Document:

Exhibit
10.4

 

NON-EXCLUSIVE LICENSE AGREEMENT

 

This LICENSE AGREEMENT (“Agreement”),
dated as of June 2, 2005 (the “Effective Date”),
is by and between 3F Therapeutics, Inc., a Delaware corporation (“3F”), on the one hand, and Edwards
Lifesciences PVT, Inc., a Delaware corporation (“Edwards PVT”), on the other hand.  Each of 3F and Edwards PVT may be referred to
herein individually as a “Party”
or collectively as the “Parties.”

 

RECITALS

 

WHEREAS 3F is the owner of certain patents, patent applications, and know-how
relating to heart valves and catheter-delivered heart valves;

 

WHEREAS Edwards desires to obtain a non-exclusive license to such
patents, patent applications, and know-how; and

 

WHEREAS 3F is willing to grant such license under the following terms
and conditions.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, which constitutes good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parties agree as follows:

 

1.                                                                                       Definitions.  The following definitions shall apply to the
following terms:

 

1.1                                 “3F”
shall have the meaning set forth in the preamble.

 

1.2                                 “Affiliate” shall mean, with respect to any
specified Person, a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.

 

1.3                                 “Agreement” shall have the meaning set
forth in the preamble.

 

1.4                                 “Edwards
PVT” shall have the meaning set forth in the preamble.

 

1.5                                 “Edwards”
shall mean Edwards PVT and its Affiliates.

 

1.6                                 “Effective Date” shall have the meaning set
forth in the preamble.

 

1.7                                 “Excluded 3F IP” shall mean the patents and
patent applications listed on Exhibit A hereto.

 

1.8                                 “Fields of Use” shall mean the Surgical
Field of Use and the Percutaneous Field of Use.

 

 

1.9                                 “PVT Product” shall mean the the
Cribier-Edwards percutaneous heart valve, existing as of the Effective Date, including
(i) any modifications or alterations to such valve that are made prior to the
first approval by the United States Food and Drug Administration (“FDA”) of a premarket
approval (“PMA”) application submitted
on such valve in the Percutaneous Field of Use, (ii) any modifications or
alterations that are made to such valve to adapt it for use in the Surgical
Field of Use prior to the first approval by the FDA of a PMA application submitted
on such valve in the Surgical Field of Use, and (iii) any modifications or
alterations that are made to the FDA approved valves described in (i) and (ii) that
do not require submission of a new PMA application.

 

1.10                           “Laser Patents” shall mean the patents and
patent applications listed on Exhibit B hereto, and any continuations,
divisionals, reexaminations, reissues, extensions and foreign counterparts
thereof.

 

1.11                           “Licensed Patents” shall mean the Laser
Patents and the patents and patent applications owned or licensed by 3F as of
the Effective Date that relate to the Fields of Use, and any continuations,
divisionals, reexaminations, reissues, extensions and foreign counterparts
thereof; provided, however, that the Licensed Patents shall not include the
Excluded 3F IP.

 

1.12                           “Licensed Product” shall mean a product in
the Fields of Use utilizing the Tissue Valve Know-How or covered by any Valid
Claim of the Licensed Patents.

 

1.13                           “Litigation” shall have the meaning set
forth in Section 4.2.

 

1.14                           “Party”
shall have the meaning set forth in the preamble.

 

1.15                           “Parties”
shall have the meaning set forth in the preamble.

 

1.16                           “Percutaneous Field of Use” shall mean the
percutaneous insertion of a stented, tissue heart valve through any vessel
using a catheter delivery system.

 

1.17                           “Person” shall mean any individual,
partnership, firm, corporation, association, trust, unincorporated organization
or other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Exchange Act.

 

1.18                           “Supply and Training Agreement” shall mean
the Supply and Training Agreement, dated June 2, 2005, by and between the
Parties hereto.

 

1.19                           “Surgical Field of Use” shall mean the
surgical insertion through the chest cavity of a stented, tissue heart valve
using a catheter delivery system of no greater than 50 centimeters in usable
length (i.e., the length that can be inserted into the human body); provided,
however, that such Surgical Field of Use does not include the delivery of a
stented, tissue heart valve to the heart by way of any vessel other than solely
through the thoracic aorta.

 

1.20                           “Third Party” shall mean any Person other
than 3F, Edwards, or an Affiliate of either.

 

2

 

1.21                           “Tissue Valve Know-How” shall mean (i) any
information owned or licensed by 3F or its Affiliates existing as of the
termination of the Supply and Training Agreement which relate to the Fields of
Use and which is listed on Exhibit C; and (ii) any information
related to valve leaflets, valve subassemblies, and finished products from
valve leaflets and valve subassemblies, and the processing and manufacture of
valve leaflets, valve subassemblies, and finished products from valve leaflets
and valve subassemblies which is used by 3F or needed by Edwards to process and
manufacture valve leaflets, valve subassemblies, and finished products from
valve leaflets and valve subassemblies that were being made by 3F for Edwards
under the Supply and Training Agreement and which is in the possession of 3F or
its Affiliates at any time prior to the termination of the Supply and Training
Agreement.

 

1.22                           “Valid Claim” shall mean a claim of an
issued and unexpired patent included in the Licensed Patents which has not been
revoked or held unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been disclaimed, denied, or
admitted to be invalid or otherwise unenforceable through reissue,
reexamination, disclaimer, or otherwise.

 

2.                                                                                       License
Grants.

 

2.1                                 3F
hereby grants to Edwards a worldwide, non-transferable (except as set forth in Section 10.2.1
below), royalty free, non-exclusive license under the Licensed Patents, except
for the Laser Patents, without the right to sublicense, to manufacture, have
manufactured, use, import, offer for sale, and sell Licensed Products only in
the Surgical Field of Use and/or the Percutaneous Field of Use.

 

2.2                                 3F
hereby grants to Edwards a worldwide, non-transferable (except as set forth in Section 10.2.1
below), royalty free, non-exclusive license under the Laser Patents, without
the right to sublicense, to manufacture, have manufactured, use, import, offer
for sale, and sell PVT Products only in the Surgical Field of Use and/or the Percutaneous
Field of Use.

 

2.3                                 3F
hereby grants to Edwards a worldwide, non-transferable (except as set forth in Section 10.2.1
below), royalty free, non-exclusive license to the Tissue Valve Know-How,
without the right to sublicense, to manufacture, have manufactured, use,
import, offer for sale, and sell Licensed Products only in the Fields of Use.

 

2.4                                 Edwards
agrees and acknowledges that the limited scope of the Fields of Use set forth
in this Agreement are a material and essential part of this Agreement.  As such, the licenses set forth in this Section 2
include a covenant by Edwards to refrain from taking any actions that would
permit, encourage, promote, market, fund, sponsor, or facilitate, directly or
indirectly, any off label use or any other use of any Licensed Product outside
the Fields of Use, and to use its best efforts to prevent any such off label
use or any other use outside the Fields of Use. 
Any breach by Edwards of this covenant shall be deemed a material breach
of this Agreement.

 

2.5                                 No
implied patent or other intellectual property rights or licenses are granted by
3F hereunder or in connection herewith other than those licenses expressly
granted in this Agreement.

 

3

 

2.6                                 Nothing
in this Agreement shall limit or preclude Edwards use of, in any manner or in
any field, the Tissue Valve Know-How, that (i) is or becomes publicly
known (through no wrongful act, omission, or breach of this Agreement by
Edwards); (ii) is already known to Edwards or its Affiliates at the time
that such Tissue Valve Know-How is transferred to Edwards; (iii) is
independently developed by Edwards or its Affiliates without the benefit of the
Tissue Valve Know-How; or (iv) is rightfully received or obtained by
Edwards or its Affiliates independent of the transfer of the Tissue Valve
Know-How by 3F.

 

3.                                                                                       Product
Labeling.

 

3.1                                 Upon
written notice from 3F of a specific Licensed Patent that applies to a specific
Licensed Product, each Licensed Product sold by Edwards shall be marked in
compliance with 35 U.S.C. § 287, or the relevant corresponding
statute under the law of the country in which such Licensed Product is sold.

 

3.2                                 Each
Licensed Product manufactured by or for Edwards shall be labeled for use only
in the Fields of Use.

 

4.                                                                                       Infringement
and Enforcement.

 

4.1                                 If
at any time during the term of this Agreement, Edwards learns or believes that
any Third Party is infringing any of the Licensed Patents or using Tissue Valve
Know-How without a license in the Fields of Use, Edwards shall notify 3F in
writing of the existence of such alleged infringement or unlicensed use.

 

4.2                                 3F
may, but has no obligation to, take any and all actions to enforce the Licensed
Patents (including without limitation instituting litigation) against any
infringement in the Fields of Use or to prevent any unlicensed use of the Tissue
Valve Know-How (“Litigation”).  3F shall bear all the expenses and costs with
respect to any such Litigation and 3F shall be entitled to all damages
recovered in such Litigation.

 

4.3                                 At
3F’s request, Edwards agrees to cooperate in any such Litigation, including but
not limited to participating in such Litigation as a named party.  3F agrees to pay Edward’s reasonable costs
and expenses in connection with such Litigation.  In the event that Edwards desires to retain
separate counsel in connection with such Litigation, however, Edwards shall
bear its own costs and expenses concerning the Litigation, including without
limitation the costs and expenses of such separate counsel.  Notwithstanding Edward’s participation in
such Litigation, 3F shall retain the full right to control such Litigation,
including without limitation any settlement of such Litigation.  3F shall have the right, in its sole and
absolute discretion, to settle any Litigation on such terms and conditions that
3F deems to be appropriate.

 

5.                                                                                       Representations
and Warranties.

 

5.1                                 3F
hereby represents and warrants to Edwards that

 

(i) it has all of the requisite power
and authority to enter into this Agreement and to perform its obligations
hereunder and that this Agreement has been duly and validly authorized,
executed, and delivered by 3F;

 

4

 

(ii)                                  it
is the owner of, or has the exclusive license to, the Tissue Valve Know-How,
such Tissue Valve Know-How, to the best of 3F’s knowledge, does not infringe or
misappropriate the intellectual property of any Third Party, and that 3F has
the entire right to enter these licenses; and

 

(iii)                               it
is the owner of, or has the exclusive license to, the Licensed Patents and that
it has the entire right to enter into these licenses.

 

5.2                                 EXCEPT AS EXPRESSLY SET FORTH IN SECTION 5.1 AND
TO THE EXTENT THAT 3F PROVIDES NOTICE IN ACCORDANCE WITH SECTION 3.1, 3F
DOES NOT MAKE, AND THERE ARE NO, WARRANTIES, REPRESENTATIONS, OR CONDITIONS,
EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE RELATING TO THE LICENSED PATENTS OR
TISSUE VALVE KNOW-HOW, INCLUDING WITHOUT LIMITATION ANY REPRESENTATIONS OR
WARRANTIES OF VALIDITY, ENFORCEABILITY, NON-INFRINGEMENT, OR FITNESS FOR ANY
PARTICULAR PURPOSE.

 

5.3                                 Edwards
hereby represents and warrants to 3F that it has all of the requisite power and
authority to enter into this Agreement and that this Agreement has been duly
and validly authorized, executed, and delivered by Edwards.

 

6.                                                                                       Term
and Termination.

 

6.1                                 The
term of this Agreement shall commence on the Effective Date and, subject to
earlier termination as provided herein, shall continue until the later of: (i) the
date of expiration of the last to expire of any Licensed Patent covering a
Licensed Product; or (ii) the date on which Edwards no longer intends to
utilize the Tissue Valve Know-How. 
Edwards shall promptly notify 3F at such time that Edwards no longer
intends to utilize the Tissue Valve Know-How.

 

6.2                                 Either
Party may terminate this Agreement for a material breach by the other Party
that remains uncured for ninety (90) days following notice to the breaching
Party.

 

6.3                                 This
Agreement, including all licenses herein, shall automatically and immediately
terminate, without any further action or notice by 3F, in the event that
Edwards is or becomes insolvent.  For
purposes of this Agreement, Edwards shall be deemed “insolvent” if it is unable
to pay its debts and obligations as and when they come due.

 

7.                                                                                       Notices.

 

Any notice which is required or permitted to be given to a Party
pursuant to this Agreement shall be deemed to have been given only if such
notice is reduced to writing and (i) delivered personally, (ii) sent
by reputable overnight courier service for next business day delivery to the
person in question at the address given below, or (iii) sent by facsimile
machine (with proof transmission capability) to the fax number set forth below,
with a hard copy to be sent by first class mail to the person at the address
given below:

 

5

 

	
  If to 3F: 

  	
   

  	
  If to Edwards: 

  
	
   

  	
   

  	
   

  
	
  3F Therapeutics, Inc.

  20412 James Bay Circle

  Lake Forest, CA 92630

  Facsimile No.: (949) 380-9399

  Attn: Walter A. Cuevas

  	
   

  	
  Edwards Lifesciences PVT, Inc.

  One Edwards Way

  Irvine, CA 92614

  Facsimile No.: (949) 250-6868

  Attn: General Counsel

  
	
   

  	
   

  	
   

  
	
  with a copy to (which copy shall not

  constitute notice): 

  	
   

  	
  with a copy to (which copy shall not

  constitute notice): 

  
	
   

  	
   

  	
   

  
	
  Reed Smith, LLP

  1901 Avenue of the Stars, Suite 700

  Los Angeles, CA 90067

  Facsimile No.: (310) 734-5299

  Attn: Michael Sanders

  	
   

  	
  Gibson, Dunn & Crutcher LLP

  Jamboree Center

  4 Park Plaza

  Irvine, CA 92614

  Facsimile No.: (949) 475-4673

  Attn: John M. Williams

  

 

or to such other address or facsimile number as either Party shall have
specified by notice in writing to the other Party.

 

If delivered personally or by facsimile during normal business hours on
a business day, a notice shall be deemed delivered when actually received at
the address specified above.  In any
other case, notice shall be deemed delivered on the next business day following
the date on which it was sent.

 

8.                                                                                       Indemnification.

 

8.1                                 Edwards
shall indemnify, defend, and hold 3F harmless against any and all losses
arising out of a Third Party claim to the extent such claim arises from the
negligence, willful misconduct, breach of contract, or violations of law by
Edwards, its employees, agents, subcontractors, or assigns in the performance
of this Agreement.  The losses covered by
this Section 8.1 include, but are not limited to, settlements, judgments
(court costs, attorneys’ fees, expert fees, and other litigation expenses),
fines and penalties arising out of actual or alleged (i) injury to or
death of any person; (ii) loss of or damage to tangible or intangible
property; (iii) patent mismarking; and (iv) breach of contract.

 

8.2                                 3F
shall indemnify, defend, and hold Edwards harmless against any and all losses
arising out of a Third Party claim to the extent such claim arises from the
negligence, willful misconduct, breach of contract, or violations of law by 3F,
its employees, agents, subcontractors, or assigns in the performance of this
Agreement.  The losses covered by this Section 8.2
include, but are not limited to, settlements, judgments (court costs, attorneys’
fees, expert fees, and other litigation expenses), fines and penalties arising
out of actual or alleged (i) loss of or damage to intangible property; (ii) patent
mismarking to the extent that 3F provides notice pursuant to Section 3.1;
and (iii) breach of contract.

 

6

 

9.                                                                                       Limitation
of Liability or Damages.

 

9.1                                 EXCEPT WITH RESPECT TO EACH PARTY’S RESPECTIVE
INDEMNITY OBLIGATIONS PURSUANT TO SECTION 8, IN NO EVENT SHALL EITHER
PARTY, ITS AGENTS, OR EMPLOYEES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OR ANY PUNITIVE DAMAGES,
INCLUDING WITHOUT LIMITATION LOST PROFITS, IN CONNECTION WITH THIS AGREEMENT,
THE LICENSED PATENTS, OR TISSUE VALVE KNOW-HOW, HOWEVER SO CAUSED, WHETHER
ARISING IN CONTRACT (INCLUDING BREACH), TORT (INCLUDING NEGLIGENCE), OR
OTHERWISE.  The Parties
acknowledge and agree that the exclusion of liability herein is reasonable and
appropriate in the circumstances and was a material factor in determining the
terms of this Agreement.

 

9.2                                 Without
limiting the generality of Section 9.1 and except as 3F provides notice in
accordance with Section 3.1, nothing contained in this Agreement shall be
construed as:

 

(i)                                     requiring
the enforcement of any patent or patent application, including any obligation
by 3F to institute any suit or action for infringement of any of the Licensed
Patents;

 

(ii)                                  reflecting
a determination by 3F of the applicability of any of the Licensed Patents to
the Fields of Use or any Licensed Product of Edwards;

 

(iii)                               a
warranty or representation by 3F as to the validity or scope of any Licensed
Patents; or

 

(iv)                              any
obligation by 3F to furnish any assistance under this Agreement; provided,
however, that this subsection (iv) shall not limit any of 3F’s
obligations pursuant to the Supply and Training Agreement.

 

10.                                                                                 Miscellaneous.

 

10.1                           Relationship of the Parties.  Nothing in this Agreement shall be construed
to create a partnership, joint venture, employment or agency relationship, or
any other form of legal association between 3F and Edwards.  Except as expressly set forth in this
Agreement, each Party shall conduct business in its own name and shall be
solely responsible for the acts and conduct of its employees and agents.

 

10.2                           Assignability.

 

10.2.1                  This Agreement
is not assignable or transferable by Edwards, in whole or in part, except (i) with
the prior written consent of 3F; (ii) an assignment in connection with the
sale of all or substantially all of Edwards’ business; (iii) an assignment
by Edwards to a purchaser of all or substantially all of the assets of the
business relating to the Tissue Valve Know-How; or (iv) the licenses set
forth in Section 2 can be separately assigned by Edwards to a purchaser of
all or substantially all of the assets of the business relating to any of the
Fields of Use, as applicable; provided, however, that in the event of any
assignment pursuant to this

 

7

 

Section, such
assignee shall agree to be bound and comply with all of the applicable
obligations of this Agreement.  By way of
example, in connection with subsection (iv) of this Section, if
Edwards sells all or substantially all of its business relating to the Surgical
Field of Use, the licenses set forth in Sections 2.1, 2.2 and 2.3 relating to the
Surgical Field of Use may be assigned to the purchaser of such business,
provided such assignee agrees to be bound and comply with all of the
obligations of this Agreement related to such assigned licenses, including
without limitation, for example, Sections 2.4, 3, 4, 8.1, 9, and 10.

 

10.2.2                                          3F
may assign or transfer this Agreement, in whole or in part; provided, however,
that 3F provide written notice to Edwards and that such assignee agrees to be
bound and comply with all applicable obligations of this Agreement.

 

10.3                           Governing Law.  This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without giving effect to the choice of law rules thereof.  Each of the Parties hereto irrevocably
consents to the jurisdiction of the state and federal courts located within
Orange County, State of California, and irrevocably agrees that all actions or
proceedings relating to this Agreement, the Licensed Patents, or the Tissue
Valve Know-How shall be litigated in such courts, and each of the Parties
expressly waives any objection or defenses that it may have based on lack of
personal jurisdiction, improper venue, or forum non conveniens with respect to such courts.  The Parties’ consent and waiver set forth in this
Section 10.3 expressly shall apply in the event that any such action is
transferred by the United States District Court sitting in Orange County, on
its own motion or upon filing, to any other division of the United States
District Court for the Central District of California.

 

10.4                           Attorneys’ Fees.  If any Party to this Agreement shall bring
any action, suit, arbitration, mediation, counterclaim or appeal for any relief
against any other Party, declaratory or otherwise, to enforce the terms hereof
or to declare rights hereunder, the Prevailing Party in such action shall be
entitled to recover as recoverable costs in any such action its attorneys’ fees
and costs (including reasonable fees and costs for in-house counsel), all
expert fees and costs, all court and/or arbitration expenses, and any other
costs reasonably and properly incurred, including any fees and costs incurred
in bringing and prosecuting such action and/or enforcing any order, judgment,
ruling, or award granted as part of such action.  As used in this Section, “Prevailing Party” shall include, without
limitation, a party who agrees to dismiss an action or who obtains
substantially the relief sought by it.

 

10.5                           Counterparts.  This Agreement may be executed in two or more
counterparts (including by means of facsimile), each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.

 

10.6                           Severability.  Should any part or provision of this
Agreement be rendered or declared invalid by reason of any law or by decree of
a court of competent jurisdiction, the validity of any other term, clause, or
provision shall not be affected provided that such invalid or unenforceable
provision is and can be replaced with an enforceable clause which most closely
achieves the result intended by such invalid clause.

 

10.7                           Survivability.  The provisions of Sections 1, 4, 5, 8, 9, and
10 shall survive any termination or expiration of this Agreement.

 

8

 

10.8                           Headings. 
The headings used in this Agreement are for purpose of reference only
and shall not affect the meaning or interpretation of any provision of this
Agreement.

 

10.9                           Drafting. 
Each Party has had the opportunity to consult with competent,
independent counsel in connection with this Agreement and has participated in
the drafting of this Agreement. 
Accordingly, this Agreement shall not be construed against either Party
as the drafter.

 

10.10                     Waiver. 
No waiver or delay by either Party of any breach of the covenants
contained herein to be performed by the other Party shall be construed as a
waiver of any succeeding breach of the same or any other covenants or
conditions hereof.

 

10.11                     Entirety of Agreement.  This Agreement supersedes any prior
understandings or agreements, whether written or oral, and any contemporaneous
oral agreements, between the Parties hereto in regard to the subject matter
hereof and, together with the Master Agreement and other Related Agreements (as
defined in the Master Agreement), contain the entire agreement between the
Parties in regard to the subject matter hereof. 
This Agreement may not be changed or modified orally, but only by an
agreement, in writing, signed by all parties hereto.

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed and delivered by their duly authorized representations, effective as
of the Effective Date set forth above.

 

	
  3F THERAPEUTICS, INC.

  	
   

  	
  EDWARDS LIFESCIENCES PVT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Walter Cuevas

  	
   

  	
   

  	
  By:

  	
   /s/ Jay P. Wertheim

  	
   

  
	
  Name:

  	
   Walter Cuevas

  	
   

  	
   

  	
  Name: Jay P. Wertheim

  
	
  Title:

  	
  President and Chief Executive Officer

  	
   

  	
   

  	
  Title: Vice President, Associate General 

  
	
   

  	
   

  	
  Counsel and Secretary

  
								

 

9Exhibit 4.1

 

Form of 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.

 

	
  $                    Principal
  Amount

  	
   

  	
  June 2, 2005

  

 

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 [Insert
Name of Payee] (“Payee”), having an address at [Insert Address of Payee], 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:

 

	
  Payment
  Date

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  
	
  March 31, 2006

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $1,340,000.]

  
	
   

  	
   

  	
   

  
	
  June 30, 2006

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $3,110,000.]

  
	
   

  	
   

  	
   

  
	
  December 31, 2006

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $1,430,000.]

  
	
   

  	
   

  	
   

  
	
  March 31, 2007

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $1,870,000.]

  
	
   

  	
   

  	
   

  
	
  June 30, 2007

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $3,110,000.]

  
	
   

  	
   

  	
   

  
	
  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 Adjusted Libor 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:  (a) there are no Convertible Notes
outstanding or (b) there are one or more Convertible Notes outstanding and any
holder thereof declines to accept a prepayment under Section 3 of the Convertible
Notes, then Maker may prepay this Note in an amount equal to Payee’s pro rata
share of such prepayment (based upon the aggregate outstanding principal amount
of all A Notes (as defined in Section 15 of 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 (the “Mandatory Prepayment
Election Period”) request that Maker make a prepayment on this Note in an
amount equal to Payee’s pro rata
share (based upon the aggregate outstanding principal amount of all the A Notes
(as defined in Section 15 of this Note)) of the Account Prepayment Amount for
the fiscal quarter to which such certificate relates, if any, not paid under
Section 4(a) of the Convertible Notes and Section 7(a) of the B-1 Notes; provided however, that in no event shall
the aggregate amount of payments made to Payee and the other holders of
Consideration Notes pursuant to this Section 7(a), Section 7(a) of each of the
other A Notes, Section 7(a) of each of the B-1 Notes and Section 4(a) of each
of the Convertible Notes for any fiscal quarter exceed the Account Prepayment
Amount for such fiscal quarter.  Any
prepayments on the A Notes payable by Maker under this Section 7(a) and Section
7(a) of each of the other A Notes then outstanding shall be paid to the holders
of A Notes requesting such prepayment (including Payee, if applicable) within
two (2) business days following expiration of the Mandatory Prepayment Election
Period.  Each prepayment under this
Section 7(a) 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

 

 

2

 

called for the purpose of
approving a Capital Transaction, Maker shall provide the Payee with written
notice of the proposed Capital Transaction (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 as 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 following consummation of the Change of Control.  Maker shall pay to Payee said amounts within
two (2) business days following consummation of the Change of Control; 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 the Collateral Agent (on behalf of the holders
of the Consideration Notes) 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). 
The Collateral Agent shall have all rights provided to a secured party
under the Security Documents and under the Uniform Commercial Code of the State
of Delaware.  The Maker shall execute and
deliver such documentation as the Collateral Agent may reasonably request to
evidence and perfect the Collateral Agent’s security interest granted in this
Section 8 and under the Security Documents.

 

(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 the Payee or the Collateral Agent 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 Collateral Agent:

 

(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), 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

 

 

3

 

(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 (unless otherwise
consented to in writing by a Super Majority of Payees):

 

(a)   Upon the request from time to time of any Requesting Holder, (i)
provide such Requesting Holder and its representatives (at the Maker’s expense)
access to Maker’s books and records and to any of Maker’s and its Subsidiaries’
properties or assets upon three (3) days’ advance notice and during regular
business hours in order that such Requesting Holder 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 same Requesting Holder 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 none of the Requesting Holders
shall be so limited, and (ii) upon reasonable advance notification to Maker,
permit such Requesting Holder 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 such Requesting Holder 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. 
Each Requesting Holder 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.

 

(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

 

 

4

 

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 a Super
Majority of Payees:

 

(a)   voluntarily liquidate, dissolve or wind up, except for the
liquidation, dissolution and winding-up of CMS Communications, Inc. (“CMS”) and
Telecom Software Enterprises, LLC (“TSE”) (including, without
limitation, any liquidation, dissolution or winding-up of CMS or TSE by means
of a merger of CMS or TSE, as applicable, with and into Maker, with Maker as
the surviving entity);

 

(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; provided that
there is no Event of Default under this Note; (C) 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 and
thereafter included in and as part of the Collateral (as defined in the
Security Agreement); or (D) 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;

 

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

 

 

5

 

(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 of the Consideration Notes;

 

(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 Collateral Agent (on behalf of the
holders of the Consideration Notes) 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 so long as Maker complies with the terms of Section 7(b) of
this Note, if applicable;

 

(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;

 

 

6

 

(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 unless and until ESN becomes
a Permitted Subsidiary, 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
unless and until TSE becomes a Permitted Subsidiary, 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 unless and until ESHL or any
such wholly owned subsidiary of ESHL becomes a Permitted Subsidiary, 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 unless and until
ESHL or any such wholly owned subsidiary of ESHL becomes a Permitted
Subsidiary, promptly upon the incurrence of such Indebtedness, Maker shall give
the Payee 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”);

 

(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 clauses (A) and (B) of this Section 10(e)(xii)
outstanding at any time does not exceed $1,000,000;

 

 

7

 

(xiii)         the Series B Preferred Stock, 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 the Collateral Agent
(on behalf of the holders of the Consideration Notes), Payee or any holder of
the Consideration Notes under the Security Documents;

 

(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 Sections 10(e)(ix)
and 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, (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); except to the extent 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

 

 

8

 

payments, interest expense incurred in
respect of the Capital Lease for the relevant fiscal year (which for purposes
of this Note 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
unless and until ESN becomes a Permitted Subsidiary, 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 unless and until TSE becomes
a Permitted Subsidiary, 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 unless and until ESHL becomes a Permitted Subsidiary, 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 unless and until
ESHL becomes a Permitted Subsidiary, promptly upon the making of any such
Investments, Maker shall give the Payee 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 Investments shall not exceed 50% of the aggregate amount of the
equity Investments made pursuant to this Section 10(i)(vii) plus the aggregate
amount of the Permitted Indebtedness permitted under Section 10(e)(xv) of this
Note;

 

 

9

 

(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; and

 

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

 

(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 the Collateral Agent (on behalf of the holders of the
Consideration Notes) 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 or any of the Security Documents; 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.

 

(a)   In the event the Maker proposes to enter into an agreement to
acquire another Person (the “Proposed Acquisition”), the Maker shall
deliver 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 all holders of the Consideration Notes (including the Payee),
unless holders of the Consideration Notes holding at least 40% of the Aggregate
Principal Indebtedness shall give written notice to the Maker (such holders who
give such notice, the “Disagreeing Payees”) of the items in the Financial
Projections with which the Disagreeing Payees disagree (the “Accretive
Calculation Disagreement Notice”) within twenty (20) calendar days after
the receipt by the Payee of the Financial Projections.  The Accretive Calculation Disagreement Notice
shall specify each item disagreed with by the Disagreeing Payees (or the
Disagreeing Payees’ calculation thereof), the reason for the disagreement and a
restatement of the item disagreed with to reflect the view of the Disagreeing
Payees.  If the Maker disagrees with the
Disagreeing Payees’ position as set forth in the Accretive Calculation
Disagreement Notice, then the Maker shall notify the Disagreeing Payees within
twenty (20) calendar days after the receipt by the Maker of the Accretive
Calculation Disagreement Notice (the “Maker’s Notice Period”) that Maker
disagrees with the Accretive Calculation Disagreement Notice.  The Maker and the Disagreeing Payees shall,
during the twenty (20) calendar days after receipt by the Disagreeing Payees of
such notice (the “Negotiation Period”), negotiate in good faith to
resolve any such disagreements.  If at
anytime during but not later than the end of the Negotiation Period the Maker
and the Disagreeing Payees have been unable to resolve their disagreements,
either the Maker or the Disagreeing Payees will have the right to engage on
behalf of the Maker and Disagreeing Payees, Grant Thornton LLP (or such other
Person mutually agreed to in writing by the Maker and the Disagreeing Payees)
(the “Unaffiliated Firm”) to resolve the items set forth in the
Accretive Calculation Disagreement Notice with respect to which there is
continuing disagreement between the Maker and the Disagreeing Payees.  If the Maker notifies the Disagreeing Payees
in writing that it agrees with the Accretive Calculation Disagreement Notice or

 

 

10

 

does not provide the Disagreeing Payees with
notice of Maker’s disagreement by the expiration of the Maker’s Notice Period
or if an Unaffiliated Firm is not engaged as provided in this Section 11(a),
the Financial Projections, as modified by the Accretive Calculation
Disagreement Notice, shall be binding on the Maker and all holders of the
Consideration Notes.

 

(b)   The Unaffiliated Firm,
employing such procedures as it in its sole discretion deems necessary or
appropriate in the circumstances, shall resolve those disagreements with the
Financial Projections as set forth in the Accretive Calculation Disagreement
Notice which remain unresolved between the Maker and the Disagreeing
Payees.  The Unaffiliated Firm shall
submit to the Maker and the Disagreeing Payees a report of its review of the
contested 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 Acquisition is Accretive.  The determination so made by the Unaffiliated
Firm shall be conclusive, binding on and non-appealable by, the Maker and all
holders of the Consideration Notes.  The
fees and disbursements of the Unaffiliated Firm shall be borne one half by the
Maker and one half by the holders of the Consideration Notes (on a pro rata basis based upon the outstanding
principal amount of the Consideration Notes at the time of the engagement of the
Unaffiliated Firm in accordance with Section 11(a) of this Note).  Notwithstanding all of the foregoing, the
Maker may elect, at any time, not to comply with this Section 11 with respect
to a Proposed Acquisition (or if the Maker otherwise fails to properly comply
with the terms of this Section 11) in which event, the Proposed Acquisition
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 any of the Security
Documents, and such default shall continue uncured for twenty (20) consecutive
days after notice thereof to Maker given by the 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
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;

 

 

11

 

(iv)          (A) This Note, any of the other Consideration Notes or any
of the Security Documents 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) the Collateral Agent shall not be
given or shall cease to have a valid and perfected Lien in any collateral under
such Security Documents (other than by reason of a release of collateral in
accordance with the terms hereof or thereof) with the priority required by the
Security Documents, 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 Documents 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;

 

(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; or

 

(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 TTGL 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

 

 

12

 

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 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 continuance
of an Event of Default:

 

(i)            if (A) there are no
Convertible Notes outstanding or (B) Convertible Notes are outstanding and
there is an Outstanding Unpaid Account Prepayment Amount, then, upon receipt of notice from Payee (so long as Payee has not received
a prepayment under Section 7(a) of this Note for the most recently completed
fiscal quarter for which an Aggregate Quarterly Closing Balance has been
calculated), Maker shall immediately pay to such Payee such Payee’s pro rata portion (based upon the aggregate
outstanding principal amount of all A Notes) of such Outstanding Unpaid Account
Prepayment Amount, provided, that
in no event shall the aggregate amount of payments made to Payee and the other
holders of Consideration Notes pursuant to Section 13(a)(i) of each of the A
Notes (including this Note), Section 7(a) of each of A Notes (including this
Note), Section 4(a) and Section 16(a)(i) of each of the Convertible Notes and
Section 7(a) and Section 13(a)(i) of each of the B-1 Notes exceed the Account
Prepayment Amount for the most recently completed fiscal quarter for which an
Aggregate Quarterly Closing Balance has been calculated; 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
the Payee and the Collateral Agent in connection with the collection or
enforcement of this Note or any of the Security Documents, shall at the option
of the Requisite Payees, upon 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 and the Collateral Agent all
reasonable costs and expenses incurred by the Payee and the Collateral Agent in
connection with any and all actions taken to enforce collection of this Note
and the Security Documents 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,

 

 

13

 

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.   Ranking.  This Note is one of several Senior Secured
Notes (as each may be amended, restated or modified from time to time, each an “A
Note” and collectively with this Note, the “A Notes”) issued by
Maker to several Persons in connection with the liquidation of TTGL in partial
renewal and continuation of (but not in extinguishment or novation of) the
indebtedness evidenced by those certain Senior Secured Notes, dated as of
November 2, 2004, by Maker in favor of TTGL in the original aggregate principal
amount of $11,950,000.  Subject to the
right of each holder of the A Notes to (a) elect or decline a mandatory
prepayment on such holder’s A Note in accordance with Sections 7(a) and
13(a)(i) of the A Notes and (b) accelerate payment of all amounts due or owed
by Maker to such holder under such holder’s A Note upon a Change of Control in
accordance with Section 7(b) of the A Notes, each
A Note is ranked pari passu with
each other A Note in the payment of interest and principal, and payments of
interest and principal by Maker under the A Notes, including prepayments, if
any, shall be made pro rata among each A Note in the same proportion that the
outstanding principal amount of each A Note bears to the outstanding principal
amount of each other A Note.  In the
event it is determined that Payee has received payments in respect of interest
or principal under this Note which are disproportionately greater than payments
of interest or principal made to one or more obligees due in respect to the
other A Notes (determined in accordance with the preceding sentence) then the
Payee shall be deemed to have received and shall hold such greater amount
solely in trust for the benefit for each of the obligees to whom such excess
should inure, and Payee shall forthwith deliver such excess amount to Maker for
payment to such other obligees.

 

16.   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
this Note (collectively, the “Allocable Amount”).  The Allocation Notice shall set forth the
amounts of the Allocable Amount which (i) shall be allocated to a Convertible
Note, (ii) shall be allocated to a B-1 Note and (iii) shall remain as
outstanding principal of an A Note, as the case may be.  Subject to the limitations set forth in
Section 16(b) of this Note, Payee shall have the sole discretion to allocate
the Allocable Amount to a Convertible Note and to a B-1 Note and to leave
outstanding as principal of an A Note such amounts at it deems appropriate; provided that the aggregate amount of the
Allocable Amount and the outstanding principal amount and accrued interest of
all other outstanding A Notes allocated to the Convertible Notes shall be equal
to at least thirty percent (30%) of the aggregate outstanding principal amount
and accrued interest of all outstanding A Notes (including this Note).

 

(b)   Limitation on Issuance of Convertible Note.  If the Payee allocates a portion of the
Allocable Amount to a Convertible Note and such allocation would result in the
holders of all A Notes, meeting or exceeding the Ownership Threshold, then the
Payee shall allocate only that portion of the Allocable Amount to such Convertible
Note (based upon its pro rata share of the outstanding principal amount of all
A Notes) that would not result in the holders of the A Notes meeting or
exceeding the Ownership Threshold and the portion of the Allocable Amount that
is not allocable to such Convertible Note shall remain as outstanding principal
of the A Notes.  If the Payee allocates a
portion of the Allocable Amount to a 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 such

 

 

14

 

Convertible Note and the
balance of the Allocable Amount shall be allocated to a B-1 Note.  The aggregate principal amount and accrued
interest allocated to a Convertible Note and the B-1 Note and remaining
outstanding as an A Note 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 this Note is to remain
outstanding as an A Note, 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 a B-1
Note, a B-1 Note reflecting a pro rata portion of the principal allocated to
the B-1 Note and (z) a
Convertible Note reflecting the pro rata portion of principal amount allocated
to the Convertible Note in the Allocation Notice (subject to the limitations
set forth in Section 16(b)).  Delivery of
the allonges and notes referenced in this Section 16(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 a Convertible Note or a B-1 Note.

 

(d)   Cancellation of A Notes.  If no principal amount is to remain
outstanding under this Note as an A Note, then this Note shall be cancelled
upon receipt of a 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 any 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.

 

17.   Notices; Payments.  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, CO 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:

  	
   

  	
  [Payee Name]

  
	
   

  	
   

  	
  [Payee Address]

  
	
   

  	
   

  	
  Attn:

  	
   

  	
   

  
	
   

  	
   

  	
  Tel:

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With
  copy to:

  	
   

  	
  [Insert Name and Address]

  

 

 

15

 

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.

 

Unless
otherwise agreed by Maker and Payee, all payments hereunder by Maker to Payee
shall be made by wire transfer to an account designated in writing by Payee.

 

18.   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.

 

19.   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, that: 
(A) the minimum aggregate amount of such transfer shall be at least
equal to the lesser of (i) $500,000 in principal amount and (ii) the
outstanding principal balance of this Note at the time of transfer; (B) any
such transfer shall be to (i) one holder or (ii) an Affiliated Group of holders
(excluding natural persons) with a common manager, general partner or
investment adviser; and (C) the transfer shall be made in accordance with
applicable securities laws.  For purposes
of determining whether the aggregate amount being transferred under this Note
meets the $500,000 threshold in the preceding sentence, all amounts of A Notes
to be transferred by Advent Holders may be aggregated and all amounts of A
Notes to be transferred by Apax Holders may be aggregated.  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, the Pledge Agreement and any
other Security Documents.

 

20.   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.

 

21.   Modification of Agreement; Waivers.  No provision of this Note may be modified,
altered, amended or waived, except by an agreement in writing signed by both the
Maker and a Super Majority of Payees; provided, however, that no modification,
alteration, amendment or waiver shall, without the consent of the Payee:

 

 

16

 

(a)   extend the Maturity Date of this Note or postpone
any regularly scheduled payment of principal or change the payment amount due
under Section 2 of this Note;

 

(b)   waive any Event of Default under Section
12(a)(i) of this Note;

 

(c)   reduce the percentage specified in the
definitions of Requisite Payees or Super Majority of Payees;

 

(d)   increase the percentage specified in the
definitions of Requesting Holder or Disagreeing Payees;

 

(e)   amend Sections 3, 4, 5, 6, 7, 15 or 21 of
this Note; provided, however, that a
Super Majority of Payees may waive the requirement of payment of default
interest under Section 5 of this Note in connection with a concurrent waiver of
an Event of Default;

 

(f)    release Maker from its obligation to pay
this Note; or

 

(g)   except as provided hereunder or in the
Security Documents, release any guarantor from its guaranty of payment of this
Note or release all or substantially all of the collateral securing the
Indebtedness evidenced by this Note.

 

22.   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.

 

23.   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.

 

24.   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.

 

25.   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.

 

26.   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

 

 

17

 

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.

 

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]

 

18

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

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Stephen K. Gartside, Jr.

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 

Acknowledged
and Agreed:

 

PAYEE:

 

[Insert
Name of Payee]

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

 

19

 

SCHEDULE 1

DEFINITIONS

 

“Account Prepayment
Amount” means, for any fiscal quarter, the amount by which the Aggregate
Quarterly Closing Balance for such fiscal quarter exceeds $7,000,000.

 

“Accretive” shall
mean, with respect to a Proposed Acquisition, 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.

 

“Advent Holders”
means any holder of the Consideration Notes that is an investment fund and (i)
is an Affiliate of Advent International Corporation or (b) for which Advent
International Corporation is the investment advisor (with full authority to
bind). “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.

 

“Aggregate Principal
Indebtedness” means, as of any date of determination, the sum of the
principal amounts outstanding under the Consideration Notes in effect at such
time.

 

“Apax Holders” means
Apax Funds Nominees Limited, an entity formed and registered in England and
Wales with company number 02140054 and any holder of the Consideration Notes
that is an investment fund and (i) is an Affiliate of Apax Partners Ltd. or (b)
for which Apax Partners Ltd. is the investment advisor (with full authority to bind).

 

“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 Notes” means the
Senior Secured Notes (each referred to as a “Note B-1”) of Maker 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
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 Note which may be issued by Maker in
substitution for or in addition to the B-1 Notes issued by Maker under the
terms of such B-1 Notes.

 

“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.

 

“Collateral Agent”
means Advent International Corporation, a Delaware corporation, solely in its
capacity as collateral agent under the Security Documents for the holders of
the Consideration Notes from time to time, and its permitted successors and
assigns in such capacity.

 

 

2

 

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

 

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

 

“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 Notes”
shall mean the Senior Secured Convertible Notes of Maker 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
they 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 reasonable 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.

 

 

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.

 

“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, 

 

 

4

 

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 any of the holders of the Consideration
Notes 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.

 

“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 holders
of the Convertible Notes, on a fully diluted basis, after assuming the
conversion into Common Stock of all other Convertible Securities then held by
the holders of the Convertible Notes, to hold an aggregate amount equal to or
greater than 33% of all of the issued and outstanding Common Stock of the
Maker.

 

“Outstanding
Unpaid Account Prepayment Amount” shall mean for the most recently
completed fiscal quarter for which an Aggregate Quarterly Closing Balance has
been calculated, the balance of the Account Prepayment Amount for such fiscal
quarter, if any, remaining after giving effect to all payments made pursuant to
Section 4(a) and Section 16(a)(i) of the Convertible Notes, Section 7(a) and
Section 13(a)(i) of each of B-1 Notes and Section 7(a) of each of the A Notes
(including this Note).

 

“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

 

 

5

 

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 the Collateral Agent,
dated as of November 2, 2004, 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.

 

“Requesting Holder”
means, on any given date of determination: 
(a) any holder holding 40% or more of the Aggregate Principal
Indebtedness at the time of such request and (b) any group of holders holding
40% or more of the Aggregate Principal Indebtedness at the time of such request
provided that such holders have
appointed a single representative to act on behalf of such holders with respect
to the rights described in Section 9(a) of the B-1 Notes, Section 9(a) of the A
Notes (including this Note), Section 12(a) of the Convertible Notes and Section
9(a) of the Short Term Notes.

 

“Requisite Payees”
means, on any given date of determination, holders of the Consideration Notes
holding 50.1% or more of the Aggregate Principal Indebtedness.

 

“Security Agreement”
means the Security Agreement executed by the Maker in favor of the Collateral
Agent, dated as of November 2, 2004, as it may be amended, restated or modified
from time to time, together with all schedules and exhibits thereto.

 

“Security Documents”
means the Security Agreement, the Pledge Agreement or any other security
agreement, pledge, guaranty or other agreement or instrument now, heretofore or
hereafter delivered by Maker to the Collateral Agent, the Payee or any holder
of the Consideration Notes (each as amended, restated or modified from time to
time) to secure or guarantee the payment of any part of, or the performance of
Maker’s duties and obligations under, the Consideration Notes or any other
documents, agreements and instruments entered into in connection therewith; provided, however, that the term “Security
Documents” shall not include the Stock Purchase Agreement or the Series B
Designation or the Investor Rights Agreement (as defined in the Stock Purchase
Agreement) or any other document, agreement or instrument entered into in
connection with the documents referred to in this proviso, all as amended,
restated or modified from time to time.

 

“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.

 

“Short Term Notes”
means the Senior Secured Notes (each referred to as a “Short Term Note”) dated
as of June 2, 2005 in the original aggregate principal amount of $2,000,000,
issued by Maker in connection with the liquidation of TTGL in partial renewal
and continuation of (but not in extinguishment or novation of) the indebtedness
evidenced by that certain Senior Secured Note, dated as of November 2, 2004, by
Maker in favor of TTGL in the original aggregate principal amount of 

 

 

6

 

$4,000,000, as they 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, TTGL and the parties listed therein.

 

“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.

 

“Super Majority of Payees”
means, on any given date of determination, holders of the Consideration Notes
holding 60% or more of the Aggregate Principal Indebtedness.

 

“TTGL” means Tertio
Telecoms Group Ltd., an entity formed and registered in England and Wales with
a company number 4419858.

 

“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.

 

 

7

 

SCHEDULE 2

 

Existing
Liens and Indebtedness

 

Indebtedness

 

1.                           Indebtedness
disclosed in the Disclosure Schedules to the Stock Purchase Agreement.

 

2.                           Indebtedness
shown on the Closing Working Capital Statement (as defined in the Stock
Purchase Agreement).

 

 

Liens

 

1.                           Liens and
security interests in the assets of TSE, granted in connection with the TSE
Promissory Notes.

 

2.                           Liens and
security interests in the capital securities of TSE owned by Maker, granted in
connection with the TSE Promissory Notes.

 

3.                           Liens and
security interests disclosed in the Disclosure Schedules to the Stock Purchase
Agreement.

 

 

 

EXHIBIT A

FORM OF DEPOSIT ACCOUNT CERTIFICATE

 

Date:
                       

CERTIFICATE
OF CHIEF FINANCIAL OFFICER

 

Pursuant to the terms of
Section 7 of the Senior Secured Note (as it may be amended, restated or
modified from time to time, the “Note”) dated                     ,
200     by Evolving Systems, Inc. (“Maker”) in favor of                     
in the original principal amount of $                    ,
I,                     ,
the Chief Financial Officer of Maker, on behalf of Maker [and its Subsidiaries]
and not in my individual capacity, hereby certify that (all capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Note):

 

The Aggregate Quarterly
Closing Balance for each of the following deposit accounts set forth below for
the fiscal quarter ending                     ,
20     is as follows:

 

	
  Name of Account

  	
   

  	
  Account Number

  	
   

  	
  Closing Balance

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  

 

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  

 

 

 

EXHIBIT B 

BANK ACCOUNTS INTO WHICH ACCOUNTS RECEIVABLE ARE DEPOSITED

 

Evolving Systems, Inc.

Wells Fargo

Lockbox Account # 1018016801

(Payments mailed to: Dept
271, Denver, CO 80291-0271)

 

Telecom Software
Enterprises, LLC

KeyBank

Account # 769081021651

 

All other Subsidiaries of
Maker:

All accounts in the name of
Maker’s Subsidiaries existing on November 2, 2004

 

 

 

Note/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

  	
   

  	
  , 2005

  

 

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 [Insert
Name and Jurisdiction of Incorporation for Payee] (“Payee”),
having an address at [Insert Address of Payee],
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)

(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.

 

	
  Payment
  Date

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  
	
  March 31, 2006

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $1,340,000.]

  
	
   

  	
   

  	
   

  
	
  June 30, 2006

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $3,110,000.]

  
	
   

  	
   

  	
   

  
	
  December 31, 2006

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $1,430,000.]

  
	
   

  	
   

  	
   

  
	
  March 31, 2007

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $1,870,000.]

  
	
   

  	
   

  	
   

  
	
  June 30, 2007

  	
   

  	
  [$                    ]
  [Note: Insert pro rata portion of $3,110,000.]

  
	
   

  	
   

  	
   

  
	
  Maturity Date

  	
   

  	
  all outstanding amounts
  hereunder, whether principal, interest or otherwise

  

 

 

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 Adjusted Libor 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:  (a) there are no Convertible Notes
outstanding or (b) there are one or more Convertible Notes outstanding and any
holder thereof declines to accept a prepayment under Section 3 of the
Convertible Notes, then Maker may prepay this Note in an amount equal to Payee’s
pro rata share of such prepayment (based upon the aggregate outstanding
principal amount of all the B-1 Notes (as defined in Section 15 of 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 (the “Mandatory Prepayment
Election Period”) request that Maker make a prepayment on this Note in an
amount equal to Payee’s pro rata
share (based upon the aggregate outstanding principal amount of all the B-1
Notes) of the Account Prepayment Amount for the fiscal quarter to which such
certificate relates, if any, not paid under Section 4(a) of the Convertible
Notes, provided, however, that in
no event shall the aggregate amount of payments made to Payee and the other
holders of Consideration Notes pursuant to this Section 7(a), Section 7(a) of
each of the other B-1 Notes, Section 4(a) of each of the Convertible Notes and
Section 7(a) of each of the A Notes for any fiscal quarter exceed the Account 

 

 

2

 

Prepayment Amount for such fiscal
quarter.  Any prepayments on the B-1
Notes payable by Maker under this Section 7(a) and Section 7(a) of each of the
other B-1 Notes then outstanding shall be paid to the holders of B-1 Notes
requesting such prepayment (including Payee, if applicable) within two (2)
business days following expiration of the Mandatory Prepayment Election Period.  Each prepayment under this Section 7(a) 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 of the
proposed Capital Transaction (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 as 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 following consummation of the Change of Control.  Maker shall pay to Payee said amounts within
two (2) business days following consummation of the Change of Control; 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 the Collateral Agent (on behalf of the
holders of the Consideration Notes) 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).  The Collateral Agent shall have all rights
provided to a secured party under the Security Documents and under the Uniform
Commercial Code of the State of Delaware. 
The Maker shall execute and deliver such documentation as the Collateral
Agent may reasonably request to evidence and perfect the Collateral Agent’s
security interest granted in this Section 8 and under the Security Documents.

 

(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 the Payee or the Collateral Agent 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 Collateral Agent:

 

(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), and 10(k) of this Note shall terminate;

 

 

3

 

(iii)          the negative covenants set forth in Section 10(c) 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 (unless otherwise
consented to in writing by a Super Majority of Payees):

 

(a)   Upon the request from time to time of any Requesting Holder, (i)
provide such Requesting Holder and its representatives (at the Maker’s expense)
access to Maker’s books and records and to any of Maker’s and its Subsidiaries’
properties or assets upon three (3) days’ advance notice and during regular
business hours in order that such Requesting Holder 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 same Requesting Holder 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 none of the Requesting Holders
shall be so limited, and (ii) upon reasonable advance notification to Maker,
permit such Requesting Holder 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 such Requesting Holder 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.  Each
Requesting Holder 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

 

 

4

 

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 a Super
Majority of Payees:

 

(a)   voluntarily liquidate, dissolve or wind up, except for the
liquidation, dissolution and winding-up of CMS Communications, Inc. (“CMS”)
and Telecom Software Enterprises, LLC (“TSE”) (including, without
limitation, any liquidation, dissolution or winding-up of CMS or TSE by means
of a merger of CMS or TSE, as applicable, with and into Maker, with Maker as
the surviving entity);

 

(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 provided that
there is no Event of Default under this Note; (C) 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 and
thereafter included in and as part of the Collateral (as defined in the
Security Agreement); or (D) 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);

 

 

5

 

(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 of the Consideration Notes;

 

(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 Collateral Agent (on behalf of the
holders of the Consideration Notes) 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 so long as Maker complies with the terms of Section 7(b) of
this Note, if applicable;

 

 

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 unless and until ESN becomes
a Permitted Subsidiary, 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
unless and until TSE becomes a Permitted Subsidiary, 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 unless and until ESHL or any
such wholly owned subsidiary of ESHL becomes a Permitted Subsidiary, 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 unless and until
ESHL or any such wholly owned subsidiary of ESHL becomes a Permitted
Subsidiary, promptly upon the incurrence of such Indebtedness, Maker shall give
the Payee 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 clauses (A) and (B) of this Section 10(e)(xii)
outstanding at any time does not exceed $1,000,000;

 

(xiii)         the Series B Preferred Stock, 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 the Collateral Agent (on behalf of the holders of the Consideration Notes),
Payee or any holder of the Consideration Notes under the Security Documents;

 

(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 Sections 10(e)(ix)
and 10(e)(ix); 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); except to the extent 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 (which for purposes of this Note 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 unless
and until ESN becomes a Permitted Subsidiary, 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 unless and until TSE becomes
a Permitted Subsidiary, 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 unless and until ESHL becomes a Permitted Subsidiary, 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 

 

 

9

 

Expenditures permitted under Section 10(g) of
this Note, and provided further that
unless and until ESHL becomes a Permitted Subsidiary, promptly upon the making
of any such Investments, Maker shall give the Payee 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 Investments shall not exceed 50% of the aggregate amount of the
equity Investments 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; and

 

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

 

(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 the Collateral Agent (on behalf of the holders of
the Consideration Notes) 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 or any of the Security Documents; 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”).

 

 

10

 

11.   Determination of Accretive.

 

(a)   In the event the Maker proposes to enter into
an agreement to acquire another Person (the “Proposed Acquisition”), the
Maker shall deliver 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 all holders of the Consideration Notes
(including the Payee), unless holders of the Consideration Notes holding at
least 40% of the Aggregate Principal Indebtedness shall give written notice to
the Maker (such holders who give such notice, the “Disagreeing Payees”)
of the items in the Financial Projections with which the Disagreeing Payees
disagree (the “Accretive Calculation Disagreement Notice”) within twenty
(20) calendar days after the receipt by the Payee of the Financial
Projections.  The Accretive Calculation
Disagreement Notice shall specify each item disagreed with by the Disagreeing
Payees (or the Disagreeing Payees’ calculation thereof), the reason for the
disagreement and a restatement of the item disagreed with to reflect the view
of the Disagreeing Payees.  If the Maker
disagrees with the Disagreeing Payees’ position as set forth in the Accretive
Calculation Disagreement Notice, then the Maker shall notify the Disagreeing
Payees within twenty (20) calendar days after the receipt by the Maker of the
Accretive Calculation Disagreement Notice (the “Maker’s Notice Period”)
that Maker disagrees with the Accretive Calculation Disagreement Notice.  The Maker and the Disagreeing Payees shall,
during the twenty (20) calendar days after receipt by the Disagreeing Payees of
such notice (the “Negotiation Period”), negotiate in good faith to
resolve any such disagreements.  If at
anytime during but not later than the end of the Negotiation Period the Maker
and the Disagreeing Payees have been unable to resolve their disagreements,
either the Maker or the Disagreeing Payees will have the right to engage on
behalf of the Maker and Disagreeing Payees, Grant Thornton LLP (or such other
Person mutually agreed to in writing by the Maker and the Disagreeing Payees)
(the “Unaffiliated Firm”) to resolve the items set forth in the
Accretive Calculation Disagreement Notice with respect to which there is
continuing disagreement between the Maker and the Disagreeing Payees.  If the Maker notifies the Disagreeing Payees
in writing that it agrees with the Accretive Calculation Disagreement Notice or
does not provide the Disagreeing Payees with notice of Maker’s disagreement by
the expiration of the Maker’s Notice Period or if an Unaffiliated Firm is not
engaged as provided in this Section 11(a), the Financial Projections, as
modified by the Accretive Calculation Disagreement Notice, shall be binding on
the Maker and all holders of the Consideration Notes.

 

(b)   The Unaffiliated Firm, employing such procedures as it in its sole
discretion deems necessary or appropriate in the circumstances, shall resolve
those disagreements with the Financial Projections as set forth in the
Accretive Calculation Disagreement Notice which remain unresolved between the
Maker and the Disagreeing Payees.  The
Unaffiliated Firm shall submit to the Maker and the Disagreeing Payees a report
of its review of the contested 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 Acquisition is
Accretive.  The determination so made by
the Unaffiliated Firm shall be conclusive, binding on and non-appealable by,
the Maker and all holders of the Consideration Notes.  The fees and disbursements of the
Unaffiliated Firm shall be borne one half by the Maker and one half by the
holders of the Consideration Notes (on a pro
rata basis based upon the outstanding principal amount of the
Consideration Notes at the time of the engagement of the Unaffiliated Firm in
accordance with Section 11(a) of this Note). 
Notwithstanding all of the foregoing, the Maker may elect, at any time,
not to comply with this Section 11 with respect to a Proposed Acquisition (or
if the Maker otherwise fails to properly comply with the terms of this Section 11)
in which event, the Proposed Acquisition shall be deemed not to be Accretive.

 

 

11

 

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 any of the Security Documents, and such default shall
continue uncured for twenty (20) consecutive days after notice thereof to Maker
given by the 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 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 any of the Security Documents
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) the Collateral Agent shall not be given or shall cease to have a
valid and perfected Lien in any collateral under such Security Documents (other
than by reason of a release of collateral in accordance with the terms hereof
or thereof) with the priority required by the Security Documents, 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 Documents 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;

 

 

12

 

(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; or

 

(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 TTGL 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 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

 

13.   Consequences of Default.

 

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

 

(i)            if (A) there are no Convertible Notes outstanding or
(B) Convertible Notes are outstanding and there is an Outstanding Unpaid
Account Prepayment Amount, then, upon receipt
of notice from Payee (so long as Payee has not received a prepayment under
Section 7(a) of this Note for the most recently completed fiscal quarter for
which an Aggregate Quarterly Closing Balance has been calculated), Maker shall
immediately pay to such Payee such Payee’s pro
rata portion (based upon the aggregate outstanding, principal amount
of all B-1 Notes) of such Outstanding Unpaid Account Prepayment Amount, provided, that in no event shall the
aggregate amount of payments made to Payee and the other holders of
Consideration Notes pursuant to Section 13(a)(i) of each of the B-1 Notes
(including this Note), Section 7(a) of each of B-1 Notes (including this Note),
Section 4(a) and Section 16(a)(i) of each of the Convertible Notes and Section
7(a) and Section 13(a)(i) of each of the A Notes exceed the Account Prepayment
Amount for the most recently completed fiscal quarter for which an Aggregate
Quarterly Closing Balance has been calculated; 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 the Payee and the
Collateral Agent in connection with the collection or enforcement of this Note
or any of the Security Documents, shall at the option of the Requisite Payees,
upon 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 and the Collateral Agent all reasonable costs and
expenses incurred by the Payee and the Collateral Agent in connection with any
and all actions taken to enforce collection of this Note and the Security
Documents 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.   Ranking.  This Note is one of several Senior Secured
Notes which are each referred to as a “Note B-1” (as each may be amended,
restated or modified from time to time, each an “B-1 Note” and
collectively with this Note, the “B-1 Notes”) issued by Maker to several
Persons.  Subject to the right of each
holder of the B-1 Notes to (a) elect or decline a mandatory prepayment on such
holder’s B-1 Note in accordance with Sections 7(a) and 13(a)(i) of the B-1
Notes and (b) accelerate payment of all amounts due or owed by Maker to such
holder under such holder’s B-1 Note upon a Change of Control in accordance with
Section 7(b) of the B-1 Notes, each B-1 Note is ranked pari passu with each other B-1 Note in the
payment of interest and principal, and payments of interest and principal by
Maker under the B-1 Notes, including prepayments, if any, shall be made pro rata among each B-1 Note in the same
proportion that the outstanding principal amount of each B-1 Note bears to the
outstanding principal amount of each other B-1 Note.  In the event it is determined that Payee has
received payments in respect of interest or 

 

 

14

 

principal under this Note which are
disproportionately greater than payments of interest or principal made to one
or more obligees due in respect to the other B-1 Notes (determined in
accordance with the preceding sentence) then the Payee shall be deemed to have
received and shall hold such greater amount solely in trust for the benefit for
each of the obligees to whom such excess should inure, and Payee shall
forthwith deliver such excess amount to Maker for payment to such other
obligees.

 

16.   Notices; Payments.  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, CO 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:

  	
   

  	
  [Payee Name]

  
	
   

  	
   

  	
  [Payee Address]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attn:

  	
   

  	
   

  
	
   

  	
   

  	
  Tel:

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With
  copy to:

  	
   

  	
  [Insert Name and Address]

  

 

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.

 

Unless
otherwise agreed by Maker and Payee, all payments hereunder by Maker to Payee
shall be made by wire transfer to an account designated in writing by Payee.

 

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.

 

 

15

 

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, that:
(A) the minimum aggregate amount of such transfer shall be at least equal to the
lesser of (i) $500,000 in principal amount and (ii) the outstanding principal
balance of this Note at the time of transfer; (B) any such transfer shall be to
(i) one holder or (ii) an Affiliated Group of holders (excluding natural
persons) with a common manager, general partner or investment adviser; and (C)
the transfer shall be made in accordance with applicable securities laws.  For purposes of determining whether the
aggregate amount being transferred under this Note meets the $500,000 threshold
in the preceding sentence, all amounts of B-1 Notes to be transferred by Advent
Holders may be aggregated and all amounts of B-1 Notes to be transferred by
Apax Holders may be aggregated.  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, the Pledge
Agreement and any other Security Documents.

 

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; Waivers.  No provision of this Note may be modified,
altered, amended or waived, except by an agreement in writing signed by both
the Maker and a Super Majority of Payees; provided,
however, that no modification, alteration, amendment or waiver
shall, without the consent of the Payee:

 

(a)   extend the Maturity Date of this Note or
postpone any regularly scheduled payment of principal or change the payment
amount due under Section 2 of this Note;

 

(b)   waive any Event of Default under Section
12(a)(i) of this Note;

 

(c)   reduce the percentage specified in the
definitions of Requisite Payees or Super Majority of Payees;

 

(d)   increase the percentage specified in the
definitions of Requesting Holder or Disagreeing Payees;

 

(e)   amend Sections 3, 4, 5, 6, 7, 15 or 20 of
this Note; provided, however, that a
Super Majority of Payees may waive the requirement of payment of default
interest under Section 5 of this Note in connection with a concurrent waiver of
an Event of Default;

 

(f)    release Maker from its obligation to pay
this Note; or

 

(g)   except as provided hereunder or in the
Security Documents, release any guarantor from its guaranty of payment of this
Note or release all or substantially all of the collateral securing the
Indebtedness evidenced by this Note.

 

 

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.

 

 

17

 

28.   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.

 

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 OF THIS NOTE  HAVE
BEEN FULLY EXPLAINED TO MAKER BY SUCH COUNSEL.

 

30.   Partial Substitution and Replacement.  This Note evidences and constitutes a partial
substitution and replacement of one or more 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 such 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]

 

 

18

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

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Stephen K. Gartside, Jr.

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 

Acknowledged
and Agreed:

 

PAYEE:

 

[Insert
Name of Payee]

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

 

19

 

SCHEDULE 1

DEFINITIONS

 

“Account Prepayment
Amount” means, for any fiscal quarter, the amount by which the Aggregate
Quarterly Closing Balance for such fiscal quarter exceeds $7,000,000.

 

“Accretive” shall
mean, with respect to a Proposed Acquisition, 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.

 

“Advent Holders”
means any holder of the Consideration Notes that is an investment fund and (i)
is an Affiliate of Advent International Corporation or (b) for which Advent
International Corporation is the investment advisor (with full authority to
bind).

 

“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.

 

“Aggregate Principal
Indebtedness” means, as of any date of determination, the sum of the
principal amounts outstanding under the Consideration Notes in effect at such
time.

 

“A Notes” means the
Senior Secured Notes (each referred to as a “Note A”) dated as of                 ,
2005, in the original aggregate principal amount of $                
issued by Maker in connection with the liquidation of TTGL in partial renewal
and continuation of (but not in extinguishment or novation of) the indebtedness
evidenced by those Senior Secured Notes dated as of November 2, 2004, by Maker
in favor of TTGL 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 which may be issued by
Maker in substitution for or in addition to the A Notes issued by Maker under
the terms of such A Notes.

 

“Apax Holders” means
Apax Funds Nominees Limited, an entity formed and registered in England and
Wales with company number 02140054 and any holder of the Consideration Notes
that is an investment fund and (i) is an Affiliate of Apax Partners Ltd. or (b)
for which Apax Partners Ltd. is the investment advisor (with full authority to
bind).

 

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

 

“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 

 

 

1

 

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.

 

 

2

 

“Collateral Agent”
means Advent International Corporation, a Delaware corporation, solely in its
capacity as collateral agent under the Security Documents for the holders of
the Consideration Notes from time to time, and its permitted successors and
assigns in such capacity.

 

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

 

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

 

“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 Notes”
shall mean the Senior Secured Convertible Notes of Maker 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 the 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
reasonable 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 

 

 

3

 

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).

 

“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 any 

 

 

4

 

of the holders of the
Consideration Notes 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.

 

“Outstanding
Unpaid Account Prepayment Amount” shall mean for the most recently
completed fiscal quarter for which an Aggregate Quarterly Closing Balance has
been calculated, the balance of the Account Prepayment Amount for such fiscal
quarter, if any, remaining after giving effect to all payments made pursuant to
Section 4(a) and Section 16(a)(i) of the Convertible Notes, Section 7(a) of
each of B-1 Notes (including this Note) and Section 7(a) of each of the A
Notes.

 

“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 the Collateral Agent,
dated as of November 2, 2004, 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.

 

“Requesting Holder”
means, on any given date of determination: 
(a) any holder holding 40% or more of the Aggregate Principal
Indebtedness at the time of such request and (b) any group of holders holding
40% or more of the Aggregate Principal Indebtedness at the time of such request
provided that such holders have
appointed a single representative to act on behalf of such holders with 

 

 

5

 

respect to the rights
described in Section 9(a) of the B-1 Notes (including this Note), Section 9(a)
of the A Notes, Section 12(a) of the Convertible Notes and Section 9(a) of the
Short Term Notes.

 

“Requisite Payees”
means, on any given date of determination, holders of the Consideration Notes
holding 50.1% or more of the Aggregate Principal Indebtedness.

 

“Security Agreement”
means the Security Agreement executed by the Maker in favor of the Collateral
Agent, dated as of November 2, 2004, as it may be amended, restated or modified
from time to time, together with all schedules and exhibits thereto.

 

“Security Documents”
means the Security Agreement, the Pledge Agreement or any other security
agreement, pledge, guaranty or other agreement or instrument now, heretofore or
hereafter delivered by Maker to the Collateral Agent, the Payee or any holder
of the Consideration Notes (each as amended, restated or modified from time to
time) to secure or guarantee the payment of any part of, or the performance of
Maker’s duties and obligations under, the Consideration Notes or any other
documents, agreements and instruments entered into in connection therewith; provided, however, that the term “Security
Documents” shall not include the Stock Purchase Agreement or the Series B
Designation or the Investor Rights Agreement (as defined in the Stock Purchase
Agreement) or any other document, agreement or instrument entered into in
connection with the documents referred to in this proviso, all as amended,
restated or modified from time to time.

 

“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.

 

“Short Term Notes”
means the Senior Secured Notes (each referred to as a “Short Term Note”) dated
as of                 ,
2005 in the original aggregate principal amount of $                ,
issued by Maker in connection with the liquidation of TTGL in partial renewal
and continuation of (but not in extinguishment or novation of) the indebtedness
evidenced by that certain Senior Secured Note, dated as of November 2, 2004, by
Maker in favor of TTGL in the original aggregate principal amount of
$4,000,000, as they 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, TTGL and the parties listed therein.

 

“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.

 

“Super Majority of Payees”
means, on any given date of determination, holders of the Consideration Notes
holding 60% or more of the Aggregate Principal Indebtedness.

 

“TTGL” means Tertio
Telecoms Group Ltd., an entity formed and registered in England and Wales with
a company number 4419858.

 

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

 

 

6

 

“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.

 

 

7

 

SCHEDULE 2

 

Existing
Liens and Indebtedness

 

Indebtedness

 

1.                           Indebtedness
disclosed in the Disclosure Schedules to the Stock Purchase Agreement.

 

2.                           Indebtedness
shown on the Closing Working Capital Statement (as defined in the Stock
Purchase Agreement).

 

 

Liens

 

1.                           Liens and
security interests in the assets of TSE, granted in connection with the TSE
Promissory Notes.

 

2.                           Liens and
security interests in the capital securities of TSE owned by Maker, granted in
connection with the TSE Promissory Notes.

 

3.                           Liens and
security interests disclosed in the Disclosure Schedules to the Stock Purchase
Agreement.

 

 

 

EXHIBIT A

FORM OF DEPOSIT ACCOUNT CERTIFICATE

Date:
                         

 

CERTIFICATE
OF CHIEF FINANCIAL OFFICER

 

Pursuant to the terms of
Section 7 of the Senior Secured Note (as it may be amended, restated or
modified from time to time, the “Note”) dated                 ,
200     by Evolving Systems, Inc. (“Maker”)in favor of                 
in the original principal amount of $                ,
I,                 ,
the Chief Financial Officer of Maker, on behalf of Maker [and its Subsidiaries]
and not in my individual capacity, hereby certify that (all capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Note):

 

The Aggregate Quarterly
Closing Balance for each of the following deposit accounts set forth below for
the fiscal quarter ending                 ,
20     is as follows:

 

	
  Name of
  Account

  	
   

  	
  Account Number

  	
   

  	
  Closing Balance

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  

 

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  

 

 

 

 

EXHIBIT B 

BANK ACCOUNTS INTO WHICH ACCOUNTS RECEIVABLE ARE DEPOSITED

 

Evolving Systems, Inc.

Wells Fargo

Lockbox Account # 1018016801

(Payments mailed to: Dept
271, Denver, CO 80291-0271)

 

Telecom Software
Enterprises, LLC

KeyBank

Account # 769081021651

 

All other Subsidiaries of
Maker:

All accounts in the name of
Maker’s Subsidiaries existing on November 2, 2004

 

10

 

Convertible 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

  	
   

  	
                          ,
  2005

  

 

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 [Insert
Name and Jurisdiction of Incorporation of Payee] (“Payee”),
having an address at [Insert Address of
Payee], 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 an amount equal to Payee’s pro rata share of such prepayment (based
upon the aggregate outstanding principal amount of all the Convertible Notes
(as defined in Section 18 of 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.

 

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 

 

 

1

 

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 (the “Mandatory Prepayment
Election Period”) request that Maker make a prepayment on this Note in an
amount equal to Payee’s pro rata
share (based upon the aggregate outstanding principal amount of all the
Convertible Notes) of the Account Prepayment Amount for the fiscal quarter to
which such certificate relates, provided,
however, that in no event shall the aggregate amount of payments
made to Payee and the other holders of Consideration Notes pursuant to this
Section 4(a), Section 4(a) of each of the other Convertible Notes, Section 7(a)
of each of the B-1 Notes and Section 7(a) of each of the A Notes for any fiscal
quarter exceed the Account Prepayment Amount for such fiscal quarter.  Any prepayments on the Convertible Notes
payable by Maker under this Section 4(a) and Section 4(a) of each of the other
Convertible Notes then outstanding shall be paid to the holders of the
Convertible Notes requesting such prepayment (including Payee, if applicable)
within two (2) business days following expiration of the Mandatory Prepayment
Election Period.  Each prepayment under
this Section 4(a) 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 following consummation of the Change of Control.  Maker shall pay to Payee said amounts within
two (2) business days following consummation of
the Change of Control; 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 $3.296, 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 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) 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 

 

 

2

 

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.  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 Capital
Transaction, then, as a condition of such Capital Transaction, 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 

 

 

3

 

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 of the
proposed Capital Transaction (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 this Section 9(b) 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 the Collateral Agent (on behalf of the
holders of the Consideration Notes) 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).  The Collateral Agent
shall have all rights provided to a secured party under the Security Documents
and under the Uniform Commercial Code of the State of Delaware.  The Maker shall execute and deliver such
documentation as the Collateral Agent may reasonably request to evidence and
perfect the Collateral Agent’s security interest granted in this Section 11 and
under the Security Documents.

 

(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 the Payee or the Collateral Agent 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 Collateral Agent:

 

(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), and 13(k) of this Note shall terminate;

 

 

4

 

(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 (unless otherwise
consented to in writing by a Super Majority of Payees):

 

(a)           Upon the request from time to time of any Requesting
Holder, (i) provide such Requesting Holder and its representatives (at the
Maker’s expense) access to Maker’s books and records and to any of Maker’s and
its Subsidiaries’ properties or assets upon three (3) days’ advance notice and
during regular business hours in order that such Requesting Holder 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 same Requesting Holder 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 none of the Requesting Holders shall be so limited, and (ii) upon
reasonable advance notification to Maker, permit such Requesting Holder 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 such
Requesting Holder 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.  Each Requesting Holder 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 

 

 

5

 

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 a Super Majority of Payees:

 

(a)           voluntarily liquidate, dissolve or
wind up, except for the liquidation, dissolution and winding-up of CMS
Communications, Inc. (“CMS”) and Telecom Software Enterprises, LLC (“TSE”)
(including, without limitation, any liquidation, dissolution or winding-up of
CMS or TSE by means of a merger of CMS or TSE, as applicable, with and into
Maker, with Maker as the surviving entity);

 

(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 provided that there is no Event of Default
under this Note; (C) 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 and thereafter included in and as part of
the Collateral (as defined in the Security Agreement); or (D) 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;

 

 

6

 

(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 of the Consideration Notes;

 

(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;

 

(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 Collateral Agent
(on behalf of the holders of the Consideration Notes) 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 so long as Maker complies with
the terms of Section 9(b) of this Note, if applicable;

 

(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”):

 

 

7

 

(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  unless and until ESN becomes a Permitted
Subsidiary, 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 unless and until TSE becomes a Permitted Subsidiary, 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;

 

(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 unless and until ESHL or any
such wholly owned subsidiary becomes a Permitted Subsidiary, 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 unless and until ESHL or any such
wholly owned subsidiary becomes a Permitted Subsidiary, promptly upon the
incurrence of such Indebtedness, Maker shall give the Payee 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);

 

 

8

 

(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 clauses (A) and (B) of this
Section 13(e)(xii) outstanding at any time does not exceed $1,000,000;

 

(xiii)        the Series B Preferred Stock, 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”);

 

(i)             encumbrances or Liens in favor of
the Collateral Agent (on behalf of the holders of the Consideration Notes),
Payee or any holder of the Consideration Notes under the Security Documents;

 

(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 Sections 13(e)(ix) and 13(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 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); except to the extent that the cash paid for the
Capital Expenditure, when taken together with the aggregate liability required
by GAAP consistently 

 

 

9

 

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 (which for purposes of this Note
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 unless and until ESN becomes a Permitted Subsidiary, 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 unless and
until TSE becomes a Permitted Subsidiary, 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 unless and until ESHL becomes
a Permitted Subsidiary, 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 unless and until
ESHL becomes a Permitted Subsidiary, promptly upon the making of any such
Investments, Maker shall give the Payee 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, 

 

 

10

 

the amount of such equity Investments shall not
exceed 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.

 

(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 the Collateral Agent (on
behalf of the holders of the Consideration Notes) 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, or any of the Security Documents; 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.

 

(a)   In the event the Maker proposes to enter into
an agreement to acquire another Person (the “Proposed Acquisition”), the
Maker shall deliver 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 all holders of the Consideration Notes
(including the Payee), unless the holders of the Consideration Notes holding at
least 40% of the Aggregate Principal Indebtedness shall give written notice to
the Maker (such holders who give such notice, the “Disagreeing Payees”)
of the items in the Financial Projections with which the Disagreeing Payees
disagree (the “Accretive Calculation Disagreement Notice”) within twenty
(20) calendar days after the receipt by the Payee of the Financial Projections.  The Accretive Calculation Disagreement Notice
shall specify each item disagreed with by the Disagreeing Payees (or the
Disagreeing Payees’ calculation thereof), the reason for the disagreement and a
restatement of the item disagreed with to reflect the view of the Disagreeing
Payees.  If the Maker disagrees with the
Disagreeing Payees’ position as set forth in the Accretive Calculation
Disagreement Notice, then the Maker shall notify the Disagreeing Payees within
twenty (20) calendar days after the receipt by the Maker of the Accretive
Calculation Disagreement Notice (the “Maker’s Notice Period”) that Maker
disagrees with the Accretive Calculation Disagreement Notice.  The Maker and the Disagreeing Payees shall,
during the twenty (20) calendar days after receipt by the Disagreeing Payees of
such notice (the “Negotiation Period”), negotiate in good faith to
resolve any such disagreements.  If at
anytime during but not later than the end of the Negotiation Period the Maker
and the Disagreeing Payees have been unable to resolve their disagreements,
either the Maker or the Disagreeing Payees will have the right to engage on
behalf of the Maker and Disagreeing Payees, Grant Thornton LLP (or such other
Person mutually agreed to in writing by the Maker and the Disagreeing Payees)
(the “Unaffiliated Firm”) 

 

 

11

 

to resolve the items set
forth in the Accretive Calculation Disagreement Notice with respect to which
there is continuing disagreement between the Maker and the Disagreeing
Payees.  If the Maker notifies the
Disagreeing Payees in writing that it agrees with the Accretive Calculation
Disagreement Notice or does not provide the Disagreeing Payees with notice of
Maker’s disagreement by the expiration of the Maker’s Notice Period or if an
Unaffiliated Firm is not engaged as provided in this Section 14(a), the
Financial Projections, as modified by the Accretive Calculation Disagreement
Notice, shall be binding on the Maker and all holders of the Consideration Notes.

 

(b)   The Unaffiliated Firm, employing such
procedures as it in its sole discretion deems necessary or appropriate in the
circumstances, shall resolve those disagreements with the Financial Projections
as set forth in the Accretive Calculation Disagreement Notice which remain
unresolved between the Maker and the Disagreeing Payees.  The Unaffiliated Firm shall submit to the
Maker and the Disagreeing Payees a report of its review of the contested 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 Acquisition is Accretive.  The
determination so made by the Unaffiliated Firm shall be conclusive, binding on
and non-appealable by, the Maker and all holders of the Consideration
Notes.  The fees and disbursements of the
Unaffiliated Firm shall be borne one half by the Maker and one half by the
holders of the Consideration Notes (on a pro
rata basis based upon the outstanding principal amount of the
Consideration Notes at the time of the engagement of the Unaffiliated Firm in
accordance with Section 14(a) of this Note). 
Notwithstanding all of the foregoing, the Maker may elect, at any time,
not to comply with this Section 14 with respect to a Proposed Acquisition (or
if the Maker otherwise fails to properly comply with the terms of this Section 14)
in which event, the Proposed Acquisition shall be deemed not to be Accretive.

 

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 any of the Security
Documents, and such default shall continue uncured for twenty (20) consecutive
days after notice thereof to Maker given by the 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;

 

 

12

 

(d)           (i) This Note, any of the other Consideration Notes or any
of the Security Documents 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) the Collateral Agent shall not be
given or shall cease to have a valid and perfected Lien in any collateral under
such Security Documents (other than by reason of a release of collateral in
accordance with the terms hereof or thereof) with the priority required by the
Security Documents, 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 Documents 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;

 

(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, 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; or

 

(h)            If Maker or 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.

 

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 TTGL under the Stock
Purchase Agreement.

 

16.   Consequences of Default.

 

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

 

(i)             If there is an Outstanding Unpaid
Account Prepayment Amount, then upon receipt of notice from Payee (so long as
Payee has not received a prepayment under Section 4(a) of this Note for the
most recently completed fiscal quarter for which an Aggregate Quarterly Closing
Balance has been calculated), Maker shall immediately pay to such Payee (to the
extent not previously paid) Payee’s pro rata
portion (based upon the aggregate principal amount of all Convertible Notes) of

 

 

13

 

such Outstanding Unpaid Account Prepayment Amount, provided, that in no event shall the
aggregate amount of payments made to Payee and the other holders of
Consideration Notes pursuant to Section 16(a)(i) of each of the Convertible
Notes (including this Note), Section 4(a) of each of the Convertible Notes
(including this Note), Section 7(a) and Section 13(a)(i) of each of the B-1
Notes and Section 7(a) and Section 13(a)(i) of each of the A Notes exceed the
Account Prepayment Amount for the most recently completed fiscal quarter for
which an Aggregate Quarterly Closing Balance has been calculated; 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
the Payee and the Collateral Agent in connection with the collection or
enforcement of this Note or any of the Security Documents, shall at the option
of the Requisite Payees, upon notice to Maker (except if an Event of Default
described in Section 15(c) 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 and the Collateral Agent all
reasonable costs and expenses incurred by the Payee and the Collateral Agent in
connection with any and all actions taken to enforce collection of this Note
and the Security Documents upon the occurrence of an Event of Default,
including all reasonable attorneys’ fees.

 

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.   Ranking.  This Note is one of several Senior Secured
Convertible Notes (as each may be amended, restated or modified from time to
time, each a “Convertible Note” and collectively with this Note, the “Convertible
Notes”) issued by Maker to several Persons. 
Subject to the right of each holder of the Convertible Notes to (a)
consent to optional prepayments under Section 3 of the Convertible Notes, (b)
elect or decline a mandatory prepayment on such holder’s Convertible Note in
accordance with Sections 4(a) and 16(a)(i) of the Convertible Notes and (c)
accelerate payment of all amounts due or owed by Maker to such holder under
such holder’s Convertible Note upon a Change of Control in accordance with
Sections 4(b) and 9(b) of the Convertible Notes, each Convertible Note is
ranked pari passu with each other
Convertible Note in the payment of interest and principal, and payments of
interest and principal by Maker under the Convertible Notes, including
prepayments, if any, shall be made pro rata
among each Convertible Note in the same proportion that the outstanding
principal amount of each Convertible Note bears to the outstanding principal
amount of each other Convertible Note. 
In the event it is determined that Payee has received payments in
respect of interest or principal under this Note which are disproportionately
greater than payments of interest or principal made to one or more obligees due
in respect to the other Convertible Notes (determined in accordance with the
preceding sentence) then the Payee shall be deemed to have received and shall
hold such greater amount solely in trust for the benefit for each of the
obligees to whom such excess should inure, and Payee shall forthwith deliver
such excess amount to Maker for payment to such other obligees.

 

 

14

 

19.   Notices; Payments.  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, CO 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:

  	
   

  	
  [Payee Name]

  
	
   

  	
   

  	
  [Payee Address]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attn:

  	
   

  	
   

  
	
   

  	
   

  	
  Tel:

  	
   

  	
   

  
	
   

  	
   

  	
  Fax:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With
  copy to:

  	
   

  	
  [Insert Name and Address]

  

 

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.

 

Unless
otherwise agreed by Maker and Payee, all payments hereunder by Maker to Payee
shall be made by wire transfer to an account designated in writing by Payee.

 

20.   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.

 

21.   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, that:  (A) the minimum 

 

 

15

 

aggregate amount of such
transfer shall be at least equal to the lesser of (i) $500,000 in principal
amount and (ii) the outstanding principal balance of this Note at the time of
transfer; (B) any such transfer shall be to (i) one holder or (ii) an
Affiliated Group of holders (excluding natural persons) with a common manager,
general partner or investment adviser; and (C) the transfer shall be made in
accordance with applicable securities laws. 
For purposes of determining whether the aggregate amount being
transferred under this Note meets the $500,000 threshold in the preceding
sentence, all amounts of Convertible Notes to be transferred by Advent Holders
may be aggregated and all amounts of Convertible Notes to be transferred by
Apax Holders may be aggregated.  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, the Pledge
Agreement and any other Security Documents.

 

22.   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.

 

23.   Modification of Agreement; Waivers.  No provision of this Note may be modified,
altered, amended or waived, except by an agreement in writing signed by both
the Maker and a Super Majority of Payees; provided,
however, that no modification, alteration, amendment or waiver
shall, without the consent of the Payee:

 

(a)   extend the Maturity Date of this Note;

 

(b)   waive any Event of Default under Section
15(a) of this Note;

 

(c)   reduce the percentage specified in the
definitions of Requisite Payees or Super Majority of Payees;

 

(d)   increase the percentage specified in the
definitions of Requesting Holder or Disagreeing Payees;

 

(e)   amend the definition of Fair Market Value;

 

(f)    amend Sections 2, 3, 4, 5, 6, 8, 10, 18 or
23 of this Note;

 

(g)   release Maker from its obligation to pay this
Note; or

 

(h)   except as provided hereunder or in the
Security Documents, release any guarantor from its guaranty of payment of this
Note or release all or substantially all of the collateral securing the
Indebtedness evidenced by this Note.

 

24.   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.

 

25.   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 

 

 

16

 

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.

 

26.   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.

 

27.   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.

 

28.   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.

 

29.   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.

 

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

 

31.   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.

 

32.   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 31 OF THIS NOTE HAVE BEEN FULLY EXPLAINED TO MAKER BY SUCH
COUNSEL.

 

33.   Partial Substitution and Replacement.  This Note evidences and constitutes a partial
substitution and replacement of one or more of the A Notes.  The execution and delivery of this Note shall

 

 

17

 

not in any circumstances be deemed to have
terminated, extinguished, released or discharged Maker’s Indebtedness under
such 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]

 

 

18

 

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

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Stephen K. Gartside, Jr.

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 

Acknowledged and
Agreed:

 

PAYEE:

 

[Insert
Name of Payee]

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  

 

 

19

 

 

SCHEDULE 1

DEFINITIONS

 

“Accretive” shall
mean, with respect to a Proposed Acquisition, 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.

 

“Account Prepayment
Amount” means, for any fiscal quarter, the amount by which the Aggregate
Quarterly Closing Balance for such fiscal quarter exceeds $7,000,000.

 

“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 of
Directors of Maker to employees, independent contractors, officers or directors
of the Maker or any of its Subsidiary pursuant to an equity incentive plan
approved by the stockholders of the Maker; or

 

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

 

“Advent Holders”
means any holder of the Consideration Notes that is an investment fund and (i)
is an Affiliate of Advent International Corporation or (b) for which Advent
International Corporation is the investment advisor (with full authority to
bind).

 

“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.

 

“Aggregate Principal
Indebtedness” means, as of any date of determination, the sum of the
principal amounts outstanding under the Consideration Notes in effect at such
time.

 

“A Notes” means the
Senior Secured Notes (each referred to as a “Note A”) dated as of                     ,
2005 in the original aggregate principal amount of $                     issued
by Maker in connection with the liquidation of TTGL in partial renewal and
continuation of (but not in extinguishment or novation of) the indebtedness
evidenced by those Senior Secured Notes dated as of November 2, 2004, by Maker
in favor of TTGL 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 

 

 

1

 

from time to time,
including, but not necessarily limited to, the Senior Secured Notes which may
be issued by Maker in substitution for or in addition to the A Notes issued by
Maker under the terms of such A Notes.

 

“Apax Holders” means
Apax Funds Nominees Limited, an entity formed and registered in England and
Wales with company number 02140054 and any holder of the Consideration Notes
that is an investment fund and (i) is an Affiliate of Apax Partners Ltd. or (b)
for which Apax Partners Ltd. is the investment advisor (with full authority to
bind).

 

“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 Notes” means the
Senior Secured Notes (each referred to as a “Note B-1”) of Maker 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) in effect from time to time in the form attached
as Exhibit B-1 to the A Notes, 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 which may be issued by Maker in substitution for or in addition
to the B-1 Notes issued by Maker under the terms of such B-1 Notes.

 

“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, as 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 

 

 

2

 

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.

 

“Closing Share Price”
means $3.662, such price represents the product of (i) the Conversion Price
multiplied by (ii) 111.1%.

 

“Collateral Agent”
means Advent International Corporation, a Delaware corporation, solely in its
capacity as collateral agent under the Security Documents for the holders of
the Consideration Notes from time to time, and its permitted successors and
assigns in such capacity.

 

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

 

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

 

“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.

 

 

3

 

“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 reasonable 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 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 

 

 

4

 

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 any of the holders of the Consideration
Notes 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.

 

“Outstanding Unpaid
Account Prepayment Amount” shall mean for the most recently completed
fiscal quarter for which an Aggregate Quarterly Closing Balance has been
calculated, the balance of the Account Prepayment Amount for such fiscal
quarter, if any, remaining after giving effect to all payments made pursuant to
Section 4(a) of each of the Convertible Notes (including this Note), Section
7(a) of each of the B-1 Notes and Section 7(a) of each of the A Notes.

 

 

5

 

“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 the Collateral Agent,
dated as of November 2, 2004, as it may be amended, restated or modified from
time to time, together with all schedules and exhibits thereto.

 

“Requesting Holder”
means, on any given date of determination: 
(a) any holder holding 40% or more of the Aggregate Principal
Indebtedness at the time of such request and (b) any group of holders holding
40% or more of the Aggregate Principal Indebtedness at the time of such request
provided that such holders have
appointed a single representative to act on behalf of such holders with respect
to the rights described in Section 12(a) of the Convertible Notes (including
this Note), Section 9(a) of the A Notes, Section 9(a) of the B-1 Notes and
Section 9(a) of the Short Term Notes.

 

“Requisite Payees”
means, on any given date of determination, holders of the Consideration Notes
holding 50.1% or more of the Aggregate Principal Indebtedness.

 

“Security Agreement”
means the Security Agreement executed by the Maker in favor of the Collateral
Agent, dated as of November 2, 2004, as it may be amended, restated or modified
from time to time, together with all schedules and exhibits thereto.

 

“Security Documents”
means the Security Agreement, the Pledge Agreement or any other security
agreement, pledge, guaranty or other agreement or instrument now, heretofore or
hereafter delivered by Maker to the Collateral Agent, the Payee or any holder
of the Consideration Notes (each as amended, restated or modified from time to
time) to secure or guarantee the payment of any part of, or the performance of
Maker’s duties and obligations under, the Consideration Notes or any other
documents, agreements and instruments entered into in connection therewith; provided, however, that the term “Security
Documents” shall not include the Stock Purchase Agreement or the Series B
Designation or the Investor Rights Agreement (as defined in the Stock Purchase
Agreement) or any other document, agreement or instrument entered into in
connection with the documents referred to in this proviso, all as amended,
restated or modified from time to time.

 

 

6

 

“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.

 

“Short Term Notes”
means the Senior Secured Notes (each referred to as a “Short Term Note”) dated
as of                     ,
2005 in the original aggregate principal amount of $                    
issued by Maker in connection with the liquidation of TTGL in partial renewal
and continuation of (but not in extinguishment or novation of) the indebtedness
evidenced by that certain Senior Secured Note, dated as of November 2, 2004, by
Maker in favor of TTGL in the original aggregate principal amount of
$4,000,000, as they 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, TTGL and the parties listed therein.

 

“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.

 

“Super Majority of Payees”
means, on any given date of determination, holders of the Consideration Notes
holding 60% or more of the Aggregate Principal Indebtedness.

 

“TTGL” means Tertio
Telecoms Group Ltd., an entity formed and registered in England and Wales with
a company number 4419858.

 

“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.

 

 

7

 

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 Requisite Payees 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 (a)(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 

 

 

1

 

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 (a)(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 (a)(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:

 

(A)          Cash and Property.  Such consideration shall:

 

 

2

 

(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 of Directors of Maker 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 Directors 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).

 

 

3

 

(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 Section (c) 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 reorganization,
recapitalization, reclassification, consolidation or merger involving Maker 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 the
Note, following any such 

 

 

4

 

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 of Directors
of Maker) 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.

 

 

5

 

SCHEDULE 3

 

Existing
Liens and Indebtedness

 

Indebtedness

 

1.                           Indebtedness
disclosed in the Disclosure Schedules to the Stock Purchase Agreement.

 

2.                           Indebtedness
shown on the Closing Working Capital Statement (as defined in the Stock
Purchase Agreement).

 

 

Liens

 

1.                           Liens and
security interests in the assets of TSE, granted in connection with the TSE
Promissory Notes.

 

2.                           Liens and
security interests in the capital securities of TSE owned by Maker, granted in
connection with the TSE Promissory Notes.

 

3.                           Liens and
security interests disclosed in the Disclosure Schedules to the Stock Purchase
Agreement.

 

 

 

EXHIBIT A

FORM OF DEPOSIT ACCOUNT CERTIFICATE

 

Date:
                    

 

CERTIFICATE
OF CHIEF FINANCIAL OFFICER

 

Pursuant to the terms of
Section 4 of the Senior Secured Convertible Note (as it may be amended,
restated or modified from time to time, the “Note”) dated                     ,
200     by Evolving Systems, Inc. (“Maker”) in favor of
                    
in the original principal amount of $[                    ],
I,                     ,
the Chief Financial Officer of Maker, on behalf of Maker [and its Subsidiaries]
and not in my individual capacity, hereby certify that (all capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Note):

 

The Aggregate Quarterly
Closing Balance for each of the following deposit accounts set forth below for
the fiscal quarter ending                     ,
20     is as follows:

 

	
  Name of Account

  	
   

  	
  Account Number

  	
   

  	
  Closing Balance

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  
	
   

  	
   

  	
   

  	
   

  	
  $

  

 

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  

 

 

 

EXHIBIT B 

 

BANK ACCOUNTS INTO WHICH ACCOUNTS RECEIVABLE ARE DEPOSITED

 

Evolving Systems, Inc.

Wells Fargo

Lockbox Account # 1018016801

(Payments mailed to: Dept
271, Denver, CO 80291-0271)

 

Telecom Software
Enterprises, LLC

KeyBank

Account # 769081021651

 

All other Subsidiaries of
Maker:

All accounts in the name of
Maker’s Subsidiaries existing on November 2, 2004

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