agreements, in form
and substance satisfactory to EAB, pursuant to which the Borrower and the
Individual Guarantors shall agree not to create or permit to exist without the
prior written consent of EAB, any mortgages, encumbrances or liens on any of the
primary residences of the Individual Guarantors, except those encumbrances and
mortgages which are in existence and of public record on the date hereof and
advised to EAB.
8. Annual Clean-up:
---------------
The Borrower covenants and agrees that for a period of not
less than thirty (30) consecutive days at any one time prior to the expiration
of the Line, there shall be no loans outstanding thereunder.
9. Administration Fee/Legal Fees:
-----------------------------
In order to compensate EAB for costs attributable to EAB's due
diligence review of the Borrower's financial condition and business operations,
including, without limitation, any credit and financial analysis conducted by
EAB to determine whether the Line shall be made available to the Borrower, the
Borrower agrees to pay EAB upon the acceptance hereof an administration fee of
$25,000. In addition, the Borrower shall reimburse EAB for all expenses of its
in-house or outside counsel incurred in connection with the documentation of the
Line including, without limitation, the drafting, negotiating and filing of all
documents required to evidence or secure the Line.
10. Acceptance:
----------
If the foregoing is acceptable, please so indicate by signing
and returning this letter together with the administration fee before October
18, 2000, the date this letter will otherwise expire, unless extended in writing
by EAB.
Very truly yours,
EUROPEAN AMERICAN BANK
By: /s/ Richard Ohl
______________________________
Richard Ohl
Vice President
Agreed and Accepted this
1st day of November, 2000
GILMAN & CIOCIA, INC.
By: /s/ David D. Puyear
-----------------------------
Name: David D. Puyear
Title: Chief Financial Officer
