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TeleCommunication Systems DEF 14A 2007 Table of Contents
SCHEDULE
14A
(Rule 14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Telecommunications Systems, Inc.
(Name of
Registrant as Specified in Its Charter)
(Name of
Person(s) Filing Proxy Statement if other than the Registrant)
Payment of
Filing Fee (Check the appropriate box):
þ No
fee required.
o Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title
of each class of securities to which transaction applies:
(2) Aggregate
number of securities to which transaction applies:
(4) Proposed
maximum aggregate value of transaction:
(5) Total
fee paid:
(1) Amount
previously paid:
(2) Form,
schedule or registration statement no.:
(3) Filing
party:
(4) Date
filed:
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275 West
Street
Annapolis, Maryland 21401
May 1, 2007
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of TeleCommunication Systems, Inc.
(“TCS”) to be held on Thursday,
June 14, 2007, at 10:00 a.m. local time, at the
O’Callaghan Hotel Annapolis, 174 West Street,
Annapolis, MD 21401. The business to be conducted at the Annual
Meeting is set forth in the formal notice that follows.
The Board of Directors urges you to read the accompanying Notice
of Annual Meeting and Proxy Statement, and recommends that you
vote (1) FOR the election of the directors nominated, and
(2) FOR the approval of the Fifth Amended and Restated 1997
Stock Incentive Plan.
The vote of every stockholder is important. Whether or not you
plan to attend the Annual Meeting, it is important that your
shares be represented. We rely upon all stockholders to execute
and return their proxies in order to avoid costly proxy
solicitation. Therefore, in order to save TCS the unnecessary
expense of further proxy solicitation, I ask that you promptly
sign and return the enclosed proxy card in the envelope provided.
I look forward to seeing you at the Annual Meeting.
Sincerely,
Maurice B. Tosé
Chairman of the Board
Chief Executive Officer and President
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TELECOMMUNICATION
SYSTEMS, INC.
275 West Street, Suite 400
Annapolis, Maryland 21401
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of TeleCommunication Systems, Inc., a Maryland corporation, will
be held on Thursday, June 14, 2007, at 10:00 A.M.
local time, at the O’Callaghan Hotel Annapolis,
174 West Street, Annapolis, MD 21401 for the following
purposes:
1. To elect two Class III directors to hold office
until the Annual Meeting of Stockholders in 2010, and until
their respective successors are duly elected and qualified.
2. To consider a proposal to approve the Fifth Amended and
Restated 1997 Stock Incentive Plan.
3. To transact such other business as may properly come
before the Annual Meeting and any adjournments or postponements
thereof.
Pursuant to the Bylaws of TeleCommunication Systems, Inc., its
Board of Directors has fixed the close of business on
April 30, 2007 as the Record Date for the determination of
those stockholders who will be entitled to notice of and to vote
at the Annual Meeting and any adjournments or postponements
thereof. Therefore, only record holders of TeleCommunication
Systems, Inc. Class A Common Stock and Class B Common
Stock at the close of business on that date are entitled to
notice of and to vote shares held on the Record Date at the
Annual Meeting and any adjournments or postponements thereof.
If you plan to attend the Annual Meeting, please be prepared to
present valid picture identification. If you hold your shares
through a broker or other nominee, the Company will accept proof
of ownership only if you bring either a copy of the voting
instruction card provided by your broker or nominee, or a copy
of a brokerage statement showing your share ownership in the
Company as of April 30, 2007.
Whether or not you expect to attend, we urge you to carefully
review the enclosed materials. Your vote is important. All
stockholders are urged to attend the Annual Meeting in person or
by proxy. If you receive more than one proxy card because your
shares are registered in different names or at different
addresses, please indicate your vote, sign, date and return each
proxy card so that all of your shares will be represented at the
Annual Meeting. If you attend the meeting, you may choose to
vote in person even if you previously have sent in your proxy
card.
By Order of the Board of Directors
Bruce A. White
Secretary
Annapolis, Maryland
May 1, 2007
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TeleCommunication
Systems, Inc.
275 West Street, Suite 400
Annapolis, Maryland 21401
PROXY
STATEMENT
GENERAL INFORMATION
You are receiving this Proxy Statement and a proxy card because
you own shares of common stock, either Class A Common
Stock, par value $0.01 per share (the
“Class A Common Stock”), or
Class B Common Stock, par value $0.01 per share (the
“Class B Common Stock,” and
together with the Class A Common Stock, the
“Common Stock”) in TeleCommunication
Systems, Inc. (“TCS” or the
“Company”). This Proxy Statement
describes the issues on which we would like you, as a
stockholder, to vote. It also gives you information on these
issues so that you can make an informed decision.
When you sign the proxy card, you appoint Thomas M.
Brandt, Jr. and Bruce A. White as your proxies at the
Annual Meeting. Messrs. Brandt and White will vote your
shares as you have instructed them on the proxy card at the
Annual Meeting. This way, your shares will be voted whether or
not you attend the Annual Meeting. Even if you plan to attend
the Annual Meeting, it is a good idea to complete, sign and
return your proxy card in advance of the Annual Meeting just in
case your plans change. This Proxy Statement is being mailed to
you on or about May 1, 2007.
If an issue comes up for vote at the Annual Meeting that is not
on the proxy card, Messrs. Brandt and White will vote your
shares, under your proxy, in accordance with their best judgment.
The TCS Board of Directors is soliciting your proxy card in
connection with this Proxy Statement.
At the Annual Meeting, stockholders will act on the matters
outlined in the accompanying Notice of Meeting. These matters
include:
Only stockholders of record at the close of business on the
record date, April 30. 2007 (the “Record Date”),
are entitled to receive notice of the Annual Meeting and to vote
the shares of Common Stock that they held on that date at the
Annual Meeting, or any adjournments or postponements thereof. At
the close of business on April 23, 2007,
33,443,576 shares of TCS Class A Common Stock and
7,525,672 shares of Class B Common Stock were
outstanding and entitled to vote at the Annual Meeting.
Each share of Class A Common Stock is entitled to one vote
per share at the Annual Meeting. Each share of Class B
Common Stock is entitled to three votes per share at the Annual
Meeting.
Only stockholders as of the Record Date, or their duly appointed
proxies, may attend the Annual Meeting. Registration and seating
will begin at 9:30 a.m. Stockholders may be asked to
present valid picture identification,
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such as a driver’s license or passport. Cameras, recording
devices and other electronic devices will not be permitted at
the Annual Meeting.
Please note that if you hold your shares in “street
name” (that is, through a broker or other nominee), you
must bring either a copy of the voting instruction card provided
by your broker or nominee or a copy of a brokerage statement
reflecting your stock ownership as of the Record Date and check
in at the registration desk at the Annual Meeting.
In order to conduct business at the Annual Meeting, our Bylaws
require the presence in person or by proxy of stockholders
entitled to cast a majority of all the votes entitled to be cast
on the matters to be presented at the Annual Meeting. This is
called a “quorum”. Proxy cards received by us but
marked “WITHHOLD” will be included in the calculation
of the number of shares considered to be present at the Annual
Meeting; but shares held by a broker that are not voted on any
matter will not be included in the calculations of whether a
quorum is present.
You May Vote by Mail. You do this by signing your
proxy card and mailing it in the enclosed, prepaid and addressed
envelope. If you mark your voting instructions on the proxy
card, your shares will be voted as you instruct. If you return a
signed proxy card but do not provide voting instructions, your
shares will be voted:
You May Vote in Person at the Annual
Meeting. Written ballots will be passed out to
stockholders entitled to vote at the Annual Meeting. If you hold
your shares in “street name” (through a broker or
other nominee), you must request a legal proxy from your
stockbroker to vote at the Annual Meeting.
Yes. Even after you have submitted your proxy card, you may
change your vote at any time before the proxy is voted at the
Annual Meeting by Messrs. Brandt and White by mailing to
Mr. White, the Secretary of TCS, either a written notice of
revocation or an executed proxy card with a later date than the
one you previously submitted, at TCS’s offices,
275 West Street, Annapolis, Maryland 21401. Attendance at
the Annual Meeting will not by itself revoke a previously
granted proxy. You can also revoke your proxy at the Annual
Meeting on a form that we will provide at the Annual Meeting, or
you can appear in person at the Annual Meeting and vote, in
person, the shares to which your proxy relates.
If you wish to withhold authority from voting on the election of
a particular director or directors, you may do so by marking
“WITHHOLD AUTHORITY,” as applicable, on the enclosed
proxy card.
If your shares are held in your name, you must return your proxy
(or attend the Annual Meeting in person) in order to vote on the
proposals. If your shares are held in street name and you do not
vote your proxy, your brokerage firm may either: (i) vote
your shares on routine matters, or (ii) leave your shares
unvoted. Under the rules that govern brokers who have record
ownership of shares that are held in “street name” for
their clients, brokers may vote such shares on behalf of their
clients with respect to “routine” matters, but not
with respect to non-routine matters. If the proposals to be
acted upon at any meeting include both routine and non-routine
matters, the broker may turn in a proxy card for uninstructed
shares that votes FOR the routine matters, but expressly
states that the broker is not voting on non-routine matters.
This is called a “broker non-vote.” Broker non-votes
will not be counted for the purpose of determining the number of
votes cast.
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We encourage you to provide instructions to your brokerage firm
if your shares are held in street name. This ensures that your
shares will be voted at the Annual Meeting.
The expense of soliciting proxies and the cost of preparing,
assembling and mailing proxy materials in connection with the
solicitation of proxies will be paid for by TCS. In addition to
the use of mails, certain directors, officers or employees of
TCS, who receive no compensation for their services other than
their regular salaries, may solicit proxies. Arrangements may be
made with brokers and other custodians, nominees and fiduciaries
to send proxies and proxy materials to their principals and TCS
may reimburse them for reasonable
out-of-pocket
and clerical expenses.
The Company provides all stockholders with the opportunity,
under certain circumstances and consistent with the
Company’s Bylaws and the rules of the Securities and
Exchange Commission (“SEC”), to
participate in the governance of the Company by submitting
proposals that they believe merit consideration and nominations
for the election of directors at the Annual Meeting of
Stockholders to be held in 2008. To enable management adequately
to analyze and respond to proposals stockholders wish to have
included in the Proxy Statement and proxy card for that meeting,
SEC
Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), requires
that any such proposal be received by the Company in writing no
later than January 1, 2008. Any stockholder proposal or
director nomination must also be in compliance with the
Company’s Bylaws. Pursuant to the Company’s Bylaws,
any stockholder proposal or director nomination for that meeting
that is submitted outside the processes of
Rule 14a-8
will be considered “untimely” if it is received by the
Company earlier than January 1, 2008 or later than
January 31, 2008.
Proxies solicited by the Board of Directors for the Annual
Meeting of Stockholders to be held in 2008 may confer
discretionary authority to vote on any untimely stockholder
proposals or director nominations without express direction from
stockholders giving such proxies. All stockholder proposals and
director nominations must be addressed to the attention of the
Secretary at 275 West Street, Annapolis, Maryland 21401. The
Chairman of the Annual Meeting may refuse to acknowledge the
introduction of any stockholder proposal or director nomination
not made in compliance with the foregoing procedures.
Stockholders may send correspondence to the Board of Directors
or to any individual Director at the following address:
TeleCommunication Systems, Inc., 275 West Street,
Suite 400, Annapolis, MD 21401. The communication should
indicate that the sender is a stockholder. Based on procedures
approved by the Nominating Committee, the General Counsel and
Secretary will retain and not send to Directors communications
that are purely promotional or commercial in nature or other
topics that clearly are unrelated to Director responsibilities.
These types of communications will be logged and filed but not
circulated to Directors. The General Counsel and Secretary will
review and log all other communications and subsequently deliver
it to the specified Directors
Unless you give other instructions on your proxy card,
Messrs. Brandt and White, in their respective capacity as
proxy holders, will vote in accordance with the recommendation
of the Board of Directors. The Board’s recommendation is to
vote:
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With respect to any other matter that properly comes before the
Annual Meeting, the proxy holders will vote in their own
discretion.
If a quorum is present, the affirmative vote of a plurality of
all the votes cast at the Annual Meeting is required for the
election of directors. “Plurality” means that the
individuals who receive the largest number of votes cast are
elected as directors. Consequently, abstentions, including proxy
cards marked “WITHHOLD AUTHORITY” and broker non-votes
have no impact on the election of directors. Unless a properly
executed proxy card is marked “WITHHOLD AUTHORITY,”
the proxy given will be voted “FOR” the nominees for
director.
If a quorum is present, the approval of the Fifth Amended and
Restated 1997 Stock Incentive Plan requires an affirmative vote
of a majority of all the votes cast in person or by proxy and
entitled to vote. A properly executed proxy card marked
“ABSTAIN” with respect to the approval of the Fifth
Amended and Restated 1997 Stock Incentive Plan will not be
voted. Accordingly, abstentions and broker non-votes will have
no impact on the vote concerning the proposal.
If a quorum is present, the approval of any other proposal that
may come before the before the Annual Meeting properly, requires
an affirmative vote of a majority of all the votes cast in
person or by proxy and entitled to vote. A properly executed
proxy card marked “ABSTAIN” with respect to the
transaction of other business will not be voted. Accordingly,
abstentions and broker non-votes will have no impact on the vote
concerning the proposal.
ITEM 1 —
ELECTION OF DIRECTORS
At the Annual Meeting, two directors are to be elected to hold
office until the Annual Meeting of Stockholders in 2010, and
until their respective successors are duly elected and
qualified, except in the event of death, resignation or
removals. The number of directors which constitutes our Board of
Directors is currently set at eight. However there are two
vacancies on the Board of Directors.
Our Amended and Restated Articles of Incorporation provide that
our Board of Directors is divided into three classes based on
their terms of office: Class I, Class II and
Class III. Such classes shall be as nearly equal in number
of directors as possible. Each director shall serve for a term
ending on the third annual meeting of stockholders following the
annual meeting at which that director was elected. Directors
first designated as Class III directors, shall serve for a
term expiring at the third annual meeting of stockholders
following the date of the 2004 Annual Meeting of Stockholders,
and until their respective successors are elected and qualified.
Mr. Tosé was first designated as a Class III
director in 2004. Mr. Bethmann was elected as a Class III
director at the 2006 Annual Meeting of Stockholders to hold
office until the 2007 Annual Meeting of Stockholders. Both
Class III directors now will serve for a term that expires
at the 2010 Annual Meeting of Stockholders.
Our Amended and Restated Bylaws provide that a majority of the
then existing Board of Directors may fill a vacancy on the Board
of Directors at any time, and that such director elected by the
Board of Directors serves until the next annual meeting of
stockholders and until his or her successor is elected and
qualified. All current directors previously have been duly
elected by the stockholders.
Board of
Directors
The Board of Directors met four times in 2006. Regular meetings
of the Board are held quarterly. Three directors attended 100%
and two directors attended 92% of the combined total number of
meetings of the Board of Directors and Board Committees of which
they were a member. Mr. Bethmann attended three of five
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(or 60%) of the combined total number of meetings of the Board
of Directors and Board Committees of which he was a member and
the two missed meetings occurred on the same day. All members of
the Board of Directors attended the 2006 Annual Meeting of
Shareholders. The Board of Directors has determined that each
member of the Board of Directors, other than Mr. Tosé,
is independent in accordance with the applicable rules of the
NASDAQ National Market.
Board of
Directors Nominations
The Board of Directors maintains a Nominating Committee, which
is currently comprised of Messrs. Marchant, Bethmann and
Latham. Mr. Marchant serves as the Chairman. The Board of
Directors has determined that each of the members of the
Nominating Committee is “independent” as defined by
the NASDAQ National Market standards governing the
qualifications of Nominating Committee members. The purposes of
the Nominating Committee are to recommend persons for membership
on the Board, including consideration of shareholder
nominations, and to establish criteria and procedures for the
selection of new directors. The Nominating Committee met once in
2006.
The nomination process for directors is supervised by the
Company’s Nominating Committee. The Nominating
Committee’s Charter is available on the Company’s
website at www.telecomsys.com and will be provided to
stockholders upon request. The Committee seeks out appropriate
candidates to serve as directors of the Company, and the
Committee interviews and examines director candidates and makes
recommendations to the Board regarding candidate selection.
The Nominating Committee uses a variety of criteria to evaluate
the qualifications and skills necessary for members of the Board
of Directors. Under these criteria, members of the Board of
Directors should have the highest professional and personal
ethics and values, consistent with longstanding values and
standards of the Company. Members of the Board of Directors
should have broad experience at the policy-making level in
business, government, medicine, education, technology or public
interest. They should be committed to enhancing stockholder
value and should have sufficient time to carry out their duties
and to provide insight and practical wisdom based on experience.
In identifying candidates for membership on the Board of
Directors, the Nominating Committee takes into account all
factors it considers appropriate, which may include strength of
character, maturity of judgment, career specialization, relevant
skills, diversity and the extent to which a particular candidate
would fill a present need on the Board of Directors. At a
minimum, director candidates must have unimpeachable character
and integrity, sufficient time to carry out their duties, the
ability to read and understand financial statements, experience
at senior levels in areas relevant to the Company and consistent
with the objective of having a diverse and experienced Board,
the ability and willingness to exercise sound business judgment,
the ability to work well with others and the willingness to
assume the responsibilities required of a director of the
Company. Each member of the Board of Directors must represent
the interests of the stockholders of the Company. The Nominating
Committee also reviews and determines whether existing members
of the Board of Directors should stand for reelection, taking
into consideration matters relating to the age and number of
terms served by individual directors and changes in the needs of
the Board. The Nominating Committee has determined to nominate
for re-election each of the Company’s directors. Once the
Nominating Committee has selected appropriate candidates for
election as a director, it presents the candidates to the full
Board of Directors for election, if the selection has occurred
during the course of the year, or for nomination, if the
director is to be elected by the stockholders. Members of at
least one class of Directors are nominated each year for
election by the stockholders and are included in the
Company’s Proxy Statement.
The Nominating Committee regularly assesses the appropriate size
of the Board of Directors, and whether any vacancies on the
Board of Directors are expected due to retirement or otherwise.
In the event that vacancies are anticipated, or otherwise arise,
the Nominating Committee considers various potential candidates
for director. Candidates may come to the attention of the
Nominating Committee through current members of the Board of
Directors, professional search firms, stockholders or other
persons. These candidates are evaluated at regular or special
meetings of the Nominating Committee, and may be considered at
any point during the year. The
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Nominating Committee considers stockholder recommendations for
candidates for the Board of Directors that are properly
submitted in accordance with the Company’s Bylaws. In
evaluating such recommendations, the Nominating Committee uses
the qualifications standards discussed above and seeks to
achieve a balance of knowledge, experience and capability on the
Board of Directors.
The Company’s Bylaws provide the procedure for stockholders
to make director nominations. A stockholder’s notice must
be delivered to or mailed and received by the Secretary at the
principal executive offices of the Company:
A stockholder’s notice to the Secretary must be in writing
and set forth:
Such notice must be accompanied by a written consent of each
proposed nominee to be named as a nominee and to serve as a
director if elected. No person shall be eligible for election as
a director of the Company unless nominated in accordance with
the procedures set forth above. If the chairman of the meeting
determines that a nomination was not made in accordance with the
foregoing procedures, the chairman of the meeting shall declare
to the meeting that the nomination was defective and such
defective nomination shall be disregarded. No adjournment or
postponement of a meeting of stockholders shall commence a new
period for the giving of notice of a stockholder proposal
hereunder.
At the Annual Meeting, two directors are to be elected to hold
office until the Annual Meeting of Stockholders in 2010 and
until their respective successors are duly elected and
qualified, except in the event of death, resignation or removal.
Unless otherwise specified, your proxy will be voted
“FOR” the election of the nominees listed below,
except that in the event any of those named should not continue
to be available for election, discretionary
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authority may be exercised by the proxy holders to vote for a
substitute of their choice. However, TCS knows of no
circumstances that would make any nominee named herein
unavailable. The nominees are each currently members of the
Board of Directors.
The following nominees for director will serve until the Annual
Meeting of Stockholders in 2010.
Maurice B. Tosé founded TeleCommunication
Systems (TCS) in 1987 and has been a director and Chairman of
the Board of Directors since then. Prior to founding TCS,
Mr. Tosé was the Director of Department of Defense
Programs for Techmatics, Inc., headquartered in Silver Spring,
Maryland. He was recognized in each of the past three years as
one of the Country’s Top Black Technology Entrepreneurs by
Career Communications Group, Inc. He currently is a Commander in
the U.S. Navy Reserves and serves on the Board of Directors of
the U.S. Naval Academy Foundation. Mr. Tosé holds a
B.S. degree in Operations Analysis from the U.S. Naval Academy.
James M. Bethmann joined the Board of Directors in
April 2006, and currently serves as Chairman of the Compensation
Committee and is a member of the Nominating Committee.
Mr. Bethmann is a Managing Partner of Heidrick and
Struggles following its recent acquisition of Highland Partners
where he was a Vice Chairman of the firm. Heidrick and Struggles
is a retained executive search firm, and Mr. Bethmann is a
partner in the Technology/IT Services and Industrial sectors.
Before joining Highland Partners, Mr. Bethmann was Managing
Director and co-led Korn/Ferry International’s Advanced
Technology practice in North America, and established and led
the firm’s software and emerging technologies practice.
Prior to joining Korn/Ferry, Mr. Bethmann led the Southwest
Technology Practice of Russell Reynolds Associates. Before
executive search, Mr. Bethmann served as a Corporate
Officer and a President of Recognition International, a supplier
of high-performance document recognition systems, image, and
workflow software solutions for leading businesses in the
Americas, Pacific Rim, and Europe. He began his career in the
U.S. Navy, achieving the rank of Lieutenant Commander.
Mr. Bethmann holds a B.S. degree from the U.S. Naval
Academy where he currently is a board trustee.
Directors
Continuing in Office
Clyde A. Heintzelman, 68, Member of the Audit
Committee
Mr. Heintzelman joined the Board of Directors in December
1999. He is the Chairman of the Board of Citel, a company
focused on enabling enterprise IP telephony with existing PBX
infrustructure. Mr. Heintzelman was the Chairman of the
Board of Optelecom, Inc. from February 2000 to June 2003, also
serving as the interim President and Chief Executive Officer
during 2002. Prior to joining Optelecom, Mr. Heintzelman
was the President of Net2000 Communications, from November 1999
to May 2001. From December 1998 to November 1999,
Mr. Heintzelman was the President and Chief Executive
Officer of SAVVIS Communications Corporation, a networking and
Internet solutions company. From 1995 to 1998,
Mr. Heintzelman was the President and Chief Operating
Officer of DIGEX, Inc. Prior to joining DIGEX, Inc.,
Mr. Heintzelman was a General Manager for Bell Atlantic.
Mr. Heintzelman also serves on the Board of Directors of
SAVVIS Communications Corporation and ITC Deltacom.
Mr. Heintzelman holds a B.A. degree in Marketing from the
University of Delaware.
Richard A. Kozak, 61, Chairman of the Audit
Committee
Mr. Kozak joined the Board of Directors in December 1999.
He is currently Chairman of R&D2 LLC, a company engaged in
helping early stage companies commercialize their intellectual
property assets. In 1998, Mr. Kozak founded and was the
Chief Executive Officer and Chairman of the Board of Directors
of 1eEurope,
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Ltd., formerly Galileo Communications, Ltd., a portfolio of
companies focused on providing integrated
e-business
solutions to mid and large-size companies throughout Europe.
From 1993 to 1997, Mr. Kozak was a co-founder and the
President, Chief Executive Officer and member of the Board of
Directors of American Communications Services, Inc., which
became e.spire Communications, Inc. Prior to forming American
Communications Services, Inc. in 1993, Mr. Kozak was the
President of the Southern Division of MFS Communications, which
was acquired by MCI WorldCom. From 1986 through 1989,
Mr. Kozak was Vice President and General Manager of Global
Messaging Services for GTE Telenet, now part of Sprint
International. He holds a B.S. degree in Engineering from Brown
University and an M.B.A. in Finance from The George Washington
University School of Government and Business Administration. He
is a member of the board of advisors for the Dingman School of
Entrepreneurship at the University of Maryland, and the
Chesapeake Innovation Center in Annapolis, Maryland
Weldon H. Latham, 60, Member of the Compensation
and Nominating Committees
Mr. Latham Weldon H. Latham joined the Board of Directors
in December 1999. Mr. Latham has been a senior partner with
the law firm of Davis Wright Tremaine since July 2004. From 2000
until 2004, he was a senior partner at the law firm of
Holland & Knight. From 1992 to 2000, Mr. Latham
was a partner at the law firm of Shaw Pittman Potts &
Trowbridge. From 1986 to 1992, Mr. Latham was a managing
partner of the Virginia office of the law firm Reed, Smith, Shaw
and McClay. From
1981-1986,
Mr. Latham was the Vice President and General Counsel of
Sterling Systems Inc., a software company that was acquired by
Planning Research Corporation (PRC). Mr. Latham was
appointed Executive Assistant and Counsel to the PRC Chairman
and CEO. From 1979 to 1981, Mr. Latham served as General
Deputy Assistant Secretary, U.S. Department of Housing and
Urban Development and previously served as Assistant General
Counsel, Executive Office of the President (OMB) from 1973 to
1976. Mr. Latham holds a B.A. degree in Business
Administration from Howard University, a J.D. degree from
Georgetown University Law Center, and an executive management
certificate from the Amos Tuck Business School at Dartmouth
College.
Byron F. Marchant, 49, Chairman of the Nominating
Committee, Member of the Audit Committee
Mr. Marchant joined the Board of Directors in December
1999. He has been the Executive Vice President, General Counsel
and Chief Administrative Officer of Black Entertainment
Television, (BET) Networks since 1997. Prior to joining BET,
Mr. Marchant was a partner in the law firm Patton Boggs,
LLP. From 1995 to 1996, Mr. Marchant was our Senior Vice
President and General Counsel. Additional positions that
Mr. Marchant has held include Senior Legal Advisor to an
FCC Commissioner and an attorney with the law firm
Sidley & Austin. Mr. Marchant also serves on the
Board of Directors of Cable Positive, American Red Cross of the
Washington Metropolitan Area and the U.S. Naval Academy
Foundation. He also is a Member of the Advisory Committee to the
Sallie Mae Foundation. The Governor of Virginia appointed
Mr. Marchant to the Board of Visitors of George Mason
University for a four-year term that began in the Fall of 2003.
He serves on the University of Virginia Campaign Executive
Committee through 2011 and is an adjunct professor at the
University of Virginia School of Law. Mr. Marchant holds a
B.S. degree from the U.S. Naval Academy and a J.D. degree
from the University of Virginia Law School.
THE BOARD
UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE
NOMINEES.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial ownership is determined in accordance with
Rule 13d-3
under the Securities Exchange Act of 1934, as amended.
The number of shares beneficially owned by a person includes
shares of Class A Common Stock subject to options held by
that person that are currently exercisable or exercisable within
60 days of April 30, 2007. The shares issuable
pursuant to these options are deemed outstanding for computing
the percentage ownership of the person holding these options but
are not deemed outstanding for the purposes of computing the
percentage ownership of any other person.
The following table lists the number of shares of Class A
Common Stock and Class B Common Stock beneficially owned by
directors and our named executive officers of the Company as of
April 30, 2007.
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The Board has elected the executive officers to serve for
indefinite terms. The following table sets forth the name of
each executive officer as of December 31, 2006 and the
principal positions and offices he holds with
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the company. Unless otherwise indicated, each of these officers
has served as an executive officer of the company for at least
five years.
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires that our directors and executive officers, and
persons that beneficially own more than 10% of our Class A
Common Stock, file with the SEC initial reports of ownership and
reports of changes in ownership of our Class A Common Stock
and other equity securities. Copies of these reports must be
filed with us. Based solely on our review of the copies of these
reports filed with us, and written representations that no other
reports were required, to our knowledge, all reports required by
Section 16(a) were timely filed in 2006 except as follows:
Messrs. Tosé, Bethmann, Heintzelman, Kozak, Latham,
Marchant, Brandt and Lorello filed one Form 4 one day late;
Mr. Marchant filed one Form 4 five days late;
Mr. Tosé filed one Form 4 five days late; and
Messrs. Tosé, Young, Brandt, Morin, Lorello and Webb
filed one Form 4 seven days late. All of the late
Form 4 filings resulted from administrative oversight.
CORPORATE
GOVERNANCE
The Board of Directors has adopted a written code of ethics and
business conduct, a copy of which is available on the
company’s website at www.telecomsys.com. The Company
requires all officers, directors and employees to adhere to this
code in addressing the legal and ethical issues encountered in
conducting their work. The code requires that employees avoid
conflicts of interest, comply with all laws and other legal
requirements, conduct business in an honest and ethical manner
and otherwise act with integrity and in the company’s best
interest. Employees are required to report any conduct that they
believe in good faith to be an actual or apparent violation of
the code. The Sarbanes-Oxley Act of 2002 requires companies to
have procedures to receive, retain and treat complaints received
regarding accounting, internal accounting controls or auditing
matters and to allow for the confidential and anonymous
submission by employees of concerns regarding questionable
accounting or auditing matters. The Company currently has such
procedures in place.
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Committees of the
Board of Directors
The Audit Committee oversees the Company’s financial
reporting process on behalf of the Board of Directors and its
members are Mr. Richard A. Kozak, Mr. Clyde A.
Heintzelman and Mr. Byron F. Marchant. The members of the
Audit Committee are “independent” as defined in the
rules and regulations of the NASDAQ National Market, which is
the exchange on which TCS Class A Common Stock is listed.
The Board of Directors has determined that Mr. Kozak,
Chairman of the Audit Committee, is an “audit committee
financial expert” as that term is defined in
Item 401(h) of
Regulation S-K
under the Securities Act of 1933.
The Board of Directors adopted and approved a written charter
for the Audit Committee in 2003, a copy of which may be found on
TCS’s Web site (http://www.telecomsys.com). Management has
the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls.
In fulfilling its oversight responsibilities, the Committee
reviewed and discussed the audited financial statements with
management including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness
of significant judgments, and the clarity of disclosures in the
financial statements. The Audit Committee held four quarterly
meetings in 2006 to review quarterly operating results, and four
additional meetings to review other matters. The Audit Committee
met in executive session with Ernst & Young
representatives, without the presence of management, four times
during 2006.
For the fiscal years ended December 31, 2006 and 2005
professional services were performed by Ernst & Young
LLP.
Total fees paid to Ernst & Young LLP aggregated
$846,212 and $923,115 for the fiscal years ended
December 31, 2006 and 2005, respectively, and were composed
of the following:
Audit Fees: The aggregate fees billed for the audit
of the annual financial statements for the fiscal years ended
December 31, 2006 and 2005, for reviews of the financial
statements included in TCS’s Quarterly Reports on
Form 10-Q,
for testing and evaluating internal controls over financial
reporting and for assistance with and review of documents filed
with the SEC were $621,481 for 2006 and $871,115 for 2005.
Audit-Related Fees: Audit related fees include:
attest services that are not required by statute or regulation,
internal control reviews and consultations concerning evaluating
internal controls over financial reporting and other financial
accounting/reporting matters. The aggregate fees billed for
audit-related services for the fiscal year ended
December 31, 2006 was $222,731. There were no audit-related
fees billed in 2005. The 2006 fees relate to carve-out audit
procedures for the Company’s Mobile Asset Management
division that is held for sale.
Tax Fees: Tax fees relate to fees billed for
professional services performed by Ernst & Young LLP
with respect to tax compliance, tax advice and tax planning. The
aggregate fees billed for tax services for the fiscal years
ended December 31, 2006 and 2005 were $0 and $50,000,
respectively. The 2005 fees relate to state sales tax
consultations.
All Other Fees: All other fees consist of aggregate
fees billed by Ernst & Young LLP for products and
services other than the services reported above. The aggregate
fees billed under this category for the fiscal
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years ended December 31, 2006 and 2005 were $2,000 and
$2,000, respectively. These fees were for access to
Ernst & Young’s on-line research tool.
The Committee reviewed and discussed with the independent
registered public accounting firm, who are responsible for
expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting
principles, their judgments as to the quality, not just the
acceptability, of TCS’s accounting principles and such
other matters as are required to be discussed with the Committee
under generally accepted auditing standards, as well as the
matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit Committees), as
amended. The Committee discussed with TCS’s independent
registered public accounting firm the overall scope and plans
for their respective audits. In addition, the Committee has
discussed with the independent registered public accounting
firm, with and without management present, the results of their
examinations, their evaluations of TCS’s internal controls,
and the overall quality of TCS’s financial reporting. The
Committee received from the independent registered public
accounting firm written disclosures regarding the auditors’
independence required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees) and
the Committee discussed with the independent registered public
accounting firm that firm’s independence and considered the
compatibility of non-audit services with the auditors’
independence.
The Committee also discussed and assessed with management and
Ernst & Young LLP, management’s report and
Ernst & Young LLP’s report and attestation on
internal control over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act. The Company’s
director of Internal Audit, who reports directly to the Audit
Committee, met in executive session with the Committee (without
management present) to report on his review of the
Company’s system of internal controls.
In reliance on the reviews and discussions referred to above,
the Committee recommended to the Board of Directors and the
Board has approved the inclusion of the audited financial
statements in the Annual Report on
Form 10-K
for the year ended December 31, 2006 for filing with the
SEC. The Committee has also approved the selection of
Ernst & Young LLP as TCS’s independent registered
public accounting firm for 2007. Representatives of
Ernst & Young LLP are expected to be present at the
Annual Meeting of Stockholders on June 14, 2007 with the
opportunity to make a statement if they desire to do so, and
they will be available to respond to appropriate questions. The
Audit Committee considered whether the provision by
Ernst & Young LLP of the services entitled “all
other fees” as discussed above is compatible with
maintaining Ernst & Young LLP’s independence.
The Audit Committee annually approves each year’s
engagement for audit services in advance. The Committee has also
established complementary procedures to require pre-approval of
all audit-related, tax and permitted non-audit services provided
by Ernst & Young LLP. Fees for any of these services
that will exceed the pre-approval fee limits or fees not
contemplated by the original pre-approval must be separately
approved by the Audit Committee. The Audit Committee may
delegate pre-approval authority to one or more of its members.
Any such fees pre-approved in this manner shall be reported to
the Audit Committee at its next scheduled meeting. All services
described above were pre-approved by the Audit Committee in
fiscal 2006.
The Audit Committee has designated Mr. Thomas M.
Brandt, Jr., Chief Financial Officer, to monitor the
performance of all services provided by the independent auditors
and to determine whether such services are in compliance with
this policy. Mr. Brandt reports to the Audit Committee on a
periodic basis the results of this monitoring. Any member of
executive management will immediately report to the chairman of
the Audit Committee any breach of this policy that comes to the
attention of any member of management.
AUDIT COMMITTEE
Richard A. Kozak, Chairman
Clyde A. Heintzelman
Byron F. Marchant
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The Compensation Committee, which met six times in 2006,
consists of Messrs. Bethmann and Latham.
Mr. Heintzelman served as Chairman of the Compensation
Committee until June of 2006, at which time Mr. Bethmann
assumed the position of Compensation Committee Chairman. The
Compensation Committee determines the compensation of our Chief
Executive Officer and President and the compensation of the
other executive officers and administers the Amended and
Restated 1997 Stock Incentive Plan, Amended and Restated
Employee Stock Purchase Plan and other executive officer
compensation plans. The Compensation Committee’s Charter is
available on the Company’s website (www.telecomsys.com) and
will be provided to stockholders upon request.
EXECUTIVE
COMPENSATION
We provide what we believe is a competitive total compensation
package to our executive management team through a combination
of base salary, an annual cash incentive plan, long-term equity
incentive compensation and broad-based benefits programs.
We place significant emphasis on pay for performance-based
incentive compensation programs, which make payments when
certain company and individual goals are achieved. This
Compensation Discussion and Analysis explains our compensation
philosophy, policies and practices with respect to our chief
executive officer, chief financial officer, and the other three
most highly-compensated executive officers, which are
collectively referred to as the named executive officers.
Our Compensation Committee is responsible for establishing and
administering our policies governing the compensation for our
executive officers. Our executive officers are elected by our
board of directors. The Compensation Committee is composed
entirely of non-employee directors.
Our executive compensation programs are designed to achieve the
following objectives:
The Chairman of our Compensation Committee is a Managing Partner
of Heidrick & Struggles, one of the world’s
leading executive search and leadership consulting firms. He
brings to the Compensation Committee world-wide industry data to
support its analysis and compensation decisions. The
Compensation Committee meets outside the presence of all of our
executive officers, including the named executive officers, to
consider appropriate compensation for our named executive
officers. Mr. Tosé, our chief executive officer
annually reviews each other named executive officer’s
performance with the committee and makes recommendations to the
Compensation Committee with respect to the appropriate base
salary, payments to be made under our annual cash incentive
plan, or Bonus Opportunity Plan, and the grants of long-term
equity incentive awards for all executive officers. Based in
part on these recommendations from our CEO and other
considerations discussed below, the Compensation Committee
approves the annual compensation package of our executive
officers other
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than our CEO. The Compensation Committee also annually analyzes
our CEO’s performance and determines his base salary, Bonus
Opportunity Plan award payout and stock option awards based on
its assessment of his performance with input from the
committee’s members.
We use the following principles to guide our decisions regarding
executive compensation:
Provide base salary compensation opportunities targeted at
market median levels.
To attract and retain executives with the ability and the
experience necessary to lead us and deliver strong performance
to our shareholders, we strive to provide a total compensation
package that is competitive with total compensation provided by
our industry peer group.
We benchmark our salary and target incentive levels and
practices as well as our performance results in relation to
other comparable communications technology industry companies
and general industry companies of similar size in terms of
revenue and market capitalization. We believe that such
companies provide an appropriate peer group because they consist
of similar organizations against whom we compete for executive
talent. We annually review the companies in our peer group and
add or remove companies as necessary to insure that our peer
group comparisons are meaningful. Specifically, we have used
available data from the following companies to compare our
salary and target incentive levels:
We target base salaries to approximate the market median
(50th percentile)
for our peer group. To arrive at the
50th percentile
for the base salaries of our named executive officers, we
consider the median of the data gathered from proxy statements
for the positions of the named executive officers in relation to
the named executive officers of our peer group as well as the
50th percentile
of data from published surveys for each position. If our
performance on company/team and individual goals exceeds
targeted levels, our executives have the opportunity, through
our Bonus Opportunity Plan and long-term equity incentive
compensation to receive total compensation above the median of
market pay. We believe our executive compensation packages are
reasonable when considering our business strategy, our
compensation philosophy and the competitive market pay data.
For each executive officer, we consider the relevance of data of
our peer group, considering:
Our executive compensation program emphasizes pay for
performance. Performance is measured based on achievement of
company and individual performance goals that are aligned with
our business strategy and are approved by our board of directors
relative to its approved annual business plan. The goals for our
company and individual measures are established so that target
attainment is not assured. The attainment of payment for
performance at target or above will require significant effort
on the part of our executives.
For 2006, the Bonus Opportunity Plan award was based on the
following performance measures: Achievement of operating targets
including:
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For 2007, the Bonus Opportunity Plan provides for bonus awards
based on achievement of similar operating targets, with the
addition of net income targets
Our long-term equity incentive program for 2006 and 2007
consists of awards of options to acquire our common stock or
restricted shares which require growth in our common stock price
in order for the executive officer to realize any value. We
award stock options to align the interests of the executive
officers to the interests of the shareholders through
appreciation of our common stock price.
We provide a competitive benefits package to all full-time
employees which includes health and welfare benefits, such as
medical, dental, vision care, disability insurance, life
insurance benefits, and a 401(k) savings plan. We have no
structured executive perquisite benefits (e.g., club memberships
or company vehicles) for any executive officer, including the
named executive officers, and we currently do not provide any
deferred compensation programs or supplemental pensions to any
executive officer, including the named executive officers.
We provide a total compensation program that we believe will be
perceived by both our executive officers and our shareholders as
fair and equitable. In addition to conducting analyses of market
pay levels and considering individual circumstances related to
each executive officer, we also consider the pay of each
executive officer relative to each other executive officer and
relative to other members of the management team. We have
designed the total compensation programs to be consistent for
our executive management team.
We have adopted the following material policies related to our
executive compensation program:
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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 compensation program.
All pay elements are cash-based except for the long-term equity
incentive program, which is an equity-based (stock options or
restricted shares) award. We consider market pay practices and
practices of peer companies in
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determining the amounts to be paid, what components should be
paid in cash versus equity, and how much of a named executive
officer’s compensation should be short-term versus
long-term.
Compensation opportunities for our executive officers, including
our named executive officers, are designed to be competitive
with peer companies. We believe that a substantial portion of
each named executive officer’s compensation should be in
performance-based pay.
In determining whether to increase or decrease compensation to
our executive officers, including our named executive officers,
annually we take into account the changes (if any) in the market
pay levels based on our peer group, the contributions made by
the executive officer, the performance of the executive officer,
the increases or decreases in responsibilities and roles of the
executive officer, the business needs for the executive officer,
the transferability of managerial skills to another employer,
the relevance of the executive officer’s experience to
other potential employers and the readiness of the executive
officer to assume a more significant role with another
organization. In addition, we consider the executive
officer’s current base salary in relation to the median pay
of peer group companies so that for the same individual
performance, an executive officer will receive larger increases
when below median and smaller increases when at or above median.
In general, compensation or amounts realized by executives from
prior compensation from us, such as gains from previously
awarded stock options or restricted share awards, are not taken
into account in setting other elements of compensation, such as
base pay, Bonus Opportunity Plan payments, or awards of stock
options or restricted shares under our long-term equity
incentive program. With respect to new executive officers, we
take into account their prior base salary and annual cash
incentive, as well as the contribution expected to be made by
the new executive officer, the business needs and the role of
the executive officer with us. We believe that our executive
officers should be fairly compensated each year relative to
market pay levels of our peer group and internal equity among
executive officers. Moreover, we believe that our long-term
incentive compensation program furthers our significant emphasis
on pay for performance compensation.
To attract and retain executives with the ability and the
experience necessary to lead us and deliver strong performance
to our shareholders, we provide a competitive total compensation
package. Base salaries are targeted at the market median
(50th percentile)
of our peer group, while total compensation (cash plus long-term
incentive compensation) is targeted at the
75th percentile
of our peer group, considering individual performance and
experience, to ensure that each executive is appropriately
compensated.
Annually we review salary ranges and individual salaries for our
executive officers. We establish the base salary for each
executive officer based on consideration of median pay levels of
our peer group and internal factors, such as the
individual’s performance and experience, and the pay of
others on the executive team.
We consider market median pay levels among individuals in
comparable positions with transferable skills within the
wireless communications technology industry and comparable
companies in general industry. When establishing the base salary
of any executive officer, we also consider business requirements
for certain skills, individual experience and contributions, the
roles and responsibilities of the executive and other factors.
We believe 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. For the fiscal
year ended December 31, 2006, cash compensation to our
named executive officers was approximately $1.5 million,
with our chief executive officer receiving approximately
$430,000 of that amount. We believe that the base salary paid to
our executive officers during 2006 achieves our executive
compensation objectives, compares appropriately to our peer
group and is within our target of providing a base salary at the
market median.
In 2007, adjustments to our executive officers’ total
compensation were made based on an analysis of current market
pay levels of peer companies and in published surveys. In
addition to the pay levels of our peer
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group, factors taken into account in making any changes for 2007
included the contributions made by the executive officer, the
performance of the executive officer, the role and
responsibilities of the executive officer and the relationship
of the executive officer’s base pay to the base salary of
our other executives.
Consistent with our emphasis on pay for performance incentive
compensation programs, we have established a written Bonus
Opportunity Plan pursuant to which our executive officers,
including our named executive officers, are eligible to receive
Bonus Opportunity Plan awards based upon our performance against
annual established performance targets, including financial
measures and other factors, including individual performance.
The Bonus Opportunity Plan is important to focus our executive
officer’s efforts and reward executive officers for annual
operating results that help create value for our shareholders.
The Bonus Opportunity Plan award represents approximately 25% to
40% of a named executive officer’s total potential cash
compensation, depending on the executive’s role.
Incentive award opportunities are targeted to result in Bonus
Opportunity Plan payments equal to the market median of our peer
group assuming our target business objectives are achieved. If
the target level for the performance goals is exceeded,
executives have an opportunity to earn cash incentive awards
above the median of the market of our peer group. If the target
levels for the performance goals are not achieved, executives
may earn less or no Bonus Opportunity Plan payments. In 2006,
our named executive officers exceeded some but not all of the
target business objectives, which result in an earned aggregate
of 83% of the potential cash bonuses under the Bonus Opportunity
Plan. The incentive plan targets for the Bonus Opportunity Plan
are determined through our annual planning process, which
generally begins in October before each fiscal year.
For 2006, the financial measures used to determine annual
incentive cash payments included revenue, EBITDA, cash on hand
at year-end, a tangible net worth goal and attainment of certain
operational and subjective goals related to the executive’s
role.
The revenue measure is designed to reflect our objective of
developing new products and markets, growing top line revenue,
and expanding our market share in existing markets. To ensure we
efficiently develop and expand our markets, the EBITDA measure
motivates our executives to manage our costs and to take into
account the appropriate level of expenses expected with our
growth. The cash on hand measure is designed to ensure that the
appropriate level of attention is paid to the need to fund our
operations and investments for the next rolling twelve-month
period. The tangible net worth goal provides focus on
maintaining our balance sheet in a manner that exceeds the
requirements of our bank arrangements to avoid liquidity issues
on an on-going basis. The operational and subjective goals
provide recognition for contributions made to the overall health
of the business and are intended to capture how the executive
officer has performed in areas that are not quantified in the
major metrics.
A business plan which contains annual financial and strategic
objectives is developed each year by management, reviewed and
recommended by the executive officers, presented to the board of
directors, and ultimately reviewed and approved by our board of
directors with such changes it deems appropriate. The Bonus
Opportunity Plan is presented to the Compensation Committee for
review and approval with such modifications it deems appropriate.
Bonus Opportunity Plan awards are determined at year-end based
on our performance against the approved Bonus Opportunity Plan
targets. The Compensation Committee also exercises discretion
adjusting awards based on its consideration of each executive
officer’s individual performance and for each executive
officer other than the chief executive officer, based on a
review of such executive’s performance as communicated to
the Compensation Committee by the chief executive officer, and
our overall performance during the year. The committee may
modify the Bonus Opportunity Plan awards prior to their payment.
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Shown as a percentage of the total Bonus Opportunity Plan award
at target in the following table, is the weighting of the
measures used to determine award payments to the named executive
officers for the fiscal year ended December 31, 2006.
We have developed goals for our performance measures that would
result in varying levels of Bonus Opportunity Plan payments. If
certain performance goals were met, to the extent that Revenue
and EBITDA exceeded the goals, our executive officers had the
opportunity to receive an amount in excess of their target
award. The target award for the Senior Vice President of Sales
could be reduced if certain sales goals were not met. The
payment opportunities under the 2006 annual Bonus Opportunity
Plan was set based on competitive market pay levels of our peer
group and are shown as a percentage of annual base salary at
corresponding levels of performance against our goals as shown
in the following table:
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The actual annual incentive payments made to our named executive
officers pursuant to our Bonus Opportunity Plan for the fiscal
year ended December 31, 2006 are set forth below in the
Summary Compensation Table. We believe that the annual incentive
payments made to our named executive officers for the fiscal
year ended December 31, 2006 achieved our executive
compensation objectives, compare appropriately to our peer group
and are within our target of providing total compensation at the
50th percentile of the market with outstanding performance
achievement.
We award long-term equity incentive grants to executive
officers, including the named executive officers, as part of our
total compensation package. These awards are consistent with our
pay for performance principles and align the interests of the
executive officers to the interests of our shareholders. The
Compensation Committee reviews and approves the amount of each
award to be granted to each named executive officer. Long-term
equity incentive awards are made pursuant to our Amended and
Restated 1997 Stock Incentive Plan (the “1997 Plan”).
Our long-term equity incentive compensation is currently
primarily in the form of options to acquire our common stock,
but some restricted shares also have been awarded. The value of
the stock options awarded is dependent upon the performance of
our common stock price. While the 2007 Plan allows for other
forms of equity compensation, the Compensation Committee and
management believe that currently stock options
and/or
restricted shares are the appropriate vehicle to provide
long-term incentive compensation to our executive officers.
Other types of long-term equity incentive compensation may be
considered in the future as our business strategy evolves.
Stock option awards provide our executive officers with the
right to purchase shares of our common stock at a fixed exercise
price for a period of up to ten years under the 2007 Plan. Stock
options are earned on the basis of continued service to us and
generally vest over three years, beginning with one-third
vesting at each one year anniversary of the date of grant.
The exercise price of each stock option granted 2006 is the fair
market value of our common stock on the grant date. We do not
have any program, plan or practice of setting the exercise price
based on a date or price other than the fair market value of our
common stock on the grant date.
Our executive officers and other employees are eligible to
receive annual awards of stock options based on the
company’s performance in the prior fiscal year. Individual
determinations are made with respect to the number of stock
options granted to executive officers. In making these
determinations, we consider our performance relative to the
financial and strategic objectives set forth in the annual
business plan, the previous year’s individual performance
of each executive officer, and the market pay levels for the
executive officer. Annual grants are targeted at 75% of the
median level of market practices for the executive officer, but
may be adjusted based on individual performance. This analysis
is also used to determine any new hire or promotion-related
grants that may be made during the year. Based on individual
performance and contributions to our overall performance, the
2006 stock option grants awarded to the named executive officers
were at approximately the
75th percentile
of market long-term-incentive level for each named executive
officer.
Like our other pay components, long-term equity incentive award
grants are determined based on an analysis of competitive market
levels of our peer group. Long-term equity incentive grant
ranges have been established which result in total compensation
levels ranging from median to above median of market pay levels
of our peer group. The number of options granted to a named
executive officer is intended to reward prior year’s
individual performance.
Generally, we do not consider an executive officer’s stock
holdings or previous stock option grants in determining the
number of stock options to be granted. We believe that our
executive officers should be fairly compensated each year
relative to market pay levels of our peer group and relative to
our other executive officers. Moreover, we believe that our
long-term incentive compensation program furthers our
significant emphasis on pay for performance compensation.
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While the vast majority of stock option awards to our executive
officers have been made pursuant to our annual grant program or
in connection with their hiring or promotion, the Compensation
Committee retains discretion to make stock option awards to
executive officers at other times, including in connection with
the hiring of a new executive officer, the promotion of an
executive officer, to reward executive officers, for retention
purposes or for other circumstances recommended by management or
the Compensation Committee. The exercise price of any such grant
would be the fair market value of our stock on the grant date.
For accounting purposes, we apply the guidance in Statement of
Financial Accounting Standard 123 (revised December 2004), or
SFAS 123(R), to record compensation expense for our stock
option grants. SFAS 123(R) is used to develop the
assumptions necessary and the model appropriate to value the
awards as well as the timing of the expense recognition over the
requisite service period, generally the vesting period, of the
award.
Executive officers recognize taxable income from stock option
awards when a vested non-qualified option is exercised or when
the shares underlying an incentive option grant have been sold.
The company generally receives a corresponding tax deduction for
compensation expense in the year of exercise of a non-qualified
option. The amount included in the executive officer’s
wages and the amount we may deduct is equal to the common stock
price when the non-qualified stock options are exercised less
the exercise price multiplied by the number of stock options
exercised. We do not pay or reimburse any executive officer for
any taxes due upon exercise of a stock option.
In 2006, upon a review of all option grants under the 1997 plan,
we determined that because of administrative error in 2001 we
had granted certain options to purchase our common stock under
our 1997 Plan at exercise prices which were below the fair
market value of our common stock at the time of grant. In
December 2006, we amended the affected stock option grants of
all affected employees by increasing the exercise price of such
affected unvested stock option grants to the fair value of our
common stock as of the date of grant.
All employees, including our named executive officers, may
participate in our 401(k) Retirement Savings Plan, or 401(k)
Plan. Each employee may make before-tax contributions up to the
current Internal Revenue Service limits. We provide this plan to
help our employees save some amount of their cash compensation
for retirement in a tax efficient manner. We match contributions
made by our employees to the 401(k) Plan at discretionary
amounts. For 2006 we contributed 5% of each employee’s
contribution to the 401(k) plan and for 2007 we intend to
contribute 25% of each employee’s contribution to the
401(k) plan. We currently do not provide an option for our
employees to invest in our company’s stock in the 401(k)
plan.
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.
Except with respect to our Chairman and Chief Executive Officer,
Mr. Maurice B. Tosé, we have employment agreements in
effect with our named executive officers. We intend to enter
into an employment contract with Mr. Tosé in 2007. We
entered into the existing agreements to ensure the named
executive officers would perform the role for an extended period
of time and we considered the critical nature of the positions
and our need to retain the individuals.
The agreements with our named executive officers, except for
Mr. Tosé, provide that if the executive is terminated
for cause or terminates without good reason (as defined in the
agreement), 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 terminated without cause or if he
terminates the employment agreement for good reason (as defined
in the agreement), in addition to the payment of amounts then
vested, in exchange for a general release of all
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claims, he is entitled to salary in an amount which is the
greater of the current annual salary for the remaining term of
the agreement, or six months’ salary.
In the alternative, if a named executive officer’s
employment with us is terminated because of a change in control,
as defined in the agreement, then he is entitled to one
year’s salary (except for Mr. Richard Young, Chief
Operating Officer, who is entitled to two years’ salary)
and all then outstanding stock options become immediately
vested. We believe these provisions are important to ensure that
our executives remain with us through the closing of any sale of
the business.
Stock ownership guidelines have not been implemented by the
Compensation Committee for our executive officers. We have
chosen not to require stock ownership given the long tenure of
our executive officers and the evolution of our company. We will
continue to periodically review best practices and re-evaluate
our position with respect to stock ownership guidelines.
Our securities trading policy states that executive officers,
including the named executive officers, and directors may not
purchase or sell puts or calls to sell or buy our stock, or
engage in short sales with respect to our stock.
Limitations on deductibility of compensation may occur under
Section 162(m) of the Internal Revenue Code which generally
limits the tax deductibility of compensation paid by a public
company to its chief executive officer and certain other highly
compensated executive officers to $1 million in the year
the compensation becomes taxable to the executive officer. There
is an exception to the limit on deductibility for
performance-based compensation that meets certain requirements.
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 opportunity 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.
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis contained in this proxy
statement with management. Based on these reviews and
discussions, the committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in the
company’s proxy statement for the 2007 Annual Meeting of
Shareholders.
COMPENSATION COMMITTEE
James M. Bethmann (Chairman)
Weldon H. Latham
None of the members of the Compensation Committee is a current
or former officer or employee of the Company. During 2006, no
member of the Compensation Committee had any relationship with
the Company requiring disclosure under Item 404 of
Regulation S-K.
During 2006, none of the company’s executive officers
served on the compensation committee (or its equivalent) or
board of directors of another entity any of whose executive
officers served on the Company’s Compensation Committee or
Board of Directors.
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The following table shows all compensation earned in the last
fiscal year by our Chief Executive Officer, Chief Financial
Officer and our three other most highly paid executive officers
whose annual salary and bonus exceeded $100,000 in the fiscal
year ended December 31, 2006.
Summary
Compensation Table
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The following tables provide information about options granted,
exercised and held by the executive officers named in the
Summary Compensation Tables at December 31, 2006.
2006 Grants of
Plan-Based Awards
In this table, we provide information concerning each grant of
an award made to a named executive officer in the most recently
completed fiscal year. This includes cash compensation under the
Bonus Opportunity Plan and stock option awards under the
Company’s Amended and Restated 1997 Stock Incentive Plan,
each of which is discussed in greater detail in this Proxy
Statement under the caption, “Compensation Discussion and
Analysis.” The threshold, target and maximum columns
reflect the range of estimated payouts under the Bonus
Opportunity Plan. In the
7th and
8th columns,
we report the number of shares of common stock underlying
options granted in the fiscal year and corresponding per-share
exercise prices. In all cases, the exercise price was equal to
the closing market price of our common stock on the date of
grant. Finally, in the last column, we report the aggregate
FAS 123(R) value of all option awards made in 2006; in
contrast to how we present amounts in the Summary Compensation
Table, we report such figures here without apportioning such
amount over the service or vesting period.
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Outstanding
Equity Awards at Fiscal Year-End 2006
The following table provides information concerning unexercised
options, stock that has not vested, and equity incentive plan
awards for each named executive officer outstanding as of the
end of our most recently completed fiscal year. Each outstanding
award is represented by a separate row which indicates the
number of securities underlying the award, including awards that
have been transferred other than for value (if any).
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The following table provides information concerning exercises of
stock options and vesting of stock (restricted stock) during the
most recently completed fiscal year for each named executive
officer on an aggregated basis. The restricted stock that vested
in the most recently completed fiscal year was granted in 2003.
The table reports the number of shares of stock that vested and
the aggregate dollar value realized upon vesting of the stock.
The following table provides information for all equity
compensation plans at plans December 31, 2006, under which
our equity securities were authorized for issuance:
We have entered into employment agreements with
Messrs. Young, Brandt, and Morin which became effective
February 1, 2001, and with Mr. Webb which became
effective February 1, 2007. See also the “Employment
Agreements, Severance Benefits and Change in Control
Provisions” section of the Compensation Discussion and
Analysis portion of this Proxy Statement. The employment
agreements provide for their annual salaries as adjusted
annually by the Board of Directors, and give them the
opportunity to participate in bonus or incentive compensation
plans of the Company, if any. The agreements state an initial
term of one year from the effective date, and automatically
extend for additional one-year increments until terminated by us
or the individuals.
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The individuals may resign their employment voluntarily by
giving 30 days notice to the Board of Directors. If we
terminate any of the individuals without cause or if the
individual resigns with good reason, he is entitled to receive
from us his earned bonus plus an amount equal to the greater of
the salary he would have received during the balance of the term
of the employment contract, or six months. Under the agreements,
“cause” means committing an act of gross negligence or
other willful act that materially adversely affects TCS, acts of
dishonesty involving fraud or embezzlement or being convicted or
pleading no contest to a felony involving theft or moral
turpitude. Under the agreements, “good reason”
includes circumstances that constitute a material diminution in
authority, require the individual to physically relocate more
than 75 miles and any material breach by the Company of its
obligations under the agreement. If we terminate an
individual’s employment without cause, or if he resigns for
good reason, within 12 months of a change in control, he is
entitled to receive from us an amount based upon his annual
salary. Mr. Young is entitled to receive two times his
annual salary, and the other individuals are entitled to receive
one times their annual salary. The following table summarizes
estimated payments to the named executive officers upon
termination without cause or resignation for good reason after a
change in control assuming that the termination event was
effective as of the last day of the most recently completed
fiscal year, or December 31, 2006.
Pursuant to the agreements, vesting of any stock options awarded
to the individuals shall be immediately accelerated in the event
of a change of control as defined in the agreements. The
following table summarizes the intrinsic value of stock options
that would be accelerated upon a change of control, assuming
that a change of control event occurred on December 31,
2006:
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Directors who are not employees of TCS (that is, all directors
except for Mr. Tosé) are paid an annual retainer of
$10,000, and fee of $1,500 for each Board meeting and $1,000 for
each Committee meeting in which the director participates. The
Chairman of the Audit Committee is paid an additional annual
retainer of $9,000, and the Chairman of the Compensation
Committee is paid an additional annual retainer of $4,500.
Generally, each director is granted restricted stock or options
to purchase shares of Class A Common Stock under our
Amended and Restated 1997 Stock Incentive Plan for each year of
service on the Board. These restricted shares or options vest in
equal amounts at the end of each semi-annual term of service on
the Board. In addition, non-employee directors are reimbursed
for expenses incurred in connection with their board service.
The following Table summarizes all amounts paid to non-employee
Directors for fiscal year 2006:
In February 2003, we entered into a lease with Annapolis
Partners LLC to explore the opportunity of relocating our
Annapolis offices to a planned new real estate development. Our
President and Chief Executive Officer owns a controlling voting
and economic interest in Annapolis Partners LLC and he also
serves as a member. The financial and many other terms of the
lease have not yet been established. The lease is subject to
several contingencies and rights of termination. For example,
the lease can be terminated at the sole discretion of our Board
of Directors if the terms and conditions of the development are
unacceptable to us, including without limitation the
circumstances that market conditions make the lease not
favorable to us or the overall cost is not in the best interest
of us or our shareholders, or any legal or regulatory
restrictions apply. Our Board of Directors will evaluate this
opportunity along with alternatives that are or may become
available in the relevant time periods and there is no assurance
that we will enter into a definitive lease at this new
development site.
In 1997, with the approval of our stockholders, we adopted the
1997 Stock Incentive Plan to promote our long-term growth and
profitability by providing our employees, directors and
consultants with incentives to improve stockholder value and to
contribute to our growth and financial success. Since its
inception, we have amended and restated the plan from time to
time with the approval of our stockholders to increase the total
number of shares of our Class A Common Stock reserved for
issuance under the plan. These increases were made judiciously
to enable the Company to continue to provide stock-based
incentives to meet its recruiting, motivational and retention
needs while being mindful of our stockholders’ concerns
regarding dilution of their interests.
Specifically, to date, our stockholders approved the following
amendments and restatements to the plan:
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On January 17, 2007, our Board of Directors approved a
fifth amendment and restatement of the plan, to be known as the
Fifth Amended and Restated 1997 Stock Incentive Plan (the
“Plan”), contingent upon approval of the
stockholders. Under this proposal, we are asking our
stockholders to approve the Plan, as revised by this fifth
amendment and restatement, at the Annual Meeting.
The fifth amendment and restatement provides for an increase in
the number of shares of our Class A Common Stock available
for issuance under the Plan by 5,000,000 shares for a total
of 25,904,110 shares. In addition to the increase in
authorized shares, and the change in the name of the Plan, other
material changes that the amendment and restatement makes to the
Plan as previously approved by our stockholders include:
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On January 17, 2007, immediately prior to the date the
fifth amendment and restatement was approved by the Board of
Directors, 11,686,366 shares of our Class A Common
Stock were subject to outstanding awards issued under the Plan
and 2,880,483 shares remained available for new awards. As
of April 17, 2007, 13,486,451 shares of our
Class A Common Stock were subject to outstanding awards
issued under the Plan, and 957,143 shares remained
available for new awards. The following table shows information
regarding the distribution of awards among the persons and
groups identified below.
Aggregate Past
Grants Under the Plan
The following is a brief summary of the Plan. This summary is
qualified in its entirety by reference to the full text of the
Plan, which appears as Appendix A to this Proxy
Statement.
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Purpose: The purpose of the Plan is to promote our
long-term growth and profitability by providing key people with
incentives to improve stockholder value and contribute to our
growth and financial success by enabling us to attract, retain
and reward the best available people.
Shares Available under the Plan: The limits on
shares available under the Plan and awards which may be granted
to any individual during a calendar year, as described above,
will be adjusted to reflect any stock dividends or stock splits
or reverse splits, and may be adjusted in the event of any
spin-off,
split-up,
dividend, recapitalization, merger, consolidation or share
exchange, other than any change which is part of a transaction
resulting in a change in control. If any award, or portion of an
award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated,
surrendered or canceled as to any shares, or if any shares of
Class A Common Stock are surrendered to us in connection
with any award (whether or not such surrendered shares were
acquired pursuant to any award), the shares subject to such
award and the withheld and surrendered shares will thereafter be
available for further awards under the Plan. As of
April 25, 2007, the fair market value of a share of
Class A Common Stock, determined by the last reported sale
price per share of Class A Common Stock on such date as
quoted on The Nasdaq Global Market, was $3.99.
Administration: Our Compensation Committee is
currently the administrator of the Plan. The administrator has
full power and authority to take all actions necessary to carry
out the purpose and intent of the Plan, including, but not
limited to, the authority to: (i) determine who is eligible
for awards, and the time or times at which such awards will be
granted; (ii) determine the types of awards to be granted;
(iii) determine the number of shares covered by or used for
reference purposes for each award; (iv) impose such terms,
limitations, restrictions and conditions upon any such award as
the administrator deems appropriate; (v) modify, amend,
extend or renew outstanding awards, or accept the surrender of
outstanding awards and substitute new awards (provided however,
that, except as noted below, any modification that would
materially adversely affect any outstanding award may not be
made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an award may be exercised or
becomes payable and to waive or accelerate the lapse, in whole
or in part, of any restriction or condition with respect to such
award, including, but not limited to, any restriction or
condition with respect to the vesting or exercisability of an
award following termination of any grantee’s employment or
consulting relationship; and (vii) establish objectives and
conditions, if any, for earning awards and determining whether
awards will be paid after the end of a performance period;
(viii) establish, amend, modify, administer or terminate
subplans, and prescribe, amend and rescind rules and regulations
relating to such subplans.
In the event of changes in our Class A Common Stock by
reason of any stock dividend, stock split, or reverse stock
split, the administrator will make adjustments to the number of
shares covered by and the exercise price and other terms of
outstanding awards. In the event of any other changes affecting
us, our capitalization or our Class A Common Stock, by
reason of any spin-off,
split-up,
dividend, recapitalization, merger, consolidation, or share
exchange, other than any change that is part of a transaction
resulting in a change in control, the administrator may without
the consent of holders of awards, make any other adjustments in
outstanding awards. This includes, but is not limited to,
reducing the number, kind and price of shares subject to awards.
Without the consent of holders of awards, whenever the
administrator determines that adjustments are appropriate in
order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan,
the administrator in its discretion is authorized to make
adjustments in the terms and conditions of, and the criteria
included in, awards in recognition of unusual or nonrecurring
events affecting us or our financial statements or those of any
of our affiliates, or of changes in applicable laws,
regulations, or accounting principles.
Participation: Participation in the Plan is open to
all of our or any of our affiliates’ employees, officers,
directors and other individuals providing bona fide services to
us or our affiliates, as selected by the administrator from time
to time. The administrator may also grant awards to individuals
in connection with hiring, retention or otherwise prior to the
date the person first performs services. As of April 30,
2007, six directors and approximately six hundred employees,
officers and consultants were eligible to participate in the
Plan.
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The Plan allows for the grant of stock options, stock
appreciation rights, stock awards, phantom stock awards,
performance awards and other stock-based awards. The
administrator may grant these awards separately or in tandem
with other awards. The administrator will also determine the
prices, expiration dates and other material conditions governing
the exercise of the awards. We, or any of our affiliates, may
make or guarantee loans to assist grantees in exercising awards
and satisfying any withholding tax obligations arising from
awards.
Stock Options: The Plan allows the administrator to
grant either awards of incentive stock options, as that term is
defined in Section 422 of the Internal Revenue Code (the
“Code”), or nonqualified stock options;
provided, however, that only our employees or employees of our
parent or subsidiaries may receive incentive stock option
awards. Options intended to qualify as incentive stock must have
an exercise price at least equal to fair market value on the
date of grant, but nonqualified stock options may be granted
with an exercise price less than fair market value. The option
holder may pay the exercise price in cash, by tendering shares
of Class A Common Stock, by a combination of cash and
shares, or by any other means the administrator approves.
Stock Appreciation Rights: The Plan allows the
administrator to grant awards of stock appreciation rights which
entitle the holder to receive a payment in cash, in shares of
Class A Common Stock, or in a combination of both, having
an aggregate value equal to the amount by which the fair market
value of the underlying shares appreciates from the grant date
until the exercise date.
Stock Awards and Phantom Stock Awards: The Plan
allows the administrator to grant restricted or unrestricted
stock awards, or awards denominated in stock-equivalent units,
to eligible participants with or without payment of
consideration by the grantee. Stock awards and phantom stock
awards may be paid in cash, in shares of Class A Common
Stock, or in a combination of both.
Performance Awards: The Plan allows the
administrator to grant performance awards which become payable
in cash, in shares of Class A Common Stock, or in a
combination of both, on account of attainment of one or more
performance goals established by the administrator. The
administrator may establish performance awards in a manner
constituting “qualified performance-based
compensation” within the meaning of Code
section 162(m) in order to ensure that the Company is
entitled to a tax deduction for the compensation that is
realized by the recipient of such performance awards.
Performance goals established by the administrator may be based
on one or more of the following business criteria selected by
the administrator that apply to an individual or group of
individuals, a business unit, or the Company or an affiliate of
the Company as a whole, and in either absolute terms or relative
to the performance of one or more comparable companies or an
index covering multiple companies, over such performance period
as the administrator may designate: revenue; earnings before
interest, taxes, depreciation and amortization (EBITDA); income
before income taxes and minority interests; operating income;
pre- or after-tax income; cash flow; cash flow per share; net
earnings; earnings per share; return on equity; return on
invested capital; return on assets; growth in assets; share
price performance; economic value added; total stockholder
return; improvement in or attainment of expense levels; profit
after taxes; operating profit or net operating profit; operating
margin or profit margin; return on operating revenue; market
segment share; product development; product release schedules;
new product innovation; sales of particular products or
services; product market share; brand recognition/acceptance;
customer acquisition or retention; customer satisfaction levels;
research; licensing; litigation; human resources; information
services; and relative performance to a group of companies or
relevant market indices comparable to the Company, and strategic
business criteria consisting of one or more objectives based on
the Company meeting specified goals relating to revenue, market
penetration, business expansion, costs or acquisitions or
divestitures. Performance goals may include minimum, maximum and
target levels of performance, with the size of the performance
award or the lapse of restrictions with respect thereto based on
the level attained. To the extent permitted under Code
section 162(m), the administrator shall be authorized to
make adjustments in the method of calculating attainment of
performance goals in recognition of: (A) extraordinary or
non-recurring items; (B) changes in tax laws;
(C) changes in generally accepted accounting principles or
changes in accounting policies; (D) charges related to
restructured or discontinued operations; (E) restatement of
prior period financial results; and (F) any other unusual,
non-recurring gain or loss that is separately identified and
quantified in the Company’s financial statements.
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Other Stock-Based Awards: The Plan allows the
administrator to grant stock-based awards which may be
denominated in cash, Class A Common Stock, or other
securities, stock equivalent units, stock appreciation units,
securities or debentures convertible into Class A Common
Stock, or any combination of the foregoing. These awards may be
paid in Class A Common Stock or other securities, in cash,
or in a combination of Class A Common Stock, other
securities and cash.
Because participation and the types of awards available for
grant under the Plan as proposed to be amended and restated are
subject to the discretion of the administrator, the benefits or
amounts that any participant or groups of participants may
receive if the amended and restated Plan is approved are not
currently determinable.
The following New Plan Benefits table contains the number of
outstanding awards made under the Plan to the individuals and
groups listed below during our last fiscal year.
Our Board of Directors may terminate, amend or modify the Plan
or any portion thereof at any time. If not sooner terminated,
the Plan will terminate on January 17, 2017.
The following is a general summary of the current federal income
tax treatment of stock options, which may be granted under the
Plan, based upon the current provisions of the Internal Revenue
Code and regulations promulgated thereunder.
Incentive Stock Options: Incentive stock options
under the Plan are intended to meet the requirements of
Section 422 of the Code. No tax consequences result from
the grant of the option. If an option holder acquires stock upon
exercise, the option holder will not recognize income for
ordinary income tax purposes (although the difference between
the option exercise price and the fair market value of the stock
subject to the option may result in alternative minimum tax
liability to the option holder) and we will not be allowed a
deduction as a result
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of such exercise, provided that the following conditions are
met: (a) at all times during the period beginning with the
date of the granting of the option and ending on the day three
months before the date of such exercise, the option holder is
our employee or an employee of one of our subsidiaries; and
(b) the option holder makes no disposition of the stock
within two years from the date of the option grant nor within
one year after the transfer of the stock to the option holder.
The three-month period extends to one year in the event of
disability and is waived in the event of death of the employee.
If the option holder sells the stock after complying with these
conditions, any gain realized over the price paid for the stock
ordinarily will be treated as capital gain, and any loss will be
treated as capital loss, in the year of the sale.
If the option holder fails to comply with the employment
requirement, the tax consequences will be substantially the same
as for a nonqualified option, discussed below. If the option
holder fails to comply with the holding period requirements, the
option holder will recognize ordinary income in an amount equal
to the lesser of (i) the excess of the fair market value of
the stock on the date of the exercise of the option over the
exercise price or (ii) the excess of the amount realized
upon such disposition over the adjusted tax basis of the stock.
Any additional gain ordinarily will be recognized by the option
holder as capital gain, either long-term or short-term,
depending on the holding period of the shares. If the option
holder is treated as having received ordinary income because of
his or her failure to comply with either condition above, we
will be allowed an equivalent deduction in the same year.
Nonqualified Stock Options: No tax consequences
result from the grant of the option. An option holder who
exercises a nonqualified stock option with cash generally will
realize compensation taxable as ordinary income in an amount
equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise, and we will
be entitled to a deduction from income in the same amount in the
fiscal year in which the exercise occurred. We will withhold
taxes from any ordinary income recognized by the option holder
due to exercise. The option holder’s basis in these shares
will be the fair market value on the date income is realized,
and when the holder disposes of the shares he or she will
recognize capital gain or loss, either long-term or short-term,
depending on the holding period of the shares.
Disallowance of Deductions: The Code disallows
deductions by publicly held corporations with respect to
compensation in excess of $1,000,000 paid to the company’s
Chief Executive Officer and its four other most highly
compensated officers. However, compensation payable solely on
account of attainment of one or more performance goals is not
subject to this deduction limitation if certain statutory
requirements are satisfied. Under this exception, the deduction
limitation does not apply with respect to compensation otherwise
deductible on account of stock options and stock appreciation
rights granted at fair market value under a Plan that limits the
number of shares that may be issued to any individual and which
is approved by the Company’s stockholders.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
“FOR” THE APPROVAL OF THE FIFTH AMENDED AND RESTATED
1997 STOCK INCENTIVE PLAN.
We do not know of any matters to be presented at the Annual
Meeting other than those mentioned in this Proxy Statement. If
any other matters are properly brought before the Annual
Meeting, it is intended that Messrs. Brandt and White will
vote the proxies in accordance with their best judgment.
The Annual Report of the Company, including financial statements
of the Company for the fiscal year ended December 31, 2006
is being mailed to the stockholders with this Proxy Statement.
You may request, without charge, a copy of the Company’s
2006 Annual Report on
Form 10-K,
as filed with the SEC, by addressing a request to
TeleCommunication Systems, Inc., 275 West Street,
Annapolis, Maryland 21401 Attention: Investor Relations.
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Appendix A
Telecommunication
Systems, Inc.
Fifth Amended and
Restated 1997 Stock Incentive Plan
TeleCommunication Systems, Inc., a Maryland corporation (the
“Company”), established and maintains the
Telecommunication Systems, Inc. Fourth Amended and Restated 1997
Stock Incentive Plan which is hereby amended and restated again
in its entirety and shall henceforth be known as the
TELECOMMUNICATION SYSTEMS, INC. FIFTH AMENDED AND RESTATED 1997
STOCK INCENTIVE PLAN (the “Plan”). This Plan is a
continuation, and amendment and restatement, of the
TeleCommunication Systems, Inc. Fourth Amended and Restated 1997
Stock Incentive Plan, the provisions of which shall continue to
control with respect to any options outstanding thereunder that
are intended to qualify as “incentive stock options”
within the meaning of Section 422 of the Internal Revenue
Code to the extent necessary to preserve such status. The
purpose of the Plan is to promote the long-term growth and
profitability of the Company by (i) providing key people
with incentives to improve stockholder value and to contribute
to the growth and financial success of the Company, and
(ii) enabling the Company to attract, retain and reward the
best-available persons.
The Plan permits the granting of stock options (including
incentive stock options qualifying under Code section 422
and nonqualified stock options), stock appreciation rights,
restricted or unrestricted stock awards, phantom stock,
performance awards, other stock-based awards, or any combination
of the foregoing.
Under this Plan, except where the context otherwise indicates,
the following definitions apply:
(a) “Administrator” shall mean the Board
or the committee(s) or officer(s) appointed by the Board that
have authority to administer the Plan as provided in
Section 3 hereof.
(b) “Affiliate” shall mean any entity,
whether now or hereafter existing, which controls, is controlled
by, or is under common control with, the Company (including, but
not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, “control” shall mean
ownership of 50% or more of the total combined voting power or
value of all classes of stock or interests of the entity.
(c) “Award” shall mean any stock option,
stock appreciation right, stock award, phantom stock award,
performance award, or other stock-based award.
(d) “Board” shall mean the Board of
Directors of the Company.
(e) “Change in Control” means:
(i) an acquisition (other than from the Company) in a
transaction, or a series of related transactions, by any person,
entity or “group,” within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934 (the “Exchange Act”), (excluding for this
purpose, (A) the Company or its subsidiaries, (B) any
employee benefit plan of the Company or its subsidiaries which
acquires beneficial ownership of voting securities of the
Company, (C) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (D) any
corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their
ownership of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors)
of beneficial ownership, within the meaning of
Rule 13d-3
promulgated under the Exchange Act, of 50% or more of either the
then outstanding shares of common stock or the combined voting
power of the Company’s then outstanding voting securities
entitled to vote generally in the election of directors (the
“Company Voting Stock”);
(ii) the effective time of any merger, share exchange,
consolidation or other reorganization or business combination of
the Company if immediately after such transaction persons who
hold a majority of the outstanding voting securities entitled to
vote generally in the election of directors of the surviving
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entity (or the entity owning 100% of such surviving entity) are
not persons who held the Company Voting Stock immediately prior
to such transaction;
(iii) the closing of a sale or conveyance of all or
substantially all of the assets of the Company;
(iv) individuals who were the Board’s nominees for
election as directors immediately prior to a meeting of the
stockholders of the Company involving an actual or threatened
election contest relating to the election of the directors of
the Company, as such terms are used in
Rule 14a-11
of Regulation 14A promulgated under the Exchange Act, cease
to constitute a majority of the Board following the
election; or
(v) the dissolution or liquidation of the Company;
provided, however, that the term “Change in
Control” does not include a public offering of capital
stock of the Company that is effected pursuant to a registration
statement filed with, and declared effective by, the Securities
and Exchange Commission under the Securities Act of 1933;
provided, further, that for purposes of any Award or subplan
that constitutes a “nonqualified deferred compensation
plan,” within the meaning of Code section 409A, the
Administrator, in its discretion, may specify a different
definition of Change in Control in order to comply with the
provisions of Code section 409A.
(f) “Code” shall mean the Internal Revenue
Code of 1986, as amended, and any regulations promulgated
thereunder.
(g) “Common Stock” shall mean shares of
Class A common stock of the Company, par value of one cent
($0.01) per share.
(h) “Fair Market Value” shall mean, with
respect to a share of the Company’s Common Stock for any
purpose on a particular date, the value determined by the
Administrator in good faith. However, if the Common Stock is
registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and listed for trading on a
national exchange or market, “Fair Market Value”
shall mean, as applicable, (i) the closing price on the
relevant date quoted on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Global Select Market or the
Nasdaq Global Market; (ii) the last sale price on the
relevant date quoted on the Nasdaq Capital Market; or
(iii) if the Common Stock is not quoted by any of the
above, the average of the closing bid and asked prices on the
relevant date furnished by a professional market maker for the
Common Stock, or by such other source, selected by the
Administrator. If no public trading of the Common Stock occurs
on the relevant date, then Fair Market Value shall be determined
as of the next preceding date on which trading of the Common
Stock does occur. For all purposes under this Plan, the term
“relevant date” as used in this Section 2.1(h)
shall mean the date as of which Fair Market Value is to be
determined.
(i) “Grant Agreement” shall mean a written
document memorializing the terms and conditions of an Award
granted pursuant to the Plan and shall incorporate the terms of
the Plan.
(a) Administration of the Plan. The Plan shall
be administered by the Board or by such committee or committees
as may be appointed by the Board from time to time.
(b) Powers of the Administrator. The
Administrator shall have all the powers vested in it by the
terms of the Plan, such powers to include authority, in its sole
and absolute discretion, to grant Awards under the Plan,
prescribe Grant Agreements evidencing such Awards and establish
programs for granting Awards.
The Administrator shall have full power and authority to take
all other actions necessary to carry out the purpose and intent
of the Plan, including, but not limited to, the authority to:
(i) determine the eligible persons to whom, and the time or
times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number
of shares to be covered by or used for reference purposes for
each Award; (iv) impose such terms, limitations,
restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend,
extend or renew outstanding Awards, or accept the surrender of
outstanding Awards and substitute new Awards (provided however,
that, except as provided in Section 7(d) of
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the Plan, any modification that would materially adversely
affect any outstanding Award shall not be made without the
consent of the holder); (vi) accelerate or otherwise change
the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such Award,
including, but not limited to, any restriction or condition with
respect to the vesting or exercisability of an Award following
termination of any grantee’s employment or other
relationship with the Company; (vii) establish objectives
and conditions, if any, for earning Awards and determining
whether Awards will be paid after the end of a performance
period; and (viii) for any purpose, including but not
limited to, qualifying for preferred tax treatment under foreign
tax laws or otherwise complying with the regulatory requirements
of local or foreign jurisdictions, to establish, amend, modify,
administer or terminate subplans, and prescribe, amend and
rescind rules and regulations relating to such subplans.
The Administrator shall have full power and authority, in its
sole and absolute discretion, to administer and interpret the
Plan and to adopt and interpret such rules, regulations,
agreements, guidelines and instruments for the administration of
the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The
Administrator’s determinations under the Plan (including
without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms
and provisions of such Awards and the Grant Agreements
evidencing such Awards) need not be uniform and may be made by
the Administrator selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such
persons are similarly situated.
(d) Limited Liability. To the maximum extent
permitted by law, no member of the Administrator shall be liable
for any action taken or decision made in good faith relating to
the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent
permitted by law and by the Company’s charter and by-laws,
the members of the Administrator shall be indemnified by the
Company in respect of all their activities under the Plan.
(f) Effect of Administrator’s
Decision. All actions taken and decisions and
determinations made by the Administrator on all matters relating
to the Plan pursuant to the powers vested in it hereunder shall
be in the Administrator’s sole and absolute discretion and
shall be conclusive and binding on all parties concerned,
including the Company, its stockholders, any participants in the
Plan and any other employee, consultant, or director of the
Company, and their respective successors in interest.
Subject to adjustments as provided in Section 7(d) of the
Plan, the shares of Common Stock that may be issued with respect
to Awards granted under the Plan shall not exceed an aggregate
of 25,904,110 shares of Common Stock. The Company shall
reserve such number of shares for Awards under the Plan, subject
to adjustments as provided in Section 7(d) of the Plan. If
any Award, or portion of an Award, under the Plan expires or
terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any shares,
or if any shares of Common Stock are surrendered to the Company
in connection with any Award (whether or not such surrendered
shares were acquired pursuant to any Award), or if any shares
are withheld by the Company, the shares subject to such Award
and the surrendered and withheld shares shall thereafter be
available for further Awards under the Plan; provided, however,
that any such shares that are surrendered to or withheld by the
Company in connection with any Award or that are otherwise
forfeited after issuance shall not be available for purchase
pursuant to incentive stock options intended to qualify under
Code section 422.
Subject to adjustments as provided in Section 7(d) of the
Plan, the maximum number of shares of Common Stock subject to
Awards of any combination that may be granted during any one
fiscal year of the Company to any one individual under this Plan
shall be 1,500,000 shares, provided, however, that such
maximum number shall be 2,000,000 shares with respect to
any individual during the first fiscal year that the individual
is employed with the Company or an Affiliate. Such per
individual limit shall not be adjusted to effect a restoration
of shares of Common Stock with respect to which the related
Award is terminated, surrendered or canceled.
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Participation in the Plan shall be open to all employees,
officers, and directors of, and other individuals providing bona
fide services to or for, the Company, or of any Affiliate of the
Company, as may be selected by the Administrator from time to
time. The Administrator may also grant Awards to individuals in
connection with hiring, retention or otherwise, prior to the
date the individual first performs services for the Company or
an Affiliate provided that such Awards shall not become vested
prior to the date the individual first performs such services.
The Administrator, in its sole discretion, establishes the terms
of all Awards granted under the Plan. Awards may be granted
individually or in tandem with other types of Awards. All Awards
are subject to the terms and conditions provided in the Grant
Agreement. The Administrator may permit or require a recipient
of an Award to defer such individual’s receipt of the
payment of cash or the delivery of Common Stock that would
otherwise be due to such individual by virtue of the exercise
of, payment of, or lapse or waiver of restrictions respecting,
any Award. If any such payment deferral is required or
permitted, the Administrator shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
(a) Stock Options. The Administrator may from
time to time grant to eligible participants Awards of incentive
stock options as that term is defined in Code section 422
or nonqualified stock options; provided, however, that Awards of
incentive stock options shall be limited to employees of the
Company or of any current or hereafter existing “parent
corporation” or “subsidiary corporation,” as
defined in Code sections 424(e) and (f), respectively, of
the Company. Options intended to qualify as incentive stock
options under Code section 422 must have an exercise price
at least equal to Fair Market Value as of the date of grant, but
nonqualified stock options may be granted with an exercise price
less than Fair Market Value. No stock option shall be an
incentive stock option unless so designated by the Administrator
at the time of grant or in the Grant Agreement evidencing such
stock option.
(b) Stock Appreciation Rights. The
Administrator may from time to time grant to eligible
participants Awards of Stock Appreciation Rights
(“SAR”). An SAR entitles the grantee to receive,
subject to the provisions of the Plan and the Grant Agreement, a
payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the
exercise date of one share of Common Stock over (B) the
base price per share specified in the Grant Agreement, times
(ii) the number of shares specified by the SAR, or portion
thereof, which is exercised. Payment by the Company of the
amount receivable upon any exercise of an SAR may be made by the
delivery of Common Stock or cash, or any combination of Common
Stock and cash, as determined in the sole discretion of the
Administrator. If upon settlement of the exercise of an SAR a
grantee is to receive a portion of such payment in shares of
Common Stock, the number of shares shall be determined by
dividing such portion by the Fair Market Value of a share of
Common Stock on the exercise date. No fractional shares shall be
used for such payment and the Administrator shall determine
whether cash shall be given in lieu of such fractional shares or
whether such fractional shares shall be eliminated.
(c) Stock Awards. The Administrator may from
time to time grant restricted or unrestricted stock Awards to
eligible participants in such amounts, on such terms and
conditions, and for such consideration, including no
consideration or such minimum consideration as may be required
by law, as it shall determine. A stock Award may be paid in
Common Stock, in cash, or in a combination of Common Stock and
cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from
time to time grant Awards to eligible participants denominated
in stock-equivalent units (“phantom stock”) in such
amounts and on such terms and conditions as it shall determine.
Phantom stock units granted to a participant shall be credited
to a bookkeeping reserve account solely for accounting purposes
and shall not require a segregation of any of the Company’s
assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. Except
as otherwise provided in the applicable Grant Agreement, the
grantee shall not have the rights of a stockholder with respect
to any shares of Common Stock represented by a phantom stock
unit solely as a result of the grant of a phantom stock unit to
the grantee.
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(e) Performance Awards. The Administrator may,
in its discretion, grant performance awards which become payable
on account of attainment of one or more performance goals
established by the Administrator. The Administrator may grant
such performance awards in a manner constituting “qualified
performance-based compensation” within the meaning of Code
section 162(m). Performance awards may be paid by the
delivery of Common Stock or cash, or any combination of Common
Stock and cash, as determined in the sole discretion of the
Administrator. Performance goals established by the
Administrator may be based on one or more of the following
business criteria selected by the Administrator that apply to an
individual or group of individuals, a business unit, or the
Company or an Affiliate as a whole, and in either absolute terms
or relative to the performance of one or more comparable
companies or an index covering multiple companies, over such
performance period as the Administrator may designate: revenue;
earnings before interest, taxes, depreciation and amortization
(EBITDA); income before income taxes and minority interests;
operating income; pre- or after-tax income; cash flow; cash flow
per share; net earnings; earnings per share; return on equity;
return on invested capital; return on assets; growth in assets;
share price performance; economic value added; total stockholder
return; improvement in or attainment of expense levels; profit
after taxes; operating profit or net operating profit; operating
margin or profit margin; return on operating revenue; market
segment share; product development; product release schedules;
new product innovation; sales of particular products or
services; product market share; brand recognition/acceptance;
customer acquisition or retention; customer satisfaction levels;
research; licensing; litigation; human resources; information
services; and relative performance to a group of companies or
relevant market indices comparable to the Company, and strategic
business criteria consisting of one or more objectives based on
the Company meeting specified goals relating to revenue, market
penetration, business expansion, costs or acquisitions or
divestitures. Performance goals may include minimum, maximum and
target levels of performance, with the size of the performance
award or the lapse of restrictions with respect thereto based on
the level attained. To the extent permitted under Code
section 162(m), the Administrator shall be authorized to
make adjustments in the method of calculating attainment of
performance goals in recognition of: (A) extraordinary or
non-recurring items; (B) changes in tax laws;
(C) changes in generally accepted accounting principles or
changes in accounting policies; (D) charges related to
restructured or discontinued operations; (E) restatement of
prior period financial results; and (F) any other unusual,
non-recurring gain or loss that is separately identified and
quantified in the Company’s financial statements.
(f) Other Stock-Based Awards. The Administrator
may from time to time grant other stock-based awards to eligible
participants in such amounts, on such terms and conditions, and
for such consideration, including no consideration or such
minimum consideration as may be required by law, as it shall
determine. Other stock-based awards may be denominated in cash,
in Common Stock or other securities, in stock-equivalent units,
in stock appreciation units, in securities or debentures
convertible into Common Stock, or in any combination of the
foregoing and may be paid in Common Stock or other securities,
in cash, or in a combination of Common Stock or other securities
and cash, all as determined in the sole discretion of the
Administrator.
(a) Withholding of Taxes. Grantees and holders
of Awards shall pay to the Company or its Affiliate, or make
provision satisfactory to the Administrator for payment of, any
taxes required to be withheld in respect of Awards under the
Plan no later than the date of the event creating the tax
liability. The Company or its Affiliate may, to the extent
permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the grantee or holder of an
Award. In the event that payment to the Company or its Affiliate
of such tax obligations is made in shares of Common Stock, such
shares shall be valued at Fair Market Value on the applicable
date for such purposes.
(b) Loans. The Company or its Affiliate may
make or guarantee loans to grantees to assist grantees in
exercising Awards and satisfying any withholding tax obligations.
(c) Transferability. Except as otherwise
determined by the Administrator, and in any event in the case of
an incentive stock option or a stock appreciation right granted
with respect to an incentive stock option, no Award granted
under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution. Unless
otherwise determined by the Administrator in accord with the
provisions of the immediately
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preceding sentence, an Award may be exercised during the
lifetime of the grantee, only by the grantee or, during the
period the grantee is under a legal disability, by the
grantee’s guardian or legal representative.
(d) Adjustments for Corporate Transactions and Other
Events.
(i) Stock Dividend, Stock Split and Reverse Stock
Split. In the event of a stock dividend of, or stock
split or reverse stock split affecting, the Common Stock,
(A) the maximum number of shares of such Common Stock as to
which Awards may be granted under this Plan and the maximum
number of shares with respect to which Awards may be granted
during any one fiscal year of the Company to any individual, as
provided in Section 4 of the Plan, and (B) the number
of shares covered by and the exercise price and other terms of
outstanding Awards, shall, without further action of the Board,
be adjusted to reflect such event. The Administrator may make
adjustments, in its discretion, to address the treatment of
fractional shares and fractional cents that arise with respect
to outstanding Awards as a result of the stock dividend, stock
split or reverse stock split.
(ii) Non-Change in Control Transactions. Except
with respect to the transactions set forth in
Section 7(d)(i), in the event of any change affecting the
Common Stock, the Company or its capitalization, by reason of a
spin-off,
split-up,
dividend, recapitalization, merger, consolidation or share
exchange, other than any such change that is part of a
transaction resulting in a Change in Control, the Administrator,
in its discretion and without the consent of the holders of the
Awards, shall make (A) appropriate adjustments to the
maximum number and kind of shares reserved for issuance or with
respect to which Awards may be granted under the Plan, in the
aggregate and with respect to any individual during any one
fiscal year of the Company, as provided in Section 4 of the
Plan; and (B) any adjustments in outstanding Awards,
including but not limited to reducing the number, kind and price
of securities subject to Awards.
(iii) Unusual or Nonrecurring Events. The
Administrator is authorized to make, in its discretion and
without the consent of holders of Awards, adjustments in the
terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events affecting the
Company, or the financial statements of the Company or any
Affiliate, or of changes in applicable laws, regulations, or
accounting principles, whenever the Administrator determines
that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and
Acquisitions. Awards may be granted under the Plan from
time to time in substitution for Awards held by employees,
officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of
the Company or an Affiliate as the result of a merger or
consolidation of the employing entity with the Company or an
Affiliate, or the acquisition by the Company or an Affiliate of
the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the
terms and conditions set forth herein to the extent that the
Administrator deems appropriate at the time of grant to conform
the substitute Awards to the provisions of the awards for which
they are substituted.
(f) Termination, Amendment and Modification of the
Plan. The Board may terminate, amend or modify the Plan
or any portion thereof at any time. Except as otherwise
determined by the Board, termination of the Plan shall not
affect the Administrator’s ability to exercise the powers
granted to it hereunder with respect to Awards granted under the
Plan prior to the date of such termination.
(g) Non-Guarantee of Employment or
Service. Nothing in the Plan or in any Grant Agreement
thereunder shall confer any right on an individual to continue
in the service of the Company or shall interfere in any way with
the right of the Company to terminate such service at any time
with or without cause or notice.
(h) No Trust or Fund Created. Neither the
Plan nor any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship
between the Company and a grantee or any other person. To the
extent that any grantee or other person acquires a right to
receive payments from the Company pursuant to an Award, such
right shall be no greater than the right of any unsecured
general creditor of the Company.
(i) Governing Law. The validity, construction
and effect of the Plan, of Grant Agreements entered into
pursuant to the Plan, and of any rules, regulations,
determinations or decisions made by the Administrator relating
to the Plan or such Grant Agreements, and the rights of any and
all persons having or claiming to have
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any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the
laws of the State of Maryland, without regard to its conflict of
laws principles.
(j) Effective Date; Termination Date. As
initially adopted, the Plan was originally effective on
August 20, 1997. As amended and restated herein, the Plan
is effective January 17, 2007, subject to receiving
stockholder approval at the 2007 Annual Meeting of Stockholders
or such other special meeting of the stockholders within twelve
months after such date. No Award shall be granted under the Plan
after the close of business on January 17, 2017. Subject to
other applicable provisions of the Plan, all Awards made under
the Plan prior to such termination of the Plan shall remain in
effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
Date Initial Amendment and Restatement Approved by the Board:
April 11, 2000
Date Initial Amendment and Restatement Approved by the
Stockholders: June 15, 2000
Date Second Amendment and Restatement Approved by the Board:
April 23, 2001
Date Second Amendment and Restatement Approved by the
Stockholders: June 19, 2001
Date Third Amendment and Restatement Approved by the Board:
April 28, 2003
Date Third Amendment and Restatement Approved by the
Stockholders: June 12, 2003
Date Fourth Amendment and Restatement Approved by the Board:
May 21, 2004
Date Fourth Amendment and Restatement Approved by the
Stockholders: July 15, 2004
Date Fifth Amendment and Restatement Approved by the Board:
January 17, 2007
Date Fifth Amendment and Restatement Approved by the
Stockholders:
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ANNUAL MEETING OF STOCKHOLDERS OF
TELECOMMUNICATION SYSTEMS, INC.
June 14, 2007
Please date, sign and mail
your proxy card in the envelope provided as soon as possible. ê Please detach along perforated line and mail in the envelope provided. ê
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x 1. Election of Directors.
The undersigned hereby acknowledges receipt of notice of said meeting
and the related Proxy Statement.
IF NO CHOICE IS INDICATED ABOVE, THE PROXIES WILL VOTE “FOR” ALL
DIRECTOR NOMINEES AND PROPOSAL 2.
PLEASE MARK, SIGN AND RETURN THE PROXY PROMPTLY, USING THE ENCLOSED
POSTAGE PAID ENVELOPE
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TELECOMMUNICATION SYSTEMS, INC.
Annapolis, Maryland 21401
ANNUAL MEETING JUNE 14, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas M. Brandt, Jr. and Bruce A. White, and each of them,
proxies (and if the undersigned is a proxy, as substitute proxies) each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse
side, all of the shares of Class A Common Stock and Class B Common Stock of TeleCommunication
Systems, Inc. which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held on Thursday, June 14, 2007, at 10:00 a.m. local time, at the O’Callaghan Hotel Annapolis, 174
West Street, Annapolis, MD 21401 and any adjournments or postponements thereof.
(Continued and to be signed on the reverse side)
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