10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2001
OR
[  ]	THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-30821

TELECOMMUNICATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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)

(410) 263-7616

(Registrant’s telephone number, including area code)

      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 the 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.

	Shares Outstanding
Title of Each Class:	as of November 7, 2001
Class A Common Stock, par value $0.01 per share		17,979,038
Class B Common Stock, par value $0.01 per share		10,727,571
Total Common Stock Outstanding		28,706,609

TABLE OF CONTENTS

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
Promissory Note
Promissory Note
Promissory Note
Employment Agreement
Employment Agreement
Employment Agreement
Employment Agreement

INDEX

TELECOMMUNICATION SYSTEMS, INC.

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000		3
		Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000		4
		Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2001		5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000		6
		Notes to Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		19
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		20
	Item 2.	Changes in Securities and Use of Proceeds		20
	Item 3.	Defaults Upon Senior Securities		20
	Item 4.	Submission of Matters to a Vote of Security Holders		20
	Item 5.	Other Information		20
	Item 6.	Exhibits and Reports on Form 8-K		21
	SIGNATURES			22

PART I. — FINANCIAL INFORMATION

Item 1.  Financial Statements

TeleCommunication Systems, Inc.

Consolidated Statements of Operations

(amounts in thousands, except per share data)

(unaudited)

				Three months ended						Nine months ended
				September 30,						September 30,
				2001			2000			2001			2000
Revenue:
	Network applications:
		Software licenses		$	1,467		$	2,956		$	7,921		$	6,368
		Services			7,988			3,576			20,425			8,376
		Network applications			9,455			6,532			28,346			14,744
	Network solutions				8,604			9,880			23,118			26,231
			Total revenue		18,059			16,412			51,464			40,975
Operating costs and expenses:
	Direct cost of network applications				4,096			3,160			11,103			6,545
	Direct cost of network solutions				7,004			7,876			17,194			19,914
	Research and development				4,935			1,569			14,050			2,711
	Sales and marketing				3,161			2,118			11,135			4,433
	General and administrative				3,435			3,082			10,985			7,592
	Non-cash stock compensation expense				536			683			2,060			841
	Depreciation and amortization of property and equipment				1,255			674			3,257			1,762
	Amortization of software development costs				1,407			826			3,561			2,168
	Amortization of goodwill and other intangibles				3,240			—			9,088			—
	Acquired in-process research and development				—			—			9,700			—
	Impairment of goodwill and other intangibles				43,000			—			43,000			—
			Total operating costs and expenses		72,069			19,988			135,133			45,966
Loss from operations before extraordinary item					(54,010	)		(3,576	)		(83,669	)		(4,991	)
Interest expense and other financing costs					(191	)		—			(450	)		(804	)
Interest and other income					356			332			1,557			332
Loss before income taxes and extraordinary item					(53,845	)		(3,244	)		(82,562	)		(5,463	)
Income tax benefit					—			1,233			—			2,140
Loss before extraordinary item					(53,845	)		(2,011	)		(82,562	)		(3,323	)
Extraordinary item — loss on early extinguishment of debt, net of tax benefit of $133					—			(219	)		—			(219	)
Net loss					(53,845	)		(2,230	)		(82,562	)		(3,542	)
Accretion of Series A Redeemable Convertible Preferred Stock					—			(10	)		—			(58	)
Dividends on Series A Redeemable Convertible Preferred Stock					—			(83	)		—			(482	)
Net loss attributable to common stockholders				$	(53,845	)	$	(2,323	)	$	(82,562	)	$	(4,082	)
Loss per common share before extraordinary item, basic and diluted				$	(1.88	)	$	(0.11	)	$	(2.93	)	$	(0.27	)
Loss per common share, basic and diluted				$	(1.88	)	$	(0.12	)	$	(2.93	)	$	(0.28	)

See accompanying notes.

3

TeleCommunication Systems, Inc.

Consolidated Balance Sheets

(amounts in thousands, except share data)

			September 30,			December 31,
			2001			2000
			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	44,531		$	66,117
	Restricted cash			—			1,431
	Accounts receivable			17,797			11,955
	Unbilled receivables, less allowance of $158 in 2001 and 2000			3,385			6,431
	Current portion of notes receivable from employees			3,295			381
	Other current assets			1,546			1,226
		Total current assets		70,554			87,541
Property and equipment, net of accumulated depreciation and amortization of $7,653 in 2001 and $4,396 in 2000				10,841			3,980
Software development costs, net of accumulated amortization of $7,006 in 2001 and $5,178 in 2000				7,208			6,657
Intangible assets, net of accumulated amortization of $377 in 2001				1,223			—
Notes receivable from employees, less current portion				1,065			1,065
Other assets				4,071			1,107
		Total assets	$	94,962		$	100,350
Liabilities and stockholders’ equity
Current liabilities:
	Accounts payable and accrued expenses		$	13,685			6,416
	Accrued payroll and related liabilities			3,448			4,362
	Deferred revenue			2,506			2,020
	Note payable to related party			—			1,426
	Current portion of note payable			100
	Current portion of capital lease obligations			2,443			875
		Total current liabilities		22,182			15,099
Note payable, less current portion				200			—
Capital lease obligations, less current portion				3,461			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 17,922,204 in 2001 and 13,707,670 in 2000			179			137
Class B Common Stock; $0.01 par value:
	Authorized shares — 75,000,000; issued and outstanding shares of 10,727,571 in 2001 and 10,787,671 in 2000			107			108
Additional paid-in capital				161,909			94,418
Accumulated deficit				(93,076	)		(10,514	)
		Total stockholders’ equity		69,119			84,149
		Total liabilities and stockholders’ equity	$	94,962		$	100,350

See accompanying notes.

4

TeleCommunication Systems, Inc.

Consolidated Statement of Stockholders’ Equity

(amounts in thousands, except share data)

(unaudited)

	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 503,650 shares of Class A Common Stock		4		—			527		—			531
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		—		—			2,060		—			2,060
Conversion of Class B Common Stock to Class A Common Stock — 60,100 shares		1		(1	)		—		—			—
Net loss for the nine months ended September  30, 2001		—		—			—		(82,562	)		(82,562	)
Balance at September 30, 2001	$	179	$	107		$	161,909	$	(93,076	)	$	69,119

See accompanying notes.

5

TeleCommunication Systems, Inc.

Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

				Nine months ended
				September 30,
				2001			2000
Operating activities:
	Net loss			$	(82,562	)	$	(3,542	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Acquired in-process research and development			9,700			—
		Impairment of goodwill and other intangibles			43,000			—
		Amortization of goodwill and other intangibles			9,088			—
		Amortization of software development costs			3,561			2,168
		Depreciation and amortization of property and equipment			3,257			1,762
		Extraordinary item — loss on early extinguishment of debt			—			352
		Amortization of debt discount			—			204
		Deferred income taxes			—			(2,273	)
		Non-cash stock compensation expense			2,060			841
	Changes in operating assets and liabilities:
			Accounts receivable		(3,449	)		(2,040	)
			Unbilled receivables		3,046			(2,886	)
			Other current assets		188			(1,785	)
			Accounts payable and accrued expenses		4,899			2,361
			Accrued payroll and related liabilities		(1,065	)		(649	)
			Deferred revenue		358			320
Net cash used in operating activities					(7,919	)		(5,167	)
Investing activities:
Purchases of property and equipment					(2,149	)		(1,129	)
Capitalized software development costs					(2,730	)		(1,694	)
Change in restricted cash					1,431			—
Acquisitions, net of cash acquired of $3,600					(3,029	)		—
Loans to employees					(2,914	)		—
Change in other assets					(2,455	)		(151	)
Net cash used in investing activities					(11,846	)		(2,974	)
Financing activities:
Proceeds from initial public offering of stock					—			83,108
Proceeds from line of credit					—			1,582
Payments on line of credit					—			(1,582	)
Payments on capital lease obligations					(1,484	)		(1,869	)
Payment on notes payable to related parties					(1,426	)		—
Proceeds from exercise of employee stock options					531			415
Proceeds from note payable					300			—
Payments on long-term debt					—			(8,394	)
Payment of debt issue costs					—			(20	)
Preferred stock dividend					—			(482	)
Proceeds from sale-leaseback of equipment					258			—
Net cash (used in) provided by financing activities					(1,821	)		72,758
Net (decrease) increase in cash					(21,586	)		64,617
Cash at the beginning of the period					66,117			3,257
Cash at the end of the period				$	44,531		$	67,874

See accompanying notes.

6

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements

September 30, 2001

(amounts in thousands, except share data)

(unaudited)

1.  Basis of Presentation

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 and nine month periods ended September 30, 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.

2.  Loss Per Common Share

		Three months ended						Nine months ended
		September 30,						September 30,
		2001			2000			2001			2000
Numerator:
	Loss before extraordinary item	$	(53,845	)	$	(2,011	)	$	(82,562	)	$	(3,323	)
	Extraordinary item, net of taxes		—			(219	)		—			(219	)
	Net loss	$	(53,845	)	$	(2,230	)	$	(82,562	)	$	(3,542	)
	Accretion of Series A Redeemable Convertible Preferred Stock		—			(10	)		—			(58	)
	Dividends on Series A Redeemable Convertible Preferred Stock		—			(83	)		—			(482	)
	Net loss attributable to common stockholders	$	(53,845	)	$	(2,323	)	$	(82,562	)	$	(4,082	)
	Net loss attributable to common stockholders before extraordinary item	$	(53,845	)	$	(2,104	)	$	(82,562	)	$	(3,863	)
Denominator:
	Denominator for basic and diluted loss per common share — weighted-average shares		28,607,646			19,712,101			28,159,961			14,447,323
Loss per common share before extraordinary item – basic and diluted		$	(1.88	)	$	(0.11	)	$	(2.93	)	$	(0.27	)
Loss per common share — basic and diluted		$	(1.88	)	$	(0.12	)	$	(2.93	)	$	(0.28	)

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 and nine-month periods ended September 30, 2001 and 2000 because the result would be anti-dilutive. These potentially dilutive securities consist of stock options and warrants.

7

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

3.  Supplemental Disclosure of Cash Flow Information

The Company acquired property and equipment under capital leases totaling $1,432 and $286 for the three months ended September 30, 2001 and 2000, respectively, and $3,741 and $1,329 for the nine months ended September 30, 2001 and 2000, respectively.

Interest paid totaled $191 and $636 for the three months ended September 30, 2001 and 2000, respectively, and $450 and $1,410 for the nine months ended September 30, 2001 and 2000, respectively.

4.  Segment Information

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

				Three months ended						Nine months ended
				September 30,						September 30,
				2001			2000			2001			2000
Revenue:
		Software licenses		$	1,467		$	2,956		$	7,921		$	6,368
		Services			7,988			3,576			20,425			8,376
	Network applications				9,455			6,532			28,346			14,744
	Network solutions				8,604			9,880			23,118			26,231
			Total revenue	$	18,059		$	16,412		$	51,464		$	40,975
Segment profit (loss):
	Network applications			$	(10,642	)	$	(3,302	)	$	(39,966	)	$	(5,296	)
	Network solutions				(368	)		(274	)		(703	)		305
			Total segment loss	$	(11,010	)	$	(3,576	)	$	(40,669	)	$	(4,991	)
Depreciation and amortization of property and equipment:
	Network applications			$	1,101		$	311		$	2,876		$	728
	Network solutions				154			363			381			1,034
			Total depreciation and amortization of property and equipment	$	1,255		$	674		$	3,257		$	1,762

A reconciliation of segment profit and loss for both segments to loss from operations before extraordinary item is as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
	2001			2000			2001			2000
Total segment loss	$	(11,010	)	$	(3,576	)	$	(40,669	)	$	(4,991	)
Impairment of goodwill and other intangibles		(43,000	)		—			(43,000	)		—
Loss from operations before extraordinary item	$	(54,010	)	$	(3,576	)	$	(83,669	)	$	(4,991	)

5.  Xypoint Acquisition

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 $69,129 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

8

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

5.  Xypoint Acquisition — (continued)

acquisition has been accounted for under the purchase method of accounting and included a charge for in- process research and development.

The following summarizes unaudited pro forma statement of operations information for the three and nine month periods ended September 30, 2001 and 2000, assuming the acquisition of Xypoint was completed on January 1, 2000. The in-process research and development charge and the impairment charges related to goodwill and other intangibles have been excluded from the pro forma statement of operations information because these charges are 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:

	Three months ended						Nine months ended
	September 30,						September 30,
	2001			2000			2001			2000
Revenue	$	18,059		$	18,798		$	51,987		$	46,524
Net loss	$	(10,845	)	$	(8,407	)	$	(30,754	)	$	(22,258	)
Net loss attributable to common shareholders	$	(10,845	)	$	(8,500	)	$	(30,754	)	$	(22,799	)
Loss per common share, basic and diluted	$	(0.38	)	$	(0.36	)	$	(1.06	)	$	(1.26	)

6.  Notes Receivable from Employees

As of September 30, 2001 loans due from employees totaled $4,360. These loans bear interest at rates ranging from 6.00% to 7.50% and are due in various installments over 12 to 60 months. During the third quarter of 2001, the Company loaned $2,500 to the President and Chief Executive Officer of the Company. The loans are collateralized by securities of the Company owned by the employees and stock options granted to the employees.

7.  Impairment of Goodwill and Other Intangible Assets

In connection with the acquisition of Xypoint and reachNET in the first quarter 2001, the Company recorded goodwill and other intangible assets of approximately $54,720. The Company also immediately expensed $9,700 as acquired in-process technology upon completion of the Xypoint acquisition. Goodwill and other intangible assets are presented at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful life of the assets, which is four years for goodwill and three years for other intangible assets. Amortization of goodwill and other intangibles for the three and nine month periods ended September 30, 2001 was $3,240 and $9,088, respectively. At each balance sheet date the Company assesses the value of recorded intangible assets for possible impairment based upon a number of factors including the undiscounted value of expected future operating cash flows.

During the quarter ended September 30, 2001, the Company performed an impairment assessment of the identifiable intangibles and goodwill recorded upon the acquisitions of Xypoint and reachNET. The assessment was performed as a result of the decision by management to discontinue the further development of certain products acquired in the acquisitions and current competitive influences related to these businesses. Based on these factors, the Company determined that the goodwill and other intangible assets may have become impaired as of September 30, 2001. In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company performed an undiscounted cash flow analysis of these acquisitions to determine whether an impairment existed. Because the undiscounted cash flows for an acquired company was less than the carrying value of the net assets, management determined fair value of the acquired business using a discounted cash flow analysis which is management’s best estimate of the expected future cash flows of each acquired business.

9

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

7.  Impairment of Goodwill and Other Intangible Assets — (continued)

As a result of its review, management determined that the carrying value of goodwill and certain other intangible assets related to its acquisitions were not fully recoverable. Accordingly, at September 30, 2001, the Company recorded an impairment charge of $43,000, which represents the difference between the carrying value and estimated fair value of its goodwill and other intangible assets. The remaining identifiable intangible assets of approximately $1,636 consist of developed technology and trade name acquired in the Xypoint acquisition which will continue to be amortized over the remaining useful life of 27 months.

8.  New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statement. Other intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules of accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the nonamortization provisions of the Statement will not have an effect on net loss since the Company recorded an impairment charge for all of its acquired goodwill in the quarter ended September 30, 2001. During 2002, the Company will perform the first of the required impairment tests on the remaining identifiable intangible assets as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company.

In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement No. 144 supercedes Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and provides a single accounting model for long-lived assets to be disposed of. The Company will apply the new rules on accounting for the impairment or disposal of long-lived assets beginning in the first quarter of 2002. The Company will perform an evaluation of the impairment of its long-lived assets as of January 1, 2002 and has not yet determined what effect the evaluation will have on the earnings and financial impact of the Company.

10

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

      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 on 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 third parties to market and sell our network application products 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, (vi) develop software without any errors or defects, (vii) implement our sales and marketing strategies and (viii) conduct our operations in foreign countries. 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.

Company Background

      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 enhanced wireless 911 via carrier grade network operations centers, as well as the maintenance of our software and development of custom software applications. 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. Our Network Solutions group designs and installs wireless and wireline networks, deployable systems for portable high speed, satellite, and internet protocol networks and communications systems for corporate and government customers.

      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 location, presence, privacy, call control, and messaging functions via 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.

Business Overview

      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 related services. Our

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network solutions segment includes the design, development and deployment of complex information processing and communication systems and related services. The following table sets forth information on each of our segments:

				Three months ended						Nine months ended
				September 30,						September 30,
				2001			2000			2001			2000
				(in thousands)
Revenue:
		Software licenses		$	1,467		$	2,956		$	7,921		$	6,368
		Services			7,988			3,576			20,425			8,376
	Network applications				9,455			6,532			28,346			14,744
	Network solutions				8,604			9,880			23,118			26,231
			Total revenue	$	18,059		$	16,412		$	51,464		$	40,975
Segment profit (loss):
	Network applications			$	(10,642	)	$	(3,302	)	$	(39,966	)	$	(5,296	)
	Network solutions				(368	)		(274	)		(703	)		305
			Total segment loss	$	(11,010	)	$	(3,576	)	$	(40,669	)	$	(4,991	)
Depreciation and amortization of property and equipment:
	Network applications			$	1,101		$	311		$	2,876		$	728
	Network solutions				154			363			381			1,034
			Total depreciation and amortization of property and equipment	$	1,255		$	674		$	3,257		$	1,762

      A reconciliation of segment profit and loss for both segments to loss from operations before extraordinary item is as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
	2001			2000			2001			2000
Total segment loss	$	(11,010	)	$	(3,576	)	$	(40,669	)	$	(4,991	)
Impairment of goodwill and other intangibles		(43,000	)		—			(43,000	)		—
Loss from operations before extraordinary item	$	(54,010	)	$	(3,576	)	$	(83,669	)	$	(4,991	)

      Total company backlog at September 30, 2001 was $25.1 million compared to $28.3 million at September 30, 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.

      For the nine months ended September 30, 2001, our aggregate revenue from various U.S. government agencies was approximately $13.9 million and revenue from our Lucent channel was approximately $7.0 million, compared to $17.0 million from the U.S. government and $8.9 million from Lucent for the same period in 2000. For the three months ended September 30, 2001, our aggregate revenue from various U.S. government agencies was approximately $3.6 million and revenue from our Lucent channel was approximately $1.5 million, compared to $6.1 million from the U.S. government and $4.8 million from Lucent for the same period in 2000.

  Network Applications Revenue

      We generate network applications revenue from licensing of our software products and related services. The Wireless Internet Gateway, Short Message Service Center and Prepaid Wireless have been the principal

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generators of software license fees. For sales of our Wireless Internet Gateway, Lucent pays us initial license fees which we negotiate on a case by case basis and which have generally ranged between 75% and 90% of the sale value. 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. Licensing fees are usually a function of the number of subscribers in the network where our software is deployed. As a carrier’s subscriber base increases, the carrier purchases 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 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. Our license and related service revenue from the Prepaid Wireless software was approximately 4% and 2% of our network applications revenue for the nine months ended September 30, 2001 and 2000, respectively.

      Our network application service revenue arises from our enhanced 911 offering, 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. Service bureau revenue is generated primarily from our enhanced 911 offering. 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. 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.

  Network Solutions Revenue

      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 the U.S. Department of State and with the State of Jigawa, Nigeria. 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.

      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.

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  Direct Cost of Network Applications

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

  Direct Cost of Network Solutions

      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.

  Research and Development Expense

      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.

  Sales and Marketing Expense

      Our sales and marketing expenses include compensation and benefits, trade shows, 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.

  General and Administrative Expense

      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.

  Non-Cash Stock-Based Compensation Expense

      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 $6.8 million as a result of these option grants that will be recognized ratably over the remaining vesting period. During the three and nine month periods ended September 30, 2001, we recognized approximately $0.5 million and $2.1 million of stock compensation expense related to these grants.

  Depreciation and Amortization Expense

      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.

  Amortization of Software Development Costs

      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

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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.

Results of Operations

Three Months Ended September 30, 2001 Compared to the Three Months Ended September 30, 2000

      Revenue. In the third quarter of 2001, total revenue increased $1.7 million, or 10%, from $16.4 million in 2000 to $18.1 million.

      Total network applications revenue increased $3.0 million, or 45%, to $9.5 million in the three months ended September 30, 2001 from $6.5 million in the same period in 2000. Network application software license revenue decreased $1.5 million, or 50%, to $1.5 million in the third quarter of 2001 from $3.0 million in the same period in 2000. The decrease is due to a slowdown in carrier purchases of licenses. Network application service revenue increased $4.4 million, or 123%, to $8.0 million in the three months ended September 30, 2001 from $3.6 million in the three months ended September 30, 2000. The expansion of our network application services offerings in January 2001 to include our service bureau offering, enhanced 911, contributed $5.2 million to network application services revenue for the third quarter of 2001.

      Network solutions revenue decreased $1.3 million, or 13%, to $8.6 million for the three month period ended September 30, 2001 from $9.9 million in the same period in 2000. Third quarter revenue decreased from the prior year due to the timing of multi-month government projects, as well as lower revenue in the quarter from satellite solutions contracts.

      Direct Cost of Revenue. Total direct cost of revenue increased less than 1%, to $11.1 million in the third quarter of 2001 from $11.0 million in the same period in 2000. As a percentage of revenue, direct cost of revenue decreased to 61% in third quarter of 2001 from 67% in the third quarter of 2000.

      Direct cost of network applications increased $0.9 million, or 30%, to $4.1 million in the third quarter of 2001 from $3.2 million for the same period in 2000. The increase in direct cost of network applications is a result of the addition of the enhanced 911 service bureau offering. As a percentage of related revenue, direct cost of network applications decreased from 48% in the third quarter of 2000 to 43% in the third quarter of 2001 due to a greater proportion of high margin software and service bureau revenue in 2001 compared to 2000.

      Direct cost of network solutions decreased $0.9 million, or 11%, to $7.0 million in the three month period ended September 30, 2001 from $7.9 million for the same period in 2000. As a percentage of related revenue, direct cost of network solutions increased to 81% in the third quarter of 2001 from 80% in the third quarter of 2000.

      Research and Development Expense. Research and development expense increased $3.3 million, or 215%, to $4.9 million in the three month period ended September 30, 2001 from $1.6 million for the same period in 2000. The expansion of our network applications group to include location based wireless technology accounted for $1.7 million of the increase in research and development.

      Sales and Marketing Expense. Sales and marketing expense increased $1.1 million, or 49%, to $3.2 million in the third quarter of 2001 from $2.1 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.

      General and Administrative Expense. General and administrative expense increased $0.3 million, or 11%, to $3.4 million in the third quarter of 2001 from $3.1 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

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expansion of our facilities to support the increased volume of software development and other business activities.

      Depreciation and Amortization Expense. Depreciation and amortization of property and equipment increased $0.6 million, or 86%, to $1.3 million in the three month period ended September 30, 2001 from $0.7 million in the three month period ended September 30, 2000. The increase is primarily related to property and equipment acquired from the Xypoint acquisition and property and equipment acquired under capital leases.

      Amortization of Software Development Costs. Amortization of software development costs increased to $1.4 million in the three-month period ended September 30, 2001 from $0.8 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 third quarter of 2001, $0.3 million of the Xypoint acquired technology was amortized. Amortization expense as a percentage of software license fees increased to 96% in the three month period ended September 30, 2001 from 28% for the same period in 2000 as a result of a decrease of software license fee revenue that has been recognized in the third quarter of 2001 as compared to the same period in 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 $3.2 million for the three-month period ended September 30, 2001. In connection with the Xypoint and reachNET acquisitions, we recorded goodwill of approximately $47.5 million, which, prior to the impairment charge, was being amortized on a straight-line basis over a four-year period. We also recorded $1.5 million related to workforce-in-place and $1.6 million related to trade name, respectively, in connection with the Xypoint acquisition. See “Impairment of Goodwill and Other Intangibles” for a discussion of management’s assessment of recoverability.

      Interest Income (Expense) and Other Financing Costs. Net interest income was $0.2 million for the three months ended September 30, 2001 compared to net interest income of $0.3 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 third quarter of 2000 primarily represented interest on long-term 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 $53.8 million in the third quarter of 2001 compared to a net loss of $2.2 million in the third quarter of 2000 due to the factors described above.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000

      Revenue. For the first nine months of 2001, total revenue increased $10.5 million, or 26%, from $41.0 million in 2000 to $51.5 million in 2001.

      Total network applications revenue increased $13.6 million, or 92%, to $28.3 million in the nine month period ended September 30, 2001 from $14.7 million in the same period in 2000. Network application software license revenue increased $1.5 million, or 24%, to $7.9 million in the first nine months of 2001 from $6.4 million in the same period in 2000. The increase is due to the growth in our sales of Wireless Internet Gateway and Short Message Service Center. Network application service revenue increased $12.0 million, or 144%, to $20.4 million in the first nine months of 2001 from $8.4 million in the first nine months of 2000. The expansion of our network application services offerings in January 2001 to include our service bureau offering, enhanced 911, contributed $11.7 million to network application services revenue for the first nine months of 2001.

      Network solutions revenue decreased $3.1 million, or 12%, to $23.1 million for the first nine months of 2001 from $26.2 million in the same period in 2000. Revenue in the first nine months of 2001 was lower than in the same period in 2000 due to the timing of multi-month government projects.

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      Direct Cost of Revenue. Total direct cost of revenue increased $1.8 million, or 7%, to $28.3 million in first nine months of 2001 from $26.5 million in the same period in 2000. As a percentage of revenue, direct cost of revenue decreased to 55% in the first nine months of 2001 from 65% in the first nine months of 2000.

      Direct cost of network applications increased $4.6 million, or 70%, to $11.1 million in the first quarter of 2001 from $6.5 million for the same period in 2000. The increase in direct cost of network applications is a result of the addition of the enhanced 911 service bureau offering and an 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 44% in the first nine months of 2000 to 39% in the first nine months of 2001 due to a greater proportion of high margin software and service bureau revenue in 2001 compared to 2000.

      Direct cost of network solutions decreased $2.7 million, or 14%, to $17.2 million in the first nine months of 2001 from $19.9 million for the same period in 2000. As a percentage of related revenue, direct cost of network solutions decreased to 74% in the first nine months of 2001 from 76% in the same period of 2000 due to lower benefit costs recognized in the first nine months of 2001 compared to 2000.

      Research and Development Expense. Research and development expense increased $11.4 million, or 418%, to $14.1 million in the first nine months of 2001 from $2.7 million for the same period in 2000. The expansion of our network applications group to include location based wireless technology accounted for $4.8 million of the increase in research and development.

      Sales and Marketing Expense. Sales and marketing expense increased $6.7 million, or 151%, to $11.1 million in the first nine months of 2001 from $4.4 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.

      General and Administrative Expense. General and administrative expense increased $3.4 million, or 45%, to $11.0 million in the nine months ended September 30, 2001 from $7.6 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 additional expenses incurred in connection with our operation as a public company.

      Depreciation and Amortization Expense. Depreciation and amortization of property and equipment increased $1.5 million, or 85%, to $3.3 million in the nine months ended September 30, 2001 from $1.8 million for the same period in 2000. The increase is primarily related to property and equipment acquired from the Xypoint acquisition and property and equipment acquired under capital leases.

      Amortization of Software Development Costs. Amortization of software development costs increased to $3.6 million in the first nine months of 2001 from $2.2 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 nine months of 2001, $0.9 million of the Xypoint acquired technology was amortized. Amortization expense as a percentage of software license fees increased to 45% in the first nine months of 2001 from 34% for the same period in 2000 as a result of increased amortization expense period over period.

      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 $9.1 million for the nine months ended September 30, 2001. In connection with the Xypoint and reachNET acquisitions, we recorded goodwill of approximately $47.5 million, which was 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. See “Impairment of Goodwill and Other Intangibles” for a discussion of management’s assessment of recoverability.

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      Acquired In-Process Research and Development. In connection with the acquisition of Xypoint in January 2001, we allocated $9.7 million of the $69.1 million purchase price to in-process research and development projects. This allocation represents the estimated fair value based on discounted cash flows related to the incomplete research and development projects. At the time of acquisition, the progress of these technologies had not yet reached technological feasibility and the technologies had no alternative future uses. Accordingly, these costs were expensed as of the acquisition date.

      At September 30, 2001, seven of the nine technologies that were underway as of the acquisition remain on target with our original plans and projections. We ceased further development of the two remaining technologies — Nomad and InfoLink — as we did not believe that market demand was sufficient to warrant further development and commitment of resources. For the seven technologies remaining under development, we believe these research and development technologies are on track with management’s plans at the time the acquisition occurred.

      Funding for such technologies is expected to be from our remaining initial public offering proceeds and internally generated sources. Although we intend to complete the development of these 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 $1.1 million for the first nine months of 2001 compared to a net interest expense of $0.5 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 nine months 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 $82.6 million in the first nine months of 2001 compared to a net loss of $3.5 million in the first nine months of 2000 due to the factors described above.

Impairment of Goodwill and Other Intangibles

      In connection with the acquisition of Xypoint and reachNET in the first quarter 2001, the Company recorded goodwill and other intangible assets of approximately $54,720. The Company also immediately expensed $9,700 as acquired in-process technology upon completion of the Xypoint acquisition. Goodwill and other intangible assets are presented at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful life of the assets, which was four years for goodwill (prior to the impairment charge) and three years for other intangible assets. Amortization of goodwill and other intangibles for the three and nine month periods ended September 30, 2001 was $3,240 and $9,088, respectively. At each balance sheet date the Company assesses the value of recorded intangible assets for possible impairment based upon a number of factors including the undiscounted value of expected future operating cash flows.

      During the quarter ended September 30, 2001, the Company performed an impairment assessment of the identifiable intangibles and goodwill recorded upon the acquisitions of Xypoint and reachNET. The assessment was performed as a result of the decision by management to discontinue the further development of certain products acquired in the acquisitions and current competitive influences related to these businesses. Based on these factors, the Company determined that the goodwill and other intangible assets may have become impaired as of September 30, 2001. In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company performed an undiscounted cash flow analysis of its acquisitions to determine whether an impairment existed. Because the undiscounted cash flows for an acquired company was less than the carrying value of the net assets, management determined fair value of the acquired business using a discounted cash flow analysis which is management’s best estimate of the expected future cash flows of each acquired business.

      As a result of its review, management determined that the carrying value of goodwill and certain other intangible assets related to its acquisitions were not fully recoverable. Accordingly, at September 30, 2001, the

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Company recorded an impairment charge of $43,000, which represents the difference between the carrying value and fair value of its goodwill and other intangible assets. The remaining identifiable intangible assets of approximately $1,636 consist of the developed technology and trade name acquired in the Xypoint acquisition and will continue to be amortized over the remaining useful life of 27 months.

Liquidity and Capital Resources

      We have financed our operations and capital expenditures primarily through our initial public offering in August 2000, which generated approximately $83.2 million of net proceeds, revenue from our operations and various borrowing arrangements. Our borrowing arrangements have provided funding through a line of credit, term notes and capital lease obligations. As of September 30, 2001, we had $44.5 million in cash and cash equivalents and working capital of $48.4 million.

      We utilized $7.9 million of cash for operations for the first nine months of 2001, an increase of $2.7 million compared to $5.2 million in the same period in 2000. Loss before non-cash charges increased from $0.5 million for the nine months ended September 30, 2000 to $11.9 million for the same period in 2001.

      We utilized $11.8 million of cash for investing activities in the first nine months of 2001. The Company expended $2.1 million in the first nine months of 2001 for fixed assets, mainly telecommunications and computer hardware. The Company also invested $2.7 million in network application software development and used $1.4 million in restricted cash to repay the note payable to our controlling stockholder.

      During the quarter ended September 30, 2001, we loaned $2.9 million to employees of the Company, of which $2.5 million was to our President and Chief Executive Officer. The employee loans bear interest at rates ranging from 6.00% to 7.50% and are due in various installments over 12 to 60 months. The loans are collateralized by securities of the Company owned by the employees and stock options granted to the employee.

      Our first quarter 2001 acquisitions of Xypoint and reachNET utilized $3.0 million of cash, net of cash acquired of $3.6 million.

      We utilized $1.8 million of cash for financing activities in the first nine months of 2001, of which $1.4 million was used to repay a note payable to our controlling shareholder. We made payments on capital lease obligations of $1.5 million and received $0.5 million from the exercise of employee stock options.

      As of September 30, 2001, our most significant commitments consisted of obligations under non-cancelable operating leases for office space and equipment. We have commitments of approximately $7.3 million that are payable through 2005, $0.7 million of which are payable in 2001.

      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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

      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 September 30, 2001, we had cash and cash equivalents of $44.5 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 and nine-month periods ended September 30, 2001 by less than $130,000 and $432,000 respectively, resulting in no significant impact on our consolidated financial position, results of operations or cash flows.

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PART II. — OTHER INFORMATION

Item 1.  Legal Proceedings

      In November 2001, a shareholder class action lawsuit was filed against the Company, certain of its current officers and a director, and several investment banks that were the underwriters of the Company’s initial public offering (the “Underwriters”): Highstein v. Telecommunication Systems, Inc., Maurice B. Tosé, Thomas M. Brandt, Jr., et al., United States District Court for the Southern District of New York Civil Action No. 01-CV-9500. Plaintiffs seek an unspecified amount of damages. The lawsuit purports to be a class action suit filed on behalf of purchasers of common stock of the Company during the period August 8, 2000 through December 6, 2000. The plaintiffs allege that the Underwriters agreed to allocate common stock offered for sale in the Company’s initial public offering to certain purchasers in exchange for excessive and undisclosed commissions and agreements by those purchases to make additional purchases of common stock in the aftermarket at pre-determined prices. The plaintiffs allege violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The Company intends to vigorously defend the lawsuit. The Company believes that more than 180 other companies have been named in nearly identical lawsuits that have been filed by some of the same law firms that represent the plaintiffs in the lawsuit against the Company.

      We are not currently subject to any other 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.

Item 2.  Change in Securities and Use of Proceeds

      From August 7, 2000, the effective date of the Company’s Registration Statement on Form S-1, to September 30, 2001, the Company’s use of net offering proceeds was as follows:

		(000s)
Net offering proceeds to issuer		$	83,190
Use of proceeds:
	Acquisitions		3,029
	Property and equipment		3,814
	Working capital		21,078
	Repayment of indebtedness		10,738
Temporary investments:
	Cash and cash equivalents		44,531
		$	83,190

Item 3.  Defaults Upon Senior Securities

      None

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

      None

Item 5.  Other Information

      None

20

Item 6.  Exhibits and Reports on Form 8-K

      a.  Exhibits:

Exhibit No.		Exhibit
	10.35	Promissory Note by and between the Company and Maurice B. Tosé for $2,500,000 dated August 29, 2001.
	10.36	Promissory Note by and between the Company and Richard A. Young for $153,035 dated October 29, 2001.‡
	10.37	Promissory Note by and between the Company and Timothy J. Lorello for $457,939 dated October 29, 2001.‡
	10.38	Optionee Agreement dated November 4, 2001 by and between the Company and Richard A. Young.‡
	10.39	Optionee Agreement dated November 2, 2001 by and between the Company and Thomas M. Brandt, Jr.‡
	10.40	Optionee Agreement dated October 24, 2001 by and between the Company and Drew A. Morin.‡
	10.41	Employment Agreement dated February 1, 2001 by and between the Company and Richard A. Young.‡
	10.42	Employment Agreement dated February 1, 2001 by and between the Company and Thomas M. Brandt, Jr.‡
	10.43	Employment Agreement dated February 1, 2001 by and between the Company and Drew A. Morin.‡
	10.44	Employment Agreement dated February 1, 2001 by and between the Company and Timothy J. Lorello.‡

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

      b.  Reports on Form 8-K: None.

21

SIGNATURES

      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 14th day of November, 2001.

TELECOMMUNICATION SYSTEMS, INC.

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.

/s/ RICHARD A. YOUNG Richard A. Young	Executive Vice-President and Chief Operating Officer	November 14, 2001
/s/ THOMAS M. BRANDT, JR. Thomas M. Brandt, Jr.	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	November 14, 2001

22 EX-10.35 3 w54922ex10-35.htm PROMISSORY NOTE

EXHIBIT 10.35

PROMISSORY NOTE

$2,500,000.00 August 29, 2001

     FOR VALUE RECEIVED, MAURICE B. TOSÉ (referred to herein as “Borrower”), having a residence and mailing address of 1299 Magnolia Ave., Annapolis, MD 21403, 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 “Lender,” which term shall also include any subsequent holder of this Note), having a mailing address of 275 West Street, Annapolis, Maryland 21401, the principal sum of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00), 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 Seven and fifty hundredths percent (7.50%) per annum.

     2.     Principal and Interest Payment. 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 August 29, 2002 (the “Loan Maturity Date”). Borrower acknowledges that Lender has no obligation to extend the Loan Maturity Date and that Lender has no obligation to refinance the loan evidenced by this Note.

     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 Lender. 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. Borrower shall be privileged to prepay this Note in whole or in part at any time without penalty or premium.

     5.     Collateral. This Note is secured by that certain Pledge Agreement dated August 29, 2001 made by Borrower in favor of Lender (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) pursuant to which Borrower has pledged to Lender, and granted to Lender a security interest in three million (3,000,000) shares of Class B common stock of Lender now owned by Borrower and any other Additional Collateral (as defined in the Pledge Agreement) required by the terms of the Pledge Agreement, to be pledged to the Lender in the future.

     6.     Default; Acceleration. The occurrence of any of the following events shall be an “Event of Default” under this Note and the Pledge Agreement:

- 1 -

(a)	If Borrower shall fail to make the payment of principal or interest under this Note when due; or
(b)	If Borrower shall fail to make any other payment, or fail to perform any other obligation of Borrower, 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 Lender gives Borrower written notice thereof; or
(c)	If any representation or warranty made by Borrower to Lender in the Pledge Agreement, or in any other document made by Borrower connection with this Note, shall have been false, inaccurate, incomplete in any material respect, when made, or shall have been breached; or
(d)	If there shall be filed by or against Borrower 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 Borrower; or
(f)	If Borrower shall cease to be employed by Lender for any reason, including, without limitation, Borrower’s death or the voluntary or involuntary termination of Borrower’s employment.

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 Lender and in Lender’s discretion, become immediately due and payable. Upon the occurrence of an Event of Default, Lender shall also have Lender’s rights and remedies available under the Pledge Agreement and any other rights or remedies available at law or equity.

     7.     Collection Costs. If Borrower shall default in payment of this Note, or under the Pledge Agreement which secures this Note, and Lender refers this Note to an attorney who is not a salaried employee of Lender for collection, Lender may charge and collect from Borrower reasonable attorneys fees and all court costs and other collection costs actually incurred by Lender relating to Borrower’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)

- 2 -

business day after delivery to an overnight delivery service, or three (3) business 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 Borrower, in fact received by Borrower, shall be sufficient notice or demand.

     9.     Certain Waivers. As to this Note, Borrower waives, to the fullest extent that Borrower 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 Borrower.

     10.     Preservation of Lender’s Rights. No failure on the part of Lender 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 by this Note by reason of any Event of Default, 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 Lender may have, whether by the laws of the State of Maryland, by agreement, or otherwise. Borrower 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 preceding sentences of this Section.

     11.     Captions. Section headings and captions in this Note are for convenience only and shall not affect the construction or interpretation of this Note.

     12.     Amendments. 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.

     13.     Severability. 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.

     14.     Maryland Law. This Note shall be governed by the laws of the State of Maryland (excluding Maryland conflicts of laws rules).

     15.     Jurisdiction; Venue. Borrower hereby irrevocably consents to the non-exclusive personal jurisdiction of the courts of the State of Maryland and, if a basis for federal

- 3 -

jurisdiction exists, the non-exclusive jurisdiction of the United States District Court for the District of Maryland. Borrower agrees that venue shall be proper in any circuit court of the State of Maryland selected by Lender or, if a basis for federal jurisdiction exists, in any Division of the United States District Court for the District of Maryland. Borrower 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 Borrower against Lender 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. Borrower shall not file any counterclaim against Lender in any suit or claim brought by Lender against Borrower in a jurisdiction outside of the State of Maryland unless under the rules of the court in which Lender 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 Lender against Borrower. Borrower agrees that any forum outside the State of Maryland is an inconvenient forum and that a suit brought by Borrower against Lender in any court outside the State of Maryland should be dismissed or transferred to a court located in the State of Maryland. Nothing in this Note shall affect the right of Lender to commence legal proceedings or to otherwise proceed against Borrower in any jurisdiction.

     IN WITNESS WHEREOF, and intending to be legally bound hereby Borrower executes this Note under seal as of the date first written above.

WITNESS:

/s/ Bruce A. White
/s/ Maurice B. Tosé                            (SEAL)
Maurice B. Tosé

- 4 - EX-10.36 4 w54922ex10-36.htm PROMISSORY NOTE

EXHIBIT 10.36

AMENDED AND RESTATED

PROMISSORY NOTE

$153,035 October 29, 2001

     WHEREAS, Richard A. Young (referred to herein as “Borrower”), having a residence and mailing address of 219 Winchester Brach Dr., Annapolis, MD 21401, executed and delivered a certain Employee Loan Promissory Note dated April 12, 2001 (the “First Note”) in the original principal amount of One Hundred Thousand Dollars ($100,000.00) and a certain Pledge Agreement dated April 12, 2001 (the “First Pledge Agreement”) (collectively, the First Note and the First Pledge Agreement, the “April Loan Documents”) for the benefit of TeleCommunication Systems, Inc., a corporation organized and validly existing under the laws of the State of Maryland (the “Lender”), having a mailing address of 275 West Street, Annapolis, Maryland 21401; and

     WHEREAS, the outstanding and unpaid principal plus interest balance on the First Note as of the date hereof is One Hundred Three Thousand Two Hundred Fifty Dollars ($103,250); and

     WHEREAS, the Borrower executed and delivered a certain Employee Loan Promissory Note dated July 16, 2001 (the “Second Note”) in the original principal amount of One Hundred Seven Thousand Eight Hundred Ninety-Six and 61/100 Dollars ($107,896.61) and a certain Pledge Agreement dated July 16, 2001 (the “Second Pledge Agreement”) (collectively, the Second Note and the Second Pledge Agreement, the “July Loan Documents”) for the benefit of the Lender; and

     WHEREAS, the outstanding and unpaid principal plus interest balance on the Second Note as of the date hereof is One Hundred Nine Thousand Seven Hundred Eighty-five Dollars ($109,785); and

     WHEREAS, the Parties have agreed to amend, restate and consolidate the April Loan Documents and the July Loan Documents to, among other things, revise the Pledged Collateral (as that term is defined in the First Pledge Agreement and the Second Pledge Agreement,) and the Interest Rate (as that term is defined in the First Note and the Second Note); and

     WHEREAS, each of the Lender and the Borrower consents and accepts the terms of the amendment, restatement and consolidation of the April Loan Documents and the July Loan Documents as set forth herein and in the Amended and Restated Pledge Agreement made by the Borrower and the Lender dated the same date as this Note, each such party’s written consent to such amendment, restatement and consolidation being evidenced by its signature hereon;

-1-

     FOR VALUE RECEIVED, the Borrower promises to pay to the order of the Lender (which term shall also include any subsequent holder of this Note), the principal sum of One Hundred Fifty-three Thousand Thirty-five ($153,035), 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 and a half percent (6.50%) per annum.

     2.     Principal and Interest Payment. Borrower shall pay to Lender two (2) installment payments of principal and interest on this Note in the amounts as follows:

March 31, 2002:	$81,491	Eighty-one thousand four hundred ninety-one Dollars
September 30, 2002	$79,004	Seventy-nine thousand four 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 September 30, 2002 (the “Loan Maturity Date”). Borrower acknowledges that Lender has no obligation to extend the Loan Maturity Date and that Lender has no obligation to refinance the loan evidenced by this Note.

     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 Lender. 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. Borrower shall be privileged to prepay this Note in whole or in part at any time without penalty or premium.

     5.     Collateral. This Note is secured by that certain Pledge Agreement dated October 29, 2001 made by Borrower in favor of Lender (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) pursuant to which Borrower has pledged to Lender, and granted to Lender a security interest in Ninety-two thousand one hundred ninety-six (92,196) shares of Class A common stock of Lender now owned by Borrower and options to purchase 43,151 shares of the Class A Common Stock of Payee granted to the Maker on October 1, 1997 and July 29, 1998, and any other Additional Collateral (as defined in the Pledge Agreement) required, by the terms of the Pledge Agreement, to be pledged to the Lender in the future.

     6.     Default; Acceleration. The occurrence of any of the following events shall be an “Event of Default” under this Note and the Pledge Agreement:

-2-

(a)	If Borrower shall fail to make the payment of principal or interest under this Note when due; or
(b)	If Borrower shall fail to make any other payment, or fail to perform any other obligation of Borrower, 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 Lender gives Borrower written notice thereof; or
(c)	If any representation or warranty made by Borrower to Lender in the Pledge Agreement, or in any other document made by Borrower connection with this Note, shall have been false, inaccurate, incomplete in any material respect, when made, or shall have been breached; or
(d)	If there shall be filed by or against Borrower 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 Borrower; or
(f)	If Borrower shall cease to be employed by Lender for any reason, including, without limitation, Borrower’s death or the voluntary or involuntary termination of Borrower’s employment.

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 Lender and in Lender’s discretion, become immediately due and payable. Upon the occurrence of an Event of Default, Lender shall also have Lender’s rights and remedies available under the Pledge Agreement and any other rights or remedies available at law or equity.

     7.     Collection Costs. If Borrower shall default in payment of this Note, or under the Pledge Agreement which secures this Note, and Lender refers this Note to an attorney who is not a salaried employee of Lender for collection, Lender may charge and collect from Borrower reasonable attorneys fees and all court costs and other collection costs actually incurred by Lender relating to Borrower’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

-3-

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 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 Borrower, in fact received by Borrower, shall be sufficient notice or demand.

     9.     Certain Waivers. As to this Note, Borrower waives, to the fullest extent that Borrower 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 Borrower.

     10.     Preservation of Lender’s Rights. No failure on the part of Lender 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 by this Note by reason of any Event of Default, 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 Lender may have, whether by the laws of the State of Maryland, by agreement, or otherwise. Borrower 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 preceding sentences of this Section.

     11.     Captions. Section headings and captions in this Note are for convenience only and shall not affect the construction or interpretation of this Note.

     12.     Amendments. 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.

     13.     Severability. 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.

     14. Maryland Law. This Note shall be governed by the laws of the State of Maryland (excluding Maryland conflicts of laws rules).

-4-

     15.     Jurisdiction; Venue. Borrower 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. Borrower agrees that venue shall be proper in any circuit court of the State of Maryland selected by Lender or, if a basis for federal jurisdiction exists, in any Division of the United States District Court for the District of Maryland. Borrower 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 Borrower against Lender 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. Borrower shall not file any counterclaim against Lender in any suit or claim brought by Lender against Borrower in a jurisdiction outside of the State of Maryland unless under the rules of the court in which Lender 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 Lender against Borrower. Borrower agrees that any forum outside the State of Maryland is an inconvenient forum and that a suit brought by Borrower against Lender in any court outside the State of Maryland should be dismissed or transferred to a court located in the State of Maryland. Nothing in this Note shall affect the right of Lender to commence legal proceedings or to otherwise proceed against Borrower in any jurisdiction.

     16.     This Promissory Note is issued in substitution and replacement for, but not in payment of, that certain First Note and the Second Note, both from the Borrower to the Lender.

[Remainder of the page left bank intentionally]

-5-

     IN WITNESS WHEREOF, and intending to be legally bound hereby Borrower executes this Amended and Restated Note under seal as of the date first written above.

WITNESS:
/s/ Bruce A. White	/s/ Richard A. Young               (SEAL) Richard A. Young
ACKNOWLEDGED:
	TELECOMMUNICATION SYSTEMS, INC.
	By: /s/ Thomas M. Brandt, Jr. Name: Thomas M. Brandt, Jr. Title: Sr. Vice President & CFO

-6- EX-10.37 5 w54922ex10-37.htm PROMISSORY NOTE

EXHIBIT 10.37

AMENDED AND RESTATED
PROMISSORY NOTE

$457,939 October 29, 2001

     WHEREAS, Timothy J. Lorello (referred to herein as “Borrower”), having a residence and mailing address of 1524 Sappington Drive, Gambrills, MD 21054, executed and delivered a certain Employee Loan Promissory Note dated August 27, 1999 (the “First Note”) in the original principal amount of One Hundred Twenty-five Thousand Dollars ($125,000.00) and a certain Pledge Agreement dated August 27, 1999 (the “First Pledge Agreement”) (collectively, the First Note and the First Pledge Agreement, the “August Loan Documents”) for the benefit of TeleCommunication Systems, Inc., a corporation organized and validly existing under the laws of the State of Maryland (the “Lender”), having a mailing address of 275 West Street, Annapolis, Maryland 21401; and

     WHEREAS, the outstanding and unpaid principal plus accrued interest balance on the First Note as of the date hereof is One Hundred Forty Thousand Two Hundred Thirty-three Dollars ($140,233); and

     WHEREAS, the Borrower executed and delivered a certain Employee Loan Promissory Note dated July 10, 2001 (the “Second Note”) in the original principal amount of Thirty-three Thousand Five Hundred Twenty-three Dollars ($33,523.00) and a certain Pledge Agreement dated July 10, 2001 (the “Second Pledge Agreement”) (collectively, the Second Note and the Second Pledge Agreement, the “July 10 Loan Documents”) for the benefit of the Lender; and

     WHEREAS, the outstanding and unpaid principal plus accrued interest balance on the Second Note as of the date hereof is Thirty-four Thousand One Hundred Ten Dollars ($34,110.00); and

WHEREAS, the Borrower executed and delivered a certain Employee Loan Promissory Note dated July 11, 2001 (the “Third Note”) in the original principal amount of Fifty-two Thousand Six Hundred Ninety-two Dollars ($52,692.00) and a certain Pledge Agreement dated July 11, 2001 (the “Third Pledge Agreement”) (collectively, the Third Note and the Third Pledge Agreement, the “July 11 Loan Documents”) for the benefit of the Lender; and

     WHEREAS, the outstanding and unpaid principal plus accrued interest balance on the Third Note as of the date hereof is Fifty-three Thousand Six Hundred Fourteen Dollars ($53,614.00); and

     WHEREAS, the Borrower borrowed from the Lender on July 16, 2001 (the “Fourth Advance”) the original principal amount of Two Hundred Twenty-six Thousand Twenty-seven Dollars ($226,027.00) and orally agreed to terms to repay the Fourth Advance, and on July 16, 2001 orally agreed to pledge certain collateral owned by the Borrower (the “Fourth Pledge Agreement”) (collectively, the Fourth Advance and the Fourth Pledge Agreement, the “July 16 Loan Agreements”) for the benefit of the Lender; and

-1-

     WHEREAS, the outstanding and unpaid principal plus accrued interest balance on the Fourth Advance as of the date hereof is Two Hundred Twenty-nine Thousand Nine Hundred Eighty-two Dollars ($229,982.00); and

     WHEREAS, the Parties have agreed to amend, restate and consolidate the August Loan Documents, the July 10 Loan Documents, the July 11 Loan Documents and the July 16 Loan Agreement to, among other things, revise the Pledged Collateral (as that term is defined in the First Pledge Agreement, the Second Pledge Agreement, the Third Pledge Agreement and the oral Fourth Pledge Agreement,) and the Interest Rate (as that term is defined in the First Note, the Second Note, the Third Note and the Fourth Advance); and

     WHEREAS, each of the Lender and the Borrower consents and accepts the terms of the amendment, restatement and consolidation of the August Loan Documents, the July 10 Loan Documents, the July 11 Loan Documents and the July 16 Loan Agreements as set forth herein and in the Amended and Restated Pledge Agreement made by the Borrower and the Lender dated the same date as this Note, each such party’s written consent to such amendment, restatement and consolidation being evidenced by its signature hereon;

     FOR VALUE RECEIVED, the Borrower promises to pay to the order of the Lender (which term shall also include any subsequent holder of this Note), the principal sum of Four Hundred Fifty-seven Thousand Nine Hundred Thirty-nine Dollars ($457,939), 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 and one-half percent (6.50%) per annum.

     2.     Principal and Interest Payment. Borrower shall pay to Lender two (2) installment payments of principal and interest on this Note in the amounts as follows:

March 31, 2002:	$243,853	Two hundred forty-three thousand eight hundred fifty-three Dollars
September 30, 2002	$236,411	Two hundred thirty-six thousand four hundred eleven 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 September 30, 2002 (the “Loan Maturity Date”). Borrower acknowledges that Lender has no obligation to extend the Loan Maturity Date and that Lender has no obligation to refinance the loan evidenced by this Note.

     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 Lender. Any payments by check shall be accepted subject to collection in immediately available funds.

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Payments shall be applied first to Collection Costs (herein defined), second to accrued interest, and third to principal of this Note.

     4.     Prepayment. Borrower shall be privileged to prepay this Note in whole or in part at any time without penalty or premium.

     5.     Collateral. This Note is secured by that certain Pledge Agreement dated October 29, 2001 made by Borrower in favor of Lender (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) pursuant to which Borrower has pledged to Lender, and granted to Lender a security interest in Two hundred seventy-five thousand (275,000) shares of Class A common stock of Lender now owned by Borrower and options to purchase 99,786 shares of the Class A Common Stock of Payee granted to the Maker on October 1, 1997 and July 29, 1998, and any other Additional Collateral (as defined in the Pledge Agreement) required, by the terms of the Pledge Agreement, to be pledged to the Lender in the future. The Borrower, however, shall remain personally liable for payment of this Note, and assets of the Borrower, in addition to the collateral under the Pledge Agreement, may be applied to the satisfaction of the Borrower’s obligations hereunder.

     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 Borrower shall fail to make the payment of principal or interest under this Note when due; or
(b)	If Borrower shall fail to make any other payment, or fail to perform any other obligation of Borrower, 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 Lender gives Borrower written notice thereof; or
(c)	If any representation or warranty made by Borrower to Lender in the Pledge Agreement, or in any other document made by Borrower connection with this Note, shall have been false, inaccurate, incomplete in any material respect, when made, or shall have been breached; or
(d)	If there shall be filed by or against Borrower 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 Borrower; or

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(f) If Borrower shall cease to be employed by Lender for any reason, including, without limitation, Borrower’s death or the voluntary or involuntary termination of Borrower’s employment.

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 Lender and in Lender’s discretion, become immediately due and payable. Upon the occurrence of an Event of Default, Lender shall also have Lender’s rights and remedies available under the Pledge Agreement and any other rights or remedies available at law or equity.

     7.     Collection Costs. If Borrower shall default in payment of this Note, or under the Pledge Agreement which secures this Note, and Lender refers this Note to an attorney who is not a salaried employee of Lender for collection, Lender may charge and collect from Borrower reasonable attorneys fees and all court costs and other collection costs actually incurred by Lender relating to Borrower’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 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 Borrower, in fact received by Borrower, shall be sufficient notice or demand.

     9.     Certain Waivers. As to this Note, Borrower waives, to the fullest extent that Borrower 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 Borrower.

     10.     Preservation of Lender’s Rights. No failure on the part of Lender 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 by this Note by reason of any Event of Default, 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

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Lender may have, whether by the laws of the State of Maryland, by agreement, or otherwise. Borrower 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 preceding sentences of this Section.

     11.     Captions. Section headings and captions in this Note are for convenience only and shall not affect the construction or interpretation of this Note.

     12.     Amendments. 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.

     13.     Severability. 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.

     14.     Maryland Law. This Note shall be governed by the laws of the State of Maryland (excluding Maryland conflicts of laws rules).

     15.     Jurisdiction; Venue. Borrower 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. Borrower agrees that venue shall be proper in any circuit court of the State of Maryland selected by Lender or, if a basis for federal jurisdiction exists, in any Division of the United States District Court for the District of Maryland. Borrower 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 Borrower against Lender 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. Borrower shall not file any counterclaim against Lender in any suit or claim brought by Lender against Borrower in a jurisdiction outside of the State of Maryland unless under the rules of the court in which Lender 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 Lender against Borrower. Borrower agrees that any forum outside the State of Maryland is an inconvenient forum and that a suit brought by Borrower against Lender in any court outside the State of Maryland should be dismissed or transferred to a court located in the State of Maryland. Nothing in this Note shall affect the right of Lender to commence legal proceedings or to otherwise proceed against Borrower in any jurisdiction.

     16.     This Promissory Note is issued in substitution and replacement for, but not in payment of, that certain

     (i) Second Amended and Restated Promissory Note dated February 28, 2001, and

     (ii) Employee Loan Promissory Note dated July 10, 2001, and

     (iii) Employee Loan Promissory Note dated July 11, 2001, and

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     (iv) Oral Loan Agreement of July 16, 2001 all being from the Borrower to TeleCommunication Systems, Inc.

[Signatures appear on the following page]

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IN WITNESS WHEREOF, and intending to be legally bound hereby Borrower executes this Note under seal as of the date first written above.

WITNESS:

 /s/Bruce A. White 
 /s/Timothy J. Lorello     (SEAL)
Timothy J. Lorello

ACKNOWLEDGED:

TELECOMMUNICATION SYSTEMS, INC

By:  /s/Thomas M. Brandt, Jr. 
Name:  Thomas M. Brandt, Jr. 
Title:  Sr. VP & CFO 

-7- EX-10.41 6 w54922ex10-41.htm EMPLOYMENT AGREEMENT

EXHIBIT 10.41

EMPLOYMENT AGREEMENT
between

TeleCommunication Systems, Inc.
and
Richard A. Young
(Employee Name)

THIS EMPLOYMENT AGREEMENT (“Agreement”), effective as February 1, 2001 (the “Effective Date”), between the individual signing as “Employee” at the end of this Agreement (hereinafter referred to as “Employee”), and TeleCommunication Systems, Inc. (hereinafter referred to as “Company”);

WHEREAS, Company desires to employ Employee, or to continue Employee’s employment, and Employee desires to be employed by Company on the terms and conditions hereinafter set forth;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Company agrees to employ Employee for the position of Executive Vice President & Chief Operating Officer. Employee shall perform such duties as the management of the Company may from time to time assign to him hereunder, including (without limitation) responsibility for the day-to-day activities in the Company including goal setting, performance monitoring, program management, personnel and fiscal management, strategic planning and quality control of all functions.

2. Duties and Responsibilities. Employee agrees to devote his or her full time and attention and his or her best efforts to performing his or her duties hereunder. While employed by the Company, Employee will not, without the Company’s prior written consent, engage in any other business activity, other than investment of Employee’s personal funds on a passive basis and without lending assistance directly to any competitor. Attachment A hereto is a complete list of Employee’s current other business activities to which the Company consents. In the event the Employee wishes to change the approved activities, then the Employee shall submit the requested change in writing to the Company. Any changes consented to by the Company shall be documented as a revised Attachment A and will become incorporated into the Agreement by reference. In no event shall Employee pursue outside business or personal interests that interfere with his or her full-time responsibilities or entail any use of the Company’s resources.

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3.     Compensation and Benefits.

3.1	Base Salary. During Employee’s employment under this Agreement, Company shall pay or cause to be paid to Employee a base salary at an annual rate of not less than $240,636, payable in cash in equal periodic installments not less frequent than the periodic installments in effect for salaries of Company employees of the same level as Employee (the “Base Salary”). The Base Salary shall be subject to increases pursuant to reviews by the Board of Directors, where applicable, or a committee appointed by the Board of Directors, at such times as salary reviews are conducted generally for Company employees of the same level as Employee, but in no event less frequent than annually.
3.2	Incentive Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in each bonus or incentive compensation plan, program or policy maintained by Company from time to time, in whole or in part, for employees of his level (“Bonus Plan”). Employee’s target and maximum compensation under, and his performance goals and other terms of participation in, each Bonus Plan shall be determined by Company or by such person or administrative body as provided in the Bonus Plan. Said incentive compensation is not guaranteed and is contingent upon Employee and Company achieving deliverables or goals agreed upon. Said incentive compensation shall not be considered “earned” by Employee until Company has allocated payment to be made to Employee for any performance period.
3.3	Incentive Stock Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in an incentive stock plan as may be maintained by Company from time to time, in whole or in part, for employees of his level. Employee’s awards under such plan shall be determined by the administrator of the plan, the vesting for which shall be accelerated in the event of a Change in Control as defined herein. The specific terms and conditions of these options shall be set out in a stock option agreement between Employee and Company.
	The grant of stock options shall not be construed to constitute or to be evidence of a commitment or guarantee to renew this Agreement or to employ or retain Employee for any period of time inconsistent with Sections 4 and 5 of this Agreement.
3.4	Benefits. During his employment under this Agreement, Employee shall be entitled to: (i) participation in such employee retirement and welfare benefit plans, programs, policies and arrangements as maintained by Company from time to time, in whole or in part, for employees of his level, including but not limited to Company’s employee stock ownership plan, and its health, disability, life insurance and sickness and accident insurance plans; and

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	(ii) paid vacation, holidays, leave of absence, leave for illness, funeral leave and temporary disability leave in accordance with the policies of Company; and (iii) perquisites as from time to time provided by Company to employees of his level.
3.4	Expenses. During Employee’s employment under this Agreement, Company shall reimburse Employee for ordinary and reasonable out-of-pocket expenses incurred by him in the performance of his duties hereunder, provided that Employee shall account to Company for such expenses in accordance with the employee business expense policies and practices of Company.
3.5	Effect of Termination. Upon termination of employment for any reason, Employee shall no longer be entitled to participation in any Benefits programs, including the period when severance is payable under the Agreement.

4.     Term of Employment. The term of Employee’s employment (the “Term”) shall commence on the effective date of this Agreement and continue through January 31, 2002 for the initial term, unless sooner terminated as provided herein. Upon expiration of the initial term, the term of Employee’s employment shall automatically renew on February 1^st for successive 12-month renewal periods, unless and until terminated as provided herein.

5.     Termination of Employment.

5.1 Dismissal without Good Cause and Resignation for Good Reason.

5.1.1	Dismissal without Good Cause. Company may terminate Employee’s employment under this Agreement without Good Cause (as defined in Section 5.1.4) at any time by giving notice thereof to Employee at least 30 days before the effective date of such termination. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.2	Resignation for Good Reason. Employee may terminate his employment under this Agreement for Good Reason (as defined in Section 5.1.5) at any time by written notice thereof to Company at least 30 days before the effective date of such termination. Such notice shall specify in reasonable detail the Good Reason based upon which Employee intends to terminate his employment. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.3	Severance Pay upon Dismissal without Good Cause or Resignation for Good Reason. If Employee’s employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason, Employee shall be entitled to the sum of the following, payable

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in equal periodic installments the same as Base Salary was received during the term of Employee’s employment as provided in Section 3.1 herein:

(i)

Base Salary, at the rate in effect immediately before the date of termination, for the greater of (A) the period from the day after his last day of employment hereunder through the last day of the Term of this Agreement, or (B) six months; and

(ii)

The amount “earned” by Employee under the annual Bonus Plan if at the time of termination Company has allocated payment to be made to Employee under the terms of the Bonus Plan for any performance period. Employee will not be eligible to receive payment under the Bonus Plan for any performance period if he is terminated prior to a decision by Company as to the payment due to Employee, if any, under the terms of the Bonus Plan. If no such decision by Company is made or necessary, Employee will not be eligible to receive any payments under the Bonus Plan if he is not employed at the time bonus payments are made to employees.

5.1.4 Definition of “Good Cause.” “Good Cause” means:

(A)	Employee’s willful gross misconduct, willful gross neglect, willful malfeasance or gross negligence in carrying out his duties hereunder, or willful breach of this Agreement (other than an inadvertent and nonrecurring breach cured and corrected by Employee within 30 days after notice thereof by Company). Under this provision, “willful breach” shall include, but not be limited to, insubordination, serious dereliction of fiduciary obligation, chronic abuse by Employee of alcohol or narcotics, a violation of any material Company rule, regulation or policy, or a serious violation of any law governing the workplace. It is provided further that, no act or failure to act shall be considered “willful” if Employee reasonably believed in good faith that such act or failure to act was in, or not opposed to, the best interest of Company and its affiliates;
(B)	Any act or conduct of dishonesty to Company by Employee involving fraud and embezzlement; or
(C)	Employee’s conviction, including a plea of guilty or nolo contendere, of a felony involving theft or moral turpitude, other than a felony predicated on Employee’s vicarious liability (for purposes of this Agreement, “vicarious liability” means Employee’s liability based on acts of Company for which Employee is charged solely as a result of his offices with Company and in which he was not directly involved or did not have prior knowledge of such acts)

5.1.5 Definition of “Good Reason.” “Good Reason” means any of the

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following if not cured and corrected by Company within 30 days after notice thereof by Employee to Company under Section 5.1.2:

(A)	Any change in Employee’s title or position that constitutes a material diminution in authority as compared to the authority of his title or position as of the Effective Date, or any substantial diminution in Employee’s duties and responsibilities (other than a change due to Employee’s Disability), provided that no diminution of title, position, duties or responsibilities shall be deemed to occur solely because Company becomes a subsidiary of another corporation or because there has been a change in the reporting hierarchy incident thereto involving Employee;
(B)	Any requirement by Company that Employee involuntarily physically relocate from Employee’s current work location to another work location more than 75 miles away; or
(C)	Any material breach by Company of its obligations under this Agreement.

5.2 Dismissal for Good Cause, Resignation without Good Reason and Termination upon Death or Disability.

5.2.1	Dismissal for Good Cause. Company may terminate Employee’s employment under this Agreement for Good Cause by (i) giving notice thereof to Employee specifying in reasonable detail the Good Cause based upon which Company intends to terminate his employment; (ii) if Good Cause exists under 5.1.4(A) only, after at least 30 days after such notice, providing Employee an opportunity to be heard at a meeting with the CEO and the Board of Directors; and (iii) thereafter, effectuating such termination by a majority vote of the Board of Directors. For Good Cause terminations under Sections 5.1.4(B) & (C), Company may terminate Employee’s employment immediately under this Agreement upon notice thereof to Employee. The effect of such termination is provided in Section 5.2.4.
5.2.2	Resignation without Good Reason. Employee may terminate his employment hereunder at any time without Good Reason by notice thereof to Company at least 30 days before the effective date of such termination. The effect of such termination is provided in Section 5.2.4.
5.2.3	Termination upon Death or Disability. This Agreement shall terminate automatically upon Employee’s death. If Company determines in good faith that Employee has a Disability as defined in this Section, Company may terminate his employment under this Agreement by notifying Employee thereof at least 30 days before the effective date of termination. For purposes of this Agreement, “Disability” means any medically determinable physical or mental impairment which can be

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expected to result in death or which has lasted or can be expected to last for a continuous period of not less than six months and which renders Employee unable to perform his material duties under this Agreement. If there is any dispute between the parties as to Employee’s Disability, Company shall select or approve a physician whose determination as to Employee’s Disability shall bind the parties hereto. The effect of a termination due to Employee’s death or Disability is provided in Section 5.2.4.

5.2.4

Effect of Dismissal for Good Cause, Resignation without Good Reason, or Termination upon Death or Disability. If Employee’s employment under this Agreement is terminated by Company for Good Cause, by Employee without Good Reason, or due to Employee’s death or Disability as provided in this Agreement, all obligations of Company under this Agreement shall terminate, except as provided in Section 5.6.

5.3

Termination by Mutual Consent. Company and Employee may terminate Employee’s employment under this Agreement at any time and for any reason upon the mutual consent of both parties, effective as of such date as agreed upon by the parties. Upon such termination, except as provided in Section 5.6 or as agreed to by the parties in connection with their mutual consent to terminate Employee’s employment, all obligations of Company hereunder shall terminate.

5.4

Termination after a Change in Control.

5.4.1	Termination Events Triggering Compensation. Company shall pay or cause to be paid to Employee such compensation as provided in Section 5.4.2, if his employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason within 12 months after a Change in Control (as defined in Section 5.4.3)
5.4.2	Compensation upon Termination. If Employee’s employment hereunder is terminated as provided in Section 5.4.1, Company shall pay or cause to be paid to Employee the following in a cash lump sum within 30 days after the date of termination, one times the annual Base Salary at the greater of (A) the rate in effect immediately before the date of termination or (B) the rate in effect immediately before the Change in Control.
5.4.3	Definition of “Change in Control.” A “Change in Control” means:

(i)	A sale of all or substantially all of the assets of Company;
(ii)	An acquisition by any “person” or “group” of persons (within the meaning of such terms as used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than Company, its subsidiaries, any employee benefit

Page 6 of 16

	plan of Company, or an underwriter temporarily holding securities pursuant to an offering of such securities) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the total voting power represented by Company’s outstanding voting securities;
(iii)	A dissolution or liquidation of Company; or
(iv)	Any merger, consolidation or reorganization involving Company immediately after which either (A) a majority of the directors of the surviving entity is not comprised of persons who were directors of Company immediately prior to such transaction or (B) persons who hold more than a majority of the total voting power represented by outstanding voting securities of the surviving entity are not persons who held outstanding voting securities of Company immediately prior to such transaction.

5.5	Duplication of Severance Pay. Employee is entitled to receive the payment under both Section 5.1 and Section 5.4. Employee hereby irrevocably waives the right to receive benefits under any severance or similar plan or policy of Company if Employee is entitled to receive a payment under Section 5.1 and/or 5.4, provided that if the value of such benefits exceeds the amount payable to such Employee under Section 5.1 and/or 5.4, Employee may elect to receive such benefits in lieu of the payment under Section 5.1 and/or 5.4.
5.6	Payment of Base Salary upon Termination. Upon a termination of Employee’s employment under this Agreement for any reason, Company shall pay or cause to be paid to Employee the increment of Base Salary earned but unpaid in the payroll period immediately preceding the date of termination, payable in cash on or before the day on which Employee would have been paid such amount if his employment hereunder had not been terminated, but in no event later than the date as required by law.
5.7	No Duty to Mitigate. Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Employee obtains other employment.

6.     Ownership of Work Product.

6.1	The Company shall own all Work Product (as defined below). To the extent permitted by law, All Work Product shall be considered work made for hire by Employee and owned by the Company.
6.2	If any of the Work Product may not, by operation of law, be considered work made for hire by Employee for the Company (or if ownership of all right, title

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	and interest of the intellectual property rights therein shall not otherwise vest exclusively in the Company), Employee agrees to assign, and upon creation thereof automatically assigns, without further consideration, the ownership of all Trade Secrets (as defined below), U.S. and international copyrights, patentable inventions, and other intellectual property rights therein to the Company, its successors and assigns.
6.3	The Company, it successors and assigns, shall have the right to obtain and hold in its or their own name copyrights, registrations, and any other protection available in the foregoing.
6.4	Employee agrees to perform upon the reasonable request of the Company, during or after Employee’s employment, such further acts as may be necessary or desirable to transfer, perfect and defend the Company’s ownership of the Work Product. When requested, Employee will

(i)	Execute, acknowledge and deliver any requested affidavits and documents of assignment and conveyance;
(ii)	Obtain and aid in the enforcement of copyrights (and, if applicable, patents) with respect to the Work Product in any countries;
(iii)	Provide testimony in connection with any proceeding affecting the right, title or interest of the Company in any Work Product; and
(iv)	Perform any other acts deemed necessary or desirable to carry out the purposes of this Agreement.

The Company shall reimburse all reasonable out-of-pocket expenses incurred by Employee at the Company’s request in connection with the foregoing, including (unless Employee is otherwise being compensated at the time) a reasonable per diem or hourly fee for services rendered following termination of Employee’s employment.

6.5

For purposes hereof, “Work Product” shall mean all intellectual property rights, including all Trade Secrets, U.S. and international copyrights, patentable inventions, discoveries and improvements, and other intellectual property rights, in any programming, documentation, technology or other work product that relates to the business and interests of the Company and that Employee conceives, develops, or delivers to the Company at any time during the term of Employee’s employment. “Work Product” shall also include all intellectual property rights in any programming, documentation, technology or other work

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product that is now contained in any of the products or systems (including development and support systems) of the Company to the extent Employee conceived, developed or delivered such Work Product to the Company prior to the date of this Agreement while Employee was engaged as an independent contractor or employee of the Company. Employee hereby irrevocably relinquishes for the benefit of the Company and its assigns any moral rights in the Work Product recognized by applicable law.

7.     Restrictive Covenants.

7.1	Competition. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, the greater of (I) any period of time in which Employee continues to receive compensation of any kind from Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, employee shall not: (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of a Competitor (as defined in Section 7.5); (ii) become a director, officer, employee, consultant or lender of, or be compensated by, a Competitor; or (iii) solicit any client of Company on behalf of or for the benefit of a Competitor. Notwithstanding the foregoing, Employee may own up to 1% of a publicly-traded Competitor.
7.2	Confidential Information. Employee shall at all times hold in a fiduciary capacity for the benefit of Company all secret, confidential or proprietary information, knowledge or data relating to Company, and all of its businesses, which shall have been obtained by Employee during his employment by Company and which shall not be or become public knowledge (other than by acts by Employee or his representatives in violation of this Agreement) including, but not limited to, information regarding clients and agents of Company (“Confidential Information”). During Employee’s employment with Company under this Agreement and after the termination of such employment, Employee shall not, without the prior written consent of Company, communicate or divulge any Confidential Information to any Person other than Company and those designated by it or use any Confidential Information except for the benefit of Company, provided that Employee may make disclosures to comply with the law or legal process. Immediately upon termination of Employee’s employment with Company at any time and for any reason, Employee shall return to Company all Confidential Information, including, but not limited to, any and all copies, reproductions, notes or extracts of Confidential Information.
7.3	Solicitation of Employees. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, for the greater of (I) any period of time in

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	which Employee continues to receive compensation of any kind from Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, Employee shall not: (i) solicit, participate in or promote the solicitation of any person who was employed by Company at any time during the three-month period prior to Employee’s termination of employment under this Agreement to leave the employ of Company; or (ii) on behalf of himself or any other Person, hire, employ or engage any such person. Employee further agrees that, during such time, if an employee of Company contacts Employee about prospective employment, Employee will inform such employee that he cannot discuss the matter further without informing Company.
7.4	Remedies for Breach. Employee agrees that damages in the event of any breach of Sections 7.1 through 7.3 by Employee would be difficult to ascertain. Employee therefore agrees that, notwithstanding anything in this Agreement to the contrary, including but not limited to the provisions of Section 14, Company, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. Employee hereby waives any and all defenses he may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. Employee also agrees that a bond shall not be required by Employer in obtaining an injunction. The existence of this right shall not preclude any other rights and remedies at law or in equity that Company may have. The provisions of Section 7 shall survive termination of this Agreement. The existence of a claim or cause of action of any kind by Employee against Company shall not constitute a defense to the enforcement by Company of the rights provided in this Section 7 and shall not be a defense to any injunction proceeding.
7.5	Definitions.

7.5.1	“Competitor.” For purposes of Section 7, “Competitor” means any Person which sells goods or provides services which are directly competitive with those sold or provided by a business that (i) is being conducted by Company at the relevant time and (ii) was being conducted by Company at any time during the Term of this Agreement.
7.5.2	“Company.” For purposes of Section 7, “Company” means TeleCommunication Systems, Inc., and its subsidiaries and affiliates.
7.5.3	“Person.” For purposes of Section 7, “Person” means any individual or entity, including but not limited to any corporation, trust, sole proprietorship, joint venture or partnership.

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7.6 Survival of Section 7. Employee agrees that the non-competition agreements, nondisclosure agreements and non-employment agreements in this Section 7 each constitute separate agreements independently supported by good and adequate consideration and, notwithstanding anything in this Agreement to the contrary, shall be severable from the other provisions of, and shall survive, this Agreement.

8. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Employee at the last address he has filed in writing with Company or, in the case of Company, to Company’s principal employee offices.

9.     Taxes.

9.1	Withholding Taxes. Company shall have the right, to the extent permitted by law, to withhold from any payment of any kind due to Employee under this Agreement to satisfy the tax withholding obligations of Company under applicable law.
9.2	Adjustment relating to Tax on Excess Parachute Payments.

9.2.1. Adjustment. Notwithstanding anything in this Agreement to the contrary, in the event the Company’s Law or Accounting Firm (as defined in Section 9.2.2) determines that any portion of the cash compensation payable under this Agreement (such portion of compensation, the “Agreement Payment”), and the portions, if any, of other payments or distributions in the nature of compensation by Company to or for the benefit of Employee (including, but not limited to, the value of the acceleration in vesting or exercisability of stock options) whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (the Agreement Payment, together with such portions of other payments and distributions, the “Payments”), would cause any portion of the Payments to be subject to the excise tax imposed by section 4999, or any successor provision, of the Internal Revenue Code of 1986, as amended (the “Code”) (the portion subject to excise tax, the “Parachute Payment”), the Agreement Payment shall be reduced to an amount not less than zero which shall not cause any portion of the Payments to constitute a Parachute Payment, provided that no such reduction shall be made if the Payments, after the reduction and after the application of Federal income tax at the highest rate applicable to individual taxpayers, would not be greater than the present value (determined in accordance with section 280G, or any successor provision, of the Code) of the Payments before the reduction but after the application of (i) excise tax under section 4999 of the Code and (ii) Federal income tax at the highest rate applicable to individual taxpayers.

9.2.2 Determination. All determinations required to be made under this Section 9.2, including the assumptions to be utilized in arriving at such

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determination, shall be made by such nationally recognized law firm (including Piper Marbury Rudnick & Wolfe L.L.P.) or accounting firm (including Ernst & Young LP) as selected by Company (the “Law or Accounting Firm”), which shall provide detailed supporting calculations to both Company and Employee (i) within 15 business days after receipt by Company of a notice from Employee that he may have a Parachute Payment, or (ii) at such earlier time as may be requested by Company. The Law or Accounting Firm may employ and rely upon the opinions of actuarial or accounting professionals to the extent it deems necessary or advisable. In the event that the Law or Accounting Firm determines, for any reason, that it is unable to perform such services, or declines to do so, Company shall select another nationally recognized law or accounting firm to make the determinations required under this Section (which law or accounting firm shall then be referred to as the Law or Accounting Firm hereunder). All fees and expenses of the Law or Accounting Firm shall be borne solely by Company. Any determination by the Law or Accounting Firm shall be binding upon Company and Employee.

10.	Successors and Assigns. The rights, duties and obligations of a party hereunder may not be assigned, delegated or assumed without the prior written consent of the other party, provided that Company may assign this Agreement to any subsidiary thereof, without Employee’s consent, and such assignment shall not constitute, a termination of his employment hereunder. Nothing herein shall cause a termination of this Agreement upon the acquisition, reorganization, or merger of Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors or permitted assigns. Nothing herein shall be construed to confer upon any person not a party hereto any right, remedy or claim under or by reason of this Agreement.
11.	Entire Agreement. This Agreement constitutes the entire understanding of Employee and Company with respect to the subject matter hereof and supersedes and voids any and all prior agreements or understandings, written or oral, regarding the subject matter hereof.
12.	Amendment and Waiver. This Agreement may not be changed, modified or discharged orally, but only by an instrument in writing signed by the parties. No waiver of any term or condition of this Agreement shall be effective unless agreed to in writing between the parties.
13.	Governing Law and Severability. This Agreement shall be governed by the laws of the State of Maryland (without giving effect to choice of law principles or rules thereof that would cause the application of the laws of any jurisdiction other than the State of Maryland) and the invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction

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shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.

Arbitration. DISPUTES REGARDING EMPLOYEE’S EMPLOYMENT WITH COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN COMPANY AND EMPLOYEE, BUT EXCLUDING ANY DISPUTES REGARDING EMPLOYEE’S COMPLIANCE WITH SECTION 7, SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE, INC.’S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF MARYLAND WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS AGREEMENT; IN ALL OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN COMPANY’S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN EFFECT FROM TIME TO TIME (IF ANY). ARBITRATION SHALL BE HELD IN BALTIMORE, MARYLAND, OR SUCH OTHER PLACE AS THE PARTIES MAY MUTUALLY AGREE, AND SHALL BE CONDUCTED ONLY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A WHITE	By: /s/ MAURICE B. TOSE
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ RICHARD A. YOUNG
	Richard A. Young

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ATTACHMENT A TO EMPLOYMENT AGREEMENT

Employee:Richard A. Young
Agreement dated: February 1, 2001

In accordance with paragraph 2 of the Employment Agreement, the Company hereby consents to the following other business activities:

[describe]

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A WHITE	By: /s/ MAURICE B. TOSE
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ RICHARD A. YOUNG
	Richard A. Young

Page 15 of 16 EX-10.42 7 w54922ex10-42.htm EMPLOYMENT AGREEMENT

EXHIBIT 10.42

EMPLOYMENT AGREEMENT
between

TeleCommunication Systems, Inc.
and
Thomas M. Brandt, Jr.
(Employee Name)

THIS EMPLOYMENT AGREEMENT (“Agreement”), effective as February 1, 2001 (the “Effective Date”), between the individual signing as “Employee” at the end of this Agreement (hereinafter referred to as “Employee”), and TeleCommunication Systems, Inc. (hereinafter referred to as “Company”);

WHEREAS, Company desires to employ Employee, or to continue Employee’s employment, and Employee desires to be employed by Company on the terms and conditions hereinafter set forth;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Company agrees to employ Employee for the position of Senior Vice President & Chief Financial Officer. Employee shall perform such duties as the management of the Company may from time to time assign to him hereunder, including (without limitation) responsibility for the Company's financial management, reporting, controls, accounting, and investor relations.

2. Duties and Responsibilities. Employee agrees to devote his or her full time and attention and his or her best efforts to performing his or her duties hereunder. While employed by the Company, Employee will not, without the Company’s prior written consent, engage in any other business activity, other than investment of Employee’s personal funds on a passive basis and without lending assistance directly to any competitor. Attachment A hereto is a complete list of Employee’s current other business activities to which the Company consents. In the event the Employee wishes to change the approved activities, then the Employee shall submit the requested change in writing to the Company. Any changes consented to by the Company shall be documented as a revised Attachment A and will become incorporated into the Agreement by reference. In no event shall Employee pursue outside business or personal interests that interfere with his or her full-time responsibilities or entail any use of the Company’s resources.

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3.     Compensation and Benefits.

3.1	Base Salary. During Employee’s employment under this Agreement, Company shall pay or cause to be paid to Employee a base salary at an annual rate of not less than $188,216, payable in cash in equal periodic installments not less frequent than the periodic installments in effect for salaries of Company employees of the same level as Employee (the “Base Salary”). The Base Salary shall be subject to increases pursuant to reviews by the Board of Directors, where applicable, or a committee appointed by the Board of Directors, at such times as salary reviews are conducted generally for Company employees of the same level as Employee, but in no event less frequent than annually.
3.2	Incentive Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in each bonus or incentive compensation plan, program or policy maintained by Company from time to time, in whole or in part, for employees of his level (“Bonus Plan”). Employee’s target and maximum compensation under, and his performance goals and other terms of participation in, each Bonus Plan shall be determined by Company or by such person or administrative body as provided in the Bonus Plan. Said incentive compensation is not guaranteed and is contingent upon Employee and Company achieving deliverables or goals agreed upon. Said incentive compensation shall not be considered “earned” by Employee until Company has allocated payment to be made to Employee for any performance period.
3.3	Incentive Stock Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in an incentive stock plan as may be maintained by Company from time to time, in whole or in part, for employees of his level. Employee’s awards under such plan shall be determined by the administrator of the plan, the vesting for which shall be accelerated in the event of a Change in Control as defined herein. The specific terms and conditions of these options shall be set out in a stock option agreement between Employee and Company.
	The grant of stock options shall not be construed to constitute or to be evidence of a commitment or guarantee to renew this Agreement or to employ or retain Employee for any period of time inconsistent with Sections 4 and 5 of this Agreement.
3.4	Benefits. During his employment under this Agreement, Employee shall be entitled to: (i) participation in such employee retirement and welfare benefit plans, programs, policies and arrangements as maintained by Company from time to time, in whole or in part, for employees of his level, including but not limited to Company’s employee stock ownership plan, and its health, disability, life insurance and sickness and accident insurance plans; and (ii) paid vacation, holidays, leave of absence, leave for illness, funeral leave

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	and temporary disability leave in accordance with the policies of Company; and (iii) perquisites as from time to time provided by Company to employees of his level.
3.4	Expenses. During Employee’s employment under this Agreement, Company shall reimburse Employee for ordinary and reasonable out-of-pocket expenses incurred by him in the performance of his duties hereunder, provided that Employee shall account to Company for such expenses in accordance with the employee business expense policies and practices of Company.
3.5	Effect of Termination. Upon termination of employment for any reason, Employee shall no longer be entitled to participation in any Benefits programs, including the period when severance is payable under the Agreement.

4.     Term of Employment. The term of Employee’s employment (the “Term”) shall commence on the effective date of this Agreement and continue through January 31, 2002 for the initial term, unless sooner terminated as provided herein. Upon expiration of the initial term, the term of Employee’s employment shall automatically renew on February 1^st for successive 12-month renewal periods, unless and until terminated as provided herein.

5.     Termination of Employment.

5.1 Dismissal without Good Cause and Resignation for Good Reason.

5.1.1	Dismissal without Good Cause. Company may terminate Employee’s employment under this Agreement without Good Cause (as defined in Section 5.1.4) at any time by giving notice thereof to Employee at least 30 days before the effective date of such termination. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.2	Resignation for Good Reason. Employee may terminate his employment under this Agreement for Good Reason (as defined in Section 5.1.5) at any time by written notice thereof to Company at least 30 days before the effective date of such termination. Such notice shall specify in reasonable detail the Good Reason based upon which Employee intends to terminate his employment. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.3	Severance Pay upon Dismissal without Good Cause or Resignation for Good Reason. If Employee’s employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason, Employee shall be entitled to the sum of the following, payable in equal periodic installments the same as Base Salary was received

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during the term of Employee’s employment as provided in Section 3.1 herein:

(i)

Base Salary, at the rate in effect immediately before the date of termination, for the greater of (A) the period from the day after his last day of employment hereunder through the last day of the Term of this Agreement, or (B) six months; and

(ii)

The amount “earned” by Employee under the annual Bonus Plan if at the time of termination Company has allocated payment to be made to Employee under the terms of the Bonus Plan for any performance period. Employee will not be eligible to receive payment under the Bonus Plan for any performance period if he is terminated prior to a decision by Company as to the payment due to Employee, if any, under the terms of the Bonus Plan. If no such decision by Company is made or necessary, Employee will not be eligible to receive any payments under the Bonus Plan if he is not employed at the time bonus payments are made to employees.

5.1.4 Definition of “Good Cause.” “Good Cause” means:

(A)	Employee’s willful gross misconduct, willful gross neglect, willful malfeasance or gross negligence in carrying out his duties hereunder, or willful breach of this Agreement (other than an inadvertent and nonrecurring breach cured and corrected by Employee within 30 days after notice thereof by Company). Under this provision, “willful breach” shall include, but not be limited to, insubordination, serious dereliction of fiduciary obligation, chronic abuse by Employee of alcohol or narcotics, a violation of any material Company rule, regulation or policy, or a serious violation of any law governing the workplace. It is provided further that, no act or failure to act shall be considered “willful” if Employee reasonably believed in good faith that such act or failure to act was in, or not opposed to, the best interest of Company and its affiliates;
(B)	Any act or conduct of dishonesty to Company by Employee involving fraud and embezzlement; or
(C)	Employee’s conviction, including a plea of guilty or nolo contendere, of a felony involving theft or moral turpitude, other than a felony predicated on Employee’s vicarious liability (for purposes of this Agreement, “vicarious liability” means Employee’s liability based on acts of Company for which Employee is charged solely as a result of his offices with Company and in which he was not directly involved or did not have prior knowledge of such acts)

5.1.5 Definition of “Good Reason.” “Good Reason” means any of the following if not cured and corrected by Company within 30 days after

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notice thereof by Employee to Company under Section 5.1.2:

(A)	Any change in Employee’s title or position that constitutes a material diminution in authority as compared to the authority of his title or position as of the Effective Date, or any substantial diminution in Employee’s duties and responsibilities (other than a change due to Employee’s Disability), provided that no diminution of title, position, duties or responsibilities shall be deemed to occur solely because Company becomes a subsidiary of another corporation or because there has been a change in the reporting hierarchy incident thereto involving Employee;
(B)	Any requirement by Company that Employee involuntarily physically relocate from Employee’s current work location to another work location more than 75 miles away; or
(C)	Any material breach by Company of its obligations under this Agreement.

5.2 Dismissal for Good Cause, Resignation without Good Reason and Termination upon Death or Disability.

5.2.1	Dismissal for Good Cause. Company may terminate Employee’s employment under this Agreement for Good Cause by (i) giving notice thereof to Employee specifying in reasonable detail the Good Cause based upon which Company intends to terminate his employment; (ii) if Good Cause exists under 5.1.4(A) only, after at least 30 days after such notice, providing Employee an opportunity to be heard at a meeting with the CEO and the Board of Directors; and (iii) thereafter, effectuating such termination by a majority vote of the Board of Directors. For Good Cause terminations under Sections 5.1.4(B) & (C), Company may terminate Employee’s employment immediately under this Agreement upon notice thereof to Employee. The effect of such termination is provided in Section 5.2.4.
5.2.2	Resignation without Good Reason. Employee may terminate his employment hereunder at any time without Good Reason by notice thereof to Company at least 30 days before the effective date of such termination. The effect of such termination is provided in Section 5.2.4.
5.2.3	Termination upon Death or Disability. This Agreement shall terminate automatically upon Employee’s death. If Company determines in good faith that Employee has a Disability as defined in this Section, Company may terminate his employment under this Agreement by notifying Employee thereof at least 30 days before the effective date of termination. For purposes of this Agreement, “Disability” means any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to

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last for a continuous period of not less than six months and which renders Employee unable to perform his material duties under this Agreement. If there is any dispute between the parties as to Employee’s Disability, Company shall select or approve a physician whose determination as to Employee’s Disability shall bind the parties hereto. The effect of a termination due to Employee’s death or Disability is provided in Section 5.2.4.

5.2.4

Effect of Dismissal for Good Cause, Resignation without Good Reason, or Termination upon Death or Disability. If Employee’s employment under this Agreement is terminated by Company for Good Cause, by Employee without Good Reason, or due to Employee’s death or Disability as provided in this Agreement, all obligations of Company under this Agreement shall terminate, except as provided in Section 5.6.

5.3

Termination by Mutual Consent. Company and Employee may terminate Employee’s employment under this Agreement at any time and for any reason upon the mutual consent of both parties, effective as of such date as agreed upon by the parties. Upon such termination, except as provided in Section 5.6 or as agreed to by the parties in connection with their mutual consent to terminate Employee’s employment, all obligations of Company hereunder shall terminate.

5.4

Termination after a Change in Control.

5.4.1	Termination Events Triggering Compensation. Company shall pay or cause to be paid to Employee such compensation as provided in Section 5.4.2, if his employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason within 12 months after a Change in Control (as defined in Section 5.4.3)
5.4.2	Compensation upon Termination. If Employee’s employment hereunder is terminated as provided in Section 5.4.1, Company shall pay or cause to be paid to Employee the following in a cash lump sum within 30 days after the date of termination, one times the annual Base Salary at the greater of (A) the rate in effect immediately before the date of termination or (B) the rate in effect immediately before the Change in Control.
5.4.3	Definition of “Change in Control.” A “Change in Control” means:

(i)	A sale of all or substantially all of the assets of Company;
(ii)	An acquisition by any “person” or “group” of persons (within the meaning of such terms as used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than Company, its subsidiaries, any employee benefit plan of Company, or an underwriter temporarily holding securities

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	pursuant to an offering of such securities) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the total voting power represented by Company’s outstanding voting securities;
(iii)	A dissolution or liquidation of Company; or
(iv)	Any merger, consolidation or reorganization involving Company immediately after which either (A) a majority of the directors of the surviving entity is not comprised of persons who were directors of Company immediately prior to such transaction or (B) persons who hold more than a majority of the total voting power represented by outstanding voting securities of the surviving entity are not persons who held outstanding voting securities of Company immediately prior to such transaction.

5.5	Duplication of Severance Pay. Employee is entitled to receive the payment under both Section 5.1 and Section 5.4. Employee hereby irrevocably waives the right to receive benefits under any severance or similar plan or policy of Company if Employee is entitled to receive a payment under Section 5.1 and/or 5.4, provided that if the value of such benefits exceeds the amount payable to such Employee under Section 5.1 and/or 5.4, Employee may elect to receive such benefits in lieu of the payment under Section 5.1 and/or 5.4.
5.6	Payment of Base Salary upon Termination. Upon a termination of Employee’s employment under this Agreement for any reason, Company shall pay or cause to be paid to Employee the increment of Base Salary earned but unpaid in the payroll period immediately preceding the date of termination, payable in cash on or before the day on which Employee would have been paid such amount if his employment hereunder had not been terminated, but in no event later than the date as required by law.
5.7	No Duty to Mitigate. Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Employee obtains other employment.

6.     Ownership of Work Product.

6.1	The Company shall own all Work Product (as defined below). To the extent permitted by law, All Work Product shall be considered work made for hire by Employee and owned by the Company.
6.2	If any of the Work Product may not, by operation of law, be considered work made for hire by Employee for the Company (or if ownership of all right, title and interest of the intellectual property rights therein shall not otherwise vest

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	exclusively in the Company), Employee agrees to assign, and upon creation thereof automatically assigns, without further consideration, the ownership of all Trade Secrets (as defined below), U.S. and international copyrights, patentable inventions, and other intellectual property rights therein to the Company, its successors and assigns.
6.3	The Company, it successors and assigns, shall have the right to obtain and hold in its or their own name copyrights, registrations, and any other protection available in the foregoing.
6.4	Employee agrees to perform upon the reasonable request of the Company, during or after Employee’s employment, such further acts as may be necessary or desirable to transfer, perfect and defend the Company’s ownership of the Work Product. When requested, Employee will

(i)	Execute, acknowledge and deliver any requested affidavits and documents of assignment and conveyance;
(ii)	Obtain and aid in the enforcement of copyrights (and, if applicable, patents) with respect to the Work Product in any countries;
(iii)	Provide testimony in connection with any proceeding affecting the right, title or interest of the Company in any Work Product; and
(iv)	Perform any other acts deemed necessary or desirable to carry out the purposes of this Agreement.

The Company shall reimburse all reasonable out-of-pocket expenses incurred by Employee at the Company’s request in connection with the foregoing, including (unless Employee is otherwise being compensated at the time) a reasonable per diem or hourly fee for services rendered following termination of Employee’s employment.

6.5

For purposes hereof, “Work Product” shall mean all intellectual property rights, including all Trade Secrets, U.S. and international copyrights, patentable inventions, discoveries and improvements, and other intellectual property rights, in any programming, documentation, technology or other work product that relates to the business and interests of the Company and that Employee conceives, develops, or delivers to the Company at any time during the term of Employee’s employment. “Work Product” shall also include all intellectual property rights in any programming, documentation, technology or other work product that is now contained in any of the products or systems (including

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development and support systems) of the Company to the extent Employee conceived, developed or delivered such Work Product to the Company prior to the date of this Agreement while Employee was engaged as an independent contractor or employee of the Company. Employee hereby irrevocably relinquishes for the benefit of the Company and its assigns any moral rights in the Work Product recognized by applicable law.

7.     Restrictive Covenants.

7.1	Competition. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, the greater of (I) any period of time in which Employee continues to receive compensation of any kind from Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, employee shall not: (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of a Competitor (as defined in Section 7.5); (ii) become a director, officer, employee, consultant or lender of, or be compensated by, a Competitor; or (iii) solicit any client of Company on behalf of or for the benefit of a Competitor. Notwithstanding the foregoing, Employee may own up to 1% of a publicly-traded Competitor.
7.2	Confidential Information. Employee shall at all times hold in a fiduciary capacity for the benefit of Company all secret, confidential or proprietary information, knowledge or data relating to Company, and all of its businesses, which shall have been obtained by Employee during his employment by Company and which shall not be or become public knowledge (other than by acts by Employee or his representatives in violation of this Agreement) including, but not limited to, information regarding clients and agents of Company (“Confidential Information”). During Employee’s employment with Company under this Agreement and after the termination of such employment, Employee shall not, without the prior written consent of Company, communicate or divulge any Confidential Information to any Person other than Company and those designated by it or use any Confidential Information except for the benefit of Company, provided that Employee may make disclosures to comply with the law or legal process. Immediately upon termination of Employee’s employment with Company at any time and for any reason, Employee shall return to Company all Confidential Information, including, but not limited to, any and all copies, reproductions, notes or extracts of Confidential Information.
7.3	Solicitation of Employees. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, for the greater of (I) any period of time in which Employee continues to receive compensation of any kind from

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	Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, Employee shall not: (i) solicit, participate in or promote the solicitation of any person who was employed by Company at any time during the three-month period prior to Employee’s termination of employment under this Agreement to leave the employ of Company; or (ii) on behalf of himself or any other Person, hire, employ or engage any such person. Employee further agrees that, during such time, if an employee of Company contacts Employee about prospective employment, Employee will inform such employee that he cannot discuss the matter further without informing Company.
7.4	Remedies for Breach. Employee agrees that damages in the event of any breach of Sections 7.1 through 7.3 by Employee would be difficult to ascertain. Employee therefore agrees that, notwithstanding anything in this Agreement to the contrary, including but not limited to the provisions of Section 14, Company, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. Employee hereby waives any and all defenses he may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. Employee also agrees that a bond shall not be required by Employer in obtaining an injunction. The existence of this right shall not preclude any other rights and remedies at law or in equity that Company may have. The provisions of Section 7 shall survive termination of this Agreement. The existence of a claim or cause of action of any kind by Employee against Company shall not constitute a defense to the enforcement by Company of the rights provided in this Section 7 and shall not be a defense to any injunction proceeding.
7.5	Definitions.

7.5.1	“Competitor.” For purposes of Section 7, “Competitor” means any Person which sells goods or provides services which are directly competitive with those sold or provided by a business that (i) is being conducted by Company at the relevant time and (ii) was being conducted by Company at any time during the Term of this Agreement.
7.5.2	“Company.” For purposes of Section 7, “Company” means TeleCommunication Systems, Inc., and its subsidiaries and affiliates.
7.5.3	“Person.” For purposes of Section 7, “Person” means any individual or entity, including but not limited to any corporation, trust, sole proprietorship, joint venture or partnership.

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7.6 Survival of Section 7. Employee agrees that the non-competition agreements, nondisclosure agreements and non-employment agreements in this Section 7 each constitute separate agreements independently supported by good and adequate consideration and, notwithstanding anything in this Agreement to the contrary, shall be severable from the other provisions of, and shall survive, this Agreement.

8. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Employee at the last address he has filed in writing with Company or, in the case of Company, to Company’s principal employee offices.

9.     Taxes.

9.1	Withholding Taxes. Company shall have the right, to the extent permitted by law, to withhold from any payment of any kind due to Employee under this Agreement to satisfy the tax withholding obligations of Company under applicable law.
9.2	Adjustment relating to Tax on Excess Parachute Payments.

9.2.1. Adjustment. Notwithstanding anything in this Agreement to the contrary, in the event the Company’s Law or Accounting Firm (as defined in Section 9.2.2) determines that any portion of the cash compensation payable under this Agreement (such portion of compensation, the “Agreement Payment”), and the portions, if any, of other payments or distributions in the nature of compensation by Company to or for the benefit of Employee (including, but not limited to, the value of the acceleration in vesting or exercisability of stock options) whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (the Agreement Payment, together with such portions of other payments and distributions, the “Payments”), would cause any portion of the Payments to be subject to the excise tax imposed by section 4999, or any successor provision, of the Internal Revenue Code of 1986, as amended (the “Code”) (the portion subject to excise tax, the “Parachute Payment”), the Agreement Payment shall be reduced to an amount not less than zero which shall not cause any portion of the Payments to constitute a Parachute Payment, provided that no such reduction shall be made if the Payments, after the reduction and after the application of Federal income tax at the highest rate applicable to individual taxpayers, would not be greater than the present value (determined in accordance with section 280G, or any successor provision, of the Code) of the Payments before the reduction but after the application of (i) excise tax under section 4999 of the Code and (ii) Federal income tax at the highest rate applicable to individual taxpayers.

9.2.2 Determination. All determinations required to be made under this Section 9.2, including the assumptions to be utilized in arriving at such

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determination, shall be made by such nationally recognized law firm (including Piper Marbury Rudnick & Wolfe L.L.P.) or accounting firm (including Ernst & Young LP) as selected by Company (the “Law or Accounting Firm”), which shall provide detailed supporting calculations to both Company and Employee (i) within 15 business days after receipt by Company of a notice from Employee that he may have a Parachute Payment, or (ii) at such earlier time as may be requested by Company. The Law or Accounting Firm may employ and rely upon the opinions of actuarial or accounting professionals to the extent it deems necessary or advisable. In the event that the Law or Accounting Firm determines, for any reason, that it is unable to perform such services, or declines to do so, Company shall select another nationally recognized law or accounting firm to make the determinations required under this Section (which law or accounting firm shall then be referred to as the Law or Accounting Firm hereunder). All fees and expenses of the Law or Accounting Firm shall be borne solely by Company. Any determination by the Law or Accounting Firm shall be binding upon Company and Employee.

10.	Successors and Assigns. The rights, duties and obligations of a party hereunder may not be assigned, delegated or assumed without the prior written consent of the other party, provided that Company may assign this Agreement to any subsidiary thereof, without Employee’s consent, and such assignment shall not constitute, a termination of his employment hereunder. Nothing herein shall cause a termination of this Agreement upon the acquisition, reorganization, or merger of Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors or permitted assigns. Nothing herein shall be construed to confer upon any person not a party hereto any right, remedy or claim under or by reason of this Agreement.
11.	Entire Agreement. This Agreement constitutes the entire understanding of Employee and Company with respect to the subject matter hereof and supersedes and voids any and all prior agreements or understandings, written or oral, regarding the subject matter hereof.
12.	Amendment and Waiver. This Agreement may not be changed, modified or discharged orally, but only by an instrument in writing signed by the parties. No waiver of any term or condition of this Agreement shall be effective unless agreed to in writing between the parties.
13.	Governing Law and Severability. This Agreement shall be governed by the laws of the State of Maryland (without giving effect to choice of law principles or rules thereof that would cause the application of the laws of any jurisdiction other than the State of Maryland) and the invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction

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shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.

Arbitration. DISPUTES REGARDING EMPLOYEE’S EMPLOYMENT WITH COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN COMPANY AND EMPLOYEE, BUT EXCLUDING ANY DISPUTES REGARDING EMPLOYEE’S COMPLIANCE WITH SECTION 7, SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE, INC.’S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF MARYLAND WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS AGREEMENT; IN ALL OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN COMPANY’S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN EFFECT FROM TIME TO TIME (IF ANY). ARBITRATION SHALL BE HELD IN BALTIMORE, MARYLAND, OR SUCH OTHER PLACE AS THE PARTIES MAY MUTUALLY AGREE, AND SHALL BE CONDUCTED ONLY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A. WHITE	By: /s/ MAURICE B. TOSE
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ THOMAS M. BRANDT, JR.
	Thomas M. Brandt, Jr.

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ATTACHMENT A TO EMPLOYMENT AGREEMENT

Employee:Thomas M. Brandt, Jr.
Agreement dated: February 1, 2001

In accordance with paragraph 2 of the Employment Agreement, the Company hereby consents to the following other business activities:

Board of Directors service with:
	Opptelcom, Inc. Antenna Research Associates, Inc. AmericasBank Corp.

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A. WHITE	By: /s/ MAURICE B. TOSE
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ THOMAS M. BRANDT, JR.
	Thomas M. Brandt, Jr.

Page 15 of 15 EX-10.43 8 w54922ex10-43.htm EMPLOYMENT AGREEMENT

EXHIBIT 10.43

EMPLOYMENT AGREEMENT
between

TeleCommunication Systems, Inc.
and
Drew A. Morin
(Employee Name)

THIS EMPLOYMENT AGREEMENT (“Agreement”), effective as February 1, 2001 (the “Effective Date”), between the individual signing as “Employee” at the end of this Agreement (hereinafter referred to as “Employee”), and TeleCommunication Systems, Inc. (hereinafter referred to as “Company”);

WHEREAS, Company desires to employ Employee, or to continue Employee’s employment, and Employee desires to be employed by Company on the terms and conditions hereinafter set forth;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Company agrees to employ Employee for the position of Senior Vice President & Chief Technology Officer. Employee shall perform such duties as the management of the Company may from time to time assign to him hereunder, including (without limitation) responsibility for the Company’s technology strategy and initiatives, and leading initial projects in new technology areas.

2. Duties and Responsibilities. Employee agrees to devote his or her full time and attention and his or her best efforts to performing his or her duties hereunder. While employed by the Company, Employee will not, without the Company’s prior written consent, engage in any other business activity, other than investment of Employee’s personal funds on a passive basis and without lending assistance directly to any competitor. Attachment A hereto is a complete list of Employee’s current other business activities to which the Company consents. In the event the Employee wishes to change the approved activities, then the Employee shall submit the requested change in writing to the Company. Any changes consented to by the Company shall be documented as a revised Attachment A and will become incorporated into the Agreement by reference. In no event shall Employee pursue outside business or personal interests that interfere with his or her full-time responsibilities or entail any use of the Company’s resources.

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3.     Compensation and Benefits.

3.1	Base Salary. During Employee’s employment under this Agreement, Company shall pay or cause to be paid to Employee a base salary at an annual rate of not less than $180,145, payable in cash in equal periodic installments not less frequent than the periodic installments in effect for salaries of Company employees of the same level as Employee (the “Base Salary”). The Base Salary shall be subject to increases pursuant to reviews by the Board of Directors, where applicable, or a committee appointed by the Board of Directors, at such times as salary reviews are conducted generally for Company employees of the same level as Employee, but in no event less frequent than annually.
3.2	Incentive Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in each bonus or incentive compensation plan, program or policy maintained by Company from time to time, in whole or in part, for employees of his level (“Bonus Plan”). Employee’s target and maximum compensation under, and his performance goals and other terms of participation in, each Bonus Plan shall be determined by Company or by such person or administrative body as provided in the Bonus Plan. Said incentive compensation is not guaranteed and is contingent upon Employee and Company achieving deliverables or goals agreed upon. Said incentive compensation shall not be considered “earned” by Employee until Company has allocated payment to be made to Employee for any performance period.
3.3	Incentive Stock Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in an incentive stock plan as may be maintained by Company from time to time, in whole or in part, for employees of his level. Employee’s awards under such plan shall be determined by the administrator of the plan, the vesting for which shall be accelerated in the event of a Change in Control as defined herein. The specific terms and conditions of these options shall be set out in a stock option agreement between Employee and Company.
	The grant of stock options shall not be construed to constitute or to be evidence of a commitment or guarantee to renew this Agreement or to employ or retain Employee for any period of time inconsistent with Sections 4 and 5 of this Agreement.
3.4	Benefits. During his employment under this Agreement, Employee shall be entitled to: (i) participation in such employee retirement and welfare benefit plans, programs, policies and arrangements as maintained by Company from time to time, in whole or in part, for employees of his level, including but not limited to Company’s employee stock ownership plan, and its health, disability, life insurance and sickness and accident insurance plans; and (ii) paid vacation, holidays, leave of absence, leave for illness, funeral leave

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	and temporary disability leave in accordance with the policies of Company; and (iii) perquisites as from time to time provided by Company to employees of his level.
3.4	Expenses. During Employee’s employment under this Agreement, Company shall reimburse Employee for ordinary and reasonable out-of-pocket expenses incurred by him in the performance of his duties hereunder, provided that Employee shall account to Company for such expenses in accordance with the employee business expense policies and practices of Company.
3.5	Effect of Termination. Upon termination of employment for any reason, Employee shall no longer be entitled to participation in any Benefits programs, including the period when severance is payable under the Agreement.

4.     Term of Employment. The term of Employee’s employment (the “Term”) shall commence on the effective date of this Agreement and continue through January 31, 2002 for the initial term, unless sooner terminated as provided herein. Upon expiration of the initial term, the term of Employee’s employment shall automatically renew on February 1^st for successive 12-month renewal periods, unless and until terminated as provided herein.

5.     Termination of Employment.

5.1 Dismissal without Good Cause and Resignation for Good Reason.

5.1.1	Dismissal without Good Cause. Company may terminate Employee’s employment under this Agreement without Good Cause (as defined in Section 5.1.4) at any time by giving notice thereof to Employee at least 30 days before the effective date of such termination. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.2	Resignation for Good Reason. Employee may terminate his employment under this Agreement for Good Reason (as defined in Section 5.1.5) at any time by written notice thereof to Company at least 30 days before the effective date of such termination. Such notice shall specify in reasonable detail the Good Reason based upon which Employee intends to terminate his employment. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.3	Severance Pay upon Dismissal without Good Cause or Resignation for Good Reason. If Employee’s employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason, Employee shall be entitled to the sum of the following, payable in equal periodic installments the same as Base Salary was received

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during the term of Employee’s employment as provided in Section 3.1 herein:

(i)

Base Salary, at the rate in effect immediately before the date of termination, for the greater of (A) the period from the day after his last day of employment hereunder through the last day of the Term of this Agreement, or (B) six months; and

(ii)

The amount “earned” by Employee under the annual Bonus Plan if at the time of termination Company has allocated payment to be made to Employee under the terms of the Bonus Plan for any performance period. Employee will not be eligible to receive payment under the Bonus Plan for any performance period if he is terminated prior to a decision by Company as to the payment due to Employee, if any, under the terms of the Bonus Plan. If no such decision by Company is made or necessary, Employee will not be eligible to receive any payments under the Bonus Plan if he is not employed at the time bonus payments are made to employees.

5.1.4 Definition of “Good Cause.” “Good Cause” means:

(A)	Employee’s willful gross misconduct, willful gross neglect, willful malfeasance or gross negligence in carrying out his duties hereunder, or willful breach of this Agreement (other than an inadvertent and nonrecurring breach cured and corrected by Employee within 30 days after notice thereof by Company). Under this provision, “willful breach” shall include, but not be limited to, insubordination, serious dereliction of fiduciary obligation, chronic abuse by Employee of alcohol or narcotics, a violation of any material Company rule, regulation or policy, or a serious violation of any law governing the workplace. It is provided further that, no act or failure to act shall be considered “willful” if Employee reasonably believed in good faith that such act or failure to act was in, or not opposed to, the best interest of Company and its affiliates;
(B)	Any act or conduct of dishonesty to Company by Employee involving fraud and embezzlement; or
(C)	Employee’s conviction, including a plea of guilty or nolo contendere, of a felony involving theft or moral turpitude, other than a felony predicated on Employee’s vicarious liability (for purposes of this Agreement, “vicarious liability” means Employee’s liability based on acts of Company for which Employee is charged solely as a result of his offices with Company and in which he was not directly involved or did not have prior knowledge of such acts)

5.1.5 Definition of “Good Reason.” “Good Reason” means any of the following if not cured and corrected by Company within 30 days after

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notice thereof by Employee to Company under Section 5.1.2:

(A)	Any change in Employee’s title or position that constitutes a material diminution in authority as compared to the authority of his title or position as of the Effective Date, or any substantial diminution in Employee’s duties and responsibilities (other than a change due to Employee’s Disability), provided that no diminution of title, position, duties or responsibilities shall be deemed to occur solely because Company becomes a subsidiary of another corporation or because there has been a change in the reporting hierarchy incident thereto involving Employee;
(B)	Any requirement by Company that Employee involuntarily physically relocate from Employee’s current work location to another work location more than 75 miles away; or
(C)	Any material breach by Company of its obligations under this Agreement.

5.2 Dismissal for Good Cause, Resignation without Good Reason and Termination upon Death or Disability.

5.2.1	Dismissal for Good Cause. Company may terminate Employee’s employment under this Agreement for Good Cause by (i) giving notice thereof to Employee specifying in reasonable detail the Good Cause based upon which Company intends to terminate his employment; (ii) if Good Cause exists under 5.1.4(A) only, after at least 30 days after such notice, providing Employee an opportunity to be heard at a meeting with the CEO and the Board of Directors; and (iii) thereafter, effectuating such termination by a majority vote of the Board of Directors. For Good Cause terminations under Sections 5.1.4(B) & (C), Company may terminate Employee’s employment immediately under this Agreement upon notice thereof to Employee. The effect of such termination is provided in Section 5.2.4.
5.2.2	Resignation without Good Reason. Employee may terminate his employment hereunder at any time without Good Reason by notice thereof to Company at least 30 days before the effective date of such termination. The effect of such termination is provided in Section 5.2.4.
5.2.3	Termination upon Death or Disability. This Agreement shall terminate automatically upon Employee’s death. If Company determines in good faith that Employee has a Disability as defined in this Section, Company may terminate his employment under this Agreement by notifying Employee thereof at least 30 days before the effective date of termination. For purposes of this Agreement, “Disability” means any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to

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last for a continuous period of not less than six months and which renders Employee unable to perform his material duties under this Agreement. If there is any dispute between the parties as to Employee’s Disability, Company shall select or approve a physician whose determination as to Employee’s Disability shall bind the parties hereto. The effect of a termination due to Employee’s death or Disability is provided in Section 5.2.4.

5.2.4

Effect of Dismissal for Good Cause, Resignation without Good Reason, or Termination upon Death or Disability. If Employee’s employment under this Agreement is terminated by Company for Good Cause, by Employee without Good Reason, or due to Employee’s death or Disability as provided in this Agreement, all obligations of Company under this Agreement shall terminate, except as provided in Section 5.6.

5.3

Termination by Mutual Consent. Company and Employee may terminate Employee’s employment under this Agreement at any time and for any reason upon the mutual consent of both parties, effective as of such date as agreed upon by the parties. Upon such termination, except as provided in Section 5.6 or as agreed to by the parties in connection with their mutual consent to terminate Employee’s employment, all obligations of Company hereunder shall terminate.

5.4

Termination after a Change in Control.

5.4.1	Termination Events Triggering Compensation. Company shall pay or cause to be paid to Employee such compensation as provided in Section 5.4.2, if his employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason within 12 months after a Change in Control (as defined in Section 5.4.3)
5.4.2	Compensation upon Termination. If Employee’s employment hereunder is terminated as provided in Section 5.4.1, Company shall pay or cause to be paid to Employee the following in a cash lump sum within 30 days after the date of termination, one times the annual Base Salary at the greater of (A) the rate in effect immediately before the date of termination or (B) the rate in effect immediately before the Change in Control.
5.4.3	Definition of “Change in Control.” A “Change in Control” means:

(i)	A sale of all or substantially all of the assets of Company;
(ii)	An acquisition by any “person” or “group” of persons (within the meaning of such terms as used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than Company, its subsidiaries, any employee benefit plan of Company, or an underwriter temporarily holding securities

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	pursuant to an offering of such securities) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the total voting power represented by Company’s outstanding voting securities;
(iii)	A dissolution or liquidation of Company; or
(iv)	Any merger, consolidation or reorganization involving Company immediately after which either (A) a majority of the directors of the surviving entity is not comprised of persons who were directors of Company immediately prior to such transaction or (B) persons who hold more than a majority of the total voting power represented by outstanding voting securities of the surviving entity are not persons who held outstanding voting securities of Company immediately prior to such transaction.

5.5	Duplication of Severance Pay. Employee is entitled to receive the payment under both Section 5.1 and Section 5.4. Employee hereby irrevocably waives the right to receive benefits under any severance or similar plan or policy of Company if Employee is entitled to receive a payment under Section 5.1 and/or 5.4, provided that if the value of such benefits exceeds the amount payable to such Employee under Section 5.1 and/or 5.4, Employee may elect to receive such benefits in lieu of the payment under Section 5.1 and/or 5.4.
5.6	Payment of Base Salary upon Termination. Upon a termination of Employee’s employment under this Agreement for any reason, Company shall pay or cause to be paid to Employee the increment of Base Salary earned but unpaid in the payroll period immediately preceding the date of termination, payable in cash on or before the day on which Employee would have been paid such amount if his employment hereunder had not been terminated, but in no event later than the date as required by law.
5.7	No Duty to Mitigate. Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Employee obtains other employment.

6.     Ownership of Work Product.

6.1	The Company shall own all Work Product (as defined below). To the extent permitted by law, All Work Product shall be considered work made for hire by Employee and owned by the Company.
6.2	If any of the Work Product may not, by operation of law, be considered work made for hire by Employee for the Company (or if ownership of all right, title and interest of the intellectual property rights therein shall not otherwise vest

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	exclusively in the Company), Employee agrees to assign, and upon creation thereof automatically assigns, without further consideration, the ownership of all Trade Secrets (as defined below), U.S. and international copyrights, patentable inventions, and other intellectual property rights therein to the Company, its successors and assigns.
6.3	The Company, it successors and assigns, shall have the right to obtain and hold in its or their own name copyrights, registrations, and any other protection available in the foregoing.
6.4	Employee agrees to perform upon the reasonable request of the Company, during or after Employee’s employment, such further acts as may be necessary or desirable to transfer, perfect and defend the Company’s ownership of the Work Product. When requested, Employee will

(i)	Execute, acknowledge and deliver any requested affidavits and documents of assignment and conveyance;
(ii)	Obtain and aid in the enforcement of copyrights (and, if applicable, patents) with respect to the Work Product in any countries;
(iii)	Provide testimony in connection with any proceeding affecting the right, title or interest of the Company in any Work Product; and
(iv)	Perform any other acts deemed necessary or desirable to carry out the purposes of this Agreement.

The Company shall reimburse all reasonable out-of-pocket expenses incurred by Employee at the Company’s request in connection with the foregoing, including (unless Employee is otherwise being compensated at the time) a reasonable per diem or hourly fee for services rendered following termination of Employee’s employment.

6.5

For purposes hereof, “Work Product” shall mean all intellectual property rights, including all Trade Secrets, U.S. and international copyrights, patentable inventions, discoveries and improvements, and other intellectual property rights, in any programming, documentation, technology or other work product that relates to the business and interests of the Company and that Employee conceives, develops, or delivers to the Company at any time during the term of Employee’s employment. “Work Product” shall also include all intellectual property rights in any programming, documentation, technology or other work product that is now contained in any of the products or systems (including

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development and support systems) of the Company to the extent Employee conceived, developed or delivered such Work Product to the Company prior to the date of this Agreement while Employee was engaged as an independent contractor or employee of the Company. Employee hereby irrevocably relinquishes for the benefit of the Company and its assigns any moral rights in the Work Product recognized by applicable law.

7.     Restrictive Covenants.

7.1	Competition. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, the greater of (I) any period of time in which Employee continues to receive compensation of any kind from Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, employee shall not: (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of a Competitor (as defined in Section 7.5); (ii) become a director, officer, employee, consultant or lender of, or be compensated by, a Competitor; or (iii) solicit any client of Company on behalf of or for the benefit of a Competitor. Notwithstanding the foregoing, Employee may own up to 1% of a publicly-traded Competitor.
7.2	Confidential Information. Employee shall at all times hold in a fiduciary capacity for the benefit of Company all secret, confidential or proprietary information, knowledge or data relating to Company, and all of its businesses, which shall have been obtained by Employee during his employment by Company and which shall not be or become public knowledge (other than by acts by Employee or his representatives in violation of this Agreement) including, but not limited to, information regarding clients and agents of Company (“Confidential Information”). During Employee’s employment with Company under this Agreement and after the termination of such employment, Employee shall not, without the prior written consent of Company, communicate or divulge any Confidential Information to any Person other than Company and those designated by it or use any Confidential Information except for the benefit of Company, provided that Employee may make disclosures to comply with the law or legal process. Immediately upon termination of Employee’s employment with Company at any time and for any reason, Employee shall return to Company all Confidential Information, including, but not limited to, any and all copies, reproductions, notes or extracts of Confidential Information.
7.3	Solicitation of Employees. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, for the greater of (I) any period of time in which Employee continues to receive compensation of any kind from

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	Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, Employee shall not: (i) solicit, participate in or promote the solicitation of any person who was employed by Company at any time during the three-month period prior to Employee’s termination of employment under this Agreement to leave the employ of Company; or (ii) on behalf of himself or any other Person, hire, employ or engage any such person. Employee further agrees that, during such time, if an employee of Company contacts Employee about prospective employment, Employee will inform such employee that he cannot discuss the matter further without informing Company.
7.4	Remedies for Breach. Employee agrees that damages in the event of any breach of Sections 7.1 through 7.3 by Employee would be difficult to ascertain. Employee therefore agrees that, notwithstanding anything in this Agreement to the contrary, including but not limited to the provisions of Section 14, Company, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. Employee hereby waives any and all defenses he may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. Employee also agrees that a bond shall not be required by Employer in obtaining an injunction. The existence of this right shall not preclude any other rights and remedies at law or in equity that Company may have. The provisions of Section 7 shall survive termination of this Agreement. The existence of a claim or cause of action of any kind by Employee against Company shall not constitute a defense to the enforcement by Company of the rights provided in this Section 7 and shall not be a defense to any injunction proceeding.
7.5	Definitions.

7.5.1	“Competitor.” For purposes of Section 7, “Competitor” means any Person which sells goods or provides services which are directly competitive with those sold or provided by a business that (i) is being conducted by Company at the relevant time and (ii) was being conducted by Company at any time during the Term of this Agreement.
7.5.2	“Company.” For purposes of Section 7, “Company” means TeleCommunication Systems, Inc., and its subsidiaries and affiliates.
7.5.3	“Person.” For purposes of Section 7, “Person” means any individual or entity, including but not limited to any corporation, trust, sole proprietorship, joint venture or partnership.

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7.6 Survival of Section 7. Employee agrees that the non-competition agreements, nondisclosure agreements and non-employment agreements in this Section 7 each constitute separate agreements independently supported by good and adequate consideration and, notwithstanding anything in this Agreement to the contrary, shall be severable from the other provisions of, and shall survive, this Agreement.

8. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Employee at the last address he has filed in writing with Company or, in the case of Company, to Company’s principal employee offices.

9.     Taxes.

9.1	Withholding Taxes. Company shall have the right, to the extent permitted by law, to withhold from any payment of any kind due to Employee under this Agreement to satisfy the tax withholding obligations of Company under applicable law.
9.2	Adjustment relating to Tax on Excess Parachute Payments.

9.2.1. Adjustment. Notwithstanding anything in this Agreement to the contrary, in the event the Company’s Law or Accounting Firm (as defined in Section 9.2.2) determines that any portion of the cash compensation payable under this Agreement (such portion of compensation, the “Agreement Payment”), and the portions, if any, of other payments or distributions in the nature of compensation by Company to or for the benefit of Employee (including, but not limited to, the value of the acceleration in vesting or exercisability of stock options) whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (the Agreement Payment, together with such portions of other payments and distributions, the “Payments”), would cause any portion of the Payments to be subject to the excise tax imposed by section 4999, or any successor provision, of the Internal Revenue Code of 1986, as amended (the “Code”) (the portion subject to excise tax, the “Parachute Payment”), the Agreement Payment shall be reduced to an amount not less than zero which shall not cause any portion of the Payments to constitute a Parachute Payment, provided that no such reduction shall be made if the Payments, after the reduction and after the application of Federal income tax at the highest rate applicable to individual taxpayers, would not be greater than the present value (determined in accordance with section 280G, or any successor provision, of the Code) of the Payments before the reduction but after the application of (i) excise tax under section 4999 of the Code and (ii) Federal income tax at the highest rate applicable to individual taxpayers.

9.2.2 Determination. All determinations required to be made under this Section 9.2, including the assumptions to be utilized in arriving at such

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determination, shall be made by such nationally recognized law firm (including Piper Marbury Rudnick & Wolfe L.L.P.) or accounting firm (including Ernst & Young LP) as selected by Company (the “Law or Accounting Firm”), which shall provide detailed supporting calculations to both Company and Employee (i) within 15 business days after receipt by Company of a notice from Employee that he may have a Parachute Payment, or (ii) at such earlier time as may be requested by Company. The Law or Accounting Firm may employ and rely upon the opinions of actuarial or accounting professionals to the extent it deems necessary or advisable. In the event that the Law or Accounting Firm determines, for any reason, that it is unable to perform such services, or declines to do so, Company shall select another nationally recognized law or accounting firm to make the determinations required under this Section (which law or accounting firm shall then be referred to as the Law or Accounting Firm hereunder). All fees and expenses of the Law or Accounting Firm shall be borne solely by Company. Any determination by the Law or Accounting Firm shall be binding upon Company and Employee.

10.	Successors and Assigns. The rights, duties and obligations of a party hereunder may not be assigned, delegated or assumed without the prior written consent of the other party, provided that Company may assign this Agreement to any subsidiary thereof, without Employee’s consent, and such assignment shall not constitute, a termination of his employment hereunder. Nothing herein shall cause a termination of this Agreement upon the acquisition, reorganization, or merger of Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors or permitted assigns. Nothing herein shall be construed to confer upon any person not a party hereto any right, remedy or claim under or by reason of this Agreement.
11.	Entire Agreement. This Agreement constitutes the entire understanding of Employee and Company with respect to the subject matter hereof and supersedes and voids any and all prior agreements or understandings, written or oral, regarding the subject matter hereof.
12.	Amendment and Waiver. This Agreement may not be changed, modified or discharged orally, but only by an instrument in writing signed by the parties. No waiver of any term or condition of this Agreement shall be effective unless agreed to in writing between the parties.
13.	Governing Law and Severability. This Agreement shall be governed by the laws of the State of Maryland (without giving effect to choice of law principles or rules thereof that would cause the application of the laws of any jurisdiction other than the State of Maryland) and the invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction

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shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.

Arbitration. DISPUTES REGARDING EMPLOYEE’S EMPLOYMENT WITH COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN COMPANY AND EMPLOYEE, BUT EXCLUDING ANY DISPUTES REGARDING EMPLOYEE’S COMPLIANCE WITH SECTION 7, SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE, INC.’S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF MARYLAND WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS AGREEMENT; IN ALL OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN COMPANY’S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN EFFECT FROM TIME TO TIME (IF ANY). ARBITRATION SHALL BE HELD IN BALTIMORE, MARYLAND, OR SUCH OTHER PLACE AS THE PARTIES MAY MUTUALLY AGREE, AND SHALL BE CONDUCTED ONLY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.

[Signatures appear on following page]

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A. WHITE	By: /s/ MAURICE B. TOSE
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ DREW A. MORIN
	Drew A. Morin

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ATTACHMENT A TO EMPLOYMENT AGREEMENT

Employee:Drew A. Morin
Agreement dated: February 1, 2001

In accordance with paragraph 2 of the Employment Agreement, the Company hereby consents to the following other business activities:

[describe]

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A. WHITE	By: /s/ MAURICE B. TOSE
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ DREW A. MORIN
	Drew A. Morin

Page 15 of 16 EX-10.44 9 w54922ex10-44.htm EMPLOYMENT AGREEMENT

EXHIBIT 10.44

EMPLOYMENT AGREEMENT
between

TeleCommunication Systems, Inc.
and
Timothy J. Lorello
(Employee Name)

THIS EMPLOYMENT AGREEMENT (“Agreement”), effective as February 1, 2001 (the “Effective Date”), between the individual signing as “Employee” at the end of this Agreement (hereinafter referred to as “Employee”), and TeleCommunication Systems, Inc. (hereinafter referred to as “Company”);

WHEREAS, Company desires to employ Employee, or to continue Employee’s employment, and Employee desires to be employed by Company on the terms and conditions hereinafter set forth;

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

1. Employment. The Company agrees to employ Employee for the position of Senior Vice President—Network Intelligence. Employee shall perform such duties as the management of the Company may from time to time assign to him hereunder, including (without limitation) responsibility for leading the Network Intelligence Division, applying state-of-the-art hardware and software technologies to the communications arena, and leading the division's day-to-day activities including goal setting, performance monitoring, program management, personnel and fiscal management, strategic planning and quality control of all functions.

2. Duties and Responsibilities. Employee agrees to devote his or her full time and attention and his or her best efforts to performing his or her duties hereunder. While employed by the Company, Employee will not, without the Company’s prior written consent, engage in any other business activity, other than investment of Employee’s personal funds on a passive basis and without lending assistance directly to any competitor. Attachment A hereto is a complete list of Employee’s current other business activities to which the Company consents. In the event the Employee wishes to change the approved activities, then the Employee shall submit the requested change in writing to the Company. Any changes consented to by the Company shall be documented as a revised Attachment A and will become incorporated into the Agreement by reference. In no event shall Employee pursue outside business or personal interests that interfere with his or her full-time responsibilities or entail any use of the Company’s resources.

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3.     Compensation and Benefits.

3.1	Base Salary. During Employee’s employment under this Agreement, Company shall pay or cause to be paid to Employee a base salary at an annual rate of not less than $180,145, payable in cash in equal periodic installments not less frequent than the periodic installments in effect for salaries of Company employees of the same level as Employee (the “Base Salary”). The Base Salary shall be subject to increases pursuant to reviews by the Board of Directors, where applicable, or a committee appointed by the Board of Directors, at such times as salary reviews are conducted generally for Company employees of the same level as Employee, but in no event less frequent than annually.
3.2	Incentive Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in each bonus or incentive compensation plan, program or policy maintained by Company from time to time, in whole or in part, for employees of his level (“Bonus Plan”). Employee’s target and maximum compensation under, and his performance goals and other terms of participation in, each Bonus Plan shall be determined by Company or by such person or administrative body as provided in the Bonus Plan. Said incentive compensation is not guaranteed and is contingent upon Employee and Company achieving deliverables or goals agreed upon. Said incentive compensation shall not be considered “earned” by Employee until Company has allocated payment to be made to Employee for any performance period.
3.3	Incentive Stock Compensation. During Employee’s employment under this Agreement, Company shall cause Employee to be eligible to participate in an incentive stock plan as may be maintained by Company from time to time, in whole or in part, for employees of his level. Employee’s awards under such plan shall be determined by the administrator of the plan, the vesting for which shall be accelerated in the event of a Change in Control as defined herein. The specific terms and conditions of these options shall be set out in a stock option agreement between Employee and Company.
	The grant of stock options shall not be construed to constitute or to be evidence of a commitment or guarantee to renew this Agreement or to employ or retain Employee for any period of time inconsistent with Sections 4 and 5 of this Agreement.
3.4	Benefits. During his employment under this Agreement, Employee shall be entitled to: (i) participation in such employee retirement and welfare benefit plans, programs, policies and arrangements as maintained by Company from time to time, in whole or in part, for employees of his level, including but not limited to Company’s employee stock ownership plan, and its health, disability, life insurance and sickness and accident insurance plans; and (ii) paid vacation, holidays, leave of absence, leave for illness, funeral leave

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	and temporary disability leave in accordance with the policies of Company; and (iii) perquisites as from time to time provided by Company to employees of his level.
3.4	Expenses. During Employee’s employment under this Agreement, Company shall reimburse Employee for ordinary and reasonable out-of-pocket expenses incurred by him in the performance of his duties hereunder, provided that Employee shall account to Company for such expenses in accordance with the employee business expense policies and practices of Company.
3.5	Effect of Termination. Upon termination of employment for any reason, Employee shall no longer be entitled to participation in any Benefits programs, including the period when severance is payable under the Agreement.

4.     Term of Employment. The term of Employee’s employment (the “Term”) shall commence on the effective date of this Agreement and continue through January 31, 2002 for the initial term, unless sooner terminated as provided herein. Upon expiration of the initial term, the term of Employee’s employment shall automatically renew on February 1^st for successive 12-month renewal periods, unless and until terminated as provided herein.

5.     Termination of Employment.

5.1 Dismissal without Good Cause and Resignation for Good Reason.

5.1.1	Dismissal without Good Cause. Company may terminate Employee’s employment under this Agreement without Good Cause (as defined in Section 5.1.4) at any time by giving notice thereof to Employee at least 30 days before the effective date of such termination. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.2	Resignation for Good Reason. Employee may terminate his employment under this Agreement for Good Reason (as defined in Section 5.1.5) at any time by written notice thereof to Company at least 30 days before the effective date of such termination. Such notice shall specify in reasonable detail the Good Reason based upon which Employee intends to terminate his employment. Upon such termination, Employee shall be entitled to such compensation as provided in Section 5.1.3.
5.1.3	Severance Pay upon Dismissal without Good Cause or Resignation for Good Reason. If Employee’s employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason, Employee shall be entitled to the sum of the following, payable in equal periodic installments the same as Base Salary was received

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during the term of Employee’s employment as provided in Section 3.1 herein:

(i)

Base Salary, at the rate in effect immediately before the date of termination, for the greater of (A) the period from the day after his last day of employment hereunder through the last day of the Term of this Agreement, or (B) six months; and

(ii)

The amount “earned” by Employee under the annual Bonus Plan if at the time of termination Company has allocated payment to be made to Employee under the terms of the Bonus Plan for any performance period. Employee will not be eligible to receive payment under the Bonus Plan for any performance period if he is terminated prior to a decision by Company as to the payment due to Employee, if any, under the terms of the Bonus Plan. If no such decision by Company is made or necessary, Employee will not be eligible to receive any payments under the Bonus Plan if he is not employed at the time bonus payments are made to employees.

5.1.4 Definition of “Good Cause.” “Good Cause” means:

(A)	Employee’s willful gross misconduct, willful gross neglect, willful malfeasance or gross negligence in carrying out his duties hereunder, or willful breach of this Agreement (other than an inadvertent and nonrecurring breach cured and corrected by Employee within 30 days after notice thereof by Company). Under this provision, “willful breach” shall include, but not be limited to, insubordination, serious dereliction of fiduciary obligation, chronic abuse by Employee of alcohol or narcotics, a violation of any material Company rule, regulation or policy, or a serious violation of any law governing the workplace. It is provided further that, no act or failure to act shall be considered “willful” if Employee reasonably believed in good faith that such act or failure to act was in, or not opposed to, the best interest of Company and its affiliates;
(B)	Any act or conduct of dishonesty to Company by Employee involving fraud and embezzlement; or
(C)	Employee’s conviction, including a plea of guilty or nolo contendere, of a felony involving theft or moral turpitude, other than a felony predicated on Employee’s vicarious liability (for purposes of this Agreement, “vicarious liability” means Employee’s liability based on acts of Company for which Employee is charged solely as a result of his offices with Company and in which he was not directly involved or did not have prior knowledge of such acts)

5.1.5 Definition of “Good Reason.” “Good Reason” means any of the following if not cured and corrected by Company within 30 days after

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notice thereof by Employee to Company under Section 5.1.2:

(A)	Any change in Employee’s title or position that constitutes a material diminution in authority as compared to the authority of his title or position as of the Effective Date, or any substantial diminution in Employee’s duties and responsibilities (other than a change due to Employee’s Disability), provided that no diminution of title, position, duties or responsibilities shall be deemed to occur solely because Company becomes a subsidiary of another corporation or because there has been a change in the reporting hierarchy incident thereto involving Employee;
(B)	Any requirement by Company that Employee involuntarily physically relocate from Employee’s current work location to another work location more than 75 miles away; or
(C)	Any material breach by Company of its obligations under this Agreement.

5.2 Dismissal for Good Cause, Resignation without Good Reason and Termination upon Death or Disability.

5.2.1	Dismissal for Good Cause. Company may terminate Employee’s employment under this Agreement for Good Cause by (i) giving notice thereof to Employee specifying in reasonable detail the Good Cause based upon which Company intends to terminate his employment; (ii) if Good Cause exists under 5.1.4(A) only, after at least 30 days after such notice, providing Employee an opportunity to be heard at a meeting with the CEO and the Board of Directors; and (iii) thereafter, effectuating such termination by a majority vote of the Board of Directors. For Good Cause terminations under Sections 5.1.4(B) & (C), Company may terminate Employee’s employment immediately under this Agreement upon notice thereof to Employee. The effect of such termination is provided in Section 5.2.4.
5.2.2	Resignation without Good Reason. Employee may terminate his employment hereunder at any time without Good Reason by notice thereof to Company at least 30 days before the effective date of such termination. The effect of such termination is provided in Section 5.2.4.
5.2.3	Termination upon Death or Disability. This Agreement shall terminate automatically upon Employee’s death. If Company determines in good faith that Employee has a Disability as defined in this Section, Company may terminate his employment under this Agreement by notifying Employee thereof at least 30 days before the effective date of termination. For purposes of this Agreement, “Disability” means any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to

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last for a continuous period of not less than six months and which renders Employee unable to perform his material duties under this Agreement. If there is any dispute between the parties as to Employee’s Disability, Company shall select or approve a physician whose determination as to Employee’s Disability shall bind the parties hereto. The effect of a termination due to Employee’s death or Disability is provided in Section 5.2.4.

5.2.4

Effect of Dismissal for Good Cause, Resignation without Good Reason, or Termination upon Death or Disability. If Employee’s employment under this Agreement is terminated by Company for Good Cause, by Employee without Good Reason, or due to Employee’s death or Disability as provided in this Agreement, all obligations of Company under this Agreement shall terminate, except as provided in Section 5.6.

5.3

Termination by Mutual Consent. Company and Employee may terminate Employee’s employment under this Agreement at any time and for any reason upon the mutual consent of both parties, effective as of such date as agreed upon by the parties. Upon such termination, except as provided in Section 5.6 or as agreed to by the parties in connection with their mutual consent to terminate Employee’s employment, all obligations of Company hereunder shall terminate.

5.4

Termination after a Change in Control.

5.4.1	Termination Events Triggering Compensation. Company shall pay or cause to be paid to Employee such compensation as provided in Section 5.4.2, if his employment under this Agreement is terminated by Company without Good Cause or by Employee for Good Reason within 12 months after a Change in Control (as defined in Section 5.4.3)
5.4.2	Compensation upon Termination. If Employee’s employment hereunder is terminated as provided in Section 5.4.1, Company shall pay or cause to be paid to Employee the following in a cash lump sum within 30 days after the date of termination, one times the annual Base Salary at the greater of (A) the rate in effect immediately before the date of termination or (B) the rate in effect immediately before the Change in Control.
5.4.3	Definition of “Change in Control.” A “Change in Control” means:

(i)	A sale of all or substantially all of the assets of Company;
(ii)	An acquisition by any “person” or “group” of persons (within the meaning of such terms as used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than Company, its subsidiaries, any employee benefit plan of Company, or an underwriter temporarily holding securities

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	pursuant to an offering of such securities) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the total voting power represented by Company’s outstanding voting securities;
(iii)	A dissolution or liquidation of Company; or
(iv)	Any merger, consolidation or reorganization involving Company immediately after which either (A) a majority of the directors of the surviving entity is not comprised of persons who were directors of Company immediately prior to such transaction or (B) persons who hold more than a majority of the total voting power represented by outstanding voting securities of the surviving entity are not persons who held outstanding voting securities of Company immediately prior to such transaction.

5.5	Duplication of Severance Pay. Employee is entitled to receive the payment under both Section 5.1 and Section 5.4. Employee hereby irrevocably waives the right to receive benefits under any severance or similar plan or policy of Company if Employee is entitled to receive a payment under Section 5.1 and/or 5.4, provided that if the value of such benefits exceeds the amount payable to such Employee under Section 5.1 and/or 5.4, Employee may elect to receive such benefits in lieu of the payment under Section 5.1 and/or 5.4.
5.6	Payment of Base Salary upon Termination. Upon a termination of Employee’s employment under this Agreement for any reason, Company shall pay or cause to be paid to Employee the increment of Base Salary earned but unpaid in the payroll period immediately preceding the date of termination, payable in cash on or before the day on which Employee would have been paid such amount if his employment hereunder had not been terminated, but in no event later than the date as required by law.
5.7	No Duty to Mitigate. Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Employee obtains other employment.

6.     Ownership of Work Product.

6.1	The Company shall own all Work Product (as defined below). To the extent permitted by law, All Work Product shall be considered work made for hire by Employee and owned by the Company.
6.2	If any of the Work Product may not, by operation of law, be considered work made for hire by Employee for the Company (or if ownership of all right, title and interest of the intellectual property rights therein shall not otherwise vest

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	exclusively in the Company), Employee agrees to assign, and upon creation thereof automatically assigns, without further consideration, the ownership of all Trade Secrets (as defined below), U.S. and international copyrights, patentable inventions, and other intellectual property rights therein to the Company, its successors and assigns.
6.3	The Company, it successors and assigns, shall have the right to obtain and hold in its or their own name copyrights, registrations, and any other protection available in the foregoing.
6.4	Employee agrees to perform upon the reasonable request of the Company, during or after Employee’s employment, such further acts as may be necessary or desirable to transfer, perfect and defend the Company’s ownership of the Work Product. When requested, Employee will

(i)	Execute, acknowledge and deliver any requested affidavits and documents of assignment and conveyance;
(ii)	Obtain and aid in the enforcement of copyrights (and, if applicable, patents) with respect to the Work Product in any countries;
(iii)	Provide testimony in connection with any proceeding affecting the right, title or interest of the Company in any Work Product; and
(iv)	Perform any other acts deemed necessary or desirable to carry out the purposes of this Agreement.

The Company shall reimburse all reasonable out-of-pocket expenses incurred by Employee at the Company’s request in connection with the foregoing, including (unless Employee is otherwise being compensated at the time) a reasonable per diem or hourly fee for services rendered following termination of Employee’s employment.

6.5

For purposes hereof, “Work Product” shall mean all intellectual property rights, including all Trade Secrets, U.S. and international copyrights, patentable inventions, discoveries and improvements, and other intellectual property rights, in any programming, documentation, technology or other work product that relates to the business and interests of the Company and that Employee conceives, develops, or delivers to the Company at any time during the term of Employee’s employment. “Work Product” shall also include all intellectual property rights in any programming, documentation, technology or other work product that is now contained in any of the products or systems (including

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development and support systems) of the Company to the extent Employee conceived, developed or delivered such Work Product to the Company prior to the date of this Agreement while Employee was engaged as an independent contractor or employee of the Company. Employee hereby irrevocably relinquishes for the benefit of the Company and its assigns any moral rights in the Work Product recognized by applicable law.

7.     Restrictive Covenants.

7.1	Competition. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, the greater of (I) any period of time in which Employee continues to receive compensation of any kind from Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, employee shall not: (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of a Competitor (as defined in Section 7.5); (ii) become a director, officer, employee, consultant or lender of, or be compensated by, a Competitor; or (iii) solicit any client of Company on behalf of or for the benefit of a Competitor. Notwithstanding the foregoing, Employee may own up to 1% of a publicly-traded Competitor.
7.2	Confidential Information. Employee shall at all times hold in a fiduciary capacity for the benefit of Company all secret, confidential or proprietary information, knowledge or data relating to Company, and all of its businesses, which shall have been obtained by Employee during his employment by Company and which shall not be or become public knowledge (other than by acts by Employee or his representatives in violation of this Agreement) including, but not limited to, information regarding clients and agents of Company (“Confidential Information”). During Employee’s employment with Company under this Agreement and after the termination of such employment, Employee shall not, without the prior written consent of Company, communicate or divulge any Confidential Information to any Person other than Company and those designated by it or use any Confidential Information except for the benefit of Company, provided that Employee may make disclosures to comply with the law or legal process. Immediately upon termination of Employee’s employment with Company at any time and for any reason, Employee shall return to Company all Confidential Information, including, but not limited to, any and all copies, reproductions, notes or extracts of Confidential Information.
7.3	Solicitation of Employees. During the Term of this Agreement and, if Employee’s employment under this Agreement is terminated by Company or by Employee for any reason, for the greater of (I) any period of time in which Employee continues to receive compensation of any kind from

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	Company and continuing for a period of six (6) months after said payment(s) cease, or (ii) one year after the Term of this Agreement, Employee shall not: (i) solicit, participate in or promote the solicitation of any person who was employed by Company at any time during the three-month period prior to Employee’s termination of employment under this Agreement to leave the employ of Company; or (ii) on behalf of himself or any other Person, hire, employ or engage any such person. Employee further agrees that, during such time, if an employee of Company contacts Employee about prospective employment, Employee will inform such employee that he cannot discuss the matter further without informing Company.
7.4	Remedies for Breach. Employee agrees that damages in the event of any breach of Sections 7.1 through 7.3 by Employee would be difficult to ascertain. Employee therefore agrees that, notwithstanding anything in this Agreement to the contrary, including but not limited to the provisions of Section 14, Company, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. Employee hereby waives any and all defenses he may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. Employee also agrees that a bond shall not be required by Employer in obtaining an injunction. The existence of this right shall not preclude any other rights and remedies at law or in equity that Company may have. The provisions of Section 7 shall survive termination of this Agreement. The existence of a claim or cause of action of any kind by Employee against Company shall not constitute a defense to the enforcement by Company of the rights provided in this Section 7 and shall not be a defense to any injunction proceeding.
7.5	Definitions.

7.5.1	“Competitor.” For purposes of Section 7, “Competitor” means any Person which sells goods or provides services which are directly competitive with those sold or provided by a business that (i) is being conducted by Company at the relevant time and (ii) was being conducted by Company at any time during the Term of this Agreement.
7.5.2	“Company.” For purposes of Section 7, “Company” means TeleCommunication Systems, Inc., and its subsidiaries and affiliates.
7.5.3	“Person.” For purposes of Section 7, “Person” means any individual or entity, including but not limited to any corporation, trust, sole proprietorship, joint venture or partnership.

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7.6 Survival of Section 7. Employee agrees that the non-competition agreements, nondisclosure agreements and non-employment agreements in this Section 7 each constitute separate agreements independently supported by good and adequate consideration and, notwithstanding anything in this Agreement to the contrary, shall be severable from the other provisions of, and shall survive, this Agreement.

8. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Employee at the last address he has filed in writing with Company or, in the case of Company, to Company’s principal employee offices.

9.     Taxes.

9.1	Withholding Taxes. Company shall have the right, to the extent permitted by law, to withhold from any payment of any kind due to Employee under this Agreement to satisfy the tax withholding obligations of Company under applicable law.
9.2	Adjustment relating to Tax on Excess Parachute Payments

9.2.1. Adjustment. Notwithstanding anything in this Agreement to the contrary, in the event the Company’s Law or Accounting Firm (as defined in Section 9.2.2) determines that any portion of the cash compensation payable under this Agreement (such portion of compensation, the “Agreement Payment”), and the portions, if any, of other payments or distributions in the nature of compensation by Company to or for the benefit of Employee (including, but not limited to, the value of the acceleration in vesting or exercisability of stock options) whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (the Agreement Payment, together with such portions of other payments and distributions, the “Payments”), would cause any portion of the Payments to be subject to the excise tax imposed by section 4999, or any successor provision, of the Internal Revenue Code of 1986, as amended (the “Code”) (the portion subject to excise tax, the “Parachute Payment”), the Agreement Payment shall be reduced to an amount not less than zero which shall not cause any portion of the Payments to constitute a Parachute Payment, provided that no such reduction shall be made if the Payments, after the reduction and after the application of Federal income tax at the highest rate applicable to individual taxpayers, would not be greater than the present value (determined in accordance with section 280G, or any successor provision, of the Code) of the Payments before the reduction but after the application of (i) excise tax under section 4999 of the Code and (ii) Federal income tax at the highest rate applicable to individual taxpayers.

9.2.2 Determination. All determinations required to be made under this Section 9.2, including the assumptions to be utilized in arriving at such

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determination, shall be made by such nationally recognized law firm (including Piper Marbury Rudnick & Wolfe L.L.P.) or accounting firm (including Ernst & Young LP) as selected by Company (the “Law or Accounting Firm”), which shall provide detailed supporting calculations to both Company and Employee (i) within 15 business days after receipt by Company of a notice from Employee that he may have a Parachute Payment, or (ii) at such earlier time as may be requested by Company. The Law or Accounting Firm may employ and rely upon the opinions of actuarial or accounting professionals to the extent it deems necessary or advisable. In the event that the Law or Accounting Firm determines, for any reason, that it is unable to perform such services, or declines to do so, Company shall select another nationally recognized law or accounting firm to make the determinations required under this Section (which law or accounting firm shall then be referred to as the Law or Accounting Firm hereunder). All fees and expenses of the Law or Accounting Firm shall be borne solely by Company. Any determination by the Law or Accounting Firm shall be binding upon Company and Employee.

10.	Successors and Assigns. The rights, duties and obligations of a party hereunder may not be assigned, delegated or assumed without the prior written consent of the other party, provided that Company may assign this Agreement to any subsidiary thereof, without Employee’s consent, and such assignment shall not constitute, a termination of his employment hereunder. Nothing herein shall cause a termination of this Agreement upon the acquisition, reorganization, or merger of Company. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors or permitted assigns. Nothing herein shall be construed to confer upon any person not a party hereto any right, remedy or claim under or by reason of this Agreement.
11.	Entire Agreement. This Agreement constitutes the entire understanding of Employee and Company with respect to the subject matter hereof and supersedes and voids any and all prior agreements or understandings, written or oral, regarding the subject matter hereof.
12.	Amendment and Waiver. This Agreement may not be changed, modified or discharged orally, but only by an instrument in writing signed by the parties. No waiver of any term or condition of this Agreement shall be effective unless agreed to in writing between the parties.
13.	Governing Law and Severability. This Agreement shall be governed by the laws of the State of Maryland (without giving effect to choice of law principles or rules thereof that would cause the application of the laws of any jurisdiction other than the State of Maryland) and the invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction

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shall not invalidate or render unenforceable such provision in any other jurisdiction.

14.

Arbitration. DISPUTES REGARDING EMPLOYEE’S EMPLOYMENT WITH COMPANY, INCLUDING, WITHOUT LIMITATION, ANY DISPUTE UNDER THIS AGREEMENT WHICH CANNOT BE RESOLVED BY NEGOTIATIONS BETWEEN COMPANY AND EMPLOYEE, BUT EXCLUDING ANY DISPUTES REGARDING EMPLOYEE’S COMPLIANCE WITH SECTION 7, SHALL BE SUBMITTED TO, AND SOLELY DETERMINED BY, FINAL AND BINDING ARBITRATION CONDUCTED BY JAMS/ENDISPUTE, INC.’S ARBITRATION RULES APPLICABLE TO EMPLOYMENT DISPUTES, AND THE PARTIES AGREE TO BE BOUND BY THE FINAL AWARD OF THE ARBITRATOR IN ANY SUCH PROCEEDING. THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE OF MARYLAND WITH RESPECT TO THE INTERPRETATION OR ENFORCEMENT OF ANY MATTER RELATING TO THIS AGREEMENT; IN ALL OTHER CASES THE ARBITRATOR SHALL APPLY THE LAWS OF THE STATE SPECIFIED IN COMPANY’S ALTERNATIVE DISPUTE RESOLUTION POLICY AS IN EFFECT FROM TIME TO TIME (IF ANY). ARBITRATION SHALL BE HELD IN BALTIMORE, MARYLAND, OR SUCH OTHER PLACE AS THE PARTIES MAY MUTUALLY AGREE, AND SHALL BE CONDUCTED ONLY BY A FORMER JUDGE. JUDGMENT UPON THE AWARD BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF.

[Signatures appear on following page]

Page 13 of 16

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ BRUCE A. WHITE	By: Maurice B. Tose
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ BRUCE A. WHITE	/s/ TIMOTHY J. LORELLO
	Timothy J. Lorello

Page 14 of 16

ATTACHMENT A TO EMPLOYMENT AGREEMENT

Employee:Timothy J. Lorello
Agreement dated: February 1, 2001

In accordance with paragraph 2 of the Employment Agreement, the Company hereby consents to the following other business activities:

[describe]

WITNESS/ATTEST	TELECOMMUNICATION SYSTEMS, INC.
/s/ Bruce A. White	By: Maurice B. Tose
	Title: President and Chief Executive Officer
	EMPLOYEE
/s/ Bruce A. White	/s/ Timothy J. Lorello
	Timothy J. Lorello

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EX-10.35

ex10-35

EX-10.36

ex10-36

EX-10.37

ex10-37

EX-10.41

ex10-41

EX-10.42

ex10-42

EX-10.43

ex10-43

EX-10.44

ex10-44