SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement		o Confidential, for Use of the Commission
		Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

TeleCommunication Systems, Inc.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

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275 West Street
Annapolis, Maryland 21401

 

May 3, 2010

 

Dear Fellow Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders (“Annual Meeting”) of TeleCommunication Systems, Inc. (“TCS”) to be held on Thursday, June 10, 2010, at 10:00 a.m. local time, at The Westin Annapolis hotel, 100 Westgate Circle, Annapolis, MD 21401. The business to be conducted at the Annual Meeting is set forth in the formal notice that follows.

 

The Board of Directors urges you to read the accompanying Notice of Annual Meeting and Proxy Statement, and recommends that you vote:

 

(1) FOR the election of three Class III director nominees to hold office until the Annual Meeting of Stockholders to be held in 2013 and until their successors are duly elected and qualify;

 

(2) FOR the approval of an amendment to the Stock Incentive Plan, and

 

(3) FOR the approval of an amendment to the Employee Stock Purchase Plan.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented. We rely upon all stockholders to execute and return their proxies in order to avoid proxy solicitation expenses. Therefore, in order to save TCS the unnecessary expense of further proxy solicitation, I ask that you promptly sign and return the enclosed proxy card in the envelope provided.

 

I look forward to seeing you at the Annual Meeting.

 

Sincerely,

 

Maurice B. Tosé
Chairman of the Board
Chief Executive Officer and President

TELECOMMUNICATION SYSTEMS, INC.

275 West Street, Suite 400

Annapolis, Maryland 21401

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (“Annual Meeting”) of TeleCommunication Systems, Inc. (“TCS” or the “Company”), a Maryland corporation, will be held on Thursday, June 10, 2010, at 10:00 A.M. local time, at The Westin Annapolis hotel, 100 Westgate Circle, Annapolis, MD 21401 for the following purposes:

 

1. To elect each of the Class III director nominees listed in this proxy statement (“Proxy Statement”) to hold office until the Annual Meeting of Stockholders of the Company to be held in 2013 and until their successors are duly elected and qualify.

 

2. To consider a proposal to approve an amendment to the Stock Incentive Plan.

 

3. To consider a proposal to approve an amendment to the Employee Stock Purchase Plan.

 

4. To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof.

 

The Board of Directors has fixed the close of business on April 30, 2010 as the record date (the “Record Date”) for the determination of stockholders who will be entitled to notice of the Annual Meeting and to vote at the Annual Meeting or any adjournments or postponements thereof. Therefore, only record holders of TeleCommunication Systems, Inc. Class A Common Stock and Class B Common Stock at the close of business on that date are entitled to notice of and to vote shares held on the Record Date at the Annual Meeting and any adjournments or postponements thereof.

 

If you plan to attend the Annual Meeting, please be prepared to present valid picture identification. If you hold your shares through a broker or other nominee, the Company will accept proof of ownership only if you bring either a copy of the voting instruction card provided by your broker or nominee or a copy of a brokerage statement showing your share ownership in the Company as of the Record Date.

 

Whether or not you expect to attend the Annual Meeting, we urge you to carefully review the enclosed materials. Your vote is important. All stockholders are urged to attend the Annual Meeting in person or by proxy. If you receive more than one proxy card because your shares are registered in different names or at different addresses, please indicate your vote, sign, date and return each proxy card so that all of your shares will be represented at the Annual Meeting. If you attend the Annual Meeting, you may choose to vote in person even if you previously have sent in your proxy card.

 

By Order of the Board of Directors

 

Bruce A. White
Secretary
Annapolis, Maryland
May 3, 2010

Important Notice Regarding the Availability of Proxy Materials for
The Annual Meeting to be held on June 10, 2010

 

 

This Proxy Statement and our Annual Report on Form 10-K for the Year Ended December 31, 2009
are Available on the Internet at https://www.proxydocs.com/tsys.

 

You are receiving this communication because you hold shares in the Company, and the materials you should review before you cast your vote are now available.

 

This communication presents only an overview of the more complete proxy materials that are available to you on the internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.

 

	•	Notice and Proxy Statement
	•	Form 10-K

TeleCommunication Systems, Inc.
275 West Street, Suite 400
Annapolis, Maryland 21401

 

PROXY STATEMENT

 

Why Am I Receiving this Proxy Statement and Proxy Card?

 

You are receiving this Proxy Statement and a proxy card because you own shares of common stock, either Class A Common Stock, par value $0.01 per share (the “Class A Common Stock”), or Class B Common Stock, par value $0.01 per share (the “Class B Common Stock,” and together with the Class A Common Stock, the “Common Stock”) of TCS. This Proxy Statement describes the issues on which we would like you, as a stockholder, to vote. It also gives you information on these issues so that you can make an informed decision.

 

When you sign the proxy card, you appoint Bruce A. White, Secretary of the corporation, as your proxy at the Annual Meeting. Mr. White will vote your shares as you have instructed them on the proxy card at the Annual Meeting. This way, your shares will be voted whether or not you attend the Annual Meeting. Even if you plan to attend the Annual Meeting, it is a good idea to complete, sign and return your proxy card in advance of the Annual Meeting just in case your plans change. This Proxy Statement is being mailed to you on or about May 3, 2010.

 

If an issue comes up for vote at the Annual Meeting that is not on the proxy card, Mr. White will vote your shares, under your proxy, in accordance with his best judgment.

 

Who Is Soliciting this Proxy?

 

The TCS Board of Directors is soliciting your proxy to vote your shares at the Annual Meeting.

 

What Is the Purpose of the Annual Meeting?

 

The business to be conducted at the Annual Meeting is set forth in the formal notice. Specifically, the matters include:

 

 

What Are The Board’s Recommendations?

 

The Board’s recommendations are to vote:

 

 

Unless you give other instructions on your proxy card, Mr. White, in his capacity as proxy holder, will vote in accordance with the recommendations of the Board of Directors.

 

With respect to any other matter that properly comes before the Annual Meeting, the proxy holder will vote in his own discretion.

Who Is Entitled to Vote?

 

Only stockholders of record at the close of business on the record date, April 30, 2010 (the “Record Date”), are entitled to receive notice of the Annual Meeting and to vote the shares of Common Stock that they held on that date at the Annual Meeting, or any adjournments or postponements thereof. At the close of business on April 26, 2010, 46,746,189 shares of TCS Class A Common Stock and 6,176,334 shares of Class B Common Stock were outstanding and entitled to receive notice and to vote at the Annual Meeting.

 

How Many Votes Does Each Share of Common Stock Entitle its Holder to Cast?

 

Each share of Class A Common Stock is entitled to one vote per share at the Annual Meeting. Each share of Class B Common Stock is entitled to three votes per share at the Annual Meeting.

 

Who Can Attend the Annual Meeting?

 

Only stockholders as of the Record Date, or their duly appointed proxies, may attend the Annual Meeting. Registration and seating will begin at 9:30 a.m. Stockholders may be asked to present valid picture identification, such as a driver’s license or passport. Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting.

 

Please note that if you hold your shares in “street name” (that is, through a broker or other nominee), you must bring either a copy of the voting instruction card provided by your broker or nominee or a copy of a brokerage statement reflecting your stock ownership as of the Record Date and check in at the registration desk prior to the start of the Annual Meeting.

 

How Do I Vote?

 

You May Vote by Mail. You do this by signing the enclosed proxy card and mailing it in the enclosed, prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct.

 

If you return a signed proxy card but do not provide voting instructions, your shares will be voted:

 

 

You May Vote in Person at the Annual Meeting. Written ballots will be passed out to stockholders entitled to vote at the Annual Meeting. If you hold your shares in “street name” (through a broker or other nominee), you must request a legal proxy from your stockbroker to vote at the Annual Meeting in order to be able to cast your vote by written ballot.

 

How Many Votes Do We Need to Hold the Annual Meeting?

 

In order to conduct business at the Annual Meeting, our Second Amended and Restated Bylaws (the “Bylaws”) require the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast on the matters to be presented at the Annual Meeting. This is called a “quorum”. Abstentions, properly executed proxy cards received by us but marked “WITHHOLD AUTHORITY” and “broker non-votes” (as defined below) are included in calculating whether a quorum is present.

 

What Vote Is Required to Approve Each Item?

 

Election of the Nominees for Director

 

If a quorum is present, the affirmative vote of a plurality of all the votes cast at the Annual Meeting is required for the election of directors. “Plurality” means that the individuals who receive the largest number of

votes cast are elected as directors. Consequently, abstentions, properly executed proxy cards marked “WITHHOLD AUTHORITY” and broker non-votes do not have any impact on the election of directors.

 

Unless a properly executed proxy card is marked “WITHHOLD AUTHORITY,” the proxy given will be voted “FOR” each of the nominees for director.

 

Approval of the Stock Incentive Plan

 

If a quorum is present, the approval of the Stock Incentive Plan requires an affirmative vote of a majority of all the votes cast in person or by proxy and entitled to vote. A properly executed proxy card marked “ABSTAIN” with respect to the proposal to amend the Stock Incentive Plan will not be voted. Accordingly, abstentions and broker non-votes will have no impact on the vote concerning the proposal.

 

Approval of the Employee Stock Purchase Plan

 

If a quorum is present, the approval of the Employee Stock Purchase Plan requires an affirmative vote of a majority of all the votes cast in person or by proxy and entitled to vote. A properly executed proxy card marked “ABSTAIN” with respect to the proposal to amend the Employee Stock Purchase Plan will not be voted. Accordingly, abstentions and broker non-votes will have no impact on the vote concerning the proposal.

 

Transaction of Other Business

 

If a quorum is present, the approval of any other proposal that may properly come before the Annual Meeting generally requires an affirmative vote of a majority of all the votes cast in person or by proxy and entitled to vote. A properly executed proxy card marked “ABSTAIN” with respect to the transaction of other business and broker non-votes will not be voted. Accordingly, abstentions and broker non-votes will have no impact on the vote concerning the proposal.

 

Can I Change My Vote or Revoke My Proxy After I Return My Proxy Card?

 

Yes. Even after you have submitted your proxy card, you may change your vote at any time before the proxy is voted at the Annual Meeting by Mr. White by mailing to the Secretary of TCS, either a written notice of revocation or an executed proxy card with a later date than the one you previously submitted, at TCS’s offices, 275 West Street, Annapolis, Maryland 21401. You can also revoke your proxy at the Annual Meeting on a ballot that we will provide at the Annual Meeting, or you can appear in person at the Annual Meeting and vote, in person, the shares to which your proxy relates. Attendance at the Annual Meeting will not by itself revoke a previously granted proxy.

 

What If I Wish to Withhold Authority from Voting on the Election of a Particular Director Nominee or all of the Director Nominees?

 

If you wish to withhold authority from voting on the election of a particular director or all of the directors, you may do so by marking “WITHHOLD AUTHORITY,” as applicable, on the enclosed proxy card.

 

Will My Shares Be Voted If I Do Not Sign and Return My Proxy Card?

 

If your shares are held in your name, you must return your proxy (or attend the Annual Meeting in person) in order to vote on the proposals. If your shares are held in street name and you do not vote your proxy, your brokerage firm may either: (i) vote your shares on routine matters, or (ii) leave your shares unvoted. Under the rules that govern brokers who have record ownership of shares that are held in “street name” for their clients, brokers may vote such shares on behalf of their clients with respect to “routine” matters, but not with respect to non-routine matters. If the proposals to be acted upon at any meeting include both routine and non-routine matters, the broker may turn in a proxy card for uninstructed shares that votes FOR the routine matters, but expressly states that the broker is not voting on non-routine matters. This is called a “broker non-vote.” Broker non-votes will not be counted for the purpose of determining the number of votes cast.

We encourage you to provide instructions to your brokerage firm if your shares are held in street name. This ensures that your shares will be voted at the Annual Meeting.

 

Who Pays the Cost of Solicitation of My Proxy?

 

The expense of soliciting proxies and the cost of preparing, assembling and mailing proxy materials in connection with the solicitation of proxies will be paid for by TCS. In addition to the use of mails, certain directors, officers or employees of TCS, who receive no compensation for their services other than their regular salaries, may solicit proxies. Arrangements may be made with brokers and other custodians, nominees and fiduciaries to send proxies and proxy materials to their principals and TCS may reimburse them for reasonable out-of-pocket and clerical expenses.

 

When are Stockholder Proposals and Nominations for the Election of Directors for the 2011 Annual Meeting of Stockholders Due?

 

The Company provides all stockholders with the opportunity, under certain circumstances and consistent with the Bylaws and the rules of the Securities and Exchange Commission (“SEC”), to participate in the governance of the Company by submitting proposals that they believe merit consideration and nominations for the election of directors at the Annual Meeting of Stockholders to be held in 2011. To enable management adequately to analyze and respond to proposals stockholders wish to have included in the Proxy Statement and proxy card for that meeting, SEC Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires that any such proposal be received by the Company in writing no later than January 3, 2011. Any stockholder proposal or director nomination must also be in compliance with the Bylaws. Pursuant to the Bylaws, any stockholder proposal or director nomination for that meeting that is submitted outside the processes of Rule 14a-8 will be considered “untimely” if it is received by the Company earlier than January 3, 2011 or later than February 2, 2011.

 

Proxies solicited by the Board of Directors for the Annual Meeting of Stockholders to be held in 2011 may confer discretionary authority to vote on any untimely stockholder proposals or director nominations without express direction from stockholders giving such proxies. All stockholder proposals and director nominations must be addressed to the attention of the Secretary at 275 West Street, Annapolis, Maryland 21401. The Chairman of the Annual Meeting may refuse to acknowledge the introduction of any stockholder proposal or director nomination not made in compliance with the Bylaws or the foregoing procedures.

 

Can I receive a copy of the Annual Report?

 

Yes. We will provide a copy of our Annual Report on Form 10K for the year ended December 31, 2009 (the “Annual Report”) without charge, upon written request, to any registered or beneficial owner of Common Stock entitled to vote at the Annual Meeting. Requests should be made in writing addressed to Investor Relations, TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland 21401. A copy of the Annual Report can be downloaded by accessing the Company’s website at: http://phx.corporate-ir.net/phoenix.zhtml?c=123361&p=irol-reportsAnnual. The SEC also maintains a website at http://www.sec.gov that contains the filings made by TCS with the SEC, including the Annual Report.

 

Where and When Will I be Able to Find the Results of the Voting?

 

Preliminary results will be announced at the Annual Meeting and we will publish the preliminary results within four business days after the Annual Meeting via a Current Report on Form 8-K.

 

Our Amended and Restated Articles of Incorporation provide that our Board of Directors is divided into three classes based on their terms of office: Class I, Class II and Class III. Such classes shall be as nearly equal in number of directors as possible. Generally, each director serves for a term ending on the third annual meeting of stockholders following the annual meeting at which that director was elected, except when a director is first assigned to a class of director then serving for a term which is shorter than three years. Our Bylaws provide that a majority of the then-existing Board of Directors may fill a vacancy on the Board of Directors at any time, and that such director elected by the Board of Directors serves until the next annual meeting of stockholders and until his or her successor is elected and qualifies. Our Bylaws also provide that a majority of the then existing Board of Directors may increase the number of directors which constitutes our Board of Directors at any time up to a maximum of fifteen.

 

Our Board of Directors currently has eight members: Maurice B. Tosé, Thomas M. Brandt, Jr., James M. Bethmann, Clyde A. Heintzelman, Jan C. Huly, Richard A. Kozak, Weldon H. Latham and Richard A. Young, divided into three classes with staggered three-year terms.

 

The Board of Directors is soliciting proxies to re-elect each of Messrs. Tosé, Bethmann and Young as described herein. Messrs. Tosé and Bethmann were elected as Class III directors at the 2007 Annual Meeting of Stockholders to hold office until the 2010 Annual Meeting of Stockholders. Mr. Young was elected as a Class III director at the 2009 Annual Meeting of Stockholders to hold office until the 2010 Annual Meeting of Stockholders. All directors have been duly elected by the stockholders. Set forth below is information regarding each of these director nominees and the other continuing directors, including background information and information regarding the specific experience, qualifications, attributes and skills that support the conclusion that these nominees should serve as directors of TCS.

 

Nominees for Director

 

At the Annual Meeting, the stockholders will have the opportunity to elect three Class III director nominees to hold office until the Annual Meeting of Stockholders to be held in 2013 and until their successors are duly elected and qualify, except in the event of the director’s earlier death, resignation or removal. Unless otherwise specified, your proxy will be voted “FOR” the election of each of the nominees listed below, except that in the event any of those named should not continue to be available for election, discretionary authority may be exercised by the proxy holder to vote for a substitute of his choice. However, TCS knows of no circumstances that would make any nominee named herein unavailable. Each nominee is a current member of the Board of Directors.

 

The following nominees for director will serve until the Annual Meeting of Stockholders in 2013 and until their respective successors are duly elected and qualify.

 

Class III Director Nominees:

 

Maurice B. Tosé, 53, Chairman of the Board, President and Chief Executive Officer.

 

Maurice B. Tosé founded TeleCommunication Systems (TCS) in 1987 and has been Chairman of the Board, President and CEO since then. Prior to founding TCS, Mr. Tosé was the Director of Department of Defense Programs for Techmatics, Inc. Mr. Tosé graduated from the United States Naval Academy with a Bachelor of Science degree in operations analysis. Following his graduation, he served on active duty in the United States Navy for eight years, three and a half of which were as an instructor at the U.S. Naval Academy. He retired from the Navy Reserve as a commander after 30 years of combined active and reserve service. Mr. Tosé serves on the board of directors of the U.S. Naval Academy Foundation. He also serves as a member of the Federal Communications Commission’s (FCC) Communications Security, Reliability, and Interoperability Council (CSRIC) and is a member of the Maryland Governor’s International Advisory Council.

As our co-founder, leader and one of our largest stockholders since the Company’s inception, Mr. Tosé possesses a deep understanding and appreciation of all aspects of TCS, its history and its business. The Nominating and Governance Committee has considered this in recommending that he is qualified to serve on and lead our Board of Directors.

 

James M. Bethmann, 55, Chairman of the Compensation Committee, Member of the Nominating and Governance Committee.

 

James M. Bethmann joined the Board of Directors in April 2006. He is a Managing Partner of The Caldwell Partners International, a retained executive search firm, and previously served as President of Recognition International, a supplier of high-performance document recognition systems, image, and workflow software solutions to leading businesses in the Americas, the Pacific Rim, and Europe. Additional prior executive search positions include Vice Chairman of Highland Partners; Managing Director of Heidrick and Struggles; Managing Director and Co-Lead of Korn/Ferry International’s Advanced Technology practice in North America; and Lead for Russell Reynolds Associates’ Southwest Technology Practice. Mr. Bethmann began his career in the United States Navy, achieving the rank of Lieutenant Commander. He holds a Bachelor of Science degree from the U.S. Naval Academy, for which institution he is also a board trustee.

 

In recommending Mr. Bethmann as a nominee for election as a director of the Company, the Nominating and Governance Committee considered his background and position at a retained executive search firm, as a result of which he has developed familiarity with the expectations of senior management in our industry, and his experience as Managing Director of the organizations where he has served. Mr. Bethmann’s experience running a company which sold into international markets was also considered in determining that Mr. Bethmann is qualified to serve on our Board of Directors.

 

Richard A. Young, 63, Executive Vice President and Chief Operating Officer.

 

Richard A. Young joined TCS in 1992 and was elected to the Company’s board of directors in 2009. He has extensive experience in technology management with in-depth technical experience in hardware and software lifecycle program management. Prior to joining TCS, Mr. Young worked as Senior Manager for ICF Information Technology, Inc., where he was responsible for managing technical staff in designing and developing applications to customer specifications. From 1986 to 1989, Mr. Young was Director of the Information Systems Department of the Navy Recruiting Command, where he managed the technical team responsible for the information management requirements of the nationwide recruiting force. He retired in 1989 from 20 years active duty service in the U.S. Navy where he was a helicopter pilot, including piloting missions during the Vietnam conflict. Mr. Young holds a Bachelor of Science degree in engineering from the U.S. Naval Academy and a Master of Science degree in information technology from the Naval Postgraduate School.

 

In recommending Mr. Young as a nominee for election as a director of the Company, the Nominating and Governance Committee reviewed his extensive experience in technology management as well as his eighteen years of managing all aspects of our business. Mr. Young has a deep understanding of all aspects of our business and history and is qualified to serve on our Board of Directors.

 

THE BOARD RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES.

 

Class I Directors — Terms expiring in 2011

 

Clyde A. Heintzelman, 71, Member of the Audit Committee.

 

Clyde A. Heintzelman joined the Board of Directors in December 1999. He most recently was Board Chairman of Citel, a company focused on enabling enterprise IP telephony with existing PBX infrastructure, prior to its sale. Mr. Heintzelman’s other appointments have included the following: Board Chairman and interim President and CEO of Optelecom, Inc.; President of Net2000 Communications; President and CEO of SAVVIS Communications Corporation; President and COO of DIGEX, Inc.; and General Manager for Bell Atlantic. In addition to his membership on the TCS board of directors, Mr. Heintzelman also serves on the board of directors

for both SAVVIS Communications Corporation and ITC Deltacom. Mr. Heintzelman graduated from the University of Delaware with a bachelor of science degree in marketing.

 

In determining that Mr. Heintzelman should continue serving as a director of the Company, the Nominating and Governance Committee considered his previous experience as Chief Executive Officer of technology companies such as Optelecom, Net2000 and SAVVIS, and his experience serving on the boards of other publicly traded companies such as SAVVIS and ITC Deltacom. Mr. Heintzelman’s demonstrated management and leadership experience as General Manager for Bell Atlantic were also skills and attributes that led the Nominating and Governance Committee to conclude that his abilities continue to fit with the needs of our Board of Directors.

 

Richard A. Kozak, 64, Chairman of the Audit Committee.

 

Richard A. Kozak joined the Board of Directors in December 1999. He is currently Chief Executive Officer of R&D2 LLC, a business that helps early-stage companies commercialize their intellectual property assets. In 1998, Mr. Kozak founded, and became Chairman and Chief Executive Officer of, 1eEurope, Ltd. (formerly Galileo Communications, Ltd.,) a portfolio of companies focused on providing integrated e-business solutions to middle and large-size companies throughout Europe. In 1993, he co-founded American Communications Services, Inc. (which became e.spire Communications, Inc.) where he served as President, Chief Executive Officer, and Board Member. Mr. Kozak was President of the Southern Division of MFS Communications, which was acquired by MCI WorldCom. He also served as Vice President and General Manager of Global Messaging Services for GTE Telenet (now part of Sprint International). Mr. Kozak holds a Bachelor of Science degree in engineering from Brown University and an MBA in finance from The George Washington University School of Government and Business Administration. He is a member of the board of advisors for both the Dingman School of Entrepreneurship at the University of Maryland and the Chesapeake Innovation Center in Annapolis, Maryland.

 

In determining that Mr. Kozak should continue serving as a director of the Company, the Nominating and Governance Committee considered his previous experience founding and leading technology companies such as 1eEurope and American Communications Services. Mr. Kozak’s experience as CEO of R&D2 and as General Manager of a division of GTE Telenet also led the Nominating and Governance Committee to conclude that his abilities continue to fit with the needs of our Board of Directors.

 

Thomas M. Brandt, Jr., 58, Senior Vice President & Chief Financial Officer.

 

Thomas M. Brandt, Jr. joined TCS in 1997. As Senior Vice President and Chief financial Officer, he is responsible for the Company’s financial management, reporting, controls, accounting, and administration. He joined the TCS board of directors in 2009. Prior to TCS, he served as Chief Financial Officer of the internet service provider Digex, Inc., where he helped lead an IPO. Mr. Brandt previously had been Chief Financial Officer and Controller for several other corporations, including a Fortune 500 New York Stock Exchange company. He also spent 12 years with Price Waterhouse. Mr. Brandt also serves on the boards of Antenna Research Associates, a private communications technology manufacturing company, and TechAmerica (formerly AeA), the largest US IT trade association. Mr. Brandt is a Certified Public Accountant. He earned an AB from Duke University and an MBA from the Wharton School of the University of Pennsylvania.

 

In determining that Mr. Brandt should continue serving as a director of the Company, the Nominating and Governance Committee considered his experience with all aspects of the financial management of our Company since 1997. His experience as CFO of Digex and as CFO and Controller of other publicly traded companies, as well as his experience with an independent auditing firm were instrumental in leading the Nominating and Governance Committee to conclude that his abilities and expertise continue to fit with the needs of our Board of Directors.

 

Class II Directors — Terms expiring in 2012

 

Weldon H. Latham, 63, Chairman of the Nominating and Governance Committee, and Member of the Compensation Committee.

 

Weldon H. Latham joined the Board of Directors in December 1999. Mr. Latham is currently a senior partner at the law firm of Jackson Lewis LLP. Since 1986, Mr. Latham has been a senior partner with various law firms including Davis Wright Tremaine, Holland & Knight, Shaw Pittman, and Reed Smith. Mr. Latham was Vice

President and General Counsel for Sterling Systems Inc., a software company subsequently acquired by Planning Research Corporation (PRC). He became Executive Assistant and Counsel to PRC’s Chairman and CEO. He also served as General Deputy Assistant Secretary for the U.S. Department of Housing and Urban Development, and previously as Assistant General Counsel, White House Office of the Air Force Secretary, General Counsel’s Honors Program. Mr. Latham holds a BA in business administration from Howard University, a J.D. from the Georgetown University Law Center, and an Executive Management Certificate from the Amos Tuck Business School at Dartmouth College.

 

In determining that Mr. Latham should continue serving as a director of the Company, the Nominating and Governance Committee considered his extensive experience as a senior partner of several law firms and the resources he brings through those positions. Mr. Latham’s experience working in technology companies such as Sterling Systems/PRC was also considered when the Nominating and Governance Committee determined that his abilities and expertise continue to fit with the needs of our Board of Directors.

 

Jan C. Huly, 62, Member of the Audit Committee.

 

Retired Lieutenant General Jan C. Huly was appointed to the Board of Directors in January 2009. Lt. Gen. Huly retired from the Marine Corps in 2006 after nearly 37 years of service. In his last assignment as Deputy Commandant, Plans, Policies and Operations, Lt. Gen. Huly was the principal operations officer for the Marine Corps. This included staff coordination for operational matters, combat readiness, and security. Lt. Gen. Huly is a member of the Department of Defense’s Defense Science Board and is a board member for the Marine Corps Scholarship Foundation. He holds a Bachelor of Arts degree from the University of California, Berkeley, and a Master of Arts degree from Central Michigan University.

 

In determining that Mr. Huly should continue serving as a director of the Company, the Nominating and Governance Committee considered his experience as Deputy Commandant of the Marine Corps and that such a position provides insight into the challenges associated with managing complex organizations and holding management accountable for a company’s performance. Familiarity with core customers including requirements for acquisition of products and services were also considered when the Nominating and Governance Committee concluded that Mr. Huly is qualified to continue serving on our Board of Directors.

 

The Board of Directors oversees the overall performance of the Company. Members of the Board of Directors stay informed of the Company’s business by participating in Board and committee meetings, by reviewing materials provided to them prior to meetings and otherwise, and through discussions with the Chief Executive Officer and other members of management and staff.

 

Committees of the Board of Directors met a total of ten times in 2009. In addition, the full Board met eight times during 2009 to review the actions of the Committees and attend to other TCS business. All of the directors attended 100% of the meetings of the Board of Directors and Board Committees of which they were a member. All of the members of the Board of Directors also attended the 2009 Annual Meeting of Stockholders.

 

The Board of Directors has determined that each member of the Board of Directors, other than Messrs. Tosé, Young and Brandt, is “independent” as defined by the listing standards of the Nasdaq, within the meaning of Rule 4200(a)(15) of the Nasdaq Stock Market.

 

Mr. Tosé currently serves as the Chairman of the Board of Directors and Chief Executive Officer of the Company and we do not have a lead independent director. At this time, the Board of Directors believes that the Company and its stockholders are best served by having Mr. Tosé serve as Chairman and Chief Executive Officer. Mr. Tosé’s tenure as Chief Executive Officer since the Company’s formation, his more than 22 years of

experience leading TCS and his significant ownership interest in the Company uniquely qualify him to serve as both Chairman and Chief Executive Officer. In addition, the Board of Directors believes that Mr. Tosé’s combined role as Chairman and Chief Executive Officer promotes unified leadership and direction for the Board of Directors and executive management, and his knowledge of the Company’s business operations makes it appropriate for him to lead the discussions of the Board of Directors.

 

The Company does not have a lead independent director because the Board of Directors believes that it is currently best served without designating a single lead independent director. The Board of Directors believes that the current leadership structure is appropriate given Mr. Tosé’s status as founder of the Company, his extensive executive and leadership experience, the size of the Company and the leadership roles served by other senior management and directors. In addition, many key Company actions occur through the Audit Committee, the Compensation Committee or the Nominating and Governance Committee. Each of these committees is comprised solely of “independent” directors within the meaning of Rule 4200(a)(15) of the Nasdaq Stock Market. The chairmen of those respective committees lead and direct the matters relating to those committees and thus have indirect responsibility for board agendas, discussions and deliberations relative to those topics. In addition, the Board of Directors and each of these committees have complete and open access to any member of the Company’s senior management and the authority to retain independent legal, financial and other advisors as they deem appropriate without consulting or obtaining the approval of any member of the Company’s management. Given these historic practices, the Company has not designated a lead director.

 

The Board of Directors oversees our processes to manage risk at the Board and senior management levels. The Board of Directors delegates much of this responsibility to the Audit Committee. Under its charter, the Audit Committee shall discuss with management the Company’s major financial risk exposures and steps management has taken to limit, monitor or control such exposure. While the Board and Audit Committee oversee our Company’s risk management, our senior management is responsible for the development, implementation, and maintenance of our risk management processes and provides periodic reports to the Board of Directors and its committees, as appropriate, on its assessment of strategic, operational, legal and compliance, and financial reporting risks to the Company. The Board of Directors and its committees, as appropriate, review and consider the management reports provided on the Company’s enterprise risk and risk management strategy, make recommendations, and suggest changes if appropriate.

 

The Board of Directors has adopted a written code of ethics and business conduct, a copy of which is available on the Company’s website at www.telecomsys.com. The Company requires all officers, directors and employees to adhere to this code in addressing the legal and ethical issues encountered in conducting their work. The code requires that employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner and otherwise act with integrity and in the Company’s best interest. Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the code. The Sarbanes-Oxley Act of 2002 requires companies to have procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Company currently has such procedures in place.

 

The Board of Directors believes that adherence to sound corporate governance policies and practices is important in ensuring that our Company is governed and managed with the highest standards of responsibility, ethics and integrity and in the best interests of the stockholders. The Company’s Corporate Governance Guidelines are intended to reflect a set of core values that provide the foundation for our governance and management systems and our interactions with others.

 

Stockholders may send correspondence to the Board of Directors or to any individual Director at the following address: TeleCommunication Systems, Inc., 275 West Street, Suite 400, Annapolis, MD 21401. The communication should indicate that the sender is a stockholder. Based on procedures approved by the Nominating and Governance Committee of the Board of Directors, the General Counsel and Secretary will retain and not send to Directors communications that are purely promotional or commercial in nature or other topics that clearly are unrelated to Director responsibilities. These types of communications will be logged and filed but not circulated to Directors. The General Counsel and Secretary will review and log all other communications and subsequently deliver it to the specified Directors. Further information about communicating with the Board of Directors is available on the Company’s website at www.telecomsys.com/investor_info/corp_governance.cfm.

 

The Board of Directors has an Audit Committee, a Nominating and Governance Committee and a Compensation Committee, the membership and functions of which are described below.

 

Audit Committee

 

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors and its members are Mr. Richard A. Kozak, Mr. Clyde A. Heintzelman and Mr. Jan C. Huly. The members of the Audit Committee are “independent” as defined by the listing standards of the Nasdaq. The Board of Directors has determined that Mr. Kozak, Chairman of the Audit Committee, is an “audit committee financial expert” under the relevant rules of the SEC.

 

The charter for the Audit Committee may be found on the TCS Website (http://www.telecomsys.com). Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the Committee reviewed and discussed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

 

The Audit Committee held four quarterly meetings in 2009 to review quarterly operating results, and one additional meeting to review other matters. The Audit Committee met in executive session with Ernst & Young representatives and/or the Company’s internal auditor, without the presence of management, three times during 2009.

 

Nominating and Governance Committee

 

The Board of Directors maintains a Nominating and Governance Committee, which is currently comprised of Messrs. Latham and Bethmann. The charter of the Nominating and Governance Committee provides for it to be comprised of three members. The Committee has elected Mr. Latham to serve as its Chairman. The Nominating and Governance Committee has the responsibility to recommend persons for membership on the Board of Directors, including consideration of any nominees submitted to the Board of Directors by stockholders, to establish criteria and procedures for the selection of new directors, to assist the Board of Directors with the evaluation of its overall effectiveness, and to develop and recommend any changes to the Corporate Governance Guidelines. The Nominating and Governance Committee met once in 2009. The Nominating and Governance Committee Charter is available on the Company’s website at www.telecomsys.com and will be provided to stockholders upon request.

 

The Board of Directors believes that the interests of the stockholders are best served by having a substantial number of objective, independent representatives on the Board. For this purpose, a director will be considered to be “independent” only if the Board affirmatively determines that the director does not have any direct or indirect material relationship with us that may impair, or appear to impair, the director’s ability to make independent judgments.

 

The Nominating and Governance Committee uses a variety of criteria to evaluate the qualifications and skills necessary for members of the Board of Directors. Under these criteria, members of the Board of Directors should have the highest professional and personal ethics and values, consistent with longstanding values and standards of the Company. Members of the Board of Directors should have broad experience at the policy-making level in business, government, technology or public interest. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience.

 

In identifying candidates for membership on the Board of Directors, the Nominating and Governance Committee takes into account all factors it considers appropriate, which may include strength of character, conflict of interest, maturity of judgment, career specialization, relevant skills, diversity and the extent to which a particular candidate would fill a present need on the Board of Directors. The Nominating and Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees. Consistent with the committee’s charter and the Corporate Governance Guidelines, when identifying director nominees, the committee considers general principles of diversity, and does so in the broadest sense. At a minimum, director candidates must have unimpeachable character and integrity, sufficient time to carry out their duties, the ability to read and understand financial statements, experience at senior levels in areas relevant to the Company and consistent with the objective of having a diverse and experienced Board, the ability and willingness to exercise sound business judgment, the ability to work well with others and the willingness to assume the responsibilities required of a director of the Company. Each member of the Board of Directors must represent the interests of the stockholders of the Company. The Nominating and Governance Committee also believes it is in the stockholders’ best interest for certain key members of our current management to participate as members of the Board of Directors.

 

The Nominating and Governance Committee reviews and determines whether existing members of the Board of Directors should stand for reelection, taking into consideration matters relating to the age and number of terms served by individual directors and changes in the needs of the Board.

 

Once the Nominating and Governance Committee has selected appropriate candidates for election as a director, it presents the candidates to the full Board of Directors for (a) election, if the selection has occurred during the course of the year, or (b) nomination, if the director is to be elected by the stockholders. Pursuant to our Bylaws, members of at least one class of Directors are nominated each year for election by the stockholders and are included in the Company’s Proxy Statement.

 

The Nominating and Governance Committee assesses the appropriate size of the Board of Directors and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating and Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Governance Committee through current members of the Board of Directors, professional search firms, stockholders or other persons. These candidates are evaluated by the Nominating and Governance Committee, and may be considered at any point during the year. The Nominating and Governance Committee will consider stockholder recommendations for candidates for the Board of Directors that are properly submitted in accordance with the Bylaws. In evaluating such recommendations, the Nominating and Governance Committee will use the qualifications standards discussed above and seek to achieve a balance of knowledge, experience and capability on the Board of Directors.

 

The Bylaws provide the procedure for stockholders to make director nominations. A stockholder’s notice must be delivered to or mailed and received by the Secretary at the principal executive offices of the Company:

 

 

 

A stockholder’s notice to the Secretary must be in writing and set forth:

 

 

Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. No person shall be eligible for election as a director of the Company unless nominated in accordance with the procedures set forth above. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. No adjournment or postponement of a meeting of stockholders shall commence a new period for the giving of notice of a stockholder proposal hereunder.

 

Compensation Committee

 

The Compensation Committee, which met four times in 2009, consists of Messrs. Bethmann and Latham. The charter of the Compensation Committee provides that it will be comprised of three members. The Compensation Committee approves the design of, assesses the effectiveness of, and administers executive compensation programs in support of stockholder interests. The Compensation Committee has the responsibility and authority to supervise and review the affairs of the Company as they relate to total compensation and benefits, including compensation strategy, philosophy and planning, and policies regarding the acquisition, retention and motivation of personnel. The Compensation Committee determines the compensation of our Chief Executive Officer and President and the compensation of the other Named Executive Officers. In making these determinations, the Compensation Committee takes into account the recommendations of the Chief Executive Officer. The Compensation Committee administers the Stock Incentive Plan, Employee Stock Purchase Plan and other executive officer compensation plans. The Compensation Committee’s Charter is available on the Company’s website (www.telecomsys.com) and will be provided to stockholders upon request.

Our executive compensation programs are designed to achieve the following objectives:

 

 

The Board of Directors has elected the executive officers to serve for indefinite terms. The following table sets forth the name of each executive officer as of December 31, 2009 and the principal positions and offices he holds with the Company. Unless otherwise indicated, each of these officers has served as an executive officer of the Company for at least five years.

 

 

Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. The number of shares beneficially owned by a person includes shares of Class A Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of April 30, 2010. The shares issuable pursuant to these options are deemed outstanding for computing the percentage ownership of the person holding these options but are not deemed outstanding for the purposes of computing the percentage ownership of any other person.

 

The following table lists the number of shares of Class A Common Stock and Class B Common Stock beneficially owned by directors and our Named Executive Officers (as defined below under “Compensation of the Named Executive Officers”) of the Company as of April 30, 2010.

 

 

 

 

 

We provide what we believe is a competitive total compensation package to our executive management team through a combination of base salary, annual cash incentive, long-term equity incentive compensation and broad-based benefits programs. We place significant emphasis on pay for performance-based incentive compensation programs, which make compensation contingent on the attainment of Company and individual goals.

 

TCS does not utilize compensation policies or practices creating risks that are reasonably likely to have a material adverse effect on the Company. The following “Compensation Discussion and Analysis” section describes generally our compensation policies and practices that are applicable for executive and management employees. TCS uses common variable compensation designs, with a significant focus on corporate and business financial performance as generally described in this Proxy Statement.

 

We use the following principles to guide our decisions regarding executive compensation:

 

Provide compensation opportunities competitive with market levels.

 

To attract and retain executives with the ability and the experience necessary to lead us and deliver strong performance to our stockholders, we strive to provide a total compensation package that is competitive with total compensation provided by our industry peer group, which we construct to include the following companies:

 

 

We chose these companies because they are publicly traded companies in the commercial and technology sectors in which we operate and/or they are close to our size in terms of revenue and market capitalization. We believe that such companies provide an appropriate peer group because they consist of similar organizations against whom we compete for executive talent. We annually review the companies in our peer group and add or remove companies as necessary to insure that our peer group comparisons are meaningful. We changed our peer group slightly from the one used in 2008 by adding General Dynamics Corp. and LM Ericsson Telephone Company because their satellite services business and mobile communications systems lines have become

more comparable to our Government and Commercial Segment businesses, respectively. We used this same peer group when constructing the “performance graph” that appears in our Annual Report.

 

For each Named Executive Officer, we consider the relevance of data of our peer group, considering:

 

 

Base Salaries

 

We target base salaries to approximate the market median (50th percentile) for our peer group. To arrive at the 50th percentile for the base salaries of our Named Executive Officers, we consider the median of the data gathered from proxy statements for the positions of the Named Executive Officers in relation to the Named Executive Officers of our peer group for each position. We also use data from publicly available surveys, when available, in addition to our peer group, in order to have a more complete overview of the competitive market for our executive talent.

 

Cash Incentives

 

Incentive award opportunities are targeted to result in Bonus Opportunity Plan payments equal to the market median of cash incentives paid by our peer group assuming our target business objectives are achieved.

 

Long-Term Equity Compensation

 

Annual equity grants are targeted at the 75th percentile of the median level of market practices for the Named Executive Officer, but may be adjusted in the discretion of the Compensation Committee based on individual performance or other factors. The allocation between long-term and currently paid out compensation reflects consideration of how our peer companies use long-term and currently paid compensation to pay their Named Executive Officers because we feel it is important to maintain parity with competitors for our management team.

 

Total Compensation

 

Total compensation is targeted at the 75th percentile of our peer group, considering individual performance and experience. The targets for compensation are set at the beginning of each fiscal year. The Company’s operational performance achieved in fiscal year 2009 resulted in the Named Executive Officers earning total compensation which we believe met the targeted compensation set forth at the beginning of the year.

 

After review of the 2009 operational results, the Compensation Committee determined that senior management had delivered results which were superior to the Company’s peers, had executed in accordance with the plans set forth by the Compensation Committee in early 2009, and had earned a total compensation package that rewarded the outstanding performance.

 

Require performance goals to be achieved in order for the majority of the target pay levels to be earned.

 

Our executive compensation program emphasizes pay for performance. Performance is measured based on achievement of Company and individual performance goals that are aligned with our business strategy and are approved by our Compensation Committee after the annual business plan has been approved by the Board of Directors. If the target level for the performance goals is exceeded, executives have an opportunity to earn cash incentive awards above the median of the market of our peer group pursuant to our Bonus Opportunity Plan. If

the target levels for the performance goals are not achieved, executives may earn less or no Bonus Opportunity Plan payments.

 

Offer a comprehensive benefits package to all full-time employees.

 

We provide a competitive benefits package to all full-time employees which includes health and welfare benefits, such as medical, dental, vision care, disability insurance, life insurance benefits, and a 401(k) savings plan. We have no structured executive perquisite benefits (e.g., club memberships or company vehicles) for any executive officer, including the Named Executive Officers, and we currently do not provide any supplemental pensions to any executive officer, including the Named Executive Officers. In December 2008 the Compensation Committee adopted a Deferred Compensation Plan under which certain highly compensated employees, including the Named Executive Officers, are allowed to defer receipt of current income until some future period, which period must be determined prior to making contributions. The Company also may contribute compensation on behalf of an employee, including a Named Executive Officer, which will vest to the beneficiary employee at the pre-determined date.

 

Provide fair and equitable compensation.

 

We provide a total compensation program that we believe will be perceived by both our Named Executive Officers and our stockholders as fair and equitable. In addition to conducting analyses of market pay levels and considering individual circumstances related to each Named Executive Officer, we also consider the pay of each Named Executive Officer relative to each other Named Executive Officer and relative to other members of the management team. We have designed the total compensation programs to be consistent for our executive management team.

 

Certain Policies of our Executive Compensation Program

 

We have adopted the following material policies related to our executive compensation program:

 

 

The basic elements of our executive compensation programs are summarized in the table below, followed by a more detailed discussion of each compensation program.

 

 

In general, compensation or amounts realized by executives from prior compensation from us, such as gains from previously awarded stock options or restricted share awards, are not taken into account in setting other elements of compensation, such as base pay, Bonus Opportunity Plan payments, or awards of stock options or restricted shares under our long-term equity incentive program, because we believe that the opportunity for

additional cash and equity compensation is a significant motivator and we want our executives to be rewarded for contributing to our success. With respect to Named Executive Officers, we take into account their prior base salary and annual cash incentive, as well as the contribution expected to be made by the Named Executive Officer, the business needs and the role of the Named Executive Officer with us.

 

Base Salary

 

Annually we review salary ranges and individual salaries for our Named Executive Officers. We establish the base salary for each Named Executive Officer based on consideration of median pay levels of our peer group and internal factors, such as the individual’s performance and experience, and the pay of others on the executive team. We also consider CEO and other management recommendations, business requirements for certain skills, individual experience and contributions, the roles and responsibilities of the executive and other factors. Based on these considerations, the Compensation Committee approved a 4.5% increase to the 2008 base salaries for fiscal year 2009. We believe competitive base salary is necessary to attract and retain an executive management team with the appropriate abilities and experience required to lead us.

 

The base salaries paid to our Named Executive Officers are set forth below in the Summary Compensation Table. For the fiscal year ended December 31, 2009, cash compensation to our Named Executive Officers in the form of base salary was approximately $1,750,078, with our chief executive officer receiving approximately $497,530 of that amount. We believe that the base salary paid to our Named Executive Officers during 2009 achieves our executive compensation objectives, compares appropriately to our peer group and is within our target of providing a base salary at the market median.

 

Bonus Opportunity Plan Awards

 

Consistent with our emphasis on pay for performance incentive compensation programs, we have established a Bonus Opportunity Plan pursuant to which certain of our executive officers, including our Named Executive Officers, are eligible to receive Bonus Opportunity Plan awards based upon annual established performance targets, including financial and other measures, and individual performance, all at the discretion of the Compensation Committee. The Bonus Opportunity Plan is important to focus our Named Executive Officers’ efforts and reward them for annual operating results that help create value for our stockholders. The Bonus Opportunity Plan for 2009 was designed to create an opportunity for award representing approximately 35% to 55% of a Named Executive Officer’s total potential cash compensation, depending on the executive’s role, and included an opportunity for the award to exceed the target amount if certain operational results exceeded the performance metric.

 

Our Named Executive Officers exceeded essentially all of the target business objectives in 2009, which resulted in the Named Executive Officers as a group earning total cash bonuses above the amounts anticipated under the Bonus Opportunity Plan when the incentive plan targets for the Bonus Opportunity Plan were set through our annual planning process, which generally begins in October before each fiscal year.

 

The financial measures used to determine annual incentive cash payments for 2009 performance included total revenue and/or specific revenue targets for the operating unit within the executive’s control; net income/(loss) before depreciation, amortization of non-cash stock-based compensation, amortization of software development costs, property and equipment and other intangibles, and interest expense and other non-cash financing costs (collectively, “EBITDA”); net income; cash and cash equivalents balances at year-end; a goal tied to the financial covenant in our bank line of credit; and, in the case of our Chief Financial, Technology and Marketing Officers (the “CFO”, “CTO” and “CMO”), attainment of certain subjective goals related to the executive’s role. The Compensation Committee set individual subjective performance goals for only our CFO, CTO and CMO because their respective responsibilities include matters for which the results are more directly within their respective control and on which we want them to apply focused efforts. While these financial measures and individual goals form a framework for awarding incentive payments, the Compensation Committee retains discretion over the final amount of the payouts under the Bonus Opportunity Plan.

For 2009, the individual performance goals included:

 

Chief Financial Officer

 

 

Chief Technology Officer

 

 

Chief Marketing Officer

 

 

The targets for our Company and individual performance goals were established so that target attainment was not assured. The attainment of payment for performance at target or above would have required significant effort on the part of our executives.

 

The revenue measure is designed to reflect our objective of developing new products and markets, growing top line revenue, and expanding our market share in existing markets. To ensure we efficiently develop and expand our markets, the EBITDA measure motivates our executives to manage our costs and to take into account the appropriate level of expenses expected with our growth. The cash at year-end measure is designed to ensure that the appropriate level of attention is paid to the need to fund our operations and investments for the next rolling twelve-month period. The net income goal is designed to recognize and reward operational results that are aligned with stockholder interests. The subjective goals provide recognition for contributions made to the overall health of the business and are intended to capture how the Named Executive Officer has performed in areas that are not quantified in the major metrics.

 

A business plan which contains annual financial and strategic objectives is developed each year by management, reviewed and recommended by the Named Executive Officers, presented to the Board of Directors, and ultimately reviewed and approved by our Board of Directors with such changes as it deems appropriate. The Bonus Opportunity Plan is presented to the Compensation Committee for review and approval with such modifications as it deems appropriate.

 

Bonus Opportunity Plan awards are determined at year-end based on our performance against the approved Bonus Opportunity Plan targets. The Compensation Committee also has the ability to exercise discretion in adjusting awards based on factors it deems relevant which may include its consideration of each Named Executive Officer’s individual performance and for each Named Executive Officer other than the Chief Executive Officer, based on a review of such executive’s performance as communicated to the Compensation Committee by the Chief Executive Officer, internal pay equity among the Named Executive Officers, changing compensation practices within our peer group and other industries against which the Company competes for executive talent, customers and capital, our overall performance during the year, and any unusual or non-recurring business, financial or accounting matters otherwise impacting our performance. The Compensation Committee may modify (increase or decrease) the Bonus Opportunity Plan awards prior to their payment.

 

Shown as a percentage of the total Bonus Opportunity Plan award at target in the following table, is the weighting of the measures used to determine award payments to the Named Executive Officers for the fiscal year ended December 31, 2009:

 

 

The year-end cash goal applied only to the CEO and CFO because those executives have the most direct influence on the decisions that produce these results. The EBITDA goal was significantly more weighted with respect to our COO because he manages the Company’s operations and approves the expense and investment decisions that most significantly influence the EBITDA results. The revenue goal was significantly more weighted with respect to our CMO to focus his role as sales executive on driving top line results.

 

In early 2009, the Compensation Committee noted that Company results for 2008 reflected outstanding performance by the Named Executive Officers, and that performance had made a materially positive impact on the Company’s stock performance in the public markets. After discussion with management, the Compensation Committee determined that providing an incentive for the senior management team to remain employed with the Company and encouraging efforts toward continued achievement of EBITDA in 2009 would be important to sustain the momentum. In order to provide additional incentive opportunities, the Committee included in the 2009 Bonus Opportunity Plans the opportunity for each senior executive to earn additional variable incentive compensation under the deferred compensation plan if they remained employed and the Company achieved EBITDA during each 2009 fiscal quarter. The specific goals were met and the deferred compensation bonuses paid were:

 

 

No deferred compensation plan bonus opportunities were approved by the Compensation Committee for 2010.

 

Subject to the discretion of the Compensation Committee to adjust awards as described above, if a Named Executive Officer does not achieve 85% of all of his goals, there is no payout of the bonus opportunity. If a Named Executive Officer meets 85%, but not 100% of his goals, the Compensation Committee evaluates what percentage of his goals were met, and adjusts his actual payment downward accordingly. Subject to the discretion of the Compensation Committee to adjust awards as described above, if a Named Executive Officer exceeds all of his corporate goals and personal objectives, he receives his “target” payment and is eligible to also receive additional payments to the extent our Net Income results exceed our targets. The payment

opportunities under the 2009 annual Bonus Opportunity Plan are shown as a percentage of annual base salary at corresponding levels of performance against our goals as shown in the following table:

 

 

The actual annual incentive payments made to our Named Executive Officers pursuant to our Bonus Opportunity Plan for the fiscal year ended December 31, 2009 are set forth below in the Summary Compensation Table and were calculated in consideration of the following operational results:

 

 

 

 

We believe that the annual incentive payments made to our Named Executive Officers for the fiscal year ended December 31, 2009 achieved the objectives of our executive compensation program, compare appropriately to our peer group and are consistent with the Company’s superior performance in 2009. The Compensation Committee believed that as a result of the outstanding operational results achieved in 2009, the amounts payable to our Named Executive Officers should exceed our target of providing cash compensation at the 50th percentile of the market.

 

We award long-term equity incentive grants to executive officers, including the Named Executive Officers, as part of our total compensation package. These awards are consistent with our pay for performance principles and align the interests of the executive officers to the interests of our stockholders. The Compensation Committee reviews and approves the amount of each award to be granted to each Named Executive Officer. Long-term equity incentive awards are made pursuant to the Stock Incentive Plan.

 

Our long-term equity incentive compensation currently is primarily in the form of options to acquire shares of our Class A Common Stock, but some restricted shares also have been awarded in prior years. The value of the stock options awarded is dependent upon the performance of our Class A Common Stock price. While the

Stock Incentive Plan allows for other forms of equity compensation, the Compensation Committee and management believe that currently stock options and/or restricted shares are the appropriate vehicles to provide long-term incentive compensation to our executive officers because their characteristics are readily understood by our executives and investors, provide the long term incentive that we believe is important, and there currently is no compelling reason to develop more complex equity incentive programs. Other types of long-term equity incentive compensation may be considered in the future as our business strategy evolves.

 

Stock option awards provide our executive officers with the right to purchase shares of our Class A Common Stock at a fixed exercise price for a period of up to ten years under the Stock Incentive Plan. Stock options are earned on the basis of continued service to us and generally vest over three years, with one-third vesting at each one year anniversary of the date of grant.

 

The exercise price of each stock option granted in 2009 is the fair market value of our Class A Common Stock on the grant date. We do not have any program, plan or practice of setting the exercise price based on a date or price other than the fair market value of our Class A Common Stock on the grant date.

 

Our Named Executive Officers and other employees are eligible to receive annual awards of stock options based on the Company’s performance in the prior fiscal year. The grants are usually made in the first quarter of each fiscal year as soon as practical after operating results for the prior year have been finalized.

 

In setting individual grants, the Compensation Committee considers our performance relative to the financial and strategic objectives set forth in the annual business plan, the previous year’s individual performance of each Named Executive Officer, and the market pay levels for the Named Executive Officer. Annual grants are targeted at the 75th percentile of the median level of market practice for the executive officer, but may be adjusted in the discretion of the Compensation Committee based on individual performance or other factors. This analysis is also used to determine any new hire or promotion-related grants that may be made during the year.

 

Generally, we do not consider an executive officer’s stock holdings or previous stock option grants in determining the number of stock options to be granted. Moreover, we believe that our long-term incentive compensation program furthers our significant emphasis on pay for performance compensation.

 

While the vast majority of stock option awards to our Named Executive Officers have been made pursuant to our annual grant program or in connection with their hiring or promotion, the Compensation Committee retains discretion to make stock option awards to Named Executive Officers at other times, including in connection with the hiring of a new executive officer, the promotion of an executive officer, to reward executive officers, for retention purposes or for other circumstances recommended by management or the Compensation Committee. The exercise price of any such grant would be the fair market value of our stock on the grant date.

 

Retirement Savings Opportunity

 

All employees, including our Named Executive Officers, may participate in our 401(k) Retirement Savings Plan, or 401(k) plan. Each employee may make before-tax contributions up to the current Internal Revenue Service limits. We provide this plan to help our employees save some amount of their cash compensation for retirement in a tax efficient manner. We match contributions made by our employees to the 401(k) Plan at discretionary amounts. For 2009 we contributed 40% of each employee’s contribution to the 401(k) plan and we intend to contribute the same 40% level for 2010. We currently do not provide an option for our employees to invest in our Company’s stock in the 401(k) plan.

 

We currently offer a nonqualified deferred compensation arrangement to certain highly compensated employees, including our Named Executive Officers. The purpose of the deferred compensation plan is to conform the Company’s compensation elements to those of similar companies by providing tax deferred savings opportunities. It is a voluntary, non-qualified plan that allows a select group of management and highly compensated employees to elect to defer receipt of specified portions of compensation, and to have those deferred amounts treated as if invested in specific hypothetical investment benchmarks.

The Compensation Committee may carve out a portion of an eligible employee’s cash compensation as subject to deferral at any time or the eligible employees may elect deferral amounts prior to the income being earned. Employee contributions will be 100% vested upon deposit, but Company discretionary contributions may be vested immediately, vested over a specified period of time or upon the achievement of certain performance goals, or in accordance with other requirements set by the Company or the Compensation Committee. Any unvested Company contributions would be forfeited upon separation of employment and can be used to offset future discretionary contributions. All deferred compensation will be subject to withdrawal in accordance with pre-contribution decisions made by the employee and otherwise in accordance with the deferred contribution plan. The Board of Directors or the Compensation Committee may amend or cancel the deferred compensation plan at any time, so long as the termination complies with IRS regulations.

 

Health and Welfare Benefits

 

All full-time employees, including our Named Executive Officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability insurance and life insurance.

 

Except with respect to our Chairman and Chief Executive Officer, Mr. Maurice B. Tosé, we have employment agreements in effect with our Named Executive Officers. We have been in negotiations with Mr. Tosé for an employment agreement, but have not finalized those negotiations. No assurance can be given that we will be successful in negotiating such an agreement with Mr. Tosé. We entered into the existing agreements to ensure the Named Executive Officers would perform their respective roles for an extended period of time and we considered the critical nature of the positions and our need to retain the individuals.

 

The agreements with our Named Executive Officers, except for Mr. Tosé, provide that if the executive is terminated for cause or terminates without good reason, we are obligated to pay only those wages and bonuses pursuant to the terms of our annual incentive plan and other compensation then vested. If the executive is terminated without cause or if he terminates the employment agreement for good reason, in addition to the payment of amounts then vested, in exchange for a general release of all claims, he is entitled to salary in an amount which is the greater of the current annual salary for the remaining term of the agreement, or six months’ salary.

 

In the alternative, if a Named Executive Officer’s employment with us is terminated because of a change in control, as defined in the agreement, or within twelve months after a change in control, then he is entitled to one year’s salary (except for Mr. Richard Young, Chief Operating Officer, who is entitled to two years’ salary). Additionally, all then outstanding stock options become immediately vested upon a change in control. We believe these provisions are important to ensure that our executives remain with us through the closing of any sale of the business. The terms of these agreements are discussed in greater detail in the “Employment Agreements” section below.

 

The Compensation Committee met on February 6, 2010 to review and approved Named Executive Officer base salary amounts for 2010, and again March 15, 2010 to review and approve the Bonus Opportunity Plans for 2010 as described below.

 

Base Salary

 

Adjustments to our Named Executive Officers’ base salaries for 2010 were made by the Compensation Committee based on an analysis of current market conditions, our operational budgets set for 2010 and information available to the Compensation Committee Chairman whose profession is executive recruiting, to consider executive salary levels in companies whose businesses intersect with certain facets of ours. Based on these factors, the Compensation Committee approved a 4.5% increase in base salary for each of our Named Executive Officers for 2010.

Bonus Opportunity Plan Awards

 

Consistent with our emphasis on pay for performance incentive compensation programs, the Compensation Committee has established a Bonus Opportunity Plan for 2010 pursuant to which certain of our executive officers, including our Named Executive Officers, are eligible to receive Bonus Opportunity Plan awards based upon the established performance targets, including financial measures and other factors, including individual performance, all at the discretion of the Compensation Committee.

 

Shown as a percentage of the total Bonus Opportunity Plan award at target in the following table, is the weighting of the measures to be used to determine award payments to the Named Executive Officers for the fiscal year ending December 31, 2010:

 

 

 

Tax Implications

 

Section 162(m) of the Internal Revenue Code generally disallows a federal income tax deduction to public corporations for compensation greater than $1 million paid for any fiscal year to the corporation’s Chief Executive Officer and to the three most highly compensated executive officers other than the Chief Executive Officer or Chief Financial Officer. However, certain forms of performance-based compensation are excluded from the $1 million deduction limit if specific requirements are met. It is the policy of the Compensation Committee to periodically evaluate the qualification of compensation for exclusion from the $1 million deduction limit under Section 162(m) of the Code, as well as other sections of the Code, while maintaining flexibility to take actions with respect to compensation that it deems to be in the interest of the Company and its stockholders which may not qualify for tax deductibility.

 

So that the Compensation Committee may retain maximum flexibility to structure performance targets based on corporate and individual metrics designed to achieve our various corporate goals, our Bonus Opportunity Plan does not conform to the requirements of Section 162(m). All stock option awards granted to our Named Executive Officers have been structured so that the compensation realized when the stock options are exercised should be treated as performance-based compensation exempt from the deduction limitation of Section 162(m).

 

Effective June 11, 2009, the Board adopted amended guidelines that Board members should maintain equity ownership in the corporation of a value equal to three times the annual retainer amount for Board members, for each three year term. Current directors not owning equity in the recommended amount will have three years from January 28, 2008 to accumulate that amount, and new directors will have three years from the date their service begins to accumulate the appropriate amount. The guideline also provides that in accumulating the equity ownership, a Director should strive to achieve at least one-third of the guideline ownership amount in each year of the three year period.

 

We have chosen not to require stock ownership by Named Executive Officers given their long tenure and the evolution of our Company, however the employment agreements with the Named Executive Officers contain restrictions on the number of shares that the Named Executive Officers may sell as follows:

 

(a) In any given calendar year, the Named Executive Officer shall not sell or otherwise dispose of a number of shares of our Class A Common Stock of the Company acquired under incentive stock awards (“Incentive Stock Awards”) in excess of the product of (i) ten percent (10%) times (ii) the sum of (A) the number of shares of Class A Common Stock to which the Executive holds title, determined as of the date immediately before the proposed sale or disposition date, that were issued pursuant to an Incentive Stock Award, plus (B) seventy percent (70%) of the number of shares of Class A Common Stock of the Company for which Incentive Stock Awards are exercisable determined as of the date immediately before the proposed sale or disposition date, and

 

(b) In any given calendar quarter, the Named Executive Officer shall not sell or otherwise dispose of a number of shares of Class A Common Stock of the Company acquired under Incentive Stock Awards in excess of the product of (i) two and one-half percent (2.5%) times (ii) the sum of (A) the number of shares of Class A Common Stock of the Company to which the Executive holds title, determined as of the date immediately before the proposed sale or disposition date, that were issued pursuant to an Incentive Stock Award, plus (B) seventy percent (70%) of the number of shares of Class A Common Stock for which Incentive Stock Awards are exercisable determined as of the date immediately before the proposed sale or disposition date.

 

We intend to amend the employment agreements with the Named Executive Officers in 2010 to allow for the sale of the greater of 10,000 shares per quarter (40,000 total per year) or the amount allowed by the formula described above.

 

We will continue to periodically review best practices and re-evaluate our position with respect to stock ownership guidelines.

 

Our securities trading policy states that executive officers, including the Named Executive Officers, and directors may not purchase or sell puts or calls to sell or buy our stock, or engage in short sales with respect to our stock.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with management. Based on these reviews and discussions, the committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement for the 2010 Annual Meeting of Stockholders.

 

COMPENSATION COMMITTEE

 

James M. Bethmann (Chairman)
Weldon H. Latham

 

The Board of Directors, upon recommendation of the Compensation Committee, adopted new fees arrangements for Board participation in June 2009. Under the new fee structure, non-employee directors were paid an annual retainer of $25,000, and fee of $3,000 for each Board meeting and $2,000 for each Committee meeting in which the director participated. The Chairman of the Audit Committee was paid an additional annual retainer of $11,000, the Chairman of the Compensation Committee was paid an additional annual retainer of $5,500, and the Chairman of the Nominating and Governance Committee was paid an additional retainer of $4,500.

 

Generally, each non-employee director is granted restricted shares or options to purchase shares of Class A Common Stock under our stock incentive plan annually. These restricted shares or options vest over a period of one year in equal amounts at the end of each semi-annual term of service on the Board. In addition, non-employee directors are reimbursed for expenses incurred in connection with their service on the Board of Directors. The following table summarizes the amounts paid to non-employee directors for fiscal year 2009:

 

 

 

 

In June 2009, after reviewing industry comparable compensation trends for Boards of Directors of comparably sized companies in the industries in which TCS participates as published in the Director Compensation Report of the National Association of Corporate Directors, the Board voted unanimously to set non-employee director annual fees as follows:

 

 

The Target Total Annual Compensation may be comprised of cash, non-cash compensation in the form of stock options or restricted shares with a stated vesting schedule, or a combination of the two.

 

None of the members of the Compensation Committee is a current or former officer or employee of the Company. During 2009, no member of the Compensation Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. During 2009, none of the Company’s executive officers served on the Compensation Committee (or its equivalent) or board of directors of another entity any of whose executive officers served on the Company’s Compensation Committee or Board of Directors.

 

The following table shows all compensation earned by our Chief Executive Officer, Chief Financial Officer and our three other most highly paid executive officers (collectively referred to as our “Named Executive Officers”) whose annual salary and bonus exceeded $100,000 in the fiscal year ended December 31, 2009:

 

Summary Compensation Table

 

 

 

 

 

 

The following tables provide information about options granted, exercised and held by the Named Executive Officers in the Summary Compensation Table at December 31, 2009 and non-equity incentive plan award opportunities granted in 2009.

 

2009 Grants of Plan-Based Awards

 

In the following table, we provide information concerning each grant of an award made to a Named Executive Officer in the most recently completed fiscal year. This includes cash compensation under the Bonus Opportunity Plan and stock option awards under the Stock Incentive Plan, each of which is discussed in greater detail in this Proxy Statement under the caption, “Compensation Discussion and Analysis.” The threshold, target and maximum columns reflect the range of estimated payouts under the Bonus Opportunity Plan. In the 8th and 9th columns, we report the number of shares of Class A Common Stock underlying options granted in the fiscal year and corresponding per-share exercise prices. In all cases, the exercise price was equal to the closing market price of our Class A Common Stock on the date of grant. Finally, in the last column, we report the aggregate grant date fair value, calculated in accordance with FASB ASC Topic 718, of all awards made in 2009.

 

 

 

 

 

Outstanding Equity Awards at Fiscal Year-End 2009

 

The following table provides information concerning unexercised options, stock that has not vested, and equity incentive plan awards for each Named Executive Officer outstanding as of the end of our most recently completed fiscal year. Each outstanding award is represented by a separate row which indicates the number of securities underlying the award, including awards that have been transferred other than for value (if any).

 

 

 

 

The following table provides information concerning exercises of stock options during the most recently completed fiscal year for each Named Executive Officer on an aggregated basis. There were no unvested stock awards outstanding during 2009 held by our Named Executive Officers.

 

 

The following table provides information for all equity compensation plans at December 31, 2009, under which our equity securities were authorized for issuance:

 

 

 

 

Nonqualified Deferred Compensation

 

The following table provides information concerning our deferred compensation plan discussed above under “Other Benefits.”