exv4w2



 



EXHIBIT 4.2


NEITHER THE ISSUANCE AND SALE OF THIS WARRANT NOR THE SECURITIES INTO WHICH
THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY ONLY
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) RULE 144(K)
UNDER SAID ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


TELECOMMUNICATION SYSTEMS, INC.



WARRANT TO PURCHASE COMMON STOCK




	 	 	 
	Warrant No.:	 	
W-5
	Number of Shares:	 	
12,231
	Date of Issuance:	 	
January 13, 2004 (“Issuance Date”)



TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, OYSTER POND PARTNERS, L.P., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Common Stock (including all
Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but
not after 5:30 P.M., New York Time, on the Expiration Date (as defined below),
Twelve Thousand Two Hundred And Thirty-One (12,231) fully paid nonassessable
shares of Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of December 18, 2003 (the
“Initial Issuance Date"), among the Company and the purchasers (the
“Purchasers”) referred to therein (the “Securities Purchase Agreement”).


     1.     EXERCISE OF WARRANT.


          (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the holder hereof on any day from and after
the date hereof, in whole or in part, by (i) delivery by the holder to the
Company of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of such holder’s election to exercise this Warrant and (ii)
(A)



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payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the
number of Warrant Shares as to which this Warrant is being exercised (the
“Aggregate Exercise Price”) in certified funds or by wire transfer of
immediately available funds or (B) if applicable, by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)) and (iii) the surrender to a common carrier for overnight
delivery to the Company, on or as soon as practicable following the date the
holder of this Warrant delivers the Exercise Notice to the Company, delivery of
this Warrant to the Company (or an indemnification undertaking with respect to
this Warrant in the case of its loss, theft or destruction). Following the date
on which the Company has received each of the Exercise Notice, the Aggregate
Exercise Price (or notice of a Cashless Exercise) and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) (the “Exercise Delivery Documents”), the Company
shall (X) provided that the Company’s transfer agent (the “Transfer Agent”) is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, on or before the third Business Day thereafter credit such
aggregate number of shares of Common Stock to which the holder of this Warrant
is entitled pursuant to such exercise to the holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission system or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, on or before the fifth Business Day thereafter issue and
deliver to the address specified in the Exercise Notice, a certificate,
registered in the name of the holder of this Warrant or its designee, for the
number of shares of Common Stock to which the holder of this Warrant is
entitled pursuant to such exercise. Upon delivery of the Exercise Notice, this
Warrant and the Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the holder of this Warrant shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised as of the date of the Exercise Notice, irrespective
of the date of delivery of the certificates evidencing such Warrant Shares. If
the number of Warrant Shares represented by this Warrant submitted for exercise
pursuant to this Section 1(a) is greater than the number of Warrant Shares
being acquired upon an exercise, then the Company shall as soon as practicable
and in no event later than five (5) Business Days after any exercise and at its
own expense, issue a new Warrant (in accordance with Section 7(d)) representing
the right to purchase the number of Warrant Shares purchasable immediately
prior to such exercise under this Warrant, less the number of Warrant Shares
with respect to which this Warrant is exercised. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number. The Company shall pay any and all taxes, including
without limitation, all documentary stamp, transfer or similar taxes, or other
incidental expense that may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.


          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$6.50, subject to adjustment as provided herein.



          (c) Company’s Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
holder, as provided in Section 1(a) above, a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder’s balance account with DTC for such number of shares of



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Common Stock to
which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall pay as additional damages in cash to such holder on each day
thereafter until the
Company has cured such failure, an amount equal to 1.0% of the product of
(A) the sum of the number of shares of Common Stock not issued to the holder on
a timely basis and to which the holder is entitled and (B) the difference, but
only if a positive number, between the Weighted Average Price of the Common
Stock on the trading day immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without violating
Section 1(a) and the Exercise Price. Notwithstanding the foregoing, the
Company shall not be obligated to make such payment of the Common Stock in the
event the dispute resolution provisions of Section 12 are being utilized. In
addition, the holder, upon written notice to the Company, may void its Exercise
Notice with respect to, and have returned, any portion of this Warrant that has
not been exercised pursuant to such Exercise Notice; provided that the voiding
of an Exercise Notice shall negate the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 1(c) or otherwise.


          (d) Cashless Exercise. The holder of this Warrant may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):



	 	 	 	 
	Net Number   =  	
(A x B) - (A x C)	 
	 	 	
B	 




          For purposes of the foregoing formula:




	 	 	 
	 	 	
A= the total number of shares with respect
to which this Warrant is then being
exercised.
	 	 	 
	 	 	
B= the Weighted Average Price of the
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.
	 	 	 
	 	 	
C= the Exercise Price then in effect for
the applicable Warrant Shares at the time
of such exercise.



          (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the holder the number of Warrant Shares that are not
disputed and such dispute shall be resolved in accordance with Section 12.



          (f) Limitations on Exercises.




		
	 	     (i) Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and no Person (as defined below) who is a
holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect



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	 	to such exercise,
such Person (together with such Person’s affiliates) would
beneficially own in excess of 9.99% of the shares of the Common
Stock outstanding immediately after giving effect to such exercise.
For purposes of the
foregoing sentence, such Person (together with such Person’s
affiliates) shall be deemed to beneficially own of the shares of
Common Stock issuable upon exercise of this Warrant with respect to
which the determination in such sentence is being made, but shall
not be deemed to beneficially own shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common
Stock, on any determination date, as reflected in (1) the Company’s
Form 10-Q, Form 10-K most recently filed, (2) a more recent public
announcement by the Company or (3) any other notice by the Company
setting forth the number of shares of Common Stock outstanding
provided pursuant to the next sentence. For any reason at any
time, upon the written request of the holder of this Warrant, the
Company shall within two (2) Business Days confirm in writing to
the holder of this Warrant the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the holder of this Warrant
and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.




		
	 	     (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock
(individually or together with all other shares of Common Stock
issued or issuable now or in the future, pursuant to (i) this
Warrant, (ii) the Debentures issued by the Company pursuant to the
Securities Purchase Agreement, (iii) the other Warrants issued
pursuant to the Securities Purchase Agreement, or (iv) the
Securities Purchase Agreement) would exceed that number of shares
of Common Stock which the Company may issue (including, as
applicable, any shares of Common Stock issued upon conversion of or
as payment of any interest under the SPA Securities) without
triggering the stockholder approval requirements set forth in Rule
4350(i) under the rules of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market and in
accordance with applicable law for issuances of Common Stock in
excess of the threshold amount



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	 	in such rule or (B) obtains a
written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the holders of the SPA Warrants representing at
least a majority of the shares of Common Stock underlying the SPA
Warrants then outstanding. Until such
approval is obtained, no Purchaser shall be issued, upon
exercise of any SPA Warrants, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the sum of the number of Common
Shares and the number of Conversion Shares and Warrant Shares
underlying the SPA Securities and the SPA Warrants issued to such
Purchaser pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the sum of the number
of Common Shares and the number of Conversion Shares and Warrant
Shares underlying the SPA Securities and the SPA Warrants issued to
all the Purchasers pursuant to the Securities Purchase Agreement on
the Issuance Date (with respect to each Purchaser, the “Exchange
Cap Allocation”). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s SPA Warrants, the
transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants shall
exercise all of such holder’s SPA Warrants into a number of shares
of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of SPA Warrants
on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such holder.



     2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:


          (a) Adjustment upon Issuance of Common Stock. If and whenever on or after
the date of issuance of this Warrant the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to have been issued by the Company in connection with any
Excluded Security) for a consideration per share (the “New Securities Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the greater of (x) the New Securities Issuance Price and (y) $2.50 (subject
to adjustment for any stock split, stock dividend, stock combination or other
similar transaction after the Issuance Date), and the number of Warrant Shares
shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares acquirable upon exercise



5






 





of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
New Securities Issuance Price. For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:



		
	 	     (i) Issuance of Options. If the Company in any manner grants
any Options, other than Excluded Securities, and the lowest price
per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then, solely for
purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.




		
	 	     (ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, other than
Excluded Securities, and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then, solely
for purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or exchange
of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be
made pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares shall
be made by reason of such issue or sale.



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	 	     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock increases or decreases at any time,
the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or
decrease shall be adjusted to the Exercise Price and the
number of Warrant Shares which would have been in effect at such
time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this
Section 2(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued
as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price to an Exercise
Price greater than the Exercise Price in effect on the Issuance
Date (as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then in effect or a decrease in the number of
Warrant Shares to a number less than the number of Warrant Shares
(as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then issuable hereunder.




		
	 	     (iv) Calculation of Consideration Received. If case any
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Weighted Average
Price of such security on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Board of Directors of the Company and the holders of
SPA Warrants representing at least a majority of the shares of
Common Stock 



7






 





		
	 	obtainable upon exercise of the SPA Warrants then
outstanding unless the Board of Directors of the Company shall have
obtained a fairness opinion from an independent financial advisor
in which case the fair value shall be as stated in such fairness
opinion. If, in the absence of a fairness opinion, such parties
are unable to reach agreement within 10 days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined in accordance with
Section 12 hereof.
	 
	 	     (v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.



          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. Any adjustment under this Section
2(b) shall become effective at the close of business on the date the
subdivision or combination becomes effective.



          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors, in their reasonable discretion, will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2.



     3.     RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to
holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:


8






 


          (a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be the
Weighted Average Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable to one share of
Common Stock, and (ii) the
denominator shall be the Weighted Average Price of the Common Stock on the
trading day immediately preceding such record date; and



          (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph
(a); provided that in the event that the Distribution is of common stock
(“Other Common Stock”) of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder
of this Warrant may elect to receive a warrant to purchase Other Common Stock
in lieu of an increase in the number of Warrant Shares, the terms of which
shall be identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Common Stock that would have
been payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).



     4.     PURCHASE RIGHTS; ORGANIC CHANGE.


          (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.



          (b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company’s assets to another Person or other transaction, in each case which
is effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.” Prior to the consummation of any
(i) sale of all or substantially all of the Company’s assets to an acquiring
Person or (ii) other Organic Change




9






 





following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such
assets or the Person issuing the securities or providing the assets in such
Organic Change (in each case, the “Acquiring Entity”) a written agreement (in
form and substance reasonably satisfactory to the holders of SPA Warrants
representing at least a majority of the shares of Common Stock obtainable upon
exercise of the SPA Warrants then outstanding) to deliver to the holder of this
Warrant in exchange for this Warrant, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to this Warrant and reasonably satisfactory to the holder of this Warrant
(including, an adjusted exercise
price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant), if
the value so reflected is less than the Exercise Price in effect immediately
prior to such consolidation, merger or sale). In the event that an Acquiring
Entity is directly or indirectly controlled by a company or entity whose common
stock or similar equity interest is listed, designated or quoted on a
securities exchange or trading market, the holder of this Warrant may elect to
treat such Person as the Acquiring Entity for purposes of this Section 4(b).
Prior to the consummation of any other Organic Change, the Company shall be
required to make appropriate provision (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to insure that the holder of this Warrant thereafter will have the
right to acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant including those set forth in Sections 1(f)(i) and
1(f)(ii) of this Warrant), such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of this Warrant as of the date of
such Organic Change (without regard to any limitations on the exercise of this
Warrant including those set forth in Sections 1(f)(i) and 1(f)(ii) of this
Warrant).


     5.     NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, and will at
all times in good faith carry out all the provisions of this Warrant and take
all action as may be required to protect the rights of the holder of this
Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (iii) will, so long as any
of the SPA Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the SPA Warrants, 150% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).


10






 


     6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER. No holder, solely in such
Person’s capacity as a holder, of this Warrant shall be entitled to vote or
receive dividends or be deemed the holder of shares of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, solely in such Person’s capacity as a holder of this
Warrant, any of the rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to
the holder of this Warrant of the Warrant Shares which such Person is then
entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company will provide the holder of this
Warrant with copies of the same notices and other information given to the
Company’s public stockholders of the Company generally, contemporaneously with
the giving thereof to the Company’s public stockholders.


     7.     REISSUANCE OF WARRANTS.


          (a) Transfer of Warrant. Subject to Section 2(g) of the Securities
Purchase Agreement, if this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder of this Warrant a new Warrant
(in accordance with Section 7(d)), registered as the holder of this Warrant may
request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the holder of this Warrant representing the right to
purchase the number of Warrant Shares not being transferred.



          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the holder of this Warrant to the Company
in customary form, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase
the Warrant Shares then underlying this Warrant.



          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the holder of this Warrant at the time of such surrender; provided, however,
that no Warrants for fractional shares of Common Stock shall be given.



11






 





          (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of
this Warrant which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.



     8.     NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide
the holder of this Warrant with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant
(i) reasonably promptly upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least the same number of days prior to the date on which the
Company provides notice to any other Person who has the right to receive notice
of such an event (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any grants, issues or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of Common Stock (other than, in each case, Excluded
Securities) or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
Notwithstanding the foregoing, Section 4(j) of the Securities Purchase
Agreement shall apply to all notices given pursuant to this Warrant.


     9.     AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the holders of
SPA Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no
such action may increase the exercise price of this Warrant or decrease the
number of shares or class of stock obtainable upon exercise of this Warrant
without the written consent of the holder of this Warrant. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the SPA Warrants then outstanding.


     10.     GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, (i) with
respect to matters relating to the issuance of securities pursuant to this
Warrant, the internal laws of the State of Maryland and (ii) with respect to
all other matters, the internal laws of the State of New York, in each case
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York, the State of Maryland or any other
jurisdictions) that would cause the application of


12






 


the laws of any
jurisdictions other than the State of New York or the State of Maryland, as the
case may be.


     11.     CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.


     12.     DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within three Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the holder of this
Warrant. If the holder of this Warrant and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the holder of this Warrant, which approval shall not be
unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than ten Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.


     13.     REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder of this Warrant
and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach,
the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.


     14.     TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.


     15.     CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:


          (a) “Bloomberg” means Bloomberg Financial Markets.



13






 





          (b) “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.



          (c) “Common Stock” means (i) the Company’s Class A common stock, par value
$0.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of
such Common Stock.



          (d) “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.



          (e) “Excluded Securities” shall have the meaning given to it in the
Securities Purchase Agreement.



          (f)
“Expiration Date” means January 13,
2007.



          (g) “Options” means any rights, warrants or options to subscribe for or
purchase Convertible Securities or Common Stock.



          (h) “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.



          (i) “Principal Market” means the Nasdaq National Market or in the event
that the Company is no longer listed with the Nasdaq National Market, the
market or exchange on which the Common Stock is then listed and traded, which
only may be either The New York Stock Exchange, Inc. or the American Stock
Exchange.



          (j) “Registration Rights Agreement” means that certain registration rights
agreement between the Company and the Purchasers.



          (k) “SPA Securities” means the subordinated convertible debentures issued
pursuant to the Securities Purchase Agreement.



          (l) “Weighted Average Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly



14






 




announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of
such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the holder of
this Warrant are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 12. All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.


[Signature Page Follows]



15






 





     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 
	 	 	
By:	 	/s/ Thomas M. Brandt, Jr.
	 	 	 	 	

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




16






 



EXHIBIT A


EXERCISE NOTICE



TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK



TELECOMMUNICATION SYSTEMS, INC.



     The undersigned holder hereby exercises the right to purchase
_____________ of the shares of Common Stock (“Warrant Shares”) of
TeleCommunication Systems, Inc., a Maryland corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.


     After giving effect to the exercise of the Warrant Shares requested to be
converted pursuant hereto, the undersigned will not be the beneficial owner of
10% or more of the outstanding Common Stock (determined as set forth in Section
1(f)(i) of the Warrant).


     1.     Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:


              __________ a “Cash Exercise” with respect to
__________ Warrant Shares; and/or



              __________ a “Cashless
Exercise” with respect to __________ Warrant
Shares.



     [Insert this paragraph (2) in the event that the holder has not elected a
Cashless Exercise in accordance with the terms of the Warrant as to all of the
Warrant Shares to be issued pursuant hereto] 2. Payment of Exercise Price.
The holder is hereby delivering to the Company payment in the amount of
$ __________ representing the Aggregate Exercise Price for such Warrant Shares
not subject to a Cashless Exercise in accordance with the terms of the Warrant.


     3.     Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.


Date: _______________ __, 200___




	 	 	 	 	 	 	 
	 	 	

	 	 	Name of Registered Holder
	 	 	 	 	 	 	 
	 	 	
By:
	 	 	 	 
	 	 	 	 	
	 	 
	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 



17






 



ACKNOWLEDGMENT



     The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent
Instructions dated ___________ ___, 2004 from the Company and acknowledged and agreed to by
American Stock Transfer & Trust Co.



	 	 	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 	 	 
	 	 	
By:
	 	 	 	 
	 	 	 	 	
	 	 
	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 



18






 



NEITHER THE ISSUANCE AND SALE OF THIS WARRANT NOR THE SECURITIES INTO WHICH
THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY ONLY
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) RULE 144(K)
UNDER SAID ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


TELECOMMUNICATION SYSTEMS, INC.



WARRANT TO PURCHASE COMMON STOCK




	 	 	 
	Warrant No.:	 	
W-4
	Number of Shares:	 	
40,316
	Date of Issuance:	 	
January 13, 2004 (“Issuance Date”)



TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, 033 GROWTH INTERNATIONAL FUND LTD., the registered holder hereof
or its permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Common Stock (including all
Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but
not after 5:30 P.M., New York Time, on the Expiration Date (as defined below),
Forty-Thousand Three Hundred And Sixteen (40,316) fully paid nonassessable
shares of Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of December 18, 2003 (the
“Initial Issuance Date”), among the Company and the purchasers (the
“Purchasers”) referred to therein (the “Securities Purchase Agreement”).


     1.     EXERCISE OF WARRANT.


          (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the holder hereof on any day from and after
the date hereof, in whole or in part, by (i) delivery by the holder to the
Company of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of such holder’s election to exercise this Warrant and (ii)
(A)



1






 





payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (the “Aggregate Exercise Price”) in certified funds or by wire
transfer of immediately available funds or (B) if applicable, by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise
(as defined in Section 1(d)) and (iii) the surrender to a common carrier for
overnight delivery to the Company, on or as soon as practicable following the
date the holder of this Warrant delivers the Exercise Notice to the Company,
delivery of this Warrant to the Company (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction).
Following the date on which the Company has received each of the Exercise
Notice, the Aggregate Exercise Price (or notice of a Cashless Exercise) and
this Warrant (or an indemnification undertaking with respect to this Warrant in
the case of its loss, theft or destruction) (the “Exercise Delivery
Documents”), the Company shall (X) provided that the Company’s transfer agent
(the “Transfer Agent”) is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program, on or before the third Business Day
thereafter credit such aggregate number of shares of Common Stock to which the
holder of this Warrant is entitled pursuant to such exercise to the holder’s or
its designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, on or before the fifth Business Day
thereafter issue and deliver to the address specified in the Exercise Notice, a
certificate, registered in the name of the holder of this Warrant or its
designee, for the number of shares of Common Stock to which the holder of this
Warrant is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice, this Warrant and the Aggregate Exercise Price referred to in clause
(ii)(A) above or notification to the Company of a Cashless Exercise referred to
in Section 1(d), the holder of this Warrant shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised as of the date of the Exercise Notice,
irrespective of the date of delivery of the certificates evidencing such
Warrant Shares. If the number of Warrant Shares represented by this Warrant
submitted for exercise pursuant to this Section 1(a) is greater than the number
of Warrant Shares being acquired upon an exercise, then the Company shall as
soon as practicable and in no event later than five (5) Business Days after any
exercise and at its own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all
taxes, including without limitation, all documentary stamp, transfer or similar
taxes, or other incidental expense that may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant.


          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$6.50, subject to adjustment as provided herein.



          (c) Company’s Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
holder, as provided in Section 1(a) above, a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder’s balance account with DTC for such number of shares of



2






 



Common Stock to which the holder is entitled upon the holder’s exercise of
this Warrant, the Company shall pay as additional damages in cash to such
holder on each day thereafter until the Company has cured such failure, an
amount equal to 1.0% of the product of (A) the sum of the number of shares of
Common Stock not issued to the holder on a timely basis and to which the holder
is entitled and (B) the difference, but only if a positive number, between the
Weighted Average Price of the Common Stock on the trading day immediately
preceding the last possible date which the Company could have issued such
Common Stock to the holder without violating Section 1(a) and the Exercise
Price. Notwithstanding the foregoing, the Company shall not be obligated to
make such payment of the Common Stock in the event the dispute resolution
provisions of Section 12 are being utilized. In addition, the holder, upon
written notice to the Company, may void its Exercise Notice with respect to,
and have returned, any portion of this Warrant that has not been exercised
pursuant to such Exercise Notice; provided that the voiding of an Exercise
Notice shall negate the Company’s obligations to make any payments which have
accrued prior to the date of such notice pursuant to this Section 1(c) or
otherwise.


          (d) Cashless Exercise. The holder of this Warrant may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):



	 	 	 	 
	 	Net Number   =  	
(A x B) - (A x C)	 
	 	 	
B	 





          For purposes of the foregoing formula:




	 	 	 
	 	 	
A= the total number of shares with respect
to which this Warrant is then being
exercised.
	 	 	 
	 	 	
B= the Weighted Average Price of the
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.
	 	 	 
	 	 	
C= the Exercise Price then in effect for
the applicable Warrant Shares at the time
of such exercise.



          (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the holder the number of Warrant Shares that are not
disputed and such dispute shall be resolved in accordance with Section 12.



          (f) Limitations on Exercises.




		
	 	     (i) Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and no Person (as defined below) who is a
holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect



3






 





		
	 	to such exercise, such Person (together with such Person’s
affiliates) would beneficially own in excess of 9.99% of the shares
of the Common Stock outstanding immediately after giving effect to
such exercise. For purposes of the foregoing sentence, such Person
(together with such Person’s affiliates) shall be deemed to
beneficially own of the shares of Common Stock issuable upon
exercise of this Warrant with respect to which the determination in
such sentence is being made, but shall not be deemed to
beneficially own shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unexercised portion of this
Warrant and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including,
without limitation, any convertible notes or convertible preferred
stock or warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein. Except as
set forth in the preceding sentence, for purposes of this
paragraph, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining the number
of outstanding shares of Common Stock a holder may rely on the
number of outstanding shares of Common Stock, on any determination
date, as reflected in (1) the Company’s Form 10-Q, Form 10-K most
recently filed, (2) a more recent public announcement by the
Company or (3) any other notice by the Company setting forth the
number of shares of Common Stock outstanding provided pursuant to
the next sentence. For any reason at any time, upon the written
request of the holder of this Warrant, the Company shall within two
(2) Business Days confirm in writing to the holder of this Warrant
the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of
securities of the Company, including the SPA Securities and the SPA
Warrants, by the holder of this Warrant and its affiliates since
the date as of which such number of outstanding shares of Common
Stock was reported.




		
	 	     (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock
(individually or together with all other shares of Common Stock
issued or issuable now or in the future, pursuant to (i) this
Warrant, (ii) the Debentures issued by the Company pursuant to the
Securities Purchase Agreement, (iii) the other Warrants issued
pursuant to the Securities Purchase Agreement, or (iv) the
Securities Purchase Agreement) would exceed that number of shares
of Common Stock which the Company may issue (including, as
applicable, any shares of Common Stock issued upon conversion of or
as payment of any interest under the SPA Securities) without
triggering the stockholder approval requirements set forth in Rule
4350(i) under the rules of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market and in
accordance with applicable law for issuances of Common Stock in
excess of the threshold amount



4






 





		
	 	in such rule or (B) obtains a written opinion from outside
counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the holders of the SPA
Warrants representing at least a majority of the shares of Common
Stock underlying the SPA Warrants then outstanding. Until such
approval is obtained, no Purchaser shall be issued, upon exercise
of any SPA Warrants, shares of Common Stock in an amount greater
than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the sum of the number of Common Shares and
the number of Conversion Shares and Warrant Shares underlying the
SPA Securities and the SPA Warrants issued to such Purchaser
pursuant to the Securities Purchase Agreement on the Issuance Date
and the denominator of which is the sum of the number of Common
Shares and the number of Conversion Shares and Warrant Shares
underlying the SPA Securities and the SPA Warrants issued to all
the Purchasers pursuant to the Securities Purchase Agreement on the
Issuance Date (with respect to each Purchaser, the “Exchange Cap
Allocation”). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s SPA Warrants, the
transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants shall
exercise all of such holder’s SPA Warrants into a number of shares
of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of SPA Warrants
on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such holder.



     2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:


          (a) Adjustment upon Issuance of Common Stock. If and whenever on or after
the date of issuance of this Warrant the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to have been issued by the Company in connection with any
Excluded Security) for a consideration per share (the “New Securities Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the greater of (x) the New Securities Issuance Price and (y) $2.50 (subject
to adjustment for any stock split, stock dividend, stock combination or other
similar transaction after the Issuance Date), and the number of Warrant Shares
shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares acquirable upon exercise



5






 





of this Warrant immediately prior to such adjustment and dividing the
product thereof by the New Securities Issuance Price. For purposes of
determining the adjusted Exercise Price under this Section 2(a), the following
shall be applicable:



		
	 	     (i) Issuance of Options. If the Company in any manner grants
any Options, other than Excluded Securities, and the lowest price
per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then, solely for
purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.




		
	 	     (ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, other than
Excluded Securities, and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then, solely
for purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or exchange
of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be
made pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares shall
be made by reason of such issue or sale.



6






 





		
	 	     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock increases or decreases at any time,
the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or decrease shall be adjusted to the
Exercise Price and the number of Warrant Shares which would have
been in effect at such time had such Options or Convertible
Securities provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold.
For purposes of this Section 2(a)(iii), if the terms of any Option
or Convertible Security that was outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have
been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 2(a) shall be made if such
adjustment would result in an increase of the Exercise Price to an
Exercise Price greater than the Exercise Price in effect on the
Issuance Date (as adjusted for any stock splits, reverse stock
splits, stock dividends, stock combinations and similar
transactions after the Issuance Date) then in effect or a decrease
in the number of Warrant Shares to a number less than the number of
Warrant Shares (as adjusted for any stock splits, reverse stock
splits, stock dividends, stock combinations and similar
transactions after the Issuance Date) then issuable hereunder.




		
	 	     (iv) Calculation of Consideration Received. If case any
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Weighted Average
Price of such security on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Board of Directors of the Company and the holders of
SPA Warrants representing at least a majority of the shares of
Common Stock



7






 





		
	 	obtainable upon exercise of the SPA Warrants then outstanding
unless the Board of Directors of the Company shall have obtained a
fairness opinion from an independent financial advisor in which
case the fair value shall be as stated in such fairness opinion.
If, in the absence of a fairness opinion, such parties are unable
to reach agreement within 10 days after the occurrence of an event
requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined in accordance with Section 12
hereof.




		
	 	     (v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.



          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. Any adjustment under this Section
2(b) shall become effective at the close of business on the date the
subdivision or combination becomes effective.



          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors, in their reasonable discretion, will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2.



     3. RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to
holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:


8






 


          (a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be the
Weighted Average Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable to one share of
Common Stock, and (ii) the denominator shall be the Weighted Average Price of
the Common Stock on the trading day immediately preceding such record date; and



          (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph
(a); provided that in the event that the Distribution is of common stock
(“Other Common Stock”) of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder
of this Warrant may elect to receive a warrant to purchase Other Common Stock
in lieu of an increase in the number of Warrant Shares, the terms of which
shall be identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Common Stock that would have
been payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).



     4.     PURCHASE RIGHTS; ORGANIC CHANGE.


          (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.



          (b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company’s assets to another Person or other transaction, in each case which
is effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.” Prior to the consummation of any
(i) sale of all or substantially all of the Company’s assets to an acquiring
Person or (ii) other Organic Change



9






 





following which the Company is not a surviving entity, the Company will
secure from the Person purchasing such assets or the Person issuing the
securities or providing the assets in such Organic Change (in each case, the
“Acquiring Entity”) a written agreement (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to deliver to the holder of this Warrant in exchange for this
Warrant, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and reasonably
satisfactory to the holder of this Warrant (including, an adjusted exercise
price equal to the value for the Common Stock reflected by the terms of such
consolidation, merger or sale, and exercisable for a corresponding number of
shares of Common Stock acquirable and receivable upon exercise of this Warrant
(without regard to any limitations on the exercise of this Warrant), if the
value so reflected is less than the Exercise Price in effect immediately prior
to such consolidation, merger or sale). In the event that an Acquiring Entity
is directly or indirectly controlled by a company or entity whose common stock
or similar equity interest is listed, designated or quoted on a securities
exchange or trading market, the holder of this Warrant may elect to treat such
Person as the Acquiring Entity for purposes of this Section 4(b). Prior to the
consummation of any other Organic Change, the Company shall be required to make
appropriate provision (in form and substance reasonably satisfactory to the
holders of SPA Warrants representing at least a majority of the shares of
Common Stock obtainable upon exercise of the SPA Warrants then outstanding) to
insure that the holder of this Warrant thereafter will have the right to
acquire and receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of this Warrant (without regard to any limitations on the exercise
of this Warrant including those set forth in Sections 1(f)(i) and 1(f)(ii) of
this Warrant), such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and
receivable upon the exercise of this Warrant as of the date of such Organic
Change (without regard to any limitations on the exercise of this Warrant
including those set forth in Sections 1(f)(i) and 1(f)(ii) of this Warrant).


     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, and will at
all times in good faith carry out all the provisions of this Warrant and take
all action as may be required to protect the rights of the holder of this
Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (iii) will, so long as any
of the SPA Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the SPA Warrants, 150% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).


10






 


     6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER. No holder, solely in such
Person’s capacity as a holder, of this Warrant shall be entitled to vote or
receive dividends or be deemed the holder of shares of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, solely in such Person’s capacity as a holder of this
Warrant, any of the rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the holder of
this Warrant of the Warrant Shares which such Person is then entitled to
receive upon the due exercise of this Warrant. In addition, nothing contained
in this Warrant shall be construed as imposing any liabilities on such holder
to purchase any securities (upon exercise of this Warrant or otherwise) or as a
stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company. Notwithstanding this Section 6, the
Company will provide the holder of this Warrant with copies of the same notices
and other information given to the Company’s public stockholders of the Company
generally, contemporaneously with the giving thereof to the Company’s public
stockholders.


     7.     REISSUANCE OF WARRANTS.


          (a) Transfer of Warrant. Subject to Section 2(g) of the Securities
Purchase Agreement, if this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder of this Warrant a new Warrant
(in accordance with Section 7(d)), registered as the holder of this Warrant may
request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the holder of this Warrant representing the right to
purchase the number of Warrant Shares not being transferred.



          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the holder of this Warrant to the Company
in customary form, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase
the Warrant Shares then underlying this Warrant.



          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the holder of this Warrant at the time of such surrender; provided, however,
that no Warrants for fractional shares of Common Stock shall be given.



11






 



          (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of
this Warrant which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.



     8.     NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide
the holder of this Warrant with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant
(i) reasonably promptly upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least the same number of days prior to the date on which the
Company provides notice to any other Person who has the right to receive notice
of such an event (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any grants, issues or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of Common Stock (other than, in each case, Excluded
Securities) or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
Notwithstanding the foregoing, Section 4(j) of the Securities Purchase
Agreement shall apply to all notices given pursuant to this Warrant.


     9.     AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the holders of
SPA Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no
such action may increase the exercise price of this Warrant or decrease the
number of shares or class of stock obtainable upon exercise of this Warrant
without the written consent of the holder of this Warrant. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the SPA Warrants then outstanding.


   10.      GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, (i) with
respect to matters relating to the issuance of securities pursuant to this
Warrant, the internal laws of the State of Maryland and (ii) with respect to
all other matters, the internal laws of the State of New York, in each case
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York, the State of Maryland or any other
jurisdictions) that would cause the application of


12






 


the laws of any jurisdictions other than the State of New York or the
State of Maryland, as the case may be.


     11.     CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.


     12.     DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within three Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the holder of this Warrant. If
the holder of this Warrant and the Company are unable to agree upon such
determination or calculation of the Exercise Price or the Warrant Shares within
three Business Days of such disputed determination or arithmetic calculation
being submitted to the Holder, then the Company shall, within two Business Days
submit via facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the holder of this Warrant, which approval shall not be unreasonably withheld
or delayed, or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company’s independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.


     13.     REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder of this Warrant
and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach,
the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.


     14.     TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.


     15.     CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:


          (a) “Bloomberg” means Bloomberg Financial Markets.




13






 





          (b) “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.



          (c) “Common Stock” means (i) the Company’s Class A common stock, par value
$0.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of
such Common Stock.



          (d) “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.



          (e) “Excluded Securities” shall have the meaning given to it in the
Securities Purchase Agreement.



          (f)
“Expiration Date” means January 13,
2007.



          (g) “Options” means any rights, warrants or options to subscribe for or
purchase Convertible Securities or Common Stock.



          (h) “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.



          (i) “Principal Market” means the Nasdaq National Market or in the event
that the Company is no longer listed with the Nasdaq National Market, the
market or exchange on which the Common Stock is then listed and traded, which
only may be either The New York Stock Exchange, Inc. or the American Stock
Exchange.



          (j) “Registration Rights Agreement” means that certain registration rights
agreement between the Company and the Purchasers.



          (k) “SPA Securities” means the subordinated convertible debentures issued
pursuant to the Securities Purchase Agreement.



          (l) “Weighted Average Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly



14






 




announces is the official close of trading) as reported by Bloomberg, or,
if no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Weighted Average Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the
holder of this Warrant are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 12. All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.


[Signature Page Follows]



15






 





     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	/s/ Thomas M. Brandt, Jr.
	 	 	 	 	

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



16









 



EXHIBIT A


EXERCISE NOTICE



TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK



TELECOMMUNICATION SYSTEMS, INC.



     The undersigned holder hereby exercises the right to purchase
___________ of the shares of Common Stock (“Warrant Shares”) of
TeleCommunication Systems, Inc., a Maryland corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.


     After giving effect to the exercise of the Warrant Shares requested to be
converted pursuant hereto, the undersigned will not be the beneficial owner of
10% or more of the outstanding Common Stock (determined as set forth in Section
1(f)(i) of the Warrant).


     1.     Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:


               _____________
a “Cash Exercise” with respect to ___________ Warrant Shares; and/or



               _____________
a “Cashless Exercise” with respect to ___________ Warrant Shares.



     [Insert this paragraph (2) in the event that the holder has not elected a
Cashless Exercise in accordance with the terms of the Warrant as to all of the
Warrant Shares to be issued pursuant hereto] 2. Payment of Exercise Price.
The holder is hereby delivering to the Company payment in the amount of
$       representing the Aggregate Exercise Price for such Warrant Shares
not subject to a Cashless Exercise in accordance with the terms of the Warrant.


     3.     Delivery of Warrant Shares. The Company shall deliver to the holder
___________ Warrant Shares in accordance with the terms of the Warrant.


Date: _______________ __, 200___




	 	 	 	 	 	 	 
	 	 	

	 	 	Name of Registered Holder
	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 
	 	 	 	 	
	 	 
	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 



17






 



ACKNOWLEDGMENT



     The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
___________ ____, 2004 from the Company and acknowledged and agreed to by
American Stock Transfer & Trust Co.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:



18






 



NEITHER THE ISSUANCE AND SALE OF THIS WARRANT NOR THE SECURITIES INTO WHICH
THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY ONLY
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) RULE 144(K)
UNDER SAID ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


TELECOMMUNICATION SYSTEMS, INC.



WARRANT TO PURCHASE COMMON STOCK




	 	 	 
	Warrant No.:	 	
W-3
	Number of Shares:	 	
25,752
	Date of Issuance:	 	
January 13, 2004 (“Issuance Date”)



TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, 033 GROWTH PARTNERS II, L.P., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Common Stock (including all
Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but
not after 5:30 P.M., New York Time, on the Expiration Date (as defined below),
Twenty-Five Thousand Seven Hundred And Fifty-Two (25,752) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”).
Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 15. This Warrant is one of the Warrants
to Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of
that certain Securities Purchase Agreement, dated as of December 18, 2003 (the
“Initial Issuance Date”), among the Company and the purchasers (the
“Purchasers”) referred to therein (the “Securities Purchase Agreement”).


     1.     EXERCISE
OF WARRANT.


          (a) Mechanics
of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the holder hereof on any day from and after
the date hereof, in whole or in part, by (i) delivery by the holder to the
Company of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of such holder’s election to exercise this Warrant and (ii)
(A) payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the




1






 





number of Warrant Shares as to which this Warrant is being exercised (the
“Aggregate Exercise Price”) in certified funds or by wire transfer of
immediately available funds or (B) if applicable, by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)) and (iii) the surrender to a common carrier for overnight
delivery to the Company, on or as soon as practicable following the date the
holder of this Warrant delivers the Exercise Notice to the Company, delivery of
this Warrant to the Company (or an indemnification undertaking with respect to
this Warrant in the case of its loss, theft or destruction). Following the date
on which the Company has received each of the Exercise Notice, the Aggregate
Exercise Price (or notice of a Cashless Exercise) and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) (the “Exercise Delivery Documents”), the Company
shall (X) provided that the Company’s transfer agent (the “Transfer Agent”) is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, on or before the third Business Day thereafter credit such
aggregate number of shares of Common Stock to which the holder of this Warrant
is entitled pursuant to such exercise to the holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission system or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, on or before the fifth Business Day thereafter issue and
deliver to the address specified in the Exercise Notice, a certificate,
registered in the name of the holder of this Warrant or its designee, for the
number of shares of Common Stock to which the holder of this Warrant is
entitled pursuant to such exercise. Upon delivery of the Exercise Notice, this
Warrant and the Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the holder of this Warrant shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised as of the date of the Exercise Notice, irrespective
of the date of delivery of the certificates evidencing such Warrant Shares. If
the number of Warrant Shares represented by this Warrant submitted for exercise
pursuant to this Section 1(a) is greater than the number of Warrant Shares
being acquired upon an exercise, then the Company shall as soon as practicable
and in no event later than five (5) Business Days after any exercise and at its
own expense, issue a new Warrant (in accordance with Section 7(d)) representing
the right to purchase the number of Warrant Shares purchasable immediately
prior to such exercise under this Warrant, less the number of Warrant Shares
with respect to which this Warrant is exercised. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number. The Company shall pay any and all taxes, including
without limitation, all documentary stamp, transfer or similar taxes, or other
incidental expense that may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.


          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$6.50, subject to adjustment as provided herein.



          (c) Company’s Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
holder, as provided in Section 1(a) above, a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder’s balance account with DTC for such number of shares of Common Stock to
which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall pay as additional damages in cash to such holder on each day
thereafter until the




2






 





Company has cured such failure, an amount equal to 1.0% of the product of
(A) the sum of the number of shares of Common Stock not issued to the holder on
a timely basis and to which the holder is entitled and (B) the difference, but
only if a positive number, between the Weighted Average Price of the Common
Stock on the trading day immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without violating
Section 1(a) and the Exercise Price. Notwithstanding the foregoing, the
Company shall not be obligated to make such payment of the Common Stock in the
event the dispute resolution provisions of Section 12 are being utilized. In
addition, the holder, upon written notice to the Company, may void its Exercise
Notice with respect to, and have returned, any portion of this Warrant that has
not been exercised pursuant to such Exercise Notice; provided that the voiding
of an Exercise Notice shall negate the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 1(c) or otherwise.


          (d) Cashless Exercise. The holder of this Warrant may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):




	 	 	 	 	 
	Net Number	 	=	(A x B) - (A x C)
	 
	 	 	 	B	 



          For purposes of the foregoing formula:




	 	 	 
	 	
A= the total number of shares with respect
to which this Warrant is then being
exercised.	 
	 	 	 
	 	
B= the Weighted Average Price of the
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.	 
	 	 	 
	 	
C= the Exercise Price then in effect for
the applicable Warrant Shares at the time
of such exercise.	 



          (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the holder the number of Warrant Shares that are not
disputed and such dispute shall be resolved in accordance with Section 12.



          (f) Limitations on Exercises.




		
	 	     (i) Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and no Person (as defined below) who is a
holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would
beneficially own in excess of 9.99% of the shares of the Common
Stock outstanding immediately after giving effect to such exercise.
For purposes of the



3






 





		
	 	foregoing sentence, such Person (together with such Person’s
affiliates) shall be deemed to beneficially own of the shares of
Common Stock issuable upon exercise of this Warrant with respect to
which the determination in such sentence is being made, but shall
not be deemed to beneficially own shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common
Stock, on any determination date, as reflected in (1) the Company’s
Form 10-Q, Form 10-K most recently filed, (2) a more recent public
announcement by the Company or (3) any other notice by the Company
setting forth the number of shares of Common Stock outstanding
provided pursuant to the next sentence. For any reason at any
time, upon the written request of the holder of this Warrant, the
Company shall within two (2) Business Days confirm in writing to
the holder of this Warrant the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the holder of this Warrant
and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
	 
	 	     (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock
(individually or together with all other shares of Common Stock
issued or issuable now or in the future, pursuant to (i) this
Warrant, (ii) the Debentures issued by the Company pursuant to the
Securities Purchase Agreement, (iii) the other Warrants issued
pursuant to the Securities Purchase Agreement, or (iv) the
Securities Purchase Agreement) would exceed that number of shares
of Common Stock which the Company may issue (including, as
applicable, any shares of Common Stock issued upon conversion of or
as payment of any interest under the SPA Securities) without
triggering the stockholder approval requirements set forth in Rule
4350(i) under the rules of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market and in
accordance with applicable law for issuances of Common Stock in
excess of the threshold amount in such rule or (B) obtains a
written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the holders of the SPA Warrants representing at
least a majority of the shares of Common Stock underlying the SPA
Warrants then outstanding. Until such



4






 







		
	 	approval is obtained, no Purchaser shall be issued, upon
exercise of any SPA Warrants, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the sum of the number of Common
Shares and the number of Conversion Shares and Warrant Shares
underlying the SPA Securities and the SPA Warrants issued to such
Purchaser pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the sum of the number
of Common Shares and the number of Conversion Shares and Warrant
Shares underlying the SPA Securities and the SPA Warrants issued to
all the Purchasers pursuant to the Securities Purchase Agreement on
the Issuance Date (with respect to each Purchaser, the “Exchange
Cap Allocation”). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s SPA Warrants, the
transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants shall
exercise all of such holder’s SPA Warrants into a number of shares
of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of SPA Warrants
on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such holder.



     2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:


          (a) Adjustment upon Issuance of Common Stock. If and whenever on or after
the date of issuance of this Warrant the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to have been issued by the Company in connection with any
Excluded Security) for a consideration per share (the “New Securities Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the greater of (x) the New Securities Issuance Price and (y) $2.50 (subject
to adjustment for any stock split, stock dividend, stock combination or other
similar transaction after the Issuance Date), and the number of Warrant Shares
shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
New Securities Issuance Price. For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:




5






 






		
	 	     (i) Issuance of Options. If the Company in any manner grants
any Options, other than Excluded Securities, and the lowest price
per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then, solely for
purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.




		
	 	     (ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, other than
Excluded Securities, and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then, solely
for purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or exchange
of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be
made pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares shall
be made by reason of such issue or sale.




		
	 	     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock increases or decreases at any time,
the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or



6






 







		
	 	decrease shall be adjusted to the Exercise Price and the
number of Warrant Shares which would have been in effect at such
time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this
Section 2(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued
as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price to an Exercise
Price greater than the Exercise Price in effect on the Issuance
Date (as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then in effect or a decrease in the number of
Warrant Shares to a number less than the number of Warrant Shares
(as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then issuable hereunder.




		
	 	     (iv) Calculation of Consideration Received. If case any
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Weighted Average
Price of such security on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Board of Directors of the Company and the holders of
SPA Warrants representing at least a majority of the shares of
Common Stock obtainable upon exercise of the SPA Warrants then
outstanding unless the Board of Directors of the Company shall have
obtained a fairness opinion from an independent financial advisor
in which case the fair value shall be as stated in such fairness
opinion. If, in the absence of a fairness opinion, such parties
are unable to reach agreement within 10 days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined in accordance with
Section 12 hereof.



7






 







		
	 	     (v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.



          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. Any adjustment under this Section
2(b) shall become effective at the close of business on the date the
subdivision or combination becomes effective.



          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors, in their reasonable discretion, will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2.



     3.     RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to
holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:


          (a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be the
Weighted Average Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable to one share of
Common Stock, and (ii) the




8






 





denominator shall be the Weighted Average Price of the Common Stock on the
trading day immediately preceding such record date; and


          (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph
(a); provided that in the event that the Distribution is of common stock
(“Other Common Stock”) of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder
of this Warrant may elect to receive a warrant to purchase Other Common Stock
in lieu of an increase in the number of Warrant Shares, the terms of which
shall be identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Common Stock that would have
been payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).



     4.     PURCHASE RIGHTS; ORGANIC CHANGE.


          (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.



          (b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company’s assets to another Person or other transaction, in each case which
is effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.” Prior to the consummation of any
(i) sale of all or substantially all of the Company’s assets to an acquiring
Person or (ii) other Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such
assets or the Person issuing the securities or providing the assets in such
Organic Change (in each case, the “Acquiring Entity”) a written agreement (in
form and substance reasonably satisfactory to the holders of SPA Warrants
representing at least a majority of the shares of Common Stock obtainable upon
exercise of the SPA Warrants then outstanding) to deliver to the holder of this
Warrant in exchange for this Warrant, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to this Warrant and reasonably satisfactory to the holder of this Warrant
(including, an adjusted exercise




9






 





price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant), if
the value so reflected is less than the Exercise Price in effect immediately
prior to such consolidation, merger or sale). In the event that an Acquiring
Entity is directly or indirectly controlled by a company or entity whose common
stock or similar equity interest is listed, designated or quoted on a
securities exchange or trading market, the holder of this Warrant may elect to
treat such Person as the Acquiring Entity for purposes of this Section 4(b).
Prior to the consummation of any other Organic Change, the Company shall be
required to make appropriate provision (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to insure that the holder of this Warrant thereafter will have the
right to acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant including those set forth in Sections 1(f)(i) and
1(f)(ii) of this Warrant), such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of this Warrant as of the date of
such Organic Change (without regard to any limitations on the exercise of this
Warrant including those set forth in Sections 1(f)(i) and 1(f)(ii) of this
Warrant).


     5.     NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, and will at
all times in good faith carry out all the provisions of this Warrant and take
all action as may be required to protect the rights of the holder of this
Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (iii) will, so long as any
of the SPA Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the SPA Warrants, 150% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).


     6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER. No holder, solely in such
Person’s capacity as a holder, of this Warrant shall be entitled to vote or
receive dividends or be deemed the holder of shares of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, solely in such Person’s capacity as a holder of this
Warrant, any of the rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the


10






 


holder of this Warrant of the Warrant Shares which such Person is then
entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company will provide the holder of this
Warrant with copies of the same notices and other information given to the
Company’s public stockholders of the Company generally, contemporaneously with
the giving thereof to the Company’s public stockholders.


     7.     REISSUANCE OF WARRANTS.


          (a) Transfer of Warrant. Subject to Section 2(g) of the Securities
Purchase Agreement, if this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder of this Warrant a new Warrant
(in accordance with Section 7(d)), registered as the holder of this Warrant may
request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the holder of this Warrant representing the right to
purchase the number of Warrant Shares not being transferred.



          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the holder of this Warrant to the Company
in customary form, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase
the Warrant Shares then underlying this Warrant.



          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the holder of this Warrant at the time of such surrender; provided, however,
that no Warrants for fractional shares of Common Stock shall be given.



          (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of
this Warrant which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.




11






 





     8.     NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide
the holder of this Warrant with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant
(i) reasonably promptly upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least the same number of days prior to the date on which the
Company provides notice to any other Person who has the right to receive notice
of such an event (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any grants, issues or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of Common Stock (other than, in each case, Excluded
Securities) or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
Notwithstanding the foregoing, Section 4(j) of the Securities Purchase
Agreement shall apply to all notices given pursuant to this Warrant.


     9.     AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the holders of
SPA Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no
such action may increase the exercise price of this Warrant or decrease the
number of shares or class of stock obtainable upon exercise of this Warrant
without the written consent of the holder of this Warrant. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the SPA Warrants then outstanding.


     10.     GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, (i) with
respect to matters relating to the issuance of securities pursuant to this
Warrant, the internal laws of the State of Maryland and (ii) with respect to
all other matters, the internal laws of the State of New York, in each case
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York, the State of Maryland or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York or the State of Maryland, as the
case may be.


     11.     CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.


     12.     DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within three Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the holder of this


12






 


Warrant. If the holder of this Warrant and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the holder of this Warrant, which approval shall not be
unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than ten Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.


     13.     REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder of this Warrant
and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach,
the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.


     14.     TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.


     15.     CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:


          (a) “Bloomberg” means Bloomberg Financial Markets.



          (b) “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.



          (c) “Common Stock” means (i) the Company’s Class A common stock, par value
$0.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of
such Common Stock.



          (d) “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.




13






 



          (e) “Excluded Securities” shall have the meaning given to it in the
Securities Purchase Agreement.



          (f)
“Expiration Date” means January 13,
2007.



          (g) “Options” means any rights, warrants or options to subscribe for or
purchase Convertible Securities or Common Stock.



          (h) “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.



          (i) “Principal Market” means the Nasdaq National Market or in the event
that the Company is no longer listed with the Nasdaq National Market, the
market or exchange on which the Common Stock is then listed and traded, which
only may be either The New York Stock Exchange, Inc. or the American Stock
Exchange.



          (j) “Registration Rights Agreement” means that certain registration rights
agreement between the Company and the Purchasers.



          (k) “SPA Securities” means the subordinated convertible debentures issued
pursuant to the Securities Purchase Agreement.



          (l) “Weighted Average Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of
such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the holder of
this Warrant are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 12. All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.



[Signature Page Follows]



14






 






     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	/s/ Thomas M. Brandt, Jr.
	 	 	 	 	

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



15






 



EXHIBIT A


EXERCISE NOTICE



TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK



TELECOMMUNICATION SYSTEMS, INC.



     The undersigned holder hereby exercises the right to purchase
___________ of the shares of Common Stock (“Warrant Shares”) of
TeleCommunication Systems, Inc., a Maryland corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.


     After giving effect to the exercise of the Warrant Shares requested to be
converted pursuant hereto, the undersigned will not be the beneficial owner of
10% or more of the outstanding Common Stock (determined as set forth in Section
1(f)(i) of the Warrant).


     1.     Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:


               _____________
a “Cash Exercise” with respect to ___________ Warrant
Shares; and/or



               _____________
a “Cashless Exercise” with respect to ___________ Warrant
Shares.



     [Insert this paragraph (2) in the event that the holder has not elected a
Cashless Exercise in accordance with the terms of the Warrant as to all of the
Warrant Shares to be issued pursuant hereto] 2. Payment of Exercise Price.
The holder is hereby delivering to the Company payment in the amount of
$ ___________ representing the Aggregate Exercise Price for such Warrant Shares
not subject to a Cashless Exercise in accordance with the terms of the Warrant.


     3.     Delivery of Warrant Shares. The Company shall deliver to the holder
___________ Warrant Shares in accordance with the terms of the Warrant.


Date: _______________ __, 200___




	 	 	 	 	 	 	 
	 	 	
	 	 
	 	 	Name of Registered Holder
	 	 	 	 	 	 	 
	 	 	
By:	 	 	 	 
	 	 	 	 	
	 	 
	 	 	 	 	Name:	 	 
	 	 	 	 	Title:	 	 



16






 



ACKNOWLEDGMENT



     The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
__________ ____, 2004 from the Company and acknowledged and agreed to by
American Stock Transfer & Trust Co.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:



17






 



NEITHER THE ISSUANCE AND SALE OF THIS WARRANT NOR THE SECURITIES INTO WHICH
THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY ONLY
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) RULE 144(K)
UNDER SAID ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


TELECOMMUNICATION SYSTEMS, INC.



WARRANT TO PURCHASE COMMON STOCK




	 	 	 
	Warrant No.:	 	
W-2
	Number of Shares:	 	
92,237
	Date of Issuance:	 	
January 13, 2004 (“Issuance Date”)



TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, 033 GROWTH PARTNERS I, L.P., the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Common Stock (including all
Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but
not after 5:30 P.M., New York Time, on the Expiration Date (as defined below),
Ninety-Two Thousand Two Hundred And Thirty-Seven (92,237) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”).
Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 15. This Warrant is one of the Warrants
to Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of
that certain Securities Purchase Agreement, dated as of December 18, 2003 (the
“Initial Issuance Date”), among the Company and the purchasers (the
“Purchasers”) referred to therein (the “Securities Purchase Agreement”).


     1.     EXERCISE OF WARRANT.


          (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the holder hereof on any day from and after
the date hereof, in whole or in part, by (i) delivery by the holder to the
Company of a written notice, in the form attached hereto as Exhibit A (the
“Exercise Notice”), of such holder’s election to exercise this Warrant and (ii)
(A) payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the




1






 





number of Warrant Shares as to which this Warrant is being exercised (the
“Aggregate Exercise Price”) in certified funds or by wire transfer of
immediately available funds or (B) if applicable, by notifying the Company that
this Warrant is being exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)) and (iii) the surrender to a common carrier for overnight
delivery to the Company, on or as soon as practicable following the date the
holder of this Warrant delivers the Exercise Notice to the Company, delivery of
this Warrant to the Company (or an indemnification undertaking with respect to
this Warrant in the case of its loss, theft or destruction). Following the date
on which the Company has received each of the Exercise Notice, the Aggregate
Exercise Price (or notice of a Cashless Exercise) and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) (the “Exercise Delivery Documents”), the Company
shall (X) provided that the Company’s transfer agent (the “Transfer Agent”) is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program, on or before the third Business Day thereafter credit such
aggregate number of shares of Common Stock to which the holder of this Warrant
is entitled pursuant to such exercise to the holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission system or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, on or before the fifth Business Day thereafter issue and
deliver to the address specified in the Exercise Notice, a certificate,
registered in the name of the holder of this Warrant or its designee, for the
number of shares of Common Stock to which the holder of this Warrant is
entitled pursuant to such exercise. Upon delivery of the Exercise Notice, this
Warrant and the Aggregate Exercise Price referred to in clause (ii)(A) above or
notification to the Company of a Cashless Exercise referred to in Section 1(d),
the holder of this Warrant shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised as of the date of the Exercise Notice, irrespective
of the date of delivery of the certificates evidencing such Warrant Shares. If
the number of Warrant Shares represented by this Warrant submitted for exercise
pursuant to this Section 1(a) is greater than the number of Warrant Shares
being acquired upon an exercise, then the Company shall as soon as practicable
and in no event later than five (5) Business Days after any exercise and at its
own expense, issue a new Warrant (in accordance with Section 7(d)) representing
the right to purchase the number of Warrant Shares purchasable immediately
prior to such exercise under this Warrant, less the number of Warrant Shares
with respect to which this Warrant is exercised. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up to the
nearest whole number. The Company shall pay any and all taxes, including
without limitation, all documentary stamp, transfer or similar taxes, or other
incidental expense that may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.


          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$6.50, subject to adjustment as provided herein.



          (c) Company’s Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
holder, as provided in Section 1(a) above, a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder’s balance account with DTC for such number of shares of Common Stock to
which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall pay as additional damages in cash to such holder on each day
thereafter until the




2






 





Company has cured such failure, an amount equal to 1.0% of the product of
(A) the sum of the number of shares of Common Stock not issued to the holder on
a timely basis and to which the holder is entitled and (B) the difference, but
only if a positive number, between the Weighted Average Price of the Common
Stock on the trading day immediately preceding the last possible date which the
Company could have issued such Common Stock to the holder without violating
Section 1(a) and the Exercise Price. Notwithstanding the foregoing, the
Company shall not be obligated to make such payment of the Common Stock in the
event the dispute resolution provisions of Section 12 are being utilized. In
addition, the holder, upon written notice to the Company, may void its Exercise
Notice with respect to, and have returned, any portion of this Warrant that has
not been exercised pursuant to such Exercise Notice; provided that the voiding
of an Exercise Notice shall negate the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 1(c) or otherwise.


          (d) Cashless Exercise. The holder of this Warrant may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):




	 	 	 	 	 
	Net Number	 	=	(A x B) - (A x C)	 
	 	 	 	B	 



          For purposes of the foregoing formula:




	 	 	 
	 	
A= the total number of shares with respect
to which this Warrant is then being
exercised.	 
	 	 	 
	 	
B= the Weighted Average Price of the
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.	 
	 	 	 
	 	
C= the Exercise Price then in effect for
the applicable Warrant Shares at the time
of such exercise.	 



          (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the holder the number of Warrant Shares that are not
disputed and such dispute shall be resolved in accordance with Section 12.



          (f) Limitations on Exercises.




		
	 	     (i) Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and no Person (as defined below) who is a
holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would
beneficially own in excess of 9.99% of the shares of the Common
Stock outstanding immediately after giving effect to such exercise.
For purposes of the



3






 







		
	 	foregoing sentence, such Person (together with such Person’s
affiliates) shall be deemed to beneficially own of the shares of
Common Stock issuable upon exercise of this Warrant with respect to
which the determination in such sentence is being made, but shall
not be deemed to beneficially own shares of Common Stock which
would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the
Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common
Stock, on any determination date, as reflected in (1) the Company’s
Form 10-Q, Form 10-K most recently filed, (2) a more recent public
announcement by the Company or (3) any other notice by the Company
setting forth the number of shares of Common Stock outstanding
provided pursuant to the next sentence. For any reason at any
time, upon the written request of the holder of this Warrant, the
Company shall within two (2) Business Days confirm in writing to
the holder of this Warrant the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the holder of this Warrant
and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.




		
	 	     (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock
(individually or together with all other shares of Common Stock
issued or issuable now or in the future, pursuant to (i) this
Warrant, (ii) the Debentures issued by the Company pursuant to the
Securities Purchase Agreement, (iii) the other Warrants issued
pursuant to the Securities Purchase Agreement, or (iv) the
Securities Purchase Agreement) would exceed that number of shares
of Common Stock which the Company may issue (including, as
applicable, any shares of Common Stock issued upon conversion of or
as payment of any interest under the SPA Securities) without
triggering the stockholder approval requirements set forth in Rule
4350(i) under the rules of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market and in
accordance with applicable law for issuances of Common Stock in
excess of the threshold amount in such rule or (B) obtains a
written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the holders of the SPA Warrants representing at
least a majority of the shares of Common Stock underlying the SPA
Warrants then outstanding. Until such



4






 







		
	 	approval is obtained, no Purchaser shall be issued, upon
exercise of any SPA Warrants, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the sum of the number of Common
Shares and the number of Conversion Shares and Warrant Shares
underlying the SPA Securities and the SPA Warrants issued to such
Purchaser pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the sum of the number
of Common Shares and the number of Conversion Shares and Warrant
Shares underlying the SPA Securities and the SPA Warrants issued to
all the Purchasers pursuant to the Securities Purchase Agreement on
the Issuance Date (with respect to each Purchaser, the “Exchange
Cap Allocation”). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s SPA Warrants, the
transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants shall
exercise all of such holder’s SPA Warrants into a number of shares
of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of SPA Warrants
on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such holder.



     2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:


          (a) Adjustment upon Issuance of Common Stock. If and whenever on or after
the date of issuance of this Warrant the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to have been issued by the Company in connection with any
Excluded Security) for a consideration per share (the “New Securities Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the greater of (x) the New Securities Issuance Price and (y) $2.50 (subject
to adjustment for any stock split, stock dividend, stock combination or other
similar transaction after the Issuance Date), and the number of Warrant Shares
shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
New Securities Issuance Price. For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:




5






 






		
	 	     (i) Issuance of Options. If the Company in any manner grants
any Options, other than Excluded Securities, and the lowest price
per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then, solely for
purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.




		
	 	     (ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, other than
Excluded Securities, and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then, solely
for purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or exchange
of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be
made pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares shall
be made by reason of such issue or sale.




		
	 	     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock increases or decreases at any time,
the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or



6






 







		
	 	decrease shall be adjusted to the Exercise Price and the
number of Warrant Shares which would have been in effect at such
time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this
Section 2(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued
as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price to an Exercise
Price greater than the Exercise Price in effect on the Issuance
Date (as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then in effect or a decrease in the number of
Warrant Shares to a number less than the number of Warrant Shares
(as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then issuable hereunder.




		
	 	     (iv) Calculation of Consideration Received. If case any
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Weighted Average
Price of such security on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Board of Directors of the Company and the holders of
SPA Warrants representing at least a majority of the shares of
Common Stock obtainable upon exercise of the SPA Warrants then
outstanding unless the Board of Directors of the Company shall have
obtained a fairness opinion from an independent financial advisor
in which case the fair value shall be as stated in such fairness
opinion. If, in the absence of a fairness opinion, such parties
are unable to reach agreement within 10 days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined in accordance with
Section 12 hereof.



7






 







		
	 	     (v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.



          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. Any adjustment under this Section
2(b) shall become effective at the close of business on the date the
subdivision or combination becomes effective.



          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors, in their reasonable discretion, will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2.



     3.     RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to
holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:


          (a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be the
Weighted Average Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable to one share of
Common Stock, and (ii) the




8






 





denominator shall be the Weighted Average Price of the Common Stock on the
trading day immediately preceding such record date; and


          (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph
(a); provided that in the event that the Distribution is of common stock
(“Other Common Stock”) of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder
of this Warrant may elect to receive a warrant to purchase Other Common Stock
in lieu of an increase in the number of Warrant Shares, the terms of which
shall be identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Common Stock that would have
been payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).



     4.     PURCHASE RIGHTS; ORGANIC CHANGE.


          (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.



          (b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company’s assets to another Person or other transaction, in each case which
is effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.” Prior to the consummation of any
(i) sale of all or substantially all of the Company’s assets to an acquiring
Person or (ii) other Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such
assets or the Person issuing the securities or providing the assets in such
Organic Change (in each case, the “Acquiring Entity”) a written agreement (in
form and substance reasonably satisfactory to the holders of SPA Warrants
representing at least a majority of the shares of Common Stock obtainable upon
exercise of the SPA Warrants then outstanding) to deliver to the holder of this
Warrant in exchange for this Warrant, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to this Warrant and reasonably satisfactory to the holder of this Warrant
(including, an adjusted exercise




9






 





price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant), if
the value so reflected is less than the Exercise Price in effect immediately
prior to such consolidation, merger or sale). In the event that an Acquiring
Entity is directly or indirectly controlled by a company or entity whose common
stock or similar equity interest is listed, designated or quoted on a
securities exchange or trading market, the holder of this Warrant may elect to
treat such Person as the Acquiring Entity for purposes of this Section 4(b).
Prior to the consummation of any other Organic Change, the Company shall be
required to make appropriate provision (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to insure that the holder of this Warrant thereafter will have the
right to acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant including those set forth in Sections 1(f)(i) and
1(f)(ii) of this Warrant), such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of this Warrant as of the date of
such Organic Change (without regard to any limitations on the exercise of this
Warrant including those set forth in Sections 1(f)(i) and 1(f)(ii) of this
Warrant).


     5.     NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, and will at
all times in good faith carry out all the provisions of this Warrant and take
all action as may be required to protect the rights of the holder of this
Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (iii) will, so long as any
of the SPA Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the SPA Warrants, 150% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).


     6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER. No holder, solely in such
Person’s capacity as a holder, of this Warrant shall be entitled to vote or
receive dividends or be deemed the holder of shares of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, solely in such Person’s capacity as a holder of this
Warrant, any of the rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to


10






 


the holder of this Warrant of the Warrant Shares which such Person is then
entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company will provide the holder of this
Warrant with copies of the same notices and other information given to the
Company’s public stockholders of the Company generally, contemporaneously with
the giving thereof to the Company’s public stockholders.


     7.     REISSUANCE OF WARRANTS.


          (a) Transfer of Warrant. Subject to Section 2(g) of the Securities
Purchase Agreement, if this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder of this Warrant a new Warrant
(in accordance with Section 7(d)), registered as the holder of this Warrant may
request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the holder of this Warrant representing the right to
purchase the number of Warrant Shares not being transferred.



          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the holder of this Warrant to the Company
in customary form, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase
the Warrant Shares then underlying this Warrant.



          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the holder of this Warrant at the time of such surrender; provided, however,
that no Warrants for fractional shares of Common Stock shall be given.



          (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of
this Warrant which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.




11






 





     8.     NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide
the holder of this Warrant with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant
(i) reasonably promptly upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least the same number of days prior to the date on which the
Company provides notice to any other Person who has the right to receive notice
of such an event (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any grants, issues or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of Common Stock (other than, in each case, Excluded
Securities) or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
Notwithstanding the foregoing, Section 4(j) of the Securities Purchase
Agreement shall apply to all notices given pursuant to this Warrant.


     9.     AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the holders of
SPA Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no
such action may increase the exercise price of this Warrant or decrease the
number of shares or class of stock obtainable upon exercise of this Warrant
without the written consent of the holder of this Warrant. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the SPA Warrants then outstanding.


     10.     GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, (i) with
respect to matters relating to the issuance of securities pursuant to this
Warrant, the internal laws of the State of Maryland and (ii) with respect to
all other matters, the internal laws of the State of New York, in each case
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York, the State of Maryland or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York or the State of Maryland, as the
case may be.


     11.     CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.


     12.     DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within three Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the holder of this


12






 


Warrant. If the holder of this Warrant and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the holder of this Warrant, which approval shall not be
unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than ten Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.


     13.     REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder of this Warrant
and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach,
the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.


     14.     TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.


     15.     CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:


          (a) “Bloomberg” means Bloomberg Financial Markets.



          (b) “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.



          (c) “Common Stock” means (i) the Company’s Class A common stock, par value
$0.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of
such Common Stock.



          (d) “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.




13






 





          (e) “Excluded Securities” shall have the meaning given to it in the
Securities Purchase Agreement.



          (f)
“Expiration Date” means January 13,
2007.



          (g) “Options” means any rights, warrants or options to subscribe for or
purchase Convertible Securities or Common Stock.



          (h) “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.



          (i) “Principal Market” means the Nasdaq National Market or in the event
that the Company is no longer listed with the Nasdaq National Market, the
market or exchange on which the Common Stock is then listed and traded, which
only may be either The New York Stock Exchange, Inc. or the American Stock
Exchange.



          (j) “Registration Rights Agreement” means that certain registration rights
agreement between the Company and the Purchasers.



          (k) “SPA Securities” means the subordinated convertible debentures issued
pursuant to the Securities Purchase Agreement.



          (l) “Weighted Average Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of
such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the holder of
this Warrant are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 12. All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.



[Signature Page Follows]



14






 






     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	/s/ Thomas M. Brandt, Jr.
	 	 	 	 	

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



15









 



EXHIBIT A


EXERCISE NOTICE


TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK



TELECOMMUNICATION SYSTEMS, INC.



     The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock (“Warrant Shares”) of
TeleCommunication Systems, Inc., a Maryland corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.


     After giving effect to the exercise of the Warrant Shares requested to be
converted pursuant hereto, the undersigned will not be the beneficial owner of
10% or more of the outstanding Common Stock (determined as set forth in Section
1(f)(i) of the Warrant).


     1.     Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:


               __________ a “Cash Exercise” with respect to __________ Warrant
Shares; and/or



               __________
a “Cashless Exercise” with respect to __________ Warrant
Shares.



     [Insert this paragraph (2) in the event that the holder has not elected a
Cashless Exercise in accordance with the terms of the Warrant as to all of the
Warrant Shares to be issued pursuant hereto] 2. Payment of Exercise Price.
The holder is hereby delivering to the Company payment in the amount of
$ ____________ representing the Aggregate Exercise Price for such Warrant Shares
not subject to a Cashless Exercise in accordance with the terms of the Warrant.


     3.     Delivery of Warrant Shares. The Company shall deliver to the holder
_____________ Warrant Shares in accordance with the terms of the Warrant.


Date: _______________ __, 200___




	 	 	 	 	 
	 	 	 	 	 
	 	 	

Name of Registered Holder
	 	 	
 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:



16






 



ACKNOWLEDGMENT



     The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
_____________ __, 2004 from the Company and acknowledged and agreed to by
American Stock Transfer & Trust Co.


TELECOMMUNICATION SYSTEMS, INC.




	 	 	 	 	 
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:



17






 



NEITHER THE ISSUANCE AND SALE OF THIS WARRANT NOR THE SECURITIES INTO WHICH
THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY ONLY
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (C) RULE 144(K)
UNDER SAID ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


TELECOMMUNICATION SYSTEMS, INC.



Warrant To Purchase Common Stock




	 	 	 
	Warrant No.:	 	
W-1
	Number of Shares:	 	
170,536
	Date of Issuance:	 	
January 13, 2004 (“Issuance Date”)



TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, THE RIVERVIEW GROUP LLC, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Common Stock (including all
Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof, but
not after 5:30 P.M., New York Time, on the Expiration Date (as defined below),
One Hundred Seventy Thousand Five Hundred And Thirty-Six (170,536) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”).
Except as otherwise defined herein, capitalized terms in this Warrant shall
have the meanings set forth in Section 15. This Warrant is one of the Warrants
to Purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of
that certain Securities Purchase Agreement, dated as of December 18, 2003 (the
“Initial Issuance Date”), among the Company and the purchasers (the
“Purchasers”) referred to therein (the “Securities Purchase Agreement”).


     1.     EXERCISE OF WARRANT.


          (a) Mechanics of Exercise. Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the holder hereof on any day from and after
the date hereof, in whole or in part, by (i) delivery by the holder to the
Company of a written notice, in the form attached hereto as
Exhibit A (the
“Exercise Notice”), of such holder’s election to exercise this Warrant and (ii)
(A) payment to the Company of an amount equal to the applicable Exercise Price
multiplied by the




1






 




number of Warrant Shares as to which this Warrant is being
exercised (the “Aggregate Exercise Price”) in certified funds or by
wire transfer of immediately available funds or (B) if applicable, by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise
(as defined in Section 1(d)) and (iii) the surrender to a common carrier for
overnight delivery to the Company, on or as soon as practicable following the
date the holder of this Warrant delivers the Exercise Notice to the Company,
delivery of this Warrant to the Company (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft or destruction).
Following the date on which the Company has received each of the Exercise
Notice, the Aggregate Exercise Price (or notice of a Cashless Exercise) and
this Warrant (or an indemnification undertaking with respect to this Warrant in
the case of its loss, theft or destruction) (the “Exercise Delivery
Documents”), the Company shall (X) provided that the Company’s transfer agent
(the “Transfer Agent”) is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program, on or before the third Business Day
thereafter credit such aggregate number of shares of Common Stock to which the
holder of this Warrant is entitled pursuant to such exercise to the holder’s or
its designee’s balance account with DTC through its Deposit Withdrawal Agent
Commission system or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, on or before the fifth Business Day
thereafter issue and deliver to the address specified in the Exercise Notice, a
certificate, registered in the name of the holder of this Warrant or its
designee, for the number of shares of Common Stock to which the holder of this
Warrant is entitled pursuant to such exercise. Upon delivery of the Exercise
Notice, this Warrant and the Aggregate Exercise Price referred to in clause
(ii)(A) above or notification to the Company of a Cashless Exercise referred to
in Section 1(d), the holder of this Warrant shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised as of the date of the Exercise Notice,
irrespective of the date of delivery of the certificates evidencing such
Warrant Shares. If the number of Warrant Shares represented by this Warrant
submitted for exercise pursuant to this Section 1(a) is greater than the number
of Warrant Shares being acquired upon an exercise, then the Company shall as
soon as practicable and in no event later than five (5) Business Days after any
exercise and at its own expense, issue a new Warrant (in accordance with
Section 7(d)) representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but rather the number of shares of Common Stock to be issued shall be
rounded up to the nearest whole number. The Company shall pay any and all
taxes, including without limitation, all documentary stamp, transfer or similar
taxes, or other incidental expense that may be payable with respect to the
issuance and delivery of Warrant Shares upon exercise of this Warrant.


          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means
$6.50, subject to adjustment as provided herein.



          (c) Company’s Failure to Timely Deliver Securities. Subject to Section
1(f), if the Company shall fail for any reason or for no reason to issue to the
holder, as provided in Section 1(a) above, a certificate for the number of
shares of Common Stock to which the holder is entitled or to credit the
holder’s balance account with DTC for such number of shares of Common Stock to
which the holder is entitled upon the holder’s exercise of this Warrant, the
Company shall pay as additional damages in cash to such holder on each day
thereafter until the




2






 



Company has cured such failure, an amount equal to 1.0% of
the product of (A) the sum of the number of shares of Common Stock not issued
to the holder on a timely basis and to which the holder is entitled and (B) the
difference, but only if a positive number, between the Weighted Average Price
of the Common Stock on the trading day immediately preceding the last possible
date which the Company could have issued such Common Stock to the holder
without violating Section 1(a) and the Exercise Price. Notwithstanding the
foregoing, the Company shall not be obligated to make such payment of the
Common Stock in the event the dispute resolution provisions of Section 12 are
being utilized. In addition, the holder, upon written notice to the Company,
may void its Exercise Notice with respect to, and have returned, any portion of
this Warrant that has not been exercised pursuant to such Exercise Notice;
provided that the voiding of an Exercise Notice shall negate the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 1(c) or otherwise.


          (d) Cashless Exercise. The holder of this Warrant may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common Stock determined
according to the following formula (a “Cashless Exercise”):




	 	 	 
	Net Number =  	
(A x B) - (A x C)	 
	 	
B	 
	 	 	 
	
             For purposes of the foregoing formula:
	 	 	 
	 	A= the total number of shares with respect
to which this Warrant is then being
exercised.
	 	 	 
	 	B= the Weighted Average Price of the
Common Stock (as reported by Bloomberg) on
the date immediately preceding the date of
the Exercise Notice.
	 	 	 
	 	C= the Exercise Price then in effect for
the applicable Warrant Shares at the time
of such exercise.



          (e) Disputes. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company
shall promptly issue to the holder the number of Warrant Shares that are not
disputed and such dispute shall be resolved in accordance with Section 12.



          (f) Limitations on Exercises.




		
	 	     (i) Beneficial Ownership. The Company shall not effect the
exercise of this Warrant, and no Person (as defined below) who is a
holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would
beneficially own in excess of 9.99% of the shares of the Common
Stock outstanding immediately after giving effect to such exercise.
For purposes of the



3






 







		
	 	foregoing sentence, such Person (together with
such Person’s affiliates) shall be deemed to beneficially own of
the shares of Common Stock issuable upon exercise of this Warrant
with respect to which the determination in such sentence is being
made, but shall not be deemed to beneficially own shares of Common
Stock which would be issuable upon (i) exercise of the remaining,
unexercised portion of this Warrant and (ii) exercise or conversion
of the unexercised or unconverted portion of any other securities
of the Company beneficially owned by such Person and its affiliates
(including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock a
holder may rely on the number of outstanding shares of Common
Stock, on any determination date, as reflected in (1) the Company’s
Form 10-Q, Form 10-K most recently filed, (2) a more recent public
announcement by the Company or (3) any other notice by the Company
setting forth the number of shares of Common Stock outstanding
provided pursuant to the next sentence. For any reason at any
time, upon the written request of the holder of this Warrant, the
Company shall within two (2) Business Days confirm in writing to
the holder of this Warrant the number of shares of Common Stock
then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the
conversion or exercise of securities of the Company, including the
SPA Securities and the SPA Warrants, by the holder of this Warrant
and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.




		
	 	     (ii) Principal Market Regulation. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock
(individually or together with all other shares of Common Stock
issued or issuable now or in the future, pursuant to (i) this
Warrant, (ii) the Debentures issued by the Company pursuant to the
Securities Purchase Agreement, (iii) the other Warrants issued
pursuant to the Securities Purchase Agreement, or (iv) the
Securities Purchase Agreement) would exceed that number of shares
of Common Stock which the Company may issue (including, as
applicable, any shares of Common Stock issued upon conversion of or
as payment of any interest under the SPA Securities) without
triggering the stockholder approval requirements set forth in Rule
4350(i) under the rules of the Principal Market (the “Exchange
Cap”), except that such limitation shall not apply in the event
that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market and in
accordance with applicable law for issuances of Common Stock in
excess of the threshold amount in such rule or (B) obtains a
written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably
satisfactory to the holders of the SPA Warrants representing at
least a majority of the shares of
Common Stock underlying the SPA Warrants then outstanding.
Until such



4






 







		
	 	approval is obtained, no Purchaser shall be issued, upon
exercise of any SPA Warrants, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the sum of the number of Common
Shares and the number of Conversion Shares and Warrant Shares
underlying the SPA Securities and the SPA Warrants issued to such
Purchaser pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the sum of the number
of Common Shares and the number of Conversion Shares and Warrant
Shares underlying the SPA Securities and the SPA Warrants issued to
all the Purchasers pursuant to the Securities Purchase Agreement on
the Issuance Date (with respect to each Purchaser, the “Exchange
Cap Allocation”). In the event that any Purchaser shall sell or
otherwise transfer any of such Purchaser’s SPA Warrants, the
transferee shall be allocated a pro rata portion of such
Purchaser’s Exchange Cap Allocation, and the restrictions of the
prior sentence shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants shall
exercise all of such holder’s SPA Warrants into a number of shares
of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective
Exchange Cap Allocations of the remaining holders of SPA Warrants
on a pro rata basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such holder.



     2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:


          (a) Adjustment upon Issuance of Common Stock. If and whenever on or after
the date of issuance of this Warrant the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
issued or deemed to have been issued by the Company in connection with any
Excluded Security) for a consideration per share (the “New Securities Issuance
Price”) less than a price (the “Applicable Price”) equal to the Exercise Price
in effect immediately prior to such issue or sale or deemed issuance or sale
(the foregoing a “Dilutive Issuance”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal
to the greater of (x) the New Securities Issuance Price and (y) $2.50 (subject
to adjustment for any stock split, stock dividend, stock combination or other
similar transaction after the Issuance Date), and the number of Warrant Shares
shall be adjusted to the number of shares of Common Stock determined by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares acquirable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product thereof by the
New Securities Issuance Price. For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:




5






 






		
	 	     (i) Issuance of Options. If the Company in any manner grants
any Options, other than Excluded Securities, and the lowest price
per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of
any such Option is less than the Applicable Price, then, solely for
purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the “lowest
price per share for which one share of Common Stock is issuable
upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion, exercise or exchange of any Convertible
Security issuable upon exercise of such Option. No further
adjustment of the Exercise Price or number of Warrant Shares shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.
	 
	 	     (ii) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities, other than
Excluded Securities, and the lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof is less than the Applicable Price, then, solely
for purposes of this Section 2, such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
Section 2(a)(ii), the “lowest price per share for which one share
of Common Stock is issuable upon the conversion, exercise or
exchange” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to one share of Common Stock upon the issuance or sale of
the Convertible Security and upon conversion, exercise or exchange
of such Convertible Security. No further adjustment of the
Exercise Price or number of Warrant Shares shall be made upon the
actual issuance of such Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of this Warrant has been or is to be
made pursuant to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares shall
be made by reason of such issue or sale.
	 
	 	     (iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for Common Stock increases or decreases at any time,
the Exercise Price and the number of Warrant Shares in effect at
the time of such increase or



6






 







		
	 	decrease shall be adjusted to the Exercise Price and the
number of Warrant Shares which would have been in effect at such
time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or
increased or decreased conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this
Section 2(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the
immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued
as of the date of such increase or decrease. No adjustment
pursuant to this Section 2(a) shall be made if such adjustment
would result in an increase of the Exercise Price to an Exercise
Price greater than the Exercise Price in effect on the Issuance
Date (as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then in effect or a decrease in the number of
Warrant Shares to a number less than the number of Warrant Shares
(as adjusted for any stock splits, reverse stock splits, stock
dividends, stock combinations and similar transactions after the
Issuance Date) then issuable hereunder.
	 
	 	     (iv) Calculation of Consideration Received. If case any
Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options by the parties thereto, the Options will be deemed to have
been issued for a consideration of $0.01. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the
Company therefor. If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the Weighted Average
Price of such security on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners
of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined
jointly by the Board of Directors of the Company and the holders of
SPA Warrants representing at least a majority of the shares of
Common Stock obtainable upon exercise of the SPA Warrants then
outstanding unless the Board of Directors of the Company shall have
obtained a fairness opinion from an independent financial advisor
in which case the fair value shall be as stated in such fairness
opinion. If, in the absence of a fairness opinion, such parties
are unable to reach agreement within 10 days after the occurrence
of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined in accordance with
Section 12 hereof.



7






 







		
	 	     (v) Record Date. If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.



          (b) Adjustment upon Subdivision or Combination of Common Stock. If the
Company at any time after the date of issuance of this Warrant subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to such subdivision will
be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. Any adjustment under this Section
2(b) shall become effective at the close of business on the date the
subdivision or combination becomes effective.



          (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
Board of Directors, in their reasonable discretion, will make an appropriate
adjustment in the Exercise Price and the number of Warrant Shares so as to
protect the rights of the holder of this Warrant; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or
decrease the number of Warrant Shares as otherwise determined pursuant to this
Section 2.



     3.     RIGHTS UPON DISTRIBUTION OF ASSETS. In addition to any adjustments
pursuant to Section 2 above, if the Company shall declare or make any dividend
or other distribution of its assets (or rights to acquire its assets) to
holders of Common Stock, by way of return of capital or otherwise (including,
without limitation, any distribution of cash, stock or other securities,
property or options by way of a dividend, spin off, reclassification, corporate
rearrangement or other similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case:


          (a) any Exercise Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution shall be reduced, effective as of
the close of business on such record date, to a price determined by multiplying
such Exercise Price by a fraction of which (i) the numerator shall be the
Weighted Average Price of the Common Stock on the trading day immediately
preceding such record date minus the value of the Distribution (as determined
in good faith by the Company’s Board of Directors) applicable to one share of
Common Stock, and (ii) the




8






 





          denominator shall be the Weighted Average Price of the Common Stock on the
trading day immediately preceding such record date; and



          (b) the number of Warrant Shares shall be increased to a number of shares
equal to the number of shares of Common Stock obtainable immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding paragraph
(a); provided that in the event that the Distribution is of common stock
(“Other Common Stock”) of a company whose common stock is traded on a national
securities exchange or a national automated quotation system, then the holder
of this Warrant may elect to receive a warrant to purchase Other Common Stock
in lieu of an increase in the number of Warrant Shares, the terms of which
shall be identical to those of this Warrant, except that such warrant shall be
exercisable into the number of shares of Other Common Stock that would have
been payable to the holder of this Warrant pursuant to the Distribution had the
holder exercised this Warrant immediately prior to such record date and with an
aggregate exercise price equal to the product of the amount by which the
exercise price of this Warrant was decreased with respect to the Distribution
pursuant to the terms of the immediately preceding paragraph (a) and the number
of Warrant Shares calculated in accordance with the first part of this
paragraph (b).



     4.     PURCHASE RIGHTS; ORGANIC CHANGE.


          (a) Purchase Rights. In addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase Rights”), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.



          (b) Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company’s assets to another Person or other transaction, in each case which
is effected in such a way that holders of Common Stock are entitled to receive
securities or assets with respect to or in exchange for Common Stock is
referred to herein as an “Organic Change.” Prior to the consummation of any
(i) sale of all or substantially all of the Company’s assets to an acquiring
Person or (ii) other Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such
assets or the Person issuing the securities or providing the assets in such
Organic Change (in each case, the “Acquiring Entity”) a written agreement (in
form and substance reasonably satisfactory to the holders of SPA Warrants
representing at least a majority of the shares of Common Stock obtainable upon
exercise of the SPA Warrants then outstanding) to deliver to the holder of this
Warrant in exchange for this Warrant, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance
to this Warrant and reasonably satisfactory to the holder of this Warrant
(including, an adjusted exercise




9






 





price equal to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and exercisable for a corresponding number
of shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant), if
the value so reflected is less than the Exercise Price in effect immediately
prior to such consolidation, merger or sale). In the event that an Acquiring
Entity is directly or indirectly controlled by a company or entity whose common
stock or similar equity interest is listed, designated or quoted on a
securities exchange or trading market, the holder of this Warrant may elect to
treat such Person as the Acquiring Entity for purposes of this Section 4(b).
Prior to the consummation of any other Organic Change, the Company shall be
required to make appropriate provision (in form and substance reasonably
satisfactory to the holders of SPA Warrants representing at least a majority of
the shares of Common Stock obtainable upon exercise of the SPA Warrants then
outstanding) to insure that the holder of this Warrant thereafter will have the
right to acquire and receive in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant including those set forth in Sections 1(f)(i) and
1(f)(ii) of this Warrant), such shares of stock, securities or assets that
would have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of this Warrant as of the date of
such Organic Change (without regard to any limitations on the exercise of this
Warrant including those set forth in Sections 1(f)(i) and 1(f)(ii) of this
Warrant).


     5.     NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, and will at
all times in good faith carry out all the provisions of this Warrant and take
all action as may be required to protect the rights of the holder of this
Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, (ii) will
take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (iii) will, so long as any
of the SPA Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the SPA Warrants, 150% of the number of
shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).


     6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER. No holder, solely in such
Person’s capacity as a holder, of this Warrant shall be entitled to vote or
receive dividends or be deemed the holder of shares of the Company for any
purpose, nor shall anything contained in this Warrant be construed to confer
upon the holder hereof, solely in such Person’s capacity as a holder of this
Warrant, any of the rights of a shareholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to


10






 


the holder of this Warrant of the Warrant Shares which such Person is then
entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company will provide the holder of this
Warrant with copies of the same notices and other information given to the
Company’s public stockholders of the Company generally, contemporaneously with
the giving thereof to the Company’s public stockholders.


     7.     REISSUANCE OF WARRANTS.


          (a) Transfer of Warrant. Subject to Section 2(g) of the Securities
Purchase Agreement, if this Warrant is to be transferred, the holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the holder of this Warrant a new Warrant
(in accordance with Section 7(d)), registered as the holder of this Warrant may
request, representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the holder of this Warrant representing the right to
purchase the number of Warrant Shares not being transferred.



          (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the holder of this Warrant to the Company
in customary form, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase
the Warrant Shares then underlying this Warrant.



          (c) Warrant Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the holder of this Warrant at the time of such surrender; provided, however,
that no Warrants for fractional shares of Common Stock shall be given.



          (d) Issuance of New Warrants. Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the holder of
this Warrant which, when added to the number of shares of Common Stock
underlying the other new Warrants issued in connection with such issuance, does
not exceed the number of Warrant Shares then underlying this Warrant), (iii)
shall have an issuance date, as indicated on the face of such new Warrant which
is the same as the Issuance Date, and (iv) shall have the same rights and
conditions as this Warrant.




11






 





     8.     NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide
the holder of this Warrant with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the holder of this Warrant
(i) reasonably promptly upon any adjustment of the Exercise Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment
and (ii) at least the same number of days prior to the date on which the
Company provides notice to any other Person who has the right to receive notice
of such an event (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any grants, issues or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of Common Stock (other than, in each case, Excluded
Securities) or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
Notwithstanding the foregoing, Section 4(j) of the Securities Purchase
Agreement shall apply to all notices given pursuant to this Warrant.


     9.     AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the holders of
SPA Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the SPA Warrants then outstanding; provided that no
such action may increase the exercise price of this Warrant or decrease the
number of shares or class of stock obtainable upon exercise of this Warrant
without the written consent of the holder of this Warrant. No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the SPA Warrants then outstanding.


     10.     GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant shall be governed by, (i) with
respect to matters relating to the issuance of securities pursuant to this
Warrant, the internal laws of the State of Maryland and (ii) with respect to
all other matters, the internal laws of the State of New York, in each case
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York, the State of Maryland or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York or the State of Maryland, as the
case may be.


     11.     CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Purchasers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.


     12.     DISPUTE RESOLUTION. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall submit the disputed determinations or arithmetic calculations via
facsimile within three Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the holder of this


12






 


Warrant. If the holder of this Warrant and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the holder of this Warrant, which approval shall not be
unreasonably withheld or delayed, or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than ten Business Days from the time it receives
the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.


     13.     REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief),
and nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holder of this Warrant
and that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach,
the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.


     14.     TRANSFER. This Warrant may be offered for sale, sold, transferred or
assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.


     15.     CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:


          (a) “Bloomberg” means Bloomberg Financial Markets.



          (b) “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.



          (c) “Common Stock” means (i) the Company’s Class A common stock, par value
$0.01 per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of
such Common Stock.



          (d) “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Stock.




13






 





          (e) “Excluded Securities” shall have the meaning given to it in the
Securities Purchase Agreement.



          (f)
“Expiration Date” means January 13,
2007.



          (g) “Options” means any rights, warrants or options to subscribe for or
purchase Convertible Securities or Common Stock.



          (h) “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.



          (i) “Principal Market” means the Nasdaq National Market or in the event
that the Company is no longer listed with the Nasdaq National Market, the
market or exchange on which the Common Stock is then listed and traded, which
only may be either The New York Stock Exchange, Inc. or the American Stock
Exchange.



          (j) “Registration Rights Agreement” means that certain registration rights
agreement between the Company and the Purchasers.



          (k) “SPA Securities” means the subordinated convertible debentures issued
pursuant to the Securities Purchase Agreement.



          (l) “Weighted Average Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading),
and ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of
such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the holder of
this Warrant are unable to agree upon the fair market value of such security,
then such dispute shall be resolved pursuant to Section 12. All such
determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.



[Signature Page Follows]



14






 






     IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.



	 	 	 	 	 
	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	/s/ Thomas M. Brandt, Jr.
	 	 	 	 	

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



15






 



EXHIBIT A


EXERCISE NOTICE



TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK



TELECOMMUNICATION SYSTEMS, INC.



     The undersigned holder hereby exercises the right to purchase
____________ of the shares of Common Stock (“Warrant Shares”) of
TeleCommunication Systems, Inc., a Maryland corporation (the “Company”),
evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.


     After giving effect to the exercise of the Warrant Shares requested to be
converted pursuant hereto, the undersigned will not be the beneficial owner of
10% or more of the outstanding Common Stock (determined as set forth in Section
1(f)(i) of the Warrant).


     1.     Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:



               ___________ a “Cash Exercise” with respect to ___________ Warrant
Shares; and/or



               ___________ a “Cashless Exercise” with respect to ___________ Warrant
Shares.



     [Insert this paragraph (2) in the event that the holder has not elected a
Cashless Exercise in accordance with the terms of the Warrant as to all of the
Warrant Shares to be issued pursuant hereto] 2. Payment of Exercise Price.
The holder is hereby delivering to the Company payment in the amount of
$ ___________ representing the Aggregate Exercise Price for such Warrant Shares
not subject to a Cashless Exercise in accordance with the terms of the Warrant.


     3.     Delivery of Warrant Shares. The Company shall deliver to the holder
_____________ Warrant Shares in accordance with the terms of the Warrant.


Date: _______________ __, 200___




	 	 	 	 	 
	 	 	


	 	 	
Name of Registered Holder
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:



16






 



ACKNOWLEDGMENT



     The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Co. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
___________ __, 2004 from the Company and acknowledged and agreed to by
American Stock Transfer & Trust Co.



	 	 	 	 	 
	 	 	
TELECOMMUNICATION SYSTEMS, INC.
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name:
	 	 	 	 	Title:




17