Document:

Exhibit 4.2

 

Form of Short Term Note

 

	
  $[Insert pro rata portion of $4,000,000]
  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 amount under this
Note shall be due and payable in two installments of [Insert pro rata portion of Two Million Dollars ($2,000,000)] on
each of March 31, 2005 (the “First Payment Date”) and June 30, 2005
(each a “Payment Date”) at the aforesaid address of Payee or such other
place as Payee may designate, with all outstanding amounts hereunder due and
payable on June 30, 2005.

 

3.             Payment of Interest.  All accrued and unpaid Interest on the
principal outstanding under this Note shall be due and payable on each Payment
Date.  The Payee acknowledges that the
first installment of principal together with the applicable accrued and unpaid
interest was paid by Maker to TTGL on the First Payment Date.

 

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

 

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

 

6.             Optional
Prepayment.  From and
after the date hereof, Maker may prepay this Note in an amount equal to Payee’s
pro rata share of such prepayment (based upon the aggregate outstanding
principal amount of all the Short Term 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 Prepayment.  On or before the date that is ten (10)
business days prior to Maker’s mailing of a stockholder proxy and notice of a
stockholder meeting in connection with a

 

 

stockholder meeting called
for the purpose of approving a Capital Transaction, Maker shall provide the
Payee with written notice 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.  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 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

 

(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

 

2

 

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 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

 

3

 

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;

 

(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

 

4

 

(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 Payee complies with
the provisions of Section 7 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;

 

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

 

5

 

(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 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 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;

 

6

 

(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 extend 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

 

7

 

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 Expenditures permitted under Section
10(g) of this Note, and provided further
that promptly upon the making of any such Investments, Maker shall
give the 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;

 

8

 

(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
A 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

 

9

 

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.

 

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

 

10

 

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 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

 

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

 

Notwithstanding
anything contained herein to the contrary, no Event of Default shall be deemed
to have occurred under this Note if the Event of Default resulted solely from a
breach of any representation, warranty or covenant of 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)(vii) of
this Note shall terminate with respect to the portion of this Note so
transferred.  In the event Payee
transfers any of the outstanding principal of this Note to any Person (other
than Payee’s shareholders and Affiliates of such shareholders) and, at the time
of transfer, also transfers to such Person at least the Share Transfer 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.

 

11

 

13.           Consequences
of Default.

 

(a)           Upon the
occurrence and during the continuation of an Event of Default, the entire
unpaid principal balance of this Note, together with interest accrued thereon
and with all other sums due or owed by Maker hereunder, as well as all
out-of-pocket costs and expenses (including but not limited to attorneys’ fees
and disbursements) incurred by 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 (each referred to as a “Short Term Note”) (as each may be amended,
restated or modified from time to time, each a “Short Term Note” and
collectively with this Note, the “Short Term 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 that certain Senior Secured Note referred to as a “Short Term
Note,” date as of November 2, 2004, by Maker in favor of TTGL in the original
aggregate principal amount of $4,000,000. 
Subject to the right of each holder of the Short Term Notes to
accelerate payment of all amounts due or owed by Maker to such holder under
such holder’s Short Term Note upon a Change of Control in accordance with
Section 7 of the Short Term Notes, each Short
Term Note is ranked pari passu
with each other Short Term Note in the payment of interest and principal, and payments
of interest and principal by Maker under the Short Term Notes, including
prepayments, if any, shall be made pro rata among each Short Term Note in the
same proportion that the outstanding principal amount of each Short Term Note
bears to the outstanding principal amount of each other Short Term 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 Short Term 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:

 

12

 

	
  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.

 

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

 

13

 

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 Short Term Notes to be transferred by Advent Holders
may be aggregated and all amounts of Short Term 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 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.

 

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.

 

14

 

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

 

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

 

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

 

15

 

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:

  

 

16

 

Form of
Short Term Note

 

SCHEDULE 1

DEFINITIONS

 

“A Notes” means the Senior Secured Notes
(each referred to as a “Note A”) dated as of June 2, 2005, in the original
aggregate principal amount of $11,950,000 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 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.

 

“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.

 

“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).

 

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

 

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

 

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

 

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

 

1

 

“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.

 

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 the Short Term Notes, the A Notes, the B-1 Notes and the
Convertible 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
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

 

3

 

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 of the holders of the Consideration Notes to enforce the
obligations of the Maker under the Consideration Notes.

 

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

 

4

 

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

 

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

 

“Permitted Acquisitions” means any
acquisition of fifty percent (50%) or more of the equity interests or all or
substantially all of the assets of a third party so long as (i) such
acquisition is Accretive, and approved by the Maker’s board of directors, (ii)
following the consummation of the 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 respect to the rights described in Section 9(a) of
the Short Term Notes (including this Note), Section 9(a) of the B-1 Notes,
Section 9(a) of the A Notes and Section 12(a) of the Convertible 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.

 

5

 

“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.

 

“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.

 

6

 

 

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

 

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, 2004Exhibit 10.5

 

AMENDMENT
NO. 2 TO

ASSET PURCHASE AGREEMENT

 

This
AMENDMENT NO. 2 TO ASSET PURCHASE
AGREEMENT (this “Amendment”), dated as of October 16, 2003, is made
and entered into by and between INTERNATIONAL
INTEGRATED INCORPORATED, a British Virgin Islands company (“Purchaser”),
HUTCHISON INTERNATIONAL, INC., a
Louisiana corporation (“Seller”) and INTERNATIONAL INTEGRATED DEVELOPMENT
COMPANY, a Delaware corporation (“Servicer”).

 

RECITALS

 

WHEREAS Purchaser and Seller are parties to that
certain Asset Purchase Agreement, dated April 19, 2002 (as amended
pursuant to Amendment No. 1 to Asset Purchase Agreement dated as of November 20,
2002, the “Agreement”), pursuant to which, Purchaser agreed to purchase certain
assets and assume certain liabilities of Seller.  Capitalized terms used in this Amendment but
not defined herein shall have the same meanings given to such terms in the
Agreement.

 

WHEREAS pursuant to the Agreement, Purchaser agreed to
make certain payments to be applied to the Purchase Price, including Weekly
Payments in the amount of US$50,000 beginning on Thursday April 25, 2002
and on each Thursday thereafter until the first to occur of the Closing,
termination of the Agreement, or January 1, 2004.

 

WHEREAS Seller and Purchaser have agreed to amend the
Purchase Price to provide for a single additional lump sum cash payment and a
stock payment, each to be paid in accordance with this Agreement.

 

WHEREAS Seller is continuing the process of obtaining
clearance from the United States Food and Drug Administration (“FDA”) to
market, sell and distribute saline filled mammary implants (“Products”) in the
United States through its application for Pre-Market Approval (“Seller’s PMA
Application”).

 

WHEREAS Seller and Purchaser have agreed that Seller
will engage Servicer to assist Seller in obtaining approval of Seller’s PMA
Application in accordance with the terms of this Amendment.

 

WHEREAS Seller and Purchaser have agreed to terminate
all Weekly Payments and have agreed that Purchser shall be responsible for
funding and paying any related costs associated with obtaining approval of the
PMA Application, which have been previously the Seller’s responsibility.

 

WHEREAS Purchaser and Seller desire to amend the
Agreement as hereinafter provided.

 

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

 

 

1.               Deposits.  Seller
acknowledges and agrees that, as of October 16, 2003, the sum total of the
Initial Deposit, the Execution Deposit and all Weekly Deposits equals $3,800,000
(the sum of all such payments are referred to herein as the “Payments to Date”).

 

2.               Amendment to the Purchase Price; Closing
Date; Payment.

 

2.1                                 The Purchase Price is hereby amended to
equal the sum of (a) the Payments to Date, (b) $500,000 in cash (the “Cash
Payment”), and (c) the Equity Shares (as defined in Section 2.3
below).  Payment of the Purchase Price,
as amended hereby shall be, full and timely performance of Purchaser’s
obligations under the Agreement.

 

2.2                                 The Closing Date shall be a date not
later than 30 calendar days following the date on which both of the following
events shall have occurred:  (a) Seller’s
PMA Application shall have received clearance from the FDA (the date of Seller’s
receipt of such approval in writing, the “FDA Approval Date”) and (b) Seller
shall have received approval from United States Customs to import Products into
the United States (the date of Seller’s receipt of such approval in writing,
the “Customs Approval Date”).

 

2.3                                 At the Closing Purchaser shall (a) pay
to Seller the Cash Payment and (b) deliver to Seller certificates
representing the Equity Shares, duly issued in Seller’s name or in the name of
Seller’s nominee, with such legends thereon as shall be appropriate under
applicable securities law.  For purposes
of this Amendment, “Equity Shares” shall mean that number of shares of common
stock of Purchaser equal to the quotient obtained by dividing (a) $2,500,000
by (b) the arithmetic mean of the last sale price of Purchaser’s common
stock as reported on the OTC Bulletin Board (or the principal exchange or
interdealer quotation system on which Purchaser’s common stock is then traded)
over the consecutive trading days commencing on (and including) the day
following the FDA Approval Date and ending on (and including) the Customs
Approval Date.

 

3.               Transition Services.

 

3.1                                 Seller hereby retains Servicer as its
sole and exclusive supplier of management services for the purpose of
conducting all operations and managing all assets of Seller other than the
Principal Obligations (collectively, the “Operations”) until the Closing.  The Operations shall specifically include all
operations, asset administration, expenditures, and other actions in connection
with the prosecution of Seller’s PMA Application.

 

3.2                                 Servicer agrees to provide such personnel
that, in addition to Seller’s personnel, are in Servicer’s judgment reasonably
necessary or appropriate to manage the Operations until the Closing.  Servicer shall otherwise be entitled to
exercise its reasonable business judgment in managing the Operations and shall
be under no other obligation to Seller or its officers, directors or
shareholders.

 

3.3                                 Seller agrees to cooperate, and shall use
its best efforts to cause all of its employees, consultants and other agents
and representatives to cooperate, with Servicer in conducting the Operations.  In addition, Seller shall remain responsible,
in cooperation with Servicer, for the timely and efficient conduct of the Principal
Obligations and agrees to use its reasonable best efforts to keep available the
services of its current officers, key employees and

 

2

 

consultants and to preserve the current
relationships of Seller with such of the customers, suppliers, regulators and
other persons and entities with which Seller has significant business relations
as is reasonably necessary to preserve substantially intact its business
organization.  As used herein, the “Principal
Obligations” shall be the obligations of Seller under the Agreement, as amended
by this Amendment, and all actions deemed necessary or appropriate by Servicer
to be taken by Seller in the prosecution of Seller’s PMA Application, including
signing and delivering documents and instruments, making presentations and
effecting other submissions to the FDA, United States Customs and other
regulatory agencies.  Except for any
conduct necessary to discharge the Principal Obligations and which are approved
by Servicer and liabilities incurred or obligations created by Servicer on
Seller’s behalf after the date hereof and which will be funded by Purchaser,
Seller shall not incur any liability or create any obligation from or after the
date hereof until after the Closing.

 

3.4                                 Purchaser, at no risk, cost or liability
to Seller, agrees to provide such funding to Seller as Servicer shall
reasonably require to manage the Operations, including the payment of amounts
due to Seller’s employees, including taxes and related benefits, and
consultants from and after the date hereof, other than sums due to any employee
or consultant of Seller pursuant to an agreement who have provided services to
Seller prior to the date hereof and payable in connection with or related to the
successful approval of Seller’s PMA Application (the “Success Fees”).  To accommodate the funding required hereunder
and Servicer’s administration of the payment of Seller’s operating liabilities
and the expenses of the Operations, Seller shall on or before November 1,
2003 establish a mutually acceptable operating bank account with appropriate
signatories designated by Servicer. 
Seller shall maintain, without alteration, such account until the
Closing and thereafter for such time as is mutually agreed to accommodate the
transition of the business and operations of Seller to Purchaser.

 

4.               Indemnification.  In
consideration for the change in this Purchase Price and the elimination of the
obligation to make Weekly Deposits, the provisions of Sections 1.4 and 5.6 are
hereby modified and amended as follows:

 

4.1                                 The indemnification provided in Section 1.4
is hereby amended and restated in its entirety to provide as follows:

 

Except
with respect to the Assumed Liabilities and the liabilities disclosed to
Purchaser in Schedule 4.1 to this Amendment (collectively, the “Seller
Indemnified Liabilities”) and provided that a Closing occurs, Seller agrees to
indemnify and hold harmless Purchaser, its subsidiaries and its shareholders
from and against any loss, liability or expense arising from or related to (i) the
Assets which arise prior to the date hereof or (ii) the Success Fees.  The foregoing indemnity shall include but not
be limited to any loss, liability or expense arising from or related to claims
of creditors of Seller or any of its subsidiaries.  The amount of any indemnification due
pursuant to this Section shall be calculated after taking into account the
amount of all insurance, cash or other direct financial benefits paid to any
indemnified person (including any such benefits paid by third parties) and
after taking into

 

3

 

account
the United States federal, state and local and foreign national, provincial and
local tax benefits or detriments to such indemnified person, calculated
assuming such indemnified person was a taxpayer subject to tax at the highest
marginal rate in effect when the payment is made, of the payments made in
respect of such loss, claim, demand, cost or expense giving rise to the
indemnification and the payments, including indemnification payments made in
respect thereto.

 

4.2                                 Except with respect to the Seller
Indemnified Liabilities and provided that a Closing occurs, Purchaser agrees to
indemnify and hold harmless Seller, its subsidiaries and its shareholders from
and against any loss, liability or expense arising from or related to the
Assets which arise prior to or after the date hereof.  The foregoing indemnity shall include but not
be limited to any loss, liability or expense arising from or related to claims
of creditors of Seller or Purchaser or any of its subsidiaries that are not
Seller Indemnified Liabilities.  The
amount of any indemnification due pursuant to this Section shall be
calculated after taking into account the amount of all insurance, cash or other
direct financial benefits paid to any indemnified person (including any such
benefits paid by third parties) and after taking into account the United States
federal, state and local and foreign national, provincial and local tax
benefits or detriments to such indemnified person, calculated assuming such
indemnified person was a taxpayer subject to tax at the highest marginal rate in
effect when the payment is made, of the payments made in respect of such loss,
claim, demand, cost or expense giving rise to the indemnification and the
payments, including indemnification payments made in respect thereto.

 

4.3                                 Section 5.6(a)(1)(C) of the
Agreement is hereby amended and restated in its entirety to provide as follows:

 

(C)                                except with respect to the Seller
Indemnified Liabilities, the business, operations or assets of Seller prior to
the date of this Amendment or the actions or omissions of Seller’s directors,
officers, shareholders, employees or agents prior to the Closing Date (other
than such actions or omissions taken at the direction of Servicer);

 

4.4                                 Purchaser hereby covenants and agrees to
indemnify, defend, protect and hold harmless Seller and its officers,
directors, employees, shareholders, assigns, successors and affiliates
(individually, an “Indemnified Party” and collectively, “Indemnified Parties”)
from, against and in respect of:

 

(a)                                  all liabilities, losses, claims, damages,
punitive damages, causes of action, lawsuits, administrative proceedings
(including informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interest from the date of such damages) and costs and
expenses (including reasonable attorneys’ fees and disbursements of every kind,
nature and description) (collectively, “Damages”) suffered, sustained, incurred
or paid by the Indemnified Parties in connection with, resulting from or
arising out of, directly or indirectly:

 

4

 

(1)                                  any breach of any representation or
warranty of Purchaser set forth in this Agreement (as amended) or any Schedule or
certificate delivered by or on behalf of Purchaser in connection herewith;

 

(2)                                  any nonfulfillment of any covenant or
agreement by Purchaser under the Agreement (as amended);

 

(3)                                  except as provided in Section 5.6(a)(1)(C) of
the Agreement (as amended), the Seller Indemnified Liabilities and the business,
operations or assets of Seller prior to the Closing Date or the actions or
omissions of Purchaser’s or Servicer’s directors, officers, shareholders,
employees or agents prior to or after the date hereof; and

 

(4)                                  any and all Damages incident to any of
the foregoing or to the enforcement of this Section 4.4.

 

4.5                                 Notwithstanding anything to the contrary
in Section 4.4 above:

 

(a)                                  there shall be no liability for
indemnification under Section 4.4 unless and until, the aggregate amount
of Damages exceeds $10,000 upon which Purchaser shall be liable for all Damages
including the $10,000 (the “Indemnification Threshold”).

 

(b)                                 the indemnification obligations under Section 4.4,
or under any certificate or writing furnished in connection herewith, shall
terminate at the date that is the later of clause (1) or (2) of this Section 4.4(b):

 

(1)                                  the third anniversary of the Closing
Date; or

 

(2)                                  the final resolution of Claims (as
defined in Section 4.6 below) pending as of the date described in clause (1) of
this Section 4.5(b) (such Claims referred to as “Pending Claims”).

 

4.6                                 All claims or demands for indemnification
under Section 4.4 (“Claims”) shall be asserted and resolved as follows:

 

(a)                                  In the event that any Indemnified Party has
a Claim against any party obligated to provide indemnification pursuant to Section 4.4
hereof (the “Indemnifying Party”) which does not involve a Claim being asserted
against or sought to be collected by a third party, the Indemnified Party shall
with reasonable promptness notify Purchaser of such Claim, specifying the
nature of such Claim and the amount or the estimated amount thereof to the
extent then feasible (the “Claim Notice”). 
If Purchaser does not notify the Indemnified Party within 30 days after
the date of delivery of the Claim Notice that Purchaser disputes such Claim,
with a detailed statement of the basis of such position, the amount of such
Claim shall be conclusively deemed a liability of Purchaser hereunder.  In case an objection is made in writing in
accordance with this Section 4.6(a), the Indemnified Party shall respond
in a written statement to the objection

 

5

 

within
30 days and, for 60 days thereafter, attempt in good faith to agree upon the
rights of the respective parties with respect to each of such Claims (and, if
the parties should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties).

 

(b)                                 (1) In the event that any Claim for
which Purchaser would be liable to an Indemnified Party hereunder is asserted
against an Indemnified Party by a third party (a “Third-Party Claim”), the
Indemnified Party shall deliver a Claim Notice to Purchaser.  Purchaser shall have 30 days from the date of
delivery of the Claim Notice to notify the Indemnified Party (i) whether
the Indemnifying Party disputes liability to the Indemnified Party hereunder
with respect to the Third-Party Claim, and, if so, the basis for such a
dispute, and (ii) if such party does not dispute liability, whether or not
Purchaser desires, at the sole cost and expense of Purchaser, to defend against
the Third-Party Claim, provided that the Indemnified Party is hereby authorized
(but not obligated) to file any motion, answer or other pleading and to take
any other action which the Indemnified Party shall deem necessary or
appropriate to protect the Indemnified Party’s interests.

 

(c)                                  In the event that Purchaser timely
notifies the Indemnified Party that Purchaser, as the Indemnifying Party, does
not dispute Purchaser’s obligation to indemnify with respect to the Third-Party
Claim, Purchaser shall defend the Indemnified Party against such Third-Party
Claim by appropriate proceedings, provided that, unless the Indemnified Party
otherwise agrees in writing, Purchaser may not settle any Third-Party Claim (in
whole or in part) if such settlement does not include a complete and
unconditional release of the Indemnified Party. 
Purchaser shall have the right to control all aspects of any litigation,
including, but not limited to, the final consent with respect to any settlement
discussions (in accordance with the previous sentence) as well as the selection
of counsel.  If the Indemnified Party
desires to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If Purchaser elects
not to defend the Indemnified Party against a Third-Party Claim, whether by
failure of such party to give the Indemnified Party timely notice as provided
herein or otherwise, then the Indemnified Party, without waiving any rights
against such party, may settle or defend against such Third-Party Claim in the
Indemnified Party’s sole discretion and the Indemnified Party shall be entitled
to recover from Purchaser the amount of any settlement or judgment and, on an
ongoing basis, all indemnifiable costs and expenses of the Indemnified Party
with respect thereto, including interest from the date such costs and expenses
were incurred.

 

(d)                                 If at any time, in the reasonable opinion
of the Indemnified Party, notice of which shall be given in writing to Purchaser,
any Third-Party Claim seeks material prospective relief which could have an
adverse effect on any Indemnified Party or Seller or any affiliate, the
Indemnified Party shall have the right but not the obligation to control or
assume (as the case may be) the defense of any such Third-Party Claim and the
amount of any judgment or settlement and the reasonable costs and expenses of
defense shall be included as part of the

 

6

 

indemnification
obligations of Purchaser hereunder. If the Indemnified Party elects to exercise
such right, Purchaser shall have the right to participate in, but not control,
the defense of such Third-Party Claim at the sole cost and expense of Seller.

 

(e)                                  Nothing herein shall be deemed to prevent
the Indemnified Party from making a Claim, and an Indemnified Party may make a
Claim hereunder, for potential or contingent Damages provided the Claim Notice
sets forth the specific basis for any such potential or contingent claim or
demand to the extent then feasible and the Indemnified Party has reasonable
grounds to believe that such Claim may be made.

 

(f)                                    Subject to the provisions of Section 4.5,
the Indemnified Party’s failure to give reasonably prompt notice as required by
this Section 4.6 of any actual, threatened or possible claim or demand
which may give rise to a right of indemnification hereunder shall not relieve Purchaser
of any liability which Purchaser may have to the Indemnified Party unless and
to the extent the failure to give such notice prejudiced Purchaser.

 

(g)                                 The amount of any indemnification due to
an Indemnified Party pursuant to Section 4.4 shall be calculated after
taking into account the amount of all insurance, cash or other direct financial
benefits payable to such Indemnified Party (including any such benefits payable
to third parties) and after taking into account the United States federal,
state and local and foreign national, provincial and local tax benefits or
detriments to the Indemnified Party, as the case may be, calculated assuming
the Indemnified Party were a taxpayer subject to tax at the highest marginal
rate in effect when the payment is made, of the payments made in respect of
such loss, claim, demand, cost or expense giving rise to the indemnification
and the payments, including indemnification payments made in respect thereto. Seller
or its affiliates shall, in addition to the obligations of Purchaser pursuant
to Section 4.4, have a right to set off the amount of any indemnification
due to an Indemnified Party pursuant to Section 4.4, as the case may be,
against any payment to Purchaser or its affiliates from Seller or its
affiliates under the Agreement (as amended) or otherwise, if and when such
payment obligation ever comes due at any time in the future.

 

5.               Effect.  Except
as and to the extent amended by this Amendment, the Agreement shall remain in
full force and effect in accordance with its terms.

 

6.               Miscellaneous.

 

6.1                                 Successors and Assigns. 
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.  No party hereto may assign this Amendment or any
rights or obligations hereunder without the prior written consent of the other
party; provided, however, that Purchaser and Servicer may assign their
respective rights and obligations hereunder to an affiliate without the consent
of Seller.

 

7

 

6.2                                 Entire Agreement. 
This Amendment and the Agreement, as amended, sets forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and thereby.

 

6.3                                 Amendment; Waiver. 
This Amendment shall not be amended or modified except by a written
instrument duly executed by each of the parties hereto.  Any extension or waiver by any party of any
provision hereto shall be valid only if set forth in an instrument in writing
signed on behalf of such party.

 

6.4                                 Counterparts. 
This Amendment may be executed in any number of counterparts and any
party hereto may execute any such counterpart, including by electronic
facsimile, each of which when executed and delivered shall be deemed to be an
original, and all of which counterparts taken together shall constitute but one
and the same instrument.

 

6.5                                 Governing Law. 
This Amendment and the rights and obligations of the parties hereunder
shall be governed by and construed and interpreted in accordance with the laws
of the State of California, without regard to the conflict of laws principles
thereof.

 

6.6                                 Severability. 
If one or more provisions of this Amendment are held to be unenforceable
under applicable law, such provision shall be excluded from this Amendment and
the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.

 

[Signature page follows]

 

8

 

In WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 2 to Asset Purchase Agreement as of the date first above
written.

 

 

	
   

  	
  INTERNATIONAL INTEGRATED

  
	
   

  	
  INCORPORATED, a British Virgin

  Islands company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name: Donald K. McGhan

  
	
   

  	
   

  	
    Title: Chairman

  

 

 

	
   

  	
  INTERNATIONAL INTEGRATED

  
	
   

  	
  DEVELOPMENT COMPANY, a

  
	
   

  	
  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name: Donald K. McGhan

  
	
   

  	
   

  	
    Title: Chairman

  

 

 

	
   

  	
  HUTCHISON INTERNATIONAL,
  INC.,

  
	
   

  	
  a Louisiana corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name: John C. Hutchison

  
	
   

  	
   

  	
    Title: President

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