As filed with the Securities and Exchange Commission on February 19, 2010
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TELECOMMUNICATION SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
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Maryland
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52-1526369
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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275 West Street,
Annapolis, MD 21401
(410) 263-7616
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrants Principal Executive Offices)
Maurice B. Tosé
President, Chief Executive Officer and Chairman of the Board
TeleCommunication Systems, Inc.
275 West Street
Annapolis, Maryland 21401
(410) 263-7616
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code, of Agent for Service)
With a Copy to:
Wm. David Chalk
DLA Piper LLP (US)
6225 Smith Avenue
Baltimore, Maryland 21209
Telephone: (410) 580-4120
Facsimile: (410) 580-3120
Approximate date of commencement of proposed sale to the public:
From time to time after
the effective date of this registration statement as determined by the selling shareholders.
If the only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box.
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If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment plans, check the following
box.
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If this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering.
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If this form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with the Commission
pursuant to Rule 462(e) under the Securities Act, check the following box.
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If this form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities Act, check the following box.
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Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting
company)
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Smaller reporting company
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Title of Each Class of Securities
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Amount to be
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Offering Price Per
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Aggregate
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Amount of
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to be Registered
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Registered(1)
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Share(2)
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Offering Price(2)
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Registration Fee
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Class A common stock, par value
$0.01
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2,236,258
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$
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8.07
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$
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18,046,602
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$
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1,287
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(1)
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Pursuant to Rule 416(a) under the Securities Act of 1933, this Registration Statement also covers any
additional securities that may be offered or issued in connection with any stock split, stock dividend
or similar transaction.
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(2)
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Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the
Securities Act of 1933, as amended, based upon the average of the high and low sales prices of the
registrants common stock, as reported on the Nasdaq Global Market on February 19, 2010 of $8.24 and
$7.90, respectively.
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The selling shareholders may
not sell these securities until this Registration Statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION. DATED FEBRUARY 19, 2010
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PROSPECTUS
TELECOMMUNICATION SYSTEMS, INC.
2,236,258 Shares of Class A common stock
This prospectus relates to the resale of up to an aggregate of 2,236,258 shares of Class A
common stock, par value $0.01 per share, of TeleCommunication Systems, Inc. that may be offered and
sold from time to time by the selling shareholders named in this prospectus. For more information
on the selling shareholders, please see the section entitled Selling Shareholders beginning on
page 27 of this prospectus. The selling shareholders acquired the shares of Class A common stock
offered for resale under this prospectus in connection with the merger of our wholly-owned
subsidiary Olympus Merger Sub Inc. with and into Networks in Motion, Inc., which closed on December
15, 2009. We will not receive any of the proceeds from the sale of these shares but we will incur
expenses in connection with this offering.
Our Class A common stock is traded on the Nasdaq Global Market under the symbol TSYS.
On February 18, 2010, the closing price of one share of our Class A common stock was $7.95.
Our registration of the shares of common stock covered by this prospectus does not mean that
the selling shareholders will offer or sell any of the shares. The selling shareholders may sell
the shares of common stock covered by this prospectus in a number of different ways and at varying
prices. We provide more information about how the selling shareholders may sell the shares in the
section entitled Plan of Distribution beginning on page 33.
Investing in our Class A common stock involves risk. See Risk Factors beginning on
page 4.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2010.
ABOUT THIS PROSPECTUS
This prospectus relates to the resale of up to an aggregate of 2,236,258 shares of our
Class A common stock that may be offered and sold from time to time by the selling shareholders
identified in this prospectus. The selling shareholders acquired the shares of Class A common
stock offered for resale under this prospectus in connection with the merger of our wholly-owned
subsidiary Olympus Merger Sub Inc. with and into Networks in Motion, Inc., which closed on December
15, 2009. We will not receive any of the proceeds from the sale of these shares but we will incur
expenses in connection with this offering.
This prospectus is part of a registration statement that we filed with the Securities and
Exchange Commission, or SEC, using a shelf registration process. Under the shelf registration
process, the selling shareholders may, from time to time, sell shares of our Class A common stock
in one or more offerings.
This prospectus provides you with a general description of the securities the selling
shareholders may offer. Any prospectus supplement may add, update or change information contained
in this prospectus.
We have not authorized any other person to give any information or to make any
representation other than those contained or incorporated by reference in this prospectus. You must
not rely upon any information or representation not contained or incorporated by reference in this
prospectus. This prospectus does not constitute an offer to sell or the solicitation of an offer to
buy any securities other than the registered securities to which they relate, nor does this
prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. You should not assume that the information contained in this prospectus is accurate
on any date subsequent to the date set forth on the front of the document or that any information
we have incorporated by reference is correct on any date subsequent to the date of the document
incorporated by reference (as our business, financial condition, results of operations and
prospects may have changed since that date), even though this prospectus is delivered or securities
are sold on a later date.
As permitted by the rules and regulations of the SEC, the registration statement, of which
this prospectus forms a part, includes additional information not contained in this prospectus. You
may read the registration statement and the other reports we file with the SEC at the SECs web
site or at the SECs offices described below under the heading Where You Can Find Additional
Information.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This prospectus and the information incorporated by reference in this prospectus may
include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. These forward-looking statements are subject to known and unknown risks,
uncertainties and other factors and were derived utilizing numerous important assumptions that may
cause our actual results, performance or achievements to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking statements. Prospective
investors are cautioned not to place undue reliance on these forward-looking statements. Statements
preceded by, followed by, or that otherwise include the words believes, expects, anticipates,
intends, projects, estimates, plans, may increase, may fluctuate and similar
expressions or future or conditional verbs such as will, should, would, may and could are
generally forward-looking in nature and are not historical facts. Factors and assumptions involved
in the derivation of forward-looking statements, and the failure of such other assumptions to be
realized as well as other factors may also cause actual results to differ materially from those
projected. Most of these factors are difficult to predict accurately and are generally beyond our
control. These factors and assumptions may have an impact on the continued accuracy of any
forward-looking statements that we make. Except for our ongoing obligations to disclose material
information under the federal securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to report the occurrence of
unanticipated events unless required by
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law. For any forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
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SUMMARY
This summary highlights selected information from this prospectus and does not contain
all of the information that you need to consider in making your investment decision. You should
carefully read the entire prospectus, including the risks of investing discussed under Risk
Factors beginning on page 4, the information incorporated by reference, including our financial
statements, and the exhibits to the registration statement of which this prospectus is a part. When
used in this prospectus, the terms TCS, we, us and our refer to TeleCommunication Systems,
Inc. and its subsidiaries as a combined entity, except where it is made clear that such terms mean
only TeleCommunication Systems, Inc.
Overview
We develop and apply high-availability and secure mobile communication technology. For
commercial customers our mobile cloud computing services provide wireless applications for
navigation, hyper-local search, asset tracking, social applications, and telematics, while TCS
infrastructure forms the foundation for E9-1-1 call routing and text messaging. Government
customers depend on our professional and engineering services, cyber security expertise, and
satellite-based deployable solutions for mission-critical communications. Our business is conducted
through two operating segments, Commercial (42% of 2009 revenue) and Government (58% of 2009
revenue).
Commercial Segment:
Our commercial services and systems enable wireless carriers to
deliver short text messages, location-based information, internet content, and other enhanced
communication services to and from wireless phones. Our hosted commercial services include E9-1-1
call routing, mobile location-based applications, and inter-carrier text message technology; that
is, customers use our software functionality through connections to and from our network operations
centers, paying us monthly fees based on the number of subscribers, cell sites, call center
circuits, or message volume. We provide hosted services under contracts with wireless carrier
networks, as well as VoIP service providers. We earn subscriber revenue through wireless
applications including our navigation, people finder, and asset tracking applications which are
available via many wireless carriers. We earn carrier software-based revenue through the sale of
licenses, deployment and customization fees, and maintenance fees, pricing for which is generally
based on the volume of capacity purchased from us by the carrier. As of December 31, 2009, we had
deployed 138 of our software systems in wireless carrier networks around the world.
Government Segment:
Since our founding in 1987, we have provided communication systems
integration, information technology services, and software solutions to the U.S. Department of
Defense and other government customers. We support government agencies in their need of cyber
technology and associated training and support. We also own and operate secure satellite teleport
facilities and resell access to satellite airtime (known as space segment). We design, furnish,
install and operate wireless and data network communication systems, including our
SwiftLink
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deployable communication systems which integrate high speed, satellite, and
internet protocol technology, with secure government-approved cryptologic devices. More than 2,000
of our deployable communication systems are in use for security, defense, and law enforcement
activities around the world.
As of December 31, 2009, we have 108 issued patents, primarily for wireless messaging and
location technology, and over 300 pending patent applications worldwide. As of December 31, 2009,
we had 1,050 employees, of which 1,012 were full-time and 38 were part-time.
THE COMPANY
We are a Maryland corporation founded in 1987 with headquarters at 275 West Street,
Annapolis, Maryland 21401. Our telephone number is (410) 263-7616 and our Web address is
www.telecomsys.com. The information contained on our Web site does not constitute part of this
prospectus. All of our filings with the Securities and Exchange Commission are available through a
link on our website.
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RECENT DEVELOPMENTS
Convertible Senior Note Offering
On November 16, 2009, we closed our offering of $103.5 million aggregate principal amount of
4.5% convertible senior notes due in 2014 (the Convertible Senior Notes). The aggregate
principal amount of the Convertible Senior Notes issued reflects the full exercise of the $13.5
million over-allotment option granted to the initial purchasers with respect to the Convertible
Senior Notes. The net proceeds to us from the offering, after deducting the initial purchasers
commissions and estimated fees and expenses of the offering payable by TCS, were approximately
$100.9 million. The Convertible Senior Notes are convertible into shares of our Class A common
stock based on an initial conversion rate for the Convertible Senior Notes of 96.637 shares of our
Class A common stock per $1,000 principal amount of notes, which is equivalent to an initial
conversion price of approximately $10.35 per share of our Class A common stock.
Interest on the Convertible Senior Notes will be payable semiannually on November 1 and May 1
of each year, beginning May 1, 2010. The Convertible Senior Notes will mature on November 1, 2014,
unless previously converted in accordance with their terms. The Convertible Senior Notes are our
senior unsecured obligations and will rank equally with all of our present and future senior
unsecured debt and senior to any future subordinated debt. The Convertible Senior Notes are and
will be structurally subordinate to all present and future debt and other obligations of our
subsidiaries and are and will be effectively subordinate to all of our present and future secured
debt to the extent of the collateral securing that debt. The Convertible Senior Notes are not
redeemable by us prior to the maturity date.
We used approximately $10.8 million of the net proceeds from the sale of the Convertible
Senior Notes to pay the costs of convertible note hedge transactions (after such cost is partially
offset by the proceeds to TCS from the warrant transaction entered into by TCS in connection with
the sale of the Convertible Senior Notes) and the remainder of the net proceeds were used to pay
the cash portion of the merger consideration in connection with our acquisition of Networks in
Motion as described below. We were advised by the call spread counterparties that in connection
with establishing their initial call spread hedge, they expect to enter into various derivative
transactions with respect to our Class A common stock that could have an effect on the market price
of our Class A common stock.
Acquisition of Networks in Motion
On December 15, 2009, we completed our acquisition of Networks in Motion, Inc., a provider of
large-scale wireless navigation solutions for mobile phones, which include points of interest
searches, navigation, directions, maps and other location-based information services in real-time,
for GPS-enabled mobile phones, a child finder application for parents to monitor the location of
their children, and which are available via many wireless carriers, and NAVBuilder products for
software developers and enterprises to provide a platform for the integration of location-based
services into applications and business processes. Pursuant to an agreement and plan of merger, we
issued former Networks In Motion shareholders approximately $110 million in cash, 2,236,258 shares
of our Class A common stock that may be offered and sold from time to time by the selling
shareholders named in this prospectus and which were valued at $20 million based on the volume
weighted average stock price for 10 days prior to the closing of the merger, an aggregate of
$20,000,000 principal amount payable in promissory notes of us which bear simple interest at 6% and
which mature on December 15, 2010 (the Twelve Month Notes) and an aggregate of $20,000,000
principal amount payable in promissory notes of us which bear simple interest at 6% and $10,000,000
of which matures on December 15, 2010, $5,000,000 of which matures on June 15, 2011 and $5,000,000
of which matures on December 15, 2011 (the Indemnification Notes). The Twelve Month Promissory Notes are subject to set-off to
satisfy working capital adjustments of Networks in Motion, if any, and the Indemnification
Promissory Notes are subject to set-off to satisfy indemnification obligations, if any, of Networks
in Motions equity holders following completion of the merger.
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Sybase Settlement
On December 23, 2009, we settled two patent infringement lawsuits with affiliates of Sybase,
Inc. (Sybase). As part of the settlement, on January 6, 2010, Sybase made a one-time payment of
$23 million to us in exchange for a license in our inter-carrier messaging family of patents. We
will record fourth quarter 2009 legal and other non-recurring expenses in connection with this
settlement totaling approximately $7.3 million.
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RISK FACTORS
Investment in our common stock involves risks. Prior to making a decision about investing
in our common stock, you should consider carefully the risk factors, together with all of the other
information contained or incorporated by reference in this prospectus. Each of these risk factors
could have a material adverse effect on our business, financial position, results of operations or
cash flows, which may result in the loss of all or part of your investment.
Risks Related to Our Business
If wireless carriers do not continue to provide our text messaging and location-based wireless
applications to their subscribers, our business could be harmed.
If wireless carriers limit their product and service offerings or do not purchase additional
products containing our applications, our business will be harmed. Wireless carriers face
implementation and support challenges in introducing Internet-based services via wireless devices,
which may slow the rate of adoption or implementation of our products and services. Historically,
wireless carriers have been relatively slow to implement complex new services such as
Internet-based services. Our future success depends upon a continued increase in the use of
wireless devices to access the Internet and upon the continued development of wireless devices as a
medium for the delivery of network-based content and services. We have no control over the pace at
which wireless carriers implement these new services. The failure of wireless carriers to introduce
and support services utilizing our products in a timely and effective manner could reduce sales of
our products and services and have a material adverse effect on our business, financial position,
results of operations or cash flows.
Network failures, disruptions or capacity constraints in our third party data center
facilities or in our servers could affect the performance of the products and services of our
wireless applications and E9-1-1 business and harm our reputation and our revenue.
The products and services of our wireless applications business are provided through a
combination of our servers, which we house at third party data centers, and the networks of our
wireless carrier partners. The operations of our wireless applications business rely to a
significant degree on the efficient and uninterrupted operation of the third party data centers we
use. Our hosted data centers are currently located in third party facilities located in the Irvine,
California area. We also use third party data center facilities in the Phoenix, Arizona area to
provide for disaster recovery. Depending on the growth rate in the number of our end users and
their usage of the services of our wireless applications business, if we do not timely complete and
open additional data centers, we may experience capacity issues, which could lead to service
failures and disruptions. In addition, if we are unable to secure data center space with
appropriate power, cooling and bandwidth capacity, we may be unable to efficiently and effectively
scale our business to manage the addition of new wireless carrier partners, increases in the number
of our end users or increases in data traffic.
Our data centers are potentially vulnerable to damage or interruption from a variety of
sources including fire, flood, earthquake, power loss, telecommunications or computer systems
failure, human error, terrorist acts or other events. There can be no assurance that the measures
implemented by us to date, or measures implemented by us in the future, to manage risks related to
network failures or disruptions in our data centers will be adequate, or that the redundancies
built into our servers will work as planned in the event of network failures or other disruptions.
In particular, if we experienced damage or interruptions to our data center in the Irvine,
California area, or if our disaster recovery data center in Phoenix was unable to work properly in
the event of a disaster at our Irvine center, our ability to provide efficient and uninterrupted
operation of our services would be significantly impaired.
We could also experience failures of our data centers or interruptions of our services, or
other problems in connection with our operations, as a result of:
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damage to or failure of our computer software or hardware or our connections and
outsourced service arrangements with third parties;
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errors in the processing of data by our servers;
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computer viruses or software defects;
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physical or electronic break-ins, sabotage, intentional acts of vandalism and
similar events; or
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errors by our employees or third party service providers.
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Poor performance in or disruptions of the services of our wireless applications business could
harm our reputation, delay market acceptance of our services and subject us to liabilities. Our
wireless carrier agreements require us to meet operational uptime requirements, excluding scheduled
maintenance periods, or be subjected to penalties. If we are unable to meet these requirements, our
wireless carrier partners could terminate our agreements or we may be required to refund a portion
of monthly subscriptions fees they have paid us.
In addition, if our end user base continues to grow, additional strain will be placed on our
technology systems and networks, which may increase the risk of a network disruption. Any outage in
a network or system, or other unanticipated problem that leads to an interruption or disruption of
our of our wireless applications business, could have a material adverse effect on our operating
results and financial condition.
If we are unable to grow data center capacity as needed, our business will be harmed.
Despite frequent testing of the scalability of our wireless applications business in a test
environment, the ability of our wireless applications business to scale to support a substantial
increase in the use of those services or number of users in an actual commercial environment is
unproven. If our wireless applications business does not efficiently and effectively scale to
support and manage a substantial increase in the use of our services or number of users while
maintaining a high level of performance, our business will be seriously harmed.
Our operating results could be adversely affected by any interruption of our data delivery
services, system failure or production interruptions.
Our E9-1-1, hosted location-based services and satellite teleport services operations depend
on our ability to maintain our computer and telecommunications equipment and systems in effective
working order, and to protect our systems against damage from fire, natural disaster, power loss,
telecommunications failure, sabotage, unauthorized access to our system or similar events. Although
all of our mission-critical systems and equipment are designed with built-in redundancy and
security, any unanticipated interruption or delay in our operations or breach of security could
have a material adverse effect on our business, financial condition and results of operations.
Furthermore, any addition or expansion of our facilities to increase capacity could increase
our exposure to natural or other disasters. Our property and business interruption insurance may
not be adequate to compensate us for any losses that may occur in the event of a system failure or
a breach of security. Furthermore, insurance may not be available to us at all or, if available,
may not be available to us on commercially reasonable terms.
Our past and future acquisitions of companies or technologies could prove difficult to
integrate, disrupt our business, dilute shareholder value or adversely affect operating results or
the market price of our Class A common stock.
We have in the past acquired a number of businesses and technologies, and we may in the future
acquire or make investments in other companies, services and technologies. Any acquisitions,
strategic alliances or investments we may pursue in the future will have a continuing, significant
impact on our
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business, financial condition and operating results. The value of the companies or assets that we
acquire or invest in may be less than the amount we paid if there is a decline of their position in
the respective markets they serve or a decline in general of the markets they serve. If we fail to
properly evaluate and execute acquisitions and investments, our business and prospects may be
seriously harmed. To successfully complete an acquisition, we must:
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properly evaluate the technology;
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accurately forecast the financial impact of the transaction, including accounting
charges and transaction expenses;
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integrate and retain personnel;
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retain and cross-sell to acquired customers;
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combine potentially different corporate cultures; and
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effectively integrate products and services, and research and development, sales
and marketing and support operations.
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If we fail to do any of these, we may suffer losses, our management may be distracted from
day-to-day operations and the market price of our Class A common stock may be materially adversely
affected. In addition, if we consummate future acquisitions using our equity securities or
convertible debt, existing shareholders may be diluted which could have a material adverse effect
on the market price of our Class A common stock.
The companies and business units we have acquired or invested in or may acquire or invest in
are subject to each of the business risks we describe in this section, and if they incur any of
these risks the businesses may not be as valuable as the amount we paid. Further, we cannot
guarantee that we will realize the benefits or strategic objectives we are seeking to obtain by
acquiring or investing in these companies.
We are substantially dependent on our wireless carrier partners to market and distribute the
products and services generated by our wireless applications business to end users and our wireless
applications business may be harmed if our wireless carrier partners elect not to broadly offer
these services.
We rely on our wireless carrier partners to introduce, market and promote the products and
services of our wireless applications business to end users. None of our wireless carrier partners
is contractually obligated to continue to do so. If wireless carrier partners do not introduce,
market and promote mobile phones that are GPS enabled and on which our client software is preloaded
and do not actively market the products and services of our wireless applications business, the
products and services of our wireless applications business will not achieve broader acceptance and
our revenue may not grow as fast as anticipated, or may decline.
Wireless carriers, including those with which we have existing relationships, may decide not
to offer our services and/or may enter into relationships with one or more of our
competitors. While our products and services may still be available to customers of those wireless
carriers as downloads from application stores or our website, sales of the products and services of
our wireless applications business would likely be much more limited than if they were preloaded as
a white label service actively marketed by the carrier or were included as part of a bundle of
services. Our inability to offer the products and services of our wireless applications business
through a white label offering or as part of a bundle on popular mobile phones would harm our
operating results and financial condition.
We expect that competitive pricing pressures will continue in its industry. Our wireless
carrier partners have the ability to lower end user pricing on the products and services of our
wireless applications
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business which would have an immediate adverse effect on our revenue. Our gross margin may decrease
if the average cost per end user to provide our services does not decline proportionately. These
costs include third party map and other data costs and internal costs to provide our services.
Our success depends on significantly increasing the number of end users that purchase the
products and services of our wireless applications business from our wireless carrier partners.
A significant portion of our revenue is derived from subscription fees that we receive from
our wireless carrier partners for end users who subscribe to our service on a stand alone basis or
in a bundle with other services. To date, a relatively small number of end users have subscribed
for our services in connection with their wireless plans compared to the total number of mobile
phone users. The near term success of our of our wireless applications business depends heavily on
achieving significantly increased subscriber adoption of the products and services of our wireless
applications business either through stand alone subscriptions to our services or as part of
bundles from our existing wireless carrier partners. The success of our wireless applications
business also depends on achieving widespread deployment of the products and services of our
wireless applications business by attracting and retaining additional wireless carrier partners.
The use of the products and services of our wireless applications business will depend on the
pricing and quality of those services, subscriber demand for those services, which may vary by
market, as well as the level of subscriber turnover experienced by our wireless carrier partners.
If subscriber turnover increases more than we anticipate, our financial results could be adversely
affected.
If our current and future wireless carrier partners do not successfully market the products
and services of our wireless applications business to their customers or if we are not successful
in maintaining and expanding our relationships with our wireless carrier partners, we will not be
able to maintain or increase the number of end users that use the products and services of our
business, operating results and financial condition may be
materially adversely affected.
Our ability to increase or maintain our end user base and revenue will be impaired if mobile
phone manufacturers do not allow us to customize our services for their new devices. We typically
deliver the services of our wireless applications business through client software that has been
customized to work with a given mobile phones operating system, features and form factors.
Wireless carrier partners often insist that mobile phone manufacturers permit us to customize our
client software for their devices in order to provide the end user with a positive experience.
Wireless carriers or mobile phone manufacturers may enter into agreements with other providers of
products and services for new or popular mobile phones. For this reason or others, some mobile
phone manufacturers may refuse to permit us to access preproduction models of their mobile phones
or the mobile phone manufacturers may offer a competing service. If mobile phone manufacturers do
not permit us to customize our client software and preload it on their devices, we may have
difficulty attracting end users because of poor user experiences or an inconvenient provisioning
process. If we are unable to provide seamless provisioning or end users cancel their subscriptions
to our services because they have poor experiences, our revenue may be harmed.
Our wireless carrier partners may change the pricing and other terms by which they offer our
wireless applications business, which could result in increased end user churn, lower revenue and
adverse effects on our business.
Several of our wireless carrier partners sell unlimited data service plans, which include the
products and services of our wireless applications business. As a result, end users do not have to
pay a separate monthly fee to use the services provided by our wireless applications business. If
our wireless carrier partners were to eliminate the services provided by our wireless applications
business from their unlimited data service plans, we could lose end users as they would be required
to pay a separate monthly fee to continue to use the services provided by our wireless applications
business. In addition, we could be required to change our fee structure to retain end users, which
could negatively affect our gross margins. Our wireless carrier partners may also seek to reduce
the monthly fees per subscriber that they pay us if their subscribers do not use the services
provided by our wireless applications business as often as the wireless carriers expect or for any
other reason in order to reduce their costs. Our wireless carrier partners may also decide to raise
prices, impose usage caps or discontinue unlimited data service plans, which could
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cause our end users who receive the services provided by our wireless applications business through
those plans to move to a less expensive plan that does not include those services or terminate
their relationship with the wireless carrier. If imposed, these pricing changes or usage
restrictions could make the products and services of our wireless applications business less
attractive and could result in current end users abandoning those products and services. If end
user turnover increased, the number of our end users and our revenue would decrease and our
business would be harmed. We are also required to give Verizon Wireless certain most favored
customer pricing on specified products and in certain markets. In certain circumstances this may
require us to reduce the price per end user under the Verizon Wireless contract.
New entrants and the introduction of other distribution models in the location- based services
market may harm our competitive position.
The markets for development, distribution and sale of location-based products and services are
rapidly evolving. New entrants seeking to gain market share by introducing new technology and new
products may make it more difficult for us to sell the products and services of our wireless
applications business, and could create increased pricing pressure, reduced profit margins,
increased sales and marketing expenses or the loss of market share or expected market share, any of
which may significantly harm our business, operating results and financial condition.
Although historically wireless carriers controlled provisioning and access to the applications
that could be used on mobile phones connected to their networks, in recent years consumers have
been able to download and provision applications from individual provider websites and to select
from a menu of applications through the Apple iTunes App Store, the Blackberry App World and other
application aggregators. Increased competition from providers of location-based services which do
not rely on a wireless carrier may result in fewer wireless carrier subscribers electing to
purchase their wireless carriers branded location-based services, which could harm our business
and revenue. In addition, these location-based services may be offered for free or on a one time
fee basis, which could force us to reduce monthly subscription fees or migrate to a one time fee
model to remain competitive. We may also lose end users or face erosion in our average revenue per
user if these competitors deliver their products without charge to the consumer by generating
revenue from advertising or as part of other applications or services.
We rely on our wireless carrier partners for timely and accurate subscriber information. A
failure or disruption in the provisioning of this data to us would adversely affect
our ability to manage our wireless applications business effectively.
We rely on our wireless carrier partners to bill subscribers and collect monthly fees for the
products and services of our wireless applications business, either directly or through third party
service providers. If our wireless carrier partners or their third party service providers provide
us with inaccurate data or experience errors or outages in their own billing and provisioning
systems when performing these services, our revenue may be less than anticipated or may be subject
to adjustment with the wireless carrier. In the past, we have experienced errors in wireless
carrier reporting. If we are unable to identify and resolve discrepancies in a timely manner, our
revenue may vary more than anticipated from period to period and this could harm our business,
operating results and financial condition.
We rely on third party data
and content to provide the services of our wireless applications
business, and if we were unable to obtain content at reasonable prices, or at all, our gross margins
and our ability to provide the services of our wireless applications business would be harmed.
Our wireless applications business relies on third party data and content to provide those
services including map data, points of interest data, traffic information, gas prices, theater, event, and weather
information. If our suppliers of this data or content were to enter into exclusive relationships
with other providers of location-based services or were to discontinue providing such information
and we were unable to replace them cost effectively, or at all, our ability to provide the services
of our wireless applications business would be harmed. Our gross margins may also be affected if
the cost of third party data and content increases substantially.
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We obtain map data from companies owned by current and potential competitors. Accordingly,
these third party data and content providers may act in a manner that is not in our best interest.
For example, they may cease to offer their map data to us.
We may not be able to upgrade our location-based services platform to support certain advanced
features and functionality without obtaining technology licenses from third parties. Obtaining
these licenses may be costly and may delay the introduction of such features and functionality, and
these licenses may not be available on commercially favorable terms, or at all. The inability to
offer advanced features or functionality, or a delay in our ability to upgrade our location-based
services platform, may adversely affect consumer demand for the products and services of our
wireless applications business, consequently, harm our business.
If a substantial number of end users change mobile phones or if our wireless carrier partners
switch to subscription plans that require active monthly renewal by end users, our revenue could
suffer.
Subscription fees represent the vast majority of our revenue for our wireless applications
business. As mobile phone development continues and new mobile phones are offered at subsidized
rates to subscribers in connection with plan renewals, an increasing percentage of end users who
already subscribe to the services provided by our wireless applications business will likely
upgrade from their existing mobile phones. With some wireless carriers, subscribers are unable to
automatically transfer their existing subscriptions from one mobile phone to another. In addition,
wireless carriers may switch to subscription billing systems that require subscribers to actively
renew, or opt-in, each month from current systems that passively renew unless subscribers take some
action to opt-out of their subscriptions. In either case, unless we or our wireless carrier
partners are able to resell subscriptions to these subscribers or replace these subscribers with
other subscribers, the revenue of our wireless applications business would suffer and this could
harm our business, operating results and financial condition.
The failure of mobile phone providers selected by our wireless carrier partners to keep pace
with technological and market developments in mobile phone design may negatively affect the demand
for the products and services of our wireless applications business.
Successful sales of the products and services of our wireless applications business depend on
our wireless carrier partners keeping pace with changing consumer preferences for mobile phones. If
our wireless carrier partners do not select mobile phones with the design attributes attractive to
consumers, such as thin form factors, high resolution screens and desired functionality, customers
may select wireless carriers with whom we do not have a relationship and subscriptions for our
products and services may decline and, consequently, our business may be harmed.
Some of our research and
development operations are conducted in China, India, and Russia and our
ability to introduce new services and support our existing services cost effectively depend on our
ability to manage those remote development sites successfully.
Our success depends on our ability to enhance our current services and develop new services
and products rapidly and cost effectively. We currently have research and development employees in
China and contractors in Russia and India. As we do not have substantial experience managing product
development operations that are remote from our U.S. headquarters, we may not be able to manage
these remote centers successfully. We could incur unexpected costs or delays in product development
that could impair our ability to meet market windows or cause it to forego certain new product
opportunities.
We may fail to support our anticipated growth in operations which could reduce demand for our
services and materially adversely affect our revenue.
Our business strategy is based on the assumption that the market demand, the number of
customers, the amount of information they want to receive and the number of products and services
we offer will all increase. We must continue to develop and expand our systems and operations to
accommodate this growth. The expansion and adaptation of our systems operations requires
substantial
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financial, operational and management resources. Deployment of our Government systems has increased
substantially and while we have increased our production capabilities to satisfy the increased
demand, our ability to meet production schedules for increasing demand could adversely impact our
product quality and reliability. Any failure on our part to develop and maintain our wireless data
services and government system production lines as we experience rapid growth could significantly
reduce demand for our services and materially adversely affect our revenue. Also, if we incorrectly
predict the market areas that will grow significantly, we could expend significant resources that
could have been expended on other areas that do show significant growth.
Changes in the U.S. and global market conditions that are beyond our control may have a
material adverse effect on us.
The U.S. and global economies are currently experiencing a period of substantial economic
uncertainty with wide-ranging effects, including the current disruption in global financial
markets. Possible effects of these economic events include those relating to U.S. Government
defense spending, business disruptions caused by suppliers or subcontractors, impairment of
goodwill and other long-lived assets and reduced access to capital and credit markets. Although
governments worldwide, including the U.S. Government, have initiated sweeping economic plans, we
are unable to predict the impact, severity, and duration of these economic events, which could have
a material effect on our business, financial position, results of operations or cash flows.
We could incur substantial costs from product liability claims relating to our software.
Our agreements with customers may require us to indemnify customers for our own acts of
negligence and non-performance. Product liability and other forms of insurance are expensive and
may not be available in the future. We cannot be sure that we will be able to maintain or obtain
insurance coverage at acceptable costs or in sufficient amounts or that our insurer will not
disclaim coverage as to a future claim. A product liability or similar claim may have a material
adverse effect on our business, financial position, results of operations or cash flows.
Our revenue may decline if we fail to retain our largest customers for all of the deliverables
that we sell to them.
The largest customers for our product and service offerings in terms of revenue generated have
been the U.S. Government, Verizon Wireless, AT&T Mobility, MetroPCS, and Hutchison 3G. For the
years ended December 31, 2009 and 2008, each of Verizon Wireless and the U.S. Government accounted
for 10% or more of our total revenue. For the year ended December 31, 2009, the largest customers
for our Commercial Segment was Verizon Wireless and the largest customers for our Government
Segment were various U.S. Government agencies. Our wireless applications business is substantially
dependent on Verizon Wireless. In addition, we expect to generate a significant portion of our
total revenue from Verizon Wireless and these other customers for the foreseeable future. If these
customers reduce their expenditures for marketing services for which we provide technology, change their plans to
eliminate our services, price our products and services at a level that makes them less attractive,
or offer and promote competing products and services, in lieu of, or to a greater degree than, our
products and services, our revenue would be materially reduced and our business, operating results
and financial condition would be materially and adversely affected.
Our growth depends on maintaining relationships with our major customers and on developing
other customers and distribution channels. The loss of any of the customers discussed in this
paragraph would have a material adverse impact on our business, financial position, results of
operations or cash flows.
Because we rely on key partners to expand our marketing and sales efforts, if we fail to
maintain or expand our relationships with strategic partners and indirect distribution channels our
license revenues could decline.
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We have announced strategic partnerships with Alcatel-Lucent and are working on additional
partnerships to provide supplemental channels for the marketing and sale of our software
applications globally. Our growth depends on maintaining relationships with these partners and on
developing other distribution channels. The loss of any of these partners would have a material
adverse impact on our business, financial position, results of operations or cash flows.
Growing market acceptance of open source software could have a negative impact on us.
Growing market acceptance of open source software has presented both benefits and challenges
to the commercial software industry in recent years. Open source software is made widely
available by its authors and is licensed as is for a nominal fee or, in some cases, at no charge.
For example, Linux is a free Unix-type operating system, and the source code for Linux is freely
available.
We have incorporated some types of open source software into our products, allowing us to
enhance certain solutions without incurring substantial additional research and development costs.
Thus far, we have encountered no unanticipated material problems arising from our use of open
source software. However, as the use of open source software becomes more widespread, certain open
source technology could become competitive with our proprietary technology, which could cause sales
of our products to decline or force us to reduce the fees we charge for our products, which could
have a material adverse effect on our business, financial position, results of operations or cash
flows.
Because our product offerings are sold internationally, we are subject to risks of conducting
business in foreign countries.
Wireless carriers in Europe, Asia, Australia, Africa and Central and South America have
purchased our products. We believe our revenue will increasingly include business in
foreign countries, and we will be subject to the social, political and economic risks of conducting
business in foreign countries, including:
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inability to adapt our products and services to local business practices, customs
and mobile user preferences;
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costs of adapting our product and service offerings for foreign markets;
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inability to locate qualified local employees, partners and suppliers;
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reduced protection of intellectual property rights;
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the potential burdens of complying with a variety of U.S. and foreign laws, trade
standards and regulatory requirements, including tax laws, the regulation of wireless
communications and the Internet and uncertainty regarding liability for information
retrieved and replicated in foreign countries;
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general geopolitical risks, such as political and economic instability and changes
in diplomatic and trade relations; and
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unpredictable fluctuations in currency exchange rates.
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Any of the foregoing risks could have a material adverse effect on our business, financial
position, results of operations or cash flows by diverting time and money toward addressing them or
by reducing or eliminating sales in such foreign countries.
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Because some of our competitors have significantly greater resources than we do, we could lose
customers and market share.
Our business is highly competitive. Several of our potential competitors are substantially
larger than we are and have greater financial, technical and marketing resources than we do. In
particular, larger competitors have certain advantages over us which could cause us to lose
customers and impede our ability to attract new customers, including: larger bases of financial,
technical, marketing, personnel and other resources; more established relationships with wireless
carriers; more funds to deploy products and services; and the ability to lower prices (or not
charge any price) of competitive products and services because they are selling larger volumes.
The widespread adoption of open industry standards such as the Secure User Plane for Location
(SUPL) specifications may make it easier for new market entrants and existing competitors to
introduce products that compete with our software products. Because our Commercial Segment is part
of an emerging market, we cannot identify or predict which new competitors may enter the mobile
location services industry in the future. With time and capital, it would be possible for
competitors to replicate any of our products and service offerings or develop alternative products.
Additionally, the wireless communications industry continues to experience significant
consolidation which may make it more difficult for smaller companies like us to compete. Our
competitors include application developers, telecommunications equipment vendors, location
determination technology vendors and information technology consultants, and may include
traditional Internet portals and Internet infrastructure software companies. We expect that we will
compete primarily on the basis of price, time to market, functionality, quality and breadth of
product and service offerings.
These competitors could include wireless network carriers, mobile and/or wireless software
companies, wireless data services providers, secure portable communication and wireless systems
integrators and database vendors and other providers of location-based services. As discussed
above, many of our potential competitors have significantly greater resources than we do.
Furthermore, competitors may develop a different approach to marketing the services we provide in
which subscribers may not be required to pay for the information provided by our services.
Competition could reduce our market share or force us to lower prices to unprofitable levels.
While we characterize our services revenue as being recurring there is no guarantee that we
will actually achieve this revenue.
A significant portion of our revenue is generated from long-term customer contracts that pay
certain fees on a month-to-month basis. While we currently believe that these revenue streams will
continue, renegotiation of the contract terms, early termination or non-renewal of material
contracts could cause our recurring revenues to be lower than expected, and growth depends on
maintaining relationships with these important customers and on developing other customers and
distribution channels.
We cannot guarantee that our estimated contract backlog will result in actual revenue.
As of December 31, 2009, our estimated contract backlog totaled approximately $631 million, of
which approximately $339 million was funded. There can be no assurance that our backlog will result
in actual revenue in any particular period, or at all, or that any contract included in backlog
will be profitable. There is a higher degree of risk in this regard with respect to unfunded
backlog. The actual receipt and timing of any revenue is subject to various contingencies, many of
which are beyond our control. The actual receipt of revenue on contracts included in backlog may
never occur or may change because a program schedule could change, the program could be canceled, a
contract could be reduced, modified or terminated early, or an option that we had assumed would be
exercised not being exercised. Further, while many of our federal government contracts require
performance over a period of years, Congress often appropriates funds for these contracts for only
one year at a time. Consequently, our contracts typically are only partially funded at any point
during their term, and all or some of the work intended to be performed under the contracts will
remain unfunded pending subsequent Congressional appropriations and the obligation of additional
funds to the contract by the procuring agency. Approximately 70% of our funded
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contract backlog consisted of orders from the Government Segment. Our estimates are based on our
experience under such contracts and similar contracts. However, there can be no assurances that
all, or any, of such estimated contract value will be recognized as revenue.
We derive a significant portion of our revenue from sales to various agencies of the U.S.
Government which has special rights unlike other customers and exposes us to additional risks that
could have a material adverse effect on us.
Sales to various agencies of the U.S. Government accounted for approximately 58% of our total
revenue for the fiscal year ended December 31, 2009, all of which was attributable to our
Government Segment. Our ability to earn revenue from sales to the U.S. Government can be affected by
numerous factors outside of our control, including:
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The U.S. Government may terminate the contracts it has with us. All of the
contracts we have with the U.S. Government are, by their terms, subject to termination
by the U.S. Government either for its convenience or in the event of a default by us.
In the event of termination of a contract by the U.S. Government, we may have little
or no recourse.
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Our contracts with the U.S. Government may be terminated due to Congress failing to
appropriate funds. Our U.S. Government contracts are conditioned upon the continuing
availability of Congressional appropriations. Congress usually appropriates funds for
a given program on a fiscal-year basis even though contract performance may take more
than one year.
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The U.S. Government may audit and review our costs and performance on their
contracts, as well as our accounting and general practices. The costs and prices under
these contracts may be subject to adjustment based upon the results of any audits.
Future audits that result in the increase in our costs may adversely affect our
business, financial position, results of operations or cash flows.
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Any failure by Congress to appropriate funds to any program that we participate in could
materially delay or terminate the program and could have a material adverse effect on our business,
financial position, results of operations or cash flows.
Because we are no longer a small business under some government size standards, we could lose
business to small-business set-aside competitors.
Federal and state procurement laws require that certain purchases be set-aside for small
business competitors, effectively giving a preference to those small businesses even if we have
better products and better prices. We have outgrown the size standards set for many of the
categories used to purchase products of the nature that we sell. If a particular procurement is
set-aside for only small business participants, we may lose customers and revenues and may not be
able to replace those sales with purchases from other customers.
If our subcontractors and vendors fail to perform their contractual obligations, our
performance and reputation as a prime contractor and our ability to obtain future business could
suffer.
As a prime contractor, we often rely significantly upon other companies as subcontractors to
perform work we are obligated to perform for our clients and vendors to deliver critical
components. As we secure more work under our contract vehicles such as the Worldwide Satellite Systems agreement, we
expect to require an increasing level of support from subcontractors and vendors that provide
complementary and supplementary products and services to our offerings. Depending on labor market
conditions, we may not be able to identify, hire and retain sufficient numbers of qualified
employees to perform the task orders we expect to win. In such cases, we will need to rely on
subcontracts with unrelated companies. Moreover, even in favorable labor market conditions, we
anticipate entering into more subcontracts in the future as we expand our work under our contract
vehicles. We are responsible for the work performed by our
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subcontractors, even though in some cases we have limited involvement in that work. If one or more
of our subcontractors fail to satisfactorily perform the agreed-upon services on a timely basis or
violate federal government contracting policies, laws or regulations, our ability to perform our
obligations as a prime contractor or meet our clients expectations may be compromised. In extreme
cases, performance or other deficiencies on the part of our subcontractors could result in a client
terminating our contract for default. A termination for default could expose us to liability,
including liability for the agencys costs of re-procurement, could damage our reputation and could
hurt our ability to compete for future contracts.
A significant portion of our contracts with the U.S. Government are on a fixed price basis
which could negatively impact our profitability.
A material portion of our annual revenues is derived from fixed-price contracts. Due to their
nature, fixed-price contracts inherently have more risk than flexibly priced contracts. Our
operating margin is adversely affected when contract costs that cannot be billed to customers are
incurred. While management uses its best judgment to estimate costs associated with fixed-price
contracts, future events could result in either upward or downward adjustments to those estimates
which could negatively impact our profitability. The increase in contract costs can occur if
estimates to complete increase or if initial estimates used for calculating the contract cost were
incorrect. The cost estimation process requires significant judgment and expertise. Reasons for
cost growth may include unavailability and productivity of labor, the nature and complexity of the
work to be performed, the effect of change orders, the availability of materials, interruptions in
our supply chain, the effect of any delays in performance, availability and timing of funding from
the customer, natural disasters, and the inability to recover any claims included in the estimates
to complete. A significant change in cost estimates on one or more programs could have a material
effect on our consolidated financial position or results of operations.
We are subject to procurement and other related laws and regulation which carry significant
penalties for non-compliance.
As a supplier to the U.S. Government, we must comply with numerous regulations, including
those governing security and contracting practices. In addition, prime contracts with various
agencies of the U.S. Government and subcontracts with other prime contractors are subject to
numerous laws and regulations.
Failure to comply with these procurement regulations and practices could result in fines being
imposed against us or our suspension for a period of time from eligibility for bidding on, or for
award of, new government contracts. If we are disqualified as a supplier to government agencies, we
would lose most, if not all, of our U.S. Government customers and revenues from sales of our
products would decline significantly. Among the potential causes for disqualification are
violations of various statutes, including those related to procurement integrity, export control,
U.S. Government security regulations, employment practices, protection of the environment, accuracy
of records in the recording of costs, and foreign corruption. The government could investigate and
make inquiries of our business practices and conduct audits of contract performance and cost
accounting. Based on the results of such audits, the U.S. Government could adjust our
contract-related costs and fees. Depending on the results of these audits and investigations, the
government could make claims against us, and if it were to prevail, certain incurred costs would
not be recoverable by us.
We may incur losses if we are unable to resell products and services for which we have
contractual minimum purchase obligations.
We have been able to negotiate favorable pricing terms for certain services and supplies that
are used in our product and service offerings. Those favorable pricing terms are contingent on
various minimum purchase commitments. If we are unable to find customers and negotiate favorable
customer terms and conditions for those services and supplies, we may incur related losses.
We are exposed to counterparty credit risk and there can be no assurances that we will manage
or mitigate this risk effectively.
We are exposed to many different industries, counterparties, and partnership agreements, and
regularly interact with counterparties in various industries.
The insolvency or other inability of a significant counterparty or partner, including a
counterparty to the significant counterparty, to perform its obligations under an agreement or
transaction, including, without limitation, as a result of the rejection of an agreement or
transaction by a counterparty in bankruptcy proceedings, could have a material adverse effect on
our business, financial position, results of operations or cash flows.
The loss of key personnel or inability to attract and retain personnel could harm our
business.
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Our future success will depend in large part on our ability to hire and retain a sufficient
number of qualified personnel, particularly in sales and marketing and research and development. If
we are unable to do so, our business could be harmed. Our future success also depends upon the
continued service of our executive officers and other key sales, engineering and technical staff.
The loss of the services of our executive officers and other key personnel could harm our
operations. We maintain key person life insurance on certain of our executive officers. We would be
harmed if one or more of our officers or key employees decided to join a competitor or if we failed
to attract qualified personnel. Our ability to attract qualified personnel may be adversely
affected by a decline in the price of our Class A common stock. In the event of a decline in the
price of our Class A common stock, the retention value of stock options will decline and our
employees may choose not to remain with us, which could have a material adverse effect on our
business, financial position, results of operations or cash flows.
Our accounting policies and methods are fundamental to how we record and report our financial
position and results of operations, and they require management to make estimates, judgments and
assumptions about matters that are inherently uncertain.
Our accounting policies and methods are fundamental to how we record and report our financial
position and results of operations. We have identified several accounting policies as being
critical to the presentation of our financial position and results of operations because they
require management to make particularly subjective or complex judgments about matters that are
inherently uncertain and because of the likelihood that materially different amounts would be
recorded under different conditions or using different assumptions. For example, we account for
income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes (ASC 740). Under
ASC 740, deferred tax assets and liabilities are computed based on the difference between the
financial statement and income tax basis of assets and liabilities using the enacted marginal tax
rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some portion of all of
the net deferred tax asset will not be realized. This process requires our management to make
assessments regarding the timing and probability of the ultimate tax impact. Actual income taxes
could vary from these estimates due to future changes in income tax law, significant changes in the
jurisdictions in which we operate, our inability to generate sufficient future taxable income or
unpredicted results from the final determination of each years liability by taxing authorities.
These changes could have a significant impact on our business, financial position, results of
operations or cash flows.
Industry Risks
Because the wireless data industry is a rapidly evolving market, our product and service
offerings could become obsolete unless we respond effectively and on a timely basis to rapid
technological changes.
The successful execution of our business strategy is contingent upon wireless network
operators launching and maintaining mobile location services, our ability to create new network
software products and adapt our existing network software products to rapidly changing
technologies, industry standards and customer needs. As a result of the complexities inherent in
our product offerings, new technologies may require long development and testing periods.
Additionally, new products may not achieve market acceptance or our competitors could develop
alternative technologies that gain broader market acceptance than our products. If we are unable to
develop and introduce technologically advanced products that respond to evolving industry standards
and customer needs, or if we are unable to complete the development and introduction of these
products on a timely and cost effective basis, it could have a material adverse effect on our
business, financial position, results of operations or cash flows.
New laws and regulations that impact our industry could increase costs or reduce opportunities
to earn revenue. The wireless carriers that use our product and service offerings are subject to
regulation by domestic, and in some cases, foreign, governmental and other agencies. Regulations
that affect them could increase our costs or reduce our ability to sell our products and services.
In addition, there are an increasing number of laws and regulations pertaining to wireless
telephones and the Internet under consideration in the United States and elsewhere.
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The applicability to the Internet of existing laws governing issues such as intellectual
property ownership and infringement, copyright, trademark, trade secret, taxation, obscenity,
libel, employment and personal privacy is uncertain and developing. Any new legislation or
regulation, or the application or interpretation of existing laws, may have a material adverse
effect on our business, results of operations and financial condition. Additionally, modifications
to our business plans or operations to comply with changing regulations or certain actions taken by
regulatory authorities might increase our costs of providing our product and service offerings and
could have a material adverse effect on our business, financial position, results of operations or
cash flows.
Because the industries which we serve are currently in a cycle of consolidation, the number of
customers may be reduced which could result in a loss of revenue for our business.
The telecommunications industry generally is currently undergoing a consolidation phase. Many
of our customers, specifically wireless carrier customers of our Commercial Segment, have or may
become the target of acquisitions. If the number of our customers is significantly reduced as a
result of this consolidation trend, or if the resulting companies do not utilize our product
offerings, our business, financial position, results of operations or cash flows could be
adversely affected.
Concerns about personal privacy and commercial solicitation may limit the growth of mobile
location services and reduce demand for our products and services.
In order for mobile location products and services to function properly, wireless carriers
must locate their subscribers and store information on each subscribers location. Although data
regarding the location of the wireless user resides only on the wireless carriers systems, users
may not feel comfortable with the idea that the wireless carrier knows and can track their
location. Carriers will need to obtain subscribers permission to gather and use the subscribers
personal information, or they may not be able to provide customized mobile location services which
those subscribers might otherwise desire. If subscribers view mobile location services as an
annoyance or a threat to their privacy, that could reduce demand for our products and services and
have an adverse effect on our business, financial position, results of operations or cash
flows.
Because wireless and next-generation E9-1-1 is undergoing rapid technological and regulatory change, our future performance is
uncertain.
The Federal Communication Commission, or FCC, has mandated that certain location information
be provided to operators when they receive an E9-1-1 call. Carriers obligations to provide E9-1-1 services are subject to request by
public safety organizations. Technical
failures, time delays or the significant costs associated with developing or installing improved
location technology could slow down or stop the deployment of our mobile location products. If
deployment of improved location technology is delayed, stopped or never occurs, market acceptance
of our products and services may be adversely affected. The extent and timing of the deployment of our products and services is dependent both on
public safety requests for such service and wireless carriers ability to certify the accuracy of
and deploy the precise location technology. Because we will rely on third-party location technology
instead of developing the
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technology ourselves, we have little or no influence over its improvement. If the technology never
becomes precise enough to satisfy wireless users needs or the FCCs requirements, we may not be
able to increase or sustain demand for our products and services, if at all.
Our E9-1-1 business is dependent on state and local governments and the regulatory environment
for Voice over Internet Protocol (VoIP) services is developing.
Under the FCCs mandate, wireless carriers are required to provide E9-1-1 services only if
state and local governments request the service. As part of a state or local governments decision
to request E9-1-1, they have the authority to develop cost recovery mechanisms. However, cost
recovery is no longer a condition to wireless carriers obligation to deploy the service. If state
and local governments do not widely request that E9-1-1 services be provided or we become subject
to significant pressures from wireless carriers with respect to pricing of E9-1-1 services, our
E9-1-1 business would be harmed and future growth of our business would be
reduced.
The FCC has determined that VoIP services are not subject to the same regulatory scheme as
traditional wireline and wireless telephone services. If the regulatory environment for VoIP
services evolves in a manner other than the way we anticipate, our E9-1-1 business would be
significantly harmed and future growth of our business would be significantly reduced. For example,
many states provide statutory and regulatory immunity from liability for wireless and wireline
E9-1-1 service providers but provide no express immunities for VoIP E9-1-1 service providers.
Additionally, the regulatory scheme for wireless and wireline service providers require those
carriers to allow service providers such as us to have access to certain databases that make the
delivery of an E9-1-1 call possible. No such requirements exist for VoIP service providers so
carriers could prevent us from continuing to provide VoIP E9-1-1 service by denying us access to
the required databases.
Technology Risks
Because our software may contain defects or errors, and our hardware products may incorporate
defective components, our sales could decrease if these defects or errors adversely affect our
reputation or delays shipments of our products.
The software products that we develop are complex and must meet the stringent technical
requirements of our customers. Our hardware products are equally complex and integrate a wide
variety of components from different vendors. We must quickly develop new products and product
enhancements to keep pace with the rapidly changing software and telecommunications markets in
which we operate. Products as complex as ours are likely to contain undetected errors or defects,
especially when first introduced or when new versions are released. Our products may not be error
or defect free after delivery to customers, which could damage our reputation, cause revenue
losses, result in the rejection of our products or services, divert development resources and
increase service and warranty costs, each of which could have a serious harmful effect on our
business, financial position, results of operations or cash flows.
If we are unable to protect our intellectual property rights or are sued by third parties for
infringing upon intellectual property rights, we may incur substantial costs.
Our success and competitive position depends in large part upon our ability to develop and
maintain the proprietary aspects of our technology. We rely on a combination of patent, copyright,
trademark, service mark, trade secret laws, confidentiality provisions and various other
contractual provisions to protect our proprietary rights, but these legal means provide only
limited protection. Although a number of patents have been issued to us and we have obtained a
number of other patents as a result of our acquisitions, we cannot assure you that our issued
patents will be upheld if challenged by another party. Additionally, with respect to any patent
applications which we have filed, we cannot assure you that any patents will issue as a result of
these applications. If we fail to protect our intellectual property, we may not receive any return
on the resources expended to create the intellectual property or generate any competitive advantage
based on it, and we may be exposed to expensive litigation or risk jeopardizing our competitive
position. Similarly, some third parties have claimed and others could claim that our existing and
future
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products or services infringe upon their intellectual property rights. Claims like these could
require us to enter into costly royalty arrangements or cause us to lose the right to use critical
technology.
Our ability to protect our intellectual property
rights is also subject to the terms of future government contracts. We cannot assure you that the federal government will not demand
greater intellectual property rights or restrict our ability to disseminate intellectual property.
We are also a member of standards-setting organizations and have agreed to license some of our
intellectual property to other members on fair and reasonable terms to the extent that the license
is required to develop non-infringing products.
Pursuing infringers of our patents and other intellectual property rights can be costly.
Pursuing infringers of our proprietary rights could result in significant litigation costs,
and any failure to pursue infringers could result in our competitors utilizing our technology and
offering similar products, potentially resulting in loss of a competitive advantage and decreased
revenues. Despite our efforts to protect our proprietary rights, existing patent, copyright,
trademark and trade secret laws afford only limited protection. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same extent as do the laws of the
United States. Protecting our know-how is difficult especially after our employees or those of our
third party contract service providers end their employment or engagement. Attempts may be made to
copy or reverse-engineer aspects of our products or to obtain and use information that we regard as
proprietary. Accordingly, we may not be able to prevent the misappropriation of our technology or
prevent others from developing similar technology. Furthermore, policing the unauthorized use of
our products is difficult and expensive. Litigation may be necessary in the future to enforce our
intellectual property rights or to determine the validity and scope of the proprietary rights of
others. The costs and diversion of resources could significantly harm our business. If we fail to
protect our intellectual property, we may not receive any return on the resources expended to
create the intellectual property or generate any competitive advantage based on it.
Third parties may claim we are infringing their intellectual property rights and we could be
prevented from selling our products, or suffer significant litigation expense, even if these claims
have no merit, and our customers also could demand indemnification for such claims.
Our competitive position is driven in part by our intellectual property and other proprietary
rights. Third parties, however, may claim that we, our products, operations or any products or
technology we obtain from other parties are infringing their intellectual property rights, and we
may be unaware of intellectual property rights of others that may cover some of our assets,
technology and products. From time to time we receive letters from third parties that allege we are
infringing their intellectual property and asking us to license such intellectual property. We
review the merits of each such letter and respond as we deem appropriate.
At the same time, from time to time our customers are parties to allegations of intellectual
property rights infringements law suits based on their offering products and services which
incorporate our products and services. In those instances, we from time to time receive demands
from our customers to indemnify them for costs in defending those allegations. We review the
merits of each such demand and respond as we deem appropriate.
Any litigation regarding patents, trademarks, copyrights or intellectual property rights, even
those without merit, and the related indemnification demands of our customers, could be costly and
time consuming, and divert our management and key personnel from operating our business. The
complexity of the technology involved and inherent uncertainty and cost of intellectual property
litigation increases our risks. If any third party has a meritorious or successful claim that we
are infringing its intellectual property rights, we may be forced to change our products or enter
into licensing arrangements with third parties, which may be costly or impractical. This also may
require us to stop selling our products as currently engineered, which could harm our competitive
position. We also may be subject to significant damages or injunctions that prevent the further
development and sale of certain of our products or services and may result in a material loss of
revenue.
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The security measures we have implemented to secure information we collect and store may be
breached, which could cause us to breach agreements with our partners and expose us to potential
investigation and penalties by authorities and potential claims by persons whose information was
disclosed.
We take reasonable steps to protect the security, integrity and confidentiality of the
information we collect and store but there is no guarantee that inadvertent or unauthorized
disclosure will not occur or that third parties will not gain unauthorized access despite our
efforts. If such unauthorized disclosure or access does occur, we may be required to notify persons
whose information was disclosed or accessed under existing and proposed laws. We also may be
subject to claims of breach of contract for such disclosure, investigation and penalties by
regulatory authorities and potential claims by persons whose information was disclosed.
Because the market for most mobile content delivery and mobile location products is new, our
future success is uncertain.
The market for mobile content delivery and mobile location products and services is new and
its potential is uncertain. In order to be successful, we need wireless network operators to launch
and maintain mobile location services utilizing our products, and need corporate enterprises and
individuals to purchase and use our mobile content delivery and mobile location products and
services. We cannot be sure that wireless carriers or enterprises will accept our products or that
a sufficient number of wireless users will ultimately utilize our products.
If we are unable to integrate our products with wireless service providers systems we may
lose sales to competitors.
Our products operate with wireless carriers systems, various wireless devices and, in the
case of our E9-1-1 offering, with mobile telephone switches and VoIP service provider systems. If
we are unable to continue to design our software to operate with these systems and devices, we may
lose sales to competitors. Mobile telephone switches and wireless devices can be manufactured
according to many different standards and may have different variations within each standard.
Combining our products with each type of switch, device or VoIP system requires a specialized
interface and extensive testing. If as a result of technology enhancements or upgrades to carrier
and VoIP provider systems our products can no longer operate with such systems, we may no longer be
able to sell our products. Further, even if we successfully redesign our products to operate with
these systems, we may not gain market acceptance before our competitors.
Failure to meet our contractual obligations could adversely affect our profitability and
future prospects.
We design, develop and manufacture technologically advanced and innovative products and
services applied by our customers in a variety of environments. Problems and delays in development
or delivery as a result of issues with respect to design, technology, licensing and patent rights,
labor, learning curve assumptions, or materials and components could prevent us from achieving
contractual obligations. In addition, our products cannot be tested and proven in all situations
and are otherwise subject to unforeseen problems. Examples of unforeseen problems which could
negatively affect revenue and profitability include problems with quality, delivery of
subcontractor components or services, and unplanned degradation of product performance.
Because our systems may be vulnerable to systems failures and security risks, we may incur
significant costs to protect against the threat of these problems.
We provide for the delivery of information and content to and from wireless devices in a
prompt and timely manner. Any systems failure that causes a disruption in our ability to facilitate
the transmission of information to these wireless devices could result in delays in end users
receiving this information and cause us to lose customers. Our systems could experience such
failures as a result of unauthorized access by hackers, computer viruses, hardware or software
failures, power or telecommunications failures and
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other accidental or intentional actions which could disrupt our systems. We may incur significant
costs to prevent such systems disruptions.
Increasingly our products will be used to create or transmit secure information and data to
and from wireless devices. For example, our software can be used to create private address lists
and to provide the precise location of an individual. To protect private information like this from
security breaches, we may incur significant costs. If a third party were able to misappropriate our
proprietary information or disrupt our operations, we could be subject to claims, litigation or
other potential liabilities that could materially adversely impact our business. Further, if an
individual is unable to use our service to receive the precise location in a health or
life-and-death situation, or if our service provides the wrong information, we could be subject to
claims, litigation or other potential liabilities that could materially adversely impact our
business.
The wireless data services provided by our Commercial Segment are dependent on real-time,
continuous feeds from map and traffic data vendors and others. The ability of our subscribers to
receive critical location and business information requires timely and uninterrupted connections
with our wireless network carriers. Any disruption from our satellite feeds or backup landline
feeds could result in delays in our subscribers ability to receive information. We cannot be sure
that our systems will operate appropriately if we experience hardware or software failure,
intentional disruptions of service by third parties, an act of God or an act of war. A failure in
our systems could cause delays in transmitting data, and as a result we may lose customers or face
litigation that could involve material costs and distract management from operating our business.
If mobile equipment manufacturers do not overcome capacity, technology and equipment
limitations, we may not be able to sell our products and services.
The wireless technology currently in use by most wireless carriers has limited bandwidth,
which restricts network capacity to deliver bandwidth-intensive applications like data services to
a large number of users. Because of capacity limitations, wireless users may not be able to connect
to their network when they wish to, and the connection is likely to be slow, especially when
receiving data transmissions. Data services also may be more expensive than users are willing to
pay. To overcome these obstacles, wireless equipment manufacturers will need to develop new
technology, standards, equipment and devices that are capable of providing higher bandwidth
services at lower cost. We cannot be sure that manufacturers will be able to develop technology and
equipment that reliably delivers large quantities of data at a reasonable price. If more capacity
is not added, a sufficient market for our products and services is not likely to develop or be
sustained and sales of our products and services would decline resulting in a material adverse
effect on our business, financial position, results of operations or cash flows.
If wireless handsets pose health and safety risks, we may be subject to new regulations and
demand for our products and services may decrease.
Media reports have suggested that certain radio frequency emissions from wireless handsets may
be linked to various health concerns, including cancer, and may interfere with various electronic
medical devices, including hearing aids and pacemakers. Concerns over radio frequency emissions may
have the effect of discouraging the use of wireless handsets, which would decrease demand for our
services. In recent years, the FCC and foreign regulatory agencies have updated the guidelines and
methods they use for evaluating radio frequency emissions from radio equipment, including wireless
handsets. In addition, interest groups have requested that the FCC investigate claims that wireless
technologies pose health concerns and cause interference with airbags, hearing aids and other
medical devices. There also are some safety risks associated with the use of wireless handsets
while driving. Concerns over these safety risks and the effect of any legislation that may be
adopted in response to these risks could limit our ability to market and sell our products and
services.
Risks Related to Our Class A Common Stock
The price of our Class A common stock historically has been volatile. This volatility may
affect the price at which you could sell your Class A common stock, and the sale of substantial
amounts of our Class A common stock could adversely affect the price of our Class A common stock.
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The market price for our Class A common stock has varied between a high of $10.50 on April 30,
2009 and a low of $6.19 on May 11, 2009 in the twelve month period ended December 31, 2009. This
volatility may affect the price at which you could sell the Class A common stock and the sale of
substantial amounts of our Class A common stock could adversely affect the price of our Class A
common stock. Our stock price is likely to continue to be volatile and subject to significant price
and volume fluctuations in response to market and other factors, including the other factors
discussed in these risk factors; variations in our quarterly operating results from our
expectations or those of securities analysts or investors; downward revisions in securities
analysts estimates; and announcement by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments.
A significant percentage of our common stock is beneficially owned by our President, Chief
Executive Officer and Chairman of the Board, and he can exert significant influence over us.
We have two classes of common stock: Class A common stock and Class B common stock. Holders of
Class A common stock generally have the same rights as holders of Class B common stock, except that
holders of Class A common stock have one vote per share while holders of Class B common stock have
three votes per share. As of December 31, 2009, Maurice B. Tosé, our President, Chief Executive
Officer and Chairman of the Board, beneficially owned 6,276,334 shares of our Class B common stock
and 2,516,887 shares of our Class A common stock. Therefore, as of that date, in the aggregate,
Mr. Tosé beneficially owned shares representing approximately 33% of our total voting power,
assuming no conversion or exercise of issued and outstanding convertible or exchangeable securities
held by our other shareholders or holders of the notes. Accordingly, on this basis, Mr. Tosé can
exert significant influence over us through his ability to influence the outcome of elections of
directors, amend our charter and by-laws and take other actions requiring shareholder action,
including mergers, going private transactions and other extraordinary transactions. Mr. Tosé may
also able to deter or prevent a change of control regardless of whether holders of Class A common
stock might benefit financially from such a transaction.
Because our business may not generate sufficient cash to fund our operations, we may not be
able to continue to grow our business if we are unable to obtain additional capital when needed.
We believe that our cash and cash equivalents, and our bank line of credit, coupled with the
funds anticipated to be generated from operations will be sufficient to finance our operations for
at least the next twelve months. However, unanticipated events could cause us to fall short of our
capital requirements. In addition, such unanticipated events could cause us to violate our bank
line of credit covenants causing the bank to foreclose on the line and/or opportunities may make it
necessary for us to return to the public markets, or establish new credit facilities or raise
capital in private transactions in order to meet our capital requirements. We cannot assure you
that we will be able to raise additional capital in the future on terms acceptable to us, or at
all.
Our line of credit and term loan agreement contains covenants requiring us to maintain a
minimum adjusted quick ratio and a minimum fixed charge coverage ratio; as well as other
restrictive covenants including, among others, restrictions on our ability to merge, acquire or
dispose of assets above prescribed thresholds, undertake actions outside the ordinary course of
our business (including the incurrence and repayment of indebtedness), guarantee debt, distribute
dividends, and repurchase our stock. The agreement also contains a subjective event of
default that requires (i) no material adverse change in the business, operations, or condition
(financial or otherwise) of our Company occur, or (ii) no material impairment of the prospect of
repayment of the Companys obligations under the bank credit agreement; or (iii) no material
impairment of perfection or priority of the lenders security interests in the
collateral under the bank credit agreement. If our performance does not result in compliance with
any of the restrictive covenants, or if our line of credit agreement lenders seek to
exercise their rights under the subjective acceleration clause referred to above, we would seek to
further modify our financing arrangements, but there can be no assurance that our debt holders
would not exercise their rights and remedies under their agreements with us, including declaring
all outstanding debt due and payable.
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Our short-term investments are subject to market fluctuations which may affect our liquidity.
Although we have not experienced any losses on our cash, cash equivalents, and short-term
investments, declines in the market values of these investments in the future could have an adverse
impact on our financial condition and operating results. Historically, we have invested in AAA
rated money market funds meeting certain criteria. These investments are subject to general credit,
liquidity, market, and interest rate risks, which may be directly or indirectly impacted by the
U.S. sub-prime mortgage defaults that have affected various sectors of the financial markets
causing credit and liquidity issues. If an issuer defaults on its obligations, or its credit
ratings are negatively affected by liquidity, losses or other factors, the impact on liquidity
could decline and could have a material adverse effect on
our business, financial position, results of operations or cash flows.
Variations in quarterly operating results due to factors such as changes in demand for our
products and changes in our mix of revenues and costs may cause our Class A common stock price to
decline.
Our quarterly revenue and operating results are difficult to predict and are likely to
fluctuate from quarter-to-quarter. For example, 2009 systems revenue was significantly higher in
the first and fourth quarters than in the middle quarters. 2008 systems revenues were
significantly higher in the second half of the year than in the first half. In 2007, revenues were
slightly higher in the second half of the year than in the first, whereas in 2006 systems revenues
were higher in the first half of the year than in the second half. We generally derive a
significant portion of wireless carrier systems revenue in our Commercial Segment from initial
license fees. The initial license fees that we receive in a particular quarter may vary
significantly. As systems projects begin and end, quarterly results may vary. We therefore believe
that quarter-to-quarter comparisons of our operating results may not be a good indication of our
future performance, and you should not rely on them to predict our future performance or the future
performance of our Class A common stock. Our quarterly revenues, expenses and operating results
could vary significantly from quarter-to-quarter. If our operating results in future quarters fall
below the expectations of market analysts and investors, the market price of our stock may fall.
Additional factors that have either caused our results to fluctuate in the past or that are
likely to do so in the future include:
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changes in our relationships with wireless carriers, the U.S. Government or other
customers;
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timing and success of introduction of new products and services and our wireless
carrier partners marketing expenditures;
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changes in pricing policies and product offerings by us or our competitors;
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changes in projected profitability of acquired assets that would require the write
down of the value of the goodwill reflected on our balance sheet;
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loss of subscribers by our wireless carrier partners or a reduction in the number
of subscribers to plans that include our services;
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the timing and quality of information we receive from our wireless carrier
partners;
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the timing and success of new mobile phone introductions by our wireless carrier
partners;
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our inability to attract new end users;
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the extent of any interruption in our services;
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costs associated with advertising, marketing and promotional efforts to acquire new
customers;
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capital expenditures and other costs and expenses related to improving our
business, expanding operations and adapting to new technologies and changes in
consumer preferences; and
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our lengthy and unpredictable sales cycle.
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We may not have, and may not have the abi
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ity to raise, the funds necessary to repurchase our
currently outstanding Convertible Senior Notes upon a fundamental change, as required by the
indenture governing the Convertible Senior Notes.
Following a fundamental change as described in the indenture governing the Convertible Senior
Notes, holders of those notes may require us to repurchase their notes for cash. A fundamental
change may also constitute an event of default or prepayment under, and result in the acceleration
of the maturity of, our then-existing indebtedness. We cannot provide any assurance that we will
have sufficient financial resources, or will be able to arrange financing, to pay the repurchase
price in cash with respect to any notes tendered by holders for repurchase upon a fundamental
change. In addition, restrictions in our then- existing credit facilities or other indebtedness, if
any, may not allow us to repurchase the Convertible Senior Notes. The failure of us to repurchase
the notes when required would result in an event of default with respect to the Convertible Senior
Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any,
and have an adverse effect on our business, financial position, results of operations or cash
flows.
Future sales of our Class A common stock in the public market or issuances of securities
convertible into our Class A common stock and hedging activities could lower the market price for
our Class A common stock and adversely impact the trading price of the notes.
As of December 31, 2009, we had
outstanding approximately 46.2 million shares of our Class A
common stock and options to purchase approximately 14.6 million shares of our Class A common stock
(approximately 10.4 million of which have a strike price below $7.45 and an additional 4.2 million
of which have a strike price below $17.37). In the future, we may sell additional shares of our
Class A common stock to raise capital. In addition, a substantial number of shares of our Class A
common stock is reserved for issuance upon the exercise of stock options and upon conversion of the
Convertible Notes. Our Class A common stock may also be issued upon conversion of our Class B
common stock, which is convertible into our Class A common stock on a one-for-one basis. As of
December 31, 2009, we had 6.3 million shares of Class B common stock outstanding. We cannot predict
the size of future issuances or the effect, if any, that they may have on the market price for our
Class A common stock. The issuance and sale of substantial amounts of Class A common stock, or the
perception that such issuances and sales may occur, could adversely affect the trading price of the
Convertible Notes and the market price of our Class A common stock and impair our ability to raise
capital through the sale of additional equity securities.
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Our convertible note hedge and warrant transactions may affect the value of the Convertible
Senior Notes and the trading price of shares of our common stock.
In connection with the 2009 sale of the Convertible Senior Notes, we entered into
privately-negotiated convertible note hedge transactions with Deutsche Bank AG, Société Générale
and Royal Bank of Canada (each, a counterparty and together, the counterparties) which are
expected to reduce the potential dilution of shares of the our common stock upon any conversion of
the Convertible Senior Notes. In the event that any of the counterparties in the transaction fails
to deliver shares to us as required under the note hedge documents or as a result of a breach of
the note hedge documents by us, we will be required to issue shares in order to meet its share
delivery obligations with respect to the converted Convertible Senior Notes. We also entered into
warrant transactions with the counterparties with respect to the shares of our common stock
pursuant to which we may issue shares of our common stock.
In connection with hedging these transactions, the counterparties or their affiliates may
purchase shares of our common stock and enter into various over-the-counter derivative transactions
with respect to shares of our common stock and may purchase or sell shares of our common stock in
secondary market transactions. These activities could have the effect of increasing or preventing a
decline in the price of the shares of our common stock. The counterparties or their affiliates are
likely to modify their respective hedge positions from time to time prior to conversion or maturity
of the Convertible Senior Notes (including during any conversion period related to any conversion
of the Convertible Senior Notes) by purchasing and selling shares of our common stock, of our other
securities or other instruments they may wish to use in connection with such hedging. The magnitude
of any of these transactions and activities and their effect, if any, on the market price of
our common stock or the Convertible Senior Notes will depend in part on market conditions and
cannot be ascertained at this time, but any of these activities could adversely affect the value of
the shares of our common stock (including during any period used to determine the amount of
consideration deliverable upon conversion of the notes with respect to any fractional shares).
Conversion of the Convertible Senior Notes will dilute your ownership interest.
The conversion of some or all of the Convertible Senior Notes will dilute the ownership
interests of our shareholders and could adversely affect the prevailing market price of the shares
of our common stock. In addition, the existence of the Convertible Senior Notes may encourage
short selling by market participants because the conversion of the Convertible Senior Notes could
depress the price of the our common stock.
The fundamental change purchase feature of the Convertible Senior Notes may delay or prevent
an otherwise beneficial attempt to purchase us.
The terms of the Convertible Senior Notes require us to purchase them for cash in the event of
a fundamental change. A takeover of our Company would trigger the requirement that we purchase the
Convertible Senior Notes. This may have the effect of delaying or preventing a takeover that
would otherwise be beneficial to investors.
Our governing corporate documents and Maryland law contain certain anti-takeover provisions
that could prevent a change of control that may be favorable to shareholders.
We are a Maryland corporation. Anti-takeover provisions of Maryland law and provisions
contained in our charter and by-laws could make it more difficult for a third party to acquire
control of us, even if a change in control would be beneficial to shareholders. These provisions
include the following:
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authorization of the board of directors to issue blank check preferred stock;
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prohibition of cumulative voting in the election of directors;
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our classified board of directors;
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limitation of the persons who may call special meetings of shareholders;
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prohibition on shareholders acting without a meeting other than through unanimous
written consent;
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supermajority voting requirement on various charter and by-law provisions; and
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establishment of advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted on by shareholders at
shareholder meetings.
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These provisions could delay, deter or prevent a potential acquirer from attempting to obtain
control of us, depriving shareholders of an opportunity to receive a premium for Class A common
stock. These provisions could therefore materially adversely affect the market price of our Class A
common stock.
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USE OF PROCEEDS
All shares of our Class A common stock offered by this prospectus are being registered for the
account of the selling shareholders. We will not receive any of the proceeds from the sale or
other disposition by the selling shareholders of the shares of Class A common stock, or interests
therein. We will pay all expenses of the registration and sale of the shares of Class a common
stock, including fees and disbursements of one counsel for the selling shareholders not to exceed
$10,000, other than selling commissions and fees and stock transfer taxes. If the shares of
Class A common stock are sold through underwriters or broker-dealers, the selling shareholders will
be responsible for underwriting discounts or commissions or agents commissions.
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SELLING SHAREHOLDERS
The selling shareholders acquired the 2,236,258 shares of Class A common stock offered for
resale under this prospectus in connection with the merger of our wholly-owned subsidiary Olympus
Merger Sub Inc. with and into Networks in Motion, Inc., which closed on December 15, 2009. In
satisfaction of our obligations under the merger agreement, this prospectus covers the disposition
of the shares of our Class A common stock issued to the selling shareholders, or interests therein.
We agreed to prepare and file all necessary amendments and supplements to this Registration
Statement to keep it effective until the earlier of (i) the later to occur of (A) December 15, 2010
or (B) the date on which all the shares Class A common stock covered hereby may be sold pursuant to
Rule 144 (or any successor rule thereto) under the Securities Act of 1933, as amended (the
Securities Act) and (ii) such time as all the shares of Class A common stock covered hereby have
been publicly sold by the selling shareholders.
The selling shareholders may dispose of all, some or none of their shares in this offering.
See Plan of Distribution.
Except as set forth in the footnotes to the table below and except for the ownership of shares
of Class A common stock acquired by the selling shareholders as a result of our acquisition of
Networks in Motion, no selling shareholders had any position, office or material relationship with
us within the past three years.
The table below sets forth the names of the selling shareholders, the number of shares of
Class A common stock beneficially owned by the selling shareholders immediately prior to the date
of this prospectus, and the total number of shares that may be offered pursuant to this prospectus.
The table also provides information regarding the beneficial ownership of our common stock by the
selling shareholders as adjusted to reflect the assumed sale of all of the shares offered under
this prospectus. Percentage of beneficial ownership is based on 46,157,025 shares of our Class A
common stock outstanding as of December 31, 2009. The selling shareholders may offer the shares for
sale from time to time in whole or in part. Beneficial ownership is determined in accordance with
Rule 13d-3(d) promulgated by the Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended (the Exchange Act). Except where otherwise noted, each of the selling
shareholders named in the following table has, to our knowledge, sole voting and investment power
with respect to the shares beneficially owned by them. Except as noted below, no selling
shareholder is a broker-dealer or an affiliate of a broker-dealer.
Because the selling shareholders may sell all, some or none of the shares of Class A common
stock beneficially owned by them, we cannot estimate the number of shares of Class A common stock
that will be beneficially owned by the selling shareholders after this offering. In addition, the
selling shareholders may have sold, transferred or otherwise disposed of, or may sell, transfer or
otherwise dispose of, at any time or from time to time since the date on which they provided the
information, all or a portion of the shares of Class A common stock beneficially owned by them in
transactions exempt from the registration requirements of the Securities Act. See Plan of
Distribution.
Information concerning the selling shareholders may change from time to time and any changed
information will be set forth in supplements to this prospectus if and when necessary.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
|
|
|
Before Offering
|
|
Number of
|
|
Beneficial Ownership
|
|
|
Number of
|
|
|
|
|
|
Shares Being
|
|
After Offering
|
Selling Shareholder
|
|
Shares Owned
|
|
Percent
|
|
Registered
|
|
Shares
|
|
Percent
|
SVB Financial Group (1)
|
|
|
18,575
|
|
|
|
*
|
|
|
|
18,575
|
|
|
|
0
|
|
|
|
*
|
|
David Hinton, Trustee of the
Michael James Petilli 2003
Minors Trust, under trust
dated
December 18, 2003
|
|
|
15,249
|
|
|
|
*
|
|
|
|
15,249
|
|
|
|
0
|
|
|
|
*
|
|
David Hinton, Trustee of the
Daniel Stephen Petilli 2005
Minors Trust, under trust
dated
December 7, 2005
|
|
|
15,249
|
|
|
|
*
|
|
|
|
15,249
|
|
|
|
0
|
|
|
|
*
|
|
David Hinton, Trustee of the
Gavin Sky Petilli 2000 Trust,
under trust dated December 18,
2000
|
|
|
15,249
|
|
|
|
*
|
|
|
|
15,249
|
|
|
|
0
|
|
|
|
*
|
|
Sutter Hill Ventures (2)
|
|
|
232,731
|
|
|
|
*
|
|
|
|
232,731
|
|
|
|
0
|
|
|
|
*
|
|
Mohammed Fathi Hakam (3)
|
|
|
17,820
|
|
|
|
*
|
|
|
|
17,820
|
|
|
|
0
|
|
|
|
*
|
|
Shen Zhang (3)
|
|
|
17,515
|
|
|
|
*
|
|
|
|
17,515
|
|
|
|
0
|
|
|
|
*
|
|
David Shimoni (3)
|
|
|
23,353
|
|
|
|
*
|
|
|
|
23,353
|
|
|
|
0
|
|
|
|
*
|
|
Stephen G. Petilli (3)
|
|
|
25,706
|
|
|
|
*
|
|
|
|
25,706
|
|
|
|
0
|
|
|
|
*
|
|
Steven J. Andler (3)
|
|
|
23,441
|
|
|
|
*
|
|
|
|
23,441
|
|
|
|
0
|
|
|
|
*
|
|
Kristen Bradley Coleman
McKnight (3)
|
|
|
11,938
|
|
|
|
*
|
|
|
|
11,938
|
|
|
|
0
|
|
|
|
*
|
|
Douglas Ray Antone (3)
|
|
|
140,297
|
|
|
|
*
|
|
|
|
140,297
|
|
|
|
0
|
|
|
|
*
|
|
Donald Gregg Marston (3)
|
|
|
25,706
|
|
|
|
*
|
|
|
|
25,706
|
|
|
|
0
|
|
|
|
*
|
|
Linda Petilli
|
|
|
12,988
|
|
|
|
*
|
|
|
|
12,988
|
|
|
|
0
|
|
|
|
*
|
|
Stephen G. Petilli, Trustee of
the
Stephen G. Petilli
Revocable
Living Trust, under
trust dated
June 20, 2002 (3)
|
|
|
259,736
|
|
|
|
*
|
|
|
|
259,736
|
|
|
|
0
|
|
|
|
*
|
|
The Board of Trustees of the
Leland Stanford Junior
University (LSUF)
|
|
|
3,634
|
|
|
|
*
|
|
|
|
3,634
|
|
|
|
0
|
|
|
|
*
|
|
Robert Yin and Lily Yin as
Trustees of Yin Family Trust
dated March 1, 1997
|
|
|
340
|
|
|
|
*
|
|
|
|
340
|
|
|
|
0
|
|
|
|
*
|
|
Saunders Holdings, L.P. (4)
|
|
|
8,213
|
|
|
|
*
|
|
|
|
8,213
|
|
|
|
0
|
|
|
|
*
|
|
David E. Sweet and Robin T.
Sweet, as Trustees of the David
and Robin Sweet Living Trust
dated 7/6/04
|
|
|
2,481
|
|
|
|
*
|
|
|
|
2,481
|
|
|
|
0
|
|
|
|
*
|
|
Tallack Partners, L.P. (5)
|
|
|
3,818
|
|
|
|
*
|
|
|
|
3,818
|
|
|
|
0
|
|
|
|
*
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
|
|
|
Before Offering
|
|
Number of
|
|
Beneficial Ownership
|
|
|
Number of
|
|
|
|
|
|
Shares Being
|
|
After Offering
|
Selling Shareholder
|
|
Shares Owned
|
|
Percent
|
|
Registered
|
|
Shares
|
|
Percent
|
Gregory P. Sands and Sarah J.D.
Sands, as Trustees of the
Gregory P. and Sarah J.D.
Sands
Trust Agreement Dated
2/24/99
|
|
|
2,402
|
|
|
|
*
|
|
|
|
2,402
|
|
|
|
0
|
|
|
|
*
|
|
Yovest, L.P. (6)
|
|
|
5,815
|
|
|
|
*
|
|
|
|
5,815
|
|
|
|
0
|
|
|
|
*
|
|
William H. Younger, Jr.,
Trustee,
the Younger Living
Trust
U/A/D 1/20/95
|
|
|
10,468
|
|
|
|
*
|
|
|
|
10,468
|
|
|
|
0
|
|
|
|
*
|
|
James N. White and Patricia A.
OBrien, as Trustees of the
White Family Trust U/A/D
4/3/97
|
|
|
4,477
|
|
|
|
*
|
|
|
|
4,477
|
|
|
|
0
|
|
|
|
*
|
|
G. Leonard Baker, Jr. and Mary
Anne Baker, Co-Trustees of the
Baker Revocable Trust U/A/D
2/3/03
|
|
|
11,631
|
|
|
|
*
|
|
|
|
11,631
|
|
|
|
0
|
|
|
|
*
|
|
Jeffrey W. Bird and Christina
R.
Bird,
as Trustees of Jeffrey
W.
Bird and Christina R. Bird
Trust Agreement Dated
10/31/2000
|
|
|
11,059
|
|
|
|
*
|
|
|
|
11,059
|
|
|
|
0
|
|
|
|
*
|
|
James C. Gaither, Trustee of
the
Gaither Revocable Trust
U/A/D
9/28/2000
|
|
|
1,431
|
|
|
|
*
|
|
|
|
1,431
|
|
|
|
0
|
|
|
|
*
|
|
David L. Anderson, Trustee of
the
Anderson Living Trust U/A/D
1/22/98
|
|
|
1,078
|
|
|
|
*
|
|
|
|
1,078
|
|
|
|
0
|
|
|
|
*
|
|
Anvest, L.P. (7)
|
|
|
6,034
|
|
|
|
*
|
|
|
|
6,034
|
|
|
|
0
|
|
|
|
*
|
|
Acrux Partners, LP (8)
|
|
|
6,034
|
|
|
|
*
|
|
|
|
6,034
|
|
|
|
0
|
|
|
|
*
|
|
Tench Coxe and Simone Otus
Coxe, Co-Trustees of the Coxe
Revocable Trust U/A/D 4/23/98
|
|
|
43,125
|
|
|
|
*
|
|
|
|
43,125
|
|
|
|
0
|
|
|
|
*
|
|
Patricia Tom
|
|
|
340
|
|
|
|
*
|
|
|
|
340
|
|
|
|
0
|
|
|
|
*
|
|
Michael I. Naar and Dianne J.
Naar as trustees of Naar Family
Trust U/A/D 12/22/94
|
|
|
271
|
|
|
|
*
|
|
|
|
271
|
|
|
|
0
|
|
|
|
*
|
|
Lynne B. Graw
|
|
|
543
|
|
|
|
*
|
|
|
|
543
|
|
|
|
0
|
|
|
|
*
|
|
Wells Fargo Bank, N.A. FBO
SHV
Profit Sharing Plan FBO
Sherryl
W. Casella (9)
|
|
|
181
|
|
|
|
*
|
|
|
|
181
|
|
|
|
0
|
|
|
|
*
|
|
Wells Fargo Bank, N.A. FBO
SHV
Profit Sharing Plan FBO
William
H. Younger, Jr. (9)
|
|
|
9,420
|
|
|
|
*
|
|
|
|
9,420
|
|
|
|
0
|
|
|
|
*
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial Ownership
|
|
|
|
|
|
|
Before Offering
|
|
Number of
|
|
Beneficial Ownership
|
|
|
Number of
|
|
|
|
|
|
Shares Being
|
|
After Offering
|
Selling Shareholder
|
|
Shares Owned
|
|
Percent
|
|
Registered
|
|
Shares
|
|
Percent
|
TrafficGauge, Inc. (10)
|
|
|
11,976
|
|
|
|
*
|
|
|
|
11,976
|
|
|
|
0
|
|
|
|
*
|
|
Angie Sheha (3)
|
|
|
141,598
|
|
|
|
*
|
|
|
|
141,598
|
|
|
|
0
|
|
|
|
*
|
|
Michael A. Sheha (3)
|
|
|
167,304
|
|
|
|
*
|
|
|
|
167,304
|
|
|
|
0
|
|
|
|
*
|
|
Keith Yamano
|
|
|
236
|
|
|
|
*
|
|
|
|
236
|
|
|
|
0
|
|
|
|
*
|
|
Vicky Nguyen
|
|
|
363
|
|
|
|
*
|
|
|
|
363
|
|
|
|
0
|
|
|
|
*
|
|
Chetan Nagaraj
|
|
|
322
|
|
|
|
*
|
|
|
|
322
|
|
|
|
0
|
|
|
|
*
|
|
Matthew McFee
|
|
|
726
|
|
|
|
*
|
|
|
|
726
|
|
|
|
0
|
|
|
|
*
|
|
Tiffany Ketterer
|
|
|
1,244
|
|
|
|
*
|
|
|
|
1,244
|
|
|
|
0
|
|
|
|
*
|
|
Michael Hershberg
|
|
|
236
|
|
|
|
*
|
|
|
|
236
|
|
|
|
0
|
|
|
|
*
|
|
Saddigh Dregia
|
|
|
232
|
|
|
|
*
|
|
|
|
232
|
|
|
|
0
|
|
|
|
*
|
|
Dmitriy Dorfman
|
|
|
3,331
|
|
|
|
*
|
|
|
|
3,331
|
|
|
|
0
|
|
|
|
*
|
|
Michael L. Benvenuti, as
Trustee
of The Benvenuti Living
Trust
Established 12/20/01
|
|
|
871
|
|
|
|
*
|
|
|
|
871
|
|
|
|
0
|
|
|
|
*
|
|
Garmin, Ltd. (11)
|
|
|
25,952
|
|
|
|
*
|
|
|
|
25,952
|
|
|
|
0
|
|
|
|
*
|
|
Mission Ventures II, L.P. (12)
|
|
|
260,204
|
|
|
|
*
|
|
|
|
260,204
|
|
|
|
0
|
|
|
|
*
|
|
Mission Ventures Affiliates II,
L.P. (12)
|
|
|
31,505
|
|
|
|
*
|
|
|
|
31,505
|
|
|
|
0
|
|
|
|
*
|
|
Michael Hegeman
|
|
|
1,316
|
|
|
|
*
|
|
|
|
1,316
|
|
|
|
0
|
|
|
|
*
|
|
Theodore Lee
|
|
|
576
|
|
|
|
*
|
|
|
|
576
|
|
|
|
0
|
|
|
|
*
|
|
Verizon Investments Inc. (13)
|
|
|
81,123
|
|
|
|
*
|
|
|
|
81,123
|
|
|
|
0
|
|
|
|
*
|
|
Redpoint Ventures II, L.P. (14)
|
|
|
505,580
|
|
|
|
1.1
|
%
|
|
|
505,580
|
|
|
|
0
|
|
|
|
*
|
|
Redpoint Associates II, LLC (14)
|
|
|
11,690
|
|
|
|
*
|
|
|
|
11,690
|
|
|
|
0
|
|
|
|
*
|
|
Any other holder of our Class A
common stock that was issued
in
connection with the merger
of
our wholly-owned subsidiary
Olympus Merger Sub Inc. with
and into Networks in Motion,
Inc.
|
|
|
1,525
|
|
|
|
*
|
|
|
|
1,525
|
|
|
|
0
|
|
|
|
*
|
|
|
|
|
*
|
|
Less than 1% of the common stock outstanding.
|
|
(1)
|
|
Michael Kruse and Michael Descheneaux have voting and investment control over the shares owned by SVB Financial Group. The address for SVB Financial Group is 3003 Tasman Drive (HC215), Attention: Treasury, Santa
Clara, California 95054.
|
30
|
|
|
(2)
|
|
David L. Anderson, G. Leonard Baker, Jeffrey W. Bird M.D. Ph.D., Tench Coxe, James C. Gaither,
Gregory P. Sands, Andrew T. Sheehan, Michael L. Speiser, David E. Sweet, James N. White and William
H. Younger, Jr. share voting and investment control over these shares and disclaim beneficial
ownership of such shares except to the extent of any pecuniary interest therein. The address for
Sutter Hill Ventures is 755 Page Mill Road, Suite A-200, Palo Alto, California 94304. James White was a director of Networks in Motion until our acquisition of the company.
|
|
(3)
|
|
Mohammed Fathi Hakam, Shen Zhang, David Shimoni, Stephen G. Petilli, Steven J. Andler, Kristen
Bradley Coleman McKnight, Douglas Ray Antone, Donald Gregg Marston and Michael A. Sheha were
executive officers and employees of Networks in Motion prior to our acquisition of the company.
Each of these individuals is currently our employee. Douglas Antone and Stephen Petilli were also directors of Networks in Motion until our acquisition of the company.
Angie Sheha was an executive officer of Networks in Motion until March 2009 and an employee of Networks in Motion until December 2009.
|
|
(4)
|
|
G. Leonard Baker, Jr. is the general partner of Saunders Holdings, L.P. and as a result has
voting and investment control over the shares owned by Saunders Holdings, L.P. The address for
Saunders Holdings, L.P. is 755 Page Mill Road, Suite A-200, Palo Alto, California 94304.
|
|
(5)
|
|
James C. Gaither is the general partner of Tallack Partners, L.P. and as a result has voting
and investment control over the shares owned by Tallack Partners, L.P. The address for Tallack
Partners, L.P. is 755 Page Mill Road, Suite A-200, Palo Alto, California 94304.
|
|
(6)
|
|
William H. Younger, Jr. has voting and investment control over the shares owned by Yovest,
L.P. The address for Anvest, L.P. is 755 Page Mill Road, Suite A-200, Palo Alto, California 94304.
|
|
(7)
|
|
David L. Anderson is the general partner of Anvest, L.P. and as a result has voting and
investment control over the shares owned by Anvest, L.P. The address for Anvest, L.P. is 755 Page
Mill Road, Suite A-200, Palo Alto, California 94304.
|
|
(8)
|
|
David L. Anderson is the general partner of Acrux Partners, LP and as a result has voting and
investment control over the shares owned by Acrux Partners, LP. The address for Acrux Partners, LP
is 755 Page Mill Road, Suite A-200, Palo Alto, California 94304.
|
|
(9)
|
|
Wells Fargo Bank, N.A. is an affiliate of one or more registered broker-dealers. Wells Fargo
Bank, N.A. has advised us that it acquired the shares in connection with the merger of our
wholly-owned subsidiary Olympus Merger Sub Inc. with and into Networks in Motion, Inc., which
closed on December 15, 2009, and at such time had no agreements or understandings, directly or
indirectly, with any person to distribute such shares. David E. Sweet has voting and investment control over these shares.
|
|
(10)
|
|
Ryan Robert Peterson and Kenneth A. Keller have voting and investment control over the shares
owned by TrafficGuage, Inc. The address for TrafficGuage, Inc. is 300 19
th
Avenue,
Seattle, Washington 98122.
|
|
(11)
|
|
Min H. Kao and Kevin Rauckman, President/Chief Executive Officer and Chief Financial Officer
of Garmin Ltd., respectively, share voting and investment power over the shares owned by Garmin
Ltd. The address for Garmin Ltd. is P.O. Box 10670, Grand Cayman KY1-1006, Suite 3206B, 45 Market
Street, Gardenice Court, Camana Bay, Cayman Islands.
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(12)
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Edward E. Alexander is a general member of Mission Ventures Management II, LLC, which is the general
partner of each of Mission Ventures II, L.P. and Mission Ventures Affiliates II, L.P. The other
general members of Mission Ventures Management II, LLC are David J. Ryan, Robert F. Kibble and Leo S. Spiegel. The
individuals listed herein may be deemed to have shared voting and dispositive power over the shares
which are or may be deemed to be beneficially owned by Mission Ventures II, L.P. and Mission
Ventures Affiliates II, L.P. Each general member disclaims beneficial ownership of the shares
except to the extent of their pecuniary interest therein. The address of the entities affiliated
with Mission Ventures is 11455 El Camino Real, Suite 450, San Diego, CA 92130. Edward Alexander was a director of Networks in Motion until our acquisition of the company.
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(13)
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Janet Garrity, President of Verizon Investments Inc. has sole voting and investment control
over the shares owned by Verizon Investments Inc. Verizon Investments Inc. is a subsidiary of
Verizon
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31
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Communications Inc. The address for Verizon Investments Inc. is 3900 Washington Street,
Wilmington, Delaware 19802.
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(14)
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Jeffrey D. Brody, R. Thomas Dyal, Timothy M. Haley, G. Bradford Jones, John L. Walecka and
Geoffrey Y. Yang share voting and investment control over these shares. The address for Redpoint
Ventures II, L.P. and Redpoint Associates II, LLC is 11150 Santa Monica Blvd., Suite 1200, Los
Angeles, California 90025. G. Bradford Jones was a director of Networks in Motion until our acquisition of the company.
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32
PLAN OF DISTRIBUTION
We are registering shares of our Class A common stock by the selling shareholders
identified in this prospectus to permit the resale of these shares of Class A common stock by the
holders of the Class A common stock from time to time after the date of this prospectus. The
selling shareholders acquired the shares of Class A common stock offered for resale under this
prospectus in connection with the merger of our wholly-owned subsidiary Olympus Merger Sub Inc.
with and into Networks in Motion, Inc., which closed on December 15, 2009. We will not receive any
of the proceeds from the sale by the selling shareholders of the shares of Class A common stock.
The selling shareholders and any of their pledgees, donees, transferees and
successors-in-interest may, from time to time, sell any or all of their shares of Class A common
stock registered hereunder on any stock exchange, market or trading facility on which the shares
are traded or in private transactions. These sales may be at fixed or negotiated prices. The
selling shareholders may use any one or more of the following methods when selling shares:
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ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate the
transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its
own account;
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privately negotiated transactions;
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any combinations of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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The selling shareholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus.
The selling shareholders may, from time to time, pledge or grant a security interest in some
or all of the shares of Class A common stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell the shares of
Class A common stock, from time to time, under this prospectus, or under an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the
list of selling shareholders to include the pledgee, transferee or other successors-in-interest as
selling shareholders under this prospectus. The selling shareholders also may transfer the shares
of Class A common stock in other circumstances, in which case the transferees, pledgees or other
successors-in-interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our Class A common stock or interests therein, the selling
shareholders may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the Class A common stock in the course of
hedging the positions they assume. The selling shareholders may also sell shares of our Class A
common stock short and deliver these securities to close out their short positions, or loan or
pledge the Class A common stock to broker-dealers that in turn may sell these securities. The
selling shareholders may also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities which require the
delivery to such broker-dealer or other financial institution of shares offered by this prospectus,
which shares such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
33
Broker-dealers engaged by the selling shareholders may arrange for other brokers-dealers
to participate in sales. Broker-dealers may receive commissions or discounts from the selling
shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling shareholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved.
Upon our being notified in writing by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of Class A common stock through
a block trade, special offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule
424(b) under the Securities Act, disclosing (i) the name of each such selling shareholder and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such the shares of Class A common stock were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did
not conduct any investigation to verify the information set out or incorporated by reference in
this prospectus, and (vi) other facts material to the transaction.
The selling shareholders also may transfer the shares of Class A common stock in other
circumstances, in which case the transferees, pledgees or other successors-in-interest may be the
selling beneficial owners for purposes of this prospectus.
The selling shareholders and any broker-dealers or agents that are involved in selling the
shares may be deemed to be underwriters within the meaning of the Securities Act in connection
with such sales. In such event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be underwriting commissions
or discounts under the Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, that can be attributed to the sale of securities will be paid by the selling
shareholder and/or the purchaser.
We are required to pay our fees and expenses incident to the registration of the shares. We
have agreed to indemnify the selling shareholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
The selling shareholders will be responsible to comply with the applicable provisions of the
Securities Act and the Exchange Act, and the rules and regulations thereunder promulgated,
including, without limitation, Regulation M, as applicable to such selling shareholders in
connection with resales of their respective shares under this Registration Statement.
There can be no assurance that any selling shareholder will sell any or all of the shares of
Class A common stock registered pursuant to this Registration Statement, of which this prospectus
forms a part.
34
LEGAL MATTERS
DLA Piper LLP (US), Baltimore, Maryland, will pass for us upon the validity of the shares
of Class A common stock offered under this prospectus.
EXPERTS
The consolidated financial statements of TeleCommunication Systems, Inc. appearing in
TeleCommunication Systems, Inc.s Annual Report (Form 10-K) for the year ended December 31, 2008
(including the schedule appearing therein), and the effectiveness of TeleCommunication Systems,
Inc.s internal control over financial reporting as of December 31, 2008 have been audited by
Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports
thereon, included therein, and incorporated herein by reference. Such financial statements are, and
audited financial statements to be included in subsequently filed documents will be, incorporated
herein in reliance upon the reports of Ernst & Young LLP pertaining to such financial statements
and the effectiveness of our internal control over financial reporting as of the respective dates
(to the extent covered by consents filed with the Securities and Exchange Commission) given on the
authority of such firm as experts in accounting and auditing.
The audited consolidated financial statements of Networks In Motion at December 31, 2008 and for the
year then ended, appearing in TeleCommunication Systems, Inc.s Form 8-K/A dated December 15, 2009
and incorporated herein by reference, have been audited by Ernst & Young LLP, independent auditors,
as set forth in its report thereon, included therein in reliance upon
such reports given on the authority of such firm as experts in accounting and auditing.
The financial statements of Networks in Motion, Inc. as of December 31, 2007 and for the year
then ended included in TeleCommunication Systems, Inc.s Current Report on Form 8-K/A dated
December 15, 2009 have been incorporated in this Prospectus in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the information requirements of the Exchange Act. In accordance with
the Exchange Act, we file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our corporate website is located at www.telecomsys.com, and our filings
pursuant to Section 13(a) of the Exchange Act are available free of charge on our website under the
tabs Investor Relations SEC Reports as soon as reasonably practicable after such filings are
electronically filed with the SEC. The information contained on our corporate website is not part
of this prospectus or any prospectus supplement. Interested readers may also read and copy any
materials that we file at the SECs Public Reference Room at 100 F Street, N.E., Washington D.C.,
20549. Readers may obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an internet site (
www.sec.gov
) that contains
our reports.
You should rely only upon the information provided in this prospectus or any prospectus
supplement or incorporated herein or therein by reference. We have not authorized anyone to provide
you with different information. You should not assume that the information contained in this
prospectus or any prospectus supplement, including any information incorporated herein or therein
by reference, is accurate as of any date other than that set forth on the front cover of this
prospectus or any prospectus supplement.
INCORPORATION BY REFERENCE
The SEC allows us to incorporate into this prospectus information that we file with the
SEC in other documents. This means that we can disclose important information to you by referring
to other
35
documents that contain that information. Any information that we incorporate by reference is
considered part of this prospectus.
Information contained in this prospectus and information that we file with the SEC in the
future and incorporate by reference in this prospectus automatically modifies and supersedes
previously filed information including information in previously filed documents or reports that
have been incorporated by reference in this prospectus, to the extent the new information differs
from or is inconsistent with the old information. Any information so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
We incorporate by reference any future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of the initial registration statement and
prior to its effectiveness, provided however, that we are not incorporating any documents or
information deemed to have been furnished and not filed in accordance with the rules of the SEC. We
also incorporate by reference, as of their respective dates of filing, the documents listed below
that we have filed with the SEC and any documents that we file with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus:
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our Annual Report on Form 10-K for the fiscal year ended December 31, 2008
filed with the SEC on March 3, 2009 and as amended on August 24, 2009;
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our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009
filed with the SEC on May 1, 2009;
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our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009
filed with the SEC on July 31, 2009 and as amended on August 3, 2009;
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our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009
filed with the SEC on November 30, 2009;
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our Current Reports on Form 8-K filed with the SEC on January 5, 2009, February 2,
2009 (as amended on April 22, 2009), April 20, 2009, July 2, 2009, November 16, 2009,
November 16, 2009, December 1, 2009, December 16, 2009 and January 7, 2010 and the
Current Report on Form 8-K/A filed with the SEC on
February 22, 2010; and
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the description of our capital stock contained in the Current Report on Form 8-K/A
filed with the SEC on February 22, 2010.
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You may request a copy of these documents, which will be provided to you at no cost, by
writing or telephoning us using the following contact information:
TeleCommunication Systems, Inc.,
275 West Street,
Annapolis, Maryland 21401
(410) 263-7616
Attention: Investor Relations
36
TELECOMMUNICATION SYSTEMS, INC.
PROSPECTUS
, 2010
37
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Other Expenses of Issuance and Distribution
The following table sets forth the various expenses to be incurred in connection with the
registration of the securities being registered hereby, all of which will be borne by
TeleCommunication Systems, Inc. All of the amounts shown are estimated except the SEC registration
fee.
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Securities and Exchange Commission registration fee
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$
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1,287
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Legal fees and expenses
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30,000
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Accounting fees and expenses
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25,000
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Miscellaneous expenses
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5,000
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Total
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$
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61,287
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14.
Indemnification of Officers and Directors
As permitted by the Maryland General Corporation Law (MGCL), Article Seventh, Paragraph
(5) of TeleCommunication Systems, Inc.s charter, provides for indemnification of directors and
officers of TeleCommunication Systems, Inc. as follows:
(5) The Corporation shall indemnify (A) its directors and officers, whether
serving the Corporation or at its request any other entity, to the fullest extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and to
the full extent permitted by law and (B) other employees and agents to such extent
as shall be authorized by the Board of Directors or the Corporations By-Laws and
be permitted by law. The foregoing rights of indemnification shall not be
exclusive of any other rights to which those seeking indemnification may be
entitled. The Board of Directors may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
law. No amendment of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal.
The MGCL permits a corporation to indemnify its directors and officers (which include any
person who is, or was, serving at the request of the corporation as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprise, or employee benefit plan), among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in connection with any
proceedings to which they may be a party by reason of their service in those or other capacities,
unless it is established that (a) the act or omission of the director or officer was material to
the matter giving rise to such proceedings and (i) was committed in bad faith or (ii) was the
result of active and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services, or (c) in the case of any criminal
proceedings, the director or officer had reasonable cause to believe that the action or omission
was unlawful.
As permitted by the MGCL, Article Seventh, Paragraph (6) of TeleCommunication Systems,
Inc.s charter provides for limitation of liability of directors and officers of TeleCommunication
Systems, Inc. as follows:
II-1
(6) To the fullest extent permitted by Maryland statutory or decisional law,
as amended or interpreted, no director or officer of the Corporation shall be
personally liable to the Corporation or its shareholders for money damages. No
amendment of the Charter of the Corporation or repeal of any of its provisions
shall limit or eliminate the limitation on liability provided to directors and
officers hereunder with respect to any act or omission occurring prior to such
amendment or repeal.
The MGCL permits the charter of a Maryland corporation to include a provision limiting the
liability of its directors and officers to the corporation and its shareholders for money damages,
except to the extent that (i) the person actually received an improper benefit or profit in money,
property or services or (ii) a judgment or other final adjudication is entered in a proceeding
based on a finding that the persons action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.
As permitted under Section 2-418(k) of the MGCL, TeleCommunication Systems, Inc. has
purchased and maintains insurance on behalf of its directors and officers against any liability
asserted against such directors and officers in their capacities as such, whether or not
TeleCommunication Systems, Inc. would have the power to indemnify such persons under the provisions
of Maryland law governing indemnification.
15.
Exhibits
A list of exhibits filed herewith is contained in the exhibit index that immediately
precedes such exhibits and is incorporated herein by reference.
16.
Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate offering price set
forth in the Calculation of Registration Fee table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any material change
to such information in the registration statement;
provided, however
, that paragraphs (i), (ii) and (iii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is contained in reports
filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the registration
statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of
the registration statement;
II-2
(2) That, for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that time shall be deemed to
be the initial
bona fide
offering thereof;
(3) To remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the offering;
(4) That, for the purpose of determining liability under the Securities Act of 1933 to
any purchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7)
as part of a registration statement in reliance on Rule 430B relating to an offering made
pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information
required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and
included in the registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first contract of sale of
securities in the offering described in prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such date shall
be deemed to be a new effective date of the registration statement relating to the
securities in the registration statement to which the prospectus relates, and the offering
of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
Provided, however
, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus that is part
of the registration statement will, as to a purchaser with a time of contract of sale prior
to such effective date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date; and
(b) The undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrants annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plans annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Annapolis, State of Maryland, on
February 19, 2010.
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TELECOMMUNICATION SYSTEMS, INC.
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By:
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/s/ Thomas M. Brandt, Jr.
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Thomas M. Brandt, Jr.
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Chief Financial Officer
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POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed below by the following persons in the capacities and on the date
indicated. Each person whose signature appears below in so signing also makes, constitutes and
appoints Thomas M. Brandt, Jr. and Bruce A. White, and each of them acting alone, his or her true
and lawful attorney-in-fact, with full power of substitution, for him or her in any and all
capacities, to execute and cause to be filed with the Securities and Exchange Commission any and
all amendments and post-effective amendments to this Registration Statement, with exhibits thereto
and other documents in connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof.
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Name
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Title
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Date
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/s/ Maurice B. Tosé
Maurice B. Tosé
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President, Chief
Executive Officer
and Director
(Principal
Executive
Officer)
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February 19, 2010
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/s/ Thomas M. Brandt, Jr.
Thomas M. Brandt, Jr.
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Chief Financial
Officer (Principal
Financial Officer
and Principal
Accounting Officer)
and Director
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February 19, 2010
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/s/ James M. Bethmann
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Director
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February 19, 2010
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/s/ Clyde A. Heintzelman
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Director
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February 19, 2010
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/s/ Jan C. Huly
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Director
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February 19, 2010
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/s/ Richard A. Kozak
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Director
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February 19, 2010
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/s/ Weldon H. Latham
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Director
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February 19, 2010
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/s/ Richard A. Young
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Director
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February 19, 2010
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II-4
Exhibit Index
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Exhibit
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No.
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Description
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Incorporation by Reference
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2.1
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Agreement and Plan of Merger
dated November 25, 2009 by
and among TeleCommunication
Systems, Inc., Networks in
Motion, Inc., Olympus Merger
Sub Inc., and G. Bradford
Jones, as Shareholders
Representative
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Incorporated by reference
from the Companys Current
Report on Form 8-K filed
on December 16, 2009.
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3.1
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Amended and Restated
Articles of Incorporation
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Incorporated by reference
from the Companys
Quarterly Report on
Form 10-Q for the quarter
ended June 30, 2004 filed
on August 3, 2004.
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3.2
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Amended and Restated By-Laws
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Incorporated by reference
from the Companys
Quarterly Report on
Form 10-Q for the quarter
ended June 30, 2004 filed
on August 3, 2004.
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4.1
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Specimen of certificate of
Class A common stock
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Incorporated by reference
from the Companys
Registration Statement on
Form S-1 (Securities and
Exchange Commission File
No. 333-35522) filed on
August 8, 2000.
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5.1
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Opinion of DLA Piper LLP (US)
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Filed herewith.
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23.1
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Consent of Ernst & Young LLP
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Filed herewith.
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23.2
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Consent of Ernst & Young LLP
for Networks in Motion, Inc.
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Filed herewith.
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23.3
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Consent of
PricewaterhouseCoopers LLP
for Networks in Motion, Inc.
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Filed herewith.
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23.4
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Consent of DLA Piper LLP (US)
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Included in Exhibit 5.1
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II-5
Telecommunication Systems (NASDAQ:TSYS)
Historical Stock Chart
From Sep 2024 to Oct 2024
Telecommunication Systems (NASDAQ:TSYS)
Historical Stock Chart
From Oct 2023 to Oct 2024