Document:

EXHIBIT 4.2(b)

 

Long Term Note/Note A

 

THIS NOTE CONTAINS ORIGINAL ISSUE DISCOUNT, AS
DEFINED IN SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.  PLEASE CONTACT ANITA MOSELEY, SECRETARY OF
THE MAKER, AT PHONE NUMBER (303) 802-2599 FOR THE ISSUE DATE OF THE NOTE, THE
ORIGINAL ISSUE DISCOUNT IN THE NOTE AND THE YIELD TO MATURITY.

 

	
  $10,355,000 Principal Amount

  	
  November 2, 2004

  

 

SENIOR SECURED NOTE

 

EVOLVING SYSTEMS,
INC.

 

FOR VALUE RECEIVED, EVOLVING
SYSTEMS, INC., a Delaware corporation (the “Maker”), having its
principal place of business at 9777 Mount Pyramid Court, Englewood, Colorado
80112, hereby promises to pay to the order of Tertio Telecoms Group Ltd., an
entity formed and registered in England and Wales with a company number 4419858
(“Payee”), having an address at One Angel Square, Torrens Street, London
EC1V 1NY, United Kingdom, the principal sum of TEN MILLION, THREE HUNDRED FIFTY
FIVE THOUSAND DOLLARS ($10,355,000) in lawful money of the United States of
America.

 

1.             Definitions; Interpretations. 
In addition to other terms defined elsewhere in this Note, the
capitalized terms set forth in Schedule 1 attached hereto and incorporated
herein by reference shall have the meanings set forth therein unless defined
elsewhere herein or the context otherwise clearly requires.  Except as otherwise provided herein,
financial and accounting terms used elsewhere in this Note shall be defined in
accordance with GAAP.

 

2.             Payments of Principal. 
The outstanding principal (including amounts added to principal pursuant
to Section 3 below) under this Note shall be due and payable in installments as
set forth below at the aforesaid address of Payee or such other place as Payee
may designate:

 

	
  Payment Date

  	
   

  	
  Amount

  	
   

  
	
  March 31, 2006

  	
   

  	
  $1,161,147

  	
   

  
	
  June 30, 2006

  	
   

  	
  $2,694,900

  	
   

  
	
  December 31, 2006

  	
   

  	
  $1,239,134.

  	
   

  
	
  March 31, 2007

  	
   

  	
  $1,620,406

  	
   

  
	
  June 30, 2007

  	
   

  	
  $2,694,900

  	
   

  
	
  Maturity Date

  	
   

  	
  All
  outstanding amounts hereunder, whether principal, interest or otherwise

  	
   

  

 

 

3.             Pre-Default Interest Rate. 
So long as no Event of Default (as hereinafter defined) has occurred and
is continuing, and subject to the provisions of Section 4 of this Note, the
outstanding principal balance of this Note shall bear interest at a rate per
annum equal to Eleven Percent (11%) (the “Pre-Default Interest Rate”).  From the date of this Note until December 31,
2005, on each Payment Date the principal balance of this Note shall be
increased by an amount equal to the amount of interest that would be payable at
the Pre-Default Interest Rate with respect to this Note accruing on and after
the issuance of this Note.  Commencing
with and including March 31, 2006, the amount of interest accruing at the
Pre-Default Interest Rate shall be paid in cash on a quarterly basis on each
Payment Date.  To the extent not paid,
all interest shall be compounded quarterly.

 

4.             Additional Interest. 
From and after the second anniversary of this Note, the outstanding
principal balance of this Note shall bear interest at a rate per annum equal to
Fourteen Percent (14%).

 

5.             Post-Default Interest Rate. 
Following the occurrence and during the continuance of an Event of
Default the outstanding principal balance of this Note shall bear interest at
the rate per annum equal to Fourteen Percent (14%) (the “Default Rate”).
 However, if at any time the Libor
Adjusted Rate shall ever exceed the Default Rate, then following the occurrence
and during the continuance of an Event of Default, the outstanding principal
balance of this Note shall bear interest at the rate per annum equal to the
Adjusted Libor Rate.

 

6.             Optional Prepayment. 
From and after the date hereof, if there is:  (a) no Convertible Note outstanding or (b) a
Convertible Note outstanding and the holder thereof declines to accept a
prepayment under the corresponding section of the Convertible Note, then Maker
may prepay this Note in whole or in part at any time.  There shall be no premium or penalty in
connection with any prepayment.  Such
prepayment shall include all accrued and unpaid interest on the principal amount
of such prepayment.  Each such prepayment
shall be applied first against accrued and unpaid interest, if any, and then
against principal outstanding under this Note in inverse order of maturity.

 

7.             Mandatory Prepayments.

 

(a)           Within forty-five (45) days after the end
of each fiscal quarter of Maker, starting with the fiscal quarter ending March
31, 2005, Maker shall deliver to Payee a certificate of the chief financial
officer of Maker in the form attached hereto as Exhibit A, specifying
the closing balance for each of the deposit accounts of Maker set forth thereon
on the last day of the most recently completed fiscal quarter (the aggregate of
such closing balance for all such accounts is the “Aggregate Quarterly
Closing Balance”).  Maker shall at
all times maintain, and such certificate of the chief financial officer of the
Maker shall state that the Maker has during the fiscal quarter to which such
certificate relates maintained, such deposit accounts in good faith, and made
all payments drawn against such deposit accounts in accordance with past
practices or current and owing obligations of Maker incurred in the ordinary
course of business.  Payee may in its
sole discretion within ten (10) days after receipt of such certificate, request
that Maker make a prepayment on this Note in an amount up to the amount by
which the Aggregate Quarterly Closing Balance exceeds $7,000,000 (the “Account
Prepayment Amount”) to the extent, if any, in excess of the amount paid to
the Convertible Notes or B-1 Notes under the corresponding sections of the
Convertible Notes or B-1 Notes, as applicable, such payment to be allocated pro
rata among the A Notes held by Payees who have requested such payment, and
Maker shall make such prepayment on this Note within two (2) business days
following receipt of written demand from 

 

2

 

Payee.  Such prepayment shall be applied first
against  accrued interest, if any, and
then against principal outstanding under this Note in inverse order of
maturity.

 

(b)           On or before the date that is ten (10)
business days prior to Maker’s mailing of a stockholder proxy and notice of a
stockholder meeting in connection with a stockholder meeting called for the
purpose of approving a Capital Transaction, Maker shall provide the Payee with
written notice (the “Transaction Notice”).  The Transaction Notice shall describe in
reasonable detail the terms and conditions of the Capital Transaction and the
consideration to be paid upon the consummation of the Capital Transaction.  In the event the Capital Transaction would
result in a Change of Control of Maker, then as a condition of such Capital
Transaction, provision shall be made in the definitive documentation to be executed
by the parties to such Capital Transaction whereby Payee may exercise its
rights at set forth in this Section 7(b). 
Upon a Change of Control of Maker, the Payee, in its sole discretion,
shall have the right to declare the entire unpaid principal balance of this
Note, together with interest accrued thereon and with all other sums due or
owed by Maker hereunder, due and payable immediately.  Upon receipt of written notice from Payee,
Maker shall pay to Payee said amounts within two (2) business days; provided
that Payee must exercise the payment option set forth in this Section 7(b)
within forty-five (45) days after receipt of a written notice from Maker
regarding the Change of Control, which notice shall describe in reasonable
detail the terms and conditions of the Change of Control and the consideration
to be paid upon the consummation of the Change of Control.

 

8.             Security.

 

(a)           As security for the repayment of all
liabilities arising under this Note, the Maker hereby grants to Payee a first
priority security interest in and a lien on: 
(i) all of the Collateral (as that term is defined in the Security
Agreement) and (ii) all of the Collateral (as that term is defined in the
Pledge Agreement).  Payee shall have all
rights provided to a secured party under the Security Agreement and Pledge Agreement
under the Uniform Commercial Code of the State of Delaware.  The Maker shall execute and deliver such
documentation as Payee may reasonably request to evidence and perfect Payee’s
security interest granted in this Section 8 and under the Security Agreement
and Pledge Agreement.

 

(b)           The security interest securing the
repayment of all liabilities arising under this Note, and any guaranties
executed by the Maker or any of its Subsidiaries in favor of Payee (or any
collateral agent appointed for the benefit of Payee) in connection with this
Note, shall be automatically released and terminated on the date that the
aggregate outstanding balance of all of the Consideration Notes is equal to or
less than ten percent (10%) of the original aggregate principal amount of all
of the Consideration Notes at the time of issuance.  Upon the occurrence of such an event and
written notice thereof to the Payee:

 

(i)            the Maker
is hereby authorized to terminate all applicable security interests and liens
encumbering the Collateral;

 

(ii)           the
negative covenants set forth in Sections 10(b), 10(c), 10(d), 10(f), 10(j) and 10(k)
of this Note shall terminate;

 

(iii)          the
negative covenants set forth in Section 10(e) of this Note shall be deemed
modified by adding (in addition to, and not in lieu of, all other Permitted
Indebtedness described in Section 10(e)) Indebtedness of the Maker and all
Subsidiaries in an amount not to exceed in 

 

3

 

the aggregate the
principal amount of $3,000,000 at any given time outstanding to the definition
of Permitted Indebtedness;

 

(iv)          the
negative covenant in Section 10(g) of this Note shall be deemed modified to
increase the limitation on Capital Expenditures to $5,000,000 in any fiscal
year; and

 

(v)           the
negative covenant in Section 10(i) of this Note shall be deemed modified to
provide that Investments by Maker in a minority equity interest of Persons
engaged in the Maker’s Business are Permitted Investments (in addition to, and
not in lieu of, all other Permitted Investments described in Section 10(i)),
provided that such investments do not exceed 5% of the Maker’s net worth at the
time of such Investments.

 

The
Payee agrees to take such actions and to execute and deliver such documents and
instruments, as may be reasonably requested by Maker and at the Maker’s
expense, in order to evidence the terminations described herein and to release
any lien or security interest in any collateral securing repayment of the
liabilities arising under this Note.

 

9.             Affirmative Covenants. 
Maker covenants and agrees that, so long as any Indebtedness is
outstanding hereunder, it shall comply, and shall cause its Subsidiaries (to
the extent applicable) to comply, with each of the following:

 

(a)           Upon the request of Payee from time to
time, (i) provide Payee and its representatives (at the Maker’s expense) access
to its books and records and to any of its and its Subsidiaries’ properties or
assets upon three (3) days’ advance notice and during regular business hours in
order that Payee or its representatives may make such audits and examinations
and make abstracts from such books, accounts, records and other papers of Maker
and its subsidiaries pertaining to their deposit accounts, provided, however,
that the Payee may conduct such inspections and examinations no more frequently
than twice in any 12-month period, unless an Event of Default has occurred and
is continuing, in which case the Payee shall not be so limited, and (ii) upon
reasonable advance notification to Maker, permit Payee or its representatives
to discuss the affairs, finances and accounts with, and be advised as to the
same by, officers and independent accountants, all as Payee may deem
appropriate, including without limitation, for the purpose of verifying any
certificate delivered by Maker to Payee under Section 7 hereof, provided that
any such parties are a party to, or bound by, an acceptable non-disclosure
agreement.  The Payee shall conduct at
least one meeting with an executive officer of the Maker in the course of each
such inspection and examination or discussion with officers or independent
accountants.

 

(b)           Comply with all laws, ordinances or
governmental rules or regulations to which it is subject, and shall obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its businesses, except where the failure to so comply or obtain
or maintain would not reasonably be expected to have a Material Adverse Effect.

 

(c)           Except as otherwise permitted under
Section 10 of this Note, at all times preserve and keep in full force and
effect (i) its corporate existence and (ii) take all reasonable action to
maintain all rights and franchises necessary or desirable in the normal conduct
of its business, except to the extent that failure to do so in the case of
clause (ii) of this Section 9(c) would not reasonably be expected to have a
Material Adverse Effect.

 

4

 

(d)           Furnish to Payee notice of the occurrence
of any Event of Default within five (5) business days after it becomes known to
any of Maker’s Authorized Officers.

 

(e)           File all income tax or similar tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies payable by any of them, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, provided that Maker need not pay any such tax or
assessment if the amount, applicability or validity thereof is contested by
Maker on a timely basis in good faith and in appropriate proceedings, and Maker
has established adequate reserves therefor in accordance with GAAP on it books.

 

(f)            Operate Maker’s Business (as defined in
Section 10(m) of this Note) in the ordinary course of business except as
provided herein.

 

(g)           In any fiscal year, increase the
Compensation of Executive Officers of Maker only with the unanimous consent of
the Compensation Committee.

 

10.           Negative Covenants. 
Maker covenants and agrees that so long as any Indebtedness is
outstanding hereunder, neither it nor any of its Subsidiaries shall undertake
any of the following without obtaining the prior written consent of the Payee:

 

(a)           voluntarily liquidate, dissolve or wind
up, except for the liquidation, dissolution and winding-up of CMS
Communications, Inc. and Telecom Software Enterprises, LLC (“TSE”);

 

(b)           pay, declare or set aside any sums for
the payment of any dividends, or make any distributions on, any shares of its
capital stock or other securities or make prepayments of principal on any
Indebtedness except in the case of the following (each, a “Permitted Payment”):

 

(i)            prepayments
of principal or payments of interest on (A) any of the Consideration Notes, (B)
any Indebtedness incurred under the Working Capital Exclusion as provided in
Section 10(e)(x) of this Note and promissory notes issued to Peter McGuire and
Lisa Marie Maxson pursuant to the Acquisition Agreement dated October 15, 2004
by and among Maker, Peter McGuire and Lisa Marie Maxson (collectively, the “TSE
Promissory Notes”); provided that there is no Event of Default under this
Note and the collateral securing any such Indebtedness shall be added to the
Collateral (as defined in the Security Agreement) or (C) any Indebtedness of
Evolving Systems Holdings Limited (“ESHL”) or its Subsidiaries in favor
of Royal Bank of Scotland PLC and disclosed in Schedule 2 of this Note;

 

(ii)           dividends
or distributions payable in the common stock of Maker or any of its
Subsidiaries;

 

(iii)          payments
in accordance with any Series B Approved Plan (as such term is defined in the
Series B Designation);

 

(iv)          dividends
or distributions payable by any of Maker’s Subsidiaries to the Maker;

 

5

 

(v)           dividends
or distributions by (A) any Permitted Subsidiary to another Permitted
Subsidiary or (B) any Non-Permitted Subsidiary to a Permitted Subsidiary;

 

(vi)          dividends
or distributions by a Subsidiary of ESHL to ESHL or another Wholly Owned
Subsidiary of ESHL;

 

(vii)         regularly
scheduled payments of principal on Indebtedness permitted under Section 10(e)
(excluding Sections 10(e)(iii) through 10(e)(viii)) of this Note; and

 

(viii)        payments
(whether regularly scheduled, upon demand or otherwise) of Indebtedness
permitted under Sections 10(e)(iii) through 10(e)(viii) to the extent such
payments are made to or received by Maker or a Subsidiary that is a guarantor;

 

(c)           purchase, acquire or obtain (i) any
capital stock or other proprietary interest, directly or indirectly, in any
other entity or (ii) all or a substantial portion of the business or assets of
another Person for consideration (including assumed liabilities) other than
Investments permitted under Section 10(i) and Permitted Acquisitions;

 

(d)           (i) sell or transfer all or a substantial
portion of its assets to another Person; (ii) sell, transfer or otherwise
dispose of any notes receivable or accounts receivable, with or without
recourse; or (iii) sell, lease, transfer or otherwise dispose of any asset or
group of assets (other than as described in clause (ii) above), except:

 

(i)            sales of
inventory in the ordinary course of business;

 

(ii)           sales or
liquidations of Investments permitted by Section 10(i);

 

(iii)          (A)
sales or other dispositions of property by any Subsidiary of Maker to the Maker
or to any other Subsidiary and (B) sales or other dispositions of property by
the Maker to any if its Subsidiaries, so long as the security interests granted
to the Payee pursuant to the Security Agreement in such assets shall remain in
full force and effect and perfected (to at least the same extent as in effect
immediately prior to such sale or other disposition) and provided that any such
Subsidiaries to whom such sales or dispositions are made are guarantors of the
Consideration Notes;

 

(iv)          sales or
other dispositions of obsolete, surplus or worn out property, whether now owned
or hereafter acquired, in the ordinary course of business, or other assets not
practically usable in the business of the Maker or its Subsidiaries; provided
that the aggregate amount of such sales or dispositions does not exceed
$250,000 in any fiscal year of the Maker;

 

(v)           Licenses
of intellectual property of Maker or its Subsidiaries in the ordinary course of
business and which would not otherwise reasonably result in a Material Adverse
Effect; or

 

(vi)          sales,
transfers or other dispositions that constitute a Change of Control;

 

6

 

(e)           create, incur, assume or suffer to exist
any Indebtedness, except, so long as no Event of Default then exists or would
exist as a result thereof, the following (“Permitted Indebtedness”):

 

(i)            Indebtedness
outstanding on the date of this Note and listed on Schedule 2 hereto,  and any refinancings, refundings, renewals or
extensions thereof; provided that the amount of such Indebtedness is not
increased at the time of such refinancing, refunding, renewal or extension;

 

(ii)           obligations
under the Consideration Notes and the TSE Promissory Notes;

 

(iii)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and Evolving Systems
Networks India Private Limited (“ESN”); provided that the aggregate
amount of all inter-company loans made by Maker or any Permitted Subsidiary to
ESN, when taken together with the aggregate amount of Permitted Investments in
ESN under Section 10(i)(ii) of this Note, does not exceed $750,000 in any
fiscal quarter;

 

(iv)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and TSE; provided that
the aggregate amount of all inter-company loans made by Maker or any Permitted
Subsidiary to TSE, when taken together with the aggregate amount of Permitted
Investments in TSE under Section 10(i)(iii) of this Note, does not exceed
$125,000 in any year;

 

(v)           inter-company
Indebtedness between (A) Maker and its Permitted Subsidiaries or (B) a
Permitted Subsidiary with another Permitted Subsidiary;

 

(vi)          inter-company
Indebtedness owing by Maker or a Permitted Subsidiary to a Non-Permitted
Subsidiary;

 

(vii)         inter-company
Indebtedness between (A) ESHL and any of its Wholly Owned Subsidiaries or (B) a
Wholly Owned Subsidiary of ESHL with another Wholly Owned Subsidiary of ESHL;

 

(viii)        inter-company
Indebtedness owing by ESHL or any Subsidiary of ESHL to Maker or a Permitted
Subsidiary, provided that such Indebtedness shall be incurred solely to (A)
supplement the internally generated working capital required to fund the
operation of the business of ESHL or ESHL’s Wholly Owned Subsidiaries in the
ordinary course or (B) fund Capital Expenditures permitted under Section 10(g)
of this Note, and provided further that promptly upon the incurrence of such
Indebtedness, Maker shall give the Payees written notice of the making thereof
and the amount thereof;

 

(ix)           purchase
money Indebtedness to fund the purchase of property otherwise permitted under
Section 10(g) of this Note and Indebtedness constituting Capital Leases
permitted under Section 10(g);

 

7

 

(x)            Indebtedness
in the form of an unsecured line of credit in an amount not to exceed in the
aggregate the principal amount of $2,000,000 at any time outstanding (the “Working
Capital Exclusion”);

 

(xi)           Accrual of
interest, accretion or amortization of original issue discount or
payment-in-kind interest in connection with Indebtedness otherwise permitted
under this Section 10(e);

 

(xii)          (A)
Indebtedness incurred in connection with a Permitted Acquisition and (B)
Indebtedness for Capital Leases assumed pursuant to a Permitted Acquisition,
provided that the aggregate Indebtedness of clause (A) and (B) of this Section 10(e)(xii)
outstanding at any time does not exceed $1,000,000;

 

(xiii)         to
the extent under GAAP, the Series B Preferred Stock would be treated as debt or
mezzanine financing on the financial statements of Maker;

 

(xiv)        Indebtedness
incurred in connection with the financing of insurance premiums in the ordinary
course of business in an amount not to exceed $500,000 in any fiscal year; and

 

(xv)         Indebtedness
owing from ESHL to Maker for the sole purpose of consummating the transactions
contemplated by the Stock Purchase Agreement, provided
that, the aggregate amount of such Indebtedness, when taken together
with the aggregate amount of Permitted Investments by Maker in ESHL under
Section  10(i)(vii) of this Note does not
exceed $12,500,000.

 

(f)            mortgage, encumber, or create or suffer
to exist Liens on any of its assets, other than the following (each, a “Permitted
Lien”);

 

(i)            encumbrances
or Liens in favor of Payee or any holder of the Consideration Notes;

 

(ii)           Liens that
arise out of operation of law;

 

(iii)          easements,
rights-of-way, restrictions (including zoning restrictions) and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person and none of which is violated
by existing or proposed restrictions on land use;

 

(iv)          Liens
securing Indebtedness permitted under Section 10(e)(xii); provided that (A)
such Liens do not at any time encumber any property other than the property
financed by such Indebtedness and (B) the Indebtedness secured thereby does not
exceed the cost of property being acquired on the date of acquisition and (C)
such Liens are granted substantially contemporaneously with the acquisition of
such property;

 

(v)           Liens
existing on the date hereof and listed on Schedule 2 hereto and any renewals or
extensions thereof, provided that (A) the property covered thereby is not
changed, 

 

8

 

(B) the amount secured or
benefited thereby is not increased, and (C) any renewal or extension of the
obligations secured or benefited thereby is not prohibited by this Note; and

 

(vi)          Liens on
insurance policies and the proceeds thereof incurred in connection with the
financing of insurance premiums in the ordinary course of business in an amount
not to exceed $500,000 in any fiscal year;

 

(g)           make or commit to make any Capital
Expenditures (whether by expenditure of cash or the incurrence of Indebtedness
for Capital Leases to fund the acquisition of property pursuant to any
permitted Capital Expenditure); provided that, the cash paid for the Capital
Expenditure, when taken together with the aggregate liability required by GAAP
consistently applied and in accordance with the Maker’s past practice, to be
reflected in Maker’s financial statements in respect of any Capital Lease (“Lease
Liability”) plus the sum of (i) any cost incurred by Maker in connection
with the acquisition, delivery or installation of the property which is the
subject of the Capital Lease, but which cost is not included in the Lease
Liability and (ii) to the extent not otherwise reflected in the Capital Lease
payments, interest expense incurred in respect of the Capital Lease for the
relevant fiscal year will be deemed a Capital Expenditure made or committed
during the fiscal year in which the Capital Lease is signed or becomes
effective, whichever first occurs, does not exceed $2,000,000 in any fiscal
year;

 

(h)           enter into any transaction with any of
its Affiliates that is less favorable to Maker or any of its Subsidiaries than
would have been the case if such transaction had been effected on an arms
length basis with a Person other than an Affiliate, except for transactions
between and among Maker and its Subsidiaries otherwise permitted under this
Note;

 

(i)            enter into or make any Investments, other
than the following (each, a “Permitted Investment”):

 

(i)            Cash
Equivalents;

 

(ii)           (A) equity
Investments existing as of the date hereof in ESN and (B) equity Investments
made after the date hereof by Maker or any Permitted Subsidiary in ESN provided
that any such Investments, when taken together with all inter-company loans
made by Maker or any Permitted Subsidiary to ESN permitted under Section 10(e)(iii)
of this Note, does not exceed $750,000 in any fiscal quarter;

 

(iii)          (A)
equity Investments existing as of the date hereof in TSE and (B) equity
Investments made after the date hereof in TSE provided that any such Investments,
when taken together with all inter-company loans made by Maker or any Permitted
Subsidiary to TSE permitted under Section 10(e)(iv) of this Note, does not
exceed $125,000 in any fiscal year;

 

(iv)          equity
Investments (A) existing as of the date hereof in any Permitted Subsidiary and
(B) equity Investments made after the date hereof in any Permitted Subsidiary;

 

(v)           (A) equity
Investments existing as of the date hereof in ESHL or any of ESHL’s Wholly
Owned Subsidiaries, (B) equity Investments made after the date hereof by Maker
in ESHL, provided that such Investments shall be made solely to (1) supplement
the internally generated working capital required to fund the operation of the
business of ESHL or ESHL’s Wholly Owned 

 

9

 

Subsidiaries in the
ordinary course or (2) fund Capital Expenditures permitted under Section 10(g)
of this Note, and provided further that promptly upon the making of any such
Investments, Maker shall give the Payees written notice of the making thereof
and the amount thereof, and (C) equity Investments made after the date hereof
by ESHL or a Wholly Owned Subsidiary of ESHL in any of ESHL’s Wholly Owned
Subsidiaries;

 

(vi)          equity
Investments by a Non-Permitted Subsidiary in a Permitted Subsidiary;

 

(vii)         equity
Investments by Maker in ESHL for the sole purpose of consummating the
transactions contemplated by the Stock Purchase Agreement, provided that, the aggregate amount of
such Investments, when taken together with the aggregate amount of Permitted
Indebtedness under Section 10(e)(xv) of this Note, does not exceed $12,500,000;
provided further that, the amount
of such equity Investment shall not exceed 50% of the aggregate amount of the
equity Investment made pursuant to this Section 10(i)(vii) plus the aggregate
amount of Permitted Indebtedness permitted under Section 10(e)(xv) of this
Note;

 

(viii)        Investments
consisting solely of appreciation in value of existing Investments permitted
hereunder;

 

(ix)           any
Permitted Payments under Section 10(b) of this Note, without duplication;

 

(x)            any
Permitted Indebtedness under Section 10(e) of this Note, without duplication;
and

 

(j)            change its fiscal year;

 

(k)           establish any bank accounts into which
accounts receivable are deposited, other than those listed on Exhibit B unless
such bank accounts shall be pledged to Payee and the other secured parties
pursuant to the Security Agreement;

 

(l)            change or amend its Certificate of
Incorporation or Bylaws in a manner adverse to Payee’s rights and remedies
under this Note, any Consideration Note, the Security Agreement or the Pledge
Agreement; or

 

(m)          engage in any material line of business
not related to the OSS communications industry or any business reasonably
related or incidental thereto (the “Maker’s Business”).

 

11.           Determination of Accretive.  In the event the Maker proposes to enter into an
agreement to acquire another Person (the “Proposed Acquisition”), the
Maker shall mail written notice of such event, together with the Financial
Projections, to the Payee, no later than twenty (20) calendar days prior to the
contemplated effective date of the Proposed Acquisition.  The Financial Projections shall be deemed
accepted and conclusive and binding upon the Payee, unless the Payee shall give
written notice to the Maker of the items in the Financial Projections with
which the Payee disagrees (the “Accretive Calculation Disagreement Notice”)
within twenty (20) calendar days of the receipt by the Payee of the 

 

10

 

Financial
Projections.  The Accretive Calculation
Disagreement Notice shall specify each item disagreed with by the Payee (or the
Payee’s calculation thereof) and the dollar amount of such disagreement.  The Maker may, within twenty (20) calendar days
of its receipt of the Accretive Calculation Disagreement Notice, advise the
Payee that the Maker has accepted the position of the Payee as set forth on the
Accretive Calculation Disagreement Notice, whereupon the Proposed Acquisition
shall be considered a Permitted Acquisition Event for all purposes of this
Note.  If the Maker does not notify the
Payee of the Maker’s acceptance of the Payee’s position, then the Maker and the
Payee shall, during the twenty (20) calendar days after receipt by the Maker of
the Accretive Calculation Disagreement notice, negotiate in good faith to
resolve any such disagreements.  If at
the end of such twenty (20) calendar days, the Maker and Payee have been unable
to resolve their disagreements, either the Maker or the Payee may engage on
behalf of the Maker and the Payee, Grant Thornton LLP (or such other Person
mutually agreed to in writing by the Maker and Payee) (the “Unaffiliated
Firm”) to resolve the matters set forth in the Accretive Calculation
Disagreement Notice.  The Unaffiliated
Firm shall (i) resolve the disagreement as to the Financial Projections as
promptly as possible after its engagement by the parties; (ii) thereby consider
and resolve only those items in the Accretive Calculation Disagreement Notice
which remain unresolved between the Maker and the Payee; and (iii) shall
otherwise employ such procedures as it, in its sole discretion, deems necessary
or appropriate in the circumstances.  The
Unaffiliated Firm shall submit to the Maker and the Payee a report of its
review of the items in the Accretive Calculation Disagreement Notice as quickly
as practicable and shall include in such report its determination as to whether
the effect of the proposed merger or consolidation is Accretive.  The determination so made by the Unaffiliated
Firm shall be conclusive, binding on, and non-appealable by, the Maker and the
Payee.  The fees and disbursements of the
Unaffiliated Firm shall be borne one half by the Maker and one half by the Payee.  Notwithstanding all of the foregoing, the
Maker may elect, at any time, not to comply with this Section 11 with respect
to a Proposed Transaction (or if the Maker otherwise fails to properly comply
with the terms of this Section 11) in which event, the transaction shall be
deemed not to be Accretive.

 

12.           Events of Default.

 

(a)           For purposes of this Note, an “Event
of Default” shall have occurred hereunder if:

 

(i)            Maker
shall fail to pay within one (1) business day after the date when due any
payment of principal, interest, fees, costs, expenses or any other sum payable
to Payee hereunder or otherwise, including the other Consideration Notes;

 

(ii)           Maker
shall default in the performance of any other agreement or covenant contained
herein (other than as provided in Section 12(a)(i) of this Note) or under any
Consideration Note or in the Security Agreement or Pledge Agreement, and such
default shall continue uncured for twenty (20) consecutive days after notice
thereof to Maker given by Payee;

 

(iii)          Maker
becomes insolvent or generally fails to pay its debts as such debts become due
or admits in writing its inability to pay its debts as such debts become due;
or shall suffer a custodian, receiver or trustee for it or substantially all of
its property to be appointed and if appointed without its consent, not be
discharged within ninety (90) consecutive days; makes a general assignment for
the benefit of creditors; or suffers proceedings under 

 

11

 

any law related to
bankruptcy, insolvency, liquidation or the reorganization, readjustment or the
release of debtors to be instituted against it and if contested by it not
dismissed or stayed within ninety (90) consecutive days; if proceedings under
any law related to bankruptcy, insolvency, liquidation, or the reorganization,
readjustment or the release of debtors is instituted or commenced by or against
Maker and, in the case of proceedings not instituted or commenced by Maker, if
contested by Maker, and not dismissed or stayed within ninety (90) consecutive
days; if any order for relief is entered relating to any of the foregoing
proceedings which order is not stayed; if Maker shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
if Maker shall by any act or failure to act indicate its consent to, approval
of or acquiescence in any of the foregoing;

 

(iv)          (A)  This Note, any of the other Consideration
Notes or the Security Agreement or the Pledge Agreement shall, for any reason
(other than payment or satisfaction in full of the obligations represented
thereby) not be or shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared null and void or (B) Payee or
any other secured party under the Security Agreement or the Pledge Agreement
shall not give or shall cease to have a valid and perfected Lien in any
collateral under such Security Agreement or Pledge Agreement (other than by
reason of a release of collateral in accordance with the terms hereof or thereof)
with the priority required by the Security Agreement or Pledge Agreement, as
applicable, or (C) the validity or enforceability of any of the Consideration
Notes or the liens granted, to be granted, or purported to be granted, by the
Security Agreement or the Pledge Agreement shall be contested by the Maker;

 

(v)           If Maker
shall be in default with respect to any payment, when due (subject in each case
to applicable grace or cure periods), of any Indebtedness in excess of $175,000
(other than under this Note or any other Consideration Note), or any other
default shall occur under any agreement or instrument evidencing such
Indebtedness, if the effect of such non-payment default is to accelerate the
maturity of such Indebtedness or to permit the holder thereof to cause such
Indebtedness to become due prior to its stated maturity, and such default shall
not be remedied, cured, waived or consented to within the period of grace with
respect thereto, or any other circumstance which arises (other than the mere passage
of time) by reason of which any such Indebtedness shall become or be declared
to be due and payable prior to its stated maturity; or

 

(vi)          If:  (i) as of June 30, 2005, Maker’s EBITDA for
the most recently ended fiscal half year shall not exceed $0, or (ii) beginning
with the fiscal half year ending December 31, 2005, as of the last day of any
fiscal half year ending in any June or December, Maker’s Ratio of Indebtedness
to EBITDA shall be greater than 4-to-1. 
For purposes of calculating EBITDA for this Section 12(a)(vi), (x) all
non-cash charges for goodwill impairment resulting from the transactions
contemplated by the Stock Purchase Agreement shall be added back to Net Income;
and (y) Net Income shall not be modified as a result of any “mark to market”
adjustments resulting from any anti-dilution or other adjustments with respect
to this Note or the Maker’s Series B Preferred Stock.  For the purposes of calculating Indebtedness
for this Section 12(a)(vi), Indebtedness shall not be modified as a result of
any “mark to market” adjustments resulting from any anti-dilution or other
adjustments with respect to this Note or the Maker’s Series B Preferred Stock.

 

(vii)         If
Maker shall have breached its covenant under the Stock Purchase Agreement to
duly convene a Stockholder Meeting (as defined in the Stock Purchase Agreement)
within the time period set forth therein.

 

12

 

(viii)        subject
to Section 12(b) of this Note, if Maker shall have failed to have a Shelf Registration
Statement filed and declared and maintained effective as provided under Section
5 of the Series B Designation (a “Registration Event of Default”).

 

Notwithstanding anything
contained herein to the contrary, no Event of Default shall be deemed to have
occurred under this Note if the Event of Default resulted solely form a breach
of any representation, warranty or covenant of Tertio Telecoms Group Limited
under the Stock Purchase Agreement.

 

(b)           In the event that Payee transfers any
portion of the outstanding principal balance of this Note to any Person (other
than the Payee’s shareholders and Affiliates of such shareholders) and, at the
time of transfer, Payee does not also transfer the greater of (i) a number of
Registrable Shares at least equal to the product of the number of Registrable
Shares then held by Payee, its shareholders or Affiliates of such shareholders
multiplied by a fraction, the numerator of which is the amount of the
outstanding principal balance of this Note transferred to such Person, and the
denominator of which is the aggregate principal amount of all Consideration
Notes held by Payee or (ii) at least 50,000 Registrable Shares (the “Share
Transfer Minimum”) to such Person, Section 12(a)(viii) of this Note shall
terminate with respect to the portion of this Note so transferred.  In the event Payee transfers any of the
outstanding principal of this Note to any Person (other than Payee’s
shareholders and Affiliates of such shareholders) and, at the time of transfer,
also transfers to such Person at least the Share Transfer Minimum, the
occurrence of a Registration Event of Default shall continue to constitute an
Event of Default and such Person shall be entitled to exercise the remedies
arising under this Note upon the occurrence of and during the continuance of a
Registration Event of Default.  Without
limiting any of the foregoing and for purposes of clarity, for so long as this
Note is held by Payee, its shareholders or the Affiliates of such shareholders
(regardless of whether in the event of a transfer of this Note to any of Payee’s
shareholders or the Affiliates of such shareholders the Payee simultaneously
transfers the Share Transfer Minimum) the occurrence of a Registration Event of
Default shall constitute an Event of Default and the remedies available to
Payee upon the occurrence of and during the continuance of an Event of Default
shall continue unaffected with respect to the portion of this Note held by
Payee, Payee’s shareholders and Affiliates of such shareholders.

 

13.           Consequences of Default.

 

(a)           Upon the occurrence and during the
continuance of an Event of Default:

 

(i)            if there
is:  (A) no Convertible Note outstanding
or (B) a Convertible Note outstanding and the Payee thereof does not request a
payment under the corresponding section of the Convertible Note, then, upon
receipt of notice from the Payee (at Payee’s option), Maker shall immediately
pay to Payee (to the extent not previously paid) any Account Prepayment Amount
(calculated as of the most recent test date), regardless of whether the holders
of A Notes requested any such payment at the time of calculation; and

 

(ii)           the entire
unpaid principal balance of this Note, together with interest accrued thereon
and with all other sums due or owed by Maker hereunder, as well as all
out-of-pocket costs and expenses (including but not limited to attorneys’ fees
and disbursements) incurred by Payee in connection with the collection or
enforcement of this Note, the Security Agreement or the Pledge Agreement, shall
at Payee’s option, and by notice to Maker (except if an Event of Default 

 

13

 

described in Section
12(a)(iii) shall occur in which case acceleration shall occur automatically
without notice) be declared to be due and payable immediately, and payment of
the same may be enforced and recovered by the entry of judgment of this Note
and the issuance of execution thereon.

 

(b)           In addition to all of the sums payable
hereunder, Maker agrees to pay the Payee all reasonable costs and expenses
incurred by Payee in connection with any and all actions taken to enforce
collection of this Note, the Security Agreement and the Pledge Agreement upon
the occurrence of an Event of Default, including all reasonable attorneys’
fees.

 

14.           Remedies not Exclusive. 
The remedies of Payee provided herein or otherwise available to Payee at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively and together at the sole discretion of Payee, and may be exercised
as often as occasion therefor shall occur; and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of the
same.

 

15.           Additional Notes.

 

(a)           Allocation Notice. 
On or before the date that is ten (10) business days prior to Maker’s
mailing of a stockholder proxy and notice of a stockholder meeting in
connection with the Initial Stockholder Meeting (as such term is defined in the
Series B Designation), the Payee shall provide the Maker with written notice
(the “Allocation Notice”) of its election to reallocate the aggregate
outstanding principal amount and accrued interest of the A Notes (collectively,
the “Allocable Amount”).  The
Allocation Notice shall set forth the amounts of the Allocable Amount which (i)
shall be allocated to Convertible Note, (ii) shall be allocated to B-1 Note and
(iii) shall remain as outstanding principal of A Notes, as the case may
be.  Subject to the limitations set forth
in Section 15(b) of this Note, Payee shall have the sole discretion to allocate
the Allocable Amount to the Convertible Note and to the B-1 Note and to leave
outstanding as principal of the A Notes such amounts at they deem appropriate;
provided that Payee shall allocate at least thirty percent (30%) of the Allocable
Amount to the Convertible Note.

 

(b)           Limitation on Issuance of Convertible
Note.  If the Payee allocates a portion of the
Allocable Amount to the Convertible Note and such allocation would result in
the Payee, meeting or exceeding the Ownership Threshold, then the Payee shall
allocate only that portion of the Allocable Amount to the Convertible Note that
would not result in the Payee meeting or exceeding the Ownership Threshold and
the portion of the Allocable Amount that is not allocable to the Convertible
Note shall remain as outstanding principal of the A Notes.  If the Payee allocates a portion of the
Allocable Amount to the Convertible Note and such allocation would not result
in the Payee meeting or exceeding the Ownership Threshold, then such portion of
the Allocable Amount shall be allocated to the Convertible Note and the balance
of the Allocable Amount shall be allocated to the B-1 Note.  The aggregate principal amount and accrued
interest allocated to the Convertible Note and the B-1 Note and remaining
outstanding as A Notes shall be equal to the Allocable Amount at the time of
delivery of the Allocation Notice.

 

(c)           Shareholder Vote. 
Upon the occurrence of the Conversion Approval, Maker shall promptly
execute and deliver to Payee: (x)
if any principal amount of the A Note is to remain outstanding, an allonge to
this Note, in form and substance acceptable to Payee, reducing the original
principal amount of this Note to the pro
rata amount to remain outstanding (without adjustment to the
amortization schedule); (y) if an
amount is allocated to the B-1 Note, B-1 Note reflecting a pro rata portion of
the principal allocated to the B-1 Note and (z)
Convertible Note reflecting the pro rata 

 

14

 

portion of principal
amount allocated to the Convertible Note in the Allocation Notice (subject to
the limitations set forth in Section 15(b)). 
Delivery of the allonges and notes referenced in this Section 15(c)
shall be accompanied by an opinion of counsel of Maker in form and substance
satisfactory to Payee and its legal counsel. 
If the Conversion Approval is not obtained, this Note shall remain
issued and outstanding in accordance with the terms set forth herein and there shall
be no conversion of the Allocable Amount to the Convertible Note or the B-1
Note.

 

(d)           Cancellation of A Notes. 
If no principal amount is to remain outstanding under this Note, then
this Note shall be cancelled upon receipt of duly executed Convertible Note and
B-1 Note by Payee, and Payee shall mark this Note “cancelled” and return it to
Maker.

 

(e)           Tax Characterization. 
Maker and Payee agree that for Federal income tax purposes, the issuance
of the Convertible Note and B-1 Note shall not be treated as a modification of
the A Notes or as a taxable exchange under Section 1001 of the Internal Revenue
Code, and Maker and Payee shall not take any position inconsistent therewith.

 

16.           Notices.  All notices
required to be given to any of the parties hereunder shall be in writing and
shall be deemed to have been sufficiently given for all purposes when presented
personally to such party or sent by certified or registered mail, return
receipt requested, to such party at its address set forth below:

 

	
  If to the Maker:

  	
  Evolving Systems, Inc.

  9777 Mount Pyramid Court, Suite 100

  Englewood, Colorado 80112

  Attention: Anita Moseley, General Counsel

  Tel: (303) 802-2599

  Fax: (303) 802-1138

  
	
   

  	
   

  
	
  With copy to:

  	
  Holme Roberts & Owen LLP

  1700 Lincoln St., Suite 4100

  Denver, CO 80203-4541

  Attention: Charles D. Maguire, Jr., Esq.

  Tel: (303) 861-7000

  Fax: (303) 866-0200

  
	
   

  	
   

  
	
  If to the
  Payee:

  	
  Tertio
  Telecoms Group Ltd.

  c/o Apax Partners Ltd.

  15 Portland Place

  London W1B 1PT

  United Kingdom

  

  Attn: Peter Skinner

  Tel: 44.20.7843.4000

  Fax: 44.20.7843.4001

  

 

15

 

	
  With copies
  to:

  	
  Advent
  International plc

  123 Buckingham Palace Road

  London SW1W 9SL

  United Kingdom

  

  Attn: James Brocklebank

  Tel: 44.20.7333.5516

  Fax: 44.20.7333.0801

  

  Pepper Hamilton LLP

  3000 Two Logan Square

  18th and Arch Streets

  Philadelphia, Pennsylvania 19103

  Attention: Cary S. Levinson, Esq.

  Tel: (215) 981-4091

  Fax: (215) 981-4750

  

 

Such notice shall be deemed
to be given when received if delivered personally or five (5) business days
after the date mailed.  Any notice mailed
shall be sent by certified or registered mail. 
Any notice of any change in such address shall also be given in the
manner set forth above.  Whenever the
giving of notice is required, the giving of such notice may be waived in
writing by the party entitled to receive such notice.

 

17.           Severability. 
In the event that any provision of this Note is held to be invalid,
illegal or unenforceable in any respect or to any extent, such provision shall
nevertheless remain valid, legal and enforceable in all such other respects and
to such extent as may be permissible. 
Any such invalidity, illegality or unenforceability shall not affect any
other provisions of this Note, but this Note shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

 

18.           Successors and Assigns; Assignment. 
This Note inures to the benefit of the Payee and binds the Maker, and
its successors and assigns, and the words “Payee” and “Maker” whenever
occurring herein shall be deemed and construed to include such respective
successors and assigns.  Maker may not
assign or transfer this Note, without the consent of Payee.  At any time and from time to time, the Payee,
in its sole discretion, may transfer to any Person all or a portion of the outstanding
principal and/or accrued interest hereunder without the consent of the Maker, provided,
however, this Note may not be assigned, transferred or sold by Payee to any
Person that engages in, or controls an entity that engages in, a business
competitive with the Maker’s business. 
Furthermore, as a condition of the transfer, any transferee of Payee of
this Note must agree to become bound by the provisions of this Note, the
Security Agreement and the Pledge Agreement.

 

19.           Entire Agreement. 
This Note (together with the other Consideration Notes, the Security
Agreement and the Pledge Agreement) contains the entire agreement between the
parties with respect to the subject matter hereof and thereof.

 

20.           Modification of Agreement. 
This Note may not be modified, altered or amended, except by an
agreement in writing signed by both the Maker and the Payee.

 

16

 

21.           Releases by Maker. 
Maker hereby releases Payee from all technical and procedural errors,
defects and imperfections whatsoever in enforcing the remedies available to
Payee upon a default by Maker hereunder and hereby waives all benefit that
might accrue to Maker by virtue of any present or future laws exempting any
property, real or personal, or any part of the proceeds arising from any sale
of any such property, from attachment, levy or sale under execution, or
providing for any stay of execution, exemption from civil process or extension
of time, and agrees that such property may be sold to satisfy any judgment
entered on this Note, in whole or in part and in any order as may be desired by
Payee.

 

22.           Waivers by Maker. 
Maker (and all endorsers, sureties and guarantors) hereby waives
presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default or enforcement
of the payment of this Note (other than notices expressly required by the terms
of this Note, the Security Agreement or the Pledge Agreement); liability
hereunder shall be unconditional and shall not be affected in any manner by an
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee.

 

23.           Revenue and Stamp Tax. 
Maker shall pay all reasonable out-of-pocket expenses incurred by the
Payee in connection with any revenue, tax or other stamps now or hereafter
required by law at any time to be affixed to this Note.

 

24.           Governing Law. 
This Note shall be governed by and construed in accordance with the laws
of the State of Delaware, without reference to conflict of laws principles.

 

25.           Limitations of Applicable Law. 
Notwithstanding any provision contained herein, Maker’s liability for
the payment of interest shall not exceed the limits now imposed by any
applicable usury law.  If any provision
of this Note requires interest payments in excess of the highest rate permitted
by law, the provision in question shall be deemed to require only the highest
such payment permitted by law.  Any
amounts theretofore received by Payee hereunder in excess of the maximum amount
of interest so permitted to be collected by Payee shall be applied by Payee in
reduction of the outstanding balance of principal or, if this Note shall
theretofore been paid in full, the amount of such excess shall be promptly
returned by Payee to the Maker.

 

26.           Consent to Jurisdiction and Service of
Process.  Maker irrevocably appoints each of Maker’s
Authorized Officers as its attorneys-in-fact upon whom may be served any
notice, process or pleading in any action or proceeding against it arising out
of or in connection with this Note. 
Maker hereby consents that any action or proceeding against it may be
commenced and maintained in any court within the State of Delaware or in the
United States District Court of Delaware by service of process on any such
officer.  Maker further agrees that the
courts of the State of Delaware and the United States District Court of
Delaware shall have jurisdiction with respect to the subject matter hereof and
the person of Maker and the collateral securing Maker’s obligations
hereunder.  Notwithstanding the
foregoing, Payee, in its absolute discretion, may also initiate proceedings in
the courts of any other jurisdiction in which Maker may be found or in which
any of its properties or any such collateral may be located.

 

27.           Headings.  The headings
of the sections of this Note are inserted for convenience only and do not
constitute a part of this Note.

 

28.           WAIVER OF JURY TRIAL. 
MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS
IT MAY HAVE TO A TRIAL 

 

17

 

BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
NOTE OR ANY COLLATERAL SECURITY DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF PAYEE.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR
PAYEE’S ADVANCING THE FUNDS UNDER THIS NOTE.

 

29.           ACKNOWLEDGEMENTS. 
MAKER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL SET FORTH IN SECTION 28 HAVE
BEEN FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.

 

 

[Signature Page Follows]

 

18

 

IN WITNESS WHEREOF, the
Maker has duly executed this Note as of the date first set forth above.

 

	
   

  	
  EVOLVING SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen K. Gartside, Jr.

  	
   

  
	
   

  	
  Name:

  	
  Stephen K. Gartside, Jr.

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
					

 

 

Acknowledged and Agreed:

 

PAYEE:

 

Tertio Telecoms Group Ltd.

 

	
  By:

  	
  /s/ Thomas Brocklebank

  	
   

  	
   

  
	
  Name:  Thomas Brocklebank

  	
   

  
	
  Title:    Director

  	
   

  

 

19

 

SCHEDULE 1

DEFINITIONS

 

“A Notes” means the
Senior Secured Promissory Notes dated as of November 2, 2004, by Maker in favor
of Payees in the original aggregate principal amount of $11,950,000, each as
they may be amended, restated, modified or replaced in substitution in whole or
in part by any other note or notes from time to time, including, but not
necessarily limited to, the Senior Secured Notes by Maker in favor of Payees
which may be issued in substitution for or in addition to the A Notes issued to
Payee by Maker under the terms of such A Notes.

 

“Accretive” shall
mean that the projected pro forma consolidated EBITDA (calculated on a per
share basis) of the Maker and the other constituent entity(ies) in such
transaction, and the respective Consolidated Subsidiaries of the Maker and such
constituent entity(ies) for the twelve calendar month period immediately
following such transaction, is not less than the projected EBITDA (calculated
on a per share basis), on a consolidated basis, of the Maker and its
Consolidated Subsidiaries for the same period, all as presented in the
Financial Projections.

 

“Adjusted Libor Rate”
means the London Interbank Offering Rate for three-month deposits as reported
under the heading “Money Rates” in the Eastern edition of the Wall Street Journal plus 800 basis points.

 

“Affiliate” shall
mean, with respect to any Person, any other Person which directly or indirectly
Controls, is Controlled by or is under common Control with such Person.

 

“Affiliated Group”
shall mean a group of Persons, each of which is an Affiliate of some other
Person in the group.

 

“Authorized Officer”
shall mean, with respect to Maker, the chief executive officer, chief financial
officer, any vice president, treasurer, comptroller, or general counsel.

 

“B-1 Note” means the
Senior Secured Note of Maker in favor of Payee in such aggregate principal
amount Maker may issue as a result of the outcome of the stockholder vote on
the matters presented for their approval at the Initial Stockholders Meeting
(as such term is defined in the Series B Designation) in effect from time to
time in the form attached hereto as Exhibit B-1, as it may be amended,
restated, modified or replaced in substitution in whole or in part by any other
note or notes from time to time, including, but not necessarily limited to, the
Senior Secured Note by Maker in favor of Payee which may be issued in
substitution for or in addition to the B-1 Note issued to Payee by Maker under
the terms of such B-1 Note.

 

“Capital Expenditures”
shall mean, with respect to any Person for any period, the aggregate of all
expenditures (whether paid in cash, or incurred by entering into a synthetic
lease arrangement or a Capital Lease, or otherwise accrued as a liability) by
such Person during that period which, in accordance with GAAP, are or should be
included in “additions to property, plant or equipment” or similar items
reflected in the statement of cash flows of such Person, and all research and
development expenditures which in accordance with GAAP are or should be
accounted for as a capital expenditure in the balance sheet of that Person, but
excluding expenditures to the extent reimbursed or financed from insurance
proceeds paid on account of the loss of or the damage to the assets being 

 

 

replaced or restored, or from awards of
compensation arising from the taking by condemnation or eminent domain of such
assets being replaced.

 

“Capital Lease”, as
applied to any Person, shall mean any lease of any property (whether real,
personal or mixed) by that Person as lessee which, in accordance with GAAP, is
or should be accounted for as a capital lease on the balance sheet of that
Person.

 

“Capital Transaction”
means any consolidation or merger of Maker with another entity, or the sale of
all or substantially all of its assets to another entity, or any reorganization
or reclassification of the Common Stock or other equity securities of Maker.

 

“Cash Equivalents”
shall mean any of the following: (i) full faith and credit obligations of the
United States of America, or fully guaranteed as to interest and principal by
the full faith and credit of the United States of America, maturing in not more
than one year from the date such investment is made; (ii) time deposits and
certificates of deposit, Eurodollar time deposits, overnight bank deposits and
other interest bearing deposits or accounts (other than securities accounts) or
bankers’ acceptances having a final maturity of not more than one year after
the date of issuance thereof of any commercial bank incorporated under the laws
of the United States of America or any state thereof or the District of
Columbia, which bank is a member of the Federal Reserve System and has a
combined capital and surplus of not less than $500,000,000.00 and with a senior
unsecured debt credit rating of at least “A-2” by Moody’s or “A” by S&P;
(iii) commercial paper of companies, banks, trust companies or national banking
associations incorporated or doing business under the laws of the United States
of America or one of the States thereof or the District of Columbia, in each
case having a remaining term until maturity of not more than two hundred
seventy (270) days from the date such investment is made and rated at least P-1
by Moody’s or at least A-1 by S&P; (iv) repurchase agreements with any
financial institution having combined capital and surplus of not less than
$500,000,000.00 with a term of not more than seven (7) days for underlying
securities of the type referred to in clause (i) above; and (v) money market
funds which invest primarily in the Cash Equivalents set forth in the preceding
clauses (i) - (iv).

 

“Change in Control”
shall mean (i) any Person, Affiliated Group or group (such term being used as
defined in the Securities Exchange Act of 1934, as amended), other than a
Primary Holder (as such term is defined in the Series B Designation) acquiring
ownership or control of in excess of 50% of equity securities having voting
power to vote in the election of the Board of Directors of Maker either on a
fully diluted basis or based solely on the voting stock then outstanding, (ii)
if at any time, individuals who at the date hereof constituted the Board of
Directors of Maker (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Maker, as the case may be, was approved by a vote of the majority of the
directors then still in office who were either directors at the date hereof or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of Maker then in
office, (iii) the direct or indirect sale, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or substantially
all of the properties or assets of Maker to any Person or (iv) the adoption of
a plan relating to the liquidation or dissolution of Maker.

 

“Compensation” means
all salary and bonuses, but excludes any compensation under any equity
incentive plan.

 

I-2

 

“Consideration Notes”
means the collective reference to this Note, B-1 Note, Convertible Note and the
Short Term Note.

 

“Consolidated
Subsidiaries” shall mean all Subsidiaries of a Person which are required or
permitted to be consolidated with such Person for financial reporting purposes
in accordance with GAAP.

 

“Control” shall mean,
as to any Person, the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of greater than 50%
of the voting securities of such Person or by acting as the general partner of
a limited partnership (the terms “Controlled by” and “under common Control with”
shall have correlative meanings.)

 

“Conversion Approval”
means the affirmative vote of the Maker’s stockholders at the Initial
Stockholder Meeting (as defined in Section 4(b)(i) of the Series B Designation,
approving (i) the issuance of twenty percent (20%) or more of the Common Stock
of Maker to Payee and its stockholders in accordance with the terms of that
certain Stock Purchase Agreement and (ii) an amendment to the Maker’s
Certificate of Incorporation increasing the number of authorized shares of
Common Stock of Maker.

 

“Convertible Note”
shall mean the Senior Secured Convertible Note of Maker in favor of Payee in
such aggregate principal amount Maker may issue as a result of the outcome of
the stockholder vote on the matters presented for their approval at the Initial
Stockholders Meeting (as such term is defined in the Series B Designation) in
effect from time to time in the form attached hereto as Exhibit B-2,
as it may be amended, restated or modified from time to time.

 

“Convertible Securities”
shall mean any evidences of indebtedness, shares or other securities directly
or indirectly convertible into or exchangeable for Common Stock, but excluding
Options.

 

“EBITDA” shall mean
for any period, Net Income for such period plus, without duplication, the
aggregate amounts deducted in determining Net Income during such period, the
sum of (A) interest paid on indebtedness for such period, (B) income taxes for
such period, (C) depreciation expense for such period and (D) amortization
expense for such period, all as determined in accordance with GAAP as applied
in accordance with past practice.

 

“Executive Officer”
means any officer of Maker whose compensation is determined by the Compensation
Committee of the Board of Directors of Maker.

 

“Financial Projections”
shall mean written financial projections prepared by Maker and certified by
Maker’s chief financial officer, prepared in good faith and based upon
reasonably assumptions and estimates regarding the economic, business, industry
market, legal and regulatory circumstances and conditions relevant to the
Maker.

 

“GAAP” means
generally accepted accounting principles set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements of the Financial Accounting Standards Board; and
such principles observed in a current period shall be comparable in all
material respects to those applied in a preceding period.

 

I-3

 

“Guaranty” shall
mean, as to any Person, any direct or indirect obligation of such Person guaranteeing
or intending to guarantee, or otherwise providing credit support, for any
Indebtedness, Capital Lease, dividend or other monetary obligation (“primary
obligation”) of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, by contract, as a general partner or otherwise,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, or (c) to
purchase property, securities or services from the primary obligor or other
Person, in each case, primarily for the purpose of assuring the performance of
the primary obligor of any such primary obligation or assuring the owner of any
such primary obligation of the repayment of such primary obligation.  The amount of any Guaranty shall be deemed to
be an amount equal to (x) the stated or determinable amount of the primary
obligation in respect of which such Guaranty is made (or, if the amount of such
primary obligation is not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder)) or (y) the stated maximum liability under such Guaranty,
whichever is less.

 

“Indebtedness” shall
mean (without double counting), at any time and with respect to any Person, (i)
indebtedness of such Person for borrowed money (whether by loan or the issuance
and sale of debt securities) or for the deferred purchase price of property or
services purchased (other than amounts constituting trade payables arising in
the ordinary course of business and payable in accordance with customary
trading terms not in excess of 90 days or, if overdue for more than 90 days, as
to which a dispute exists and adequate reserves in conformity with GAAP have
been established on the books of such Person); (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument (whether or
not disbursed in full in the case of a construction loan); (iii) indebtedness
of others which such Person has directly or indirectly assumed or guaranteed or
otherwise provided credit support therefore (other than for collection or
deposit in the ordinary course of business); (iv) indebtedness of others secured
by a Lien on assets of such Person, whether or not such Person shall have
assumed such indebtedness (provided, that if such Person has not assumed such
indebtedness of another Person then the amount of indebtedness of such Person
pursuant to this clause (iv) for purposes of this Note shall be equal to the
lesser of the amount of the indebtedness of the other Person or the fair market
value of the assets of such Person which secures such other indebtedness); (v)
obligations of such Person relative to the face amount of letters of credit,
acceptance facilities, or drafts or similar instruments issued or accepted by
banks and other financial institutions for the account of such Person; (vi)
that portion of obligations of such Person under Capital Leases that is
properly classified as a liability on a balance sheet in conformity with GAAP;
(vii) all obligations of such Person under any Interest Rate Protection
Agreement; (viii) deferred payment obligations of such Person resulting from
the adjudication or settlement of any litigation; and (ix) any Guaranty by such
Person in respect of any of the foregoing.

 

“Interest Rate Protection
Agreement” shall mean any interest rate swap agreement, interest rate cap
agreement, synthetic cap, collar or floor or other financial agreement or
arrangement designed to protect a Maker or any of its Subsidiaries against
fluctuations in interest rates or to reduce the effect of any such
fluctuations.

 

“Investment” shall
mean any investment in any Person, whether by means of acquiring or holding
securities, capital contribution, loan, time deposit, guaranty or otherwise.

 

I-4

 

“Lien” shall mean any
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any agreement to grant a security interest at a future
date, any lease in the nature of security, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code of any
jurisdiction).

 

“Material Adverse Effect”
shall mean a (i) a material adverse effect upon the business, operations,
properties, assets or condition (financial or otherwise) of the Maker or (ii)
the material impairment of the ability of the Maker to perform its obligations
under the Consideration Notes or of the Payee to enforce the obligations of the
Maker under the Consideration Notes.

 

“Maturity Date” means
December 31, 2007.

 

“Net Income” shall
mean for any period, net income on a consolidated basis for that period
determined in accordance with GAAP applied consistently with past practice.

 

“Option” shall mean
any rights, options or warrants to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.

 

“Ownership Threshold”
means the minimum principal amount of Convertible Notes at which a conversion
at the option of the holders of the Convertible Notes under the terms of the
Convertible Notes of the entire outstanding principal amount of the Convertible
Notes into fully paid and non-assessable shares of the Maker’s common stock,
$.001 par value per share (the “Common Stock”), would permit the Payee,
on a fully diluted basis, after assuming the conversion into Common Stock of
all other Convertible Securities then held by the Payee, to hold an amount
equal to or greater than 33% of all of the issued and outstanding Common Stock
of the Maker.

 

“Non-Permitted Subsidiary”
means any direct or indirect Wholly Owned Subsidiary of Maker that is not a
Permitted Subsidiary.

 

“Note Issue Date”
shall mean the date on which this Note is issued.

 

“Payment Date” means
each December 31, March 31, June 30 and September 30; provided that if any such
Payment Date falls on a day which is not a business day, the applicable payment
shall not be due until the next following business day.

 

“Permitted Acquisitions”
means any acquisition of fifty percent (50%) or more of the equity interests or
all or substantially all of the assets of a third party so long as (i) such
acquisition is Accretive, and approved by the Maker’s board of directors, (ii)
following the consummation of the acquisition the Maker has a cash balance of
at least $5,000,000, on a consolidated basis, and (iii) the Maker does not
incur any Indebtedness in connection with such acquisition.

 

“Permitted Subsidiary”
means any direct or indirect Wholly Owned Subsidiary of Maker that is
domesticated or incorporated in a jurisdiction of the United States, Canada,
the United Kingdom or a country that is a member of the European Union and is a
guarantor of Maker’s obligations under the Consideration Notes.

 

I-5

 

“Person” shall mean
any natural person, corporation, division of a corporation, partnership,
limited liability partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.

 

“Pledge Agreement”
means the Pledge Agreement executed by Maker in favor of the Payee and dated
the date hereof, as it may be amended, restated or modified from time to time,
together with all schedules and exhibits thereto.

 

“Registrable Shares”
shall have the meaning set forth with respect thereto in the Investor Rights
Agreement of even date herewith.

 

“Security Agreement”
means the Security Agreement executed by the Maker in favor of the Payee and
dated as of the date hereof, as it may be amended, restated or modified from
time to time, together with all schedules and exhibits thereto.

 

“Series B Designation”
shall mean the Certificate of Designation of Maker’s Series B Convertible
Preferred Stock, as filed with the Secretary of State of the State of Delaware.

 

“Short Term Note”
means the Senior Secured Note dated as of November 2, 2004 by Maker in favor of
Payee in the original aggregate principal amount of $4,000,000, as it may be
amended, restated, modified or replaced in substitution by any other note or
notes from time to time.

 

“Stock Purchase Agreement”
means the Stock Purchase Agreement dated as of November 2, 2004 by and among
the Maker, Tertio Telecoms Group, Ltd. and the parties listed therein.

 

“Stockholders” shall
have the meaning given to such term in the Stock Purchase Agreement.

 

“Subsidiary” shall
mean with respect to any Person, any corporation, association, joint venture,
partnership or other business entity (whether now existing or hereafter
organized) of which at least a majority of the voting stock or other ownership
interests having ordinary voting power for the election of directors (or the
equivalent) is, at the time as of which any determination is being made, owned
or controlled by such Person or one or more subsidiaries of such Person or by
such Person and one or more subsidiaries of such Person.

 

“UCC” shall mean the
Uniform Commercial Code as in effect from time to time in the State of
Delaware.

 

“Wholly Owned Subsidiary”
of a Person means (a) any Subsidiary all of the outstanding voting securities
(other than directors qualifying shares and/or other nominal amounts of shares
required to be held by directors or other Persons under applicable law) of
which shall at the time be owned or controlled, directly or indirectly, by such
Person or one or more Wholly Owned Subsidiaries of such Person, or by such Person
and one or more Wholly Owned Subsidiaries of such Person, or (b) any
partnership, limited liability company, association, joint venture or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.

 

I-6

 

NOTE B-1

 

EXHIBIT B-1

B-1 NOTE

 

THIS NOTE CONTAINS ORIGINAL ISSUE DISCOUNT, AS
DEFINED IN SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.  PLEASE CONTACT ANITA MOSELEY, SECRETARY OF
THE MAKER, AT PHONE NUMBER (303) 802-2599 FOR THE ISSUE DATE OF THE NOTE, THE
ORIGINAL ISSUE DISCOUNT IN THE NOTE AND THE YIELD TO MATURITY.

 

	
  $                      Principal Amount

  	
                 
       , 2004

  

 

SENIOR SECURED NOTE

 

EVOLVING SYSTEMS,
INC.

 

FOR VALUE RECEIVED, EVOLVING
SYSTEMS, INC., a Delaware corporation (the “Maker”), having its
principal place of business at 9777 Mount Pyramid Court, Englewood, Colorado
80112, hereby promises to pay to the order of Tertio Telecoms Group Ltd., an
entity formed and registered in England and Wales with a company number 4419858
(“Payee”), having an address at One Angel Square, Torrens Street, London
EC1V 1 NY, United Kingdom, the principal sum of __________________ Dollars
($___________) in lawful money of the United States of America.

 

1.             Definitions; Interpretations. 
In addition to other terms defined elsewhere in this Note, the
capitalized terms set forth in Schedule 1 attached hereto and incorporated
herein by reference shall have the meanings set forth therein unless defined
elsewhere herein or the context otherwise clearly requires.  Except as otherwise provided herein,
financial and accounting terms used elsewhere in this Note shall be defined in
accordance with GAAP.

 

2.             Payments of Principal. 
The outstanding principal (including amounts added to principal pursuant
to Section 3 below) under this Note shall be due and payable in installments as
set forth below at the aforesaid address of Payee or such other place as Payee
may designate:(1)

 

	
  Payment Date

  	
   

  	
  Amount

  	
   

  
	
  March 31, 2006

  	
   

  	
  $1,340,000

  	
   

  
	
  June 30, 2006

  	
   

  	
  $3,110,000

  	
   

  
	
  December 31, 2006

  	
   

  	
  $1,430,000

  	
   

  
	
  March 31, 2007

  	
   

  	
  $1,870,000

  	
   

  
	
  June 30, 2007

  	
   

  	
  $3,110,000

  	
   

  
	
  Maturity Date

  	
   

  	
  all
  outstanding amounts hereunder, whether principal, interest or otherwise

  	
   

  

 

(1) If the
principal amount of the loan is less than $11,950,000, the amortization
schedule set forth in Section 2 shall apply regardless of the actual amount of
the loan until full payment on the Note is made.

 

B-1-1

 

3.             Pre-Default Interest Rate. 
So long as no Event of Default (as hereinafter defined) has occurred and
is continuing, and subject to the provisions of Section 4 of this Note, the
outstanding principal balance of this Note shall bear interest at a rate per
annum equal to Nine Percent (9%) (the “Pre-Default Interest Rate”).  From the date of this Note until December 31,
2005, on each Payment Date the principal balance of this Note shall be
increased by an amount equal to the amount of interest that would be payable at
the Pre-Default Interest Rate with respect to this Note accruing on and after
the issuance of this Note.  Commencing
with and including March 31, 2006, the amount of interest accruing at the
Pre-Default Interest Rate shall be paid in cash on a quarterly basis on each
Payment Date.  To the extent not paid,
all interest shall be compounded quarterly.

 

4.             Additional Interest. 
From and after the second anniversary of this Note, the outstanding
principal balance of this Note shall bear interest at a rate per annum equal to
Twelve Percent (12%).

 

5.             Post-Default Interest Rate. 
Following the occurrence and during the continuance of an Event of
Default, the outstanding principal balance of this Note shall bear interest at
the rate per annum equal to Twelve Percent (12%) (the “Default Rate”).  However, if at any time the Libor Adjusted
Rate shall ever exceed the Default Rate, then following the occurrence and
during the continuance of an Event of Default, the outstanding principal
balance of this Note shall bear interest at the rate per annum equal to the
Adjusted Libor Rate.

 

6.             Optional Prepayment. 
From and after the date hereof, if there is:  (a) no Convertible Note outstanding or (b) a
Convertible Note outstanding and the holder thereof declines to accept a
prepayment under the corresponding Section of the Convertible Notes, then Maker
may prepay this Note in whole or in part at any time.  There shall be no premium or penalty in
connection with any prepayment.  Such
prepayment shall include all accrued and unpaid interest on the principal
amount of such prepayment.  Each such
prepayment shall be applied first against accrued and unpaid interest, if any,
and then against principal outstanding under this Note in inverse order of
maturity.

 

7.             Mandatory Prepayments.

 

(a)           Within forty five (45) days after the end
of each fiscal quarter of Maker, starting with the fiscal quarter ending March
31, 2005, Maker shall deliver to Payee a certificate of the chief financial
officer of Maker in the form attached hereto as Exhibit A, specifying
the closing balances for each of the deposit accounts of Maker as set forth
thereon on the last day of the most recently completed fiscal quarter (the
aggregate of such closing balances for all such accounts is the “Aggregate
Quarterly Closing Balance”).  Maker
shall at all times maintain, and such certificate of the chief financial
officer of the Maker shall state that the Maker has during the fiscal quarter
to which such certificate relates maintained, such deposit accounts in good
faith, and made all payments drawn against such deposit accounts in accordance
with past practices or current and owing obligations of Maker incurred in the
ordinary course of business.  Payee may
in its sole discretion within ten (10) days after receipt of such certificate,
request that Maker make a prepayment on this Note in an amount up to the amount
by which

 

B-1-2

 

the Aggregate Quarterly
Closing Balance exceeds $7,000,000 (the “Account Prepayment Amount”) to
the extent, if any, in excess of the amount paid to Convertible Notes under the
corresponding section of the Convertible Notes, such payment to be allocated
pro rata among the B-1 Notes held by Payees who have requested such payment,
and Maker shall make such prepayment on this Note within two (2) business days
following receipt of written demand from Payee. 
Such prepayment shall be applied first, against accrued interest, if
any, and then against principal outstanding under this Note in inverse order of
maturity.

 

(b)           On or before the date that is ten (10)
business days prior to Maker’s mailing of a stockholder proxy and notice of a
stockholder meeting in connection with a stockholder meeting called for the
purpose of approving a Capital Transaction, Maker shall provide the Payee with
written notice (the “Transaction Notice”).  The Transaction Notice shall describe in
reasonable detail the terms and conditions of the Capital Transaction and the
consideration to be paid upon the consummation of the Capital Transaction.  In the event the Capital Transaction would
result in a Change of Control of Maker, then as a condition of such Capital
Transaction, provision shall be made in the definitive documentation to be
executed by the parties to such Capital Transaction whereby Payee may exercise
its rights at set forth in this Section 7(b). 
Upon a Change of Control of Maker, the Payee, in its sole discretion,
shall have the right to declare the entire unpaid principal balance of this
Note, together with interest accrued thereon and with all other sums due or
owed by Maker hereunder, due and payable immediately.  Upon receipt of written notice from Payee,
Maker shall pay to Payee said amounts within two (2) business days; provided
that Payee must exercise the payment option set forth in this Section 7(b)
within forty-five (45) days after receipt of a written notice from Maker
regarding the Change of Control, which notice shall describe in reasonable
detail the terms and conditions of the Change of Control and the consideration
to be paid upon the consummation of the Change of Control.

 

8.             Security.

 

(a)           As security for the repayment of all
liabilities arising under this Note, the Maker hereby grants to Payee a first
priority security interest in and a lien on: 
(i) all of the Collateral (as that term is defined in the Security
Agreement) and (ii) all of the Collateral (as that term is defined in the
Pledge Agreement).  Payee shall have all
rights provided to a secured party under the Security Agreement and Pledge
Agreement under the Uniform Commercial Code of the State of Delaware.  The Maker shall execute and deliver such
documentation as Payee may reasonably request to evidence and perfect Payee’s
security interest granted in this Section 8 and under the Security Agreement
and Pledge Agreement.

 

(b)           The security interest securing the
repayment of all liabilities arising under this Note, and any guaranties
executed by the Maker or any of its Subsidiaries in favor of Payee (or any
collateral agent appointed for the benefit of Payee) in connection with this
Note, shall be automatically released and terminated on the date that the
aggregate outstanding balance of all of the Consideration Notes is equal to or
less than ten percent (10%) of the original aggregate principal amount of all
of the Consideration Notes at the time of issuance.  Upon the occurrence of such an event and
written notice thereof to the Payee:

 

(i)            the Maker
is hereby authorized to terminate all applicable security interests and liens
encumbering the Collateral;

 

B-1-3

 

(ii)           the
negative covenants set forth in Sections 10(b), 10(c), 10(d), 10(f), 10(j) and 10(k)
of this Note shall terminate;

 

(iii)          the
negative covenants set forth in Section 10(e) of this Note shall be deemed
modified by adding (in addition to, and not in lieu of, all other Permitted
Indebtedness described in Section 10(e)) Indebtedness of the Maker and all
Subsidiaries in an amount not to exceed in the aggregate the principal amount
of $3,000,000 at any given time outstanding to the definition of Permitted
Indebtedness;

 

(iv)          the
negative covenant in Section 10(g) of this Note shall be deemed modified to
increase the limitation on Capital Expenditures to $5,000,000 in any fiscal
year, and

 

(v)           the
negative covenant in Section 10(i) of this Note shall be deemed modified to
provide that Investments by Maker in a minority equity interest of Persons
engaged in the Maker’s Business are Permitted Investments (in addition to, and
not in lieu of, all other Permitted Investments described in Section 10(i)),
provided that such investments do not exceed 5% of the Maker’s net worth at the
time of such Investments.

 

The
Payee agrees to take such actions and to execute and deliver such documents and
instruments, as may be reasonably requested by Maker and at the Maker’s
expense, in order to evidence the terminations described herein and to release
any lien or security interest in any collateral securing repayment of the
liabilities arising under this Note.

 

9.             Affirmative Covenants. 
Maker covenants and agrees that, so long as any Indebtedness is
outstanding hereunder, it shall comply, and shall cause its Subsidiaries (to
the extent applicable) to comply, with each of the following:

 

(a)           Upon the request of Payee from time to
time, (i) provide Payee and its representatives (at the Maker’s expense) access
to its books and records and to any of its and its Subsidiaries’ properties or
assets upon three (3) days’ advance notice and during regular business hours in
order that Payee or its representatives may make such audits and examinations
and make abstracts from such books, accounts, records and other papers of Maker
and its subsidiaries pertaining to their deposit accounts, provided, however,
that the Payee may conduct such inspections and examinations no more frequently
than twice in any 12-month period, unless an Event of Default has occurred and
is continuing, in which case the Payee shall not be so limited, and (ii) upon
reasonable advance notification to Maker, permit Payee or its representatives
to discuss the affairs, finances and accounts with, and be advised as to the
same by, officers and independent accountants, all as Payee may deem
appropriate, including without limitation, for the purpose of verifying any
certificate delivered by Maker to Payee under Section 7 hereof, provided that
any such parties are a party to, or bound by, an acceptable non-disclosure
agreement.  The Payee shall conduct at
least one meeting with an executive officer of the Maker in the course of each
such inspection and examination or discussion with officers or independent
accountants.

 

(b)           Comply with all laws, ordinances or
governmental rules or regulations to which it is subject, and shall obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its businesses, except where the failure to so comply or obtain
or maintain would not reasonably be expected to have a Material Adverse Effect.

 

B-1-4

 

(c)           Except as otherwise permitted under
Section 10 of this Note, at all times preserve and keep in full force and effect
(i) its corporate existence and (ii) take all reasonable action to maintain all
rights and franchises necessary or desirable in the normal conduct of its
business, except to the extent that failure to do so in the case of clause (ii)
of this Section 9(c) would not reasonably be expected to have a Material
Adverse Effect.

 

(d)           Furnish to Payee notice of the occurrence
of any Event of Default within five (5) business days after it becomes known to
any of Maker’s Authorized Officers.

 

(e)           File all income tax or similar tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies payable by any of them, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, provided that Maker need not pay any such tax or
assessment if the amount, applicability or validity thereof is contested by
Maker on a timely basis in good faith and in appropriate proceedings, and Maker
has established adequate reserves therefor in accordance with GAAP on it books.

 

(f)            Operate Maker’s Business (as defined in
Section 10(m) of this Note) in the ordinary course of business except as
provided herein.

 

(g)           In any fiscal year, increase the
Compensation of Executive Officers of Maker only with the unanimous consent of
the Compensation Committee.

 

10.           Negative Covenants. 
Maker covenants and agrees that so long as any Indebtedness is
outstanding hereunder, neither it nor any of its Subsidiaries shall undertake
any of the following without obtaining the prior written consent of the Payee:

 

(a)           voluntarily liquidate, dissolve or wind
up, except for the liquidation, dissolution and winding-up of CMS Communications,
Inc. and Telecom Software Enterprises, LLC (“TSE”);

 

(b)           pay, declare or set aside any sums for
the payment of any dividends, or make any distributions on, any shares of its
capital stock or other securities or make prepayments of principal on any Indebtedness
except in the case of the following (each, a “Permitted Payment”):

 

(i)            prepayments
of principal or payments of interest on (A) any of the Consideration Notes, (B)
any Indebtedness incurred under the Working Capital Exclusion as provided in
Section 10(e)(x) of this Note and promissory notes issued to Peter McGuire and
Lisa Marie Maxson pursuant to the Acquisition Agreement dated October 15, 2004
by and among Maker, Peter McGuire and Lisa Marie Maxson (collectively, the “TSE
Promissory Notes”); provided that there is no Event of Default under this
Note and the collateral securing any such Indebtedness shall be added to the
Collateral (as defined in the Security Agreement) or (C) any Indebtedness of
Evolving Systems Holdings Limited (“ESHL”) or its Subsidiaries in favor
of Royal Bank of Scotland PLC and disclosed in Schedule 2 of this Note;

 

(ii)           dividends
or distributions payable in the common stock of Maker or any of its
Subsidiaries;

 

B-1-5

 

(iii)          payments
in accordance with any Series B Approved Plan (as such term is defined in the
Series B Designation);

 

(iv)          dividends
or distributions payable by any of Maker’s Subsidiaries to the Maker;

 

(v)           dividends
or distributions by (A) any Permitted Subsidiary to another Permitted
Subsidiary or (B) any Non-Permitted Subsidiary to a Permitted Subsidiary;

 

(vi)          dividends
or distributions by a Subsidiary of ESHL to ESHL or another Wholly Owned
Subsidiary of ESHL;

 

(vii)         regularly
scheduled payments of principal on Indebtedness permitted under Section 10(e)
(excluding Sections 10(e)(iii) through 10(e)(viii)) of this Note; and

 

(viii)        payments
(whether regularly scheduled, upon demand or otherwise) of Indebtedness
permitted under Sections 10(e)(iii) through 10(e)(viii) to the extent such
payments are made to or received by Maker or a Subsidiary that is a guarantor;

 

(c)           purchase, acquire or obtain (i) any
capital stock or other proprietary interest, directly or indirectly, in any
other entity or (ii) all or a substantial portion of the business or assets of
another Person for consideration (including assumed liabilities) other than
Investments permitted under Section 10(i) and Permitted Acquisitions;

 

(d)           (i) sell or transfer all or a substantial
portion of its assets to another Person; (ii) sell, transfer or otherwise
dispose of any notes receivable or accounts receivable, with or without
recourse; or (iii) sell, lease, transfer or otherwise dispose of any asset or
group of assets (other than as described in clause (ii) above), except:

 

(i)            sales of
inventory in the ordinary course of business;

 

(ii)           sales or
liquidations of Investments permitted by Section 10(i);

 

(iii)          (A)
sales or other dispositions of property by any Subsidiary of Maker to the Maker
or to any other Subsidiary and (B) sales or other dispositions of property by
the Maker to any if its Subsidiaries, so long as the security interests granted
to the Payee pursuant to the Security Agreement in such assets shall remain in
full force and effect and perfected (to at least the same extent as in effect
immediately prior to such sale or other disposition) and provided that any such
Subsidiaries to whom such sales or dispositions are made are guarantors of the
Consideration Notes;

 

(iv)          sales or
other dispositions of obsolete, surplus or worn out property, whether now owned
or hereafter acquired, in the ordinary course of business, or other assets not
practically usable in the business of the Maker or its Subsidiaries; provided
that the aggregate amount of such sales or dispositions does not exceed
$250,000 in any fiscal year of the Maker;

 

B-1-6

 

(v)           Licenses
of intellectual property of Maker or its Subsidiaries in the ordinary course of
business and which would not otherwise reasonably result in a Material Adverse
Effect; or

 

(vi)          sales,
transfers or other dispositions that constitute a Change of Control;

 

(e)           create, incur, assume or suffer to exist
any Indebtedness, except, so long as no Event of Default then exists or would
exist as a result thereof, the following (“Permitted Indebtedness”):

 

(i)            Indebtedness
outstanding on the date of this Note and listed on Schedule 2 hereto,  and any refinancings, refundings, renewals or
extensions thereof; provided that the amount of such Indebtedness is not
increased at the time of such refinancing, refunding, renewal or extension;

 

(ii)           obligations
under the Consideration Notes and the TSE Promissory Notes;

 

(iii)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and Evolving Systems
Networks India Private Limited (“ESN”); provided that the aggregate
amount of all inter-company loans made by Maker or any Permitted Subsidiary to
ESN, when taken together with the aggregate amount of Permitted Investments in
ESN under Section 10(i)(ii) of this Note, does not exceed $750,000 in any
fiscal quarter;

 

(iv)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and TSE; provided that
the aggregate amount of all inter-company loans made by Maker or any Permitted
Subsidiary to TSE, when taken together with the aggregate amount of Permitted
Investments in TSE under Section 10(i)(iii) of this Note, does not exceed
$125,000 in any year;

 

(v)           inter-company
Indebtedness between (A) Maker and its Permitted Subsidiaries or (B) a
Permitted Subsidiary with another Permitted Subsidiary;

 

(vi)          inter-company
Indebtedness owing by Maker or a Permitted Subsidiary to a Non-Permitted
Subsidiary;

 

(vii)         inter-company
Indebtedness between (A) ESHL and any of its Wholly Owned Subsidiaries or (B) a
Wholly Owned Subsidiary of ESHL with another Wholly Owned Subsidiary of ESHL;

 

(viii)        inter-company
Indebtedness owing by ESHL or any Subsidiary of ESHL to Maker or a Permitted
Subsidiary, provided that such Indebtedness shall be incurred solely to (A)
supplement the internally generated working capital required to fund the
operation of the business of ESHL or ESHL’s Wholly Owned Subsidiaries in the
ordinary course or (B) fund Capital Expenditures permitted under Section 10(g)
of this Note, and provided further that promptly upon the incurrence of such
Indebtedness, Maker shall give the Payees written notice of the making thereof
and the amount thereof;

 

B-1-7

 

(ix)           purchase
money Indebtedness to fund the purchase of property otherwise permitted under
Section 10(g) of this Note and Indebtedness constituting Capital Leases
permitted under Section 10(g);

 

(x)            Indebtedness
in the form of an unsecured line of credit in an amount not to exceed in the
aggregate the principal amount of $2,000,000 at any time outstanding (the “Working
Capital Exclusion”);

 

(xi)           Accrual of
interest, accretion or amortization of original issue discount or
payment-in-kind interest in connection with Indebtedness otherwise permitted
under this Section 10(e);

 

(xii)          (A)
Indebtedness incurred in connection with a Permitted Acquisition and (B)
Indebtedness for Capital Leases assumed pursuant to a Permitted Acquisition,
provided that the aggregate Indebtedness of clause (A) and (B) of this Section 10(e)(xii)
outstanding at any time does not exceed $1,000,000;

 

(xiii)         to
the extent under GAAP, the Series B Preferred Stock would be treated as debt or
mezzanine financing on the financial statements of Maker;

 

(xiv)        Indebtedness
incurred in connection with the financing of insurance premiums in the ordinary
course of business in an amount not to exceed $500,000 in any fiscal year; and

 

(xv)         Indebtedness
owing from ESHL to Maker for the sole purpose of consummating the transactions
contemplated by the Stock Purchase Agreement, provided
that, the aggregate amount of such Indebtedness, when taken together
with the aggregate amount of Permitted Investments by Maker in ESHL under
Section 10(i)(vii) of this Note, does not exceed $12,500,000;

 

(f)            mortgage, encumber, or create or suffer
to exist Liens on any of its assets, other than the following (each, a “Permitted
Lien”);

 

(i)            encumbrances
or Liens in favor of Payee or any holder of the Consideration Notes;

 

(ii)           Liens that
arise out of operation of law;

 

(iii)          easements,
rights-of-way, restrictions (including zoning restrictions) and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person and none of which is violated
by existing or proposed restrictions on land use;

 

(iv)          Liens
securing Indebtedness permitted under Section 10(e)(vi); provided that (A) such
Liens do not at any time encumber any property other than the property financed
by such Indebtedness and (B) the Indebtedness secured thereby does not exceed
the cost of property being 

 

B-1-8

 

acquired on the date of
acquisition and (C) such Liens are granted substantially contemporaneously with
the acquisition of such property;

 

(v)           Liens
existing on the date hereof and listed on Schedule 2 hereto and any renewals or
extensions thereof, provided that (A) the property covered thereby is not
changed, (B) the amount secured or benefited thereby is not increased, and (C)
any renewal or extension of the obligations secured or benefited thereby is not
prohibited by this Note; and

 

(vi)          Liens on
insurance policies and the proceeds thereof incurred in connection with the
financing of insurance premiums in the ordinary course of business in an amount
not to exceed $500,000 in any fiscal year;

 

(g)           make or commit to make any Capital
Expenditures (whether by expenditure of cash or the incurrence of Indebtedness
for Capital Leases to fund the acquisition of property pursuant to any
permitted Capital Expenditure); provided that, the cash paid for the Capital
Expenditure, when taken together with the aggregate liability required by GAAP
consistently applied and in accordance with the Maker’s past practice, to be
reflected in Maker’s financial statements in respect of any Capital Lease (“Lease
Liability”) plus the sum of (i) any cost incurred by Maker in connection
with the acquisition, delivery or installation of the property which is the
subject of the Capital Lease, but which cost is not included in the Lease
Liability and (ii) to the extent not otherwise reflected in the Capital Lease
payments, interest expense incurred in respect of the Capital Lease for the
relevant fiscal year will be deemed a Capital Expenditure made or committed
during the fiscal year in which the Capital Lease is signed or becomes
effective, whichever first occurs, does not exceed $2,000,000 in any fiscal
year;

 

(h)           enter into any transaction with any of
its Affiliates that is less favorable to Maker or any of its Subsidiaries than
would have been the case if such transaction had been effected on an arms
length basis with a Person other than an Affiliate, except for transactions
between and among Maker and its Subsidiaries otherwise permitted under this
Note;

 

(i)            enter into or make any Investments, other
than the following (each, a “Permitted Investment”):

 

(i)            Cash
Equivalents;

 

(ii)           (A) equity
Investments existing as of the date hereof in ESN and (B) equity Investments
made after the date hereof by Maker or any Permitted Subsidiary in ESN provided
that any such Investments, when taken together with all inter-company loans
made by Maker or any Permitted Subsidiary to ESN permitted under Section 10(e)(iii)
of this Note, does not exceed $750,000 in any fiscal quarter;

 

(iii)          (A)
equity Investments existing as of the date hereof in TSE and (B) equity Investments
made after the date hereof in TSE provided that any such Investments, when
taken together with all inter-company loans made by Maker or any Permitted
Subsidiary to TSE permitted under Section 10(e)(iv) of this Note, does not
exceed $125,000 in any fiscal year;

 

(iv)          equity
Investments (A) existing as of the date hereof in any Permitted Subsidiary and
(B) equity Investments made after the date hereof in any Permitted Subsidiary;

 

B-1-9

 

(v)           (A) equity
Investments existing as of the date hereof in ESHL or any of ESHL’s Wholly
Owned Subsidiaries, (B) equity Investments made after the date hereof by Maker
in ESHL, provided that such Investments shall be made solely to (1) supplement
the internally generated working capital required to fund the operation of the
business of ESHL or ESHL’s Wholly Owned Subsidiaries in the ordinary course or
(2) fund Capital Expenditures permitted under Section 10(g) of this Note, and
provided further that promptly upon the making of any such Investments, Maker
shall give the Payees written notice of the making thereof and the amount
thereof, and (C) equity Investments made after the date hereof by ESHL or a
Wholly Owned Subsidiary of ESHL in any ESHL Wholly Owned Subsidiaries;

 

(vi)          equity
Investments by a Non-Permitted Subsidiary in a Permitted Subsidiary;

 

(vii)         equity
Investments by Maker in ESHL for the sole purpose of consummating the
transactions contemplated by the Stock Purchase Agreement, provided that, the aggregate amount of
such Investments, when take together with the aggregate amount of Permitted
Indebtedness under Section 10(e)(xv) of this Note, does not exceed $12,500,000;
provided further that the amount
of such equity Investments shall not exceed 50% of the aggregate amount of the
equity Investment made pursuant to this Section 10(i)(vii) plus the aggregate
amount of the Permitted Indebtedness permitted under Section10(e)(xv) of this
Note;

 

(viii)        Investments
consisting solely of appreciation in value of existing Investments permitted
hereunder;

 

(ix)           any
Permitted Payments under Section 10(b) of this Note, without duplication;

 

(x)            any
Permitted Indebtedness under Section 10(e) of this Note, without duplication;
and

 

(j)            change its fiscal year;

 

(k)           establish any bank accounts into which
accounts receivable are deposited, other than those listed on Exhibit B unless
such bank accounts shall be pledged to Payee and the other secured parties
pursuant to the Security Agreement;

 

(l)            change or amend its Certificate of Incorporation
or Bylaws in a manner adverse to Payee’s rights and remedies under this Note,
any Consideration Note, the Security Agreement or the Pledge Agreement; or

 

(m)          engage in any material line of business
not related to the OSS communications industry or any business reasonably
related or incidental thereto (the “Maker’s Business”).

 

11.           Determination of Accretive. 
In the event the Maker proposes to enter into an agreement to acquire
another Person (the “Proposed Acquisition”), the Maker shall mail written
notice of such event, together with the Financial Projections, to the Payee, no
later than twenty (20) calendar days 

 

B-1-10

 

prior to the contemplated
effective date of the Proposed Acquisition. 
The Financial Projections shall be deemed accepted and conclusive and
binding upon the Payee, unless the Payee shall give written notice to the Maker
of the items in the Financial Projections with which the Payee disagrees (the “Accretive
Calculation Disagreement Notice”) within twenty (20) calendar days of the
receipt by the Payee of the Financial Projections.  The Accretive Calculation Disagreement Notice
shall specify each item disagreed with by the Payee (or the Payee’s calculation
thereof) and the dollar amount of such disagreement.  The Maker may, within twenty (20) calendar
days of its receipt of the Accretive Calculation Disagreement Notice, advise
the Payee that the Maker has accepted the position of the Payee as set forth on
the Accretive Calculation Disagreement Notice, whereupon the Proposed
Acquisition shall be considered a Permitted Acquisition Event for all purposes
of this Note.  If the Maker does not
notify the Payee of the Maker’s acceptance of the Payee’s position, then the
Maker and the Payee shall, during the twenty (20) calendar days after receipt
by the Maker of the Accretive Calculation Disagreement notice, negotiate in
good faith to resolve any such disagreements. 
If at the end of such twenty (20) calendar days, the Maker and Payee
have been unable to resolve their disagreements, either the Maker or the Payee
may engage on behalf of the Maker and the Payee, Grant Thornton LLP (or such
other Person mutually agreed to in writing by the Maker and Payee) (the “Unaffiliated
Firm”) to resolve the matters set forth in the Accretive Calculation
Disagreement Notice.  The Unaffiliated
Firm shall (i) resolve the disagreement as to the Financial Projections as
promptly as possible after its engagement by the parties; (ii) thereby consider
and resolve only those items in the Accretive Calculation Disagreement Notice
which remain unresolved between the Maker and the Payee; and (iii) shall
otherwise employ such procedures as it, in its sole discretion, deems necessary
or appropriate in the circumstances.  The
Unaffiliated Firm shall submit to the Maker and the Payee a report of its
review of the items in the Accretive Calculation Disagreement Notice as quickly
as practicable and shall include in such report its determination as to whether
the effect of the proposed merger or consolidation is Accretive.  The determination so made by the Unaffiliated
Firm shall be conclusive, binding on, and non-appealable by, the Maker and the
Payee.  The fees and disbursements of the
Unaffiliated Firm shall be borne one half by the Maker and one half by the
Payee.  Notwithstanding all of the
foregoing, the Maker may elect, at any time, not to comply with this Section 11
with respect to a Proposed Transaction (or if the Maker otherwise fails to
properly comply with the terms of this Section 11) in which event, the
transaction shall be deemed not to be Accretive.

 

12.           Events of Default.

 

(a)           For purposes of this Note, an “Event
of Default” shall have occurred hereunder if:

 

(i)            Maker shall fail to
pay within one (1) business day after the date when due any payment of
principal, interest, fees, costs, expenses or any other sum payable to Payee
hereunder or otherwise, including the other Consideration Notes;

 

(ii)           Maker shall default in
the performance of any other agreement or covenant contained herein (other than
as provided in Section 12(a)(i) of this Note) or under any Consideration Note
or in the Security Agreement or Pledge Agreement, and such default shall
continue uncured for twenty (20) consecutive days after notice thereof to Maker
given by Payee;

 

B-1-11

 

(iii)          Maker becomes insolvent
or generally fails to pay its debts as such debts become due or admits in
writing its inability to pay its debts as such debts become due; or shall
suffer a custodian, receiver or trustee for it or substantially all of its
property to be appointed and if appointed without its consent, not be
discharged within ninety (90) consecutive days; makes a general assignment for
the benefit of creditors; or suffers proceedings under any law related to
bankruptcy, insolvency, liquidation or the reorganization, readjustment or the
release of debtors to be instituted against it and if contested by it not
dismissed or stayed within ninety (90) consecutive days; if proceedings under
any law related to bankruptcy, insolvency, liquidation, or the reorganization,
readjustment or the release of debtors is instituted or commenced by or against
Maker and, in the case of proceedings not instituted or commenced by Maker, if
contested by Maker, and not dismissed or stayed within ninety (90) consecutive
days; if any order for relief is entered relating to any of the foregoing
proceedings which order is not stayed; if Maker shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
if Maker shall by any act or failure to act indicate its consent to, approval
of or acquiescence in any of the foregoing;

 

(iv)         (A)  This Note, any of the other Consideration
Notes or the Security Agreement or the Pledge Agreement shall, for any reason
(other than payment or satisfaction in full of the obligations represented
thereby) not be or shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared null and void or (B) Payee or
any other secured party under the Security Agreement or the Pledge Agreement
shall not give or shall cease to have a valid and perfected Lien in any
collateral under such Security Agreement or Pledge Agreement (other than by reason
of a release of collateral in accordance with the terms hereof or thereof) with
the priority required by the Security Agreement or Pledge Agreement, as
applicable, or (C) the validity or enforceability of any of the Consideration
Notes or the liens granted, to be granted, or purported to be granted, by the
Security Agreement or the Pledge Agreement shall be contested by the Maker;

 

(v)          If Maker shall be in
default with respect to any payment, when due (subject in each case to
applicable grace or cure periods), of any Indebtedness in excess of $175,000
(other than under this Note or any other Consideration Note), or any other
default shall occur under any agreement or instrument evidencing such
Indebtedness, if the effect of such non-payment default is to accelerate the
maturity of such Indebtedness or to permit the holder thereof to cause such
Indebtedness to become due prior to its stated maturity, and such default shall
not be remedied, cured, waived or consented to within the period of grace with
respect thereto, or any other circumstance which arises (other than the mere
passage of time) by reason of which any such Indebtedness shall become or be
declared to be due and payable prior to its stated maturity; or

 

(vi)         If:  (i) as of June 30, 2005, Maker’s EBITDA for
the most recently ended fiscal half year shall not exceed $0, or (ii) beginning
with the fiscal half year ending December 31, 2005, as of the last day of any
fiscal half year ending in any June or December, Maker’s Ratio of Indebtedness
to EBITDA shall be greater than 4-to-1. 
For purposes of calculating EBITDA for this 

 

B-1-12

 

Section 12(a)(vi),
(x) all non-cash charges for goodwill impairment resulting from the
transactions contemplated by the Stock Purchase Agreement shall be added back
to Net Income; and (y) Net Income shall not be modified as a result of any “mark
to market” adjustments resulting from any anti-dilution or other adjustments
with respect to this Note or the Maker’s Series B Preferred Stock.  For the purposes of calculating Indebtedness
for this Section 12(a)(vi), Indebtedness shall not be modified as a result of
any “mark to market” adjustments resulting from any anti-dilution or other
adjustments with respect to this Note or the Maker’s Series B Preferred Stock.

 

(vii)        If Maker shall have
breached its covenant under the Stock Purchase Agreement to duly convene a
Stockholder Meeting (as defined in the Stock Purchase Agreement) within the
time period set forth therein.

 

(viii)       subject to Section 12(b) of
this Note, if Maker shall have failed to have a Shelf Registration Statement
filed and declared and maintained effective as provided under Section 5 of the
Series B Designation (a “Registration Event of Default”).

 

Notwithstanding anything
contained herein to the contrary, no Event of Default shall be deemed to have
occurred under this Note if the Event of Default resulted solely from a breach
of any representation, warranty or covenant of Tertio Telecoms Group Limited
under this Stock Purchase Agreement.

 

(b)           In the event that Payee transfers any
portion of the outstanding principal balance of this Note to any Person (other
than the Payee’s shareholders and Affiliates of such shareholders) and, at the
time of transfer, Payee does not also transfer the greater of (i) a number of
Registrable Shares at least equal to the product of the number of Registrable
Shares then held by Payee, its shareholders or Affiliates of such shareholders
multiplied by a fraction, the numerator of which is the amount of the
outstanding principal balance of this Note transferred to such Person, and the
denominator of which is the aggregate principal amount of all Consideration
Notes held by Payee or (ii) at least 50,000 Registrable Shares (the “Share
Transfer Minimum”) to such Person, Section 12(a)(viii) of this Note shall
terminate with respect to the portion of this Note so transferred.  In the event Payee transfers any of the
outstanding principal of this Note to any Person (other than Payee’s
shareholders and Affiliates of such shareholders) and, at the time of transfer,
also transfers to such Person at least the Share Transfer Minimum, the
occurrence of a Registration Event of Default shall continue to constitute an
Event of Default and such Person shall be entitled to exercise the remedies
arising under this Note upon the occurrence and during the continuation of a
Registration Event of Default.  Without
limiting any of the foregoing and for purposes of clarity, for so long as this
Note is held by Payee, its shareholders or the Affiliates of such shareholders
(regardless of whether in the event of a transfer of this Note to any of Payee’s
shareholders or the Affiliates of such shareholders the Payee simultaneously
transfers the Share Transfer Minimum) the occurrence of a Registration Event of
Default shall constitute an Event of Default and the remedies available to
Payee upon the occurrence and during continuation of an Event of Default shall
continue unaffected with respect to the portion of this Note held by Payee,
Payee’s shareholders and Affiliates of such shareholders.

 

B-1-13

 

13.           Consequences of Default.

 

(a)           Upon the occurrence and during the
continuance of an Event of Default:

 

(i)            if there is (a) no
Convertible Note outstanding or (b) a Convertible Note outstanding and the
holder thereof declines to accept a prepayment under the corresponding section
of the Convertible Note, then, upon receipt of notice from the Payee (at Payee’s
option), Maker shall immediately pay to Payee (to the extent not previously
paid) any Account Prepayment Amount (calculated as of the most recent test
dates), regardless of whether the holders of B-1 Notes requested any such
payment at the time of calculation; and

 

(ii)           the entire unpaid
principal balance of this Note, together with interest accrued thereon and with
all other sums due or owed by Maker hereunder, as well as all out-of-pocket
costs and expenses (including but not limited to attorneys’ fees and
disbursements) incurred by Payee in connection with the collection or
enforcement of this Note, the Security Agreement or the Pledge Agreement, shall
at Payee’s option, and by notice to Maker (except if an Event of Default
described in Section 12(a)(iii) of this Note shall occur in which case
acceleration shall occur automatically without notice) be declared to be due
and payable immediately, and payment of the same may be enforced and recovered
by the entry of judgment of this Note and the issuance of execution thereon.

 

(b)           In addition to all of the sums payable
hereunder, Maker agrees to pay the Payee all reasonable costs and expenses
incurred by Payee in connection with any and all actions taken to enforce
collection of this Note, the Security Agreement and the Pledge Agreement upon
the occurrence of an Event of Default, including all reasonable attorneys’
fees.

 

14.           Remedies not Exclusive. 
The remedies of Payee provided herein or otherwise available to Payee at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively and together at the sole discretion of Payee, and may be exercised
as often as occasion therefor shall occur; and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of the
same.

 

15.           Notices.  All notices
required to be given to any of the parties hereunder shall be in writing and
shall be deemed to have been sufficiently given for all purposes when presented
personally to such party or sent by certified or registered mail, return
receipt requested, to such party at its address set forth below:

 

	
  If to the Maker:

  	
  Evolving Systems, Inc.

  9777 Mount Pyramid Court, Suite 100

  Englewood, Colorado 80112

  Attention:  Anita Moseley, General
  Counsel

  Tel:  (303) 802-2599

  Fax:  (303) 802-1138

  
	
   

  	
   

  
	
  With copies to:

  	
  Holme Roberts & Owen LLP

  1700 Lincoln St., Suite 4100

  Denver, CO  80203-4541

  Attention:  Charles D. Maguire, Jr.,
  Esq.

  Tel:  (303) 861-7000

  Fax:  (303) 866-0200

  

 

B-1-14

 

	
  If to the Payee:

  	
  Tertio Telecoms Group Ltd.

  c/o Apax Partners Ltd.

  15 Portland Place

  London W1B 1PT

  United Kingdom

  

  Attn:  Peter Skinner

  Tel:  44.20.7843.4000

  Fax: 44.20.7843.4001

  
	
   

  	
   

  
	
  With copies to:

  	
  Advent International plc

  123 Buckingham Palace Road

  London SW1W 9SL

  United Kingdom

  

  Attn:  James Brocklebank

  Tel:  44.20.7333.5516

  Fax:  44.20.7333.0801

  

  Pepper Hamilton LLP

  3000 Two Logan Square

  18th and Arch Streets

  Philadelphia, Pennsylvania 19103

  Attention:  Cary S. Levinson, Esq.

  Tel:  (215) 981-4091

  Fax:  (215) 981-4750

  

 

Such notice shall be deemed
to be given when received if delivered personally or five (5) business days
after the date mailed.  Any notice mailed
shall be sent by certified or registered mail. 
Any notice of any change in such address shall also be given in the
manner set forth above.  Whenever the
giving of notice is required, the giving of such notice may be waived in writing
by the party entitled to receive such notice.

 

16.           Severability. 
In the event that any provision of this Note is held to be invalid,
illegal or unenforceable in any respect or to any extent, such provision shall
nevertheless remain valid, legal and enforceable in all such other respects and
to such extent as may be permissible. 
Any such invalidity, illegality or unenforceability shall not affect any
other provisions of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.

 

17.           Successors and Assigns; Assignment. 
This Note inures to the benefit of the Payee and binds the Maker, and
its successors and assigns, and the words “Payee” and “Maker” whenever
occurring herein shall be deemed and construed to include such respective
successors and assigns.  Maker may not
assign or transfer this Note, without the consent of Payee.  At any time and from time to time, the Payee,
in its sole discretion, may transfer to any Person all or a portion of the
outstanding principal and/or 

 

B-1-15

 

accrued interest
hereunder without the consent of the Maker, provided, however, this Note
may not be assigned, transferred or sold by Payee to any Person that engages
in, or controls an entity that engages in, a business competitive with the
Maker’s business.  Furthermore, as a
condition of the transfer, any transferee of Payee of this Note must agree to
become bound by the provisions of this Note, the Security Agreement and the
Pledge Agreement.

 

18.           Entire Agreement. This Note (together with the other
Consideration Notes, the Security Agreement and the Pledge Agreement) contains
the entire agreement between the parties with respect to the subject matter
hereof and thereof.

 

19.           Modification of Agreement. This Note may not be modified, altered
or amended, except by an agreement in writing signed by both the Maker and the
Payee.

 

20.           Releases by Maker. 
Maker hereby releases Payee from all technical and procedural errors,
defects and imperfections whatsoever in enforcing the remedies available to
Payee upon a default by Maker hereunder and hereby waives all benefit that
might accrue to Maker by virtue of any present or future laws exempting any
property, real or personal, or any part of the proceeds arising from any sale
of any such property, from attachment, levy or sale under execution, or
providing for any stay of execution, exemption from civil process or extension
of time, and agrees that such property may be sold to satisfy any judgment
entered on this Note, in whole or in part and in any order as may be desired by
Payee.

 

21.           Waivers by Maker. 
Maker (and all endorsers, sureties and guarantors) hereby waives
presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default or enforcement
of the payment of this Note (other than notices expressly required by the terms
of this Note, the Security Agreement or the Pledge Agreement); liability
hereunder shall be unconditional and shall not be affected in any manner by an
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee.

 

22.           Revenue and Stamp Tax. 
Maker shall pay all reasonable out-of-pocket expenses incurred by the
Payee in connection with any revenue, tax or other stamps now or hereafter
required by law at any time to be affixed to this Note.

 

23.           Governing Law.  This Note shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
conflict of laws principles.

 

24.           Limitations of Applicable Law. 
Notwithstanding any provision contained herein, Maker’s liability for
the payment of interest shall not exceed the limits now imposed by any
applicable usury law.  If any provision
of this Note requires interest payments in excess of the highest rate permitted
by law, the provision in question shall be deemed to require only the highest
such payment permitted by law.  Any
amounts theretofore received by Payee hereunder in excess of the maximum amount
of interest so permitted to be collected by Payee shall be applied by Payee in
reduction of the outstanding balance of principal or, if this Note shall
theretofore been paid in full, the amount of such excess shall be promptly
returned by Payee to the Maker.

 

25.           Consent to Jurisdiction and Service of
Process.  Maker irrevocably appoints each of Maker’s
Authorized Officers as its attorneys-in-fact upon whom may be served any
notice, process or pleading in any action or proceeding against it arising out
of or in connection with this Note. 
Maker 

 

B-1-16

 

hereby consents that any
action or proceeding against it may be commenced and maintained in any court
within the State of Delaware or in the United States District Court of Delaware
by service of process on any such officer. 
Maker further agrees that the courts of the State of Delaware and the
United States District Court of Delaware shall have jurisdiction with respect
to the subject matter hereof and the person of Maker and the collateral
securing Maker’s obligations hereunder. 
Notwithstanding the foregoing, Payee, in its absolute discretion, may
also initiate proceedings in the courts of any other jurisdiction in which
Maker may be found or in which any of its properties or any such collateral may
be located.

 

26.           Headings.  The headings
of the sections of this Note are inserted for convenience only and do not
constitute a part of this Note.

 

27.           WAIVER OF JURY TRIAL. 
MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COLLATERAL
SECURITY DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF PAYEE. 
THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE’S ADVANCING THE FUNDS
UNDER THIS NOTE.

 

28.           ACKNOWLEDGEMENTS. 
MAKER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL SET FORTH IN SECTION 27 HAVE
BEEN FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.

 

29.           Partial Substitution and Replacement. 
This Note evidences and constitutes a partial substitution and
replacement of the A Notes.  The
execution and delivery of this Note shall not in any circumstances be deemed to
have terminated, extinguished, released or discharged Maker’s Indebtedness
under the A Notes and the security therefore. 
Such Indebtedness shall continue under and be governed by this
Note.  THIS
NOTE IS NOT A NOVATION.

 

[Signature Page Follows]

 

B-1-17

 

IN WITNESS WHEREOF, the
Maker has duly executed this Note as of the date first set forth above.

 

	
   

  	
  EVOLVING SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

Acknowledged and Agreed:

 

PAYEE:

 

Tertio Telecoms Group Ltd.

 

	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

B-1-18

 

SCHEDULE 1

DEFINITIONS

 

“A Notes” means the
Senior Secured Promissory Notes dated as of November 2, 2004, by Maker in favor
of Payees in the original aggregate principal amount of $11,950,000, each as
they may be amended, restated, modified or replaced in substitution in whole or
in part by any other note or notes from time to time, including, but not
necessarily limited to, the Senior Secured Notes by Maker in favor of Payees
which may be issued in substitution for or in addition to the A Notes issued to
Payee by Maker under the terms of such A Notes.

 

“Accretive” shall
mean that the projected pro forma consolidated EBITDA (calculated on a per
share basis) of the Maker and the other constituent entity(ies) in such
transaction, and the respective Consolidated Subsidiaries of the Maker and such
constituent entity(ies) for the twelve calendar month period immediately
following such transaction, is not less than the projected EBITDA (calculated
on a per share basis), on a consolidated basis, of the Maker and its
Consolidated Subsidiaries for the same period, all as presented in the
Financial Projections.

 

“Adjusted Libor Rate”
means the London Interbank Offering Rate for three-month deposits as reported
under the heading “Money Rates” in the Eastern edition of the Wall Street Journal plus 600 basis points.

 

“Affiliate” shall
mean, with respect to any Person, any other Person which directly or indirectly
Controls, is Controlled by or is under common Control with such Person.

 

“Affiliated Group”
shall mean a group of Persons, each of which is an Affiliate of some other
Person in the group.

 

“B-1 Note” means the
Senior Secured Note by Maker in favor of Payee in such aggregate principal
amount Maker may issue as a result of the outcome of the stockholder vote of
the matters presented for their approval at the Initial Stockholder Meeting (as
such term is defined in the Series B Designation), as it may be amended, restated,
modified or replaced in substitution in whole or in part by any other note or
notes from time to time, including, but not necessarily limited to, the Senior
Secured Notes by Maker in favor of Payee which may be issued in substitution
for or in addition to the B-1 Note issued to Payee by Maker under the terms of
such B-1 Note.

 

“Capital Expenditures”
shall mean, with respect to any Person for any period, the aggregate of all
expenditures (whether paid in cash, or incurred by entering into a synthetic lease
arrangement or a Capital Lease, or otherwise accrued as a liability) by such
Person during that period which, in accordance with GAAP, are or should be
included in “additions to property, plant or equipment” or similar items
reflected in the statement of cash flows of such Person, and all research and
development expenditures which in accordance with GAAP are or should be
accounted for as a capital expenditure in the balance sheet of that Person, but
excluding expenditures to the extent reimbursed or financed from insurance
proceeds paid on account of the loss of or the damage to the assets being
replaced or restored, or from awards of compensation arising from the taking by
condemnation or eminent domain of such assets being replaced.

 

B-1-19

 

“Capital Lease”, as
applied to any Person, shall mean any lease of any property (whether real,
personal or mixed) by that Person as lessee which, in accordance with GAAP, is
or should be accounted for as a capital lease on the balance sheet of that
Person.

 

“Capital Transaction”
means any consolidation or merger of Maker with another entity, or the sale of
all or substantially all of its assets to another entity, or any reorganization
or reclassification of the Common Stock or other equity securities of Maker.

 

“Cash Equivalents”
shall mean any of the following: (i) full faith and credit obligations of the
United States of America, or fully guaranteed as to interest and principal by
the full faith and credit of the United States of America, maturing in not more
than one year from the date such investment is made; (ii) time deposits and
certificates of deposit, Eurodollar time deposits, overnight bank deposits and
other interest bearing deposits or accounts (other than securities accounts) or
bankers’ acceptances having a final maturity of not more than one year after
the date of issuance thereof of any commercial bank incorporated under the laws
of the United States of America or any state thereof or the District of Columbia,
which bank is a member of the Federal Reserve System and has a combined capital
and surplus of not less than $500,000,000.00 and with a senior unsecured debt
credit rating of at least “A-2” by Moody’s or “A” by S&P; (iii) commercial
paper of companies, banks, trust companies or national banking associations
incorporated or doing business under the laws of the United States of America
or one of the States thereof or the District of Columbia, in each case having a
remaining term until maturity of not more than two hundred seventy (270) days
from the date such investment is made and rated at least P-1 by Moody’s or at
least A-1 by S&P; (iv) repurchase agreements with any financial institution
having combined capital and surplus of not less than $500,000,000.00 with a
term of not more than seven (7) days for underlying securities of the type
referred to in clause (i) above; and (v) money market funds which invest
primarily in the Cash Equivalents set forth in the preceding clauses (i) -
(iv).

 

“Change in Control”
shall mean (i) any Person, Affiliated Group or group (such term being used as
defined in the Securities Exchange Act of 1934, as amended), other than a
Primary Holder (as such term is defined in the Series B Designation) acquiring
ownership or control of in excess of 50% of equity securities having voting
power to vote in the election of the Board of Directors of Maker either on a
fully diluted basis or based solely on the voting stock then outstanding, (ii)
if at any time, individuals who at the date hereof constituted the Board of
Directors of Maker (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Maker, as the case may be, was approved by a vote of the majority of the directors
then still in office who were either directors at the date hereof or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of Maker then in
office, (iii) the direct or indirect sale, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or
substantially all of the properties or assets of Maker to any Person or (iv)
the adoption of a plan relating to the liquidation or dissolution of Maker.

 

“Compensation” means
all salary and bonuses, but excludes any compensation under any equity
incentive plan.

 

“Consideration Notes”
means the collective reference to this Note, A Notes, Convertible Note and the
Short Term Note.

 

“Consolidated
Subsidiaries” shall mean all Subsidiaries of a Person which are required or
permitted to be consolidated with such Person for financial reporting purposes
in accordance with GAAP.

 

B-1-20

 

“Control” shall mean,
as to any Person, the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of greater than 50%
of the voting securities of such Person or by acting as the general partner of
a limited partnership (the terms “Controlled by” and “under common Control with”
shall have correlative meanings.)

 

“Convertible Note”
shall mean the Senior Secured Convertible Note of Maker in favor of Payee in
such aggregate principal amount Maker may issue as a result of the outcome of
the stockholder vote on the matters presented for their approval at the Initial
Stockholders Meeting (as such term is defined in the Series B Designation) in
effect from time to time in the form attached to A Notes as Exhibit B 2,as
it may be amended, restated or modified from time to time.

 

“EBITDA” shall mean
for any period, Net Income for such period plus, without duplication, the
aggregate amounts deducted in determining Net Income during such period, the
sum of (A) interest paid on indebtedness for such period, (B) income taxes for
such period, (C) depreciation expense for such period and (D) amortization
expense for such period, all as determined in accordance with GAAP as applied
in accordance with past practice.

 

“Executive Officer”
means any officer of Maker whose compensation is determined by the Compensation
Committee of the Board of Directors of Maker.

 

“Financial Projections”
shall mean written financial projections prepared by Maker and certified by
Maker’s chief financial officer, prepared in good faith and based upon
reasonably assumptions and estimates regarding the economic, business, industry
market, legal and regulatory circumstances and conditions relevant to the
Maker.

 

“GAAP” means
generally accepted accounting principles set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements of the Financial Accounting Standards Board; and
such principles observed in a current period shall be comparable in all
material respects to those applied in a preceding period.

 

“Guaranty” shall
mean, as to any Person, any direct or indirect obligation of such Person
guaranteeing or intending to guarantee, or otherwise providing credit support,
for any Indebtedness, Capital Lease, dividend or other monetary obligation (“primary
obligation”) of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, by contract, as a general partner or otherwise,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, or (c) to
purchase property, securities or services from the primary obligor or other
Person, in each case, primarily for the purpose of assuring the performance of
the primary obligor of any such primary obligation or assuring the owner of any
such primary obligation of the repayment of such primary obligation.  The amount of any Guaranty shall be deemed to
be an amount equal to (x) the stated or determinable amount of the primary
obligation in respect of which such Guaranty is made (or, if the amount of such
primary obligation is not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder)) or (y) the stated maximum liability under such Guaranty,
whichever is less.

 

B-1-21

 

“Indebtedness” shall
mean (without double counting), at any time and with respect to any Person, (i)
indebtedness of such Person for borrowed money (whether by loan or the issuance
and sale of debt securities) or for the deferred purchase price of property or
services purchased (other than amounts constituting trade payables arising in
the ordinary course of business and payable in accordance with customary
trading terms not in excess of 90 days or, if overdue for more than 90 days, as
to which a dispute exists and adequate reserves in conformity with GAAP have
been established on the books of such Person); (ii) all indebtedness of such
Person evidenced by a note, bond, debenture or similar instrument (whether or
not disbursed in full in the case of a construction loan); (iii) indebtedness
of others which such Person has directly or indirectly assumed or guaranteed or
otherwise provided credit support therefore (other than for collection or
deposit in the ordinary course of business); (iv) indebtedness of others
secured by a Lien on assets of such Person, whether or not such Person shall
have assumed such indebtedness (provided, that if such Person has not assumed
such indebtedness of another Person then the amount of indebtedness of such
Person pursuant to this clause (iv) for purposes of this Note shall be equal to
the lesser of the amount of the indebtedness of the other Person or the fair
market value of the assets of such Person which secures such other
indebtedness); (v) obligations of such Person relative to the face amount of
letters of credit, acceptance facilities, or drafts or similar instruments
issued or accepted by banks and other financial institutions for the account of
such Person; (vi) that portion of obligations of such Person under Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (vii) all obligations of such Person under any Interest
Rate Protection Agreement; (viii) deferred payment obligations of such Person
resulting from the adjudication or settlement of any litigation; and (ix) any Guaranty
by such Person in respect of any of the foregoing.

 

“Interest Rate Protection
Agreement” shall mean any interest rate swap agreement, interest rate cap
agreement, synthetic cap, collar or floor or other financial agreement or
arrangement designed to protect a Maker or any of its Subsidiaries against
fluctuations in interest rates or to reduce the effect of any such
fluctuations.

 

“Investment” shall
mean any investment in any Person, whether by means of acquiring or holding
securities, capital contribution, loan, time deposit, guaranty or otherwise.

 

“Lien” shall mean any
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any agreement to grant a security interest at a future
date, any lease in the nature of security, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code of any
jurisdiction).

 

“Material Adverse Effect”
shall mean a (i) a material adverse effect upon the business, operations,
properties, assets or condition (financial or otherwise) of the Maker or (ii)
the material impairment of the ability of the Maker to perform its obligations
under the Consideration Notes or of the Payee to enforce the obligations of the
Maker under the Consideration Notes.

 

“Maturity Date” means
December 31, 2007.

 

“Net Income” shall
mean for any period, net income on a consolidated basis for that period
determined in accordance with GAAP applied consistently with past practice.

 

“Non-Permitted Subsidiary”
means any direct or indirect Wholly Owned Subsidiary of Maker that is not a
Permitted Subsidiary.

 

B-1-22

 

“Note Issue Date”
shall mean the date on which this Note is issued.

 

“Payment Date” means
each December 31, March 31, June 30 and September 30; provided that if any such
Payment Date falls on a day which is not a business day, the applicable payment
shall not be due until the next following business day.

 

“Permitted Acquisitions”
means any acquisition of fifty percent (50%) or more of the equity interests or
all or substantially all of the assets of a third party so long as (i) such
acquisition is Accretive, and approved by the Maker’s board of directors, (ii)
following the consummation of the acquisition the Maker has a cash balance of
at least $5,000,000, on a consolidated basis, and (iii) the Maker does not
incur any Indebtedness in connection with such acquisition.

 

“Permitted Subsidiary”
means any direct or indirect Wholly Owned Subsidiary of Maker that is
domesticated or incorporated in a jurisdiction of the United States, Canada,
the United Kingdom or a country that is a member of the European Union and is a
guarantor of Maker’s obligations under the Consideration Notes.

 

“Person” shall mean
any natural person, corporation, division of a corporation, partnership,
limited liability partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.

 

“Pledge Agreement”
means the Pledge Agreement executed by Maker in favor of Payee and dated the
date hereof, as it may be amended, restated or modified from time to time,
together with all schedules and exhibits thereto.

 

“Registrable Shares”
shall have the meaning set forth with respect thereto in the Investor Rights
Agreement of even date herewith.

 

“Security Agreement”
means the Security Agreement executed by the Maker in favor of the Payee and
dated as of the date hereof, as it may be amended, restated or modified from
time to time, together with all schedules and exhibits thereto.

 

“Series B Designation”
shall mean the Certificate of Designation of Maker’s Series B Convertible
Preferred Stock, as filed with the Secretary of State of the State of Delaware.

 

“Short Term Note”
means the Senior Secured Note dated as of November 2, 2004 by Maker in favor of
Payee in the original aggregate principal amount of $4,000,000, as it may be
amended, restated, modified or replaced in substitution by any other note or
notes from time to time.

 

“Stock Purchase Agreement”
means the Stock Purchase Agreement dated as of November 2, 2004 by and among
the Maker, Tertio Telecom Group, Ltd. and the parties listed therein.

 

“Stockholders” shall
have the meaning given to such term in the Stock Purchase Agreement.

 

“Subsidiary” shall
mean with respect to any Person, any corporation, association, joint venture,
partnership or other business entity (whether now existing or hereafter
organized) of which at least a majority of the voting stock or other ownership
interests having ordinary voting power for the 

 

B-1-23

 

election of directors (or the equivalent) is,
at the time as of which any determination is being made, owned or controlled by
such Person or one or more subsidiaries of such Person or by such Person and
one or more subsidiaries of such Person.

 

“UCC” shall mean the
Uniform Commercial Code as in effect from time to time in the State of
Delaware.

 

“Wholly Owned Subsidiary”
of a Person means (a) any Subsidiary all of the outstanding voting securities
(other than directors qualifying shares and/or other nominal amounts of shares
required to be held by directors or other Persons under applicable law) of
which shall at the time be owned or controlled, directly or indirectly, by such
Person or one or more Wholly Owned Subsidiaries of such Person, or by such
Person and one or more Wholly Owned Subsidiaries of such Person, or (b) any
partnership, limited liability company, association, joint venture or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.

 

B-1-24

 

LT Note/Note B-2

 

EXHIBIT B-2

CONVERTIBLE NOTE

 

NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAW, AND NEITHER MAY
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
UNLESS THE MAKER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE MAKER THAT SUCH REGISTRATION IS NOT REQUIRED.

 

	
  $[                         ]
  Principal Amount

  	
                        ,
  200   

  

 

SENIOR SECURED
CONVERTIBLE NOTE

 

EVOLVING SYSTEMS,
INC.

 

FOR VALUE RECEIVED, EVOLVING
SYSTEMS, INC., a Delaware corporation (the “Maker”), having its
principal place of business at 9777 Mount Pyramid Court, Englewood, Colorado
80112, hereby promises to pay to the order of Tertio Telecoms Group Ltd., an
entity formed and registered in England and Wales with a company number 4419858
(“Payee”), having an address at One Angel Square, Torrens Street, London
EC1V 1NY, United Kingdom, the principal sum of [                                                           
Dollars ($                   )]
in lawful money of the United States of America.

 

1.             Definitions; Interpretations. 
In addition to other terms defined elsewhere in this Note, the
capitalized terms set forth in Schedule 1 attached hereto and incorporated
herein by reference shall have the meanings set forth therein unless defined
elsewhere herein or the context otherwise clearly requires.  Except as otherwise provided herein,
financial and accounting terms used elsewhere in this Note shall be defined in
accordance with GAAP.

 

2.             Payments of Principal and Interest. 
The outstanding principal under this Note and accrued but unpaid
interest thereon shall be due and payable at the aforesaid address of Payee or
such other place as Payee may designate on the Maturity Date.  The outstanding principal balance of this
Note shall bear interest at a rate per annum equal to [Insert here the “Applicable Federal Rate” for the
month in which this Note is issued], and shall be paid on each
Payment Date, commencing with the first Payment Date to occur after the date of
this Note.   To the extent not paid when
due hereunder, interest shall be compounded quarterly.

 

3.             Optional Prepayment. 
From and after the date hereof, Maker may, with the prior written
consent of the Payee, subject to Section 4, prepay this Note in whole or in
part.  There shall be no premium or
penalty in connection with any prepayment. 
Such prepayment shall include all accrued and unpaid interest on the
principal amount of such prepayment and be applied first against accrued and
unpaid interest, if any and then against principal outstanding under this Note.

 

B-2-1

 

4.             Mandatory Prepayments.

 

(a)           Within forty five (45) days after the end
of each fiscal quarter of Maker, starting with the fiscal quarter ending March
31, 2005, Maker shall deliver to Payee a certificate of the chief financial
officer of Maker in the form attached hereto as Exhibit A, specifying
the closing balance for each of the deposit accounts of Maker set forth thereon
on the last day of the most recently completed fiscal quarter (the aggregate of
such closing balance for all such accounts is the “Aggregate Quarterly
Closing Balance”).  Maker shall at
all times maintain, and such certificate of the chief financial officer of the
Maker shall state that the Maker has during the fiscal quarter to which such
certificate relates maintained, such deposit accounts in good faith, and made
all payments drawn against such deposit accounts in accordance with past
practices or current and owing obligations of Maker incurred in the ordinary
course of business.  Payee may in its
sole discretion within ten (10) days after receipt of such certificate, request
that Maker make a prepayment on this Note in the amount up to such amount by
which the Aggregate Quarterly Closing Balance exceeds $7,000,000 (the “Account
Prepayment Amount”), such payment to be allocated pro rata among the
Convertible Notes held by Payees who have requested such payment and Maker
shall make such prepayment on this Note within two (2) business days following
receipt of written demand from Payee. 
Such prepayment shall be applied first against accrued interest, if any,
and then against principal outstanding under this Note.

 

(b)           Upon a Change of Control of Maker, the
Payee, in its sole discretion, shall have the right to declare the entire
unpaid principal balance of this Note, together with interest accrued thereon
and with all other sums due or owed by Maker hereunder, due and payable
immediately.  Maker shall pay to Payee said
amounts within two (2) business days following receipt of written demand from
Payee; provided that Payee must exercise the payment option set forth in this
Section 4(b) within forty-five (45) days after receipt of a written notice from
Maker regarding the Change of Control, which notice shall describe in
reasonable detail the terms and conditions of the Change of Control and the
consideration to be paid upon the consummation of the Change of Control.

 

5.             Optional Conversion. 
At any time, and from time to time, prior to repayment of all amounts
due under this Note, all or any portion of the principal amount of this Note,
and any accrued but unpaid interest thereon, shall be convertible at the option
of the Payee into fully paid and non-assessable shares of the Maker’s common
stock, $0.001 par value per share (the “Common Stock”).  The number of shares of Common Stock (“Common
Shares”) that Payee shall be entitled to receive upon such conversion shall
be equal to the number attained by dividing the principal amount, including any
accrued but unpaid interest thereon, being converted by the Conversion
Price.  The term “Conversion Price”
shall mean $              ,(2)
as revised from time to time pursuant to Schedule 2 hereto.

 

6.             Mandatory Conversion. 
At any time prior to repayment of all amounts due under this Note all of
the principal amount of this Note, and any accrued but unpaid interest thereon,
shall be convertible at the option of the Maker into fully paid and
non-assessable shares of Common Stock, in the 

 

(2) The term
“Conversion Price” shall mean the product of: 
(x) the average closing price per share of the Common Stock on the
Nasdaq Stock Market (or such other applicable exchange) as reported by
Bloomberg or another reputable reporting service, determined over the ninety
(90) calendar-day period immediately following the joint public announcement by
the Maker and the Payee of the transactions contemplated by the Stock Purchase
Agreement, multiplied by (y) ninety (90%) percent.

 

 

B-2-2

 

event that, at any time
after the second anniversary of the issuance of this Note, the average of the
closing price per share of the Common Stock on the Nasdaq Stock Market (or
other applicable stock market exchange) as reported by Bloomberg or another
reputable reporting service, for a period of forty-five (45) day consecutive
days is equal to or greater than the product of the Conversion Price multiplied
by two and a half (2.5); provided that Maker must exercise the conversion
option set forth in this Section 6 within ten (10) consecutive days after the
last day of such forty-five (45) day period. 
The number of Common Shares that Payee shall be entitled to receive upon
such conversion shall be equal to the number attained by dividing the principal
amount, and any accrued but unpaid interest thereon, being converted by the
Conversion Price.

 

7.             Mechanics of Conversion.

 

(a)           In order to exercise the conversion
privilege, Payee shall surrender this Note, duly endorsed, to Maker’s address
set forth above, and shall give written notice of conversion to Maker stating
Payee’s election to convert this Note or the portion thereof specified in said
notice.  As promptly as practicable after
the surrender of this Note as aforesaid, Maker shall issue and shall deliver to
Payee a certificate or certificates for the number of full Common Shares
issuable upon the conversion of this Note or portion thereof registered in the
name of Payee in accordance with the provisions of this Section 7, and a check
or cash for the Fair Market Value of any fraction of a Common Share arising
upon such conversion.  For purposes of
this Note, the “Fair Market Value” of a share of Common Stock as of a
particular date shall be determined as follows: (i) if the Common Stock is
listed for trading on the Nasdaq Stock Market (or other applicable stock market
exchange), then the current value shall be the closing price per share of
Common Stock on Nasdaq Stock Market (or other applicable stock market exchange),
as reported by Bloomberg or other reputable reporting service, on the last
business day prior to the date of conversion of this Note, or if no such sale
is made on such day, the average of the closing bid prices for the Common Stock
for such day on such exchange or system; or (ii) if the Common Stock is not so
listed on an exchange or system or admitted to unlisted trading privileges, the
current value shall be the average of the last reported bid prices reported by
the National Quotation Bureau, Inc. on the last business day prior to the date
of the conversion of this Note; or (iii) if the Common Stock is not so listed
or admitted to unlisted trading privileges and if bid and asked prices are not
so reported, the current value shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Maker.

 

(b)           In case this Note shall be surrendered
for partial conversion, the Maker shall execute and deliver to Payee, without
charge, a new Note in an aggregate principal amount equal to the unconverted
principal amount of the surrendered Note.

 

(c)           Each conversion shall be deemed to have
been effected on the date on which this Note shall have been surrendered and
the conversion notice shall have been received by Maker, as aforesaid, and
Payee shall be deemed to have become on said date the holder of record of the
Common Shares issuable upon such conversion.

 

8.             Adjustment Provisions. 
Whenever the Conversion Price shall be adjusted pursuant to Schedule
2, the Maker shall forthwith file in the custody of its Secretary or an
Assistant Secretary at its office, and with its stock transfer, if any, an
officer’s certificate showing the adjusted Conversion Price determined as
herein provided and setting forth in reasonable detail the facts requiring such
adjustment.  

 

B-2-3

 

Each such officer’s
certificate shall be made available at all reasonable times for inspection by
the Payee and the Maker shall, forthwith after each such adjustment, deliver a
copy of such certificate to the Payee.

 

9.             Mergers, Consolidations, Sales.

 

(a)           Subject to Section 4(b) of this Note, in
the case of any consolidation or merger of Maker with another entity, or the
sale of all or substantially all of its assets to another entity, or any
reorganization or reclassification of the Common Stock or other equity
securities of Maker (each of the foregoing, a “Capital Transaction”),
then, as a condition of such consolidation, merger, sale, reorganization or
reclassification, lawful and adequate provision shall be made in the definitive
documentation to be executed by the parties to such Capital Transaction whereby
Payee shall thereafter have the right to receive upon the basis and upon the terms
and conditions specified herein and in lieu of the Common Shares immediately
theretofore issuable upon conversion of this Note, such shares of stock,
securities or assets as may (by virtue of such consolidation, merger, sale,
reorganization or reclassification) be issued or payable with respect to or in
exchange for a number of outstanding Common Shares equal to the number of
Common Shares immediately theretofore issuable upon conversion of this Note had
such consolidation, merger, sale, reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect
to the rights and interests of Payee to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon conversion of this
Note.  Maker shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than Maker) resulting from
such consolidation or merger or the entity purchasing such assets shall assume
by written instrument executed and mailed or delivered to Payee, the obligation
to deliver to Payee such shares of stock, securities or assets as, in accordance
with this Section 9, Payee may be entitled to receive.

 

(b)           On or before the date that is ten (10)
business days prior to Maker’s mailing of a stockholder proxy and notice of a
stockholder meeting in connection with a stockholder meeting called for the
purpose of approving a Capital Transaction, Maker shall provide the Payee with
written notice (the “Transaction Notice”).  The Transaction Notice shall describe in
reasonable detail the terms and conditions of the Capital Transaction and the
consideration to be paid upon the consummation of the Capital Transaction.  In the event the Capital Transaction would
result in a Change of Control of Maker, then as a condition of such Capital
Transaction, provision shall be made in the definitive documentation to be
executed by the parties to such Capital Transaction whereby (i) Payee may
exercise its rights as set forth in Section 9 and Section 4(b) of this Note and
(ii) the outstanding balance of
this Note be paid to the extent Payee has elected to have this Note be paid
pursuant to Section 4(b) of this Note.

 

10.           Registration Under the Securities Act of
1933.   The
Payee is entitled to the benefits of that certain Investor Rights Agreement (as
such term is defined in the Series B Designation), relating to registration of
the Common Shares issuable upon any conversion of this Note, and such agreement
is incorporated by reference into this Note.

 

11.           Security.

 

(a)           As security for the repayment of all
liabilities arising under this Note, the Maker hereby grants to Payee a first
priority security interest in and a lien on: (i) all of the Collateral (as that
term is defined in the Security Agreement) and (ii) all of the Collateral (as
that term is defined in the 

 

B-2-4

 

Pledge Agreement).  Payee shall have all rights provided to a
secured party under the Security Agreement and Pledge Agreement under the
Uniform Commercial Code of the State of Delaware.  The Maker shall execute and deliver such
documentation as Payee may reasonably request to evidence and perfect Payee’s
security interest granted in this Section 11 and under the Security Agreement
and Pledge Agreement.

 

(b)           The security interest securing the
repayment of all liabilities arising under this Note, and any guaranties
executed by the Maker or any of its Subsidiaries in favor of Payee (or any
collateral agent appointed for the benefit of Payee) in connection with this
Note, shall be automatically released and terminated on the date that the
aggregate outstanding balance of all of the Consideration Notes is equal to or
less than ten percent (10%) of the original aggregate principal amount of all
of the Consideration Notes at the time of issuance.  Upon the occurrence of such an event and
written notice thereof to the Payee:

 

(i)             the
Maker is hereby authorized to terminate all applicable security interests and
liens encumbering the Collateral;

 

(ii)            the
negative covenants set forth in Sections 13(b), 13(c), 13(d), 13(f), 13(j), and
13(k) of this Note shall terminate;

 

(iii)           the
negative covenants set forth in Section 13(e) of this Note shall be deemed
modified by adding (in addition to, and not in lieu of, all other Permitted
Indebtedness described in Section 13(e)) Indebtedness of the Maker and all
Subsidiaries in an amount not to exceed in the aggregate the principal amount
of $3,000,000 at any given time outstanding to the definition of Permitted
Indebtedness;

 

(iv)           the
negative covenant in Section 13(g) of this Note shall be deemed modified to
increase the limitation on Capital Expenditures to $5,000,000 in any fiscal
year; and

 

(v)            the
negative covenant in Section 13(i) of this Note shall be deemed modified to
provide that Investments by Maker in a minority equity interest of Persons
engaged in the Maker’s Business are Permitted Investments (in addition to, and
not in lieu of, all other Permitted Investments described in Section 13(i)),
provided that such investments do not exceed 5% of the Maker’s net worth at the
time of such Investments.

 

The Payee agrees
to take such actions and to execute and deliver such documents and instruments,
as may be reasonably requested by Maker and at the Maker’s expense, in order to
evidence the terminations described herein and to release any lien or security
interest in any collateral securing repayment of the liabilities arising under
this Note.

 

12.           Affirmative Covenants. 
Maker covenants and agrees that, so long as any Indebtedness is
outstanding hereunder, it shall comply, and shall cause its Subsidiaries (to
the extent applicable) to comply, with each of the following:

 

(a)           Upon the request of Payee from time to
time, (i) provide Payee and its representatives (at the Maker’s expense) access
to its books and records and to any of its and its Subsidiaries’ properties or
assets upon three (3) days’ advance notice and during regular business hours in
order that Payee or its representatives may make such audits and examinations
and make abstracts from 

 

B-2-5

 

such books, accounts,
records and other papers of Maker and its subsidiaries pertaining to their
deposit accounts, provided, however, that the Payee may conduct such
inspections and examinations no more frequently than twice in any 12-month
period, unless an Event of Default has occurred and is continuing, in which
case the Payee shall not be so limited, and (ii) upon reasonable advance
notification to Maker, permit Payee or its representatives to discuss the
affairs, finances and accounts with, and be advised as to the same by, officers
and independent accountants, all as Payee may deem appropriate, including
without limitation, for the purpose of verifying any certificate delivered by
Maker to Payee under Section 4 hereof, provided that any such parties are a
party to, or bound by, an acceptable non-disclosure agreement.  The Payee shall conduct at least one meeting
with an executive officer of the Maker in the course of each such inspection
and examination or discussion with officers or independent accountants.

 

(b)           Comply with all laws, ordinances or
governmental rules or regulations to which it is subject, and shall obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its businesses, except where the failure to so comply or obtain
or maintain would not reasonably be expected to have a Material Adverse Effect.

 

(c)           Except as otherwise permitted under
Section 13 of this Note, at all times preserve and keep in full force and
effect (i) its corporate existence and (ii) take all reasonable action to
maintain all rights and franchises necessary or desirable in the normal conduct
of its business, except to the extent that failure to do so in the case of
clause (ii) of this Section 12(c) would not reasonably be expected to have a
Material Adverse Effect.

 

(d)           Furnish to Payee notice of the occurrence
of any Event of Default within five (5) business days after it becomes known to
any of Maker’s Authorized Officers.

 

(e)           File all income tax or similar tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies payable by any of them, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, provided that Maker need not pay any such tax or
assessment if the amount, applicability or validity thereof is contested by
Maker on a timely basis in good faith and in appropriate proceedings, and Maker
has established adequate reserves therefor in accordance with GAAP on it books.

 

(f)            Operate Maker’s Business (as defined in
Section 13(m) of this Note) in the ordinary course of business except as provided
herein.

 

(g)           In any fiscal year, increase the
Compensation of Executive Officers of Maker only with the unanimous consent of
the Compensation Committee.

 

13.           Negative Covenants. 
Maker covenants and agrees that so long as any Indebtedness is outstanding
hereunder, neither it nor any of its Subsidiaries shall undertake any of the
following without obtaining the prior written consent of the Payee:

 

(a)           voluntarily liquidate, dissolve or wind
up, except for the liquidation, dissolution and winding-up of CMS
Communications, Inc. and Telecom Software Enterprises, LLC (“TSE”);

 

B-2-6

 

(b)           pay, declare or set aside any sums for
the payment of any dividends, or make any distributions on, any shares of its
capital stock or other securities or make prepayments of principal on any
Indebtedness except in the case of the following (each, a “Permitted Payment”):

 

(i)             prepayments
of principal or payments of interest on (A) any of the Consideration Notes, (B)
any Indebtedness incurred under the Working Capital Exclusion as provided in
Section 13(e)(x) of this Note and promissory notes issued to Peter McGuire and
Lisa Marie Maxson pursuant to the Acquisition Agreement dated October 15, 2004
by and among Maker, Peter McGuire and Lisa Marie Maxson (collectively, the “TSE
Promissory Notes”); provided that there is no Event of Default under this
Note and the collateral securing any such Indebtedness shall be added to the
Collateral (as defined in the Security Agreement) or (C) any Indebtedness of
Evolving Systems Holdings Limited (“ESHL”) or its Subsidiaries in favor
of Royal Bank of Scotland PLC and disclosed in Schedule 3 of this Note;

 

(ii)            dividends
or distributions payable in the common stock of Maker or any of its Subsidiaries;

 

(iii)           payments
in accordance with any Series B Approved Plan (as such term is defined in the
Series B Designation);

 

(iv)           dividends
or distributions payable by any of Maker’s Subsidiaries to the Maker;

 

(v)            dividends
or distributions by (A) any Permitted Subsidiary to another Permitted
Subsidiary or (B) any Non-Permitted Subsidiary to a Permitted Subsidiary;

 

(vi)           dividends
or distributions by a Subsidiary of ESHL to ESHL or another Wholly Owned
Subsidiary of ESHL;

 

(vii)          regularly
scheduled payments of principal on Indebtedness permitted under Section 13(e)
(excluding Sections 13(e)(iii) through 13(e)(viii)) of this Note; and

 

(viii)         payments
(whether regularly scheduled, upon demand or otherwise) of Indebtedness
permitted under Sections 13(e)(iii) through 13(e)(viii) to the extent such
payments are made to or received by Maker or a Subsidiary that is a guarantor;

 

(c)           purchase, acquire or obtain (i) any
capital stock or other proprietary interest, directly or indirectly, in any
other entity or (ii) all or a substantial portion of the business or assets of
another Person for consideration (including assumed liabilities) other than
Investments permitted under Section 13(i) and Permitted Acquisitions;

 

(d)           (i) sell or transfer all or a substantial
portion of its assets to another Person; (ii) sell, transfer or otherwise
dispose of any notes receivable or accounts receivable, with or without
recourse; or (iii) sell, lease, transfer or otherwise dispose of any asset or
group of assets (other than as described in clause (ii) above), except:

 

(i)             sales of
inventory in the ordinary course of business;

 

B-2-7

 

(ii)            sales or
liquidations of Investments permitted by Section 13(i);

 

(iii)           (A)
sales or other dispositions of property by any Subsidiary of Maker to the Maker
or to any other Subsidiary and (B) sales or other dispositions of property by
the Maker to any if its Subsidiaries, so long as the security interests granted
to the Payee pursuant to the Security Agreement in such assets shall remain in
full force and effect and perfected (to at least the same extent as in effect
immediately prior to such sale or other disposition) and provided that any such
Subsidiaries to whom such sales or dispositions are made are guarantors of the
Consideration Notes;

 

(iv)           sales or
other dispositions of obsolete, surplus or worn out property, whether now owned
or hereafter acquired, in the ordinary course of business, or other assets not
practically usable in the business of the Maker or its Subsidiaries; provided
that the aggregate amount of such sales or dispositions does not exceed
$250,000 in any fiscal year of the Maker;

 

(v)            Licenses
of intellectual property of Maker or its Subsidiaries in the ordinary course of
business and which would not otherwise reasonably result in a Material Adverse
Effect; or

 

(vi)           sales,
transfers or other dispositions that constitute a Change of Control;

 

(e)           create, incur, assume or suffer to exist
any Indebtedness, except, so long as no Event of Default then exists or would
exist as a result thereof, the following (“Permitted Indebtedness”):

 

(i)            Indebtedness
outstanding on the date of this Note and listed on Schedule 3 hereto, and
any refinancings, refundings, renewals or extensions thereof; provided that the
amount of such Indebtedness is not increased at the time of such refinancing,
refunding, renewal or extension;

 

(ii)           obligations
under the Consideration Notes and the TSE Promissory Notes;

 

(iii)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and Evolving Systems
Networks India Private Limited (“ESN”); provided that the aggregate
amount of all inter-company loans made by Maker or any Permitted Subsidiary to
ESN, when taken together with the aggregate amount of Permitted Investments in
ESN under Section 13(i)(ii) of this Note, does not exceed $750,000 in any
fiscal quarter;

 

(iv)         inter-company
Indebtedness between Maker or any Permitted Subsidiary and TSE; provided that
the aggregate amount of all inter-company loans made by Maker or any Permitted
Subsidiary to TSE, when taken together with the aggregate amount of Permitted
Investments in TSE under Section 13(i)(iii) of this Note, does not exceed
$125,000 in any year;

 

(v)          inter-company
Indebtedness between (A) Maker and its Permitted Subsidiaries or (B) a
Permitted Subsidiary with another Permitted Subsidiary;

 

B-2-8

 

(vi)         inter-company
Indebtedness owing by Maker or a Permitted Subsidiary to a Non-Permitted
Subsidiary;

 

(vii)        inter-company
Indebtedness between (A) ESHL and any of its Wholly Owned Subsidiaries or
(B) a Wholly Owned Subsidiary of ESHL with another Wholly Owned Subsidiary of
ESHL;

 

(viii)       inter-company
Indebtedness owing by ESHL or any Wholly Owned Subsidiary of ESHL to Maker or a
Permitted Subsidiary, provided that such
Indebtedness shall be incurred solely to (A) supplement the internally
generated working capital required to fund the operation of the business of
ESHL or ESHL’s Wholly Owned Subsidiaries in the ordinary course or (B) fund
Capital Expenditures permitted under Section 13(g) of this Note, and provided further that promptly upon the
incurrence of such Indebtedness, Maker shall give the Payees written notice of
the making thereof and the amount thereof;

 

(ix)          purchase
money Indebtedness to fund the purchase of property otherwise permitted under
Section 13(g) of this Note and Indebtedness constituting Capital Leases
permitted under Section 13(g);

 

(x)           Indebtedness
in the form of an unsecured line of credit in an amount not to exceed in the
aggregate the principal amount of $2,000,000 at any time outstanding (the “Working
Capital Exclusion”);

 

(xi)          Accrual of
interest, accretion or amortization of original issue discount or
payment-in-kind interest in connection with Indebtedness otherwise permitted
under this Section 13(e);

 

(xii)         (A)
Indebtedness incurred in connection with a Permitted Acquisition and (B)
Indebtedness for Capital Leases assumed pursuant to a Permitted Acquisition,
provided that the aggregate Indebtedness of clause (A) and (B) of this Section 13(e)(xii)
outstanding at any time does not exceed $1,000,000;

 

(xiii)        to
the extent under GAAP, the Series B Preferred Stock would be treated as debt or
mezzanine financing on the financial statements of Maker;

 

(xiv)        Indebtedness
incurred in connection with the financing of insurance premiums in the ordinary
course of business in an amount not to exceed $500,000 in any fiscal year; and

 

(xv)         Indebtedness
owing from ESHL to Maker for the sole purpose of consummating the transactions
contemplated by the Stock Purchase Agreement, provided
that, the aggregate amount of such Indebtedness, when taken together
with the aggregate amount of Permitted Investments by Maker in ESHL under
Section 13(i)(vii) of this Note, does not exceed $12,500,000;

 

(f)            mortgage, encumber, or create or suffer
to exist Liens on any of its assets, other than the following (each, a “Permitted
Lien”);

 

B-2-9

 

(i)             encumbrances
or Liens in favor of Payee or any holder of the Consideration Notes;

 

(ii)            Liens
that arise out of operation of law;

 

(iii)           easements,
rights-of-way, restrictions (including zoning restrictions) and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person and none of which is violated
by existing or proposed restrictions on land use;

 

(iv)           Liens
securing Indebtedness permitted under Section 10(e)(vi); provided that (A) such
Liens do not at any time encumber any property other than the property financed
by such Indebtedness and (B) the Indebtedness secured thereby does not exceed
the cost of property being acquired on the date of acquisition and (C) such
Liens are granted substantially contemporaneously with the acquisition of such
property;

 

(v)            Liens
existing on the date hereof and listed on Schedule 3 hereto and any
renewals or extensions thereof, provided
that (A) the property covered thereby is not changed,
(B) the amount secured or benefited thereby is not increased, and
(C) any renewal or extension of the obligations secured or benefited thereby
is not prohibited by this Note; and

 

(vi)           Liens on
insurance policies and the proceeds thereof incurred in connection with the
financing of insurance premiums in the ordinary course of business in an amount
not to exceed $500,000 in any fiscal year;

 

(g)           make or commit to make any Capital
Expenditures (whether by expenditure of cash or the incurrence of Indebtedness
for Capital Leases to fund the acquisition of property pursuant to any
permitted Capital Expenditure); provided that, the cash paid for the Capital
Expenditure, when taken together with the aggregate liability required by GAAP
consistently applied and in accordance with the Maker’s past practice, to be
reflected in Maker’s financial statements in respect of any Capital Lease (“Lease
Liability”) plus the sum of (i) any cost incurred by Maker in connection
with the acquisition, delivery or installation of the property which is the
subject of the Capital Lease, but which cost is not included in the Lease
Liability and (ii) to the extent not otherwise reflected in the Capital Lease
payments, interest expense incurred in respect of the Capital Lease for the
relevant fiscal year will be deemed a Capital Expenditure made or committed
during the fiscal year in which the Capital Lease is signed or becomes
effective, whichever first occurs, does not exceed $2,000,000 in any fiscal
year;

 

(h)           enter into any transaction with any of
its Affiliates that is less favorable to Maker or any of its Subsidiaries than
would have been the case if such transaction had been effected on an arms
length basis with a Person other than an Affiliate, except for transactions
between and among Maker and its Subsidiaries otherwise permitted under this
Note;

 

(i)            enter into or make any Investments, other
than the following (each, a “Permitted Investment”):

 

(i)             Cash
Equivalents;

 

B-2-10

 

(ii)            (A)
equity Investments existing as of the date hereof in ESN and (B) equity
Investments made after the date hereof by Maker or any Permitted Subsidiary in
ESN provided that any such Investments, when taken together with all
inter-company loans made by Maker or any Permitted Subsidiary to ESN permitted
under Section 13(e)(iii) of this Note, does not exceed $750,000 in any fiscal
quarter;

 

(iii)           (A)
equity Investments existing as of the date hereof in TSE and (B) equity
Investments made after the date hereof in TSE provided that any such
Investments, when taken together with all inter-company loans made by Maker or
any Permitted Subsidiary to TSE permitted under Section 13(e)(iv) of this Note,
does not exceed $125,000 in any fiscal year;

 

(iv)           equity
Investments (A) existing as of the date hereof in any Permitted Subsidiary and
(B) equity Investments made after the date hereof in any Permitted Subsidiary;

 

(v)            (A)
equity Investments existing as of the date hereof in ESHL or any of ESHL’s
Wholly Owned Subsidiaries, (B) equity Investments made after the date hereof by
Maker in ESHL, provided that such
Investments shall be made solely to (1) supplement the internally generated
working capital required to fund the operation of the business of ESHL or ESHL’s
Wholly Owned Subsidiaries in the ordinary course or (2) fund Capital
Expenditures permitted under Section 13(g) of this Note, and provided further that promptly upon the
making of any such Investments, Maker shall give the Payees written notice of
the making thereof and the amount thereof, and (C) equity Investments made
after the date hereof by ESHL or a Wholly Owned Subsidiary of ESHL in any of ESHL’s
Wholly Owned Subsidiaries;

 

(vi)         equity
Investments by a Non-Permitted Subsidiary in a Permitted Subsidiary;

 

(vii)          equity
Investments by Maker in ESHL for the sole purpose of consummating the
transactions contemplated by the Stock Purchase Agreement, provided
that, the aggregate amount of such Investments, when taken together
with the aggregate amount of Permitted Indebtedness under Section 13(e)(xv) of
this Note, does not exceed $12,500,000, provided
further that, the amount of such equity Investments shall not exceed
fifty percent (50%) of the aggregate amount of the equity Investments made
pursuant to this Section 13(i)(vii) plus the aggregate amount of Permitted
Indebtedness permitted under Section 13(e)(xv) of this Note;

 

(viii)         Investments
consisting solely of appreciation in value of existing Investments permitted
hereunder;

 

(ix)           any
Permitted Payments under Section 13(b) of this Note, without duplication;

 

(x)            any
Permitted Indebtedness under Section 13(e) of this Note, without duplication;
and

 

(j)            change its fiscal year;

 

B-2-11

 

(k)           establish any bank accounts into which
accounts receivable are deposited, other than those listed on Exhibit B
unless such bank accounts shall be pledged to Payee and the other secured
parties pursuant to the Security Agreement;

 

(l)            change or amend its Certificate of
Incorporation or Bylaws in a manner adverse to Payee’s rights and remedies
under this Note, any Consideration Note, the Security Agreement or the Pledge Agreement;
or

 

(m)          engage in any material line of business
not related to the OSS communications industry or any business reasonably
related or incidental thereto (the “Maker’s Business”).

 

14.           Determination of Accretive. 
In the event the Maker proposes to enter into an agreement to acquire
another Person (the “Proposed Acquisition”), the Maker shall mail
written notice of such event, together with the Financial Projections, to the
Payee, no later than twenty (20) calendar days prior to the contemplated effective
date of the Proposed Acquisition.  The
Financial Projections shall be deemed accepted and conclusive and binding upon
the Payee, unless the Payee shall give written notice to the Maker of the items
in the Financial Projections with which the Payee disagrees (the “Accretive
Calculation Disagreement Notice”) within twenty (20) calendar days of the
receipt by the Payee of the Financial Projections.  The Accretive Calculation Disagreement Notice
shall specify each item disagreed with by the Payee (or the Payee’s calculation
thereof) and the dollar amount of such disagreement.  The Maker may, within twenty (20) calendar
days of its receipt of the Accretive Calculation Disagreement Notice, advise
the Payee that the Maker has accepted the position of the Payee as set forth on
the Accretive Calculation Disagreement Notice, whereupon the Proposed
Acquisition shall be considered a Permitted Acquisition Event for all purposes
of this Note.  If the Maker does not
notify the Payee of the Maker’s acceptance of the Payee’s position, then the
Maker and the Payee shall, during the twenty (20) calendar days after receipt
by the Maker of the Accretive Calculation Disagreement notice, negotiate in
good faith to resolve any such disagreements. 
If at the end of such twenty (20) calendar days, the Maker and Payee
have been unable to resolve their disagreements, either the Maker or the Payee
may engage on behalf of the Maker and the Payee, Grant Thornton LLP (or such
other Person mutually agreed to in writing by the Maker and Payee) (the “Unaffiliated
Firm”) to resolve the matters set forth in the Accretive Calculation
Disagreement Notice.  The Unaffiliated
Firm shall (i) resolve the disagreement as to the Financial Projections as
promptly as possible after its engagement by the parties; (ii) thereby consider
and resolve only those items in the Accretive Calculation Disagreement Notice
which remain unresolved between the Maker and the Payee; and (iii) shall
otherwise employ such procedures as it, in its sole discretion, deems necessary
or appropriate in the circumstances.  The
Unaffiliated Firm shall submit to the Maker and the Payee a report of its
review of the items in the Accretive Calculation Disagreement Notice as quickly
as practicable and shall include in such report its determination as to whether
the effect of the proposed merger or consolidation is Accretive.  The determination so made by the Unaffiliated
Firm shall be conclusive, binding on, and non-appealable by, the Maker and the
Payee.  The fees and disbursements of the
Unaffiliated Firm shall be borne one half by the Maker and one half by the
Payee.  Notwithstanding all of the
foregoing, the Maker may elect, at any time, not to comply with this Section 14
with respect to a Proposed Transaction (or if the Maker otherwise fails to
properly comply with the terms of this Section 14) in which event, the
transaction shall be deemed not to be Accretive.

 

B-2-12

 

15.           Events of Default. 
For purposes of this Note, an “Event of Default” shall have
occurred hereunder if:

 

(a)            Maker shall fail to pay within one (1)
business day after the date when due any payment of principal, interest, fees,
costs, expenses or any other sum payable to Payee hereunder or otherwise,
including the other Consideration Notes;

 

(b)            Maker shall default in the performance of
any other agreement or covenant contained herein (other than as provided in
Section 15(a) of this Note) or under any Consideration Note or in the Security
Agreement or Pledge Agreement, and such default shall continue uncured for
twenty (20) consecutive days after notice thereof to Maker given by Payee;

 

(c)            Maker becomes insolvent or generally
fails to pay its debts as such debts become due or admits in writing its
inability to pay its debts as such debts become due; or shall suffer a
custodian, receiver or trustee for it or substantially all of its property to
be appointed and if appointed without its consent, not be discharged within
ninety (90) consecutive days; makes a general assignment for the benefit of
creditors; or suffers proceedings under any law related to bankruptcy,
insolvency, liquidation or the reorganization, readjustment or the release of
debtors to be instituted against it and if contested by it not dismissed or
stayed within ninety (90) consecutive days; if proceedings under any law
related to bankruptcy, insolvency, liquidation, or the reorganization,
readjustment or the release of debtors is instituted or commenced by or against
Maker and, in the case of proceedings not instituted or commenced by Maker, if
contested by Maker, and not dismissed or stayed within ninety (90) consecutive
days; if any order for relief is entered relating to any of the foregoing
proceedings which order is not stayed; if Maker shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
if Maker shall by any act or failure to act indicate its consent to, approval
of or acquiescence in any of the foregoing;

 

(d)            (i) 
This Note, any of the other Consideration Note or the Security Agreement
or the Pledge Agreement shall, for any reason (other than payment or
satisfaction in full of the obligations represented thereby) not be or shall
cease to be in full force and effect (other than in accordance with its terms)
or shall be declared null and void or (ii) Payee or any other secured party
under the Security Agreement or the Pledge Agreement shall not give or shall
cease to have a valid and perfected Lien in any collateral under such Security
Agreement or Pledge Agreement (other than by reason of a release of collateral
in accordance with the terms hereof or thereof) with the priority required by
the Security Agreement or Pledge Agreement, as applicable, or (iii) the
validity or enforceability of any of the Consideration Notes or the liens
granted, to be granted, or purported to be granted, by the Security Agreement
or the Pledge Agreement shall be contested by the Maker;

 

(e)            If Maker shall be in default with respect
to any payment, when due (subject in each case to applicable grace or cure
periods), of any Indebtedness in excess of $175,000 (other than under this Note
or any other Consideration Note), or any other default shall occur under any
agreement or instrument evidencing such Indebtedness, if the effect of such
non-payment default is to accelerate the maturity of such Indebtedness or to
permit the holder thereof to cause such Indebtedness to become due prior to its
stated maturity, and such default shall not be remedied, cured, waived or
consented to within the period of grace with respect thereto, or any other
circumstance which arises (other than the mere passage of time) by reason of
which any such Indebtedness shall become or be declared to be due and payable
prior to its stated maturity; or

 

(f)             If: 
(i) as of June 30, 2005, Maker’s EBITDA for the most recently ended
fiscal half year shall not exceed $0, or (ii) beginning with the fiscal half
year ending December 31, 2005, 

 

B-2-13

 

as of the last day of any
fiscal half year ending in any June or December, Maker’s Ratio of Indebtedness
to EBITDA shall be greater than 4-to-1. 
For purposes of calculating EBITDA for this Section 15(f), (x) all
non-cash charges for goodwill impairment resulting from the transactions
contemplated by the Stock Purchase Agreement shall be added back to Net Income;
and (y) Net Income shall not be modified as a result of any “mark to market”
adjustments resulting from any anti-dilution or other adjustments with respect
to this Note or the Maker’s Series B Preferred Stock.  For the purposes of calculating Indebtedness
for this Section 15(f), Indebtedness shall not be modified as a result of any “mark
to market” adjustments resulting from any anti-dilution or other adjustments
with respect to this Note or the Maker’s Series B Preferred Stock.

 

(g)            If Maker shall have breached its covenant
under the Stock Purchase Agreement to duly convene a Stockholder Meeting (as
defined in the Stock Purchase Agreement) within the time period set forth
therein.

 

(h)            If Maker or shall have failed to have a
Shelf Registration Statement filed and declared effective as provided under
Section 5 of the Series B Designation.

 

Notwithstanding anything
contained herein to the contrary, no Event of Default shall be deemed to have
occurred under this Note if the Event of Default resulted solely from a breach
of any representation, warranty or covenant of Tertio Telecoms Group Limited
under the Stock Purchase Agreement.

 

16.           Consequences of Default. 
Upon the occurrence and during the continuance of an Event of Default:

 

(a)           upon receipt of notice from Payee, at
Payee’s option, Maker shall immediately pay to Payee (to the extent not
previously paid) any Account Prepayment Amount (calculated as of the most
recent test dates), regardless of whether Payee requested any such payment at
the time of calculation (provided, that so long as there remains any amount
outstanding under the terms of any Consideration Notes held by Payee, Maker
shall allocate payments of the Account Prepayment Amount to this Note and the
other Consideration Notes in the amounts and priorities determined by Payee in
its sole discretion; and

 

(b)           the entire unpaid principal balance of
this Note, together with interest accrued thereon and with all other sums due
or owed by Maker hereunder, as well as all out-of-pocket costs and expenses
(including but not limited to attorneys’ fees and disbursements) incurred by
Payee in connection with the collection or enforcement of this Note, the
Security Agreement or the Pledge Agreement, shall at the option of Payee, and
by notice to Maker (except if an Event of Default described in Section 15(c)
shall occur in which case acceleration shall occur automatically without
notice) be declared to be due and payable immediately, and payment of the same
may be enforced and recovered by the entry of judgment of this Note and the
issuance of execution thereon.

 

In addition to all of the sums payable hereunder,
Maker agrees to pay the Payee all reasonable costs and expenses incurred by
Payee in connection with any and all actions taken to enforce collection of
this Note, the Security Agreement and the Pledge Agreement upon the occurrence
of an Event of Default, including all reasonable attorneys’ fees.

 

B-2-14

 

17.           Remedies not Exclusive. 
The remedies of Payee provided herein or otherwise available to Payee at
law or in equity shall be cumulative and concurrent, and may be pursued singly,
successively and together at the sole discretion of Payee, and may be exercised
as often as occasion therefor shall occur; and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of the
same.

 

18.           Notices.  All notices
required to be given to any of the parties hereunder shall be in writing and
shall be deemed to have been sufficiently given for all purposes when presented
personally to such party or sent by certified or registered mail, return
receipt requested, to such party at its address set forth below:

 

	
  If to the Maker:

  	
  Evolving Systems, Inc.

  9777 Mt. Pyramid Ct., Suite 100

  Englewood, CO 80112

  Attention:  Anita Moseley, General
  Counsel

  Tel.:  (303) 802-2599

  Fax:  (303) 802-1138

  

  with a copy to:

  

  Holme Roberts & Owen LLP

  1700 Lincoln St., Suite 4100

  Denver, CO 80203-4541

  Attention:  Charles D. Maguire, Jr.,
  Esq.

  Tel:  (303) 861-7000

  Fax:  (303) 866-0200

  
	
   

  	
   

  
	
  If to the Payee:

  	
  Tertio
  Telecoms Group Ltd.

  c/o Apax Partners Ltd.

  15 Portland Place

  London W1B 1PT

  United Kingdom

  

  Attn:  Peter Skinner

  Tel:  44.20.7843.4000

  Fax: 44.20.7843.4001

  
	
   

  	
   

  
	
  With copies to:

  	
  Advent International plc

  123 Buckingham Palace Road

  London SW1W 9SL

  United Kingdom

  

  Attn:  James Brocklebank

  Tel:  44.20.7333.5516

  Fax:  44.20.7333.0801

  

 

B-2-15

 

	
   

  	
  Pepper Hamilton LLP

  3000 Two Logan Square

  18th and Arch Streets

  Philadelphia, Pennsylvania 19103

  Attn:  Cary S. Levinson, Esq.

  Tel:  (215) 981-4091

  Fax:  (215) 981-4750

  

 

Such notice shall be deemed
to be given when received if delivered personally or five (5) business days
after the date mailed.  Any notice mailed
shall be sent by certified or registered mail. 
Any notice of any change in such address shall also be given in the
manner set forth above.  Whenever the
giving of notice is required, the giving of such notice may be waived in
writing by the party entitled to receive such notice.

 

19.           Severability. 
In the event that any provision of this Note is held to be invalid,
illegal or unenforceable in any respect or to any extent, such provision shall
nevertheless remain valid, legal and enforceable in all such other respects and
to such extent as may be permissible. 
Any such invalidity, illegality or unenforceability shall not affect any
other provisions of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.

 

20.           Successors and Assigns; Assignments. 
This Note inures to the benefit of the Payee and binds the Maker, and
its successors and assigns, and the words “Payee” and “Maker” whenever
occurring herein shall be deemed and construed to include such respective
successors and assigns.  Maker may not
assign or transfer this Note, without the consent of Payee.  At any time and from time to time, the Payee,
in its sole discretion, may transfer to any Person all or a portion of the
outstanding principal and/or accrued interest hereunder without the consent of
the Maker, provided, however, this Note may not be assigned, transferred
or sold by Payee to any Person that engages in, or controls an entity that
engages in, a business competitive with the Maker’s business.  Furthermore, as a condition of the transfer,
any transferee of Payee of this Note must agree to become bound by the
provisions of this Note, the Security Agreement and the Pledge Agreement.

 

21.           Entire Agreement. 
This Note (together with the other Consideration Notes, the Security
Agreement and the Pledge Agreement) contains the entire agreement between the
parties with respect to the subject matter hereof and thereof.

 

22.           Modification of Agreement. 
This Note may not be modified, altered or amended, except by an
agreement in writing signed by both the Maker and the Payee.

 

23.           Releases by Maker. 
Maker hereby releases Payee from all technical and procedural errors,
defects and imperfections whatsoever in enforcing the remedies available to
Payee upon a default by Maker hereunder and hereby waives all benefit that
might accrue to Maker by virtue of any present or future laws exempting any
property, real or personal, or any part of the proceeds arising from any sale
of any such property, from attachment, levy or sale under execution, or
providing for any stay of execution, exemption from civil process or extension
of time, and agrees that such property may be sold to satisfy any judgment
entered on this Note, in whole or in part and in any order as may be desired by
Payee.

 

B-2-16

 

24.           Waivers by Maker. 
Maker (and all endorsers, sureties and guarantors) hereby waives
presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default or enforcement
of the payment of this Note (other than notices expressly required by the terms
of this Note, the Security Agreement or the Pledge Agreement); liability
hereunder shall be unconditional and shall not be affected in any manner by an
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee.

 

25.           Revenue and Stamp Tax. 
Maker shall pay all reasonable out-of-pocket expenses incurred by the
Payee in connection with any revenue, tax or other stamps now or hereafter
required by law at any time to be affixed to this Note.

 

26.           Governing Law. 
This Note shall be governed by and construed in accordance with the laws
of the State of Delaware, without reference to conflict of laws principles.

 

27.           Consent to Jurisdiction and Service of
Process.  Maker irrevocably appoints each of Maker’s
Authorized Officers as its attorneys-in-fact upon whom may be served any
notice, process or pleading in any action or proceeding against it arising out
of or in connection with this Note. 
Maker hereby consents that any action or proceeding against it may be
commenced and maintained in any court within the State of Delaware or in the
United States District Court of Delaware by service of process on any such
officer.  Maker further agrees that the
courts of the State of Delaware and the United States District Court of
Delaware shall have jurisdiction with respect to the subject matter hereof and
the person of Maker and the collateral securing Maker’s obligations
hereunder.  Notwithstanding the
foregoing, Payee, in its absolute discretion, may also initiate proceedings in
the courts of any other jurisdiction in which Maker may be found or in which
any of its properties or any such collateral may be located.

 

28.           Headings.  The headings
of the sections of this Note are inserted for convenience only and do not
constitute a part of this Note.

 

29.           WAIVER OF JURY TRIAL. 
MAKER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COLLATERAL
SECURITY DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF PAYEE. 
THIS PROVISION IS A MATERIAL INDUCEMENT FOR PAYEE’S ADVANCING THE FUNDS
UNDER THIS NOTE.

 

30.           ACKNOWLEDGEMENTS. 
MAKER ACKNOWLEDGES THAT IT HAS HAD THE ASSISTANCE OF COUNSEL IN THE
REVIEW AND EXECUTION OF THIS NOTE, AND FURTHER ACKNOWLEDGES THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL SET FORTH IN SECTION 29 HAVE
BEEN FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.

 

 

[Signature Page Follows]

 

B-2-17

 

IN WITNESS WHEREOF, the
Maker has duly executed this Note as of the date first set forth above.

 

	
   

  	
  EVOLVING SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

Acknowledged and Agreed:

 

PAYEE:

 

Tertio Telecoms Group Ltd.

 

	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

B-2-18

 

SCHEDULE 1

DEFINITIONS

 

“Accretive” shall
mean that the projected pro forma consolidated EBITDA (calculated on a per
share basis) of the Maker and the other constituent entity(ies) in such
transaction, and the respective Consolidated Subsidiaries of the Maker and such
constituent entity(ies) for the twelve calendar month period immediately
following such transaction, is not less than the projected EBITDA (calculated
on a per share basis), on a consolidated basis, of the Maker and its
Consolidated Subsidiaries for the same period, all as presented in the
Financial Projections.

 

“Additional Shares of
Common Stock” shall mean all shares of Common Stock issued (or, pursuant to
Section (ii) of Schedule 2, deemed to be issued) by the Maker after the Note
Issue Date, other  than shares of Common Stock issued, issuable or
deemed issued:

 

(i)             by
reason of a dividend, stock split, split-up or other distribution on shares of
Common Stock that is covered by Section (c), (d) or (e) of Schedule 2;

 

(ii)            by reason
of Options granted or stock issued with the approval of the Board to employees,
independent contractors, officers or directors of the Corporation or any
Corporation Subsidiary pursuant to an equity incentive plan approved by the
stockholders of the Corporation; or

 

(iii)           by
reason of the conversion of any capital stock, convertible or exchangeable
notes or any other instruments issued by the Corporation in connection with the
Stock Purchase Agreement.

 

“Affiliate” shall
mean, with respect to any Person, any other Person which directly or indirectly
Controls, is Controlled by or is under common Control with such Person.

 

“Affiliated Group”
shall mean a group of Persons, each of which is an Affiliate of some other
Person in the group.

 

“A Notes” means the
Senior Secured Notes dated as of November 2, 2004 by Maker in favor of Payee in
the original aggregate principal amount of $11,950,000, each as they may be
amended, restated, modified or replaced in substitution in whole or in part by
any other note or notes from time to time, including, but not necessarily
limited to, the Senior Secured Notes by Maker in favor of Payee which may be
issued in substitution for or in addition to the A Notes issued to Payee by
Maker under the terms of such A Notes.

 

“Authorized Officer”
shall mean, with respect to Maker, the chief executive officer, chief financial
officer, any vice president, treasurer, comptroller, or general counsel.

 

“B-1 Note” means the
Senior Secured Note by Maker in favor of Payee in such aggregate principal
amount Maker may issue as a result of the outcome of the stockholder vote of
the matters presented for their approval at the Initial Stockholder Meeting (as
such term is defined in the Series B Designation), as it may be amended,
restated, modified or replaced in substitution in whole or in part by any other
note or notes from time to time, including, but not necessarily limited to, the
Senior Secured 

 

B-2-19

 

Note by Maker in favor of Payee which may be
issued in substitution for or in addition to the B-1 Note issued to Payee by
Maker under the terms of such B-1 Note.

 

“Capital Expenditures”
shall mean, with respect to any Person for any period, the aggregate of all
expenditures (whether paid in cash, or incurred by entering into a synthetic
lease arrangement or a Capital Lease, or otherwise accrued as a liability) by
such Person during that period which, in accordance with GAAP, are or should be
included in “additions to property, plant or equipment” or similar items
reflected in the statement of cash flows of such Person, and all research and
development expenditures which in accordance with GAAP are or should be
accounted for as a capital expenditure in the balance sheet of that Person, but
excluding expenditures to the extent reimbursed or financed from insurance
proceeds paid on account of the loss of or the damage to the assets being
replaced or restored, or from awards of compensation arising from the taking by
condemnation or eminent domain of such assets being replaced.

 

“Capital Lease”, as
applied to any Person, shall mean any lease of any property (whether real,
personal or mixed) by that Person as lessee which, in accordance with GAAP, is
or should be accounted for as a capital lease on the balance sheet of that
Person.

 

“Cash Equivalents”
shall mean any of the following: (i) full faith and credit obligations of the
United States of America, or fully guaranteed as to interest and principal by
the full faith and credit of the United States of America, maturing in not more
than one year from the date such investment is made; (ii) time deposits and
certificates of deposit, Eurodollar time deposits, overnight bank deposits and
other interest bearing deposits or accounts (other than securities accounts) or
bankers’ acceptances having a final maturity of not more than one year after the
date of issuance thereof of any commercial bank incorporated under the laws of
the United States of America or any state thereof or the District of Columbia,
which bank is a member of the Federal Reserve System and has a combined capital
and surplus of not less than $500,000,000.00 and with a senior unsecured debt
credit rating of at least “A-2” by Moody’s or “A” by S&P; (iii) commercial
paper of companies, banks, trust companies or national banking associations
incorporated or doing business under the laws of the United States of America
or one of the States thereof or the District of Columbia, in each case having a
remaining term until maturity of not more than two hundred seventy (270) days
from the date such investment is made and rated at least P-1 by Moody’s or at
least A-1 by S&P; (iv) repurchase agreements with any financial institution
having combined capital and surplus of not less than $500,000,000.00 with a
term of not more than seven (7) days for underlying securities of the type
referred to in clause (i) above; and (v) money market funds which invest
primarily in the Cash Equivalents set forth in the preceding clauses (i) -
(iv).

 

“Change in Control”
shall mean (i) any Person, Affiliated Group or group (such term being used as
defined in the Securities Exchange Act of 1934, as amended), other than a
Primary Holder (as such term is defined in the Series B Designation) acquiring
ownership or control of in excess of 50% of equity securities having voting
power to vote in the election of the Board of Directors of Maker either on a
fully diluted basis or based solely on the voting stock then outstanding, (ii)
if at any time, individuals who at the date hereof constituted the Board of
Directors of Maker (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
Maker, as the case may be, was approved by a vote of the majority of the
directors then still in office who were either directors at the date hereof or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of Maker then in
office, (iii) the direct or indirect sale, transfer, conveyance or other
disposition, in one or a series of related 

 

B-2-20

 

transactions, of all or substantially all of
the properties or assets of Maker to any Person or (iv) the adoption of a plan
relating to the liquidation or dissolution of Maker.

 

“Closing Share Price”
means the product of (i) the Conversion Price multiplied by (ii) 111.1%.

 

“Compensation” means
all salary and bonuses, but excludes any compensation under any equity
incentive plan.

 

“Consideration Notes”
means the collective reference to this Note, A Notes, B-1 Note, and the Short
Term Note.

 

“Consolidated
Subsidiaries” shall mean all Subsidiaries of a Person which are required or
permitted to be consolidated with such Person for financial reporting purposes
in accordance with GAAP.

 

“Control” shall mean,
as to any Person, the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of greater than 50%
of the voting securities of such Person or by acting as the general partner of
a limited partnership (the terms “Controlled by” and “under common Control with”
shall have correlative meanings.)

 

“Convertible Securities”
shall mean any evidences of indebtedness, shares or other securities directly
or indirectly convertible into or exchangeable for Common Stock, but excluding
Options.

 

“EBITDA” shall mean
for any period, Net Income for such period plus, without duplication, the
aggregate amounts deducted in determining Net Income during such period, the
sum of (A) interest paid on indebtedness for such period, (B) income taxes for
such period, (C) depreciation expense for such period and (D) amortization
expense for such period, all as determined in accordance with GAAP as applied
in accordance with past practice.

 

“Executive Officer”
means any officer of Maker whose compensation is determined by the Compensation
Committee of the Board of Directors of Maker.

 

“Financial Projections”
shall mean written financial projections prepared by Maker and certified by
Maker’s chief financial officer, prepared in good faith and based upon
reasonably assumptions and estimates regarding the economic, business, industry
market, legal and regulatory circumstances and conditions relevant to the
Maker.

 

“GAAP” means
generally accepted accounting principles set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements of the Financial Accounting Standards Board; and
such principles observed in a current period shall be comparable in all
material respects to those applied in a preceding period.

 

“Guaranty” shall
mean, as to any Person, any direct or indirect obligation of such Person
guaranteeing or intending to guarantee, or otherwise providing credit support,
for any Indebtedness, Capital Lease, dividend or other monetary obligation (“primary
obligation”) of any other Person (the “primary obligor”) in any
manner, whether directly or indirectly, by contract, as a general partner or
otherwise, including, without limitation, any obligation of such Person, whether
or not contingent, (a) to 

 

B-2-21

 

purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance
or supply funds (i) for the purchase or payment of any such primary obligation
or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, or (c) to purchase property, securities or services from the primary
obligor or other Person, in each case, primarily for the purpose of assuring
the performance of the primary obligor of any such primary obligation or
assuring the owner of any such primary obligation of the repayment of such
primary obligation.  The amount of any
Guaranty shall be deemed to be an amount equal to (x) the stated or
determinable amount of the primary obligation in respect of which such Guaranty
is made (or, if the amount of such primary obligation is not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder)) or (y) the
stated maximum liability under such Guaranty, whichever is less.

 

“Indebtedness” shall
mean (without double counting), at any time and with respect to any Person, (i)
indebtedness of such Person for borrowed money (whether by loan or the issuance
and sale of debt securities) or for the deferred purchase price of property or
services purchased (other than amounts constituting trade payables arising in
the ordinary course of business and payable in accordance with customary
trading terms not in excess of 90 days or, if overdue for more than 90 days, as
to which a dispute exists and adequate reserves in conformity with GAAP have
been established on the books of such Person); (ii) all indebtedness of
such Person evidenced by a note, bond, debenture or similar instrument (whether
or not disbursed in full in the case of a construction loan); (iii)
indebtedness of others which such Person has directly or indirectly assumed or
guaranteed or otherwise provided credit support therefore (other than for
collection or deposit in the ordinary course of business); (iv) indebtedness of
others secured by a Lien on assets of such Person, whether or not such Person
shall have assumed such indebtedness (provided, that if such Person has
not assumed such indebtedness of another Person then the amount of indebtedness
of such Person pursuant to this clause (iv) for purposes of this Note shall be
equal to the lesser of the amount of the indebtedness of the other Person or
the fair market value of the assets of such Person which secures such other
indebtedness); (v) obligations of such Person relative to the face amount
of letters of credit, acceptance facilities, or drafts or similar instruments
issued or accepted by banks and other financial institutions for the account of
such Person; (vi) that portion of obligations of such Person under Capital
Leases that is properly classified as a liability on a balance sheet in conformity
with GAAP; (vii) all obligations of such Person under any Interest Rate
Protection Agreement; (viii) deferred payment obligations of such Person
resulting from the adjudication or settlement of any litigation; and (ix) any
Guaranty by such Person in respect of any of the foregoing.

 

“Interest Rate Protection
Agreement” shall mean any interest rate swap agreement, interest rate cap
agreement, synthetic cap, collar or floor or other financial agreement or
arrangement designed to protect a Maker or any of its Subsidiaries against
fluctuations in interest rates or to reduce the effect of any such
fluctuations.

 

“Investment” shall
mean any investment in any Person, whether by means of acquiring or holding
securities, capital contribution, loan, time deposit, guaranty or otherwise.

 

“Lien” shall mean any
mortgage, pledge, security interest, encumbrance, lien or charge of any kind
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any agreement to grant a security interest at a future
date, any lease in the nature of security, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code of any
jurisdiction).

 

B-2-22

 

“Material Adverse Effect”
shall mean a (i) a material adverse effect upon the business, operations,
properties, assets or condition (financial or otherwise) of the Maker or (ii)
the material impairment of the ability of the Maker to perform its obligations
under the Consideration Notes or of the Payee to enforce the obligations of the
Maker under the Consideration Notes.

 

“Maturity Date” means
December 31, 2007.

 

“Net Income” shall
mean for any period, net income on a consolidated basis for that period
determined in accordance with GAAP applied consistently with past practice.

 

“Non-Permitted Subsidiary”
means any direct or indirect Wholly Owned Subsidiary of Maker that is not a
Permitted Subsidiary.

 

“Note Issue Date”
shall mean the date on which this Note is issued.

 

“Option” shall mean
any rights, options or warrants to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.

 

“Payment Date” means
each December 31, March 31, June 30 and September 30; provided that if any such
Payments Date falls on a day which is not a business day, the applicable
payment shall not be due until the next following business day.

 

“Permitted Acquisitions”
means any acquisition of fifty percent (50%) or more of the equity interests or
all or substantially all of the assets of a third party so long as (i) such
acquisition is Accretive, and approved by the Maker’s board of directors, (ii)
following the consummation of the acquisition the Maker has a cash balance of
at least $5,000,000, on a consolidated basis, and (iii) the Maker does not
incur any Indebtedness in connection with such acquisition.

 

“Permitted Subsidiary”
means any direct or indirect Wholly Owned Subsidiary of Maker that is
domesticated or incorporated in a jurisdiction of the United States, Canada,
the United Kingdom or a country that is a member of the European Union and is a
guarantor of Maker’s obligations under the Consideration Notes.

 

“Person” shall mean
any natural person, corporation, division of a corporation, partnership,
limited liability partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.

 

“Pledge Agreement”
means the Pledge Agreement executed by Maker in favor of Payee and dated the
date hereof, as it may be amended, restated or modified from time to time,
together with all schedules and exhibits thereto.

 

“Security Agreement”
means the Security Agreement executed by the Maker in favor of the Payee and
dated as of the date hereof, as it may be amended, restated or modified from
time to time, together with all schedules and exhibits thereto.

 

“Series B Designation”
means the Certificate of Designation of Maker’s Series B Convertible Preferred
Stock, as filed with the Secretary of State of the State of Delaware.

 

B-2-23

 

“Short Term Note”
means the Senior Secured Note dated as of November 2, 2004 by Maker in favor of
Payee in the original aggregate principal amount of $4,000,000, as it may be
amended, restated, modified or replaced in substitution by any other note or
notes from time to time.

 

“Stock Purchase Agreement”
means the Stock Purchase Agreement dated as of November 2, 2004 by and among
the Maker, Tertio Telecom Group, Ltd. and the parties listed therein.

 

“Stockholders” shall
have the meaning given to such term in the Stock Purchase Agreement.

 

“Subsidiary” shall
mean with respect to any Person, any corporation, association, joint venture,
partnership or other business entity (whether now existing or hereafter
organized) of which at least a majority of the voting stock or other ownership
interests having ordinary voting power for the election of directors (or the
equivalent) is, at the time as of which any determination is being made, owned
or controlled by such Person or one or more subsidiaries of such Person or by
such Person and one or more subsidiaries of such Person.

 

“UCC” shall mean the
Uniform Commercial Code as in effect from time to time in the State of
Delaware.

 

“Wholly
Owned Subsidiary” of a Person means (a) any Subsidiary all of the
outstanding voting securities (other than directors qualifying shares and/or
other nominal amounts of shares required to be held by directors or other
Persons under applicable law) of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly Owned
Subsidiaries of such Person, or by such Person and one or more Wholly Owned
Subsidiaries of such Person, or (b) any partnership, limited liability
company, association, joint venture or similar business organization 100% of
the ownership interests having ordinary voting power of which shall at the time
be so owned or controlled.

 

B-2-24

 

SCHEDULE 2

 

CONVERSION PRICE
ADJUSTMENT PROVISIONS

 

(a)           No Adjustment
of Conversion Price.

 

(i)            No adjustment
in the Conversion Price shall be made as the result of the issuance of
Additional Shares of Common Stock if the consideration per share (determined
pursuant to Section (a)(iv) below) for such Additional Shares of Common Stock
issued or deemed to be issued by the Maker is at least equal to the Closing
Share Price.   In addition, no adjustment
in the Conversion Price shall be made if, prior to such issuance or deemed
issuance of Additional Shares of Common Stock, the Maker receives written
notice from the Payee agreeing that no such adjustment shall be made as a
result of such issuance or deemed issuance.

 

(ii)           Issue of
Securities to be a Deemed Issue of Additional Shares of Common Stock.

 

(A)         If the Maker at
any time or from time to time after the Note Issue Date shall issue any Options
or Convertible Securities (excluding Options or Convertible Securities that,
upon exercise, conversion or exchange thereof, would entitle the holder thereof
to receive shares of Common Stock that are specifically excepted from the
definition of Additional Shares of Common Stock) or shall fix a record date for
the determination of holders of any class of securities entitled to receive any
such Options or Convertible Securities, then the maximum number of shares of
Common Stock (as set forth in the instrument relating thereto without regard to
any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as
of the time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date.

 

(B)         If the terms of
any Option or Convertible Security, the issuance of which resulted in an
adjustment to the Conversion Price pursuant to the terms of Section (iv) below,
are revised (either automatically pursuant to the provisions contained therein
or as a result of an amendment to such terms) to provide for either (1) any
increase or decrease in the number of shares of Common Stock issuable upon the
exercise, conversion or exchange of any such Option or Convertible Security or
(2) any increase or decrease in the consideration payable to the Maker upon
such exercise, conversion or exchange, then, effective upon such increase or
decrease becoming effective, the Conversion Price computed upon the original
issue of such Option or Convertible Security (or upon the occurrence of a
record date with respect thereto) shall be readjusted prospectively to such
Conversion Price as would have obtained had such revised terms been in effect
upon the original date of issuance of such Option or Convertible Security.  Notwithstanding the foregoing, no adjustment
pursuant to this clause (B) shall have the effect of increasing the Conversion
Price to an amount that exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion Price that would have resulted
from any issuances of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.

 

(C)         If the terms of
any Option or Convertible Security (excluding Options or Convertible Securities
that, upon exercise, conversion or exchange thereof, would entitle the holder
thereof to receive shares of Common Stock that are specifically excepted from
the definition of 

 

B-2-25

 

Additional Shares of Common Stock), the
issuance of which did not result in an adjustment to the Conversion Price
pursuant to the terms of Section (a)(iii) below (either because the consideration
per share (determined pursuant to Section (a)(iv) below) of the Additional
Shares of Common Stock subject thereto was equal to or greater than the
Conversion Price then in effect, or because such Option or Convertible Security
was issued before the Note Issue Date), are revised after the Note Issue Date
(either automatically pursuant the provisions contained therein or as a result
of an amendment to such terms) to provide for either (1) any increase or
decrease in the number of shares of Common Stock issuable upon the exercise,
conversion or exchange of any such Option or Convertible Security or (2) any
increase or decrease in the consideration payable to the Maker upon such
exercise, conversion or exchange, then such Option or Convertible Security, as
so amended, and the Additional Shares of Common Stock subject thereto
(determined in the manner provided in Section (ii)(A) above) shall be deemed to
have been issued effective upon such increase or decrease becoming effective.

 

(D)         Upon the
expiration or termination of any unexercised Option or unconverted or
unexchanged Convertible Security that resulted (either upon its original
issuance or upon a revision of its terms) in an adjustment to the Conversion
Price pursuant to the terms of Section (e)(iii) below, the Conversion Price
shall be readjusted prospectively to such Conversion Price as would have been
obtained had such Option or Convertible Security never been issued.

 

(E)          No adjustment
in the Conversion Price shall be made upon the issue of shares of Common Stock
or Convertible Securities upon the exercise of Options or the issue of shares
of Common Stock upon the conversion or exchange of Convertible Securities.

 

(iii)          Adjustment of
Conversion Price Upon Issuance of Additional Shares of Common Stock.  In the event the Maker shall at any time
after the Note Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
(a)(ii) above), without consideration or for a consideration per share less
than the Closing Share Price, then the Conversion Price shall be reduced,
concurrently with such issue, to a price determined by multiplying the
Conversion Price in effect immediately prior to such issuance by a fraction,
(A) the numerator of which shall be (1) the number of shares of Common Stock
outstanding immediately prior to such issue plus (2) the number of shares of
Common Stock that the aggregate consideration received or to be received by the
Maker for the total number of Additional Shares of Common Stock so issued would
purchase at the Conversion Price in effect immediately prior to such issuance;
and (B) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; provided, however, that, (i) all shares of
Common Stock issuable upon conversion  or
exercise of shares of Series B Preferred Stock, Options or Convertible Securities
outstanding immediately prior to such issue or upon exercise of such securities
shall be deemed to be outstanding, and (ii) the number of shares of Common
Stock deemed issuable upon conversion of such outstanding shares of Series B
Preferred Stock shall be determined without giving effect to any adjustments to
the Conversion Price resulting from the issuance of Additional Shares of Common
Stock that is the subject of this calculation.

 

(iv)          Determination
of Consideration.  For
purposes of this Schedule 2, the consideration received by the Maker for the
issue of any Additional Shares of Common Stock shall be computed as follows:

 

B-2-26

 

(A)          Cash and Property.  Such consideration shall:

 

(I)                                     insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Maker, excluding amounts paid or payable for accrued interest;

 

(II)                                 insofar as it
consists of property other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in good faith by the members
of the Board other than any member who will receive such property; and

 

(III)                             in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Maker for consideration that covers both, be
the proportion of such consideration so received, computed as provided in
clauses (I) and (II) above, as determined in good faith by the members of the
Board of Maker other than any member who will receive such consideration.

 

(B)           Options and Convertible
Securities.  The
consideration per share received by the Maker for Additional Shares of Common
Stock deemed to have been issued pursuant to Section (iii) above, relating to
Options and Convertible Securities, shall be determined by dividing:

 

(I)                                 the total
amount, if any, received or receivable by the Maker as consideration for the
issue of such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Maker upon the exercise of
such Options or the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities; by

 

(II)                             the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.

 

(v)           Multiple
Closing Dates.  In the
event the Maker shall issue on more than one date Additional Shares of Common
Stock that are comprised of shares of the same series or class of Preferred
Stock and that would result in an adjustment to the Conversion Price pursuant
to the terms of Section (a)(iii) above, and such issuance dates occur within a
period of no more than sixty (60) consecutive days, then, upon the final such
issuance, the Conversion Price shall be readjusted prospectively to give effect
to all such issuances as if they occurred on the date of the final such
issuance (and without giving effect to any adjustments as a result of such
prior issuances within such period).

 

B-2-27

 

(b)           Adjustment for
Stock Splits and Combinations.  If the Maker shall at any time or from time
to time after the Note Issue Date effect a subdivision of the outstanding
Common Stock (whether by stock split, stock dividend or otherwise), the
Conversion Price in effect immediately before the subdivision shall be
proportionately decreased.  If the Maker
shall at any time or from time to time after the Note Issue Date combine the
outstanding shares of Common Stock (whether by reverse stock split or
otherwise), the Conversion Price in effect immediately before the combination
shall be proportionately increased.  Any
adjustment under this Section (b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

 

(c)           Adjustment for
Certain Dividends and Distributions.  In the event the Maker at any time, or from
time to time after the Note Issue Date shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Conversion Price in effect immediately before
such event shall be decreased, as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a fraction:

 

(i)           the numerator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; and

 

(ii)          the denominator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution;

 

provided, however, that if
such record date shall have been fixed and such dividend is not fully paid or
if such distribution is not fully made on the date fixed therefor, the
Conversion Price shall be recomputed accordingly as of the close of business on
such record date and thereafter the Conversion Price shall be adjusted pursuant
to this paragraph as of the time of actual payment of such dividends or
distributions.

 

(d)           Adjustments for
Other Dividends and Distributions.  In the event the Maker at any time or from
time to time after the Note Issue Date shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Maker (other than shares
of Common Stock) or in cash or other property, then and in each such event
provision shall be made so that the Payee shall receive upon conversion of the
Note, in addition to the number of shares of Common Stock to be received upon
such conversion, the kind and amount of securities of the Maker, cash or other
property that the Payee would have been entitled to receive had the Note been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the Payee.

 

(e)           Adjustment for
Merger or Reorganization, etc.  Subject to the provisions of Section 2(c) of
the Series B Designation, if there shall occur a change in Control in which the
Common Stock is converted into or exchanged for securities, cash or other
property (other than a transaction covered by Sections (b), (c) or (d) of this
Schedule 2), then, subject to the provisions of Section 4(b) of 

 

B-2-28

 

the Note, following any such reorganization,
recapitalization, reclassification, consolidation or merger, the outstanding
principal amount of the Note, and any accrued but unpaid interest thereon,
shall be convertible into the kind and amount of securities, cash or other
property that a holder of the number of shares of Common Stock of the Maker
issuable upon conversion of this Note immediately prior to such reorganization,
recapitalization, reclassification, consolidation or merger would have been
entitled to receive pursuant to such transaction; and, in such case, appropriate
adjustment (as determined in good faith by the Board) shall be made in the
application of the provisions in this Schedule 2 with respect to the rights and
interests thereafter of the holders of the Common Stock, to the end that the
provisions set forth in this Schedule 2 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities or
other property thereafter deliverable upon the conversion of this Note.

 

(f)            Rounding of
Calculations; Minimum Adjustments.  All calculations under this Schedule 2 shall
be made to the nearest one tenth of a cent ($0.001), with five one hundredths
of a cent ($0.0005) rounded down.  No
adjustment in the Conversion Price is required if the amount of such adjustment
would be less than one cent ($0.01); provided, however, that any adjustments
which by reason of this Section (f) are not required to be made will be carried
forward and given effect in any subsequent adjustment.  The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Maker, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.

 

B-2-29EXHIBIT 4.3

 

Short Term Note

 

	
  $4,000,000
  Principal Amount

  	
  November 2,
  2004

  

 

SENIOR SECURED NOTE

 

EVOLVING SYSTEMS, INC.

 

FOR VALUE
RECEIVED, EVOLVING SYSTEMS, INC., a Delaware corporation (the “Maker”),
having its principal place of business at 9777 Mount Pyramid Court, Englewood,
Colorado 80112, hereby promises to pay to the order of Tertio Telecoms Group
Ltd., an entity formed and registered in England and Wales with a company
number 4419858 (“Payee”), having an address at One Angel Square, Torrens
Street, London EC1V 1NY, United Kingdom, the principal sum of Four Million
Dollars ($4,000,000) in lawful money of the United States of America.

 

1.             Definitions;
Interpretations.  In addition to
other terms defined elsewhere in this Note, the capitalized terms set forth in
Schedule 1 attached hereto and incorporated herein by reference shall have the
meanings set forth therein unless defined elsewhere herein or the context
otherwise clearly requires.  Except as
otherwise provided herein, financial and accounting terms used elsewhere in
this Note shall be defined in accordance with GAAP.

 

2.             Payments
of Principal.  The outstanding
principal amount under this Note shall be due and payable in two installments
of Two Million Dollars ($2,000,000) on each of March 31, 2005 and June 30, 2005
(each a “Payment Date”) at the aforesaid address of Payee or such other
place as Payee may designate, with all outstanding amounts hereunder due and
payable on June 30, 2005.

 

3.             Payment
of Interest.  All accrued and unpaid
Interest on the principal outstanding under this Note shall be due and payable
on each Payment Date.

 

4.             Pre-Default
Interest Rate.  So long as no Event
of Default (as hereinafter defined) has occurred and is continuing, the
outstanding principal balance of this Note shall bear interest at a rate per
annum equal to Five and One-Half Percent (5.5%) and shall be paid on each
Payment Date.  To the extent not paid,
all interest shall be compounded quarterly.

 

5.             Post-Default
Interest Rate.  Following the
occurrence and during the continuance of an Event of Default, the outstanding
principal balance of this Note shall bear interest at the rate per annum equal
to Eight and One-Half Percent (8.5%) (the “Default Rate”); provided,
however, that if at any time the Libor Adjusted Rate shall ever exceed
the Default Rate, then following the occurrence and during the continuance of
an Event of Default, the outstanding principal balance of this Note shall bear
interest at the rate per annum equal to the Adjusted Libor Rate.

 

6.             Optional
Prepayment.  From and after the date
hereof, Maker may prepay this Note in whole or in part at any time.  There shall be no premium or penalty in
connection with any prepayment.  Such
prepayment shall include all accrued and unpaid interest on the principal
amount of such prepayment.  Each such
prepayment shall be applied first against accrued and unpaid interest, if any,
and then against principal outstanding under this Note in inverse order of
maturity.

 

 

7.             Mandatory
Prepayment.  On or before the date
that is ten (10) business days prior to Maker’s mailing of a stockholder proxy
and notice of a stockholder meeting in connection with a stockholder meeting
called for the purpose of approving a Capital Transaction, Maker shall provide
the Payee with written notice (the “Transaction Notice”).  The Transaction Notice shall describe in
reasonable detail the terms and conditions of the Capital Transaction and the
consideration to be paid upon the consummation of the Capital Transaction.  In the event the Capital Transaction would
result in a Change of Control of Maker, then as a condition of such Capital
Transaction, provision shall be made in the definitive documentation to be
executed by the parties to such Capital Transaction whereby Payee may exercise
its rights at set forth in this Section 7. 
Upon a Change of Control of Maker, the Payee, in its sole discretion,
shall have the right to declare the entire unpaid principal balance of this
Note, together with interest accrued thereon and with all other sums due or
owed by Maker hereunder, due and payable immediately.  Upon receipt of written notice from Payee,
Maker shall pay to Payee said amounts within two (2) business days; provided
that Payee must exercise the payment option set forth in this Section 7 within
forty-five (45) days after receipt of a written notice from Maker regarding the
Change of Control, which notice shall describe in reasonable detail the terms
and conditions of the Change of Control and the consideration to be paid upon
the consummation of the Change of Control.

 

8.             Security.

 

(a)           As
security for the repayment of all liabilities arising under this Note, the
Maker hereby grants to Payee a security interest in and a lien on:  (i) all of the Collateral (as that term is
defined in the Security Agreement) and (ii) all of the Collateral (as such term
is defined in the Pledge Agreement). 
Payee shall have all rights provided to a secured party under the
Security Agreement, the Pledge Agreement and under the Uniform Commercial Code
of the State of Delaware.  The Maker
shall execute and deliver such documentation as Payee may reasonably request to
evidence and perfect Payee’s security interest granted in this Section 8 and
under the Security Agreement and Pledge Agreement.

 

(b)           The
security interest securing the repayment of all liabilities arising under this
Note, and any guaranties executed by the Maker or any of its Subsidiaries in
favor of Payee (or any collateral agent appointed for the benefit of Payee) in
connection with this Note, shall be automatically released and terminated on
the date that the aggregate outstanding balance of all of the Consideration
Notes is equal to or less than ten percent (10%) of the original aggregate
principal amount of all of the Consideration Notes at the time of
issuance.  Upon the occurrence of such an
event and written notice thereof to the Payee:

 

(i)            the
Maker is hereby authorized to terminate all applicable security interests and
liens encumbering the Collateral;

 

(ii)           the
negative covenants set forth in Sections 10(b), 10(c), 10(d), 10(f), 10(j) and 10(k)
of this Note shall terminate;

 

(iii)          the
negative covenants set forth in Section 10(e) of this Note shall be deemed
modified by adding (in addition to, and not in lieu of, all other Permitted
Indebtedness described in Section 10(e)) Indebtedness of the Maker and all
Subsidiaries in an amount not to exceed in the aggregate the principal amount
of $3,000,000 at any given time outstanding to the definition of Permitted
Indebtedness;

 

2

 

(iv)          the
negative covenant in Section 10(g) of this Note shall be deemed modified to
increase the limitation on Capital Expenditures to $5,000,000 in any fiscal
year; and

 

(v)           the
negative covenant in Section 10(i) of this Note shall be deemed modified to
provide that Investments by Maker in a minority equity interest of Persons
engaged in the Maker’s Business are Permitted Investments (in addition to, and
not in lieu of, all other Permitted Investments described in Section 10(i)),
provided that such investments do not exceed 5% of the Maker’s net worth at the
time of such Investments.

 

The Payee agrees to take such actions and to
execute and deliver such documents and instruments, as may be reasonably
requested by Maker and at the Maker’s expense, in order to evidence the
terminations described herein and to release any lien or security interest in
any collateral securing repayment of the liabilities arising under this Note.

 

9.             Affirmative
Covenants.  Maker covenants and
agrees that, so long as any Indebtedness is outstanding hereunder, it shall
comply, and shall cause its Subsidiaries (to the extent applicable) to comply,
with each of the following:

 

(a)           Upon
the request of Payee from time to time, (i) provide Payee and its representatives
(at the Maker’s expense) access to its books and records and to any of its and
its Subsidiaries’ properties or assets upon three (3) days’ advance notice and
during regular business hours in order that Payee or its representatives may
make such audits and examinations and make abstracts from such books, accounts,
records and other papers of Maker and its subsidiaries pertaining to their
deposit accounts, provided, however, that the Payee may conduct such
inspections and examinations no more frequently than twice in any 12-month
period, unless an Event of Default has occurred and is continuing, in which
case the Payee shall not be so limited, and (ii) upon reasonable advance
notification to Maker, permit Payee or its representatives to discuss the
affairs, finances and accounts with, and be advised as to the same by, officers
and independent accountants, all as Payee may deem appropriate, including
without limitation, for the purpose of verifying any certificate delivered by
Maker to Payee under Section 7 hereof, provided that any such parties are a
party to, or bound by, an acceptable non-disclosure agreement.  The Payee shall conduct at least one meeting
with an executive officer of the Maker in the course of each such inspection
and examination or discussion with officers or independent accountants.

 

(b)           Comply
with all laws, ordinances or governmental rules or regulations to which it is
subject, and shall obtain and maintain in effect all licenses, certificates,
permits, franchises and other governmental authorizations necessary to the
ownership of its properties or to the conduct of its businesses, except where
the failure to so comply or obtain or maintain would not reasonably be expected
to have a Material Adverse Effect.

 

(c)           Except
as otherwise permitted under Section 10 of this Note, at all times preserve and
keep in full force and effect (i) its corporate existence and (ii) take all
reasonable action to maintain all rights and franchises necessary or desirable
in the normal conduct of its business, except to the extent that failure to do
so in the case of clause (ii) of this Section 9(c) would not reasonably be
expected to have a Material Adverse Effect.

 

(d)           Furnish
to Payee notice of the occurrence of any Event of Default within five (5) business
days after it becomes known to any of Maker’s Authorized Officers.

 

3

 

(e)           File
all income tax or similar tax returns required to be filed in any jurisdiction
and to pay and discharge all taxes shown to be due and payable on such returns
and all other taxes, assessments, governmental charges, or levies payable by
any of them, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, provided that Maker need not
pay any such tax or assessment if the amount, applicability or validity thereof
is contested by Maker on a timely basis in good faith and in appropriate
proceedings, and Maker has established adequate reserves therefor in accordance
with GAAP on it books.

 

(f)            Operate
Maker’s Business (as defined in Section 10(m) of this Note) in the ordinary
course of business except as provided herein.

 

(g)           In
any fiscal year, increase the Compensation of Executive Officers of Maker only
with the unanimous consent of the Compensation Committee.

 

10.           Negative
Covenants.  Maker covenants and
agrees that so long as any Indebtedness is outstanding hereunder, neither it
nor any of its Subsidiaries shall undertake any of the following without
obtaining the prior written consent of the Payee:

 

(a)           voluntarily
liquidate, dissolve or wind up, except for the liquidation, dissolution and
winding-up of CMS Communications, Inc. and Telecom Software Enterprises, LLC (“TSE”);

 

(b)           pay,
declare or set aside any sums for the payment of any dividends, or make any
distributions on, any shares of its capital stock or other securities or make
prepayments of principal on any Indebtedness except in the case of the
following (each, a “Permitted Payment”):

 

(i)            prepayments
of principal or payments of interest on (A) any of the Consideration Notes, (B)
any Indebtedness incurred under the Working Capital Exclusion as provided in
Section 10(e)(x) of this Note and promissory notes issued to Peter McGuire and
Lisa Marie Maxson pursuant to the Acquisition Agreement dated October 15, 2004
by and among Maker, Peter McGuire and Lisa Marie Maxson (collectively, the “TSE
Promissory Notes”); provided that there is no Event of Default under this
Note and the collateral securing any such Indebtedness shall be added to the
Collateral (as defined in the Security Agreement) or (C) any Indebtedness of
Evolving Systems Holdings Limited (“ESHL”) or its Subsidiaries in favor
of Royal Bank of Scotland PLC and disclosed in Schedule 2 of this Note;

 

(ii)           dividends
or distributions payable in the common stock of Maker or any of its
Subsidiaries;

 

(iii)          payments
in accordance with any Series B Approved Plan (as such term is defined in the
Series B Designation);

 

(iv)          dividends
or distributions payable by any of Maker’s Subsidiaries to the Maker;

 

(v)           dividends
or distributions by (A) any Permitted Subsidiary to another Permitted
Subsidiary or (B) any Non-Permitted Subsidiary to a Permitted Subsidiary;

 

4

 

(vi)          dividends
or distributions by a Subsidiary of ESHL to ESHL or another Wholly Owned
Subsidiary of ESHL;

 

(vii)         regularly
scheduled payments of principal on Indebtedness permitted under Section 10(e)
(excluding Sections 10(e)(iii) through 10(e)(viii)) of this Note; and

 

(viii)        payments
(whether regularly scheduled, upon demand or otherwise) of Indebtedness
permitted under Sections 10(e)(iii) through 10(e)(viii) to the extent such
payments are made to or received by Maker or a Subsidiary that is a guarantor;

 

(c)           purchase,
acquire or obtain (i) any capital stock or other proprietary interest, directly
or indirectly, in any other entity or (ii) all or a substantial portion of the
business or assets of another Person for consideration (including assumed
liabilities) other than Investments permitted under Section 10(i) and Permitted
Acquisitions;

 

(d)           (i)
sell or transfer all or a substantial portion of its assets to another Person;
(ii) sell, transfer or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse; or (iii) sell, lease, transfer or
otherwise dispose of any asset or group of assets (other than as described in
clause (ii) above), except:

 

(i)            sales
of inventory in the ordinary course of business;

 

(ii)           sales
or liquidations of Investments permitted by Section 10(i);

 

(iii)          (A)
sales or other dispositions of property by any Subsidiary of Maker to the Maker
or to any other Subsidiary and (B) sales or other dispositions of property by
the Maker to any if its Subsidiaries, so long as the security interests granted
to the Payee pursuant to the Security Agreement in such assets shall remain in
full force and effect and perfected (to at least the same extent as in effect
immediately prior to such sale or other disposition) and provided that any such
Subsidiaries to whom such sales or dispositions are made are guarantors of the
Consideration Notes;

 

(iv)          sales
or other dispositions of obsolete, surplus or worn out property, whether now
owned or hereafter acquired, in the ordinary course of business, or other
assets not practically usable in the business of the Maker or its Subsidiaries;
provided that the aggregate amount of such sales or dispositions does not
exceed $250,000 in any fiscal year of the Maker;

 

(v)           Licenses
of intellectual property of Maker or its Subsidiaries in the ordinary course of
business and which would not otherwise reasonably result in a Material Adverse
Effect; or

 

(vi)          sales,
transfers or other dispositions that constitute a Change of Control;

 

(e)           create,
incur, assume or suffer to exist any Indebtedness, except, so long as no Event
of Default then exists or would exist as a result thereof, the following (“Permitted
Indebtedness”):

 

5

 

(i)            Indebtedness
outstanding on the date of this Note and listed on Schedule 2 hereto,  and any refinancings, refundings, renewals or
extensions thereof; provided that the amount of such Indebtedness is not
increased at the time of such refinancing, refunding, renewal or extension;

 

(ii)           obligations
under the Consideration Notes and the TSE Promissory Notes;

 

(iii)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and Evolving Systems
Networks India Private Limited (“ESN”); provided that the aggregate
amount of all inter-company loans made by Maker or any Permitted Subsidiary to
ESN, when taken together with the aggregate amount of Permitted Investments in
ESN under Section 10(i)(ii) of this Note, does not exceed $750,000 in any
fiscal quarter;

 

(iv)          inter-company
Indebtedness between Maker or any Permitted Subsidiary and TSE; provided that
the aggregate amount of all inter-company loans made by Maker or any Permitted
Subsidiary to TSE , when taken together with the aggregate amount of Permitted
Investments in TSE under Section 10(i)(iii) of this Note, does not exceed
$125,000 in any year;

 

(v)           inter-company
Indebtedness between (A) Maker and its Permitted Subsidiaries or (B) a
Permitted Subsidiary with another Permitted Subsidiary;

 

(vi)          inter-company
Indebtedness owing by Maker or a Permitted Subsidiary to a Non-Permitted
Subsidiary;

 

(vii)         inter-company
Indebtedness between (A) ESHL and any of its Wholly Owned Subsidiaries or (B) a
Wholly Owned Subsidiary of ESHL with another Wholly Owned Subsidiary of ESHL;

 

(viii)        inter-company
Indebtedness owing by ESHL or any Wholly Owned Subsidiary of ESHL to Maker or a
Permitted Subsidiary, provided that such Indebtedness shall be incurred solely
to (A) supplement the internally generated working capital required to fund the
operation of the business of ESHL or ESHL’s Wholly Owned Subsidiaries in the
ordinary course or (B) fund Capital Expenditures permitted under Section 10(g)
of this Note, and provided further that promptly upon the incurrence of such
Indebtedness, Maker shall give the Payees written notice of the making thereof
and the amount thereof;

 

(ix)           purchase
money Indebtedness to fund the purchase of property otherwise permitted under
Section 10(g) of this Note and Indebtedness constituting Capital Leases
permitted under Section 10(g);

 

(x)            Indebtedness
in the form of an unsecured line of credit in an amount not to exceed in the
aggregate the principal amount of $2,000,000 at any time outstanding (the “Working
Capital Exclusion”);

 

6

 

(xi)           Accrual
of interest, accretion or amortization of original issue discount or
payment-in-kind interest in connection with Indebtedness otherwise permitted
under this Section 10(e);

 

(xii)          (A)
Indebtedness incurred in connection with a Permitted Acquisition and (B)
Indebtedness for Capital Leases assumed pursuant to a Permitted Acquisition,
provided that the aggregate Indebtedness of clause (A) and (B) of this Section 10(e)(xii)
outstanding at any time does not exceed $1,000,000;

 

(xiii)         to
the extent under GAAP, the Series B Preferred Stock would be treated as debt or
mezzanine financing on the financial statements of Maker;

 

(xiv)        Indebtedness
incurred in connection with the financing of insurance premiums in the ordinary
course of business in an amount not to exceed $500,000 in any fiscal year; and

 

(xv)         Indebtedness
owing from ESHL to Maker for the sole purpose of consummating the transactions
contemplated by the Stock Purchase Agreement, provided
that, the aggregate amount of such Indebtedness, when taken together
with the aggregate amount of Permitted Investments by Maker in ESHL under
Section 10(i)(vii) of this Note, does not exceed $12,500,000.

 

(f)            mortgage,
encumber, or create or suffer to exist Liens on any of its assets, other than
the following (each, a “Permitted Lien”);

 

(i)            encumbrances
or Liens in favor of Payee or any holder of the Consideration Notes;

 

(ii)           Liens
that arise out of operation of law;

 

(iii)          easements,
rights-of-way, restrictions (including zoning restrictions) and other similar
encumbrances affecting real property which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person and none of which is violated
by existing or proposed restrictions on land use;

 

(iv)          Liens
securing Indebtedness permitted under Section 10(e)(vi); provided that (A) such
Liens do not at any time encumber any property other than the property financed
by such Indebtedness and (B) the Indebtedness secured thereby does not exceed
the cost of property being acquired on the date of acquisition and (C) such
Liens are granted substantially contemporaneously with the acquisition of such
property;

 

(v)           Liens
existing on the date hereof and listed on Schedule 2 hereto and any renewals or
extensions thereof, provided that (A) the property covered thereby is not
changed, (B) the amount secured or benefited thereby is not increased, and (C) any
renewal or extension of the obligations secured or benefited thereby is not
prohibited by this Note; and

 

7

 

(vi)          Liens
on insurance policies and the proceeds thereof incurred in connection with the
financing of insurance premiums in the ordinary course of business in an amount
not to exceed $500,000 in any fiscal year;

 

(g)           make
or commit to make any Capital Expenditures (whether by expenditure of cash or
the incurrence of Indebtedness for Capital Leases to fund the acquisition of
property pursuant to any permitted Capital Expenditure); provided that, the
cash paid for the Capital Expenditure, when taken together with the aggregate
liability required by GAAP consistently applied and in accordance with the Maker’s
past practice, to be reflected in Maker’s financial statements in respect of
any Capital Lease (“Lease Liability”) plus the sum of (i) any cost
incurred by Maker in connection with the acquisition, delivery or installation
of the property which is the subject of the Capital Lease, but which cost is
not included in the Lease Liability and (ii) to the extent not otherwise
reflected in the Capital Lease payments, interest expense incurred in respect
of the Capital Lease for the relevant fiscal year will be deemed a Capital
Expenditure made or committed during the fiscal year in which the Capital Lease
is signed or becomes effective, whichever first occurs, does not exceed
$2,000,000 in any fiscal year;

 

(h)           enter
into any transaction with any of its Affiliates that is less favorable to Maker
or any of its Subsidiaries than would have been the case if such transaction
had been effected on an arms length basis with a Person other than an
Affiliate, except for transactions between and among Maker and its Subsidiaries
otherwise permitted under this Note;

 

(i)            enter
into or make any Investments, other than the following (each, a “Permitted
Investment”):

 

(i)            Cash
Equivalents;

 

(ii)           (A)
equity Investments existing as of the date hereof in ESN and (B) equity Investments
made after the date hereof by Maker or any Permitted Subsidiary in ESN provided
that any such Investments, when taken together with all inter-company loans
made by Maker or any Permitted Subsidiary to ESN permitted under Section 10(e)(iii)
of this Note, does not exceed $750,000 in any fiscal quarter;

 

(iii)          (A)
equity Investments existing as of the date hereof in TSE and (B) equity
Investments made after the date hereof in TSE provided that any such
Investments, when taken together with all inter-company loans made by Maker or
any Permitted Subsidiary to TSE permitted under Section 10(e)(iv) of this Note,
does not exceed $125,000 in any fiscal year;

 

(iv)          equity
Investments (A) existing as of the date hereof in any Permitted Subsidiary and
(B) equity Investments made after the date hereof in any Permitted Subsidiary;

 

(v)           (A)
equity Investments existing as of the date hereof in ESHL or any of ESHL’s
Wholly Owned Subsidiaries, (B) equity Investments made after the date hereof by
Maker in ESHL, provided that such Investments shall be made solely to (1)
supplement the internally generated working capital required to fund the
operation of the business of ESHL or ESHL’s Wholly Owned Subsidiaries in the
ordinary course or (2) fund Capital Expenditures permitted under Section 10(g)
of this Note, and provided further that promptly upon the making of any such
Investments, Maker shall give the Payees written notice of the making thereof
and the amount thereof, and (C) equity Investments made 

 

8

 

after the date hereof by ESHL or a Wholly Owned Subsidiary of ESHL in
any of ESHL’s Wholly Owned Subsidiaries;

 

(vi)          equity
Investments by a Non-Permitted Subsidiary in a Permitted Subsidiary;

 

(vii)         equity
Investments by Maker in ESHL for the sole purpose of consummating the
transactions contemplated by the Stock Purchase Agreement, provided that, the aggregate amount of
such Investments, when taken together with the aggregate amount of Permitted
Indebtedness under Section 10(e)(xv) of this Note, does not exceed $12,500,000,
provided further that the amount
of such equity Investment shall not exceed 50% of the aggregate amount of the
equity Investment made pursuant to this Section 10(i)(vii) plus the aggregate
amount of Permitted Indebtedness permitted under Section 10(e)(xv) of this
Note.

 

(viii)        Investments
consisting solely of appreciation in value of existing Investments permitted
hereunder;

 

(ix)           any
Permitted Payments under Section 10(b) of this Note, without duplication;

 

(x)            any
Permitted Indebtedness under Section 10(e) of this Note, without duplication;
and

 

(j)            change
its fiscal year;

 

(k)           establish
any bank accounts into which accounts receivable are deposited, other than
those listed on Exhibit A unless such bank accounts shall be pledged to Payee
and the other secured parties pursuant to the Security Agreement;

 

(l)            change
or amend its Certificate of Incorporation or Bylaws in a manner adverse to
Payee’s rights and remedies under this Note, any Consideration Note, the
Security Agreement or the Pledge Agreement; or

 

(m)          engage
in any material line of business not related to the OSS communications industry
or any business reasonably related or incidental thereto (the “Maker’s
Business”).

 

11.           Determination
of Accretive.  In the event the Maker
proposes to enter into an agreement to acquire another Person (the “Proposed
Acquisition”), the Maker shall mail written notice of such event, together
with the Financial Projections, to the Payee, no later than twenty (20) calendar
days prior to the contemplated effective date of the Proposed Acquisition.  The Financial Projections shall be deemed
accepted and conclusive and binding upon the Payee, unless the Payee shall give
written notice to the Maker of the items in the Financial Projections with
which the Payee disagrees (the “Accretive Calculation Disagreement Notice”)
within twenty (20) calendar days of the receipt by the Payee of the Financial
Projections.  The Accretive Calculation
Disagreement Notice shall specify each item disagreed with by the Payee (or the
Payee’s calculation thereof) and the dollar amount of such disagreement.  The Maker may, within twenty (20) calendar
days of its receipt of the Accretive Calculation Disagreement Notice, advise
the Payee that the Maker has accepted the position of the Payee as set forth on
the 

 

9

 

Accretive Calculation Disagreement Notice, whereupon the Proposed
Acquisition shall be considered a Permitted Acquisition Event for all purposes
of this Note.  If the Maker does not
notify the Payee of the Maker’s acceptance of the Payee’s position, then the
Maker and the Payee shall, during the twenty (20) calendar days after receipt
by the Maker of the Accretive Calculation Disagreement notice, negotiate in
good faith to resolve any such disagreements. 
If at the end of such twenty (20) calendar days, the Maker and Payee
have been unable to resolve their disagreements, either the Maker or the Payee
may engage on behalf of the Maker and the Payee, Grant Thornton LLP (or such
other Person mutually agreed to in writing by the Maker and Payee) (the “Unaffiliated
Firm”) to resolve the matters set forth in the Accretive Calculation
Disagreement Notice.  The Unaffiliated
Firm shall (i) resolve the disagreement as to the Financial Projections as
promptly as possible after its engagement by the parties; (ii) thereby consider
and resolve only those items in the Accretive Calculation Disagreement Notice
which remain unresolved between the Maker and the Payee; and (iii) shall
otherwise employ such procedures as it, in its sole discretion, deems necessary
or appropriate in the circumstances.  The
Unaffiliated Firm shall submit to the Maker and the Payee a report of its review
of the items in the Accretive Calculation Disagreement Notice as quickly as
practicable and shall include in such report its determination as to whether
the effect of the proposed merger or consolidation is Accretive.  The determination so made by the Unaffiliated
Firm shall be conclusive, binding on, and non-appealable by, the Maker and the
Payee.  The fees and disbursements of the
Unaffiliated Firm shall be borne one half by the Maker and one half by the
Payee.  Notwithstanding all of the
foregoing, the Maker may elect, at any time, not to comply with this Section 11
with respect to a Proposed Transaction (or if the Maker otherwise fails to
properly comply with the terms of this Section 11) in which event, the
transaction shall be deemed not to be Accretive.

 

12.           Events
of Default.

 

(a)           For
purposes of this Note, an “Event of Default” shall have occurred
hereunder if:

 

(i)            Maker
shall fail to pay within one (1) business day after the date when due any
payment of principal, interest, fees, costs, expenses or any other sum payable
to Payee hereunder or otherwise, including the other Consideration Notes;

 

(ii)           Maker
shall default in the performance of any other agreement or covenant contained
herein (other than as provided in Section 12(a)(i) of this Note) or under any
Consideration Note or in the Security Agreement or Pledge Agreement, and such
default shall continue uncured for twenty (20) consecutive days after notice
thereof to Maker given by Payee;

 

(iii)          Maker
becomes insolvent or generally fails to pay its debts as such debts become due or
admits in writing its inability to pay its debts as such debts become due; or
shall suffer a custodian, receiver or trustee for it or substantially all of
its property to be appointed and if appointed without its consent, not be
discharged within ninety (90) consecutive days; makes a general assignment for
the benefit of creditors; or suffers proceedings under any law related to
bankruptcy, insolvency, liquidation or the reorganization, readjustment or the
release of debtors to be instituted against it and if contested by it not
dismissed or stayed within ninety (90) consecutive days; if proceedings under
any law related to bankruptcy, insolvency, liquidation, or the reorganization,
readjustment or the release of debtors is instituted or commenced by or against
Maker and, in the case of proceedings not instituted or commenced by Maker, if
contested by Maker, and not dismissed or stayed within ninety (90) consecutive
days; if any order for relief is entered relating to any of the foregoing
proceedings which order is not stayed; if Maker shall call a meeting of its
creditors with a view to arranging a composition or adjustment 

 

10

 

of its debts; or if Maker shall by any act or failure to act indicate
its consent to, approval of or acquiescence in any of the foregoing;

 

(iv)         (A)  This Note, any of the other Consideration
Notes or the Security Agreement or the Pledge Agreement shall, for any reason
(other than payment or satisfaction in full of the obligations represented
thereby) not be or shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared null and void or (B) Payee or
any other secured party under the Security Agreement or the Pledge Agreement
shall not give or shall cease to have a valid and perfected Lien in any
collateral under such Security Agreement or Pledge Agreement (other than by
reason of a release of collateral in accordance with the terms hereof or
thereof) with the priority required by the Security Agreement or Pledge
Agreement, as applicable, or (C) the validity or enforceability of any of the
Consideration Notes or the liens granted, to be granted, or purported to be
granted, by the Security Agreement or the Pledge Agreement shall be contested by
the Maker;

 

(v)          If
Maker shall be in default with respect to any payment, when due (subject in
each case to applicable grace or cure periods), of any Indebtedness in excess
of $175,000 (other than under this Note or any other Consideration Note), or
any other default shall occur under any agreement or instrument evidencing such
Indebtedness, if the effect of such non-payment default is to accelerate the
maturity of such Indebtedness or to permit the holder thereof to cause such
Indebtedness to become due prior to its stated maturity, and such default shall
not be remedied, cured, waived or consented to within the period of grace with
respect thereto, or any other circumstance which arises (other than the mere
passage of time) by reason of which any such Indebtedness shall become or be
declared to be due and payable prior to its stated maturity; or

 

(vi)         If
Maker shall have breached its covenant under the Stock Purchase Agreement to
duly convene a Stockholder Meeting (as defined in the Stock Purchase Agreement)
within the time period set forth therein.

 

(vii)        Subject
to Section 12(b) of this Note, if Maker shall have failed to have a Shelf
Registration Statement filed and declared and maintained effective as provided
under Section 5 of the Series B Designation (a “Registration Event of
Default”).

 

Notwithstanding
anything contained herein to the contrary, no Event of Default shall be deemed
to have occurred under this Note if the Event of Default resulted solely from a
breach of any representation, warranty or covenant of Tertio Telecoms Group
Limited under the Stock Purchase Agreement.

 

(b)           In
the event that Payee transfers any portion of the outstanding principal balance
of this Note to any Person (other than the Payee’s shareholders and Affiliates
of such shareholders) and, at the time of transfer, Payee does not also
transfer the greater of (i) a number of Registrable Shares at least equal to
the product of the number of Registrable Shares then held by Payee, its
shareholders or Affiliates of such shareholders multiplied by a fraction, the
numerator of which is the amount of the outstanding principal balance of this
Note transferred to such Person, and the denominator of which is the aggregate
principal amount of all Consideration Notes held by Payee or (ii) at least
50,000 Registrable Shares (the “Share Transfer Minimum”) to such Person,
Section 12(a)(vii) of this Note shall terminate with respect to the portion of
this Note so transferred.  In the event
Payee transfers any of the outstanding principal of this Note to any Person
(other than Payee’s shareholders and Affiliates of such shareholders) and, at
the time of transfer, also transfers to such Person at least the Share Transfer

 

11

 

Minimum, the occurrence of a Registration Event of Default shall
continue to constitute an Event of Default and such Person shall be entitled to
exercise the remedies arising under this Note upon the occurrence and during
the continuation of a Registration Event of Default.  Without limiting any of the foregoing and for
purposes of clarity, for so long as this Note is held by Payee, its
shareholders or the Affiliates of such shareholders (regardless of whether in
the event of a transfer of this Note to any of Payee’s shareholders or the
Affiliates of such shareholders the Payee simultaneously transfers the Share
Transfer Minimum) the occurrence of a Registration Event of Default shall
constitute an Event of Default and the remedies available to Payee upon the
occurrence and during the continuation of an Event of Default shall continue
unaffected with respect to the portion of this Note held by Payee, Payee’s
shareholders and Affiliates of such shareholders.

 

13.           Consequences
of Default.

 

(a)           Upon
the occurrence and during the continuation of an Event of Default, the entire
unpaid principal balance of this Note, together with interest accrued thereon
and with all other sums due or owed by Maker hereunder, as well as all
out-of-pocket costs and expenses (including but not limited to attorneys’ fees
and disbursements) incurred by Payee in connection with the collection or
enforcement of this Note, the Security Agreement and the Pledge Agreement,
shall at the option of the Payee, and by notice to Maker (except if an Event of
Default described in Section 12(a)(iii) shall occur in which case acceleration
shall occur automatically without notice) be declared to be due and payable
immediately, and payment of the same may be enforced and recovered by the entry
of judgment of this Note and the issuance of execution thereon.

 

(b)           In
addition to all of the sums payable hereunder, Maker agrees to pay the Payee
all reasonable costs and expenses incurred by Payee in connection with any and
all actions taken to enforce collection of this Note, the Security Agreement
and the Pledge Agreement, upon the occurrence of an Event of Default, including
all reasonable attorneys’ fees.

 

14.           Remedies
not Exclusive.  The remedies of Payee
provided herein or otherwise available to Payee at law or in equity shall be cumulative
and concurrent, and may be pursued singly, successively and together at the
sole discretion of Payee, and may be exercised as often as occasion therefor
shall occur; and the failure to exercise any such right or remedy shall in no
event be construed as a waiver or release of the same.

 

15.           Notices.  All notices required to be given to any of
the parties hereunder shall be in writing and shall be deemed to have been
sufficiently given for all purposes when presented personally to such party or
sent by certified or registered mail, return receipt requested, to such party
at its address set forth below:

 

	
  If to the
  Maker:

  	
  Evolving
  Systems, Inc.

  9777 Mount Pyramid Court, Suite 100

  Englewood, Colorado 80112

  Attention:  Anita Moseley, General
  Counsel

  Tel:  (303) 802-2599

  Fax:  (303) 802-1138

  

 

12

 

	
  With copy
  to:

  	
  Holme
  Roberts & Owen LLP

  1700 Lincoln St., Suite 4100

  Denver, CO  80203-4541

  Attention:  Charles D. Maguire, Jr.,
  Esq.

  Tel:  (303) 861-7000

  Fax:  (303) 866-0200

  
	
   

  	
   

  
	
  If to the
  Payee:

  	
  Tertio
  Telecoms Group Ltd.

  c/o Apax Partners Ltd. 

  15 Portland Place

  London W1B 1PT

  UK

  Attention:  Peter Skinner

  Tel:  +44 (0)20 7843 4000

  Fax:  +44 (0)20 7843 4001

  
	
   

  	
   

  
	
  With copy to:

  	
  Advent
  International plc

  123 Buckingham Palace Road

  London SW1W 9SL

  United Kingdom

  

  Attn:  James Brocklebank

  Tel:  44.20.7333.5516

  Fax:  44.20.7333.0801

  

  Pepper Hamilton LLP

  3000 Two Logan Square

  18th and Arch Streets

  Philadelphia, Pennsylvania 19103

  Attention:  Cary S. Levinson, Esq.

  Tel:  (215) 981-4091

  Fax:  (215) 981-4750

  

 

Such notice
shall be deemed to be given when received if delivered personally or five (5)
business days after the date mailed.  Any
notice mailed shall be sent by certified or registered mail.  Any notice of any change in such address
shall also be given in the manner set forth above.  Whenever the giving of notice is required,
the giving of such notice may be waived in writing by the party entitled to
receive such notice.

 

16.           Severability.  In the event that any provision of this Note
is held to be invalid, illegal or unenforceable in any respect or to any
extent, such provision shall nevertheless remain valid, legal and enforceable
in all such other respects and to such extent as may be permissible.  Any such invalidity, illegality or
unenforceability shall not affect any other provisions of this Note, but this
Note shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein.

 

17.           Successors
and Assigns; Assignment.  This Note inures
to the benefit of the Payee and binds the Maker, and its respective successors
and assigns, and the words “Payee” and “Maker” whenever occurring herein shall
be deemed and construed to include such respective successors and assigns.  Maker may not assign or transfer this Note,
without the consent of Payee.  At any
time and 

 

13

 

from time to time, the Payee, in its sole discretion, may transfer to
any Person all or a portion of the outstanding principal and/or accrued
interest hereunder without the consent of the Maker, provided, however,
this Note may not be assigned, transferred or sold by Payee to any Person that
engages in, or controls an entity that engages in, a business competitive with
the Maker’s business.  Furthermore, as a
condition of the transfer, any transferee of Payee of this Note must agree to
become bound by the provisions of this Note, the Security Agreement and the
Pledge Agreement.

 

18.           Entire
Agreement.  This Note (together with
the other Consideration Notes, the Security Agreement and the Pledge Agreement)
contains the entire agreement between the parties with respect to the subject
matter hereof and thereof.

 

19.           Modification
of Agreement.  This Note may not be
modified, altered or amended, except by an agreement in writing signed by both
the Maker and the Payee.

 

20.           Releases
by Maker.  Maker hereby releases
Payee from all technical and procedural errors, defects and imperfections
whatsoever in enforcing the remedies available to Payee upon a default by Maker
hereunder and hereby waives all benefit that might accrue to Maker by virtue of
any present or future laws exempting any property, real or personal, or any
part of the proceeds arising from any sale of any such property, from attachment,
levy or sale under execution, or providing for any stay of execution, exemption
from civil process or extension of time, and agrees that such property may be
sold to satisfy any judgment entered on this Note, in whole or in part and in
any order as may be desired by Payee.

 

21.           Waivers
by Maker.  Maker (and all endorsers,
sureties and guarantors) hereby waives presentment for payment, demand, notice
of demand, notice of nonpayment or dishonor, protest and notice of protest of
this Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note (other than
notices expressly required by the terms of this Note, the Security Agreement or
the Pledge Agreement); liability hereunder shall be unconditional and shall not
be affected in any manner by an indulgence, extension of time, renewal, waiver
or modification granted or consented to by Payee.

 

22.           Revenue
and Stamp Tax.  Maker shall pay all
reasonable out-of-pocket expenses incurred by the Payee in connection with any
revenue, tax or other stamps now or hereafter required by law at any time to be
affixed to this Note.

 

23.           Governing
Law.  This Note shall be governed by
and construed in accordance with the laws of the State of Delaware, without
reference to conflict of laws principles.

 

24.           Limitations
of Applicable Law.  Notwithstanding
any provision contained herein, Maker’s liability for the payment of interest
shall not exceed the limits now imposed by any applicable usury law.  If any provision of this Note requires
interest payments in excess of the highest rate permitted by law, the provision
in question shall be deemed to require only the highest such payment permitted
by law.  Any amounts theretofore received
by Payee hereunder in excess of the maximum amount of interest so permitted to
be collected by Payee shall be applied by Payee in reduction of the outstanding
balance of principal or, if this Note shall theretofore been paid in full, the
amount of such excess shall be promptly returned by Payee to the Maker.

 

25.           Consent
to Jurisdiction and Service of Process. 
Maker irrevocably appoints its President, Chief Executive Officer, Chief
Financial Officer and General Counsel as Maker’s attorneys-in-

 

14

 

fact upon whom may be served any notice, process or pleading in any
action or proceeding against it arising out of or in connection with this
Note.  Maker hereby consents that any
action or proceeding against it may be commenced and maintained in any court
within the State of Delaware or in the United States District Court of Delaware
by service of process on any such officer. 
Maker further agrees that the courts of the State of Delaware and the
United States District Court of Delaware shall have jurisdiction with respect
to the subject matter hereof and the person of Maker and the collateral
securing Maker’s obligations hereunder. 
Notwithstanding the foregoing, Payee, in its absolute discretion, may
also initiate proceedings in the courts of any other jurisdiction in which
Maker may be found or in which any of its properties or any such collateral may
be located.

 

26.           Headings.  The headings of the sections of this Note are
inserted for convenience only and do not constitute a part of this Note.

 

27.           WAIVER
OF JURY TRIAL.  MAKER HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COLLATERAL SECURITY DOCUMENTS OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF PAYEE.  THIS PROVISION IS A
MATERIAL INDUCEMENT FOR PAYEE’S ADVANCING THE FUNDS UNDER THIS NOTE.

 

28.           ACKNOWLEDGEMENTS.  MAKER ACKNOWLEDGES THAT IT HAS HAD THE
ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS NOTE, AND FURTHER
ACKNOWLEDGES THAT THE MEANING AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL
SET FORTH IN SECTION 27 HAVE BEEN FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.

 

 

[Signature
Page Follows]

 

15

 

IN WITNESS
WHEREOF, the Maker has duly executed this Note as of the date first set forth
above.

 

	
   

  	
  EVOLVING SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen K. Gartside, Jr.

  	
   

  
	
   

  	
  Name:  Stephen K. Gartside, Jr.

  
	
   

  	
  Title:   President and Chief
  Executive Officer

  

 

 

Acknowledged and Agreed:

 

PAYEE:

 

Tertio Telecoms Group Ltd.

 

	
  By:

  	
  /s/ Nigel Clifford

  	
   

  	
   

  
	
  Name:  Nigel Clifford

  	
   

  
	
  Title:    Director

  	
   

  

 

 

SCHEDULE 1

DEFINITIONS

 

“A Notes”
means the Senior Secured Notes dated as of November 2, 2004 by Maker in favor
of Payee in the original aggregate principal amount of $11,950,000, each as
they may be amended, restated, modified or replaced in substitution in whole or
in part by any other note or notes from time to time, including, but not
necessarily limited to, the Senior Secured Notes by Maker in favor of Payee
which may be issued in substitution for or in addition to the A Notes issued to
Payee by Maker under the terms of such A Notes.

 

“Accretive”
shall mean that the projected pro forma consolidated EBITDA (calculated on a
per share basis) of the Maker and the other constituent entity(ies) in such
transaction, and the respective Consolidated Subsidiaries of the Maker and such
constituent entity(ies) for the twelve calendar month period immediately
following such transaction, is not less than the projected EBITDA (calculated
on a per share basis), on a consolidated basis, of the Maker and its
Consolidated Subsidiaries for the same period, all as presented in the
Financial Projections.

 

“Adjusted
Libor Rate” means the London Interbank Offering Rate for three-month
deposits as reported under the heading “Money Rates” in the Eastern edition of
the Wall Street Journal plus 250
basis points.

 

“Affiliate”
shall mean, with respect to any Person, any other Person which directly or
indirectly Controls, is Controlled by or is under common Control with such
Person.

 

“Affiliated
Group” shall mean a group of Persons, each of which is an Affiliate of some
other Person in the group.

 

“B-1 Note”
means the Senior Secured Note of Maker in favor of Payee in such aggregate
principal amount Maker may issue as a result of the outcome of the stockholder
vote on the matters presented for their approval at the Initial Stockholders
Meeting (as such term is defined in the Series B Designation) in effect from
time to time, as it may be amended, restated, modified or replaced in
substitution in whole or in part by any other note or notes from time to time,
including, but not necessarily limited to, the Senior Secured Note by Maker in
favor of Payee which may be issued in substitution for or in addition to the
B-1 Note issued to Payee by Maker under the terms of such B-1 Note.

 

“Capital
Expenditures” shall mean, with respect to any Person for any period, the
aggregate of all expenditures (whether paid in cash, or incurred by entering
into a synthetic lease arrangement or a Capital Lease, or otherwise accrued as
a liability) by such Person during that period which, in accordance with GAAP,
are or should be included in “additions to property, plant or equipment” or
similar items reflected in the statement of cash flows of such Person, and all
research and development expenditures which in accordance with GAAP are or
should be accounted for as a capital expenditure in the balance sheet of that
Person, but excluding expenditures to the extent reimbursed or financed from
insurance proceeds paid on account of the loss of or the damage to the assets
being replaced or restored, or from awards of compensation arising from the
taking by condemnation or eminent domain of such assets being replaced.

 

“Capital
Lease”, as applied to any Person, shall mean any lease of any property
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance
sheet of that Person.

 

 

“Capital
Transaction” means any consolidation or merger of Maker with another
entity, or the sale of all or substantially all of its assets to another
entity, or any reorganization or reclassification of the Common Stock or other
equity securities of Maker.

 

“Cash
Equivalents” shall mean any of the following: (i) full faith and credit
obligations of the United States of America, or fully guaranteed as to interest
and principal by the full faith and credit of the United States of America,
maturing in not more than one year from the date such investment is made; (ii)
time deposits and certificates of deposit, Eurodollar time deposits, overnight
bank deposits and other interest bearing deposits or accounts (other than
securities accounts) or bankers’ acceptances having a final maturity of not
more than one year after the date of issuance thereof of any commercial bank
incorporated under the laws of the United States of America or any state
thereof or the District of Columbia, which bank is a member of the Federal
Reserve System and has a combined capital and surplus of not less than
$500,000,000.00 and with a senior unsecured debt credit rating of at least “A-2”
by Moody’s or “A” by S&P; (iii) commercial paper of companies, banks, trust
companies or national banking associations incorporated or doing business under
the laws of the United States of America or one of the States thereof or the
District of Columbia, in each case having a remaining term until maturity of
not more than two hundred seventy (270) days from the date such investment is
made and rated at least P-1 by Moody’s or at least A-1 by S&P; (iv)
repurchase agreements with any financial institution having combined capital
and surplus of not less than $500,000,000.00 with a term of not more than seven
(7) days for underlying securities of the type referred to in clause (i) above;
and (v) money market funds which invest primarily in the Cash Equivalents set
forth in the preceding clauses (i) - (iv).

 

“Change in
Control” shall mean (i) any Person, Affiliated Group or group (such term
being used as defined in the Securities Exchange Act of 1934, as amended),
other than a Primary Holder (as such term is defined in the Series B
Designation) acquiring ownership or control of in excess of 50% of equity
securities having voting power to vote in the election of the Board of
Directors of Maker either on a fully diluted basis or based solely on the
voting stock then outstanding, (ii) if at any time, individuals who at the date
hereof constituted the Board of Directors of Maker (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of Maker, as the case may be, was approved by a
vote of the majority of the directors then still in office who were either
directors at the date hereof or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of Maker then in office, (iii) the direct or indirect sale,
transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the properties or assets of Maker
to any Person or (iv) the adoption of a plan relating to the liquidation or
dissolution of Maker.

 

“Compensation”
means all salary and bonuses, but excludes any compensation under any equity
incentive plan.

 

“Consideration
Notes” means the collective reference to this Note, the A Notes, the B-1
Note and the Convertible Note.

 

“Consolidated
Subsidiaries” shall mean all Subsidiaries of a Person which are required or
permitted to be consolidated with such Person for financial reporting purposes
in accordance with GAAP.

 

“Control”
shall mean, as to any Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
greater than 50% of the 

 

I-2

 

voting securities of such
Person or by acting as the general partner of a limited partnership (the terms “Controlled
by” and “under common Control with” shall have correlative meanings.)

 

“Convertible
Note” shall mean the Senior Secured Convertible Note of Maker in favor of
Payee in such aggregate principal amount Maker may issue as a result of the
outcome of the stockholder vote on the matters presented for their approval at
the Initial Stockholders Meeting (as such term is defined in the Series B
Designation) in effect from time to time in the form attached to A Notes as Exhibit B
2, as they may be amended, restated or modified from time to time.

 

“EBITDA”
shall mean for any period, Net Income for such period plus, without
duplication, the aggregate amounts deducted in determining Net Income during
such period, the sum of (A) interest paid on indebtedness for such period, (B)
income taxes for such period, (C) depreciation expense for such period and (D)
amortization expense for such period, all as determined in accordance with GAAP
as applied in accordance with past practice.

 

“Executive
Officer” means any officer of Maker whose compensation is determined by the
Compensation Committee of the Board of Directors of Maker.

 

“Financial
Projections” shall mean written financial projections prepared by Maker and
certified by Maker’s chief financial officer, prepared in good faith and based
upon reasonably assumptions and estimates regarding the economic, business,
industry market, legal and regulatory circumstances and conditions relevant to
the Maker.

 

“GAAP”
means generally accepted accounting principles set forth in the Opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements of the Financial Accounting Standards Board; and
such principles observed in a current period shall be comparable in all
material respects to those applied in a preceding period.

 

“Guaranty”
shall mean, as to any Person, any direct or indirect obligation of such Person
guaranteeing or intending to guarantee, or otherwise providing credit support,
for any Indebtedness, Capital Lease, dividend or other monetary obligation (“primary
obligation”) of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, by contract, as a general partner or otherwise,
including, without limitation, any obligation of such Person, whether or not
contingent, (a) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (b) to advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, or (c) to
purchase property, securities or services from the primary obligor or other
Person, in each case, primarily for the purpose of assuring the performance of
the primary obligor of any such primary obligation or assuring the owner of any
such primary obligation of the repayment of such primary obligation.  The amount of any Guaranty shall be deemed to
be an amount equal to (x) the stated or determinable amount of the primary
obligation in respect of which such Guaranty is made (or, if the amount of such
primary obligation is not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder)) or (y) the stated maximum liability under such Guaranty,
whichever is less.

 

“Indebtedness”
shall mean (without double counting), at any time and with respect to any
Person, (i) indebtedness of such Person for borrowed money (whether by loan or
the issuance and sale of debt securities) or for the deferred purchase price of
property or services purchased (other than amounts constituting trade payables
arising in the ordinary course of business and payable in accordance with 

 

I-3

 

customary trading terms not in
excess of 90 days or, if overdue for more than 90 days, as to which a dispute
exists and adequate reserves in conformity with GAAP have been established on
the books of such Person); (ii) all indebtedness of such Person evidenced by a
note, bond, debenture or similar instrument (whether or not disbursed in full
in the case of a construction loan); (iii) indebtedness of others which such
Person has directly or indirectly assumed or guaranteed or otherwise provided
credit support therefore (other than for collection or deposit in the ordinary
course of business); (iv) indebtedness of others secured by a Lien on assets of
such Person, whether or not such Person shall have assumed such indebtedness
(provided, that if such Person has not assumed such indebtedness of another
Person then the amount of indebtedness of such Person pursuant to this clause
(iv) for purposes of this Note shall be equal to the lesser of the amount of
the indebtedness of the other Person or the fair market value of the assets of
such Person which secures such other indebtedness); (v) obligations of such
Person relative to the face amount of letters of credit, acceptance facilities,
or drafts or similar instruments issued or accepted by banks and other
financial institutions for the account of such Person; (vi) that portion of
obligations of such Person under Capital Leases that is properly classified as
a liability on a balance sheet in conformity with GAAP; (vii) all obligations
of such Person under any Interest Rate Protection Agreement; (viii) deferred
payment obligations of such Person resulting from the adjudication or
settlement of any litigation; and (ix) any Guaranty by such Person in respect
of any of the foregoing.

 

“Interest
Rate Protection Agreement” shall mean any interest rate swap agreement,
interest rate cap agreement, synthetic cap, collar or floor or other financial
agreement or arrangement designed to protect a Maker or any of its Subsidiaries
against fluctuations in interest rates or to reduce the effect of any such
fluctuations.

 

“Investment”
shall mean any investment in any Person, whether by means of acquiring or
holding securities, capital contribution, loan, time deposit, guaranty or
otherwise.

 

“Lien”
shall mean any mortgage, pledge, security interest, encumbrance, lien or charge
of any kind whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any agreement to grant a security interest at
a future date, any lease in the nature of security, and the filing of, or
agreement to give, any financing statement under the Uniform Commercial Code of
any jurisdiction).

 

“Material
Adverse Effect” shall mean a (i) a material adverse effect upon the
business, operations, properties, assets or condition (financial or otherwise)
of the Maker or (ii) the material impairment of the ability of the Maker to
perform its obligations under the Consideration Notes or of the Payee to
enforce the obligations of the Maker under the Consideration Notes.

 

“Net Income”
shall mean for any period, net income on a consolidated basis for that period
determined in accordance with GAAP applied consistently with past practice.

 

“Non-Permitted
Subsidiary” means any direct or indirect Wholly Owned Subsidiary of Maker
that is not a Permitted Subsidiary.

 

“Note Issue
Date” shall mean the date on which this Note is issued.

 

“Permitted
Acquisitions” means any acquisition of fifty percent (50%) or more of the
equity interests or all or substantially all of the assets of a third party so
long as (i) such acquisition is Accretive, and approved by the Maker’s board of
directors, (ii) following the consummation of the 

 

I-4

 

acquisition the Maker has a
cash balance of at least $5,000,000, on a consolidated basis, and (iii) the
Maker does not incur any Indebtedness in connection with such acquisition.

 

“Permitted
Subsidiary” means any direct or indirect Wholly Owned Subsidiary of Maker
that is domesticated or incorporated in a jurisdiction of the United States,
Canada, the United Kingdom or a country that is a member of the European Union
and is a guarantor of Maker’s obligations under the Consideration Notes.

 

“Person”
shall mean any natural person, corporation, division of a corporation,
partnership, limited liability partnership, limited liability company, trust,
joint venture, association, company, estate, unincorporated organization or
government or any agency or political subdivision thereof.

 

“Pledge
Agreement” means the Pledge Agreement executed by Maker in favor of Payee
and dated the date hereof, as it may be amended, restated or modified from time
to time, together with all schedules and exhibits thereto.

 

“Registrable
Shares” shall have the meaning set forth with respect thereto in the
Investor Rights Agreement of even date herewith.

 

“Security
Agreement” means the Security Agreement executed by the Maker in favor of
the Payee and dated as of the date hereof, as it may be amended, restated or
modified from time to time, together with all schedules and exhibits thereto.

 

“Series B
Designation” shall mean the Certificate of Designation of Maker’s Series B
Convertible Preferred Stock, as filed with the Secretary of State of the State
of Delaware.

 

 “Stock Purchase Agreement” means the
Stock Purchase Agreement dated as of November 2, 2004 by and among the Maker,
Tertio Telecom Group, Ltd. and the parties listed therein.

 

“Stockholders”
shall have the meaning given to such term in the Stock Purchase Agreement.

 

“Subsidiary”
shall mean with respect to any Person, any corporation, association, joint
venture, partnership or other business entity (whether now existing or
hereafter organized) of which at least a majority of the voting stock or other
ownership interests having ordinary voting power for the election of directors
(or the equivalent) is, at the time as of which any determination is being
made, owned or controlled by such Person or one or more subsidiaries of such
Person or by such Person and one or more subsidiaries of such Person.

 

“UCC”
shall mean the Uniform Commercial Code as in effect from time to time in the
State of Delaware.

 

“Wholly
Owned Subsidiary” of a Person means (a) any Subsidiary all of the
outstanding voting securities (other than directors qualifying shares and/or
other nominal amounts of shares required to be held by directors or other
Persons under applicable law) of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly Owned
Subsidiaries of such Person, or by such Person and one or more Wholly Owned
Subsidiaries of such Person, or (b) any partnership, limited liability company,
association, joint venture or similar business organization 100% of 

 

I-5

 

the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.

 

I-6

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00074-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00074-of-00352.parquet"}]]