Document:

exv4w7

 

Exhibit 4.7

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT
TO CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	Warrant No. W-8
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems, Inc. hereunder, the “Company”),
hereby certifies that, for value received, Bonanza Master Fund Ltd. or its registered assigns (the
“Holder”), is entitled to purchase from the Company up to a total of 1,050,000 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the to the Company (with the attached Warrant Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.
 

Name: Thomas M. Brandt, Jr.
	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase                                         
            shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued                                         
        , 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $                     in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

   Name:

	 

	 	 	 	 	 	   Title:	 	 
	 
	 	 	Holder’s Social Security or	 	 
	 	 	Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	   [Company]	 	 
	 

	 	 	 	 	 	   [Street]	 	 
	 

	 	 	 	 	 	   [Street 2]	 	 
	 

	 	 	 	 	 	   [City, State, ZIP]	 	 
	 

	 	 	 	 	 	   Tel:	 	 
	 

	 	 	 	 	 	   Fax:	 	 
	 

	 	 	 	 	 	   E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Number of
	 

	 	Number of Warrant
	 	 	 	Warrant Shares
	 

	 	Shares Available to be
	 	Number of Warrant Shares
	 	Remaining to
	Date

	 	Exercised
	 	Exercised
	 	be Exercised
	 

	 	 
	 	 
	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                                         
the right represented by the within Warrant to purchase [___]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints                                          attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

Dated:                                         ,

	 	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Address of Transferee	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Tax Identification Number or Social
Security Number of Transferee	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	In the presence of:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	Warrant No. W-9
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems,
Inc. hereunder, the “Company”),
hereby certifies that, for value received, HHMI Investments, L.P. or its registered assigns (the
“Holder”), is entitled to purchase from the Company up to a total of 60,638 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 

	 	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.
 

Name: Thomas M. Brandt, Jr.
	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase                                         
 shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued                                         
        , 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $                     in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

   Name:

	 

	 	 	 	 	 	   Title:	 	 
	 
	 	 	Holder’s Social Security or	 	 
	 	 	Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	[Company]	 	 
	 

	 	 	 	[Street]	 	 
	 

	 	 	 	[Street 2]	 	 
	 

	 	 	 	[City, State, ZIP]	 	 
	 

	 	 	 	Tel:	 	 
	 

	 	 	 	Fax:	 	 
	 

	 	 	 	E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Number of
	 

	 	Number of Warrant
	 	 	 	Warrant Shares
	 

	 	Shares Available to be
	 	Number of Warrant Shares
	 	Remaining to
	Date

	 	Exercised
	 	Exercised
	 	be Exercised
	 

	 	 
	 	 
	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                                         
the right represented by the within Warrant to purchase [___]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints                                          attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

Dated:                                         ,

	 	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Address of Transferee	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Tax Identification Number or Social
Security Number of Transferee	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	In the presence of:
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	Warrant No. W-10
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems,
Inc. hereunder, the “Company”),
hereby certifies that, for value received, SRB Greenway Capital L.P. or its registered assigns (the
“Holder”), is entitled to purchase from the Company up to a total of 37,538 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 

	 	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.
 

Name: Thomas M. Brandt, Jr.
	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase 
             shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued 
, 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $                                        in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holder’s Social Security or

Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	[Company]	 	 
	 

	 	 	 	 	 	[Street]	 	 
	 

	 	 	 	 	 	[Street 2]	 	 
	 

	 	 	 	 	 	[City, State, ZIP]	 	 
	 

	 	 	 	 	 	Tel:	 	 
	 

	 	 	 	 	 	Fax:	 	 
	 

	 	 	 	 	 	E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Number of
	 

	 	Number of Warrant
	 	 	 	Warrant Shares
	 

	 	Shares Available to be
	 	Number of Warrant Shares
	 	Remaining to
	Date

	 	Exercised
	 	Exercised
	 	be Exercised
	 

	 	 
	 	 
	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                         the right represented by the within Warrant to purchase [___]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints                                          attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

Dated:                                         ,

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	(Signature must conform in all respects to

name of holder as specified on the

face of the Warrant)	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Address of Transferee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Tax Identification Number or Social Security

Number of Transferee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	In the presence of:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	 	 	 
	Warrant No. W-11
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems, Inc. hereunder, the “Company”),
hereby certifies that, for value received, SRB Greenway Capital (QP) L.P. or its registered assigns
(the “Holder”), is entitled to purchase from the Company up to a total of 294,525 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

     To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase 
             shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued 
, 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $                                          in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holder’s Social Security or

Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	[Company]	 	 
	 

	 	 	 	 	 	[Street]	 	 
	 

	 	 	 	 	 	[Street 2]	 	 
	 

	 	 	 	 	 	[City, State, ZIP]	 	 
	 

	 	 	 	 	 	Tel:	 	 
	 

	 	 	 	 	 	Fax:	 	 
	 

	 	 	 	 	 	E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Number of
	 

	 	Number of Warrant
	 	 	 	Warrant Shares
	 

	 	Shares Available to be
	 	Number of Warrant Shares
	 	Remaining to
	Date

	 	Exercised
	 	Exercised
	 	be Exercised
	 

	 	 
	 	 
	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___the right represented by the within Warrant to purchase [___]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints ___attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

	 	 	 	 	 	 	 
	Dated:
	 	 	,	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	(Signature must conform in all respects to
	 

	 	 	 	 	 	name of holder as specified on the face of
	 

	 	 	 	 	 	the Warrant)
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Address of Transferee
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Tax Identification Number or Social
	 

	 	 	 	 	 	Security Number of Transferee
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	In the presence of:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	 	 	 
	Warrant No. W-12
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems, Inc. hereunder, the “Company”),
hereby certifies that, for value received, SRB Greenway Offshare
Operating Fund, L.P. or its registered assigns (the
“Holder”), is entitled to purchase from the Company
up to a total of 17,938 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 

Name:   Thomas M. Brandt, Jr.
	 	 
	 

	 	Title:   Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase ___
shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued ___
        ,2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $___in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

     Name:
	 	 
	 

	 	 	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holder’s Social Security or	 	 
	 	 	Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	     [Company]	 	 
	 

	 	 	 	 	 	     [Street]	 	 
	 

	 	 	 	 	 	     [Street 2]	 	 
	 

	 	 	 	 	 	     [City, State, ZIP]	 	 
	 

	 	 	 	 	 	     Tel:	 	 
	 

	 	 	 	 	 	     Fax:	 	 
	 

	 	 	 	 	 	     E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of
	 	 	Number of Warrant	 	 	 	Warrant Shares
	 	 	Shares Available to be	 	Number of Warrant Shares	 	Remaining to
	Date	 	Exercised	 	Exercised	 	be Exercised
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___the right represented by the within Warrant to purchase [___]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints ___attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

	 	 	 	 	 	 	 
	Dated:
	 	 	,	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	(Signature must conform in all respects to
	 

	 	 	 	 	 	name of holder as specified on the face of
	 

	 	 	 	 	 	the Warrant)
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Address of Transferee
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Tax Identification Number or Social
	 

	 	 	 	 	 	Security Number of Transferee
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	In the presence of:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	 	 	 
	Warrant No. W-13
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems, Inc. hereunder, the “Company”),
hereby certifies that, for value received, Walker Smith Capital (QP) L.P. or its registered assigns (the
“Holder”), is entitled to purchase from the Company
up to a total of 107,870 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 

Name:   Thomas M. Brandt, Jr.
	 	 
	 

	 	Title:   Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

     To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase ___
shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued _________, 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $___in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

     Name:
	 	 
	 

	 	 	 	 	 	     Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holder’s Social Security or	 	 
	 	 	Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	     [Company]	 	 
	 

	 	 	 	 	 	     [Street]	 	 
	 

	 	 	 	 	 	     [Street 2]	 	 
	 

	 	 	 	 	 	     [City, State, ZIP]	 	 
	 

	 	 	 	 	 	     Tel:	 	 
	 

	 	 	 	 	 	     Fax:	 	 
	 

	 	 	 	 	 	     E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of
	 	 	Number of Warrant	 	 	 	Warrant Shares
	 	 	Shares Available to be	 	Number of Warrant Shares	 	Remaining to
	Date	 	Exercised	 	Exercised	 	be Exercised
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___the right represented by the within Warrant to purchase [___]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints ___attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

	 	 	 	 	 	 	 
	Dated:
	 	 	,	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	(Signature must conform in all respects to
	 

	 	 	 	 	 	name of holder as specified on the face of
	 

	 	 	 	 	 	the Warrant)
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Address of Transferee
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Tax Identification Number or Social
	 

	 	 	 	 	 	Security Number of Transferee
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	In the presence of:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT
TO CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	Warrant No. W-14
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems, Inc. hereunder, the “Company”),
hereby certifies that, for value received, Walker Smith Capital, L.P. or its registered assigns
(the “Holder”), is entitled to purchase from the Company up to a total of 18,883 shares of Class A
common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each such
share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5.  Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase                                         
shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued                                         
        , 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $                                         in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holder’s Social Security or	 	 
	 	 	Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	[Company]	 	 
	 

	 	 	 	 	 	[Street]	 	 
	 

	 	 	 	 	 	[Street 2]	 	 
	 

	 	 	 	 	 	[City, State, ZIP]	 	 
	 

	 	 	 	 	 	Tel:	 	 
	 

	 	 	 	 	 	Fax:	 	 
	 

	 	 	 	 	 	E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of
	 	 	Number of Warrant	 	 	 	Warrant Shares
	 	 	Shares Available to be	 	Number of Warrant Shares	 	Remaining to
	Date	 	Exercised	 	Exercised	 	be Exercised
	 
	 	 	 	 	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                                             the right represented by the within Warrant to purchase [                    ]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints                                                              attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

Dated:
                                        ,

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Address of Transferee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Tax Identification Number or Social	 	 
	 

	 	 	 	Security Number of Transferee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 

In the presence of:

                                                            

 

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES REGULATORS OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE, NOR MAY ANY INTEREST THEREIN BE, OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY, SUBJECT TO
CERTAIN EXCEPTIONS, A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, IN FORM AND
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

TELECOMMUNICATION SYSTEMS, INC.

COMMON STOCK PURCHASE WARRANT

			
	Warrant No. W-15
	 	Date of Original Issuance: March 13, 2006

     TeleCommunication Systems, Inc., a Maryland corporation (together with any entity that shall
succeed to or assume the obligations of TeleCommunication Systems, Inc. hereunder, the “Company”),
hereby certifies that, for value received, Walker Smith International Fund, Ltd. or its registered
assigns (the “Holder”), is entitled to purchase from the Company up to a total of 162,610 shares of
Class A common stock, par value $0.01 per share (the “Class A Common Stock”), of the Company (each
such share, a “Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price equal
to$2.40 per share (as adjusted from time to time as provided in Section 9, the “Exercise Price”),
at any time and from time to time from after the earliest to occur of (i) September 15, 2006, (ii)
the Effective Date (as defined in the Registration Rights Agreement) or (iii) immediately prior to
the publicly announced closing of a Fundamental Transaction (defined below), and through and
including March 13, 2011 (the “Expiration Date”), and subject to the following terms and
conditions:

     Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein shall have the meanings given to such terms
in the Note Purchase Agreement dated March 13, 2006 to which the Company and the original Holder
are parties (the “Purchase Agreement”). The term “Class A Common Stock” shall include the Company’s
Class A common stock, par value $0.01 per share, as authorized on the date of the Purchase
Agreement and any other securities or property of the Company or of any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive on the exercise hereof in lieu
of or in addition to such common stock, or which at any time shall be issuable in exchange for or
in replacement of such common stock.

 

 

     Section 2. Holder of Warrant. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary from the transferee
and transferor.

     Section 3. Recording of Transfers. Subject to Section 6, the Company shall register
the transfer of all or any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, together with the Form of Assignment attached hereto duly completed and signed, to the
Company at its address specified herein. As a condition to the transfer, the Company may require a
legal opinion as contemplated by the legend above and related terms of the Purchase Agreement. Upon
any such registration or transfer, a new Warrant to purchase Class A Common Stock, in substantially
the form of this Warrant (any such new Warrant, a “New Warrant”), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Warrant.

     Section 4. Exercise and Duration of Warrants. This Warrant shall be exercisable by the
registered Holder in whole or in part at any time and from time to time on or after the date hereof
to and including the Expiration Date by delivery to the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered Holder at the address of
such Holder appearing on the books of the Company) of a duly executed facsimile copy of the
Exercise Notice form annexed hereto. At 6:30 p.m., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and of no value. If at
any time during the Trading Day period immediately preceding the Holder’s delivery of an Exercise
Notice in respect of such exercise, a Registration Statement (as defined in the Registration Rights
Agreement) covering the Warrant Shares that are the subject of the Exercise Notice (the
“Unavailable Warrant Shares”) is not available for the resale of such Unavailable Warrant Shares,
the holder of this Warrant also may exercise this Warrant as to any or all of such Unavailable
Warrant Shares 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 a reduced number of shares of Class A Common Stock (the “Net Number”) 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 in a Cashless Exercise.

B= the VWAP on the Trading Day 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.

VWAP = For any date, the price determined by the first of the following clauses that
applies: (a) if the Class A Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price per share of the Class A Common
Stock for such date (or the nearest preceding date) on the Trading Market on which
the Class A Common Stock is then listed or quoted as reported by Bloomberg Financial
L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Class A Common Stock is not then listed or quoted on a Trading Market and
if prices for the Class A Common Stock are then quoted on the OTC Bulletin Board,
the volume weighted average price per share of the Class A Common Stock for such
date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Class A
Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices
for the Class A Common Stock are then reported in the “Pink Sheets” published by the
Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Class A Common Stock
so reported; or (d) in all other cases, the fair market value of a share of Class A
Common Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

     There cannot be a Cashless Exercise unless “B” exceeds “C”.

     Section 5. Delivery of Warrant Shares.

     (a) To effect exercises hereunder, the Holder shall not be required to physically surrender
this Warrant upon exercise unless this Warrant ceases to be further exercisable for additional
Warrant Shares. Upon delivery of the Exercise Notice to the Company (with the attached Warrant
Shares Exercise Log) at its address for notice set forth herein and upon payment of the Exercise
Price multiplied by the number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three Trading Days after the Date of Exercise
(as defined herein)) issue and deliver to the Holder, a certificate for the Warrant Shares issuable
upon such exercise, which, unless otherwise required by the Purchase Agreement, shall be free of
restrictive legends. A “Date of Exercise” means the date on which the Holder shall have delivered
to Company: (i) the Exercise Notice (with the Warrant Exercise Log attached to it), appropriately
completed and duly signed and (ii) except in the case of a Cashless Exercise, payment in full of
the Exercise Price in immediately available

 

 

funds or federal funds for the number of Warrant Shares so indicated by the Holder to be
purchased.

     (b) If by the third Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), then the Holder
will have the right to rescind such exercise.

     (c) If by the fifth Trading Day after a Date of Exercise the Company fails to deliver the
required number of Warrant Shares in the manner required pursuant to Section 5(a), and if after
such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases in a
bona fide arm’s length transaction for fair market value (in an open market transaction or
otherwise) the number of shares of Class A Common Stock necessary to deliver in satisfaction of a
bona fide arm’s length sale for fair market value by the Holder of the Warrant Shares which the
Holder was entitled to receive upon such exercise (a “Buy-In”), then the Company shall (1) pay in
cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Class A Common Stock so purchased exceeds (y) the Holder’s
total sales price (including brokerage commissions, if any) for the shares of Class A Common Stock
so sold and (2) at the option of the Holder, either reinstate the portion of the Warrant and
equivalent number of Warrant Shares for which such exercise was not honored or deliver to the
Holder the number of shares of Class A Common Stock that would have been issued had the Company
timely complied with its exercise and delivery obligations hereunder. The Holder shall provide the
Company written notice and reasonably detailed documentation indicating the amounts requested by
the Holder in respect of the Buy-In.

     (d) The Company’s obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to
enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of law by the Holder
or any other Person, and irrespective of any other circumstance which might otherwise limit such
obligation of the Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates representing shares of
Class A Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

     Section 6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Class A Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax
or expense in respect of the issuance of such certificates, all of which taxes and expenses shall
be paid by the Company; provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the registration of any certificates
for Warrant Shares or Warrants in a name other than that of the Holder. The Holder shall be

 

 

responsible for all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

     Section 7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon
cancellation hereof, or in lieu of and substitution for this Warrant, a New Warrant, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and
ownership thereof and customary and reasonable indemnity. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe. If a New Warrant is requested as a
result of a mutilation of this Warrant, then the Holder shall deliver such mutilated Warrant to the
Company as a condition precedent to the Company’s obligation to issue the New Warrant.

     Section 8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but unissued and otherwise
unreserved Class A Common Stock, solely for the purpose of enabling it to issue Warrant Shares upon
exercise of this Warrant as herein provided, the number of Warrant Shares which are then issuable
and deliverable upon the exercise of this entire Warrant, free from preemptive rights or any other
contingent purchase rights of persons other than the Holder (taking into account the adjustments
and restrictions of Section 9). The Company covenants that all Warrant Shares so issuable
and deliverable shall, upon issuance and the payment of the applicable Exercise Price in accordance
with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable.

     Section 9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to time as set forth in
this Section 9.

     (a) Stock Dividends and Splits, Recapitalizations, Etc. If the Company, at any time
while this Warrant is outstanding, (i) pays a stock dividend on its Class A Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in shares of Class A
Common Stock or subdivides the outstanding shares of Class A Common Stock into a larger number of
shares (by any stock split, recapitalization or otherwise), then in each such case the Exercise
Price shall be proportionately reduced and the number of Warrant Shares shall be proportionately
increased, and (ii) combines outstanding shares of Class A Common Stock into a smaller number of
shares (by reverse stock split, recapitalization, or otherwise), then in each such case the
Exercise Price shall be proportionately increased and the number of Warrant Shares shall be
proportionately decreased. Any adjustment made pursuant to clauses (i) and (ii) of this paragraph
shall become effective immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution or immediately after the effective date of such
subdivision or combination (as the case may be). If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect such event.

 

 

     (b) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, distributes to all holders of its Class A Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Class A Common Stock covered by the
preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, (iv) any
cash distribution other than regular cash dividends from earnings, or (v) any other asset other
than cash (in each case, “Distributed Property”), then in each such case the Exercise Price shall
be appropriately adjusted. Any adjustment made pursuant to this paragraph shall become effective
immediately after the record date for the determination of stockholders entitled to receive such
distribution. If any event requiring an adjustment under this paragraph occurs during the period
that an Exercise Price is calculated hereunder, then the calculation of such Exercise Price shall
be adjusted appropriately to reflect such event.

     (c) Fundamental Transactions. If, at any time while this Warrant is outstanding, (1)
the Company effects any merger or consolidation of the Company with or into another Person, (2) the
Company effects any sale of all or substantially all of its assets in one or a series of related
transactions, (3) any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Class A Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (4) the Company effects any
reclassification of the Class A Common Stock or any compulsory share exchange pursuant to which the
Class A Common Stock is effectively converted into or exchanged for other securities, cash or
property (in any such case, a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind of securities, cash
or property as it would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant (the “Alternate
Consideration”). For purposes of any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate
Consideration issuable in respect of one share of Class A Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Class A Common Stock are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this Warrant following
such Fundamental Transaction. At the Holder’s option and request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing provisions and
evidencing the Holder’s right to purchase the Alternate Consideration for the aggregate Exercise
Price upon exercise thereof. Any such successor or surviving entity shall be deemed to be required
to comply with the provisions of this paragraph (c) and shall insure that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.

     (d) Number of Warrant Shares. Simultaneously with any adjustment to the Exercise Price
pursuant to paragraph (a) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so that after such
adjustment the aggregate Exercise Price payable hereunder for the adjusted number of

 

 

Warrant Shares shall be the same as the aggregate Exercise Price in effect immediately prior
to such adjustment.

     (e) Calculations. All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as applicable. The number of shares of Class A Common Stock
outstanding at any given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or sale of Class A
Common Stock.

     (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 9, the Company will, at its expense, promptly compute such adjustment in accordance with
the terms of this Warrant and prepare a certificate setting forth such adjustment, including a
statement of the adjusted Exercise Price and adjusted number or type of Warrant Shares or other
securities issuable upon exercise of this Warrant (as applicable), describing the transactions
giving rise to such adjustments and showing in reasonable detail the facts upon which such
adjustment is based. Upon written request, the Company will promptly deliver a copy of each such
certificate to the Holder and to the Company’s Transfer Agent. No adjustment in the Exercise Price
shall be required unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this Section 9(f) are not
required to be made shall be carried forward and taken into account in any subsequent adjustment.

     (g) Notice of Corporate Events. Subject to the requirements of applicable law,
including, but not limited to, Regulation FD, if the Company (i) declares a dividend or any other
distribution of cash, securities or other property in respect of its Class A Common Stock, (ii)
authorizes or approves, enters into any agreement contemplating or solicits stockholder approval
for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice
describing the material terms and conditions of such transaction, at least twenty calendar days
prior to the applicable record or effective date on which a Person would need to hold Class A
Common Stock in order to participate in or vote with respect to such transaction, and the Company
will take all steps reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to be described in
such notice.

     Section 10. Payment of Exercise Price. Upon exercise of this Warrant the Holder shall
pay the Exercise Price in immediately available funds unless it is a Cashless Exercise in
accordance with Section 4 hereof.

     Section 11. No Fractional Shares. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any fractional shares which
would otherwise be issuable, the Company shall pay cash equal to the product of such fraction
multiplied by the closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

 

 

     Section 12. Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in this Section prior to
6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City
time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent and
delivered by nationally recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such communications shall be:
(i) if to the Company, to TeleCommunication Systems, Inc., 275 West Street, Annapolis, Maryland
21401, Attn: Chief Financial Officer with a copy to the legal department, Facsimile No.: (410)
263-7617, or (ii) if to the Holder, to the address or facsimile number appearing on the Warrant
Register or such other address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

     Section 13. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days’ notice to the Holder, the Company may appoint a new warrant agent. Any
corporation into which the Company or any new warrant agent may be merged or any corporation
resulting from any consolidation to which the Company or any new warrant agent or any corporation
to which the Company or any new warrant agent transfers substantially all of its corporate trust or
shareholders services business shall be a successor warrant agent under this Warrant without any
further act. Any such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be delivered pursuant to Section 12 to the Holder at the Holder’s last address as
shown on the Warrant Register.

     Section 14. Miscellaneous.

     (a) This Warrant shall be binding on and inure to the benefit of the parties hereto and the
respective successors and assigns of the Holder it being understood that transfers of this Warrant
by the Holder are subject to the legend set forth of the face hereof. Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person other than the Company
and the Holder any legal or equitable right, remedy or cause of action under this Warrant. This
Warrant may be amended only in writing signed by the Company and the Holder and their successors
and assigns.

     (b) All questions concerning the construction, validity, enforcement and interpretation of
this Warrant shall be governed by and construed and enforced in accordance with the internal laws
of the State of New York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings to resolve any dispute concerning the interpretations,
enforcement and defense of this Warrant and the transactions herein contemplated (“Proceedings”)
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New York, Borough of
Manhattan (the “New York Courts”), although depositions may be taken in other locations. Each party
hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and

 

 

hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is
not personally subject to the jurisdiction of any New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such Proceeding by mailing
a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Warrant or the transactions contemplated hereby. If either party shall commence a
Proceeding to enforce any provisions of this Warrant, then the prevailing party in such Proceeding
shall be reimbursed by the other party for its attorney’s fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

     (c) The headings herein are for convenience only, do not constitute a part of this Warrant and
shall not be deemed to limit or affect any of the provisions hereof.

     (d) In case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Warrant shall not in any way be affected or impaired thereby and the parties will attempt
in good faith to agree upon a valid and enforceable provision which shall be a commercially
reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.

     (e) The Company will not, by amendment of its charter 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,
but will at all times in good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect the rights of the holder
of this Warrant against such impairment.

     (f) This Warrant does not entitle the Holder to any voting rights or other rights as a
stockholder of the Company prior to the exercise hereof. In connection with an exercise of this
Warrant in accordance with the terms hereof, upon the surrender of this Warrant and the payment of
the aggregate Exercise Price (or by means of a Cashless Exercise if permitted hereunder), the
Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the later of the date of such surrender or payment.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

	 	 	 	 	 	 	 
	 

	 	 	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

EXERCISE NOTICE

     To TeleCommunication Systems, Inc.

     The undersigned hereby irrevocably elects to purchase                                         
shares of Class A common stock, par value $0.01 per share, of TeleCommunication Systems,
Inc. (“Common Stock”), pursuant to Warrant No. [___], originally issued                                         
        , 2006 (the “Warrant”), and, if not a Cashless Exercise in accordance with Section 4,
encloses herewith $                                         in cash, federal funds or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined in the Warrant) for
the number of shares of Common Stock to which this Exercise Notice relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.

     The undersigned requests that certificates for the shares of Common Stock issuable upon this
exercise be issued in the name of

	 	 	 	 	 	 	 	 	 
	 	 	Print Name of Holder:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 
	 

	 	 	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holder’s Social Security or	 	 
	 	 	Tax Identification Number:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Holders Address:	 	 
	 

	 	 	 	 	 	[Company]	 	 
	 

	 	 	 	 	 	[Street]	 	 
	 

	 	 	 	 	 	[Street 2]	 	 
	 

	 	 	 	 	 	[City, State, ZIP]	 	 
	 

	 	 	 	 	 	Tel:	 	 
	 

	 	 	 	 	 	Fax:	 	 
	 

	 	 	 	 	 	E-mail:	 	 

 

 

Warrant Shares Exercise Log

	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of
	 	 	Number of Warrant	 	 	 	Warrant Shares
	 	 	Shares Available to be	 	Number of Warrant Shares	 	Remaining to
	Date	 	Exercised	 	Exercised	 	be Exercised
	 
	 	 	 	 	 	 

 

 

FORM OF ASSIGNMENT

     [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                                             the right represented by the within Warrant to purchase [                    ]
shares of Common Stock of TeleCommunication Systems, Inc., to which the within Warrant relates and
appoints                                                              attorney to transfer said right on the books of the Company
with full power of substitution in the premises.

Dated:
                                        ,

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Address of Transferee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Tax Identification Number or Social	 	 
	 

	 	 	 	Security Number of Transferee	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 

In the presence of:exv4w8

 

Exhibit 4.8

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $6,000,000

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to Bonanza Master Fund Ltd. or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the initial
principal sum of $6,000,000 by March 13, 2009 (the “Maturity Date”), and to pay interest to
the Holder on the outstanding principal amount of this Note in accordance with the provisions
hereof. From time to time, the Company may, pursuant to the terms of the Purchase Agreement and the
terms hereof, issue one or more Additional Notes. This Note is subject to the following additional
provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the following
meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees
or agents) shall be commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this Note and agrees that
such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Note or the transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Note, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs
and expenses incurred with the investigation, preparation and prosecution of such action or
proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.

	 	 	 	 	 
	 	TELECOMMUNICATION SYSTEMS, INC.

 	 
	 	By:  	/s/ Thomas M. Brandt, Jr.
 	 
	 	 	Name:  	Thomas M. Brandt, Jr. 	 
	 	 	Title:  	Senior Vice President and Chief Financial Officer 	 
	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $346,500

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to HHMI Investments, L.P. or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the initial
principal sum of $346,500 by March 13, 2009 (the “Maturity Date”), and to pay interest to
the Holder on the outstanding principal amount of this Note in accordance with the provisions
hereof. From time to time, the Company may, pursuant to the terms of the Purchase Agreement and the
terms hereof, issue one or more Additional Notes. This Note is subject to the following additional
provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the following
meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this Note and agrees that
such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Note or the transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Note, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs
and expenses incurred with the investigation, preparation and prosecution of such action or
proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	  /s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 

  Name: Thomas M. Brandt, Jr.
	 	 
	 

	 	  Title: Senior Vice President and Chief Financial Officer
	 	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $214,500

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to SRB Greenway Capital L.P. or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the initial
principal sum of $214,500 by March 13, 2009 (the “Maturity Date”), and to pay interest to
the Holder on the outstanding principal amount of this Note in accordance with the provisions
hereof. From time to time, the Company may, pursuant to the terms of the Purchase Agreement and the
terms hereof, issue one or more Additional Notes. This Note is subject to the following additional
provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the following
meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees
or agents) shall be commenced in the state and federal courts sitting in the City of New York,
Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of any such court, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this Note and agrees that
such service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or
relating to this Note or the transactions contemplated hereby. If either party shall commence an
action or proceeding to enforce any provisions of this Note, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs
and expenses incurred with the investigation, preparation and prosecution of such action or
proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.	 	 
	 
	 	 	 	 
	 

	 	  /s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 

  Name: Thomas M. Brandt, Jr.
	 	 
	 

	 	  Title: Senior Vice President and Chief Financial Officer
	 	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $1,683,000

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to SRB Greenway Capital (QP) L.P. or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
initial principal sum of $1,683,000 by March 13, 2009 (the “Maturity Date”), and to pay
interest to the Holder on the outstanding principal amount of this Note in accordance with the
provisions hereof. From time to time, the Company may, pursuant to the terms of the Purchase
Agreement and the terms hereof, issue one or more Additional Notes. This Note is subject to the
following additional provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Note and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby. If either party
shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized
officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $102,500

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to SRB Greenway Offshore Operating Fund, L.P.
or its registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the initial principal sum of $102,500 by March 13, 2009 (the “Maturity Date”),
and to pay interest to the Holder on the outstanding principal amount of this Note in accordance
with the provisions hereof. From time to time, the Company may, pursuant to the terms of the
Purchase Agreement and the terms hereof, issue one or more Additional Notes. This Note is subject
to the following additional provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Change of Control” means any of the following events:

     (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Note and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby. If either party
shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized
officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $616,400

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to Walker Smith Capital (QP), L.P. or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
initial principal sum of $616,400 by March 13, 2009 (the “Maturity Date”), and to pay
interest to the Holder on the outstanding principal amount of this Note in accordance with the
provisions hereof. From time to time, the Company may, pursuant to the terms of the Purchase
Agreement and the terms hereof, issue one or more Additional Notes. This Note is subject to the
following additional provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Note and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby. If either party
shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized
officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $107,900

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to Walker Smith Capital, L.P. or its
registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the
initial principal sum of $107,900 by March 13, 2009 (the “Maturity Date”), and to pay
interest to the Holder on the outstanding principal amount of this Note in accordance with the
provisions hereof. From time to time, the Company may, pursuant to the terms of the Purchase
Agreement and the terms hereof, issue one or more Additional Notes. This Note is subject to the
following additional provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Note and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby. If either party
shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized
officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer	 	 

 

 

THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITY.

THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBORDINATION AGREEMENT, DATED
MARCH 13, 2006, BY AND AMONG BONANZA MASTER FUND, LTD., FOR ITSELF AND AS AGENT FOR EACH PURCHASER,
HHMI INVESTMENTS, L.P., SRB GREENWAY CAPITAL L.P., SRB GREENWAY CAPITAL (QP) L.P., SRB GREENWAY
OFFSHORE OPERATING FUND, L.P., WALKER SMITH CAPITAL (QP), L.P., WALKER SMITH CAPITAL, L.P., AND
WALKER SMITH INTERNATIONAL FUND, LTD. AND SILICON VALLEY BANK.

Original Issue Date: March 13, 2006

Initial Principal Amount: $929,200

SECURED NOTE

DUE MARCH 13, 2009

     THIS SECURED NOTE (the “Note”) is one of a series of duly authorized and issued
Secured Notes due March 13, 2009 (together with any Additional Notes issued from time to time under
the Purchase Agreement (as defined below)) (collectively, the “Notes” and such other Notes,
the “Other Notes”) issued pursuant to the Purchase Agreement, of TeleCommunication Systems,
Inc., a Maryland corporation, having a principal place of business at 275 West Street, Annapolis,
Maryland 21401 (the “Company”),

     FOR VALUE RECEIVED, the Company promises to pay to Walker Smith International Fund, Ltd. or
its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder,
the initial principal sum of $929,200 by March 13, 2009 (the “Maturity Date”), and to pay
interest to the Holder on the outstanding principal amount of this Note in accordance with the
provisions hereof. From time to time, the Company may, pursuant to the terms of the Purchase
Agreement and the terms hereof, issue one or more Additional Notes. This Note is subject to the
following additional provisions:

     Section 1. Definitions. For the purposes hereof, in addition to the terms defined
elsewhere in this Note: (a) capitalized terms not otherwise defined herein have the meanings

 

 

given to such terms in the Purchase Agreement, and (b) the following terms shall have the
following meanings:

     “Change of Control” means any of the following events:

          (i) the consolidation, merger, or other business combination (including, without limitation, a
reorganization or recapitalization) of the Company with or into another Person (other than (A) any
such transaction in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a
merger effected solely for the purpose of changing the jurisdiction of incorporation of the
Company);

          (ii) the sale or transfer of all or substantially all of the Company’s assets;

          (iii) a purchase, tender, or exchange offer made to and accepted by the holders of more than
the 50% of the outstanding shares of Common Stock; or

          (iv) during any period of two years (whether commencing before or after the Closing Date), the
failure of individuals who on the first day of such period were directors of the Company (together
with any replacement or additional directors who are nominated or elected by a majority of
directors then in office) to constitute a majority of the Board of Directors of the Company.

     “Indebtedness” shall have the meaning set forth in Section 4(a).

     “Intellectual Property Security Agreement” shall have the meaning set forth in Section
2(d).

     “Note Register” shall have the meaning set forth in Section 2(b).

     “Original Issue Date” shall mean the date of the first issuance of the Note regardless
of the number of transfers of any Note and regardless of the number of instruments which may be
issued to evidence such Note.

     “Permitted Liens” has the meaning set forth in Section 4(b).

     “Purchase Agreement” means the Note Purchase Agreement, dated as of March 13, 2006 to
which the Company and the original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.

     “Receivables Facility” means any factoring, loan or similar lending arrangement used
solely for the purpose of financing the Company’s accounts receivable and which is secured only by
a security interest in the accounts receivable so financed, and any proceeds thereof, and any
extensions, renewals or replacements thereof.

2

 

     “SVB Facility” means the Second Amended and Restated Loan and Security Agreement,
dated October 14, 2005, by and between the Company and SVB, and any extensions, renewals or
replacements thereof.

     “SVB” means Silicon Valley Bank, its successors and assigns.

     Section 2. Interest.

     (a) Payment of Interest. The Company shall pay interest to the Holder on the
outstanding principal amount of this Note at the rate of 14% per annum, payable quarterly on
January 1, April 1, July 1 and September 1, beginning on the first such date after the Original
Issue Date, and on the Maturity Date (except that, if any such date is not a Business Day, then
such payment shall be due on the next succeeding Business Day) (each such date, an “Interest
Payment Date”), in cash or, at the option of the Company, in an Additional Note, provided, that
if interest is paid in the form of an Additional Note, then the interest for the period covered by
such Additional Note shall be calculated at the rate of 16% per annum, and not 14%. The interest
which accrues during any period shall be payable in Additional Notes only if the Company delivers
written notice of such election to each of the Holders of the Notes then outstanding at least 15
Trading Days prior to the relevant Interest Payment Date. The Additional Notes shall bear interest
thereon at a rate of 16% per annum. If any interest will be paid in Additional Notes, the Company
shall issue and deliver on the applicable Interest Payment Date, to such address as specified by
the Holder in writing to the Company at least two Business Days prior to the applicable Interest
Payment Date, a certificate, registered in the name of the Holder or its designee, representing an
Additional Note to which the holder shall be entitled. The Company’s election with respect to the
payment of interest on any Interest Payment Date must be the same with respect to all the Notes.

     (b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year
and shall accrue daily commencing on the Original Issue Date until payment in full of the principal
sum, together with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Company regarding registration and transfers of Notes (the
“Note Register”).

     (c) Prepayment. The Company may prepay all or any portion of the principal amount of
this Note at any time and from time to time. In the event that the Company prepays all or any
portion of the principal amount of this Note prior to the one-year anniversary of the Original
Issue Date (not including for this purpose any payment made upon acceleration of the due date of
such payment as a result of a Change of Control), then the Company shall pay to the Holder, on the
date of such prepayment or redemption, in addition to any other interest due hereunder, an amount
in cash equal to $107 for each outstanding $100 face value of this Note.

     (d) Security Interest. The Notes are ratably secured by the financing statements and
the Intellectual Property Security Agreement dated as of March 13, 2006 (together with all
amendments and supplements thereto, the “Intellectual Property Security Agreement”) among
the Company and the Holders. Reference is hereby made to the Intellectual Property Security
Agreement for a description of the collateral thereby pledged and assigned, the nature and extent

3

 

of the security for the Notes, and the rights of the Holders in respect of such security and
otherwise.

     Section 3. Registration of Transfers and Exchanges.

     (a) Different Denominations. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as requested by the Holder
surrendering the same; provided, however, the Company shall not be obligated to issue any Note in
the principal amount of less than $1,000,000 or an integral multiple thereof. No service charge
will be made for such registration of transfer or exchange.

     (b) Investment Representations. This Note has been issued subject to certain
investment representations of the original Holder set forth in the Purchase Agreement and may be
transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and
state securities laws and regulations provided that the transferee makes to the Company the same
investment representations made by the original Holder in the Purchase Agreement.

     (c) Reliance on Note Register. Prior to due presentment to the Company for transfer of
this Note, the Company and any agent of the Company may treat the Person in whose name this Note is
duly registered on the Note Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Note is overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.

     Section 4. Negative Covenants. So long as any portion of this Note is outstanding,
the Company will not and will not permit any of its Subsidiaries to, without the prior written
consent of all of the Purchasers, except that in the event that any Purchaser no longer holds any
portion of the Notes purchased pursuant to the Purchase Agreement, then without the prior written
consent of the Required Holders:

     (a) enter into, create, incur, assume or suffer to exist any obligation for borrowed money
evidenced by notes, bonds, debentures, or similar instruments (“Indebtedness”) other than
Indebtedness (i) pursuant to the SVB Facility, (ii) pursuant to the Receivables Facility, (iii)
pursuant to the capital leases described on Schedule 3.1(aa) to the Purchase Agreement and any
extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title
retention agreements entered into by the Company or any Subsidiary in the ordinary course of
business; and (v) secured by Permitted Liens (as defined below);

     (b) enter into, create, incur, assume or suffer to exist any Liens on any of its assets or the
assets of its Subsidiaries other than (i) Liens securing the SVB Facility, (ii) Liens on accounts
receivable securing any Receivables Facility, (iii) purchase money security interests incurred by
the Company in the ordinary course of business provided such Liens are limited to the property
acquired pursuant thereto, (iv) Liens securing capital leases incurred by the Company in the
ordinary course of business provided that the Lien is limited to the property subject to such
Lease, and (v) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax,
and other similar Liens imposed by law or agreement (collectively, “Permitted Liens”);

4

 

     (c) amend its charter documents, including without limitation, the certificate of
incorporation and bylaws, in any manner that materially and adversely affects any rights of the
Holder;

     (d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Class A Common Stock or Class B Common Stock or
common stock equivalents other than as to repurchases of Class A Common Stock or Class B Common
Stock or common stock equivalents of departing officers and directors of the Company, provided that
such repurchases shall not exceed an aggregate of $100,000 for all officers and directors during
the term of this Note);

     (e) enter into any agreement to do any of the things prohibited by the foregoing; or

     (f) pay cash dividends or distributions on any equity securities of the Company.

     Section 5. Events of Default.

     (a) “Event of Default”, wherever used herein, means any one of the following events
(whatever the reason and whether it shall be voluntary or involuntary or effected by operation of
law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of
any administrative or governmental body):

          (i) any default in the payment of (A) the principal amount of any Note or (B) interest on any
Note as and when the same shall become due and payable (whether on a Redemption Date or the
Maturity Date or by acceleration or otherwise), which default is not cured within five Trading
Days;

          (ii) the Company shall fail to observe or perform in any material respect any of the covenants
set forth in Sections 4(a), (b), (d), and (f);

          (iii) the Company shall fail to observe or perform in any material respect any other covenant
or agreement contained in this Note, or the other Transaction Documents (as defined in the Purchase
Agreement) and such failure shall continue for more than 30 days after receipt of notice thereof;

          (iv) (A) the Company or any of its Subsidiaries shall commence, or there shall be commenced
against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency
laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Company or any Subsidiary thereof, which remains undismissed
for a period of 90 days; (B) the Company or any Subsidiary thereof is adjudicated by a court of
competent jurisdiction insolvent or bankrupt, or any order of relief or other order approving any
such case or proceeding is entered; (C) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 90 days; or (D) the Company or any Subsidiary
thereof makes a general assignment for the benefit of creditors;

5

 

          (v) the Company or any Subsidiary shall default in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced any indebtedness for
borrowed money in an amount exceeding $2,500,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming or being declared
due and payable prior to the date on which it would otherwise become due and payable;

          (vi) a final judgment or judgments for the payment of money aggregating in excess of
$2,500,000 is rendered against the Company and which judgments are not, within 90 days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 90 days
after the expiration of such stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in calculating the
$2,500,000 amount set forth above;

          (vii) any “Event of Default” under the Intellectual Property Security Agreement shall have
occurred and be continuing;

          (viii) any Liens created by the Intellectual Property Security Agreement shall at any time not
constitute a valid and perfected first priority Lien on the collateral intended to be covered
thereby in favor of the Purchasers, free and clear of all other Liens, or any of the security
interests granted pursuant to the Intellectual Property Security Agreement shall be determined to
be void, voidable, invalid or unperfected, are subordinated (other than pursuant to the terms of
the Subordination Agreement) or are ineffective to provide the Purchasers with a perfected, first
priority security interest in the collateral covered by the Intellectual Property Security
Agreement, free and clear of all other Liens (other than Permitted Liens) or, except for expiration
or termination in accordance with their terms, the Intellectual Property Security Agreement shall
for whatever reason be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by the Company; or

          (ix) the consummation of a Change of Control.

     (b) Remedies Upon Event of Default. If any Event of Default occurs, the full principal
amount of this Note, together with interest owing in respect thereof, to the date of acceleration
shall become, at the Holder’s election, or automatically in the case of an Event of Default under
Section 5(a)(iv), immediately due and payable in cash only. Commencing ten days after the
occurrence of any Event of Default that is not cured pursuant to the terms hereof and results in
the eventual acceleration of this Note, the interest rate on this Note shall accrue at the rate of
20% per annum, or such lower maximum amount of interest permitted to be charged under applicable
law. All Notes for the outstanding principal amount of this Note, together with interest owing in
respect thereof, shall have been paid in accordance herewith shall promptly be surrendered to or as
directed by the Company. The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by
Holder at any time prior to payment hereunder, and the Holder shall have all rights as a Note
holder until such time, if any, as the full payment under this Section shall have been received by
it. No such rescission or annulment shall affect any subsequent Event of Default or impair any
right consequent thereon.

6

 

     Section 6. Miscellaneous.

     (a) Notices. Any and all notices or other communications or deliveries to be provided
by the Holders hereunder, including, without limitation, any Notice of Redemption, shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, facsimile number (410) 263-7617,
Attn: Chief Financial Officer with a copy to the legal department, or such other address or
facsimile number as the Company may specify for such purposes by notice to the Holders delivered in
accordance with this Section. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of business of the Holder.
Any notice or other communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York
City time), (ii) the date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this Section later than 6:30
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required
to be given.

     (b) Absolute Obligation. Except as expressly provided herein, no provision of this
Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or
currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks
pari passu with all other Notes now or hereafter issued under the terms set forth
herein.

     (c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution for and upon
cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed
Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but
only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and ownership thereof and customary and reasonable indemnity. Applicants for a new Note
under such circumstances shall also comply with such other reasonable regulations and procedures
and pay such other reasonable third-party costs as the Company may prescribe. If a new Note is
requested as a result of a mutilation of this Note, then the Holder shall deliver such mutilated
Note to the Company as a condition precedent to the Company’s obligation to issue the new Note.

     (d) Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Note shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers,

7

 

shareholders, employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under
this Note and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest
extent permitted by applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby. If either party
shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for its attorneys fees
and other costs and expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.

     (e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Note. Any provision of this Note may be waived or amended by
a written instrument signed by the Company and all of the Purchasers, except that in the event that
any Purchaser no longer holds any portion of the Notes purchased pursuant to the Purchase
Agreement, then the written instrument may be signed by the Company and the Required Holders;
provided that any such approved waiver or amendment shall apply with the same force and effect to
this Note and the Other Notes. Notwithstanding the foregoing, any provision of this Note may be
amended or waived with the consent of the Holder; provided that such amendment or waiver shall not
affect any Other Note or holder thereof.

     (f) Severability. If any provision of this Note is invalid, illegal or unenforceable,
the balance of this Note shall remain in effect, and if any provision is inapplicable to any person
or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

     (g) Next Business Day. Whenever any payment or other obligation hereunder shall be due
on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

     (h) Headings. The headings contained herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect any of the provisions
hereof.

8

 

     (i) No Usury. To the extent that it may lawfully do so, the Company covenants that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, extension or usury law or other law which would prohibit or forgive the
Company from paying all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such law has been
enacted, in connection with any claim, action, or proceeding that may be brought by any original
Holder in order to enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly agreed and
provided that the total liability of the Company under the Transaction Documents for payments in
the nature of interest shall not exceed the lawful rate authorized under applicable law (the
“Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of
interest or default interest, or both of them, when aggregated with any other sums in the nature of
interest that the Company may be obligated to pay under the Transaction Documents exceed such
Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective
date forward, unless such application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any original Holder
with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied
by such original Holder to the unpaid principal balance of any such indebtedness or be refunded to
the Company, the manner of handling such excess to be at the original Holder’s election.

     (j) Pro Rata Prepayment. In the event that the Company prepays this Note pursuant to
Section 2(c) the Company shall effect each such prepayment on a pro rata basis of all of this Note
and the Other Notes based on the outstanding principal amount of each of the Notes on the date of
such prepayment relative to the aggregate outstanding principal amount of all Notes on such date.

9

 

     IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.

	 	 	 	 	 
	 

	 	TELECOMMUNICATION SYSTEMS, INC.
	 	 
	 
	 	 	 	 
	 

	 	/s/ Thomas M. Brandt, Jr.	 	 
	 

	 	 	 	 
	 

	 	Name: Thomas M. Brandt, Jr.	 	 
	 

	 	Title: Senior Vice President and Chief Financial Officer

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