Exhibit 10.1 (a)

EVOLVING SYSTEMS, INC.

 

BRIDGE BANK, N.A.

 

LOAN AND SECURITY AGREEMENT

 

 

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This LOAN AND SECURITY AGREEMENT is entered into as of February 22, 2008, by and
between BRIDGE BANK, N.A. (“Bank”) and EVOLVING SYSTEMS, INC. (“Borrower”).

 

RECITALS

 

Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower.  This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.

 

AGREEMENT

 

The parties agree as follows:

 

1.             DEFINITIONS AND CONSTRUCTION.

 

1.1          Definitions.  As used in this Agreement, the following terms shall
have the following definitions:

 

“Accounts” means, with respect to any Person, all presently existing and
hereafter arising accounts, contract rights, payment intangibles, and all other
forms of obligations owing to such Person arising out of the sale or lease of
goods (including, without limitation, the licensing of software and other
technology) or the rendering of services by such Person, whether or not earned
by performance.

 

“Advance” or “Advances” mean a cash advance or cash advances under the Revolving
Facility.

 

“Affiliate” means, with respect to any Person, any other Person that controls
directly or indirectly such Person, any other Person that controls or is
controlled by or is under common control with such Person, and each of such
Person’s senior executive officers and directors.  For purposes of this
definition, the term “control” (and the correlative terms, “controlled by” and
“under common control with”) shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management and/or policies
of a Person, whether through ownership of securities or other interests, by
contract or otherwise

 

“Bank Expenses” means all:  reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; reasonable
Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses
incurred in amending, enforcing or defending the Loan Documents (including fees
and expenses of appeal), incurred before, during and after an Insolvency
Proceeding, whether or not suit is brought.

 

“Borrower’s Books” means all of Borrower’s books and records including: 
ledgers; records concerning Borrower’s assets or liabilities, the Collateral,
business operations or financial condition; and all computer programs, or tape
files, and the equipment, containing such information.

 

“Borrowing Base” means, as of any date of determination, an amount equal to
eighty percent (80%) of Eligible Accounts plus one hundred percent (100%) of
Eligible Cash, as determined by Bank with reference to the most recent Borrowing
Base Certificate delivered by Borrower.

 

“Borrowing Base Certificate” means such certificate executed by Borrower (as to
its respective Eligible Accounts and Eligible Cash) in the form attached hereto
as Exhibit C.

 

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.

 

“Capital Expenditures” means for any period, the sum (without duplication) of
all expenditures (whether paid in cash or accrued as liabilities) made by the
Credit Parties and their consolidated Subsidiaries during such period that are
required to be treated as capital expenditures under GAAP.

 

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“Capital Stock” means (i) with respect to any Person that is a corporation, any
and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, and (ii) with respect
to any Person that is not a corporation, any and all partnership, membership or
other equity interests of such Person.

 

“Cash” means unrestricted cash and cash equivalents.

 

“Change in Control” means (i) a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of more than 50
percent (50%) of the total voting power of Borrower or (ii) the date a majority
of members of the Board of Directors of Borrower is replaced during any 12-month
period by directors whose appointment or election is not endorsed by a majority
of the members of the Board of Directors of Borrower before the date of the
appointment or election or (iii) the date any “person” or “group” (within the
meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by the person or group) ownership of stock of Borrower
possessing 30 percent (30%) or more of the total voting power of the stock of
Borrower.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code as in effect from time to
time.

 

“Collateral” means the property described on Exhibit A attached hereto.

 

“Contingent Obligation” means, as applied to any Person, any agreement,
undertaking or arrangement by which such Person assures, guarantees, endorses,
contingently agrees to purchase or provide funds for the payment of, or
otherwise becomes or is contingently liable upon, any Indebtedness, leases,
dividends or other obligations (“primary obligations”) of any other Person (the
“primary obligor”) in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (a) for the
purchase or payment of any such primary obligation or (b) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, including, without limitation, any
so-called “keepwell” or “makewell” agreement, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, (iv) otherwise to assure or to hold harmless the owner
of such primary obligation against loss in respect thereof, (v) with respect to
any letter of credit of such Person or as to which that Person is otherwise
liable for reimbursement of drawings, or (vi) with respect to any agreement or
arrangement designed to protect such Person against fluctuation in interest
rates, currency exchange rates or commodity prices; provided, however, that the
term “Contingent Obligation” shall not include endorsements for collection or
deposit in the ordinary course of business.  The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the obligations
under the guarantee or other support arrangement.

 

“Copyrights” means any and all copyright rights, applications to register and
registrations of the same, and like protections in works of authorship and
derivative work thereof.

 

“Credit Extension” means each Advance, Term Advance, or any other extension of
credit by Bank for the benefit of Borrower hereunder.

 

“Credit Parties” shall mean Borrower and each U.S. Subsidiary of Borrower that
becomes a Credit Party pursuant to Section 6.14.

 

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“Cross License Agreement” shall mean, collectively, (i) the Intercompany License
Agreement, dated as of October 17, 2005, between Borrower, as licensor, and
Revolving Borrower, as licensee, and (ii) the Intercompany License Agreement,
dated as of October 17, 2005 between Revolving Borrower, as licensor, and
Borrower, as licensee.

 

“Daily Balance” means the outstanding principal amount of the Obligations owed
at the end of a given day.

 

“EBITDA” means with respect to Credit Parties and their consolidated
Subsidiaries on a consolidated basis and without duplication for any period the
sum of the following for such period, all determined in accordance with GAAP:

 

(a)           Net Income;

 

(b)           plus the sum of the following, to the extent deducted in
determining such Net Income and without duplication:

 

                (i)            Interest Expense;

 

                (ii)           franchise and income taxes;

 

                (iii)          depreciation, amortization and impairment
expense;

 

                (iv)          all other non-cash and/or non-recurring charges 
and expenses approved by Bank in its reasonable discretion (but including,
without requiring approval of Bank, non-cash charges related to accounting for
employee stock option plans as required by FAS 123R) excluding (A) accruals for
cash expenses made in the ordinary course of business and (B) write-offs of
accounts receivable;

 

                (v)           loss from any sale of assets, other than sales in
the ordinary course of business;

 

                (vi)          extraordinary losses from the sale of securities
or the extinguishment of debt; and

 

(c)           minus the sum of the following, to the extent included in
determining such Net Income and without duplication:

 

                (i)            gain from any sale of assets, other than sales in
the ordinary course of business;

 

                (ii)           extraordinary gains from the sale of securities
or the extinguishment of debt;

 

                (iii)          all other non-cash and/or non-recurring income
that is in each case not operating income;

 

                (iv)          proceeds of insurance (other than business
interruption insurance); and

 

                (v)           the amounts that would be accrued in connection
with TSE Contingent Obligations if the Credit Parties accrued for such amounts.

 

For purposes of computing EBITDA, the EBITDA of any Person accrued prior to the
date it becomes a Credit Party or is merged into or consolidated with a Credit
Party or a Subsidiary thereof that Person’s assets and acquired by a Credit
Party or a Subsidiary thereof shall be excluded.

 

“Eligible Accounts” means, at any time, those Accounts of Borrower that arise in
the ordinary course of Borrower’s business that comply in all material respects
with all of Borrower’s representations and warranties to Bank set forth in the
Loan Documents to the extent such provisions are applicable to the Borrower’s
Accounts and shall include both (i) Accounts that create offsetable deferred
revenue and (ii) Accounts with respect to the account debtors listed on Appendix
1 attached hereto (or any successor of any such account debtor); provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank’s reasonable judgment based upon the

 

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results of an audit performed by Bank in accordance with Section 4.4 and upon
notification thereof to Borrower in accordance with the provisions hereof. 
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the
following:

 

(a)           Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date, other than Qwest, Vodafone Egypt and Cable & Wireless
Panama (or any of their respective successors), which Accounts shall be included
as Eligible Accounts provided that such Accounts are within one hundred-twenty
(120) days of invoice date;

 

(b)           Accounts with respect to an account debtor, thirty-five percent
(35%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date (or, in the case of Qwest, Vodafone Egypt and Cable &
Wireless Panama, or any of their respective successors, within one-hundred
twenty (120) days of invoice date);

 

(c)           Accounts with respect to which the account debtor is an officer,
employee, or agent of Borrower;

 

(d)           Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be conditional, in each
case solely to the extent thereof;

 

(e)           Accounts with respect to which the account debtor is an Affiliate
of Borrower;

 

(f)            Accounts with respect to which the account debtor does not have
its principal place of business in the United States, except Eligible Foreign
Accounts;

 

(g)           Accounts with respect to which the account debtor is the United
States or any department, agency, or instrumentality of the United States;

 

(h)           Accounts with respect to which Borrower is liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower or
for deposits or other property of the account debtor held by Borrower, but only
to the extent of any amounts owing to the account debtor against amounts owed to
Borrower, as the case may be;

 

(i)            Accounts with respect to an account debtor, including
Subsidiaries and Affiliates of such account debtor, whose total obligations to
Borrower exceed thirty percent (30%) of all Accounts of Borrower (other than for
AT&T and T-Mobile (and any successor thereof) which percentage shall be
sixty-percent (60%)), to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;

 

(j)            Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its reasonable discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; provided
that so long as adequate post-petition financing is being provided to such
account debtor, post-petition Accounts of such account debtor may be deemed
Eligible Accounts by and to the extent of Bank in its reasonable discretion;

 

(k)           Retentions and hold-backs;

 

(l)            Bonded Accounts; and

 

(m)          Accounts with respect to Accenture, American
Telecommunication, Inc., Bulgaria Telecom, MTN Nigeria, Vodafone Egypt, Vodafone
Japan, and Wireless Trade (or any of their respective successors), solely to the
extent of the percentage of foreign tax withholding set forth in the chart in
Appendix 1 for the applicable account debtor.

 

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“Eligible Cash” means Cash of Borrower and its U.S. Subsidiaries.

 

“Eligible Foreign Accounts” means Accounts of Borrower with respect to which the
account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit in an amount
and of a tenor, and issued by a financial institution, acceptable to Bank,
(ii) are owing from an account debtor identified in Appendix 1 (or any successor
of any such account debtor), or (iii)  are billed and collected in the United
Kingdom and that are properly secured and perfected or (iv) Bank approves on a
case-by-case basis.

 

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder.

 

“Event of Default” has the meaning assigned in Article 8.

 

“Fixed Charge Coverage Ratio” means for the Credit Parties and their
consolidated Subsidiaries on a consolidated basis and without duplication, on
any date of determination, the ratio of (a) EBITDA minus Unfinanced Capital
Expenditures minus income and franchise taxes paid in cash, to (b) Fixed
Charges, in each case for the twelve months then ending.

 

“Fixed Charges” means, for any period, the sum of the following for the Credit
Parties and their consolidated Subsidiaries, on a consolidated basis and without
duplication:  (a) Total Debt Service and (b) dividends, repurchases or
redemptions of equity and/or distributions paid in cash.

 

“Foreign Subsidiary” shall mean any Subsidiary of a Person that is not a U.S.
Subsidiary.

 

“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time.

 

“Guarantor” shall mean any Credit Party other than Borrower, and “Guarantors”
shall mean all such other Credit Parties.

 

“Hedging Agreements” means any swap agreements (as defined in Section 101 of the
U.S. Bankruptcy Code) and any other agreements or arrangements designed to
provide protection against fluctuations in interest or currency exchange rates
and entered into for bona fide hedging purposes and not for speculation.

 

“Indebtedness” of any Person means, without duplication, (a) all indebtedness
for borrowed money, (b) all obligations for the deferred purchase price of
property or services (other than trade payables incurred and payable in the
ordinary course of business of such Person), (c) the face amount of all letters
of credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder and all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments issued
by such Person, (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, (e) all capital lease obligations and (f) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (a) through (e) above.

 

“Insolvency Proceeding” means, with respect to any Person, any proceeding
commenced by or against such Person under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.

 

“Intellectual Property Collateral” means all of Borrower’s right, title, and
interest in and to the following: (1) Copyrights, Trademarks, Patents, and trade
secrets; (2) claims for damages by way of past, present and future infringement
of any of the rights included above; (3) all licenses or other rights to use any
of the Copyrights, Patents or Trademarks included above, and all license fees
and royalties arising from such use to the extent permitted by

 

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such license or rights; (4) all amendments, renewals and extensions of any of
the Copyrights, Trademarks or Patents included above; and (5) all proceeds and
products of the foregoing, including, without limitation, all payments under
insurance or any indemnity or warranty payable in respect of any of the
foregoing included above.

 

“Interest Expense” means total interest expense generated during the period in
question (including attributable to conditional sales contracts, capital leases
and other title retention agreements in accordance with GAAP and all unused line
and commitment fees and administrative and similar fees) of the Credit Parties
and their consolidated Subsidiaries on a consolidated basis and without
duplication with respect to all outstanding Indebtedness, including accrued
interest and interest paid in kind and capitalized interest, but excluding
commissions, discounts and other fees owed with respect to letters of credit and
bankers’ acceptance financing, net costs under Hedging Agreements and fees
payable to Bank on the Closing Date under Section 2.5.

 

“Intermediate Holdco” means Evolving Systems Holdings, Inc., a Delaware
corporation.

 

“Inventory” means all “inventory” (as defined in the Code) in which any Borrower
has or acquires any interest, including work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of any Borrower, including such
inventory as is temporarily out of its custody or possession or in transit.

 

“Investment” means any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

 

“Letter of Credit Exposure” means, at the time in question, the sum, without
duplication, of (i) the aggregate undrawn amount of all outstanding Letters of
Credit, plus (ii) the aggregate unreimbursed amount of all drawn Letters of
Credit, in each case at such time.

 

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

 

“Loan Documents” means, collectively, this Agreement, any promissory note
executed by Borrower evidencing the Advances or Term Advance, and any other
agreement entered into in connection with this Agreement, all as amended or
extended from time to time.

 

“Material Adverse Effect” means a material adverse effect on (i) the business
operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents or
(iii) the enforceability or priority of Bank’s security interests in the
Collateral.

 

“Negotiable Collateral” means all of Borrower’s letters of credit of which
Borrower is a beneficiary, notes, drafts, instruments, securities, documents of
title, and chattel paper.

 

“Net Income” means, for any period, the net income (or loss) of the Credit
Parties and their consolidated Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with GAAP;
provided, that there shall be excluded (a) the income (or loss) of any Person in
which any other Person (other than a Credit Party or a “Credit Party” under and
as defined in the Revolving Loan Agreement) has a joint ownership interest,
except to the extent of the amount of dividends or other distributions actually
paid to any Credit Party by such Person during such period, (b) the income (or
loss) of any Person accrued prior to the date it becomes or is merged into or
consolidated with a Credit Party or a “Credit Party” under and as defined in the
Revolving Loan Agreement or that Person’s assets are acquired by a Credit Party
or a “Credit Party” under and as defined in the Revolving Loan Agreement,
(c) the income of any Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions of that income by
that Subsidiary is not at the time permitted by operation of the terms of the
charter or any agreement, instrument, judgment, decree, order, statute, rule or

 

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governmental regulation applicable to that Subsidiary and (d) the income (loss)
associated with any Hedging Agreements.

 

“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any Loan
Document, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding involving Borrower.

 

“Organizational Documents” shall mean (a) for any corporation, the memorandum
and/or certificate or articles of incorporation, the bylaws, any certificate of
designation, or other instrument relating to the rights of preferred
shareholders or stockholders of such corporation and any shareholder rights
agreement, (b) for any partnership, the partnership agreement and, if
applicable, the certificate of limited partnership, and (c) for any limited
liability company, the operating agreement and articles or certificate of
formation or organization.

 

“Patents” means all patents and patent applications, including without
limitation divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

 

“Permitted Indebtedness” means:

 

(a)           Indebtedness in favor of Bank arising under this Agreement, any
other Loan Document, the Revolving Loan Agreement or any other Revolving Loan
Document;

 

(b)           Indebtedness existing on the Closing Date and disclosed in the
Schedule including extensions and replacements thereof provided that the
principal amount of such Indebtedness as of the date of such extension or
replacement is not increased and the maturity and weighted average life thereof
are not shortened;

 

(c)           Indebtedness not to exceed an amount equal to $250,000 in the
aggregate at any time outstanding constituting capital lease obligations;

 

(d)           Indebtedness incurred after the Closing Date secured by Liens
permitted under clause (c)(i) of the definition of “Permitted Liens” provided
(i) the principal amount of such Indebtedness secured thereby does not exceed
100% of the cost of the subject property and (ii) the aggregate amount thereof
outstanding at any given time does not exceed an amount equal to $200,000;

 

(e)           Subordinated Debt;

 

(f)            inter-company unsecured Indebtedness arising from loans made by
Borrower to its Wholly-Owned Subsidiaries that are Credit Parties to fund
working capital requirements of such Subsidiaries in the ordinary course of
business; provided, that, upon the request of Bank, such Indebtedness shall be
evidenced by promissory notes having terms (including subordination terms)
satisfactory to Bank, the sole originally executed counterparts of which shall
be pledged and delivered to Bank as security for the Obligations;

 

(g)           inter-company unsecured Indebtedness not listed in the Schedule on
the Closing Date arising from loans made by Borrower to Evolving Systems
Networks India PVT Ltd, an India corporation, and Evolving Systems GmbH, a
German corporation, so long as such Persons are Wholly-Owned Subsidiaries of
Borrower, to fund working capital requirements of such Subsidiaries in the
ordinary course of business; provided, that, that upon the request of Bank, such
Indebtedness shall be evidenced by promissory notes having terms (including
subordination terms) satisfactory to Bank, the sole originally executed
counterparts of which shall be pledged and delivered to Bank as security for the
Obligations; provided, however, that the aggregate amount of Investments
permitted pursuant to subsection (i) of the definition of Permitted Investments
and outstanding Indebtedness permitted pursuant to this subsection (g) does not
exceed $100,000 at any time;

 

(h)           the incurrence by Borrower or any Subsidiary thereof of
Indebtedness up to an amount equal to $50,000 arising from the honoring by a
bank or other financial institution of a check, draft or

 

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similar instrument drawn against insufficient funds, so long as such
Indebtedness is covered within five Business Days;

 

(i)            unsecured Indebtedness of Borrower or its Subsidiaries incurred
in connection with the financing of insurance premiums in the ordinary course of
business with respect to insurance required or permitted under Section 6.5 up to
an amount equal to $500,000 in aggregate annual premiums;

 

(j)            Borrower or any of its U.S. Subsidiaries may enter into
guarantees of Indebtedness of Borrower or any such U.S. Subsidiary that are
Credit Parties otherwise permitted under the other subsections of this
definition of “Permitted Indebtedness”;

 

(k)           Borrower and the Revolving Borrower may enter into unsecured
Hedging Agreements in the ordinary course of business for bona fide hedging
purposes and not for speculation in an aggregate notional or contract amount not
to exceed $250,000 outstanding at any time;

 

(l)            the TSE Contingent Obligations;

 

(m)          a guaranty of the obligations of the Revolving Borrower under the
Revolving Loan Documents;

 

(n)           Contingent Obligations in respect of Borrower’s guarantee of the
expenses incurred by certain employees in connection with the use of credit
cards sponsored by Borrower in an aggregate amount not to exceed $150,000 at any
time outstanding;

 

(o)           Contingent Obligations incurred in the ordinary course of business
with respect to surety and appeal bonds, performance bonds and other similar
obligations; and

 

(p)           other unsecured Indebtedness of Borrower and its Subsidiaries not
to exceed an amount equal to $50,000 in the aggregate outstanding at any time.

 

“Permitted Investment” means:

 

(a)           Investments existing on the Closing Date disclosed in the
Schedule;

 

(b)           (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having rating of at least A-2 or P-2 from either
Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank and (iv) Bank’s money market accounts or other money
market funds substantially all of whose assets are comprised of securities of
the type described in clauses (i) through (iii) above;

 

(c)           Investments created by the Loan Documents or Revolving Loan
Documents;

 

(d)           trade credit extended by Borrower and its Subsidiaries in the
ordinary course of business and Investments received in satisfaction or partial
satisfaction thereof from financially troubled account debtors to the extent
reasonably necessary in order to prevent or limit loss;

 

(e)           Investments constituting inter-company Permitted Indebtedness;

 

(f)            loans to employees and advances for business travel and similar
temporary advances made in the ordinary course of business to officers,
directors and employees, not to exceed an amount equal to $25,000 in the
aggregate at any time outstanding;

 

(g)           the endorsement of negotiable instruments for deposit or
collection or similar

 

 

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transactions in the ordinary course of business;

 

(h)           Investments constituting transactions otherwise permitted under
this Agreement;

 

(i)            Investments in the Capital Stock of Evolving Systems Networks
India PVT Ltd and Evolving Systems GmbH not listed in the Schedule on the
Closing Date; provided that the aggregate amount of such Investments permitted
under this subsection (i) and the outstanding Indebtedness permitted under
subsection (g) of the definition of Permitted Indebtedness shall not exceed
$100,000 at any time;

 

(j)            Investments in any domestic Wholly-Owned Subsidiary of Borrower
that is or concurrent with such Investment becomes a Credit Party;

 

(k)           Investments received in compromise or resolution of litigation or
arbitration proceedings with Persons who are not Affiliates of Borrower up to an
amount equal to $50,000 in the aggregate;

 

(l)            Investments represented by prepaid expenses made in the ordinary
course of business;

 

(m)          the TSE Contingent Obligations; and

 

(n)           Without duplication of any quantitative limits, the Revolving
Borrower and its Subsidiaries may make Investments permitted under the Revolving
Loan Agreement.

 

For purposes of covenant compliance, the amount of any Investment shall be the
amount actually invested, without adjustment for subsequent increases or
decreases in the value of such Investment.

 

“Permitted Liens” means the following:

 

(a)           Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement, the other Loan Documents or any of the
Revolving Loan Documents;

 

(b)           Liens for taxes, fees, assessments or other governmental charges
or levies, either (i) not delinquent or (ii) being contested in good faith by
appropriate proceedings and, with respect to this clause (ii), all such items do
not exceed $250,000 against Persons organized in the United States in the
aggregate at any time or such items do not exceed $1,500,000 against Persons
organized outside the United States in the aggregate at any time;

 

(c)           (i) Purchase money Liens securing Indebtedness permitted under
clause (d) of the definition of “Permitted Indebtedness”; provided, that (x) any
such Lien attaches to the subject property concurrently with or within twenty
(20) days after the acquisition thereof, (y) such Lien attaches only to the
subject property; and (ii) Liens arising under capital leases permitted under
clause (c) of the definition of “Permitted Indebtedness” to the extent such
Liens attach only to the property that is the subject of such capital leases;

 

(d)           Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase;

 

(e)           Statutory liens of landlords, carriers, warehousemen, mechanics
and/or materialmen and other similar Liens imposed by law or that arise by
operation of law in the ordinary course of business that, in any such case, are
only for amounts not yet delinquent or which are being contested in good faith
by appropriate proceedings (which have the effect of preventing or staying the
forfeiture or sale of the property subject thereto) and with respect to which
adequate reserves or other appropriate provisions are being maintained by such
Person in accordance with GAAP;

 

 

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(f)            Liens (other than any Lien imposed by ERISA) incurred or deposits
or pledges made in the ordinary course of business (including, without
limitation, surety bonds and appeal bonds) in connection with workers’
compensation, unemployment insurance and other types of social security benefits
or to secure the performance of tenders, bids, leases, trade contracts,
statutory obligations and other similar obligations (other than for the
repayment of Indebtedness);

 

(g)           Any attachment or judgment Lien provided that the enforcement of
such Liens is effectively stayed, satisfied, vacated, dismissed or discharged
within 30 days of issuance or execution and such Liens secure claims not
otherwise constituting an Event of Default;

 

(h)           Easements, rights of way, restrictions, zoning ordinances,
reservations, covenants and other similar charges, title exceptions or
encumbrances relating to real property of Borrower and any Subsidiaries incurred
in the ordinary course of business that, either individually or in the
aggregate, are not substantial in amount, do not interfere in any material
respect with the use of the property affected or the ordinary conduct of the
business of Borrower and do not result in material diminution in value of the
property subject thereto;

 

(i)            Liens arising by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off, recoupment, combination of
accounts or similar rights as to deposit accounts or other funds maintained with
a creditor depository institution;

 

(j)            Liens that arise under customary non-assignment provisions in
contracts, leases, subleases, licenses and sublicenses entered into with
unaffiliated third parties in the ordinary course of business; and

 

(k)           Liens of licensors and sublicensors on licenses and sublicenses of
Intellectual Property Collateral or other intellectual property (if any) of
Borrower or any Subsidiary thereof entered into in the ordinary course of
business.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.

 

“Prime Rate” means the variable rate of interest, per annum, that appears in The
Wall Street Journal on the date of measurement, whether or not such announced
rate is the lowest rate available from Bank.

 

“Responsible Officer” shall mean, (a) with respect to any Credit Party, the
chief executive officer or the president of such Credit Party, or any other
officer having substantially the same authority and responsibility; or (b) with
respect to compliance with financial covenants or delivery of financial
information under this Agreement, the chief financial officer or the treasurer
of Borrower, or any other officer having substantially the same authority and
responsibility.

 

“Revolving Borrower” shall mean Evolving Systems Limited, a company incorporated
under the laws of England and Wales, as the “Borrower” under the Revolving Loan
Agreement.

 

“Revolving Facility” means the facility under which Borrower may request Bank to
issue Advances, as specified in Section 2.1(a) hereof or Letters of Credit, as
specified in Section 2.1(b).

 

“Revolving Line Limit” means One Million Dollars ($1,000,000).

 

“Revolving Maturity Date” means February 22, 2011.

 

“Revolving Loan Agreement” shall mean the Revolving Loan Agreement dated the
date hereof by and among Revolving Borrower and Bank, as the same be amended,
modified, supplemented or restated from time to time.

 

 

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“Revolving Loan Documents” shall mean the Revolving Loan Agreement and all other
agreements, documents, instruments and certificates heretofore or hereafter
executed in connection with the Revolving Loan Agreement.

 

“Schedule” means the schedule of exceptions attached hereto and approved by
Bank, if any.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Senior Debt” shall mean, on any date of determination, the Obligations
hereunder and all Indebtedness under the Revolving Loan Agreement (provided
that, for purposes of determining the Indebtedness outstanding under the
Revolving Facility and the Revolving Loan Agreement as of the end of each fiscal
quarter, “Senior Debt” shall mean the average daily amount of outstanding
principal and accrued interest on the Revolving Facility and the “Revolving
Facility” under (and as defined in) the Revolving Loan Agreement for such fiscal
quarter), on a consolidated basis and without duplication. For all purposes of
this Agreement, the term “Senior Debt” shall be calculated to include (i.e., not
net of) discounts, deductions or allocations relating or applicable to or
arising from any equity or equity participation or fees, whether under GAAP or
otherwise.

 

“Shares” means (i) (a) securities representing 65% of the aggregate voting power
of the issued and outstanding Capital Stock and ownership interests of Evolving
Systems Networks India PVT Ltd., an India corporation, and (b) upon consummation
of the merger of Intermediate Holdco with and into Borrower following the
Closing Date, securities representing 65% of the aggregate voting power of the
issued and outstanding Capital Stock and ownership interests of Evolving Systems
Holdings Ltd., a company incorporated under the laws of England and Wales, in
each case under the foregoing (a) or (b) owned or held of record or beneficially
by Borrower on the Closing Date (in the case of Evolving Systems Networks India
PVT Ltd.) or on the effective date of such merger (in the case of Evolving
Systems Holdings Ltd.), as listed on Annex A hereto (and the certificates,
copies of which are attached hereto, representing such shares, securities and/or
interests, if any); (ii) all other Capital Stock, equity securities, limited
liability company interests, membership interests and ownership interests of any
future direct U.S. Subsidiary of Borrower, in each case owned or held of record
or beneficially by Borrower at any time (and the certificates representing such
shares, securities and/or interests, if any); and (iii) to the extent not
duplicative of clause (i), securities representing 65% of the aggregate voting
power of the Capital Stock, equity securities, limited liability company
interests, membership interests and ownership interests of Evolving Systems
Networks India PVT Ltd. and Evolving Systems Holdings Ltd. or any future direct
Foreign Subsidiary, in each case owned or held of record or beneficially by
Borrower at any time (and the certificates representing such shares, securities
and/or interests, if any). Notwithstanding the foregoing, the term “Shares”
shall not include securities representing at any time more than 65% of the
aggregate voting power of the Capital Stock of a “controlled foreign
corporation,” as defined in Section 957 of the Code.

 

“Solvent” shall mean, as to any Person at any time, that such Person (a) is not
“insolvent” as that term is defined in Section 101(32) of the United States
Bankruptcy Code, title 11 U.S.C. (“Bankruptcy Code”), Section 2 of the Uniform
Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent
Conveyance Act (“UFCA”), (b) does not have “unreasonably small capital,” as that
term is used in Section 548(a)(1)(B)(ii)(II) of the Bankruptcy Code or Section 5
of the UFCA, (c) is not engaged or about to engage in a business or a
transaction for which its remaining property is “unreasonably small” in relation
to such business or transaction as that term is used in Section 4 of the
UFTA, and (d) is not unable to pay its debts as they mature or become due,
within the meaning of Section 548(a)(1)(B)(ii)(III) of the Bankruptcy Code,
Section 4 of the UFTA and Section 6 of the UFCA.  As used herein, all references
to the Bankruptcy Code, UFTA and UFCA, and specific provisions thereof, shall
include all definitions used therein and the interpretive case law applicable to
such statutes and definitions.

 

“Subordinated Debt” means any debt incurred by Borrower or any of its
Subsidiaries that is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank),
including, without limitation, the unsecured Indebtedness of Borrower evidenced
by the Subordinated Loan Documents.

 

“Subordinated Loan Documents” shall mean, collectively, the Subordinated Notes
and all other agreements, documents and instruments executed and delivered in
connection therewith.

 

 

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“Subordinated Notes” shall mean the Subordinated Notes of Evolving Systems dated
November 14, 2005 in the original aggregate principal amount of $4,869,700.47.

 

“Subsidiary” shall mean, as to any initial Person, any other Person in which
more than fifty percent (50%) of all equity, membership, partnership or other
ownership interests is owned directly or indirectly by such initial Person or
one or more of its Subsidiaries. For purposes of the Loan Documents, any
reference to “Subsidiary” shall be deemed to refer to a Subsidiary of Borrower
unless the context provides otherwise.

 

“Term Advance” means a cash advance under Section 2.1.

 

“Term Line” means a credit extension of up to Four Million Dollars ($4,000,000).

 

“Term Maturity Date” means February 22, 2010.

 

“Total Debt” means, on any date of determination, the total Indebtedness of the
Credit Parties and their consolidated Subsidiaries on a consolidated basis and
without duplication, including, without limitation, all Indebtedness under the
Loan Documents, Revolving Loan Documents and all accrued interest on the
foregoing (including, without limitation, all interest paid in kind) and all
capital lease obligations and including, without duplication, Contingent
Obligations consisting of guarantees of Indebtedness that otherwise would
constitute Total Debt of other Persons (provided that, for purposes of
determining the Indebtedness outstanding under any revolving credit facility
(including this Agreement and the Revolving Loan Agreement) as of the end of
each fiscal quarter, “Total Debt” shall mean the average daily amount of
outstanding principal and accrued interest on such revolving credit facility for
such fiscal quarter). For all purposes of this Agreement, the term “Total Debt”
shall be calculated to include (i.e., not net of) discounts, deductions or
allocations relating or applicable to or arising from any equity or equity
participation or fees, whether under GAAP or otherwise.

 

“Total Debt Service” means, for any period, the sum for Credit Parties and their
consolidated Subsidiaries on a consolidated basis of (a) scheduled payments of
principal on any an all Total Debt during such period, (b) other required
payments of principal on Total Debt other than the Obligations, (c) any other
cash amounts due or payable with respect to, in connection with or on Total Debt
during such period, and (d) Interest Expense paid in cash or required to be paid
in cash during such period.

 

“Trademarks” means any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same, and the entire
goodwill of the business of Borrower connected with and symbolized by such
trademarks.

 

“Transfer Pricing Agreements” shall mean (i) the Master Services Agreement
entered into between Borrower and Evolving Systems Networks India Pvt Ltd, dated
as of the 31st day of August, 2004, as amended December 8, 2004, June 1, 2005
and April 1, 2006, and the Master Services Agreement entered into between
Revolving Borrower and Evolving Systems Networks India Pvt Ltd, dated as of the
1st day of June 2005, amended April 1, 2006, and (ii) agreements on transfer
pricing in form and substance reasonably satisfactory to Bank.

 

“TSE Contingent Obligations” means the deferred payment obligations to the
Sellers (as defined in Section 1.4 of the TSE Purchase Agreement).

 

“TSE Purchase Agreement” means the Acquisition Agreement of Telecom Software
Enterprises, LLC, dated as of October 15, 2004 among Evolving Systems, Inc., as
Buyer, and Lisa Marie Maxson and Peter McGuire, as Sellers.

 

“Unfinanced Capital Expenditures” means, for any period, all Capital
Expenditures made during such period other than any Capital Expenditures
financed within 30 days of such expenditure with the proceeds of Permitted
Indebtedness (Permitted Indebtedness, for this purpose, does not include
advances under a revolving line of credit), including, without limitation,
advances under the Revolving Facility and the revolving loan facility
established pursuant to the Revolving Loan Documents.

 

 

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“U.S. Subsidiary” shall mean any Subsidiary of a Person incorporated or
otherwise organized under the laws of the United States of America or a state of
the United States of America or the District of Columbia.

 

“Wholly-Owned Subsidiary” shall mean any Subsidiary in which (other than
directors’ qualifying shares required by law) one hundred percent (100%) of the
equity, at the time as of which any determination is being made, is owned,
beneficially and of record, by Borrower or by one or more of the other
Wholly-Owned Subsidiaries of Borrower, or both.

 

All capitalized terms used which are not specifically defined herein shall have
the respective meanings assigned to them in Article 9 of the Code to the extent
the same are used or defined therein. Unless otherwise specified in any Loan
Document, this Agreement, any other Loan Document and any agreement or contract
referred to herein shall mean such agreement or contract, as modified, amended,
supplemented or restated and in effect from time to time, subject to any
applicable restrictions set forth in the Loan Documents.

 

1.2          Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
“financial statements” shall include the notes and schedules thereto.

 

2.             LOAN AND TERMS OF PAYMENT.

 

2.1          Credit Extensions.

 

Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower hereunder in accordance with the terms
hereof. Borrower shall also pay interest on the unpaid principal amount of
Advances at rates in accordance with the terms hereof.

 

(a)           Revolving Advances.

 

(i)            Subject to and upon the terms and conditions of this Agreement,
Borrower may request, and Bank shall make available, Advances from time to time
in an aggregate outstanding amount not to exceed the lesser of (i) the Revolving
Line Limit or (ii) the Borrowing Base minus, in each case, the Letter of Credit
Exposure, and the FX Amount. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and
reborrowed at any time prior to the Revolving Maturity Date, at which time all
Advances under this Section 2.1(a) shall be immediately due and payable.
Borrower may prepay any Advances in whole or in part without penalty or premium.

 

(ii)           Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer of Borrower or a
designee of a Responsible Officer of Borrower, or without instructions if in
Bank’s discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid after expiration of any applicable grace or cure
period and the giving of any required notice of such non-payment. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank reasonably
believes to be a Responsible Officer or a designee thereof. Bank will credit the
amount of Advances made under this Section 2.1(a) to such deposit account or
Obligation as Borrower specifies.

 

(b)           Letters of Credit. Subject to the terms and conditions of this
Agreement, at any time prior to the Revolving Maturity Date, Bank agrees to
issue letters of credit for the account of Borrower and the other Credit Parties
(each, a “Letter of Credit” and collectively, the “Letters of Credit”) in an
aggregate outstanding face amount not to exceed the lesser of the Revolving Line
Limit or the Borrowing Base minus, in each case, the aggregate amount of the
outstanding Advances, and the FX Amount at any time, provided that the aggregate
face amount of all outstanding Letters of Credit shall not in any case exceed
$500,000, minus the FX Amount at any time. All Letters of Credit shall be, in
form and substance, acceptable to Bank in its reasonable discretion and shall

 

 

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be subject to (i) the terms and conditions of Bank’s form of standard
application and letter of credit agreement with such changes thereto as Borrower
and Bank may agree (the “Application”) and (ii) payment by Borrower of Bank’s
standard fees. In the event of any conflict between the terms of this Agreement
and the terms of any Application, the terms of this Agreement shall control. If
Bank is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse the amount of the funds so advanced not later than
10:00 a.m. (Pacific time) on the date that such payment is made by Bank under
the Letter of Credit, if Borrower shall have received written or telephonic
notice of such payment prior to 9:00 a.m. (Pacific time) on such date, or, if
such notice has not been received by Borrower prior to such time on such date,
then not later than 10:00 a.m. (Pacific time), on the first Business Day that
Borrower has such notice prior to prior to 9:00 a.m. (Pacific time), and, in the
absence of such reimbursement, the unreimbursed amount automatically shall be
deemed to be an Advance under Section 2.1(a). To the extent an unreimbursed
amount under a Letter of Credit is deemed to be an Advance hereunder, Borrower’s
obligation to reimburse such amount shall be discharged and replaced by the
resulting Advance. If any portion of the Letter of Credit Exposure, whether or
not then due and payable, remains unpaid or outstanding on the Revolving
Maturity Date or such earlier date as this Agreement may be terminated, Borrower
shall: (A) provide cash collateral therefor on terms reasonably acceptable to
Bank; or (B) cause all such Letters of Credit and guaranties thereof, if any, to
be cancelled and returned; or (C) deliver a stand-by letter (or letters) of
credit in guarantee of such portion of the Letter of Credit Exposure, which
stand-by letter (or letters) of credit shall be of like tenor and duration (plus
thirty (30) additional days) as, and in an amount equal to at least 105% of the
aggregate maximum amount then available to be drawn under, such Letters of
Credit to which such outstanding Letter of Credit Exposure relate and shall be
issued by a Person, and shall be subject to such terms and conditions, as are
reasonably satisfactory to Bank. The obligation of Borrower to reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, the Application, and such Letters of Credit, under all
circumstances whatsoever; provided, however, that after paying in full its
reimbursement obligation hereunder, nothing herein shall adversely affect the
right of Borrower to commence any proceeding against Bank for any wrongful
disbursement made by Bank under a Letter of Credit as a result or solely to the
extent of acts or omissions constituting gross negligence or willful misconduct
on the part of Bank. Borrower shall indemnify, defend, protect, and hold Bank
harmless from any loss, cost, expense or liability, including, without
limitation, reasonable attorneys’ fees, arising out of or in connection with any
Letters of Credit, except for expenses caused by Bank’s gross negligence or
willful misconduct.

 

(c)           Foreign Exchange Sublimit. Subject to and upon the terms and
conditions of this Agreement and any other agreement that Borrower may enter
into with the Bank in connection with foreign exchange transactions, including
foreign exchange services (“FX Contracts”) and subject to the availability under
the Revolving Line Limit and the Borrowing Base minus, in each case, the
aggregate amount of the outstanding Advances and the Letter of Credit Exposure
at any time, Borrower may request Bank to enter into FX Contracts with Borrower
due not later than the Revolving Maturity Date. Borrower shall pay any standard
issuance and other fees that Bank notifies Borrower in advance will be charged
for issuing and processing FX Contracts for Borrower. The FX Amount shall not in
any case exceed $500,000, minus the Letter of Credit Exposure at any time.. The
“FX Amount” shall equal the amount determined by multiplying (i) the aggregate
amount, in United States Dollars, of FX Contracts between Borrower and Bank
remaining outstanding as of any date of determination by (ii) the applicable
Foreign Exchange Reserve Percentage as of such date. The “Foreign Exchange
Reserve Percentage” shall be a percentage as determined by Bank, in its
reasonable discretion from time to time. If at any time the Revolving Facility
is terminated or otherwise ceases to exist, Borrower shall promptly secure in
cash all obligations under the Foreign Exchange Sublimit on terms reasonably
acceptable to Bank.

 

(d)           Term Advance.

 

(i)            Borrower promises to pay to the order of Bank, in lawful money of
the United States of America, the aggregate unpaid principal amount of the Term
Advance made by Bank to Borrower hereunder in accordance with the terms hereof.
Borrower shall also pay interest on the unpaid principal amount of the Term
Advance at rates in accordance with the terms hereof.

 

(ii)           Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make one Term Advance on the Closing Date to Borrower in an
aggregate amount not to exceed the Term Line.

 

 

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(iii)         Interest shall accrue from the date of the Term Advance at the
rate specified in Section 2.2, and shall be payable monthly on the tenth day of
each month so long as any portion of the Term Advance is outstanding. The Term
Advance shall be payable in twenty-four (24) equal monthly installments of
principal, plus all accrued interest, beginning on March 10, 2008, and
continuing on the same day of each month thereafter through the Term Maturity
Date, at which time all amounts owing under this Section 2.1 and any other
amounts owing under this Agreement shall be immediately due and payable. The
Term Advance, once repaid, may not be reborrowed. Borrower may prepay all or any
portion of the Term Advance in accordance with Section 2.2(d).

 

2.2          Interest Rates, Payments, and Calculations.

 

(a)           Interest Rates.

 

(i)            Advances. Except as set forth in Section 2.2(b), the Advances
shall bear interest, on the outstanding Daily Balance thereof at a rate per
annum equal to one half of one percent (0.50%) above the Prime Rate.

 

(ii)           Term Advance. Except as set forth in Section  2.2(b), the Term
Advance shall bear interest, on the outstanding Daily Balance thereof, at a
fixed rate per annum equal to eight and one quarter percent (8.25%).

 

(b)           Late Fee; Default Rate. If any payment is not made within ten
(10) days after the date such payment is due, Borrower shall pay Bank a late fee
equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount
or (ii) the maximum amount permitted to be charged under applicable law. All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to four (4) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.

 

(c)           Payments. Interest hereunder shall be due and payable on the tenth
calendar day of each month during the term hereof. Bank shall, at its option,
charge such interest and all Bank Expenses against Borrower’s main operating
deposit account, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. To the extent permitted by applicable law,
any interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder. Subject to Section 12.3, all payments shall be free and
clear of any taxes, withholdings, duties, impositions or other charges, to the
end that Bank will receive the entire amount of any Obligations payable
hereunder, regardless of source of payment. Payments will be made via auto debit
from Borrower’s main operating account at the Bank.

 

(d)           Prepayment. Borrower may prepay all or any portion of the Term
Advance only upon written notice to Bank, which shall be irrevocable, at least
three Business Days before the proposed prepayment date (the “Prepayment Date”),
such notice shall specify the Prepayment Date and the amount to be prepaid. On
any Prepayment Date prior to August 22, 2009, Borrower shall pay Bank, in
addition to the principal amount to be prepaid and the interest accrued thereon
through the Prepayment Date, a premium equal to (i) one and one half percent
(1.5%) of the prepaid principal amount of the Term Advance if the prepayment
occurs prior to the first anniversary of the Closing Date, and (ii) one percent
(1%) of the prepaid principal amount of the Term Advance if the prepayment takes
place during the period beginning on the day after the first anniversary of the
Closing Date through August 22, 2009. This Section 2.2(d) shall be applicable to
all prepayments of Term Advances including prepayments following a Default.

 

(e)           Computation. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased, effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.

 

2.3          Crediting Payments. If an Event of Default does not exist, Bank
shall credit a wire

 

 

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transfer of funds, check or other item of payment to such deposit account or
Obligation as Borrower specifies. If an Event of Default exists, the receipt by
Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.

 

2.4          Fees. Borrower shall pay to Bank the following:

 

(a)           Facility Fee. On the Closing Date, a Facility Fee equal to $25,000
which shall be nonrefundable; and

 

(b)           Bank Expenses. On the Closing Date, all Bank Expenses incurred
through the Closing Date, including reasonable attorneys’ fees and expenses and,
after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees
and expenses not later than ten Business Days after written demand therefor.
Bank shall endeavor to provide reasonable supporting documentation for the
amount of any Bank Expenses payable by Borrower to Bank under this
Section 2.4(b).

 

2.5          Overadvances. If the aggregate amount of the outstanding Advances
plus the aggregate face amount of all outstanding Letters of Credit, and the FX
Amount exceeds the lesser of the Revolving Line or the Borrowing Base at any
time, Borrower shall immediately pay to Bank, in cash, the amount of such
excess.

 

2.6          Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.9, shall continue in full force and effect for so
long as any Obligations remain outstanding (other than contingent indemnity
obligations for which no claim has been made) or Bank has any obligation to make
credit extensions under this Agreement. Notwithstanding the foregoing, Bank
shall have the right to terminate its obligation (if any) to make credit
extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination, Bank’s Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding (other than contingent indemnity obligations for
which no claim has been made).

 

3.             CONDITIONS OF LOANS.

 

3.1          Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:

 

(a)           this Agreement, executed by Borrower;

 

(b)           a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

 

(c)           UCC National Form Financing Statement (Borrower);

 

(d)           an intellectual property security agreement (Borrower);

 

(e)           payoff letter from CapitalSource Finance LLC and any documents
required to terminate its security interest in Borrower’s assets;

 

(f)            certificates representing the Shares and stock powers for the
Shares which are part of the Collateral, executed in blank by Borrower for each
of Borrower’s Subsidiaries;

 

 

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(g)           payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof;

 

(h)           current financial statements of Borrower;

 

(i)            an audit of the Collateral, the results of which shall be
satisfactory to Bank; and

 

(j)            such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.

 

3.2          Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:

 

(a)           in the case of an Advance, the timely receipt by Bank of the
Payment/Advance Form as provided in Section 2.1; and

 

(b)           the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form, in the case of an Advance, and on the effective date of
such Credit Extension as though made at and as of each such date (except, in
each case, to the extent where such representations and warranties expressly
relate to an earlier date, in which case they shall have been true and correct
in all respects as of such earlier date), and no Event of Default shall have
occurred and be continuing as of the date of such Credit Extension, or would
exist after giving effect to such Credit Extension. The making of each Credit
Extension shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred to in
this Section 3.2.

 

4.             CREATION OF SECURITY INTEREST.

 

4.1          Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all of Borrower’s right, title and interest in,
to and under all presently existing and hereafter acquired or arising Collateral
in order to secure prompt repayment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Such security interest is effective to create a valid and
continuing security interest in and, upon the filing of appropriate financing
statements in Borrower’s jurisdiction of organization, a perfected security
interest in favor of Bank in the Collateral with respect to which a security
interest may be perfected by filing pursuant to the Code.

 

4.2          Delivery of Additional Documentation Required; Authorization to
File Financing Statements. Borrower shall from time to time execute and deliver
to Bank, at the reasonable request of Bank, all Negotiable Collateral and other
documents that Bank may reasonably request, in form reasonably satisfactory to
Bank, to perfect and continue the perfection of Bank’s security interests in the
Collateral and in order to fully consummate all of the transactions contemplated
under the Loan Documents. Borrower hereby irrevocably authorizes Bank at any
time and from time to time to file in any filing office in any Code jurisdiction
any initial financing statements and amendments thereto that (i) indicate the
Collateral (A) as all assets of Borrower or words of similar effect, regardless
of whether any particular asset comprised in the Collateral falls within the
scope of Article 9 of the Code or such jurisdiction, or (B) as being of an equal
or lesser scope or with greater detail, and (ii) contain any other information
required by part 5 of Article 9 of the Code for the sufficiency or filing office
acceptance of any financing statement or amendment. Borrower from time to time
may deposit with Bank specific time deposit accounts to secure specific
Obligations. Borrower authorizes Bank to hold such balances in pledge and to
decline to honor any drafts thereon or any request by Borrower or any other
Person to pay or otherwise transfer any part of such balances for so long as the
Obligations are outstanding (other than contingent indemnity obligations for
which no claim has been made).

 

4.3          Pledge of Shares. Borrower hereby pledges, assigns and grants to
Bank a security interest in all of Borrower’s right, title and interest in the
Shares, together with all proceeds and substitutions thereof, all cash, stock
and other moneys and property paid thereon, all rights to subscribe for
securities declared or granted in connection therewith, and all other cash and
noncash proceeds of the foregoing (collectively, the “Shares Collateral”;
provided however, that notwithstanding the foregoing, the term “Shares
Collateral” shall not include

 

 

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securities representing at any time more than 65% of the aggregate voting power
of the Capital Stock of a “controlled foreign corporation,” as defined in
Section 957 of the IRC), as security for the performance of the Obligations. The
certificate or certificates for the Shares, if any, will be delivered to Bank,
accompanied by an instrument of assignment duly executed in blank by Borrower,
and Borrower shall cause the books of each entity whose shares are part of the
Shares and any transfer agent to reflect the pledge of the Shares. Upon the
occurrence and during the continuance of an Event of Default, Bank may effect
the transfer of the Shares into the name of Bank and cause new certificates
representing such securities to be issued in the name of Bank or its transferee.
Borrower will execute and deliver such documents, and take or cause to be taken
such actions, as Bank may reasonably request to perfect or continue the
perfection of Bank’s security interest in the Shares. Unless an Event of Default
shall have occurred and be continuing, Borrower shall be entitled (a) to
exercise any rights with respect to the Shares and to give consents, waivers and
ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken if the result thereof
would materially and adversely affect the rights inuring to a holder of the
Collateral or the rights and remedies of Bank under this Agreement or any other
Loan Document or the ability of the Bank to exercise the same and (b) to receive
and retain and to utilize in accordance with this Agreement cash dividends
payable on the Collateral to the extent, and only to the extent, that such cash
dividends are permitted by, and otherwise paid in accordance with, the terms and
conditions of this Agreement, the other Loan Documents and applicable law. Upon
the occurrence and continuation of an Event of Default, all rights of Borrower
to exercise voting and/or consensual rights and powers and/or to receive
dividends that Borrower is entitled to exercise and/or receive pursuant to this
Section 4.3 shall cease immediately upon notice by or on behalf of Bank to
Borrower, and all such rights thereupon shall become vested solely and
exclusively in Bank, automatically without any further action by any Person. The
Shares are not held in a brokerage or similar securities account. Bank
acknowledges that notwithstanding Borrower’s delivery of a stock certificate
representing 72.99% of the outstanding Capital Stock of Evolving Systems
Networks India PVT, Ltd., and notwithstanding anything to the contrary contained
in this Agreement or any Loan Document, Bank’s security interest and Lien
extends only to securities representing 65% of the aggregate voting power of the
outstanding Capital Stock of Evolving Systems Networks India PVT, Ltd., and Bank
has no security interest in or Lien on the remaining securities representing 35%
of the aggregate voting power of the shares of Capital Stock of Evolving Systems
Networks India PVT, Ltd. (a portion of which unencumbered shares are evidenced
by the certificate delivered to Bank).  Bank agrees to return to Borrower the
stock certificate(s) representing the ownership interests in Evolving Systems
Networks India PVT, Ltd. as reasonably requested by Borrower so long as Borrower
has delivered the new stock certificate(s) of Evolving Systems Networks India
PVT, Ltd. representing 65% of Borrower’s aggregate voting power of the ownership
interests in therein. Borrower shall merge Intermediate Holdco with and into
Borrower within fifteen (15) days following the Closing Date. Upon the
effectiveness of such merger, the shares of Evolving Systems Holdings Ltd that
constitute Shares under and as defined in this Agreement shall automatically and
without any further action by Bank or any other Person become subject to Bank’s
security interest in the Shares under this Agreement, and Borrower shall deliver
to Bank the certificate(s) representing 65% of the aggregate voting power of the
outstanding Capital Stock of Evolving Systems Holdings Ltd., accompanied by an
instrument of assignment duly executed in blank by Borrower.

 

4.4          Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower’s usual business hours but no more than once a year (unless an
Event of Default has occurred and is continuing), to inspect Borrower’s Books
and to make copies thereof and to check, test, and appraise the Collateral and
to audit Borrower’s Accounts in order to verify Borrower’s financial condition
or the amount, condition of, or any other matter relating to, the Collateral.
Bank and any such officers, employees and agents shall maintain the
confidentiality of all non-public information (whether written or verbal and
whether specifically identified as “confidential”) obtained during such visits,
inspections, examinations, audits or meetings in accordance with Section 12.10.
Until the Revolving Loan Agreement is terminated and so long as no Event of
Default has occurred and is continuing, Bank agrees to coordinate exercise of
its rights under this Section 4.4 with any exercise of Bank’s rights under
Section 4.1 of the Revolving Loan Agreement.

 

 

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5.             REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants as follows:

 

5.1          Due Organization and Qualification. Borrower and each Subsidiary of
Borrower is a corporation, partnership or limited liability company, or other
form of entity, as the case may be, validly existing under the laws of its
jurisdiction of incorporation, organization or formation and is qualified and
licensed to do business in each jurisdiction where the failure so to qualify or
be licensed or qualified would reasonably be expected to result in a Material
Adverse Effect.

 

5.2          Due Authorization; No Conflict. The execution, delivery, and
performance by Borrower of the Loan Documents to which it is a party (a) are
within Borrower’s powers, (b) have been duly authorized by all requisite
corporate action, (c) are not in conflict with nor constitute a breach of any
provision contained in Borrower’s Organizational Documents, and (d) will not
constitute an event of default under any agreement to which Borrower is a party
or by which Borrower is bound, the effect of which would reasonably be expected
to result in, either individually or in the aggregate, a Material Adverse
Effect. Borrower is not in default under any agreement to which it is a party or
by which it is bound, the effect of which would reasonably be expected to result
in a Material Adverse Effect.

 

5.3          No Prior Encumbrances. Borrower has good and marketable title to,
or a valid leasehold interest in, license of, or right to use, all of its
material property necessary or used in its ordinary course of business, free and
clear of Liens, except for Permitted Liens.

 

5.4          Intellectual Property Collateral. Borrower is the owner of, or has
sufficient rights by license or otherwise in, the Intellectual Property
Collateral necessary for the conduct of Borrower’s business, except for rights
and licenses granted by Borrower in the ordinary course of business and rights
and licenses as set forth in the Schedule. As of the Closing Date, each of the
Patents of Borrower is valid and enforceable, and to Borrower’s knowledge no
part of the Copyrights, Patents or Trademarks of Borrower has been judged
invalid or unenforceable, in whole or in part, and to Borrower’s knowledge no
claim has been made that any part of the Copyrights, Patents or Trademarks of
Borrower infringes the Copyrights, Patents or Trademarks of any third party.
After the Closing Date, except as would not reasonably be expected to result in
a Material Adverse Effect: (i) each of the Patents of Borrower is valid and
enforceable; (ii) to Borrower’s knowledge no part of the Copyrights, Patents or
Trademarks of Borrower has been judged invalid or unenforceable, in whole or in
part; and (iii) to Borrower’s knowledge no claim has been made that any part of
the Copyrights, Patents or Trademarks of Borrower infringes the Copyrights,
Patents or Trademarks of any third party. Except as set forth in the Schedule as
of the Closing Date, Borrower’s rights as a licensee of intellectual property do
not give rise to more than five percent (5%) of its gross revenue in any given
month, including without limitation revenue derived from the sale, licensing,
rendering or disposition of any product or service (the “Materiality
Threshold”). Borrower agrees to provide notice to Bank, with delivery of its
monthly Compliance Certificate, of any licenses that meet the foregoing
Materiality Threshold. Except as set forth in the Schedule or as disclosed in
writing to Bank after the Closing Date, Borrower is not a party to, or bound by,
any license that meets the Materiality Threshold that restricts the grant by
Borrower of a security interest in Borrower’s rights under such license.

 

5.5          Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, as of the Closing Date Borrower has not done business under any
name other than that specified on the signature page hereof. As of the Closing
Date, the chief executive office of Borrower is located at the address indicated
in Section 10 hereof. As of the Closing Date, all Borrower’s Inventory and
Equipment is located only at the location set forth in Appendix 2 attached
hereto.

 

5.6          Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against any Credit Party before any court
or administrative agency which would reasonably be expected to have a Material
Adverse Effect, or a material adverse effect on Borrower’s interest or Bank’s
security interest in the Collateral.

 

5.7          No Material Adverse Change in Financial Statements. All
consolidated and consolidating financial statements related to Borrower and any
consolidated Subsidiary that Bank has received from

 

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Borrower fairly present in all material respects the consolidated financial
position and results of operations of Borrower (or such Subsidiary) and its
consolidated Subsidiaries as of the dates and for the relevant periods indicated
(subject in the case of unaudited financial statements, to year end adjustments
and matters that would be disclosed in financial statement notes). Since the
date of the most recent financial statements submitted to Bank, there has not
occurred any Material Adverse Effect or, to Borrower’s knowledge, any event or
condition that would reasonably be expected to result in a Material Adverse
Effect.

 

5.8          Merchantable Inventory. All material Inventory is in all material
respects of good and marketable quality, free from all material defects, except
for Inventory for which adequate reserves have been made.

 

5.9          Bona Fide Eligible Accounts. The Eligible Accounts identified in
the Borrowing Base Certificate most recently delivered to Bank are bona fide
existing obligations. The Borrowing Base Certificate most recently delivered to
Bank pursuant to this Agreement correctly identifies in all material respects
those Accounts of Borrower that are Eligible Accounts as of the date of such
Borrowing Base Certificate.

 

5.10        Solvency, Payment of Debts. Borrower is and, after giving effect to
the transactions and Indebtedness contemplated by the Loan Documents, will be
Solvent.

 

5.11        Regulatory Compliance. The Credit Parties have met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to the minimum funding requirements of ERISA, and no event has occurred
resulting from Borrower’s failure to comply with ERISA that would reasonably be
expected to result in a Material Adverse Effect. Borrower is not an “investment
company” or a company “controlled” by an “investment company” within the meaning
of the Investment Company Act of 1940. Borrower is not engaged principally, or
as one of the important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations T and U of the Board of Governors of the Federal Reserve System).
Borrower is in compliance in all material respects with all the provisions of
the Federal Fair Labor Standards Act. Borrower is in compliance with all
statutes, laws, ordinances or rules applicable to it, except where any such
non-compliance would not reasonably be expected to result in a Material Adverse
Effect.

 

5.12        Environmental Condition. Except as disclosed in the Schedule, no
Credit Party’s properties or assets has ever been used by any Credit Party or,
to the best of Borrower’s knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower’s knowledge, none of Borrower’s properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by any
Credit Party; and no Credit Party has received a written summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal, state or other governmental agency concerning any action or omission by
any Credit Party resulting in the releasing, or otherwise disposing of,
hazardous waste or hazardous substances into the environment.

 

5.13        Taxes. As of the Closing Date except as disclosed in the Schedule,
each Credit Party has filed or caused to be filed all federal (if applicable)
and all other tax returns required to be filed by such Person, and have paid, or
have made adequate provision for the payment of, all taxes reflected therein
(other than taxes that are not at the time delinquent or thereafter can be paid
without penalty, or are being contested in good faith and by appropriate
proceedings and for which adequate reserves shall have been set aside on the
books of the applicable Credit Party in accordance with GAAP). After the Closing
Date, each Credit Party has filed or caused to be filed all federal (if
applicable) and all other material tax returns required to be filed by such
Person, and have paid, or have made adequate provision for the payment of, all
taxes reflected therein (other than taxes that are not at the time delinquent or
thereafter can be paid without penalty, or are being contested in good faith and
by appropriate proceedings and for which adequate reserves shall have been set
aside on the books of the applicable Credit Party in accordance with GAAP).

 

5.14        Shares. Borrower has full power and authority to grant a security
interest in the Shares and no disability or contractual obligation (other than
the contractual obligations of Borrower to CapitalSource Finance LLC and related
security, which will be released and terminated effective as of the Closing
Date) exists that

 

 

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would prohibit Borrower from pledging the Shares pursuant to this Agreement.
There are no subscriptions, warrants, rights of first refusal or other
restrictions on, or options exercisable with respect to the Shares, other than
restrictions on transfer under applicable state and federal securities laws. The
Shares have been and will be duly authorized and validly issued, and are or will
be fully paid and non-assessable. As of the Closing Date, the Shares are not the
subject of any present or threatened suit, action, arbitration, administrative
or other proceeding, and Borrower knows of no reasonable grounds for the
institution of any such proceedings.

 

5.15        Subsidiaries. As of the Closing Date, Borrower does not own any
stock, partnership interest or other equity securities of any Person, except for
Permitted Investments.

 

5.16        Government Consents. Each Credit Party has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all governmental authorities that are necessary for the
continued operation of Borrower’s business as currently conducted in the
jurisdictions where such business is currently conducted, except, where failure
to do so would not reasonably, in each such case, be expected to result in a
Material Adverse Effect.

 

5.17        Accounts. Except as disclosed in the Schedule, as of the Closing
Date, none of Borrower’s nor any Subsidiary’s bank accounts are maintained with
a Person other than Bank.

 

5.18        Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank in
connection with the transactions contemplated by or pursuant to the Loan
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the factual statements contained in
such certificates or statements taken as a whole materially misleading as of the
time made or delivered in light of the circumstances under which it was made or
delivered, provided that notwithstanding anything else contained in this
Agreement or any Loan Document, Borrower does not make any representation,
warranty or guaranty as to any projections furnished to Bank (except that such
projections have been prepared by the Borrower on the basis of assumptions which
were believed to be reasonable as of the date of such projections in light of
current and reasonably foreseeable business conditions).

 

6.             AFFIRMATIVE COVENANTS.

 

So long as any Obligation shall remain unpaid (other than contingent
indemnification Obligations to the extent no claim giving rise thereto has been
asserted) and Bank shall have any commitment to make Credit Extensions
hereunder, Borrower shall do all of the following:

 

6.1          Good Standing. Borrower shall (a) except as permitted under
Section 7.3, maintain its and each of its Subsidiaries’ valid existence and good
standing (to the extent such concept applies) in its jurisdiction of
incorporation, organization or formation and (b) maintain qualification in each
jurisdiction in which it is required under applicable law except where failure
to maintain such qualification would not reasonably be expected to result in a
Material Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, in force all licenses, approvals and agreements, the
loss of which would reasonably be expected to have a Material Adverse Effect.

 

6.2          Government Compliance. Borrower shall meet, and shall cause each
Credit Party to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to the minimum funding requirements of ERISA.
Borrower shall comply, and shall cause each Subsidiary to comply, with all
statutes, laws, ordinances and government rules and regulations to which it is
subject, noncompliance with which would reasonably be expected to have a
Material Adverse Effect.

 

6.3          Financial Statements, Reports, Certificates. Borrower shall deliver
the following to Bank: (a) as soon as available, but in any event within thirty
(30) days after the end of each calendar month, a company prepared consolidated
balance sheet, income, and cash flow statement covering Borrower’s consolidated
operations during such period, prepared in accordance with GAAP, consistently
applied, in a form reasonably acceptable to Bank and certified by a Responsible
Officer; (b) as soon as available, but in any event within one hundred twenty
(120) days after the end of Borrower’s fiscal year, audited consolidated
financial statements of

 

 

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Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) copies (which may be
in electronic form) of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and, if applicable, all reports on Forms 10-K and 10-Q filed
with the Securities and Exchange Commission; (d) promptly after any officer of
any Credit Party obtains knowledge thereof, a report of any legal actions
pending or threatened in writing against Borrower or any Subsidiary that would
reasonably be expected to result in damages or costs to Borrower or any
Subsidiary to the extent the amount in controversy exceeds $100,000 individually
or $150,000 in the aggregate; (e) as soon as available, but in any event within
thirty (30) days after the end of Borrower’s fiscal year, an operating budget in
a form reasonably acceptable to Bank and approved by Borrower’s board of
directors; (f) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time; and
(g) within ten (10) Business Days after the reasonable request of Bank, a report
signed by Borrower, in form reasonably acceptable to Bank, listing any
applications or registrations that Borrower has made or filed in respect of any
Patents, Copyrights or Trademarks and the status of any active or pending
material United States Patent, Copyright or Trademark applications or
registrations, as well as any material change in Borrower’s Intellectual
Property Collateral (other than Foreign applications and registrations),
including but not limited to any subsequent ownership right of Borrower in or to
any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of any
Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement.

 

Within ten (10) days after the last day of each month, Borrower shall deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer of Borrower in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable of Borrower.

 

Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer of Borrower in
substantially the form of Exhibit D hereto.

 

6.4          Inventory; Returns. Borrower shall keep all material Inventory in
good and marketable condition, free from all material defects except for
Inventory for which adequate reserves have been made. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).

 

6.5          Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, following Bank’s reasonable request, appropriate
certificates attesting to the payment or deposit thereof; and Borrower will
make, and will cause each Subsidiary to make, timely payment or deposit of all
material tax payments and withholding taxes required of it by applicable laws,
including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon Bank’s
reasonable request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment referred to in this
Section 6.4 if the amount or validity of such payment is contested in good faith
by appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower or the applicable Subsidiary.

 

6.6          Insurance.

 

(a)           Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower’s
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower’s business, ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower’s.

 

(b)           All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender’s loss payable
endorsement, in a form reasonably satisfactory to Bank, showing Bank as an
additional loss payee thereof, and all liability insurance policies, other than
errors and omissions and D&O policies, shall show the Bank

 

 

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as an additional insured and shall specify that the insurer must give at least
twenty (20) days notice to Bank before canceling its policy for any reason. 
Upon Bank’s request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor. 
Upon the occurrence and during the continuance of any Event of Default, all
proceeds payable under any such policy shall, at the option of Bank, be payable
to Bank to be applied on account of the Obligations.

 

6.7          Accounts.  Within 30 days of the Closing Date, Borrower shall
maintain and shall cause each of its U.S. Subsidiaries to maintain its primary
U.S. depository, operating, and investment accounts with Bank.

 

6.8          EBITDA.  Borrower shall have, measured at the end of each fiscal
quarter beginning with the fiscal quarter ending March 31, 2008, EBITDA for the
twelve month period ending on such date of not less than (a) $4,700,000 for the
periods ending March 31, 2008 and June 30, 2008 or (b) $4,250,000 for any period
thereafter.

 

6.9          Fixed Charge Coverage.  Borrower shall have, measured at the end of
each fiscal quarter beginning with the fiscal quarter ending March 31, 2008, a
Fixed Charge Coverage Ratio for the twelve month period ending on such date of
at least (a) 1.30:1.00 for the period ending March 31, 2008 or (b) 1.15:1.00 for
any period thereafter.

 

6.10        Senior Leverage Ratio.  Borrower shall have, measured at the end of
each fiscal quarter beginning with the fiscal quarter ending March 31, 2008, a
ratio of (a) Senior Debt calculated on such date to (b) EBITDA for the twelve
month period ending on such date of at least (i) 2.00:1.00 on any date of
measurement to and including September 30, 2008 or (b) 1.75:1.00 on any date of
measurement thereafter.

 

6.11        Minimum Liquidity.  Borrower shall have, measured at the end of each
month, a balance of Cash on a consolidated basis plus Net Accounts of not less
than $4,500,000.  “Net Accounts” means, without duplication, Accounts of the
Credit Parties and the “Credit Parties” under and as defined in the Revolving
Loan Agreement aged less than 90 days (or, in the case of Qwest, Vodafone Egypt
and Cable & Wireless Panama, 120 days) from invoice date.

 

6.12        Intellectual Property Rights.

 

(a)           Borrower shall promptly give Bank written notice of any
applications or registrations of Patents or Trademarks filed with the United
States Patent and Trademark Office, or the UK Intellectual Property Office (with
respect to patent or trademark filings), including the date of such filing and
the registration or application numbers, if any.  Borrower shall (i) give Bank
not less than 30 days prior written notice of the filing of any applications or
registrations with the United States Copyright Office or the UK Intellectual
Property Office (with respect to copyright filings), including the title of such
intellectual property rights to be registered, as such title will appear on such
applications or registrations, and the date such applications or registrations
will be filed, and (ii) prior to the filing of any such applications or
registrations, shall execute such documents as Bank may reasonably request for
Bank to maintain its perfection in such intellectual property rights to be
registered by Borrower, and upon the request of Bank, shall file such documents
against any such applications or registrations.  Upon filing any such
applications or registrations with the United States Copyright Office, Borrower
shall promptly provide Bank with (i) a copy of such applications or
registrations, without the exhibits, if any, thereto, (ii) evidence of the
filing of any documents requested by Bank to be filed for Bank to maintain the
perfection and priority of its security interest in such intellectual property
rights, and (iii) the date of such filing.

 

(b)           Bank may audit Borrower’s Intellectual Property Collateral to
confirm compliance with this Section, provided such audit will occur at a time
and place agreed to by both parties, will be designed not to disrupt the
business operations of Borrower and may not occur more often than once per year,
unless an Event of Default has occurred and is continuing.  Bank shall have the
right, but not the obligation, to take, at Borrower’s sole expense, any actions
that Borrower is required under this Section to take but which Borrower fails to
take, after 15 days’ prior written notice to Borrower.  Borrower shall reimburse
and indemnify Bank for all reasonable out-of-pocket costs and reasonable
out-of-pocket expenses incurred in the reasonable exercise of its rights under
this Section.

 

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6.13        Consent of Inbound Licensors.  Other than licenses in the ordinary
course, prior to or within a reasonable period of time after entering into or
becoming bound by any license or agreement, Borrower shall:  (i) provide written
notice to Bank of the material terms of such license or agreement with a
description of its likely impact on Borrower’s business or financial condition;
and (ii) in good faith use commercially reasonable efforts to obtain the consent
of, or waiver by, any person whose consent or waiver is necessary for Borrower’s
interest in such licenses or contract rights to be deemed Collateral and for
Bank to have a security interest in it that might otherwise be restricted by the
terms of the applicable license or agreement, whether now existing or entered
into in the future, provided, however, that the failure to obtain any such
consent or waiver shall not constitute a default under this Agreement.

 

6.14        Future Stock Pledges and Guaranties.  Borrower shall notify Bank at
the time that any Person becomes a Subsidiary of Borrower, and promptly
thereafter (and in any event within ten Business Days after the appropriate
documents are provided to Borrower by Bank) (a) cause such Subsidiary to execute
and deliver to Bank a joinder to the Guaranty to become a Guarantor, and
(b) pledge the Capital Stock in such Subsidiary to Bank to secure the
Obligations; provided that, the foregoing provisions of this Section 6.14 to the
contrary notwithstanding: (i) nothing in this Section 6.14 shall require a
Credit Party to grant any Lien in favor of Bank in relation to the Capital Stock
of Evolving Systems GmbH, Evolving Systems GmbH, (ii) Evolving Systems Networks
India PVT Ltd. and Evolving Systems Holdings Ltd. shall not be required to
execute a joinder to the guaranty or to grant a security interest in any of
their respective Property to secure any such guaranty or the Obligations,
provided, however, Evolving Systems Holdings Ltd. shall be required to execute a
guaranty in connection with the Revolving Loan Agreement; (iii) no Foreign
Subsidiary of Borrower that is a “controlled foreign corporation,” as defined in
Section 957 of the IRC, shall be required to deliver any guaranty or grant a
security interest in any of its Property to secure any such guaranty or the
Obligations, and neither Borrower nor any of its other U.S. Subsidiaries shall
be required to pledge securities representing in the aggregate more than sixty
five percent (65%) of the voting power of the outstanding voting equity
securities of any such Foreign Subsidiary of Borrower; and (iv) no Foreign
Subsidiary of Borrower incorporated in the United Kingdom shall be required to
deliver any guaranty or grant a security interest in any of its Property to
secure such guaranty or the Obligations if such guaranty or granting of a
security interest would be in breach of Section 151 of the Companies Act 1985.

 

6.15        Further Assurances.  At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.

 

7.             NEGATIVE COVENANTS.

 

So long as any Obligation shall remain unpaid (other than contingent
indemnification Obligations to the extent no claim giving rise thereto has been
asserted) and Bank shall have any commitment to make Credit Extensions
hereunder, Borrower will not do any of the following:

 

7.1          Dispositions.  Convey, sell, lease, transfer or otherwise dispose
of (collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than:

 

(a)           Transfers of Inventory, use of cash, or liquidation or sale of
cash equivalents, in each case in the ordinary course of business;

 

(b)           Transfers of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business (such license may include a restriction on assignability of the
license and its continuation after a Change in Control);

 

(c)           Transfers (whether in a single transaction or a series of
transactions) of obsolete, worn out, replaced, damaged or excess property that
is no longer needed in the ordinary course of business and has a book value not
exceeding $200,000 in the aggregate in any fiscal year;

 

(d)           Transfers not specifically permitted otherwise in this Section 7.1
(other than Capital Stock of a Credit Party to the extent owned by another
Credit Party) to the extent (i) such sale is for fair

 

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market value and the aggregate fair market value of all assets so sold does not
exceed an amount equal to $250,000 in any fiscal year, (ii) no Default or Event
of Default exists or otherwise would result therefrom, (iii) after giving effect
to such transaction, Borrower is in compliance on a pro forma basis with the
financial covenants referenced in Sections 6.8 to 6.11 (recomputed for the most
recent period for which financial statements have been delivered in accordance
with the terms hereof after giving effect thereto as of the first day of such
period), and (iv) the sole consideration therefor received by Borrower or such
Subsidiary is cash;

 

(e)           Transfers in connection with transactions otherwise permitted
under the other subsections of this Section 7 to the extent permitted
thereunder;

 

(f)            Transfers of property to any other Credit Party; and

 

(g)           Transfers permitted under the Revolving Loan Documents.

 

7.2          Change in Business; Change in Control or Executive Office.  Engage
in any business, or permit any of its Subsidiaries to engage in any business,
other than the development, distribution and implementation of software
primarily for the communications industry and the provision of related services,
and other activities that are reasonably incidental or ancillary thereto; or
suffer or permit a Change in Control; or without twenty (20) days prior written
notification to Bank, relocate its chief executive office or state of
incorporation or formation or change its legal name; or without Bank’s prior
written consent, change the date on which its fiscal year ends.

 

7.3          Mergers or Acquisitions.  Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the Capital Stock or property of another Person, other
than:

 

(a)           Permitted Investments; and

 

(b)           upon not less than ten (10) Business Days’ prior written notice to
Bank, any Subsidiary of Borrower may (A) merge with, or dissolve or liquidate
into, or transfer its property to, Borrower or a Wholly-Owned Subsidiary of
Borrower that is a Credit Party, provided that, with respect to any such merger,
Borrower or such Wholly-Owned Subsidiary shall be the continuing or surviving
entity and (B) merge with, or dissolve or liquidate into, or transfer its
property to a Wholly-Owned Subsidiary of Borrower as permitted by the Revolving
Loan Documents.

 

7.4          Indebtedness.  Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.

 

7.5          Encumbrances; Negative Pledges.  (a) Create, incur, assume or
suffer to exist any Lien with respect to any of its property, or assign or
otherwise convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens, or (b) agree with any Person other than Bank not to grant a security
interest in, or otherwise encumber, any of its property, or permit any
Subsidiary to do so except (i) in connection with any document or instrument
governing Liens related to purchase money Indebtedness and capital leases which,
in each case, otherwise constitute Permitted Liens, (ii) leased equipment,
intellectual property and general intangibles of Borrower to the extent excluded
from the Collateral, (iii) any Hedging Agreements, so long as such prohibition
is limited to the assets securing Borrower’s or such Subsidiary’s obligations
under the applicable Hedging Agreement and (iv) as a result of the Loan
Documents and the Revolving Loan Documents.

 

7.6          Distributions.  Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any Capital
Stock, or permit any of its Subsidiaries to do so, except that:

 

(a)           Borrower may repurchase the equity securities or warrants or
options to acquire any equity securities of Borrower owned or held by former
officers or employees pursuant to stock repurchase

 

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agreements as long as an Event of Default does not exist prior to such
repurchase or would not exist after giving effect to such repurchase;

 

(b)           the Credit Parties and their Subsidiaries may make payments
pursuant to and in accordance with the Cross License Agreement and Transfer
Pricing Agreements; and

 

(c)           any Wholly-Owned Subsidiary of Borrower may declare and pay
dividends and other distributions to Borrower or to any other Wholly-Owned
Subsidiary of Borrower that is a Credit Party and the Wholly-Owned Subsidiaries
of Borrower party to the Revolving Loan Agreement or any of the other Revolving
Loan Documents may declare and pay dividends permitted under the Revolving Loan
Agreement.

 

7.7          Investments.  Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments; or suffer or permit any Subsidiary to be a
party to, or be bound by, an agreement that restricts such Subsidiary from
paying dividends or otherwise distributing property to Borrower except (i) as a
result of the Loan Documents and the Revolving Loan Documents and (ii) as
permitted under the Transfer Pricing Agreements.

 

7.8          Transactions with Affiliates.  Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for:

 

(a)           transactions expressly permitted by, and subject to the terms of,
this Agreement, the other Loan Documents and the Revolving Loan Documents;

 

(b)           compensation and employment arrangements with employees, officers
and directors in the ordinary course of business;

 

(c)           (i) transactions between or among any of the Credit Parties and/or
their Wholly-Owned Subsidiaries that are, or concurrent with such transaction
becomes, a Credit Party and (ii) transactions between or among the Revolving
Borrower and its Subsidiaries that are permitted by the Revolving Loan
Agreement;

 

(d)           the Cross License Agreement and the Transfer Pricing Agreements;

 

(e)           the agreements identified in the Schedule; and

 

(f)            other transactions that are in the ordinary course of Borrower’s
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm’s length transaction with a non-affiliated
Person.

 

7.9          Subordinated Debt.  Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank’s
prior written consent except as permitted under the applicable subordination
agreement.

 

7.10        Inventory and Equipment.  Store any Inventory or Equipment with a
fair market value in excess of $250,000 with a bailee, warehouseman, or other
third party unless the third party has been notified of Bank’s security interest
and Bank (a) has received an acknowledgment from the third party that it is
holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in
pledge possession of the warehouse receipt, where negotiable, covering such
Inventory or Equipment. Store or maintain any Equipment or Inventory at a
location other than (i) one or more of the locations set forth in Appendix 2
attached hereto or (ii) any other location or locations disclosed to Bank in
writing.

 

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7.11        Compliance.  Become an “investment company” or be controlled by an
“investment company,” within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of the Term Advance for such purpose.

 

8.             EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

 

8.1          Payment Default.  If Borrower fails to pay (a) when due, any
principal or prepayment premium on the Term Advance or (b) within two
(2) Business Days after the same shall become due and payable, any interest,
Bank Expenses or other Obligations (other than principal or prepayment premiums)
provided for or required under this Agreement or the other Loan Documents;

 

8.2          Covenant Default.

 

(a)           If Borrower fails to perform any obligation under Section 6.3
(Financial Statements, Reports, Certificates), 6.5 (Taxes), 6.6 (Insurance), 6.8
(EBITDA), 6.9 (Fixed Charge Coverage Ratio), 6.10 (Senior Leverage Ratio), 6.11
(Minimum Liquidity) or 6.14 (Future Stock Pledges and Guaranties) or violates
any of the covenants contained in Article 7 of this Agreement; or

 

(b)           If Borrower fails or neglects to perform or observe any other
material term, provision, condition, covenant contained in this Agreement or in
any of the other Loan Documents and as to any default under such other term,
provision, condition or covenant that can be cured, has failed to cure such
default within 30 days after Borrower receives written notice thereof or any
officer of Borrower becomes aware thereof, and within such time period the
failure to have cured such default shall not be deemed an Event of Default.

 

8.3          Material Adverse Effect.  A Material Adverse Effect occurs;

 

8.4          Attachment.  (a) If any material portion of Borrower’s assets,
which has an aggregate fair market value in excess of $175,000 individually or
$350,000 in the aggregate, is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any trustee,
receiver or person acting in a similar capacity and such attachment, seizure,
writ or distress warrant or levy has not been removed, discharged or rescinded
within thirty (30) days of being issued or executed, (b) if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs for more than fifteen
(15) calendar days which is reasonably likely to be, have or result in a
Material Adverse Effect, (c) if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower’s assets, which has an
aggregate fair market value in excess of $175,000 individually or $350,000 in
the aggregate and such lien or encumbrance has not been released or removed
within thirty (30) days of attaching, or (d) if a notice of lien, levy, or
assessment is filed of record with respect to any material portion of Borrower’s
assets which has an aggregate fair market value in excess of $175,000
individually or $350,000 in the aggregate by the United States Government, or
any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
as described in clauses (a) through (d) shall constitute an Event of Default
where such action or event is stayed or an adequate bond has been posted pending
a good faith contest by Borrower;

 

8.5          Insolvency.  If Borrower is no longer Solvent, if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within sixty (60) days after the
date of commencement;

 

8.6          Other Agreements.  If there is (a) an “Event of Default” as defined
in the Revolving Loan Agreement, (b) a default in the payment of any principal
of or interest when due on any Indebtedness of Borrower (other than the
Obligations and Borrower’s guarantee of the “Obligations” as defined in the
Revolving Loan Agreement) in the outstanding principal amount in excess of
$250,000 in the aggregate, which default is not

 

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cured or waived within any applicable grace or cure period, or (c) a default or
other failure to perform in any agreement to which Borrower is a party or by
which it is bound relating to any Indebtedness (other than the Obligations and
Borrower’s guarantee of the “Obligations” as defined in the Revolving Loan
Agreement) in the outstanding principal amount in excess of $750,000 in the
aggregate, which default or breach is not cured or waived within any applicable
grace or cure period, which results in a right by a third party or parties,
whether or not exercised, to accelerate the maturity of such Indebtedness;

 

8.7          Judgments.  If a judgment or judgments for the payment of money in
an amount of at least $175,000 individually or $350,000 in the aggregate
(excluding judgments and decrees to the extent covered by third party insurance
of Borrower where such coverage has been acknowledged by the insurer) shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of thirty (30) days of being rendered; or

 

8.8          Misrepresentations.  If any warranty or representation set forth
herein or in any certificate delivered to Bank by Borrower pursuant to this
Agreement or any other Loan Document shall prove to have been incorrect in any
material respect when made or deemed made.

 

8.9          Guaranty.  If any guaranty of all or a portion of the Obligations
(a “Guaranty”) ceases for any reason to be in full force and effect, or any
Guarantor fails to perform any obligation under any Guaranty or a security
agreement securing any Guaranty (collectively, the “Guaranty Documents”) which
failure to perform is not cured or waived within any applicable grace or cure
period, or any “event of default” occurs under any Guaranty Document or any
Guarantor revokes or purports to revoke a Guaranty, or any warranty or
representation of a Guarantor set forth in any Guaranty Document to which such
Guarantor is a party or in any certificate delivered to Bank by a Guarantor in
connection with any Guaranty Document shall prove to have been incorrect in any
material respect when made or deemed made, or if any of the circumstances
described in Sections 8.4 through 8.7 occur with respect to any Guarantor.

 

9.             BANK’S RIGHTS AND REMEDIES.

 

9.1          Rights and Remedies.  Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:

 

(a)           Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5, all Obligations shall become immediately due and payable without
any action by Bank);

 

(b)           Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other Loan Document;

 

(c)           Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;

 

(d)           Make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral.  Borrower agrees
to assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank at a place or places designated by Bank which are reasonably
convenient to Bank and Borrower.  Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank’s determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith.  With respect to any of Borrower’s owned premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, in order to exercise any of Bank’s
rights or remedies provided herein, at law, in equity, or otherwise;

 

(e)           Set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or
for the credit or the account of Borrower held

 

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by Bank (Bank agrees to notify Borrower promptly after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application).;

 

(f)            Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral.  Except to the extent that such use, assignment, license or
sublicense is expressly prohibited under a license agreement and would result in
a breach under such agreement for which such agreement would reasonably be
expected to be terminated by such licensor, upon the occurrence of such an Event
of Default and the exercise of its rights under this Section 9.1(f), Bank is
granted a license or other right, solely pursuant to the provisions of this
Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, solely as necessary in completing production of,
advertising for sale, and selling any Collateral and, and solely in connection
with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights
under all licenses and all franchise agreements shall inure to Bank’s benefit;

 

(g)           Dispose of the Collateral by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower’s premises) as Bank determines is commercially reasonable, and apply
any proceeds to the Obligations in whatever manner or order Bank deems
appropriate;

 

(h)           Bank may credit bid and purchase at any public sale; and

 

(i)            Any deficiency that exists after disposition of the Collateral as
provided above will be paid promptly by Borrower.

 

9.2          Power of Attorney.  Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank’s designated officers, or employees) as Borrower’s true
and lawful attorney to:  (a) send requests for verification of Accounts or
notify account debtors of Bank’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower’s policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; and
(g) to file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral.  The
appointment of Bank as Borrower’s attorney in fact, and each and every one of
Bank’s rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed (other than
contingent indemnification Obligations to the extent no claim giving rise
thereto has been asserted) and Bank’s obligation to provide Credit Extensions
hereunder is terminated.

 

9.3          Accounts Collection.  At any time after the occurrence and during
the continuance of an Event of Default, Bank may notify any Person owing funds
to Borrower of Bank’s security interest in such funds and verify the amount of
such Account.  After the occurrence and during the continuance of an Event of
Default, Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank’s trustee, and promptly deliver such payments to
Bank in their original form as received from the account debtor, with proper
endorsements for deposit.

 

9.4          Bank Expenses.  If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following after
reasonable written notice to Borrower:  (a) make payment of the same or any part
thereof; or (b) obtain and maintain insurance policies of the type discussed in
Section 6.6 of this Agreement, and take any action with respect to such policies
as Bank reasonably deems prudent.  Any amounts so paid or deposited by Bank
shall constitute Bank Expenses, shall be due and payable within 10 Business Days
following demand, and, to the extent not paid when due, shall bear interest at
the then applicable rate hereinabove provided, and shall be secured by the
Collateral.  Any payments made by Bank shall not constitute an agreement by Bank
to make similar

 

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payments in the future or a waiver by Bank of any Event of Default under this
Agreement.

 

9.5          Bank’s Liability for Collateral.  So long as Bank complies with
reasonable banking practices (including, without limitation, reasonable care of
any Collateral in its possession and the accounting for moneys actually received
by it hereunder), Bank shall not in any way or manner be liable or responsible
for:  (a) the safekeeping of the Collateral; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any diminution
in the value thereof; or (d) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other person whomsoever.  All risk of loss, damage
or destruction of the Collateral shall be borne by Borrower.

 

9.6          Shares.  Borrower recognizes that Bank may be unable to effect a
public sale of any or all the Shares in connection with the exercise of Bank’s
rights and remedies under this Agreement during the continuance of an Event of
Default by reason of certain prohibitions contained in federal securities laws
and applicable state securities laws or otherwise, and may be compelled to
resort to one or more private sales thereof to a restricted group of purchasers
which will be obliged to agree, among other things, to acquire such securities
for their own account for investment and not with a view to the distribution or
resale thereof.  Borrower acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner.  Bank
shall be under no obligation to delay a sale of any of the Shares for the period
of time necessary to permit the issuer thereof to register such securities for
public sale under federal securities laws or under applicable state securities
laws, even if such issuer would agree to do so.

 

9.7          Remedies Cumulative.  Bank’s rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative. 
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity.  No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower’s part shall be deemed a continuing waiver.  No delay by
Bank shall constitute a waiver, election, or acquiescence by it.  No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.

 

9.8          Demand; Protest.  Except as expressly provided for herein or in any
other Loan Document, Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, notice of any default
or any other notice (to the maximum extent permitted by applicable law) of any
kind in connection with the Loan Documents or the Collateral.

 

10.          NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any Loan Document shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, certified mail, postage prepaid, return
receipt requested, or by telefacsimile to Borrower or to Bank, as the case may
be, at its addresses set forth below:

 

If to Borrower:

EVOLVING SYSTEMS, INC.

9777 Pyramid Court, Suite 100

Englewood, CO  80112

Attn:  Anita T. Moseley, General Counsel

FAX:  (303) 802-1138

 

 

with a copy to:

Attn:  Brian R. Ervine

Executive Vice President, Chief Financial and Administrative Officer

FAX:  (303) 802-1420

 

 

If to Bank:

Bridge Bank, N.A.

55 Almaden Blvd.

San Jose, CA 95113

Attn:  Dan Pistone

FAX:  (408) 423-8520

 

30

--------------------------------------------------------------------------------

 

The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

Notices sent by personal delivery or recognized overnight delivery service, or
mailed by first-class, certified or registered mail, shall be deemed to have
been given when received; notices sent by telefacsimile shall be deemed to have
been given when sent (except that, if not given during normal business hours for
the recipient, shall be deemed to have been given at the opening of business on
the next Business Day).  Notices delivered through electronic communications to
the extent provided in the next paragraph shall be effective as provided in such
paragraph.

 

Notices and other communications to Bank hereunder may be delivered or furnished
by electronic communication (including e-mail and Internet or intranet websites)
pursuant to procedures approved by Bank.  Bank may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it, provided that approval of
such procedures may be limited to particular notices or communications.  Unless
each of the Persons sending and receiving particular notices or communications
otherwise agree, (i) notices and other communications sent to an e-mail address
shall be deemed received upon the sender’s receipt of an acknowledgement from
the intended recipient by return e-mail (but excluding automated return e-mail,
such as e-mail sent by the “return receipt requested” function) or other written
acknowledgement, provided that if such notice or other communication is not sent
during the normal business hours of the recipient, such notice or communication
shall be deemed to have been sent at the opening of business on the next
Business Day, and (ii) notices or communications posted to an Internet or
intranet website shall be deemed received upon the deemed receipt by the
intended recipient at its e-mail address as described in the foregoing clause
(i) of notification that such notice or communication is available and
identifying the website address therefor.

 

11.          CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law.  Each of Borrower and Bank hereby submits to the non-exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California.  BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

If the jury waiver set forth in Section is not enforceable, then any dispute,
controversy or claim arising out of or relating to this Agreement, the Loan
Documents or any of the transactions contemplated therein shall be settled by
judicial reference pursuant to Code of Civil Procedure Section 638 et seq.
before a referee sitting without a jury, such referee to be mutually acceptable
to the parties or, if no agreement is reached, by a referee appointed by the
Presiding Judge of the California Superior Court for Santa Clara County.  This
Section shall not restrict a party from exercising remedies under the Code or
from exercising pre-judgment remedies under applicable law.

 

12.          GENERAL PROVISIONS.

 

12.1        Successors and Assigns.  This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank’s prior written consent, which consent
may be

 

31

--------------------------------------------------------------------------------

 

granted or withheld in Bank’s sole discretion.  Subject to compliance with
Section 12.3 by both Bank and the Transferee (as defined in Section 12.3), Bank
shall have the right without the consent of or notice to Borrowers to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank’s obligations, rights and benefits hereunder.

 

12.2        Indemnification.  Borrower shall defend, indemnify and hold harmless
Bank and its officers, employees, and agents against:  (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement and the other
Loan Documents; and (b) all losses or Bank Expenses in any way suffered,
incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to transactions between Bank and Borrower under this
Agreement and the other Loan Documents (including without limitation reasonable
attorneys’ fees and expenses), except for losses caused by the gross negligence
or willful misconduct of the Person seeking indemnification.

 

12.3        Tax Related Matters Upon Transfer or Other Similar Transactions By
Bank.  Notwithstanding any other provision of this Agreement or any other Loan
Document, if Bank sells, transfers, assigns, negotiates, or grants
participations in all or any part of, or any interest in, Bank’s obligations,
rights or benefits under any of the Loan Documents (a “Transferred Interest”) to
any Person (a “Transferee”), then:

 

(a)           if Borrower is required by applicable law to deduct or withhold
any amounts for or in respect of tax with respect to any Transferred Interest (a
“Tax Deduction”) that Borrower would not have otherwise been required to deduct
or withhold if Bank had not sold, transferred, assigned, negotiated or granted
participation in such Transferred Interest,

 

(i)    Borrower shall be permitted under the Loan Documents to deduct or
withhold any such amounts, and

 

(ii)   Borrower shall not be required to pay, and neither Bank nor any
Transferee shall be entitled to receive, any amount under the Loan Documents
with respect to such Transferred Interest that is greater than (A) the amount
that Borrower would have been required to pay to Bank with respect to such
Transferred Interest if Bank had not sold, transferred, assigned, negotiated or
granted a participation in such Transferred Interest, less (B) any Tax Deduction
with respect to such Transferred Interest, less (C) any penalties, interest and
reasonable expenses arising from such Tax Deduction or with respect thereto;

 

(b)           each Transferee shall timely deliver documentation prescribed by
applicable law or reasonably requested by Borrower as will enable Borrower to
determine whether or not withholding, backup withholding or information
reporting requirements would apply in respect of payments required under the
Loan Documents with respect to the relevant Transferred Interest;

 

(c)           each Transferee and, if applicable, Bank, shall complete all
required procedural formalities and shall deliver to Borrower (in such number of
copies as is required under applicable law or as shall be reasonably requested
by Borrower) on or prior to the date on which such Transferee acquires a
Transferred Interest (and promptly from time to time thereafter upon the
reasonable request of Borrower or upon the obsolescence, expiration or
invalidity of any form or document previously delivered by such Transferee or,
if applicable, Bank) all duly completed forms and other documentation, if any,
required to enable Borrower to make all payments required under the Loan
Documents with respect to such Transferred Interest without deduction or
withholding for or in respect of taxes, or, in the case of a Transferred
Interest in respect of which payments under the Loan Documents are not eligible
for a complete exemption, at a reduced rate of deduction or withholding in
respect of taxes;

 

(d)           with respect to any Transferred Interest, Bank and the relevant
Transferee shall indemnify Borrower, within 20 days after written demand
therefor, for all amounts for or in respect of taxes paid or incurred by
Borrower with respect to such Transferred Interest and the full amount of any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, excluding any amounts to the extent such amounts previously reduced,
under Section 12.3(a)(ii)(B) or (C), the amount paid by Borrower under the Loan
Documents with respect to such Transferred Interest; and

 

32

--------------------------------------------------------------------------------

 

(e)           any failure by Borrower to comply with any obligation under
Section 6.5 (Taxes) with respect to any Transferred Interest as a result of this
Section 12.3 shall not constitute an Event of Default by Borrower under this
Agreement.

 

12.4        United States Person Status.  Bank represents and warrants that it
is a “United States person” within the meaning of Section 7701(a)(30) of the IRC
and that it is lending under this Agreement through a lending office located in
the United States.

 

12.5        Time of Essence.  Time is of the essence for the performance of all
obligations set forth in this Agreement.

 

12.6        Severability of Provisions.  Each provision of this Agreement shall
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

 

12.7        Amendments in Writing, Integration.  Neither this Agreement nor the
Loan Documents can be amended or terminated orally.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the Loan
Documents, if any, are merged into this Agreement and the Loan Documents.

 

12.8        Counterparts.  This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement. 
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy or electronic copy shall be effective as delivery of a manually
executed counterpart of this Agreement.

 

12.9        Survival.  All covenants, representations and warranties made in
this Agreement shall survive the execution and delivery of the Loan Documents
and the making and funding of the Term Advance so long as any Obligations remain
outstanding (other than contingent indemnity obligations for which no claim has
been made).  The obligations of Borrower to indemnify Bank with respect to the
expenses, damages, losses, costs and liabilities described in Section 12.2 and
the confidentiality provisions of Section 12.10 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought have run.

 

12.10      Confidentiality.  In handling any confidential information Bank and
all employees and agents of Bank, including but not limited to accountants,
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
or the other Loan Documents except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such information and instructed to keep such information
confidential in accordance with this Section 12.10), (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
(x) entered into a comparable confidentiality agreement in favor of Borrower to
which Borrower is a party or pursuant to which Borrower and its Subsidiaries are
third party beneficiaries and (y) delivered a copy of such confidentiality
agreement to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in connection
with the examination, audit or similar investigation of Bank by a regulatory
authority or examiner regulating or having jurisdiction over Bank and requiring
or requesting such disclosure and (v) as Bank may determine in connection with
the enforcement of any remedies hereunder at any time during the existence of an
Event of Default.  Confidential information hereunder shall not include
information that either:  (a) is in the public domain or in the knowledge or
possession of Bank when disclosed to Bank with no confidentiality obligations to
a third party, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party on a
non-confidential basis other than as a result of this Section 12.10, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.  Should Bank be required to disclose any such
information by virtue of a subpoena or similar process by any court, tribunal,
or agency pursuant to items (iii), (iv) or (v) above, then Bank shall use
commercially reasonable efforts to promptly notify Borrower thereof so as to
allow Borrower, at its sole cost and expense, to seek a protective order or to
take any other

 

33

--------------------------------------------------------------------------------

 

appropriate action to protect its rights.

 

12.11      Patriot Act.  To help the government fight the funding of terrorism
and money laundering activities, Federal law requires all financial institutions
to obtain, verify, and record information that identifies each person who opens
an account.  WHAT THIS MEANS FOR YOU:  when you open an account, we will ask
your name, address, date of birth, and other information that will allow us to
identify you.  We may also ask to see your driver’s license or other identifying
documents.

 

12.12      No Consequential Damages.   No party to this Agreement or any other
Loan Document, nor any agent or attorney of such party or Bank, shall be liable
to any other party to this Agreement or any other Person on any theory of
liability for any special, indirect, consequential or punitive damages.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

34

--------------------------------------------------------------------------------

 

                IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.

 

 

EVOLVING SYSTEMS, INC.

 

 

 

By:

 

 

 

 

Brian R. Ervine

 

 

 

Title: Executive Vice President, Chief Financial and Administrative Officer

 

 

 

 

 

 

 

BRIDGE BANK, N.A.

 

 

 

By:

 

 

 

 

 

 

 

 

 

Title:

 

 

 

 

35

--------------------------------------------------------------------------------

 

APPENDIX 1

 

NAME OF ACCOUNT DEBTOR

 

% WH TAXES

Accenture

 

10%

Alaska Communications

 

 

Alcatel

 

 

Alltel

 

 

AT&T Bellsouth

 

 

AT&T Cingular

 

 

Comcast

 

 

Cox

 

 

Cable & Wireless — Panama

 

 

Leap/Crickett

 

 

Lucent

 

 

Qwest

 

 

AT&T (Formerly SBC)

 

 

Shaw

 

 

SNET

 

 

Sprint/Nextel

 

 

Embarq

 

 

Telenor Pakistan

 

 

Telcordia

 

 

Tw Telecom

 

 

TNS

 

 

Vartec

 

 

Verisign

 

 

Verizon

 

 

Accenture

 

 

American Telecommunication, Inc.

 

Brazil 25% & 20%; Mexico 10%

Bulgaria Telecom

 

15%

British Telecom

 

 

Cable & Wireless

 

 

Cybercity

 

 

Danet

 

 

Lebanon MIC 1 S.A.L.

 

 

Hutchison UK

 

 

Hutchison Whampoa

 

 

Inmarsat

 

 

Monet

 

 

MTN SA

 

 

MTN Nigeria

 

5%

NEC Japan

 

 

NTL (Acquired By Virgin Media)

 

 

Siemens AG/VIPNet

 

 

Siemans CAC

 

 

Nokia/Siemans

 

 

SiMobile

 

 

Swisscom

 

 

T-Mobile

 

 

Tele2

 

 

Virgin Media

 

 

VipNet

 

 

Vodafone Egypt

 

15%

Vodafone Greece

 

 

IBM Greece

 

 

Vodafone Japan

 

10%

Vodafone UK

 

 

Wireless Trade

 

5%

 

1

--------------------------------------------------------------------------------

 

Appendix 2

 

Locations of Inventory and Equipment

 

Office Locations

 

Evolving Systems, Inc.

9777 Pyramid Court, Suite 100

Englewood, CO 80112

USA

 

Evolving Systems Limited

One Angel Square

Torrens Street London EC1V 1PL

UK

 

Evolving Systems Limited

Riverside Buildings 108

Walcot Street

Bath BA1 5BG

UK

 

Tertio Deutschland GmbH

Erich-Zeitler-Strasse 12

85737 Ismaning

Munich

Germany

 

Evolving Systems Networks India Private Ltd.

3rd Floor, HM Geneva House

14, Cunningham Road

Bangalore — 560 052

India

 

Evolving Systems Networks India Private Ltd.

Shah Sultan Complex

Door No. 17, Ali Asker Road

Bangalore — 560 052

India

 

Evolving Systems Limited

P-3-15, Plaza Damas

60, Jalan Sri Hartamas 1,

Sri Hartamas

50480 Kuala Lumpur

Malaysia

 

2

--------------------------------------------------------------------------------

 

DEBTOR:

 

EVOLVING SYSTEMS, INC.

 

 

 

SECURED PARTY:

 

BRIDGE BANK, N.A.

 

EXHIBIT A

 

COLLATERAL DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

 

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

 

(a)           all accounts (including health-care-insurance receivables),
chattel paper (including tangible and electronic chattel paper), deposit
accounts, documents (including negotiable documents), equipment (including all
accessions and additions thereto), general intangibles (including payment
intangibles and software), goods (including fixtures), instruments (including
promissory notes), inventory (including all goods held for sale or lease or to
be furnished under a contract of service, and including returns and
repossessions), investment property (including securities and securities
entitlements), letter of credit rights, money, and all of Debtor’s books and
records with respect to any of the foregoing, and the computers and equipment
containing said books and records;

 

(b)           any and all cash proceeds and/or noncash proceeds of any of the
foregoing, including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment.  All terms
above have the meanings given to them in the California Uniform Commercial Code,
as amended or supplemented from time to time (the “Code”).

 

Notwithstanding the foregoing, the “Collateral” does not include any property
that constitutes the capital stock of a controlled foreign corporation (as
defined in the Internal Revenue Code of 1986, as amended, and the regulations
thereunder) in excess of 65% of the voting power of all classes of capital stock
of such controlled foreign corporations entitled to vote.

 

Notwithstanding the foregoing, the “Collateral” does not include any lease under
which Debtor is a lessee, license under which Debtor is a licensee, other
contract right, property right or agreement to which Debtor is a party, any
securities or other investment property owned by Debtor that is subject to
contractual prohibitions against or limitations on the transfer or pledging of
such securities or property, or any equipment owned by Debtor that is subject to
a purchase money Lien or capitalized lease obligation if the contract or other
agreement in which such Lien is granted (or in the documentation for such
capitalized lease obligation) validly prohibits the creation of any other Lien
on such equipment, or any of its rights or interests thereunder if and for so
long as the grant of such security interest shall constitute or result in
(i) the abandonment, invalidation or unenforceability of any right, title or
interest of Debtor therein or (ii) in a breach or termination pursuant to the
terms of, or a default under, any such lease, license, contract, property
rights, agreement or documentation (other than to the extent that any such term
would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409
of the UCC (or any successor provision or provisions) of any relevant
jurisdiction or any other applicable law or principles of equity); provided,
however, in each such case, consent has not been obtained despite Debtor’s
commercially reasonable efforts to obtain it; and provided further, that such
security interest shall attach immediately at such time as the condition causing
such abandonment, invalidation, unenforceability, other restriction or
assignment shall be remedied and, to the extent severable, shall attach
immediately to any portion of such lease, license, contract, property right or
agreement that does not result in any of the consequences specified in (i) or
(ii) including, without limitation, any proceeds of such lease, license,
contract, property rights, agreement, securities, other investment property, or
equipment.

 

3

--------------------------------------------------------------------------------

 

EXHIBIT B

 

ADVANCE REQUEST FORM

 

1

--------------------------------------------------------------------------------

 

EXHIBIT C

 

BORROWING BASE CERTIFICATE

 

Borrower:  EVOLVING SYSTEMS, INC.

 

Lender: Bridge Bank, N.A.

 

 

 

Commitment Amount:  $1,000,000

 

 

 

ACCOUNTS RECEIVABLE

 

 

 

 

 

1.

Accounts Receivable Book Value as of

 

 

 

$

 

2.

Additions (please explain on reverse)

 

 

 

$

 

3.

TOTAL ACCOUNTS RECEIVABLE

 

 

 

$

 

 

 

 

 

 

 

 

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

 

 

 

 

 

4.

Amounts over 90 days due*

 

$

 

 

 

5.

Balance of 35% over 90 day accounts

 

$

 

 

 

6.

Concentration Limits*

 

 

 

 

 

7.

Foreign Accounts

 

$

 

 

 

8.

Governmental Accounts

 

$

 

 

 

9.

Contra Accounts

 

$

 

 

 

10.

Demo Accounts

 

$

 

 

 

11.

Intercompany/Employee Accounts

 

$

 

 

 

12.

Other (please explain on reverse)

 

$

 

 

 

13.

TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

 

 

 

$

 

14.

Eligible Accounts (#3 minus #13)

 

 

 

$

 

15.

LOAN VALUE OF ELIGIBLE ACCOUNTS (80% of #14)

 

 

 

$

 

16.

Eligible Cash

 

 

 

$

 

17.

LOAN VALUE OF ELIGIBLE CASH (100% of #16)

 

 

 

$

 

18.

LOAN VALUE OF ACCOUNTS PLUS ELIGIBLE CASH (#15 plus #17)

 

 

 

 

 

BALANCES

 

 

 

 

 

19.

Maximum Loan Amount

 

 

 

$

1,000,000

 

20.

Total Funds Available [Lesser of #18 or #19]

 

 

 

$

 

21.

Present balance owing on Line of Credit

 

 

 

$

 

22.

Outstanding under Sublimits (Letters of Credit, FX Contracts)

 

 

 

$

 

23.

AVAILABILITY (#20 minus #21 and #22)

 

 

 

$

 

 

--------------------------------------------------------------------------------

* Or 120 days in the case of Accounts of Qwest, Vodafone Egypt and Cable &
Wireless Panama (or any of their respective successors)

 

The undersigned represents and warrants that the foregoing is true, complete and
correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies in all material respects with the
representations and warranties set forth in the Loan and Security Agreement
between the undersigned and Bridge Bank, N.A..

 

EVOLVING SYSTEMS, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

Authorized Signer

 

 

 

1

--------------------------------------------------------------------------------

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

TO:

 

BRIDGE BANK, N.A.

 

 

 

FROM:

 

EVOLVING SYSTEMS, INC.

 

The undersigned authorized officer of EVOLVING SYSTEMS, INC. (“Borrower”) hereby
certifies, solely in his or her capacity as an authorized officer of Borrower,
that in accordance with the terms and conditions of the Loan and Security
Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in
compliance for the period ending                                with all
covenants except as noted below, (ii) no Default or Event of Default exists as
of the date hereof[, except as set forth in Schedule [    ] attached hereto],
and (iii) all representations and warranties of Borrower stated in the Agreement
are true and correct in all material respects as of the date hereof except
[(x) as set forth in Schedule [    ] attached hereto and (y)] to the extent that
such representations and warranties specifically refer to an earlier date, in
which case they are true and correct in all material respects as of such earlier
date.  Attached herewith are the [audited/unaudited] financial statements
required pursuant to Section 6.3[(a)][(b)] of the Agreement.  Such financial
statements fairly present in all material respects the consolidated financial
position and results of operations of Borrower (or such Subsidiary) and its
consolidated Subsidiaries as of the dates and for the relevant periods indicated
(subject in the case of unaudited financial statements, to year end adjustments
and matters that would be disclosed in financial statement notes). Capitalized
terms used but not defined herein shall have the meanings set forth in the
Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

 

Required

 

Complies

 

 

 

 

 

 

 

 

 

Monthly financial statements

 

Monthly within 30 days

 

Yes

 

No

 

N/A

Annual (CPA Audited)

 

FYE within 120 days

 

Yes

 

No

 

N/A

10K and 10Q

 

(as applicable)

 

Yes

 

No

 

N/A

A/R Audit

 

Initial and Annual

 

Yes

 

No

 

N/A

Operating Budget

 

within 30 days of FYE

 

Yes

 

No

 

N/A

IP Report

 

Upon Bank’s request within 10 days

 

Yes

 

No

 

N/A

Deposit balances with Bank

 

$

 

 

 

 

 

 

Deposit balances outside Bank

 

$

 

 

 

 

 

 

5% Licenses Report

 

Monthly

 

Yes

 

No

 

N/A

 

 

 

 

 

 

 

 

 

Financial Covenant

 

Required

 

Actual

 

Complies

 

 

 

 

 

 

 

 

 

 

 

EBITDA measured on a trailing 12 month basis*

 

$4,700,000 through 6/30/08 and $4,250,000 thereafter

 

$

 

Yes

 

No

 

N/A

Fixed Charge Coverage Ratio*

 

1.30:1.00 through 3/31/2008; 1.15:1.00 thereafter

 

      :1.00

 

Yes

 

No

 

N/A

Senior Leverage Ratio*

 

2.25:1.00 through 9/30/2008; 1.75:1.00 thereafter

 

      :1.00

 

Yes

 

No

 

N/A

Minimum Liquidity

 

$4,500,000

 

$

 

Yes

 

No

 

N/A

 

--------------------------------------------------------------------------------

*beginning March 31, 2008 and at the end of each fiscal quarter thereafter.

 

Comments Regarding Exceptions: See Attached.

 

BANK USE ONLY

 

 

 

 

 

Received by:

 

 

 

Sincerely,

 

AUTHORIZED SIGNER

 

 

 

 

 

Date:

 

 

 

 

 

 

 

 

Verified:

 

 

 

SIGNATURE

 

AUTHORIZED SIGNER

 

 

 

 

 

Date:

 

 

 

TITLE

 

 

 

 

Compliance Status

Yes

No

 

 

 

DATE

 

 

 

1

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ANNEX A

 

SHARES

 

Name of Entity

 

Class or Series
of Units

 

Number of
Units

 

Percentage of
Ownership

 

Certificate
Representing
Such Units

Evolving Systems
Holdings, Ltd.†

 

Ordinary

 

100 shares

 

100% (only 65%
pledged pursuant to
this Agreement)

 

4 (1 share)*
5 (65 shares)
6 (34 shares)*

 

 

 

 

 

 

 

 

 

Evolving Systems
Networks India PVT
Ltd.

 

Equity Shares

 

370,184 shares

 

100%
(only 65% pledged
pursuant to this
Agreement)

 

001 (9,998 shares),
002 (1 share)**,
003 (1 share)**,
004 (90,000 shares)
and 006 (270,184
shares)***

 

--------------------------------------------------------------------------------

† 65% of the outstanding shares of Evolving Systems Holding Ltd. will
automatically become subject to Bank’s security interest in the Shares upon the
effectiveness of the merger of Intermediate Holdco with and into Borrower within
fifteen (15) days following the Closing Date.

 

* Certificate Numbers 4 and 6 will be retained by Borrower and certificate
number 5 will be delivered to Bank.

 

** Certificate numbers 002 and 003 are held by N. Madhusudan Reddy, a director
of Evolving Systems Networks India PVT Ltd, as the nominee of Evolving
Systems, Inc.

 

*** Only 65% of the outstanding shares of Evolving Systems Networks India PVT,
Ltd. are pledged to Bank pursuant to this Agreement.  Notwithstanding the fact
that certificate no. 006 represents more than 65% of the outstanding shares of
Evolving Systems Networks India PVT, Ltd., Bank’s security interest and Lien
shall extend only to 65% of such outstanding shares.

 

1

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