-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/0cfMAICMAOQjZLYHkqO2AMRIHoUB5lQahqTLj48xbFNXeav9R2wiuo6fcx2BEA AP/6JnIf6vpvHBU1t+dJ6A== 0001169232-07-001624.txt : 20070329 0001169232-07-001624.hdr.sgml : 20070329 20070329154048 ACCESSION NUMBER: 0001169232-07-001624 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070329 DATE AS OF CHANGE: 20070329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOINFO INC CENTRAL INDEX KEY: 0000351017 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING & COURIER SERVICES (NO AIR) [4210] IRS NUMBER: 132867481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11497 FILM NUMBER: 07727585 BUSINESS ADDRESS: STREET 1: PO BOX 4383 CITY: STAMFORD STATE: CT ZIP: 06907-0383 BUSINESS PHONE: 2019301800 MAIL ADDRESS: STREET 1: PO BOX 4383 CITY: STAMFORD STATE: CT ZIP: 06907-0383 10-K 1 d71399_10k.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 Commission file number: 001-11497 AUTOINFO, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 13-2867481 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6413 Congress Ave - Suite 260 Boca Raton, Florida 33487 (Address of Principal Executive Offices) Registrant's telephone number, including area code: 561 - 988 - 9456 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, $.001 par value (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes |_| No |X| Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes |_| No |X| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer |_| Accelerated Filer |_| Non-accelerated filer |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2006 was (based upon the closing price on the Nasdaq Over-the-Counter Bulletin Board of $1.19 per share) approximately $14,800,000. The number of shares outstanding of the registrant's common stock, $.001 par value, as of March 20, 2007 was 32,467,000 shares. DOCUMENTS INCORPORATED BY REFERENCE None. AUTOINFO, INC. Annual Report on Form 10-K TABLE OF CONTENTS
Page ---- PART I ................................................................................................... 2 Item 1. Business ..................................................................................... 6 Item 1A. Risk Factors ................................................................................. 10 Item 1B. Unresolved Staff Comments .................................................................... 10 Item 2. Properties ................................................................................... 10 Item 3. Legal Proceedings ............................................................................ 10 Item 4. Submission of Matters to a Vote of Security Holders .......................................... 10 PART II .................................................................................................. 10 Item 5. Market for our Common Equity, Related Stockholder Matters and Purchases of Equity Securities ........................................................... 10 Item 6. Selected Consolidated Financial Data ......................................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 13 Item 7A. Quantitive and Qualitative Disclosures About market Risk ..................................... 20 Item 8. Financial Statements and Supplementary Data .................................................. 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ........ 20 Item 9A. Controls and Procedures ...................................................................... 20 Item 9B. Other Information ............................................................................ 20 PART III ................................................................................................. 21 Item 10. Directors, Executive Officers and Corporate Governance ....................................... 21 Item 11. Executive Compensation ....................................................................... 23 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 30 Item 13. Certain Relationships and Related Transactions, and Director Independence .................... 31 Item 14. Principal Accounting Fees and Services ....................................................... 32 Item 15. Exhibits and Financial Statement Schedules ................................................... 32
FORWARD LOOKING STATEMENT INFORMATION Certain statements made in this Annual Report on Form 10-K are "forward-looking statements "within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth herein under the headings "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." We undertake no obligation to revise or update publicly any forward-looking statements for any reason. PART I Item 1. BUSINESS Overview Through our wholly-owned subsidiary, Sunteck Transport Co., Inc. (Sunteck), we are a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. As a non-asset based provider of brokerage and contract carrier transportation services, we do not own any equipment and our services are provided through our strategic alliances with less than truckload, truckload, air, rail, ocean common carriers and independent owner-operators to service our customers' needs. Our non-asset based services include ground transportation coast to coast, local pick up and delivery. Our business services emphasize safety, information coordination and customer service and are delivered through a network of independent commissioned sales agents and third party capacity providers coordinated by us. The independent commissioned sales agents typically enter into exclusive contractual arrangements with us and are responsible for locating freight and coordinating the transportation of the freight with customers and capacity providers. The third party capacity providers consist of independent contractors who provide truck capacity to us, including owner-operators who operate under our contract carrier license, air cargo carriers and railroads. Through this network of agents and capacity providers, we operate a transportation services business with revenue, net revenue and net income of approximately $84.1 million, $17.7 million and $3.6 million, respectively, during our most recently completed fiscal year. Our brokerage services are provided though a network of independent sales agents throughout the United States and Canada. Our services include arranging for the transport of customers' freight from the shippers location to the designated destination. We do not own any trucking equipment and rely on independent carriers for the movement of customers' freight. We seek to establish long-term relationships with our customers and provide a variety of logistics services and solutions to eliminate inefficiencies in our customers' supply chain management. Our contract carrier services are also provided through a network of independent sales agents and independent owner-operators throughout the United States. We do not own any trucking equipment; our independent owner-operators lease onto our operating authority and transport freight under the Sunteck name. Strategy Our strategy is to continue to expand through affiliations with independent sales agents and through internal expansion. We have been successful at expanding our brokerage sales agent network and now have representatives throughout the United States and Canada. We have also been successful in expanding our contract carrier services. In addition, we have experienced internal expansion as many of our existing agents have expanded their customer base and increased the number of transactions generated. We intend to seek, on a selective basis, acquisition of businesses that have services which complement and expand our existing services, and provide us with strategic distribution locations or attractive customer bases. Our ability to implement our growth strategy will be dependent on our ability to identify and affiliate with these agents on desirable economic terms. 2 Company background AutoInfo, Inc. was organized under the laws of the State of New York in 1976 and reincorporated under the laws of Delaware in 1987. In December 2000, we acquired Sunteck in a merger transaction. The industry Prior to the mid 1980's, the trucking industry was regulated by the Interstate Commerce Commission. Deregulation brought new breath and life to the industry. This also brought with it the problem of how to navigate the transportation highway. Shippers found it difficult to locate carriers and carriers found that it was expensive to find freight. Enter the third party transportation providers-intermediaries (freight brokers, freight forwarders and logistics providers). The third party intermediary connects the shipper and the carrier and helps manage the flow of goods. The present market for freight moved by truck is in excess of $200 billion per year. This is a highly fragmented industry comprised of common carriers, contract carriers, freight forwarders and freight brokers. The actual movement of goods is accomplished by trucking (consisting of local, over the road, truckload, and less than truckload shipments), air freight (time sensitive in nature), rail freight (non time sensitive in nature and usually less expensive than truck) and ocean freight (generally in containerized ships). Other services provided include warehousing and distribution. There are several trends which are relevant to the continued dependency upon and growth of the trucking industry: o Just in time service With new technology and a premium on cost savings, businesses are able to maintain smaller inventories, thereby reducing carrying costs and warehouse space requirements. The impact on the freight industry is more shipments of smaller quantities that are more time sensitive and, therefore, more costly. o Outsourcing Companies have found it to be more cost effective and efficient to eliminate company owned truck fleets and rely upon others to handle their trucking and shipping needs. o Logistics Small to medium size businesses, with less frequent shipping requirements, utilize logistics providers (freight brokers, etc.) to manage all aspects of the transportation, warehousing and delivery needs. The market for third party logistics providers is highly fragmented. It is comprised primarily of full service logistics providers, freight brokers, independent sales agents and sales representatives. Sales agents often work out of home-based offices or small regional sales offices and affiliate themselves with full service brokers to provide back-office services including load dispatching, bonding and licensing, billing, collection and other administrative services. Sales representatives vary from experienced people with years of freight industry experience and established client relationships to telemarketing personnel cold calling shippers and dispatchers. Third party logistics companies provide numerous services to clients on an outsourced basis, by contract and on demand. The continued growth of this industry has created secondary market opportunities to provide low-cost delivery to the endpoint, in addition to supply chain services of warehousing, inventory management and electronic interface with customers and suppliers. Third party logistics companies provide customized domestic and international freight transportation of customers' goods and packages via truck, rail, airplane and ship, and provide warehousing and storage of those goods. Many companies utilize information 3 systems and expertise to reduce inventories, cut transportation costs, speed delivery and improve customer service. The third-party logistics services business has been bolstered in recent years by the competitiveness of the global economy, which causes shippers to focus on reducing handling costs, operating with lower inventories and shortening inventory transit times. Using a network of transportation, handling and storage providers in multiple transportation modes, third-party logistics services companies seek to improve their customers' operating efficiency by reducing their inventory levels and related handling costs. Many third-party logistics service providers are non-asset-based, primarily utilizing physical assets owned by others in multiple transport modes. The third-party logistics services business increasingly relies upon advanced information technology to link the shipper with its inventory and as an analytical tool to optimize transportation solutions. This trend favors the larger, more professionally managed companies that have the resources to support a sophisticated information technology infrastructure. By outsourcing all non-core business services to third party providers, companies can help to control costs, eliminate staff and focus on internal business. Operations and systems In our brokerage services, we processed approximately 50,000 freight orders in 2006 as compared with 43,000 in 2005. Our sales agents throughout the United States and Canada receive customers' freight requirements daily. All agents make appropriate carrier arrangements for the pick-up and timely delivery of customers' freight. In our contract carrier services, we processed approximately 10,000 freight orders in both 2006 and 2005. Our sales agents receive customers' freight requirements daily and, utilizing their respective owner-operators, make appropriate carrier arrangements for the pick-up and timely delivery of customers' freight. In addition, utilizing various sources, including numerous internet based freight posting boards, our agents locate additional freight to maximize utilization of available capacity and minimize deadhead miles, or miles driven generating little or no revenue. A typical owner-operator will generate $2,500 per week in revenues. In the fourth quarter of 2006, we upgraded our driver safety and compliance standards under the direction of a new safety director as part of our effort to improve safety ratings and the quality of our owner operator network. These changes resulted in a short-term reduction in the number of owner operators and corresponding number of transactions in the fourth quarter of 2006. While we expect that this will have a residual impact in the first and second quarters of 2007, we do not anticipate any long-term adverse effect. Our sales agents vary in level of experience from agents with years of freight industry experience and established client relationships to a more limited number of inexperienced telemarketing and operations personnel working under the direct supervision and training of experienced sales agents and dispatchers. We rely exclusively on independent third parties for our hauling capacity. These third party capacity providers consist of our independent owner-operators, unrelated trucking companies, air cargo carriers and railroads. Our use of capacity provided by our independent owner-operators, and other third party capacity providers, allows us to maintain a lower level of capital investment, resulting in lower fixed costs. We utilize a state-of-the-art proprietary internet based order entry system. All agents access our web-based platform and orders are entered into a customized traffic management system which enables us to monitor the status of all orders, generate customer billing and provide detailed transactional reports in our Florida corporate headquarters. We use these reports to monitor customer logistics and transportation usage, track customer and carrier historical data, generate detailed financial and accounting data and provide our customers with details of their supply chain activity. We maintain dual off-site storage and back-up facilities to insure data integrity and safety. 4 Suppliers We use the services of various third party transportation companies. During 2006, no third party provider handled more than 10% of our shipping volume (measured by revenue). Customers We strive to establish long-term customer relationships and, by providing a full range of logistics and supply chain services, we seek to increase our level of business with each customer. We service customers ranging from Fortune 100 companies to small businesses in a variety of industries. During 2006, no customer accounted for more than 10% of our revenues. We typically receive credit applications from all customers, review credit references and perform credit checks to ensure credit worthiness. Sunteck has achieved revenue growth through the addition of independent sales agents, the opening of new operations offices, an increase in the number of customers serviced, and the expansion of the logistics and supply chain services we provide. Each operations office markets our full range of supply chain services to existing customers and pursues new customers within its local markets. We build new customer relationships by exploiting our range of logistics and supply chain services, the traffic lanes we commonly service, carrier relationships and capabilities, our industry specific expertise and our sales agents individual knowledge and experience. Our growth model is focused on adding sales agents in strategic markets. As this agent network is further established and expanded, we believe that significant other opportunities will emerge. Larger sales agents offices often have their own equipment (truck space), which presents the opportunity to maximize available freight and load capacity thereby increasing gross margins above historical levels. In addition, sales representatives will be added to regional operating office sales agent locations to increase market penetration. Since representatives work on a commission basis, this expansion essentially comes at no additional overhead outlay. Significant opportunities for expansion and growth also includes strategic alliances with other service freight broker groups. This strategy will enable us to achieve strong regional penetration into new geographical markets and increase back office capabilities to service the agent network. Competition The transportation industry is highly competitive and highly fragmented. In our brokerage services, our primary competitors are other non-asset based as well as asset based third party logistics companies, freight brokers, carriers offering logistics services and freight forwarders. In our contract carrier services, our competitors are other contract carriers and common carriers. We also compete with customers' and shippers' internal traffic and transportation departments as well as carriers internal sales and marketing departments directly seeking shippers' freight. We generally compete on the basis of price and the range of logistics and supply chain services offered. Government regulation Our industry has long been subject to government legislation and regulation. Over the years, many changes in these laws and regulations have affected the industry and caused changes in the operating practices and the cost of providing transportation services. We cannot predict what effect, if any, legislative and regulatory changes may have on the industry in the future. 5 We are licensed by the United States Department of Transportation (DOT) as a broker arranging the movement of materials by motor carrier. In this capacity, we are required to meet certain qualifications to enable us to conduct business, which includes the compliance with certain surety bond requirements. We are also licensed by the DOT as a contract carrier arranging the movement of materials by motor carrier. In this capacity, we are required to meet certain qualifications to enable us to conduct business, which includes the maintenance of $1,000,000 of general liability insurance and $100,000 of cargo insurance. If we fail to comply with, or lose, any required licenses, governmental regulators could assess penalties or issue a cease and desist order against our operations that are not in compliance. Risk and liability In our brokerage services, we do not assume liability for loss or damage to freight; we act as the shipper's agent and arrange for a carrier to handle the freight. Therefore, we do not take possession of the shipper's freight and, accordingly, we are not liable for the carrier's negligence or failure to perform. We do assist our customers in the processing and collection of any claim. The Federal Highway Administration requires us to maintain a surety bond of $10,000, which is intended to show our financial responsibility and provide surety for the arrangements with shippers and carriers. In addition, we maintain $100,000 of contingent cargo liability insurance. In our contract carrier services business, we are liable for loss or damage to our customers' freight. We maintain cargo liability insurance coverage with a policy limit of $100,000 per occurrence. We have not incurred any material losses to date. Any such losses in excess of insurance limits would be accounted for as incurred for financial reporting purposes. Employees As of March 14, 2007, we had 45 full-time employees. None of our employees are represented by a labor union and we believe that our relationship with our employees is good. Available Information Our website address is www.suntecktransport.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Forms 3, 4 and 5, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC). The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers such as us that file electronically with the SEC. The website address is www.sec.gov. Item 1A. RISK FACTORS In addition to the other information provided in this report, you should carefully consider the following factors in evaluating our business, operations and financial condition. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, such as competitive conditions, may also impair our business operations. 6 The occurrence of any of the following risks could have a material adverse effect on our business, financial condition and results of operations. We are dependent upon independent commissioned sales agents who have direct relationships with our customers. A substantial portion of our business is originated by our network of independent sales agents. Most of these sales agents work with us on an exclusive basis. We do not have non-compete or non-solicitation agreements with these agents. These contracts are typically terminable upon 10 to 30 days notice by either party and do not restrict the ability of a former agent to compete with Sunteck following termination. As a result, if sales representatives terminate their affiliation with us, our revenue and results of operations could be adversely affected. We are dependent on third party capacity providers. We do not own trucks or other transportation equipment and rely on third party capacity providers, including independent owner operators, unrelated trucking companies, railroads and air cargo carriers to transport freight for our customers. We compete with motor carriers and other third parties for the services of independent owner operators and other third party capacity providers. A significant decrease in available capacity provided by either our independent owner operators or other third party capacity providers could have a material adverse effect on our results of operations and revenue. Decreased demand for transportation services could adversely affect our operating results. The transportation industry historically has experienced cyclical financial results as a result of slowdowns in economic activity, the business cycles of customers, price increases by capacity providers, interest rate fluctuations, and other economic factors beyond our control. Certain of our third party capacity providers can be expected to charge higher prices to cover increased operating expenses, and our operating income may decline if we are unable to pass through to our customers the full amount of these higher transportation costs. If a slowdown in economic activity or a downturn in our customers' business cycles causes a reduction in the volume of freight shipped by those customers, our operating results could be materially adversely affected. We have limited marketing and sales capabilities and must make sales in fragmented markets. Our future success depends, to a great extent, on our ability to successfully market our services through our network of independent agents. Our sales and marketing capabilities are more limited than many of our competitors who have captive internal sales forces and greater financial resources than us. We cannot assure you that any marketing and sales efforts undertaken on our behalf will be successful or will result in any significant sales. Our industry is intensely competitive, which may adversely affect our operations and financial results. All our markets are intensely competitive and numerous companies offer services that compete with our services. We anticipate that competition for our services will continue to increase. Many of our competitors have substantially greater capital resources, sales and marketing resources and experience. We cannot assure you that we will be able to effectively compete with our competitors in effecting our business expansion plans. We depend on the continued services of our president. Our future success depends, in part, on the continuing efforts of our president, Harry Wachtel, who conceived our strategic plan and who is responsible for executing that plan. The loss of Mr. Wachtel would 7 adversely affect our business. At this time we do not have any term "key man" insurance on Mr. Wachtel. If we lose the services of Mr. Wachtel, our business, operations, and financial condition would be materially adversely affected. We must attract and retain qualified personnel. As we implement our business growth strategy, significant demands will be placed on our managerial, financial and other resources. One of the keys to our future success will be our ability to attract and retain highly qualified marketing, sales and administrative personnel. Competition for qualified personnel in these areas is intense and we will be competing for their services with companies that have substantially greater resources than we do. We cannot assure you that we will be able to identify, attract and retain personnel with skills and experience necessary and relevant to the future operations of our business. Our inability to retain or attract qualified personnel in these areas could have a material adverse effect on our business and results of operations. We may require additional financing in the future, which may not be available on acceptable terms. Depending on our ability to generate revenues, we may require additional funds to expand our business operations and for working capital and general corporate purposes. Any additional equity financing may be dilutive to stockholders, and debt financings may involve restrictive covenants that limit our ability to make decisions that we believe will be in our best interests. In the event we cannot obtain additional financing on terms acceptable to us when required, our ability to expand operations may be materially adversely affected. Our principal stockholders have substantial control over our affairs. As of March 14, 2007, our president, Harry Wachtel, owned approximately 15.4% of the issued and outstanding shares of our common stock. Further, James T. Martin and Kinderhook Partners, LP, two significant stockholders, owned approximately 19.3% and 18.6%, respectively, of the issued and outstanding shares of our common stock. As a result, either Mr. Wachtel, Mr. Martin or Kinderhook Partners, LP could assert control over our affairs, including the election of directors and any proposals regarding a sale of the company or its assets or a merger. In addition, this concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination which you, as a stockholder, may otherwise view favorably. Our stock price is volatile and could be further affected by events not within our control. The market price of our common stock has historically experienced and may continue to experience significant volatility. For the 52-week period ended March 12, 2007 , our closing stock price has ranged from $1.91 to $0.56. On March 13, 2007, our closing stock price was $1.01. The trading price of our common stock has been volatile and will continue to be subject to: o volatility in the trading markets generally; o significant fluctuations in our quarterly operating results; and o announcements regarding our business or the business of our competitors. Statements or changes in opinions, ratings or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we operate or expect to operate could also have an adverse effect on the market price of our common stock. In addition, the stock market as a whole has from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for the 8 securities of many small-cap companies and which often have been unrelated to the operating performance of these companies. The price of our common stock may be adversely affected by the possible issuance of shares of our common stock as a result of the exercise of outstanding options. We have granted options covering approximately 11.3 million shares of our common stock. As a result of the actual or potential sale of these shares into the market, our common stock price may decrease. Future sales of our common stock may adversely affect our common stock price. If our stockholders sell a large number of shares of common stock or if we issue a large number of shares in connection with future acquisitions or financings, the market price of our common stock could decline significantly. In addition, the perception in the public market that our stockholders might sell a large number of shares of common stock could cause a decline in the market price of our common stock. Some provisions in our charter documents and bylaws may have anti-takeover effects. Our certificate of incorporation and bylaws contain provisions that may make it more difficult for a third party to acquire us, with the result that it may deter potential suitors. For example, our board of directors is authorized, without action of the stockholders, to issue authorized but unissued common and preferred stock. The existence of authorized but unissued common and preferred stock enables us to discourage or to make it more difficult to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. We have agreed to limitations on the potential liability of our directors. Our certificate of incorporation provides that, in general, directors will not be personally liable for monetary damages to the company or our stockholders for a breach of fiduciary duty. Although this limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission, the presence of these provisions in the certificate of incorporation could prevent us from recovering monetary damages. Liquidity on the Nasdaq OTC Bulletin Board is limited, and we may be unable to obtain listing of our common stock on a more liquid market. Our common stock is quoted on the Nasdaq OTC Bulletin Board, which provides significantly less liquidity than a securities exchange (such as the American or New York Stock Exchange) or an automated quotation system (such as the Nasdaq World or Capital Market). We do not currently meet the minimum trading price requirement for listing on the Nasdaq Capital Market or the American Stock Exchange. There is uncertainty that we will ever be accepted for a listing on an automated quotation system or securities exchange. Our common stock has been thinly traded, and the public market may provide little or no liquidity for holders of our common stock. Purchasers of shares of our common stock may find it difficult to resell their shares at prices quoted in the market or at all. There is currently a limited volume of trading in our common stock, and on many days there has been no trading activity at all. Due to the historically low trading price of our common stock, many brokerage firms may be unwilling to effect transactions in our common stock, particularly because low-priced securities are subject to an SEC rule that imposes additional sales practice requirements on broker-dealers who sell low-priced securities (generally those below $5.00 per share). We cannot predict when or whether investor interest in our common stock might lead to an increase in its market price or the development of a more active trading market or how liquid that market might become. 9 Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES We lease approximately 5,300 square feet of space for our executive offices and the headquarters of Sunteck at 6413 Congress Avenue, Boca Raton, Florida. This lease runs through April 2010 and provides for aggregate rent payments of $61,000 for the thirteen months ending March 2007, $65,000 for the thirteen months ending April 2008, $68,000 for the twelve months ending April 2009 and $71,000 for the twelve months ending April 2010. We lease 1,100 square feet for our operating office at 315 Main Street, Pineville, North Carolina. The lease runs through February 2008 and provides for an annual rental of $13,000. Item 3. LEGAL PROCEEDINGS We are not a party to any material legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES Our common stock is not listed on any stock exchange. Our common stock is traded on the Nasdaq Over-the-Counter Bulletin Board ("OTCBB") under the symbol "Auto." The following table sets forth the high and low bid information for our common stock for each quarter within the last two fiscal years, as reported by the OTCBB. The bid information reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. Year Ended December 31, 2006 High Low ----------------------------------- ------------ ------------ First quarter $0.90 $0.55 Second quarter 1.33 0.76 Third quarter 1.91 0.99 Fourth quarter 1.17 0.98 Year Ended December 31, 2005 High Low ----------------------------------- ------------ ------------ First quarter $0.74 $0.43 Second quarter 0.60 0.40 Third quarter 0.62 0.45 Fourth quarter 0.60 0.42 10 As of March 22 2007 the closing bid price per share for our common stock, as reported on the OTCBB was $ 1.01. As of March 22, 2007 we had approximately 1,000 beneficial stockholders. Dividend policy We have never declared or paid a cash dividend on our common stock. It has been the policy of our board of directors to retain all available funds to finance the development and growth of our business. The payment of cash dividends in the future will be dependent upon our earnings and financial requirements and other factors deemed relevant by our board of directors. COMPANY PERFORMANCE AND COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN AMONG AUTOINFO, INC., THE NASDAQ COMPOSITE INDEX, AND THE DOW JONES TRANSPORTATION INDEX The following graph shows a five year comparison of cumulative total returns for AutoInfo, the Nasdaq Composite Index, and the Nasdaq Transportation Index. [THE DATA BELOW REPRESENTS A LINE CHART IN THE PRINTED REPORT] DOW JONES NASDAQ COMPOSITE INDEX TRANSPORTATION INDEX AUTOINFO, INC. 2001 1.00 1.00 1.00 2002 0.68 0.87 1.58 2003 1.03 1.14 2.42 2004 1.12 1.44 5.08 2005 1.13 1.59 4.83 2006 1.24 1.73 8.50 11 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The following is a summary of our selected consolidated financial data for the years ended December 31, 2006, 2005, 2004, 2003, and 2002. The financial data has been derived from our audited consolidated financial statements and accompanying notes. The selected financial data set forth below should be read together with, and are qualified by reference to, the "Management's Discussion and Analysis of Financial condition and Results of Operations" section of this report and our audited consolidated financial statements and accompanying notes included elsewhere in this report.
000's omitted, except for per share data Year ended December 31, -------------------------------------------------------------- 2006 2005 2004 2003 2002 ---------- ---------- ---------- ---------- ---------- Statement of Operations Data: - ----------------------------------------- Gross revenues $ 84,111 $ 68,040 $ 46,492 $ 27,171 $ 18,863 Net revenues (1) 17,743 13,554 8,734 5,076 3,368 Net income $ 3,628 $ 3,608 $ 1,466 $ 1,300 $ 340 Net income per share (2) Basic $ .11 $ .11 $ .05 $ .05 $ .01 Diluted $ .10 $ .11 $ .04 $ .05 $ .01
(1) Net revenues are determined by deducting cost of transportation from gross revenues. See Management's Discussion and Analysis of Financial Condition and Results of Operations. (2) The common stock equivalents for the year ended December 31, 2006, 2005, 2004, 2003 and 2002 were 4,090,000, 2,400,000, 2,523,000, 1,434,000 and 635,000, respectively.
000's omitted As at December 31, -------------------------------------------------------------- 2006 2005 2004 2003 2002 ---------- ---------- ---------- ---------- ---------- Balance Sheet Data: - ----------------------------------------- Cash and cash equivalents $ 146 $ 419 $ 38 $ 133 $ 684 Accounts receivable, net 16,967 12,735 9,658 4,881 2,996 Total assets 23,822 16,646 11,795 6,286 3,944 Total liabilities 11,826 8,515 7,383 4,394 3,356 Deficit (7,456) (11,084) (14,692) (16,158) (17,458) Stockholders' equity 11,996 8,131 4,412 1,892 588
12 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary statement identifying important factors that could cause our actual results to differ from those projected in forward looking statements. Readers of this report are advised that this document contains both statements of historical facts and forward looking statements. Forward looking statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those indicated by the forward looking statements. Examples of forward looking statements include, but are not limited to (i) projections of revenues, income or loss, earnings per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of our plans and objectives with respect to business transactions and enhancement of shareholder value, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about our business prospects. This report also identifies important factors, which could cause actual results to differ materially from those indicated by the forward looking statements. These risks and uncertainties include the factors discussed under the heading "Risk Factors" beginning at page 6 of this report. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and the notes thereto appearing elsewhere in this report. Overview Through our wholly-owned subsidiary, Sunteck Transport Co., Inc. (Sunteck), we are a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. As a non-asset based provider of brokerage and contract carrier transportation services, we do not own any equipment and our services are provided through our strategic alliances with less than truckload, truckload, air, rail, ocean common carriers and independent owner-operators to service our customers' needs. Our non-asset based services include ground transportation coast to coast, local pick up and delivery, air freight and ocean freight. Our business services emphasize safety, information coordination and customer service and are delivered through a network of independent commissioned sales agents and third party capacity providers coordinated by us. The independent commissioned sales agents typically enter into exclusive contractual arrangements with us and are responsible for locating freight and coordinating the transportation of the freight with customers and capacity providers. The third party capacity providers consist of independent contractors who provide truck capacity to us, including owner-operators who operate under our contract carrier license, air cargo carriers and railroads. Through this network of agents and capacity providers, we operate a transportation services business with revenue, net revenue and net income of approximately $84.1 million, $17.7 million and $3.6 million, respectively, during our most recently completed fiscal year. Our brokerage services are provided though a network of independent sales agents throughout the United States and Canada. Our services include arranging for the transport of customers' freight from the shippers location to the designated destination. We do not own any trucking equipment and rely on independent carriers for the movement of customers' freight. We seek to establish long-term relationships with our customers and provide a variety of logistics services and solutions to eliminate inefficiencies in our customers' supply chain management. 13 Our contract carrier services are also provided through a network of independent sales agents and independent owner-operators throughout the United States. We do no own any trucking equipment; our independent owner-operators lease onto our operating authority and transport freight under the Sunteck name. The most significant factors in our growth during the past two years have been internal growth experienced by our existing agents and the expansion of our brokerage services agent, contract carrier services agent and owner-operator networks. This growth is readily measured by the number of transactions we have processed, which increased from 43,300 in 2004 to 53,300 in 2005 and to 60,300 is 2006, an increase of 23% from 2004 to 2005 and 13% from 2005 to 2006. The average revenue dollar per load in our broker division also increased by 22% in 2005 as compared to 2004 and by 9% in 2006 as compared to 2005. This is the result of several factors including an increase in truckload business versus less than truckload at higher per load revenues, the addition of sales agents hauling heavy equipment at higher per load revenues, an increase in long-haul versus short-haul volume and, to a lesser degree, a general increase in prices. During the next twelve months, we plan to continue to offer our brokerage and contract carrier transportation services and expand our agent network. We are presently profitable and have adequate available lines of credit to satisfy our working capital requirements during the next twelve months. Results of operations Comparison of 2006 vs 2005 During the year ended December 31, 2006, we continued to implement our strategic growth business plan consisting primarily of the expansion of client services, the opening of regional operations centers in key geographical markets and the addition of independent sales agents providing brokerage and contract carrier services. Our net revenues (gross revenues less cost of transportation) are the primary indicator of our ability to source, add value and resell services that are provided by third parties and are considered to be the primary measurement of growth. Therefore, the discussion of the results of operations below focuses on the changes in our net revenues. The increases in net revenues and all related cost and expense categories are the direct result of our business expansion. The following table represents certain statement of operation data as a percentage of net revenues: 2006 2005 ------------ ------------ Net revenues 100.0% 100.0% Commissions 62.3% 61.6% Operating expenses 21.6% 22.2% Interest expense .6% .4% Income taxes (benefit) (5.0)% (10.8)% Net income 20.5% 26.6% Revenues Gross revenues, consisting of freight fees and other related services revenue, totaled $84,111,000 for the year ended December 31, 2006, as compared with $68,040,000 in the prior year, an increase of 24%. Net revenues were $17,743,000 for the year ended December 31, 2006, as compared with $13,554,000 in the prior year, an increase of 31%. 14 Gross revenues from brokerage services increased to $73,036,000 from $58,150,000 and net revenues increased to $15,997,000 from $11,887,000 in the prior year. This increase is the direct result of the continued expansion of our agent network and customer base which resulted in a 17% increase in the number of transactions processed and a 8% increase in the average dollar amount per load. Gross revenues from contract carrier services increased to $11,075,000 from $9,890,000 and net revenues increased to $1,746,000 from $1,667,000 in the prior year. Gross revenues increased approximately 12% for the year. However, there were fluctuations during the year in the number of agents and owner-operators due to the termination of agents and the addition of new agents. As a result of these fluctuations, gross revenues during the first quarter of 2006 increased by 94% over the corresponding 2005 period and decreased 9%, 17% and 6% for the second, third and fourth quarters, respectively, as compared to the corresponding quarters of 2005. In the fourth quarter of 2006, we upgraded our driver safety and compliance standards under the direction of a new safety director as part of our effort to improve safety ratings and the quality of our owner operator network. These changes resulted in a short-term reduction in the number of owner operators and corresponding number of transactions in the fourth quarter of 2006. While we expect that this will have a residual impact in the first and second quarters of 2007, we do not anticipate any long-term adverse effect. Costs and expenses Commissions totaled $11,044,000 for the year ended December 31, 2006, as compared with $8,348,000 in the prior year, an increase of 32%. This increase is the direct result of the continued expansion of our agent network and customer base. As a percentage of net revenues, commissions were 62.3% for the year ended December 31, 2006 as compared with 61.6% in the prior year. This increase is the direct result of the expansion of our agent network at higher commission rates, additional bonuses earned after certain monthly benchmarks are achieved, stock based compensation expense, and cost associated with the new agent additions. Operating expenses totaled $3,840,000 for the year ended December 31, 2006, as compared with $3,005,000 in the prior year. As a percentage of net revenues, operating expenses were 21.6% for the year ended December 31, 2006 as compared with 22.2% in the prior year. This decrease is the direct result of our ability to leverage selling, general and administrative expenses in connection with business expansion. We have increased administrative staff commensurate with the increase in transaction volume. In February 2005, we moved our headquarters increasing our space to 5,300 square feet. We presently have adequate facilities and management to handle the present and anticipated transaction volume in 2007 without a significant increase in overhead. Interest expense was $113,000 for the year ended December 31, 2006 as compared with $56,000 in the prior year. This increase is primarily the result of increased average borrowings and the increase in the prime lending rate from 5.25% at the beginning of 2005 to 8.25% by July 2006. As of September 2006, our line of credit facility is at a interest rate of LIBOR plus 2%, or approximately 7.3% for the period from September through December 2006. Income tax The income tax benefit of $882,000 for the year ended December 31, 2006 consisted of a benefit of $1,965,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of the utilization of the deferred tax benefit of $925,000 and state income taxes of $158,000. The income tax benefit of $1,463,000 for the year ended December 31, 2005 consisted of a benefit of $2,304,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of the utilization of the deferred tax benefit of $718,000 and state income taxes of $123,000. Based upon available objective evidence, including our post-merger history of profitability, we believe that it is more likely than not that forecasted 15 taxable income will be sufficient to utilize all of the net operating loss carryforward before its expiration in 2014. Accordingly, in 2006 the valuation allowance was reduced by $1,965,000. Comparison of 2005 vs 2004 During the year ended December 31, 2005, we continued to implement our strategic growth business plan consisting primarily of the expansion of client services, the opening of regional operations centers in key geographical markets and the addition of independent sales agents providing brokerage and contract carrier services. Our net revenues (gross revenues less cost of transportation) are the primary indicator of our ability to source, add value and resell services that are provided by third parties and are considered to be the primary measurement of growth. Therefore, the discussion of the results of operations below focuses on the changes in our net revenues. The increases in net revenues and all related cost and expense categories are the direct result of our business expansion. The following table represents certain statement of operation data as a percentage of net revenues: 2005 2004 --------------- -------------- Net revenues 100.0% 100.0% Commissions 61.6% 59.3% Operating expenses 22.2% 28.8% Interest expense .4% .6% Income taxes (benefit) (10.8)% (5.5)% Net income 26.6% 16.8% Revenues Gross revenues, consisting of freight fees and other related services revenue, totaled $68,040,000 for the year ended December 31, 2005, as compared with $46,492,000 in the prior year, an increase of 46%. Net revenues were $13,554,000 for the year ended December 31, 2005, as compared with $8,734,000 in the prior year, an increase of 55%. Gross revenues from brokerage services increased to $58,150,000 from $36,931,000 and net revenues increased to $11,887,000 from $7,032,000 in the prior year. This increase is the direct result of the continued expansion of our agent network and customer base which resulted in a 29% increase in the number of transactions processed and a 22% increase in the average dollar amount per load. Gross revenues from contract carrier services increased to $9,890,000 from $9,561,000 and net revenues decreased to $1,667,000 from 1,702,000 in the prior year. Gross revenues increased approximately 3% for the year. However, there were fluctuations during the year in the number of agents and owner-operators due to the termination of agents and the addition of new agents. As a result of these fluctuations, gross revenues during the first quarter of 2005 increased by 94% over the corresponding 2004 period and decreased 9%, 17% and 6% for the second, third and fourth quarters, respectively, as compared to the corresponding quarters of 2004. The decrease in net revenues is primarily the result of higher fuel costs and an increase in fuel service and detention charges which are passed directly through to our owner operators, thereby reducing net revenues as a percentage of gross revenues. 16 Costs and expenses Commissions totaled $8,348,000 for the year ended December 31, 2005, as compared with $5,179,000 in the prior year, an increase of 61%. This increase is the direct result of the continued expansion of our agent network and customer base. As a percentage of net revenues, commissions were 62% for the year ended December 31, 2005 as compared with 59% in the prior year. This increase is the direct result of the expansion of our agent network at higher commission rates and additional bonuses earned after certain monthly benchmarks are achieved. Operating expenses totaled $3,005,000 for the year ended December 31, 2005, as compared with $2,519,000 in the prior year. As a percentage of net revenues, operating expenses were 22% for the year ended December 31, 2005 as compared with 29% in the prior year. This decrease is the direct result of our ability to leverage selling, general and administrative expenses in connection with business expansion. Interest expense was $56,000 for the year ended December 31, 2005 as compared with $50,000 in the prior year. This increase is primarily the result of increased average borrowings and the increase in the prime lending rate from 4% at the beginning of 2004 to 7.25% by the end of 2005. Income tax The income tax benefit of $1,463,000 for the year ended December 31, 2005 consisted of a benefit of $2,304,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of the utilization of the deferred tax benefit of $718,000 and state income taxes of $123,000. The income tax benefit of $480,000 for the year ended December 31, 2004 consisted of a benefit of $873,000 resulting from the anticipated future utilization of an available federal tax loss carryforward, net of the utilization of the deferred tax benefit of $336,000 and state income taxes of $57,000. Based upon available objective evidence, including our post-merger history of profitability, we believe that it is more likely than not that forecasted taxable income will be sufficient to utilize a portion of the net operating loss carryforward before its expiration in 2014. Accordingly, in 2005 the valuation allowance was reduced by $2,304,000. Trends and uncertainties The transportation industry is highly competitive and highly fragmented. In our brokerage services, our primary competitors are other non-asset based as well as asset based third party logistics companies, freight brokers, carriers offering logistics services and freight forwarders. In our contract carrier services, our competitors are other contract carriers and common carriers. We also compete with customers' and shippers' internal traffic and transportation departments as well as carriers internal sales and marketing departments directly seeking shippers' freight. We anticipate that competition for our services will continue to increase. Many of our competitors have substantially greater capital resources, sales and marketing resources and experience. We cannot assure you that we will be able to effectively compete with our competitors in effecting our business expansion plans. The most significant trend contributing to our growth during the past two years has been the expansion of our brokerage services agent network and contract carrier agent and owner operator network. Sales agents are independent contractors and, as such, there are no assurances that we can either maintain our existing agent network or continue to expand this network. For the year ended December 31, 2006, we increased gross revenues from $68.0 million to $84.1 million and had net income of $3,628,000 as compared with $3,608,000 in the prior year. As of December 31, 2006, we had an accumulated deficit of $7.5 million compared to $11.1 million at December 31, 2005. Factors that could adversely affect our operating results include: 17 o the success of Sunteck in expanding its business operations; and o changes in general economic conditions. Depending on our ability to generate revenues, we may require additional funds to expand our business operations and for working capital and general corporate purposes. Any additional equity financing may be dilutive to stockholders, and debt financings may involve restrictive covenants that further limit our ability to make decisions that we believe will be in our best interests. In the event we cannot obtain additional financing on terms acceptable to us when required, our ability to expand our operations may be materially adversely affected. Liquidity and capital resources During the past two years, our sources for cash have been cash flow generated from operations and available borrowings under lines of credit. At December 31, 2006, we had a balance outstanding of $3,451,000 under our $4,000,000 line of credit. The line of credit is subject to the maintenance of certain financial covenants, is secured by accounts receivable and other operating assets, and matures in June 2008. We believe that we have sufficient working capital to meet our short-term operating needs and that we will be able to increase, extend or replace the line of credit on terms acceptable to us. At December 31, 2006, we had liquid assets of approximately $146,000. Available cash is used to reduce borrowings on our line of credit. The total amount of debt outstanding at December 31, 2006 and 2005 was $3,451,000 and $1,280,000, respectively. The following table presents our debt instruments and their weighted average interest rates at December 31, 2006 and 2005, respectively: Weighted Weighted Average Average Balance Rate Balance Rate ------------------------------------------------- 2006 2005 ------------------------------------------------- Line of Credit $3,451,000 7.3% $1,280,000 6.4% Inflation and changing prices had no material impact on our revenues or the results of operations for the year ended December 31, 2006. Critical Accounting Policies Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Note 1 of the Notes to Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our financial statements. The most significant areas involving our estimates and assumptions are described below. Actual results could differ materially from our estimates under different assumptions or conditions. 18 Revenue Recognition As a third party transportation logistics provider, we act as the shippers' agent and arrange for a carrier to handle the freight. Gross revenues consist of the total dollar value of services purchased by shippers. Revenue is recognized upon the delivery of freight, at which time the related transportation cost, including commission, is also recognized. At that time, our obligations are completed and collection of receivables is reasonably assured. Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for recognizing revenues on a gross or net basis. We are the primary obligor in our transactions, have all credit risk, maintain substantially all risk and rewards, have discretion in selecting the supplier, and latitude in pricing decisions. Accordingly, we record all transactions at the gross amount, consistent with the provisions of EITF 99-19. Income Taxes The deferred tax asset represents expected future tax savings resulting from our net operating loss carryforward. As of December 31, 2006, we had a net operating loss carryforward of approximately $11.6 million for federal income tax purposes which expire through 2014. Utilization of this benefit is primarily subject to the extent of our future earnings, and may be limited by, among other things, stockholder changes, including the possible issuance of additional shares in one or more financing or acquisition transactions. As of December, 2006, we have eliminated any valuation allowance for the future tax savings as management believes it is more likely than not that they will be realized by the end of the carryforward period. Provision For Doubtful Accounts We continuously monitor the creditworthiness of our customers and have established an allowance for amounts that may become uncollectible in the future based on current economic trends, our historical payment and bad debt write-off experience, and any specific customer related collection issues. Recently Issued Accounting Standards In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires the recognition of a tax position when it is more likely than not that the tax position will be sustained upon examination by taxing authorities, based upon the technical merits of the position. The provisions of FIN 48 are effective for us on January 1, 2007. We do not expect the adoption of FIN 48 to have a material impact on our financial statements. In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" (SFAS 157), which provides guidance for using fair value to measure assets and liabilities. SFAS 157 defines fair value and establishes a framework for measuring fair value; however, SFAS 157 does not expand the use of fair value in any new circumstances. The provisions of SFAS 157 are effective for us on January 1, 2008. We do not expect the adoption of SFAS 157 to have a material impact on our financial statements. Off-balance Sheet Arrangements We do not have any off-balance sheet arrangements. 19 Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2006:
- ----------------------------------------------------------------------------------------- Payments due by period - ----------------------------------------------------------------------------------------- Contractual Obligations Total Less than 1 1-3 years 3-5 More than 5 year years years - ----------------------------------------------------------------------------------------- Operating Lease Obligations $ 235,000 $ 59,000 $ 176,000 -- -- - ----------------------------------------------------------------------------------------- Line of Credit 3,451,000 $ 3,451,000 -- -- -- - ----------------------------------------------------------------------------------------- Total $ 3,686,000 $ 3,510,000 $ 176,000 -- -- - -----------------------------------------------------------------------------------------
Item 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. Item 8. FINANCIAL STATEMENTS The response to this item is submitted as a separate section of this report beginning on page F-1. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. Item 9A. CONTROLS AND PROCEDURES Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms; and (ii) accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. OTHER INFORMATION None. 20 PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth the names, ages and positions of our directors and executive officers:
Name Age Position - ---- --- -------- Peter C. Einselen 67 Director Thomas C. Robertson 61 Director Harry Wachtel 48 President, chief executive officer and director Mark Weiss 47 National account executive and director William Wunderlich 59 Chief financial officer Michael P. Williams 40 Chief operating officer and general counsel
PETER C. EINSELEN has been a director since January 1999. Mr. Einselen has been an account executive since 1990 and served as senior vice president from 1990 to 2001 of Anderson & Strudwick, a brokerage firm. From 1983 to 1990, Mr. Einselen was employed by Scott and Stringfellow, Incorporated, a brokerage firm. THOMAS C. ROBERTSON has been a director since January 1999. Mr. Robertson has been senior vice president since 2004 and was president and chief financial officer from 1988 to 2004 and a director from 1988 to 2005 of Anderson & Strudwick, a brokerage firm. Mr. Robertson has been president of Gardner & Robertson, a money management firm, since 1997. HARRY WACHTEL joined us in conjunction with the acquisition of Sunteck and has been a director, and our president and chief executive officer since December 7, 2000. Since 1997, he has been president of Sunteck. From 1992 to 1997, he served as vice president of sales and marketing for Pioneer Services, Inc., a third party, non-asset based transportation logistics provider. MARK WEISS joined us in conjunction with the acquisition of Sunteck and has been a director since December 7, 2000. Since 1997, he has been employed by Sunteck as a national account executive. From 1994 to 1997 he served as a national account executive for Pioneer Services, Inc., a third party, non-asset based transportation logistics provider. Mr. Weiss is the brother-in-law of Mr. Wunderlich, our executive vice president and chief financial officer. WILLIAM WUNDERLICH joined us in October 1992 as our vice president - finance, became chief financial officer in January 1993, president in January 1999 and, in conjunction with the acquisition of Sunteck, became executive vice president in December 2000. From 1990 to 1992, he served as vice president of Goldstein Affiliates, Inc., a public adjusting company. From 1981 to 1990, he served as executive vice president, chief financial officer and a director of Novo Corporation, a manufacturer of consumer products. Mr. Wunderlich is a Certified Public Accountant with a B.A. degree in Accounting and Economics from the City University of New York at Queens College. Mr. Wunderlich is the brother-in-law of Mr. Weiss, one of our directors. MICHAEL P. WILLIAMS joined us in January 2007 as our chief operating officer and general counsel. From 2002 to 2006, Mr. Williams served as general counsel and vice president of legal and business affairs for Vexure, Inc., a logistics company. Prior to that, from 1999 to 2002, Mr. Williams also served as general counsel and vice president of legal and business affairs for Stonier Transportation Group, Inc., a trucking and brokerage company. During his tenure with Stonier and Vexure, Mr. Williams gained experience handling customer and vendor contract negotiations, risk management strategies, human resources and assets 21 management, and transportation and employment litigation matters. Mr. Williams received his juris doctor cum laude from Thomas Cooley Law School, Lansing, Michigan and his masters degree (LL.M.) in taxation from the University of Florida, Gainesville. He has been a member of the Florida Bar since 1995. Committees of the Board of Directors Our board of directors has an audit committee and a compensation committee. The audit committee reviews the scope and results of the audit and other services provided by our independent accountants and our internal controls. The compensation committee is responsible for the approval of compensation arrangements for our officers and the review of our compensation plans and policies. Each committee is comprised of Messrs. Einselen and Robertson, our non-employee independent outside directors. Audit Committee Matters Under its charter, the audit committee must pre-approve all engagements of our independent auditor unless an exception to such pre-approval exists under the Exchange Act or the rules of the Securities and Exchange Commission (SEC). Each year, the independent auditor's retention to audit our financial statements, including the associated fee, is approved by the committee before the filing of the preceding year's annual report on Form 10-K. At the beginning of the fiscal year, the audit committee will evaluate other known potential engagements of the independent auditor, including the scope of the work proposed to be performed and the proposed fees, and approve or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor's independence from management. At each subsequent committee meeting, the committee will receive updates on the services actually provided by the independent auditor, and management may present additional services for approval. Typically, these would be services such as due diligence for an acquisition that would not have been known at the beginning of the year Since the May 6, 2003 effective date of the SEC rules stating that an auditor is not independent of an audit client if the services it provides to the client are not appropriately approved, each new engagement of Dworken, Hillman, LaMorte & Sterczala, P.C. was approved in advance by the audit committee, and none of those engagements made use of the de minimus exception to pre-approval contained in the SEC's rules. Our board has determined that the chairman of the audit committee, Mr. Robertson, is an "audit committee financial expert," as that term is defined in Item 407(d)(5) of Regulation S-K, and "independent" for purposes of current and recently-adopted Nasdaq listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. Code of Ethics We have adopted a code of ethics that applies to our principal executive officer, principal financial officer and other persons performing similar functions. This code of ethics is posted on our website at www.suntecktransport.com. Section 16(a) beneficial ownership reporting compliance Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten-percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the 22 copies of such forms furnished to us, or written representations that no Forms 5 were required, we believe that all Section 16(a) filing requirements applicable to our officers and directors were complied with during 2006. Item 11. EXECUTIVE COMPENSATION Compensation Discussion and Analysis We provide what we believe is a competitive total compensation package to our executive management team through a combination of base salary, annual cash and equity incentives and the right to participate in our broad-based benefits program. We place significant emphasis on incentive compensation directly related to our financial performance. This Compensation Discussion and Analysis explains our compensation philosophy, policies and practices with respect to our named executive officers which includes our chief executive officer, chief financial officer, and our national account executive. The Objectives of our Executive Compensation Program Our compensation committee is responsible for establishing and administering our policies governing the compensation for all of our executive officers. The compensation committee is composed entirely of non-employee independent directors. See "Committees of the Board of Directors" above. The purpose of our executive compensation program is to attract, retain and motivate qualified executives to manage our business so as to maximize profits and stockholder value. Executive compensation in the aggregate is made up principally of the executive's annual base salary, a bonus based upon operating earnings, a discretionary bonus which may be awarded by our compensation committee and awards of stock or stock options under our Stock Option Plans. Our compensation committee annually considers and makes recommendations to our board of directors as to executive compensation including changes in base salary, bonuses and awards of our stock or stock options. Consistent with the above-noted purpose of the executive compensation program, in recommending the aggregate annual compensation of our executive officers, our compensation committee considers our overall performance and the individual contribution and performance of the executive with our overall performance being the more significant factor. While stockholders' total return is important and is considered by the compensation committee, it is subject to the vagaries of the public market place. Our executive compensation program focuses on our strategic plans, corporate performance measures, and specific corporate goals which should lead to a favorable stock price. The corporate performance measure which our compensation committee considers include sales, earnings, return on equity and comparisons of sales and earnings with prior years and with budgets. Our compensation committee does not rely on any fixed formulae or specific numerical criteria in determining an executive's aggregate compensation. It considers corporate and personal performance criteria, competitive compensation levels, the economic environment and changes in the cost of living as well as the recommendations of management. Our compensation committee then exercises business judgment based on all of these criteria and the purposes of the executive compensation program. 23 The Elements of Our Executive Compensation Program Overall, our executive compensation programs are designed to be consistent with the objectives and principles set forth above. The basic elements of our executive compensation programs are summarized in the table below, followed by a more detailed discussion of each element of compensation.
Element Characteristics Purpose - ------------------------------------------------------------------------------------------------------------------------- Base salary Fixed annual cash compensation; all executives are Keep our annual compensation eligible for periodic increases in base salary competitive with the market for based on performance; targeted at the median market skills and experience necessary to pay level. meet the requirements of the executive's role with us. - ------------------------------------------------------------------------------------------------------------------------- Incentive bonus awards Performance-based annual cash and equity incentive Motivate and reward for the earned based on company and individual performance achievement and over-performance of against target performance levels; targeted at the our critical financial and strategic median market pay level. goals. Amounts earned for achievement of target performance levels based on our annual budget is designed to provide a market-competitive pay package at median performance; potential for lesser or greater amounts are intended to motivate participants to achieve or exceed our financial performance goals and to not reward if performance goals are not met. - ------------------------------------------------------------------------------------------------------------------------- Health & welfare benefits Fixed component. The same/comparable health & Provides benefits to meet the health welfare benefits (medical, dental, vision, and welfare needs of employees and disability insurance and life insurance) are their families. available for all full-time employees. - -------------------------------------------------------------------------------------------------------------------------
Annual Compensation To attract and retain executives with the ability and the experience necessary to lead us and deliver strong performance to our stockholders, we provide a competitive total compensation package. Base salaries are established considering individual performance and experience, to ensure that each executive is appropriately compensated. Base Salary Our compensation committee reviews salary ranges and individual salaries for our executive officers and establishes the base salary for each executive officer based on the following: o consideration of median pay levels in our peer group among individuals in comparable positions with transferable skills within the transportation industry and comparable companies in general industry; o internal factors, such as, the individual's performance and experience, and the pay of others on the executive team; o our overall performance and the individual contribution and performance of the executive with our overall performance being the more significant factor; and 24 o with a focus on our strategic plans, corporate performance measures, and specific corporate goals which should lead to a favorable stock price including, our sales, earnings, return on equity and comparisons of sales and earnings with prior years and with budgets. When establishing the base salary of any executive officer, we believe that a competitive base salary is necessary to attract and retain an executive management team with the appropriate abilities and experience required to lead us. The base salaries paid to our named executive officers are set forth below in the Summary Compensation Table. We believe that the base salary paid to our executive officers during 2006 achieves our executive compensation objectives, compares favorably to our peer group and is within our target of providing a base salary at the market median. Incentive Bonus Awards Cash Bonuses Cash incentive bonus awards are solely based on established and pre-approved percentages of pre-tax profit levels, are paid quarterly and adjusted on an annual basis. Our compensation committee also exercises discretion adjusting awards based on its consideration of our overall performance during the year and each executive officer's individual performance, other than the chief executive officer and the chief financial officer, based on a review of the executive's performance as communicated to the compensation committee by the chief executive officer. Health and Welfare Benefits All full-time employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability insurance and life insurance. Overview of 2006 Compensation We believe that the total compensation paid to our named executive officers for the fiscal year ended December 31, 2006 achieves the overall objectives of our executive compensation program. In accordance with our overall objectives, executive compensation for 2006 was competitive with our peer group and was weighted more heavily to pay for performance. Employment Agreements, Severance Benefits and Change in Control Provisions We have employment agreements with our chief executive officer, Harry M. Wachtel, and our chief financial officer, William I. Wunderlich. We entered into these agreements, effective January 1, 2007, to ensure the performance of their roles for an extended period of time. In addition, we also considered the critical nature of the position and our need to retain them when we committed to these agreements. The agreements provide for annual base salaries of $250,000 and $175,000, respectively, and for participation in all executive benefit plans. Each of Mr. Wachtel's and Mr. Wunderlich's agreements provide that they will each be entitled to a bonus equal to 10% of our consolidated pre-tax profit (as defined in their respective employment agreements) up to $1,250,000 and 5% of our consolidated pre-tax profit in excess of $1,250,000. Annual salaries and bonuses shall not exceed $750,000 for Mr. Wachtel and $675,000 for Mr. Wunderlich. The employment contracts with both Mr. Wachtel and Mr. Wunderlich are for terms expiring in December 2011. If either is terminated for cause or terminates without good reason (as defined in the agreements), we are obligated to pay only those wages and bonuses pursuant to the terms of our annual incentive plan and other compensation then vested. If either Mr. Wachtel or Mr. Wunderlich is terminated without cause or if either terminates his employment agreement for good reason (as defined in the agreements), in addition to the payment of amounts then vested, in exchange for a general release of all claims, such executive is entitled to: 25 o The immediate vesting of any unvested stock options and one-year from the date of such termination to exercise such options; o Salary for the remaining term of the agreement, if any; and o Bonus based on a pre-determined percentage of pre-tax profit for the remaining term of the agreement, if any. We have granted options that remain outstanding under our 2006 Incentive Stock Option Plan (the "2006 Plan"). The 2006 Plan contains certain change in control provisions to ensure that our executives remain with us through the closing of any sale of the business. The 2006 Plan Under our 2006 Plan, in the event of a "change in control" as defined in the 2006 Plan, the following occurs with respect to options granted under the 2006 Plan: o Each outstanding option automatically accelerates so that each option becomes fully exercisable for all of the shares of the related class of common stock at the time subject to such option immediately before the change in control; A change of control for purposes of the 2006 Plan is deemed to have occurred if: o Any "person" (a) other than us or any of our subsidiaries, (b) any of our or our subsidiaries' employee benefit plans, (c) any "affiliate," (d) a company owned, directly or indirectly, by our stockholders, or (e) an underwriter temporarily holding our securities pursuant to an offering of such securities, becomes the "beneficial owner," directly or indirectly, of more than 50% of our voting stock; o The individuals who constitute our board on the effective date of the 2006 Plan (or any individual who was appointed to the board of directors by a majority of the individuals who constitute our board of directors as of the effective date of the 2006 Plan) cease for any reason to constitute at least a majority of our board of directors. o A merger or consolidation transferring greater than 50% of the voting power of our outstanding securities to a person or persons different from the persons holding those securities immediately prior to such transaction; or o The disposition of all or substantially all of our assets in a complete liquidation or dissolution. Tax Deductibility of Executive Compensation Section 162(m) of the Internal Revenue Code of 1996, as amended (the "Code"), generally disallows a tax deduction to public companies for compensation over $1 million paid to the chief executive officer and four other most highly compensated executive officers, unless the compensation is considered performance based. The compensation disclosed in this report does not exceed the $1 million limit, and executive compensation for 2006 is also expected to qualify for deductibility. We currently intend to structure the performance-based portion of our executive officers' compensation to achieve maximum deductibility under Section 162(m) of the code with minimal sacrifices in flexibility and corporate objective. Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. We believe that achieving our compensation objectives set forth above is more important than the benefit of tax deductibility and we reserve the right to maintain flexibility in how we compensate our executive officers that may result in limiting the deductibility of amounts of compensation from time to time. 26 Summary Compensation Table The following table sets forth certain information with respect to compensation for the year ended December 31, 2006 earned by or paid to our chief executive officer, chief financial officer and our other most highly compensated executive officers in 2006 whose total compensation exceeded $100,000 (the "named executive officers"). Summary Compensation Table - -------------------------------------------------------------------------------- Name and Principal Position Year Salary ($) Bonus ($) Total ($) - -------------------------------------------------------------------------------- Harry M. Wachtel, 2006 $ 250,000 $ 269,000 $ 519,000 President and chief executive officer - -------------------------------------------------------------------------------- William I. Wunderlich, 2006 $ 175,000 $ 229,000 $ 404,000 Executive vice president and chief financial officer - -------------------------------------------------------------------------------- Mark Weiss, 2006 $ 137,000 -- $ 137,000 National account executive - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Discussion of Summary Compensation Our executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table was paid, are described above under "Compensation Discussion and Analysis." A summary of certain material terms of our compensation plans and arrangements is set forth below. Indemnification Arrangements Our Certificate of Incorporation provides that we indemnify and hold harmless each of our directors and officers to the fullest extent authorized by the Delaware General Corporation Law, against all expense, liability and loss (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. Our Certificate of Incorporation also provides that a director will not be personally liable to us or to our stockholders for monetary damages for breach of the fiduciary duty of care as a director. This provision does not eliminate or limit the liability of a director: o for breach of his or her duty of loyalty to us or to our stockholders; o for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; o under Section 174 of the Delaware General Corporation Law (relating to unlawful payments or dividends or unlawful stock repurchases or redemptions); or o for any improper benefit. 27 Outstanding Equity Awards The following table sets forth certain information with respect to outstanding equity awards at December 31, 2006 with respect to the named executive officers. Outstanding Equity Awards at Fiscal Year-End Option Awards -------------------------------------- Number of Securities Underlying Unexercised Option Option Options Exercise Expiration Name Exercisable(1) Price Date ---- -------------- ----- ---- William I. Wunderlich 270,000 $ 0.10 5/22/2007 William I. Wunderlich 500,000 $ 0.10 11/30/2009 ----------------------- (1) Fully vested Compensation of Directors We do not pay any directors' fees. Directors are reimbursed for the costs relating to attending board and committee meetings. During 2006, Peter C. Einselen and Thomas C. Robertson, our non-employee directors, each were granted options to purchase 100,000 shares of our common stock at prices ranging from $0.65 to $1.48 per share, 115% of the fair market value on the date of grant. The following table provides compensation information for the year ended December 31, 2006 for each of the independent members of our board of directors. Director Compensation Name Option Awards (1) Total ---- ----------------- ----- Thomas C. Robertson $21,700 (2) $21,700 Peter C. Einselen $21,700 (2) $21,700 --------------------- (1) Amounts are calculated using the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-based Payments. (2) During 2006, each of Mr. Robertson and Mr. Einselen was granted four option awards exercisable for 100,000 shares of our common stock in the aggregate, respectively. Each award was for options exercisable for 25,000 shares of our common stock. The award grant dates were 1/26/2006, 4/2/2006, 7/14/2006 and 10/12/2006 and the fair values (computed in accordance with SFAS 123R) on such dates were $3,400, $4,500, $7,900 and $5,900, respectively. 28 Equity Compensation Plan Information Year Ended December 31, 2006
Number of securities remaining available for Number of securities to Weighted-average future issuance under be issued upon exercise exercise price of equity compensation plans of outstanding options, outstanding options, (excluding securities Plan Category warrants and rights warrants and rights reflected in column (a)) - ---------------------------------------- -------------------------- ---------------------- ----------------------------- (a) (b) (c) Equity compensation plans approved by security holders (1985, 1986, 1989, 1992, 1997, 1999, and 2003) ............... 5,262,000 $0.55 74,000 Equity compensation plans not approved by security holders (1) 6,030,000 $0.82 6,465,000 ========================== ====================== ============================= Total.................................. 11,292,000 $0.70 6,539,000 ========================== ====================== =============================
(1) Includes the following equity compensation plans: o In 2006, our board of directors adopted the 2006 Plan to provide incentives to employees, directors and consultants whose performance will contribute to our long-term success and growth, to strengthen our ability to attract and retain employees, directors and consultants of high competence, to increase the identity of interests of such people with those of our stockholders and to help build loyalty to us through recognition and the opportunity for stock ownership. Generally, the option price of both incentive stock options and non-qualified stock options must be at least equal to 100% of the fair market value of our common stock on the date of grant. The maximum term of each option is 10 years. For any participant who owns shares possessing more than 10% of the voting rights of our outstanding common stock, the exercise price of any incentive stock option must be at least equal to 110% of the fair market value of our common stock on the date of grant and the term of the option may not be longer than five years. The 2006 Plan will be presented to stockholders for approval at our next annual meeting of stockholders during 2007. o In addition to the 2006 Plan, we established the 2006 Independent Sales Agent Stock Option Plan (the "Sales Agent Plan") to align the interests of our independent sales agents and affiliates with those of our stockholders, to afford an incentive to such sales agents to continue as such, to increase their efforts on our behalf and to promote the success of our business. Generally, the Sales Agent Plan is administered by our board of directors and provides (i) for the granting of non-qualified stock options, (ii) that the maximum term for options granted under the plan is 10 years and (iii) that the exercise price for the options may not be less than 115% of the fair market value of our common stock on the date of grant. o In 2005, we established the 2005 Independent Sales Agent Stock Option Plan (the "2005 Sales Agent Plan") to align the interests of our independent sales agents and affiliates with those of our stockholders, to afford an incentive to such sales agents to continue as such, to increase their efforts on our behalf and to promote the success of our business. Generally, the 2005 Sales Agent Plan is administered by our board of directors and provides (i) for the granting of non-qualified stock options, (ii) that the maximum term for options granted under the plan is 10 years and (iii) that the exercise 29 price for the options may not be less than 100% of the fair market value of our common stock on the date of grant. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table, together with the accompanying footnotes, sets forth information, as of March 20, 2007, regarding stock ownership of all persons known by us to own beneficially 5% or more of our outstanding common stock, all directors, named executive officers and all directors and executive officers as a group. We determined beneficial ownership in accordance with rules promulgated by the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as otherwise indicated, we believe that the persons or entities named in the following table have sole voting and investment power with respect to all shares of common stock as beneficially owned by them, subject to community property laws where applicable. All information with respect to beneficial ownership has been furnished to us by the respective stockholder.
Name of Shares of Common Stock Percentage Beneficial Owner (1) Beneficially Owned Of Ownership -------------------- ------------------ ------------ (i) Directors and Executive Officers Harry Wachtel 6,785,000 (2) 20.6% Thomas C. Robertson 555,000 (3) 1.7% Peter C. Einselen 685,000 (4) 2.1% Mark Weiss 1,075,000 (6) 3.3% William I. Wunderlich 1,622,000 (5)(7) 4.8% All executive officers and directors as a group (6 persons) 9,440,000 (8) 26.9% (ii) 5% Stockholders James T. Martin 6,270,000 19.3% Kinderhook Partners, LP 6,038,000 18.6% Wasatch Advisors, Inc 3,224,000 9.9%
- ------------- (1) Unless otherwise indicated below, each director, executive officer and each 5% stockholder has sole voting and investment power with respect to all shares beneficially owned. The address for Mr. Wachtel, Mr. Weiss and Mr. Wunderlich is c/o AutoInfo, Inc., 6413 Congress Avenue, Suite 260, Boca Raton, FL 33487. The address for Mr. Martin is c/o Bermuda Trust Company, Compass Point Road, 9 Bermudian Road, Hamilton HM11, Bermuda. The address for Kinderhook Partners, LP is One Executive Drive, Suite 160, Fort Lee, NJ 07024. (2) Includes 1,282,000 shares with respect to which Mr. Wachtel has been granted voting rights pursuant to voting proxy agreements. (3) Includes 455,000 shares issuable upon the exercise of stock options. (4) Includes 385,000 shares issuable upon the exercise of stock options (5) Includes 770,000 shares issuable upon the exercise of stock options. (6) Includes 875,000 with respect to which Mr. Weiss has granted voting rights to Mr. Wachtel pursuant to a voting proxy agreement. Mr. Weiss retains full control over the disposition of these shares. (7) Includes 407,000 with respect to which Mr. Wunderlich has granted voting rights to Mr. Wachtel pursuant to a voting proxy agreement. Mr. Wunderlich retains full control over the disposition of these shares. (8) Assumes that all currently exercisable options or warrants owned by members of this group have been exercised. 30 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Since the beginning of our fiscal year ended December 31, 2006, we did not have any related party transactions pursuant to Item 404 of Regulation S-K of the Exchange Act. Director Independence The Board has determined that Thomas Robertson and Peter Einselen (the "Independent Directors") are independent as that term is defined in the listing standards of the Nasdaq. As disclosed above, Messrs. Robertson and Einselen are the sole members of our audit committee and our compensation committee and are independent for such purposes. In determining director independence, the Board considered the option awards to the Independent Directors for the year ended December 31, 2006, disclosed in "Item 11 - Executive Compensation - Director Compensation" above, and determined that such awards were compensation for services rendered to the Board and therefore did not impact their ability to continue to serve as Independent Directors. 31 Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The aggregate fees billed by our principal accounting firm, Dworken, Hillman, LaMorte & Sterczala, P.C., for the fiscal years ended December 31, 2006 and 2005 are as follows: 2006 2005 -------------- -------------- Audit fees $61,000 $55,000 Audit related fees -- -- Tax fees -- -- All other fees -- -- Total fees $61,000 $55,000 -------------- -------------- Audit Committee Pre-Approval Policies and Procedures Our audit committee charter provides that the audit committee will pre-approve audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render these services. The audit committee may consult with management in the decision-making process, but may not delegate this authority to management. The audit committee may delegate its authority to pre-approve services to one or more committee members, provided that the designees present the pre-approvals to the full committee at the next committee meeting. PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements - See the Index to the consolidated financial statements on page F-1 (b) Exhibits - ------------ No. 3A Certificate of Incorporation of the Company, as amended. (9) No. 3B Amended and Restated By-Laws of the Company. (5) No. 4A Specimen Stock Certificate. (2) No. 10A** 1986 Stock Option Plan. (1) No. 10B** 1989 Stock Option Plan. (3) No. 10C** 1992 Stock Option Plan. (4) No. 10D** 1997 Stock Option Plan. (6) No. 10E** 1997 Non-Employee Stock Option Plan. (6) No. 10F** 1999 Stock Option Plan. (8) No. 10G Form of Agreement and Plan of Reorganization among AutoInfo, Inc. on the one hand, and Sunteck Transport Co., Inc., et al., on the other hand, dated June 22, 2000. (7) No. 10H Form of Debenture dated December 6, 2000. (7) 32 No. 10I **Employment Agreement between AutoInfo, Inc. and Harry M. Wachtel dated as of January 1, 2007.* No. 10J **Employment Agreement between AutoInfo, Inc. and William I. Wunderlich dated January 1, 2007.* No. 10M Stock Purchase Agreement between AutoInfo, Inc and Kinderhook Partners, LP dated January 21, 2005.(10) No. 10N Registration Rights Agreement between AutoInfo, Inc. and Kinderhook Partners, LP, et al, dated October 4, 2005.(10) No. 10O Registration Rights Agreement between AutoInfo, Inc. and Kinderhook Partners, LP, et al, dated January 5, 2005.(11) No. 10P First Amendment to Revolving Credit and Security Agreement between Wachovia Bank and AutoInfo, Inc., et al (10) No. 10Q Second Amendment to Revolving Credit and Security Agreement between Wachovia Bank and AutoInfo, Inc., et al (11) No. 10R Third Amendment to Revolving Credit and Security Agreement between Wachovia Bank and AutoInfo, Inc., et al * No. 10S** 2003 Stock Option Plan (12) No. 10T** 2005 Independent Sales Agent Stock Option Plan* No. 10U** 2006 Stock Option Plan* No. 10V** 2006 Independent Sales Agent Stock Option Plan* No. 14A Code of Ethics.(10) No. 21A Subsidiaries of the Registrant. (10) No. 23A Consent of Dworken, Hillman, LaMorte & Sterczala, P.C., independent registered public accounting firm.* No. 31A Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* No. 31B Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* No. 32A Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* No. 32B Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* - ------------- 33 * Filed as an exhibit hereto. ** Management contract or compensatory plan or arrangement. (1) This Exhibit was filed as an Exhibit to our definitive proxy statement dated October 20, 1986 and is incorporated herein by reference. (2) This Exhibit was filed as Exhibit to our Registration Statement on Form S-1 (File No. 33-15465) and is incorporated herein by reference. (3) This Exhibit was filed as an Exhibit to our definitive proxy statement dated September 25, 1989 and is incorporated herein by reference. (4) This Exhibit was filed as an Exhibit our definitive proxy statement dated October 2, 1992 and is incorporated herein by reference. (5) This Exhibit was filed as an Exhibit to our Current Report on Form 8-K dated March 30, 1995 and is incorporated herein by reference. (6) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 1997 and is incorporated herein by reference. (7) This Exhibit was filed as an Exhibit to our Current Report on Form 8-K dated December 6, 2000 and is incorporated herein by reference. (8) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 1999 and is incorporated herein by reference. (9) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2000 and is incorporated herein by reference. (10) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-KSB for the year ended December 31, 2004 and is incorporated herein by reference. (11) This Exhibit was filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2005 and is incorporated herein by reference. (12) This Exhibit was filed with our Definitive Information Statement on Schedule 14C, filed on July 7, 2003 and is incorporated herein by reference. (c) Information required by schedules called for under Regulation S-X is either not applicable or is included in the consolidated financial statements or notes thereto. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d), the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on March 28, 2007 on its behalf by the undersigned, thereunto duly authorized. AutoInfo, Inc. By: /s/ Harry M. Wachtel ------------------------------- Harry M. Wachtel, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated. /s/ Harry M. Wachtel - ----------------------------- Harry M. Wachtel President, Chief Executive Officer and March 28, 2007 Chairman of the Board (Principal Executive Officer) /s/ William I. Wunderlich - ----------------------------- William I. Wunderlich Chief Financial Officer March 28, 2007 (Principal Accounting Officer) /s/ Mark Weiss - ----------------------------- Mark Weiss Director March 28, 2007 /s/ Peter C. Einselen - ----------------------------- Peter C. Einselen Director March 28, 2007 /s/ Thomas C. Robertson - ----------------------------- Thomas C. Robertson Director March 28, 2007
35 AUTOINFO, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2006 and 2005 F-3 Consolidated Statements of Income for the Years Ended December 31, 2006, 2005 and 2004 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2006, 2005 and 2004 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004 F-6 Notes to Consolidated Financial Statements F-7 Information required by schedules called for under Regulation S-X is either not applicable or is included in the Consolidated Financial Statements or Notes thereto. F-1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of AutoInfo, Inc. We have audited the accompanying consolidated balance sheets of AutoInfo, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AutoInfo, Inc. and subsidiaries as of December 31, 2006 and 2005 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. As described in Note 2 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123R, "Share-Based Payment." February 26, 2007 Shelton, Connecticut /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. ------------------------------------------------ Dworken, Hillman, LaMorte & Sterczala, P.C. F-2 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, ---------------------------- 2006 2005 ------------ ------------ ASSETS (Note 3) Current assets: Cash and cash equivalents $ 146,000 $ 419,000 Accounts receivable, net of allowance for doubtful accounts of $249,000 and $201,000 as of December 31, 2006 and 2005, respectively 16,967,000 12,735,000 Deferred income taxes (Note 5) 1,445,000 860,000 Other current assets 363,000 255,000 ------------ ------------ Total current assets 18,921,000 14,269,000 Fixed assets, net of depreciation 324,000 292,000 Deferred income taxes (Note 5) 2,502,000 2,047,000 Advances and other assets 2,075,000 38,000 ------------ ------------ $ 23,822,000 $ 16,646,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loan payable (Note 3) $ 3,451,000 $ 1,280,000 Accounts payable and accrued liabilities 8,375,000 7,235,000 ------------ ------------ Total current liabilities 11,826,000 8,515,000 ------------ ------------ Commitments and contingencies (Note 6) Stockholders' equity : (Note 7) Common stock - authorized 100,000,000 shares, $.001 par value; issued and outstanding 32,102,000 and 31,624,000 as of December 31, 2006 and 2005, respectively 32,000 32,000 Additional paid-in capital 19,420,000 19,183,000 Deficit (7,456,000) (11,084,000) ------------ ------------ Total stockholders' equity 11,996,000 8,131,000 ------------ ------------ $ 23,822,000 $ 16,646,000 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31, -------------------------------------------- 2006 2005 2004 ------------ ------------ ------------ Gross revenues $ 84,111,000 $ 68,040,000 $ 46,492,000 Cost of transportation 66,368,000 54,486,000 37,758,000 ------------ ------------ ------------ Net revenues 17,743,000 13,554,000 8,734,000 ------------ ------------ ------------ Commissions 11,044,000 8,348,000 5,179,000 Operating expenses 3,840,000 3,005,000 2,519,000 ------------ ------------ ------------ 14,884,000 11,353,000 7,698,000 ------------ ------------ ------------ Income from operations 2,859,000 2,201,000 1,036,000 Interest expense (Note 4) 113,000 56,000 50,000 ------------ ------------ ------------ Income before income taxes (benefit) 2,746,000 2,145,000 986,000 Income taxes (benefit) (Note 5) (882,000) (1,463,000) (480,000) ------------ ------------ ------------ Net income $ 3,628,000 $ 3,608,000 $ 1,466,000 ============ ============ ============ Net income per share: Basic $ .11 $ .11 $ .05 Diluted $ .10 $ .11 $ .04 Weighted average number of common shares: Basic 31,915,000 31,520,000 30,915,000 Diluted 36,005,000 33,920,000 33,438,000
The accompanying notes are an integral part of these consolidated financial statements. F-4 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Shares of Common Additional Stock Common Paid - In Outstanding Stock Capital Deficit ----------- ------- ----------- ------------ Balance, January 1, 2004 27,383,000 $27,000 $18,023,000 $(16,158,000) Sale of common shares 1,333,000 2,000 415,000 Conversion of subordinated debentures (Note 4) 2,300,000 2,000 573,000 Exercise of stock options 202,000 -- 15,000 Stock-based compensation expense 47,000 Net income 1,466,000 ----------- ------- ----------- ------------ Balance, December 31, 2004 31,218,000 $31,000 $19,073,000 $(14,692,000) Exercise of stock options 406,000 1,000 21,000 Stock-based compensation expense 89,000 Net income 3,608,000 ----------- ------- ----------- ------------ Balance, December 31, 2005 31,624,000 $32,000 $19,183,000 $(11,084,000) Exercise of stock options 478,000 103,000 Stock-based compensation expense 134,000 Net income 3,628,000 ----------- ------- ----------- ------------ Balance, December 31, 2005 32,102,000 $32,000 $19,420,000 $ (7,456,000) =========== ======= =========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 AUTOINFO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2006 2005 2004 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 3,628,000 $ 3,608,000 $ 1,466,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Change in allowance for doubtful accounts 48,000 76,000 65,000 Depreciation and amortization expenses 104,000 85,000 40,000 Stock-based compensation expense 134,000 89,000 47,000 Deferred income taxes (1,040,000) (1,586,000) (537,000) Changes in assets and liabilities: Accounts receivable (4,279,000) (3,153,000) (4,842,000) Other current assets (108,000) 424,000 (398,000) Advances and other assets (2,037,000) (8,000) 105,000 Accounts payable and accrued liabilities 1,140,000 1,850,000 2,612,000 ----------- ----------- ----------- Net cash provided by (used in) operating activities (2,410,000) 1,385,000 (1,442,000) ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (137,000) (307,000) (37,000) ----------- ----------- ----------- Net cash used in investing activities (137,000) (307,000) (37,000) ----------- ----------- ----------- Cash flows from financing activities: Sale of common shares -- -- 417,000 Exercise of stock options 103,000 21,000 15,000 Increase (decrease) in loan payable, net 2,171,000 (718,000) 952,000 ----------- ----------- ----------- Net cash provided by (used in) financing activities 2,274,000 (697,000) 1,384,000 ----------- ----------- ----------- Net change in cash and cash equivalents (273,000) 381,000 (95,000) Cash and cash equivalents, beginning of year 419,000 38,000 133,000 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 146,000 $ 419,000 $ 38,000 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 AUTOINFO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 and 2004 Note 1 - Business and Summary of Significant Accounting Policies Business Overview Through its wholly-owned subsidiary, Sunteck Transport Co., Inc, the Company is a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, Canada. As a non-asset based provider of brokerage and contract carrier transportation services, the Company does not own any equipment and its services are provided through strategic alliances with less than truckload, truckload, air, rail, ocean common carriers and independent owner-operators to service customers' needs. The Company's non-asset based services include ground transportation coast to coast, local pick up and delivery. The Company's business services emphasize safety, information coordination and customer service and are delivered through a network of independent commissioned sales agents and third party capacity providers coordinated by it. The independent commissioned sales agents typically enter into exclusive contractual arrangements with the Company and are responsible for locating freight and coordinating the transportation of the freight with customers and capacity providers. The third party capacity providers consist of independent contractors who provide truck capacity to the Company, including owner-operators who operate under the Company's contract carrier license, air cargo carriers and railroads. The Company's brokerage services are provided though a network of independent sales agents throughout the United States and Canada. The Company's services include arranging for the transport of customers' freight from the shippers location to the designated destination. The Company does not own any trucking equipment and relies on independent carriers for the movement of customers' freight. The Company seeks to establish long-term relationships with its customers and provides a variety of logistics services and solutions to eliminate inefficiencies in its customers' supply chain management. The Company's contract carrier services are also provided through a network of independent sales agents and independent owner-operators throughout the United States. The Company does not own any trucking equipment; its independent owner-operators lease onto the Company's operating authority and transport freight under its name. In the fourth quarter of 2006, the Company upgraded its driver safety and compliance standards under the direction of a new safety director as part of its effort to improve safety ratings and the quality of its owner operator network. These changes resulted in a short-term reduction in the number of owner operators and corresponding number of transactions in the fourth quarter of 2006. While the Company expects that this will have a residual impact in the first and second quarters of 2007, it does not anticipate any adverse long-term effect. F-7 Summary of Significant Accounting Policies Basis of Presentation The financial statements of the Company have been prepared using the accrual basis of accounting under accounting principles generally accepted in the United States of America (GAAP). Principles of Consolidation The consolidated financial statements include the accounts of the AutoInfo, Inc. (the Company), its wholly-owned subsidiary Sunteck Transport Co., Inc. and its wholly-owned subsidiary Sunteck Transport & Logistics, Inc., (collectively, Sunteck). All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of these financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. The Company believes that all such assumptions are reasonable and that all estimates are adequate, however, actual results could differ from those estimates. Revenue Recognition As a third party transportation logistics provider, the Company acts as the shippers' agent and arranges for a carrier to handle the freight. Gross revenues consist of the total dollar value of services purchased by shippers. Revenue is recognized upon the delivery of freight, at which time the related transportation cost, including commission, is also recognized. At that time, the Company's obligations are completed and collection of receivables is reasonably assured. Emerging Issues Task Force No. 99-19, "Reporting Revenues Gross as a Principal Versus Net as an Agent" (EITF 99-19), establishes criteria for recognizing revenues on a gross or net basis. The Company is the primary obligor in its transactions, has all credit risk, maintains substantially all risk and rewards, has discretion in selecting the supplier, and has latitude in pricing decisions. Accordingly, the Company records all transactions at the gross amount, consistent with the provisions of EITF 99-19. Cash and Cash Equivalents Cash and cash equivalents consist of cash in banks. Provision For Doubtful Accounts The Company continuously monitors the creditworthiness of its customers and has established an allowance for amounts that may become uncollectible in the future based on current economic trends, its historical payment and bad debt write-off experience, and any specific customer related collection issues. F-8 Fixed Assets Fixed assets as of December 31, 2006 and 2005, consisting predominantly of furniture, fixtures equipment and proprietary software, were carried at cost net of accumulated depreciation. Depreciation of fixed assets was provided on the straight-line method over the estimated useful lives of the related assets which range from three to five years. Advances During 2006, in connection with the expansion of its sales agent network, the Company made advances to independent commissioned sales agents. According to the terms of the agreements, these advances will be offset against commissions earned over the lives of the agreements. Income Per Share Basic income per share is based on net income divided by the weighted average number of common shares outstanding. Common stock equivalents outstanding were 4,090,000, 2,400,000, and 2,523,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Income Taxes The Company utilizes the asset and liability method for accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and future benefits to be recognized upon the utilization of certain operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Recently Issued Accounting Standards In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires the recognition of a tax position when it is more likely than not that the tax position will be sustained upon examination by taxing authorities, based upon the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007. The Company does not expect the adoption of FIN 48 to have a material impact on its financial statements. In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements" (SFAS 157), which provides guidance for using fair value to measure assets and liabilities. SFAS 157 defines fair value and establishes a framework for measuring fair value; however, SFAS 157 does not expand the use of fair value in any new circumstances. The provisions of SFAS 157 are effective for the Company on January 1, 2008. The Company does not expect the adoption of SFAS 157 to have a material impact on its financial statements. F-9 Segment Information The Company provides transportation capacity and related logistics services through its integrated network of independent agents and third party capacity providers. For the purpose of applying Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", management has determined that it operates in a single business segment. Reclassification Certain prior year balances have been reclassified to conform with the current year presentation. These reclassifications had no effect on previously reported results of operations or net assets. Note 2 - Change in Accounting Principle In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R, "Share-Based Payment" (SFAS 123R). The pronouncement requires companies to measure and recognize compensation expense for all share-based payments to employees in the financial statements based on the fair value at the date of the grant. In the first quarter of 2006, the Company adopted SFAS 123R using the modified prospective method. Under the modified prospective method, compensation cost is recognized for all share-based payments granted after the adoption of SFAS 123R and for all awards granted to employees prior to the adoption date of SFAS 123R that were unvested on the adoption date. Accordingly, no restatements were made to prior periods. Prior to the adoption of SFAS 123R, the Company applied SFAS 123 to account for its stock option plans. As permitted by SFAS 123, the Company had chosen to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its employee stock compensation plans. Accordingly, no compensation expense was recognized for its employee stock option issuances, as stock options are issued with an exercise price at least equal to the closing price at the date of grant. Note 3 - Debt Loan Payable In May 2003, the Company entered into a $1.5 million Line of Credit with a commercial lending institution, secured by substantially all assets of the Company. In 2004, this Line of Credit was increased to $2.5 million and in 2006 this line was increased to $4.0 million. The Line of Credit expires in June 2008. The Line of Credit provides for interest at the LIBOR plus 2% (7.3% at December 31, 2006) and the maintenance of certain financial covenants. Note 4 - Related Party Transactions In December 2000, the Company obtained financing totaling $575,000 from certain related parties in the form of ten year 12% Subordinated Convertible Debentures (Debentures). In January 2004, these Debentures were converted into 2,300,000 shares of common stock. Interest of $4,000 was charged to operations in 2004. F-10 Note 5- Income Taxes For the years ended December 31, 2006, 2005 and 2004, the provision for income taxes consisted of the following:
2006 2005 2004 Current Deferred Current Deferred Current Deferred -------------------------------------------------------------------------------- Income tax expense before application of operating loss carryforwards $ 1,083,000 $ -- $ 841,000 $ -- $ 393,000 $ -- Income tax expense (benefit) of operating loss carryforwards (925,000) 925,000 (718,000) 718,000 (336,000) 336,000 Change in valuation allowance (1,965,000) (2,304,000) (873,000) ----------- ----------- --------- ----------- --------- --------- Income tax expense (benefit) $ 158,000 $(1,040,000) $ 123,000 $(1,586,000) $ 57,000 $(537,000) ----------- ----------- --------- ----------- --------- ---------
The following table reconciles the Company's effective income tax rate on income from operations to the Federal Statutory Rate for the years ended December 31, 2006, 2005 and 2004:
2006 2005 2004 -------- -------- -------- Federal Statutory Rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit 5.8 3.4 5.7 Effect of: Utilization of operating loss carryforward (34.0) (34.0) (34.0) Change in valuation allowance (37.9) (44.0) (54.4) -------- -------- -------- (32.1)% (40.6)% (48.7)% ======== ======== ========
Deferred taxes are comprised of the following at December 31, 2006 and 2005: December 31, December 31, 2006 2005 ------------ ------------ Deferred tax asset: Net operating loss carryforward $ 3,947,000 $ 4,872,000 ------------ ------------ Gross deferred tax asset 3,947,000 4,872,000 Less: valuation allowance -- (1,965,000) ------------ ------------ Deferred tax asset $ 3,947,000 $ 2,907,000 ============ ============ The deferred tax asset represents expected future tax savings resulting from the Company's net operating loss carryforward. As of December 31, 2006, the Company has a net operating loss carryforward of approximately $11.6 million for federal income tax purposes which expire through 2014. Utilization of this benefit is primarily subject to the extent of future earning of the Company, and may be F-11 limited by, among other things, shareholder changes, including the possible issuance by the Company of additional shares in one or more financing or acquisition transactions. Based upon available objective evidence, including the Company's post-merger history of profitability, management believes it is more likely than not that forecasted taxable income will be sufficient to utilize all of the net operating loss carryforward before its expiration in 2014. Accordingly, in 2006, 2005 and 2004 the valuation allowance was reduced by $1,965,000, $2,304,000, and $873,000, respectively. However, there can be no assurance that the Company will meet its expectations of future income. Note 6 - Commitments and Contingencies Leases The Company is obligated under non-cancelable operating leases for premises expiring at various dates through April 2010. Future minimum lease payments are $73,000, $68,000, $70,000 and $24,000 for the years ending December 31, 2007, 2008, 2009 and 2010, respectively. Rent expense for the years ended December 31, 2006, 2005 and 2004 was $105,000, $97,000, and $76,000, respectively. Other Agreements The Company has employment agreements with Messrs. Wachtel and Wunderlich, its chief executive officer and chief financial officer, respectively, who are also stockholders. The agreements expire in December 31, 2011 and provide for minimum annual compensation of $250,000 and $175,000, and bonuses equal to 10% of the Company's consolidated pre-tax profit (as defined) up to $1,250,000 and, 5% of our consolidated pre-tax profit in excess of $1,250,000, respectively. Bonus payments to each of Messrs. Wachtel and Wunderlich were $269,000 and $229,000 for the year ended December 31, 2006, respectively, and $125,000 for the years ended December 31, 2005 and 2004. Litigation The Company is involved in certain litigation arising in the ordinary course of its business. In the opinion of management, these matters will not have a material adverse effect on the Company's financial position or liquidity. Note 7 - Stockholders' Equity Stock Option Plans The Company has ten stock option plans; its 1985, 1986, 1989, 1992, 1997, 1999, 2003, 2005 and two 2006 Plans (collectively, the Plans). Pursuant to the Plans, a total of 20,342,500 shares of common stock were made available for grant of stock options. Under the Plans, options have been granted to key personnel to purchase shares at not less than fair market value on the date of grant. Stock options generally vest ratably over a period of three to five years from the date of grant and must be exercised within ten years from the date of grant. The Company's policy is to recognize compensation expense on a straight-line basis over the requisite service period for the entire award. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated at the date of F-12 grant based on the Company's historical experience and future expectations. No further grants will be made under the 1985, 1986, 1989 or 1992 Plans. Options have been granted under the Plans to independent sales agents under the same general terms and conditions as options granted to employees. Such option grants are primarily based upon profits generated and act as long-term incentives to remain with the Company. Out of the total options outstanding of 11,292,000 as of December 31, 2006, 8,873,000 have been granted to independent sales agents. Option activity for the years ended December 31, 2006, 2005 and 2004 was as follows:
Shares Weighted Weighted Aggregate Subject to Average Average Intrinsic Options Exercise Price Remaining Value Per Share Contractual (in millions) Life ----------- -------------- ----------- ------------- Outstanding, January 1, 2004 4,095,000 $ .15 7.5 $ 0.6 ----- ----- Forfeited (736,000) .16 Exercised (202,000) .07 Granted 2,437,000 .44 --------- ------ Outstanding, December 31, 2004 5,594,000 $ .28 5.9 $ 1.8 ----- ----- Forfeited (611,000) .33 Exercised (406,000) .13 Granted 2,504,000 .54 --------- ------ Outstanding, December 31, 2005 7,081,000 $ .37 5.1 $ 1.5 ----- ----- Forfeited (192,000) .56 Exercised (478,000) .22 Granted 4,881,000 1.11 --------- ------ Outstanding December 31, 2006 11,292,000 $ .70 4.6 $ 3.7 ----------- ------ ----- ----- Exercisable, December 31, 2006 3,684,000 $ .32 3.9 $ 2.6 ----------- ------ ----- -----
As of December 31, 2006, there were 6,539,000 shares of common stock available for issuance pursuant to future stock option grants. Additional information regarding options outstanding as of December 31, 2006 is as follows:
Options outstanding Options exercisable ------------------------------------------------ ------------------- Weighted average remaining Weighted Weighted Range of contractual life average exercise average exercise exercise prices Shares (years) price Shares price - --------------- ---------- ---------------- ---------------- ---------------- ---------------- $.05 - .20 1,804,000 4.2 $ .13 1,804,000 $ .13 .24 - .65 4,936,000 3.9 .49 1,730,000 .44 .72 - .88 484,000 5.3 .87 50,000 .88 1.07 - 1.48 4,068,000 5.5 1.17 100,000 1.32 - -------------------------------------------------------------------------------------------------------- $.05 - 1.48 11,292,000 4.6 $ .70 3,684,000 $ .32 - --------------------------------------------------------------------------------------------------------
F-13 Weighted average grant-date fair value of options granted: 2006 $ 1.11 2005 $ 0.54 2004 $ 0.44 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions by grant year. 2006 2005 2004 ----------------------------------------------- Risk-free interest rate 4.52% 3.00% 3.00% Expected dividend yield 0% 0% 0% Expected volatility factor 18.16% 22.29% 25.24% Expected option term, in years 6.00 6.00 5.48 The Company recognized stock-based compensation expense related to stock options of $134,000, $89,000 and $47,000 for the years ended December 31, 2006, 2005 and 2004, respectively. As of December 31, 2006, the Company had $1.4 million of unrecognized stock-based compensation expense related to nonvested stock option plans that will be recognized over a period of five years. Note 8 - Fair Value of Financial Instruments The following disclosures of fair value were determined by management using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and loan payable are carried at amounts which reasonably approximate fair value. F-14 Note 9 - Quarterly Results of Operations (Unaudited)
Year Ended December 31, 2006 Quarter Ended -------------------------------------------------------- Mar 31 June 30 Sep 30 Dec 31 ----------- ----------- ----------- -------------- Gross revenues $18,096,000 $20,858,000 $22,442,000 $ 22,715,000 ----------- ----------- ----------- -------------- ----------- ----------- ----------- -------------- Net income $ 1,155,000 $ 1,044,000 $ 986,000 $ 443,000 =========== =========== =========== ============== Basic net income per share $ .04 $ .03 $ .03 $ .01 ----------- ----------- ----------- -------------- Diluted net income per share $ .03 $ .03 $ .03 $ .01 =========== =========== =========== ==============
Year Ended December 31, 2005 Quarter Ended --------------------------------------------------------- Mar 31 June 30 Sep 30 Dec 31 ------------ ------------ ------------ ------------ Gross revenues $ 14,915,000 $ 15,477,000 $ 17,336,000 $ 20,312,000 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net income $ 393,000 $ 441,000 $ 580,000 $ 2,194,000 ============ ============ ============ ============ Basic net income per share $ .01 $ .01 $ .02 $ .07 ------------ ------------ ------------ ------------ Diluted net income per share $ .01 $ .01 $ .02 $ .07 ============ ============ ============ ============
Note 10 - Supplemental Disclosure of Cash Flow Information and Non-Cash Financing Activities Cash paid for interest in 2006, 2005 and 2004 was $113,000, $56,000 and $50,000 respectively. The Company paid income taxes $118,000, $47,000 and $24,000 for the years ended December 31, 2006, 2005 and 2004, respectively. In January 2004, $575,000 of outstanding 12% convertible debentures were converted into 2,300,000 shares of common stock. F-15 EX-10.I 2 d71399_ex-10i.txt EMPLOYMENT AGREEMENT (HARRY WACHTEL) EXHIBIT 10I EMPLOYMENT AGREEMENT AGREEMENT ("Agreement") dated as of January 1, 2007 by and between AutoInfo, Inc., a Delaware corporation ("Auto") and Harry M. Wachtel, an individual residing at 17222 Bermuda Village Dr., Boca Raton, FL 33487 ("Wachtel") WHEREAS, Wachtel is currently the chairman, chief executive officer and president of Auto and president of Sunteck Transport Co., Inc., a wholly owned subsidiary of Auto ("Sunteck"); WHEREAS, Auto desires to assure itself of the benefit of Wachtel's services and experience for the period of time provided in this Agreement; and WHEREAS, Wachtel is willing to enter into an agreement to that end with Auto upon the terms and conditions herein set forth. NOW THEREFORE, in consideration of the premises and covenants herein contained, the parties hereto hereby agree as follows: 1. Employment. Auto hereby employs Wachtel as its president and chief executive officer and Wachtel hereby accepts such employment and agrees to perform his duties and responsibilities hereunder in accordance with the terms and conditions hereinafter set forth. The board of directors of Auto (the "Board") shall use its best efforts to vote or recommend to the stockholders of Auto, as applicable, that during the Employment Term (as defined herein): (i) Wachtel continue as chairman, chief executive officer and president of Auto, (ii) Wachtel continue as president of Sunteck, (iii) Wachtel be elected to and continue on the board of directors of each subsidiary of Auto as he may select and (iv) if the Board or any of its subsidiaries shall appoint an executive committee (or similar committee authorized to exercise the general powers of the Board) that Wachtel shall be a member of any such committee. 2. Duties and Responsibilities. Wachtel shall be the chief executive officer and president of Auto and president of Sunteck. Wachtel shall report to and be subject to the direction of the Board and Wachtel shall perform such duties as may be assigned to him from time to time by the Board; provided, that such duties shall be of a nature consistent with the dignity and authority of the positions of president and chief executive officer. During the Employment Term Wachtel shall, subject to Auto's vacation policy, devote substantially all of his normal business time and attention to the businesses of Auto and its subsidiaries and affiliates and shall perform such duties in a businesslike manner, all for the purpose of advancing the business of Auto and its subsidiaries and affiliates. Nothing contained in this Agreement shall be deemed to prohibit Wachtel from devoting a nominal amount of his time to his (and his family's) personal investments, provided, however, that, in case of conflict, the performance of Wachtel's duties under this Agreement shall take precedence over his activities with respect to such investments. 3. Term. The term of this Agreement shall commence on the date hereof and shall continue through December 31, 2011 (the "Employment Term"). 4. Compensation. Auto shall pay to Wachtel a salary at the rate of $250,000 per year ("Base Compensation"), payable in accordance with Auto's customary payroll policy in effect from time to time, but in no event any less often than monthly, less withholding required by law and other deductions agreed to by Wachtel. 1 5. Bonus. In addition to the compensation provided for in Paragraph 4 of this Agreement, during the Employment Term Auto shall pay to Wachtel (i) annual cash bonuses in an amount equal to ten percent (10%) of the first $1,250,000 of Auto's consolidated combined pre-tax profit, excluding the effect of any non-cash compensation based upon the issuance of stock options and / or warrants (the "Operating Profit"), plus an additional five percent (5%) of any Operating Profit in excess of $1,250,000 (the "Annual Bonus"). The Annual Bonus, if any, for each year during the Employment Term shall be paid not later than March 31st of the subsequent year, however, during each year of the Employment Term Wachtel shall be entitled to quarterly advances in the cumulative amount equal to ninety percent (90%) of the projected Annual Bonus based upon the Operating Profit of the quarterly period then ended (the "Cumulative Advances") and shall be paid within 45 (forty five) days of the close of each quarterly period. The Cumulative Advances for any such year shall be applied against the Annual Bonus for that year and in the event the Cumulative Advances paid during any such year exceeds the actual Annual Bonus payable for that year, Wachtel shall promptly reimburse Auto an amount equal to the difference between the amount of Cumulative Advances received during such year and the actual Annual Bonus amount payable for that year; and (ii) such other bonuses as determined in the sole discretion of the Board based upon the achievement of specific objectives mutually determined by the Board and Wachtel. Notwithstanding the foregoing, in no event, subject to the sole discretion of the Board, shall the total annual Base Compensation and Annual Bonus for any particular year exceed $750,000. 6. Principal Office. Wachtel shall render his services hereunder at Auto's executive offices, to be located within the 25 mile radius of Boca Raton, Florida. If Auto's executive offices shall be relocated to any location outside of the 25 mile radius of Boca Raton, Florida, Auto shall reimburse Wachtel for any and all reasonable moving expenses actually incurred by him. 7. Expenses and Benefits. (a) Auto shall reimburse Wachtel for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder, including, without limitation, expenses in connection with cellular telephones or other wireless communications, travel and entertainment and the purchase of materials related to Auto's industry, upon presentation of appropriate documentation therefore. Subject to the foregoing, Wachtel will be entitled to business-class travel and accommodations while traveling in connection with Auto's business. (b) Auto recognizes that Wachtel will be required to incur significant travel in rendering services to Auto hereunder and in connection therewith Auto shall during the Employment Term provide Wachtel with an automobile allowance of $1,500.00 per month which the parties agree shall be used to pay all of the expenses associated with the operation of an automobile including, without limitation, maintenance, repair and insurance costs. (c) Wachtel shall be entitled to participate, to the extent he qualifies, in such life insurance, hospitalization, disability and other medical insurance plans or programs as are generally made available to executive officers of Auto. In the event that Wachtel determines not to participate in any of such plans, Auto shall reimburse him for the cost of the monthly premiums for such plans in an amount equal to Auto's cost for such plans. 2 (d) Wachtel shall be entitled to participate, subject to classification requirements, in other benefit plans, such as pension, stock purchase, stock option, savings, bonus and profit sharing plans, which are from time to time applicable to Auto's executive officers. (e) During the Employment Term, Wachtel shall be entitled to four (4) weeks of fully paid vacation per annum. Wachtel will be entitled to his regular compensation on all regularly scheduled Auto holidays. (f) Auto shall indemnify Wachtel (and his legal representatives or other successors) to the fullest extent permitted by the laws of the State of Delaware and its existing certificate of incorporation and by-laws, and Wachtel shall be entitled to the protection of any insurance policies Auto may elect to maintain generally for the benefit of its officers and/or executives, against all costs, charges and expenses whatsoever incurred or sustained by him (or his legal representatives or other successors) in connection with any action, suit or proceeding to which he (or his legal representatives or other successors) may be made a party by reason of his being or having been an officer and/or executive of Auto and its subsidiaries and affiliates. Collectively, the items referred to in paragraphs (b)-(f) of this Section 7 shall hereinafter be referred to as "Employee Benefits." 8. Termination and Termination Benefits. (a) Termination by Auto. (i) Notwithstanding any provision contained herein, Auto may terminate this Agreement at any time during the Employment Term for "cause". For purposes of this Agreement, "cause" shall mean (a) the continuing failure (after receipt of written notice from Auto) by Wachtel to substantially perform his duties hereunder for any reason other than total or partial incapacity due to Disability (as hereinafter defined) which failure to perform demonstrably causes harm to Auto, (b) gross negligence or willful misconduct on the part of Wachtel in the performance of his duties hereunder that demonstrably causes harm to Auto, and (c) the conviction of Wachtel, by a court of competent jurisdiction, of a felony or other crime involving moral turpitude. Termination pursuant to this subsection 8(a)(i) shall be effective immediately upon giving Wachtel written notice thereof stating the reason or reasons therefore with respect to clause (c) above, and 30 days after receipt of written notice thereof from Auto to Wachtel specifying the (x) acts or omissions constituting the failure, gross negligence or willful misconduct and (y) harm to Auto and requesting that they be remedied with respect to clauses (a) and (b) above, but only if Wachtel has not substantially cured such failure, gross negligence or willful misconduct within such 30 day period. In the event of a termination pursuant to this subsection 8(a)(i), Auto shall pay Wachtel his Base Compensation and Employee Benefits that have actually accrued to the date of termination. Any stock options granted by Auto to Wachtel which have not vested by the date of such termination shall terminate on such date; any vested stock options which have not been exercised by Wachtel by such date shall remain exercisable for ninety (90) days from such termination date. (ii) If, during the Employment Term, Wachtel shall be unable substantially to perform the duties required of him pursuant to the provisions of this Employment Agreement due to any physical or mental disability which is in existence for a period of ninety (90) consecutive days or for any one hundred and eighty (180) days, in either case in any twelve (12) consecutive months during the term hereof, Auto shall have the right to terminate Wachtel's employment pursuant to this Employment Agreement by giving not less than thirty (30) days' 3 written notice to Wachtel, at the end of which time Wachtel's employment shall be terminated; provided, however, that if Wachtel commences to perform the duties required by this Agreement within such 30-day period and performs such services for 25 out of 30 of the ensuing business days, then such notice shall be void. Wachtel shall retain his status and continue to receive his full compensation (including Base Compensation, Employee Benefits and Annual Bonus, if any) hereunder during the period prior to any termination hereunder because of a Disability. As used in this Employment Agreement, the term "Disability" shall mean the inability of Wachtel to perform his duties under this Employment Agreement by reason of a medical disability, including mental or physical illness, as certified by a physician or specialist appointed by Wachtel and reasonably acceptable to Auto or, if Wachtel is or is alleged to be mentally disabled, appointed by Wachtel's designee or legal representative. Upon the occurrence of such termination, Auto shall have no further obligations hereunder, except that Wachtel shall be entitled to (a) receive payment of his Base Compensation through the date of termination, (b) a pro-rata share of any bonus and profit sharing plans pursuant to Section 7(d) hereof and Annual Bonus, if any, to which Wachtel would have been entitled for the year in which such Disability occurs, (c) immediate acceleration and exercisability of any stock options which had been previously granted to Wachtel but had not yet become exercisable as of the date of such termination, which options, together with any other exercisable options shall remain exercisable until the first anniversary of such termination and (d) receive the benefits pursuant to Section 7(c) hereof, to the extent available, for the remainder of the Employment Term; provided, however, that any compensation to be paid to Wachtel pursuant to this subsection 8(a)(ii) shall be offset against any payments received by Wachtel pursuant to any policy of disability insurance the premiums of which are paid for by Auto. Nothing herein shall be construed to violate any Federal or State law including the Family and Medical Leave Act of 1993, 27 U.S.C.S. ss.2601 et seq., and the Americans With Disabilities Act, 42 U.S.C.S. ss.12101 et seq. (b) Termination by Wachtel (i) Wachtel may terminate this Agreement at any time during the Employment Term for "Good Reason" upon 30 days' written notice to Auto (during which period Wachtel shall, if requested in writing by Auto, continue to perform his duties as specified under this Agreement). "Good Reason" shall mean: (a) Auto's failure to make any of the payments or provide any of the material benefits to Wachtel under this Agreement; (b) a material reduction in Wachtel's duties or authority; or (c) Auto shall materially breach any material term of this Agreement; provided, however, that Auto has not cured, or made substantial efforts to cure, any such events within the aforementioned 30 day period. (ii) If there shall occur a "Change in Control" (as hereinafter defined) of Auto, Wachtel shall have the right to terminate his employment pursuant to this Agreement by written notice to Auto, which termination shall be deemed a termination without cause by Auto. A "Change in Control" shall be deemed to occur upon (a) the sale by Auto of all or substantially all of its assets to any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), (b) the consolidation or merger of Auto with any person as a result of which merger Auto is not the surviving entity and with respect to which persons who were the stockholders of Auto immediately prior to such consolidation or merger do not, immediately thereafter own more than 50% of the combined voting power entitled to vote generally in the election of directors of the consolidated or merged company's then outstanding voting securities or (c) a tender offer, merger, consolidation, sale of assets or contested election or any combination of the foregoing transactions in which the persons who were directors of Auto immediately before the transaction cease to constitute a majority of the Board of Directors of Auto or any successor to Auto. An "affiliate" shall mean any person that directly, or indirectly 4 through one or more intermediaries, controls, or is controlled by, or is under common control with, any other person. (iii) If Wachtel's employment hereunder is terminated by (a) Auto without cause or (b) Wachtel for Good Reason, Auto shall pay to Wachtel all compensation, bonuses and benefits that he is entitled to under this Agreement for the remainder of the Employment Term. In the event of such termination, any stock options granted by Auto to Wachtel which have not yet vested by the date of such termination shall immediately vest and become exercisable, which options, together with any other exercisable options shall remain exercisable (i) for nonqualified stock options, until the later to occur of (x) the first anniversary of such termination or (y) the scheduled expiration date of such options; and (ii) for incentive stock options, until ninety (90) days after of such termination. (iv) Wachtel may terminate this Agreement at any time during the Employment Term without Good Reason upon sixty (60) days written notice to Auto. If Wachtel terminates his employment without Good Reason, Auto shall pay Wachtel his Base Compensation and Employee Benefits that have actually accrued to the date of termination. Any stock options granted by Auto to Wachtel which have not vested by the date of such termination shall terminate on such date; and any vested stock options which have not been exercised by Wachtel by such termination date shall remain exercisable for ninety (90) days from such date, at which time such options shall terminate to the extent they have not been previously exercised. (d) In the event Wachtel's service with Auto terminates by reason of his death, Auto shall have no further obligations hereunder, except that Wachtel's estate shall be entitled to (i) receive payment of (a) his Base Compensation and Employee Benefits (but not any bonus and profit sharing plans pursuant to Section 7(d) hereof except as provided hereinafter) through the end of the third month following the month in which such death occurs, (b) a pro-rata share of any bonus and profit sharing plans pursuant to Section 7(d) hereof and Annual Bonus, if any, to which Wachtel would have been entitled for the year in which such death occurs and (ii) immediate acceleration and exercisability of any stock options which had been previously granted to Wachtel but had not yet become exercisable as of the date of such termination, which options, together with any other exercisable options, shall remain exercisable by Wachtel's estate until the earlier to occur of (x) the first anniversary of such termination or (y) the scheduled expiration date of any such options. (e) Wachtel shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any payment or benefit provided in this Agreement be reduced by any compensation or benefit earned by Wachtel after termination of his employment. 9. Non-Competition. Wachtel covenants and agrees that during his employment hereunder and for (i) the one (1) year period after his employment hereunder is terminated by Auto for cause pursuant to Section 8(a)(i) or Disability pursuant to Section 8(a)(ii) or by Wachtel without Good Reason or (ii) the period after his employment hereunder is terminated and during which Wachtel receives his Base Compensation pursuant to the terms of Section 8(b)(iii) hereof, he will not, without the prior written consent of Auto, (a) compete with the business of Auto or any of its subsidiaries or affiliates (as such business is operated as of the date of termination of this Agreement) and, in particular, he will not without such consent, directly or indirectly, own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or be connected as a director, officer, employee, partner, consultant or agent with, any business in competition with or similar to the business of Auto or any of its subsidiaries or affiliates (as such business is operated as of the date of termination of this 5 Agreement); provided, however, that Wachtel may own up to five (5%) percent of the capital stock of any publicly traded corporation in competition with the business of Auto or any of its subsidiaries or affiliates, and (b) divert, take away or interfere with or attempt to divert, take away or interfere with any present or former employee or customer of Auto or any of its subsidiaries or affiliates. In the event Auto determines not to renew this Agreement, the provisions of this Section 9 shall no longer be applicable; provided, however, that for the one (1) year period following the expiration of this Agreement Wachtel shall not divert, take away or interfere with or attempt to divert, take away or interfere with any present or former employee or customer of Auto or any of its subsidiaries or affiliates. In the event that the provisions of this Section 9 should ever be deemed to exceed the time or geographic limitations or any other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum permitted by applicable law. Wachtel acknowledges and agrees that the foregoing covenant is an essential element of this Agreement and that, but for the agreement of Wachtel to comply with the covenant, Auto would not have entered into this Agreement, and that the remedy at law for any breach of the covenant will be inadequate and Auto, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. The provisions of this Section 9 shall no longer be applicable if (x) Auto ceases to have any business activities or (y) Auto fails, after the termination hereof, to make any of the payments of Base Compensation to Wachtel under this Agreement. 10. Confidential Information. Wachtel recognizes and acknowledges that the customer lists, patents, inventions, copyrights, methods of doing business, trade secrets and proprietary information of Auto including, without limitation, as the same may exist from time to time, are valuable, special and unique assets of the business of Auto. Except in the ordinary course of business or as required by law, Wachtel shall not, during or after the Employment Term, disclose any such list of customers or any part thereof, any such patents, inventions, copyrights, methods of doing business, trade secrets or proprietary information, other than information (a) already in the public domain or that becomes public knowledge otherwise than by an act or omission of Wachtel, (b) that is or becomes available to Wachtel without obligation of confidence from a source having the legal right to disclose such information, (c) that is already in the possession of Wachtel in documented form without an obligation of confidence and was not received by Wachtel as a result of Wachtel's prior relationship with Auto or (d) in the opinion of Wachtel's counsel, that is required to be disclosed by applicable law or legal process as long as Wachtel promptly notifies Auto of such pending disclosure. In addition, Wachtel specifically acknowledges and agrees that the remedy at law for any breach of the foregoing shall be inadequate and that Auto, in addition to any other relief available to them, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. 11. COBRA. In the event of Wachtel's death during the term of this Agreement, Auto shall make all COBRA medical premium payments for Wachtel's family for the longer of (i) one year from the date of his death or (ii) the remainder of the Employment Term. 12. Life Insurance. Wachtel agrees that at any time and from time to time during the Employment Term, he will, at the request and at the expense of Auto, cooperate with Auto in obtaining insurance on his life up to $3 Million for the benefit of Auto and/or its stockholders. At the request of Auto, Wachtel will take such actions and execute and deliver such documents that may be reasonably required in connection with the obtaining of such insurance. Wachtel acknowledges that Auto, and its stockholders have an insurable interest in his life. 6 13. Opportunities. During his employment with Auto, Wachtel shall not take any action which might divert from Auto or any of its subsidiaries or affiliates any opportunity which would be within the scope of any of the present businesses of Auto or any of its subsidiaries or affiliates. 14. Contents of Agreement, Parties in Interest, Assignment, etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Wachtel hereunder which are of a personal nature shall neither be assigned nor transferred in whole or in part by Wachtel. This Agreement shall not be modified or amended except by a written instrument duly executed by Auto and Wachtel. 15. Severability. If any term or provision of this Agreement shall be held to be invalid or unenforceable for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining terms and provisions hereof, and this Agreement shall be construed as if such invalid or unenforceable term or provision had not been contained herein. 16. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other party shall be in writing and shall be deemed to have been duly given when delivered personally or by a nationally recognized overnight courier service, or five (5) days after dispatch by registered or certified mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made: If to Auto addressed to: AutoInfo, Inc. c/o Morse, Zelnick, Rose & Lander, LLP 405 Park Avenue, Suite 1401 New York, New York 10022 Attn: Kenneth S. Rose, Esq. If to Wachtel addressed to: Harry M. Wachtel 17222 Bermuda Village Dr. Boca Raton, FL 33487 or at such other address as the one party shall specify to the other party in writing. 17. Counterparts and Headings. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all which together shall constitute one and the same instrument. All headings are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 18. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Florida, without regard to the conflicts of laws principles. 19. Arbitration. Any disputes arising hereunder shall be submitted to arbitration before a single arbitrator in Palm Beach County, Florida under the rules and regulations of the American Arbitration Association. Any award in such arbitration proceeding may be enforced in any court of competent jurisdiction. 7 20. Costs of Enforcement. Each of the parties hereto shall pay all reasonable fees and expenses (including attorneys' fees) incurred by the other party in any contest or dispute arising under this Agreement or in enforcing his or its rights hereunder if such other party is the prevailing party in any such contest, dispute or enforcement. [SIGNATURE PAGE TO FOLLOW] 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. AUTOINFO, INC. By: /s/ William I Wunderlich ------------------------ Name: William I. Wunderlich Title: Executive Vice President /s/ Harry M. Wachtel -------------------------- Harry M. Wachtel 9 EX-10.J 3 d71399_ex-10j.txt EMPLOYMENT AGREEMENT (WILLIAM I. WUNDERLICH) EXHIBIT 10.J EMPLOYMENT AGREEMENT AGREEMENT ("Agreement") dated as of January 1, 2007 by and between AutoInfo, Inc., a Delaware corporation ("Auto") and William I. Wunderlich, an individual residing at 7565 NW 125th Way, Parkland, Florida 33076 ("Wunderlich") WHEREAS, Wunderlich is currently the chief financial officer of Auto; WHEREAS, Auto desires to assure itself of the benefit of Wunderlich's services and experience for the period of time provided in this Agreement; and WHEREAS, Wunderlich is willing to enter into an agreement to that end with Auto upon the terms and conditions herein set forth. NOW THEREFORE, in consideration of the premises and covenants herein contained, the parties hereto hereby agree as follows: 1. Employment. Auto hereby employs Wunderlich as its chief financial officer and Wunderlich hereby accepts such employment and agrees to perform his duties and responsibilities hereunder in accordance with the terms and conditions hereinafter set forth. 2. Duties and Responsibilities. Wunderlich shall be the chief financial officer of Auto. Wunderlich shall report to and be subject to the direction of the Board and Wunderlich shall perform such duties as may be assigned to him from time to time by the Board; provided, that such duties shall be of a nature consistent with the dignity and authority of the position of chief financial officer. During the Employment Term Wunderlich shall, subject to Auto's vacation policy, devote substantially all of his normal business time and attention to the businesses of Auto and its subsidiaries and affiliates and shall perform such duties in a businesslike manner, all for the purpose of advancing the business of Auto and its subsidiaries and affiliates. Nothing contained in this Agreement shall be deemed to prohibit Wunderlich from devoting a nominal amount of his time to his (and his family's) personal investments, provided, however, that, in case of conflict, the performance of Wunderlich's duties under this Agreement shall take precedence over his activities with respect to such investments. 3. Term. The term of this Agreement shall commence on the date hereof and shall continue through December 31, 2011 (the "Employment Term"). 4. Compensation. Auto shall pay to Wunderlich a salary at the rate of $175,000 per year ("Base Compensation"), payable in accordance with Auto's customary payroll policy in effect from time to time, but in no event any less often than monthly, less withholding required by law and other deductions agreed to by Wunderlich. 5. Bonus. In addition to the compensation provided for in Paragraph 4 of this Agreement, during the Employment Term Auto shall pay to Wunderlich (i) annual cash bonuses in an amount equal to ten percent (10%) of the first $1,250,000 of Auto's consolidated combined pre-tax profit, excluding the effect of any non-cash compensation based upon the issuance of stock options and / or warrants (the "Operating Profit"), plus an additional five percent (5%) of any Operating Profit in excess of $1,250,000 (the "Annual Bonus"). The Annual Bonus, if any, for each year during the Employment Term shall be paid not later than March 31st of the subsequent year, however, during each year of the Employment Term Wunderlich shall be entitled to quarterly advances in the cumulative amount equal to ninety percent (90%) of the 1 projected Annual Bonus based upon the Operating Profit of the quarterly period then ended (the "Cumulative Advances") and shall be paid within 45 (forty five) days of the close of each quarterly period. The Cumulative Advances for any such year shall be applied against the Annual Bonus for that year and in the event the Cumulative Advances paid during any such year exceeds the actual Annual Bonus payable for that year, Wunderlich shall promptly reimburse Auto an amount equal to the difference between the amount of Cumulative Advances received during such year and the actual Annual Bonus amount payable for that year; and (ii) such other bonuses as determined in the sole discretion of the Board based upon the achievement of specific objectives mutually determined by the Board and Wunderlich. Notwithstanding the foregoing, in no event, subject to the sole discretion of the Board, shall the total annual Base Compensation and Annual Bonus for any particular year exceed $675,000. 6. Principal Office. Wunderlich shall render his services hereunder at Auto's executive offices, to be located within the 25 mile radius of Boca Raton, Florida. If Auto's executive offices shall be relocated to any location outside of the 25 mile radius of Boca Raton, Florida, Auto shall reimburse Wunderlich for any and all reasonable moving expenses actually incurred by him. 7. Expenses and Benefits. (a) Auto shall reimburse Wunderlich for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder, including, without limitation, expenses in connection with cellular telephones or other wireless communications, travel and entertainment and the purchase of materials related to Auto's industry, upon presentation of appropriate documentation therefore. Subject to the foregoing, Wunderlich will be entitled to business-class travel and accommodations while traveling in connection with Auto's business. (b) Auto recognizes that Wunderlich will be required to incur significant travel in rendering services to Auto hereunder and in connection therewith Auto shall during the Employment Term provide Wunderlich with an automobile allowance of $1,500.00 per month which the parties agree shall be used to pay all of the expenses associated with the operation of an automobile including, without limitation, maintenance, repair and insurance costs. (c) Wunderlich shall be entitled to participate, to the extent he qualifies, in such life insurance, hospitalization, disability and other medical insurance plans or programs as are generally made available to executive officers of Auto. In the event that Wunderlich determines not to participate in any of such plans, Auto shall reimburse him for the cost of the monthly premiums for such plans in an amount equal to Auto's cost for such plans. (d) Wunderlich shall be entitled to participate, subject to classification requirements, in other benefit plans, such as pension, stock purchase, stock option, savings, bonus and profit sharing plans, which are from time to time applicable to Auto's executive officers. (e) During the Employment Term, Wunderlich shall be entitled to four (4) weeks of fully paid vacation per annum. Wunderlich will be entitled to his regular compensation on all regularly scheduled Auto holidays. (f) Auto shall indemnify Wunderlich (and his legal representatives or other successors) to the fullest extent permitted by the laws of the State of Delaware and its existing certificate of incorporation and by-laws, and Wunderlich shall be entitled to the protection of any 2 insurance policies Auto may elect to maintain generally for the benefit of its officers and/or executives, against all costs, charges and expenses whatsoever incurred or sustained by him (or his legal representatives or other successors) in connection with any action, suit or proceeding to which he (or his legal representatives or other successors) may be made a party by reason of his being or having been an officer and/or executive of Auto and its subsidiaries and affiliates. Collectively, the items referred to in paragraphs (b)-(f) of this Section 7 shall hereinafter be referred to as "Employee Benefits." 8. Termination and Termination Benefits. (a) Termination by Auto. (i) Notwithstanding any provision contained herein, Auto may terminate this Agreement at any time during the Employment Term for "cause". For purposes of this Agreement, "cause" shall mean (a) the continuing failure (after receipt of written notice from Auto) by Wunderlich to substantially perform his duties hereunder for any reason other than total or partial incapacity due to Disability (as hereinafter defined) which failure to perform demonstrably causes harm to Auto, (b) gross negligence or willful misconduct on the part of Wunderlich in the performance of his duties hereunder that demonstrably causes harm to Auto, and (c) the conviction of Wunderlich, by a court of competent jurisdiction, of a felony or other crime involving moral turpitude. Termination pursuant to this subsection 8(a)(i) shall be effective immediately upon giving Wunderlich written notice thereof stating the reason or reasons therefore with respect to clause (c) above, and 30 days after receipt of written notice thereof from Auto to Wunderlich specifying the (x) acts or omissions constituting the failure, gross negligence or willful misconduct and (y) harm to Auto and requesting that they be remedied with respect to clauses (a) and (b) above, but only if Wunderlich has not substantially cured such failure, gross negligence or willful misconduct within such 30 day period. In the event of a termination pursuant to this subsection 8(a)(i), Auto shall pay Wunderlich his Base Compensation and Employee Benefits that have actually accrued to the date of termination. Any stock options granted by Auto to Wunderlich which have not vested by the date of such termination shall terminate on such date; any vested stock options which have not been exercised by Wunderlich by such date shall remain exercisable for ninety (90) days from such termination date. (ii) If, during the Employment Term, Wunderlich shall be unable substantially to perform the duties required of him pursuant to the provisions of this Employment Agreement due to any physical or mental disability which is in existence for a period of ninety (90) consecutive days or for any one hundred and eighty (180) days, in either case in any twelve (12) consecutive months during the term hereof, Auto shall have the right to terminate Wunderlich's employment pursuant to this Employment Agreement by giving not less than thirty (30) days' written notice to Wunderlich, at the end of which time Wunderlich's employment shall be terminated; provided, however, that if Wunderlich commences to perform the duties required by this Agreement within such 30-day period and performs such services for 25 out of 30 of the ensuing business days, then such notice shall be void. Wunderlich shall retain his status and continue to receive his full compensation (including Base Compensation, Employee Benefits and Annual Bonus, if any) hereunder during the period prior to any termination hereunder because of a Disability. As used in this Employment Agreement, the term "Disability" shall mean the inability of Wunderlich to perform his duties under this Employment Agreement by reason of a medical disability, including mental or physical illness, as certified by a physician or specialist appointed by Wunderlich and reasonably acceptable to Auto or, if 3 Wunderlich is or is alleged to be mentally disabled, appointed by Wunderlich's designee or legal representative. Upon the occurrence of such termination, Auto shall have no further obligations hereunder, except that Wunderlich shall be entitled to (a) receive payment of his Base Compensation through the date of termination, (b) a pro-rata share of any bonus and profit sharing plans pursuant to Section 7(d) hereof and Annual Bonus, if any, to which Wunderlich would have been entitled for the year in which such Disability occurs, (c) immediate acceleration and exercisability of any stock options which had been previously granted to Wunderlich but had not yet become exercisable as of the date of such termination, which options, together with any other exercisable options shall remain exercisable until the first anniversary of such termination and (d) receive the benefits pursuant to Section 7(c) hereof, to the extent available, for the remainder of the Employment Term; provided, however, that any compensation to be paid to Wunderlich pursuant to this subsection 8(a)(ii) shall be offset against any payments received by Wunderlich pursuant to any policy of disability insurance the premiums of which are paid for by Auto. Nothing herein shall be construed to violate any Federal or State law including the Family and Medical Leave Act of 1993, 27 U.S.C.S. ss.2601 et seq., and the Americans With Disabilities Act, 42 U.S.C.S. ss.12101 et seq. (b) Termination by Wunderlich (i) Wunderlich may terminate this Agreement at any time during the Employment Term for "Good Reason" upon 30 days' written notice to Auto (during which period Wunderlich shall, if requested in writing by Auto, continue to perform his duties as specified under this Agreement). "Good Reason" shall mean: (a) Auto's failure to make any of the payments or provide any of the material benefits to Wunderlich under this Agreement; (b) a material reduction in Wunderlich's duties or authority; or (c) Auto shall materially breach any material term of this Agreement; provided, however, that Auto has not cured, or made substantial efforts to cure, any such events within the aforementioned 30 day period. (ii) If there shall occur a "Change in Control" (as hereinafter defined) of Auto, Wunderlich shall have the right to terminate his employment pursuant to this Agreement by written notice to Auto, which termination shall be deemed a termination without cause by Auto. A "Change in Control" shall be deemed to occur upon (a) the sale by Auto of all or substantially all of its assets to any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), (b) the consolidation or merger of Auto with any person as a result of which merger Auto is not the surviving entity and with respect to which persons who were the stockholders of Auto immediately prior to such consolidation or merger do not, immediately thereafter own more than 50% of the combined voting power entitled to vote generally in the election of directors of the consolidated or merged company's then outstanding voting securities or (c) a tender offer, merger, consolidation, sale of assets or contested election or any combination of the foregoing transactions in which the persons who were directors of Auto immediately before the transaction cease to constitute a majority of the Board of Directors of Auto or any successor to Auto. An "affiliate" shall mean any person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, any other person. (iii) If Wunderlich's employment hereunder is terminated by (a) Auto without cause or (b) Wunderlich for Good Reason, Auto shall pay to Wunderlich all compensation, bonuses and benefits that he is entitled to under this Agreement for the remainder of the Employment Term. In the event of such termination, any stock options granted by Auto to Wunderlich which have not yet vested by the date of such termination shall immediately vest and become exercisable, which options, together with any other exercisable options shall remain exercisable (i) for nonqualified stock options, until the later to occur of (x) the first anniversary 4 of such termination or (y) the scheduled expiration date of such options; and (ii) for incentive stock options, until ninety (90) days after of such termination. (iv) Wunderlich may terminate this Agreement at any time during the Employment Term without Good Reason upon sixty (60) days written notice to Auto. If Wunderlich terminates his employment without Good Reason, Auto shall pay Wunderlich his Base Compensation and Employee Benefits that have actually accrued to the date of termination. Any stock options granted by Auto to Wunderlich which have not vested by the date of such termination shall terminate on such date; and any vested stock options which have not been exercised by Wunderlich by such termination date shall remain exercisable for ninety (90) days from such date, at which time such options shall terminate to the extent they have not been previously exercised. (d) In the event Wunderlich's service with Auto terminates by reason of his death, Auto shall have no further obligations hereunder, except that Wunderlich's estate shall be entitled to (i) receive payment of (a) his Base Compensation and Employee Benefits (but not any bonus and profit sharing plans pursuant to Section 7(d) hereof except as provided hereinafter) through the end of the third month following the month in which such death occurs, (b) a pro-rata share of any bonus and profit sharing plans pursuant to Section 7(d) hereof and Annual Bonus, if any, to which Wunderlich would have been entitled for the year in which such death occurs and (ii) immediate acceleration and exercisability of any stock options which had been previously granted to Wunderlich but had not yet become exercisable as of the date of such termination, which options, together with any other exercisable options, shall remain exercisable by Wunderlich's estate until the earlier to occur of (x) the first anniversary of such termination or (y) the scheduled expiration date of any such options. (e) Wunderlich shall not be required to mitigate the amount of any payments provided for by this Agreement by seeking employment or otherwise, nor shall the amount of any payment or benefit provided in this Agreement be reduced by any compensation or benefit earned by Wunderlich after termination of his employment. 9. Non-Competition. Wunderlich covenants and agrees that during his employment hereunder and for (i) the one (1) year period after his employment hereunder is terminated by Auto for cause pursuant to Section 8(a)(i) or Disability pursuant to Section 8(a)(ii) or by Wunderlich without Good Reason or (ii) the period after his employment hereunder is terminated and during which Wunderlich receives his Base Compensation pursuant to the terms of Section 8(b)(iii) hereof, he will not, without the prior written consent of Auto, (a) compete with the business of Auto or any of its subsidiaries or affiliates (as such business is operated as of the date of termination of this Agreement) and, in particular, he will not without such consent, directly or indirectly, own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or be connected as a director, officer, employee, partner, consultant or agent with, any business in competition with or similar to the business of Auto or any of its subsidiaries or affiliates (as such business is operated as of the date of termination of this Agreement); provided, however, that Wunderlich may own up to five (5%) percent of the capital stock of any publicly traded corporation in competition with the business of Auto or any of its subsidiaries or affiliates, and (b) divert, take away or interfere with or attempt to divert, take away or interfere with any present or former employee or customer of Auto or any of its subsidiaries or affiliates. In the event Auto determines not to renew this Agreement, the provisions of this Section 9 shall no longer be applicable; provided, however, that for the one (1) year period following the expiration of this Agreement Wunderlich shall not divert, take away or interfere with or attempt to divert, take away or interfere with any present or former employee or customer of Auto or any of its subsidiaries or affiliates. In the event that the provisions of this 5 Section 9 should ever be deemed to exceed the time or geographic limitations or any other limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum permitted by applicable law. Wunderlich acknowledges and agrees that the foregoing covenant is an essential element of this Agreement and that, but for the agreement of Wunderlich to comply with the covenant, Auto would not have entered into this Agreement, and that the remedy at law for any breach of the covenant will be inadequate and Auto, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. The provisions of this Section 9 shall no longer be applicable if (x) Auto ceases to have any business activities or (y) Auto fails, after the termination hereof, to make any of the payments of Base Compensation to Wunderlich under this Agreement. 10. Confidential Information. Wunderlich recognizes and acknowledges that the customer lists, patents, inventions, copyrights, methods of doing business, trade secrets and proprietary information of Auto including, without limitation, as the same may exist from time to time, are valuable, special and unique assets of the business of Auto. Except in the ordinary course of business or as required by law, Wunderlich shall not, during or after the Employment Term, disclose any such list of customers or any part thereof, any such patents, inventions, copyrights, methods of doing business, trade secrets or proprietary information, other than information (a) already in the public domain or that becomes public knowledge otherwise than by an act or omission of Wunderlich, (b) that is or becomes available to Wunderlich without obligation of confidence from a source having the legal right to disclose such information, (c) that is already in the possession of Wunderlich in documented form without an obligation of confidence and was not received by Wunderlich as a result of Wunderlich's prior relationship with Auto or (d) in the opinion of Wunderlich's counsel, that is required to be disclosed by applicable law or legal process as long as Wunderlich promptly notifies Auto of such pending disclosure. In addition, Wunderlich specifically acknowledges and agrees that the remedy at law for any breach of the foregoing shall be inadequate and that Auto, in addition to any other relief available to them, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. 11. COBRA. In the event of Wunderlich's death during the term of this Agreement, Auto shall make all COBRA medical premium payments for Wunderlich's family for the longer of (i) one year from the date of his death or (ii) the remainder of the Employment Term. 12. Life Insurance. Wunderlich agrees that at any time and from time to time during the Employment Term, he will, at the request and at the expense of Auto, cooperate with Auto in obtaining insurance on his life up to $3 Million for the benefit of Auto and/or its stockholders. At the request of Auto, Wunderlich will take such actions and execute and deliver such documents that may be reasonably required in connection with the obtaining of such insurance. Wunderlich acknowledges that Auto, and its stockholders have an insurable interest in his life. 13. Opportunities. During his employment with Auto, Wunderlich shall not take any action which might divert from Auto or any of its subsidiaries or affiliates any opportunity which would be within the scope of any of the present businesses of Auto or any of its subsidiaries or affiliates. 14. Contents of Agreement, Parties in Interest, Assignment, etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties 6 hereto, except that the duties and responsibilities of Wunderlich hereunder which are of a personal nature shall neither be assigned nor transferred in whole or in part by Wunderlich. This Agreement shall not be modified or amended except by a written instrument duly executed by Auto and Wunderlich. 15. Severability. If any term or provision of this Agreement shall be held to be invalid or unenforceable for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining terms and provisions hereof, and this Agreement shall be construed as if such invalid or unenforceable term or provision had not been contained herein. 16. Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other party shall be in writing and shall be deemed to have been duly given when delivered personally or by a nationally recognized overnight courier service, or five (5) days after dispatch by registered or certified mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made: If to Auto addressed to: AutoInfo, Inc. c/o Morse, Zelnick, Rose & Lander, LLP 405 Park Avenue, Suite 1401 New York, New York 10022 Attn: Kenneth S. Rose, Esq. If to Wunderlich addressed to: William I. Wunderlich 7565 NW 125th Way Parkland, Florida 33076 or at such other address as the one party shall specify to the other party in writing. 17. Counterparts and Headings. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all which together shall constitute one and the same instrument. All headings are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement. 18. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Florida, without regard to the conflicts of laws principles. 19. Arbitration. Any disputes arising hereunder shall be submitted to arbitration before a single arbitrator in Palm Beach County, Florida under the rules and regulations of the American Arbitration Association. Any award in such arbitration proceeding may be enforced in any court of competent jurisdiction. 20. Costs of Enforcement. Each of the parties hereto shall pay all reasonable fees and expenses (including attorneys' fees) incurred by the other party in any contest or dispute arising under this Agreement or in enforcing his or its rights hereunder if such other party is the prevailing party in any such contest, dispute or enforcement. [SIGNATURE PAGE TO FOLLOW] 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. AUTOINFO, INC. By: /s/ Harry M. Wachtel -------------------- Name: Harry M. Wachtel Title: President /s/ William I Wunderlich ------------------------ William I. Wunderlich 8 EX-10.R 4 d71399_ex-10r.txt THIRD AMEND., REV. CRED. & SEC. AGMT. EXHIBIT 10R THIRD AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT THIS THIRD AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT (this "Third Amendment) executed and delivered as of September 23, 2006, by and between WACHOVIA BANK, NATIONAL ASSOCIATION ("Bank"), and among AUTOINFO, INC., a Delaware corporation, SUNTECK TRANSPORT CO., INC., a Florida corporation and SUNTECK TRANSPORT & LOGISTICS, INC., a Florida corporation (collectively, the "Borrower"). RECITALS: A. On May 23, 2003, Borrower and Bank, executed and delivered that certain Revolving Credit and Security Agreement (the "Original Credit Agreement") under the terms of which Bank provided a line of credit to Borrower in the amount of $1,500,000. B. On June 29, 2004, Borrower and Bank, executed and delivered that certain First Amendment to Revolving Credit and Security Agreement (the "First Amendment") which increased the Maximum Loan Amount to $2,500,000, extended the facility and amended certain other terms of the Credit Agreement. C. On July 3, 2005, Borrower and Bank, executed and delivered that certain Second Amendment to Revolving Credit and Security Agreement (the "First Amendment") which modified the reporting requirements and amended certain other terms of the Credit Agreement. D. The parties desire to make certain changes to the terms of the Credit Agreement, as amended by the First Amendment and the Second amendment, as described herein. NOW, THEREFORE, in consideration of the agreements set forth herein and other good and valuable consideration, the Bank and the Borrower hereby agree as follows: 1. Definitions. All capitalized terms used herein shall have the same meanings as used in the Credit Agreement, unless otherwise defined in this Third Amendment and the rules of construction set forth in the Credit Agreement shall apply to this Third Amendment. Any reference herein to the Credit Agreement shall mean the Credit Agreement as amended by the First Amendment, the Second Amendment and this Third Amendment. 2. Amendments. (A) Maximum Loan Amount. The definition of Maximum Loan Amount in Exhibit Ito the Credit Agreement is hereby amended and restated to read as follows: "Maximum Loan Amount means Four Million Dollars ($4,000.000)." (B) Termination Date. The definition of Termination Date in Exhibit Ito the Credit Agreement is hereby amended and restated to read as follows: "Termination Date" means June 30, 2008 (unless extended in writing by Bank) 3. Effectiveness. The effectiveness of this Third Amendment shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 3: a. Delivery of Documents. The Bank shall have received counterparts of the following documents executed by the Borrower and dated as of the date hereof: (i) this Third Amendment; (ii) that certain Third Renewal Revolving Promissory Note dated of even date herewith; and (iii) such documents, certificates, affidavits and acknowledgments as may be reasonably required by the Bank to consummate the transaction contemplated by this Third Amendment. b. Other Conditions Precedent. Borrower shall pay all of Banks reasonable attorney's fees and costs incurred in connection with the transaction contemplated by this Third Amendment. 4. No Event of Default/Representations and Warranties. The Borrower certifies to the Bank that Borrower has kept, observed, performed and fulfilled each and every covenant, provision and condition of the Credit Agreement and each other Loan Document to which Borrower is a party on its part to be performed and that no Event of Default has occurred with respect to Borrower under the Credit Agreement or any other Loan Document to which Borrower is a party. The Borrower further certifies to Bank that, both immediately before and after giving effect to this Third Amendment, the representations and warranties set forth in Article 4 of the Credit Agreement with respect to the Borrower, are true and correct in all material respects on and as of the date of this Third Amendment. S. Credit Agreement Confirmed. This Third Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. 6. Miscellaneous. a. Invalidity. In the event that any one or more of the provisions contained in this Third Amendment shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Third Amendment. b. Counterparts. This Third Amendment may be executed in several counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof~ each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. c. Reference. From and after the effective date hereof, all references to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended by this Third Amendment. d. Governing Law. This Third Amendment shall be governed by and interpreted and enforced in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and delivered as of the date first above written. "BANK' WACHOVIA BANK, NATIONAL ASSOCIATION By:/s/ David C. Jackson ----------------------- Name: David C. Jackson Title: Vice President "BORROWER' Autoinfo, Inc. By: /s/ Harry M. Wachtel ------------------------ Name: Harry M. Wachtel Its: President Sunteck Transport Co., Inc. By: /s/ Harry M. Wachtel ------------------------ Name: Harry M. Wachtel Its: President Sunteck Transport & Logistics, Inc. By: /s/ Harry M. Wachtel ------------------------ Name: Harry M. Wachtel Its: President EX-10.T 5 d71399_ex-10t.txt 2005 INDEPENDENT SALES AGENTS' STOCK OPTION PLAN EXHIBIT 10T AUTOINFO, INC. 2005 INDEPENDENT SALES AGENTS' STOCK OPTION PLAN 1. Purpose; Types of Awards; Construction. The purpose of the AutoInfo, Inc. 2005 Independent Sales Agent Stock Option Plan (the "Plan") is to align the interests of indenpendent sales agents of AutoInfo, Inc. (the "Company") and its affiliates with those of the stockholders of the Company, to afford an incentive to such sales agents to continue as such, to increase their efforts on behalf of the Company and to promote the success of the Company's business. To further such purposes, the Committee may grant options to its independent sales agents to purchase shares of the Company's common stock. The provisions of the Plan are not intended to satisfy the requirements of Section 16(b) of the Securities Exchange Act of 1934 and of Section 162(m) of the Internal Revenue Code of 1986, as amended. 2. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated below: (a) "Agreement" shall mean a written agreement entered into between the Company and an Optionee in connection with an award under the Plan. (b) "Board" shall mean the Board of Directors of the Company. (c) "Cause," when used in connection with the termination of an Optionee's affiliation by the Company or the cessation of an Optionee's service as a sales agent, shall mean (i) the conviction of the Optionee for the commission of a felony, or (ii) the willful and continued failure by the Optionee substantially to perform his duties and obligations to the Company or a Subsidiary (other than any such failure resulting from his incapacity due to physical or mental illness), or (iii) the willful engaging by the Optionee in misconduct that is demonstrably injurious to the Company or a Subsidiary. For purposes of this Section 2(c), no act, or failure to act, on an Optionee's part shall be considered "willful" unless done, or omitted to be done, by the Optionee in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. The Committee shall determine whether a termination is for Cause for purposes of the Plan. (d) "Change in Control" shall mean the occurrence of the event set forth in any of the following paragraphs: (i) any Person (as defined below) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company (not including in the securities benefi- cially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or a direct or indirect subsidiary thereof with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of this Section 2(d), "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such 2 securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (e) "Committee" shall mean a committee established by the Board to administer the Plan. (f) "Common Stock" shall mean shares of common stock, no par value, of the Company. (g) "Company" shall mean AutoInfo, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. (h) "Disability" shall mean an Optionee's inability to perform his duties with the Company or on the Board by reason of any medically determinable physical or mental impairment, as determined by a physician selected by the Optionee and acceptable to the Company. (i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases. (j) "Fair Market Value" per share as of a particular date shall mean (i) if the shares of Common Stock are then listed on a national securities exchange, the closing sales price per share of Common Stock on the national securities exchange on which the Common Stock is principally traded for the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the shares of Common Stock are then traded in an over-the-counter market, the closing bid price for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market, or (iii) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine. (k) "Nonqualified Option" shall mean an Option that is not an Incentive Stock Option. (l) "Option" shall mean the right, granted hereunder, to purchase shares of Common Stock. Options granted by the Committee pursuant to the Plan shall be Nonqualified Stock Options. (m) "Optionee" shall mean a person who receives a grant of an Option. (n) "Option Price" shall mean the exercise price of the shares of Common Stock covered by an Option. (o) "Parent" shall mean any company (other than the Company) in an unbroken chain of companies ending with the Company if, at the time of granting an Option, each of the companies other than the Company owns stock possessing fifty percent (50%) or 3 more of the total combined voting power of all classes of stock in one of the other companies in such chain. (p) "Plan" shall mean this AutoInfo, Inc. 2005 Independent Sales Agent Stock Option Plan. (q) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, including any successor to such Rule. (r) "Subsidiary" shall mean any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an Option, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain. 3. Administration. The Plan, except as may otherwise be determined by the Board, shall be administered by the Board or a Committee thereof. The Board and/or the Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine the purchase price of the shares of Common Stock covered by each Option; to determine the persons to whom, and the time or times at which awards shall be granted; to determine the number of shares to be covered by each award; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Agreements (which need not be identical) and to cancel or suspend awards, as necessary; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Board and/or the Committee may not delegate its authority to grant Options. The Board and/or the Committee may employ one or more persons to render advice with respect to any responsibility that the Board and/or the Committee may have under the Plan. All decisions, determination and interpretations of the Board and/or the Committee shall be final and binding on all Optionees of any awards under this Plan. All determinations of the Board and/or the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. 4 No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any award granted hereunder. 4. Eligibility. Awards under the Plan may be granted exclusively to independent sales agents of the Company, and its Subsidiaries. In determining the persons to whom awards shall be granted and the number of shares to be covered by each award, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. 5. Stock. The maximum number of shares of Common Stock reserved for the grant of awards under the Plan shall be 2,500,000, subject to adjustment as provided in Section 9 hereof. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company. If any outstanding award under the Plan should for any reason expire, be canceled or be forfeited without having been exercised in full, the shares of Common Stock allocable to the unexercised, canceled or terminated portion of such award shall (unless the Plan shall have been terminated) become available for subsequent grants of awards under the Plan. 6. Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by an Agreement, in such form and containing such terms and conditions as the Committee shall from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions, unless otherwise specifically provided in such Option Agreement: (a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates. (b) Type of Option. Each Option Agreement shall specifically state that the Option constitutes a Nonqualified Stock Option. (c) Option Price. Each Option Agreement shall state the Option Price, which shall not be less than one hundred percent (100%) of the Fair Market Value of the shares of Common Stock covered by the Option on the date of grant. The Option Price shall be subject to adjustment as provided in Section 9 hereof. The date as of which the Board and/or the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted, unless such resolution specifies a different date. (d) Medium and Time of Payment. The Option Price shall be paid in full, at the time of exercise, in cash. 5 (e) Exercise Schedule and Period of Options. Each Option Agreement shall provide the exercise schedule for the Option as determined by the Board and/or the Committee; provided, however, that, the Board and/or the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. The exercise period shall be ten (10) years from the date of the grant of the Option unless otherwise determined by the Board and/or the Committee. The exercise period shall be subject to earlier termination as provided in Sections 6(f) and 6(g) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by written notice delivered in person or by mail to the Secretary of the Company, specifying the number of shares of Common Stock with respect to which the Option is being exercised. (f) Termination. Except as provided in this Section 6(f) and in Section 6(g) hereof, an Option may not be exercised unless an Optionee who is an independent sales agent, the Optionee is then providing services to the Company in such capacity. In the event that the services of an Optionee as a an independent sales agent shall cease (other than by reason of death, Disability, or Cause), all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within ninety (90) days after the date of such termination or service (or such different period as the Board and/or the Committee shall prescribe). (g) Death or Disability of Optionee. If an Optionee shall die while affiliated with the Company or a Subsidiary, or within ninety (90) days after the date of termination of such Optionee's affiliation with the Company (or within such different period as the Board and/or the Committee may have provided pursuant to Section 6(f) hereof), or if the Optionee's service shall cease by reason of Disability, all Options theretofore granted to such Optionee (to the extent otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by his beneficiary, at any time within one year after the death or Disability of the Optionee (or such different period as the Committee shall prescribe). In the event that an Option granted hereunder shall be exercised by the legal representatives of a deceased or former Optionee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative to exercise such Option. Unless otherwise determined by the Committee, Options not otherwise exercisable on the date of termination of employment shall be forfeited as of such date. (h) Other Provisions. The Option Agreements evidencing awards under the Plan shall contain such other terms and conditions not inconsistent with the Plan as the Board and/or the Committee may determine, including penalties for the commission of competitive acts. 7. Effect of Certain Changes. (a) In the event of any extraordinary dividend, stock dividend, recapitalization, merger, consolidation, stock split, warrant or rights issuance, or combination or exchange of such shares, or other similar transactions, each of the number of shares of Common 6 Stock available for awards, the number of such shares covered by outstanding awards, and the price per share of Options, as appropriate, shall be equitably adjusted by the Committee to reflect such event and preserve the value of such awards. (b) Upon the occurrence of a Change in Control, each Option granted under the Plan and then outstanding but not yet exercisable shall thereupon become fully exercisable. 8. Surrender and Exchange of Awards. The Board and/or the Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan or any option granted under any other plan, program or arrangement of the Company or any Subsidiary ("Surrendered Option"), to be conditioned upon the granting to the Optionee of a new Option for the same number of shares of Common Stock as the Surrendered Option, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such Optionee. Subject to the provisions of the Plan, such new Option shall be an Nonqualified Stock Option, and shall be exercisable at the price, during such period and on such other terms and conditions as are specified by the Board and/or the Committee at the time the new Option is granted. 9. Period During Which Awards May Be Granted. Awards may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, unless the Board shall terminate the Plan at an earlier date or extend its term. 10. Nontransferability of Awards. Except as otherwise determined by the Committee, awards granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, and awards may be exercised or otherwise realized, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative. 11. Agreement by Optionee Regarding Withholding Taxes. If the Committee shall so require, as a condition of exercise of a Nonqualified Stock Option (a "Tax Event"), each Optionee shall agree that no later than the date of the Tax Event, such Optionee will pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the Tax Event. Alternatively, the Committee may provide that such an Optionee may elect, to the extent permitted or required by law, to have the Company deduct federal, state and local taxes of any kind required by law to be withheld upon the Tax Event from any payment of any kind due the Optionee. Any decision made by the Committee under this Section 11 shall be in the Committee's sole discretion. 7 12. Amendment and Termination of the Plan. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan. Except as provided in Section 7(a) hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any award previously granted, unless the written consent of the Optionee is obtained. 13. Rights as a Shareholder. An Optionee or a transferee of an award shall have no rights as a shareholder with respect to any shares covered by the award until the date of the issuance of a stock certificate to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 7(a) hereof. 14. No Rights to Service as an Iindependent Sales Agent, or Otherwise. Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall confer upon any Optionee the right to an continued affiliation with Company or any Subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary to terminate such Optionee's service. 15. Beneficiary. An Optionee may file with the Board and/or the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Optionee, the executor or administrator of the Optionee's estate shall be deemed to be the Optionee's beneficiary. 16. Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 8 EX-10.U 6 d71399_ex-10u.txt 2006 STOCK OPTION PLAN EXHIBIT 10U AUTOINFO, INC. 2006 STOCK OPTION PLAN 1. Purpose; Types of Awards; Construction. The purpose of the AutoInfo, Inc. 2006 Stock Option Plan (the "Plan") is to align the interests of officers, other key employees, consultants and nonemployee directors of AutoInfo, Inc. (the "Company") and its affiliates with those of the stockholders of the Company, to afford an incentive to such officers, employees, consultants and directors to continue as such, to increase their efforts on behalf of the Company and to promote the success of the Company's business. To further such purposes, the Company may grant options to purchase shares of the Company's common stock. The provisions of the Plan are intended to satisfy the requirements of Section 16(b) of the Exchange Act (as defined below) and of Section 162(m) of the Code (as defined below), and shall be interpreted in a manner consistent with the requirements thereof, as now or hereafter construed, interpreted and applied by regulations, rulings and cases. 2. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated below: (a) "Agreement" shall mean a written agreement entered into between the Company and an Optionee (as defined below) in connection with an award under the Plan. (b) "Board" shall mean the Board of Directors of the Company. (c) "Cause," when used in connection with the termination of an Optionee's employment by the Company or the cessation of an Optionee's service as a consultant or a member of the Board, shall mean (i) the conviction of the Optionee for the commission of a felony, or (ii) the willful and continued failure by the Optionee to substantially perform his duties and obligations to the Company or a Subsidiary (as defined below) (other than any such failure resulting from his incapacity due to physical or mental illness), or (iii) the willful engaging by the Optionee in misconduct that is demonstrably injurious to the Company or a Subsidiary. For purposes of this Section 2(c), no act, or failure to act, on an Optionee's part shall be considered "willful" unless done, or omitted to be done, by the Optionee in bad faith and without reasonable belief that his action or omission was in the best interest of the Company. The Committee (as defined below) shall determine whether a termination of employment is for Cause for purposes of the Plan. (d) "Change in Control" shall mean the occurrence of the event set forth in any of the following paragraphs: (i) any Person (as defined below) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act (as defined below), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or a direct or indirect subsidiary thereof with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of this Section 2(d), "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 2 (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" shall mean a committee established by the Board to administer the Plan. (g) "Common Stock" shall mean shares of common stock, $.001 par value, of the Company. (h) "Company" shall mean AutoInfo, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. (i) "Disability" shall mean an Optionee's inability to perform his duties with the Company or on the Board by reason of any medically determinable physical or mental impairment, as determined by a physician selected by the Optionee and acceptable to the Company. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases. (k) "Fair Market Value" per share as of a particular date shall mean (i) if the shares of Common Stock are then listed on a national securities exchange, the closing sales price per share of Common Stock on the national securities exchange on which the Common Stock is principally traded for the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the shares of Common Stock are then traded in an over-the-counter market, the closing bid price for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market, or (iii) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine. (l) "Incentive Stock Option" shall mean any option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code. (m) "Nonemployee Director" shall mean a member of the Board who is not an employee of the Company. (n) "Nonqualified Option" shall mean an Option that is not an Incentive Stock Option. (o) "Option" shall mean the right, granted hereunder, to purchase shares of Common Stock. Options granted by the Committee pursuant to the Plan may constitute either Incentive Stock Options or Nonqualified Stock Options. 3 (p) "Optionee" shall mean a person who receives a grant of an Option under the Plan. (q) "Option Price" shall mean the exercise price of an Option to purchase a share of Common Stock covered by such Option. (r) "Parent" shall mean any company (other than the Company) in an unbroken chain of companies ending with the Company if, at the time of granting an Option, each of the companies other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain. (s) "Plan" shall mean this AutoInfo, Inc. 2006 Stock Option Plan. (t) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in effect, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, including any successor to such Rule. (u) "Subsidiary" shall mean any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an Option, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain. (v) "Ten Percent Stockholder" shall mean an Optionee who, at the time an Incentive Stock Option is granted, owns (or is deemed to own pursuant to the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary. 3. Administration. The Plan, except as may otherwise be determined by the Board, shall be administered by the Committee, the members of which shall be "nonemployee directors" under Rule 16b-3 and "outside directors" under Section 162(m) of the Code. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine which Options shall constitute Incentive Stock Options and which Options shall constitute Nonqualified Stock Options; to determine the purchase price of the shares of Common Stock covered by each Option; to determine the persons to whom, and the time or times at which awards shall be granted; to determine the number of shares to be covered by each award; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Agreements (which need not be identical) and to cancel or suspend awards, as necessary; and to make all other determinations deemed necessary or advisable for the administration of the Plan. 4 The Committee may not delegate its authority to grant Options. The Committee may employ one or more persons to render advice with respect to any responsibility the Committee may have under the Plan. The Board shall have sole authority, unless expressly delegated to the Committee, to grant Options to Nonemployee Directors. All decisions, determination and interpretations of the Committee shall be final and binding on all Optionees of any awards under this Plan. The Board shall have the authority to fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members. One member of the Committee shall be selected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any award granted hereunder. 4. Eligibility. Awards may be granted to officers and other key employees of and consultants to the Company, and its Subsidiaries, including officers and directors who are employees, and to Nonemployee Directors. In determining the persons to whom awards shall be granted and the number of shares to be covered by each award, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. 5. Stock. The maximum number of shares of Common Stock reserved for the grant of awards under the Plan shall be Three Million (3,000,000), subject to adjustment as provided in Section 9 hereof. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company. The Company, during the term of this Plan, will at all times reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements of the Plan. If any outstanding award under the Plan should for any reason expire, be canceled or be forfeited without having been exercised in full, the shares of Common Stock allocable to the unexercised, canceled or terminated portion of such award shall (unless the Plan shall have been terminated) become available for subsequent grants of awards under the Plan. 5 6. Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by an Agreement, in such form and containing such terms and conditions as the Committee shall from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions, unless otherwise specifically provided in such Agreement: (a) Number of Shares. Each Agreement shall state the number of shares of Common Stock to which the Option relates. (b) Type of Option. Each Agreement shall specifically state that the Option constitutes an Incentive Stock Option or a Nonqualified Stock Option. (c) Option Price. Each Agreement shall state the Option Price, which shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock covered by the Option on the date of grant. The Option Price shall be subject to adjustment as provided in Section 9 hereof. The date as of which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted, unless such resolution specifies a different date. (d) Exercise Schedule and Period of Options. Each Agreement shall provide the exercise schedule for the Option as determined by the Committee; provided, however, that, the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. The exercise period shall be ten (10) years from the date of the grant of the Option unless otherwise determined by the Committee; provided, however, that, in the case of an Incentive Stock Option, such exercise period shall not exceed ten (10) years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Sections 6(f), 6(g) and 6(h) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by written notice delivered in person or by mail to the Chief Financial Officer of the Company, specifying the number of shares of Common Stock with respect to which the Option is being exercised. (e) Medium and Time of Payment. The Option Price multiplied by the number of shares of Common Stock exercised by the Optionee shall be paid in full, at the time of exercise, in cash. (f) Termination. Except as provided in this Section 6(f) and in Sections 6(g) and 6(h) hereof, an Option may not be exercised unless (i) with respect to an Optionee who is an employee of the Company or a Subsidiary, the Optionee is then in the employ of the Company or a Subsidiary (or a company or a Parent or Subsidiary company of such company issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies), and unless the Optionee has remained continuously so employed since the date of grant of the Option and (ii) with respect to an Optionee who is a Nonemployee Director, the Optionee is then serving as a member of the Board or as a member of a board of directors of a company or a Parent or 6 Subsidiary company of such company issuing or assuming the Option. In the event that the employment of an Optionee shall terminate or the service of an Optionee as a member of the Board shall cease (other than by reason of death or Disability), all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within ninety (90) days after the date of such termination of service (or such different period as the Committee shall prescribe). (g) Death or Disability of Optionee. If an Optionee shall die while employed by the Company or a Subsidiary or serving as a member of the Board, or within ninety (90) days after the date of termination of such Optionee's employment or cessation of such Optionee's service which shall not have been for Cause, in which case this Section 6(g) shall not be applicable, (or within such different period as the Committee may have provided pursuant to Sections 6(f) hereof), or if the Optionee's employment shall terminate or service shall cease by reason of Disability, all Options theretofore granted to such Optionee (to the extent otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by his beneficiary, at any time within one year after the death or Disability of the Optionee (or such different period as the Committee shall prescribe). In the event that an Option granted hereunder shall be exercised by the legal representatives of a deceased or former Optionee, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative to exercise such Option. Unless otherwise determined by the Committee, Options not otherwise exercisable on the date of termination of employment shall be forfeited as of such date. (h) Termination for Cause. In the event that the employment of an Optionee shall terminate or the service of an Optionee as a member of the Board shall cease for Cause, all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within thirty (30) days after the date of such termination of service (or such different period as the Committee shall prescribe). (i) Other Provisions. The Agreements evidencing awards under the Plan shall contain such other terms and conditions not inconsistent with the Plan as the Committee may determine, including penalties for the commission of competitive acts. 7. Nonqualified Stock Options. Options granted pursuant to this Section 7 are intended to constitute Nonqualified Stock Options and shall be subject only to the general terms and conditions specified in Section 6 hereof. 8. Incentive Stock Options. Options granted pursuant to this Section 8 are intended to constitute Incentive Stock Options and shall be subject to the following special terms and conditions, in addition to the general terms and conditions specified in Section 6 hereof. An Incentive Stock Option may not be granted to a Nonemployee Director or a consultant to the Company. 7 (a) Value of Shares. The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options granted under this Plan and all other option plans of any subsidiary become exercisable for the first time by each Optionee during any calendar year shall not exceed $100,000. (b) Ten Percent Stockholder. In the case of an Incentive Stock Option granted to a Ten Percent Stockholder, (i) the Option Price shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the date of grant of such Incentive Stock Option, and (ii) the exercise period shall not exceed five (5) years from the date of grant of such Incentive Stock Option. 9. Effect of Certain Changes. (a) In the event of any stock dividend, recapitalization, merger, consolidation, stock split, or combination or exchange of such shares, or other similar transactions, each of the number of shares of Common Stock available for awards, the number of such shares covered by outstanding awards, and the Option Price, as appropriate, shall be equitably adjusted by the Committee to reflect such event and preserve the value of such awards. (b) Upon the occurrence of a Change in Control, each Option granted under the Plan and then outstanding but not yet exercisable shall thereupon become fully exercisable. 10. Surrender and Exchange of Awards. The Committee may permit the voluntary surrender of all or a portion of any Option granted under the Plan or any option granted under any other plan, program or arrangement of the Company or any Subsidiary ("Surrendered Option"), to be conditioned upon the granting to the Optionee of a new Option for the same number of shares of Common Stock as the Surrendered Option, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such Optionee. Subject to the provisions of the Plan, such new Option may be an Incentive Stock Option or a Nonqualified Stock Option, and shall be exercisable at the price, during such period and on such other terms and conditions as are specified by the Committee at the time the new Option is granted. 11. Period During Which Awards May Be Granted. Awards may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, or the date the Plan is approved by the shareholders of the Company, whichever is earlier, unless the Board shall terminate the Plan at an earlier date. 12. Nontransferability of Awards. Except as otherwise determined by the Committee, awards granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, and 8 awards may be exercised or otherwise realized, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative. 13. Approval of Stockholders. The Plan shall take effect upon its adoption by the Board and shall terminate on the tenth anniversary of such date, but the Plan (and any grants of awards made prior to the shareholder approval mentioned herein) shall be subject to the approval of Company's shareholders, which approval must occur within twelve months of the date the Plan is adopted by the Board. 14. Agreement by Optionee Regarding Withholding Taxes. If the Committee shall so require, as a condition of exercise of a Nonqualified Stock Option (a "Tax Event"), each Optionee who is not a Nonemployee Director shall agree that no later than the date of the Tax Event, such Optionee will pay to the Company or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the Tax Event. Alternatively, the Committee may provide that such an Optionee may elect, to the extent permitted or required by law, to have the Company deduct federal, state and local taxes of any kind required by law to be withheld upon the Tax Event from any payment of any kind due the Optionee. The withholding obligation may be satisfied by the withholding or delivery of Common Stock. Any decision made by the Committee under this Section 14 shall be made in its sole discretion. 15. Amendment and Termination of the Plan. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that, unless otherwise determined by the Board, an amendment that requires stockholder approval in order for the Plan to continue to comply with Rule 16b-3, Section 162(m) of the Code or any other law, regulation or stock exchange requirement shall not be effective unless approved by the requisite vote of stockholders. Except as provided in Section 9(a) hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any award previously granted, unless the written consent of the Optionee is obtained. 16. Rights as a Stockholder. An Optionee or a transferee of an award shall have no rights as a stockholder with respect to any shares covered by the award until the date of the issuance of a stock certificate to such for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 9(a) hereof. 9 17. No Rights to Employment or Service as a Director or Consultant. Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall confer upon any Optionee the right to continue in the employ of the Company or any Subsidiary or as a member of the Board or a consultant to the Company or any Subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary to terminate such Optionee's employment or service. Awards granted under the Plan shall not be affected by any change in duties or position of an employee Optionee as long as such Optionee continues to be employed by the Company or any Subsidiary. 18. Beneficiary. An Optionee may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Optionee, the executor or administrator of the Optionee's estate shall be deemed to be the Optionee's beneficiary. 19. Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 20. Other Compensation Plans. The adoption of the Plan shall not affect any other stock option or other compensation plans in effect for the Company or any Subsidiary, nor shall the Plan preclude the Company from establishing any other forms of incentive or other compensation plans. 21. Singular, Plural; Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender. 22. Headings, Etc., No Part Of Plan. Headings of Sections hereof are inserted for convenience and reference; they constitute no part of the Plan. 10 EX-10.V 7 d71399_ex-10v.txt 2006 IND. SALES AGENTS STK OPT. PLAN EXHIBIT 10V AUTOINFO, INC. 2006 INDEPENDENT SALES AGENTS STOCK OPTION PLAN 1. Purpose; Types of Awards; Construction. The purpose of the AutoInfo, Inc. 2006 Independent Sales Agent Stock Option Plan (the "Plan") is to align the interests of independent sales agents of AutoInfo, Inc. (the "Company") and its affiliates with those of the stockholders of the Company, to afford an incentive to such sales agents to continue as such, to increase their efforts on behalf of the Company and to promote the success of the Company's business. To further such purposes, the Company may grant options to its independent sales agents to purchase shares of the Company's common stock. The provisions of the Plan are not intended to satisfy the requirements of Section 16(b) of the Exchange Act (as defined below) and of Section 162(m) of the Internal Revenue Code of 1986, as amended. 2. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated below: (a) "Agreement" shall mean a written agreement entered into between the Company and an Optionee (as defined below) in connection with an award under the Plan. (b) "Board" shall mean the Board of Directors of the Company. (c) "Cause," when used in connection with the termination of an Optionee's affiliation by the Company or the cessation of an Optionee's service as a sales agent, shall mean (i) the conviction of the Optionee for the commission of a felony, or (ii) the willful and continued failure by the Optionee to substantially perform his duties and obligations to the Company or a Subsidiary (as defined below), or (iii) the willful engaging by the Optionee in misconduct that is demonstrably injurious to the Company or a Subsidiary. For purposes of this Section 2(c), no act, or failure to act, on an Optionee's part shall be considered "willful" unless done, or omitted to be done, by the Optionee in bad faith or without reasonable belief that his action or omission was in the best interest of the Company. The Committee (as defined below) or the Board, as the case may be, shall determine whether a termination is for Cause for purposes of the Plan. (d) "Change in Control" shall mean the occurrence of the event set forth in any of the following paragraphs: (i) any Person (as defined below) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act (as defined below)), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 50% or more of the combined voting power of the Company's then outstanding securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least one-half (1/2) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or a direct or indirect subsidiary thereof with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries) representing 60% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of this Section 2(d), "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 2 (e) "Committee" shall mean a committee established by the Board to administer the Plan. (f) "Common Stock" shall mean shares of common stock, $.001 par value, of the Company. (g) "Company" shall mean AutoInfo, Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. (h) ""Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases. (i) "Fair Market Value" per share as of a particular date shall mean (i) if the shares of Common Stock are then listed on a national securities exchange, the closing sales price per share of Common Stock on the national securities exchange on which the Common Stock is principally traded for the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the shares of Common Stock are then traded in an over-the-counter market, the closing bid price for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market, or (iii) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine. (j) "Nonqualified Option" shall mean an Option that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. (k) "Option" shall mean the right, granted hereunder, to purchase shares of Common Stock. Options granted by the Committee pursuant to the Plan shall be Nonqualified Stock Options. (l) "Optionee" shall mean a person who receives a grant of an Option under the Plan. (m) "Option Price" shall mean the exercise price of an Option to purchase a share of Common Stock covered by such Option. (n) "Parent" shall mean any company (other than the Company) in an unbroken chain of companies ending with the Company if, at the time of granting an Option, each of the companies other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain. (o) "Plan" shall mean this AutoInfo, Inc. 2006 Independent Sales Agent Stock Option Plan. 3 (p) "Subsidiary" shall mean any company (other than the Company) in an unbroken chain of companies beginning with the Company if, at the time of granting an Option, each of the companies other than the last company in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other companies in such chain. 3. Administration. The Plan, except as may otherwise be determined by the Board, shall be administered by the Board or a Committee thereof. The Board or the Committee, as the case may be, shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine the purchase price of the shares of Common Stock covered by each Option; to determine the persons to whom, and the time or times at which awards shall be granted; to determine the number of shares to be covered by each award; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Agreements (which need not be identical) and to cancel or suspend awards, as necessary; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Board or the Committee, as the case may be, may not delegate its authority to grant Options. The Board or the Committee, as the case may be, may employ one or more persons to render advice with respect to any responsibility that the Board or the Committee, as the case may be, may have under the Plan. All decisions, determination and interpretations of the Board or the Committee, as the case may be, shall be final and binding on all Optionees of any awards under this Plan. All determinations of the Board or the Committee, as the case may be, shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any award granted hereunder. 4. Eligibility. Awards under the Plan may be granted exclusively to independent sales agents of the Company, and its Subsidiaries. In determining the persons to whom awards shall be granted and the number of shares to be covered by each award, the Board or the Committee, as the case may be, shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such other factors as the Board or the 4 Committee, as the case may be, shall deem relevant in connection with accomplishing the purpose of the Plan. 5. Stock. The maximum number of shares of Common Stock reserved for the grant of awards under the Plan shall be Seven Million (7,000,000), subject to adjustment as provided in Section 7 hereof. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company. The Company, during the term of this Plan, will at all times reserve and keep available such number of shares of Common Stock as shall be sufficient to satisfy the requirements of the Plan. If any outstanding award under the Plan should for any reason expire, be canceled or be forfeited without having been exercised in full, the shares of Common Stock allocable to the unexercised, canceled or terminated portion of such award shall (unless the Plan shall have been terminated) become available for subsequent grants of awards under the Plan. 6. Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by an Agreement, in such form and containing such terms and conditions as the Board or the Committee, as the case may be, shall from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions, unless otherwise specifically provided in such Agreement: (a) Number of Shares. Each Agreement shall state the number of shares of Common Stock to which the Option relates. (b) Type of Option. Each Agreement shall specifically state that the Option constitutes a Nonqualified Stock Option. (c) Option Price. Each Agreement shall state the Option Price, which shall not be less than one hundred and fifteen percent (115%) of the Fair Market Value per share of Common Stock covered by the Option on the date of grant. The Option Price shall be subject to adjustment as provided in Section 7 hereof. The date as of which the Board or the Committee, as the case may be, adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted, unless such resolution specifies a later date. (d) Exercise Schedule and Period of Options. Each Agreement shall provide the exercise schedule for the Option as determined by the Board or the Committee, as the case may be; provided, however, that, the Board or the Committee, as the case may be, shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. The exercise period shall be ten (10) years from the date of the grant of the Option unless otherwise determined by the Board or the Committee, as the case may be. The exercise period shall be subject to earlier termination as provided in Sections 6(f), 6(g) and 6(h) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by written notice 5 delivered in person or by mail to the Chief Financial Officer of the Company, specifying the number of shares of Common Stock with respect to which the Option is being exercised. (e) Medium and Time of Payment. The Option Price multiplied by the number of shares of Common Stock exercised by the Optionee shall be paid in full, at the time of exercise, in cash. (f) Termination. Except as provided in this Section 6(f) and in Sections 6(g) and 6(h) hereof, an Option may not be exercised unless an Optionee is then providing services to the Company as an independent sales agent. In the event that the services of an Optionee as an independent sales agent shall cease (other than by reason of death or Cause), all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within ninety (90) days after the date of such termination of service (or such different period as the Board or the Committee, as the case may be, shall prescribe). (g) Death of Optionee. If an Optionee shall die while affiliated with the Company or a Subsidiary, all Options theretofore granted to such Optionee (to the extent otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee's beneficiary, at any time within one year after the death of the Optionee (or such different period as the Board or the Committee, as the case may be, shall prescribe). In the event that an Option granted hereunder shall be exercised by the legal representatives of a deceased, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative to exercise such Option. Unless otherwise determined by the Board or the Committee, as the case may be, Options not otherwise exercisable on the date of termination of affilation shall be forfeited as of such date. (h) Termination for Cause. In the event that the services of an Optionee as an independent sales agent shall cease for Cause, all Options of such Optionee that are exercisable at the time of such termination may, unless earlier terminated in accordance with their terms, be exercised within thirty (30) days after the date of such termination of service (or such different period as the Board or the Committee, as the case may be, shall prescribe). (i) Other Provisions. The Agreements shall contain such other terms and conditions not inconsistent with the Plan as the Board or the Committee, as the case may be, may determine, including penalties for the commission of competitive acts. 7. Effect of Certain Changes. (a) In the event of any stock dividend, recapitalization, merger, consolidation, stock split, or combination or exchange of such shares, or other similar transactions, each of the number of shares of Common Stock available for awards, the number of such shares covered by outstanding awards, and the Option Price, as appropriate, shall be equitably adjusted by the Board or the Committee, as the case may be, to reflect such event and preserve the value of such awards. 6 (b) Upon the occurrence of a Change in Control, each Option granted under the Plan and then outstanding but not yet exercisable shall thereupon become fully exercisable. 8. Surrender and Exchange of Awards. The Board or the Committee, as the case may be, may permit the voluntary surrender of all or a portion of any Option granted under the Plan or any option granted under any other plan, program or arrangement of the Company or any Subsidiary ("Surrendered Option"), to be conditioned upon the granting to the Optionee of a new Option for the same number of shares of Common Stock as the Surrendered Option, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such Optionee. Subject to the provisions of the Plan, such new Option shall be a Nonqualified Stock Option, and shall be exercisable at the price, during such period and on such other terms and conditions as are specified by the Board or the Committee, as the case may be, at the time the new Option is granted. 9. Period During Which Awards May Be Granted. Awards may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date the Plan is adopted by the Board, unless the Board shall terminate the Plan at an earlier date or extend its term. 10. Nontransferability of Awards. Except as otherwise determined by the Board or the Committee, as the case may be, awards granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, and awards may be exercised or otherwise realized, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative. 11. Agreement by Optionee Regarding Withholding Taxes. If the Board or the Committee, as the case may be, shall so require, as a condition of exercise of a Nonqualified Stock Option (a "Tax Event"), each Optionee shall agree that no later than the date of the Tax Event, such Optionee will pay to the Company or make arrangements satisfactory to the Board or the Committee, as the case may be, regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the Tax Event. Alternatively, the Board or the Committee, as the case may be, may provide that such an Optionee may elect, to the extent permitted or required by law, to have the Company deduct federal, state and local taxes of any kind required by law to be withheld upon the Tax Event from any payment of any kind due the Optionee. Any decision made by the Committee under this Section 11 shall be in the Committee's sole discretion. 12. Amendment and Termination of the Plan. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan. Except as provided in Section 7(a) hereof, no suspension, termination, 7 modification or amendment of the Plan may adversely affect any award previously granted, unless the written consent of the Optionee is obtained. 13. Rights as a Stockholder. An Optionee or a transferee of an award shall have no rights as a stockholder with respect to any shares covered by the award until the date of the issuance of a stock certificate to such for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution of other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 7(a) hereof. 14. No Rights to Service as an Independent Sales Agent, or Otherwise. Nothing in the Plan or in any award granted or Agreement entered into pursuant hereto shall confer upon any Optionee the right to an continued affiliation with Company or any Subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such Agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary to terminate such Optionee's service. 15. Beneficiary. An Optionee may file with the Board or the Committee, as the case may be, a written designation of a beneficiary on such form as may be prescribed by the Board or the Committee, as the case may be, and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Optionee, the executor or administrator of the Optionee's estate shall be deemed to be the Optionee's beneficiary. 16. Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware. 17. Other Compensation Plans. The adoption of the Plan shall not affect any other stock option or other compensation plans in effect for the Company or any Subsidiary, nor shall the Plan preclude the Company from establishing any other forms of incentive or other compensation plans. 18. Singular, Plural; Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender. 19. Headings, Etc., No Part of Plan. Headings of Sections hereof are inserted for convenience and reference; they constitute no part of the Plan. 8 EX-23.A 8 d71399_ex-23a.txt CONSENT OF DWORKEN, HILLMAN, ET AL. EXHIBIT 23A CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation in the Annual Report on Form 10-K under the Securities Exchange Act of 1934 of AutoInfo, Inc. for the year ended December 31, 2006, of our report dated February 26, 2007 on the financial statements of AutoInfo, Inc. for the year ended December 31, 2006 by reference to the Registration Statement under the Securities Act of 1933 (File No. 33-34442) of AutoInfo, Inc. /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. ----------------------------------------------- Shelton, Connecticut Dworken, Hillman, LaMorte & Sterczala, P.C. March 27, 2007 EX-31.A 9 d71399_ex-31a.txt CERTIFICATION (SECTION 302) OF CEO EXHIBIT 31A AUTOINFO, INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Harry Wachtel, certify that: 1. I have reviewed this annual report on Form 10-K of AutoInfo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Harry Wachtel -------------------------------------- Harry Wachtel Chief Executive Officer Date: March 28, 2007 EX-31.B 10 d71399_ex-31b.txt CERTIFICATION (SECTION 302) OF CFO EXHIBIT 31B AUTOINFO, INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, William Wunderlich, certify that: 1. I have reviewed this annual report on Form 10-K of AutoInfo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ William Wunderlich -------------------------------------- William Wunderlich Chief Financial Officer Date: March 28, 2007 EX-32.A 11 d71399_ex-32a.txt CERTIFICATION (SECTION 906) OF CEO EXHIBIT 32A CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AutoInfo, Inc. (the "Company") on Form 10-K for the year ending December 31, 2006 as filed with the Securities and Exchange Commission (SEC) on the date hereof (the "Report"), I, Harry Wachtel, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request. /s/ Harry Wachtel - ----------------- Harry Wachtel Chief Executive Officer March 28, 2007 EX-32.B 12 d71399_ex-32b.txt CERTIFICATION (SECTION 906) OF CFO EXHIBIT 32B CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of AutoInfo, Inc. (the "Company") on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission (SEC) on the date hereof (the "Report"), I, William Wunderlich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request. /s/ William Wunderlich - ---------------------- William Wunderlich Chief Financial Officer March 28, 2007 -----END PRIVACY-ENHANCED MESSAGE-----