10-K

________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2005 OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-30821

TELECOMMUNICATION SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Maryland (State or Other Jurisdiction of Incorporation or Organization)	52-1526369 (I.R.S. Employer Identification No.)
275 West Street, Annapolis, MD (Address of principal executive offices)	21401 (Zip Code)

(410) 263-7616

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Par Value $0.01 per share

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:     Yes o          No x

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:     Yes o          No x

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:     Yes x          No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer o     Accelerated filer x     Non-accelerated filer o

          Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Act):     Yes o          No x

          As of June 30, 2005, the aggregate market value of the Class A Common Stock held by non-affiliates, as reported on the NASDAQ National Market, was approximately $66,168,233.*

          As of February 28, 2006 there were 31,424,337 shares of Class A Common Stock and 8,010,116 shares of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Part of 10-K into which incorporated
Definitive Statement related to registrant’s Annual Meeting of	Part III
Stockholders to be held on June 8, 2006

* Excludes 1,843,067 shares of Class A Common Stock and 8,120,001 shares of Class B Common Stock deemed to be held by stockholders whose ownership exceeds ten percent of the shares outstanding at June 30, 2005. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

TABLE OF CONTENTS

		Page Number
Part I
Item 1	Business		2
Item 1A	Risk Factors		11
Item 1B	Unresolved Staff Comments		22
Item 2	Properties		22
Item 3	Legal Proceedings		23
Item 4	Submission of Matters to a Vote of Security Holders		23
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		24
Item 6	Selected Financial Data		26
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A	Qualitative and Quantitative Disclosure About Market Risk		43
Item 8	Financial Statements and Supplementary Data		43
Item 9	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		43
Item 9A	Controls and Procedures		43
Part III
Item 10	Directors and Executive Officers of the Registrant		46
Item 11	Executive Compensation		46
Item 12	Security Ownership of Certain Beneficial Owners and Management		46
Item 13	Certain Relationships and Related Transactions		46
Item 14	Principal Accountant Fees and Services		46
Part IV
Item 15	Exhibits, Financial Statement Schedules		47
Signatures			F-32
Exhibit Index			F-33
Index to Consolidated Financial Statements			F-1
Ex-4.6
Ex-4.7
Ex-4.8
Ex-4.9
Ex-4.10
Ex-4.11
EX-10.37
EX-10.38
EX-10.39
EX-10.40
EX-12.1
EX-21.1
Ex-23.1
Ex-23.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.1

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     This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition. We generally identify forward-looking statements by the use of terms such as “believe”, “intend”, “expect”, “may”, “should”, “plan”, “project”, “contemplate”, “anticipate”, or other similar statements. Examples of forward looking statements in this Annual Report on Form 10-K include, but are not limited to: (i) that we believe the combined availability of teleport, deployable device, and integration capability from a single source is compelling and that because of our company’s portfolio of software, patented intellectual property and teams of wireless and encryption specialists we believe this gives us a competitive advantage, (ii) we expect to launch other location-based applications in 2006 involving fleet tracking, family finder, and turn-by-turn navigation, (iii) that we plan to continue to develop and sell software and engineered systems which we will deliver through deployment in customer networks or through hosted and subscription business models and we believe that our software is positioned for early adoption by carriers, (iv) wireless growth is expected to continue to increase in all regions around the world for the foreseeable future, (v) both the number of users and messages per individual are projected to increase significantly, (vi) we will continue to develop network software for wireless carriers that operate on all major types of networks, (vii) we will continue to leverage our knowledge of complex call control technology, including Signaling System 7 and Internet protocol standards, to unlock valuable information such as user location, device on/off status and billing and transaction records that reside inside wireless networks, (viii) we will continue to invest in our underlying technology and to capitalize on our expertise to meet the growing demand for sophisticated wireless applications, (ix) we intend to continue to selectively pursue acquisitions of companies and technologies in order to increase the scale and scope of our operations, market presence, products, services and customer base, (x) federal agencies, as well as state and local governments, are increasingly contracting with specialist teams for functions such as network management, and for long-term projects such as software development and systems integration, (xi) that we expect to realize $59.1 million of backlog within the next 12 months, (xii) that we expect to complete the sale of the Enterprise division by the end of 2006, (xiii) our belief that we have sufficient capital resources to meet our anticipated cash operating expenses, working capital and capital expenditure and debt services needs for the next twelve months, and (xiv) our belief that our capitalized research and development expense will be recoverable from future gross profits generated by the related products. Other such statements include without limitation risks and uncertainties relating to our financial results and our ability to (i) reach profitability as early as anticipated or at all, (ii) continue to rely on our customers and other third parties to provide additional products and services that create a demand for our products and services, (iii) conduct our business in foreign countries, (iv) adapt and integrate new technologies into our products, (v) develop software without any errors or defects, (vi) protect our intellectual property rights, (vii) implement our business strategy, (viii) realize backlog, and (ix) achieve continued revenue growth in the foreseeable future for our E9-1-w1 business. This list should not be considered exhaustive.

     These forward-looking statements relate to our plans, objectives and expectations for future operations. We base these statements on our beliefs as well as assumptions made using information currently available to us. In light of the risks and uncertainties inherent in all projected operational matters, the inclusion of forward-looking statements in this document should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. Revenues, results of operations, and other matters are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this Annual Report on Form 10-K as a result of factors discussed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”, the matters discussed in “Risk Factors Affecting Our Business and Future Results”, which are included in Item 1A, and those factors discussed elsewhere in this Annual Report on Form 10-K including, changes in economic conditions, technology and the market in general, and our ability to adapt our products and services to these changes. We undertake no obligation to release publicly the results of any future revisions we make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. We caution you not to put undue reliance on these forward-looking statements.

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Item 1.  Business

Recent Developments

     In 2004 and 2005, our Commercial Applications segment included a division called the Enterprise division, consisting of assets that we acquired in 2004 from Aether Systems, Inc. On December 29, 2005, our Board of Directors resolved to offer the Enterprise assets for sale, and we have engaged an investment bank that is actively marketing the assets of the Enterprise division. As a result, the Enterprise division has been reclassified in our Consolidated Financial Statements as discontinued operations for accounting purposes in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We expect to complete the sale of these assets by the end of 2006. The Enterprise division will continue to be a part of our business until it is sold.

     On March 10, 2006, pursuant to a note purchase agreement dated the same date, we issued and sold to two institutional lenders (i) $10 million in aggregate principal amount of secured notes due March 10, 2009, which bear cash interest at the rate of 14% per annum, or non-cash interest, in the form of additional notes, at the rate of 16% per annum, at our option, and (ii) warrants to purchase an aggregate of 1.75 million shares of our Class A Common Stock at an exercise price of $2.40 per share. We received net cash proceeds of approximately $9.3 million from this transaction, which are intended to be used for general corporate purposes.

Overview

     TeleCommunication Systems, Inc. develops and applies highly reliable wireless data communications technology, with emphasis on location-based services such as enhanced 9-1-1 (E9-1-1) for wireless carriers and Voice over Internet Protocol (VoIP) service providers.

     We are a Maryland corporation founded in 1987 with our headquarters located at 275 West Street, Annapolis, Maryland 21401. Our Web address is www.telecomsys.com. The information contained on our Web site does not constitute part of this Annual Report on Form 10-K. All of our filings with the Securities and Exchange Commission will be available through a link on our website. The terms “TCS”, “we”, “us” and “our” as used in this Annual Report on Form 10-K refer to TeleCommunication Systems, Inc. and its subsidiaries as a combined entity, except where it is made clear that such terms mean only TeleCommunication Systems, Inc.

     Our business is conducted through two operating segments, Commercial Applications (65% of 2005 revenue) and Government (35% of 2005 revenue). In addition, our business includes the Enterprise division, which we are currently in the process of selling. See discussion of segment reporting in Note 21 to the audited Consolidated Financial Statements presented elsewhere in this Annual Report on Form 10-K for additional segment information.

     Commercial Applications Segment: Our carrier software system products enable wireless carriers to deliver short text messages, location information, internet content, and other enhanced communication services to and from wireless phones. We provide E9-1-1 services, commercial location-based services, and inter-carrier text message distribution services on a hosted, or service bureau basis, that is, customers use our software functionality through connections to and from our network operations centers, paying us monthly based on the number of subscribers, cell sites, or call center circuits, or message volume. As of December 31, 2005, we provide hosted services under contracts with 36 wireless carrier networks, as well as VoIP service providers. We also earn subscriber revenue through wireless applications including our Rand McNally^tm Traffic application which is available via all major U.S. wireless carriers. We earn carrier software-based systems revenue through the sale of licenses, deployment and customization fees and maintenance fees. Pricing is generally based on the volume of capacity purchased from us by the carrier. As of December 31, 2005, we had deployed 85 software systems for our customers in wireless carrier networks around the world, including those of Verizon Wireless, Vodafone, T-Mobile, Telefonica and its affiliate Vivo, Alltel, and Hutchison Whampoa’s “3” brand third generation networks. We also provide carrier technology on a hosted or service bureau basis.

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     Government Segment: Since our founding in 1987 we have provided communication systems integration, information technology services, and software solutions to the U.S. Department of Defense and other government customers. We also own and operate secure satellite teleport facilities, and resell access to satellite airtime (known as space segment.) We design, furnish, install and operate wireless and data network communication systems, including our SwiftLink^® deployable communication systems which incorporate high speed, satellite, and internet protocol technology. More than 600 of our SwiftLink^® deployable communication systems are in use for security, defense, and law enforcement around the world. We believe that the combined availability of teleport, deployable device, and integration capability from a single source is uniquely compelling.

     Enterprise Division. The Enterprise division, formerly part of our Commercial Applications segment, generates subscriber revenue as a reseller of Research in Motion’s BlackBerry^® devices and service, and as a provider of wireless client device software applications, including real-time wireless delivery of financial market data . The Enterprise division software uses a proprietary Fusion^tm behind-the-enterprise-firewall platform uniting messaging, synchronization and web technologies, and its 20/20 Delivery^tm application enables package and vehicle tracking, productivity tools, and the ability to capture digital signatures for proof of delivery. We are currently offering the Enterprise division’s assets for sale. However, the division will continue to be a part of our business until it is sold. See “Recent Developments” above.

     We currently have 40 patents, primarily for wireless messaging and location technology, and over 100 patent applications pending. We employ 629 people.

     Swiftlink^®, Xypoint^®, Enabling Convergent Technologies^® Wireless Internet Gateway^tm, 20/20 Delivery^tm, Fusion^tm, and mobeo^tm are trademarks or service marks of TeleCommunication Systems, Inc. or our subsidiaries. This Annual Report on Form 10-K also contains trademarks, trade names and services marks of other companies that are the property of their respective owners.

I. Commercial Applications Segment:

A. Commercial Product and Service Offerings

     1. Commercial hosted, subscriber, and maintenance services. We own and lease network operation centers that host software for which customers make recurring monthly usage payments. Our hosted offerings include wireless and Voice over IP E9-1-1, commercial location-based applications, and financial market data applications. Through wireless carriers, we sell subscriptions to services using our client software applications such as Traffic Matters^tm, sometimes in collaboration with owners of related brand names such as Rand McNally.

     a. Hosted Location-Based Services, including E9-1-1. Our E9-1-1 service bureau works with wireless carriers and local emergency services in compliance with the Federal Communication Commission requirements. When a wireless subscriber covered by this service makes an E9-1-1 call from his or her wireless phone, the software (1) identifies the call as an emergency call, (2) accesses the handset’s location information from the wireless network (either imprecise or precise), (3) routes the call to the appropriate E9-1-1 jurisdiction, (4) translates the information into a user friendly format, and (5) transmits the data to the local emergency service call center. Our E9-1-1 service operates on a platform that resides at our network operations center in Seattle, Washington with data center redundancy in Phoenix, Arizona. As of December 31, 2005, we are under contract to provide E9-1-1 services to 36 wireless carriers, including Verizon, Cingular and US Cellular. We also provide E9-1-1 service to 6 Voice over IP service providers, including Vonage and VoIP, Inc.

     b. Customer subscriptions to application-based services such as Traffic Matters^tm. TCS’ strategy is to have a suite of location-based applications that carrier subscribers may select and for which they pay recurring monthly fees. TCS’ first major application launched on multiple U.S. carriers is a real-time traffic application called Traffic Matters^tm that is sold under the Rand McNally brand. TCS expects to launch other location-based applications in 2006 involving fleet tracking, family finder, and turn-by-turn navigation.

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     c. Software and system maintenance. For our installed base of systems in use by customers (see system descriptions below), we provide ongoing operational support, including administration of system components, system optimization and configuration management. Maintenance services include tracking customer support issues, trouble shooting, and developing and installing maintenance releases. We typically provide maintenance services for an annual fee paid in advance, which is priced based on the cumulative license fees we have billed for the systems being supported.

     2. Commercial Services. We provide telematic location database maintenance services for DENSO Corporation of Japan, (a global supplier to the automotive industry) through the compilation of geographic information databases used in Denso’s in-vehicle navigation systems that are in products including Toyota, Lexus, Land Rover and Lincoln brands.

     3. Commercial Licensed Software-based Systems: We design and develop software products for wireless carrier and enterprise networks that enable the delivery of secure and personalized content, services, and transactions to wireless devices. We design our software using industry standards for easy implementation, customization, and interoperability with other network components. Most of our commercial software is now designed and delivered together with third-party software and related hardware, which is integrated into new and existing networks by our engineers. Our commercial software-based system offerings include:

     a. Xypoint^® Location Platform (XLP) and Applications for Location-based Services: Our Xypoint^® Location Platform system interacts with the wireless network to extract location information (the “X/Y” coordinates) of the user’s device. In order to determine a user’s location with sufficient precision for public safety compliance and for commercial location-based applications, our technology interacts with network triangulation software which some carriers have added to cell towers and switches in the network; it can also work with networks that have incorporated Assisted GPS systems that use Global Positioning System (GPS) chips in user handsets. Our platform also provides privacy controls so that the wireless device user controls access to the user’s location information. The “X/Y” information extracted from networks by our XLP is used by application software including E9-1-1, driving directions, identification of locations near the end user (such as gas stations, restaurants, or hotels), and locating other network subscribers near the user’s current position.

     b. Short Message Service Center and Wireless Messaging Gateway. Our Short Message Service Center software enables users to send and receive text or data messages to and from wireless devices. It provides wireless carriers efficient two-way data delivery and supports major industry standards for wireless communications. Our Wireless Messaging Gateway is a portal for two-way data communication between users of wireless networks and the Internet. The Wireless Messaging Gateway allows users to customize the services they receive on wireless devices by setting up a user profile through a single Internet-based procedure. Wireless carriers can access these user profiles and usage data to gain a better understanding of customer behavior. The Wireless Messaging Gateway allows additional wireless applications to be added as desired, as well as personalization, instant messaging and spam-blocking capabilities that can be independently customized by the end-user.

B. Commercial Market Opportunities and Strategy

     We plan to continue to develop and sell software and engineered systems which we will deliver through deployment in customer networks or through hosted and subscription business models. Our development investment is focused on the delivery of Internet content, proprietary third-party content, short messages, location information, corporate network data and other enhanced data-communication services to and from wireless devices. The following trends are driving demand for our products and services:

     Growth in Wireless and Voice over Internet Protocol (VoIP) Subscribers. The use of wireless communications has increased significantly in recent years, driven by expanded wireless network coverage, upgraded high-speed digital wireless networks, more affordable wireless communications service plans, and higher quality and less expensive wireless devices. Likewise, VoIP service offers cost advantages over traditional wireline service. Wireless growth is expected to continue to increase in all regions around the world for the foreseeable future. Driving this growth is the replacement of landline

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connections with wireless connections. Some households are now using cellular phones exclusively. This is especially true for young adults, but also true in developing countries where wireless may often be the only means of communications.

     The FCC’s E9-1-1 Mandates. We are one of the two leading providers of E9-1-1 service to wireless and VoIP service providers in the U.S. The ability to call for help or communicate with family members in need is the primary reason many people cite for having a wireless phone. A key to enhancing personal safety through a cell phone is the availability of E9-1-1 wireless capabilities. In 1996, the Federal Communications Commission (FCC) mandated the adoption of E9-1-1 technology by wireless carriers. In June 2005, the FCC ordered providers of interconnected VoIP service to provide E9-1-1 services to all of their customers as a standard feature of the service, rather than as an optional enhancement. The FCC requires carriers to issue quarterly reports as to their progress and compliance with FCC-mandated deployment schedules. We are under long-term contracts, usually three to five years, with 36 wireless and 6 VoIP service providers, including all of the four largest wireless carriers in the United States.

     Cellular Network Improvements to Third Generation Capabilities. Mobile operators are deploying high-speed data networks based on third generation technologies that, in many cases, equal or surpass data rates that are typically available for residential wireline users. The deployments of these high-speed wireless data networks have made it possible for individuals and enterprises to “wireless-enable” many services that previously required a wireline connection, such as connecting to the Internet and accessing corporate data outside the office. Our company’s location-based technology and applications incorporating map graphics take advantage of these network enhancements.

     Improving Wireless Device Functionality. Manufacturers continue to increase the functionality of mobile devices including phones and personal digital assistants through higher resolution, color screens, and increased computing capability for sophisticated applications. These devices enable the user to take advantage of the high-speed data networks for Internet and data usage. Broad adoption of location-based services (LBS) has required, among other things, handsets incorporating components for interoperation with Global Positioning System satellites and with LBS network components that we have developed and provide.

     Growing Use of Commercial Location-Based Wireless Services (LBS). A driver of wireless communications growth is the delivery of timely, highly specialized, interactive and location-specific information. Technology incorporated in a growing number of networks and handsets now enables determination of the handset’s location with sufficient precision to allow useful applications beyond public safety’s E9-1-1. Wireless users benefit from the ability to receive highly customized location-specific information in response to their queries or via targeted opt-in content delivered to the wireless device. Enterprises benefit from wireless location technology by utilizing routing and tracking applications for their mobile field forces. Our software provides wireless location solutions to mobile operators today through our Xypoint^® Location Platform (XLP.) This technology is being used, via interconnection with XLP systems hosted in our company’s network operations, by Sprint in the U.S. and Iusacell in Mexico. Our XLP systems are deployed in six of Hutchison Whampoa’s “3”^tm networks, Telefonica’s Vivo network in Brazil, and the Altel network in Kazakhstan.

     Growing Use of Short Messaging, E-mail and Internet Applications. E-mail and short messaging services (SMS) are increasingly important means of communication, with both the number of users and messages per individual projected to increase significantly. Mobile operators in the United States are experiencing rapid SMS traffic growth, according to statistics from mobile operators. The Internet and internal corporate data networks, or intranets, have emerged as global communications channels that allow users to share information and conduct business transactions electronically. We provide solutions for mobile operators to receive and route e-mail and SMS messages through our Short Message Service Center and Wireless Messaging Gateway systems.

     Growing Use of Secure Wireless Communications and Location Technology for Defense, Intelligence and Homeland Security. Wireless communications and location technology are key initiatives within the federal government for both security and supply-chain management. As was dramatically illustrated during

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2005 by Hurricane Katrina, wireless communications in emergencies are of paramount importance, as emergency personnel need to be able to communicate and share information across agencies and departments where wireline systems may be unavailable. We believe that our expertise in the areas of wireless E9-1-1, location and messaging services, and secure satellite communications can be leveraged to provide the needed wireless infrastructure for the U.S. Departments of Homeland Security and Defense and we are currently pursuing opportunities to provide such products and services. Our SwiftLink^® deployable communication systems are also increasingly used by military and other government agencies around the globe for communications in times of emergencies. SwiftLink^® is designed to provide secure voice and data communications through encrypted satellite links.

     The key elements of our commercial strategy are to:

•  Focus our Software and Integration Resources on Evolving Carrier Network Capabilities. Mobile operators and the federal government increasingly seek integrated solutions that can harness both messaging capabilities of networks and location information of end-users. We are well positioned to address the evolving integration needs of our commercial and government clients through our demonstrated expertise in both messaging and location determination. Mobile operators have made large capital expenditure investments in infrastructure for wireless data and location determination technologies. While originally envisioned as separate technologies, messaging and location determination technologies can be integrated to provide value-added services and applications for the operators’ end-users.

•  Expand Our Sales and Marketing Capabilities. We are developing relationships with communication infrastructure providers in order to expand our sales channels for our carrier software products and services. We have historically leveraged our strategic relationships with original equipment manufacturers to market our Commercial Applications segment products to wireless carriers worldwide. We are adding partnerships for our location technologies.

•  Grow Our Wireless Carrier and Voice Over IP Customer Base. We now serve or are under contract with 36 wireless carrier networks in 15 countries, and with 6 VoIP service providers. We intend to expand our domestic and international carrier base by capitalizing on our relationships with original equipment manufacturers and establish new distribution partnerships and by expanding our own sales and marketing initiatives. We will continue to develop network software for wireless carriers that operate on all major types of networks.

•  Leverage Our Expertise in Accessing Information Stored Inside Wireless Networks. We will continue to leverage our knowledge of complex call control technology, including Signaling System 7 and Internet protocol standards, to unlock valuable information such as user location, device on/off status, and billing and transaction records that reside inside wireless networks and are difficult to retrieve and utilize. Using this information, we intend to expand the range of capabilities that wireless data technology can accomplish for our customers.

•  Develop and Enhance Our Technology. We will continue to invest in our underlying technology and to capitalize on our expertise to meet the growing demand for sophisticated wireless applications. As of January 1, 2006, our staff included more than 350 technical personnel who specialize in wireless network and client software development, hosted wireless operations and integrated network solutions. We also have research and development relationships with wireless handset manufacturers, wireless carriers, and content and electronic commerce providers. Our Xypoint^® platform architecture efficiently integrates our presence, location, call control and messaging technology, resulting in reduced costs, increased reliability, more efficient deployments, compatibility with our existing products and a migration path to third-generation services.

•  Pursue Select Acquisitions. We intend to continue to selectively pursue acquisitions of companies and technologies in order to increase the scale and scope of our operations, market presence, products, services and customer base.

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II. Government Segment:

A. Government Products and Services

     1. Government Services. In addition to maintenance services, which we began selling in 2005, generating monthly, usage-based revenue for indefinite periods, we enter into fee-for-service contracts under which revenue is generated based on contract labor billing rates or based on fixed fees for deliverables. These services, typically under multi-year contracts or contract vehicles, include:

     a. Network Operation Support. We design, install, and operate networks that integrate computing and communications, including systems that provide communications via both satellite and terrestrial links. We can provide complete network installation services from cabling infrastructure to complex communications system components. We also provide ongoing network operation and management support services under multi-year contracts with government customers.

     b. Custom Software. We develop custom software applications to support specific customer requirements. We have historically tailored enhancements of our software products for wireless carrier customers and developed custom applications for government agencies.

     c. Secure Satellite Teleport Data Landing and Transmission Services. We own and operate high-speed satellite communications teleports in Baltimore, Maryland and Manassas, Virginia that are connected to the public switched telephone network. These facilities provide transport services for Internet protocol (IP)-based media content consisting of Voice over IP (VOIP), Internet, video and messaging data using Very Small Aperture Terminal (VSAT) satellite technology as part of our communication solutions for our customers.

     2. Government Systems. We have designed and produce SwiftLink^®, a lightweight, satellite-based secure communication system, which can be immediately deployed in remote areas where other means of reliable communications may not be available. SwiftLink^® provides secure voice, video and data communications for up to eight people and a single person can deploy the system in less than ten minutes, creating critical communication channels from any location around the world. Uses include: emergency response, news reporting, public safety, drilling and mining operations, field surveys and other activities that require remote capabilities for video and data transmission. Integration work which typically accompanies customer purchases of our secure deployable systems is reported together with the system sales revenue. The Broadband Global Area Network upgrade of the Inmarsat satellite constellation, which enables lower cost Internet protocol traffic with broader band capability, expands our opportunity for Swiftlink^® sales volume.

B. Government Market Opportunities and Strategy

     Government Outsourcing of Network and Telecom Technical Functions. Federal agencies, as well as state and local governments, are increasingly contracting with specialist teams for functions such as network management, and for long-term projects such as software development and systems integration. Since the founding of our Company, we have built relationships with federal agencies, including the Special Operations Command and the FBI, as well as the State of Maryland and the City of Baltimore. Since early 2004, we have made it a management priority to aggressively expand our base of long-term service contract engagements. We have added experienced sales personnel and enhanced our relationships with systems integrators and specialist vendors such as SAP to expand our penetration of the government service market.

     Expanded Need for Secure, Interoperable Deployable Communication Solutions. During 2005, disaster response efforts in the U.S. Gulf Coast area by the Department of Homeland Security’s Federal Emergency Management Agency illustrated the need for enhanced communication capabilities in such circumstances. Military responders in New Orleans used our Swiftlink^® systems to coordinate deployable resources. We are continuing to enhance our deployable communication systems product line to take advantage of the evolving environment, including the benefits of Very Small Aperture Terminal (VSAT) satellite communications architectures where desirable, and the Inmarsat Broadband Global Area Network enhancements to its satellite services.

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     Secure Teleport and Integration Capabilities along with Deployable Systems as a Bundled Offering. Government customers can benefit from single-sourcing secure communications solutions which include a secure U.S. landing site for backhaul traffic as well as network engineering expertise and secure remote terminals. We believe that our company enjoys a competitive advantage, because it can offer all of these elements from a single vendor.

     Application of Commercially Proven Technology to Government Solutions. Government customers increasingly are using commercial carrier networks. Procurement officers have expressed a preference for solutions that incorporate proven commercial technology, rather than reliance on government research and development funding. Our company’s portfolio of software, patented intellectual property, and teams of wireless and encryption specialists positions us to tap into this opportunity.

Customers

     Commercial Applications Segment. Our commercial customers include wireless telecommunications carriers in the United States and foreign countries, either directly or through our channel partners. We provide licensed software-based systems, and hosted service bureau offerings in our Commercial Applications segment to carriers around the world. Our wireless carrier customers include Verizon Wireless (17% of total 2005 revenue from continuing operations), Cingular Wireless (10% of total 2005 revenue from continuing operations), US Cellular, Sprint, and the Hutchison Whampoa third generation “3” brand networks. Customers for our Voice Over IP E9-1-1 services include Vonage and Level 3. Our sales efforts target wireless and Voice over IP service providers around the world. The Enterprise division’s customers include Corporate Express and Staples.

     Government Segment. Our major Government segment customers include units of the U.S. Departments of Defense, Justice, and State, the General Services Administration, the City of Baltimore, and Northrop Grumman. In the aggregate, U.S. federal government entities accounted for 17% of total 2005 revenue from continuing operations.

Backlog

     As of December 31, 2005 and 2004, we had unfilled orders, or backlog, as follows:

	December 31,
($ in millions)	2005		2004
Commercial Applications segment	$	69.0	$	58.0
Government segment		52.8		40.1
Total backlog	$	121.8	$	98.1
Expected to be realized within 12 months	$	59.1	$	51.0

     Backlog for our hosted services is computed by multiplying the most recent month’s recurring revenue times the remaining months under existing long-term agreements with no assumption as to additional deployments of Public Safety Answering Point connections. The backlog at any given time may be affected by a number of factors, including contracts being renewed or new contracts being signed before existing contracts are completed. Some of our backlog could be canceled for causes such as late delivery, poor performance and other factors. Accordingly, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual revenue.

Sales and Marketing

     We sell our products and services through our direct sales force and through indirect channels. Our direct sales force consists of approximately 40 professionals in the U.S. and Europe. We have also historically leveraged our relationships with original equipment manufacturers (OEMs) to market our commercial systems to wireless carrier customers. These indirect sales relationships include Lucent, Ericsson, Motorola, Symbol,

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Intermec, and Qualcomm. During the indirect sales process, as well as during installation and maintenance, we have extensive direct contact with prospective carrier customers.

     We are pre-qualified as an approved vendor for some government contracts, and some of our products and services are available to government customers via the General Services Administration’s Information Technology Schedule 70. We collaborate in sales efforts under various arrangements with integrators including Anteon and SAP. Our marketing efforts also include advertising, public relations, speaking engagements and attending and sponsoring industry conferences.

Competition

     The markets for our products and services are competitive. The adoption of industry standards may make it easier for new market entrants to compete with us. We expect that we will continue to compete primarily on the basis of the functionality, breadth, time to market, ease of integration, price, and quality of our products and services. The market and competitive conditions are continually developing. Our software products compete with many similar products provided by other companies. It is difficult to present a meaningful comparison between our competitors and us because there is a large variation in revenue generated by different customers, different products and services, as well as the different combinations of products and services offered by our competitors. We cannot, therefore, quantify our relative competitive position.

     Our current and potential competitors include:

•  Commercial Applications Segment. Intrado, Openwave, Logica CMG, Huawei Technologies, Comverse, NEC, InfoSpace. Enterprise division competitors include IBM, Bloomberg, and UPS Logistics.

•  Government Segment. Computer Sciences Corporation; Electronic Data Systems Corporation; Keane, Inc.; Northrop Grumman; Turtle Mountain Communications, Inc.

     Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Many of these companies have greater name recognition and more established relationships with their target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. With time and capital, it would be possible for our competitors to replicate our products and services.

     We partner with vendors of precise location technology. Certain of our partners may attempt to compete with our operating platform by developing their own transmission platform or by purchasing another mobile location platform. The markets for commercial location and other mobile wireless applications for carriers and enterprises are relatively new and continually developing. The convergence of wireless technologies and the Internet is creating many initiatives to bring data and transaction capabilities to wireless devices. There is a wide array of potential competitors in this market, including providers of competing location management platforms, competing e-mail products, competing enterprise mobility platforms and other competing applications for wireless devices.

Research and Development

     Our success depends on a number of factors, which include our ability to identify and respond to emerging technological trends in our target markets, to develop and maintain competitive products, to enhance our existing products by adding features and functionality that differentiate the products from those of our competitors, and to bring products to market on a timely basis and at competitive prices. As of January 1, 2006, our research and development staff included more than 350 professionals who specialize in wireless network and client software development. Since 1996, we have made substantial investments in wireless application research and development, most of which has been devoted to the development of carrier and enterprise network software products and services. We are primarily focusing our current research and development investments in cellular location-based technology, including E9-1-1 technology. We actively support existing telecommunications standards and promote new telecommunications standards in order to expand the market for wireless data. In 1996, we co-founded the Intelligent Network Forum, an organization dedicated to expanding the role of intelligent networks in telecommunications. As part of our strategy to

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expand the role of short messaging, we co-founded the Short Message Peer-to-Peer Forum in 1999. For the years ended December 31, 2005, 2004, and 2003, our research and development expense in continuing operations was $13.9 million, $18.0 million, and $16.9 million, respectively.

     Certain of our government customers contract with us from time to time to conduct research on telecommunications software, equipment and systems.

Intellectual Property Rights

     We rely on a combination of patent, copyright, trademark, service mark, and trade secret laws and restrictions to establish and protect certain proprietary rights in our products and services.

     We currently hold over 40 issued patents relating to wireless text messaging, inter-carrier messaging, number portability, GPS ephemeris data, emergency public safety data routing and electronic commerce. We have filed more than 100 additional patent applications for certain apparatus and processes we believe we have invented to enable key features of the locations services, wireless text alerts, Financial Market Data, Short Message Service Center, Prepaid Wireless, mobile-originated data and E9-1-1 network software. There is no assurance that these patent applications will result in a patent being issued by the U.S. Patent and Trademark Office or other patent offices, nor is there any guarantee that any issued patent will be valid and enforceable. Additionally, foreign patent rights may or may not be available or pursued in any technology area for which U.S. patent applications have been filed. We expect to sell four foreign patents along with the sale of the Enterprise division, and royalty-free rights to use some of our domestic patents. In addition, we have engaged an intellectual capital merchant bank to assist us in selling or licensing certain of our patents covering technology that the company does not currently plan to use.

     Under our development agreement with Lucent, we developed the Short Message Service Center software in late 1996. Under the development agreement, we share ownership rights in this software application with Lucent. The scope of each party’s ownership interest is subject to each party’s various underlying ownership rights in intellectual property and also to confidential information contributed to the applications, and is subject to challenge by either party.

     As a member of various industry standard-setting forums, we have agreed to license certain of our intellectual property to other members on fair and reasonable terms to the extent that the license is required to develop non-infringing products under the specifications promulgated by those forums.

Employees

     As of December 31, 2005, we had 629 employees, 620 full-time and 9 part-time. We believe relations with our employees are good. None of our employees is represented by a union.

Geographical Information

     During the fiscal years ended December 31, 2005, 2004 and 2003, our total revenues generated from products and services of our continuing operations in the U.S. were $95.3 million, $90.5 million, and $88.5 million, respectively, and our total revenues generated from products and services outside of the U.S. from our continuing operations were $6.9 million, $6.4 million, and $3.6 million, respectively. As of December 31, 2005 and 2004, essentially all of the long-lived assets of our continuing operations were located in the U.S.

     During the fiscal years ended December 31, 2005 and 2004, total revenues generated from products and services of our Enterprise division in the U.S. were $23.1 million and $39.8 million, respectively, and our total revenues generated from products and services of our Enterprise division outside of the U.S. were $5.0 million and $6.2 million, respectively. As of December 31, 2005 and 2004, our Enterprise division had approximately $2.2 million and $2.8 million, respectively, of assets located outside the U.S.

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     We are subject to risks related to offering our products and services in foreign countries. See the information under the heading “Risk Factors — Because our product offerings are sold internationally, we are subject to risks of conducting business in foreign countries” included in Item 1A.

Item 1A.  Risk Factors

You should consider carefully each of the following risks and all of the other information in this Annual Report on Form 10-K and the documents incorporated by reference herein. If any of the following risks and uncertainties develops into actual events, our business, financial condition or results of operations could be materially adversely affected.

Risks Related to Our Business

We have a history of losses and can offer no assurance that we will achieve profitability in the near future.

     We incurred net losses of $11.5 million, $18.5 million and $13.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. As of December 31, 2005, we had an accumulated deficit of $161 million. We have never declared or paid cash dividends on our Class A common stock and do not currently anticipate paying any cash dividends on our Class A common stock in the foreseeable future. We expect to incur significant expenses in the near term, especially due to product development, sales and marketing and administrative expenses. Therefore, we will need to generate significant additional revenue and control costs to achieve and sustain profitability on a quarterly or annual basis. If we are not able to increase revenue or control costs, our operating results and profitability could be adversely affected.

Our stock price, like that of many technology companies, has been and may continue to be volatile.

     We expect that the market price of our Class A common stock will continue to be volatile. We are involved in a highly visible, rapidly changing industry and stock prices in our industry and similar industries have risen and fallen in response to a variety of factors, including:

•  announcements of new wireless data communications technologies and new providers of wireless data communications;

•  announcements of the issuance of new patents

•  acquisitions of, or strategic alliances among, providers of wireless data communications;

•  changes in recommendations by securities analysts regarding the results or prospects of providers of wireless data communications;

•  changes in investor perceptions of the acceptance or profitability of wireless data communications; and

•  other global economic uncertainties.

If wireless carriers do not continue to provide additional products and services to their subscribers, our business could be harmed.

     If wireless carriers limit their product and service offerings or do not purchase additional products containing our applications, our business will be harmed. Wireless carriers face implementation and support challenges in introducing Internet-based services via wireless devices, which may slow the rate of adoption or implementation of our products and services. Historically, wireless carriers have been relatively slow to implement complex new services such as Internet-based services. Our future success depends upon a continued increase in the use of wireless devices to access the Internet and upon the continued development of wireless devices as a medium for the delivery of network-based content and services. We have no control over the pace at which wireless carriers implement these new services. The failure of wireless carriers to introduce and support services utilizing our products in a timely and effective manner could reduce sales of our products and services and seriously harm our business.

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We may fail to support our anticipated growth in operations which could reduce demand for our services and materially adversely affect our revenue.

     Our business strategy is based on the assumption that the number of customers, the amount of information they want to receive and the number of services we offer will all increase. We must continue to develop and expand our systems and operations to accommodate this growth. The expansion and adaptation of our systems operations requires substantial financial, operational and management resources. Due to the limited deployment of our services to date, the ability of our systems and operations to connect and manage a substantially larger number of customers while maintaining superior performance is unknown. Any failure on our part to develop and maintain our wireless data services as we experience rapid growth could significantly reduce demand for our services and materially adversely affect our revenue.

We could incur substantial costs from product liability claims relating to our software.

     Our agreements with customers may require us to indemnify customers for our own acts of negligence and non-performance. Product liability and other forms of insurance are expensive and may not be available in the future. We cannot be sure that we will be able to maintain or obtain insurance coverage at acceptable costs or in sufficient amounts or that our insurer will not disclaim coverage as to a future claim. A product liability or similar claim may adversely affect our business, operating results or financial condition.

Our operating results could be adversely affected by any interruption of our data delivery services or system failure.

     Our E9-1-1, market data, enterprise mobility and mobile asset delivery and logistics operations depend on our ability to maintain our computer and telecommunications equipment and systems in effective working order, and to protect our systems against damage from fire, natural disaster, power loss, telecommunications failure, sabotage, unauthorized access to our system or similar events. Although all of our mission-critical systems and equipment are designed with built-in redundancy and security, any unanticipated interruption or delay in our operations or breach of security could have a material adverse effect on our business, financial condition and results of operations.

     Furthermore, any addition or expansion of our facilities to increase capacity could increase our exposure to natural or other disasters. Our property and business interruption insurance may not be adequate to compensate us for any losses that may occur in the event of a system failure or a breach of security. Furthermore, insurance may not be available to us at all or, if available, may not be available to us on commercially reasonable terms.

Because we rely on a few key customers, our revenue may decline if we fail to retain those customers.

     To date, the largest customers for our product and service offerings in terms of revenue generated have been Cingular Wireless, US Cellular, Sprint, Hutchison 3G, Verizon Wireless, and the U.S. government. For the fiscal years ended December 31, 2005, 2004, and 2003, each of Verizon Wireless and the U.S. government accounted for 10% or more of our total revenue. For the year ended December 31, 2005, Cingular Wireless also accounted for 10% or more of our total revenue. We expect to generate a significant portion of our total revenue from these customers for the foreseeable future. For the year ended December 31, 2005, the largest customers for our Commercial Applications Segment were Verizon Wireless, US Cellular and Cingular, the largest customers for our Government Segment were various U.S. government agencies, and the largest customers for our Enterprise division were Merrill Lynch, Goldman Sachs, Bank of America, Office Depot and Corporate Express. To date, the attrition rate for enterprise customers from the businesses that we acquired in connection with the acquisition of Aether’s EMS division has been approximately 10% due to technology changes, but we have not experienced any unanticipated customer attrition in the segment. However, we are currently offering the assets of the Enterprise division for sale. If and when this sale is carried out, our customer base will be further reduced. See “Business – Recent Developments”.

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     Our growth depends on maintaining relationships with our major customers and on developing other customers and distribution channels. The loss of any of the customers discussed in this paragraph would have a material adverse impact on our business.

Because we rely on key partners to expand our marketing and sales efforts, if we fail to maintain or expand our relationships with strategic partners and indirect distribution channels our license revenues could decline.

     We have announced strategic partnerships with Nokia and Motorola, and are working on additional partnerships to provide supplemental channels for the marketing and sale of our software applications. Our growth depends on maintaining relationships with these partners and on developing other distribution channels. The loss of any of these partners would have a material adverse impact on our business.

Because our business may not generate sufficient cash to fund operations, we may not be able to continue to grow our business if we are unable to obtain additional capital when needed.

     We believe that our cash and cash equivalents including proceeds received from the financing which occurred in March 2006, and our bank line of credit, coupled with the funds anticipated to be generated from operations will be sufficient to finance our operations for at least the next twelve months. Although we currently believe that we have sufficient capital resources to meet our anticipated working capital and capital expenditures requirements beyond the next twelve months, unanticipated events, such as the failure to sell the Enterprise division, a failure to generate sufficient capital from such a sale, or the failure to license or sell a portion of our intellectual property portfolio, could cause us to fall short of our capital requirements. In addition, such events could cause us to violate our bank line of credit covenants causing the bank to foreclose on the line and/or opportunities may make it necessary for us to return to the public markets, or establish new credit facilities or raise capital in private transactions in order to meet our capital requirements. We cannot assure you that we will be able to raise additional capital in the future on terms acceptable to us, or at all.

     Our bank credit agreement contains a tangible net worth covenant which is required to be met on a monthly basis. In March, 2006 the bank amended our line of credit agreement, reducing the tangible net worth requirement through March 31, 2007, as discussed in the notes to our audited financial statements. The line of credit agreement also contains a subjective acceleration clause which allows the bank to declare the amounts outstanding under the line of credit due and payable if certain material adverse changes occur, as described in the notes to the audited financial statements. Also, the loan document governing the subordinated debt issued in March 2006 contains a cross-default provision that would allow the debt holder to accelerate payment of the subordinated debt if other debt exceeding $2.5 million is declared due and payable. We believe that we will continue to comply with our restrictive covenants under our debt agreements. If our performance does not result in compliance with any of the restrictive covenants, or if our line of credit agreement lender seeks to exercise its rights under the subjective acceleration clause referred to above, we would seek to further modify our financing arrangements, but there can be no assurance that our debt holders would not exercise their rights and remedies under their agreements with us, including declaring all outstanding debt due and payable.

Variations in quarterly operating results due to factors such as changes in demand for our products and changes in our mix of revenues and costs may cause our Class A common stock price to decline.

     Our quarterly revenue and operating results are difficult to predict and are likely to fluctuate from quarter-to-quarter. For example, 2003 revenues of our Government Segment (formerly our Network Solutions Segment) were higher in the second half of the year than in the first half, whereas its 2004 revenues were higher in the first half of the year than in the second. In 2005, Revenues from our Government Segment were significantly higher in the second half of the year than in the first half. In addition, we generally derive a significant portion of wireless carrier license revenue in our Commercial Applications segment from initial license fees. The initial license fees that we receive in a particular quarter may vary significantly. As these projects begin and end, quarterly results may vary. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance, and you should not rely on them

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to predict our future performance or the future performance of our Class A common stock. Our quarterly revenues, expenses and operating results could vary significantly from quarter- to-quarter. If our operating results in future quarters fall below the expectations of market analysts and investors, the market price of our stock may fall.

     Additional factors that have either caused our results to fluctuate in the past or that are likely to do so in the future include:

•  changes in our relationships with wireless carriers, the U.S. government or other customers;

•  timing of introduction of new products and services;

•  changes in pricing policies and product offerings by us or our competitors;

•  changes in projected profitability of acquired assets that would require the write down of the value of the goodwill reflected on our balance sheet.

•  costs associated with advertising, marketing and promotional efforts to acquire new customers;

•  capital expenditures and other costs and expenses related to improving our business, expanding operations and adapting to new technologies and changes in consumer preferences; and

•  our lengthy and unpredictable sales cycle.

Growing market acceptance of “open source” software could cause a decline in our revenues and operating margins.

     Growing market acceptance of open source software has presented both benefits and challenges to the commercial software industry in recent years. “Open source” software is made widely available by its authors and is licensed “as is” for a nominal fee or, in some cases, at no charge. For example, Linux is a free Unix-type operating system, and the source code for Linux is freely available.

     We have incorporated some types of open source software into our products, allowing us to enhance certain solutions without incurring substantial additional research and development costs. Thus far, we have encountered no unanticipated material problems arising from our use of open source software. However, as the use of open source software becomes more widespread, certain open source technology could become competitive with our proprietary technology, which could cause sales of our products to decline or force us to reduce the fees we charge for our products, which could have a material adverse impact on our revenues and operating margins.

Because our product offerings are sold internationally, we are subject to risks of conducting business in foreign countries.

     Wireless carriers in Europe, Asia, Australia, Africa and Central and South America have purchased our products. In addition, a significant portion of the revenue historically generated by our Enterprise division has typically been generated outside the United States. (For information regarding our intention to sell this division, see “Business – Recent Developments.) We believe our revenue will be increasingly dependent on business in foreign countries, and we will be subject to the social, political and economic risks of conducting business in foreign countries, including:

•  inability to adapt our products and services to local business practices, customs and mobile user preferences;

•  costs of adapting our product and service offerings for foreign markets;

•  inability to locate qualified local employees, partners and suppliers;

•  reduced protection of intellectual property rights;

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•  the potential burdens of complying with a variety of U.S. and foreign laws, trade standards and regulatory requirements, including the regulation of wireless communications and the Internet and uncertainty regarding liability for information retrieved and replicated in foreign countries;

•  general geopolitical risks, such as political and economic instability and changes in diplomatic and trade relations; and

•  unpredictable fluctuations in currency exchange rates.

     Any of the foregoing risks could have a material adverse effect on our business by diverting time and money toward addressing them or by reducing or eliminating sales in such foreign countries.

We derive a significant portion of our revenue from sales to various agencies of the U.S. government which has special rights unlike other customers and exposes us to additional risks that could have a material adverse effect on our business, financial condition and operating results.

     Sales to various agencies of the U.S. government accounted for approximately 17% of our total revenue for the fiscal year ended December 31, 2005, all of which was attributable to our Government Segment. Our ability to earn revenue from sales to the U.S. government can be affected by numerous factors outside of our control including:

•  The U.S. government may terminate the contracts it has with us. All of the contracts we have with the U.S. government are, by their terms, subject to termination by the U.S. government either for its convenience or in the event of a default by us. In the event of termination of a contract by the U.S. government, we may have little or no recourse.

•  Our contracts with the U.S. government may be terminated due to Congress failing to appropriate funds. Our U.S. government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal-year basis even though contract performance may take more than one year. Any failure by Congress to appropriate funds to any program that we participate in could materially delay or terminate the program and have a material adverse effect on our business.

•  We are subject to procurement and other related laws and regulations which carry significant penalties for non-compliance. We are subject to extensive and complex U.S. government procurement laws and regulations. Failure to comply with these laws and regulations and with laws governing the export of controlled products and commodities, and any significant violations of any other federal law, could subject us to potential contract termination, civil and criminal penalties, and under certain circumstances, suspension and debarment from future U.S. government contracts.

     Additionally, the U.S. government may audit and review our costs and performance on their contracts, as well as our accounting and general practices. The costs and prices under these contracts may be subject to adjustment based upon the results of any audits. Future audits may harm our business.

Because several of our competitors have significantly greater resources than we do, we could lose customers and market share.

     Our business is highly competitive. Several of our competitors are substantially larger than we are and have greater financial, technical and marketing resources than we do. In particular, larger competitors have certain advantages over us which could cause us to lose customers and impede our ability to attract new customers, including: larger bases of financial, technical, marketing, personnel and other resources; more established relationships with wireless carriers; more funds to deploy products and services; and the ability to lower prices of competitive products and services because they are selling larger volumes.

     The widespread adoption of open industry standards such as the Secure User Plane for Location (SUPL) specifications may make it easier for new market entrants and existing competitors to introduce products that compete with our software products. Because our commercial applications segment is part of an emerging market, we cannot identify or predict which new competitors may enter the mobile location services

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industry in the future. With time and capital, it would be possible for competitors to replicate any of our products and service offerings or develop alternative products. Additionally, the wireless communications industry continues to experience significant consolidation which may make it more difficult for smaller companies, like us, us to compete. Our competitors include application developers, telecommunications equipment vendors, location determination technology vendors and information technology consultants, and may include traditional Internet portals and Internet infrastructure software companies. We expect that we will compete primarily on the basis of price, time to market, functionality, quality and breadth of product and service offerings.

     The Enterprise division that we acquired from Aether in January 2004 has developed software using standard industry development tools. Many of its agreements with wireless carriers, wireless handheld device manufacturers, distributors, and data providers are non-exclusive. Competitors could develop or license the same products and services in competition with us. With time and capital, it would be possible for competitors to replicate our services.

     These competitors could include wireless network carriers, mobile and/or wireless software companies, wireless data services providers and wireless systems integrators and database vendors. As discussed above, many of our potential competitors have significantly greater resources than we do. Furthermore, competitors may develop a different approach to marketing the services we provide in which subscribers may not be required to pay for the information provided by our services. Competition could reduce our market share or force us to lower prices to unprofitable levels.

     In addition, we are currently offering the Enterprise division for sale. If competitors develop and use similar products and services, this could reduce the attractiveness and value of the Enterprise assets for sale.

While we characterize a significant portion of our revenue as being “recurring” there is no guarantee that we will actually achieve this revenue.

     A significant portion of our revenue is generated from long-term customer contracts that pay certain fees on a month-to-month basis. While we currently believe that these revenue streams will continue, renegotiation of the contract terms or non-renewal of material contracts could cause our recurring revenues to be lower than expected and any growth depends on maintaining relationships with these important customers and on developing other customers and distribution channels.

The loss of key personnel or any inability to attract and retain additional personnel could harm our business.

     Our future success will depend in large part on our ability to hire and retain a sufficient number of qualified personnel, particularly in sales and marketing and research and development. If we are unable to do so, our business could be harmed. Our future success also depends upon the continued service of our executive officers and other key sales, engineering and technical staff. The loss of the services of our executive officers and other key personnel could harm our operations. We maintain key person life insurance on certain of our executive officers. We would be harmed if one or more of our officers or key employees decided to join a competitor or if we failed to attract qualified personnel. Our ability to attract qualified personnel may be adversely affected by a decline in the price of our Class A common stock. In the event of a decline in the price of our Class A common stock, the retention value of stock options will decline and our employees may choose not to remain with us, which could harm our business.

Risks Related to Acquisitions

Our past and future acquisitions of companies or technologies could prove difficult to integrate, disrupt our business, dilute stockholder value or adversely affect operating results or the market price of our Class A common stock.

     We have in the past acquired a number of businesses and technologies, and we may in the future acquire or make investments in other companies, services and technologies. Any acquisitions, strategic alliances or investments we may pursue in the future will have a continuing, significant impact on our business, financial

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condition and operating results. The value of the companies or assets that we acquire or invest in may be less than the amount we paid if there is a decline of their position in the respective markets they serve or a decline in general of the markets they serve. If we fail to properly evaluate and execute acquisitions and investments, our business and prospects may be seriously harmed. To successfully complete an acquisition, we must:

•  properly evaluate the technology;

•  accurately forecast the financial impact of the transaction, including accounting charges and transaction expenses;

•  integrate and retain personnel;

•  combine potentially different corporate cultures; and

•  effectively integrate products and services, and research and development, sales and marketing and support operations.

     If we fail to do any of these, we may suffer losses, our management may be distracted from day-to-day operations and the market price of our Class A common stock may be materially adversely affected. In addition, if we consummate future acquisitions using our equity securities or convertible debt, existing stockholders may be diluted which could have a material adverse effect on the market price of our Class A common stock.

     In addition, the companies and business units we have acquired or invested in or may acquire or invest in are subject to each of the business risks we describe in this section, and if they incur any of these risks the businesses may not be as valuable as the amount we paid. Further, we cannot guarantee that we will realize the benefits or strategic objectives we are seeking to obtain by acquiring or investing in these companies.

One of the suppliers of wireless services to our Enterprise division has been sued for patent infringement, which raises uncertainty regarding its ability to continue to supply us with these services.

     Research In Motion Limited (“RIM”), which supplies our Enterprise division with hardware and wireless services that are in turn packaged with other services and resold, is engaged in legal proceedings with NTP Inc., which alleges that certain RIM products infringed on patents held by NTP Inc. We understand from press announcements that RIM and NTP have reached a settlement of this dispute, but to the extent such settlement does not mature, this creates uncertainty regarding RIM’s ability to continue to supply the Enterprise division with services. RIM’s inability to supply services to our Enterprise division could increase our loss from discontinued operations and our net losses. RIM is the only producer of the aforementioned hardware and wireless services, and, in the unlikely event that RIM is prohibited from supplying our Enterprise division in the United States or elsewhere as a result of the litigation or otherwise, we would be unable to operate the business of our Enterprise division as it is currently conducted. This would also affect our ability to sell the Enterprise division, as well as the division’s resale value.

An interruption in the supply of products and services that we obtain from third parties could cause a decline in sales of the services from the Enterprise division, and products we purchase to avoid shortages may become obsolete before we can use them.

     In designing, developing and supporting the wireless data services of our Enterprise division, we have relied on wireless carriers, wireless handheld device manufacturers, content providers, software providers and companies that manage some of our other services such as our internal IT operations and customer care services. These suppliers may experience difficulty in supplying us products or services sufficient to meet our needs or they may terminate or fail to renew contracts for supplying us these products or services on terms we find acceptable. Any significant interruption in the supply of any of these products or services could cause a decline in sales of our services unless and until we are able to replace the functionality provided by these products and services. We also depend on third parties to deliver and support reliable products, enhance our current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. In addition, we rely on the ability of our content providers —

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including Reuters, the New York Stock Exchange, Inc., the Chicago Board of Trade, the Nasdaq Stock Market, Inc. and the Options Price Reporting Authority — to continue to provide us with uninterrupted access to the news and financial information we provide to our customers. The failure of third parties to meet these criteria, or their refusal or failure to deliver the information for whatever reason could materially harm our business. This would also affect our ability to sell the Enterprise division, as well as the division’s resale value.

Industry Risks

Because the wireless data industry is a new and rapidly evolving market, our product and service offerings could become obsolete unless we respond effectively and on a timely basis to rapid technological changes.

     The successful execution of our business strategy is contingent upon wireless network operators launching and maintaining mobile location services, our ability to create new network software and mobile asset products and adapt our existing network software products to rapidly changing technologies, industry standards and customer needs. As a result of the complexities inherent in our product offerings, new technologies may require long development and testing periods. Additionally, new products may not achieve market acceptance or our competitors could develop alternative technologies that gain broader market acceptance than our products. If we are unable to develop and introduce technologically advanced products that respond to evolving industry standards and customer needs, or if we are unable to complete the development and introduction of these products on a timely and cost effective basis, our business will suffer.

     New laws and regulations that impact our industry could increase costs or reduce opportunities to earn revenue. The wireless carriers that use our product and service offerings are subject to regulation by domestic, and in some cases, foreign, governmental and other agencies. Regulations that affect them could increase our costs or reduce our ability to sell our products and services. In addition, there are an increasing number of laws and regulations pertaining to wireless telephones and the Internet under consideration in the United States and elsewhere.

     The applicability to the Internet of existing laws governing issues such as intellectual property ownership and infringement, copyright, trademark, trade secret, taxation, obscenity, libel, employment and personal privacy is uncertain and developing. Any new legislation or regulation, or the application or interpretation of existing laws, may have a material adverse effect on our business, results of operations and financial condition. Additionally, modifications to our business plans or operations to comply with changing regulations or certain actions taken by regulatory authorities might increase our costs of providing our product and service offerings and materially adversely effect our financial condition.

Concerns about personal privacy and commercial solicitation may limit the growth of mobile location services and reduce demand for our products and services.

     In order for mobile location products and services to function properly, wireless carriers must locate their subscribers and store information on each subscriber’s location. Although data regarding the location of the wireless user resides only on the wireless carrier’s systems, users may not feel comfortable with the idea that the wireless carrier knows and can track their location. Carriers will need to obtain subscribers’ permission to gather and use the subscribers’ personal information, or they may not be able to provide customized mobile location services which those subscribers might otherwise desire. If subscribers view mobile location services as an annoyance or a threat to their privacy, that could reduce demand for our products and services and have an adverse effect on prospective sales.

Because many providers are not in compliance with current regulatory mandates and because our industry is undergoing rapid technological and regulatory change, our future performance is uncertain.

     The Federal Communication Commission, or FCC, has mandated that certain location information be provided to operators when they receive an E9-1-1 call. Phase I of the FCC’s 9-1-1 mandate required providers to be able to locate wireless E9-1-1 callers within their originating cell sector site and report their callback number by April 1998. Phase II of the FCC mandate required providers to be able to pinpoint the location of all E9-1-1 callers within 125 meters in 67% of all cases by October 1, 2001. Although both the

18

Phase I and Phase II deadlines have passed, many providers are not currently in compliance with either phase of the FCC’s mandate. Even so, we believe that many public safety jurisdictions are continuing to deploy Phase I technology and when available, we believe they will deploy Phase II technology.

     Carriers’ obligations to provide Phase I and Phase II services are subject to request by public safety organizations. Due to complex regulatory, funding and political issues many public safety organizations have not yet requested this service. As a result, wireless carriers and wireless users may never exhibit sufficient demand for our mobile location services. Technical failures, time delays or the significant costs associated with developing or installing improved location technology could slow down or stop the deployment of our mobile location products. If deployment of improved location technology is delayed, stopped or never occurs, market acceptance of our products and services may be adversely affected.

     In addition, we will rely on third-party providers to manufacture and deploy devices that determine the precise geographic location of wireless users to comply with Phase II of the FCC mandate. The extent and timing of the deployment of our products and services is dependent both on public safety requests for such service and wireless carrier’s ability to certify the accuracy of and deploy the precise location technology. Because we will rely on third-party location technology instead of developing the technology ourselves, we have little or no influence over its improvement. If the technology never becomes precise enough to satisfy wireless users’ needs or the FCC’s requirements, we may not be able to increase or sustain demand for our products and services, if at all.

Our E9-1-1 business is dependent on state and local governments and the regulatory environment for Voice over Internet Protocol (VoIP) services is developing.

     Under the FCC’s mandate, wireless carriers are required to provide E9-1-1 services only if state and local governments request the service. As part of a state or local government’s decision to request E9-1-1, they have the authority to develop cost recovery mechanisms. However, cost recovery is no longer a condition to wireless carriers’ obligation to deploy the service. If state and local governments do not widely request that E9-1-1 services be provided or we become subject to significant pressures from wireless carriers with respect to pricing of E9-1-1 services, our E9-1-1 business would be significantly harmed and future growth of our business would be significantly reduced.

     Additionally, the FCC has determined that VoIP services are not subject to the same regulatory scheme as traditional wireline and wireless telephone services. If the regulatory environment for VoIP services evolves in a manner other than the way we anticipate, our E9-1-1 business would be significantly harmed and future growth of our business would be significantly reduced.

Because the industries which we serve are currently in a cycle of consolidation, the number of customers may be reduced which could result in a loss of revenue for our business.

     The telecommunications industry generally is currently undergoing a consolidation phase. Many of our customers, specifically wireless carrier customers of our Commercial Applications segment, have or may become the target of acquisitions. If the number of our customers is significantly reduced as a result of this consolidation trend, or if the resulting companies do not utilize our product offerings, our financial condition and results of operations could be materially adversely affected.

Technology Risks

Because our software may contain defects or errors, our sales could decrease if these defects or errors adversely affect our reputation or delays shipments of our software.

     The software products that we develop are complex and must meet the stringent technical requirements of our customers. We must quickly develop new products and product enhancements to keep pace with the rapidly changing software and telecommunications markets in which we operate. Software as complex as ours is likely to contain undetected errors or defects, especially when first introduced or when new versions are released. Our software may not be error or defect free after delivery to customers, which could damage our

19

reputation, cause revenue losses, result in the rejection of our software or services, divert development resources and increase service and warranty costs, each of which could have a serious harmful effect on us.

If we are unable to integrate our products with wireless service providers’ systems we may lose sales to competitors.

     Our products operate with wireless carriers’ systems, various wireless devices and, in the case of our E9-1-1 offering, with mobile telephone switches and VOIP service provider systems. If we are unable to continue to design our software to operate with these systems and devices, we may lose sales to competitors. Mobile telephone switches and wireless devices can be manufactured according to many different standards and may have different variations within each standard. Combining our products with each type of switch, device or VOIP system requires a specialized interface and extensive testing. If, as a result of technology enhancements or upgrades to carrier and VOIP provider systems, our products can no longer operate with such systems, we may no longer be able to sell our products. Further, even if we successfully redesign our products to operate with these systems, we may not gain market acceptance before our competitors.

             Because our systems may be vulnerable to systems failures and security risks, we may incur significant costs to protect against the threat of these problems.

     We provide for the delivery of information and content to and from wireless devices in a prompt and timely manner. Any systems failure that causes a disruption in our ability to facilitate the transmission of information to these wireless devices could result in delays in end users receiving this information and cause us to lose customers. Our systems could experience such failures as a result of unauthorized access by hackers, computer viruses, hardware or software failures, power or telecommunications failures and other accidental or intentional actions which could disrupt our systems. We may incur significant costs to prevent such systems disruptions.

     In addition, increasingly our products will be used to create or transmit secure information and data to and from wireless devices. For example, our software can be used to create private address lists and to provide the precise location of an individual. To protect private information like this from security breaches, we may incur significant costs. Further, if a third party were able to misappropriate our proprietary information or disrupt our operations, we could be subject to claims, litigation or other potential liabilities that could materially adversely impact our business.

     The wireless data services provided by our Commercial Applications segment are dependent on real-time, continuous feeds from Reuters and others. The ability of our subscribers to make securities trades, receive sales leads and receive critical business information requires timely and uninterrupted connections with our wireless network carriers. Any disruption from our satellite feeds or backup landline feeds could result in delays in our subscribers’ ability to receive information or execute trades. We cannot be sure that our systems will operate appropriately if we experience a hardware or software failure, intentional disruptions of service by third parties, an act of God or an act of war. A failure in our systems could cause delays in transmitting data, and as a result we may lose customers or face litigation that could involve material costs and distract management from operating our business.

If mobile equipment manufacturers do not overcome capacity, technology and equipment limitations, we may not be able to sell our products and services.

     The wireless technology currently in use by most wireless carriers has limited bandwidth, which restricts network capacity to deliver bandwidth-intensive applications like data services to a large number of users. Because of capacity limitations, wireless users may not be able to connect to their network when they wish to, and the connection is likely to be slow, especially when receiving data transmissions. Data services also may be more expensive than users are willing to pay. To overcome these obstacles, wireless equipment manufacturers will need to develop new technology, standards, equipment and devices that are capable of providing higher bandwidth services at lower cost. We cannot be sure that manufacturers will be able to develop technology and equipment that reliably delivers large quantities of data at a reasonable price. If more

20

capacity is not added, a sufficient market for our products and services is not likely to develop or be sustained and sales of our products and services would decline and our business would suffer.

Because the market for most mobile content delivery and mobile location products is new, our future success is uncertain.

     The market for mobile content delivery and mobile location products and services is new and its potential is uncertain. In order to be successful, we need wireless network operators to launch and maintain mobile location services utilizing our products, and need corporate enterprises and individuals to purchase and use our mobile content delivery and mobile location products and services. We cannot be sure that wireless carriers or enterprises will accept our products or that a sufficient number of wireless users will ultimately utilize our products.

If wireless handsets pose health and safety risks, we may be subject to new regulations and demand for our products and services may decrease.

     Media reports have suggested that certain radio frequency emissions from wireless handsets may be linked to various health concerns, including cancer, and may interfere with various electronic medical devices, including hearing aids and pacemakers. Concerns over radio frequency emissions may have the effect of discouraging the use of wireless handsets, which would decrease demand for our services. In recent years, the FCC and foreign regulatory agencies have updated the guidelines and methods they use for evaluating radio frequency emissions from radio equipment, including wireless handsets. In addition, interest groups have requested that the FCC investigate claims that wireless technologies pose health concerns and cause interference with airbags, hearing aids and other medical devices. There also are some safety risks associated with the use of wireless handsets while driving. Concerns over these safety risks and the effect of any legislation that may be adopted in response to these risks could limit our ability to market and sell our products and services.

If we are unable to protect our intellectual property rights or are sued by third parties for infringing upon intellectual property rights, we may incur substantial costs.

     Our success and competitive position depends in large part upon our ability to develop and maintain the proprietary aspects of our technology. We also rely on a combination of copyright, trademark, service mark, trade secret laws, confidentiality provisions and various other contractual provisions to protect our proprietary rights, but these legal means provide only limited protection. If we fail to protect our intellectual property, we may be exposed to expensive litigation or risk jeopardizing our competitive position. Similarly, third parties could claim that our future products or services infringe upon our intellectual property rights. Claims like these could require us to enter into costly royalty arrangements or cause us to lose the right to use critical technology.

     Our ability to protect our intellectual property rights is also subject to the terms of any future government contracts. We cannot assure you that the federal government will not demand greater intellectual property rights or restrict our ability to disseminate intellectual property. We are also a member of the Wireless Application Protocol Forum, Ltd. and have agreed to license some of our intellectual property to other members on fair and reasonable terms to the extent that the license is required to develop non-infringing products.

Risks Related to Our Capital Structure and Common Stock

A majority of our Class A common stock is beneficially owned by a small number of holders, and those holders could thereby transfer control of us to a third party without anyone else’s approval or prevent a third party from acquiring us.

     We have two classes of common stock: Class A common stock and Class B common stock. Holders of Class A common stock generally have the same rights as holders of Class B common stock, except that holders of Class A common stock have one vote per share while holders of Class B common stock have three

21

votes per share. As of February 28, 2006, Maurice B. Tosé, our President, Chief Executive Officer and Chairman of the Board, beneficially owned 8,010,116 shares of our Class B common stock and 1,104,461 shares of our Class A common stock. Therefore, in the aggregate, Mr. Tosé beneficially owned shares representing approximately 48.24% of our total voting power, assuming no conversion or exercise of issued and outstanding convertible or exchangeable securities held by our other shareholders. Accordingly, on this basis, Mr. Tosé controls us through his ability to determine the outcome of elections of directors, amend our charter and by-laws and take other actions requiring stockholder action, including mergers, going private transactions and other extraordinary transactions. Mr. Tosé could, without seeking anyone else’s approval, transfer voting control of us to a third party. Such a transfer could have a material adverse effect on our stock price, and our business, operating results and financial condition. Mr. Tosé is also able to prevent a change of control regardless of whether holders of Class A common stock might benefit financially from such a transaction.

Our governing corporate documents contain certain anti-takeover provisions that could prevent a change of control that may be favorable to shareholders.

     We are a Maryland corporation. Anti-takeover provisions of Maryland law and provisions contained in our charter and by-laws could make it more difficult for a third party to acquire control of us, even if a change in control would be beneficial to shareholders. These provisions include the following:

•  authorization of the board of directors to issue “blank check” preferred stock;

•  prohibition of cumulative voting in the election of directors;

•  our classified board of directors;

•  limitation of the persons who may call special meetings of stockholders; and

•  prohibition on stockholders acting without a meeting other than through unanimous written consent;

•  supermajority voting requirement on various charter and by-law provisions;

•  establishment of advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

     These provisions could delay, deter or prevent a potential acquirer from attempting to obtain control of us, depriving you of an opportunity to receive a premium for your Class A common stock. These provisions could therefore materially adversely affect the market price of our Class A common stock.

Because this report contains forward-looking statements, it may not prove to be accurate.

     This report, including the documents we incorporate by reference, contains forward-looking statements and information relating to our company. These statements are based upon TCS’ current expectations and assumptions that are subject to a number of risks and uncertainties that would cause actual results to differ materially from those anticipated. We generally identify forward-looking statements using words like “believe,” “intend,” “expect,” “may,” “should,” “plan,” “project,” “contemplate,” “anticipate,” or other similar statements. We base these statements on our beliefs as well as assumptions we made using information currently available to us. We do not undertake to update our forward-looking statements or risk factors to reflect future events or circumstances.

     Statements in this report that are forward-looking include, but are not limited to, the following: (a) the statement about our expectations concerning the continued growth in the use of wireless communications, the statement concerning our belief in our ability to leverage our expertise to provide wireless infrastructure to first responders in the U.S.; (b) the statement concerning our intent to expand our domestic and international carrier base by capitalizing on our relationships with original equipment manufacturers; (c) the statement concerning our intent to expand our integrated package of products and services for wireless carriers and enterprises; (d) the statements regarding our belief as to the sufficiency of our capital resources to meet our anticipated working capital and capital expenditures for the next twelve months; (e) the statement that we

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expect to compete primarily on the basis of the functionality, breadth, time to market, ease of integration, price and quality of our products and services; and (f) the statement concerning our expectations with regard to research and development expenses.

Item 1B.  Unresolved Staff Comments

     None.

Item 2.  Properties

     Our principal executive office is located in Annapolis, Maryland in a 27,000 square foot facility under a lease expiring in March 2008. We have a second 26,000 square foot facility in Annapolis, Maryland under a lease expiring in April 2011. The Annapolis facilities are utilized for the executive and administrative offices, as well as portions of our Commercial Applications and Government segments. Other leased facilities include a 33,000 square foot facility in Owings Mills, Maryland under a lease expiring March 2008, a 46,000 square foot facility in Seattle, Washington under a lease expiring in September 2010, an 11,000 square foot facility in Oakland, California under a lease expiring May 2007, and a 10,000 square foot facility in Tampa, Florida under a lease expiring in December 2009. We also lease a hosting facility in Phoenix, Arizona in a 1,500 square foot office under a lease that expires in February 2008, which is utilized by our Commercial Applications segment. Our international locations lease a total of approximately 7,000 square feet of office space in London, Madrid, Amsterdam, and Stockholm. The leases for these facilities have varying expirations, but the agreements are generally short-term and renewable at our option.

     In addition to the leased office space, we own a 7-acre teleport facility in Manassas, Virginia, and lease space in Baltimore, Maryland utilized for teleport services primarily to our Government segment customers.

Item 3.  Legal Proceedings

     In November 2001, a shareholder class action lawsuit was filed against us, certain of our current officers and a director, and several investment banks that were the underwriters of our initial public offering (the “Underwriters”): Highstein v. Telecommunication Systems, Inc., et al., United States District Court for the Southern District of New York, Civil Action No. 01-CV-9500. The plaintiffs seek an unspecified amount of damages. The lawsuit purports to be a class action suit filed on behalf of purchasers of our Class A Common Stock during the period August 8, 2000 through December 6, 2000. The plaintiffs allege that the Underwriters agreed to allocate our Class A Common Stock offered for sale in our initial public offering to certain purchasers in exchange for excessive and undisclosed commissions and agreements by those purchasers to make additional purchases of our Class A Common Stock in the aftermarket at pre-determined prices. The plaintiffs allege that all of the defendants violated Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and that the underwriters violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The claims against us of violation of Rule 10b-5 have been dismissed with the plaintiffs having the right to re-plead. On February 15, 2005, the Honorable Judge Shira A. Scheindlin, U.S.D.J. entered an order preliminarily approving a settlement proposal which we believe will result in a resolution that will not materially impact our consolidated results of operations, financial position, or cash flows. We intend to continue to defend the lawsuit until the settlement has received final approval or the matter is resolved otherwise. More than 300 other companies have been named in nearly identical lawsuits that have been filed by some of the same law firms that represent the plaintiffs in the lawsuit against us, and we believe that the majority of those companies will participate in the same settlement if approved.

     Research in Motion Limited (“RIM”), which supplies our Enterprise operations with hardware and wireless services that it in turn packages with other services and resells, recently settled legal proceedings with NTP Inc., which alleged that certain RIM products infringed on patents held by NTP Inc. There can be no assurances that there will not be further litigation concerning these patents. This creates uncertainty regarding RIM’s ability to continue to supply our Enterprise customers with services. RIM’s inability to supply services to our Enterprise customers could cause a loss of revenue and increase our net losses.

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     Other than the items discussed immediately above, we are not currently subject to any other material legal proceedings. However, we may from time to time become a party to various legal proceedings arising in the ordinary course of our business.

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

     None.

Part II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our Class A Common Stock has been traded on the NASDAQ National Market under the symbol “TSYS” since our initial public offering on August 8, 2000. The following table sets forth, for the periods indicated, the high and low closing prices for our Class A Common Stock as reported by the NASDAQ Stock Market’s National Market:

	High		Low
2006
First Quarter 2006 (through February 13, 2006)	$	2.28	$	2.01
2005
First Quarter 2005	$	3.22	$	2.12
Second Quarter 2005	$	2.65	$	2.17
Third Quarter 2005	$	3.01	$	2.27
Fourth Quarter 2005	$	2.84	$	2.12
2004
First Quarter 2004	$	8.39	$	4.80
Second Quarter 2004	$	8.30	$	4.20
Third Quarter 2004	$	6.11	$	3.18
Fourth Quarter 2004	$	3.85	$	2.75

     As of February 6, 2006, there were approximately 350 holders of record of our Class A Common Stock, and there were 8 holders of record of our Class B Common Stock.

Dividend Policy

     We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings to fund the development, growth and operation of our business. Additionally, under the terms of our loan arrangements, our lenders’ prior written consent is required to pay cash dividends on our common stock. We do not currently anticipate paying any cash dividends on our common stock in the foreseeable future.

Change in Securities and Use of Proceeds

     On January 13, 2004, we purchased the Enterprise Division of Aether Systems, Inc. (the “Enterprise Acquisition”). Consideration for the acquisition was valued at approximately $22 million, consisting of $18 million in cash, a $1 million note payable, approximately $2 million of costs directly related to the acquisition, and 204,020 newly issued shares of Class A Common Stock. Concurrent with the Enterprise Acquisition, we closed on $21 million of financing with two accredited institutional investors, which included a subordinated convertible debenture with stated principal of $15 million, bearing interest at a stated rate of 3% per annum and due in lump sum on January 13, 2009 (the “Debenture”), 1,364,288 newly issued shares of Class A Common Stock and warrants to purchase 341,072 shares of Class A Common Stock at a

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strike price of $6.50 expiring in January 2007. The Debenture provided for an original conversion price of $5.38 per share, subject to adjustment.

     On August 30, 2004 we entered a Securities Purchase Agreement (the “August 2004 Securities Purchase Agreement”) with the same third-party investors who purchased our securities used to finance the Enterprise Acquisition. Pursuant to the August 2004 Securities Purchase Agreement, we raised $10 million in cash through the sale of 2,500,000 shares of our Class A Common Stock. We used the majority of the proceeds from this offering to fund the acquisition of Kivera, Inc. on September 20, 2004 as described in Note 3 to our Consolidated Financial Statements and for a $1 million cash fee paid in connection with a Waiver Agreement signed on the same day.

     The Waiver Agreement (the “Waiver”) with the holder of the Debenture modified certain provisions of the Debenture as follows: (1) the holder of the Debenture was required to convert the entire $15 million principal amount into shares of our Class A Common Stock by the end of 2004, (2) all of the material restrictive covenants contained in the Debenture were nullified and (3) the conversion price set forth in the Debenture was decreased from $5.3753 to $5.01581 as an inducement to enter into the Waiver (an adjustment such that conversion of the Debenture yielded an additional 200,000 shares of Class A Common Stock.) As additional consideration for the holder of the Debenture agreeing to the Waiver, we paid the holder of the Debenture a $1 million one-time fee in cash. The $1 million fee, the fair value of the additional shares of Class A Common Stock issued as an inducement, the remaining debt discount, and the unamortized deferred financing fees were recognized ratably to debt conversion expense as the Debenture was converted through the end of 2004. As of December 31, 2004, the $15 million principal amount of the Debenture had been converted into 2,990,015 shares of our Class A Common Stock.

     On March 10, 2006, pursuant to a note purchase agreement dated the same date, we issued and sold to two institutional lenders (i) $10 million in aggregate principal amount of secured notes due March 10, 2009, which bear cash interest at the rate of 14% per annum, or non-cash interest, in the form of additional notes, at the rate of 16% per annum, at our option, and (ii) warrants to purchase an aggregate of 1.75 million shares of our Class A Common Stock at an exercise price of $2.40 per share. We received net cash proceeds of approximately $9.3 million from this transaction, which are intended to be used for general corporate purposes.

     The warrants issued in the January 2004 financing described above contain provisions requiring an adjustment in both the warrant price and the number of warrants outstanding as a consequence of the issuance of the new warrants in March 2006. Consequently, the warrants from 2004 have been adjusted to a purchase price of $2.50 per share and the total number of January 2004 warrants now outstanding has been adjusted to 886,787.

     The consummation of the note purchase agreement and the issuance of notes and warrants thereunder were conducted as a private placement made to accredited investors in a transaction exempt from the registration requirements of the Securities Act of 1933.

     With the exception of the notes and warrants issued in March 2006, all of the other securities issued by us in connection with these transactions have been registered under the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

     None.

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Item 6.  Selected Financial Data

     The table that follows presents portions of our consolidated financial statements. You should read the following selected financial data together with our Consolidated Financial Statements and related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the more complete financial information included elsewhere in this Form 10-K. We have derived the statement of operations data for the years ended December 31, 2005, 2004 and 2003 and the balance sheet data as of December 31, 2005 and 2004 from our consolidated financial statements which have been audited by Ernst & Young LLP, independent registered public accounting firm, and which are included beginning on page F-1. We have derived the statement of operations data for the years ended December 31, 2002 and 2001 and the balance sheet data as of December 31, 2003, 2002 and 2001, from our audited financial statements which are not included in this Form 10-K. As described in Note 1 to our Consolidated Financial Statements, in connection with the reclassification of the Enterprise division as discontinued operations, we have reclassified prior periods for comparability purposes. Additionally, in connection with the realignment of our segments in 2004, we reclassified prior period revenues, direct cost of revenues, and gross profit for comparability with the three revenue categories we currently use to manage our business. The historical results presented below are not necessarily indicative of the results to be expected for any future fiscal year. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

			Year Ended December 31,
			2005			2004			2003			2002			2001
			(in millions, except per share data)
Statement of Operations Data:
Revenue
	Hosted, subscriber, and maintenance		$	52.9		$	44.2		$	37.7		$	26.9		$	18.7
	Services			22.1			16.0			13.9			8.8			11.8
	Systems			27.2			36.7			40.5			56.3			39.1
		Total revenue		102.2			96.9			92.1			92.0			69.6
Operating costs and expenses:
	Direct cost of hosted, subscriber, and maintenance revenue			25.2			21.2			18.1			15.7			9.5
	Direct cost of services revenue			14.0			9.7			9.8			5.7			8.9
	Direct cost of systems revenue			17.7			21.2			32.3			40.3			26.7
		Total direct cost of revenue		56.9			52.1			60.2			61.7			45.1
	Hosted, subscriber, and maintenance gross profit			27.6			23.0			19.5			11.2			9.2
	Services gross profit			8.1			6.3			4.1			3.1			2.9
	Systems gross profit			9.5			15.5			8.2			16.0			12.4
		Total gross profit		45.2			44.8			31.8			30.3			24.5
	Research and development expense			13.9			18.0			16.9			17.0			18.1
	Sales and marketing expense			10.5			8.9			8.9			10.0			13.8
	General and administrative expense			14.4			14.1			11.3			12.2			14.3
	Depreciation and amortization of property and equipment			8.6			7.4			6.6			6.2			4.6
	Non-cash stock compensation expense			0.7			1.2			1.5			1.6			2.6
	Amortization of goodwill and other intangible assets			0.1			—			0.5			0.6			9.2
	Acquired in-process research and development			—			—			—			—			9.7
	Impairment of goodwill and other intangible assets			—			—			—			—			43.0
		Total operating costs and expenses		48.2			49.6			45.7			47.6			115.3
Loss from operations				(3.0	)		(4.8	)		(13.9	)		(17.3	)		(90.8	)
Interest expense				(1.2	)		(3.2	)		(1.1	)		(0.9	)		(0.7	)
Debt conversion expense				—			(7.9	)		—			—			—
Other (expense)/income, net				(0.1	)		—			1.5			0.4			2.0
Loss from continuing operations				(4.3	)		(15.9	)		(13.5	)		(17.8	)		(89.5	)
Loss from discontinued operations				(7.2	)		(2.6	)		—			—			—
Net loss			$	(11.5	)	$	(18.5	)	$	(13.5	)	$	(17.8	)	$	(89.5	)
Loss from continuing operations per share, basic and diluted			$	(0.11	)	$	(0.48	)	$	(0.45	)	$	(0.61	)	$	(3.16	)
Loss from discontinued operations per share, basic and diluted			$	(0.19	)	$	(0.08	)	$	—		$	—		$	—
Net loss per share, basic and diluted			$	(0.30	)	$	(0.56	)	$	(0.45	)	$	(0.61	)	$	(3.16	)
Basic and diluted shares used in computation				38,823			33,381			29,796			29,149			28,297

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	As of December 31,
	2005		2004		2003		2002		2001
	(in millions)
Balance Sheet Data:
Cash and cash equivalents	$	9.3	$	18.3	$	18.9	$	27.4	$	42.9
Working capital		27.5		20.2		28.5		31.7		46.1
Total assets		90.6		102.4		65.3		81.4		89.6
Capital leases and long-term debt (including current portion)		16.5		18.4		14.6		10.3		4.8
Total liabilities		41.5		42.9		28.4		33.8		26.7
Total stockholders’ equity		49.1		59.5		36.9		47.6		62.9

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies and Estimates

     Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments. Our most significant estimates relate to accounting for our percentage-of-completion and proportional performance contracts, accounts receivable reserves, inventory reserves, evaluating goodwill for impairment, the realizability and remaining useful lives of long-lived assets, and contingent liabilities. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We identified our most critical accounting policies to be those related to revenue recognition for our contracts with multiple elements, revenue recognition for our contracts accounted for using the percentage-of-completion and proportional performance methods, capitalized software development costs, acquired intangible assets, goodwill impairment, stock compensation expense, and income taxes. We describe these accounting policies in relevant sections of this discussion and analysis. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report.

Overview and Recent Developments

     Our business is reported across two market segments: (i) our Commercial Applications segment, which consists principally of enhanced communication services to and from wireless phones, location application software, our E9-1-1 application and other hosted services, and (ii) our Government segment, which includes the design, development and deployment of information processing and communication systems and related services to government agencies. In addition, our business includes the Enterprise division, which we are currently in the process of selling, as explained below.

     Discontinued Operations: As of December 31, 2005, as a result of slower-than-anticipated market adoption of key technologies related to the Enterprise assets and management’s strategic decision to focus on our core technologies, we committed to a plan to sell the Enterprise assets which we acquired from Aether Systems, Inc. in 2004. The plan was approved by our Board of Directors in December 2005, and we engaged an investment banker that is actively marketing the Enterprise assets. We expect to complete the sale of these assets by the end of 2006. Accordingly, the assets, liabilities, and results of operations for the Enterprise assets have been stated separately for all periods in our 2005 financial statements and in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. The results of the Enterprise division have been recorded in our Consolidated Statement of Operations as “Loss from discontinued operations” and the Enterprise assets have been recorded on our Consolidated Balance Sheets as “Current assets of discontinued operations,” “Noncurrent assets of discontinued operations,” and “current liabilities of discontinued operations.” Despite its characterization for accounting purposes as “discontinued operations,” the Enterprise division will continue to be a part of our business until it is sold.

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     The operations of the Enterprise division were previously included in our Commercial Applications segment. The Enterprise assets provide wireless data solutions, uniting messaging, synchronization and web technologies. These solutions include package and vehicle tracking, productivity tools, and the ability to capture digital signatures for proof of delivery to a growing installed base of logistics customers. The Enterprise division is a leading reseller of BlackBerry devices and provide real-time financial market data to wireless device users under annual subscriber contracts in the U.S. and Europe.

     On March 10, 2006, pursuant to a note purchase agreement dated the same date, we issued and sold to two institutional lenders (i) $10 million in aggregate principal amount of secured notes due March 10, 2009, which bears cash interest at the rate of 14% per annum, or non-cash interest at the rate of 16% per annum, at our option, and (ii) warrants to purchase an aggregate of 1.75 million shares of our Class A Common Stock at an exercise price of $2.40 per share. We received net cash proceeds of approximately $9.3 million from this transaction, which are intended to be used for general corporate purposes.

     This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information that our management believes to be necessary to achieve a clear understanding of our financial statements and results of operations.

     Our management monitors and analyzes a number of key performance indicators in order to manage our business and evaluate our financial and operating performance. Those indicators include:

•  Revenue. We derive revenue from products and services including recurring monthly service and subscriber fees, software licenses and related service fees for the design, development, and deployment of software and communication systems, and products and services derived from the delivery of information processing and communication systems to governmental agencies.

•  Cost of revenue. The major items comprising our cost of revenue are compensation and benefits, third-party hardware and software, amortization of software development costs, and overhead expenses. The costs of hardware and third-party software are primarily associated with the delivery of systems, and fluctuate from period to period as a result of the relative volume, mix of projects, level of service support required and the complexity of customized products and services delivered. Amortization of software development costs, including acquired technology, is associated with the recognition of hosted and subscriber revenue and systems from our Commercial Applications segment.

•  Operating expenses. Our operating expenses are primarily compensation and benefits, professional fees, facility costs, marketing and sales-related expenses, and travel costs as well as certain non-cash expenses such as non-cash stock compensation expense, depreciation and amortization of property and equipment, and amortization of acquired intangible assets.

•  Liquidity and cash flows. The primary driver of our cash flows is the results of our operations including discontinued operations. Important sources of our liquidity have been cash raised from our 2004 financings in connection with our 2004 acquisitions and our 2006 debt financing, all as described below under “Liquidity and Capital Resources”, and borrowings under our bank credit agreement and lease financings secured for the purchase of equipment.

•  Balance sheet. We view cash, working capital, and accounts receivable balances and days revenues outstanding as important indicators of our financial health.

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Results of Operations

Revenue and Cost of Revenue

     The following discussion addresses the revenue and cost of revenue for the two segments of our business. For information regarding the results of the Enterprise assets, see Discontinued Operations—Enterprise assets below.

         Commercial Applications Segment:

								2005 vs.									2004 vs.
								2004									2003
($ in millions)		2005			2004			$			%			2003			$			%
Hosted, subscriber, and maintenance revenue		$	52.5		$	44.3		$	8.2			19	%	$	37.7		$	6.6			18	%
Services revenue			1.7			0.4			1.4			NM			—			0.4			NM
Systems revenue			11.7			13.1			(1.4	)		(11	%)		11.1			1.9			18	%
	Total Commercial Applications revenue		65.9			57.7			8.2			14	%		48.8			8.9			18	%
Direct cost of hosted, subscriber, and maintenance			25.1			21.3			3.8			18	%		18.1			3.2			18	%
Direct cost of services			0.8			0.2			0.6			NM			—			0.2			NM
Direct cost of systems			5.7			5.8			(0.1	)		(2	%)		13.6			(7.8	)		(57	%)
	Total Commercial Applications cost of revenue		31.6			27.3			4.3			16	%		31.7			(4.4	)		(14	%)
Hosted, subscriber, and maintenance gross profit			27.4			23.0			4.4			19	%		19.6			3.4			17	%
Services gross profit			0.9			0.2			0.8			NM			—			0.2			NM
Systems gross profit			6.0			7.2			(1.3	)		(18	%)		(2.5)			9.7			NM
	Total Commercial Applications gross profit*	$	34.3		$	30.4		$	3.9			13	%	$	17.0		$	13.3			78	%
	Segment gross profit as a percent of revenue		52	%		53	%								35	%

*  See discussion of segment reporting in Note 21 to the audited Consolidated Financial Statements presented elsewhere in this Annual Report on Form 10-K. (NM = Not meaningful)

Commercial Applications Hosted, Subscriber, and Maintenance Revenue and Cost of Revenue:

     Our hosted offerings mainly include our E9-1-1, hosted Position Determining Entity (PDE), Voice over Internet Protocol (VoIP) E9-1-1 service and hosted Location Based Service (HLBS) applications. Revenue from these offerings primarily consists of monthly recurring service fees and is recognized in the month earned. E9-1-1, PDE, VoIP and HLBS service fees are priced based on units served during the period, such as the number of customer cell sites served, the number of connections to Public Service Answering Points (PSAPs), or the number of customer subscribers served. In 2005 we expedited deployments of PSAP’s related to VoIP and E9-1-1 plus continued to increase the number of carriers and carrier billable units served. In addition, we increased revenue from our VoIP E9-1-1 and HLBS recurring services primarily due to a new service contracts signed in 2005. These increases were partly offset by decreases in the average fee received per unit under pricing arrangements with some customers. In 2004, we continued to increase the number of carriers and carrier billable units served while experiencing a slight decline in average fee per unit under certain contracts, primarily due to volume thresholds as stipulated in customer contracts.

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     Subscriber revenue is generated by the Kivera assets we acquired in September 2004, which provides wireless subscribers client software applications such as Rand McNally(]) Traffic. The year over year increase in subscriber revenue was mainly the result of the inclusion of a full year’s revenue in 2005 compared to a partial year in 2004.

     Maintenance fees on our systems and software licenses are collected in advance and recognized ratably over the maintenance period. Unrecognized maintenance fees are included in deferred revenue. Custom software development, implementation and maintenance services may be provided under time and materials or fixed-fee contracts.

     Overall, hosted, subscriber and maintenance revenue increased 19% in 2005.

     The direct cost of our hosted, subscriber, and maintenance revenue consists primarily of network access, data feed and circuit costs, compensation and benefits, equipment and software maintenance. For the year ended December 31, 2005, the direct cost of hosted, subscriber and maintenance revenue increased 18% for the following reasons. In 2005, we increased headcount and incurred costs related to custom development efforts responding to customer requests. Additionally, we increased costs for temporary contract staff to meet customer deployment requirements for VoIP. While we increased the number of cell sites, subscribers and PSAPs served, our circuit and data access costs were relatively consistent year to year. In 2004, our facilities costs increased, related to renovations and enhancements to our principal network operations center. For the year ended December 31, 2005, the cost of circuit and other data access costs accounted for approximately 13% of total direct costs of hosted, subscriber, and maintenance revenues. The cost of circuit and other data access costs accounted for approximately 16% of the total direct costs of our commercial hosted, subscriber, and maintenance revenues for each of the years ended December 31, 2004 and 2003. The direct costs of maintenance revenue consists primarily of compensation and benefits.

     The gross profit in hosted, subscriber, and maintenance revenue remained relatively constant as a percentage of revenue from 53% in 2004 to 52% in 2005.

Commercial Applications Services Revenue and Cost of Revenue¹

     Services revenue does not represent a significant proportion of the revenue of our Commercial Applications Segment. However, Commercial Applications services revenue increased to $1.7 million in 2005 from $0.4 million in 2004, because the unit generating it was owned for only a partial year in 2004.

Commercial Systems Revenue and Cost of Revenue

     We sell communications systems for enhanced services to wireless carriers. These systems are designed to incorporate our licensed software. We design our software to ensure that it is compliant with all applicable standards, notably including the GSM/ UMTS standards for location-based wireless services that were established in 2005 and, as such, we believe our software is positioned for early adoption by carriers.

     Licensing fees for our carrier software are generally a function of its usage in our customer’s network. As a carrier’s subscriber base or usage increases, the carrier must purchase additional capacity under its license agreement and we receive additional revenue. Systems revenues typically contain multiple elements, which may include the product license, installation, integration, and hardware. The total arrangement fee is allocated among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. Fair value is generally determined based on the price charged when the element is sold separately. In the absence of evidence of fair value of a delivered element, revenue is allocated first to the undelivered elements based on fair value and the residual revenue to the delivered elements. The software licenses are generally perpetual licenses for a specified number of users that allow for the purchase of annual maintenance at a specified rate. We recognize license fee revenue when each of the following has occurred: (1) evidence of an arrangement is in place; (2) we have delivered the software; (3) the fee is fixed or determinable; and (4) collection of the fee is probable. Software projects that require significant customization are accounted for under the percentage-of-completion method. We measure progress to completion using costs incurred compared to estimated total costs or labor hours incurred compared to estimated total labor

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hours for contracts that have a significant component of third-party materials costs. We recognize estimated losses under long-term contracts in their entirety upon discovery. If we did not accurately estimate total costs to complete a contract or do not manage our contracts within the planned budget, then future margins may be negatively affected or losses on existing contracts may need to be recognized. Software license fees billed and not recognized as revenue are included in deferred revenue.

     Systems revenue decreased 11% for the year ended December 31, 2005, largely as a result of a decrease in licensing fees. The decrease in licensing fees was primarily due to a large purchase of increased license capacity by a major carrier during the second quarter of 2004, followed by a large but smaller license capacity purchase in the first quarter of 2005. In 2004, revenue from Commercial Applications systems sales increased compared to 2003 primarily due to the large purchase of increased license capacity by a major carrier during the second quarter of 2004.

     The direct cost of our systems consists primarily of compensation, benefits, purchased equipment, third-party software, travel expenses, and consulting fees as well as the amortization of both acquired and capitalized software development costs for all reported periods. In 2005, direct costs of systems consisted primarily of compensation, benefits, third-party hardware and software, and $0.8 million of amortization of software development costs. In 2004, such costs consisted primarily of compensation, benefits, third-party hardware and software, and $0.4 million of amortization of software development costs. In 2003, such costs primarily included compensation, benefits, travel and consulting fees plus $8.9 million of amortization of software development costs, which included the accelerated amortization recorded during the year.

     Our commercial systems gross profit was $6.0 million in 2005 versus $7.2 million in 2004 and a loss of $2.5 million in 2003. A larger proportion of high margin license sales in 2004 and the inclusion of a lower margin hardware sale in 2005 resulted in lower margins as a percentage of revenue for 2005. Systems gross margins are higher in periods when systems revenue includes a higher proportion of software licenses relative to third party system components and integration labor. System gross profits for 2003 was negatively affected by the significant cost of acceleration of amortization in the year.

     We ascribe the lower revenue and related gross profit in 2005 primarily to later than expected implementation of location-based service technology by wireless carriers.

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         Government Segment:

									2005 vs. 2004									2004 vs. 2003
($ in millions)			2005			2004			$			%			2003			$			%
Hosted, subscriber, and maintenance revenue			$	0.4		$	—		$	0.4			NM		$	—		$	—			NM
Services revenue				20.4			15.6			4.8			30	%		13.9			1.7			12	%
Systems revenue				15.5			23.6			(8.1	)		(34	%)		29.4			(5.8	)		(20	%)
	Total Government revenue			36.3			39.2			(2.9	)		(8	%)		43.3			(4.1	)		(9	%)
Direct cost of hosted, subscriber, and maintenance				0.2			—			0.2			NM			—			—			NM
Direct cost of services				13.2			9.5			3.7			39	%		9.8			(0.3	)		(4	%)
Direct cost of systems				12.0			15.4			(3.4	)		(22	%)		18.7			(3.3	)		(18	%)
	Total Government cost of revenue			25.4			24.9			0.5			2	%		28.5			(3.6	)		(13	%)
Hosted, subscriber, and maintenance gross profit				0.2			—			0.2			NM			—			—			NM
Services gross profit				7.2			6.1			1.1			17	%		4.1			2.0			50	%
Systems gross profit				3.5			8.2			(4.7	)		(57	%)		10.7			(2.5	)		(23	%)
	Total Government gross profit*		$	10.9		$	14.3		$	(3.4	)		(24	%)	$	14.8		$	(0.5	)		(3	%)
		Segment gross profit as a percent of revenue		30	%		37	%								34	%

*  See discussion of segment reporting in 21 to the audited Consolidated Financial Statements presented elsewhere in this Annual Report on Form 10-K. (NM = Not meaningful)

     Generally, we provide Government products and services under long-term contracts. We recognize contract revenue as billable costs are incurred and for fixed-price product delivery contracts using the percentage-of-completion method or proportional performance method, measured by either total labor hours or total costs incurred compared to total estimated labor hours or costs. We recognize estimated losses on contracts in their entirety upon discovery. If we did not accurately estimate total labor hours or costs to complete a contract or do not manage our contracts within the planned budget, then future margins may be negatively affected or losses on existing contracts may need to be recognized. Under our contracts with the U.S. government, contract costs, including the allocated indirect expenses, are subject to audit and adjustment by the Defense Contract Audit Agency. We record revenue under these contracts at estimated net realizable amounts.

     For the year ended December 31, 2005, Government segment revenue decreased 8% as a result of lower systems revenue.

Government Hosted, Subscriber, and Maintenance Revenue, Cost of Revenue, and Gross Profit:

     In late 2004, we began offering basic and extended maintenance contracts on our systems. These maintenance fees are collected in advance and recognized ratably over the maintenance period. The direct costs of maintenance revenue consist primarily of compensation and benefits. These contracts yielded approximately $0.4 million of revenue and $0.2 million of gross profit in 2005.

Government Services Revenue and Cost of Revenue:

     Government services revenue primarily consists of communications engineering, program management, help desk outsource, network design and management for government agencies. Our Government segment also operates teleport facilities for data connectivity via satellite to and from North and South America, as well

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as Africa and Europe. Most such services are delivered under time and materials contracts. For fixed price service contracts, we recognize revenue using the proportional performance method. We recognize estimated losses on contracts in their entirety upon discovery. If we did not accurately estimate total labor hours or costs to complete a contract or do not manage our contracts within the planned budget, then future margins may be negatively affected or losses on existing contracts may need to be recognized.

     Services revenues increased to $20.4 million in 2005 from $15.6 million in 2004 and $13.9 million in 2003. These increases throughout 2005 and 2004 were generated by new and expanded-scope contracts resulting from increased sales emphasis on these types of projects and to a lesser extent, increased revenue generated from satellite airtime services for use of our teleport facilities and associated with our systems sales.

     Direct cost of government service revenue consists of compensation, benefits and travel incurred in delivering these services, and these costs increased as a result of the increased services volume in 2005.

     Our gross profit from government services increased to $7.2 million 2005 from $6.1 million in 2004 and $4.1 million in 2003. The increase in gross profit is due to higher revenue. Gross profit as a percentage of revenue decreased in 2005 due to a high margin contract which was primarily delivered in 2004 and completed in early 2005. Gross profit as a percentage of revenue was lower in 2003 due to the mix of service contracts at various levels of profitability.

Government Systems Revenue and Cost of Revenue:

     We generate Government systems revenue from the design, development, assembly and deployment of information processing and communication systems, primarily deployable communications systems, and integration of those systems into customer networks. Our principal government systems sales are of our SwiftLink^® product line, which are lightweight, secure, deployable communications systems, to units of the U.S. Departments of State, Justice, and Defense and other agencies. We recognize contract revenue as billable costs are incurred and for fixed-price product delivery contracts using the percentage-of-completion method, measured by either total labor hours or total costs incurred compared to total estimated labor hours or costs. Labor hours are used as a measure of progress for projects that contain a significant amount of third party materials costs. Systems sales in our Government segment decreased to $15.5 million in 2005 from $23.6 million in 2004 and $29.4 million in 2003. The decrease in systems revenues is primarily due to decreased unit sales of our SwiftLink^® and deployable communications systems throughout 2005 compared to 2004 and 2003. We believe that government procurement patterns for our systems have been affected by the shift from greater mission-leader flexibility during the acute wartime environment of 2002 and 2003 to the more budget-conscious environment in 2005 to date.

     The cost of our government systems revenue consists of compensation, benefits, travel, satellite “space segment” and airtime, costs related to purchased equipment components, and the costs of third-party contractors that we engage. These equipment and third-party costs are variable for our various types of products, and margins may fluctuate between periods based on the respective product mixes.

     Our government systems gross profit declined to $3.5 million in 2005 from $8.2 million in 2004 and $10.7 million in 2003. The reduction is mainly as a result of lower systems sales volume.

Operating Expenses:

Research and Development Expense.

							2005 vs. 2004									2004 vs. 2003
($ in millions)	2005			2004			$			%			2003			$		%
Research and development expense	$	13.9		$	18.0		$	(4.1	)		(23	%)	$	16.9		$	1.1		6%
Percent of revenue		14	%		19	%								18	%

     Our research and development expense consists of compensation, benefits, travel costs, and a proportionate share of facilities and corporate overhead. The costs of developing software products are

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expensed prior to establishing technological feasibility. Technological feasibility is established for our software products when a detailed program design is completed. We incur research and development costs to enhance existing packaged software products as well as to create new software products including software hosted in our network operations center. These costs primarily include compensation and benefits as well as costs associated with using third-party laboratory and testing resources. We expense such costs as they are incurred unless technological feasibility has been reached and we believe that the capitalized costs will be recoverable.

     The expenses we incur relate to software applications which are being marketed to new and existing customers on a global basis. Throughout 2005 and 2004, respectively, research and development was primarily focused on cellular and hosted location-based applications, including Voice over IP E9-1-1, enhancements to our hosted location-based applications, blending of technology of our existing products while incorporating aspects from our 2004 acquisitions, and other feature enhancements. In 2003, we primarily focused on expanded functionality of our location platform software. Management continually assesses our spending on research and development to ensure resources are focused on products that are expected to achieve the highest level of success. Further, in 2005 we capitalized $2.5 million of software development costs for certain software projects in accordance with the above policy. The capitalized costs relate to our location-based software and our Voice over IP E9-1-1 service. These costs will be amortized on a product-by-product basis using the straight-line method over the product’s estimated useful life, which is never greater than three years. Amortization is also computed using the ratio that current revenue for the product bears to the total of current and anticipated future revenue for that product (the revenue curve method). If this revenue curve method results in amortization greater than the amount computed using the straight-line method, amortization is recorded at that greater amount. We believe that these capitalized costs will be recoverable from future gross profits generated by these products. Prior to the second quarter of 2005, our estimates did not sufficiently demonstrate future realizability of our software development costs expended on such products; and accordingly, all such costs were expensed as incurred.

     Research and development expense decreased 23% in 2005 as compared with 2004. This decrease is partially due to the capitalization of approximately $2.5 million and partially due to developers working on custom development efforts as well as a slight reduction in headcount associated with our development efforts. The 6% increase in research and development spending in 2004 as compared to 2003 is primarily a function of the costs incurred related to development efforts by the engineers added via the Kivera acquisition.

     Our research and development expenditures have also yielded over 40 patents, primarily for wireless messaging and location technology, and over 100 pending patent applications. We believe that the intellectual property represented by these patents is a valuable asset that will contribute to our operations in 2006 and beyond.

Sales and Marketing Expense:

							2005 vs. 2004								2004 vs. 2003
($ in millions)	2005			2004			$		%			2003			$		%
Sales and marketing expense	$	10.5		$	8.9		$	1.6		18	%	$	8.9		$	—		—
Percent of revenue		10	%		9	%							10	%

     Our sales and marketing expenses include compensation and benefits, trade show expenses, travel costs, advertising and public relations costs as well as a proportionate share of facility-related costs which are expensed as incurred. Our marketing efforts also include speaking engagements and attending and sponsoring industry conferences. We sell our software products and services through our direct sales force and through indirect channels. We have also historically leveraged our relationship with original equipment manufacturers to market our software products to wireless carrier customers. We sell our products and services to agencies and departments of the U.S. Government primarily through direct sales professionals. Sales and marketing costs increased in 2005 primarily as a result of adding additional Government segment sales personnel at the end of 2004, and increased public relations fees in 2005. In 2004, such costs were similar to the level of spending in 2003. Such costs may fluctuate quarter to quarter depending on spending on tradeshows and variable compensation based on level of revenue.

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General and Administrative Expense:

							2005 vs. 2004								2004 vs. 2003
($ in millions)	2005			2004			$		%			2003			$		%
General and administrative expense	$	14.4		$	14.1		$	0.3		2	%	$	11.3		$	2.8		25	%
Percent of total revenue		14	%		14	%							12	%

     General and administrative expense consists primarily of costs associated with management, finance, human resources and internal information systems. These costs include compensation, benefits, professional fees, travel, and a proportionate share of rent, utilities and other facilities costs which are expensed as incurred. The increase in 2005 was primarily attributable to increased professional fees associated with patent monetization and public company regulatory compliance costs. The increase in 2004 over the level in 2003 was primarily attributable to the initial costs of complying with the Sarbanes-Oxley Act plus increased legal fees.

Non-Cash Stock Compensation Expense:

												2004 vs.
					2005 vs. 2004							2003
($ in millions)	2005		2004		$			%		2003		$			%
Non-cash stock compensation expense	$	0.7	$	1.2	$	(0.5	)		(40%)	$	1.5	$	(0.3	)		(20%)

     During the second and third quarters of 2000, we granted options to purchase 885,983 shares of Class A Common Stock to employees and directors at an exercise price less than the fair market value on the date of grant. In the second quarters of 2003 and 2005, we issued restricted stock to directors and certain key executives. The restrictions expired at the end of one year for directors and expire in annual increments over three years for executives and are based on continued employment. The fair value of the restricted stock at issuance has been recorded as deferred compensation and is being amortized to non-cash stock compensation expense using the straight-line method over the period during which the restrictions expire.

     Non-cash stock compensation expense is comprised of expenses related to incentive stock options granted to employees and directors prior to our initial public offering and expense related to restricted stock granted to directors and certain key executives in 2005 and 2003. Net loss, as reported, includes $0.6 million, $0.6 million, and $0.5 million of non-cash stock compensation expense related to restricted stock grants and $0.1 million, $0.6 million, and $1.0 million of non-cash stock compensation expense related to the options granted prior to our initial public offering for the years-ended December 31, 2005, 2004, and 2003, respectively. We expect to record future stock compensation expense of $0.2 million as a result of these restricted stock grants that will be recognized over the remaining vesting period for executives.

     Non-cash stock compensation expense constitutes portions of our direct cost of revenue, research and development expense, sales and marketing expense, and general and administrative expense as detailed in the table presented with our Consolidated Statement of Operations presented in Item 15.

     As a result of a recent change in the relevant accounting standards, effective January 1, 2006, we will begin to recognize expense for all stock options granted to employees, including those issued at an exercise price equal to the fair market value of our Class A Common Stock on the date of grant, based on the fair value of the award. We do not currently recognize expense for such options in our Consolidated Statement of Operations. As described in Note 1 to our Consolidated Financial Statements presented in Item 15 in this Annual Report on Form 10-K, had we adopted the revised standard prior to December 31, 2005, the impact would have been as described in the disclosure of pro forma net loss and loss per share in Note 1 to those Consolidated Financial Statements.

     As described in Note 1 to our Consolidated Financial Statements, our Board of Directors adopted resolutions to accelerate the vesting of certain outstanding, unvested “out-of-the-money” stock options. The accelerated vesting provisions apply to all options with an exercise price of $6.00 or greater. As a result, options to purchase 1,455,000 shares of our stock became fully exercisable as of October 28, 2005.

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     The primary purpose of the accelerated vesting was to eliminate future compensation expense the Company would otherwise recognize in its statement of operations with respect to these options upon the adoption of Statement No. 123(R), which we are required to adopt on January 1, 2006. Financial Accounting Standards Board Statement No. 123(R) Share Based Payment will require that compensation expense associated with stock options be recognized in the statement of operations rather than as a pro forma footnote disclosure in our consolidated financial statements. The acceleration of the vesting of these options will eliminate the future non-cash stock compensation expense associated with these outstanding options. We estimate that the related future compensation expense to be recorded under Statement No. 123(R) that is eliminated as a result of the acceleration of vesting these options is approximately $1.2 million.

Depreciation and Amortization of Property and Equipment:

					2005 vs. 2004							2004 vs. 2003
($ in millions)	2005		2004		$		%			2003		$		%
Depreciation and amortization of property and equipment	$	8.6	$	7.4	$	1.2		17	%	$	6.6	$	0.8		11	%
Average gross cost of property and equipment	$	47.4	$	38.3	$	9.1		24	%	$	29.2	$	9.1		31	%

     Depreciation and amortization of property and equipment represents the period costs associated with our investment in computers, telephony equipment, internal use software, furniture and fixtures, and leasehold improvements. We compute depreciation and amortization using the straight-line method over the estimated useful lives of the assets. The estimated useful life of an asset generally ranges from 5 years for furniture, fixtures, and leasehold improvements to 3 years for most other types of assets including computers, software, telephony equipment and vehicles. Expense generally increases year over year as a result of the level of capital expenditures made during the year to support our operations and development efforts. Our depreciable asset base increased significantly throughout 2004 and into 2005 as a result of several major capital projects, including a company-wide computer hardware upgrade in 2005, enhancements to and the consolidation of facilities for our network operations center for our Commercial Applications segment, and the completion of an office move in 2004.

Amortization of Acquired Intangible Assets:

					2005 vs. 2004						2004 vs. 2003
($ in millions)	2005		2004		$		%		2003		$		%
Amortization of acquired intangible assets	$	0.2	$	—	$	0.2		NM	$	0.5	$	(0.5)		NM

     The acquired intangible assets associated with the Kivera Acquisition are being amortized over their useful lives of between three and nineteen years. The expense recognized in 2005 and 2004 relates to the intangible assets acquired in this acquisition, including customer lists, customer contracts, trademarks, and patents. The expense in 2003 related to the amortization of the Xypoint trade name that was amortized based on its estimated useful life of three years using the straight-line method and was fully amortized by December 31, 2003.

     At least annually, we perform an analysis of our goodwill for impairment in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The analysis of goodwill includes, among other factors, evaluating management’s estimates of the future cash flows to be received from the assets. Based upon this analysis, we have concluded in each period presented that the goodwill had not been impaired.

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Interest Expense:

							2005 vs. 2004								2004 vs. 2003
($ in millions)		2005			2004		$			%			2003		$		%
Interest expense incurred on capital lease obligations			$0.3			$0.2	$	0.1			16	%		$0.4		$(0.2)		(44	%)
Interest expense incurred on notes payable and under our bank credit agreement			0.5			1.2		(0.8	)		(63	%)		0.5		0.7		NM
Amortization of deferred financing fees			0.5			0.5		—			(6	%)		0.2		0.3		NM
Amortization of deferred debt discount related to convertible subordinated debentures			—			1.3		(1.3	)		(100	%)		—		1.3		NM
Less: Capitalized interest			(0.1	)		—		(0.1	)		NM			—		—		NM
	Total Interest Expense		$1.2			$3.2	$	(2.0	)		(63	%)		$1.1		$2.1		NM

     Interest expense is incurred under notes payable, an equipment loan, a line of credit, and capital lease obligations. Interest, under the terms of our notes payable, is primarily at stated interest rates of between 7.75% and 10.5% while an equipment loan is at 5.5% and any line of credit borrowing is at variable rates equal to 8.5% as of December 31, 2005. As described in Note 12 to our Consolidated Financial Statements presented as Part IV in this Annual Report on Form 10-K, as of October 14, 2005 we extended and increased our line of credit. The amended line of credit expires in September 2008 and our maximum line of credit increased from $15 million to $22 million, subject to borrowing base limitations and working capital metrics. The interest rate charged increased from prime plus 1% to prime plus 1.25% on drawings under the line. Our amended line of credit also contains certain modifications to the covenants, which are detailed below in Liquidity and Capital Resources.

     Our capital lease obligations include interest at various amounts depending on the lease arrangement. In the second half of 2004 and throughout 2005, we increased our capital lease obligations relative to the amounts outstanding in 2003. Our interest under capital leases fluctuates depending on the amount of capital lease obligations in each year. Conversely, interest under the terms of our notes payable are primarily at stated interest rates of 7.75% per annum and our borrowings under the terms of our outstanding notes payable have decreased since 2004. Interest expense under these notes fluctuates depending on the amount of notes payable outstanding in each year.

     In January 2004, we issued a convertible subordinated debenture with a face value of $15 million (the “Debenture”) to fund a portion of the Enterprise Acquisition. Debt discount relates to the amount of discount computed as part of the financing for the Debenture. Such discount was recorded as a reduction of debt and amortized over the life of the convertible subordinated debenture, which was converted prior to December 31, 2004.

     Deferred financing fees relate to the up-front payment of fees to secure our notes payable and our revolving line of credit facility. The amortization of the deferred financing fees in 2004 also includes deferred financing fees paid to secure the Debenture. The remaining deferred financing fees for the Debenture were recorded ratably to expense as the Debenture was converted prior to December 31, 2004, and are therefore not included in expense for 2005. All other deferred financing fees are being amortized over the term of the note or, in the case of the amended line of credit, the life of the facility, which now expires in September 2008.

     Overall, our interest expense decreased in 2005 compared to 2004 primarily as a result of the conversion of the Debenture in 2004. As a result of the conversion, we did not recognize any interest on $15 million face value of the Debenture, amortization of the related deferred financing fees, or amortization of debt discount in

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2005. The 2004 increase in interest expense versus 2003 is also due to the interest associated with the Debenture.

     Interest expense incurred on the Debenture issued in connection with the Enterprise Acquisition accrued at the rate of 3% of the face value of the Debenture prior to the date of the Waiver (see “Item 5. Market for Registrant’s Common Equity and Issuer Purchases of Equity Securities” and Note 4 to the audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K). Debt discount relates to the amount of discount computed as part of the financing for the Enterprise Acquisition. Such discount was recorded as a reduction of debt and amortized over the life of the convertible subordinated debenture. Subsequent to the date of the Waiver, the discount was recorded ratably to expense as the Debenture was converted. The amortization of the deferred financing fees includes $0.2 million related to deferred financing fees paid to secure the Debenture and related stock issuance while the remainder of these fees relate to the up-front payment of fees to secure our notes payable and our revolving line of credit facility. Subsequent to the date of the Waiver, the remaining deferred financing fees for the Debenture were recorded ratably to expense as the Debenture was converted. All other deferred financing fees are being amortized over the term of the note or, in the case of the line of credit, the life of the facility, which expires in September 2008.

Debt Conversion Expense:

     To fund the Enterprise Acquisition in 2004, we issued a convertible subordinated debenture with a face value of $15 million due in lump sum on January 13, 2009 in cash or shares of our Class A Common Stock at our option. As of August 30, 2004, we entered into a Waiver Agreement with the holder of the Debenture. The Waiver modified certain provisions of the Debenture. See “Market for Registrant’s Common Equity and Issuer Purchases of Equity Securities” and Note 4 to the audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. Subsequent to the date of the Waiver, the excess of the amortization of the debt discount and deferred financing fees that was recorded ratably to expense as the Debenture was converted over the monthly amortization calculated using the original life of the Debenture was recognized as debt conversion expense. The $1.0 million cash fee paid as an inducement to the Waiver and the fair value of the additional shares of our Class A Common Stock issued upon conversion of the Debenture were also recorded as debt conversion expense. There was no such arrangement in either 2005 or 2003.

Other(Expense)/ Income, Net:

							2005 vs. 2004								2004 vs. 2003
($ in millions)	2005			2004			$			%			2003		$			%
Foreign currency translation/ transaction (loss)/gain	$	(0.2	)	$	0.1		$	(0.3	)		NM		$	0.5	$	(0.4	)		NM
Miscellaneous other (expense)/ income		0.1			(0.1	)		0.2			NM			1.0		(1.2	)		NM
Total other (expense)/ income, net	$	(0.1	)	$	(0.1	)		—			69	%	$	1.5	$	(1.6	)		NM
Revenues billed in foreign currency	$	6.9		$	6.5		$	0.4			6	%	$	3.6	$	2.9			80	%

     Other (expense)/income, net consists primarily of foreign currency translation/transaction gain or loss. We record the effects of foreign currency translation on our receivables that are stated in currencies other than our functional currency. The other components of other (expense)/income, net typically are not significant, with the exception of a gain realized in 2003 resulting from insurance proceeds of $0.7 million related to the recovery from a theft claim.

Income Taxes:

     Because we have incurred net losses since 1999, no provision for federal or state income taxes has been made for the years ended December 31, 2005, 2004 and 2003. As a result of uncertainties regarding the realizability of the related assets, we have recorded a full valuation allowance for our deferred tax assets in our

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audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. Our net operating loss carryforwards from acquired businesses will begin to expire in 2011 and the net operating loss carryforwards from our operations will expire from 2019 through 2025.

Discontinued Operations- Enterprise assets

     As of December 31, 2005, as a result of slower-than-anticipated market adoption of key technologies related to the Enterprise assets and management’s strategic decision to focus on our core technologies, we committed to a plan to sell the Enterprise assets which we acquired from Aether Systems, Inc. in 2004. The plan was approved by our Board of Directors on December 29, 2005, and we have engaged an investment bank that is actively marketing the Enterprise assets. Due to the slower-than-anticipated market adoption of the technologies described above, these assets have not performed up to management’s expectations, leading to an increase in the loss from discontinued operations in 2005 versus 2004. Management believes that the sale of these assets will allow us to focus more directly on our core lines of business. We expect to complete the sale of these assets by the end of 2006.

     The following table presents income statement data for the Enterprise division, currently reported as discontinued operations. Previously, these results were reported as part of the results of our Commercial Applications segment.

								2005 vs. 2004
($ in millions)		2005			2004			$			%
Hosted, subscriber, and maintenance revenue		$	22.5		$	38.5		$	(16.0	)		(42	%)
Systems revenue			5.6			7.5			(1.9	)		(25	%)
	Total Enterprise revenue		28.1			46.0			(17.9	)		(39	%)
Direct cost of hosted, subscriber, and maintenance			15.7			29.9			(14.2	)		(48	%)
Direct cost of systems			6.3			5.4			1.0			19	%
	Total Enterprise segment cost of revenue		22.1			35.3			(13.2	)		(38	%)
Hosted, subscriber, and maintenance gross profit			6.9			8.6			(1.9	)		(20	%)
Systems gross profit			(0.8	)		2.1			(2.9	)		NM
	Total Enterprise gross profit		6.0			10.7			(4.7	)		(43	%)
Research and development, sales, marketing, and general and administrative expenses			9.9			10.8			(0.9	)		(8	%)
	Subtotal		(3.9	)		(0.1	)		(3.8	)		NM
Depreciation and amortization			3.3			2.5			0.8			29	%
	Loss from discontinued operations	$	(7.2	)	$	(2.6	)	$	(4.6	)		NM

Net Loss:

								2005 vs. 2004									2004 vs. 2003
($ in millions)		2005			2004			$			%			2003			$			%
Net loss from continuing operations		$	(4.3	)	$	(15.9	)	$	11.6			(73	%)	$	(13.5	)	$	(2.4	)		18	%
Loss from discontinued operations			(7.2	)		(2.6	)		(4.6	)		NM			—			(2.6	)		NM
	Net loss	$	(11.5	)	$	(18.5	)	$	7.0			(38	%)	$	(13.5	)	$	(5.0	)		38	%

     Net loss decreased in 2005 compared to 2004 primarily due to the expense in 2004 for debt conversion expense associated with our August 2004 Waiver Agreement and the capitalization of certain research and development expenses in 2005, increased gross profit from our revenue sources, and other factors discussed above. Net loss increased in 2004 compared to 2003 due to the debt conversion expense associated with

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our August 2004 Waiver Agreement, partially offset by significant increases in gross profit from growing revenue and an increased gross margin percentage.

Liquidity and Capital Resources

     The following table summarizes our comparative statements of cash flow:

									2005 vs. 2004									2004 vs. 2003
($ in millions)			2005			2004			$			%			2003			$			%
Net cash and cash equivalents provided by (used in):
	Net loss		$	(11.5	)	$	(18.5	)	$	7.1			38	%	$	(13.5	)	$	(5.0	)		(38	%)
	Non-cash charges			14.8			20.8			(6.1	)		(29	%)		18.1			2.7			15	%
	Net changes in working capital			1.5			(2.1	)		3.6			NM			(8.6	)		6.5			75	%
		Operating activities		4.8			0.2			4.6			NM			(4.0	)		4.2			NM
	Acquisitions, net of cash acquired			(0.1	)		(24.8	)		24.7			NM			—			(24.8	)		NM
	Purchases of property and equipment			(6.1	)		(7.0	)		0.9			13	%		(6.0	)		(1.0	)		(18	%)
	Capitalized software development costs			(2.5	)		—			(2.5	)		NM			(1.9	)		1.9			NM
	Other			—			2.7			(2.7	)		NM			(1.7	)		4.4			NM
		Investing activities		(8.7	)		(29.0	)		20.3			(68	%)		(9.5	)		(19.5	)		NM
	Payments on debt and leases			(10.5	)		(8.9	)		(1.6	)		18	%		(5.5	)		(3.4	)		65	%
	Proceeds from issuance of stock and debentures, net			(0.1	)		28.2			(28.3	)		NM			—			28.2			NM
	Proceeds from borrowings			5.0			7.5			(2.5	)		(33	%)		9.3			(1.8	)		(19	%)
	Proceeds from employee option exercises			0.8			1.4			(0.7	)		(50	%)		1.1			0.3			31	%
		Financing activities		(4.8	)		28.2			(33.0	)		NM			4.9			23.3			NM
Net change in cash and cash equivalents			$	(8.8	)	$	(0.7	)	$	(8.1	)		NM		$	(8.6	)	$	7.9			NM
Days revenues outstanding in accounts receivable including unbilled receivables				91			122									107

     We have funded our operations, acquisitions, and capital expenditures primarily using profit from our operations as well as the net proceeds from our January 2004 private placement of convertible subordinated debentures and common stock (described below), which generated net proceeds of approximately $19.9 million, our August 2004 placement of our common stock (described below), which generated net proceeds of approximately $8.3 million, our March 10, 2006 secured notes and warrants (described below) which generated net cash proceeds of approximately $9.3 million, leasing, and long-term debt. In 2005, we reduced discretionary spending to minimize the short-term need for supplemental cash.

     On October 14, 2005, we amended and extended our line of credit agreement with our principal bank. Under the amended agreement, the availability of the line is extended to September 2008, and our borrowing availability is increased from $15 million to $22 million. Borrowings at any time are limited based principally on accounts receivable and inventory levels and a working capital ratio, each as defined in the amended line of credit agreement. Borrowings are also limited by the amount of letters of credit outstanding ($0.9 million at December 31, 2005). The amended line of credit is secured by substantially all assets of the company, and bears interest at prime plus 1.25% per annum, with a minimum prime rate of 4.25% per annum and a borrowing rate of 8.5% per annum at December 31, 2005. Our amended line of credit contains covenants requiring us to maintain at least $29.5 million of tangible net worth, as defined, and at least $5 million in cash (each measured monthly) as well as restrictive covenants including, among others, restrictions on our ability to merge, acquire assets above prescribed thresholds, undertake actions outside the ordinary course of our business (including the incurrence of indebtedness), guarantee debt, distribute dividends, and repurchase our

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stock. On March 10, 2006, the tangible net worth covenant, as defined, was amended such that the Company will only be required to maintain at least $23.5 million of tangible net worth, as defined, through March 31, 2007, at which time the amount of required tangible net worth, as defined, reverts back to the $29.5 million. The minimum tangible net worth amount per the line of credit agreement is adjusted upward for income, subordinated debt and equity raised and proceeds of any sale of Enterprise assets.

     In 2003 we borrowed $2.5 million under the terms of an equipment loan secured by purchased equipment for a term of three years. As of December 31, 2005, approximately $0.8 million was outstanding under the equipment loan which will be paid monthly through December 2006. There was $8.0 million outstanding under our line of credit. We had approximately $1.9 million of unused availability under our line of credit and our tangible net worth, as defined, was $31.1 million as of December 31, 2005. We are in compliance with our covenants as of December 31, 2005.

     We currently believe that we have sufficient capital resources with cash generated from operations as well as cash on hand to meet our anticipated cash operating expenses, working capital, and capital expenditure and debt service needs for the next twelve months. We expect additional cash in 2006 from sales of our Enterprise division and surplus patents. We have borrowing capacity available to us in the form of capital leases as well as a line of credit arrangement with our bank which expires in September 2008. We may also consider raising capital in the public markets as a means to meet our capital needs and to invest in our business. Although we may need to return to the capital markets, establish new credit facilities or raise capital in private transactions in order to meet our capital requirements, we can offer no assurances that we will be able to access these potential sources of funds on terms acceptable to us or at all.

     We have incurred net losses in recent years, and our monthly cash flows are subject to variability. In order to improve our results of operations and cash flows, we are focusing our efforts on revenue growth, primarily in the hosted and subscriber service lines, which provide for more predictable revenue streams. We have also committed to a plan to sell the Enterprise assets. In the event that our results of operations in 2006 are not adequate to fund ongoing obligations, and/or we are not able to sell the Enterprise assets, we would defer or avoid cash expenditures in other areas, including research and development, capital expenditures and/or administrative costs. We believe that our existing cash resources, including proceeds received from financings which occurred in March 2006, and availability under the bank line of credit, coupled with expected cash from operations, will provide sufficient liquidity for us to continue to meet our obligations for the next twelve months. However, there can be no assurance that cash flows from operations will be sufficient to fund our obligations and, as discussed below, the provisions of our lending documents create the possibility that our financing arrangements may not remain available to us.

     Our bank credit agreement contains a tangible net worth covenant which is required to be met on a monthly basis. In March, 2006 the bank amended our line of credit agreement, reducing the tangible net worth requirement through March 31, 2007. The line of credit agreement also contains a subjective acceleration clause which allows the bank to declare the amounts outstanding under the line of credit due and payable if certain material adverse changes occur. Also, the loan document governing the subordinated debt issued in March 2006 contains a cross-default provision that would allow the debt holder to accelerate payment of the subordinated debt if other debt exceeding $2.5 million is declared due and payable. We believe that we will continue to comply with our restrictive covenants under our debt agreements. If our performance does not result in compliance with any of the restrictive covenants, or if our line of credit agreement lender seeks to exercise its rights under the subjective acceleration clause referred to above, we would seek to further modify our financing arrangements, but there can be no assurance that our debt holders would not exercise their rights and remedies under their agreements with us, including declaring all outstanding debt due and payable. See Note 12 to our audited Consolidated Financial Statements for a more detailed description of the restrictive covenants under our debt agreements and Note 25 to our Consolidated Financial Statements for a more detailed description of the secured notes entered into in March 2006.

     Operating cash flows improved in 2005 primarily as a result of increased cash provided by lower working capital needs and improved earnings. A significant favorable change in unbilled receivables and, to a lesser extent, accounts payable and accrued expenses, accrued payroll and deferred revenue were partially offset by

41

the unfavorable changes in accounts receivable, inventory and other current assets. Management increased its focus on its billing and collection efforts in 2005 which reduced total days outstanding to 91 from 122 days in 2004. Additionally, there were fewer long-term projects that remained open in 2005 compared to 2004 and 2003, and therefore unbilled receivables were lower in 2005.

     Net cash used in investing activities was lower in 2005 than 2004 because there were no 2005 acquisitions, like our 2004 Enterprise and Kivera acquisitions (described below). The acquisitions accounted for approximately $24.8 million of the cash used for investing activities during 2004. The amount of capital expenditures in 2005 were $6.1 million and capitalized software development costs were $2.5 million. Capital expenditure in 2004 were slightly higher at $7.0 million and included an increase in capital expenditures to support our service bureau office move and to expand our business. There were no capitalized software development costs in 2004 due to the stage of development efforts incurred in 2004 and management’s judgments as to the realizability of these costs at that time. Net cash used in investing activities was lower in 2003 compared to 2004 primarily because of the 2004 acquisitions.

     Net cash of $4.8 million was used for financing activities in 2005 compared to $28.2 million provided by financing activities in 2004 and $4.9 million provided by financing activities in 2003. In 2005, we made payments under long-term debt and capital lease obligations while increasing borrowing under our line of credit to a lesser extent. The change in 2005 compared to 2004 is primarily due to the January 2004 and August 2004 financings (see below) which did not recur in 2005. These offerings provided net proceeds of approximately $28.2 million. These proceeds were used to fund our acquisitions and for payments under our existing long-term debt and capital lease obligations. Net cash provided by financing activities in 2003 included proceeds from increases in long-term debt obligations used to fund capital expenditures as an alternative to capital lease obligations.

     On September 20, 2004, we acquired substantially all of the assets of Kivera, Inc., for approximately $5.5 million in cash. To fund the Kivera acquisition, on August 30, 2004 we entered a Securities Purchase Agreement with the same third party investors who purchased our securities used to finance the Enterprise Acquisition. Pursuant to this agreement, we raised $10.0 million in cash through the sale of 2,500,000 shares of our Class A Common Stock. Combined proceeds from both the January and August financings, after financing fees, were approximately $28.2 million. As of the same date, we entered into a Waiver Agreement with the holder of the Debenture. The Waiver modified certain provisions of the Debenture as follows: (1) the holder of the Debenture was required to convert the entire $15 million principal amount into shares of our Class A Common Stock by the end of 2004, (2) all of the material restrictive covenants contained in the Debenture were nullified and (3) the conversion price set forth in the Debenture was decreased from $5.3753 to $5.01581 as an inducement to enter into the Waiver (an adjustment such that conversion of the Debenture will yield an additional 200,000 shares of Class A Common Stock). As additional consideration, we paid the holder of the Debenture a $1 million one-time fee in cash. As a result, the entire face amount of the Debenture had been converted into shares of our Class A Common Stock as of December 31, 2004.

     On March 10, 2006, pursuant to a note purchase agreement dated the same date, we issued and sold to two institutional lenders (i) $10 million in aggregate principal amount of secured notes due March 10, 2009, which bear cash interest at the rate of 14% per annum, or non-cash interest, in the form of additional notes, at the rate of 16% per annum, at our option, and (ii) warrants to purchase an aggregate of 1.75 million shares of our Class A Common Stock at an exercise price of $2.40 per share. We received net cash proceeds of approximately $9.3 million from this transaction, which are intended to be used for general corporate purposes.

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     The warrants issued in the January 2004 financing described above contain provisions requiring an adjustment in both the warrant price and the number of warrants outstanding as a consequence of the issuance of the new warrants in March 2006. Consequently, the warrants from 2004 have been adjusted to a purchase price of $2.50 per share and the total number of January 2004 warrants now outstanding has been adjusted to 886,787. The note purchase agreement includes a provision such that if we default on any of our debt obligations exceeding $2.5 million, the secured subordinated notes shall become due and payable at the election of the holders of the notes.

Off-Balance Sheet Arrangements

     We had standby letters of credit totaling approximately $0.9 million at year-end 2005 and $0.8 million at year-end 2004. The standby letters of credit are in support of processing credit card payments from our customers, as collateral with a vendor and security for office space. In March 2006, an additional $2.5 million standby letter of credit has been issued in accordance with a contracting requirement for a project being performed by our Government segment.

Contractual Commitments

     As of December 31, 2005, our most significant commitments consisted of long-term debt, obligations under capital leases and non-cancelable operating leases. We lease certain furniture and computer equipment under capital leases. We lease office space and equipment under non-cancelable operating leases. As of December 31, 2005 our commitments consisted of the following:

($ in millions)		2006		2007-2008		2009-2010		Beyond		Total
Notes payable		$	2.2	$	0.5	$	—	$	—	$	2.7
Line of credit			8.0		—		—		—		8.0
Capital lease obligations			3.2		3.0		—		—		6.2
Operating leases, primarily for office space			3.4		5.7		2.7		—		11.8
	Total contractual commitments	$	16.8	$	9.2	$	2.7	$	—	$	28.7

Related Party Transactions

     In February 2003, we entered into a lease with Annapolis Partners LLC to explore the opportunity of relocating our Annapolis offices to a planned new real estate development. Our President and Chief Executive Officer owns a controlling voting and economic interest in Annapolis Partners LLC and he also serves as a member. The financial and many other terms of the lease have not yet been established. The lease is subject to several contingencies and rights of termination. For example, the lease can be terminated at the sole discretion of our Board of Directors if the terms and conditions of the development are unacceptable to us, including without limitation the circumstances that market conditions make the lease not favorable to us or the overall cost is not in the best interest to us or our shareholders, or any legal or regulatory restrictions apply. Our Board of Directors will evaluate this opportunity along with alternatives that are or may become available in the relevant time periods and there is no assurance that we will enter into a definitive lease at this new development site.

Item 7A.  Qualitative and Quantitative Disclosures about Market Risk

Interest Rate Risk

     We have limited exposure to financial market risks, including changes in interest rates. As discussed above under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources,” we have a $22 million line of credit. A hypothetical 100 basis point adverse movement (increase) in the prime rate would have increased our interest expense for the year ended December 31, 2005 by approximately $36,000, resulting in no significant impact on our consolidated financial position, results of operations or cash flows.

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     At December 31, 2005, we had cash and cash equivalents of $9.3 million. Cash and cash equivalents consisted of demand deposits and money market accounts that are interest rate sensitive. However, these investments have short maturities mitigating their sensitivity to interest rates. A hypothetical 100 basis point adverse movement (decrease) in interest rates would have increased our net loss for 2005 by approximately $0.1 million, resulting in no significant impact on our consolidated financial position, results of operations or cash flows.

Foreign Currency Risk

     For the year ended December 31, 2005, we generated $6.9 million of revenue outside the U.S. A majority of our transactions generated outside the U.S. are denominated in U.S. dollars, and a change in exchange rates would not have a material impact on our Consolidated Financial Statements. As of December 31, 2005, we had approximately $0.2 million in accounts receivable and $0.1 million in unbilled receivables that are denominated in foreign currencies and would be exposed to foreign currency exchange risk. During 2005, our average receivables and unbilled receivables subject to foreign currency exchange risk were $1.4 million and $0.2 million, respectively. We recorded transaction losses of $0.2 million on foreign currency denominated receivables for the year ended December 31, 2005.

Item 8.  Financial Statements and Supplementary Data

     The financial statements listed in Item 15 are included in this Annual Report on Form 10-K beginning on page F-1.

Item 9.  Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

     None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) are effective at a reasonable assurance level in ensuring that all information required in the reports it files or submits under the Act was accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures and that information was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission.

Management’s Report on Internal Control over Financial Reporting

     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2005 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.

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     Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, which has issued an attestation report thereon included herein.

Changes in Internal Control over Financial Reporting

     In closing the third quarter of 2005, the Company became aware of problems with its documentation and procedures regarding revenue recognition of contracts with multiple element arrangements. We implemented improvements that remediated these issues prior to December 31, 2005. There were no other changes in internal control over financial reporting during the quarter ended December 31, 2005 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm —

Internal Control Over Financial Reporting

The Board of Directors and Stockholders

of TeleCommunication Systems, Inc.

     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that TeleCommunication Systems, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). TeleCommunication Systems, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, management’s assessment that TeleCommunication Systems, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, TeleCommunication Systems, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of TeleCommunication Systems, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005 of TeleCommunication Systems, Inc. and our report dated March 16, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Baltimore, Maryland

March 16, 2006

46

Part III

Item 10.  Directors and Executive Officers of the Registrant

     The information required by this Item 10 is incorporated by reference from the information captioned “Board of Directors” and “Security Ownership of Certain Beneficial Owners and Management” to be included in the Company’s definitive proxy statement to be filed in connection with the Annual Meeting of Stockholders, to be held on June 8, 2006 (the “Proxy Statement”).

Item 11.  Executive Compensation

     The information required by this Item 11 is incorporated by reference from the information captioned “Board of Directors” and “Executive Compensation” to be included in the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The information required by this Item 12 is incorporated by reference from the information captioned “Beneficial Ownership of TCS Common Stock” to be included in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

     The information required by this Item 13 is incorporated by reference from the information captioned “Certain Transactions Relating to TeleCommunication Systems, Inc.” to be included in the Proxy Statement.

Item 14.  Principal Accountant Fees and Services

     The information required by this Item 14 is incorporated by reference from the information captioned “Principal Accountant Fees and Services” to be included in the Proxy Statement.

47

Part IV

Item 15.  Exhibits, Financial Statement Schedules

(a)(1) Financial Statements

     The financial statements listed in Item 15 are included in this Annual Report on Form 10-K beginning on page F-1.

(a)(2) Financial Statement Schedules

     The financial statement schedule required by Item 15 is included in Exhibit 12 to this Annual Report on Form 10-K.

Exhibits

     The exhibits are listed in the Exhibit Index immediately preceding the exhibits.

48

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2005 and 2004	F-3
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2005	F-4
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2005	F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005	F-7
Notes to Consolidated Financial Statements	F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

TeleCommunication Systems, Inc.

     We have audited the accompanying consolidated balance sheets of TeleCommunication Systems, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. As of December 31, 2005 and for the year then ended, we did not audit the financial statements of TeleCommunication Systems (Holdings) Ltd, a wholly-owned subsidiary, which statements reflect total assets of 5 percent of the consolidated total as of December 31, 2005 and a net loss, which represents 25% of the consolidated loss from discontinued operations for the year then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for TeleCommunication Systems (Holdings) Ltd, is based solely on the report of the other auditors

     We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

     In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TeleCommunication Systems, Inc. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of TeleCommunication Systems, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Baltimore, Maryland

March 16, 2006

F-2

TeleCommunication Systems, Inc.

Consolidated Balance Sheets

(amounts in thousands, except share data)

					December 31,			December 31,
					2005			2004
Assets
	Current assets:
		Cash and cash equivalents			$	9,320		$	18,251
		Accounts receivable, net of allowance of $233 in 2005 and $690 in 2004				20,886			18,295
		Unbilled receivables				6,361			9,885
		Inventory				3,197			3,427
		Other current assets				2,970			1,830
		Current assets of discontinued operations				22,891			7,758
				Total current assets		65,625			59,446
	Property and equipment, net of accumulated depreciation and amortization of $34,134 in 2005 and $27,504 in 2004					16,323			16,810
	Software development costs, net of accumulated amortization of $1,990 in 2005 and $1,204 in 2004					3,825			2,651
	Acquired intangible assets, net of accumulated amortization of $214 in 2005 and $37 in 2004					1,004			1,151
	Goodwill					1,813			1,761
	Other assets					1,982			1,570
	Noncurrent assets of discontinued operations					—			18,993
				Total assets	$	90,572		$	102,382
Liabilities and stockholders’ equity
	Current liabilities:
		Accounts payable and accrued expenses			$	10,175		$	8,702
		Accrued payroll and related liabilities				3,971			3,526
		Deferred revenue				4,123			3,365
		Current portion of notes payable, including line of credit				10,180			11,993
		Current portion of capital lease obligations				3,001			2,765
		Current liabilities of discontinued operations				6,719			8,891
				Total current liabilities		38,169			39,242
	Capital lease obligations and notes payable, less current portion					3,341			3,634
	Stockholders’ equity:
		Class A Common Stock; $0.01 par value:
			Authorized shares — 225,000,000; issued and outstanding shares of 31,381,575 in 2005 and 30,626,454 in 2004			314			306
		Class B Common Stock; $0.01 par value:
			Authorized shares — 75,000,000; issued and outstanding shares of 8,035,963 in 2005 and 8,409,001 in 2004			80			84
		Deferred compensation				(231	)		(787	)
		Additional paid-in capital				210,275			209,778
		Accumulated other comprehensive loss:
			Cumulative foreign currency translation adjustment			(40	)		(6	)
		Accumulated deficit				(161,336	)		(149,869	)
				Total stockholders’ equity		49,062			59,506
				Total liabilities and stockholders’ equity	$	90,572		$	102,382

See accompanying Notes to Consolidated Financial Statements.

F-3

TeleCommunication Systems, Inc.

Consolidated Statements of Operations

(amounts in thousands, except per share data)

				Year ended December 31,
				2005			2004			2003
Revenue
	Hosted, subscriber, and maintenance			$	52,867		$	44,256		$	37,656
	Services				22,105			15,978			13,923
	Systems				27,181			36,678			40,486
		Total revenue			102,153			96,912			92,065
Direct costs of revenue
	Direct cost of hosted, subscriber, and maintenance revenue, including amortization of software development costs of $0, $0, and $161, respectively				25,233			21,257			18,082
	Direct cost of services				13,981			9,669			9,835
	Direct cost of systems, including amortization of software development costs of $786, $445, and $8,874, respectively				17,719			21,227			32,299
			Total direct cost of revenue		56,933			52,153			60,216
Hosted, subscriber, and maintenance gross profit					27,634			22,999			19,574
Services gross profit					8,124			6,309			4,088
Systems gross profit					9,462			15,451			8,187
			Total gross profit		45,220			44,759			31,849
Operating costs and expenses
	Research and development expense				13,852			17,966			16,932
	Sales and marketing expense				10,517			8,917			8,917
	General and administrative expense				14,369			14,050			11,251
	Non-cash stock compensation expense				720			1,195			1,501
	Depreciation and amortization of property and equipment				8,625			7,353			6,612
	Amortization of acquired intangible assets				177			37			531
			Total operating costs and expenses		48,260			49,518			45,744
Loss from operations					(3,040	)		(4,759	)		(13,895	)
Interest expense					(1,172	)		(3,196	)		(1,088	)
Debt conversion expense					—			(7,886	)		—
Other (expense)/income, net					(104	)		(61	)		1,497
Loss from continuing operations					(4,316	)		(15,902	)		(13,486	)
Loss from discontinued operations					(7,151	)		(2,646	)		—
Net loss				$	(11,467	)	$	(18,548	)	$	(13,486	)
Loss per share:
Loss per share from continuing operations					(0.11	)		(0.48	)		(0.45	)
Loss per share from discontinued operations					(0.19	)		(0.08	)		—
Net loss per share-basic and diluted				$	(0.30	)	$	(0.56	)	$	(0.45	)
Weighted average shares outstanding-basic and diluted					38,823			33,381			29,796
Composition of non-cash stock compensation expense:
	Direct costs of revenue			$	16		$	53		$	93
	Research and development expense				11			140			245
	Sales and marketing expense				18			56			171
	General and administrative expense				675			946			992
			Total non-cash stock compensation expense	$	720		$	1,195		$	1,501

See accompanying Notes to Consolidated Financial Statements.

F-4

TeleCommunication Systems, Inc.

Consolidated Statements of Stockholders’ Equity

(amounts in thousands, except share data)

													Accumulated
	Class A			Class B						Additional			Other
	Common			Common			Deferred			Paid-In			Comprehensive		Accumulated
	Stock			Stock			Compensation			Capital			Loss		Deficit			Total
Balance at January 1, 2003	$	196		$	99		$	—		$	165,176		$	—	$	(117,835	)	$	47,636
Options exercised for the purchase of 735,151 shares of Class A Common Stock		7			—			—			919			—		—			926
Issuance of 91,243 shares of Class A Common Stock under Employee Stock Purchase Plan		1			—			—			142			—		—			143
Issuance of 1,077,250 shares of restricted Class A Common Stock to directors and key executives		11			—			(1,890	)		1,879			—		—			—
Amortization of deferred compensation expense		—			—			491			—			—		—			491
Conversion of 527,272 shares of Class B Common Stock to Class A Common Stock		5			(5	)		—			—			—		—			—
Stock compensation expense for issuance of Class A Common Stock options at below fair market value		—			—			—			1,010			—		—			1,010
Stock compensation expense for options issued to non- employees for service		—			—			—			131			—		—			131
Net loss for 2003		—			—			—			—			—		(13,486	)		(13,486	)
Balance at December 31, 2003	$	221		$	94		$	(1,399	)	$	169,256		$	—	$	(131,321	)	$	36,851
Options exercised for the purchase of 537,333 shares of Class A Common Stock		5			—			—			1,053			—		—			1,058
Issuance of 85,901 shares of Class A Common Stock under Employee Stock Purchase Plan		1			—			—			344			—		—			345
Issuance of 1,568,308 shares of Class A Common Stock in connection with the Enterprise acquisition and related financing, net of issuance costs		16			—			—			8,366			—		—			8,382
Issuance of 2,500,000 shares of Class A Common Stock in connection with a private financing, net of issuance costs		25			—			—			9,317			—		—			9,342
Issuance of 2,990,544 shares of Class A Common Stock for the conversion of the convertible subordinated debentures		29			—			—			15,871			—		—			15,900
Issuance of 45,376 shares of Class A Common Stock for accrued interest for convertible subordinated debentures		—			—			—			209			—		—			209
Surrender of 79,563 restricted shares of Class A Common Stock as payment for payroll tax withholdings		(1	)		—			—			(449	)		—		—			(450	)
Fair value of beneficial conversion feature of convertible subordinated debentures		—			—			—			3,662			—		—			3,662

(statement continued on following page)

F-5

TeleCommunication Systems, Inc.

Consolidated Statements of Stockholders’ Equity — (Continued)

(amounts in thousands, except share data)

													Accumulated
	Class A			Class B						Additional			Other
	Common			Common			Deferred			Paid-In			Comprehensive			Accumulated
	Stock			Stock			Compensation			Capital			Loss			Deficit			Total
Issuance of warrants to purchase 341,072 shares of Class A Common Stock		—			—			—			1,395			—			—			1,395
Conversion of 954,687 shares of Class B Common Stock to Class A Common Stock		10			(10	)		—			—			—			—			—
Stock compensation expense for issuance of Class A Common Stock options at below fair market value		—			—			—			583			—			—			583
Amortization of deferred compensation expense		—			—			612			—			—			—			612
Fair value of stock options issued to non-employees for service		—			—			—			171			—			—			171
Foreign currency translation adjustment		—			—			—			—			(6	)		—			(6	)
Net loss for 2004		—			—			—			—			—			(18,548	)		(18,548	)
Balance at December 31, 2004	$	306		$	84		$	(787	)	$	209,778		$	(6	)	$	(149,869	)	$	59,506
Options exercised for the purchase of 290,980 shares of Class A Common Stock		3			—			—			310			—			—			313
Issuance of 176,851 shares of Class A Common Stock under Employee Stock Purchase Plan		2			—			—			380			—			—			382
Issuance of 14,816 restricted shares of Class A Common Stock to directors and key executives		—			—			(41	)		41			—			—			—
Issuance costs related to 2,500,000 shares of Class A Common Stock in connection with a private financing		—			—			—			(81	)		—			—			(81	)
Surrender of 100,564 restricted shares of Class A Common Stock as payment for payroll tax withholdings		(1	)		—			—			(249	)		—			—			(250	)
Conversion of 373,038 shares of Class B Common Stock to Class A Common Stock		4			(4	)		—			—			—			—			—
Stock compensation expense for issuance of Class A Common Stock options at below fair market value		—			—			—			123			—			—			123
Amortization of deferred compensation expense		—			—			597			—			—			—			597
Valuation adjustment to stock options issued to non-employees for service		—			—			—			(27	)		—			—			(27	)
Foreign currency translation adjustment		—			—			—			—			(34	)		—			(34	)
Net loss for 2005		—			—			—			—			—			(11,467	)		(11,467	)
Balance at December 31, 2005	$	314		$	80		$	(231	)	$	210,275		$	(40	)	$	(161,336	)	$	49,062

See accompanying Notes to Consolidated Financial Statements.

F-6

TeleCommunication Systems, Inc.

Consolidated Statements of Cash Flows

(amounts in thousands)

			Year ended December 31,
			2005			2004			2003
Operating activities:
Net loss			$	(11,467	)	$	(18,548	)	$	(13,486	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization of property and equipment			9,310			7,795			6,612
	Amortization of acquired intangible assets			2,817			2,165			531
	Non-cash stock compensation expense			720			1,195			1,501
	Amortization of software development costs			945			597			9,035
	Non-cash debt conversion expense			—			6,886			—
	Amortization of debt discount			—			1,344			—
	Amortization of deferred financing fees included in interest expense			470			464			69
	Other non-cash expenses			484			501			403
	State of Maryland loan forgiveness			—			(100	)		(100	)
	Changes in operating assets and liabilities:
		Accounts receivable, net		(428	)		3,440			2,310
		Unbilled receivables		3,882			(1,087	)		(1,482	)
		Inventory		(634	)		(2,924	)		—
		Other assets		(2,029	)		275			(705	)
		Accounts payable and accrued expenses		253			(2,410	)		(7,457	)
		Accrued payroll and related liabilities		72			123			(64	)
		Deferred revenue		359			479			(1,163	)
Net cash provided by/(used in) operating activities				4,754			195			(3,996	)
Investing activities:
Acquisitions, net of cash acquired				(124	)		(24,751	)		—
Purchases of property and equipment				(6,077	)		(7,000	)		(5,951	)
Capitalized software development costs				(2,512	)		—			(1,865	)
Other				—			2,713			(1,690	)
Net cash used in investing activities				(8,713	)		(29,038	)		(9,506	)
Financing activities:
Payments on long-term debt and capital lease obligations				(10,451	)		(8,985	)		(5,450	)
Proceeds from issuance of Class A Common Stock and Convertible subordinated debentures				—			31,000			—
Payment to induce conversion of convertible subordinated debenture				—			(1,000	)		—
Financing fees related to issuance of Class A Common Stock and Convertible subordinated debentures				(81	)		(1,758	)		—
Proceeds from draws on revolving line of credit, net				3,004			5,000			—
Proceeds from issuance of long-term debt				2,000			2,500			9,266
Proceeds from exercise of employee stock options and sale of stock				696			1,403			1,069
Net cash (used in)/provided by financing activities				(4,832	)		28,160			4,885
Net decrease in cash				(8,791	)		(683	)		(8,617	)
Effect of exchange rates on cash and cash equivalents				(140	)		149			—
Cash and cash equivalents at the beginning of the period				18,251			18,785			27,402
Cash and cash equivalents at the end of the period			$	9,320		$	18,251		$	18,785

See accompanying Notes to Consolidated Financial Statements.

F-7

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share and per share data)

1.  Significant Accounting Policies

         Description of Business

     TeleCommunication Systems, Inc. develops and applies highly reliable wireless data communications technology. We manage our business in two segments, our Commercial Applications segment and our Government segment.

Commercial Applications Segment. Our carrier software system products enable wireless carriers to deliver short text messages, location information, internet content, and other enhanced communication services to and from wireless phones. We provide enhanced 9-1-1 (E9-1-1) services, commercial location-based services, and inter-carrier text message distribution services on a hosted, or service bureau basis. As of December 31, 2005, we provide hosted services under contracts with 36 wireless carrier networks as well as Voice-over-Internet-Protocol (VoIP) service providers. We also earn subscriber revenue through wireless applications including our Rand McNally^tm Traffic application which is available via all major US wireless carriers. We earn carrier software-based systems revenue through the sale of licenses, deployment and customization fees and maintenance fees. Pricing is generally based on the volume of capacity purchased from us by the carrier. As of December 31, 2005, we had deployed 85 software systems for our customers in wireless carrier networks around the world, including those of Verizon Wireless, Vodafone, T-Mobile, Telefonica and its affiliate Vivo, Alltel, and Hutchison Whampoa’s “3”^tm-brand third generation networks. We also provide carrier technology on a hosted, i.e., service bureau basis; that is, customers use our software functionality through connections to and from our network operations centers, paying us monthly based on the number of subscribers, cell sites, or call center circuits, or message volume. As set forth in Note 3, we acquired substantially all of the assets of Kivera, Inc. (Kivera), a provider of Internet-based location application software and geo-data professional services, on September 20, 2004. The acquired operations are included in our Commercial Applications segment beginning on the effective date of the acquisitions.

Government Segment. We design, furnish, install and operate wireless and data network communication systems, including our SwiftLink^® deployable communication systems which incorporate high speed, satellite, and internet protocol technology. More than 600 of our SwiftLink^® deployable communication systems are in use for security, defense, and law enforcement around the world. We also own and operate secure satellite teleport facilities, and resell access to satellite airtime (known as space segment).

Enterprise Assets. As set forth in Note 2, we acquired the Enterprise Mobility Solutions (Enterprise) division of Aether Systems, Inc. on January 13, 2004, with an effective date of January 1, 2004. Prior to December 31, 2005, we adopted a plan to sell the Enterprise division. These assets and the related operations are classified as discontinued operations as of December 31, 2005.

     Capital Resource Risks. We have incurred net losses in recent years, and our monthly cash flows are subject to variability. In order to improve our results of operations and cash flows, we are focusing our efforts on revenue growth, primarily in the hosted and subscriber service lines, which provide for more predictable revenue streams. We have also committed to a plan to sell the Enterprise assets, as discussed in Note 2. In the event that our results of operations in 2006 are not adequate to fund ongoing obligations, and/or we are not able to sell the Enterprise assets, we would defer or avoid cash expenditures in other areas, including research and development, capital expenditures and/or administrative costs. We believe that our existing cash resources, including proceeds received from financings which occurred in March 2006 (see Note 25), and availability under the bank line of credit (see Note 12), coupled with expected cash from operations, will provide sufficient liquidity for us to continue to meet our obligations through at least January 1, 2007.

F-8

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

However, there can be no assurance that cash flows from operations will be sufficient to fund our obligations and, as discussed below, the provisions of our lending documents create the possibility that our financing arrangements may not remain available to us.

     Our bank credit agreement contains a tangible net worth covenant which is required to be met on a monthly basis. In March, 2006 the bank amended our line of credit agreement, reducing the tangible net worth requirement through March 31, 2007, as discussed in Note 12 to the financial statements. The line of credit agreement also contains a subjective acceleration clause which allows the bank to declare the amounts outstanding under the line of credit due and payable if certain material adverse changes occur, as described in Note 12. Also, the loan document governing the subordinated debt issued in March 2006 (see Note 25) contains a cross-default provision that would allow the debt holder to accelerate payment of the subordinated debt if other debt exceeding $2,500 is declared due and payable. We believe that we will continue to comply with our restrictive covenants under our debt agreements. If our performance does not result in compliance with any of the restrictive covenants, or if our line of credit agreement lender seeks to exercise its rights under the subjective acceleration clause referred to above, we would seek to further modify our financing arrangements, but there can be no assurance that our debt holders would not exercise their rights and remedies under their agreements with us, including declaring all outstanding debt due and payable.

     Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual results could differ from those estimates.

     Principles of Consolidation. The accompanying financial statements include the accounts of our wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

     Reclassifications. We have reclassified certain prior-year amounts for comparative purposes. These reclassifications did not affect our results of operations for the years presented. In connection with the classification of our Enterprise assets as discontinued operations, as discussed in Note 2, we reclassified prior period financial data for these assets to reflect this classification as of December 31, 2005. In connection with the realignment of our segments during 2004, discussed in Note 21, we also reclassified our revenue categories, consistent with the manner in which we monitor our business. Our current revenue categories include hosted, subscriber and maintenance revenue, systems revenue and services revenue. Current and prior year amounts for revenues, direct costs of revenue and gross profit have been reclassified to conform with these classifications.

     Cash and Cash Equivalents. Cash and cash equivalents include cash and highly liquid investments with a maturity of three months or less when purchased. Cash equivalents are reported at fair value, which approximates cost. Our line of credit requires us to maintain a cash balance of at least $5 million. See Note 12 for additional information.

     Allowances for Doubtful Accounts Receivable. All of our accounts receivable are trade receivables generated in the ordinary course of our business. We use estimates to determine the amount of the allowance for doubtful accounts necessary to reduce accounts receivable to their expected net realizable value. We estimate the amount of the required allowance by reviewing the status of significant past-due receivables and by establishing provisions for estimated losses by analyzing current and historical bad debt trends. Changes to our allowance for doubtful accounts are recorded as a component of general and administrative expenses in our accompanying Consolidated Statements of Operations. Our credit and collection policies and the financial strength of our customers are critical to us in maintaining a relatively small amount of write-offs of receivables. Our credit policies are especially crucial, as we generally do not require collateral from or enter netting agreements with our customers. Receivables that are ultimately deemed uncollectible are charged-off as a reduction of receivables and the allowance for doubtful accounts.

F-9

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     Inventory. We maintain inventory of component parts and finished product for our Government deployable communications systems. Inventory is stated at the lower of cost or market. Cost is based on the weighted average method. Cost basis for finished units includes manufacturing cost. During 2005, based upon our review of the components of our inventory, the most recent sales history and the prospects for future sales, we established a reserve in order to state certain inventory units at their estimated net realizable value.

     Property and Equipment. Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of equipment, generally five years for furniture and fixtures and three years for computer equipment, software and vehicles. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the useful life of the asset or the remaining term of the lease. Assets held under capital leases are stated at the lesser of the present value of future minimum lease payments or the fair value of the property at the inception of the lease. The assets recorded under capital leases are amortized over the lesser of the lease term or the estimated useful life of the assets in a manner consistent with our depreciation policy for owned assets.

     Goodwill. Goodwill represents the excess of cost over the fair value of assets of acquired businesses. Goodwill acquired in a purchase business combination is not amortized, but instead is evaluated at least annually for impairment using a discounted cash flow model in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. A majority of our goodwill balance was reclassified to assets of discontinued operations in connection with our plan of sale of our Enterprise Assets (see Note 2, Enterprise Assets — Discontinued Operations).

     Software Development Costs. We capitalize software development costs after we establish technological feasibility, and amortize those costs over the estimated useful lives of the software beginning on the date when the software is first installed and used. Acquired technology, representing the estimated value of the proprietary technology acquired in the 2004 acquisitions, has also been recorded as capitalized software development costs.

     Costs we incurred are capitalized when technological feasibility has been established. For new products, technological feasibility is established when an operative version of the computer software product is completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the product, and has successfully completed initial customer testing. Technological feasibility for enhancements to an existing product is established when a detail program design is completed. Costs that are capitalized include direct labor, related overhead and other direct costs. These costs are amortized on a product-by-product basis using the straight-line method over the product’s estimated useful life, which is never greater than three years. Amortization is also computed using the ratio that current revenue for the product bears to the total of current and anticipated future revenue for that product (the revenue curve method). If this revenue curve method results in amortization greater than the amount computed using the straight-line method, amortization is recorded at that greater amount. Our policies to determine when to capitalize software development costs and how much to amortize in a given period require us to make subjective estimates and judgments. If our software products do not achieve the level of market acceptance that we expect and our future revenue estimates for these products change, the amount of amortization that we record may increase compared to prior periods. The amortization of capitalized software development costs has been recorded as a cost of revenue.

     Acquired technology is amortized over the product’s estimated useful life based on the purchase price allocation and valuation procedures performed at the time of the acquisition. Amortization is calculated using the ratio of the estimated future cash flows generated in each period to the estimated total cash flows to be contributed from each product or the straight-line method, whichever is greater.

F-10

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     For the year ended December 31, 2005, we capitalized $2,512 of software development costs for certain software projects after the point of technological feasibility had been reached but before the products were available for general release. Accordingly, these costs have been capitalized and are being amortized over their estimated useful lives beginning when the products are available for general release. The capitalized costs relate to our location-based software, which is part of our continuing operations.

     We believe that these capitalized costs will be recoverable from future gross profits generated by these products. Prior to the second quarter of 2005, our estimates did not sufficiently demonstrate future realizability of our software development costs expended on such products; and accordingly, all such costs were expensed as incurred.

     As of June 30, 2003, it was determined that the expected margins from selling developed versions of certain software products over their remaining useful lives was less than their remaining book value plus costs to complete. Therefore, we recorded additional amortization of $7,000 for the quarter ended June 30, 2003. This change in estimate gave consideration to the low level of license revenues earned during the second quarter of 2003 from these products and revised estimates of future revenues net of costs to complete.

     Acquired Intangible Assets. In conjunction with the Kivera acquisition in 2004, we acquired customer lists, developed technology, and patents that will be amortized over their respective estimated useful lives.

     The intangible assets acquired in the Kivera acquisition were determined to have useful lives of 5 to 19 years, with a weighted-average useful life of 7.3 years, based on the estimated cash flows to be contributed from each asset. We are amortizing these assets using the greater of the straight-line method or the revenue curve method, with amortization having begun in the fourth quarter of 2004.

     Impairment of Long-Lived Assets. Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable.

     If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows that we expect to generate from these assets. If the assets are impaired, we recognize an impairment charge equal to the amount by which the carrying amount exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying values or fair values, less estimated costs of disposal.

     Other Comprehensive Income/loss. Comprehensive income/loss includes changes in the equity of a business during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income/loss refers to revenue, expenses, gains and losses that under U.S. generally accepted accounting principles are included in comprehensive income, but excluded from net income. For operations outside the U.S. that prepare financial statements in currencies other than the U.S. dollar, results of operations and cash flows are translated at average exchange rates during the period, and assets and liabilities are translated at end-of-period exchange rates. Translation adjustments for our international subsidiaries are included as a separate component of accumulated other comprehensive loss in stockholders’ equity. Total comprehensive loss for the three years ended December 31, 2005 was not materially different than consolidated net loss.

     Revenue Recognition. Revenue is generated from our two segments as described below and as discussed more fully in Note 21.

     Hosted, Subscriber, and Maintenance Revenue. Revenue from hosted services consists of monthly recurring service fees and is recognized in the month earned. Revenue from subscriber service fees is recognized in the period earned. Revenue from activation fees is recognized ratably over the determinable portion of the customer contract, which is typically twelve months. Maintenance fees are collected in advance

F-11

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

and recognized ratably over the annual maintenance period. Any unearned revenue, including unrecognized maintenance fees, is included in deferred revenue.

     Services Revenue. We recognize services revenue primarily from the design, development and deployment of information processing and communication systems primarily for government enterprises. These services are provided under time and materials contracts, cost plus fee contracts, or fixed price contracts. Revenue is recognized under time and materials contracts and cost plus fee contracts as billable costs are incurred. Fixed-price service contracts are accounted for using the proportional performance method.

     These contracts generally allow for monthly billing or billing upon achieving certain specified milestones. Any estimated losses on contracts are recognized in their entirety at the date that they become evident.

     Systems Revenue. We design, develop, and deploy communications systems. These systems may include packaged software licenses. Systems typically contain multiple elements, which may include the product license, installation, integration, and hardware. The total arrangement fee is allocated among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. Fair value is generally determined based on the price charged when the element is sold separately. In the absence of evidence of fair value of a delivered element, revenue is allocated first to the undelivered elements based on fair value and the residual revenue to the delivered elements. The software licenses are generally perpetual licenses for a specified number of users that allow for the purchase of annual maintenance at a specified rate. All fees are recognized as revenue when four criteria are met. These four criteria are (i) evidence of an arrangement (ii) delivery has occurred, (iii) the fee is fixed or determinable and (iv) the fee is probable of collection. Software license fees billed and not recognized as revenue are included in deferred revenue. Systems containing software licenses include a 90-day warranty for defects. We have not incurred significant warranty costs on any software product to date, and no costs are currently accrued upon recording the related revenue.

     Systems revenue is also derived from fees for the development, implementation and maintenance of custom applications. Fees from the development and implementation of custom applications are generally performed under time and materials and fixed fee contracts. Revenue is recognized under time and materials contracts and cost plus fee contracts as billable costs are incurred. Fixed-price product delivery contracts are accounted for using the percentage-of-completion or proportional performance method, measured either by total costs incurred as a percentage of total estimated costs at the completion of the contract, or direct labor hours incurred compared to estimated total direct labor hours for projects for which third-party hardware represents a significant portion of the total estimated costs. These contracts generally allow for monthly billing or billing upon achieving certain specified milestones. Any estimated losses under long-term contracts are recognized in their entirety at the date that they become evident. Revenue from hardware sales to our monthly subscriber customers is recognized as systems revenue.

     Under our contracts with the U.S. government for both systems and services, contract costs, including the allocated indirect expenses, are subject to audit and adjustment by the Defense Contract Audit Agency. We record revenue under these contracts at estimated net realizable amounts.

     Revenues included in any of the three of our financial reporting categories may contain multiple elements. We evaluate these revenues following the guidance of Emerging Issues Task Force 00-21 “Revenue Arrangements with Multiple Deliverables” (EITF 00-21). This authoritative literature provides guidance on the determination of the number of units of accounting and the allocation of the total fair value among the multiple elements.

     Deferral of Costs Incurred. We defer costs incurred in certain situations as dictated by authoritative accounting literature. We defer costs for long term contracts being accounted for under the proportional performance method so that the total costs recognized at any point are indicative of the level of effort

F-12

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

expended. In addition, under the provisions of EITF 00-21, if the revenue for a delivered item is not recognized because it is not separable from the arrangement, then we defer incremental costs relating to that delivered but unrecognized element.

     Advertising Costs. Advertising is expensed as incurred. Advertising expense totaled $268, $473, and $98, for the years ended December 31, 2005, 2004 and 2003, respectively.

     Capitalized Interest. Total interest incurred was $1,312, $3,196, and $1,088 for the years ended December 31, 2005, 2004, and 2003, respectively. Approximately $140 of total interest incurred was capitalized as a component of software development costs and construction in progress during the year ended December 31, 2005. No interest was capitalized during the years ended December 31, 2004 or 2003.

     Stock-Based Compensation and Deferred Compensation. We have two stock-based employee compensation plans, which are described more fully in Note 18. We record compensation expense for all stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, (Accounting for Stock Issued to Employees) (“APB No. 25”) and related interpretations. Under APB No. 25, compensation expense is recorded pro-rata over the vesting period to the extent that the fair value of the underlying stock on the date of grant exceeds the exercise or acquisition price of the stock or stock-based award. The related compensation constitutes portions of our direct cost of revenue, research and development expense, sales and marketing expense, and general and administrative expense as detailed in the table presented with our Consolidated Statements of Operations.

     We have also granted restricted stock to directors and certain key executives as deferred compensation. The restrictions expired at the end of one year for directors and expire in annual increments over three years for executives and are based on continued employment. The fair value of the restricted stock on the date of issuance is recognized as deferred compensation and amortized to non-cash stock compensation expense using the straight-line method during the period over which the restrictions expire.

     The following table illustrates the effect on net loss and loss per common share if we had applied the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

		For the Years Ended December 31,
		2005			2004			2003
Net loss attributable to common stockholders, as reported		$	(11,467	)	$	(18,548	)	$	(13,486	)
Add: Stock-based employee compensation expense included in reported net loss			720			1,195			1,501
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards			(4,898	)		(8,477	)		(5,102	)
Pro forma net loss attributable to common stockholders		$	(15,646	)	$	(25,830	)	$	(17,087	)
Loss per share — basic and diluted:
	As reported	$	(0.30	)	$	(0.56	)	$	(0.45	)
	Pro forma	$	(0.40	)	$	(0.77	)	$	(0.57	)

F-13

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     In calculating the fair value of our stock options using Black-Scholes for the years ended December 31, 2005, 2004, and 2003, respectively, our assumptions were as follows:

	For the Years Ended
	December 31,
	2005			2004			2003
Expected life (in years)		5.5			5.5			5.0
Risk-free interest rate(%)		4.25	%		3.35	%		3.00	%
Volatility(%)		105	%		114	%		124	%
Dividend yield(%)		0	%		0	%		0	%

     Research and Development Expense. We incur research and development costs which are primarily comprised of compensation and travel expenses related to our engineers engaged in the development and enhancement of new and existing software products. All costs are expensed as incurred prior to reaching technological feasibility.

     Income Taxes. Income tax amounts and balances are accounted for using the liability method of accounting for income taxes and deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

     Recent Accounting Pronouncements. In December 2004, the Financial Accounting Standards Board (FASB) revised the previously issued Statement No. 123, Share Based Payment (Statement No. 123(R)). The objective of Statement No. 123(R) is to improve financial reporting by requiring all share based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair value. As permitted by Statement No. 123, we currently account for share-based payments to employees using APB No. 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position.

     Statement No. 123(R) allows for two adoption methods:

•  The modified prospective method which requires companies to recognize compensation cost beginning with the effective date of adoption based on (a) the requirements of Statement No. 123(R) for all share-based payments granted after the effective date of adoption and (b) the requirements of Statement No. 123(R) for all awards granted to employees prior to the effective date of adoption that remain unvested on the date of adoption; or

•  The modified retrospective method which includes the requirements of the modified prospective method described above, but also requires restatement of prior period financial statements using amounts previously disclosed under the pro forma provisions of Statement No. 123.

     On October 28, 2005 our Board of Directors adopted resolutions to accelerate the vesting of certain outstanding, unvested “out-of-the-money” stock options. The accelerated vesting provisions applied to all qualifying options with an exercise price of $6.00 or greater and as a result, options to purchase 1,455,000 shares of our stock became fully exercisable as of that date.

     The primary purpose of the accelerated vesting was to eliminate future compensation expense the Company would otherwise recognize in its statement of operations with respect to these options upon the adoption of Statement No. 123(R), which we are required to adopt on January 1, 2006 as discussed above. Statement No. 123(R) will require that compensation expense associated with stock options be recognized in the statement of operations rather than as a pro forma footnote disclosure in our consolidated financial statements. The acceleration of the vesting of these options will eliminate the future non-cash stock compensation expense associated with these outstanding options. We estimate that the related future

F-14

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

compensation expense to be recorded Statement No. 123(R) that is eliminated as a result of the acceleration of vesting these options is approximately $1,200.

     We expect to adopt Statement No. 123(R) effective January 1, 2006 using the modified prospective method. The impact of adoption of Statement No. 123(R) will depend on levels of share-based payments granted in the future. However, had we adopted Statement No. 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement No. 123 as described in the disclosure of pro forma net loss and loss per share above. The Company currently anticipates that the impact of adopting Statement No. 123(R) will result in recording approximately $2,200 of stock compensation expense in 2006, but such amount could fluctuate depending on the levels of share-based payments granted.

     In November 2004, the FASB issued Statement No. 151, Inventory Costs — an amendment of ARB No. 43, Chapter 4 (Statement No. 151.) Statement No. 151 clarifies the accounting for certain types of inventory costs. Statement No. 151 requires idle facility expense, freight, handling costs, and spoilage to be recognized in the period incurred. Statement No. 151 is effective for the first fiscal period beginning after June 15, 2005. We do not expect the implementation of Statement No. 151 to have a significant impact on our consolidated financial statements

     In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154.) Statement No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154 requires retrospective application of any change in accounting principle to prior periods’ financial statements. Statement No. 154 is effective for the first fiscal period beginning after December 15, 2005. We do not expect the implementation of Statement No. 154 to have a significant impact on our consolidated financial statements.

2.  Enterprise Assets-Discontinued Operations

     As of December 31, 2005, as a result of slower-than-anticipated market adoption of key technologies related to the Enterprise assets and management’s strategic decision to focus on our core technologies, we committed to a plan to sell the Enterprise assets which we acquired from Aether Systems, Inc. in 2004. The plan was approved by our Board of Directors on December 29, 2005. Also in December 2005, we engaged an investment bank that is actively marketing the Enterprise assets. The operations and cash flows of the business will be eliminated from ongoing operations as a result of the sale, and the company does not expect to have any significant involvement in the operations after the disposal transaction. We expect to complete the sale of these assets by the end of 2006. Accordingly, the assets, liabilities, and results of operations for the Enterprise assets have been reclassified to discontinued operations for all periods presented in the Consolidated Financial Statements included in this Annual Report on Form 10-K. The operations of the Enterprise assets had previously been included in our Commercial Applications segment.

     The Enterprise assets provide wireless data solutions, uniting messaging, and synchronization and web technologies. These solutions include package and vehicle tracking, productivity tools, and the ability to capture digital signatures for proof of delivery to a growing installed base of logistics customers. It is a leading seller of BlackBerry^® services and provides real-time financial market data to wireless device users under annual subscriber contracts in the U.S. and Europe.

     The aggregate purchase price for the Enterprise assets was $22,300, consisting of cash payments of $18,150, a note payable in the amount of $1,000, bearing interest at the prime interest rate, and 204,020 shares of our Class A Common Stock, valued at $1,056, based on the average closing price for the five days immediately preceding the closing of the Enterprise Acquisition. In addition, management incurred approximately $2,094 of costs directly related to the acquisition. The total purchase price has been allocated

F-15

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

based on the estimated fair value of the acquired tangible and intangible assets and assumed liabilities, with the excess of the purchase price over the assets acquired and liabilities assumed being allocated to goodwill. The valuation has resulted in the recognition of $12,633 of goodwill. As a result of the classification of these assets as discontinued operations, we performed an additional review of the associated goodwill and other long lived assets for impairment as of December 31, 2005. We concluded that no impairment existed as of that date.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed on January 1, 2004 at the date of the acquisition:

Assets:
	Tangible assets		$	11,573
	Acquired technology and intangible assets			7,612
	Goodwill			12,633
		Total assets		31,818
Liabilities:
	Current liabilities			9,518
		Total liabilities		9,518
Net assets acquired			$	22,300

     The valuation of the intangible assets from the Enterprise Acquisition was finalized during the first quarter of 2005. As a result, we reclassified a gross amount of $495 to acquired intangible assets and $11 to software development costs from goodwill as of January 1, 2005. The cumulative impact on amortization expense relating to prior periods from the revision of these valuations was $218. This amount was recorded as additional amortization expense for the three-months ended March 31, 2005. We believe the final purchase price allocation accurately reflects the value of the intangible assets acquired.

F-16

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     Enterprise assets and liabilities classified as discontinued operations in the accompanying Consolidated Balance Sheets are as follows:

			December 31,		December 31,
			2005		2004
Assets:
	Accounts receivable		$	3,263	$	5,657
	Unbilled receivables			260		618
	Inventory			558		558
	Other current assets			1,225		925
	Property and equipment, net of accumulated depreciation			1,863		1,107
	Software development costs, net of accumulated amortization			533		140
	Acquired intangible assets, net of accumulated amortization			2,516		4,691
	Goodwill			12,633		13,037
	Other assets			40		18
		Assets of discontinued operations		22,891		26,751
Liabilities:
	Accounts payable and accrued expenses			4,514		6,047
	Accrued payroll and related liabilities			844		981
	Deferred revenue			1,361		1,863
		Liabilities of discontinued operations		6,719		8,891
Net assets of discontinued operations			$	16,172	$	17,860

     Intangible assets consisted of the following:

			December 31, 2005						December 31, 2004
			Gross						Gross
			Carrying		Accumulated				Carrying		Accumulated
			Amount		Amortization		Net		Amount		Amortization		Net
Acquired intangible assets:
	Customer Contracts		$	4,519	$	3,043	$	1,476	$	4,208	$	1,382	$	2,826
	Customer Lists			2,165		1,458		707		1,942		637		1,305
	Trademarks			630		297		333		669		109		560
Software development costs, including acquired technology				844		311		533		287		147		140
		Total	$	8,158	$	5,109	$	3,049	$	7,106	$	2,275	$	4,831

     All assets of discontinued operations are classified as current in the December 31, 2005 consolidated balance sheet, as management expects to complete the sale of these assets for cash by December 31, 2006. Management believes that the net proceeds from selling the Enterprise Assets will exceed the December 31, 2005 net asset carrying value shown above; however, there can be no assurance in this regard.

F-17

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     Summarized results of operations for the Enterprise assets included in the accompanying Consolidated Statement of Operations were as follows:

		Year ended December 31,
		2005			2004
Hosted, subscriber and maintenance revenue		$	22,505		$	38,537
Systems revenue			5,622			7,476
	Total revenue		28,127			46,013
Hosted, subscriber and maintenance gross profit			6,850			8,597
Systems gross (loss)/profit			(825	)		2,082
	Total gross profit		6,025			10,679
Research and development, sales, marketing, and general and administrative expenses			9,851			10,755
Depreciation and amortization			3,325			2,570
Loss from discontinued operations		$	(7,151	)	$	(2,646	)

     During the fiscal years ended December 31, 2005 and 2004, total revenues generated from products and services of our Enterprise division in the U.S. were $23,100 and $39,800, respectively, and the total revenues generated from products and services of our Enterprise division outside of the U.S. were $5,000 and $6,200, respectively. The Enterprise division did not have any customers that constituted a significant portion of our consolidated net revenues. As of December 31, 2005 and 2004, our Enterprise division had approximately $2,200 and $2,800, respectively, of assets located outside the U.S.

     Since we acquired the Enterprise assets effective January 1, 2004, the results of operations of these assets were not included in the results of operations for the year ended December 31, 2003.

     The cash flows from the Enterprise asset’s operations are combined with cash flows from continuing operations on the consolidated statements of cash flows and are therefore not disclosed separately.

     Our Enterprise division’s leased facilities include a 33,000 square foot facility in Owings Mills, Maryland under a lease expiring March 2008, and a total of approximately 7,000 square feet of office space in London, Madrid, Amsterdam, and Stockholm. The leases for these facilities have varying expirations, but the agreements are generally short-term and renewable. We incurred rent expense of $900 and $719 in the years ended December 31, 2005 and 2004, respectively. We expect to incur rent expense of approximately $500 annually for the Owings Mills facility through the lease’s expiration and would incur a total annual expense of approximately $375 for the international facilities for the duration of the period that all of the various offices are maintained.

3.  Kivera Acquisition

     On September 20, 2004, we acquired substantially all of the assets of Kivera, Inc., a provider of Internet-based location application software and geo-data professional services for approximately $5,500 in cash. In addition, management incurred approximately $35 of costs directly related to the acquisition. This acquisition provided a buy-vs.-build opportunity, as Kivera’s software platform integrates easily with existing wireless carrier network elements and location platforms. Kivera’s technology can interoperate with our Xypoint^® Location Platform (XLP).

F-18

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     The purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed. The purchase price allocation resulted in the excess $1,813 of the purchase price over net assets acquired being allocated to goodwill. This goodwill has been allocated to the Commercial Applications segment, and we expect it to be deductible for tax purposes.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition:

Assets:
	Tangible assets		$	590
	Acquired intangible assets			3,771
	Goodwill			1,813
		Total assets		6,174
Liabilities:
	Current liabilities			639
		Total liabilities		639
Net assets acquired			$	5,535

     We recognized an additional $52 of goodwill during the first quarter of 2005 as the result of additional direct costs of the acquisition that were incurred. The Consolidated Balance Sheet as of December 31, 2005 reflects this allocation. The Kivera operations have been included in our consolidated results of operations as of September 20, 2004.

4.  Financing Arrangements

     In January 2004 we raised $21,000 in cash from third-parties through the issuance of (i) a convertible subordinated debenture with a face value of $15,000 (the “Debenture”), bearing interest at a stated rate of 3% per annum and due in lump sum on January 13, 2009 in cash or shares of our Class A Common Stock at our option (ii) warrants to purchase 341,072 shares of Class A Common Stock at an exercise price of $6.50 per share and expiring in January 2007, and (iii) 1,364,288 shares of Class A Common Stock. We determined that the value of the Class A Common Stock issued was $7,640 based on the quoted closing price of our Class A Common Stock on the issue date of $5.60. The difference between the proceeds from the issuance of these shares and their fair value was recognized as a debt discount. The value of the warrants was estimated to be $1,395, determined using the Black-Scholes option-pricing model and was recorded as a debt discount and additional paid-in capital. The convertible subordinated debentures provided for a contractual conversion price of $5.38 per share, and were estimated to have an issuance date beneficial conversion value of $3,662, which was recorded as a debt discount and additional paid-in capital. The resulting carrying value of the debt at issuance was $8,303, net of $6,697 of original issue discount that was being amortized over its five-year term using the effective interest method, yielding an effective interest rate of 12.6%. The terms of the Debenture described above were amended effective as of August 30, 2004, as described below.

     On August 30, 2004, we entered a Securities Purchase Agreement (the “August 2004 Securities Purchase Agreement”) with the same third party investors who purchased our securities used to finance the Enterprise acquisition. Pursuant to the August 2004 Securities Purchase Agreement, we raised $9,342, net of offering costs in cash through the sale of 2,500,000 shares of our Class A Common Stock.

     As of the same date, we entered into a Waiver Agreement (the “Waiver”) with the holder of the Debenture. The Waiver modified certain provisions of the Debenture as follows: (1) the holder of the

F-19

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

Debenture was required to convert the entire $15,000 principal amount into shares of our Class A Common Stock by the end of 2004, (2) all of the material restrictive covenants contained in the Debenture were nullified and (3) the conversion price set forth in the Debenture was decreased from $5.3753 to $5.01581 as an inducement to enter into the Waiver (an adjustment such that conversion of the Debenture yielded an additional 200,000 shares of Class A Common Stock). As additional consideration for the holder of the Debenture agreeing to the Waiver, we paid the holder of the Debenture a $1,000 one-time fee in cash. The $1,000 fee was recognized ratably to expense as the Debenture was converted. The fair value of the additional shares of Class A Common Stock to be issued as an inducement, measured as of the date of the Waiver, was $900, which was recognized ratably to expense as the Debenture was converted. The remaining deferred debt discount of approximately $5,800 and deferred financing fees of $700 was recognized as expense ratably as the Debenture was converted through the end of 2004. As of December 31, 2004, the entire Debenture had been converted to Class A Common Stock pursuant to the Waiver.

5.  Loss Per Common Share

     Basic loss per common share is based upon the average number of shares of common stock outstanding during the period. Because we incurred a loss from continuing operations in 2005, 2004, and 2003 potentially dilutive securities were excluded from the computation because the result would be anti-dilutive. These potentially dilutive securities consist of stock options, restricted stock, and warrants as discussed in Note 1, Note 18, and Note 25.

6.  Supplemental Disclosure of Cash Flow Information

     Property and equipment acquired under capital leases totaled $3,761, $6,274, and $568 during the years ended December 31, 2005, 2004, and 2003, respectively.

     Interest paid totaled $843, $1,179, and $918 during the years ended December 31, 2005, 2004, and 2003, respectively.

7.  Unbilled Receivables

     Unbilled receivables consisted of the following at December 31:

	2005		2004
Amounts billable at specified contract milestones	$	6,060	$	9,272
Contract retentions		28		142
Rate variances		273		471
	$	6,361	$	9,885

     Substantially all unbilled receivables are expected to be billed and collected within twelve months.

8.  Inventory

     Inventory consisted of the following at December 31:

		2005		2004
Component parts		$	1,934	$	1,928
Finished goods			1,263		1,499
	Total inventory at year end	$	3,197	$	3,427

F-20

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

9.  Property and Equipment

     Property and equipment consisted of the following at December 31:

		2005			2004
Computer equipment		$	31,487		$	26,997
Computer software			13,257			11,024
Furniture and fixtures			2,140			2,735
Leasehold improvements			2,466			2,451
Land			1,000			1,000
Vehicles			107			107
	Total property and equipment at cost at year end		50,457			44,314
Less: accumulated depreciation and amortization			(34,134	)		(27,504	)
	Net property and equipment at year end	$	16,323		$	16,810

10.  Acquired Intangible Assets and Capitalized Software Development Costs

     Our acquired intangible assets and capitalized software development costs consisted of the following:

			December 31, 2005						December 31, 2004
			Gross						Gross
			Carrying		Accumulated				Carrying		Accumulated
			Amount		Amortization		Net		Amount		Amortization		Net
Acquired intangible assets:
	Customer Lists		$	576	$	144	$	432	$	576	$	29	$	547
	Trademarks & Patents			612		40		572		612		8		604
Software development costs, including acquired technology				5,845		2,020		3,825		3,855		1,204		2,651
		Total	$	7,033	$	2,204	$	4,829	$	5,043	$	1,241	$	3,802

Estimated future amortization expense:
	Year ending December 31, 2006	$	1,522
	Year ending December 31, 2007	$	1,426
	Year ending December 31, 2008	$	963
	Year ending December 31, 2009	$	473
	Year ending December 31, 2010	$	32
	Thereafter	$	413

     We routinely update our estimates of the recoverability of the software products that have been capitalized. Management uses these estimates as the basis for evaluating the carrying values and remaining useful lives of the respective assets.

F-21

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

11.  Accounts Payable and Accrued Expenses

     Our accounts payable and accrued expenses consist of:

		December 31, 2005		December 31, 2004
Accounts payable		$	6,672	$	4,241
Accrued expenses			3,503		4,461
	Total accounts payable and accrued expenses at year end	$	10,175	$	8,702

     Accrued expenses consist primarily of costs incurred for which we have not yet been invoiced, accrued sales taxes, and amounts due to our E9-1-1 customers that we have billed and collected from regulating agencies on their behalf under cost recovery arrangements.

12.  Line of Credit

     In October 2005 and March 2006, we amended the agreement with our principal bank to extend and increase our line of credit. Under the amended agreement, the availability of the line is extended to September 2008, and our maximum borrowing availability was increased from $15,000 to $22,000. Borrowings at any time are limited based principally on accounts receivable levels and a working capital ratio, each as defined in the amended line of credit agreement. Borrowings are also limited by the amount of letters of credit outstanding ($907 at December 31, 2005.) The amended line of credit is secured by substantially all the assets of the company and bears interest at prime plus 1.25% per annum, with a minimum prime rate of 4.25% per annum. The borrowing rate at December 31, 2005 was 8.5% per annum. We are also subject to minimal unused commitment and collateral monitoring fees related to our line of credit, which are waived if we maintain certain levels of deposits. Our amended line of credit contains covenants requiring us to maintain at least $5,000 in cash (measured monthly) as well as other restrictive covenants including, among others, restrictions on our ability to merge, acquire assets above prescribed thresholds, undertake actions outside the ordinary course of our business (including the incurrence of indebtedness), guarantee debt, distribute dividends, and repurchase our stock, and minimum tangible net worth as described below. Pursuant to these restrictions, we obtained approval for the proposed sale of the Enterprise assets discussed in Note 2. As of December 31, 2005, we were in compliance with all of these covenants.

     Our line of credit agreement contains a tangible net worth covenant which we are required to meet on a monthly basis. In March, 2006 the bank amended our bank line of credit agreement, reducing the minimum tangible net worth requirement (as defined in the bank credit agreement) from $29,500 to $23,500 until March 31, 2007. The minimum tangible net worth amount per the line of credit agreement is adjusted upward for income, subordinated debt and equity raised and proceeds of any sale of Enterprise assets. The bank credit agreement also contains a subjective covenant that requires (i) no material adverse change in the business, operations, or financial condition of our Company occur, or (ii) no material impairment of the prospect of repayment of any portion of the bank credit agreement; or (iii) no material impairment of value or priority of the lenders security interests in the collateral of the bank credit agreement. We believe that the Company will continue to comply with its restrictive covenants. If our performance does not result in compliance with any of our restrictive covenants, we would seek to further modify our financing arrangements, but there can be no assurance that the bank would not exercise its rights and remedies under its agreement with us, including declaring all outstanding debt due and payable.

     As of December 31, 2005 and 2004, we had borrowed approximately $8,000 and $5,000, respectively, under the line of credit and there was approximately $833 and $1,667, respectively, outstanding under the

F-22

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

terms of an equipment loan as detailed in Note 13. At December 31, 2005, there were no other amounts outstanding under the line and we had approximately $1,874 of unused availability.

13.  Long-Term Debt

     Long-term debt consists of the following at December 31:

		2005			2004
Note payable dated September 30, 2005, due April 1, 2007, and bearing interest at 10.5% per annum. The note requires monthly installments of principal and interest of $90 through April 1, 2007. The note is secured by the accounts receivable of one customer			1,345			—
Note payable dated November 7, 2005, due April 1, 2007, and bearing interest at 10.5% per annum. The note requires monthly installments of principal and interest of $32 through April 1, 2007. The note is secured by the accounts receivable of one customer			472			—
Note payable dated December 30, 2003, due December 2, 2006, and bearing interest at 5.5% per annum. The note requires monthly installments of principal of $69 plus accrued interest through December 1, 2006. The note is secured by property and equipment			833			1,667
Note payable dated January 16, 2003, due January 16, 2008, and bearing interest at 6.0% per annum. The note requires monthly installments of principal and interest of $0.3 through January 16, 2008			8			12
Note payable dated March 30, 2004, paid in full October 1, 2005			—			2,079
Note payable dated February 20, 2004, paid in full November 30, 2005			—			1,031
Note payable dated September 25, 2002, paid in full September 30, 2005			—			714
Note payable dated December 20, 2002, paid in full November 30, 2005			—			895
Note payable dated June 16, 2003, paid in full October 31, 2005			—			922
Note payable dated December 1, 2003, paid in full July 1, 2005			—			515
	Total long term debt		2,658			7,835
Less: current portion			(2,176	)		(6,993	)
	Noncurrent portion of long term debt	$	482		$	842

     Aggregate maturities of long-term debt at December 31, 2005, are as follows:

2006		$	2,176
2007			482
	Total	$	2,658

F-23

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

14.  Capital Leases

     We lease certain equipment under capital leases. Property and equipment included the following amounts for capital leases at December 31:

		2005			2004
Computer equipment		$	8,922		$	5,663
Computer software			1,469			1,153
Furniture and fixtures			227			227
Leasehold improvements			46			40
	Total equipment under capital lease at cost		10,664			7,083
Less: accumulated amortization			(4,631	)		(3,997	)
	Net property and equipment under capital leases	$	6,033		$	3,086

     Capital leases are collateralized by the leased assets. Our capital leases generally contain provisions whereby we can purchase the equipment at the end of the lease for the current fair market value, capped at 10% of the original purchase price. Amortization of leased assets is included in depreciation and amortization expense.

     Future minimum payments under capital lease obligations consisted of the following at December 31, 2005:

2006		$	3,228
2007			2,302
2008			658
	Total minimum lease payments		6,188
Less: amounts representing interest			(328	)
	Present value of net minimum lease payments (including current portion of $3,001)	$	5,860

15.  Common Stock

     Our Class A common stockholders are entitled to one vote for each share of stock held for all matters submitted to a vote of stockholders. Our Class B stockholders are entitled to three votes for each share owned.

16.  Fair Value of Financial Instruments

     The fair value of our cash and cash equivalents and long-term debt approximates their respective carrying values as of December 31, 2005 and 2004.

     We used the following methods and assumptions to estimate the fair value of each class of financial instruments:

     Cash and cash equivalents, accounts receivable and accounts payable: The carrying amounts approximate fair value because of the short maturity of these instruments.

     Long-term debt: The fair value of our long-term debt was estimated by discounting the future cash flows at rates available to us for similar borrowings.

F-24

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

17. Income Taxes

     During the years ended December 31, 2005, 2004, and 2003, respectively, we did not record either a current or deferred tax provision due to our current loss position and uncertainties regarding the realization of our net deferred tax assets.

     Significant components of our deferred tax assets and liabilities at December 31 consisted of:

				2005			2004
Deferred tax assets:
	Reserves and accrued expenses			$	1,267		$	1,062
	Depreciation and amortization				2,066			1,454
	Deferred revenue				547			205
	Charitable contributions				124			111
	Stock options				76			439
	Capitalized software development costs				—			325
	Research and development tax credit				2,764			2,694
	Foreign operating loss carryforward				5,091			5,154
	Net operating loss carry forward				38,953			32,864
			Total deferred tax assets		50,888			44,308
Deferred tax liabilities:
	Capitalized software development costs				(345	)		—
	Other				(4	)		(4	)
			Total deferred tax liabilities		(349	)		(4	)
		Net deferred tax asset			50,539			44,304
Valuation allowance for net deferred tax asset					(50,539	)		(44,304	)
Net deferred tax asset recognized in the consolidated balance sheets				$	—		$	—

     At December 31, 2005, we had U.S. federal net operating loss carryforwards for income tax purposes of approximately $104,616, which includes $34,600 acquired upon the acquisition of Xypoint in 2001. The net operating loss carryforwards from Xypoint will begin to expire in 2011. The remaining net operating loss carryforwards will expire from 2019 through 2025. As of the same date, we had $16,971 of foreign net operating loss carryforwards available, which should not expire in the foreseeable future. Utilization of the Xypoint net operating losses will be limited by the Internal Revenue Code as a result of one or more ownership changes. The remaining U.S. federal net operating loss carryforwards may be subject to limitations under the Internal Revenue Code as well. We have not determined the annual amount of the limitation on these net operating losses or whether these net operating loss carryforwards will expire prior to use as a result of these limitations. We have state net operating loss carryforwards available which expire through 2025, the utilization of which will be limited in a manner similar to the federal net operating loss carryforwards. At December 31, 2005, $5,300 of our deferred deductions related to stock option exercises. To the extent that carryforwards, when realized, relate to stock option deductions, the resulting benefits will be credited to stockholders’ equity. We have established a full valuation allowance with respect to these federal and state loss carryforwards and other net deferred tax assets due to uncertainties surrounding their realization.

F-25

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     The reconciliation of the reported income tax benefit to the amount that would result by applying the U.S. federal statutory rate of 34% to loss from continuing operations for the year ended December 31 is as follows:

		2005			2004			2003
Income tax benefit at statutory rate		$	(1,467	)	$	(5,407	)	$	(4,585	)
State tax benefit			(135	)		(202	)		(556	)
Change in State tax rate			(537	)		1,597			(414	)
Research and development tax credit			(70	)		(2,694	)		—
Non-deductible items			48			2,884			430
Other			—			(337	)		(159	)
Change in valuation allowance			2,161			4,159			5,284
	Total	$	—		$	—		$	—

18.  Stock Compensation Plans

     Stock Options. We maintain a stock option plan that is administered by our Compensation Committee of our Board of Directors. The number of shares of Class A Common Stock reserved for issuance under the plan is currently 20,904,110. Options granted under the plan vest over periods ranging from one to five years and expire 10 years from the date of grant. A summary of our stock option activity and related information consists of the following for the years ended December 31 (all share amounts in thousands):

		2005					2004					2003
					Weighted					Weighted					Weighted
					Average					Average					Average
		Number of			Exercise		Number of			Exercise		Number of			Exercise
		Options			Price		Options			Price		Options			Price
Outstanding, beginning of year			8,650		$	4.25		6,148		$	2.95		6,838		$	2.95
Granted			2,786			2.55		3,800			6.00		1,240			2.05
Exercised			(291	)		1.08		(535	)		1.97		(735	)		1.26
Forfeited			(1,352	)		4.30		(763	)		3.88		(1,195	)		2.83
Outstanding, end of year			9,793		$	3.86		8,650		$	4.25		6,148		$	2.95
	Exercisable, at end of year		5,997		$	4.55		3,382		$	3.25		2,736		$	3.05
Estimated weighted-average grant- date fair value of options granted during the year		$	2.06				$	4.98				$	1.72
Weighted-average remaining contractual life of options outstanding at end of year			7.3 years					7.5 years					7.7 years

F-26

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     Exercise prices for options outstanding at December 31, 2005 ranged from $0.01 to $26.05 as follows (all share amounts in thousands):

					Weighted-Average
			Weighted-Average		Remaining				Weighted-Average
			Exercise Prices		Contractual Life				Exercise Prices
	Options		of Options		of Options		Options		of Options
Exercise Prices	Outstanding		Outstanding		Outstanding (years)		Exercisable		Exercisable
$ 0.01 – $2.61		3,801	$	2.22		8.04		1,024	$	1.67
$ 2.61 – $5.21		3,410	$	3.44		6.35		2,398	$	3.28
$ 5.21 – $7.82		2,525	$	6.76		7.52		2,518	$	6.77
$ 7.82 – $10.42		26	$	8.37		7.29		26	$	8.37
$10.42 – $26.05		31	$	14.06		4.57		31	$	14.06

     Prior to our initial public offering in 2000, we granted incentive stock options to employees and directors to purchase 885,983 shares of Class A Common Stock. The options were granted at an exercise price less than the estimated market value of Class A Common Stock at the date of grant. Net loss, as reported, includes $123, $583, and $1,010 of non-cash stock compensation expense related to these grants for the years-ended December 31, 2005, 2004, and 2003, respectively. These options had fully vested as of December 31, 2005, and accordingly we will not recognize any future expense related to these options.

     Restricted Stock Grants. In the second quarters of 2003 and 2005, we issued restricted stock to directors and certain key executives. The restrictions expire at the end of one year for directors and expire in annual increments over three years for executives and are based on continued employment. The fair value of the restricted stock at issuance has been recorded as deferred compensation and is being amortized to non-cash stock compensation expense using the straight-line method over the period during which the restrictions expire. Net loss, as reported, includes $597, $612, and $491 of non-cash stock compensation expense related to these grants for the years-ended December 31, 2005, 2004, and 2003, respectively. We expect to record future stock compensation expense of $231 as a result of these restricted stock grants that will be recognized over the remaining vesting periods.

     Employee Stock Purchase Plan. We have an employee stock purchase plan (the Plan) that gives all employees an opportunity to purchase shares of our Class A Common Stock. The Plan allows for the purchase of 684,932 shares of our Class A Common Stock at a discount of 15% of the fair market value. The discount of 15% is calculated based on the average daily share price on either the first or the last day of each quarterly enrollment period, whichever date is more favorable to the employee. Option periods are three months in duration. As of December 31, 2005, 572,783 shares of Class A Common Stock have been issued under the Plan.

     As of December 31, 2005, our total shares of Class A Common Stock reserved for future issuance is comprised of:

		(in thousands)
Stock compensation plan			3,512
Warrants (see Note 4)			341
Employee stock purchase plan			112
	Total shares restricted for future use		3,965

F-27

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

19.  Operating Leases

     We lease certain office space and equipment under non-cancelable operating leases that expire on various dates through 2010. Future minimum payments under non-cancelable operating leases with initial terms of one year or more consisted of the following at December 31, 2005:

2006	$	3,353
2007		3,175
2008		2,478
2009		1,805
2010		949
	$	11,760

     Our material leases include our principal executive office in Annapolis, Maryland under a lease expiring in March 2008, a second facility in Annapolis under a lease expiring in April 2011, a facility in Seattle, Washington under a lease expiring in September 2010, a facility in Oakland, California under a lease expiring May 2007, and a facility in Tampa, Florida under a lease expiring in December 2009. The Annapolis facilities are utilized for the executive and administrative offices, as well as portions of our Commercial Applications and Government segments. The Seattle and Oakland facilities are utilized by our Commercial Applications segment and the Tampa facility is utilized by our Government segment. Future payments on all of our leases are estimated based on future payments including the minimum future rent escalations, if any, stipulated in the respective agreements.

     Rent expense for continuing operations was $3,480, $3,136, and $3,004 for the years ended December 31, 2005, 2004, and 2003, respectively.

20.  Concentrations of Credit Risk and Major Customers

     Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of accounts receivable and unbilled receivables. Those customers that comprised 10% or more of our revenues, accounts receivable, and unbilled receivables from continuing operations are summarized in the following tables.

		% of Total Revenues For
		the Year Ended
		December 31,
Customer	Segment	2005		2004		2003
U.S. Government	Government		17%		23%		32%
Verizon Wireless	Commercial Applications		17%		20%		17%
Cingular Wireless	Commercial Applications		10%		<10%		<10%

	As of December 31, 2005				As of December 31, 2004
	Accounts		Unbilled		Accounts		Unbilled
Customer	Receivable		Receivables		Receivable		Receivables
U.S. Government		35%		16%		17%		46%
Customer A		<10%		30%		14%		<10%
Customer B		<10%		<10%		17%		<10%
Customer C		<10%		<10%		14%		<10%

     As of December 31, 2005, our total exposure to credit risk was $15,598 based on the amount due to us by those customers. As of December 31, 2004, our exposure to such risks was $16,953. We did not

F-28

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

experience significant losses from amounts due to us by any customers for the year ended December 31, 2005.

21.  Business and Geographic Segment Information

     In the fourth quarter of 2004, we realigned our segments to better manage the business subsequent to our acquisitions described in Notes 2 and 3. Our two operating segments are now (i) our Commercial Applications Segment, which consists of the previous Network Software and Service Bureau segments, along with the Kivera assets acquired in 2004 and (ii) our Government segment which consists of the previous Network Solutions segment.

     Management evaluates performance based on gross profit. We do not maintain information regarding segment assets. Accordingly, asset information by reportable segment is not presented.

     For the years ended December 31, 2005, 2004 and 2003, respectively, our total revenues include approximately $6,874, $6,457, and $3,559 of revenues generated from customers outside of the United States.

     The following table sets forth results for our reportable segments as of December 31, 2005. All revenues reported below are from external customers. Prior year amounts have been restated based upon the classification of our Enterprise Assets as discontinued operations in 2005 (see Note 2). A reconciliation of segment gross profit to net loss for the respective periods is also included below:

			Year Ended December 31,
			2005						2004						2003
			Comm.						Comm.						Comm.
			Apps		Gvmt		Total		Apps		Gvmt		Total		Apps			Gvmt		Total
Revenue
	Hosted subscriber and maintenance		$	52,454	$	413	$	52,867	$	44,256	$	—	$	44,256	$	37,656		$	—	$	37,656
	Services			1,744		20,361		22,105		365		15,613		15,978		—			13,923		13,923
	Systems			11,668		15,513		27,181		13,061		23,617		36,678		11,102			29,384		40,486
		Total revenue		65,866		36,287		102,153		57,682		39,230		96,912		48,758			43,307		92,065
Direct costs of revenue
	Direct cost of hosted, subscriber, and maintenance			25,063		170		25,233		21,257		—		21,257		18,082			—		18,082
	Direct cost of services			809		13,172		13,981		188		9,481		9,669		—			9,835		9,835
	Direct cost of systems			5,710		12,009		17,719		5,839		15,388		21,227		13,643			18,656		32,299
		Total Direct Costs		31,582		25,351		56,933		27,284		24,869		52,153		31,725			28,491		60,216
Gross profit
	Hosted, subscriber, and maintenance gross profit			27,391		243		27,634		22,999		—		22,999		19,574			—		19,574
	Services gross profit			935		7,189		8,124		177		6,132		6,309		—			4,088		4,088
	Systems gross profit			5,958		3,504		9,462		7,222		8,229		15,451		(2,541	)		10,728		8,187
		Total Gross Profit	$	34,284	$	10,936	$	45,220	$	30,398	$	14,361	$	44,759	$	17,033		$	14,816	$	31,849

F-29

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

		Year Ended December 31,
		2005			2004			2003
Total segment gross profit		$	45,220		$	44,759		$	31,849
	Research and development expense		(13,852	)		(17,966	)		(16,932	)
	Sales and marketing expense		(10,517	)		(8,917	)		(8,917	)
	General and administrative expense		(14,369	)		(14,050	)		(11,251	)
	Depreciation and amortization of property and equipment		(8,625	)		(7,353	)		(6,612	)
	Amortization of acquired intangible assets		(177	)		(37	)		(531	)
	Non-cash stock compensation expense		(720	)		(1,195	)		(1,501	)
	Interest expense		(1,172	)		(3,196	)		(1,088	)
	Debt conversion expense		—			(7,886	)		—
	Other (expense)/income, net		(104	)		(61	)		1,497
Loss from continuing operations			(4,316	)		(15,902	)		(13,486	)
Loss from discontinued operations			(7,151	)		(2,646	)		—
Net loss		$	(11,467	)	$	(18,548	)	$	(13,486	)

22.  Quarterly Financial Information (Unaudited)

     The following is a summary of the quarterly results of operations for the years ended December 31, 2005 and 2004. In connection with the classification of our Enterprise assets as discontinued operations, as discussed in Notes 1 and 2 above, we reclassified prior period financial data for these assets to reflect this classification as of December 31, 2005. The quarterly information has not been audited, but in our opinion, includes all adjustments necessary for a fair presentation.

	2005
	Three Months Ended
	(unaudited)
	March 31			June 30			September 30			December 31
Revenue	$	24,856		$	21,404		$	29,169		$	26,724
Gross profit	$	12,793		$	9,831		$	11,660		$	10,936
Loss from continuing operations	$	(575	)	$	(2,316	)	$	(313	)	$	(1,112	)
Net loss	$	(2,087	)	$	(4,038	)	$	(2,212	)	$	(3,130	)
Loss per share from continuing operations	$	(0.01	)	$	(0.05	)	$	(0.02	)	$	(0.03	)
Loss per share from discontinued operations	$	(0.04	)	$	(0.05	)	$	(0.04	)	$	(0.05	)
Net loss per share — basic and diluted	$	(0.05	)	$	(0.10	)	$	(0.06	)	$	(0.08	)

F-30

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

	2004
	Three Months Ended
	(unaudited)
	March 31			June 30			September 30			December 31
Revenue	$	20,128		$	29,099		$	26,589		$	21,096
Gross profit	$	10,001		$	14,366		$	10,651		$	9,741
(Loss) Earnings from continuing operations	$	(3,146	)	$	1,294		$	(2,216	)	$	(11,834	)
Net (loss) income	$	(3,446	)	$	863		$	(3,245	)	$	(12,720	)
(Loss) Earnings per share from continuing operations	$	(0.10	)	$	0.04		$	(0.07	)	$	(0.33	)
Loss per share from discontinued operations	$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.03	)
Net (Loss) Earnings per common share — basic	$	(0.11	)	$	0.03		$	(0.10	)	$	(0.36	)
Net (Loss) Earnings per common share — diluted	$	(0.11	)	$	0.02		$	(0.10	)	$	(0.36	)

23.  Commitments and Contingencies

     In November 2001, a shareholder class action lawsuit was filed against us, certain of our current officers and a director, and several investment banks that were the underwriters of our initial public offering (the “Underwriters”): Highstein v. Telecommunication Systems, Inc., et al., United States District Court for the Southern District of New York, Civil Action No. 01-CV-9500. The plaintiffs seek an unspecified amount of damages. The lawsuit purports to be a class action suit filed on behalf of purchasers of our common stock during the period August 8, 2000 through December 6, 2000. The plaintiffs allege that the Underwriters agreed to allocate common stock offered for sale in our initial public offering to certain purchasers in exchange for excessive and undisclosed commissions and agreements by those purchasers to make additional purchases of common stock in the aftermarket at pre-determined prices. The plaintiffs allege that all of the defendants violated Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and that the underwriters violated Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The claims against us of violation of Rule 10b-5 have been dismissed with the plaintiffs having the right to re-plead. We will continue to defend the lawsuit vigorously. On February 15, 2005, the Honorable Judge Shira A. Scheindlin, U.S.D.J. entered an order preliminarily approving a settlement proposal which we believe will result in a resolution that will not materially impact our consolidated results of operations, financial position, or cash flows. We intend to continue to defend the lawsuit until the settlement has received final approval or the matter is resolved otherwise. More than 300 other companies have been named in nearly identical lawsuits that have been filed by some of the same law firms that represent the plaintiffs in the lawsuit against us, and we believe that the majority of those companies will participate in the same settlement if approved.

     Research in Motion Limited (“RIM”), which supplies our Enterprise operations with hardware and wireless services that it in turn packages with other services and resells, recently settled legal proceedings with NTP Inc., which alleged that certain RIM products infringed on patents held by NTP Inc. There can be no assurances that there will not be further litigation concerning these patents. This creates uncertainty regarding RIM’s ability to continue to supply our Enterprise customers with services. RIM’s inability to supply services to our Enterprise customers could cause a loss of revenue and an increase of our net losses.

F-31

TeleCommunication Systems, Inc.

Notes to Consolidated Financial Statements — (Continued)

(amounts in thousands, except share and per share data)

     We are subject to certain litigation, claims and assessments which occur in the normal course of business. Based on consultation with our legal counsel, management is of the opinion that such matters, when resolved, will not have a material impact on our consolidated results of operations, financial position or cash flows.

24.  Related Party Transactions

     In February 2003, we entered into a lease with Annapolis Partners LLC to explore the opportunity of relocating our Annapolis offices to a planned new real estate development. Our President and Chief Executive Officer owns a controlling voting and economic interest in Annapolis Partners LLC and he also serves as a member. The financial and many other terms of the lease have not yet been established. The lease is subject to several contingencies and rights of termination. For example, the lease can be terminated at the sole discretion of our Board of Directors if the terms and conditions of the development are unacceptable to us, including without limitation the circumstances that market conditions make the lease not favorable to us or the overall cost is not in the best interest to us or our shareholders, or any legal or regulatory restrictions apply. Our Board of Directors will evaluate this opportunity along with alternatives that are or may become available in the relevant time periods and there is no assurance that we will enter into a definitive lease at this new development site.

25.  Subsequent Event — Institutional Financing

     On March 10, 2006, pursuant to a note purchase agreement dated the same date, we issued and sold to two institutional lenders (i) $10,000 in aggregate principal amount of secured notes due March 10, 2009, which bears cash interest at the rate of 14% per annum, or non-cash interest, in the form of additional notes, at the rate of 16% per annum, at our option, and (ii) warrants to purchase an aggregate of 1.75 million shares of our Class A Common Stock at an exercise price of $2.40 per share. We received net cash proceeds of approximately $9,300 from this transaction, which are intended to be used for general corporate purposes. The note purchase agreement includes a provision such that if we default in any of our debt obligations exceeding $2,500, the secured notes shall become due and payable at the election of the holder of the notes.

     The warrants issued in the January 2004 financing described above contain provisions requiring an adjustment in both the warrant price and the number of warrants outstanding as a consequence of the issuance of the new warrants in March 2006. Consequently, the warrants from 2004 have been adjusted to a purchase price of $2.50 per share and the total number of January 2004 warrants now outstanding has been adjusted to 886,787.

     Also on March 10, 2006, certain covenants related to our line of credit were amended as described in Note 12.

F-32

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TeleCommunication Systems, Inc.

By:  /s/Maurice B. Tosé

Maurice B. Tosé

Chief Executive Officer, President and

Chairman of the Board

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The undersigned hereby constitute and appoint Maurice B. Tosé, Thomas M. Brandt, Jr. and Bruce A. White, and each of them, their true and lawful agents and attorneys-in-fact with full power and authority in said agents and attorneys-in-fact, and in any one or more of them, to sign for the undersigned and in their respective names as directors and officers of TeleCommunication Systems, any amendment or supplement hereto. The undersigned hereby confirm all acts taken by such agents and attorneys-in-fact, and any one or more of them, as herein authorized

Name	Title	Date
/s/ Maurice B. Tosé Maurice B. Tosé	Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer)	March 16, 2006
/s/ Thomas M. Brandt, Jr. Thomas M. Brandt, Jr.	Chief Financial Officer and Senior Vice President (Principal Financial Officer)	March 16, 2006
/s/ Clyde A. Heintzelman Clyde A. Heintzelman	Director	March 16, 2006
/s/ Richard A. Kozak Richard A. Kozak	Director	March 16, 2006
/s/ Weldon H. Latham Weldon H. Latham	Director	March 16, 2006
/s/ Byron F. Marchant Byron F. Marchant	Director	March 16, 2006

F-33

EXHIBIT INDEX

Exhibit
Numbers			Description
	4	.1	Amended and Restated Articles of Incorporation. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
	4	.2	Second Amended and Restated Bylaws. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
	4	.3	Form of Class A Common Stock certificate. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	4	.5	Warrants to Purchase Common Stock issued pursuant to the Securities Purchase Agreement for each of the investors party to the Securities Purchase Agreement dated January 13, 2004. (Incorporated by reference to the company’s Current Report on Form 8-K filed on January 23, 2004)
	4	.6	Note Purchase Agreement dated March 13, 2006 by and among the company and the Purchasers named therein
	4	.7	Warrants to Purchase Common Stock issued pursuant to the Note Purchase Agreement dated March 13, 2006 to each of the Purchasers named therein
	4	.8	Notes issued pursuant to the Note Purchase Agreement dated March 13, 2006 to each of the Purchasers named therein
	4	.9	Registration Rights Agreement dated March 13, 2006 by and among the company and the Investors named therein
	4	.10	Intellectual Property Security Agreement dated March 13, 2006 by and among the company, Bonanza Master Fund Ltd., as Agent, and the Secured Parties named therein
	4	.11	Subordination Agreement dated March 13, 2006 by and among the company, Silicon Valley Bank, and the Purchasers named therein
	10	.1	West Garrett Office Building Full service Lease Agreement dated October 1, 1997 by and between the company and West Garrett Joint Venture. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.2†	Form of Indemnification Agreement. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.3†	Fourth Amended and Restated 1997 Stock Incentive Plan. (Incorporated by reference to Appendix A to the company’s definitive proxy statement for its 2004 Annual Meeting of stockholders as filed with the SEC on June 17, 2004 (No. 000-30821))
	10	.4†	Employee Stock Purchase Plan. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.5†	Optionee Agreement dated October 1, 1997 by and between the company and Richard A. Young. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.6†	Optionee Agreement dated July 29, 1998 by and between the company and Richard A. Young. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.7†	Optionee Agreement dated October 1, 1997 by and between the company and Thomas M. Brandt, Jr. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.8†	Optionee Agreement dated July 29, 1998 by and between the company and Thomas M. Brandt, Jr. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))
	10	.9†	Optionee Agreement dated April 1, 1999 by and between the company and Thomas M. Brandt, Jr. (Incorporated by reference to the company’s Registration Statement on Form S-1 (No. 333-35522))

F-34

Exhibit
Numbers			Description
	10	.10†	401(k) and Profit Sharing Plan of the company dated January 1, 1999. (Incorporated by reference to the company’s Registration Statement on Form S-4 (No. 333-51656))
	10	.11†	Employment Agreement dated February 1, 2001 by and between the company and Richard A. Young. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
	10	.12†	Employment Agreement dated February 1, 2001 by and between the company and Thomas M. Brandt. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
	10	.13†	Employment Agreement dated February 1, 2001 by and between the company and Drew A. Morin. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
	10	.14†	Employment Agreement dated February 1, 2001 by and between the company and Timothy J. Lorello. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
	10	.15‡	Services Integration Agreement dated January 31, 2002 by and between the company and Hutchison 3G. (Incorporated by reference to the company’s Annual Report on Form 10-K for the year ended December 31, 2001)
	10	.16	Deed of Lease by and between Annapolis Partner, LLC and the company. (Incorporated by reference to the company’s Annual Report on Form 10-K for the year ended December 31, 2002)
	10	.17†	Restricted stock award certificate to Mr. Thomas M. Brandt, Jr. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.18†	Restricted stock award certificate to Mr. Thomas M. Brandt, Jr. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.19†	Restricted stock award certificate to Mr. Clyde A. Heintzelman. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.20†	Restricted stock award certificate to Mr. Richard A. Kozak. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.21†	Restricted stock award certificate to Mr. Weldon H. Latham. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.22†	Restricted stock award certificate to Mr. Timothy J. Lorello. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.23†	Restricted stock award certificate to Mr. Timothy J. Lorello. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.24†	Restricted stock award certificate to Mr. Bryon F. Marchant. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.25†	Restricted stock award certificate to Mr. Drew A. Morin. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.26†	Restricted stock award certificate to Mr. Drew A. Morin. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.27†	Restricted stock award certificate to Mr. Maurice B. Tosé. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.28†	Restricted stock award certificate to Mr. Maurice B. Tosé. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.29†	Restricted stock award certificate to Mr. Kevin M. Webb. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.30†	Restricted stock award certificate to Mr. Kevin M. Webb. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.31†	Restricted stock award certificate to Mr. Richard A. Young. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)

F-35

Exhibit
Numbers			Description
	10	.32†	Restricted stock award certificate to Mr. Richard A. Young. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
	10	.33	Registration Rights Agreement dated as of December 18, 2003 by and among the company and the investors party to the 2003 SPA. (Incorporated by reference to Exhibit 10 to the company’s Current Report on Form 8-K dated December 18, 2003)
	10	.34	Trademark License Agreement by and among Aether, TSYS and the company dated as of January 13, 2004. (Incorporated by reference to the company’s Current Report on Form 8-K filed on January 23, 2004)
	10	.35	Registration Rights Agreement by and between the company and Aether dated as of January 13, 2004. (Incorporated by reference to the company’s Current Report on Form 8-K filed on January 23, 2004)
	10	.36†	Amended and Restated Loan and Security Agreement by and between the company and Silicon Valley Bank. (Incorporated by reference to the company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)
	10	.37	Restricted stock award certificate to Mr. Clyde A. Heintzelman
	10	.38	Restricted stock award certificate to Mr. Richard A. Kozak
	10	.39	Restricted stock award certificate to Mr. Weldon F. Latham
	10	.40	Restricted stock award certificate to Mr. Byron F. Marchant
	12	.1	Supplemental Financial Statement Schedule II
	21	.1	Subsidiaries of the Registrant
	23	.1	Consent of Ernst & Young LLP
	23	.2	Consent of James & Cowper
	31	.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	99	.01	Report of Independent Auditors- James & Cowper

†	Management contract, compensatory plans or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.
‡	Confidential treatment has been requested for certain portions of this Exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, which portions have been omitted and filed separately with the Securities and Exchange Commission.

F-36 EX-4.6 2 w17657exv4w6.htm EX-4.6

Exhibit 4.6

NOTE PURCHASE AGREEMENT

     This Note Purchase Agreement (this “Agreement”) is dated as of March 13, 2006, among TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to sell and issue to the Purchasers, and the Purchasers wish to purchase from the Company (i) an initial aggregate of $10,000,000 in principal amount of the Company’s Secured Notes due 2009 in the form attached hereto as Exhibit A (the “Notes”; such term to include any Additional Notes (as defined below)) and (ii) warrants to purchase an aggregate of 1,750,002 shares of Class A common stock, par value $0.01 per share, of the Company (the “Class A Common Stock”) in the form attached hereto as Exhibit B (the “Warrants”).

     WHEREAS, at Closing (as defined below), the Company and the Purchasers are entering into a Registration Rights Agreement in the form attached hereto as Exhibit C (the “Registration Rights Agreement”), and into a Intellectual Property Security Agreement in the form attached hereto as Exhibit D (the “Intellectual Property Security Agreement”).

     NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:

ARTICLE I.

DEFINITIONS

     Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Article:

     “Additional Notes” means notes substantially in the form of Exhibit A that are issued after the Closing Date in payment of interest as provided herein. The Additional Notes will bear interest at the rate indicated therein.

     “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

     “Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

     “Class A Common Stock” shall have the meaning ascribed to such term in the Recitals.

     “Class B Common Stock” means the Class B common stock, par value $0.01 per share of the Company.

     “Closing” means the closing of the purchase and sale of the Notes and Warrants pursuant to Section 2.3.

     “Closing Date” means the date of the Closing.

     “Commission” means the Securities and Exchange Commission.

     “Common Shares” means the shares of Class A Common Stock issued upon exercise of the Warrants.

     “Company Counsel” means DLA Piper Rudnick Gray Cary US LLP.

     “Disclosure Materials” shall have the meaning ascribed to such term in Section 3.1(h).

     “Disclosure Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith as referenced in Article III hereof.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

     “Expense Allowance” shall have the meaning ascribed to such term in Section 6.1.

     “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

     “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(q).

     “Intellectual Property Security Agreement” shall have the meaning ascribed to such term in the Recitals.

     “Lien” means any lien, charge, encumbrance, security interest, right of first refusal, preemptive right or other restriction of any kind; other than (i) restrictions on transfer of securities arising under federal or state securities laws or regulations, (ii) purchase money liens, (iii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, landlord’s, tax, and other similar liens imposed by law or agreement,

2

(iv) liens in respect of indebtedness that is subordinate to this Note, and (v) liens securing debt under Section 4(a) of the Notes.

     “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

     “Material Permits” shall have the meaning ascribed to such term in Section 3.1(o).

     “Notes” shall have the meaning ascribed to such term in the Recitals.

     “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

     “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition).

     “Purchase Price” shall have the meaning ascribed to such term in Section 2.2.

     “Registration Rights Agreement” shall have the meaning ascribed to such term in the Recitals.

     “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

     “Required Holders” means (i) the Note holders who, together with their respective Affiliates, hold a majority of the Notes outstanding at the time of determination, (ii) SRB Management, L.P. as long as (A) it and its Affiliates, (B) WS Capital Management, L.P. and its Affiliates and (C) WS Ventures Management, L.P. and its Affiliates collectively hold at least $2,000,000 in aggregate principal amount of the Notes outstanding at the time of determination, and (iii) Bonanza Master Fund Ltd. as long as it, together with its Affiliates, holds at least $3,000,000 in aggregate principal amount of the Notes outstanding at the time of determination.

     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such rule.

     “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

     “Securities Act” means the Securities Act of 1933, as amended.

     “Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act.

     “Subsidiary” means any subsidiary of the Company that is required to be listed in Schedule 3.1(a).

3

     “Trading Day” means (i) a day on which the Class A Common Stock is traded on a Trading Market, or (ii) if the Class A Common Stock is not listed on a Trading Market, a day on which the Class A Common Stock is traded in the over-the-counter market is quoted in the over-the-counter market as reported by Pink Sheets, LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Class A Common Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.

     “Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Class A Common Stock is listed or quoted for trading on the date in question.

     “Transaction Documents” means this Agreement, the Notes, the Warrants, the Registration Rights Agreement, the Intellectual Property Security Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

     “Warrants” shall have the meaning ascribed to such term in the Recitals.

ARTICLE II.

PURCHASE AND SALE OF NOTES AND WARRANTS

     2.1 Issuance of Notes and Warrants. Upon the following terms and conditions, the Company shall issue and sell to each Purchaser, and each Purchaser, severally and not jointly, shall purchase from the Company, the principal amount of Notes and Warrants to purchase the number of Common Shares indicated next to the Purchaser’s name on Schedule I hereto.

     2.2 Purchase Price.

          (a) Purchase Price. The purchase price for the Notes and Warrants to be acquired by each Purchaser (the “Purchase Price”) shall be the Purchase Price set forth opposite such Purchaser’s name on Schedule I.

          (b) Purchase Price Allocation. For U.S. federal income tax purposes, (i) the Company agrees that the portion of the Purchase Price allocable to the Notes is $9,000,000 and that the portion of the Purchase Price allocable to the Warrants is $1,000,000 and (ii) each Purchaser of Notes and Warrants, by accepting this Note, agrees to allocate its purchase price for the Notes and Warrants in accordance with clause (i).

     2.3 The Closing.

          (a) Timing. Subject to the fulfillment or waiver of the conditions set forth in Article V hereof, the purchase and sale of the Notes and Warrants shall take place at a closing (the “Closing”), on or about the date hereof or such other date as the Purchasers and the Company may agree upon (the “Closing Date”).

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          (b) Location. The Closing shall take place at the offices of the Company on the Closing Date or telephonically or at such other location or time as the parties may agree.

          (c) Form of Payment and Closing. On the Closing Date, the Company shall deliver to the Purchasers all of the Notes and Warrants purchased hereunder, each registered in the name of each such Purchaser. On the Closing Date, the Purchasers shall deliver by wire transfer in payment of the aggregate Purchase Price hereunder an aggregate of $10,000,000 to an account designated in writing by the Company, with each Purchaser responsible for its respective portion of the Purchase Price as set forth on Schedule I. In addition, each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing.

     2.4 Closing Deliveries.

          (a) Deliveries by the Company. At the Closing, the Company shall deliver or cause to be delivered to each Purchaser the following:

               (i) a Note in the name of each Purchaser in the amount indicated opposite such Purchaser’s name on Schedule I hereto;

               (ii) a Warrant registered in the name of such Purchaser pursuant to which such Purchaser shall have the right to purchase the number of Common Shares indicated opposite such Purchaser’s name on Schedule I hereto;

               (iii) the Registration Rights Agreement executed by the Company;

               (iv) the Intellectual Property Security Agreement executed by the Company; and

               (v) the legal opinion of Company Counsel addressed to each Purchaser in the form attached hereto as Exhibit E.

          (b) Deliveries by the Purchaser. At the Closing, each Purchaser shall deliver or cause to be delivered to the Company the following:

               (i) The Purchase Price amount indicated next to the Purchaser’s name on Schedule I hereto, in United States dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose; and

               (ii) the Registration Rights Agreement executed by such Purchaser.

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     2.5 Additional Notes.

          (a) On any Interest Payment Date (as defined in the Notes), at its option, the Company, in lieu of paying any portion (allocated on a pro rata basis to each holder) of the interest then due on the Notes in cash, may elect to issue to each holder Additional Notes in an aggregate principal amount equal to the amount of interest due to such holder.

          (b) If the Company elects to issue Additional Notes as provided herein and in the Notes, then the Company shall deliver to the holders to which such Additional Notes are to be issued an opinion of counsel satisfactory to such holders that: (1) each such Additional Note (A) has been duly authorized, executed and delivered by the Company, and (B) constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms subject, as to enforcement of remedies, to bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting rights of creditors generally and to the effect of general principles of equity; and (2) the issuance and delivery of such Additional Notes complies with all requirements of law, including, without limitation, all federal and state securities laws. The Company also shall deliver to the holders to which such Additional Notes are to be issued an officers’ certificate indicating that all of the representations and warranties of the Company contained herein shall be true and correct as of the date of the issuance of Additional Notes as though made on and as of such date.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the following representations and warranties to each Purchaser:

          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than those listed in the SEC Reports. Except as disclosed in the SEC Reports and as set forth on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

          (b) Organization and Qualification. Each of the Company and each Subsidiary is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business substantially as described in the SEC Reports. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and each Subsidiary is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each

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jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, reasonably be expected to result in (i) an adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (iii) a material and adverse impairment to the Company’s ability to perform on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

          (c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents, to issue the Notes and the Warrants, and, if applicable, the Common Shares, and otherwise to carry out its obligations thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby, including the issuance of the Notes and Warrants and, if applicable, the Common Shares, have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company in connection therewith, other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

          (d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company, the issuance of the Notes, the Warrants, and, if applicable, the Common Shares, and the consummation by the Company of the other transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject

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(including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not reasonably be expected to result in a Material Adverse Effect.

          (e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) the filings required in accordance with Section 4.5, (iii) those that have been made or obtained prior to the date of this Agreement, (iv) application(s) to each applicable Trading Market for the listing of the Common Shares for trading thereon in the time and manner required thereby, and (v) the filing of a Notice of Sale of Securities on Form D with the Commission as required under Regulation D of the Securities Act and such filings as are required to be made under applicable state securities laws (collectively the “Required Approvals”).

          (f) Issuance of Common Shares. Upon issuance, with respect to the Common Shares, in accordance with the terms of the Warrants, including the receipt by the Company of payment of the exercise price pursuant to the terms of the Warrants, the Common Shares will be validly issued, fully paid and nonassessable and free from all United States taxes and Liens created by the Company with respect to the issue thereof. The issuance of the Common Shares upon exercise of the Warrants is not subject to any preemptive or similar rights to subscribe for or purchase securities. The Company has reserved from its duly authorized capital stock all of the issuable Common Shares.

          (g) Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock of the Company, and all shares of Class A Common Stock and Class B Common Stock, reserved for issuance under the Company’s various option and incentive plans, was as set forth in the SEC Reports as of the respective dates set forth in such SEC Reports. No securities of the Company are entitled to preemptive or similar rights, and no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the sale and issuance of the Notes, the Warrants and the Common Shares, other than as described in the SEC Reports and Schedule 3.1(g) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Class A Common Stock or Class B Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Class A Common Stock or Class B Common Stock, or securities or rights convertible or exchangeable into shares of Class A Common Stock or Class B Common Stock. The issue and sale of the Notes, the Warrants and the Common Shares will not, immediately or with the passage of time, obligate the Company to issue shares of Class A Common

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Stock, Class B Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities, other than those Warrants to Purchase Common Stock, each dated January 13, 2004, issued by the Company to each of 033 Growth Partners I, L.P., 033 Growth Partners II, L.P., 033 Growth International Fund LTD., Oyster Pond Partners, L.P. and The Riverview Group LLC. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors of the Company or other Person is required for the issuance and sale of the Notes, the Warrants and the Common Shares. Except as disclosed in the Disclosure Materials, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders, except as would not reasonably be expected to result in a Material Adverse Effect.

          (h) SEC Reports; Financial Statements. The Company has filed all reports and proxy statements required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, since January 1, 2005 (the foregoing materials filed with the Commission prior to the date hereof being collectively referred to herein as the “SEC Reports” and, together with the Disclosure Schedules, the “Disclosure Materials”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing and such financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved (except as may be otherwise specified in such financial statements or the notes thereto, or in the case of unaudited financial statements, to the extent they may exclude footnotes or may be condensed or summary footnotes or statements), and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments. The Company maintains a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the Exchange Act.

          (i) Accountant. The firm of Ernst & Young LLP, has expressed its opinion with respect to the annual consolidated financial statements for the Company’s

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fiscal year ended December 31, 2004 to be included or incorporated by reference in the Registration Statement (as defined in the Registration Rights Agreement) and the prospectus which forms a part thereof (the “Prospectus”), and is an independent accountant as required by the Securities Act.

          (j) Taxes. Each of the Company and its Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon except for taxes being contested in good faith by the Company for which adequate reserves have been established, and neither the Company nor any of its Subsidiaries has knowledge of a tax deficiency which has been asserted in writing against it which would reasonably be expected to have a Material Adverse Effect.

          (k) Material Changes. Except as set forth in press releases issued by the Company, since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports or in the Disclosure Materials, (i) there has been no event, occurrence or development known to the Company that, individually or in the aggregate, has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice, (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, and (C) other liabilities that would not, individually or in the aggregate, have a Material Adverse Effect, (iii) the Company has not altered its critical accounting policies, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate of the Company, except pursuant to existing Company stock incentive or purchase plans. The Company does not have pending before the Commission any request for confidential treatment of information or documents.

          (l) Litigation. There is no Proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Common Shares, or (ii) except as set forth in the SEC Reports, would, if there were an unfavorable decision, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Except as set forth in the SEC Reports, neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Proceeding involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There is not pending, and to the knowledge of the Company, there is not contemplated, any investigation by the Commission of the Company or any current or former director or officer of the Company.

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          (m) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

          (n) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business, except as to each of the foregoing clauses (i), (ii) and (iii) as would not have a Material Adverse Effect.

          (o) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

          (p) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to their respective businesses and good and marketable title in all personal property owned by them that is material to their respective businesses, in each case free and clear of all Liens, except for Liens that do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance, except for such compliance as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

          (q) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the Company nor any Subsidiary has received a written notice that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person other than matters

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previously resolved or as would not, individually or in the aggregate, have a Material Adverse Effect. Except as set forth in the SEC Reports, all such Intellectual Property Rights are enforceable and, to the Company’s knowledge, do not violate or infringe the Intellectual Property Rights of others in any respect that would reasonably be expected to result in a Material Adverse Effect and, to the knowledge of the Company, there is no material existing infringement by another Person of any of the Intellectual Property Rights.

          (r) Insurance. The Company and the Subsidiaries are insured against such losses and risks and in such amounts as are believed by the Company to be prudent in the businesses in which the Company and the Subsidiaries are engaged. The Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost, other than general insurance price increases.

          (s) Transactions With Affiliates and Employees. Except as disclosed in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company, is presently a party to any transaction with the Company or any Subsidiary required to be disclosed in the SEC Reports (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

          (t) Certain Registration Matters. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2(c)-(g), no registration under the Securities Act is required for the offer and issuance of the Notes, the Warrants and the Common Shares by the Company to the Purchasers under the Transaction Documents. Neither the Company nor any Person acting on behalf of the Company has offered or sold any of the Notes, the Warrants or the Common Shares by any form of general solicitation or general advertising. The Company has offered the Notes, the Warrants and the Common Shares for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

          (u) Listing and Maintenance Requirements. The Company’s Class A Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Class A Common Stock under the Exchange Act nor has the Company received any written notification that the Commission is contemplating terminating such registration. The Company has not, in the two years preceding the date hereof, received written notice from any Trading Market to the effect that the Company is not in compliance with the listing or maintenance requirements thereof. The Company is in compliance with the listing and maintenance requirements for continued listing of the Common Stock on the Trading Market. The issuance and sale of

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the Notes and the Warrants under the Transaction Documents does not contravene the rules and regulations of the Trading Market on which the Class A Common Stock is currently listed or quoted, and no approval of the stockholders of the Company thereunder is required for the Company to issue and deliver to the Purchasers the Notes and the Warrants contemplated by Transaction Documents.

          (v) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment of the Purchase Price, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

          (w) Disclosure. The Company confirms that neither it nor, to its knowledge, any Person acting on its behalf, has provided any of the Purchasers or their agents or counsel with any information that the Company believes constitutes material, non-public information other than information given on a confidential basis other than the fact that discussions or negotiations are taking place concerning the transaction contemplated by this Agreement and any of the terms, conditions or other facts with respect thereto (including the status thereof).

          (x) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Notes and the Warrants, and the Common Shares to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of the Trading Market on which the Class A Common Stock is currently listed or quoted.

          (y) Acknowledgment Regarding Purchasers’ Purchase of Notes, Warrants, and Common Shares. The Company acknowledges that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Notes, the Warrants and the Common Shares. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

          (z) Seniority. As of the Closing Date, except for Indebtedness (as defined in the Notes) (i) pursuant to the SVB Facility (as defined in the Notes), (ii) pursuant to the Receivables Facility (as defined in the Notes), (iii) pursuant to the capital leases described on Schedule 3.1(aa) to this Agreement and any extensions, renewals or replacements thereof, (iv) pursuant to conditional sale or other title retention agreements

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entered into by the Company or any Subsidiary in the ordinary course of business and (v) secured by Permitted Liens (as defined in the Notes) (collectively, such Indebtedness, “Senior Debt”), no Indebtedness or equity of the Company is senior to the Notes in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise. The Company has not granted any Liens on any of its assets or the assets of its Subsidiaries to secure any Indebtedness other than Liens granted to secure Senior Debt and Indebtedness under the capital leases described on Schedule 3.1(aa).

          (aa) Solvency. Based on the financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Notes hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. Schedule 3.1(aa) sets forth as of the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

          (bb) Sarbanes-Oxley Act. The Company is, and at the Closing Date will be, in compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it. The Company is an “accelerated filer” as defined in Rule 12b-2 under the Exchange Act and, accordingly, is in compliance in all material respects with Section 404 of the Sarbanes-Oxley Act of 2002. The Company maintains a system of internal accounting controls that the Company reasonably believes are sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

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     3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants to the Company as follows:

          (a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement has been duly authorized by all necessary corporate or, if such Purchaser is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Purchaser. Each of this Agreement and other Transaction Documents signed by Purchaser have been duly executed by such Purchaser, and constitute or, when delivered by such Purchaser in accordance with the terms hereof, will constitute, the valid and binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

          (b) No Conflicts. The execution, delivery and performance of this Agreement and other Transaction Documents by the Purchaser and the consummation by such Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the certificate of incorporation, by-laws or other documents of organization of such Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Purchaser is bound, or (iii) result in a violation of any law, rule, regulation or decree applicable to such Purchaser.

          (c) Investment Intent. Such Purchaser is purchasing the Notes, the Warrants and the Common Shares for its own account and not with a view to distribution. Such Purchaser has been advised and understands that neither the Notes, the Warrants nor the Common Shares issuable upon exercise of the Warrants by the Company pursuant to the terms of the Notes have been registered under the Securities Act or under the “blue sky” laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available. Such Purchaser has been advised and understands that the Company, in issuing the Notes, the Warrants, and, if applicable, the Common Shares, is relying upon, among other things, the representations and warranties of such Purchaser contained in this Section 3.2 in concluding that such issuance is exempt from the registration provisions of the Securities Act. Such Purchaser is acquiring the Notes, the Warrants and the Common Shares hereunder in the ordinary course of its business. Such Purchaser (i) does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Notes, the Warrants or the Common Shares, and (ii) has no present plan, intention or

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understanding and has made no arrangement to sell any Notes, Warrants or Common Shares at any predetermined time or for any predetermined price, without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Notes, Warrants and Common Shares in compliance with applicable federal and state securities laws.

          (d) Accredited Investor Status. At the time such Purchaser was offered the Notes and the Warrants, it was, and at the date hereof it is, and on each date on which any Common Shares are issued, it will be, an “accredited investor” as defined in Rule 501(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

          (e) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the purchase of the Notes, the Warrants, and, if applicable, the Common Shares, and has so evaluated the merits and risks of such purchase. Such Purchaser is able to bear the economic risk of the purchase of the Notes, the Warrants, and, if applicable, the Common Shares, and, at the present time, is able to afford a complete loss of such investment.

          (f) General Solicitation. Such Purchaser is not purchasing the Notes, the Warrants, or, if applicable, the Common Shares, as a result of any advertisement, article, notice or other communication regarding the Notes, the Warrants, or, if applicable, the Common Shares, published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

          (g) Access to Information. Such Purchaser acknowledges that it has reviewed the Disclosure Materials and has been afforded the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offer and sale of the Notes, the Warrants and the Common Shares. Such Purchaser is sophisticated and has prior experience with purchases comparable to the Notes, the Warrants and the Common Shares. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of the Disclosure Materials and the Company’s representations and warranties contained in the Transaction Documents.

          (h) Independent Investment Decision. Such Purchaser has independently evaluated the merits of its decision to purchase the Notes, the Warrants, and/or the Common Shares pursuant to this Agreement, such decision has been independently made by such Purchaser and such Purchaser confirms that it has only relied on the advice of its own business and/or legal counsel and not on the advice of any other Purchaser’s business and/or legal counsel in making such decision.

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     The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Agreement.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

     4.1 Legends.

          (a) The Notes and Warrants (and any shares of the Company’s capital stock issued upon exercise of the Warrants or pursuant to the Notes) may only be disposed of in compliance with state and federal securities laws, and in connection with any transfer thereof (other than pursuant to an effective registration statement, to the Company, to an Affiliate of an Investor who qualifies as an accredited investor under Regulation D under the Securities Act, the Company may require the transferor thereof to provide to the Company an opinion of counsel (the form and substance of which, and the counsel providing such opinion, shall be reasonably satisfactory to the Company) to the effect that such transfer does not require registration under the Securities Act and any applicable state securities laws.

          (b) The Notes and Warrants (and certificates representing shares of the Company’s capital stock issued upon exercise of the Warrants or pursuant to the Notes) will contain a legend in substantially the following form, until such time as they are not required under Section 4.1(c):

THESE SECURITIES HAVE 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. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

          (c) Certificates evidencing the Common Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Common Shares pursuant to Rule 144, or (iii) if such Common Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the

17

Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall deliver the instructions in the form attached hereto as Exhibit F to the Company’s transfer agent, and the Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly upon the occurrence of any of the events in clauses (i), (ii), (iii) or (iv) above to effect the removal of the legend on certificates evidencing the Common Shares and shall also cause its counsel to issue a “blanket” legal opinion to the Company’s transfer agent promptly after the effective date of any registration statement covering the resale of the Common Shares to allow sales without restriction pursuant to an effective registration statement. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Common Shares, or if such Common Shares may be sold under Rule 144(k) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Common Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or, if delivered to the Company’s transfer agent, no later than three Trading Days after receipt by the Company from the transfer agent, of a certificate representing such shares containing a restrictive legend, and if such restrictive legend is to be removed pursuant to Rule 144 or Rule 144(k), an opinion of counsel regarding the same, the Company’s transfer agent of a certificate representing Common Shares issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. Certificates for Common Shares subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to the Purchasers by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System.

     In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as liquidated damages and not as a penalty, for each $1,000 of Common Shares (based on the volume weighted average price of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 10 Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Common Shares as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

     Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Common Shares as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Common Shares pursuant to either the registration requirements of the Securities

18

Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Common Shares are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

     4.2 Listing of Common Stock. The Company hereby agrees to use commercially reasonable efforts to maintain the listing of its Class A Common Stock on the Trading Market on which the Class A Common Stock is currently listed or quoted, and as soon as reasonably practicable following the Closing (with respect to the Common Shares) to list all of the Common Shares on such Trading Market. The Company further agrees, if the Company applies to have the Class A Common Stock traded on any other Trading Market, it will include in such application the Common Shares, and will take such other action as is necessary or desirable in the opinion of the Purchasers to cause all of the Common Shares to be listed on such other Trading Market as promptly as possible. The Company will take all action reasonably necessary to comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such Trading Market. This Section 4.2 shall not apply after five years or if the Company ceases to have a publicly traded class of securities as a result of an acquisition.

     4.3 Use of Proceeds. The Company shall use the net proceeds from the sale of the Notes and the Warrants hereunder and payment of the exercise price of the Warrants for working capital or other general corporate purposes (which may include, without limitation, mergers and/or acquisitions).

     4.4 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, for the purpose of effecting the exercise of the Warrants, a sufficient number of shares of Common Stock, free of preemptive rights or similar rights, to effect the exercise of all of the Warrants.

     4.5 Securities Laws Disclosure; Publicity. By 8:30 a.m. (New York time) on the Trading Day following the Closing Date, the Company shall issue a press release disclosing the transactions contemplated hereby and file a Current Report on Form 8-K within three Trading Days thereafter disclosing the material terms of the transactions contemplated hereby. In addition, the Company will make such other filings and notices in the manner and time required by the Commission and the Trading Market on which the Common Stock is listed or quoted.

     4.6 Certain Trading Activities. Such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, engaged in any transactions in the securities of the Company (including, without limitations, any Short Sales involving the Company’s securities) since the time that such Purchaser was first contacted by the Company, Raymond James & Associates, Inc. or any other Person regarding an investment in the Company. Such Purchaser covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Company (including Short Sales) prior to the date that is six months from the Closing Date. Such Purchaser has maintained, and covenants that until such time as the transactions

19

contemplated by this Agreement are publicly disclosed by the Company pursuant to Section 4.5 such Purchaser will maintain, the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction) and any information other than the terms of this transaction that the Company provided to Purchaser on a confidential basis. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Notes, the Warrants and/or the Common Shares covered by this Agreement.

     4.7 Certain Repayment Requirements. In the event the Company’s EBITDA from continuing operations is negative for any two quarters in 2006, then the Company shall use its best efforts to monetize assets in an amount sufficient to repay at least 50% of the Notes. The Purchasers agree to waive any and all prepayment penalties upon such occurrence.

ARTICLE V.

CONDITIONS PRECEDENT

     5.1 Conditions Precedent to the Obligations of the Purchaser to Purchase. The obligation of each Purchaser to acquire and pay for the Notes and the Warrants at the Closing is subject to the satisfaction or waiver by such Purchaser, at or before the Closing, of each of the conditions set forth below. These conditions are for the Purchaser’s benefit and may be waived by the Purchaser at any time in its sole discretion.

          (a) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct as of the date when made and as of the Closing as though made on and as of such date.

          (b) Performance. The Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing and shall have delivered or cause to be delivered the items set forth in Section 2.4(a).

          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents. The Trading Market shall not have objected or indicated that it may object to the consummation of any of the transactions contemplated by this Agreement.

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          (d) Adverse Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably would be expected to have or result in:

               (i) an adverse effect on the legality, validity or enforceability of any Transaction Document, or

               (ii) a Material Adverse Effect.

          (e) No Suspensions of Trading in Common Stock; Listing. Trading in the Class A Common Stock shall not have been suspended by the Commission or any Trading Market (except for any suspensions of trading of not more than one Trading Day solely to permit dissemination of material information regarding the Company).

          (f) Timing. The Closing shall have occurred no later than March 15, 2006.

     5.2 Conditions Precedent to the Obligation of the Company to Sell. The obligation of the Company to issue and/or sell the Notes and the Warrants to the Purchasers at the Closing is subject to the satisfaction or waiver by the Company, at or before the Closing, of each of the conditions set forth below. These conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion.

          (a) Representations and Warranties. The representations and warranties of each Purchaser contained herein shall be true and correct as of the date when made and as of the Closing Date as though made on and as of such date.

          (b) Performance. Each Purchaser shall have performed, satisfied and complied with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Purchaser at or prior to the Closing and shall have delivered or cause to be delivered the items set forth in Section 2.4(b), including payment of the Purchase Price set forth on Schedule I to the Company as provided herein.

          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

          (d) Timing. The Closing shall have occurred no later than March 15, 2006.

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ARTICLE VI.

MISCELLANEOUS

     6.1 Fees and Expenses. At the Closing, the Company shall pay a total expense allowance of $20,000 to the Purchasers (the “Expense Allowance”). Each Purchaser shall withhold its pro rata share of the Expense Allowance from its Purchase Price. Each Purchaser and the Company shall pay its own respective fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of the Transaction Documents. The Company shall pay all UCC-1 filing fees and, with respect to United States Patent and Trademark Office filings, such fees only if a blanket lien is filed in connection with the perfection of the security interests granted by the Intellectual Property Security Agreement.

     6.2 Entire Agreement. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules; notwithstanding the foregoing, those certain Confidentiality Agreements, dated as of February 21, 2006, by and between the Company and each Purchaser, or its Affiliates, shall survive the execution and delivery of this Agreement and the provisions thereof shall survive for the terms set forth therein.

     6.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) 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, (b) 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, (c) the Trading Day following the date of mailing, if sent and delivered by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company:	TeleCommunication Systems, Inc.
	275 West Street
	Annapolis, Maryland 21401
	Attn: Chief Financial Officer
	Facsimile: (410) 263-7617
With a copy to:	DLA Piper Rudnick Gray Cary US LLP
	6225 Smith Avenue
	Baltimore, Maryland 21209-3600
	Attn: Wm. David Chalk, Esq.
	Facsimile: (410) 580-3120

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If to a Purchaser: To the address set forth under such Purchaser’s name on the signature pages hereof; or such other address as may be designated in writing hereafter, in the same manner, by such Person.

     6.4 Amendments; Waivers. Any provision of this Agreement 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 this Agreement, then the written instrument shall be signed by the Company and the Required Holders; provided that such waiver or amendment shall apply with the same force and effect to all Purchasers and Note holders. Notwithstanding the foregoing, following the Closing, any provision of this Agreement, a Note, or a Warrant may be amended or waived with the consent of any single Purchaser, Note holder, or Warrant holder (as the case may be), provided that such amendment or waiver shall not affect any other Purchaser, Note holder, or Warrant holder. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of a party hereto to exercise any right hereunder in any manner impair the exercise of any such right.

     6.5 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

     6.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each of the Purchasers. Any Purchaser may assign any or all of its rights under this Agreement to any assignee of the Purchaser’s Notes or Warrants; provided that such transferee or assignee agrees in writing to be bound, with respect to the transferred or assigned Notes, Warrants, or Common Shares by the provisions hereof that apply to the “Purchasers” and makes the representations set forth in Section 3.2 hereof.

     6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

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     6.8 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement 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 Proceedings to resolve any dispute among the parties concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents having rights hereunder) 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 (including with respect to the enforcement of the any of the Transaction Documents), 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 such 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 Agreement 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 Agreement or the transactions contemplated hereby. If a party hereto shall commence a Proceeding to enforce any provisions of a Transaction Document, 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.

     6.9 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

     6.10 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

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     6.11 Replacement of Notes, the Warrants and the Common Shares. If any certificate or instrument evidencing any of the Notes, the Warrants or the Common Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Notes, Warrants or Common Shares. If a replacement certificate or instrument evidencing any Notes, Warrants or Common Shares is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

     6.12 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. The decision of each Purchaser to purchase Notes, Warrants or Common Shares pursuant to the Transaction Documents has been made by such Purchaser independently of any other Purchaser. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Notes, Warrants, or Common Shares, or enforcing its rights under the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser is represented by its own counsel and is not relying on counsel of any other Purchaser or of any broker or placement agent in connection with this matter.

     6.13 Equal Treatment of Purchasers. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Notes in amounts which are disproportionate to the respective principal amounts outstanding on the Notes at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of the Notes, Warrants, Common Shares or otherwise.

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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]

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     IN WITNESS WHEREOF, the parties hereto have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
Bonanza Master Fund, Ltd.
By:	/s/ Brian Ladin
	Name: Brian Ladin
	Title: Partner

Address for Notice and Residence:
	Bonanza Capital
	300 Crescent Court
	Suite 250
	Dallas, TX 75201
	Tel:
	Fax:  E-mail:

Securities to be purchased:
Notes:	$6,000,000
Warrants:	1,050,000

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
HHMI Investments, L.P.
	By:	WS Capital Management, L.P.,
		Investment Manager
		By:	WS Capital, L.L.C., General Partner
By:			/s/ Reid S. Walker
			Name: Reid S. Walker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$346,500
Warrants:			60,638

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
Walker Smith International Fund, Ltd.
	By:	WS Capital Management, L.P.,
		Attorney-in-fact
		By:	WS Capital, L.L.C., General Partner
By:			/s/ Reid S. Walker
			Name: Reid S. Walker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$929,200
Warrants:			162,610

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
Walker Smith Capital, L.P.
	By:	WS Capital Management, L.P., General Partner
		By:	WS Capital, L.L.C., General Partner
By:			/s/ Reid S. Walker
			Name: Reid S. Walker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$107,900
Warrants:			18,883

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
Walker Smith Capital (Q.P.), L.P.
	By:	WS Capital Management, L.P., General Partner
		By:	WS Capital, L.L.C., General Partner
By:			/s/ Reid S. Walker
			Name: Reid S. Walker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$616,400
Warrants:			107,870

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
SRB Greenway Capital, L.P.
	By:	SRB Management, L.P., General Partner
		By:	BC Advisors, L.L.C., General Partner
By:			/s/ Steven R. Becker
			Name: Steven R. Becker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$214,500
Warrants:			37,538

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
SRB Greenway Capital QP, L.P.
	By:	SRB Management, L.P., General Partner
		By:	BC Advisors, L.L.C., General Partner
By:			/s/ Steven R. Becker
			Name: Steven R. Becker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$1,683,000
Warrants:			294,525

IN WITNESS WHEREOF, the parties have caused this Note Purchase Agreement to be duly executed by their respective authorized signatories as of the date first written above.

PURCHASER
SRB Greenway Offshore Operating Fund, L.P.
	By:	SRB Management, L.P., General Partner
		By:	BC Advisors, L.L.C., General Partner
By:			/s/ Steven R. Becker
			Name: Steven R. Becker
			Title: Member
Address for Notice and Residence:
			300 Crescent Court
			Suite 1111
			Dallas, TX 75201
			Tel:
			Fax:
			E-mail:
Securities to be purchased:
Notes:			$102,500
Warrants:			17,938

SCHEDULE I

	Purchase Price and
	Principal Amount of		Number of
Purchaser Name	Notes		Warrants
Bonanza Master Fund Ltd.	$	6,000,000		1,050,000
HHMI Investments, L.P.	$	346,500		60,638
SRB Greenway Capital L.P.	$	214,500		37,538
SRB Greenway Capital (QP) L.P.	$	1,683,000		294,525
SRB Greenway Offshore Operating Fund, L.P.	$	102,500		17,938
Walker Smith Capital (QP), L.P.	$	616,400		107,870
Walker Smith Capital, L.P.	$	107,900		18,883
Walker Smith International Fund, Ltd.	$	929,200		162,610
Total	$	10,000,000		1,750,002

Schedule 3.1 (aa)-1

EX-4.6

exv4w6

EX-4.7

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:

EX-4.8

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.

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     “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

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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”);

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     (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;

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          (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.

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     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,

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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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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,

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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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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,

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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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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,

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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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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,

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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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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,

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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.

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     (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.

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     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.

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     “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

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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”);

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     (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;

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          (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.

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     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.

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     (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.

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     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

EX-4.9

Exhibit 4.9

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (this “Agreement”) is made and entered into as of March 13, 2006, by and among TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), and the investors signatory hereto (each an “Investor” and collectively, the “Investors”).

BACKGROUND

     This Agreement is made pursuant to the Note Purchase Agreement, dated as of March 13, 2006, among the Company and the Investors (the “Purchase Agreement”). In connection with the Purchase Agreement, the Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, (i) to issue and sell on the date hereof to each Investor Secured Notes of the Company, due March 13, 2009 (the “Notes”) and (ii) to issue and sell on the date hereof to the Investors warrants (the “Warrants”) to purchase an aggregate of 1,750,002 shares of Common Stock (the “Warrant Shares”).

AGREEMENT

     The Company and the Investors hereby agree as follows:

     Section 1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the respective meanings set forth in this Section 1:

     “Advice” shall have the meaning set forth in Section 6(d).

     “Effective Date” means the date that the Registration Statement filed pursuant to Section 2(a) is first declared effective by the Commission.

     “Effectiveness Date” means the earlier of (i) the 135^th day following the date of this Agreement with respect to the Warrant Shares or (ii) the tenth Business Day following the date that the Company is notified, orally or in writing, by the Commission, that the Registration Statement is not being reviewed or is not subject to further review or comment by the Commission staff.

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

     “Event Date” shall have the meaning set forth in Section 2(b).

     “Filing Date” means the 45^th day following the date of this Agreement with respect to the Warrant Shares.

     “Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

     “Indemnified Party” shall have the meaning set forth in Section 5(c).

     “Indemnifying Party” shall have the meaning set forth in Section 5(c).

     “Losses” shall have the meaning set forth in Section 5(a).

     “Notes” shall have the meaning set forth in the Background section.

     “Prospectus” means (i) the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus and (ii) any “free writing prospectus” as defined in Rule 163 under the Securities Act.

     “Registrable Securities” means (i) the Warrant Shares, and (ii) any other securities into which the Warrant Shares may be reclassified after the date hereof; provided however, that any Registrable Securities will cease to be Registrable Securities at such time as they have been sold under a Registration Statement or pursuant to Rule 144, or otherwise or such time as they are eligible to be sold pursuant to Rule 144(k) promulgated under the Securities Act.

     “Registration Period” means the period commencing on any applicable Effectiveness Date and ending on the earliest of (i) the third anniversary of such Effectiveness Date, (ii) the date on which the Holders are able to resell all of their respective Registrable Securities without volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act, or (iii) the date on which all of the Registrable Securities have been sold by the Investors under a Registration Statement or pursuant to Rule 144.

     “Registration Statement” means the registration statement required to be filed in accordance with Section 2(a), including the Prospectus, amendments and supplements to such registration statements or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statements.

     “Required Holders” means (i) the Holders who, together with their respective Affiliates, hold a majority of the Registrable Securities at the time of determination, (ii) SRB Management, L.P. as long as (A) it and its Affiliates, (B) WS Capital Management, L.P. and its Affiliates and (C) WS Ventures Management, L.P. and its Affiliates collectively hold or have the right to acquire at least 50% of the Registrable Securities initially issuable to them under the Purchase Agreement, and (iii) Bonanza Master Fund Ltd. as long as it, together with its Affiliates, holds or has the right to acquire at least 50% of the Registrable Securities initially issuable to them under the Purchase Agreement.

     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

     “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

     “Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

     “Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(j).

     “Warrants” shall have the meaning set forth in the Background section.

     Section 2. Registration.

          (a) On or prior to the Filing Date for the Warrant Shares, the Company shall use its commercially reasonable efforts to prepare and file with the Commission a Registration Statement covering the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale of the Registrable Securities on Form S-3, in which case such registration shall be another appropriate form in accordance herewith) and shall contain (unless otherwise directed by the Holders and except if otherwise required pursuant to comments received from the Commission upon a review of such Registration Statement or pursuant to judicial and SEC interpretations) substantially the “Plan of Distribution” attached hereto as Annex A. The Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act as soon as reasonably possible but, in any event, no later than the applicable Effectiveness Date, and shall use its commercially reasonable efforts to keep the Registration Statement effective under the Securities Act during the balance of the applicable Registration Period.

          (b) Subject to the last sentence of this Section 2(b), if: (i) a Registration Statement under subsection (a) above is not filed on or prior to its Filing Date, or (ii) a Registration Statement under subsection (a) above is not declared effective by the Commission on or prior to its required Effectiveness Date, or (iii) after its Effective Date, without regard for the reason thereunder or efforts therefor, such Registration Statement under subsection (a) above ceases for any reason to be effective and available to the Holders as to all Registrable Securities to which it is required to cover at any time prior to the expiration of the Registration Period for more than an aggregate of thirty (30) Trading Days during any 12-month period (which need not be consecutive) (any such failure or breach being referred to as an “Event,” and for purposes of clauses (i) or (ii) the date on which such Event occurs, or for purposes of clause (iii) the date which such thirty (30) Trading Day-period is exceeded, being referred to as “Event Date”), then, in addition to any other rights available to the Holders under this Agreement or under applicable law, on the earlier of the last day of each 30-day period after each such Event Date (if the applicable Event shall not have been cured by such date) or on the fifth Trading Day after the applicable Event has been cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to their pro rata portion of $50,000 (i.e., the Holders in the aggregate shall be entitled to receive a penalty totaling $50,000 for each 30-day period); provided that such penalty shall not exceed $600,000 in the aggregate. The liquidated

damages pursuant to the preceding sentence shall apply and be payable on a pro rata basis for any portion of a 30-day period prior to the cure of an Event and shall cease to accrue (unless earlier ceased) upon expiration of the Registration Period. Notwithstanding anything to the contrary in this Section 2(b), the Company shall not be required to make any payments under this Section 2(b) in the event that the subject Event or Event Date, or the failure to cure such Event or Event Date, is due to the Company’s postponement (and the Company is hereby permitted to postpone) for a maximum of forty-five (45) days after the initial effectiveness of a Registration Statement, by the Company’s furnishing to the Holders a certificate signed by the Chief Executive Officer of the Company stating the Company (1) is in the process of filing a registration statement or proxy statement with respect to an acquisition or disposition and as a result thereof, the registration required by this Agreement could be materially detrimental to the Company, provided, however, that the Company may use this right to postpone such filing or effectiveness only once during any twelve (12) month period, or (2) has announced that a Change of Control (as defined in the Notes) has occurred or that the Company has entered into a definitive agreement to effect a Change of Control.

          (c) Each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Shareholder Questionnaire”) not less than five (5) Trading Days prior to the date on which a Registration Statement under this Agreement is to be filed or (if earlier) by the end of the fourth Trading Day following the date on which such Holder receives draft materials in accordance with this Section. The Company shall not be required to include the Registrable Securities of a Holder in a Registration Statement and shall not be required to pay any liquidated or other damages under Section 2(b) hereof to such Holder who fails to furnish to the Company a fully completed Selling Shareholder Questionnaire as required by this Section or other information reasonably requested by the Company for compliance with applicable registration and disclosure requirements.

     Section 3. Registration Procedures.

     In connection with the Company’s registration obligations hereunder, the Company shall:

          (a) Not less than three (3) Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall furnish to the Holders copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders (and changes (if any) to correct appropriate information about the Holder).

          (b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for the applicable Registration Period; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to each Registration Statement or any amendment thereto; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the Registration

Statements and the disposition of all Registrable Securities covered by each Registration Statement.

          (c) Subject to the requirements of applicable law, including, but not limited to, Regulation FD, notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (ii) through (v) hereof, be accompanied by an instruction to suspend sales made under the Prospectus until the requisite changes have been made in the Prospectus) as promptly as reasonably possible (i) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

          (d) Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

          (e) Furnish to each Holder, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, and, to the extent requested by such Holder, all documents incorporated or deemed to be incorporated herein by reference and all exhibits (including those previously furnished) promptly after the filing of such documents with the Commission.

          (f) Comply with Rule 172, promptly advise each Holder at any time the Company has not satisfied the requirements of Rule 172 and promptly deliver to each Holder, without charge, as many copies of each Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holder may reasonably request in connection with resales by the Holder of Registrable Securities. Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

          (g) Prior to any public offering of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of all jurisdictions within the United States as any Holder reasonably requests in writing, to keep each such registration or qualification (or exemption therefrom) effective during the Registration Period and to do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

          (h) If requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statements, which certificates shall be free, to the extent permitted by the Purchase Agreement, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

          (i) Subject to the requirements of applicable law, including, but not limited to, Regulation FD, upon the occurrence of any event contemplated by Sections 3(c)(ii) through (v), as promptly as reasonably possible under the circumstances, and in the case of Section 3(c)(v) taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered or published, as applicable, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and that the event that resulted in the suspension of such Prospectus is otherwise cured. If the Company notifies the Holders in accordance with Sections 3(c)(ii) through (v) to suspend sales made under the Prospectus until the requisite changes have been made to the then-existing Prospectus, then the Holders shall suspend such sales and/or any use of such Prospectus. The Company will use its commercially reasonable efforts to ensure that sales under the Prospectus and/or the use of the Prospectus may be resumed as promptly as is practicable.

          (j) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder is advised in writing (the “Advice”) by the Company that sales may be resumed and/or the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such

Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

     Section 4. Registration Expenses. All fees and expenses of the Company incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, whether or not any Registrable Securities are sold pursuant to a Registration Statement, including without limitation all registration, listing, and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company.

     Section 5. Indemnification.

          (a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, investment advisors, partners, members and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”) arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and approved in writing by such Holder expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose) or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii) through (v), sales by such Holder under an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) and provided that a corrected prospectus would have avoided such Losses. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware arising from or in connection with the transactions contemplated by this Agreement.

          (b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses to the extent arising out of or relating to: (i) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act after being advised by the Company that it has not satisfied the conditions of Rule 172 and that such Holder is, as a consequence, required to deliver

a prospectus in connection with any disposition of Registrable Securities and has provided the Holder with a current prospectus to be used in connection with any such dispositions or (ii) any untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent that, (1) such untrue statements or omissions are based upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(c)(ii) through (v), sales by such Holder under an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) and provided that a corrected prospectus would have avoided such Losses. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

          (c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to participate in, and, to the extent the Indemnifying Party so desires, assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except to the extent that the Indemnifying Party is prejudiced by such failure, including impairment in its ability to defend such action.

     An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe based upon the advice of counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party; provided, however, that in the event one or more Investors is a party to such Proceeding, the Company shall only be required to pay the expenses of one law firm serving as counsel to such Investors, unless and to

the extent that such Investors have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Investor on a particular issue). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding. The Indemnified Party shall cooperate fully with the Indemnifying Party in connection with any negotiation or defense of any such Proceeding by the Indemnifying Party and shall furnish to the Indemnifying Party all information reasonably available to the Indemnified Party that relates to such Proceeding.

     Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party subject to indemnification under Section 5(a) (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with these Sections) shall be paid to the Indemnified Party, as incurred, within ten (10) Trading Days of written notice thereof to the Indemnifying Party (provided, that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).

          (d) Contribution. In the event that indemnification under Section 5(a) or 5(b) is unavailable to or insufficient to hold harmless an Indemnified Party for any Losses (by reason of unenforceability due to public policy or otherwise), then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

     The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by

reason of such untrue or alleged untrue statement or omission or alleged omission or other event under 5(a) or 5(b), as the case may be, to which such contribution applies.

     The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

     Section 6. Miscellaneous.

          (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

          (b) No Piggyback on Registrations. Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities in accordance with the terms of the Notes, and the Company shall not after the date hereof enter into any agreement providing any such right to any of its security holders.

          (c) Compliance. Each Holder covenants and agrees that (i) it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement; and (ii) it has no present plan, intention or understanding and has made no arrangement to sell the Registrable Securities at any predetermined time or for any predetermined price (other than such Holder’s right to sell the Registrable Securities pursuant to a Registration Statement filed pursuant hereto).

          (d) Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities then required hereunder to be registered at such time and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within 15 days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities (not already covered by an effective Registration Statement) such holder requests to be registered, subject to customary underwriter cutbacks applicable to holders of registration rights and subject to restrictions in prior registration agreements.

          (e) Amendments and Waivers. No provision of this Agreement may be waived or amended and waivers or consents to departures from the provisions hereof may not be given except in a written instrument signed by the Company and the 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 shall be signed by the Company and the Required Holders. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of one or more Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

          (f) Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

          (g) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder of then-outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

          (h) Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

          (i) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement 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 Proceedings to resolve any dispute concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (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 places. 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 Agreement 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 Proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of this Agreement, 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.

          (j) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

          (k) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

          (l) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

          (m) Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. The decision of each Holder to acquire Registrable Securities pursuant to the Transaction Documents has been made independently of any other Holder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder acknowledges that no other Holder has acted as agent for such Holder in connection with making its investment hereunder and that no Holder will be acting as agent of such Holder in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary (but may be permissible) for any other Holder to be joined as an additional party in any Proceeding for such purpose.

(Signatures begin on the next page.)

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

TELECOMMUNICATION SYSTEMS, INC.

   /s/ Thomas M. Brandt, Jr.

   Name: Thomas M. Brandt, Jr.

   Title: Senior Vice President and Chief Financial Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF INVESTORS TO FOLLOW]

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
Bonanza Master Fund, Ltd.
By:	/s/ Brian Ladin
	Name: Brian Ladin
	Title: Partner
Address for Notice and Residence:
	Bonanza Capital
	300 Crescent Court
	Suite 250
	Dallas, TX 75201
	Tel:
	Fax:
	E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
HHMI Investments, L.P.
	By: WS Capital Management, L.P.,
	Investment Manager
	By: WS Capital, L.L.C., General Partner
By:		/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
Walker Smith International Fund, Ltd.
	By: WS Capital Management, L.P.,
	Attorney-in-fact
	By: WS Capital, L.L.C., General Partner
By:		/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
Walker Smith Capital, L.P.
	By: WS Capital Management, L.P., General Partner
	By: WS Capital, L.L.C., General Partner
By:		/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
Walker Smith Capital (Q.P.), L.P.
	By: WS Capital Management, L.P., General Partner
	By: WS Capital, L.L.C., General Partner
By:		/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
SRB Greenway Capital, L.P.
	By: SRB Management, L.P., General Partner
	By: BC Advisors, L.L.C., General Partner
By:		/s/ Steven R. Becker
		Name: Steven R. Becker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
SRB Greenway Capital QP, L.P.
	By: SRB Management, L.P., General Partner
	By: BC Advisors, L.L.C., General Partner
By:		/s/ Steven R. Becker
		Name: Steven R. Becker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

     IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed by their respective authorized signatories as of the date first written above.

INVESTOR
SRB Greenway Offshore Operating Fund, L.P.
	By: SRB Management, L.P., General Partner
	By: BC Advisors, L.L.C., General Partner
By:		/s/ Steven R. Becker
		Name: Steven R. Becker
		Title: Member
Address for Notice and Residence:
		300 Crescent Court
		Suite 1111
		Dallas, TX 75201
		Tel:
		Fax:
		E-mail:

Annex A

Plan of Distribution

     The Selling Stockholders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Class A Common Stock registered hereunder on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits investors;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• to cover short sales made after the date that this Registration Statement is declared effective by the Securities and Exchange Commission;

• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

• broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

     The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

     The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares

of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

     In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

     Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

     Upon the Company being notified in writing by a Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of Common Stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of each such Selling Stockholder and of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which such the shares of Common Stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction.

     The Selling Stockholders also may transfer the shares of Common Stock in other circumstances, in which case the transferees, pledgees or other successors in interest may be the selling beneficial owners for purposes of this prospectus.

     The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of securities will be paid by the Selling Stockholder and/or the purchaser. Each Selling Stockholder has represented and warranted to the Company that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the Common Stock.

     The Company has advised each Selling Stockholder that it may not use shares registered on this Registration Statement to cover short sales of Common Stock made prior to the date on which this Registration Statement shall have been declared effective by the Commission. If a Selling Stockholder uses this prospectus for any sale of the Common Stock, it will be subject to the prospectus delivery requirements of the Securities Act.

     The Company is required to pay the Company’s fees and expenses incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

     The Selling Stockholders will be responsible to comply with the applicable provisions of the Securities Act and Exchange Act, and the rules and regulations thereunder promulgated, including, without limitation, Regulation M, as applicable to such Selling Stockholders in connection with resales of their respective shares under this Registration Statement.

Annex B

Selling Shareholder Questionnaire

     The undersigned beneficial owner of Class A common stock, par value $0.01 per share (the “Class A Common Stock”), of TeleCommunication Systems, Inc., a Maryland corporation (the “Company”), (the “Registrable Securities”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-3 (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of March 13, 2006 (the “Registration Rights Agreement”), among the Company and the Investors named therein. A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

     Certain legal consequences arise from being named as a selling shareholder in the Registration Statement and the related prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling shareholder in the Registration Statement and the related prospectus.

NOTICE

     The undersigned beneficial owner (the “Selling Shareholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement.

     The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1. Name.

(a)	Full Legal Name of Selling Shareholder
(b)	Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:
(c)	Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):

2. Address for Notices to Selling Shareholder:

Company	Telephone:
Street 1	Fax:
Street 2	E-mail:
Suite / Apt #
City, State ZIP	Contact Person:

3. Beneficial Ownership of Registrable Securities:

(a) Type and Number of Registrable Securities beneficially owned:

4. Broker-Dealer Status:

(a) Are you a broker-dealer?

Yes       o      No      o

(b) If “yes” to Section 4(a), did you receive your Registrable Securities as compensation for investment banking services to the Company.

Yes       o      No      o

Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(c) Are you an affiliate of a broker-dealer?

Yes       o      No      o

(d) If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes       o      No      o

Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

5. Beneficial Ownership of Other Securities of the Company Owned by the Selling Shareholder.

        Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.

(a) Type and Amount of Other Securities beneficially owned by the Selling Shareholder:

6. Relationships with the Company:

        Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

        By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus and any amendments or supplements thereto. The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

     IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:	Beneficial Owner:
	By:
		Name:
		Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

DLA PIPER RUDNICK GRAY CARY US LLP
6225 SMITH AVENUE
BALTIMORE, MARYLAND 21209
ATTN: MICHAEL J. STEIN, ESQ.
TELEPHONE NO.: (410) 580-4835
FACSIMILE NO.: (410) 580-3835

EX-4.10

Exhibit 4.10

INTELLECTUAL PROPERTY SECURITY AGREEMENT

     INTELLECTUAL PROPERTY SECURITY AGREEMENT, dated as of March 13, 2006 (this “Agreement”), among Telecommunication Systems, Inc., a Maryland corporation (the “Company” or the “Debtor”) and Bonanza Master Fund, Ltd. as agent (the “Agent”) for the holders of the Company’s Secured Notes due March 13, 2009 in the original aggregate principal amount of $10,000,000 (together with any additional such Notes issued as interest on the existing Notes, the “Notes”), signatory hereto, their endorsees, transferees and assigns (collectively referred to as, the “Secured Parties”).

W I T N E S S E T H:

     WHEREAS, pursuant to the Notes, the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Notes; and

     WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Notes, Debtor has agreed to execute and deliver to the Agent this Agreement and to grant the Agent for the benefit of the Secured Parties, a first priority perfected security interest in the Collateral (as defined herein) to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Notes.

     NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

     1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Capitalized terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC shall have the respective meanings given such terms in Article 9 of the UCC.

     (a) “Collateral” means Debtor’s Intellectual Property existing on the date of this Agreement, wherever situated, and all Proceeds of any sale or other disposition thereof outside of the ordinary course of business, including, without limitation, all proceeds from insurance covering the same and of any tort claims in connection therewith.

     (b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for

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letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, but only to the extent that the inclusion thereof in this Agreement does not and will not cause a default under the terms of any agreements in respect of the such license (except that all rights to payment in respect of such licenses shall be included in the definition of Intellectual Property), and (vii) all causes of action for infringement of the foregoing.

     (c) “Majority in Interest” means (i) the Secured Parties who, together with their respective Affiliates, hold a majority of the Notes outstanding at the time of determination, (ii) SRB Management, L.P. as long as (A) it and its Affiliates, (B) WS Capital Management, L.P. and its Affiliates and (C) WS Ventures Management, L.P. and its Affiliates collectively hold at least $2,000,000 in aggregate principal amount of the Notes outstanding at the time of determination, and (iii) Bonanza Master Fund Ltd. as long as it, together with its Affiliates, holds at least $3,000,000 in aggregate principal amount of the Notes outstanding at the time of determination.

     (d) “Note Purchase Agreement” means the Note Purchase Agreement dated as of the date hereof by and among Debtor and the Secured Parties signatory thereto.

     (e) “Obligations” means (i) principal of, and interest on the Notes and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtor from time to time under or in connection with this Agreement, the Notes and the Note Purchase Agreement; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

     (f) “Organizational Documents” means with respect to Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of

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such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

     (g) “Release Collateral” shall mean all of the following:

          (i) all letters patent of the United States or any other country or political subdivision thereof, and all applications for letters patent of the United States or any other country, that are listed on Schedule E-1 attached hereto;

          (ii) all re-issues, continuations, divisions, continuations-in-part, renewals or extensions of the patents and applications referred to in preceding clause (i);

          (iii) the inventions disclosed or claimed in preceding clauses (i) and (ii), including the right to make, use, practice and/or sell (or license or otherwise transfer or dispose of) the inventions disclosed or claimed in preceding clauses (i) and (ii);

          (iv) the right to make and prosecute applications for the patents and applications referred to in preceding clauses (i), (ii) and (iii); and

          (v) Proceeds of any property described in the preceding clauses of this definition of Release Collateral.

     (h) “Silicon Valley Bank” means Silicon Valley Bank, and its successors and assigns.

     (i) “Subordination Agreement” means the Subordination Agreement, dated of even date herewith, among Silicon Valley Bank and the Secured Parties.

     (j) “UCC” means the Uniform Commercial Code of the State of Maryland and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

     2. Grant of Perfected First Priority Security Interest. As an inducement for the Secured Parties to extend the loans as evidenced by the Notes and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Agent for the benefit of the Secured Parties a continuing and

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perfected security interest in and to, a lien upon all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (the “Security Interest”). Secured Parties acknowledge that the Collateral may be subject to certain rights of Silicon Valley Bank pursuant to certain loan documents from the Debtor in favor of Silicon Valley Bank.

     3. Intentionally Omitted.

     4. Representations, Warranties, Covenants and Agreements of the Debtor. Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

     (a) Debtor has the requisite corporate power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of Debtor and no further action is required by Debtor. This Agreement has been duly executed by Debtor. This Agreement constitutes the legal, valid and binding obligation of Debtor, enforceable against Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.

     (b) The Debtor has no place of business or offices where its books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto.

     (c) Except as set forth on Schedule B attached hereto, the Debtor is the sole owner of the Collateral (except for non-exclusive licenses granted by Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and is fully authorized to grant the Security Interest. There is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. So long as this Agreement shall be in effect, the Debtor shall not execute and shall not knowingly permit to be on file in any such office or agency any such financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement). In the event that there is on file on the date hereof in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or other notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting the Collateral, Debtor shall be permitted a period of thirty (30) days after becoming aware thereof in which to

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have such financing statement, security agreement, license or transfer or notice terminated and released of record.

     (d) No written claim has been received that any Collateral or Debtor’s use of any Collateral violates the rights of any third party. There has been no adverse decision to Debtor’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to Debtor’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

     (e) This Agreement creates in favor of the Agent for the benefit of the Secured Parties a valid security interest in the Collateral, securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, no action is necessary to create or perfect the security interests created hereunder. Without limiting the generality of the foregoing, except for the filing of said financing statements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Secured Parties hereunder, other than as set forth in the Subordination Agreement.

     (f) Debtor hereby authorizes the Agent on behalf of the Secured Parties to file one or more financing statements under the UCC, with respect to the Security Interest with the proper filing and recording agencies in any jurisdiction deemed proper by them.

     (g) The execution, delivery and performance of this Agreement by the Debtor does not (i) violate any of the provisions of any Organizational Documents of the Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing Debtor’s debt or otherwise) or other understanding to which Debtor is a party or by which any property or asset of Debtor is bound or affected. No consent (including, without limitation, from stockholders or creditors of Debtor)

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which has not been obtained is required for Debtor to enter into and perform its obligations hereunder.

     (h) Debtor shall at all times maintain the liens and Security Interest provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Agent until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 11 hereof. Debtor hereby agrees to defend the same against the claims of any and all persons and entities. At the request of the Agent, Debtor will pay the cost of filing UCC financing statements in appropriate form in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interest hereunder, and Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interest hereunder; provided, however, that nothing in this clause (h) shall obligate the Debtor to take any action with respect to the Subordination Agreement.

     (i) Debtor will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (other than Release Collateral and licenses granted by a Debtor in its ordinary course of business) without the prior written consent of the Agent, which consent shall not be unreasonably withheld, conditioned or delayed, it being acknowledged that the legitimate interests of the Agent and the Debtor may differ with respect to the desirability of any given proposed disposition.

     (j) Debtor shall, within thirty (30) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any substantial change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral (other than the Release Collateral) or on the Secured Parties’ security interest therein.

     (k) Upon the Agent’s written request, Debtor shall execute and deliver to Agent such instruments and documents, in form and substance reasonably satisfactory to Debtor (and for so long as Debtor is indebted to Silicon Valley Bank, Silicon Valley Bank), as may be necessary for Agent to confirm the creation or perfection of, or to give public notice of, the Security Interest granted under this Agreement; provided that unless an Event of Default has occurred and is continuing (i) Debtor shall not be required to execute or deliver to Agent any instrument or other document to be recorded with any public office other than the appropriate public office for filing financing statements under the UCC and (ii) the Agent shall not make any filing in any office other than the appropriate public office for filing financing statements under the UCC.

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     (l) Intentionally Omitted.

     (m) Debtor shall promptly notify the Agent in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Agent hereunder.

     (n) Intentionally Omitted.

     (o) Debtor will not change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 10 days prior written notice to the Agent of such change and, at the time of such written notification, Debtor provides any financing statements necessary to perfect and continue perfected the perfected security interest granted and evidenced by this Agreement.

     (p) Debtor was organized and remains organized solely under the laws of the state set forth next to Debtor’s name in the first paragraph of this Agreement. Schedule C attached hereto sets forth Debtor’s organizational identification number or, if Debtor does not have one, states that one does not exist.

     (q) (i) The actual name of Debtor is the name set forth in the preamble above; (ii) Debtor does not have any trade names except as set forth on Schedule D attached hereto; (iii) Debtor has not used any name other than that stated in the preamble hereto or as set forth on Schedule D for the preceding five years; and (iv) no entity has merged into Debtor or been acquired by Debtor within the past five years except as set forth on Schedule D.

     (r) If Debtor shall at any time hold or acquire a commercial tort claim in respect of any Collateral, Debtor shall promptly notify the Secured Parties in a writing signed by Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Secured Parties.

     (s) Without limiting the generality of the other obligations of the Debtor hereunder, Debtor shall, upon the written request of the Agent upon the occurrence and during the continuance of any Event of Default, promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights and (ii) cause the Security Interest with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, (provided, that

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no such recordation shall be required prior to the occurrence of an Event of Default).

     (t) Schedule E attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by the Debtor as of the date hereof. Schedule E lists all material licenses in favor of Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtor have been duly recorded at the United States Patent and Trademark Office.

     5. RELEASE COLLATERAL.

     (a) Notwithstanding anything to the contrary set forth in this Agreement or in any other Transaction Document, the Agent, and, if requested by the Debtor, each Secured Party shall release and terminate any and all liens and security interests that the Agent or any Secured Party has or may have in the Release Collateral within ten (10) days after Debtor’s written request for such release and termination in preparation for Debtor’s sale, license or other disposition of all or any portion of the Release Collateral to any Person from time to time, and in connection therewith, and within ten (10) days after Debtor’s written request for any such release and termination, the Agent, and if so requested by the Debtor, each Secured Party shall:

     (i) execute and deliver to Debtor a written instrument prepared by Debtor in form and substance satisfactory to Debtor to confirm that Secured Party’s liens and security interests in the Release Collateral will be fully released and terminated upon such disposition and that all of Agent’s and each Secured Party’s right, title and interest in such Release Collateral has been so assigned back to Debtor;

     (ii) execute such Uniform Commercial Code financing statement amendments prepared by Debtor as may be necessary in the appropriate public filing office(s) to release the Release Collateral from any filed financing statement on which Agent or any Secured Party is a secured party and which describes collateral that includes, or in Debtor’s judgment may include, the Release Collateral; and

     (iii) execute for filing with the United States Patent and Trademark Office such written instruments and documents prepared by Debtor as may be necessary or appropriate in Debtor’s judgment to fully release and terminate of record Agent’s or each Secured Party’s lien and security interest in the Release Collateral and to assign all of Agent’s or each Secured Party’s right, title and interest in such Release Collateral back to Debtor.

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     (b) Debtor shall not be required to pay Agent or any Secured Party any fee or other amount for or in connection with any release or termination requested by Debtor under this Section 5 (or for performance of Agent’s or any Secured Party’s obligations under this Section 5) and Debtor shall not be required to make any payment or prepayment of any obligations (under the Notes or otherwise) upon, or with any Proceeds of, any sale, license or other disposition of any Release Collateral.

     (c) If the Agent or any Secured Party shall fail to comply with the requirements of this Section 5, Debtor is hereby authorized to prepare, execute (as necessary) and file in the appropriate Uniform Commercial Code financing statement records and with the United States Patent and Trademark Office such financing statement amendments and other instruments and documents as may be necessary to release and terminate all of Agent’s and each Secured Party’s right, title and interest in the Release Collateral of record and in fact and to re-assign the Release Collateral back to Debtor. Agent and each Secured Party hereby grants Debtor Agent’s and such Secured Party’s power of attorney and authorization to execute, deliver and file such instruments and documents in Agent’s or such Secured Party’s name for the purposes described in this Section 5, which power is coupled with an interest and is irrevocable.

     (d) Each Secured Party hereby irrevocably agrees that the Agent’s release and termination of any lien or security interest in the Release Collateral as provided in this Section 5 shall constitute a full and complete release and termination of any and all right, title and interest (including any lien or security interest) that such Secured Party may have or claim in the Release Collateral and that any actions taken by Agent under this Section 5 shall be binding on each Secured Party.

     (e) The Secured Parties hereby irrevocably authorize and direct the Agent to perform the Agent’s obligations under this Section 5 without any requirement of notice to, or consent or authorization from, any Secured Party.

     6. Defaults. The following events shall be “Events of Default”:

     (a) The occurrence of an Event of Default (as defined in the Notes) under the Notes;

     (b) Any material representation or warranty of any Debtor in this Agreement or the Note Purchase Agreement shall prove to have been incorrect in any material respect when made;

     (c) The failure by Debtor to observe or perform any of its obligations hereunder for thirty (30) days after delivery to Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and Debtor is using best efforts to cure same in a timely fashion; or

- 9 -

     (d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Debtor, or a proceeding shall be commenced by Debtor, or by any governmental authority having jurisdiction over Debtor, seeking to establish the invalidity or unenforceability thereof, or Debtor shall deny that Debtor has any liability or obligation purported to be created under this Agreement.

     7. Duty To Hold In Trust. Upon and during the occurrence of any Event of Default, Debtor shall, upon receipt of any Proceeds of any sale or other disposition of Collateral other than the Release Collateral, Debtor shall hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments evidencing such sums, or both, to the Agent for the benefit of the Secured Parties, pro-rata in proportion to their initial purchases of Notes for application to the satisfaction of the Obligations (and if any Notes are not outstanding, pro-rata in proportion to the initial purchases of the remaining Notes).

     8. Rights and Remedies Upon Default.

     (a) Upon the occurrence and during the continuance of any Event of Default, the Agent shall have the right to exercise all of the remedies conferred hereunder, and the Agent shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent shall have the following rights and powers:

     (i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at Debtor’s premises or elsewhere, and make available to the Agent, without rent, all of Debtor’s premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

     (ii) Upon notice to the Debtor by Agent, all rights of Debtor to receive payments or other sums from the sale of Collateral (but not any revenue, income or other sums which arise in the ordinary course of business from the use of Collateral) shall, at the option of Agent, be delivered to Agent. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as if it were the sole and absolute owner thereof.

     (iii) The Agent shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or

- 10 -

stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as shall be commercially reasonable, all without (except as shall be required by applicable statute) advertisement or demand upon or notice to Debtor or right of redemption of Debtor. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent may, unless prohibited by applicable law, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of Debtor, which are hereby waived and released.

     (iv) Intentionally Omitted.

     (v) The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Agent or any designee or any purchaser of any Collateral.

     (b) The Agent may comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtor will only be credited with payments actually made by the purchaser. In addition, Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

     (c) For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, upon the occurrence and during the continuance of any Event of Default, Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to Debtor) to use, license or sublicense any Intellectual Property, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

     9. Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent or the Secured Parties in enforcing their rights hereunder and in connection with collecting,

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storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Notes at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Agent on behalf of the Secured Parties shall pay to the Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtor will be liable for the deficiency, together with interest thereon, at the rate of 14% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, Debtor waives all claims, damages and demands against the Agent and the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

     10. Intentionally Omitted.

     11. Costs and Expenses. Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto, or upon and during the continuance of an Event of Default, any expenses of any searches reasonably required by the Secured Parties. The Debtor will also, upon demand, pay to the Secured Parties the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Secured Parties may incur upon the occurrence and during the continuance of an Event of Default in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Notes. Until so paid, any fees payable hereunder shall be added to the principal amount of the Notes and shall bear interest at the Default Rate.

     12. Responsibility for Collateral. The Debtor assumes all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of Debtor under or pursuant to any such

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contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

     13. Security Interest Absolute. All rights of the Agent and the Secured Parties and all obligations of the Debtor hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Notes, the Obligations or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Notes or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guaranty, or any other security, for all or any of the Obligations; (d) any action by the Agent or the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to Debtor, or a discharge of all or any part of the Security Interest granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Agent and the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy. Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Agent or the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Agent or the Secured Parties, then, in any such event, Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Debtor waives all right to require the Agent or the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Agent or the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

     14. Term of Agreement. This Agreement and the Security Interest shall terminate on the date on which all payments of principal, accrued and unpaid interest and any other amounts due under the Notes have been indefeasibly paid in full; provided, however, that all indemnities of the Debtor contained in this Agreement (including, without limitation, Annex A hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement. Upon payment in full of all of

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the outstanding principal amount of the Notes, together with all accrued and unpaid interest, and any other amounts due under the Notes, the Agent shall prepare and file such Uniform Commercial Code financing statement amendments, and shall prepare, execute and file such other documents or instruments, as may be necessary to terminate of record and in fact any security interest in or lien on the Collateral under this Agreement. Each Secured Party irrevocably agrees that the Agent’s termination and release of any lien or security interest in the Collateral as provided in this Section 14 shall constitute a full and complete termination and release or any and all right, title and interest (including any lien or security interest) that such Secured Party may have or claim in the Collateral and that any actions taken by Agent under this Section 14 shall be binding on each Secured Party. The Secured Parties hereby irrevocably authorize and direct the Agent to perform the Agent’s obligations under this Section 14 without any requirement or notice to, or consent or authorization from, any Secured Party.

     15. Power of Attorney; Further Assurances.

     (a) Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent, the various Secured Parties or Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent or any of the Secured Parties; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtor, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems reasonably necessary to protect, preserve and realize upon the Collateral and the Security Interest granted therein in order to effect the intent of this Agreement and the Notes all as fully and effectually as the Debtor might or could do; and Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which Debtor is subject or to which Debtor is a party other than those in favor of Silicon Valley Bank. Without limiting the generality of the foregoing, upon and during the continuance of an Event of Default, the Agent is specifically authorized to execute and file any applications

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for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

     (b) On a continuing basis, Debtor will file with the proper filing office in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interest granted hereunder. Notwithstanding anything to the contrary set forth in this Agreement or otherwise, (1) Debtor shall not be required to maintain or make any filings to maintain any Collateral that Debtor deems to be not material to Debtor’s business, and (2) Debtor shall not be required to make any filing other than the filing of one or more financing statements under the UCC to perfect the Security Interest unless an Event of Default has occurred and is continuing.

     (c) Upon the occurrence and during the continuance of any Event of Default, Debtor hereby irrevocably appoints the Secured Parties as Debtor’s attorney-in-fact, with full authority in the place and instead of Debtor and in the name of Debtor, in the Agent’s discretion, to take any action and to execute any instrument which the Secured Parties may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Debtor where permitted by law, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

     16. Notices. Any notice required or permitted by or in connection with this Agreement shall be in writing and shall be made by facsimile, or by hand delivery, or by overnight delivery service, or by certified mail, return receipt requested, postage prepaid, addressed to Agent or Debtor at the appropriate address set forth below or to such other address as may be hereafter specified by written notice given by Agent or Debtor. Notice shall be considered given as of the earlier of the date of actual receipt, or the date of the facsimile transmission without error, or the date of hand delivery, or one (1) business day after delivery to a nationally recognized overnight delivery service, or three (3) business days after the date of mailing, independent of the date of actual delivery or whether delivery is ever in fact made, as the case may be, provided the giver of notice can establish that notice was given as provided herein.

If to Agent:	Bonanza Master Fund, Ltd.
	300 Crescent Court, Suite 250
	Dallas, Texas 75201 Attn: Bernay Box
	Facsimile No.: 214-303-3950

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If to Debtor:	Telecommunications Systems, Inc.
	275 West Street
	Annapolis, Maryland 21401
	Attn: Chief Financial Officer
	Facsimile No.: 410-263-7617

     17. Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent or the Secured Parties shall have the right, in their sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Agent’s or the Secured Parties’ rights and remedies hereunder.

     18. Appointment of Agent. The Secured Parties hereby appoint Bonanza Master Fund, Ltd. to act as their agent (“Bonanza” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent; provided, that Bonanza may not be removed as Agent unless Bonanza shall then hold less than $2,000,000 principal amount of Notes; provided further that such removal may occur only if each of the other Secured Parties shall then hold not less than $2,000,000 principal amount of Notes. The Agent shall have the rights, responsibilities and immunities set forth in Annex A hereto.

     19. Miscellaneous.

     (a) No course of dealing between the Debtor and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Notes shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

     (b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Notes or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.

     (c) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and is intended to supersede all prior negotiations, understandings and agreements with respect thereto. Except as specifically set forth in this Agreement, no provision of this Agreement may be modified or amended except by a written agreement specifically referring to this Agreement and signed by a Majority in Interest and Debtor.

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     (d) In the event any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction for any reason, unless such provision is narrowed by judicial construction, this Agreement shall, as to such jurisdiction, be construed as if such invalid, prohibited or unenforceable provision had been more narrowly drawn so as not to be invalid, prohibited or unenforceable. If, notwithstanding the foregoing, any provision of this Agreement is held to be invalid, prohibited or unenforceable in any jurisdiction, such provision, as to such jurisdiction, shall be ineffective to the extent of such invalidity, prohibition or unenforceability without invalidating the remaining portion of such provision or the other provisions of this Agreement and without affecting the validity or enforceability of such provision or the other provisions of this Agreement in any other jurisdiction.

     (e) No waiver of any breach or default or any right under this Agreement shall be considered valid unless in writing and signed by a Majority in Interest and the Debtor, and no such waiver shall be deemed a waiver of any subsequent breach or default or right, whether of the same or similar nature or otherwise.

     (f) This Agreement shall be binding upon and inure to the benefit of each party hereto and its successors and assigns.

     (g) Intentionally Omitted.

     (h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement 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. Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Notes (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan. Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan 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 such court, that such proceeding is improper. 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 Agreement 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

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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 Agreement or the transactions contemplated hereby. If any party shall commence a proceeding to enforce any provisions of this Agreement, then the prevailing party in such proceeding shall be reimbursed by the other party for its reasonable attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such proceeding.

     (i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

     (j) Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Notes, the Purchase Agreement (as such term is defined in the Notes) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

[SIGNATURE PAGES FOLLOW]

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     IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed on the day and year first above written.

TeleCommunication Systems, Inc.
By:	/s/ Thomas M. Brandt, Jr.
	Name: Thomas M. Brandt, Jr.
	Title: Senior Vice President and Chief Financial Officer
Bonanza Master Fund, Ltd., as Agent
By:	/s/ Brian Ladin
	Name: Brian Ladin
	Title: Partner

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

Name of Investing Entity: Bonanza Master Fund, Ltd.
Signature of Authorized Signatory of Investing entity: /s/ Brian Ladin                    

Name of Authorized Signatory: Brian Ladin                    

Title of Authorized Signatory: Partner                    

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	HHMI Investments, L.P.
By:	WS Capital Management, L.P.,
	Investment Manager
	By: WS Capital, L.L.C., General Partner
	By:	/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	Walker Smith International Fund, Ltd.
By:	WS	Capital Management, L.P.,
	Attorney-in-fact
	By: WS Capital, L.L.C., General Partner
	By:	/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	Walker Smith Capital, L.P.
By:	WS Capital Management, L.P., General Partner
	By: WS Capital, L.L.C., General Partner
	By:	/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	Walker Smith Capital (Q.P.), L.P.
By:	WS Capital Management, L.P., General Partner
	By: WS Capital, L.L.C., General Partner
	By:	/s/ Reid S. Walker
		Name: Reid S. Walker
		Title: Member

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	SRB Greenway Capital, L.P.
By:	SRB Management, L.P., General Partner
	By: BC Advisors, L.L.C., General
	Partner
	By:	/s/ Steven R. Becker
		Name: Steven R. Becker
		Title: Member

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	SRB Greenway Capital QP, L.P.
By:	SRB Management, L.P., General Partner
	By: BC Advisors, L.L.C., General Partner
	By:	/s/ Steven R. Becker
		Name: Steven R. Becker
		Title: Member

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[SIGNATURE PAGE OF SECURED PARTIES TO TSYS SA]

	SRB Greenway Offshore Operating
	Fund, L.P.
By:	SRB Management, L.P., General Partner
	By: BC Advisors, L.L.C., General Partner
	By:	/s/ Steven R. Becker
		Name: Steven R. Becker
		Title: Member

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ANNEX A
to
SECURITY
AGREEMENT

THE AGENT

          1. Appointment. The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex A is attached (the “Agreement”)), by their acceptance of the benefits of the Agreement, hereby designate Bonanza Capital Partners, Ltd. (“Bonanza” or “Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Notes) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

          2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

          3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtor, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time,

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and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtor or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtor or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtor, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.

          4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of Secured Parties holding a majority in principal amount of Notes (based on then-outstanding principal amounts of Notes at the time of any such determination); if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtor shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

          5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it.

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          6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtor, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Notes, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

          7. Resignation by the Agent.

     (a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving 30 days’ prior written notice (as provided in the Agreement) to the Debtor and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

     (b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Agent hereunder.

     (c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtor and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtor on demand.

          8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents.

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EX-4.11

Exhibit 4.11

SUBORDINATION AGREEMENT

     This Subordination Agreement (the “Agreement”) is made as of this 13th day of March, 2006, by and among SILICON VALLEY BANK, a California-chartered bank with its principal place of business at 3003 Tasman Drive, Santa Clara, CA 95054, (the “Bank”) and Bonanza Master Fund, LTD., for itself and as agent for each Purchaser (the “Agent”), HHMI Investments, L.P., SRB Greenway Capital LP, SRB Greenway Capital (QP) LP, SRB Greenway Offshore Operating Fund, LP, Walker Smith Capital (QP), LP, Walker Smith Capital, LP, and Walker Smith International Fund, Ltd. (collectively, the “Purchasers” and each a “Purchaser”) the purchasers jointly but not severally, on a pro rata basis, of Secured Notes due 2009 (together with any Additional Notes (as defined in that certain Purchase Agreement dated March 13, 2006 by and between the Borrower and the Purchasers) (the “Purchase Agreement”), the “Notes”) of TELECOMMUNICATION SYSTEMS, INC. (the “Borrower”).

Recitals

     A. Bank and the Borrower have entered into the Second Amended and Restated Loan and Security Agreement (Revolver) between them, dated as of October 14, 2005, as such agreement is amended or otherwise modified from time to time (referred to herein as the “Loan Agreement”), pursuant to which Bank has extended credit accommodations to Borrower secured by a first priority interest in certain collateral described in the Loan Agreement (the “Collateral”).

     B. The Purchasers have entered into the Purchase Agreement with the Borrower, pursuant to which the Purchasers have purchased an initial aggregate principal amount of $10,000,000 (which may be increased by the issuance of Additional Notes) of the Borrower’s Notes, which shall be secured by that certain Intellectual Property Security Agreement dated March 13, 2006 (the “Security Agreement”).

     C. In order to induce Bank to continue to extend the credit accommodations to Borrower as the Loan Agreement contemplates, Purchasers are willing to subordinate (i) all of Borrower’s indebtedness, liabilities, guarantees and all other obligations owing to Purchasers arising from time to time, including, without limitation, with respect to the Notes (collectively the “Subordinated Debt”) to and in favor of all of Borrower’s indebtedness, liabilities, guarantees and all other obligations owing to Bank, now existing or hereafter arising, including without limitation, under the Loan Agreement (the “Senior Debt”) and (ii) all security interests, liens, encumbrances, ownership interests and all other interests of similar import of Purchasers now in existence and arising hereafter with respect to any and all property of the Borrower now in existence or hereafter arising, including, without limitation, the Collateral, except those security interests, liens and encumbrances arising pursuant to the Security Agreement (the “Subordinate Interest”) to and in favor of the rights and interests of Bank in and to any and all of such property, in each of the foregoing cases to the extent and as otherwise set forth herein.

Agreement

NOW, THEREFORE, THE PARTIES HERETO HEREBY AGREE AS FOLLOWS:

     1. Purchasers hereby subordinate their Subordinate Interest regarding any and all assets and property of the Borrower to and in favor of Bank. Further, notwithstanding the respective dates of attachment or perfection of the Subordinate Interest and the security interest and lien of Bank, the security interest and lien of Bank in the assets and property of Borrower granted pursuant to the Loan Agreement and otherwise arising from time to time in connection with the Senior Debt, including, without limitation, the Collateral, shall at all times be prior and superior to the Subordinate Interest. Bank and Purchasers each hereby acknowledge and agree that (i) the Collateral, includes Accounts or General Intangibles (as such terms are defined in the Uniform Commercial Code in the State of Maryland) now or hereafter arising out of Borrower’s

1

intellectual property; (ii) any security interest now or hereafter arising in favor of Bank with respect to any intellectual property of Borrower is junior and subordinate in all respects to any security interest now or hereafter arising in favor of Purchasers with respect to such intellectual property; and (ii) any proceeds from the sale by the Purchasers of Borrower’s intellectual property are not Accounts or General Intangibles.

     2. On the terms and conditions set forth herein, Purchasers hereby subordinate all Subordinated Debt in right of payment to and in favor of all Senior Debt. Nothing herein shall be deemed to subordinate, waive or restrict the performance of the obligations of Borrower to issue capital stock of Borrower under any warrants that the Borrower may have issued to Purchasers from time to time.

     3. Subject to and except as set forth in Section 4 below, Purchasers will not: (a) demand or receive from Borrower (and Borrower will not pay to Purchasers) all or any part of the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit or otherwise; (b) exercise any right or remedy, or take any enforcement action regarding any property or assets of Borrower; or (c) commence, or cause to be commenced, prosecute or participate in any administrative, legal or equitable action against Borrower or the Collateral as defined in the Loan Agreement, for the longer of such time as any Senior Debt remains outstanding or the Loan Agreement remains effective and not terminated; provided, however, Agent may on behalf of Purchasers, during the existence and continuance of any default in respect of the Subordinated Debt, and in accordance with the terms thereof, take an enforcement or other remedial action with respect to the Borrower or any of the property described in the Security Agreement on and after the date that is one hundred eighty (180) days after Agent on behalf of Purchasers has given Bank written notice of its intention to do any of the foregoing in a letter that specifically references this section and indicates what actions are contemplated (and with the understanding that any such written notice may be given during a Blockage Period if Agent on behalf of Purchasers so desires).

     4. (a) Notwithstanding anything to the contrary contained in Sections 2 and 3 above, but expressly subject to (b) below, Borrower shall be permitted to make, and Purchasers shall be permitted to accept or receive the following permitted payments (“Permitted Payments”) on the Subordinated Debt: (i) scheduled repayments of principal when due (as contemplated by the agreements in effect as of the date hereof) under the Notes (as long as the maximum principal amount of the Subordinated Debt in the aggregate does not exceed $10,000,000), (ii) scheduled quarterly payments of accrued interest when due under the Notes (as contemplated by the agreements in effect as of the date hereof), (iii) payments of reimbursable expenses, costs and professional fees and expenses as and when due under the Subordinated Debt facility (as contemplated by the agreements in effect as of the date hereof), (iv) payments of liquidated damages as and when due under the Subordinated Debt (as contemplated by the agreements in effect as of the date hereof), provided that at the time of such payment and after giving effect thereto, no default shall have occurred and be continuing under the Loan Agreement, and (v) other payments consented to in writing by the Bank. Borrower further covenants and agrees that it will not make any of the payments permitted to be made to Purchasers pursuant to this Section 4(a), if at the time of any such payment or after giving effect to any such payments a Payment Default or Non-Payment Default (each as hereinafter defined) would exist. In the event Borrower makes such a determination, it shall immediately notify Bank of such determination.

          (b) Notwithstanding anything to the contrary contained in this Section 4 or elsewhere in this Agreement, if the Bank delivers to Agent written notice (a “Blockage Notice”) which states that either:

     (i) a specific default by Borrower involving the payment of the Senior Debt (a “Payment Default”) has occurred under the Loan Agreement and continues to exist after the giving of any notice, if any is so required, and the expiration of any applicable grace or cure period, or

2

     (ii) a specific default by Borrower not involving the payment of Senior Debt (a “Non-Payment Default”) has occurred under the Loan Agreement and continues to exist after the giving of any notice, if any is so required, and the expiration of any applicable grace or cure period, such notice to include all such defaults in existence at the time,

     then, from and after the date of delivery of any such Blockage Notice, Purchasers shall not accept or receive any payment of any kind of or on account of the Subordinated Debt (including any Permitted Payment), unless and until the earlier of (A) the time such Payment Default or Non-Payment Default shall have been cured by Borrower or waived in writing by Bank, or (B) the expiration of the Blockage Period (as defined below) for such Blockage Notice.

     As used herein, “Blockage Period” means a period of time beginning on the date a Blockage Notice is delivered to Agent and termination on the earlier to occur of:

     (1) 180 days following such date; provided that if, prior to the expiration of such 180-day period, Bank has commenced a judicial proceeding or non-judicial actions to collect or enforce the Senior Debt or the collateral for the Senior Debt, or a case or proceeding by or against Borrower is commenced under the federal Bankruptcy Code or any other insolvency law, then such period shall be extended during the continuation of such proceedings and actions under the payment in cash or other property or securities in the full amount of the allowed claim of the Senior Debt; or

     (2) Bank’s written consent to such termination.

     In no event shall the Blockage Period during any period of 365 consecutive days exceed 180 days in the aggregate, whether pursuant to one (1) Blockage Notice or multiple Blockage Notices; provided, however, the foregoing limitation shall not apply in the event that prior to the expiration of such 180 day period Bank has commenced a judicial proceeding or non-judicial actions to collect or enforce the Senior Debt or a case of proceeding by or against Borrower is commenced under the federal Bankruptcy Code or any other insolvency law, then such period shall be extended during the continuation of such proceedings and actions until the payment in cash or other property or securities in the full amount of the allowed claim of the Senior Debt. After termination of any Blockage Period pursuant to the conditions specified in (1) or (2) above and until Agent’s receipt of a subsequent Blockage Notice from Bank, Purchasers shall be entitled to receive all Permitted Payments.

     5. If Agent or any Purchaser sends the Borrower a notice of default under the Purchasers Facility, Purchasers shall use best efforts to promptly deliver a copy of the notice of default to Bank, but failure to do so shall not, in and of itself, be a breach of this Agreement nor affect any of Purchasers’ rights in respect of the Subordinated Debt.

     6. Purchasers shall promptly deliver to Bank in the form received (except for endorsement or assignment by Purchasers where required by Bank) for application to the Senior Debt any payment, distribution, security or proceeds received by Purchasers with respect to the Subordinated Debt other than in accordance with this Agreement.

     7. In the event of Borrower’s insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law or laws relating to the relief of debtors, these provisions shall remain in full force and effect, and Bank’s claims against Borrower and the estate of Borrower shall be paid in full before any payment is made to Purchasers.

     8. For so long as any of the Senior Debt remains unpaid, Purchasers irrevocably appoint Bank as Purchasers’ attorney-in-fact, and grants to Bank a power of attorney with full power of substitution, in the name of Purchasers or in the name of Bank, for the use and benefit

3

of Bank, without notice to Purchasers, in any bankruptcy, insolvency or similar proceeding involving Borrower to (i) file the appropriate claim or claims in respect of the Subordinated Debt on behalf of Purchasers if Purchasers do not do so prior to 30 days before the expiration of the time to file claims in such proceeding and (ii) accept or reject any plan of reorganization or arrangement on behalf of Purchasers and otherwise to vote Purchasers’ claims in respect of any Subordinated Debt in any manner that Bank chooses.

     9. Purchasers shall immediately affix a legend to the instruments evidencing the Subordinated Debt stating that the instruments are subject to the terms of this Agreement. No amendment of the documents evidencing or relating to the Subordinated Debt shall directly or indirectly modify the provisions of this Agreement in any manner which might terminate or impair the subordination of the Subordinated Debt or the subordination of the security interest or lien that Purchasers may have in any property of Borrower. Additionally, no amendment of the documents evidencing the Subordinated Debt may change the timing or amount of the regularly scheduled payments of principal and interest without Bank’s consent.

     10. The Purchasers shall not be subrogated to, or be entitled to any assignment of any Senior Debt or evidence of any evidence of Senior Debt or any Collateral until all Senior Debt is indefeasibly paid and satisfied in full.

     11. All necessary action on the part of the Purchasers, their respective officers, directors, partners, members and shareholders, as applicable, necessary for the authorization of this Agreement and the performance of all obligations of the Purchasers hereunder has been taken. Additionally, the execution, delivery and performance of and compliance with this Agreement will not result in any material violation or default of any term of any of the Purchasers’ charter, formation or other organizational documents (such as Articles or Certificate of Incorporation, bylaws, partnership agreement, operating agreement, etc.).

     12. This Agreement shall remain effective until the later to occur of the repayment in full in cash of the Senior Debt or the termination of the Loan Agreement. If, at any time after payment in full of the Senior Debt any payments of the Senior Debt must be disgorged by Bank for any reason (including, without limitation, the bankruptcy of Borrower), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made and Purchasers shall immediately pay over to Bank all payments received with respect to the Subordinated Debt to the extent that such payments would have been prohibited hereunder. At any time and from time to time, without notice to Purchasers, Bank may take such actions with respect to the Senior Debt as Bank, in its sole discretion, may deem appropriate, including, without limitation, terminating advances to Borrower, extending the time of payment, increasing applicable interest rates, renewing, compromising or otherwise amending the terms of any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing to enforce any rights against Borrower or any other person. Purchasers waives the benefits, if any, of any statutory or common law rule that may permit a subordinating Purchaser to assert any defenses of a surety or guarantor, or that may give the subordinating Purchaser the right to require a senior Purchaser to marshal assets, and Purchasers agree that it shall not assert any such defenses or rights.

     13. This Agreement shall bind any successors or assignees of Purchasers and shall benefit any successors or assigns of Bank. This Agreement is solely for the benefit of Purchasers and Bank and not for the benefit of Borrower or any other party.

     14. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. This Agreement shall become effective only when it shall have been executed by Purchasers and Bank.

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     15. This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to conflicts of law principles. Purchasers and Bank submit to the exclusive jurisdiction of the state and federal courts located in Santa Clara County, California. PURCHASERS AND BANK WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

     16. This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. Purchasers is not relying on any representations by Bank or Borrower in entering into this Agreement, and Purchasers has kept and will continue to keep itself fully apprised of the financial and other condition of Borrower. This Agreement may be amended only by written instrument signed by Purchasers and Bank.

     17. In the event of any legal action to enforce the rights of a party under this Agreement, the party prevailing in such action shall be entitled, in addition to such other relief as may be granted, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in such action.

     18. Except as otherwise provided herein, all notices required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be sent to the address set forth below or to such other address as each party may designate for itself by like notice. Bank shall satisfy any notice requirement with respect to the Purchasers under this Agreement by providing notice to the Agent.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

5

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

BANK
SILICON VALLEY BANK
By:	/s/ Tony Wolfe
	Name: Tony Wolfe
	Title:   Relationship Manager
Address for Notice:
3003 Tasman Drive
Mail Sort HA 250
Santa Clara, California 95054
Attention: General Counsel
PURCHASERS:
Bonanza Master Fund, Ltd.
By:	/s/ Brian Ladin
	Name: Brian Ladin
	Title:   Partner
Address for Notice:
Bonanza Capital
300 Crescent Court
Suite 250
Dallas, TX 75201
HHMI Investments, L.P.
By: WS Capital Management, L.P, Investment Manager
By: WS Capital, L.L.C., General Partner
By:	/s/ Reid S. Walker
	Name: Reid S. Walker
	Title:   Member
Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201

6

SRB Greenway Capital, L.P.
By: SRB Management, L.P., General Partner
By: BC Advisors, L.L.C., General Partner
By:	/s/Steven R. Becker
	Name: Steven R. Becker
	Title:    Member
Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201
SRB Greenway Capital QP, L.P.
By: SRB Management, L.P., General Partner
Br: BC Advisors, L.L.C., General Partner
By:	/s/ Steven R. Becker
	Name: Steven R. Becker
	Title:    Member
Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201
SRB Greenway Offshore Operating Fund, L.P.
By: SRB Management, L.P., General Partner
By: BC Advisors, L.L.C., General Partner
By:	/s/ Steven R. Becker
	Name: Steven R. Becker
	Title:    Member
Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201
Walker Smith Capital (Q.P.), L.P.
By: WS Capital Management, L.P., General Partner
By: WS Capital, L.L.C., General Partner
By:	/s/ Reid S. Walker
	Name: Reid S. Walker
	Title:    Member

7

Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201
Walker Smith Capital, L.P.
By: WS Capital Management, L.P., General Partner
By: WS Capital, L.L.C., General Partner
By:	/s/ Reid S. Walker
	Name: Reid S. Walker
	Title:   Member
Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201
Walker Smith International Fund, Ltd.
By: WS Capital Management, L.P., Attorney-in-fact
By: WS Capital, L.L.C., General Partner
By:	/s/ Reid S. Walker
	Name: Reid S. Walker
	Title:    Member
Address for Notice:
300 Crescent Court
Suite 1111
Dallas, TX 75201

Seen and Agreed:
BORROWER
TELECOMMUNICATION SYSTEMS, INC.
By:	/s/ Thomas M. Brandt, Jr.
	Name: Thomas M. Brandt, Jr.
	Title:   Senior Vice President and Chief Financial Officer

8

Address for Notice:

275 West Street

Annapolis, MD 21401

9

EX-10.37

Exhibit 10.37

STOCK OPTION CERTIFICATE

8/9/2005

Clyde A. Heintzelman
15105 Sunflower Court

Rockville, MD 208531472 USA

Dear Clyde A. Heintzelman:

Pursuant to the terms and conditions of the TeleCommunication Systems, Inc. Fourth Amended and Restated 1997Restricted Stock Option to purchase 3,704 shares (each an “Option”, collectively, the “Options”) of the Class A common Stock, par value $0.01 per share (the Stock Incentive Plan (the “Plan”), you have been granted a/an “Common Stock”) of TeleCommunication Systems, Inc. (the “Company”) as outlined below. This Certificate constitutes part of and is subject to the terms and provisions of the attached Stock Option Agreement (the “Agreement”) which is incorporated herein by reference.

Granted To:	Clyde A. Heintzelman
	(the ‘Employee’ for Incentive Stock Options, or the ‘Optionee’ for Non-Qualified Stock Options)
Grant Date:	August 9, 2005
Granted:	3,704
Grant Price:	$0.0000
	The close of business on the business day immediately preceding:
Vesting Schedule:	Board Restricted Stock
	1,852 on 02/09/2006
	1,852 on 08/09/2006

By my signature below, I hereby acknowledge receipt of this Option granted on the date shown above, which has been issued to me under the terms and conditions of the Agreement and the Plan. I understand that I must be an employee of TCS on the date I exercise vested options, unless otherwise provided in the Agreement or the Plan, and that I will forfeit all unexercised Options, both vested and unvested, at the close of business on my last day of employment with TCS. I further acknowledge receipt of the Plan Prospectus and the latest annual report or other SEC filing, and agree to be bound by all of the terms and conditions of the Option, as evidenced in the Agreement, and the Plan.

o
oSignature:	/s/ Clyde A. Heintzelman

          oClyde A. Heintzelman

Note: If there are any discrepancies in the name or address shown above, please make the appropriate corrections on this form.

EX-10.38

Exhibit 10.38

STOCK OPTION CERTIFICATE

8/9/2005

Richard A. Kozak
556 Moorings Circle

Arnold, MD 21012 USA

Dear Richard A. Kozak:

Pursuant to the terms and conditions of the TeleCommunication Systems, Inc. Fourth Amended and Restated 1997Restricted Stock Option to purchase 3,704 shares (each an “Option”, collectively, the “Options”) of the Class A common Stock, par value $0.01 per share (the Stock Incentive Plan (the “Plan”), you have been granted a/an “Common Stock”) of TeleCommunication Systems, Inc. (the “Company”) as outlined below. This Certificate constitutes part of and is subject to the terms and provisions of the attached Stock Option Agreement (the “Agreement”) which is incorporated herein by reference.

Granted To:	Richard A. Kozak
	(the ‘Employee’ for Incentive Stock Options, or the ‘Optionee’ for Non-Qualified Stock Options)
Grant Date:	August 9, 2005
Granted:	3,704
Grant Price:	$0.0000
	The close of business on the business day immediately preceding:
Vesting Schedule:	Board Restricted Stock
	1,852 on 02/09/2006
	1,852 on 08/09/2006

By my signature below, I hereby acknowledge receipt of this Option granted on the date shown above, which has been issued to me under the terms and conditions of the Agreement and the Plan. I understand that I must be an employee of TCS on the date I exercise vested options, unless otherwise provided in the Agreement or the Plan, and that I will forfeit all unexercised Options, both vested and unvested, at the close of business on my last day of employment with TCS. I further acknowledge receipt of the Plan Prospectus and the latest annual report or other SEC filing, and agree to be bound by all of the terms and conditions of the Option, as evidenced in the Agreement, and the Plan.

o

Signature:	/s/ Richard A. Kozak
	Richard A. Kozak

Note: If there are any discrepancies in the name or address shown above, please make the appropriate corrections on this form.

EX-10.39

Exhibit 10.39

STOCK OPTION CERTIFICATE

8/9/2005

Weldon H. Latham
1500 K Street, NW, Suite 450

Washington, DC 20005-1272 USA

Dear Weldon H. Latham:

Pursuant to the terms and conditions of the TeleCommunication Systems, Inc. Fourth Amended and Restated 1997Restricted Stock Option to purchase 3,704 shares (each an “Option”, collectively, the “Options”) of the Class A common Stock, par value $0.01 per share (the Stock Incentive Plan (the “Plan”), you have been granted a/an “Common Stock”) of TeleCommunication Systems, Inc. (the “Company”) as outlined below. This Certificate constitutes part of and is subject to the terms and provisions of the attached Stock Option Agreement (the “Agreement”) which is incorporated herein by reference.

Granted To:	Weldon H. Latham
	(the ‘Employee’ for Incentive Stock Options, or the ‘Optionee’ for Non-Qualified Stock Options)
Grant Date:	August 9, 2005
Granted:	3,704
Grant Price:	$0.0000
	The close of business on the business day immediately preceding:
Vesting Schedule:	Board Restricted Stock
	1,852 on 02/09/2006
	1,852 on 08/09/2006

By my signature below, I hereby acknowledge receipt of this Option granted on the date shown above, which has been issued to me under the terms and conditions of the Agreement and the Plan. I understand that I must be an employee of TCS on the date I exercise vested options, unless otherwise provided in the Agreement or the Plan, and that I will forfeit all unexercised Options, both vested and unvested, at the close of business on my last day of employment with TCS. I further acknowledge receipt of the Plan Prospectus and the latest annual report or other SEC filing, and agree to be bound by all of the terms and conditions of the Option, as evidenced in the Agreement, and the Plan.

o

o  Signature:	/s/ Weldon H. Latham
	oWeldon H. Latham

Note: If there are any discrepancies in the name or address shown above, please make the appropriate corrections on this form.

EX-10.40

Exhibit 10.40

STOCK OPTION CERTIFICATE

8/9/2005

Byron F. Marchant
One BET Plaza

Washington, DC 200181211 USA

Dear Byron F. Marchant:

Pursuant to the terms and conditions of the TeleCommunication Systems, Inc. Fourth Amended and Restated 1997Restricted Stock Option to purchase 3,704 shares (each an “Option”, collectively, the “Options”) of the Class A common Stock, par value $0.01 per share (the Stock Incentive Plan (the “Plan”), you have been granted a/an “Common Stock”) of TeleCommunication Systems, Inc. (the “Company”) as outlined below. This Certificate constitutes part of and is subject to the terms and provisions of the attached Stock Option Agreement (the “Agreement”) which is incorporated herein by reference.

Granted To:	Byron F. Marchant
	(the ‘Employee’ for Incentive Stock Options, or the ‘Optionee’ for Non-Qualified Stock Options)
Grant Date:	August 9, 2005
Granted:	3,704
Grant Price:	$0.0000
	The close of business on the business day immediately preceding:
Vesting Schedule:	Board Restricted Stock
	1,852 on 02/09/2006
	1,852 on 08/09/2006

By my signature below, I hereby acknowledge receipt of this Option granted on the date shown above, which has been issued to me under the terms and conditions of the Agreement and the Plan. I understand that I must be an employee of TCS on the date I exercise vested options, unless otherwise provided in the Agreement or the Plan, and that I will forfeit all unexercised Options, both vested and unvested, at the close of business on my last day of employment with TCS. I further acknowledge receipt of the Plan Prospectus and the latest annual report or other SEC filing, and agree to be bound by all of the terms and conditions of the Option, as evidenced in the Agreement, and the Plan.

o

o  Signature:	/s/ Byron F. Marchant
	oByron F. Marchant

Note: If there are any discrepancies in the name or address shown above, please make the appropriate corrections on this form.

EX-12.1

Exhibit 12.1

Supplemental Financial Schedule II

TeleCommunication Systems, Inc.
Valuation and Qualifying Accounts
(amounts in thousands)

Column A	Column B		Column C		Column D			Column E
	Balance		Additions,
	Beginning		Costs, and					Balance End
Description	of Year		Expenses		Deductions			of Year
Year ended December 31, 2005
Allowance for Doubtful Accounts	$	690		243	$	(700	)	$	233
Year ended December 31, 2004
Allowance for Doubtful Accounts	$	393	$	556	$	(259	)	$	690
Year ended December 31, 2003
Allowance for Doubtful Accounts	$	361	$	357	$	(325	)	$	393

Schedules other than those listed above are omitted because of the absence of the conditions under which they are required or because the information called for is included in the consolidated financial statements or notes thereto.

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

TeleCommunication Systems Corp. of Maryland, a Maryland corporation

TeleCommunication Systems (Holdings) Limited, a United Kingdom corporation

TeleCommunication Systems Limited, a United Kingdom corporation

TeleCommunication Systems (Maryland) AB, a Sweden corporation

TeleCommunication Systems Benelux BV, a Netherlands corporation

TeleCommunication Systems Iberian, SA, a Spain corporation

TeleCommunication Systems Technology Limited, a United Kingdom corporation

Aether Systems (UK) Limited, a United Kingdom corporation

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statements (Nos. 333-118610, 333-107466, 333-66676, 333-51656, and 333-48026) pertaining to various stock incentive and option plans and in Registration Statements (Form S-3, Nos. 333-119431, 333-112759 and 333-104305) of TeleCommunication Systems, Inc. of our reports dated March 16, 2005, with respect to the consolidated financial statements and schedules of TeleCommunication Systems, Inc., Telecommunication Systems, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of TeleCommunication Systems, Inc. included in this Annual Report (Form 10-K) of TeleCommunication Systems, Inc. for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Baltimore, Maryland
March 16, 2006

EX-23.2 15 w17657exv23w2.htm EX-23.2

Exhibit 23.2

Consent of Independent Auditors

To The Board of Directors
TeleCommunication Systems (Holdings) Ltd

We consent to the incorporation, as exhibit 99.01 in December 31, 2005 annual report on Form 10-K of TeleCommunication Systems Inc, of our report dated March 3, 2006, with respect to the consolidated balance sheet of TeleCommunication Systems (Holdings) Ltd and subsidiaries as of December 31, 2005 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2005.

/s/ James & Cowper

James & Cowper
Phoenix House
Bartholomew St
Newbury
RG14 5QA
England

March 14, 2006

EX-31.1 16 w17657exv31w1.htm EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Maurice B. Tosé, certify that:

a)	I have reviewed this annual report on Form 10-K of TeleCommunication Systems, Inc.;
b)	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
c)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
d)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

e) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 
 
/s/ Maurice B. Tosé                    March 16, 2006
Maurice B. Tosé
Chairman, CEO and President

EX-23.2

exv23w2

EX-31.1

exv31w1

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Thomas M. Brandt, Jr, certify that:

a)	I have reviewed this annual report on Form 10-K of TeleCommunication Systems, Inc.;
b)	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
c)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
d)	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

e) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 
 
/s/ Thomas M. Brandt, Jr.                    March 16, 2006
Thomas M. Brandt, Jr.
Sr. Vice President & CFO

EX-32.1

EXHIBIT 32.1

Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Maurice B. Tosé, President and Chief Executive Officer (principal executive officer) of TeleCommunication Systems, Inc. (the “Registrant”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

          (1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Act of 1934 (15 U.S.C. 78m); and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Maurice B. Tosé

Maurice B. Tosé

Date: March 16, 2006

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification of Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)

I, Thomas M. Brandt, Jr., Chief Financial Officer (principal financial officer) of TeleCommunication Systems, Inc. (the “Registrant”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

          (1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Act of 1934 (15 U.S.C. 78m); and

          (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Thomas M. Brandt, Jr.

Thomas M. Brandt, Jr.

Date: March 16, 2006

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.01

Report of Independent Auditors
 

To the shareholders of TeleCommunication Systems (Holdings) Ltd

We have audited the accompanying consolidated balance sheet of TeleCommunication Systems (Holdings) Ltd & subsidiaries as of December 31, 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the Standards of the Public Company Accounting Oversight Board (United States) and International Standards on Auditing (UK and Ireland). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material resepects, the consolidated financial position of TeleCommunication Systems (Holdings) Ltd & subsidiaries at December 31, 2005, and the consolidated results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

 
 
/s/ James & Cowper
James & Cowper
Phoenix House
Bartholomew Street
Newbury
RG14 5QA
England

March 3, 2006