Exhibit 10.1(b)


 


SECURITY
AGREEMENT


 


This SECURITY
AGREEMENT (this “Security Agreement”), dated as of November 14, 2005, is
by and among the GRANTORS listed
on the signature pages hereto and such PERSONS
that hereafter become parties to this Security Agreement (each a “Grantor” and
collectively, the “Grantors”) and CAPITALSOURCE
FINANCE LLC, in its capacity as Agent for the Lender Parties defined
below (in such capacity, “Agent”).  Capitalized
terms used herein shall have the meanings ascribed to them in Section 1
below.


 


W I T N E S S E T H:


 


A.            Pursuant to (i) that certain Credit
Agreement (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, from time to time, the “Credit
Agreement”), dated as of the date hereof, among the Grantors, the other Credit
Parties named therein, Agent and the Lenders from time to time a party thereto
(the “US Lenders”) and (ii) that certain Revolving Facility Agreement (the
“UK Loan Agreement,” and together with the Credit Agreement, collectively, the “Loan
Agreements”), dated as of the date hereof, among the Credit Parties named
therein, Agent, CSE Finance, Inc., as Revolving Lender, and the other
Lenders from time to time a party thereto (collectively with Revolving Lender,
the “UK Lenders,” and together with the US Lenders, collectively, the “Lenders”),
Lenders have agreed to make Loans to each Borrower under the Loan Agreements.


 


B.            Pursuant to that certain Guaranty, dated as of the
date hereof, from the Grantors in favor of the Revolving Lender (including all
annexes, exhibits and schedules thereto, as from time to time amended,
restated, supplemented or otherwise modified and in effect, the “Guaranty”),
the Grantors have guaranteed all of the obligations and liabilities of Revolving
Borrower (as defined in the Credit Agreement) and each other Credit Party under
the Revolving Loan Agreement and all other Revolving Loan Documents.


 


C.            As a condition precedent to Agent and Lenders entering
into the Loan Agreements and to the Lenders making the Loans under the Loan
Agreements, the Grantors are required to enter into this Security Agreement to
secure the payment and performance of the Obligations (as herein defined).


 


NOW, THEREFORE, in
consideration of the premises and mutual covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the parties hereto hereby agree as follows:


 


1.             Defined Terms.


 


(a)           All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Credit Agreement or in Annex A thereto.  All other terms contained in this Security
Agreement, unless the context indicates otherwise, have the meanings provided for
by the UCC to the extent the same are used or defined therein.


 





















 


(b)           “Contractual
Obligations” mean, with respect to any Grantor, any indenture, mortgage, deed
of trust, contract, undertaking, agreement or other instrument to which such
Grantor is a party or by which it or any of its properties is bound or to which
it or any of its properties is subject, including, without limitation, the Loan
Documents and the Related Documents.


 


(c)           “Copyright
License” means, with respect to a Grantor, any and all rights now owned or
hereafter acquired by such Grantor under any written agreement granting any
right to use any Copyright or Copyright registration.


 


(d)           “Copyrights”
means, with respect to a Grantor, all of the following now owned or hereafter
adopted or acquired by such Grantor: (i) all copyrights and General
Intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States, any state or territory thereof, or any other country or any political
subdivision thereof; and (ii) all reissues, extensions or renewals
thereof.


 


(e)           “Intellectual
Property” means, with respect to a Grantor, all of such Grantor’s rights, title
and interest in and to all Copyrights, Patents, Trademarks and Licenses.


 


(f)            “Intellectual
Property Security Agreement” means the Acknowledgment of Intellectual Property
Collateral Lien made in favor of Agent, on behalf of the Lender Parties.


 


(g)           “Lender
Parties” means, collectively, all “Lender Parties” as such term is defined in
each of the Loan Agreements.


 


(h)           “License”
means, with respect to a Grantor, any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by such Grantor.


 


(i)            “Loan
Documents” means, collectively, all “Loan Documents” as such term is defined in
each of the Loan Agreements.


 


(j)            “Obligations”
mean, collectively, all “Obligations” as such term is defined in each of the
Loan Agreements and all “Guaranteed Obligations” as such term is defined in the
Guaranty.


 


(k)           “Patent
License” means, with respect to a Grantor, rights under any written agreement
now owned or hereafter acquired by such Grantor granting any right with respect
to any invention on which a Patent is in existence.


 


(l)            “Patents”
means, with respect to a Grantor, all of the following in which such Grantor
now holds or hereafter acquires any interest: (i) all letters patent of
the United States or any other country, all registrations and recordings
thereof, and all


 


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applications for letters patent of the United States or of any other
country, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State or any other country, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.


 


(m)          “Trademark
License” means, with respect to a Grantor, rights under any written agreement
now owned or hereafter acquired by such Grantor granting any right to use any
Trademark.


 


(n)           “Trademarks”
means, with respect to a Grantor, all of the following now owned or hereafter
adopted or acquired by such Grantor: (i) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, internet
domain names, other source or business identifiers, prints and labels on which
any of the foregoing have appeared or appear, designs and general intangibles
of like nature (whether registered or unregistered), all registrations and
recordings thereof, and all applications (other than intent-to-use
applications) in connection therewith, including registrations, recordings and
applications (other than intent-to-use applications) in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any state or territory thereof, or any other country or any political
subdivision thereof; (ii) all reissues, extensions or renewals thereof;
and (iii) all goodwill associated with or symbolized by any of the
foregoing.


 


(o)           “UCC
jurisdiction” means any jurisdiction that has adopted all or substantially all
of Article 9 as contained in the 2000 Official Text of the Uniform
Commercial Code, as recommended by the National Conference of Commissioners on
Uniform State Laws and the American Law Institute, together with any subsequent
amendments or modifications to the Official Text.


 


2.             Grant of Lien.


 


(a)           To secure
the prompt and complete payment, performance and observance of all of the
Obligations and all renewals, extensions, restructurings and refinancings
thereof, each Grantor hereby grants, mortgages, pledges and hypothecates to
Agent, for the benefit of the Lender Parties, a Lien upon all of its right,
title and interest in, to and under all personal property and other assets,
whether now owned by or owing to, or hereafter acquired by or arising in favor
of such Grantor (including under any trade names, styles or derivations
thereof), and whether owned or consigned by or to, or leased from or to, such
Grantor, and regardless of where located (all of which being hereinafter
collectively referred to as the “Collateral”), including:


 


(i)            all
Accounts;


 


(ii)           all
Chattel Paper;


 


(iii)          all
Documents;


 


(iv)          all General
Intangibles (including payment intangibles and Software);


 


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(v)           all Goods
(including Inventory, Equipment and Fixtures);


 


(vi)          all
Instruments;


 


(vii)         all
Investment Property;


 


(viii)        all
Deposit Accounts, including Blocked Accounts (as defined in Section 6
below), Concentration Accounts (as defined in Section 6 below),
Designated Deposit Accounts (as defined in Section 6 below) and all
other bank accounts and all deposits therein (excluding any bona fide payroll
accounts of any Grantor to the extent these accounts are used for these limited
purposes);


 


(ix)           all money,
cash and cash equivalents;


 


(x)            all
Supporting Obligations and Letter-of Credit Rights;


 


(xi)           the
following commercial tort claims:  [None as of the date of this Security Agreement]; and


 


(xii)          all
Proceeds, tort claims, insurance claims and other rights to payment not
otherwise included in the foregoing and products of the foregoing and all
accessions to, substitutions and replacements for, and rents and profits of,
each of the foregoing.


 


(b)           In
addition, to secure the prompt and complete payment, performance and observance
of the Obligations and in order to induce Agent and Lenders as aforesaid, each
Grantor hereby grants to Agent, for the benefit of Lender Parties, upon the
occurrence and during the continuance of any Event of Default, a right of
setoff against the property of such Grantor held by Agent or any Lender,
consisting of property described above in Section 2(a) now or
hereafter in the possession or custody of or in transit to Agent or any Lender,
for any purpose, including safekeeping, collection or pledge, for the account
of such Grantor, or as to which such Grantor may have any right or power.


 


(c)           Notwithstanding
anything to the contrary set forth in this Section 2, the term “Collateral”
shall not include: (i) 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, or (ii) any leased equipment, Intellectual Property or
General Intangibles of any Grantor to the extent that (but only to the extent
that) (A) they are not assignable or capable of being encumbered as a
matter of law or under the terms of any license or other agreement applicable
thereto or such assignment or encumbrance would invalidate the rights under
terms of any license, lease or other agreements applicable thereto (but solely
in each case to the extent that any such restriction would be enforceable under
applicable law) without the consent of the licensor thereof or other applicable
party thereto, and (B) such consent has not been obtained; provided,
however, that the foregoing grant of a security interest shall extend
to, and the term “Collateral” shall include, each of the following:  (1) any leased equipment, Intellectual
Property or General Intangible which is in the nature of an Account or a right


 


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to the payment of money or a proceed of, or otherwise relates to the
enforcement or collection of, any Account or right to the payment of money, or
goods which are the subject of any Account or right to the payment of money, (2) any
and all proceeds of any leased equipment, Intellectual Property or General
Intangibles that are otherwise excluded to the extent that the assignment,
pledge or encumbrance of such proceeds is not so restricted and (3) upon
obtaining the consent of any licensor or other applicable party any excluded
leased equipment, Intellectual Property or General Intangible as well as any
proceeds thereof that might have otherwise been excluded from such grant of a
security interest and from the term “Collateral.”


 


3.             Agent’s and Lenders’ Rights; Limitations on Agent’s
and Lenders’ Obligations.


 


(a)           It is
expressly agreed by each Grantor that, anything herein or in any other Loan
Document to the contrary notwithstanding, such Grantor shall remain liable
under each of its Contractual Obligations, including all Permits, to observe
and perform all the conditions and obligations to be observed and performed by
it thereunder to the same extent as if this Agreement had not been executed.  Neither Agent nor any Lender shall have any
obligation or liability under any Contractual Obligation by reason of or
arising out of this Security Agreement or any other Loan Document or the
granting herein of a Lien thereon or the receipt by Agent or any Lender of any
payment relating to any Contractual Obligation pursuant hereto.  Neither Agent nor any Lender shall be
required or obligated in any manner to perform or fulfill any of the
obligations of any Grantor under or pursuant to any Contractual Obligation, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it or the sufficiency of any performance by any
party under any Contractual Obligation, or to present or file any claims, or to
take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at
any time or times.


 


(b)           At any
time an Event of Default has occurred and is continuing, without prior notice
to any Grantor, Agent may notify Account Debtors and other Persons obligated on
any of the Collateral that Agent has a security interest therein, and that
payments shall be made directly to Agent, for the benefit of Lender Parties.  Upon the request of Agent after the
occurrence and during the continuance of an Event of Default, each Grantor
shall so notify Account Debtors and other Persons obligated on Collateral.  Once any such notice has been given to any
Account Debtor or other Person obligated on Collateral upon the occurrence and
during the continuance of an Event of Default, no Grantor shall give any
contrary instructions to such Account Debtor or other Person without Agent’s
prior written consent.


 


(c)           At any
time an Event of Default has occurred and is continuing, without prior notice
to any Grantor, Agent may, in Agent’s own name, in the name of a nominee of
Agent or in the name of any Grantor, communicate (by mail, telephone, facsimile
or otherwise) with Account Debtors, parties to Contractual Obligations and
obligors in respect of Instruments to verify with such Persons, to Agent’s
satisfaction, the existence, amount, terms of, and any other matter relating
to, Accounts, Instruments, Chattel Paper and/or payment intangibles.


 


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4.             Representations and Warranties.  Each
Grantor represents and warrants to Agent and the other Lender Parties that:


 


(a)           Such
Grantor has rights in and the power to transfer each item of the Collateral
upon which it purports to grant a Lien hereunder free and clear of any and all
Liens other than Permitted Liens.


 


(b)           No
effective security agreement, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the Collateral
is on file or of record in any public office, except such as may have been
filed (i) by such Grantor in favor of Agent pursuant to this Security
Agreement or the other Loan Documents, and (ii)  in connection with any
other Permitted Liens.


 


(c)           This
Security Agreement is effective to create a valid and continuing Lien on and,
upon the filing of the appropriate financing statements listed on Schedule I
hereto, a perfected Lien in favor of Agent, for the benefit of the Lender
Parties, on the Collateral with respect to which a Lien may be perfected by
filing pursuant to the UCC.  Such Lien is
prior to all other Liens, except Priority Permitted Liens.  Except as set forth in Sections 4(d) and
4(g), all action by such Grantor necessary to protect and perfect such Lien
on each item of such Collateral has been duly taken with respect to which a
Lien may be perfected by filing pursuant to the UCC.  Other than filing of the necessary UCC
financing statements or Intellectual Property Security Agreement, no
authorization, approval or consent is required to be obtained from any
Governmental Authority or other Person for the grant of the security interest
herein, the perfection thereof or the exercise by Agent of its rights and
remedies hereunder.


 


(d)           Schedule II
hereto lists all Capital Stock (to be limited to not 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), Instruments (excluding checks, drafts
and similar instruments that are customarily endorsed or presented for
collection or deposit in the Ordinary Course of Business), Documents, Letter of
Credit Rights and Chattel Paper in which such Grantor has an interest as of the
date hereof.  All action by such Grantor
necessary to protect and perfect the Lien of Agent on each item set forth on Schedule II
(including the delivery of all originals thereof to Agent as required by Section 5(a) and
the legending of all Chattel Paper as required by Section 5(b)) has
been duly taken, or as of the Closing Date, shall be duly taken.  The Lien of Agent, for the benefit of the
Lender Parties, on the Collateral listed on Schedule II hereto is
prior to all other Liens, except Priority Permitted Liens.


 


(e)           Such
Grantor’s name as it appears in official filings in the state of its
incorporation or organization, all prior names of such Grantor during the past
five (5) years, as they appeared from time to time in official filings in
the state of its incorporation or organization, the type of entity of such Grantor
(including corporation, partnership, limited partnership or limited liability
company), organizational identification number issued by such Grantor’s state
of incorporation or organization or a statement that no such number has been
issued, such Grantor’s state of organization or incorporation, the location of
such Grantor’s chief executive office, principal place of


 


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business, other offices, all warehouses, consignees and processors with
whom Inventory or other Collateral is stored or located and other premises
where Collateral is stored or located, and the locations of its books and
records concerning the Collateral are set forth on Schedule III
hereto.  Schedule III hereto
also sets forth the name as it appears in official filings in the state of its
incorporation or organization of any Person from whom such Grantor has acquired
material assets during the past five (5) years, other than assets acquired
in the ordinary course of such Grantor’s business.  Such Grantor has only one state of
incorporation or organization.


 


(f)            [Intentionally
Omitted]


 


(g)           Except as set forth in Schedule 5.11
of the Credit Agreement, as of the Closing Date, or as thereafter otherwise
disclosed in writing to the Agent from time to time, no such Grantor owns or
licenses any material patents, patent applications, registered trademarks,
trademark applications, trade names, registered service marks, service mark
applications, registered copyrights or copyright applications, other than
off-the-shelf licenses readily available in the open market.  This Security Agreement is effective to
create a valid and continuing Lien on and, upon filing of the Intellectual
Property Security Agreement with the United State Patent and Trademark Office
(or, to the extent applicable, the United States Copyright Office) and the
filing of appropriate financing statements listed on Schedule I
hereto, perfected Liens in favor of Agent on such Grantor’s federally
registered Patents, Trademarks and Copyrights and such perfected Liens are
enforceable as such against any and all creditors of and purchasers from such
Grantor.  As of the date hereof, upon
filing of the Intellectual Property Security Agreement with the United States
Patent and Trademark Office (or, to the extent applicable, the United States
Copyright Office) and the filing of appropriate financing statements listed on Schedule I
hereto, all action necessary or reasonably desirable to protect and perfect
Agent’s Lien on such Grantor’s federally registered Patents, Trademarks or
Copyrights shall have been duly taken.


 


5.             Covenants.  Without limiting each Grantor’s
covenants and agreements contained in the Credit Agreement and the other Loan
Documents, each Grantor covenants and agrees with Agent, for the benefit of
Lender Parties, that:


 


(a)           Further
Assurances; Pledge of Instruments; Chattel Paper.


 


(i)            At any
time and from time to time, upon the written request of Agent and at the sole
expense of such Grantor, such Grantor shall promptly and duly execute and
deliver any and all such further instruments and documents and take such
further actions as Agent may deem necessary or reasonably desirable to obtain
the full benefits of this Security Agreement and of the rights and powers
herein granted, including using commercially reasonable efforts to secure all
consents and approvals necessary or appropriate to enforce the security
interests granted hereunder.


 


(ii)           Upon
request by Agent, such Grantor shall deliver to Agent all Collateral consisting
of negotiable Documents, certificated Capital Stock, Chattel


 


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Paper and Instruments (excluding checks, drafts and similar instruments
that are customarily endorsed or presented for collection or deposit in the
Ordinary Course of Business), in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank, promptly after
such Grantor receives the same.


 


(iii)          Such
Grantor shall obtain waivers or subordinations of Liens from landlords, bailees
and mortgagees, to the extent required in Section 6.7(d) of each of
the Loan Agreements.


 


(iv)          Upon
request by Agent, such Grantor shall obtain authenticated letters of control
from each issuer of uncertificated securities, securities intermediary, or
commodities intermediary issuing or holding any financial assets or commodities
to or for such Grantor.


 


(v)           To the
extent required by this Security Agreement, such Grantor shall obtain an
Account Control Agreement with each bank or financial institution holding a
Deposit Account for such Grantor in form and substance acceptable to Agent in
its Permitted Discretion.


 


(vi)          If such
Grantor is or becomes the beneficiary of a letter of credit, upon Agent’s
request, such Grantor shall enter into a tri-party agreement with Agent and the
issuer and/or confirmation bank with respect to Letter-of-Credit Rights
assigning such Letter-of-Credit Rights to Agent and directing all payments
thereunder to a Deposit Account subject to an Account Control Agreement, all in
form and substance satisfactory to Agent.


 


(vii)         Such
Grantor shall take all steps reasonably necessary to grant Agent control of all
electronic Chattel Paper in accordance with the UCC and all “transferable
records,” as defined in each of the Uniform Electronic Transactions Act and the
Electronic Signatures in Global and National Commerce Act.


 


(viii)        Such
Grantor hereby irrevocably authorizes Agent at any time and from time to time
to file in any filing office in any UCC jurisdiction any initial financing
statements and amendments thereto that (a) indicate the Collateral (i) as
all assets of such Grantor or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of Article 9
of the UCC or such jurisdiction, or (ii) as being of an equal or lesser
scope or with greater detail, and (b) contain any other information
required by part 5 of Article 9 of the UCC for the sufficiency or filing
office acceptance of any financing statement or amendment, including (i) whether
such Grantor is an organization, the type of organization it is and any
organization identification number issued to such Grantor, and (ii) in the
case of a financing statement filed as a fixture filing or indicating Collateral
as as-extracted collateral or timber to be cut, a sufficient description of
real property to which the Collateral relates. 
Such Grantor agrees to furnish any such information to the Agent
promptly upon Agent’s request.


 


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(ix)           Such
Grantor shall enter into a supplement to this Security Agreement, granting to
Agent a Lien in any commercial tort claim in excess of $100,000 acquired by it
after the date hereof.


 


(b)           Maintenance
of Records.  Such Grantor shall keep
and maintain, at its own cost and expense, accurate and complete records of the
Collateral, including a record of any and all payments received and any and all
credits granted with respect to the Collateral. 
Such Grantor shall use all commercially reasonable efforts to mark its
books and records pertaining to the Collateral to evidence this Security
Agreement and the Liens granted hereby. 
If such Grantor retains possession of any Chattel Paper or Instruments (excluding
checks, drafts and similar instruments that are customarily endorsed or
presented for collection or deposit in the Ordinary Course of Business) with
Agent’s consent, such Chattel Paper and Instruments shall be marked with the
following legend:  “This writing and the
obligations evidenced or secured hereby are subject to the security interest of
CapitalSource Finance LLC, as Agent, for the benefit of certain Lenders.”


 


(c)           Covenants Regarding
Patent, Trademark and Copyright Collateral.


 


(i)            If such Grantor,
either directly or through any agent, employee, licensee or designee, files an
application for the registration of any Patent, Trademark or Copyright with the
United States Patent and Trademark Office, the United States Copyright Office or
any similar office or agency, such Grantor shall give Agent prompt written
notice thereof, and, upon request of Agent, such Grantor shall execute and
deliver any and all Intellectual Property Security Agreements as Agent may
request to evidence Agent’s Lien on such Patent, Trademark or Copyright, and the
General Intangibles of such Grantor relating thereto or represented thereby.


 


(ii)           Such
Grantor shall take all actions necessary or reasonably requested by Agent to
maintain and pursue (and not abandon) each application, to obtain the relevant
registration and to maintain the registration of each Patent, Trademark and
Copyright (now or hereafter existing), including the filing of applications for
renewal, affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings, unless such Grantor shall determine
in its good faith business judgment that such Patent, Trademark or Copyright is
not material to the conduct of its business.


 


(iii)          In
the event that such Grantor becomes aware that any of the Patent, Trademark or
Copyright Collateral is infringed upon, or misappropriated or diluted by a
third party, and such Grantor determines in its good faith business judgment to
initiate a suit against such third party for infringement, misappropriation or
dilution, such Grantor shall notify Agent thereof and enter into a supplement
to this Security Agreement, granting to Agent a Lien in the resulting
commercial tort claim.  Such Grantor
shall, unless it shall determine otherwise in its good faith business judgment,
promptly upon learning of such infringement, misappropriation or dilution, sue
for infringement, misappropriation


 


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or dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as such Grantor
shall deem appropriate in its good faith business judgment under the
circumstances to protect such Patent, Trademark or Copyright Collateral.


 


(d)           Compliance
with Terms of Accounts, etc.  Such
Grantor will perform and comply in all material respects with all obligations
in respect of the Collateral and all other agreements to which it is a party or
by which it is bound relating to the Collateral.


 


(e)           Further
Identification of Collateral.  Such
Grantor will, if requested by Agent, furnish to Agent, as often as Agent
reasonably requests, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Agent reasonably may request, all in such reasonable detail as
Agent may specify.  Such Grantor shall
promptly notify Agent in writing upon acquiring any interest hereafter in any
material property with a value in excess of $50,000 (individually or in the
aggregate) that is of a type where a security interest or lien must be or may
be registered, recorded or filed under, or notice thereof given under, any
federal statute or regulation if such property is not already covered by a
valid UCC financing statement or otherwise perfected pursuant to a registered
recordation or similar filing in favor of Agent.


 


(f)            Terminations;
Amendments Not Authorized.  Such
Grantor acknowledges that it is not authorized to file any financing statement
or amendment or termination statement with respect to any financing statement
filed in favor of Agent without the prior written consent of Agent (which
consent shall be subject to, among other things, (i) confirmation by Agent
that all Obligations have been fully performed and indefeasibly paid in full in
cash and (ii) Grantors have executed and delivered releases in favor of
Agent and the Lenders in form and substance satisfactory to Agent) and agrees
that it will not do so without the prior written consent of Agent, subject to
such Grantor’s rights under Section 9-509(d)(2) of the UCC.


 


(g)           Use of Collateral.  Such Grantor will do nothing to impair the
rights of Agent in any material portion of the Collateral.  Such Grantor will not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly
any Account Debtor thereof or allow any credit or discount thereon, other than in
the Ordinary Course of Business.


 


(h)           Federal Claims.  If requested by Agent in writing, such Grantor
shall take such steps as may be necessary to comply with any applicable federal
or state assignment of claims laws or other comparable laws if any Collateral
constitutes a claim against the United States government, any state government
or any instrumentality or agent thereof, the assignment of which is restricted
by federal or state law.


 


6.             Bank Accounts; Collection of Accounts; and
Payments. 


 


Upon the request
by Agent, Agent and each Grantor shall enter into an Account Control Agreement
with each financial institution at which such Grantor maintains any Deposit Account


 


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(other than
payroll accounts or employee benefit accounts to the extent such accounts are
used for these limited purposes), including, without limitation, the respective
Deposit Accounts set forth on Schedule V hereto (each such Deposit
Account, and any other Deposit Account which from time to time hereafter shall
be subject to an Account Control Agreement is herein referred to as a “Designated
Deposit Account”).  Each Account Control
Agreement shall provide, except as otherwise agreed upon by Agent in its
Permitted Discretion, among other things, that (a) all items of payment
deposited in each Designated Deposit Account subject thereto shall be held by
the applicable financial institution (each financial institution party to an
Account Control Agreement is herein referred to as a “Designated Depositary
Account Bank”), as agent or bailee-in-possession for Agent, on behalf of the
Lender Parties, (b) the Designated Depositary Account Bank executing such
Account Control Agreement has no rights of offset or recoupment of any other
claim against any Designated Deposit Account subject thereto, other than for
customary payment of its services and other charges directly related to the
administration of each such Designated Deposit Account and for returned checks
or other returned items of payment, and (c) solely to the extent permitted
by the immediately following sentence, the applicable Designated Depositary
Account Bank will transfer all amounts held or deposited from time to time in
any such Designated Deposit Account as Agent may so direct in a written notice
of sole control.  Agent agrees that it
will not deliver a notice of sole control to a Designated Depositary Account
Bank as contemplated by the pertinent Account Control Agreement until such time
as an Event of Default has occurred and is continuing.  Each Grantor hereby grants to Agent, for the
benefit of the Lender Parties, a continuing lien upon, and security interest
in, all Designated Deposit Accounts now or at any time hereafter established
and/or maintained by such Grantor and all funds at any time paid, deposited,
credited or held in such accounts (whether for collection, provisionally or
otherwise) or otherwise in the possession of any Designated Depositary Account
Bank for deposit into a Designated Deposit Account, and such Grantor
acknowledges and agrees that each Designated Depositary Account Bank shall act
as Agent’s agent in connection therewith as may be required pursuant to the
pertinent Account Control Agreement.  No
Grantor shall establish any Deposit Account with any financial institution
unless, prior to such establishment, Agent, the applicable Grantor and such
financial institution shall have entered into an Account Control Agreement.


 


Upon the request
of Agent from time to time after the occurrence and during the continuance of
an Event of Default, each Grantor shall establish lockbox or blocked accounts
(collectively, “Blocked Accounts”) in such Grantor’s name with such banks as
are acceptable to Agent in its Permitted Discretion (“Collecting Banks”),
subject to an Account Control Agreement pursuant to which all Account Debtors
shall directly remit all payments on Accounts and in which such Grantor will
immediately deposit all cash payments for Inventory or other cash payments
constituting proceeds of Collateral, in the identical form in which such
payment was made, whether by cash or check. 
In addition, Agent, for the benefit of the Lender Parties, may establish
one or more depository accounts at each Collecting Bank or at a centrally
located bank in the name of Agent or such Grantor as customer (collectively,
the “Concentration Accounts”).  From and
after receipt by any Collecting Bank of written notice from Agent to such
Collecting Bank that an Event of Default has occurred and is continuing (which
notice shall only be delivered by Agent upon the occurrence and continuance of
an Event of Default), all amounts held or deposited from time to time in the
Blocked Accounts held by such Collecting Bank shall be transferred on a daily
basis to Agent (as Agent may direct) or any of the Concentration Accounts.  Subject to the foregoing, each Grantor hereby
agrees that all payments received by


 


11





















 


Agent or any
Lender whether by cash, check, wire transfer or any other instrument, made to
such Blocked Accounts or Concentration Accounts or otherwise received by Agent
or any Lender and whether on the Accounts or as proceeds of other Collateral or
otherwise will be subject to a valid and perfected first priority security
interest in favor of Agent, for the benefit of the Lender Parties.  No Grantor shall, nor shall any such Grantor
permit any Subsidiary to, accumulate or maintain cash in any disbursement or
payroll account, as of any date, in an amount in excess of checks outstanding
against such account as of such date and checks to be issued within the next two
Business Days and amounts necessary to meet minimum balance requirements.


 


Each Grantor, and
any of its Affiliates, employees, agents and other Persons acting for or in
concert with such Grantor shall, acting as trustee for Agent and Lenders,
receive any moneys, checks, notes, drafts or other payments relating to and/or
constituting proceeds of Accounts or other Collateral which come into the
possession or under the control of such Grantor or any Affiliates, employees,
agent, or other Persons acting for or in concert with such Grantor, and
immediately upon receipt thereof, such Grantor or such Persons shall deposit
the same or cause the same to be deposited in kind, in an account subject to an
Account Control Agreement in accordance with the terms of this Security
Agreement.


 


If requested in
writing by Agent in its Permitted Discretion, each Grantor shall close any of
its Designated Deposit Accounts (and promptly establish replacement Designated
Deposit Accounts with a Designated Depositary Account Bank) maintained with a
Designated Depositary Account Bank which is the subject of a written notice from
Agent that the creditworthiness of such Designated Depositary Account Bank or
any of its affiliates is no longer reasonably acceptable to Agent, or that the
operating performance, funds transfer or availability procedures or performance
with respect to any Account Control Agreement of such Designated Depositary
Account Bank is no longer acceptable in Agent’s reasonable judgment.


 


7.             Agent’s Appointment as Attorney-In-Fact.


 


On the Closing
Date each Grantor shall execute and deliver to Agent a power of attorney (the “Power
of Attorney”) substantially in the form attached hereto as Exhibit A.  The power of attorney granted pursuant to the
Power of Attorney is a power coupled with an interest and shall be
irrevocable.  The powers conferred on
Agent, for the benefit of the Lender Parties, under the Power of Attorney are
solely to protect Agent’s interests (for the benefit of the Lender Parties) in
the Collateral, and shall not impose any duty upon Agent or any Lender to
exercise any such powers.  NONE OF AGENT,
LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
OR REPRESENTATIVES SHALL BE RESPONSIBLE TO ANY GRANTOR FOR ANY ACT OR FAILURE
TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.


 


12





















 


8.             Remedies; Rights Upon Default.


 


(a)           In
addition to all other rights and remedies granted under this Security
Agreement, the Credit Agreement, the other Loan Documents and under any other
instrument or agreement securing, evidencing or relating to any of the
Obligations, if any Event of Default shall have occurred and be continuing,
Agent may exercise all rights and remedies of a secured party under the
UCC.  Without limiting the generality of
the foregoing, each Grantor expressly agrees that in any such event Agent,
without demand of performance or other demand, advertisement or notice of any
kind (except the notice specified below of time and place of public or private
sale) to or upon such Grantor or any other Person (all and each of which
demands, advertisements and notices are hereby expressly waived to the maximum
extent permitted by the UCC and other applicable law), may forthwith
(personally or through its agents or attorneys) enter upon the premises where
any Collateral is located, without any obligation to pay rent, through self-help,
without judicial process, without first obtaining a final judgment or giving
such Grantor or any other Person notice and opportunity for a hearing on Agent’s
claim or action and may take possession of, collect, receive, assemble,
process, appropriate, remove and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, license, assign, give an option or
options to purchase, or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at a public or
private sale or sales, at any exchange at such prices as it may deem
acceptable, for cash or on credit or for future delivery without assumption of
any credit risk.  To facilitate the
foregoing, Agent shall have the right to take possession of each Grantor’s
original books and records, to obtain access to each Grantor’s data processing
equipment, computer hardware and Software and to use all of the foregoing and
the information contained therein in any manner which Agent deems
appropriate.  Agent or any Lender shall
have the right upon any such public sale or sales and, to the extent permitted
by law, upon any such private sale or sales, to purchase for the benefit of
Agent and Lenders, the whole or any part of said Collateral so sold, free of
any right or equity of redemption, which equity of redemption each Grantor
hereby releases.  Such sales may be
adjourned and continued from time to time with or without notice.  Agent shall have the right to conduct such
sales on each Grantor’s premises or elsewhere and shall have the right to use
such Grantor’s premises without charge for such time or times as Agent deems
necessary or advisable.


 


If any Event of Default shall have occurred and be
continuing, each Grantor further agrees, at Agent’s request, to assemble the
Collateral and make it available to Agent at a place or places designated by
Agent which are reasonably convenient to Agent and such Grantor, whether at
such Grantor’s premises or elsewhere. 
Without limiting the foregoing, Agent shall also have the right to
require that each Grantor store and keep any Collateral pending further action
by Agent, and while Collateral is so stored or kept, provide such guards and
maintenance services as shall be necessary to protect the same and to preserve
and maintain the Collateral in good condition. 
Until Agent is able to effect a sale, lease, license or other
disposition of Collateral, Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for
the purpose of preserving Collateral or its value or for any other purpose
deemed appropriate by Agent.  Agent shall
have no obligation to any Grantor to maintain or preserve the rights of any
Grantor as against third parties with respect to Collateral while Collateral is
in the possession of Agent.  Agent may,
if it so elects, seek the appointment of a receiver


 


13





















 


or keeper to take possession of Collateral and to
enforce any of Agent’s remedies (for the benefit of the Lender Parties), with
respect to such appointment without prior notice or hearing as to such
appointment.  Agent shall apply the net
proceeds of any sale, lease, license, other disposition of, or any collection,
recovery, receipt, or realization on, the Collateral to the Obligations as
provided in the Credit Agreement, and only after so paying over such net
proceeds, and after the payment by Agent of any other amount required by any
provision of law, need Agent account for the surplus, if any, to such
Grantor.  To the maximum extent permitted
by applicable law, each Grantor waives all claims, damages, and demands against
Agent or any Lender arising out of the repossession, retention or sale of the
Collateral except such as arise solely out of the gross negligence or willful
misconduct of Agent or such Lender as finally determined by a court of
competent jurisdiction.  Each Grantor
agrees that ten (10) days prior notice by Agent of the time and place of
any public sale or of the time after which a private sale may take place is
reasonable notification of such matters. 
Notwithstanding any such notice of sale, Agent shall not be obligated to
make any sale of Collateral.  In
connection with any sale, lease, license or other disposition of Collateral,
Agent may disclaim any warranties that might arise in connection therewith and
Agent shall have no obligation to provide any warranties at such time.  Each Grantor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations, including any attorneys’ fees or other
expenses incurred by Agent or any Lender to collect such deficiency.


 


(b)           Except as
otherwise specifically provided herein, each Grantor hereby waives presentment,
demand, protest or any notice (to the maximum extent permitted by applicable
law) of any kind in connection with this Security Agreement or any Collateral.


 


(c)           To the
extent that applicable law imposes duties on Agent to exercise remedies in a
commercially reasonable manner, each Grantor acknowledges and agrees that it is
not commercially unreasonable for Agent (i) to fail to incur expenses
deemed significant by Agent to prepare Collateral for disposition or otherwise
to complete raw material or work in process into finished goods or other
finished products for disposition, (ii) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of,
(iii) to fail to exercise collection remedies against Account Debtors or
other Persons obligated on Collateral or to remove Liens on or any adverse
claims against Collateral, (iv) to exercise collection remedies against
Account Debtors and other Persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as such Grantor, for
expressions of interest in acquiring all or any portion of such Collateral, (vii) to
hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing internet sites that provide for the auction of
assets of the types included in the Collateral or that have the reasonable
capacity of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition


 


14





















 


warranties, such as title, possession or quiet enjoyment, (xi) to
purchase insurance or credit enhancements to insure Agent against risks of
loss, collection or disposition of Collateral or to provide to Agent a guaranteed
return from the collection or disposition of Collateral, or (xii) to the extent
deemed appropriate by Agent, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist Agent in the
collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of
this Section 8(c) is to provide non-exhaustive indications of
what actions or omissions by Agent would not be commercially unreasonable in
Agent’s exercise of remedies against the Collateral and that other actions or
omissions by Agent shall not be deemed commercially unreasonable solely on
account of not being indicated in this Section 8(c).  Without limitation upon the foregoing,
nothing contained in this Section 8(c) shall be construed to
grant any rights to any Grantor or to impose any duties on Agent that would not
have been granted or imposed by this Security Agreement or by applicable law in
the absence of this Section 8(c).


 


(d)           Neither
Agent nor any Lender shall be required to make any demand upon, or pursue or
exhaust any of their rights or remedies against, any Grantor, any other
obligor, guarantor, pledgor or any other Person with respect to the payment of
the Obligations or to pursue or exhaust any of their rights or remedies with
respect to any Collateral therefor or any direct or indirect guarantee
thereof.  Neither Agent nor any Lender
shall be required to marshal the Collateral or any guarantee of the Obligations
or to resort to the Collateral or any such guarantee in any particular order,
and all of its and their rights hereunder or under any other Loan Document
shall be cumulative.  To the extent it
may lawfully do so, each Grantor absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not to assert against
Agent or any Lender, any valuation, stay, appraisement, extension, redemption
or similar laws and any and all rights or defenses it may have as a surety now
or hereafter existing which, but for this provision, might be applicable to the
sale of any Collateral made under the judgment, order or decree of any court,
or privately under the power of sale conferred by this Security Agreement, or
otherwise.


 


9.             Grant of License to Use Property.  For the
purpose of enabling Agent to exercise rights and remedies under Section 8
hereof (including, without limiting the terms of Section 8 hereof,
in order to take possession of, collect, receive, assemble, process,
appropriate, remove, realize upon, sell, lease, license, assign, give an option
or options to purchase or otherwise dispose of Collateral) at such time as
Agent shall be lawfully entitled to exercise such rights and remedies after the
occurrence and during the continuance of an Event of Default, each Grantor
hereby grants to Agent, for the benefit of the Lender Parties, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to such Grantor) to use, license or sublicense any Intellectual
Property Collateral, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all Software and programs used for the compilation or
printout thereof and an irrevocable license (exercisable without payment of rent
or other compensation to such Grantor) to use and occupy all real estate owned
or leased by such Grantor.


 


10.           Limitation on Agent’s and Lenders’ Duty in Respect
of Collateral.  Agent and each Lender shall use reasonable
care with respect to the Collateral, if any, in its possession or


 


15





















 


under its control.  Neither Agent nor any Lender shall have any
other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of Agent or such Lender, or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto, except as provided under the UCC.  Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which it accords its own property.  Agent
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehousemen, carrier, forwarding agency, consignee or other
agent or bailee selected by Agent in good faith.


 


11.           Reinstatement.  This Security Agreement shall
remain in full force and effect and continue to be effective should any
petition be filed by or against any Grantor for liquidation or reorganization,
should any Grantor become insolvent or make an assignment for the benefit of
any creditor or creditors or should a receiver or trustee be appointed for all
or any significant part of any Grantor’s assets, and shall continue to be
effective or be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent
conveyance,” or otherwise, all as though such payment or performance had not
been made.  In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.


 


12.           Expenses and Attorneys Fees.  Without
limiting each Grantor’s obligations under the Credit Agreement or the other
Loan Documents, each Grantor jointly and severally agrees to promptly pay all
(to the extent required by the Credit Agreement) fees, reasonable costs and expenses
(including attorneys’ fees and expenses and allocated costs of internal legal
staff) incurred in connection with (a) protecting, storing, warehousing,
appraising, insuring, handling, maintaining and shipping the Collateral, (b) creating,
perfecting, maintaining and enforcing Agent’s Liens and (c) collecting,
enforcing, retaking, holding, preparing for disposition, processing and
disposing of Collateral.


 


13.           Notices.  Except as otherwise provided
herein, whenever it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication shall or may be given to
or served upon any of the parties by any other party, or whenever any of the
parties desires to give and serve upon any other party any communication with
respect to this Security Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and shall be
given in the manner, and deemed received, as provided for in the Credit
Agreement.


 


14.           Limitation by Law.  All
rights, remedies and powers provided in this Security Agreement may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Security Agreement
are intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited to the extent necessary so that they shall
not render this Security Agreement invalid, unenforceable,


 


16





















 


in whole or in part, or not
entitled to be recorded, registered or filed under the provisions of any
applicable law.


 


15.           Termination of this Security Agreement.  Subject
to Section 11 hereof, this Security Agreement shall remain in full
force and effect until payment in full in cash and performance of all of the
Obligations, termination of the Commitments and a release of all claims against
Agent and the other Lender Parties, and so long as no suits, actions,
proceedings, or claims (provided, however, that the release may exclude claims
filed by a Grantor against Agent or a Lender prior to the payoff contemplated
in this Section 15, arising out of the gross negligence or willful
misconduct or fraud of Agent or such Lender) are pending or threatened against
any Indemnitee asserting any damages, losses or liabilities are indemnified
liabilities hereunder or under the Credit Agreement, whereupon this Security
Agreement shall terminate without further action on the part of any Person.


 


16.           Successors and Assigns.  This
Security Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns except that no
Grantor may assign its rights or obligations hereunder without the written
consent of all Lenders.  No sales of
participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Obligations or any portion
thereof or interest therein shall in any manner impair the Lien granted to
Agent, for the benefit of the Lender Parties, hereunder.


 


17.           Counterparts.  This Security Agreement and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts taken together shall constitute but one in the same
instrument.  This Security Agreement
shall become effective upon the execution of a counterpart hereof by each of
the parties hereto.  This Security
Agreement may be authenticated by manual signature, facsimile or, if approved
in writing by Agent, electronic means, all of which shall be equally valid.


 


18.           Applicable Law.  THIS SECURITY AGREEMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPALS THAT RESULT IN THE APPLICATION OF
THE LAWS OF A DIFFERENT JURISDICTION.


 


19.           Headings.  Section headings are included
herein for convenience of reference only and shall not constitute a part of
this Security Agreement for any other purposes or be given substantive effect.


 


20.           Benefit of Lender Parties.  All Liens
granted or contemplated hereby shall be for the benefit of Agent, individually,
and the other Lender Parties, and all proceeds or payments realized from
Collateral in accordance herewith shall be applied to the Obligations in
accordance with the terms of the Credit Agreement.


 


17





















 


21.           Conflict.  In the event of any conflict
between any term, covenant or condition of this Security Agreement and any
term, covenant or condition of the Credit Agreement, the provisions of the
Credit Agreement shall control and govern.


 


22.           Joint and Several.  The
obligations, covenants and agreements of Grantors hereunder shall be the joint
and several obligations, covenants and agreements of each Grantor.


 


[Remainder
of page intentionally left blank; signature page follows]


 


18





















 


IN WITNESS
WHEREOF, each of the parties hereto has caused this Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.


 


	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Anita
  T. Moseley

  	
   

  
	
   

  	
  Name:

  	
  Anita T.
  Moseley

  
	
   

  	
  Title:

  	
  Sr. Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TELECOM
  SOFTWARE ENTERPRISES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Anita T.
  Moseley

  	
   

  
	
   

  	
  Name:

  	
  Anita T.
  Moseley

  
	
   

  	
  Title:

  	
  Sr. Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EVOLVING
  SYSTEMS HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Anita T.
  Moseley

  	
   

  
	
   

  	
  Name:

  	
  Anita T.
  Moseley

  
	
   

  	
  Title:

  	
  Sr. Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CAPITALSOURCE FINANCE LLC, as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Steven A.
  Museles

  	
   

  
	
   

  	
  Name:

  	
  Steven A.
  Museles

  
	
   

  	
  Title:

  	
  Senior Vice
  President

  
						



 





















 


SCHEDULE I

to

SECURITY AGREEMENT


 


Filing
Jurisdictions


 


	
  Evolving Systems, Inc.

  	
   

  	
  Delaware

  
	
  Telecom Software Enterprises, LLC

  	
   

  	
  Colorado

  
	
  Evolving Systems Holdings, Inc.

  	
   

  	
  Delaware

  



 





















 


SCHEDULE II

to

SECURITY AGREEMENT


 


Capital
Stock, Instruments, Documents, Chattel Paper

and Letter of Credit Rights


 





















 


SCHEDULE III

to

SECURITY AGREEMENT


 


Schedule of
Organizational Identification, Offices,

Locations of Collateral and Records Concerning Collateral


 


	
  I.

  	
  Each Grantor’s
  official name:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  II.

  	
  Prior official
  names of each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  III.

  	
  Type of entity
  (e.g. corporation, partnership, business trust, limited partnership, limited
  liability company):

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  IV.

  	
  Organizational
  identification number issued by each Grantor’s state of incorporation or
  organization or a statement that no such number has been issued:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  V.

  	
  State of
  organization or incorporation of each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  



 





















 


	
  VI.

  	
  Chief executive
  office and principal place of business of each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  VII.

  	
  Other offices of
  each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  VIII.

  	
  Warehouses,
  Consignees and Processors:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  IX.

  	
  Other premises
  at which Collateral is stored or located:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  X.

  	
  Locations of
  records concerning Collateral:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  XI.

  	
  Persons from
  whom assets have been acquired, during the past five years, other than in the
  ordinary course of business:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  



 





















 


SCHEDULE IV


 


to


 


SECURITY
AGREEMENT


 


Motor
Vehicles.


 





















 


SCHEDULE V

to

SECURITY AGREEMENT


 


Designated
Deposit Accounts.


 


	
  Grantor

  	
   

  	
  Bank

  	
   

  	
  Account Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 





















 


EXHIBIT A


 


POWER
OF ATTORNEY


 


This Power of
Attorney is executed and delivered by each of the undersigned (each a “Grantor”
and collectively, the “Grantors”), to CAPITALSOURCE FINANCE LLC (hereinafter
referred to as “Attorney”), as Agent for the benefit of the Lender Parties,
under that certain Credit Agreement, that certain Security Agreement (the “Security
Agreement”), both dated as of November     , 2005, and
other related documents (collectively, the “Loan Documents”).  No person to whom this Power of Attorney is
presented, as authority for Attorney to take any action or actions contemplated
hereby, shall be required to inquire into or seek confirmation from any Grantor
as to the authority of Attorney to take any action described below, or as to
the existence of or fulfillment of any condition to this Power of Attorney,
which is intended to grant to Attorney unconditionally the authority to take
and perform the actions contemplated herein, and each Grantor irrevocably
waives any right to commence any suit or action, in law or equity, against any
person or entity which acts in reliance upon or acknowledges the authority
granted under this Power of Attorney. 
The power of attorney granted hereby is coupled with an interest, and
may not be revoked or canceled by any Grantor without Attorney’s written
consent.


 


Each Grantor
hereby irrevocably constitutes and appoints Attorney (and all officers,
employees or agents designated by Attorney), with full power of substitution,
as such Grantor’s true and lawful attorney-in-fact with full irrevocable power
and authority in the place and stead of such Grantor and in the name of such
Grantor or in its own name, from time to time in Attorney’s discretion, after
the occurrence and during the continuance of an Event of Default, to take any
and all appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or advisable to accomplish the purposes of
the Security Documents and, without limiting the generality of the foregoing,
each Grantor hereby grants to Attorney the power and right, on behalf of such
Grantor, without notice to or assent by such Grantor, and, subject to the terms
of the Security Agreement, at any time, to do the following after the
occurrence and during the continuation of an Event of Default: (a) change
the mailing address of such Grantor, open a post office box on behalf of such
Grantor, open mail for such Grantor, and ask, demand, collect, give
acquittances and receipts for, take possession of, endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications, and notices in connection with any
property of such Grantor; (b) effect any repairs to any asset of such
Grantor, or continue to obtain any insurance and pay all or any part of the
premiums therefor and costs thereof, and make, settle and adjust all claims
under such policies of insurance, and make all determinations and decisions
with respect to such policies; (c) pay or discharge any taxes, liens,
security interests, or other encumbrances levied or placed on or threatened
against such Grantor or its property; (d) defend any suit, action or
proceeding brought against such Grantor if such Grantor does not defend such
suit, action or proceeding or if Attorney reasonably believes that such Grantor
is not pursuing such defense in a manner that will maximize the recovery to
Attorney, and settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Attorney may deem appropriate; (e) file or prosecute any claim,
litigation, suit or proceeding in any court of competent jurisdiction or before
any arbitrator, or take any other action otherwise deemed appropriate by
Attorney for the purpose of collecting any and all such moneys due to such Grantor
whenever payable and to enforce any other right in respect of such Grantor’s
property; (f) cause the certified public accountants then engaged by such
Grantor to


 





















 


prepare and
deliver to Attorney at any time and from time to time, promptly upon Attorney’s
request, the following reports: (1) a reconciliation of all accounts, (2) an
aging of all accounts, (3) trial balances, (4) test verifications of
such accounts as Attorney may request, and (5) the results of each
physical verification of inventory, if any; (g) communicate in its own
name with any party to any contract with regard to the assignment of the right,
title and interest of such Grantor in and under the contract and other matters
relating thereto; (h) to file such financing statements with respect to
the Security Agreement, with or without such Grantor’s signature, or to file a
photocopy of the Security Agreement in substitution for a financing statement,
as the Agent may deem appropriate and to execute in such Grantor’s name such
financing statements and amendments thereto and continuation statements which
may require such Grantor’s signature; (i) execute, in connection with any
sale provided for in any Loan Document, any endorsements, assignments or other
instruments of conveyance or transfer with respect to collateral subject to the
Security Documents and to otherwise direct such sale or resale; (j) exercise
the rights of such Grantor with respect to the obligation of all account
debtors to make payment or otherwise render performance to such Grantor; (k)
exercise the rights of such Grantor to, and take any and all actions that
Attorney deems appropriate to realize the benefit of, any Intellectual
Property; and (l) assert any claims such Grantor may have, from time to time,
against any other party to any contract to which such Grantor is a party and to
otherwise exercise any right or remedy of such Grantor thereunder all as though
Attorney were the absolute owner of the property of such Grantor for all
purposes, and to do, at Attorney’s option and such grantor’s expense, at any
time or from time to time, all acts and other things that Attorney reasonably
deems necessary to perfect, preserve, or realize upon such Grantor’s property
or assets and Attorney’s liens thereon, all as fully and effectively as such
Grantor might do.  Each Grantor hereby
ratifies, to the extent permitted by law, all that said Attorney shall lawfully
do or cause to be done by virtue hereof.


 


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IN WITNESS
WHEREOF, this Power of Attorney is executed by each Grantor pursuant to the
authority of its managers or board of directors, as applicable, this
      day of November, 2005.


 


	
   

  	
  EVOLVING
  SYSTEMS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
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  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TELECOM
  SOFTWARE ENTERPRISES, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
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  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  EVOLVING
  SYSTEMS HOLDINGS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
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  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CAPITALSOURCE FINANCE LLC, as Agent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  



 





















 


NOTARY
PUBLIC CERTIFICATE


 


On this
         day of November, 2005,
                                  ,
who is personally known to me, appeared before me in his capacity as the
                                                        ,
of                                                                                     
(the “Grantor”) and executed on behalf of such Grantor the Power of Attorney in
favor of CapitalSource Finance LLC, as Agent, to which this Certificate is
attached.


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  	
   

  



 


On this
         day of November, 2005,
                                  ,
who is personally known to me, appeared before me in his capacity as the
                                                        ,
of
                                                                                    
(the “Grantor”) and executed on behalf of such Grantor the Power of Attorney in
favor of CapitalSource Finance LLC, as Agent, to which this Certificate is
attached.


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  	
   

  



 


On this
         day of November, 2005,
                                  ,
who is personally known to me, appeared before me in his capacity as the
                                                        ,
of                                                                                     
(the “Grantor”) and executed on behalf of such Grantor the Power of Attorney in
favor of CapitalSource Finance LLC, as Agent, to which this Certificate is
attached.


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public