e10-q

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes [ x ] No [ ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and related notes included in the Company’s 2000 annual report on Form 10-K.

Basic loss per share is based upon the average number of shares of common stock outstanding during the period. Potentially dilutive securities were excluded from the computation for the three months ended March 31, 2001 and 2000 because the result would be anti-dilutive. These potentially dilutive securities consist of stock options and warrants.

The Company acquired property and equipment under capital leases totaling $131 and $421 for the three months ended March 31, 2001 and 2000, respectively.

Interest paid totaled $106 and $351 for the three months ended March 31, 2001 and 2000, respectively.

The following table sets forth information on each of the Company’s reportable segments:

In April 2000, the Company declared a three-for-one stock split of its common stock for stockholders of record on April 5, 2000. In June 2000, the Company declared a one-for-2.92 reverse stock split of its common stock for stockholders of record on June 15, 2000 and increased the number of authorized Class A and Class B shares of common stock to 225,000,000 and 75,000,000, respectively. All share and per share data including stock option, warrant and loss per common share information has been restated in the consolidated financial statements to retroactively reflect the stock split and reverse stock split.

During the second and third quarters of 2000, the Company granted incentive stock options to employees and directors to purchase 885,983 shares of Class A Common Stock. The options were granted at an exercise price less than the estimated market value of the Company’s Class A Common Stock at the date of grant.

For the three months ended March 31, 2001, the Company recorded $790 of non-cash stock compensation expense related to these grants. The Company expects to record future stock compensation expense of approximately $8,022 as a result of these option grants that will be recognized ratably over the vesting period of five years.

As discussed more fully in Note 22 to the 2000 audited financial statements, the Company completed the purchase of Xypoint Corporation (“Xypoint”) for aggregate consideration of $69,005 on January 19, 2001.

Xypoint is a leading provider of enhanced 911 services to wireless carriers and has focused its business on wireless technology which identifies and makes use of information as to a wireless user’s location. The acquisition has been accounted for under the purchase method of accounting and includes a charge for in-process research and development.

Pro Forma Results of Operations. The following summarizes unaudited pro forma statement of operations information for the quarter ended March 31, 2001 and 2000, assuming the acquisition of Xypoint was completed on January 1, 2000. The in-process research and development charge is excluded from the pro forma statement of operations information because the charge is non-recurring. The results are not necessarily indicative of what would have occurred had this transaction been consummated as of the beginning of the period nor of future operations of the Company:

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities and in June 2000 Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities — an Amendment of FASB Statement No. 133. These Statements, which the Company adopted on January 1, 2001, provide a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The adoption of Statement 133 did not have a material effect on the Company’s consolidated financial statements as the Company currently does not conduct hedging activities or purchase derivative financial instruments.

The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements, related notes, and other detailed information included elsewhere in this Quarterly Report on Form 10-Q. This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by the use of such terms as “believes,” “anticipates,” “intends,” or “expects.” For example, the statement regarding our belief as to the sufficiency of our cash position for the next twelve months is a forward-looking statement. These forward-looking statements relate to our plans, objectives and expectations for future operations. In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. Our revenue and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this report depending in particular certain factors described in our filings with the Securities and Exchange Commission including, but not limited to, our ability to (i) focus our business on network application software products and related services, (ii) continue to rely on Lucent Technologies, Inc. to market and sell our network applications and for other relevant support, (iii) adapt and integrate new technology into our products, (iv) expand our business offerings in the wireless data industry, (v) capitalize on opportunities in the marketplace and the Company’s future financial results and other factors, (vi) develop software without any errors or defects and (vii) implement our sales and marketing strategies. These factors should not be considered exhaustive; we undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. We caution you not to put undue reliance on these forward-looking statements.

We are a developer and a licensor of Network Application Software Products that enable the delivery of Internet content, short messages, and enhanced communication services to a wide variety of wireless devices, including phones, two-way pagers and personal digital assistants. We also provide Network Application Services which include the maintenance of our software and development of custom software applications. Our Network Applications group was expanded in January 2001 with the acquisition of Xypoint, adding enhanced wireless 911 and carrier grade network operations centers. These network operations centers enable the delivery of location services and other network applications on a service bureau basis. Our service bureau model allows customers to acquire use of our software functionality through network connections to and from our facilities and to pay us based on usage volume. Through our February 2001 acquisition of reachNET, we provide messaging services to the hearing impaired using paging devices on a service bureau basis. Our Network Solutions (formerly Communications Engineering) group designs and installs wireless and wireline networks including high speed, satellite, and internet protocol networks and communications systems for corporate and government enterprises.

We were founded in 1987 and initially provided network solutions to the U.S. Department of Defense and other government customers. In 1996, we entered into a development agreement with Lucent Technologies to develop and co-own certain network application software, including Short Message Service Center. We have subsequently developed our proprietary Wireless Internet Gateway and related software and service bureau offerings to carrier and enterprise customers. Our January 2001 acquisition of Xypoint accelerated and enhanced our offerings of wireless location based messaging services.

As the demand for software applications that provide data delivery to wireless devices grows, we expect our future revenue to continue to be increasingly derived from network application software licenses and related services. We have incurred net losses in three of the past five years. We may incur further net losses in the future. We expect our operating expenses to grow significantly, particularly as a result of the expansion of our sales and marketing efforts and research and development activities.

We manage our business in two segments, network applications and network solutions. Our network applications segment consists of the development and licensing of software products and the provision of related services. Our network solutions segment includes the design, development and deployment of complex information processing and communication systems and the provision of related services. The following table sets forth information on each of our segments:

Total company backlog at March 31, 2001 was $ 21.0 million, an increase from $18.4 million at March 31, 2000. The backlog at any given time may be affected by a number of factors, including contracts being renewed or new contracts being signed before existing contracts are completed. Accordingly, a comparison of backlogs from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments or future revenue. From 1989 to June 1998, we participated as a minority-owned business enterprise for federal government contracting purposes under Section 8(a) of the U.S. Small Business Act. The last of these contracts is scheduled to end during 2001. We continue to perform under contracts awarded to us under this program, and in August 2000 received a waiver of the termination of the Section 8(a) contracts with the Small Business Administration to enable us to continue to perform under those contracts following our initial public offering. We had $5.2 million of backlog under such contracts as of March 31, 2001.

For the three months ended March 31, 2001, our aggregate revenue from various U.S. government agencies was approximately $5.0 million and revenue from our Lucent channel was approximately $3.7 million, compared to $5.9 million from the U.S. government and $1.5 million from Lucent for the same period in 2000.

We generate network applications revenue from two sources, licensing of our software products and provision of related services. The Short Message Service Center, Prepaid Wireless and Wireless Internet Gateway products have been the principal generators of software license fees. For products sold through our Lucent channel, Lucent pays us initial license fees generally equal to 50% of the revenue it generates from sales of the Short Message Service Center and Prepaid Wireless applications that we developed under the development agreement we entered into with Lucent. For sales of our Wireless Internet Gateway, Lucent pays us initial fees which we negotiate on a case by case basis and which have generally ranged between 75% and 90% of the sale value. Initial licensing fees are a function of the number of subscribers in the network where our software is deployed. As a carrier’s subscriber base increases, the carrier must purchase additional capacity under its license agreement with Lucent and we receive additional revenue. We recognize license fee revenue when each of the following has occurred: (1) evidence of an arrangement is in place; (2) we have delivered

software; (3) the fee is fixed or determinable; and (4) collection of the fee is probable. Software license fees billed and not recognized as revenue are included in deferred revenue.

In April 2000, we amended our development agreement with Lucent and granted Lucent the right to incorporate Prepaid Wireless software and other intellectual property developed by us into another prepaid wireless software application which Lucent now sells. Lucent has agreed to share revenue with us from the sale of this new prepaid wireless software for the next four years. We received 50% of the revenue from Lucent’s sales of this software for the twelve months ended March 31, 2001. We will receive 25% of this revenue for the twelve months ended March 31, 2002 and 20% of this revenue for the 24 months ended March 31, 2004. We cannot predict the amount of revenue we will ultimately receive from the sale of this new prepaid wireless software application. If we sell the Prepaid Wireless software application developed under the development agreement with Lucent or any software primarily based upon it, we will split all revenue from these sales with Lucent. Additionally, we agreed to refrain from marketing Prepaid Wireless software to specified Lucent wireless carrier customers through March 31, 2001. Our license and related service revenue from the Prepaid Wireless software were approximately 4% of our network applications revenue for the three months ended March 31, 2001 and approximately 6% of our network applications revenue for the three months ended March 31, 2000. Also in April 2000, we agreed with Lucent to develop Over-The-Air, a software application which enables the activation of wireless devices from remote locations. After this software is developed and available for sale, Lucent will pay us initial license fees equal to 40% of the revenue for the first year and 50% of the revenue thereafter.

Our network applications service revenue arises from annual maintenance fees for our packaged software products, monthly recurring service fees from our service bureau products and fees from development, implementation and maintenance of custom software. Maintenance fees on packaged software are collected in advance and recognized ratably over the annual maintenance period. Unrecognized maintenance fees are included in deferred revenue. Service bureau revenue is generated primarily from our enhanced 9-1-1 offering. Custom software development, implementation and maintenance services may be provided under time and materials or fixed-fee contracts. We recognize fixed-fee contract revenue using the percentage-of-completion method. We measure progress to completion using costs incurred compared to estimated total costs. We recognize estimated losses under long-term contracts in their entirety upon discovery.

We generate network solutions revenue from the design, development and deployment of complex information processing and communication systems for corporate and government enterprises. Examples of recent representative network solutions projects include work performed under our agreements with U.S. Department of State, State of Jigawa, Nigeria, AT&T Solutions Inc., and special operations units of the U.S. Department of Defense. We have an agreement with the State of Jigawa, Nigeria to build a network that will provide global Internet access, satellite communications connectivity, State-wide and local wireless Internet distribution and Internet protocol multimedia content to 26 cities within Jigawa. We deliver our Deployable Communications Systems (“DCS”) to the U.S. Department of State. The DCS system supports a worldwide network for use by the Department of State during trips abroad and throughout the United States and provides full network functionality and IP telephony capability using landlines and satellite-based technologies.

Under our agreement with AT&T Solutions, Inc., we designed, installed and operated a global satellite communications network for a multinational bank in 1999 and 2000. Under our agreement with the Special Operations Forces of the U.S. Department of Defense, we created a system that integrates secure and non-secure radio frequency, satellite and wireline networks for data and voice communications.

We generally provide network solutions under long-term contracts. We recognize revenue under long-term contracts as billable costs are incurred and for fixed-price contracts using the percentage-of-completion method, measured by total costs incurred compared to total estimated costs. We recognize estimated losses on contracts in their entirety upon discovery. Under our contracts with the U.S. government, contract costs, including the allocated indirect expenses, are subject to audit and adjustment by the Defense Contract Audit Agency. We record revenue under these contracts at estimated net realizable amounts.

Our direct cost of network applications consists primarily of compensation, benefits and travel expenses incurred when providing our services.

Our direct cost of network solutions consists primarily of compensation, benefits, travel, purchased equipment and systems components, and the costs of third-party contractors that we engage.

Our sales and marketing expenses include compensation and benefits, and trade show, travel, advertising and public relations costs that are expensed as incurred. We primarily sell our network application software products through our relationship with Lucent. This sales process typically includes participation of our engineers along with Lucent in presenting our products to prospective customers. We also market our network applications and network solutions products and services by responding to requests for proposals and through our direct sales force. During the past two years, we have hired additional personnel to market our products directly to wireless carriers and enterprises. We intend to continue to expand our sales force in 2001 by hiring a significant number of new employees.

Our research and development expense consists of the costs of developing software products incurred prior to establishing technological feasibility. We incur these costs to enhance existing packaged software products, enhance our service bureau offerings as well as to create new software products. These costs primarily include compensation and benefits for in-house developers, costs for third-party consultants, as well as costs associated with using third party laboratory and testing resources. We expense research and development costs as they are incurred.

General and administrative expense consists primarily of compensation and benefit costs and other costs associated with management, finance, human resources and internal information systems. These costs also include rent, utilities and other facilities costs that are expensed as incurred.

During the second and third quarters of 2000, we granted options to purchase 885,983 shares of Class A Common Stock to employees and directors at an exercise price less than the fair market value of our Class A Common Stock at the date of grant. We will record future additional stock compensation expense of approximately $8.0 million as a result of these option grants that will be recognized ratably over the remaining vesting period. During the first quarter of 2001, we recognized approximately $0.8 million of stock compensation expense related to these grants.

Depreciation and amortization expense (other than amortization of software development costs) represents the period costs associated with our investment in computers, software, furniture and fixtures, and leasehold improvements. We compute depreciation and amortization using the straight-line method over the estimated useful life of the assets.

We capitalize software development costs after we establish technological feasibility, and amortize those costs over the estimated useful life of the software beginning on the date when the software is first available for general release. We calculate amortization of software development costs on a product-by-product basis using

the straight-line method over the remaining estimated economic life of the product, which is never greater than four years. We also compute amortization using the ratio that current revenue for the product bears to the total of current and anticipated future revenue for that product. If this revenue curve method results in amortization greater than the amount computed using the straight-line method, we record amortization at that greater amount. Amortization as a percentage of software license fees is generally a higher percentage in the early stages of a product’s life cycle.

Amortization of Goodwill and Other Intangibles and In-Process Research and Development

In connection with our acquisitions of Xypoint and reachNET during the first quarter of 2001, we recorded $47.4 million and $3.1 million of goodwill and other intangibles, respectively. We also recorded an immediate expense of $9.7 million relating to in-process research and development in connection with the Xypoint acquisition.

Three Months Ended March 31, 2001 Compared to the Three Months Ended March 31, 2000

Revenue. Total revenue increased $5.1 million, or 42%, to $17.1 million in the first three months of 2001 from $12.1 million in the same period in 2000.

Total network applications revenue increased $5.7 million, or 167%, to $9.0 million in the first three months of 2001 from $3.4 million in the same period in 2000. Network application software license revenue increased $2.2 million, or 189%, to $3.4 million in the first three months of 2001 from $1.2 million in the same period in 2000. The increase is due to the growth in our sales of Short Message Service Center and Wireless Internet Gateway software products. Network application service revenue increased $3.5 million, or 156%, to $5.7 million in the first three months of 001 from $2.2 million in the first three months of 2000. The expansion of our network application services offerings in January 2001 to include Xypoint’s service bureau offering, enhanced 911, contributed $2.8 million to network application services revenue for the first three months of 2001.

Network solutions revenue decreased $0.6 million, or 7%, to $8.1 million for the first three months of 2001 from $8.7 million in the same period in 2000.

Direct Cost of Revenue. Total direct cost of revenue increased $1.0 million, or 13%, to $9.0 million in first three months of 2001 from $8.0 million in the same period in 2000. As a percentage of revenue, direct cost of revenue decreased to 53% in first quarter of 2001 from 66% in the first quarter of 2000.

Direct cost of network applications increased $1.6 million, or 101%, to $3.2 million in the first quarter of 2001 from $1.6 million for the same period in 2000. The increase in direct cost of network applications is a result of the acquisition of Xypoint and the addition of $1.1 million of costs associated with those operations. The remaining increase in direct cost of network applications is a result of the increase in personnel and other related costs to support the increase in revenue as noted above. As a percentage of related revenue, direct cost of network applications decreased from 47% in the first quarter of 2000 to 35% in the first quarter of 2001.

Direct cost of network solutions decreased $0.6 million, or 9%, to $5.8 million in the first three months of 2001 from $6.4 million for the same period in 2000. As a percentage of related revenue, direct cost of network solutions decreased to 72% in the first quarter of 2001 from 74% in the first quarter of 2000 due to a higher mix of contracts involving less subcontractor labor.

Sales and Marketing Expense. Sales and marketing expense increased $2.9 million, or 269%, to $4.0 million in the first quarter of 2001 from $1.1 million for the same period of 2000. Since our initial public offering we have committed significant resources to creating a comprehensive sales and marketing group. We have focused on hiring sales and marketing personnel as well as developing marketing tools, participating in trade shows and other similar activities to promote our products and services to carriers outside of the Lucent channel as well as to enterprises.

Research and Development Expense. Research and development expense increased $3.6 million, or 780%, to $4.1 million in the first three months of 2001 from $0.5 million for the same period in 2000. The expansion of our network applications group to include Xypoint accounted for $1.3 million of the increase in research and development. We anticipate that research and development expenses will increase due to product development efforts associated with all of our initiatives, including Message Distribution Center, enhanced 911 and various web and enterprise products.

General and Administrative Expense. General and administrative expense increased $1.7 million, or 89%, to $3.6 million in the first quarter of 2001 from $1.9 million for the same period in 2000. The increase is due to the addition of personnel in general and administrative functions and additional expenses related to the expansion of our facilities to support the increased volume of software development and other business activities, as well as our 2001 acquisition of Xypoint and additional expenses in connection with our operation as a public company.

Depreciation and Amortization Expense. Depreciation and amortization of property and equipment increased $0.3 million, or 57%, to $0.9 million in the first three months of 2001 from $0.6 million in the first three months of 2000. The increase is primarily related to the increase in property and equipment from the Xypoint acquisition.

Amortization of Software Development Costs. Amortization of software development costs increased to $1.0 million in the first three months of 2001 from $0.7 million for the same period in 2000. This increase is due to allocating $4.1 million of the Xypoint purchase consideration to software development costs. In the first quarter of 2001, $0.3 million of the Xypoint acquired technology was amortized. Amortization expense as a percentage of software license fees decreased to 28% in the first three months of 2001 from 57% for the same period in 2000 as a result of the increase of software license fee revenue that has been recognized in the first quarter of 2001 as compared to the first quarter of 2000.

Amortization of Goodwill and Other Intangibles. Amortization of goodwill and other intangibles relating to our acquisitions of Xypoint in January 2001 and reachNET in February 2001 aggregated $2.6 million for the first three months of 2001. In connection with the Xypoint and reachNET acquisitions, we recorded goodwill of approximately $47.4 million, which is being amortized on a straight-line basis over a four year period. We also recorded $1.5 million and $1.6 million in other intangibles related to workforce-in-place and trade name in connection with the Xypoint acquisition.

Acquired In-Process Research and Development. In January 2001, we completed the acquisition of Xypoint for aggregate consideration of $69.0 million. Xypoint is a leading provider of enhanced 911 services to wireless carriers. The transaction has been accounted for as a purchase transaction and, accordingly, the aggregate consideration was allocated to certain tangible and intangible assets and liabilities based on their respective fair market values. The excess of purchase price over the estimated fair market value of the net assets acquired was accounted for as goodwill. The amount allocated to goodwill, approximately $44.9 million, will be amortized on a straight-line basis over four years. In connection with the acquisition, we incurred a non-recurring charge to operating results of $9.7 million as a result of the write-off of in-process research and development that had not reached technological feasibility and has no alternative future use. The value assigned to the in-process research and development was determined by estimating the costs to develop such technologies into commercially viable products, estimating the resulting net cash flows from such technologies and discounting the net cash flows back to their present value. The discount rate includes a factor that takes into account the uncertainty surrounding the successful development of the acquired in-process technologies. If these technologies are not successfully developed, our future results of operations may be adversely affected. Additionally, the value of other intangible assets acquired may become impaired.

At the acquisition date, Xypoint had six technologies under development that had not demonstrated technological feasibility. These technologies include Transaction Capability Application Part (“TCAP”) Interface, Presence & Privacy, Voice Processing System (“VPS”), NOMAD™, InfoLink™ and Gateway. The in-process technologies have no alternative use in the event that the proposed technologies do not prove to be feasible. These development efforts fall within the definition of In-Process Research and Development (“IPR&D”) contained in Statement of Financial Accounting Standard (“SFAS”) No. 2.

TCAP Interface. The TCAP Interface technology is designed to provide intelligent call routing for wireless E9-1-1 applications. The following functions of the TCAP Interface are under development:


	•	acceptance of call routing requests from wireless carriers;

	•	determination of correct call routing data; and

	•	submission of call routing information to the wireless carriers.

Presence & Privacy. The Presence & Privacy technology is expected to provide information on whether the phone is on or off, where it is registered, provides “opt in/out” capabilities and provide location privacy and security for the location applications.

Voice Processing System. The VPS technology will determine what information the user is calling to receive and provide command and control for the location and NOMAD applications. The following functions of VPS are under development:


	•	invoking the InfoLink and NOMAD call flow;

	•	performing automatic speech recognition; and

	•	invoking location application call flow.

NOMAD™. The NOMAD technology is designed to use the exchange servers to forward email to short message service (“SMS”) capable phones. The following functions of NOMAD are under development:


	•	ability to forward SMS messages to phone;

	•	conversion of email to speech;

	•	ability to record replies and sending to the email originator; and

	•	management of the user’s email box using voice activation controls.

InfoLink™. It is anticipated that the InfoLink technology will allow users to make purchases by getting web-based information on demand and taking action based on the information retrieved from the user. The following functions of InfoLink are under development:


	•	retrieval of the user request from VPS;

	•	accessing the required data from the Internet;

	•	assigning the retrieval key to the data; and

	•	formatting and sending the data via SMS to the user’s phone.

Gateway. The Gateway technology is designed to retrieve the phone status and store the user’s location privacy preference for the Presence & Privacy applications by performing the functions listed below:


	•	retrieval, upon request, the phone status from the wireless carrier;

	•	providing user definable location privacy preferences; and

	•	providing location data upon request patterned on the user profiles.

Also, for the NOMAD applications, the Gateway will host call flow instructions and convert text to speech by performing the following functions:


	•	providing call flow on request by the VPS;

	•	receiving text and converts to speech; and

	•	storing converted text.

The method used to allocate the purchase consideration to in-process research and development was the modified income approach. Under the income approach, the fair value reflects the present value of the

projected free cash flows that will be generated by the in-process research and development technologies and that is attributable to the technology, if successfully completed. The modified income approach takes the income approach modified to include the following factors:


	•	analysis of the stage of completion of each technology;

	•	exclusion of value related to R&D yet-to-be completed as part of the ongoing in-process research and development projects; and

	•	inclusion of only incremental operating cash flows attributable to the in-process research and development.

The projected revenues used in the modified income approach are based upon revenues likely to be generated upon completion of the project and the beginning of commercial sales, as estimated by management. The projections assume that the projects will be successful and that their development and commercialization meet management’s current time schedule of project completion in 2001. The discount rate used in this analysis is an after tax rate of 36%.

Below is a summary of the estimated stage of completion and fair value assigned to the acquired in-process research and development technologies as of the acquisition date.

Descriptions of estimates used to determine the value assigned to the in-process technologies and costs, timing and anticipated benefits of completing the development in process technologies are forward-looking statements that involve risks and uncertainties. Our actual costs and timing to complete development of the technologies and any benefits derived therefrom will depend on many factors, including our ability to complete development of the technologies successfully, to overcome remaining technical obstacles and competing technologies, to gain market acceptance, to adapt to market developments and the availability of adequate capital resources to commercialize such technologies. If we are unsuccessful in developing or commercializing these technologies, we will not achieve the benefits expected from acquiring Xypoint and would likely discontinue our operations with respect to these in-process technologies. Additionally, even if successfully completed, these technologies will require maintenance research and development after they have reached a state of technological feasibility.

Funding for such technologies is expected to be from our remaining initial public offering proceeds and internally generated sources. We estimate $6.7 million in costs to complete the acquired in-process research and development technologies. Although we intend to complete the development of these in-process technologies and management believes in the likelihood of their feasibility, there can be no assurance that such projects will be completed successfully, or that upon completion such technologies will achieve commercial success.

Interest Income (Expense) and Other Financing Costs. Net interest income was $0.5 million for the first three months of 2001 compared to a net interest expense of $0.4 million for the same period in 2000. Our remaining initial public offering proceeds are invested in highly-liquid cash equivalents that earn interest income. Net interest expense for the first quarter of 2000 primarily represented interest on debt. We used

$9.3 million of our initial public offering proceeds to extinguish outstanding debt during the third quarter of 2000.

Net Loss. We incurred a net loss of $18.0 million in the first quarter of 2001 compared to a net loss of $0.6 million in the first quarter of 2000 due to the factors described above.

We have financed our operations and capital expenditures primarily through various lending arrangements, revenue from our operations and through our initial public offering in August 2000, which generated approximately $83.2 million of net proceeds. Our lending arrangements have provided funding through a line of credit, term notes and capital lease obligations. As of March 31, 2001, we have $55.1 million in cash and cash equivalents and working capital of $65.3 million.

We utilized $7.5 million of cash for operations for the first three months of 2001, an increase of $7.5 million compared to the $0.02 million utilized in the same period in 2000. Earnings before non-cash charges declined from $0.3 million for the three months ended March 31, 2000 to a $3.0 loss before non-cash charges for the same period in 2001.

The Company’s investing activities utilized $2.2 million of cash in the first three months of 2001. The Company expended $0.7 million in the first three months of 2001 for telecommunications and computer hardware. The Company also invested $0.7 million in network application software development and used $1.4 million in restricted cash to repay the note payable to our controlling stockholder.

Our first quarter 2001 acquisitions of Xypoint and reachNET utilized $3.0 million of cash, net of cash acquired of $3.6 million. The cash payments included $2.7 million of acquisition costs for both Xypoint and reachNET, $0.7 million cash consideration for Xypoint and $0.5 million cash consideration for reachNET.

We utilized $1.4 million of cash for financing activities in the first three months of 2001, of which $1.4 million was used to repay a note payable to our controlling shareholder.

As of March 31, 2001, our most significant commitments consisted of obligations under non-cancelable operating leases for office space and equipment. We have commitments of approximately $3.1 million that are payable through 2003, $1.6 million of which are payable in 2001.

We will use the net remaining proceeds from our initial public offering to continue to fund research and development activities, further expand our sales and marketing group, and for working capital and general corporate purposes.

The Company believes that its cash and cash equivalents, and the funds anticipated to be generated from operations will be sufficient to finance the Company’s operations for at least the next 12 months. Although, we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditures requirements beyond the next twelve months, unanticipated events and opportunities may make it necessary for us to return to the public markets or establish new credit facilities or raise capital in private transactions in order to meet our capital requirements.

We have limited exposure to financial market risks, including changes in interest rates. The interest rate on our revolving line of credit facility varies depending on the lender’s prime rate. A hypothetical 100 basis point increase in the lender’s prime rate would have an immaterial annual impact on our results of operations. Our capital leases have fixed interest rates; therefore, changes in interest rates will not materially impact our results of operations. At March 31, 2001, we had cash and cash equivalents of $55.0 million. Cash and cash equivalents consisted of demand deposits and money market accounts that are interest rate sensitive. However, these investments have short maturities mitigating their sensitivity to interest rates. A hypothetical 100 basis point adverse movement (decrease) in interest rates would increase our net loss for the three months ended March 31, 2001 by less than $165,000, resulting in no significant impact on our consolidated financial position, results of operations or cash flows.

We are not currently subject to any material legal proceedings. However, we may from time to time become a party to various legal proceeding arising in the ordinary course of our business.

From August 7, 2000, the effective date of the Company’s Registration Statement on Form S-1, to March 31, 2001, the Company’s use of net offering proceeds was as follows:

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 15th day of May, 2001.


	By	/s/ RICHARD A. YOUNG



	Richard A. Young
	Executive Vice-President and Chief
	Operating Officer


	Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

22 EX-10.33A 2 w49142ex10-33a.txt FORM OF EMPLOYEE LOAN PROMISSORY NOTE 1 EXHIBIT 10.33(a) EMPLOYEE LOAN PROMISSORY NOTE $ ----------- -------------- FOR VALUE RECEIVED, _________________ (referred to herein as "MAKER"), having a mailing address of ____________________________, promises to pay to the order of TeleCommunication Systems, Inc., a corporation organized and validly existing under the laws of the State of Maryland (referred to herein as "PAYEE," which term shall also include any subsequent holder of this Note), having a mailing address of 275 West Street, Annapolis, MD 21401, the principal sum of ___________________ Dollars ($______________), together with interest until paid, as set forth in this Note. 1. Interest Rate. Interest shall accrue and be payable on the outstanding unpaid principal balance of this Note at the fixed interest rate of six percent (6%) per annum, compounded annually. 2. Principal and Interest Payments. Maker shall pay to Payee four (4) quarterly installment payments of principal and interest on this Note in the amounts as follows: August 1, 2001: $ Dollars ------ ---------------------------------- November 1, 2001: $ Dollars ------ ---------------------------------- February 1, 2002: $ Dollars ------ ---------------------------------- May 1, 2002: $ Dollars ------ ---------------------------------- Unless sooner paid in full, the entire unpaid principal balance of this Note, together with all outstanding and unpaid accrued interest on this Note, shall be due and payable on May 1, 2002. 3. Manner of Payment. All payments shall be made in U.S. dollars in immediately available funds without set-off or counterclaim or deduction of any kind on the due dates of such payments. Payments shall be made to the address set forth herein for notices to Payee. Any payments by check shall be accepted subject to collection in immediately available funds. Payments shall be applied first to Collection Costs (herein defined), second to accrued interest, and third to principal of this Note. 4. Prepayment. Maker shall be privileged to prepay this Note in whole or in part at any time without premium. 5. Collateral. This Note is secured by that certain Pledge Agreement dated ___________ made by Maker (as Pledgor) in favor of Payee (as Pledgee) pursuant to which Maker has pledged to Payee, and granted to Payee a security interest in, ________ shares of Class A Common Stock of Payee owned by Maker and options to purchase _______ shares of the Class A Common Stock of Payee granted to the Maker on _______ (referred to herein as the "PLEDGE AGREEMENT," which term also refers to the Pledge Agreement as it may be amended and extended from time to time, and including any replacements or substitutes therefor from time to time). - 1 - 2 6. Default; Acceleration. The occurrence of any of the following events shall be an "EVENT OF DEFAULT" under this Note and the Pledge Agreement: (a) If Maker shall fail to make a payment of principal or interest under this Note when due, and such failure shall continue more than ten (10) days after Payee gives Maker written notice thereof; or (b) If Maker shall fail to make any other payment, or fail to perform any other obligation of Maker, under this Note or the Pledge Agreement, other than obligations within the scope of clause (a) of this Section, and such failure shall continue more than ten (10) days after Payee gives Maker written notice thereof; or (c) If Maker's employment with Payee shall terminate (voluntarily or involuntarily) for any reason; or (d) If there shall be filed by or against Maker any petition under the United States Bankruptcy Code or any similar federal or state statute; or (e) Commencement of any proceeding under any federal or state statute or rule providing for the relief of debtors, composition of creditors, arrangement, reorganization, receivership, liquidation or any similar event by or against Maker; or (f) The breach of any representation or warranty contained in the Pledge Agreement. Upon the occurrence of an Event of Default, the unpaid principal with interest and all other sums evidenced by this Note shall, at the option of Payee and in Payee's discretion, become immediately due and payable. Upon the occurrence of an Event of Default, the Payee shall also have Payee's rights and remedies available under the Pledge Agreement, this Note and any other rights or remedies available at law or equity. 7. Collection Costs. If Maker shall default in payment of this Note, or under the Pledge Agreement which secures this Note, and Payee refers this Note to an attorney who is not a salaried employee of Payee for collection, Payee may charge and collect from Maker reasonable attorneys fees and all court costs and other collection costs actually incurred by Payee relating to Maker's default (such attorneys fees and costs are referred to in this Note as "COLLECTION COSTS"). 8. Notices. Any notice required or permitted by or in connection with this Note shall be in writing and shall be made by hand delivery, or by overnight delivery service, or by certified mail, return receipt requested, postage prepaid, addressed to the parties at the appropriate address set forth on the first page of this Note or to such other address as may be hereafter specified by written notice by the parties to each other. Notice shall be considered given as of the earlier of the date of actual receipt, or the date of the hand delivery, or one (1) business day after delivery to an overnight delivery service, or three (3) business days after the date of mailing, independent - 2 - 3 of the date of actual delivery or whether delivery is ever in fact made, as the case may be, provided the giver of notice can establish that notice was given as provided herein. Notwithstanding the aforesaid procedures, any notice or demand upon Maker, in fact received by Maker, shall be sufficient notice or demand. 9. Certain Waivers. As to this Note, Maker waives, to the fullest extent that Maker is permitted to waive under applicable law, all applicable exemption rights, whether under any state constitution, homestead laws or otherwise, and also waives valuation and appraisement, presentment, notice of dishonor, and protest, notice of demand and nonpayment of this Note, and notice of acceleration and expressly agrees that the maturity of this Note, or any payment under this Note, may be extended from time to time without in any way affecting the liability of Maker. 10. Preservation of Payee Rights; Amendments; Severability. No failure on the part of Payee to exercise any right or remedy hereunder, whether before or after the happening of an Event of Default shall constitute a waiver thereof, and no waiver of any past Event of Default shall constitute waiver of any future default or of any other Event of Default. No failure to accelerate the indebtedness evidenced hereby by reason of any Event of Default hereunder, or acceptance of a past due payment, or indulgence granted from time to time, shall be construed to be a waiver of the right to insist upon prompt payment thereafter, or shall be deemed to be a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right or acceleration or any other right, or be construed so as to preclude the exercise of any right that Payee may have, whether by the laws of the State of Maryland, by agreement, or otherwise; Maker hereby expressly waives the benefit of any statute or rule of law or equity that would produce a result contrary to or in conflict with the foregoing. Any waivers under this Note, the Pledge Agreement or any other obligations secured thereby, must be made in writing and signed by a duly authorized officer of the Payee and shall be limited to the express terms of such waiver. This Note may not be amended orally, but only by an agreement in writing signed by the party against whom such agreement is sought to be enforced. In case any provision or any part of any provision contained in this Note shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision or remaining part of the affected provision of this Note, but this Note shall be construed as if such invalid, illegal, or unenforceable provision or part thereof had never been contained herein but only to the extent such provision or part thereof is invalid, illegal, or unenforceable. 11. Maryland Law. This Note shall be governed by the laws of the State of Maryland (excluding Maryland conflicts of laws rules). 12. Jurisdiction; Venue. Maker hereby irrevocably consents to the non-exclusive personal jurisdiction of the courts of the State of Maryland and, if a basis for federal jurisdiction exists, the non-exclusive jurisdiction of the United States District Court for the District of Maryland. Maker agrees that venue shall be proper in any circuit court of the State of Maryland selected by Payee or, if a basis for federal jurisdiction exists, in any Division of the United States District Court for the District of Maryland. Maker waives any right to object to the maintenance of any suit or claim in any of the state or federal courts of the State of Maryland on the basis of - 3 - 4 improper venue or of inconvenience of forum. Any suit or claim brought by Maker against Payee that is based, in whole or in part, directly or indirectly, on this Note or any matters relating to this Note, shall be brought in a court only in the State of Maryland. Maker shall not file any counterclaim against Payee in any suit or claim brought by Payee against Maker in a jurisdiction outside of the State of Maryland unless under the rules of the court in which Payee brought such suit or claim the counterclaim is mandatory, and not permissive, and would be considered waived unless filed as a counterclaim in the claim or suit instituted by Payee against Maker. Maker agrees that any forum outside the State of Maryland is an inconvenient forum and that a suit brought by Maker against Payee in any court outside the State of Maryland should be dismissed or transferred to a court located in the State of Maryland. - 4 - 5 IN WITNESS WHEREOF, and intending to be legally bound hereby Maker executes this Note under seal as of the date first written above. WITNESS: (SEAL) - -------------------------------------------------------------------- Name: ---------------------------- State of ____________, County of ______________, to wit: On this the _______ day of _____________, 2001, before me, the undersigned officer, personally appeared ________________________________, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained. In witness whereof I hereunto set my hand and official seal. ---------------------------------------- Notary Public My commission expires: -------------- - 5 - EX-10.33B 3 w49142ex10-33b.txt FORM OF PLEDGE AGREEMENT 1 EXHIBIT 10.33(b) PLEDGE AGREEMENT THIS AGREEMENT dated as of ___________, made by ______________ (referred to herein as "PLEDGOR"), having a mailing address of ___________________, to and for the benefit of TeleCommunication Systems, Inc., a Maryland corporation (referred to herein as "PLEDGEE," which term shall also include any subsequent holder of this Agreement), having a mailing address of 275 West Street, Annapolis, MD 21401. The parties hereby agree that this Agreement, the Note and related documents are issued pursuant to section 7(b) of the TeleCommunication Systems, Inc., Amended and Restated 1997 Stock Incentive Plan. Pledgor is (i) the owner of options to purchase __________________ (_________) shares of the Pledgee's Class A Common Stock (the "OPTIONS") granted to the Pledgor on _________; and (ii) the owner of the ____________________ (__________) shares (referred to herein as the "PLEDGED SHARES") of the Pledgee's Class A Common Stock ("COMMON STOCK") (in its capacity as issuer of the Pledged Shares, Pledgee is sometimes referred to herein as the "ISSUER"), and more fully described as follows: Pledged Shares issued by TeleCommunication Systems, Inc. to Pledgor and evidenced by the following certificate(s): ~~Certificate No. No. of Shares Owned Type of Shares - --------------- ------------------- --------------~~

Pledgee has made a loan to Pledgor in the principal amount of _____________________ and 00/100 Dollars ($_________________) (referred to herein as the "LOAN"). To evidence the terms of the Loan, Pledgor has made payable to the order of Pledgee, and delivered to Pledgee, that certain Employee Loan Promissory Note dated as of ___________, 2001, in the principal amount of _______________ and 00/100 Dollars ($____________) (referred to herein as the "NOTE," as it may be amended and extended from time to time, and including any replacement notes or substitute notes, and any combinations thereof in any denominations, that may be issued for the Note or to further evidence the Loan from time to time). It is a condition of the Loan that the indebtedness evidenced by the Note and the other obligations of Pledgor to Pledgee under the Note and under this Agreement are to be secured with this Agreement and the pledge of the Pledged Shares and the Options to Pledgee. Unless otherwise defined in this Agreement (and including any terms defined above), capitalized terms that are used in this Agreement and defined in the Note shall have the meanings given to them in the Note. - 1 - 2 NOW, THEREFORE, in consideration of the premises and of the sum of one dollar ($1.00) and other good and valuable consideration, the receipt of which is acknowledged hereby, and in order to induce Pledgee to make the Loan, Pledgor hereby agrees with Pledgee as follows: SECTION 1. Pledge. Pledgor hereby pledges to Pledgee, and grants to Pledgee a security interest in, the following property (collectively, referred to herein as the "PLEDGED COLLATERAL"): (i) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (ii) all additional shares of stock of Issuer from time to time acquired by Pledgor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property and proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (iii) the Options, including to the extent any Options are Pledged Collateral, any shares of Common Stock obtained upon the exercise of such Options, and any new, additional, or different securities or other property subsequently distributed with respect to the shares represented by the Options; and (iv) the proceeds of any sale, exchange or disposition of the property and securities described in paragraphs (i), (ii) and (iii) above. SECTION 2. Security for Obligations. This Agreement secures the prompt payment and performance of (a) all obligations of Pledgor to Pledgee now or hereafter existing under the Note, whether for principal, interest, fees, costs, expenses or otherwise, and (b) all obligations of Pledgor now or hereafter existing under this Agreement (all such obligations of Pledgor to Pledgee described in clauses (a) and (b) of this sentence are referred to herein as the "OBLIGATIONS"). The Issuer shall have the ability to demand additional Pledged Shares or Options owned by the Pledgor at any time, and such additional Pledged Shares or Options shall also be deemed Pledged Collateral as defined herein. SECTION 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing Pledged Collateral shall be delivered to and held by or on behalf of Pledgee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed but undated stock powers or other instruments of transfer or assignment, in blank, all in form and substance satisfactory to Pledgee. Pledgee shall have the right, at any time in Pledgee's discretion and without notice to Pledgor, to transfer to or to register in the name of Pledgee or any of Pledgee's nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 6(a). In addition, Pledgee shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. - 2 - 3 SECTION 4. Representations and Warranties. Pledgor represents and warrants as follows: (a) Pledgor is the legal and beneficial owner of record of the Pledged Collateral free and clear of any lien, security interest, option or other charges or encumbrance except for the security interest created by this Agreement. (b) Pledge of the Pledged Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, securing the payment of the Obligations. (c) Pledgor (i) has good right and legal authority to pledge the Pledged Collateral owned by Pledgor in the manner hereby done or contemplated and (ii) will defend Pledgor's title or interest thereto or therein against any and all attachments, liens, claims, encumbrances, security interests or other impediments of any nature, however arising, of all persons whomsoever. SECTION 5. Further Assurances. Pledgor agrees that at any time and from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Pledgee may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Pledgee to exercise and enforce Pledgee's rights and remedies hereunder with respect to any Pledged Collateral. SECTION 6. Voting Rights; Dividends; Etc. (a) So long as no Event of Default (as defined herein) or event which, with the giving of notice or the lapse of time, or both, would become an Event of Default shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, including, but not limited to, the right to exercise any Options; provided, however, that Pledgor shall not exercise or refrain from exercising any such right if, in Pledgee's judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof, and, provided, further, that Pledgor shall give Pledgee at least five (5) days written notice of the manner in which Pledgor intends to exercise, or the reasons for refraining from exercising, any such right. (ii) Pledgor shall be entitled to receive and retain any and all dividends paid in respect of Pledged Collateral, provided, however, that any and all: (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, - 3 - 4 (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Pledged Collateral, shall be, and shall forthwith be delivered to Pledgee to hold as, Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Pledgee as Pledged Collateral in the same form as so received (with any necessary endorsement). (iii) Pledgee shall execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies and other instruments as Pledgor may reasonably request for the purpose of enabling Pledgor to exercise the voting and other rights which Pledgor is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which Pledgor is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of an Event of Default or an event which, with the giving of notice or the lapse of time, or both, would become an Event of Default: (i) All rights of Pledgor to exercise the voting and other consensual rights which Pledgor would otherwise be entitled to exercise pursuant to Section 6(a)(i) and to receive the dividend payments which Pledgor would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) shall cease, and all such rights shall thereupon become vested in Pledgee who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividend payments. (ii) All dividend payments which are received by Pledgor contrary to the provisions of paragraph (i) of this Section 6(b) or contrary to any other agreement with Pledgee shall be received in trust for the benefit of Pledgee, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Pledgee as Pledged Collateral in the same form as so received (with any necessary endorsement). As used in this Agreement the term "EVENT OF DEFAULT" means the occurrence of any of the following events: (a) If Pledgor shall fail to make a payment of principal or interest under the Note when due, and such failure shall continue more than ten (10) days after Pledgee gives Pledgor written notice thereof; or - 4 - 5 (b) If Pledgor shall fail to make any other payment, or fail to perform any other obligation of Pledgor, under the Note or this Agreement, other than obligations within the scope of the immediately preceding clause (a), and such failure shall continue more than ten (10) days after Pledgee gives Pledgor written notice thereof; or (c) If Pledgor's employment with Pledgee shall terminate (voluntarily or involuntarily) for any reason; or (d) If there shall be filed by or against Pledgor any petition under the United States Bankruptcy Code or any similar federal or state statute; or (e) Commencement of any proceeding under any federal or state statute or rule providing for the relief of debtors, composition of creditors, arrangement, reorganization, receivership, liquidation or any similar event by or against Pledgor; or (f) The breach of any representation or warranty contained in this Agreement. SECTION 7. Transfers and Other Liens; Additional Shares. (a) Pledgor agrees that Pledgor will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement. (b) Pledgor agrees that if the Issuer shall issue any stock or other securities to Pledgor or in respect of, in addition to, or in substitution for, the Pledged Collateral, Pledgor will pledge hereunder, and deliver to Pledgee, immediately upon Pledgor's acquisition (directly or indirectly) thereof, any and all such stock or other securities of Issuer. SECTION 8. Pledgee Appointed Attorney-in-Fact. Pledgor hereby appoints Pledgee, and any officer or agent of Pledgee, with full power of substitution, Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time in Pledgee's discretion to take any action and to execute any instrument which Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement, which appointment is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, Pledgee shall have the right, with full power of substitution either in Pledgee's name or in the name of Pledgor, to ask for, demand, sue for, collect, receipt and give acquittance for any and all moneys due or to become due under and by virtue of any Pledged Collateral, to endorse checks, drafts, orders and other instruments for the payment of money payable to Pledgor representing any interest or dividend, or other distribution payable in respect of the Pledged Collateral or any part thereof or on account thereof and to give full discharge for the same, to settle, compromise, prosecute or defend any action, claim or proceedings with respect thereto, and to sell, assign, endorse, pledge, transfer and make any agreement respecting, or otherwise deal with, the same. - 5 - 6 SECTION 9. Continuing Security Interest; Transfer of Notes; Return of Collateral. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) remain in full force and effect until payment in full of the Obligations, (ii) be binding upon Pledgor and their respective personal representatives, successors and assigns, and (iii) inure, together with the rights and remedies of Pledgee hereunder, to the benefit of Pledgee and Pledgee's successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii) Pledgee may assign or otherwise transfer any Note held by Pledgee to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to Pledgee herein or otherwise. Upon the payment in full of the Obligations, Pledgor shall be entitled to the return, upon Pledgor's request and at Pledgor's expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. If any of the Pledged Collateral is owned by more than one person, then this Agreement shall be executed by all such parties and the Pledgee may deliver such Pledged Collateral to any one or more of such persons, whose receipt shall be binding on all such persons. SECTION 10. Reasonable Care. Pledgee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in Pledgee's possession if the Pledged Collateral is accorded treatment substantially equal to that which Pledgee accords Pledgee's own property, it being understood that Pledgee shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Pledgee has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral. No action taken by Pledgee or omitted to be taken with respect to the Pledged Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of Pledgor or to any claim or action against Pledgee in the absence of the gross negligence or willful misconduct of Pledgee. SECTION 11. Remedies upon Default. If an Event of Default shall have occurred and be continuing, Pledgee may sell the Pledged Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as Pledgee shall deem appropriate. Pledgee shall be authorized at any such sale (if Pledgee deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale Pledgee shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgee shall give Pledgor at least ten (10) days written notice (which Pledgor agrees is reasonable notice within the meaning of Section 9-504(3) of the Uniform Commercial Code) of Pledgee's intention to make any sale of the Pledged Collateral owned by Pledgor. Such - 6 - 7 notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as Pledgee may fix and state in the notice of such sale. At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as Pledgee may (in Pledgee's sole and absolute discretion) determine. Pledgee shall not be obligated to make any sale of any Pledged Collateral if Pledgee shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given. Pledgee may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by Pledgee until the sale price is paid by the purchaser or purchasers thereof, but Pledgee shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon notice to Pledgor as set forth in the first sentence of this paragraph. At any public sale made pursuant to this Section, Pledgee may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay or appraisal on the part of Pledgor (all said rights being also hereby waived and released to the extent permitted by law), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to Pledgee from Pledgor as a credit against the purchase price, and Pledgee may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Pledgor therefor. For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof shall be treated as a sale thereof; Pledgee shall be free to carry out such sale pursuant to such agreement, and Pledgor shall not be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after Pledgee shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon Pledgee, Pledgee may proceed by a suit or suits at law or in equity to foreclose this Agreement and to sell the Pledged Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. To the extent permitted by applicable law, Pledgee shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon any sale of the Pledged Collateral by Pledgee (including, without limitation, a sale pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of Pledgee or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral being sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to Pledgee or such officer or be answerable in any way for the misapplication thereof. - 7 - 8 SECTION 12. Expenses. If Pledgor shall default in payment of the Note, or under this Agreement, and Pledgee refers the Note to an attorney who is not a salaried employee of Pledgee for collection, Pledgee may charge and collect from Pledgor reasonable attorneys fees and all court costs and other collection costs actually incurred by Pledgee relating to Pledgor's default. SECTION 13. Security Interest Absolute. All rights of Pledgee and the security interests hereunder, and all obligations of Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Note or any other documents relating to the Pledged Collateral; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note or any other documents relating to the Loan or the Pledged Collateral; (iii) any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor in respect of the Obligations or this Agreement. SECTION 14. Notices. Any notice required or permitted by or in connection with this Agreement shall be in writing and shall be made by telecopy, or by hand delivery, or by overnight delivery service, or by certified mail, return receipt requested, postage prepaid, addressed to the parties at the appropriate address set forth on the first page of this Agreement or to such other address as may be hereafter specified by written notice by the parties to each other. Notice shall be considered given as of the earlier of the date of actual receipt, or the date of the telecopy or hand delivery, or one (1) calendar day after delivery to an overnight delivery service, or three (3) calendar days after the date of mailing, independent of the date of actual delivery or whether delivery is ever in fact made, as the case may be, provided the giver of notice can establish that notice was given as provided herein. Notwithstanding the aforesaid procedures, any notice or demand upon Pledgor, in fact received by Pledgor, shall be sufficient notice or demand. SECTION 15. Amendments; Severability. No amendment or waiver of any provision of this Agreement nor consent to any departure by Pledgor from any provision of this Agreement, shall in any event be effective unless the same shall be in writing and signed by Pledgee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. If any provision of this Agreement is or shall at any time be invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions of this Agreement shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of Pledgee in order to carry out the intentions of the parties hereto as nearly as may be possible; and (ii) the invalidity or unenforceability of any - 8 - 9 provision of this Agreement in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 16. Maryland Law; Jurisdiction; Venue. This Agreement shall be governed by the laws of the State of Maryland (excluding Maryland conflicts of laws rules). Pledgor hereby irrevocably consents to the non-exclusive personal jurisdiction of the courts of the State of Maryland and, if a basis for federal jurisdiction exists, the non-exclusive jurisdiction of the United States District Court for the District of Maryland. Pledgor agrees that venue shall be proper in any circuit court of the State of Maryland selected by Pledgee or, if a basis for federal jurisdiction exists, in any Division of the United States District Court for the District of Maryland. Pledgor waives any right to object to the maintenance of any suit or claim in any of the state or federal courts of the State of Maryland on the basis of improper venue or of inconvenience of forum. Any suit or claim brought by Pledgor against Pledgee that is based, in whole or in part, directly or indirectly, on this Agreement or any matters relating to this Agreement, shall be brought in a court only in the State of Maryland. Pledgor shall not file any counterclaim against Pledgee in any suit or claim brought by Pledgee against Pledgor in a jurisdiction outside of the State of Maryland unless under the rules of the court in which Pledgee brought such suit or claim the counterclaim is mandatory, and not permissive, and would be considered waived unless filed as a counterclaim in the claim or suit instituted by Pledgee against Pledgor. Pledgor agrees that any forum outside the State of Maryland is an inconvenient forum and that a suit brought by Pledgor against Pledgee in any court outside the State of Maryland should be dismissed or transferred to a court located in the State of Maryland. - 9 - 10 IN WITNESS WHEREOF, Pledgor has caused this Agreement to be duly executed, under seal, and delivered as of the date first above written. WITNESS: (SEAL) - ----------------------------- -------------------------------------------- Pledgor, State of _____________, County of ______________, to wit: On this the _______ day of _____________, 2001, before me, the undersigned officer, personally appeared ________________________________, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument, and acknowledged that he executed the same for the purposes therein contained. In witness whereof I hereunto set my hand and official seal. ------------------------------------ Notary Public My commission expires: -------------- - 10 - EX-10.34 4 w49142ex10-34.txt SECOND AMENDED AND RESTATED PROMISSORY NOTE 1 EXHIBIT 10.34 SECOND AMENDED AND RESTATED PROMISSORY NOTE $125,000 February 28, 2000 FOR VALUE RECEIVED, the undersigned Borrower promises to pay to TeleCommunication Systems, Inc. (the "Company") at its principal offices at 275 West Street, Suite 400, Annapolis, MD 21401 the principal sum of One Hundred Twenty-Five Thousand dollars ($125,000.00), together with interest from the date on this Note on the unpaid principal balance, upon the terms and conditions specified below. 1. TERM. The principal balance of this Note, together with interest accrued and unpaid to date, shall be due and payable at the close of business on August 26, 2002; provided, however, that if Borrower remains an employee of Company on August 26, 2001, then $83,334 of the principal amount together with the accrued and unpaid interest thereon shall be forgiven and the obligation to pay that amount will be extinguished. If the Borrower remains an employee on August 26, 2002, then the remaining principal amount together with the accrued and unpaid interest thereon shall be forgiven and the Note shall be cancelled without repayment of any kind. 2. RATE OF INTEREST. Interest shall accrue under the Note on any unpaid principal balance at the Applicable Federal Rate under Section 1274(d) of the Internal Revenue Code, per annum, compounded annually. 3. PREPAYMENT. Prepayment of principal and interest may be made at any time without penalty. 4. EVENTS OF ACCELERATION. The entire unpaid principal sum and unpaid interest under this Note shall become immediately due and payable upon: (a) The date when the Borrower ceases to be employed by Company; (b) The occurrence of a material event of default under the Option Pledge Agreement securing this Note or any obligation secured thereby. 5. SECURITY. Payment of this Note shall be secured by an Option Pledge Agreement to be executed and delivered by the Borrower and covering shares of the Company's Class B Common Stock. The Borrower, however, shall remain personally liable for payment of this Note, and assets of the Borrower, in addition to the collateral under the Option Pledge Agreement, may be applied to the satisfaction of the Borrower's obligations hereunder. 6. COLLECTION. If action is instituted to collect this Note, the Borrower promises to pay all reasonable costs and expenses (including reasonable attorneys fees) incurred in connection with such action. 7. WAIVER. No previous waiver and no failure or delay by the Company or the Borrower in acting with respect to the terms of this Note or the Option Pledge Agreement shall constitute a waiver of any breach, default or failure of condition under this Note, the Option 2 Pledge Agreement or the obligations secured thereby. A waiver of any term of this Note, the Option Pledge Agreement or of any of the obligations secured thereby must be made in writing and signed by a duly authorized officer of the Company and shall be limited to the express terms of such waiver. The Borrower hereby waives presentment and demand for payment at such time as the payments are due under the Note. 8. CONFLICTING AGREEMENTS. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by the Note, the terms of the Note shall prevail. 9. GOVERNING LAW. This Note shall be construed in accordance with the laws of the State of Maryland. 10.THIS SECOND AMENDED AND RESTATED PROMISSORY NOTE IS ISSUED IN SUBSTITUTION AND REPLACEMENT FOR, BUT NOT IN PAYMENT OF, THAT CERTAIN FIRST AMENDED AND RESTATED PROMISSORY NOTE DATED AUGUST 26, 2000 FROM THE BORROWER TO TELECOMMUNICATION SYSTEMS, INC. ------------------------------------ Signature of Borrower Timothy J. Lorello ------------------------------------ Borrower 1524 Sappington Drive Gambrills, MD 21054 -----END PRIVACY-ENHANCED MESSAGE-----






[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2001
OR
[ ]		THE SECURITIES EXCHANGE ACT OF 1934






MARYLAND (State or Other Jurisdiction of Incorporation or Organization)		52-1526369 (I.R.S. Employer Identification No.)




275 West Street, Annapolis, MD (Address of principal executive offices)		21401 (Zip Code)


	Shares Outstanding
Title of Each Class:	as of May 9, 2001

Class A Common Stock, par value $0.01 per share		17,576,592
Class B Common Stock, par value $0.01 per share		10,787,671

Total Common Stock Outstanding		28,364,263


PART I. -- FINANCIAL INFORMATION
	Item 1. -- Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. -- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Change in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
FORM OF EMPLOYEE LOAN PROMISSORY NOTE
FORM OF PLEDGE AGREEMENT
SECOND AMENDED AND RESTATED PROMISSORY NOTE


PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements




		Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000	3




		Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000	4




		Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2001	5




		Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000	6




		Notes to Consolidated Financial Statements	7




	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10




	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18

PART II.	OTHER INFORMATION




	Item 1.	Legal Proceedings	19




	Item 2.	Changes in Securities and Use of Proceeds	19




	Item 3.	Defaults Upon Senior Securities	19




	Item 4.	Submission of Matters to a Vote of Security Holders	19




	Item 5.	Other Information	19




	Item 6.	Exhibits and Reports on Form 8-K	20




	SIGNATURES		22

Table of Contents

Table of Contents

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				Three months ended
				March 31,

				2001			2000

Revenue:




	Network applications:




		Software licenses		$	3,377		$	1,167




		Services			5,672			2,217

		Network applications			9,049			3,384




	Network solutions				8,088			8,675

			Total revenue		17,137			12,059




Operating costs and expenses:




	Direct cost of network applications				3,165			1,578




	Direct cost of network solutions				5,843			6,400




	Sales and marketing				3,973			1,076




	Research and development				4,101			466




	General and administrative				3,611			1,915




	Non-cash stock compensation expense				790			—




	Depreciation and amortization of property and equipment				896			571




	Amortization of software development costs				956			670




	Amortization of goodwill and other intangibles				2,630			—




	Write-off of acquired in-process research and development				9,700			—

			Total operating costs and expenses		35,665			12,676

Loss from operations					(18,528	)		(617	)




Interest expense and other financing costs					(106	)		(374	)




Interest and other income (expense)					638			—

Loss before income taxes					(17,996	)		(991	)




Income tax benefit					—			383

Net loss					(17,996	)		(608	)




Accretion of Series A Redeemable Convertible Preferred Stock					—			(24	)




Dividends on Series A Redeemable Convertible Preferred Stock					—			(200	)

Net loss attributable to common stockholders				$	(17,996	)	$	(832	)

Loss per common share, basic and diluted				$	(0.66	)	$	(0.08	)


			March 31,			December 31,
			2001			2000

			(unaudited)




Assets




Current assets:




	Cash and cash equivalents		$	55,047		$	66,117




	Restricted cash			—			1,431




	Accounts receivable			15,685			11,955




	Unbilled receivables, less allowance of $158 in 2001 and 2000			10,220			6,431




	Notes receivable from employees			375			381




	Other current assets			1,019			1,226

		Total current assets		82,346			87,541




Property and equipment, net of accumulated depreciation and amortization of $5,292 in 2001 and $4,396 in 2000				8,079			3,980




Software development costs, net of accumulated amortization of $6,134 in 2001 and $5,178 in 2000				10,495			6,657




Notes receivable from employees				1,065			1,065




Goodwill and other intangible assets, net of accumulated amortization of $2,630 in 2001				47,853			—




Other assets				823			1,107

		Total assets	$	150,661		$	100,350

Liabilities and stockholders’ equity




Current liabilities:




	Accounts payable and accrued expenses		$	10,198		$	6,416




	Accrued payroll and related liabilities			2,328			4,362




	Deferred revenue			2,885			2,020




	Notes payable to related parties			—			1,426




	Current portion of long-term debt and capital lease obligations			1,609			875

		Total current liabilities		17,020			15,099




Capital lease obligations, less current portion				1,518			1,102




Commitments and contingent liabilities				—			—




Stockholders’ equity:




Class A Common Stock; $0.01 par value:




	Authorized shares — 225,000,000; issued and outstanding shares of 17,506,937 in 2001 and 13,707,670 in 2000			175			137




Class B Common Stock; $0.01 par value:




	Authorized shares — 75,000,000; issued and outstanding shares of 10,787,671 in 2001 and 2000			108			108




Additional paid-in capital				160,350			94,418




Accumulated deficit				(28,510	)		(10,514	)

		Total stockholders’ equity		132,123			84,149

		Total liabilities and stockholders’ equity	$	150,661		$	100,350


	Class A		Class B		Additional
	Common		Common		Paid-in		Accumulated
	Stock		Stock		Capital		Deficit			Total

Balance at January 1, 2001	$	137	$	108	$	94,418	$	(10,514	)	$	84,149




Options exercised for the purchase of 148,483 shares of Class A Common Stock		1		—		238		—			239




Issuance of 3,597,520 shares of Class A Common Stock for the acquisition of Xypoint		36		—		56,625		—			56,661




Issuance of stock options to purchase 656,990 shares of Class A Common Stock for the acquisition of Xypoint		—		—		7,860		—			7,860




Issuance of 53,264 shares of Class A Common Stock for the acquisition of reachNET		1		—		409		—			410




Issuance of stock options to purchase 5,554 shares of Class A Common Stock for the acquisition of reachNET		—		—		10		—			10




Stock compensation expense for issuance of Class A Common Stock options at below fair market value		—		—		790		—			790




Net loss for three months ended March 31, 2001		—		—		—		(17,996	)		(17,996	)

Balance at March 31, 2001	$	175	$	108	$	160,350	$	(28,510	)	$	132,123






Acquisition consideration:




	Cash		$	734




	Common stock			56,661




	Stock options and warrants			7,860




	Acquisition costs			3,750

		Total consideration	$	69,005


								Annual
						Amortization		Amortization
						Life		of Intangibles

Purchase price allocation:




	Tangible net assets acquired			$	7,249




	Intangible assets acquired:




		In-process research and development			9,700




		Developed technology			4,100		3 years		1,367




		Workforce-in-place			1,500		3 years		500




		Trade name			1,600		3 years		533




		Goodwill			44,856		4 years		11,214

			Total	$	69,005


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.


		Estimated
		Stage of			Fair
		Completion			Value

TCAP Interface			47	%	$	1.3




Presence & Privacy			10	%		0.1




VPS			60	%		2.0




NOMAD^™			60	%		2.5




InfoLink^™			60	%		1.5




Gateway			60	%		2.3

	Total				$	9.7


		(000s)

Net offering proceeds to issuer		$	83,190




Use of proceeds:




	Acquisitions		3,029




	Property and equipment		2,400




	Working capital		11,976




	Repayment of indebtedness		10,738




Temporary investments:




	Cash and cash equivalents		55,047

		$	83,190


Exhibit
Numbers			Description

	2.1		Agreement and Plan of Reorganization by and among TeleCommunication Systems, Inc., Windward Acquisition Corp., and XYPOINT Corporation.*
	3.1		Amended and Restated Articles of Incorporation of the Company.**
	3.2		Amended and Restated Bylaws of the Company.**
	10.1		A-I-Net SCN Application Development Agreement dated April 4, 1996 by and between the Company and Lucent Technologies, Inc., as amended by Modification 01 dated September 11, 1997, Modification 02 dated June 28, 1999, Modification 03 dated April 11, 2000 and Modification 04 dated April 21, 2000 and the Application Development Plan for TDMA Interim and Standard OTAF dated April 11, 2000.†**
	10.2		Alliance Agreement dated November 5, 1998 by and between the Company and Lucent Technologies, Inc.†**
	10.3		West Garrett Office Building Full Service Lease Agreement dated October 1, 1997 by and between the Company and West Garrett Joint Venture.**
	10.4		West Street Center Office Lease Agreement dated March 8, 2000 by and between the Company and Dee Corporation.**
	10.5		Lease Agreement, as amended, dated September 14, 1994 by and between Bayshore Property Corporation and the Company.**
	10.6		Registration Rights Agreement dated December 14, 1999 by and among the Company and Signal Equity Partners, L.P., GE Capital Equity Investments, Inc., Finova Mezzanine Capital, Inc., Tatonka Capital Corporation, Commerce Funding Corporation and George M. Shea.**
	10.7		Form of Indemnification Agreement.**‡
	10.8		Assignment and Transfer of Receivables Agreement dated March 17, 1997 by and between the Company and Commerce Funding Corporation.**
	10.9		General Services Administration Contract No. GS03K-96-DSD1003, as amended, dated December 21, 1995 by and among the General Services Administration and the U.S. Small Business Administration (Prime Contractor) and the Company (Subcontractor).**
	10.9	(a)	Naval Surface Warfare Center Tax Orders 02, 03 and 05, as amended.**
	10.9	(b)	U.S. Defense Telecommunications Service Task Order 04, as amended.**
	10.9	(c)	U.S. Special Operations Command Task Order 2601, as amended.**
	10.10		General Services Administration Contract No. GS-35F-4665H, as amended, dated January 20, 1998 by and between the General Services Administration and the Company.*
	10.10	(a)	Joint Communication Services Delivery Orders 01 through 28, as amended.*
	10.10	(b)	Space and Naval Warfare Center Task Orders 2600 and 2602 through 2608, as amended.**
	10.11		Amended and Restated 1997 Stock Incentive Plan.**‡
	10.12		Employee Stock Purchase Plan.**‡
	10.13		Optionee Agreement dated October 1, 1997 by and between the Company and Richard A. Young.**‡
	10.14		Optionee Agreement dated July 29, 1998 by and between the Company and Richard A. Young.**‡
	10.15		Optionee Agreement dated October 1, 1997 by and between the Company and Drew A. Morin.**‡
	10.16		Optionee Agreement dated October 1, 1997 by and between the Company and Timothy J. Lorello.**‡


*	Incorporated by reference to TeleCommunication Systems, Inc.’s Registration Statement on Form S-4 (File number 333-51656).

**	Incorporation by reference to TeleCommunication Systems, Inc.’s Registration Statement on Form S-1 (Registration No. 333-35522) declared effective by the Securities and Exchange Commission on August 7, 2000.

†	Portions of these exhibits have been omitted based upon a request for confidential treatment granted by the SEC.

‡	Management contract, compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.


/s/ RICHARD A. YOUNG Richard A. Young	Executive Vice-President and Chief Operating Officer	May 15, 2001
/s/ THOMAS M. BRANDT, JR. Thomas M. Brandt, Jr.	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	May 15, 2001