Document:

Exhibit 10.1(a)

 

CREDIT AGREEMENT

 

 

among

 

 

EVOLVING
SYSTEMS, INC.

TELECOM
SOFTWARE ENTERPRISES, LLC

EVOLVING
SYSTEMS HOLDINGS, INC.

 

 

and

 

 

CAPITALSOURCE
FINANCE LLC,

as Agent

 

 

Dated as of

November 14,
2005

 

 

TABLE OF
CONTENTS

 

	
  I.

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  II.

  	
  CREDITS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Loan

  	
   

  
	
   

  	
  2.2

  	
  Evidence
  of Loan

  	
   

  
	
   

  	
  2.3

  	
  Interest

  	
   

  
	
   

  	
  2.4

  	
  Voluntary
  Prepayments

  	
   

  
	
   

  	
  2.5

  	
  Mandatory Payments and Prepayments

  	
   

  
	
   

  	
  2.6

  	
  Promise to Pay; Manner of Payment

  	
   

  
	
   

  	
  2.7

  	
  Payments
  by Agent

  	
   

  
	
   

  	
  2.8

  	
  Computation of Interest and Fees; Lawful Limits

  	
   

  
	
   

  	
  2.9

  	
  Reallocation of Commitments

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  III.

  	
  FEES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Commitment
  Fee

  	
   

  
	
   

  	
  3.2

  	
  Prepayment
  Premium

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  IV.

  	
  CONDITIONS PRECEDENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Conditions to Funding of the Loan and the Closing

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  V.

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Organization and Authority

  	
   

  
	
   

  	
  5.2

  	
  Loan Documents, Revolving Loan Documents and Related Documents

  	
   

  
	
   

  	
  5.3

  	
  Subsidiaries, Capitalization and Ownership Interests

  	
   

  
	
   

  	
  5.4

  	
  Properties

  	
   

  
	
   

  	
  5.5

  	
  Other
  Agreements

  	
   

  
	
   

  	
  5.6

  	
  Litigation

  	
   

  
	
   

  	
  5.7

  	
  Environmental
  Matters

  	
   

  
	
   

  	
  5.8

  	
  Tax Returns; Governmental Reports

  	
   

  
	
   

  	
  5.9

  	
  Financial Statements and Reports

  	
   

  
	
   

  	
  5.10

  	
  Compliance with Law; ERISA; Business

  	
   

  
	
   

  	
  5.11

  	
  Intellectual Property

  	
   

  
	
   

  	
  5.12

  	
  Permits;
  Labor

  	
   

  
	
   

  	
  5.13

  	
  No
  Default; Solvency

  	
   

  
	
   

  	
  5.14

  	
  Insurance

  	
   

  
	
   

  	
  5.15

  	
  Margin Stock; Regulated Entities; Tax Regulations; OFAC; Patriot Act

  	
   

  
	
   

  	
  5.16

  	
  Broker’s or Finder’s Commissions

  	
   

  
	
   

  	
  5.17

  	
  Disclosure

  	
   

  

 

 

	
   

  	
  5.18

  	
  Incorporation of Certain Representations and Warranties

  	
   

  
	
   

  	
  5.19

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VI.

  	
  AFFIRMATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Reporting, Collateral and Other Information

  	
   

  
	
   

  	
  6.2

  	
  Conduct of Business; Maintenance of Existence and Assets

  	
   

  
	
   

  	
  6.3

  	
  Compliance with Legal and Other Obligations

  	
   

  
	
   

  	
  6.4

  	
  Insurance

  	
   

  
	
   

  	
  6.5

  	
  Inspection; Management Meetings

  	
   

  
	
   

  	
  6.6

  	
  Use
  of Proceeds

  	
   

  
	
   

  	
  6.7

  	
  Further Assurances; Post Closing Deliveries

  	
   

  
	
   

  	
  6.8

  	
  Mandatory
  Dividends

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VII.

  	
  NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Financial
  Covenants

  	
   

  
	
   

  	
  7.2

  	
  Indebtedness

  	
   

  
	
   

  	
  7.3

  	
  Liens

  	
   

  
	
   

  	
  7.4

  	
  Consolidations, Mergers and Investments

  	
   

  
	
   

  	
  7.5

  	
  Restricted Payments

  	
   

  
	
   

  	
  7.6

  	
  Transactions with Affiliates

  	
   

  
	
   

  	
  7.7

  	
  Transfer of Assets

  	
   

  
	
   

  	
  7.8

  	
  Contingent Obligations

  	
   

  
	
   

  	
  7.9

  	
  Organizational Documents; Accounting
  Changes; Use of Proceeds; Insurance; Business

  	
   

  
	
   

  	
  7.10

  	
  Related Documents; Subordinated Debt; and
  TSE Contingent Obligations

  	
   

  
	
   

  	
  7.11

  	
  Negative Pledges

  	
   

  
	
   

  	
  7.12

  	
  Certain Specific Agreements

  	
   

  
	
   

  	
  7.13

  	
  Shareholder Blocking Rights

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII.

  	
  EVENTS OF DEFAULT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  IX.

  	
  RIGHTS AND REMEDIES AFTER DEFAULT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Rights and Remedies

  	
   

  
	
   

  	
  9.2

  	
  Application of Proceeds

  	
   

  
	
   

  	
  9.3

  	
  Rights to Appoint Receiver

  	
   

  
	
   

  	
  9.4

  	
  Attorney in Fact

  	
   

  
	
   

  	
  9.5

  	
  Rights and Remedies not Exclusive

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  X.

  	
  WAIVERS AND JUDICIAL PROCEEDINGS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Certain Waivers

  	
   

  
	
   

  	
  10.2

  	
  Delay; No Waiver of Defaults

  	
   

  
	
   

  	
  10.3

  	
  Jury Waiver

  	
   

  

 

 

	
   

  	
  10.4

  	
  Amendment and Waivers

  	
   

  
	
   

  	
  10.5

  	
  Survival and Termination

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XI.

  	
  AGENT PROVISIONS; SETTLEMENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Agent

  	
   

  
	
   

  	
  11.2

  	
  Set-off and Sharing of Payments

  	
   

  
	
   

  	
  11.3

  	
  Settlements; Payments; and Information

  	
   

  
	
   

  	
  11.4

  	
  Dissemination of Information

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XII.

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Governing Law; Jurisdiction; Service of
  Process; Venue

  	
   

  
	
   

  	
  12.2

  	
  Successors and
  Assigns; Assignments and Participations

  	
   

  
	
   

  	
  12.3

  	
  Reinstatement; Application of Payments

  	
   

  
	
   

  	
  12.4

  	
  Indemnity

  	
   

  
	
   

  	
  12.5

  	
  Notice

  	
   

  
	
   

  	
  12.6

  	
  Severability; Captions; Counterparts

  	
   

  
	
   

  	
  12.7

  	
  Expenses

  	
   

  
	
   

  	
  12.8

  	
  Entire Agreement

  	
   

  
	
   

  	
  12.9

  	
  Approvals and Duties

  	
   

  
	
   

  	
  12.10

  	
  Confidentiality and Publicity

  	
   

  
	
   

  	
  12.11

  	
  No Consequential Damages

  	
   

  
	
   

  	
  12.12

  	
  Borrower Funds Administrator

  	
   

  
	
   

  	
  12.13

  	
  Joint and Several Liability

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII.

  	
  TAXES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Taxes

  	
   

  
	
   

  	
  13.2

  	
  Certificates of Lenders

  	
   

  
	
   

  	
  13.3

  	
  Survival

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV.

  	
  GUARANTY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Guaranty

  	
   

  
	
   

  	
  14.2

  	
  Guaranty Absolute

  	
   

  
	
   

  	
  14.3

  	
  Waiver

  	
   

  
	
   

  	
  14.4

  	
  Continuing Guaranty; Assignments

  	
   

  
	
   

  	
  14.5

  	
  Maximum Liability

  	
   

  
	
   

  	
  14.6

  	
  Subordination

  	
   

  
	
   

  	
  14.7

  	
  Subrogation

  	
   

  

 

 

CREDIT AGREEMENT

 

This
CREDIT AGREEMENT (this “Agreement”),
dated as of November 14, 2005, is entered into by and among, (i) Evolving
Systems, Inc. (“Evolving Systems”), a Delaware corporation and Telecom
Software Enterprises, LLC, a Colorado limited liability company (together with
Evolving Systems each a “Borrower”); (ii) Evolving Systems Holdings, Inc.,
a Delaware corporation (“Intermediate Holdco”), as a Guarantor and additional
Credit Party; (iii) CAPITALSOURCE FINANCE LLC, a Delaware limited
liability company (in its individual capacity, “CapitalSource”), as
administrative and payment agent for the Lenders (CapitalSource, in such
capacity, “Agent”); and (iv) the
LENDERS from time to time parties hereto.

 

WHEREAS, the Credit Parties have requested that Lenders
make available to Borrower a term loan in an aggregate original principal
amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), the
proceeds of which, in each case, shall be used by Borrower for purposes
permitted under, and otherwise in accordance with and subject to the terms of,
this Agreement.

 

WHEREAS, Lenders are
willing to make the loan available to Borrower, upon the terms and subject to
the conditions set forth herein.

 

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

 

I.              DEFINITIONS

 

For
purposes of the Loan Documents and all schedules, exhibits, annexes and
attachments thereto, in addition to the definitions elsewhere in this Agreement
and the other Loan Documents, the terms listed in Appendix A hereto
shall have the respective meanings assigned to such terms in Appendix A
hereto, which is incorporated herein and made a part hereof.  All capitalized terms used which are not
specifically defined herein shall have the respective meanings assigned to them
in Article 9 of the UCC to the extent the same are used or defined
therein.  Unless otherwise specified in
any Loan Document, this Agreement, any other Loan Document and any agreement or
contract referred to herein or in Appendix A hereto shall mean such
agreement or contract, as modified, amended, supplemented or restated and in
effect from time to time, subject to any applicable restrictions set forth in
such Loan Document.  Unless otherwise
specified, as used in the Loan Documents or in any certificate, report,
instrument or other document made or delivered pursuant to any of the Loan
Documents, all accounting terms not defined in Appendix A hereto or
elsewhere in this Agreement or any other Loan Document shall have the meanings
assigned to such terms in and shall be interpreted in accordance with
GAAP.  If any change in GAAP results in a
change in the calculation of the financial covenants or interpretation of
related provisions of this Agreement or any other Loan Document, then Borrower,
Agent, Lenders and the other Credit Parties agree to amend such provisions of
this Agreement so as to equitably reflect such changes in GAAP with the desired
result that the criteria for evaluating the Credit Parties’ financial condition
shall be the same after such change in GAAP as if such change had not been
made, provided that, notwithstanding any other provision of this Agreement, the
Requisite Lenders’ agreement to any amendment of such

 

 

provisions shall be sufficient to bind all Lenders; and, provided
further, until such time as the financial covenants and the related provisions
of this Agreement have been amended in accordance with the terms of this
paragraph, the calculations of financial covenants and the interpretation of
any related provisions shall be calculated and interpreted in accordance with
GAAP as in effect immediately prior to such change in GAAP.  The term “Borrower” used in the singular
shall mean each of Evolving Systems and Telecom Software Enterprises, LLC.

 

II.            CREDITS

 

2.1          Loan

 

Subject
to the terms and conditions set forth in this Agreement, each Lender agrees to
loan to Borrower on the Closing Date such Lender’s Pro Rata Share of the Loan,
which, in the aggregate for all Lenders, shall be in the original principal
amount of Eight Million Five Hundred Thousand Dollars ($8,500,000).  The Loan is not a revolving credit facility
and may not be drawn, repaid and redrawn and any repayments or prepayments of
principal on the Loan shall permanently reduce the Loan.  The obligations of Lenders hereunder are
several and not joint or joint and several. 
Borrower irrevocably authorizes Agent and Lenders to disburse the
proceeds of the Loan on the Closing Date.

 

2.2          Evidence of Loan

 

(a)           Each
Lender shall maintain, in accordance with its usual practice, electronic or
written records evidencing the indebtedness and obligations to such Lender
resulting from the Loan made by such Lender, including, without limitation, the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.

 

(b)           Agent
shall maintain electronic or written records in which it will record (i) the
amount of each Loan made hereunder, the class and type of each Loan made and
any applicable interest rate periods, (ii) the amount of any principal
and/or interest due and payable and/or to become due and payable from Borrower
to each Lender hereunder and (iii) all amounts received by Agent hereunder
from Borrower and each Lender’s share thereof.

 

(c)           The
entries in the electronic or written records maintained pursuant to Section 2.2(b) (the
“Register”), which shall include the promissory notes, if any, issued pursuant
to Section 2.2(d) hereof, shall, in the absence of manifest error, be
prima facie evidence of the existence and amounts of the obligations and
indebtedness therein recorded; provided, however, that the failure of Agent to maintain
such records or any error therein shall not in any manner affect the
obligations of Borrower to repay the Loans or Obligations in accordance with
their terms.  The Register shall be
subject to the terms of Section 12.2(c).

 

(d)           Borrower
agrees that:

 

(i)          upon written notice by Agent to Borrower that
a promissory note or other evidence of indebtedness or replacement of a lost
Note is requested by Agent (for itself or on behalf of any Lender) to evidence
the Loan and other Obligations owing or payable to, or to be made by, such
Lender, Borrower promptly shall (and in any event within five (5) Business
Days of any such request and in the event of a lost Note upon

 

2

 

receipt of customary affidavits and
indemnities) execute and deliver to Agent an appropriate promissory note or
notes in form and substance reasonably satisfactory to Agent and Borrower,
payable to the order of such Lender in a principal amount equal to the amount
of the Loan owing or payable to such Lender;

 

(ii)         all references to “Notes” in the Loan
Documents shall mean Notes, if any, to the extent issued (and not returned to
Borrower for cancellation) hereunder, as the same may be amended, supplemented,
modified, divided and/or restated and in effect from time to time which shall
be included in the Register maintained by the Agent; and

 

(iii)        upon Agent’s written request (for itself or
on behalf of any Lender), and in any event within five (5) Business Days
of any such request, Borrower shall execute and deliver to Agent new Notes
and/or split or divide the Notes, or any of them, in exchange for the then
existing subject Notes, in such smaller amounts or denominations as Agent or
such Lender shall specify; provided, that the aggregate principal amount of
such new, split or divided Notes shall not exceed the aggregate principal
amount of the Notes outstanding at the time such request is made; and provided,
further, that such Notes that are replaced shall then be deemed no longer
outstanding hereunder and replaced by such new Notes, promptly cancelled and
returned to Borrower within a reasonable period of time after Agent’s receipt
of the replacement Notes.

 

2.3          Interest

 

(a)           Subject
to Section 2.3(c), the Loan shall bear interest on the outstanding
principal amount thereof from the date made at a rate per annum equal to (i) the
greater of (A) LIBOR Rate in effect from time to time or (B) 3.75%, plus
(ii) the Applicable Margin in effect from time to time.

 

(b)           Interest
on the Loan shall be due and
payable in cash in arrears on each Interest Payment Date and on the date of any
prepayment (actual or due) of the Loan pursuant to Sections 2.4 and 2.5.

 

(c)           Upon
the occurrence and during the continuance of any Event of Default, the
Obligations shall bear interest at the Default Rate upon written notice of such
increase given by Agent to Borrower; provided, that, from and after the
occurrence of any Event of Default under Sections VIII (a), (g) or (h),
such increase shall be automatic and without any notice from Agent, Requisite
Lenders, or any other person.  In all
such events unless otherwise provided in the applicable notice by Agent to
Borrower, and notwithstanding the date on which application of the Default Rate
is communicated to Borrower, the Default Rate shall accrue from the initial
date of such Event of Default until that Event of Default is waived in writing
in accordance with the terms of this Agreement and shall be payable in cash
upon demand.  Neither Agent nor Lenders
shall be required to (i) accelerate the maturity of the Loan, (ii) terminate
any Commitment or (iii) exercise any other rights or remedies under the
Loan Documents or applicable law in order to charge interest hereunder at the
Default Rate.

 

3

 

2.4          Voluntary Prepayments

 

(a)           Subject
to the terms of this Section 2.4 and Section 3.2, Borrower may prepay
to Agent, for the ratable benefit of the applicable Lenders, the outstanding
principal amount of the Loan, in whole or in part, at any time or from time to
time.

 

(b)           If
Borrower elects to make any prepayment of the Loan pursuant to this Section 2.4,
Borrower Funds Administrator shall give irrevocable notice of such prepayment
to Agent not less than three (3) Business Days prior to the date such
prepayment is to be made, specifying (i) the date on which such prepayment
is to be made, (ii) the amount of such prepayment and (iii) the
amount of the Prepayment Premium, if any, and accrued interest applicable to
such prepayment.  Such notice shall be
accompanied by a certificate of a Responsible Officer of Borrower Funds
Administrator on behalf of Borrower Funds Administrator stating that such
payment is being made in compliance with this Section 2.4.  Notice of prepayment having been so given,
the aggregate principal amount of the Loan so specified to be prepaid, together
with accrued interest thereon and the applicable Prepayment Premium, shall be
due and payable on the prepayment date set forth in such notice.

 

(c)           Any
voluntary partial prepayment with respect to the Loan shall be applied in the
following order of priority to the payment of: 
(i) first, to all then unpaid fees and expenses of Agent under the
Loan Documents, (ii) second, to all then unpaid fees and expenses of
Lenders under the Loan Documents, including any Prepayment Premium, (iii) third
to any and all Obligations that are due and owing pursuant to the terms of the
Loan Documents, except the principal balance of the Loan and accrued and unpaid
interest thereon; (iv) fourth to accrued and unpaid interest on the
portion of the principal balance of the Loan being prepaid; and (v) fifth
to the principal balance of the Loan, which shall be applied to the scheduled
installments thereof in inverse order of maturities.

 

(d)           All
prepayments made pursuant to this Section 2.4 shall be designated as a
prepayment pursuant to this Section 2.4 on the applicable wire.  The amount of any partial prepayment of the
principal balance of the Loan shall not be less than $100,000 or, if in excess
thereof, in integral multiples of $100,000 in excess thereof.

 

2.5          Mandatory Payments and Prepayments

 

(a)           The
principal amount of the Loan shall be paid in installments on the dates and in
the respective amounts set forth below:

 

	
   

  	
   

  	
  Amount of

  	
   

  
	
  Payment Date

  	
   

  	
  Principal Payment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  January 1, 2006

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  April 1, 2006

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  July 1, 2006

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  October 1, 2006

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  January 1, 2007

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  April 1, 2007

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  July 1, 2007

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  October 1, 2007

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  January 1, 2008

  	
   

  	
  $

  	
  625,000

  	
   

  
	
  April 1, 2008

  	
   

  	
  $

  	
  625,000

  	
   

  
	
  July 1, 2008

  	
   

  	
  $

  	
  625,000

  	
   

  
	
  October 1, 2008

  	
   

  	
  $

  	
  625,000

  	
   

  
	
  January 1, 2009

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  April 1, 2009

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  July 1, 2009

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  October 1, 2009

  	
   

  	
  $

  	
  500,000

  	
   

  
	
  January 1, 2010

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  April 1, 2010

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  July 1, 2010

  	
   

  	
  $

  	
  250,000

  	
   

  
	
  October 1, 2010

  	
   

  	
  $

  	
  250,000

  	
   

  

 

4

 

(b)           The
then remaining unpaid principal amount of the Loan and all other Obligations
under or in respect of the Loan shall be due and payable in full, if not
earlier in accordance with this Agreement, on the Maturity Date.

 

(c)           If a
Change of Control occurs that has not been consented to in writing by Agent
prior to consummation thereof, or any Credit Party or any Subsidiary of any
Credit Party (other than the Revolving Borrower and its Subsidiaries), whether
in a single transaction or a series of transactions:

 

(i)          sells or transfers any Property (other than
any Qualified Asset Sale);

 

(ii)         sells or issues any Capital Stock (excluding
sales or issuances of Permitted Securities to the extent no Default or Event of
Default has occurred and is continuing or would be caused thereby or result
therefrom, but specifically including any sale or issuance of Capital Stock
pursuant to a Public Offering);

 

(iii)        receives any property damage insurance award
or any other insurance proceeds of any kind, including, without limitation,
proceeds from any life insurance (including the Life Insurance Policy) or
business interruption insurance in excess of $100,000; or

 

(iv)       incurs any Indebtedness other than Permitted
Indebtedness.

 

then Borrower shall prepay the Loan and the other Obligations in an
amount equal to one hundred percent (100%) of the Net Proceeds received by the
Credit Parties and their Subsidiaries in connection therewith (or such lesser
amount as is required to irrevocably pay in cash in full the Obligations)),
which prepayment shall be applied thereto in accordance with Section 2.5(e);
provided, that, the foregoing notwithstanding, if Borrower reasonably expects
the Net Proceeds of any such sale or transfer in respect of the foregoing
clause (i) or any such property damage

 

5

 

insurance award under the foregoing clause (iii), or a portion thereof,
to be reinvested in productive assets of a kind then used or usable in the
Business, and, within one hundred eighty (180) days after such occurrence,
enters into a binding commitment to make such reinvestment (which reinvestment
shall be made within two hundred seventy (270) days after such occurrence),
then Borrower shall deliver an amount equal to such Net Proceeds, or applicable
portion thereof, to Agent to be held by Agent in a cash collateral account
pending such reinvestment.

 

(d)           On
the day of the delivery to Agent of Borrower’s annual audited financial
statements in accordance with the terms of this Agreement, but in any event no
later than the ninetieth (90th) day after the end of each fiscal
year of Borrower (commencing with the fiscal year of Borrower ending December 31,
2006), Borrower shall furnish to Agent a written calculation of Excess Cash
Flow for such fiscal year and deliver to Agent, for distribution to Lenders, an
amount equal to fifty percent (50%) of such Excess Cash Flow, for application
to the Loan and the other Obligations in accordance with Section 2.5(e).

 

(e)           All
prepayments pursuant to Sections 2.5(c), and 2.5(d) shall be applied in
the following order of priority: (i) first, to all then unpaid fees and
expenses of Agent under the Loan Documents, (ii) second, to all then
unpaid fees and expenses of Lenders under the Loan Documents, including any
Prepayment Premium, (iii) third to any and all Obligations that are due
and owing pursuant to the terms of the Loan Documents, except the principal
balance of the Loan and accrued and unpaid interest thereon; (iv) fourth
to accrued and unpaid interest on the portion of the principal balance of the
Loan being prepaid or required to be prepaid; and (v) fifth to the principal
balance of the Loan, which shall be applied to the scheduled installments
thereof in inverse order of maturities.

 

2.6          Promise to Pay; Manner of Payment.

 

Borrower
absolutely and unconditionally promises to pay, when due and payable pursuant
hereto, principal, interest and all other amounts and Obligations payable
hereunder and under any other Loan Document, without any right of rescission
and without any deduction whatsoever, including any deduction for set-off,
recoupment or counterclaim, notwithstanding any damage to, defects in or
destruction of the Collateral or any other event, including obsolescence of any
property or improvements.  Any payments
made by the Credit Parties shall be made by wire transfer on the date when due,
without offset, deduction or counterclaim, in Dollars, in immediately available
funds to such account as may be indicated in writing by Agent to Borrower from
time to time.  Any such payment received
after 2:00 p.m. (New York City time) on any date shall be deemed received
on the next succeeding Business Day, and any applicable interest or fees shall
continue to accrue in respect thereof. 
Whenever any payment under any Loan Document shall be stated to be due
or shall become due and payable on a day other than a Business Day, the due
date thereof shall be extended to, and such payment shall be made on, the next
succeeding Business Day, and such extension of time in such case shall be
included in the computation of payment of any interest (at the interest rate in
effect during such extension) and/or fees, as the case may be.

 

6

 

2.7          Payments by Agent

 

Should
any Obligation required to be paid under any Loan Document remain unpaid beyond
any applicable cure period, such Obligation may be paid by Agent, on behalf of
Lenders.  Any sums expended or amounts
paid by Agent and/or Lenders as a result of any Credit Party’s failure to pay,
perform or comply with any Loan Document or any of the Obligations may be
charged to Borrower’s account and added to the Obligations.

 

2.8          Computation of Interest and Fees; Lawful
Limits

 

All
interest and fees owing from time to time under the Loan Documents shall be
computed on the basis of a year of 360 days and for the actual number of days
elapsed in each calculation period, as applicable.  In no contingency or event whatsoever,
whether by reason of acceleration or otherwise, shall the interest and other
charges paid or agreed to be paid to Agent, for the benefit of Lenders, or
Lenders for the use, forbearance or detention of money hereunder exceed the
maximum rate permissible under applicable law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto.  If, due to any circumstance whatsoever,
fulfillment of any provision hereof, at the time performance of such provision
shall be due, shall exceed any such limit, then, the obligation to be so
fulfilled shall be reduced to such lawful limit, and, if Agent or Lenders shall
have received interest or any other charges of any kind which might be deemed
to be interest under applicable law in excess of the maximum lawful rate, then
such excess shall be applied first to any unpaid fees and charges hereunder,
then to the unpaid principal balance owed by Borrower hereunder, and if the
then remaining excess interest is greater than the previously unpaid principal
balance, Agent and Lenders shall promptly refund such excess amount to Borrower
and the provisions hereof shall be deemed amended to provide for such
permissible rate.  The terms and
provisions of this Section 2.8 shall control to the extent any other
provision of any Loan Document is inconsistent herewith.

 

2.9          Reallocation of Commitments

 

The Credit Parties, Agent and the Lenders
agree and acknowledge that, on terms and conditions satisfactory to each
Borrower, Revolving Borrower, Agent, each of the Lenders, and the Revolving
Lender, any Commitment of any Lender hereunder and the Revolving Lender under
the Revolving Loan Agreement for the benefit of any Borrower or Revolving Borrower
may be reallocated and adjusted from time to time with any other Commitment or
Commitments of such Lender under this Agreement or Revolving Lender for the
benefit of the other Borrower or Revolving Borrower, and the outstanding Loans
thereunder and hereunder reclassified or re-categorized in connection therewith
and herewith to evidence or effectuate any such reallocation and adjustment,
without constituting a novation, for any purpose, including, without
limitation, for purposes of accurately reflecting each Borrower’s or Revolving
Borrower’s relative contribution to, or allocable amount or share of, Evolving
System’s Consolidated EBITDA, earnings, revenue, assets and/or
liabilities.  For clarification purposes,
any such reallocation and adjustment shall require the written consent of each
Borrower, Revolving Borrower, Agent, each Lender and Revolving Lender and shall
not, in any event, result in a reduction of the aggregate Commitments contained
herein and in the Revolving Loan Agreement.

 

7

 

III.           FEES

 

3.1          Commitment Fee

 

On
the Closing Date, Borrower shall pay to Agent, for the ratable benefit of
Lenders, a nonrefundable commitment fee equal to One Hundred Twenty Seven
Thousand Five Hundred Dollars ($127,500), which commitment fee shall be deemed
fully earned and due and payable on the Closing Date and in addition to any
other fee from time to time payable under the Loan Documents.

 

3.2          Prepayment Premium.

 

If
the Obligations are accelerated as a result of either (i) an Event of
Default under Article VIII(a), (g)(ii) – (g)(v) or (h) or (ii) an
Event of Default resulting from violation of any of the financial covenants set
forth in Exhibit B-1 hereto or Borrower otherwise prepays, or is required
to prepay, the Loan in full or in part (other than as a result of any mandatory
prepayment under Sections 2.5(c)(iii) or 2.5(d)), then, on the effective
date of such acceleration or prepayment, Borrower shall pay to Agent, for the
ratable benefit of Lenders (in addition to the then outstanding principal,
accrued interest and other Obligations owing pursuant to the terms of this
Agreement and any other Loan Document), as yield maintenance for the loss of
bargain and not as a penalty, an amount equal to the Prepayment Premium (prior
to giving effect to any payment of Obligations as a result thereof).  For purposes of determining the Prepayment
Premium, if any, due upon acceleration of the Obligations, such acceleration
shall be deemed to have occurred on the date the Event of Default giving rise
to such acceleration first occurred.

 

IV.           CONDITIONS PRECEDENT

 

4.1          Conditions to Funding of the Loan and the
Closing

 

The
obligations of Agent and Lenders to consummate the transactions contemplated
herein and to fund the Loan in each case are subject to the delivery of all
documents listed on, the taking of all actions set forth on and the
satisfaction of each of the conditions precedent listed on Exhibit D
hereto, all in a manner, form and substance satisfactory to Agent in its sole
discretion.

 

V.            REPRESENTATIONS AND
WARRANTIES

 

Each
Credit Party, jointly and severally, represents and warrants to the Lender
Parties as follows as of the Closing Date and except as set forth in the
disclosure schedule corresponding to such Section:

 

5.1          Organization and Authority

 

Each
Credit Party, and each Subsidiary of each Credit Party, is a corporation,
partnership or limited liability company, or other form of entity, as the case
may be, duly organized or formed, validly existing and in good standing (to the
extent such concept applies) under the laws of its jurisdiction of organization
or formation.  Each Credit Party, and
each Subsidiary of each Credit Party, (a) has all requisite corporate,
partnership, limited liability company or other type

 

8

 

of entity, as the case may be, power and authority to own its
Properties and carry on its business as now being conducted and as contemplated
in the Loan Documents, the Revolving Loan Documents and the Related Documents, (b) is
duly qualified and licensed to do business in and in good standing (to the
extent such concept applies) in each jurisdiction where the failure so to
qualify or be licensed or qualified would reasonably be expected to result in a
Material Adverse Effect, and (c) has all requisite corporate, partnership,
limited liability company or other type of entity, as the case may be, power
and authority (i) to execute, deliver and perform the Loan Documents, the
Revolving Loan Documents and the Related Documents to which it is a party, (ii) with
respect to Borrower, to borrow hereunder, (iii) to consummate the
transactions contemplated by the Loan Documents, the Revolving Loan Documents
and the Related Documents and (iv) to grant the Liens pursuant to the
Security Documents to which it is a party.

 

5.2          Loan Documents, Revolving Loan Documents and
Related Documents

 

The
execution, delivery and performance by each Credit Party of the Loan Documents,
the Revolving Loan Documents and the Related Documents to which it is a party,
and the consummation by such Credit Party of the transactions contemplated
thereby, (a) have been duly authorized by all requisite corporate,
partnership, limited liability company or other form of entity, as the case may
be, action of such Credit Party, and such Loan Documents, Revolving Loan
Documents and Related Documents to which it is a party have been duly executed
and delivered by or on behalf of such Credit Party; (b) do not violate any
provisions of (i) any applicable law, statute, rule, regulation, ordinance
or tariff, (ii) any order, injunction, writ or decree of any Governmental
Authority binding on such Credit Party or any of their respective Properties,
or (iii) the Organizational Documents of such Credit Party, or any
agreement between such Credit Party and its shareholders, members, partners or
equity owners or, to the knowledge of the Credit Parties, among any such
shareholders, members, partners or equity owners; (c) are not in conflict
with, and do not result in a breach or default of or constitute an event of
default, or an event, fact, condition or circumstance which, with notice or
passage of time, or both, would constitute or result in a conflict, breach,
default or event of default under, any indenture, agreement or other instrument
to which such Credit Party is a party, or by which the Properties of such
Credit Party are bound, the effect of which would reasonably be expected to
result in, either individually or in the aggregate, a Material Adverse Effect; (d) except
as contemplated or expressly permitted by the Loan Documents and the Revolving
Loan Documents, will not result in the creation or imposition of any Lien of
any nature upon any of the Collateral or other material Properties of any
Credit Party; and (e) except for filings in connection with the perfection
and/or registration of the Liens created by the Security Documents, filings
required to be made by Evolving Systems with the SEC, as defined herein, under
the Securities Exchange Act of 1934, as amended, and rules and regulations
thereunder, and consents, approvals, authorizations, filings, registrations and
qualifications that have been obtained, made or done, do not require the
consent, approval or authorization of, or filing, registration or qualification
with, any Governmental Authority or any other Person.  Each of the Loan Documents, the Revolving
Loan Documents and the Related Documents to which each Credit Party, is a party
constitutes the legal, valid and binding obligation of such Credit Party,
enforceable against such Credit Party in accordance with its terms, subject to
the effect of any applicable bankruptcy, moratorium, insolvency, reorganization
or other similar law affecting the enforceability of creditors’ rights
generally and to the effect of general principles of equity which may limit the
availability of equitable remedies (whether in a proceeding at law or in
equity).

 

9

 

5.3          Subsidiaries, Capitalization and Ownership
Interests

 

As
of the Closing Date, no Credit Party has any Subsidiaries other than those
Persons listed as Subsidiaries on Schedule 5.3.  Schedule 5.3 states the
authorized and issued capitalization of each Credit Party, the number and class
of equity securities and/or ownership, voting or partnership interests issued
and outstanding of such Credit Party, the number and class of Capital Stock
authorized and issued pursuant to each employee stock option plan and stock
purchase plan and, except as to the holders of the common stock of Evolving
Systems and Capital Stock issued pursuant to employee stock option plans and
stock purchase plans, the beneficial and record owners thereof (including
options, warrants, convertible notes and other rights to acquire, or exchangeable
or exercisable for, any of the foregoing) as of the Closing Date.  Except as listed on Schedule 5.3,
the outstanding equity securities and/or ownership, voting or partnership
interests of each Credit Party have been duly authorized and validly issued and
are fully paid and nonassessable and each Credit Party listed on Schedule 5.3
owns beneficially and of record all of the equity securities it is listed as
owning free and clear of any Liens other than Liens created by the Security
Documents and Permitted Liens.  Schedule 5.3
lists the directors and managers of each Credit Party as of the Closing
Date.  Except as listed on Schedule 5.3,
no Credit Party (a) owns any interest or participates or engages in any
joint venture, partnership or similar arrangements with any Person, (b) is
a party to or has knowledge of any agreements restricting the transfer of its
equity securities, excluding the equity securities of Evolving Systems, (c) has
issued any rights which can be convertible into or exchangeable or exercisable
for any of its equity securities, or any rights to subscribe for or to
purchase, or any options for the purchase of or any rights of pre-emption or
conversion of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, or other commitments or claims of any character
relating to, any of its equity securities or any securities convertible into or
exchangeable or exercisable for any of its equity securities and (d) is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire, repay, redeem or retire any of its equity securities or other
convertible rights or options or debt securities.  No Credit Party has any stock appreciation
rights, phantom stock plan or similar rights or obligations outstanding.

 

5.4          Properties

 

Each
Credit Party is the sole owner and has good, valid and marketable title to, or
a valid leasehold interest in, license of, or right to use, all of its material
Properties, whether personal or real, in each instance, necessary or used in
the Ordinary Course of Business, free and clear of all Liens other than
Permitted Liens.  All material tangible
personal Property of each Credit Party is in good repair, working order and
condition (normal wear and tear excepted) and is suitable and adequate for the
uses for which they are being used or are intended.

 

5.5          Other Agreements

 

Other
than as listed in Schedule 5.5, no Credit Party is (a) a party
to any judgment, order or decree or any agreement, document or instrument, or
subject to any restriction, which adversely affects its ability to grant a
security interest in the Collateral, take actions necessary to perfect the
Lender’s Liens, execute and deliver, or perform its payment, guaranty,
indemnification, release, waiver, and any material obligations under, any Loan
Document, Revolving Loan Document or Related Document to which it is a party or
to pay the Obligations,

 

10

 

(b) in default in any material respect in the performance,
observance or fulfillment of any obligation, covenant or condition contained in
any Related Document, nor is there any event, fact, condition or circumstance
which, with notice or passage of time or both, would constitute or result in a
material conflict, breach, default or event of default under, any of the Related
Documents, (c) in default in the performance, observance or fulfillment of
any obligation, covenant or condition contained in any other agreement,
document or instrument to which it is a party or to which any of its Properties
are subject, which default would reasonably be expected to result in a Material
Adverse Effect, nor is there any event, fact, condition or circumstance which,
with notice or passage of time or both, would constitute or result in a conflict,
breach, default or event of default under, any of the foregoing which would
reasonably be expected to result in a Material Adverse Effect, or (d) a
party or subject to any agreement, document or instrument with respect to, or
obligation to pay any, service or management fee to an Affiliate with respect
to, the ownership, operation, leasing or performance of any of its Business
other than the Cross-License Agreements and Transfer Pricing Agreements.

 

5.6          Litigation

 

Except
as set forth on Schedule 5.6, (i) there are no actions, suits,
or proceedings pending against any Credit Party, (ii) to the knowledge of
the Credit Parties, there are no investigations pending against any Credit
Party and (iii) to the knowledge of the Credit Parties, there are no actions,
suits, investigations or proceedings threatened against any Credit Party that, in
each case, (a) questions or would reasonably be expected to prevent the
validity of any of the Loan Documents, Revolving Loan Documents or Related
Documents or the right of such Credit Party to enter into any Loan Document,
any Revolving Loan Document or any Related Document to which it is a Party or
to consummate the transactions contemplated thereby, or (b) would
reasonably be expected to result in, either individually or in the aggregate, a
Material Adverse Effect.  Except as
listed on Schedule 5.6, no Credit Party is a party or subject to
any order, writ, injunction, judgment or decree of any Governmental Authority.

 

5.7          Environmental Matters

 

Each
Credit Party is, and the operations of each Credit Party are, in compliance
with all applicable Environmental Laws in all material respects.  No Credit Party has been notified in writing of
any action, suit, proceeding or investigation (a) relating in any way to
compliance by or liability of such Credit Party under any Environmental Laws, (b) which
otherwise deals with any Hazardous Substance or any Environmental Law, or (c) which
seeks to suspend, revoke or terminate any license, permit or approval necessary
for the generation, handling, storage, treatment or disposal of any Hazardous
Substance.

 

5.8          Tax Returns; Governmental Reports

 

Except
as set forth in Schedule 5.8, each Credit Party (a) has filed all
federal and all material state, foreign and local tax returns and other
material reports which are required by law to be filed by such Credit Party,
and (b) has paid all taxes, assessments, fees and other governmental
charges, including, without limitation, payroll and other employment related
taxes, in each case that are due and payable, except for items that such Credit
Party currently is

 

11

 

contesting in good faith by appropriate proceedings and for which
adequate reserves have been established in accordance with GAAP and no notice
of Lien has been filed or recorded.

 

5.9          Financial Statements and Reports

 

All
financial statements relating to any Credit Party that have been and hereafter
may be delivered to Agent or any Lender by any Credit Party (a) are
consistent with the books of account and records of such Credit Party, (b) have
been prepared in accordance with GAAP on a consistent basis throughout the
indicated periods, subject to, in the case of interim unaudited financial
statements, the lack of footnote disclosure and normal year-end adjustments,
and (c) present fairly in all material respects the consolidated financial
position and results of operations of such Credit Party and its consolidated
Subsidiaries at the dates and for the relevant periods indicated in accordance
with GAAP on a basis consistently applied. 
Except as (a) listed on Schedule 5.9 and (b) permitted
under this Agreement and not required to be disclosed on a Credit Party’s
financial statements under GAAP, the Credit Parties have no material obligations
or liabilities of any kind that are not disclosed in such financial statements,
and since the date of the most recent financial statements submitted to Agent
and Lenders, there has not occurred any Material Adverse Effect or, to Credit
Parties’ knowledge, any event or condition that would reasonably be expected to
result in a Material Adverse Effect.

 

5.10        Compliance with Law; ERISA; Business

 

(a)           Except
as set forth on Schedule 5.10(c), each Credit Party (a) is in
compliance with all laws, statutes, rules, regulations, ordinances and tariffs
of any Governmental Authority applicable to such Credit Party, the Business
and/or such Credit Party’s Properties or operations, including, without
limitation, ERISA and any other laws or regulations pertaining to the Business,
and (b) is not in violation of any order of any Governmental Authority or
other board or tribunal, except, in the case of both (a) and (b), where
any such noncompliance or violation would not reasonably be expected to result
in, either individually or in the aggregate, a Material Adverse Effect.  There is no event, fact, condition or
circumstance which, with notice or passage of time, or both, would constitute
or result in any noncompliance with, or any violation of, any of the foregoing,
in each case except where any such noncompliance or violation would not
reasonably be expected to result in, either individually or in the aggregate, a
Material Adverse Effect.

 

(b)           Evolving
Systems has filed all material reports, schedules, forms, statements and other
documents (including exhibits and other information incorporated therein) with
the U.S. Securities and Exchange Commission (“SEC”) required to be filed by
Evolving Systems since December 31, 2002 (such documents, the “SEC
Documents”). No Subsidiary of Evolving Systems is required to file, or files,
any form, report or other document with the SEC or similar foreign Governmental
Authority regulating public issuance of securities. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not materially
misleading as of their respective dates; provided that notwithstanding anything
else contained in this

 

12

 

Agreement or any Loan
Document, none of the Credit Parties make any representation, warranty or
guaranty as to any projections furnished to Agent or the Lenders (except that
such projections have been prepared by the applicable Credit Party or
Subsidiary of a Credit Party on the basis of assumptions which were believed to
be reasonable as of the date of such projections in light of current and
reasonably foreseeable business conditions). 
The financial statements of Evolving Systems included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of Evolving Systems and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to the absence of footnote disclosure and to normal and
recurring year-end audit adjustments).

 

(c)           Except
as set forth on Schedule 5.10(c), no Credit Party has (i) engaged in
any “Prohibited Transactions,” as defined in Section 406 of ERISA and Section 4975
of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder, (ii) failed to meet any applicable
minimum funding requirements under Section 302 of ERISA in respect of its
plans and no funding requirements have been postponed or delayed, (iii) knowledge
of any event or occurrence which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Title IV of ERISA to terminate any
of its employee benefit plans, (iv) any fiduciary responsibility under
ERISA for investments with respect to any plan existing for the benefit of
Persons other than its employees or former employees, or (v) withdrawn,
completely or partially, from any multi-employer pension plans so as to incur
liability under the MultiEmployer Pension Plan Amendments of 1980.  With respect to each Credit Party, there
exists no event described in Section 4043 of ERISA, excluding Subsections
4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day
notice period contained in 12 C.F.R. § 2615.3 has not been waived.  Each Credit Party has maintained all material
records required to be maintained by any applicable Governmental
Authority.  Intermediate Holdco has not
engaged, does not presently engage and does not propose to engage in any
business other than the ownership of the equity securities of Evolving Systems
Holdings Limited, a company organized under the laws of England and Wales, and
activities incidental thereto.

 

5.11        Intellectual Property

 

(a)           Except
as set forth on Schedule 5.11, as of the Closing Date, or as
thereafter otherwise disclosed in writing to Agent from time to time, no Credit
Party or Subsidiary of a Credit Party owns or licenses any material patents,
patent applications, registered trademarks, trademark applications, trade
names, registered service marks, service mark applications, registered
copyrights or copyright applications other than off-the-shelf licenses readily
available in the open market.  Each
Credit Party and each Subsidiary of a Credit Party owns directly, or is
entitled to use by license or otherwise, all Intellectual Property necessary
for or material to the conduct of such Credit Party’s business (such
Intellectual Property, the “Necessary Intellectual Property”).  The ownership or license interests of all of
the Credit Parties’ and each of their Subsidiaries’ interests in the items
listed on Schedule 5.11 as of the Closing Date are and, at all
times after the Closing Date (except to the extent no longer deemed

 

13

 

necessary for or material to
the conduct of the business of the Credit Parties and their Subsidiaries in the
good faith business judgment of the Credit Parties) will be: (a) subsisting
and have not been adjudged invalid or unenforceable, in whole or part; and (b) valid,
in full force and effect and not in known conflict with the rights of any
Person.  Each Credit Party and Subsidiary
of a Credit Party has made all filings and recordations necessary in the
exercise of reasonable business judgment to protect its ownership or license interest
in the Necessary Intellectual Property of such Credit Party or Subsidiary of a
Credit Party in the United States Patent and Trademark Office, and the United
States Copyright Office and in corresponding offices throughout the world, as
appropriate.  Each Credit Party and
Subsidiary of a Credit Party has performed all acts and has paid and will
continue to pay all required fees and taxes to maintain each and every item of
its ownership or license interest in Necessary Intellectual Property in full
force and effect, except such items of its Necessary Intellectual Property as
are no longer deemed necessary for or material to the conduct of its businesses
in its reasonable business judgment.  As
of the Closing Date, no litigation is pending or, to the knowledge of each
Credit Party, threatened against any Credit Party or Subsidiary thereof, which
contains allegations respecting the validity, enforceability, infringement or
ownership of the interest of any Credit Party or Subsidiary of a Credit Party
in the Necessary Intellectual Property. 
No Credit Party or Subsidiary of a Credit Party is in breach of or
default under the provisions of any of the licenses under which it has obtained
rights to license any Necessary Intellectual Property, nor is there any event,
fact, condition or circumstance which, with notice or passage of time or both,
would constitute or result in a conflict, breach, default or event of default
under, any such license agreement which would reasonably be expected to result
in, either individually or in the aggregate, a Material Adverse Effect.  All personnel (including employees, agents,
consultants and contractors) of the Credit Parties and each Subsidiary thereof,
who have contributed to or participated in the conception or development of the
Necessary Intellectual Property used in the business of the Credit Parties and
their Subsidiaries either (i) have been a party to a “work-for-hire” or
other arrangements or agreements with the Credit Parties or their Subsidiaries
in accordance with applicable international, national and other applicable laws
that has accorded the Credit Parties and their Subsidiaries full, effective,
exclusive and original ownership of all tangible and intangible property and
intellectual property rights thereby arising or relating thereto, or (ii) have
executed appropriate instruments of assignment in favor of the Credit Parties
or their Subsidiaries as assignee that have conveyed to such Person effective
and exclusive ownership of all intellectual property rights thereby arising and
related thereto.

 

5.12        Permits; Labor

 

Each
Credit Party is in compliance with, and has, all Permits necessary or required
by applicable law or Governmental Authorities for the operation of its Business
as presently conducted and as proposed to be conducted, and for the execution,
delivery and performance by, and enforcement against, such Credit Party of each
Loan Document, Revolving Loan Document and Related Document, except where
noncompliance, violation or lack thereof would not reasonably be expected to
result in, either individually or in the aggregate, a Material Adverse
Effect.  Except as listed in Schedule 5.12,
(a) there is not any event, fact, condition or circumstance which, with
notice or passage of time or both, would constitute or result in a conflict,
breach, default or event of default under, any of the foregoing Permits, in
each case which would reasonably be expected to result in, either individually
or in the aggregate, a

 

14

 

Material Adverse Effect, and (b) no Credit Party is nor has been
involved in any group labor dispute, strike, walkout or union organization.

 

5.13        No Default; Solvency

 

No
Default or Event of Default exists.  Each
Credit Party is and, after giving effect to the transactions and the
Indebtedness contemplated by the Loan Documents and the transactions
contemplated by the Revolving Loan Document and the Related Documents, will be
Solvent.

 

5.14        Insurance

 

All
insurance policies of the Credit Parties or otherwise relating to their
Properties as of the Closing Date are listed and described on Schedule 5.14.

 

5.15        Margin Stock; Regulated Entities; Tax
Regulations; OFAC; Patriot Act

 

(a)           The
Credit Parties are not engaged in the business of extending credit for the
purpose of purchasing or carrying any “margin stock” or “margin security”
(within the meaning of Regulations T, U or X issued by the Board of Governors
of the Federal Reserve System), and no proceeds of the Loan will be used to
purchase or carry any margin stock or margin security or to extend credit to
others for the purpose of purchasing or carrying any margin stock or margin
security within the meaning of such Regulations T, U or X.

 

(b)           No
Credit Party or any Person controlling any Credit Party is (a) an “investment
company” within the meaning of the Investment Company Act of 1940; or (b) subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.

 

(c)           No
Credit Party intends to treat the Loan, the Commitments and/or any letters of
credit and related transactions as being a “reportable transaction” (within the
meaning of Treasury Regulation Section 1.6011-4).

 

(d)           No
Credit Party (i) is a Person whose property or interest in property is
blocked or subject to blocking pursuant to Section 1 of Executive Order
13224 of September 23, 2001 Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg.
49079 (2001)), (ii) engages in any dealings or transactions prohibited by Section 2
of such executive order, or is otherwise associated with any such Person in any
manner violative of such Section 2, or (iii) is a Person on the list
of Specially Designated Nationals and Blocked Persons or subject to the
limitations or prohibitions under any other U.S. Department of Treasury’s
Office of Foreign Assets Control regulation or executive order (“OFAC”).

 

(e)           Each
Credit Party is in compliance, in all material respects, with the Patriot
Act.  No part of the proceeds of the Loan
will be used, directly or indirectly, for any payments to any governmental
official or employee, political party, official of a political party, candidate
for political office, or anyone else acting in an official capacity, in order
to obtain,

 

15

 

retain or direct business or
obtain any improper advantage, in violation of the United States Foreign
Corrupt Practices Act of 1977, as amended.

 

5.16        Broker’s or Finder’s Commissions

 

Except
as set forth on Schedule 5.16 no broker’s, finder’s or placement fee or
commission is or will be payable to any broker, investment banker or agent
engaged by any Credit Party or any of its officers, directors or agents with
respect to the transactions contemplated by this Agreement, the other Loan
Documents, the Revolving Loan Documents and the Related Documents, except for
fees payable to Agent and Lenders.

 

5.17        Disclosure

 

No
Loan Document or any other agreement, document, written report, certificate or
statement furnished to Agent or any Lender by or on behalf of any Credit Party
in connection with the transactions contemplated by or pursuant to the Loan
Documents, nor any representation or warranty made by any Credit Party in any
Loan Document, contains any untrue statement of a material fact or omits to
state any material fact necessary to make the factual statements therein taken
as a whole not materially misleading as of the time made or delivered in light
of the circumstances under which it was made or furnished; provided that
notwithstanding anything else contained in this Agreement or any Loan Document,
none of the Credit Parties make any representation, warranty or guaranty as to
any projections furnished to Agent or the Lenders (except that such projections
have been prepared by the applicable Credit Party or Subsidiary of a Credit
Party on the basis of assumptions which were believed to be reasonable as of
the date of such projections in light of current and reasonably foreseeable
business conditions).

 

5.18        Incorporation of Certain Representations and
Warranties

 

As
of the Closing Date and any other date on which representations and warranties
are otherwise remade or deemed remade hereunder, (i) each of the
representations and warranties contained in the Related Documents made by any
Credit Party is true and correct in all material respects (except to the extent
already qualified by materiality, in which case it shall have been true and
correct in all respects and shall not have been false or misleading in any
respect taken as a whole and in light of the circumstances under which it was
made or furnished) and (ii) to the knowledge of each Credit Party, each of
the representations and warranties contained in the Related Documents made by
Persons other than a Credit Party, Agent or any Lender is true and correct in
all material respects.

 

5.19        Survival

 

Each
Credit Party agrees that the representations and warranties contained in the
Loan Documents are made with the knowledge and intention that Agent and Lenders
are relying and will rely thereon.  All
such representations and warranties will survive the execution and delivery of
this Agreement, the Closing and the funding of the Loan.

 

16

 

VI.           AFFIRMATIVE COVENANTS

 

Each
Credit Party, jointly and severally, covenants and agrees that, until the full performance
and satisfaction, and indefeasible payment in full in cash, of all the
Obligations (other than contingent indemnification Obligations to the extent no
claim giving rise thereto has been asserted) and the termination of the
Commitments:

 

6.1          Reporting, Collateral and Other Information

 

(a)           Reporting.  The Credit Parties shall maintain, and shall
cause each of their Subsidiaries to maintain a system of accounting established
and administered in accordance with sound business practices to permit the
preparation of financial statements in conformity with GAAP (provided that
interim financial statements shall not be required to have footnote disclosure
and may be subject to normal year-end adjustments).

 

(b)           The
Credit Parties shall furnish to Agent and each Lender, at the times, for the
periods and otherwise in accordance with the terms of Exhibit C attached
hereto, all statements (financial or otherwise), budgets, projections, reports,
listings, calculations, certificates, notices and other materials described on
such Exhibit C-1.

 

(c)           Collateral Deliverables; Related Actions.  Each
Credit Party shall, and shall cause each other Credit Party to comply with each
of the agreements, covenants and undertakings set forth in Exhibit C-2,
applicable to such Credit Party in accordance with the terms thereof, and
represents and warrants to the Lender Parties that the representations and
warranties thereon contained are true, correct and complete in all material
respects (except to the extent already qualified by materiality, in which case
it shall have been true and correct in all respects) and shall not have been
false or misleading in any respect taken as a whole and in light of the
circumstances under which it was made or furnished.

 

6.2          Conduct of Business; Maintenance of Existence
and Assets

 

Each
Credit Party shall, and shall cause each of its Subsidiaries to:

 

(a)           engage
solely in the Business in accordance with good business practices customary to
its industry, and use commercially reasonable efforts to preserve the goodwill
and business of the customers, suppliers and others having material business
relations with it;

 

(b)           use
commercially reasonable efforts to collect its Accounts in the Ordinary Course
of Business;

 

(c)           maintain
and preserve all of its material Properties used or useful in its Business in
good working order and condition (normal wear and tear excepted and except as
may be disposed of in accordance with the terms of the Loan Documents) and from
time to time make all reasonably necessary repairs, renewals and replacements
thereof;

 

(d)           except
as permitted under Section 7.4(h), maintain and preserve in full force and
effect its organizational existence under the laws of its state or jurisdiction
of incorporation, organization or formation, as applicable;

 

17

 

(e)           maintain
and preserve in full force and effect all Permits and qualifications to do
business and remain in good standing (to the extent such concept applies to
such entity) in each jurisdiction in which the ownership or lease of its
property or the nature of its business makes such Permits or qualification
necessary, in each case except as would not reasonably be expected to result
in, either individually or in the aggregate, a Material Adverse Effect; and

 

(f)            maintain,
comply with and keep in full force and effect and renew its rights in
Intellectual Property except where the non-preservation, non-compliance or loss
of which or failure to maintain would not reasonably be expected to result,
either individually or in the aggregate, in a Material Adverse Effect.

 

6.3          Compliance with Legal and Other Obligations

 

Each
Credit Party shall, and shall cause each of its Subsidiaries to:

 

(a)           comply
with all laws, statutes, rules, regulations, ordinances and tariffs of all
Governmental Authorities applicable to it or its Business, Properties or
operations, except where the failure to comply would not reasonably be expected
to result in, either individually or in the aggregate, a Material Adverse Effect;

 

(b)           comply
in all material respects with the Securities Act and Exchange Act and the rules promulgated
under such acts in all material respects and make all material filings required
by such acts within the required filing period;

 

(c)           pay
all taxes, assessments, governmental fees and charges except taxes,
assessments, governmental fees and charges being contested in good faith by
appropriate proceedings diligently prosecuted and against which adequate
reserves are being maintained in accordance with GAAP and, with respect to such
items, all such items do not exceed $250,000 against Persons organized in the
United States in the aggregate at any time or such items do not exceed
$1,500,000 against Persons organized outside the United States in the aggregate
at any time;

 

(d)           subject
to any subordination provisions in favor of the Lender Parties and/or other
restrictions herein set forth, perform in accordance with its terms each
contract, agreement or other arrangement to which it is a party or by which it
or any of the Collateral is bound, except where the failure to so perform would
not reasonably be expected to result in, either individually or in the
aggregate, a Material Adverse Effect;

 

(e)           pay
and perform, before the same shall become delinquent and as the same shall be
required to be performed, all of its obligations, liabilities and Indebtedness,
but subject to any subordination provisions contained herein and/or in any
instrument or agreement evidencing or pertaining to such Indebtedness, except where
the failure to so pay or perform would not reasonably be expected to result in,
either individually or in the aggregate, a Material Adverse Effect;

 

(f)            pay
and perform, before the same shall become delinquent and as the same shall be
required to be performed, but subject to any subordination provisions contained
herein and in the Subordination Agreement, and preserve and enforce all of its
material rights, duties

 

18

 

and obligations under each
of the Related Documents and the TSE Purchase Agreement except as provided in Section 7.5(f);
and

 

(g)           properly
file all reports required to be filed with any Governmental Authority, except
where the failure to file would not reasonably be expected to result in a Material
Adverse Effect.

 

6.4          Insurance

 

Each
Credit Party shall or if applicable Evolving Systems shall cause such Credit
Party to (a) ensure that the Life Insurance Policy is fully paid and in
full force and effect at all times; and (b) keep all of its insurable
Properties adequately insured against losses, damages and hazards as are
customarily insured against by businesses engaging in similar activities or the
Business or owning similar Properties and of such types and in such amounts as
are customarily carried under similar circumstances by such other Persons, and
at least the minimum amount required by applicable law and any other agreement
to which such Credit Party is a party or pursuant to which such Credit Party
provides any services, including, without limitation, liability, property and
business interruption insurance, as applicable; provided the amount of business
interruption insurance shall not be less than projected EBITDA for all Credit
Parties and their Subsidiaries on a consolidated basis without duplication for
a period of not less than six (6) months and, in any event, not less than
$1,500,000; and maintain general liability insurance at all times against
liability on account of damage to Persons and Property having such limits,
deductibles, exclusions and co-insurance and other provisions as are customary
for a business engaged in activities similar to those of such Credit Party
under similar circumstances and (c) maintain directors and officers
liability insurance at all times against risks and liabilities customarily
insured; all of the foregoing insurance policies and coverage levels to (i) be
satisfactory to Agent in its Permitted Discretion, (ii) name Agent, for
the benefit of the Lender Parties, as loss payee/mortgagee in respect of property
damage and casualty insurance, additional insured in respect of liability
insurance (excluding errors and omissions insurance and directors and officers
liability insurance) and sole beneficiary of the Life Insurance Policy, and (iii) expressly
provide that they cannot be altered, amended, modified, canceled or terminated
without at least thirty (30) days (ten (10) days in the event of a
termination for nonpayment of premiums) prior written notice to Agent from the
insurer except to add in the Ordinary Course of Business additional customers
as loss payee/mortgagee or additional insured pursuant to this subsection (iii),
and that they inure to the benefit of Agent, for the benefit of the Lender
Parties, notwithstanding any action or omission or negligence of or by such
Credit Party, or any insured thereunder. 
Upon request of Agent or any Lender, Borrower shall furnish to Agent,
with sufficient copies for each Lender, at reasonable intervals (but not more
than once per calendar year) a certificate of a Responsible Officer on behalf
of Borrower (and, if requested by Agent, any insurance broker of Borrower)
setting forth the nature and extent of all insurance maintained by Borrower and
its Subsidiaries in accordance with this Section 6.4.  Unless Borrower provides Agent with evidence
of the insurance coverage required by this Agreement, Agent may purchase
insurance at Borrower’s expense to protect Agent’s and Lenders’ interests in
the Credit Parties’ Properties.  This
insurance may, but need not, protect the Credit Parties’ interests.  The coverage that Agent purchases may not pay
any claim that any Credit Party makes or any claim that is made against any
Credit Party in connection with said Property. 
Borrower may later cancel any insurance purchased by Agent, but only
after providing Agent with satisfactory evidence to Agent, and

 

19

 

written acknowledgment thereof, that Borrower has obtained insurance as
required by this Agreement.  If Agent
purchases insurance, Borrower shall be responsible for the costs of that
insurance, including interest and any other charges Agent may impose in
connection with the placement of insurance, until the effective date of the
cancellation or expiration of the insurance. 
The costs of the insurance shall be added to the Obligations and payable
on demand.  The costs incurred by Agent
of the insurance may be more than the costs of insurance Borrower may be able
to obtain on its own.  Any and all
proceeds of the Life Insurance Policy shall be applied to the payment of the Obligations
as provided in this Agreement.

 

6.5          Inspection; Management Meetings

 

(a)           Each
Credit Party shall permit the representatives of Agent from time to time during
normal business hours upon reasonable notice to (i) visit and inspect any
of such Credit Party’s and the Subsidiaries of such Credit Parties’s offices or
properties or any other place where Collateral is located to inspect the
Collateral and/or to examine and/or audit all of such Credit Party’s books of
account, records, reports and other papers, (ii) make copies and extracts
therefrom and (iii) discuss such Credit Party’s Business, operations,
prospects, properties, assets, liabilities, condition and/or Accounts with its
officers and, so long as officers and employees of the Credit Party or such Subsidiary
are entitled to be present, independent public accountants (and by this
provision such officers and accountants are authorized to discuss the
foregoing); provided, however, that (x) the Credit Parties shall not be
obligated to reimburse Agent for more than an aggregate of two (2) visits,
inspections, examinations and/or audits under this Section 6.5(a) and
pursuant to the Revolving Loan Agreement (whether any such visit, inspection,
examination or audit includes or covers some or all of the “Credit Parties” and
their respective “Subsidiaries” under and as defined in this Agreement and the
Revolving Loan Agreement) during any fiscal year in which no Event of Default
exists, of which one (1) visit, inspection, examination and/or audit in
which employees and agents of Agent located within North America travel outside
North America, which visits shall, to the extent practicable and appropriate in
the Permitted Discretion of the Agent, be coordinated to occur at the same time
as the semi-annual meetings provided for in clause (b) below (it being
agreed and understood that the Borrower shall be obligated to reimburse Agent
for all such visits, inspections, examinations and audits conducted while any
Event of Default exists), and (y) no notice shall be required to do any of the
foregoing if any Event of Default has occurred and is continuing.

 

(b)           The
Credit Parties shall cause their senior management to hold meetings with Agent
in person, on a semi-annual basis or more frequently in the Permitted
Discretion of the Agent, to discuss the financial performance and projections
of Evolving Systems and its Subsidiaries. 
The format and content of the meetings shall be substantially similar to
the discussion of such matters in meetings of the board of directors of
Evolving Systems.  Credit Parties’ shall
reimburse Agent for all reasonable out-of-pocket expenses incurred in
connection with attendance at such meetings.

 

(c)           Agent and such representatives shall
maintain the confidentiality of all non-public information (whether written or
verbal and whether specifically identified as “confidential”) obtained during
such visits, inspections, examinations, audits or meetings in accordance with Section 12.10.

 

20

 

6.6          Use of Proceeds

 

Borrower
shall use the proceeds from the Loan solely for the following purposes:  (i) to refinance a portion of the
existing indebtedness on the Closing Date that was used to pay costs incurred
in purchasing Tertio Telecoms Limited, a seller of operational support systems and
for payment of other costs and expenses incurred in connection with the
negotiation and consummation of the transactions provided for in this Agreement
and the other Loan Documents; and (ii) in compliance with applicable law
and not in violation of this Agreement.

 

6.7          Further Assurances; Post Closing Deliveries

 

(a)           Except
as authorized by Agent in its Permitted Discretion, each Credit Party shall,
and shall cause each Credit Party to, within five (5) Business Days after
demand by Agent or Requisite Lenders, take such further actions, obtain such
consents and approvals and duly execute and deliver such further agreements,
assignments, instructions or documents as may be requested in their Permitted
Discretion in form and substance satisfactory to the Agent in its Permitted
Discretion in order to carry out the purposes, terms and conditions of the Loan
Documents and the transactions contemplated thereby, whether before, at or after
the performance and/or consummation of the transactions contemplated hereby or
the occurrence of any Default or Event of Default.

 

(b)           Without
limiting any other provision of any Loan Document, each Credit Party shall, and
shall cause each of its Subsidiaries to, execute and deliver, or cause to be
executed and delivered, to Agent all agreements, instruments, documents and
other deliveries, and take or cause to be taken all actions, and otherwise
perform, observe and comply with all obligations and covenants, set forth on Schedule 6.7
hereto within the applicable time periods set forth thereon.

 

(c)           Each
Credit Party shall, and, except as provided in subsection (e) shall
cause its Subsidiaries to, (i) execute, deliver and/or record any and all
financing statements, continuation statements, stock powers, instruments and
other documents, or cause the execution, delivery and recording of any and all
of the foregoing, that are necessary or required under law or otherwise
requested by Agent in its Permitted Discretion to create, perfect or preserve
the pledge of the Collateral to Agent and the Lien on the Collateral in favor
of Agent, for the benefit of the Lender Parties under the Loan Documents (and
each Credit Party irrevocably grants Agent the right, at Agent’s option, to
file any or all of the foregoing), and (ii) defend the Collateral and the
Lien in favor of Agent, for the benefit of the Lender Parties under the Loan
Documents, against all claims and demands of all Persons (other than Permitted
Liens).  Without limiting the generality
of the foregoing and except as provided in subsection (e) or as
otherwise approved in writing by Requisite Lenders, (i) each Guarantor
shall, and each Credit Party shall cause its Subsidiaries (other than the
Borrower) to, guaranty the Obligations of Borrower and grant to Agent, for the
benefit of the Lender Parties under the Loan Documents, a Lien on all of its
Property to secure such guaranty, and (ii) Evolving Systems and each
Credit Party shall grant a first priority Lien (other than with respect to
Property subject to Priority Permitted Liens) on all of its Property (other
than accounts used exclusively for employee payroll and employee benefit and
any other Property that is not required to constitute Collateral pursuant to
the Security Documents) and, without limiting the foregoing, pledge the stock
and other equity interests and

 

21

 

securities of each of its
Subsidiaries, in each case to Agent, for the benefit of the Lender Parties, to
secure the Obligations.  In furtherance
thereof, each Domestic Subsidiary of a Credit Party shall execute a Joinder
Agreement and become a party to such of the Loan Documents, including this
Agreement, and in such capacity (Borrower or Guarantor) as Agent shall
elect.  Notwithstanding the other
provisions of this subsection (c) and anything else in this Agreement
to the contrary, the Credit Parties shall not be required to grant a leasehold
mortgage in the leases listed on Schedule 6.7(c) as such leases exist
as of the date of this Agreement.

 

(d)           Concurrently
with (i) the execution by any Credit Party, as lessee, of any lease
pertaining to real property, such Credit Party shall deliver to Agent (a) an
executed copy thereof, (b), a Landlord Waiver and Consent from the Landlord
under such lease in form and substance acceptable to Agent in its Permitted
Discretion and (c) except for extensions of leases listed on Schedule 6.7(c) as
of the Closing Date and for leases of real property requiring no more than
$200,000 in annual rent payments, (I) at the option of Agent, either a
leasehold mortgage upon or a collateral assignment of such lease in favor of
Agent for the benefit of the Lender Parties under the Loan Documents, in either
case in form and substance acceptable to Agent in its Permitted Discretion and
(II) at the option of Agent, a lender’s policy of title insurance for the
benefit of the Lender Parties under the Loan Documents, in such form and amount
and containing such endorsements as shall be satisfactory to Agent in its
Permitted Discretion, insuring the Lien of such leasehold mortgage or
collateral assignment of lease, together with a survey of such real property,
which survey shall be of a recent enough date and in sufficient detail so as to
permit the title company issuing such policy to eliminate any survey exceptions
to such policy and (d) such other documents and assurances with respect to
such real property as Agent may require in its Permitted Discretion, and (ii) the
execution by any Credit Party of any contract relating to the acquisition by
such Credit Party of real property, an executed copy of such contract and,
concurrently with the closing of the purchase of such real property, (a) a
first mortgage or deed of trust in favor of Agent, for the benefit of the
Lender Parties under the Loan Documents, on such real property, in form and
substance acceptable to Agent in its Permitted Discretion, (b) a lender’s
policy of title insurance for the benefit of the Lender Parties under the Loan
Documents, in such form and amount and containing such endorsements as shall be
satisfactory to Agent in its Permitted Discretion, (c) a survey of such
real property, which survey shall be of a recent enough date and in sufficient
detail so as to permit the title company issuing such policy to eliminate any
survey exceptions to such policy, (d) a recent environmental assessment of
such real property by a third party acceptable to Agent, and the results
thereof shall be satisfactory to Agent in its Permitted Discretion, and (e) such
other documents and assurances with respect to such real property as Agent may
require in its Permitted Discretion.

 

(e)           The
foregoing provisions of this Section 6.7 to the contrary notwithstanding: (a) no
Foreign Subsidiary of Evolving Systems that is a “controlled foreign
corporation,” as defined in Section 957 of the Code, shall be required to
deliver any guaranty or grant a security interest in any of its Property to
secure any such guaranty, and neither Borrower nor any of its other Domestic
Subsidiaries shall be required to pledge securities representing in the
aggregate more than sixty five percent (65%) of the voting power of the
outstanding voting equity securities of any such Foreign Subsidiary of Evolving
Systems, to the extent, in any such case, such guaranty or granting, or a
pledge of additional equity securities, would reasonably be expected to result
in material and adverse tax consequences to any Credit Party under Section 956
of the Code and (b) no Foreign Subsidiary of Evolving Systems incorporated
in the United

 

22

 

Kingdom shall be required to
deliver any guaranty or grant a security interest in any of its Property to
secure any such guaranty if such guaranty or security would be in breach of Section 151
of the Companies Act 1985, as determined by Agent in its Permitted Discretion.

 

6.8          Mandatory Dividends

 

On
the day of delivery of any quarterly financial statements pursuant to Section 6.1,
Borrower shall furnish to Agent a written calculation of U.K. Excess Cash Flow
for the prior quarter.  For each period
for which EBITDA of the Credit Parties and their consolidated Subsidiaries on a
consolidated basis without duplication is less than the aggregate of (a) the
“Minimum EBITDA” set forth in Exhibit B-1 for such period and (b) $250,000,
the Credit Parties shall cause the Revolving Borrowers and their Subsidiaries,
directly or indirectly, to, within the 45-day period following delivery of such
financial statements, either (a) dividend to Evolving Systems 100% of such
Excess Cash Flow lawfully available for dividends and lawfully transfer any
remainder to Evolving Systems in another manner approved by Agent in its
Permitted Discretion or (b) with the prior consent of Agent, lawfully
transfer 100% of such Excess Cash Flow to Evolving Systems in another a manner
approved by Agent in its Permitted Discretion.

 

VII.         NEGATIVE COVENANTS

 

Each
Credit Party, jointly and severally, covenants and agrees that, until the full
performance and satisfaction, and indefeasible payment in full in cash, of all
Obligations (other than contingent indemnification Obligations to the extent no
claim giving rise thereto has been asserted) and the termination of all
Commitments:

 

7.1          Financial Covenants

 

No
Credit Party shall, and no Credit Party shall cause or permit any of its
Subsidiaries to, violate any of the financial covenants set forth in Exhibit B-1
hereto, calculated and determined as of the respective dates and for the
respective periods set forth thereon.

 

7.2          Indebtedness

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, create, incur, assume, suffer to exist, or otherwise become or
remain directly or indirectly liable with respect to, any Indebtedness, except
the following (collectively, “Permitted Indebtedness”):

 

(a)           Indebtedness
of the Credit Parties evidenced by the Loan Documents or the Revolving Loan
Documents;

 

(b)           any
Indebtedness of Borrower and its Subsidiaries existing on the Closing Date and
set forth on Schedule 7.2 hereto, including extensions and
replacements thereof provided that the principal amount of such Indebtedness as
of the date of such extension or replacement is not increased and the maturity
and weighted average life thereof are not shortened;

 

23

 

(c)           Indebtedness
of Borrower and its Subsidiaries not to exceed $250,000 in the aggregate at any
time outstanding constituting Capital Lease Obligations;

 

(d)           Indebtedness
of Borrower and its Subsidiaries incurred after the Closing Date secured by
purchase money Liens permitted under Section 7.3(e)(i) provided the
aggregate amount thereof outstanding at any time does not exceed $200,000;

 

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

 

(f)            inter-company
unsecured Indebtedness not listed in Schedule 7.2 on the Closing Date arising
from loans made by Borrower to Evolving Systems Networks India PVT LTD, an
India corporation, and Evolving Systems GmbH, a German corporation, so long as
such Persons are Wholly-Owned Subsidiaries of Evolving Systems, to fund working
capital requirements of such Subsidiaries in the Ordinary Course of Business;
provided, that, that upon the request of Agent, such Indebtedness shall be evidenced
by promissory notes having terms (including subordination terms) satisfactory
to Agent, the sole originally executed counterparts of which shall be pledged
and delivered to Agent, for the benefit of the Lender Parties, as security for
the Obligations; provided, however, that the aggregate amount of Investments
permitted pursuant to Section 7.4(i) and outstanding Indebtedness
permitted pursuant to this subsection 7.2(f) does not exceed $100,000
at any time;

 

(g)           Subordinated
Debt of Borrower evidenced by the Subordinated Notes to the extent such
Indebtedness remains subject to the terms and conditions of the Seller
Subordination Agreement;

 

(h)           Contingent
Obligations to the extent constituting Indebtedness and permitted under Section 7.8
hereof;

 

(i)            the
incurrence by any Credit Party or any Subsidiary thereof of Indebtedness in an
amount up to $50,000 arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against insufficient
funds, so long as such Indebtedness is covered within five Business Days;

 

(j)            reimbursement obligations under the letters
of credit listed on Schedule 7.2;

 

(k)           unsecured Indebtedness of a Credit Party or its
Subsidiaries incurred in connection with the financing of insurance premiums in
the Ordinary Course of Business with respect to insurance required or permitted
under Section 6.4 up to $500,000 in aggregate annual premiums; and

 

24

 

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

 

7.3                               Liens

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer
to exist any Lien upon, in, against or with respect to any part of, or any
pledge of, any of the Collateral or any of its other Property or Capital Stock
(other than the Capital Stock of Evolving Systems) whether now owned or
hereafter acquired, except the following (collectively, “Permitted Liens”):

 

(a)                                  Liens created by the Loan Documents or the
Revolving Loan Documents or otherwise arising in favor of Agent, for the
benefit of the Lender Parties;

 

(b)                                 Liens imposed by law for taxes, assessments,
fees or charges of any Governmental Authority (i) that are not yet
delinquent or (ii) which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained by such Credit Party or Subsidiary in
accordance with GAAP and, with respect to this clause (ii), all such Liens
secure claims not exceeding amounts set forth in Section 6.3(c);

 

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

 

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

 

(e)                                  (i) purchase money Liens securing
Indebtedness permitted under Section 7.2(d); provided, that (x) any such
Lien attaches to the subject Property concurrently with or within twenty (20)
days after the acquisition thereof, (y) such Lien attaches only to the subject
Property and (z) the principal amount of such Indebtedness secured thereby does
not exceed 100% of the cost of such Property; and (ii) Liens arising under
Capital Leases permitted under Section 7.2(c) to the extent such
Liens attach only to the Property that is the subject of such Capital Leases;

 

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

 

25

 

(g)                                 easements, rights of way, restrictions,
zoning ordinances, reservations, covenants and other similar charges, title
exceptions or encumbrances relating to real Property of the Credit Parties
incurred in the Ordinary Course of Business that, either individually or in the
aggregate, are not substantial in amount, do not interfere in any material
respect with the use of the Property affected or the ordinary conduct of the Business
of the Credit Parties and do not result in material diminution in value of the
Property subject thereto;

 

(h)                                 Liens disclosed on Schedule 7.3 as of
the Closing Date;

 

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

 

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

 

(k)                                  transfer restrictions that arise under any
agreement for a sale, lease, transfer, conveyance, assignment or other
disposition of any Property or any interest therein that is permitted pursuant
to Section 7.7 that imposes restrictions only on the Properties that are
the subject of such agreement pending the consummation of such transaction;

 

(l)                                     restrictions under federal, state or foreign
securities laws or the rules or regulations promulgated thereunder;

 

(m)                               Liens
on Capital Stock of Evolving Systems not held by any Credit Party or Subsidiary
of a Credit Party; and

 

(n)                                 Liens
of licensors and sublicensors on licenses and sublicenses of Intellectual
Property of a Credit Party or Subsidiary thereof entered into in the Ordinary
Course of Business.

 

7.4                               Consolidations, Mergers and Investments

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, directly or indirectly, (i) merge, liquidate, amalgamate
or consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of its Property to or in favor of, any other Person, (ii) purchase,
own, hold, invest in or otherwise acquire any obligations or stock or other
securities of, or any other ownership interest in, any other Person (including
the establishment or creation of any Subsidiary) or any joint venture, or
otherwise consummate or commit to make any Acquisition (including by way of
merger, consolidation or other combination), (iii) purchase, own, hold,
invest in or otherwise acquire any “investment property” (as defined in the
UCC) issued by any other Person, or (iv) except as permitted by Section 7.2
or Section 7.8, make, permit to exist or commit to make any loans,
advances or extensions of credit to or for the benefit of any Person, or
assume, guarantee, indemnify, endorse, contingently agree to purchase or
otherwise become liable for or upon or incur any obligation of, any Person (the
items described in the foregoing clauses (ii), (iii) and (iv) sometimes
are referred to as “Investments”), except:

 

26

 

(a)                                  Investments created by the Loan Documents and
the Revolving Loan Documents;

 

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

 

(c)                                  Investments constituting inter-company
Indebtedness to the extent permitted under Sections 7.2(e) and (f);

 

(d)                                 loans to employees and advances for business
travel and similar temporary advances made in the Ordinary Course of Business
to officers, directors and employees, not to exceed $25,000 in the aggregate at
any time outstanding;

 

(e)                                  the endorsement of negotiable instruments for
deposit or collection or similar transactions in the Ordinary Course of
Business;

 

(f)                                    (i) Investments by the Credit Parties in
Cash Equivalents with respect to which Agent, for the benefit of the Lender
Parties, has a first priority and perfected Lien, as security for the
Obligations and (ii) Investments in Cash Equivalents by the Revolving
Borrower, Evolving Systems Networks India PVT LTD and Evolving Systems GmbH;

 

(g)                                 Borrower and its Subsidiaries may consummate
transactions otherwise permitted under Sections 7.2, 7.5, 7.7 and 7.8;

 

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

 

(i)                                     Investments in the Capital Stock of Evolving
Systems Networks India PVT LTD and Evolving Systems GmbH not listed in Schedule 7.4
on the Closing Date; provided that the aggregate amount of such Investments and
the outstanding Indebtedness permitted under Section 7.2(f) shall not
exceed $100,000 at any time;

 

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

 

(k)                                  Investments existing as of the Closing Date
by a Credit Party in its Subsidiaries set forth on Schedule 7.4;

 

(l)                                     Investments received in compromise or
resolution of litigation or arbitration proceedings with Persons who are not
Affiliates of a Credit Party up to $50,000 in the aggregate;

 

27

 

(m)                               Investments
represented by prepaid expenses made in the Ordinary Course of Business; and

 

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

 

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

 

7.5                               Restricted Payments

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, (i) declare, pay or make any dividend or distribution of
cash, securities or other Property on any shares of its Capital Stock or other
equity or ownership interests or securities, (ii) apply any of its
Property to the acquisition, redemption or other retirement of any of its
Capital Stock or other equity or ownership interests or securities or of any
warrants, options or other rights to purchase or acquire, exchangeable or
exercisable for, or convertible into, any of the foregoing, (iii) make any
payment or prepayment of principal, premium, if any, interest, or fees on any
Subordinated Debt, make any sinking fund or similar payment with respect to any
Subordinated Debt, or redeem, exchange, purchase, retire, defease or setoff
against any Subordinated Debt; (iv) make any payment or prepayment of any
TSE Contingent Obligation, make any sinking fund or similar payment with
respect to any TSE Contingent Obligation, or redeem, exchange, purchase,
retire, defease or setoff against any TSE Contingent Obligation or (v) pay
any management, service, consulting, non-competition or similar fee or any
compensation to any Affiliate of any Credit Party (the items described in
clauses (i), (ii), (iii), (iv) and (v) above sometimes are referred
to herein as “Restricted Payments”). 
Notwithstanding the foregoing:

 

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

 

(b)                                 Evolving Systems may, upon termination,
resignation or retirement of an officer or employee of Borrower, redeem for
cash any equity securities or warrants or options to acquire any equity securities
of Evolving Systems owned by such officer or employee, provided, that all of
the following conditions are satisfied with respect to each such distribution:

 

(i)                             no Default or Event of Default has occurred
and is continuing or would arise as a result of such distribution;

 

(ii)                          after giving effect to such distribution, the
Credit Parties are in compliance on a pro forma basis with the financial
covenants referenced in Section 7.1(a) (recomputed for the most
recent period for which financial statements have been delivered in accordance
with the terms hereof after giving effect thereto as of the first day of such
period); and

 

28

 

(iii)                       the aggregate amount of such distributions
shall not exceed $175,000 in any fiscal year of Borrower or $350,000 during the
Term;

 

(c)                                  The Revolving Borrower may make distributions
to Intermediate Holdco solely sufficient to permit Intermediate Holdco to pay
as and when due and payable franchise taxes and other similar ordinary course
licensing expenses and other general and customary holding company costs and
expenses incurred in the Ordinary Course of Business and otherwise relating to
activities in which Intermediate Holdco otherwise is permitted to engage under
the Loan Documents to the extent no Default or Event of Default has occurred
and is continuing or would arise as a result of such distributions;

 

(d)                                 Borrower may make payments on the
Subordinated Debt evidenced by the Subordinated Notes only to the extent
expressly permitted under the applicable Seller Subordination Agreement;

 

(e)                                  the Credit Parties and their Subsidiaries may
pay (i) reasonable compensation (including Permitted Securities issued as
equity compensation) to officers and employees for actual services rendered to
Borrower and its Subsidiaries in the Ordinary Course of Business, including
reasonable severance compensation upon termination of employment, and (ii) reasonable
directors’ fees, meeting fees and reimbursement of actual out-of-pocket
expenses incurred in connection with attending board of director meetings; and

 

(f)                                    Evolving Systems may pay the TSE Contingent
Obligation due on November 15, 2005 in an amount up to $300,000 and TSE
Contingent Obligations on or promptly thereafter the day of delivery to Agent
of quarterly financial statements for such fiscal quarter; provided, that all
of the following conditions are satisfied with respect to each such payment:

 

(i)                             no Default or Event of Default has occurred
and is continuing or would arise as a result of such distribution;

 

(ii)                          the Credit Parties are compliance with the
financial covenants referenced in Section 7.1(a) and provide evidence
to Agent to such effect; and

 

(iii)                               the aggregate amount of such distributions
shall not exceed $2,900,000 during the Term;

 

(g)                                 Evolving Systems may declare and make
dividend payments or other distributions payable solely in Permitted Securities;
and

 

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

 

7.6                               Transactions with Affiliates

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, enter into or consummate any transaction with any Affiliate of
such Person other than:

 

29

 

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

 

(b)                                 compensation and employment arrangements (including
Permitted Securities issued as equity compensation) with employee, officers and
directors in the Ordinary Course of Business and to the extent otherwise
permitted under Section 7.5(e);

 

(c)                                  other transactions pursuant to written
agreements between a Credit Party or its Subsidiary and any such Affiliates
that are entered into in the Ordinary Course of Business and pursuant to the
reasonable requirements of the business of such Credit Party; provided, that
such transactions and agreements are on fair and reasonable terms not less
favorable to such Person than would be obtained in an arm’s length transaction
between unrelated parties of equal bargaining power;

 

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

 

(e)                                  the Cross License Agreement and the Transfer Pricing
Agreements in form and substance satisfactory to the Agent in its Permitted
Discretion; and

 

(f)                                    the
agreements identified on Schedule 7.6.

 

7.7                               Transfer of Assets

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, directly or indirectly, sell, lease, transfer, convey, assign
or otherwise dispose of (whether in a single transaction or a series of
transactions) any Property or any interest therein, or agree to do any of the
foregoing, except that:

 

(a)                                  Borrower and its Subsidiaries may sell lease,
transfer, convey, assign or otherwise dispose of (whether in a single
transaction or a series of transactions) obsolete,
worn out, replaced, damaged or excess Property that is no longer needed in the
Ordinary Course of Business and has a book value not exceeding $200,000 in the
aggregate in any fiscal year;

 

(b)                                 Borrower and its Subsidiaries may sell or
otherwise dispose of inventory and use cash in the Ordinary Course of Business
and liquidate or sell Cash Equivalents in the Ordinary Course of Business;

 

(c)                                  Borrower and its Subsidiaries may sell,
lease, transfer, convey, assign or otherwise dispose of other Properties not
specifically permitted otherwise in this Section 7.7 (other than Capital
Stock of a Credit Party to the extent owned by another Credit Party) to the
extent (a) Borrower or such Subsidiary complies with the mandatory
prepayment provisions of Section 2.5(c) in connection therewith (to
the extent the proceeds thereof are not reinvested in accordance with the terms
of such Section 2.5(c)(i)), (b) such sale is for fair market value
and the aggregate fair market value of all assets so sold does not exceed
$250,000 in any fiscal year, (c) no Default or Event of Default exists or
otherwise would result therefrom, (d) after giving effect

 

30

 

to such transaction, the
Credit Parties are in compliance on a pro forma basis with the financial
covenants referenced in Section 7.1(a) (recomputed for the most
recent period for which financial statements have been delivered in accordance
with the terms hereof after giving effect thereto as of the first day of such
period), and (e) the sole consideration therefor received by Borrower or
such Subsidiary is cash;

 

(d)                                 transactions otherwise permitted under
Sections 7.2, 7.3, 7.4, 7.5, 7.6 and 7.8 to the extent permitted
thereunder;  

 

(e)                                  Any Credit Party may sell, transfer, convey,
assign or otherwise dispose of Property to any other Credit Party;

 

(f)                                    Borrower and its Subsidiaries may license and
sublicense their Intellectual Property in the Ordinary Course of Business on a
non-exclusive basis so long as such license does not restrict the ability of
Agent and Lenders to exercise their rights and remedies under the Loan Documents
and the Revolving Loan Documents
with respect to such Intellectual Property subject to such license.  Such license may include a restriction on the
assignability of the license and its continuation after a Change in Control;

 

(g)                                 The Revolving Borrower and its Subsidiaries
may dispose of Property to the extent permitted by the Revolving Loan
Documents.

 

7.8                               Contingent Obligations

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to, enter into, create, assume, suffer to exist or incur any
Contingent Obligations or assume, guarantee, indemnify, endorse, contingently
agree to purchase or otherwise become liable for or upon or incur any
obligation of any Person, except:

 

(a)                                  Borrower or any of its Domestic Subsidiaries
may enter into guarantees of Indebtedness of Borrower or any such Domestic
Subsidiary that are Credit Parties otherwise permitted under Section 7.2;

 

(b)                                 Borrower and its Subsidiaries may endorse
checks for collection in the Ordinary Course of Business;

 

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

 

(d)                                 Contingent Obligations of Borrower and its
Subsidiaries incurred in the Ordinary Course of Business with respect to
workers’ compensation claims, unemployment insurance and other types of social
security benefits, self-insurance obligations, bankers’ acceptances,
performance bonds, appeal and surety bonds and other similar obligations;

 

31

 

(e)                                  Contingent Obligations of Borrower and its
Subsidiaries arising under indemnity agreements to title insurers to cause such
title insurers to issue to Agent title insurance policies;

 

(f)                                    the TSE Contingent Obligations;

 

(g)                                 Contingent Obligations of any Credit Party or
Subsidiary thereof arising from indemnification obligations to its directors,
officers and employees in the Ordinary Course of Business;

 

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

 

(i)                                     indemnities given by any Credit Party or any
Subsidiary thereof to its customers, vendors, independent contractors,
purchasers or sellers of Property, or other third parties in the Ordinary
Course of Business; and

 

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

 

7.9                               Organizational Documents; Accounting Changes;
Use of Proceeds; Insurance; Business

 

No
Credit Party shall, and no Credit Party shall permit or cause any of its
Subsidiaries to:

 

(a)                                  amend, modify, restate or change any of its
articles of incorporation, bylaws, certificate of formation, operating
agreement, and other charter documents, in any respect adverse to Agent or
Lenders (including changing its name), or make any material change to its
equity capital structure or, without the prior written consent of Agent (but
without limiting the mergers or other transactions involving any Credit Party
otherwise permitted under Section 7.4(h)), reincorporate or reorganize
itself under the laws of any jurisdiction other than the jurisdiction in which
it is incorporated or organized as of the Closing Date;

 

(b)                                 make any significant change in accounting
treatment or reporting practices, except as required by GAAP or to accommodate
FAS 123R, or change its fiscal year;

 

(c)                                  use any proceeds of the Loan, directly or
indirectly, for “purchasing” or “carrying” “margin stock” as defined in
Regulations T, U or X of the Board of Governors of the Federal Reserve System,
or to repay or refinance Indebtedness incurred to so “purchase” or “carry” “margin
stock,” or otherwise in violation of applicable law or this Agreement;

 

(d)                                 amend, modify, restate or change any
insurance policy in any material respect including, without limitation, any
material increase in the amount of any deductibles payable by the Credit
Parties under any such insurance policy or any material change in the scope of
coverage, coverage amount, beneficiaries, loss payees and/or additional insureds
except additional insureds permitted by Section 6.4(c), but excluding
changes in the term of coverage in connection with renewals thereof in the
Ordinary Course of Business;

 

32

 

(e)                                  engage, directly or indirectly, in any business
other than the Business; or

 

(f)                                    allow Intermediate Holdco to engage in any
business other than the ownership of the equity securities of Evolving Systems
Holdings Limited and activities incidental thereto.

 

7.10                        Related Documents; Subordinated Debt; and TSE
Contingent Obligations

 

(a)                                  No Credit Party shall, and no Credit Party
shall permit or cause any of its Subsidiaries to, (i) amend, supplement,
waive or otherwise modify any of the terms or provisions of, and will not fail
to enforce or diligently pursue its remedies under, any Related Document, as in
effect on the Closing Date, in any manner adverse to Agent or any Lender or
which would reasonably be expected to result in a Material Adverse Effect, or (ii) take
or fail to take any other action under any Related Document that would
reasonably be expected to result in a Material Adverse Effect.

 

(b)                                 No Credit Party shall, and no Credit Party
shall permit or cause any of its Subsidiaries to, directly or indirectly,
amend, supplement or otherwise modify the terms of any Subordinated Debt except
as expressly permitted under the applicable Subordination Agreement.

 

(c)                                  No Credit Party shall, and no Credit Party
shall permit or cause any of its Subsidiaries to, directly or indirectly, amend,
terminate, supplement or otherwise, without the prior written consent of the
Agent in its Permitted Discretion, modify the terms of the TSE Purchase
Agreement, the Cross License Agreement or Transfer Pricing Agreements or any
TSE Contingent Obligations in any material respect or in any manner adverse to
Agent or Lenders; provided, however, that the parties may amend the TSE
Purchase Agreement so long as such amendment is not adverse to the interests of
Agent or Lenders under the Loan Documents or the Revolving Loan Documents and
does not extend the duration of the agreement, increase the aggregate amounts
due thereunder, or accelerate payment dates. 
The Credit Parties shall notify and promptly provide Agent with
copies of any amendment, modification, restatement or change to such
agreements.

 

7.11                        Negative Pledges

 

Except
as a result of the Loan Documents and the Revolving Loan Documents, no Credit
Party shall, and no Credit Party shall permit or cause any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual restriction or encumbrance of any kind on the
ability of any such Subsidiary to pay dividends or make any other distribution
on any of such Subsidiary’s equity securities or to pay fees or make other
payments and distributions to Borrower or any of its Subsidiaries except as
permitted under the Transfer Pricing Agreements.  No Credit Party shall, and no Credit Party
shall permit or cause any of its Domestic Subsidiaries to, directly or
indirectly, enter into, assume or become subject to any contract or agreement
that prohibits or otherwise restricts the existence of any Lien upon any of its
Property in favor of Agent, for the benefit of the Lender Parties under the
Loan Documents, whether now owned or hereafter acquired except (a) in
connection with any document or instrument governing Liens related to purchase
money Indebtedness and Capital Leases which, in each case, otherwise constitute
Permitted Liens and (b) leased equipment,

 

33

 

Intellectual Property and
General Intangibles of any Credit Party to the extent excluded from Collateral
in Section 2(c) of the Security Agreement.

 

7.12                        Certain Specific Agreements

 

Neither
any Credit Party nor any Subsidiary of any Credit Party (i) will be or
become a Person whose Property or interests in Property are blocked or subject
to blocking pursuant to Section 1 of Executive Order 13224 of September 23,
2001 Blocking property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit or Support Terrorism (66 Fed. Reg. 49079(2001), (ii) will
engage in any in any dealings or transactions prohibited by Section 2 of
such executive order, or otherwise be associated with any such Person in any
manner violative of Section 2 of such executive order, or (iii) otherwise
will become a Person on the list of Specially Designated Nationals and Blocked
Persons or subject to the limitations or prohibitions under any other OFAC
regulation or executive order.

 

7.13                        Shareholder Blocking Rights

 

No Credit Party shall issue any Capital Stock
which grants or provides any direct or indirect owner or equityholder thereof
any Shareholder Blocking Rights.

 

VIII.                        EVENTS OF DEFAULT

 

The
occurrence of any one or more of the following shall constitute an “Event of Default”:

 

(a)                                  any Credit Party shall fail to pay when due
and payable (i) any principal or Prepayment Premium provided for or
required under this Agreement and/or the Notes, or (ii) within two (2) Business
Days after the same shall become due and payable, any interest, fees or other
Obligations (other than principal or premium) provided for or required under
this Agreement or the other Loan Documents, in any such case described in the
foregoing clause (i) or (ii), whether on any payment date, at maturity, by
reason of acceleration, by notice of intention to prepay, by required
prepayment or otherwise);

 

(b)                                 any representation, statement or warranty
made or deemed made by or on behalf of any Credit Party in any Loan Document or
Revolving Loan Document, or in any other certificate, document, report or
opinion delivered pursuant to any Loan Document or Revolving Loan Document to
which it is a party shall not be true and correct in all material respects or
shall have been false or misleading in any material respect taken as a whole
and in light of the circumstances under which it was made or furnished on the
date when made or deemed to have been made (except to the extent already
qualified by materiality, in which case it shall have been true and correct in
all respects and shall not have been false or misleading in any respect taken
as a whole and in light of the circumstances under which it was made or
furnished on the date when made or deemed to have been made);

 

(c)                                  any Credit Party thereto shall be in
violation, breach or default of, or shall fail to perform, observe or comply
with, any covenant, obligation or agreement set forth in, or any event of
default occurs under, any Loan Document and such violation, breach, default,
event of default or failure shall not be cured within the applicable period, if
any, set forth in the

 

34

 

applicable Loan Document;
provided that, with respect to the affirmative covenants set forth in Article VI
(other than Sections 6.1, 6.3(c), 6.4, 6.5, 6.7(b) or 6.8, for which no
cure period shall apply), any such violation, breach, default, event of default
or failure shall result in any Event of Default only if it remains uncured for
thirty (30) calendar days after the earlier of (i) Receipt (as defined in Section 12.5)
by such Person of written notice of such violation, breach, default, event of
default or failure and (ii) the time at which any officer of a Credit
Party knew or became aware, or should reasonably have known or been aware, of
such violation, breach, default, event of default or failure;

 

(d)                                 (i) any of the Loan Documents ceases for
any reason to be in full force and effect or (ii) any Lien, except Liens
that the Agent chooses not to perfect, created under any Loan Documents ceases (other
than pursuant to the express terms of the applicable Loan Document) to
constitute a valid first priority perfected Lien (other than with respect to
Property subject only to Priority Permitted Liens) on the Collateral in
accordance with the terms thereof;

 

(e)                                  one or more judgments or decrees is or are
rendered against the Credit Parties, any Subsidiary of any Credit Party or any
of them in an outstanding amount, at any one time, in excess of $175,000
individually or $350,000 in the aggregate (excluding judgments and decrees to
the extent covered by third party insurance of such Persons where such coverage
has been acknowledged by the insurer), which is/are not satisfied, stayed,
vacated or discharged of record within thirty (30) calendar days of being
rendered;

 

(f)                                    any Credit Party or any Subsidiary of any
Credit Party shall, or there shall occur:

 

(i)                                     default
in the payment of any principal of or interest when due on any Indebtedness
(other than the Obligations and the “Obligations” as defined in the Revolving
Loan Agreement) in the outstanding principal amount in excess of $250,000 in
the aggregate, which default is not cured or waived within any applicable grace
or cure period;

 

(ii)                                  default
or breach the terms of any note, agreement, indenture or other document
evidencing or relating to any Indebtedness (other than the Obligations and the “Obligations”
as defined in the Revolving Loan Agreement) in the outstanding principal amount
in excess of $750,000 in the aggregate, which default or breach is not cured or
waived within any applicable grace or cure period and the effect of which is to
cause, or to permit the holder or holders of any such Indebtedness to cause,
such Indebtedness to become due (whether by acceleration or otherwise) prior to
the stated maturity thereof;

 

(iii)                               default
or breach the terms of any agreement, contract, document or instrument that is
between any Credit Party and Agent or any Lender or any Affiliate of Agent or
any Lender (other than the Loan Documents) beyond all applicable grace or cure
periods;

 

(iv)                              upon
written notice from Agent, any default or
breach in the performance, observance or fulfillment of any provision contained
in any Material

 

35

 

Contract and such default or breach continues
beyond all applicable grace or cure period and permits the other party thereto
to terminate such Material Contract or otherwise reduce or limit any material amounts
owed by such other party thereunder;

 

(v)                                 an
“Event of Default” (as defined in the Subordinated Notes); or

 

(vi)                              an “Event
of Default” (as defined in the Revolving Loan Agreement).

 

(g)                                 any Credit Party or any Subsidiary of any
Credit Party shall (i) be unable to pay its debts generally as they become
due, as determined by Agent in its Permitted Discretion, (ii) file a
voluntary petition under any insolvency statute, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a proceeding
for the appointment of a receiver, trustee, liquidator or conservator of itself
or of the whole or any substantial part of its Property or shall otherwise be
dissolved or liquidated (other than as permitted under Section 7.4(h)), or
(v) file a petition seeking reorganization or liquidation or similar
relief under any Debtor Relief Law or any other applicable law or statute;

 

(h)                                 (i) a court of competent jurisdiction
shall (A) enter an order, judgment or decree appointing a custodian,
receiver, trustee, liquidator or conservator of any Credit Party or any
Subsidiary of any Credit Party or the whole or any substantial part of any such
Person’s Properties, which shall continue undismissed and unstayed and in
effect for a period of sixty (60) calendar days, (B) approve a petition
filed against any Credit Party or any Subsidiary of any Credit Party seeking
reorganization, liquidation or similar relief under the any Debtor Relief Law
or any other applicable law or statute, which is not dismissed or stayed within
sixty (60) calendar days, or (C) under the provisions of any Debtor Relief
Law or other applicable law or statute, assume custody or control of any Credit
Party or any Subsidiary of any Credit Party or of the whole or any substantial
part of any such Person’s Properties, which is not irrevocably relinquished
within sixty (60) calendar days, (ii) there is commenced against any
Credit Party or any Subsidiary of any Credit Party any proceeding or petition
seeking reorganization, liquidation or similar relief under any Debtor Relief
Law or any other applicable law or statute (A) which is not
unconditionally dismissed or stayed within sixty (60) calendar days after the
date of commencement, or (B) in respect of which such Credit Party or any
Subsidiary of any Credit Party takes any action to indicate its approval of or
consent to any such proceeding or petition; or (iii) any stayed order,
judgment, decree, proceeding, petition or other item is reinstated.

 

(i)                                     any Change of Control or any Material Adverse
Effect occurs;

 

(j)                                     Agent or any Lender receives any evidence
that any Credit Party has directly or indirectly been engaged in any type of
activity which, in Agent’s Permitted Discretion, would reasonably be expected
to result in forfeiture of any material portion of Collateral to any
Governmental Authority, which shall have continued unremedied for a period of
twenty (20) calendar days after written notice from Agent;

 

36

 

(k)                                  uninsured damage to, or uninsured loss, theft
or destruction of, any portion of the Collateral occurs that exceeds $250,000
in the aggregate;

 

(l)                                     (i) any Credit Party is criminally
indicted or convicted (A) of a felony or (B) under any law that would
reasonably be expected to lead to forfeiture of any material portion of
Collateral, or (ii) any director or senior officer of any Credit Party is
convicted (A) of a felony for fraud or dishonesty in connection with the
Business or (B) under any law that would reasonably be expected to lead to
forfeiture of any material portion of Collateral;

 

(m)                               the issuance of any process for levy,
attachment or garnishment or execution upon or any judgment against any Credit
Party or any of its material Property or against any of the Collateral, which
has an aggregate fair market value in excess of $175,000 individually or
$350,000 in the aggregate in any case which is not satisfied, stayed, vacated,
dismissed or discharged within thirty (30) calendar days of being issued or
executed;

 

(n)                                 (i) the subordination provisions of the
Seller Subordination Agreement and/or the subordination provisions contained in
or otherwise pertaining to any agreement or instrument governing any
Subordinated Debt shall for any reason be revoked or invalidated, or cease to
be in full force and effect, or (ii) any Person shall raise a
non-frivolous claim in court contesting in any manner the validity or
enforceability thereof, (iii) any Person shall take any action in
violation thereof or fail to take any action required by the terms thereof that
would reasonably be expected to have an adverse effect on the rights and
remedies of Agent or Lenders, or (iv) the Obligations, for any reason
shall not have the priority contemplated by this Agreement, the Seller
Subordination Agreement or such subordination provisions;

 

(o)                                 an “Event of Default” under any other Loan
Document occurs (to the extent, with respect to any such other Loan Document,
not otherwise constituting an Event of Default hereunder);

 

(p)                                 any Credit Party is enjoined, restrained or
in any way prevented by the order of any court or other Governmental Authority
from conducting all or any material part of its business for more than fifteen
(15) calendar days which is reasonably likely to be, have or result in a
Material Adverse Effect;

 

(q)                                 If the “Shelf Registration Statement” (as
defined in the Certificate of Designation of Evolving System’s Series B
Convertible Preferred Stock (“Certificate of Designation”)) to be prepared and
filed by the Corporation (as defined in the Certificate of Designation) in
accordance with the terms and conditions of Section 2.3 of the Investor
Rights Agreement (as defined in the Certificate of Designation) by and among
the Corporation and the holders of the Series B Preferred Stock dated as
of the Series B Original Issue Date (as defined in the Certificate of
Designation) (i) is not declared effective by the SEC as contemplated by Section 2.3
or (ii) if declared effective, is not kept continuously effective as
contemplated by Section 2.4 of the Investor Rights Agreement, or any other
event occurs which with the passage of time and/or giving of notice would grant
a holder of Evolving System’s preferred stock the rights described in section 5
of the Certificate of Designation; or

 

37

 

(r)                                    The occurrence of a “Liquidation” as defined
in the Certificate of Designation or any other event which with the passage of
time and/or giving of notice would give rise to a “Liquidation” to which Agent
has not previously expressly consented in writing;

 

If an Event of Default occurs and is continuing, notwithstanding any
other provision of any Loan Document, (I) Agent may (and at the request of
Requisite Lenders, shall), by notice to Borrower (i) terminate Lenders’
Commitments and obligations hereunder, whereupon the same shall immediately
terminate, and (ii) declare all or any of the Loan and/or any Notes, all
interest thereon and all other Obligations (including, without limitation, the
Prepayment Premium, if any) to be due and payable immediately including any
Prepayment Premium calculated as if such Obligations were prepaid on the date
of the Event of Default (provided, that in the case of any Event of Default
under Article VIII(g), (h), (q), or (r) all of the foregoing
automatically and without any act by Agent or any Lender shall be due and
payable immediately and Lenders’ Commitments and obligations hereunder shall
immediately terminate; in each case without presentment, demand, protest or
notice of any kind, all of which hereby are expressly waived by the Credit
Parties), and (II) without limiting any of the other rights and/or remedies of
Agent and Lenders, no action permitted to be taken under Article VII
hereof may be taken to the extent such action is expressly prohibited during
the existence of an Event of Default.

 

IX.                                RIGHTS AND REMEDIES AFTER DEFAULT

 

9.1                               Rights and Remedies

 

(a)                                  In addition to the acceleration and other
provisions set forth in Article VIII, upon the occurrence and
during the continuation of an Event of Default, Agent shall have the right to
(and at the request of Requisite Lenders, shall) exercise any and all rights
and remedies provided for in any Loan Document or any Revolving Loan Document,
under the UCC or at law or in equity, including, without limitation, the right
to the extent permitted by applicable law, to (i) apply any Property of
any Credit Party held by Agent, for the benefit of the Lender Parties, or any
Lender to reduce the Obligations, (ii) foreclose the Liens created under
the Loan Documents or the Revolving Loan Documents, (iii) enforce, realize
upon, take possession of and/or sell or otherwise transfer any Collateral or
securities pledged, with or without judicial process, (iv) exercise all
rights and powers with respect to the Collateral as any Credit Party might
exercise, (v) collect and send notices regarding the Collateral, with or
without judicial process, (vi) by its own means or with judicial
assistance, enter any premises at which Collateral and/or pledged securities
are located, or render any of the foregoing unusable or dispose of the
Collateral and/or pledged securities on such premises without any liability for
rent, storage, utilities, or other sums, and no Credit Party shall resist or
interfere with such action, (vii) at Credit Parties’ expense, require that
all or any part of the Collateral be assembled and made available to Agent at
any place where the Credit Parties regularly maintain inventory or Property
designated by Agent in its Permitted Discretion, and/or (viii) relinquish
or abandon any Collateral or securities pledged or any Lien thereon.  Notwithstanding any provision of any Loan
Document, Agent, in its Permitted Discretion, shall have the right, at any time
that any Credit Party fails to do so, and from time to time, without prior
notice, to: (i) obtain insurance covering any of the Collateral to the
extent required hereunder; (ii) pay for the performance of any of the
Obligations; (iii) discharge taxes, levies and/or Liens on any of the
Collateral that are in violation of any Loan Document; and (iv) pay for
the maintenance, repair and/or preservation of the

 

38

 

Collateral.  Such expenses and advances shall be added to
the Obligations until reimbursed to Agent and shall be secured by the
Collateral and payable on demand, and such payments by Agent shall not be
construed as a waiver by Agent or Lenders of any Event of Default or any other
rights or remedies of Agent and Lenders.

 

(b)                                 The Credit Parties jointly and severally
agree that notice received by any of them at least ten (10) calendar days
before the time of any intended public sale, or the time after which any
private sale or other disposition of Collateral is to be made, shall be deemed
to be reasonable notice of such sale or other disposition.  If permitted by applicable law, any
perishable Collateral which threatens to speedily decline in value or which is
sold on a recognized market may be sold immediately by Agent without prior notice
to any Credit Party.  At any sale or disposition
of Collateral or securities pledged, Agent may (to the extent permitted by
applicable law) purchase all or any part thereof free from any right of
redemption by the Credit Parties, which right hereby is waived and released.  The Credit Parties jointly and severally
covenant and agree not to, and not to permit or cause any of their Subsidiaries
to, interfere with or impose any obstacle to Agent’s exercise of its rights and
remedies with respect to the Collateral. 
In dealing with or disposing of the Collateral or any part thereof,
Agent and Lenders shall not be required to give priority or preference to any
item of Collateral or otherwise to marshal assets or to take possession or sell
any Collateral with judicial process.

 

(c)                                  Each Credit Party hereby grants to Agent, for
the benefit of the Lender Parties, after the occurrence and during the
continuance of an Event of Default, an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to such Credit
Party) to use, assign, license or sublicense any Intellectual Property, (unless
such use, assignment, license or sublicense is expressly prohibited under a
license agreement and would result in a breach under such agreement for which
such agreement would reasonably be expected to be terminated by such licensor)
and now owned or hereafter acquired by such Credit Party, and wherever the same
may be located, including in such license reasonable access as to all media in
which any of the licensed items may be recorded or stored and to all computer
programs and used for the compilation or printout thereof.  All proceeds received by Agent or Lenders in
connection with such license shall be used by Agent or Lenders to satisfy the
Obligations.

 

(d)                                 In addition to the acceleration and other
provisions set forth in Article VIII, upon the occurrence and
during the continuation of an Event of Default, each Credit Party shall take
any action that Agent, for the benefit of itself and the Lenders, may request
in order to enable Agent to obtain and enjoy the full rights and benefits
granted to Agent hereunder.

 

9.2                               Application of Proceeds

 

In
addition to any other rights and remedies Agent and Lenders have under the Loan
Documents or the Revolving Loan Documents, the UCC, at law or in equity, all
payments received after the occurrence and during the continuation of any Event
of Default, and all proceeds collected or received from collecting, holding,
managing, renting, selling or otherwise disposing of all or any part of the
Collateral or any proceeds thereof upon exercise of remedies hereunder upon the
occurrence and during the continuation of an Event of Default, shall be applied
in the following order of priority:

 

39

 

(i)                             first, to the payment of all costs and expenses of such collection, holding,
managing, renting, selling or disposition, and of conducting the Credit Parties’
Businesses and of maintenance, repairs, replacements, alterations, additions
and improvements of or to the Collateral, and to the payment of all sums which
Agent or Lenders may be required or may elect to pay, if any, for taxes,
assessments, insurance and other charges upon the Collateral or any part
thereof, and all other payments that Agent or Lenders may be required or
authorized to make under any provision of the Loan Documents (including,
without limitation, in each such case, in-house documentation and diligence
fees and legal expenses, search, audit, recording, professional and filing fees
and expenses and reasonable attorneys’ fees and all expenses, liabilities and
advances made or incurred in connection therewith);

 

(ii)                          second, to payment of all accrued unpaid interest on the Obligations and fees
owed to the Agent and Lenders;

 

(iii)                       third, to payment of principal of the Obligations;

 

(iv)                      fourth, to payment of any other amounts owing constituting Obligations; and

 

(v)                         fifth, any surplus then remaining to the Credit Parties, unless otherwise
provided by law or directed by a court of competent jurisdiction;

 

provided that the Credit Parties shall be liable for any deficiency if
such proceeds are insufficient to satisfy all of the Obligations or any of the
other items referred to in this Section. 
In carrying out the foregoing, (x) amounts received shall be applied in
the numerical order provided until exhausted prior to the application to the
next succeeding category; and (y) each of the Lenders shall receive an amount
equal to its pro rata share of amounts available to be applied pursuant to
clauses (i), (ii), (iii) and (iv) above.

 

9.3                               Rights to Appoint Receiver

 

Without
limiting any other rights, options and remedies Agent and Lenders have under
the Loan Documents or the Revolving Loan Documents, the UCC, at law or in
equity, upon the occurrence and during the continuation of an Event of Default,
Agent shall have the right to apply for and have a receiver appointed by a
court of competent jurisdiction in any action taken by Agent to enforce its and
Lenders’ rights and remedies in order to manage, protect and preserve the
Collateral, to sell or dispose of the Collateral and continue the operation of
the Businesses of the Credit Parties and to collect all revenues and profits
thereof and apply the same to the payment of all expenses and other charges of
such receivership including the compensation of the receiver and to the
payments as aforesaid until a sale or other disposition of such Collateral
shall be finally made and consummated. 
To the extent not prohibited by applicable law, each Credit Party hereby
irrevocably consents to, and waives any right to object to or otherwise
contest, the appointment of, a receiver as provided above.

 

40

 

9.4                               Attorney in Fact

 

Each
Credit Party hereby irrevocably appoints Agent, for the benefit of the Lender
Parties, as its attorney in fact to take any action Agent or Requisite Lenders
deem necessary or desirable upon the occurrence and during the continuation of
an Event of Default to protect and realize upon the Liens in the Collateral,
including the execution and delivery of any and all documents or instruments
related to the Collateral in such Credit Party’s name, and said appointment
shall create in Agent, for the benefit of the Lender Parties, a power coupled
with an interest.

 

9.5                               Rights and Remedies not Exclusive

 

As
among the Lender Parties on one hand and the Credit Parties on the other hand,
Agent and Lenders shall have the right in their sole discretion to determine
which rights, Liens and/or remedies Agent and/or Lenders may at any time
pursue, relinquish, subordinate or modify, and such determination shall not in
any way modify or affect any of Agent’s or Lenders’ rights, Liens or remedies
under any Loan Document, any Revolving Loan Documents, applicable law or
equity.  The enumeration of any rights
and remedies in any Loan Document or any Revolving Loan Document is not
intended to be exhaustive, and all rights and remedies of Agent and the Lenders
described in any Loan Document and the Revolving Loan Documents are cumulative
and are not alternative to or exclusive of any other rights or remedies which
Agent and Lenders otherwise may have. 
The partial or complete exercise of any right or remedy shall not
preclude any other further exercise of such or any other right or remedy.

 

X.                                    WAIVERS AND JUDICIAL
PROCEEDINGS

 

10.1                        Certain Waivers

 

Except
as expressly provided for herein or in any other Loan Document, each Credit
Party hereby waives set-off, counterclaim, demand, presentment, protest, all
defenses with respect to any and all instruments and all notices and demands of
any description, and the pleading of any statute of limitations as a defense to
any demand under any Loan Document.  Each
Credit Party hereby waives any and all defenses and counterclaims it may have
or could interpose in any action or procedure brought by Agent or any Lender to
obtain an order of court recognizing the assignment of, or Lien of Agent, for
the benefit the Lender Parties, in and to, any Collateral.

 

10.2                        Delay; No Waiver of Defaults

 

No
course of action or dealing, renewal, release or extension of any provision of
any Loan Document, or single or partial exercise of any such provision, or
delay, failure or omission on Agent’s or any Lender’s part in enforcing any
such provision shall affect the liability of any Credit Party or operate as a
waiver of such provision or affect the liability of any Credit Party or
preclude any other or further exercise of such provision.  No waiver by any party to any Loan Document
of any one or more defaults by any other party in the performance of any of the
provisions of any Loan Document shall operate or be construed as a waiver of
any future default, whether of a like or different nature, and each such waiver
shall be limited solely to the express

 

41

 

terms and provisions of such waiver. 
Notwithstanding any other provision of any Loan Document or any
Revolving Loan Documents, by completing the Closing under this Agreement and funding
the Loan, neither Agent nor any Lender waives any breach of any representation
or warranty of any Credit Party under any Loan Document or any Revolving Loan
Documents, and all of Agent’s and Lenders’ claims and rights resulting from any
such breach or misrepresentation hereby specifically are reserved.

 

10.3                        Jury Waiver

 

EACH
PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION ARISING UNDER THE LOAN DOCUMENTS OR IN ANY WAY
CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO THE
LOAN DOCUMENTS, ANY REVOLVING LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE.  EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR
RESPECTIVE RIGHTS TO TRIAL BY JURY.

 

10.4                        Amendment and Waivers

 

Except
as otherwise provided herein, no amendment, modification, termination or waiver
of any provision of this Agreement or any other Loan Document, or consent to
any departure by the Credit Parties or any of them therefrom, shall be
effective unless the same shall be in writing and signed by Requisite Lenders
(or Agent at the direction of the Requisite Lenders) and each Credit Party;
provided, that no amendment, modification, termination or waiver shall, unless
in writing and signed by each Credit Party and each Lender directly affected
thereby, do any of the following: (i) increase the Commitment of any
individual Lender (which action shall be deemed to directly affect all
Lenders); (ii) reduce the principal of, rate (or cash rate) of interest on
or fees payable with respect to any Loan or other Obligation; (iii) extend
the scheduled due date, or reduce the amount due on any scheduled due date, of
any installment of principal, interest or fees payable under any Loan Document,
or waive, forgive, extend, defer or postpone the payment thereof; (iv) change
the percentage of the Commitments, of the aggregate unpaid principal amount of
the Loan, or of Lenders which shall be required for Lenders, Agent or any of
them to take any action hereunder (which action shall be deemed to directly
affect all Lenders) or alter as between or among the Lenders, the amount
payable to each hereunder; (v) except as otherwise permitted herein or in
the other Loan Documents, release any Guaranty or release any material portion
of the Collateral (which action shall be deemed to directly affect all Lenders)
(provided, that consent to such release shall not be required if such release
is made after the occurrence and during the continuation of an Event of Default
in connection with the sale or disposition of the Collateral by Agent otherwise
permitted hereunder); (vi) amend, modify or waive this Section 10.4
or the definitions of the terms used in this Section 10.4 insofar as the
definitions affect the substance of this Section 10.4 (which action shall
be deemed to directly affect all Lenders); and/or (vii) consent to the
assignment or other transfer by any Credit Party or any other party to

 

42

 

any Loan Documents (other than Agent or any Lender) of any of their
rights and obligations under any Loan Document; and provided, further, that no
amendment, modification, termination or waiver affecting the rights or duties
of Agent under any Loan Document shall be effective unless in writing and
signed by Agent, in addition to Lenders required hereinabove to take such
action.  Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 10.4
shall be binding upon Agent, each Lender and the Credit Parties.

 

10.5                        Survival and Termination

 

(a)                                  All obligations, covenants, agreements,
representations, warranties, waivers and indemnities made by each Credit Party
in the Loan Documents shall survive the execution and delivery of the Loan
Documents, the Closing, the making and funding of the Loan and any termination
of this Agreement until all Obligations (other than contingent indemnification
Obligations to the extent no claim giving rise thereto has been asserted) are
fully performed and indefeasibly paid in full in cash and all Commitments have
been terminated; provided, that, the obligations and provisions of Sections
10.1, 10.3, 10.5, 12.3, 12.4, 12.7, 12.9, 12.10 and 12.11, Article XI
and Article XIII shall survive the termination of the Loan
Documents and any payment, in full or in part, of the Obligations.

 

(b)                                 The Loan and other Obligations shall be due
and payable in full in cash, if not earlier in accordance with this Agreement,
on the Maturity Date.  All of Agent’s and
Lenders’ rights and remedies and the Liens in the Collateral shall continue in
full force and effect until, and this Agreement shall terminate when all
Obligations have been fully performed and indefeasibly paid in full in cash and
Credit Parties shall have executed and delivered releases in favor of Agent and
Lenders in form and substance satisfactory to Agent, in its Permitted
Discretion (provided, however, that the release may exclude claims filed by a
Credit Party against Agent or a Lender prior to the payoff contemplated in this
Section 10.5(b), arising out of the gross negligence, willful misconduct
or fraud of Agent or such Lender). 
Accordingly, each Credit Party waives any right it may have under the
UCC to demand the filing of termination statements with respect to the
Collateral other than such right in connection with the release of Liens
pursuant to sales or other dispositions of assets expressly permitted under
this terms of this Agreement, and Agent shall not be required to provide such
termination statements or to file them with any filing office unless and until
all conditions to the termination of this Agreement and the payment and
performance of the Obligations are satisfied in a manner acceptable to Agent,
in its Permitted Discretion.

 

XI.                                AGENT PROVISIONS; SETTLEMENT

 

11.1                        Agent

 

(a)                                  Appointment.  Each
Lender hereby designates and appoints CapitalSource as the administrative
agent, payment agent and collateral agent under this Agreement and the other
Loan Documents and each Lender hereby irrevocably authorizes CapitalSource, as
Agent for such Lender, to take such action or to refrain from taking such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are delegated
to Agent by the terms of this Agreement and the other Loan Documents, together
with such other powers as are reasonably

 

43

 

incidental thereto.  Agent agrees to act as such on the conditions
contained in this Article XI. 
The provisions of this Article XI are solely for the benefit
of Agent and Lenders, and the Credit Parties shall have no rights as
third-party beneficiaries of any of the provisions of this Article XI
other than Section 11.1(h)(iii). 
Agent may perform any of its duties hereunder, or under the Loan
Documents, by or through its agents, employees or sub-agents.

 

(b)                                 Nature of Duties.  In
performing its functions and duties under this Agreement, Agent is acting
solely on behalf of Lenders, and its duties are administrative in nature, and
does not assume and shall not be deemed to have assumed, any obligation toward
or relationship of agency or trust with or for Lenders, other than as expressly
set forth herein and in the other Loan Documents, or the Credit Parties.  Agent shall have no duties, obligations or
responsibilities except those expressly set forth in this Agreement or in the
other Loan Documents.  Agent shall not
have by reason of this Agreement or any other Loan Document a fiduciary
relationship in respect of any Lender. 
Each Lender shall make its own independent investigation of the
financial condition and affairs of the Credit Parties in connection with the extension
of credit hereunder and shall make its own appraisal of the creditworthiness of
the Credit Parties.  Except for
information, notices, reports and other documents expressly required to be
furnished to Lenders by Agent hereunder or given to Agent for the account of or
with copies for Lenders, Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the Closing Date or at any time or times thereafter.  If Agent seeks the consent or approval of any
Lenders to the taking or refraining from taking any action hereunder, then
Agent shall send prior written notice thereof to each Lender.  Agent shall promptly notify each Lender in
writing any time that the applicable percentage of Lenders have instructed
Agent to act or refrain from acting pursuant hereto.

 

(c)                                  Rights, Exculpation, Etc. 
Neither Agent nor any of its officers, directors, managers, members,
equity owners, employees, attorneys or agents shall be liable to any Lender for
any action lawfully taken or omitted by them hereunder or under any of the
other Loan Documents, or in connection herewith or therewith; provided that the
foregoing shall not prevent Agent from being be liable to the extent of its own
gross negligence or willful misconduct as determined by a court of competent
jurisdiction on a final and nonappealable basis.  Notwithstanding the foregoing, Agent shall be
obligated on the terms set forth herein for performance of its express duties
and obligations hereunder.  Agent shall
not be liable for any apportionment or distribution of payments made by it in
good faith, and if any such apportionment or distribution is subsequently
determined to have been made in error, the sole recourse of any Lender to whom
payment was due but not made shall be to recover from the other Lenders any
payment in excess of the amount to which they are determined to be entitled
(and such other Lenders hereby agree promptly to return to such Lender any such
erroneous payments received by them).  In
performing its functions and duties hereunder, Agent shall exercise the same
care which it would in dealing with loans for its own account.  Agent shall not be responsible to any Lender
for any recitals, statements, representations or warranties made by the Credit
Parties herein or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any of the
other Loan Documents or the transactions contemplated thereby, or for the
financial condition of the Credit Parties. 
Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions, or conditions of this
Agreement or any of the Loan Documents, or

 

44

 

the financial condition of
the Credit Parties, or the existence or possible existence of any Default or
Event of Default.  Agent may at any time
request instructions from Lenders with respect to any actions or approvals
which by the terms of this Agreement or of any of the other Loan Documents
Agent is permitted or required to take or to grant, and Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from taking any action or withholding any approval under any of the
Loan Documents until it shall have received such instructions from the
applicable percentage of Lenders. 
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of the applicable percentage of Lenders and, notwithstanding the
instructions of Lenders, Agent shall have no obligation to take any action if
it, in good faith, believes that such action exposes Agent or any of its
officers, directors, managers, members, equity owners, employees, attorneys or
agents to any personal liability unless Agent receives an indemnification
satisfactory to it from Lenders with respect to such action.

 

(d)                                 Reliance. 
Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message or other
communication (including any writing, telex, telecopy or telegram) believed by
it in good faith to be genuine and correct and to have been signed, sent or
made by the proper Person, and with respect to all matters pertaining to this
Agreement, any of the other Loan Documents or the Revolving Loan Documents and
its duties hereunder or thereunder, upon advice of legal counsel, independent
accountants and other experts selected by Agent in its sole discretion.

 

(e)                                  Indemnification.  Each
Lender, severally and not (i) jointly or (ii) jointly and severally,
agrees to reimburse and indemnify and hold harmless Agent and its officers,
directors, managers, members, equity owners, employees, attorneys and agents
(to the extent not reimbursed by the Credit Parties), ratably according to
their respective Pro Rata Share in effect on the date on which indemnification
is sought under this subsection of the total outstanding Obligations (or,
if indemnification is sought after the date upon which the Commitments shall
have terminated and the Loan shall have been paid in full, ratably in
accordance with their Pro Rata Share immediately prior to such date of the
total outstanding Obligations), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances, or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against Agent or any of its officers,
directors, managers, members, equity owners, employees, attorneys or agents in
any way relating to or arising out of this Agreement, any of the other Loan
Documents or any of the Revolving Loan Documents or any action taken or omitted
by Agent under this Agreement, any of the other Loan Documents or any of the
Revolving Loan Documents; provided, however, that no Lender shall be liable for
the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or
disbursements to the extent resulting from Agent’s gross negligence or willful
misconduct as determined by a court of competent jurisdiction on a final and
nonappealable basis.  The obligations of
Lenders under this Article XI shall survive the payment in full of
the Obligations and the termination of this Agreement.

 

(f)                                    CapitalSource Individually.  With
respect to the Loan made by it and the Notes, if any, issued to it,
CapitalSource shall have, and may exercise, the same rights and

 

45

 

powers hereunder and under
the other Loan Documents, and is subject to the same obligations and
liabilities, as and to the extent set forth herein and the other Loan Documents
as any other Lender.  The terms “Lenders”
or “Requisite Lenders” or any similar terms shall, unless the context clearly
otherwise indicates, include CapitalSource in its individual capacity as a
Lender or one of the Requisite Lenders. 
CapitalSource may lend money to, and generally engage in any kind of
banking, trust or other business with, any Credit Party or any Subsidiary or
Affiliate of any Credit Party as if it were not acting as Agent pursuant
hereto.

 

(g)                                 Successor Agent.

 

(i)                             Resignation. 
Agent may resign from the performance of all or part of its functions
and duties hereunder at any time by giving at least thirty (30) calendar days’
prior written notice to Borrower and Lenders. 
Such resignation shall take effect upon the acceptance by a successor
Agent of appointment pursuant to clause (ii) below or as otherwise
provided below.

 

(ii)                          Appointment of Successor.  Upon
any such notice of resignation pursuant to clause (g)(i) of this Section 11.1,
Requisite Lenders shall appoint a successor Agent with the consent of Borrower,
which consent shall not be unreasonably withheld, delayed or conditioned (or
required if any Default or Event of Default exists).  If a successor Agent shall not have been so
appointed within said thirty (30) calendar day period referenced in clause (g)(i) above,
the retiring Agent, upon notice to Borrower, may, on behalf of Lenders, appoint
a successor Agent with the consent of Borrower, which consent shall not be
unreasonably withheld, delayed or conditioned (or required if any Default or
Event of Default exists), who shall serve as Agent until such time as Requisite
Lenders appoint a successor Agent as provided above.  If no successor Agent has been appointed
pursuant to the foregoing within said thirty (30) calendar day period, the
resignation shall become effective and Requisite Lenders thereafter shall
perform all the duties of Agent hereunder, until such time, if any, as
Requisite Lenders appoint a successor Agent as provided above.

 

(iii)                       Successor Agent.  Upon
the acceptance of any appointment as Agent under the Loan Documents by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and, upon the earlier of such acceptance or the effective date of the retiring
Agent’s resignation, the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents, provided that any indemnity rights or
other rights in favor of such retiring Agent shall continue after and survive
such resignation and succession.  After
any retiring Agent’s resignation as Agent under the Loan Documents, the
provisions of this Article XI shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under the Loan
Documents.

 

(h)                                 Collateral Matters.

 

(i)                             Collateral.  Each
Lender agrees that any action taken by Agent or the Requisite Lenders (or,
where required by the express terms of this Agreement, a greater proportion of
Lenders) in accordance with the provisions of this Agreement or of

 

46

 

the other Loan Documents relating to the
Collateral, and the exercise by Agent or the Requisite Lenders (or, where so
required, such greater proportion of Lenders) of the powers set forth herein or
therein, together with such other powers as are reasonably incidental thereto,
shall be authorized and binding upon all of the Lenders and Agent.  Without limiting the generality of the
foregoing, Agent shall have the sole and exclusive right and authority to (i) act
as the disbursing and collecting agent for Lenders with respect to all payments
and collections arising in connection herewith and with the Loan Documents in
connection with the Collateral; (ii) execute and deliver each Loan
Document relating to the Collateral and any Subordination Agreement and accept
delivery of each such agreement delivered by the Credit Parties or any of their
Subsidiaries; (iii) act as collateral agent for Lenders for purposes of
the perfection of all security interests and Liens created by such agreements
and all other purposes stated therein; (iv) manage, supervise and
otherwise deal with the Collateral; (v) take such action as is necessary
or desirable to maintain the perfection and priority of the security interests
and Liens created or purported to be created by the Loan Documents relating to
the Collateral; and (vi) except as may be otherwise specifically
restricted by the terms hereof or of any other Loan Document, exercise all
right and remedies given to such Agent and Lenders with respect to the
Collateral under the Loan Documents relating thereto, applicable law or
otherwise.

 

(ii)                          Release of Collateral. 
Lenders hereby irrevocably authorize Agent, at its option and in its sole
discretion, to release any Lien granted to or held by Agent, for the benefit
the of Lender Parties, upon any Property covered by the Loan Documents (A) upon
termination of this Agreement and payment and satisfaction in full of all
Obligations (other than contingent indemnification Obligations to the extent no
claim giving rise thereto has been asserted); (B) constituting Property
being sold or disposed of if Borrower certifies to Agent that the sale or
disposition is made in compliance with the provisions of the Loan Documents
(and Agent may rely in good faith conclusively on any such certificate to such
effect, without further inquiry); or (C) constituting Property leased to
any Credit Party under a lease which has expired or been terminated in a
transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by such Credit Party to be, renewed or extended.

 

(iii)                       Confirmation of Authority;
Execution of Releases.  Without in any manner limiting Agent’s
authority to act without any specific or further authorization or consent by
Lenders (as set forth in Section 11.1(h)(i) and (ii)), each
Lender agrees to confirm in writing, upon request by Borrower, the authority to
release any property covered by this Agreement or the Loan Documents conferred
upon Agent under Section 11.1(h)(ii). 
So long as no Event of Default exists, upon receipt by Agent of
confirmation from the requisite percentage of Lenders of its authority to
release any particular item or types of Property covered by this Agreement or
the other Loan Documents, and upon at least five (5) Business Days’ prior
written request by Borrower, Agent shall (and hereby is irrevocably authorized
by Lenders to) execute such documents as may be necessary to evidence the
release of the Liens granted to Agent, for the benefit of the Lender Parties,
herein or pursuant hereto upon such Collateral; provided, however, that (A) Agent
shall not be required to execute any such document

 

47

 

on terms which, in Agent’s opinion, would
expose Agent to liability or create any obligation or entail any consequence
other than the release of such Liens without recourse or warranty (other than
that such Collateral is free and clear, on the date of such delivery, of any
and all Liens arising under the Loan Documents from such Person’s own acts),
and (B) such release shall not in any manner discharge, affect or impair
the Obligations or any Liens upon or obligations of the Credit Parties or any
Subsidiary of any Credit Party in respect of all interests retained by the
Credit Parties or any Subsidiary of a Credit Party, including, without
limitation, the proceeds of any sale, all of which shall continue to constitute
part of the Property covered by this Agreement, the Loan Documents or the
Revolving Loan Documents.

 

(iv)                      Absence of Duty. 
Agent shall have no obligation whatsoever to any Lender or any other
Person to assure that the Property covered by this Agreement or the other Loan
Documents exists or is owned by any Credit Party or is cared for, protected or
insured or has been encumbered or that the Liens granted to Agent, on behalf of
the Lender Parties, herein or pursuant hereto have been properly or
sufficiently or lawfully created, perfected, protected, enforced or maintained
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure, or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent in this Section 11.1(h) or in any of the other Loan
Documents; it being understood and agreed that in respect of the Property
covered by this Agreement or the other Loan Documents, or any act, omission or
event related thereto, Agent may act in any manner it may deem appropriate, in
its discretion, given Agent’s own interest in Property covered by this
Agreement or the other Loan Documents as one of Lenders and Agent shall have no
duty or liability whatsoever to any of the other Lenders; provided, that Agent
shall exercise the same care which it would in dealing with loans for its own
account.

 

(i)                                     Agency for Perfection.  Each
Lender hereby appoints Agent as agent for the purpose of perfecting Lenders’
security interest in Collateral which, in accordance with Article 9 of the
UCC in any applicable jurisdiction, can be perfected only by possession or
control.  Should any Lender (other than
Agent) obtain possession of any such Collateral, such Lender shall hold such
Collateral for purposes of perfecting a security interest therein for the
benefit of the Lender Parties, notify Agent thereof and, promptly upon Agent’s
request therefor, deliver such Collateral to Agent or otherwise act in respect
thereof in accordance with Agent’s instructions.

 

(j)                                     Exercise of Remedies. 
Except as set forth in Section 11.2, each Lender agrees that it
will not have any right individually to enforce or seek to enforce this
Agreement or any other Loan Document or to realize upon any Collateral security
for the Loan or other Obligations; it being understood and agreed that such
rights and remedies may be exercised only by Agent in accordance with the terms
of the Loan Documents.

 

(k)                                  Consents.

 

(i)                                     In the event Agent requests the waiver or
consent of a Lender and does not receive a written denial thereof within five (5) Business
Days after such

 

48

 

Lender’s receipt of such request, then such
Lender will be deemed to have given such waiver or consent so long as such
request contained a notice stating that such failure to respond within five (5) Business
Days would be deemed to be a waiver or consent by such Lender.

 

(ii)                                  In
the event Agent requests the waiver or consent of a Lender in a situation where
such Lender’s waiver or consent would be required and such waiver or consent is
denied, then Agent or any of its Eligible Assignees may, at its option, require
such Lender to assign its interest in the Loan to Agent for a price equal to
the then outstanding principal amount thereof due such Lender plus
accrued and unpaid interest and fees (but not any Prepayment Premium) due such
Lender, which interest in the Loan will be assigned by such Lender when such
principal, interest and fees are paid to such Lender.  In the event that Agent or such Eligible
Assignee elects to require any Lender to assign its interest to Agent pursuant
to this Section 11.1(k)(ii), Agent will so notify such Lender in writing
within forty-five (45) days following such Lender’s denial, and such Lender
will assign its interest to Agent or such Eligible Assignee no later than five (5) calendar
days following receipt of such notice.

 

11.2                        Set-off and Sharing of Payments

 

In
addition to any rights and remedies now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuation of any Event of Default, each Lender is hereby
authorized by the Credit Parties at any time or from time to time, to the
fullest extent permitted by law, with notice to Agent and without prior notice
to Borrower or any other Person other than Agent (such notice being hereby
expressly waived) to set off and to appropriate and to apply any and all (a) balances
(general or special, time or demand, provisional or final) held by such Lender
at any of its offices for the account of any Credit Party (regardless of
whether such balances are then due to any Credit Party), and (b) other
Property at any time held or owing by such Lender to or for the credit or for
the account of any Credit Party, against and on account of any of the
Obligations which are not paid when due; provided, that no Lender or any such
holder shall exercise any such right without prior written notice to
Agent.  Any Lender that has exercised its
right to set-off or otherwise has received any payment on account of the
Obligations shall, to the extent the amount of any such set off or payment
exceeds its Pro Rata Share of payments obtained by all of the Lenders on
account of such Obligations, purchase for cash (and the other Lenders or holders
of the Loan shall sell) participations in each such other Lender’s or holder’s
Pro Rata Share of Obligations as would be necessary to cause such Lender to
share such excess with each other Lenders or holders in accordance with their
respective Pro Rata Shares; provided, however, that if all or any portion of
such excess payment or benefits is thereafter recovered from such purchasing
Lender, such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery. 
Each Credit Party agrees, to the fullest extent permitted by law, that (a) any
Lender or holder may exercise its right to set-off with respect to amounts in
excess of its Pro Rata Share of the Obligations and may sell participations in
such excess to other Lenders and holders, and (b) any Lender so purchasing
a participation in the Loan made or other Obligations held by other Lenders may
exercise all rights of set-off, bankers’ lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loan and other Obligations in the amount of such participation.

 

49

 

11.3                        Settlements; Payments; and Information

 

(a)                                  Payments; Interest and Fee Payments.

 

(i)                             Payments of principal on the Loan will be
settled, in accordance with each Lender’s Pro Rata Share, on the first Business
Day after such payments are received. 
All such payments will be made by such Lender without set-off,
counterclaim or deduction of any kind.

 

(ii)                          On the first Business Day of each month (“Interest
Settlement Date”), Agent will advise each Lender by telephone or facsimile of
the amount of interest and fees charged to and collected from Borrower for the
preceding month in respect of the Loan. 
Provided that such Lender has made all payments required to be made by
it under this Agreement, Agent will pay to such Lender, by wire transfer to
such Lender’s account (as specified by such Lender on Schedule A of
this Agreement as amended by such Lender from time to time after the date
hereof pursuant to the notice provisions contained herein or in the applicable
Lender Addition Agreement) not later than 2:00 p.m. (New York City time)
on the next Business Day following the Interest Settlement Date, such Lender’s
share of such interest and fees.

 

(b)                                 Return of Payments.

 

(i)                             If Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by Agent from any Credit Party and such related payment is not
received by Agent, then Agent will be entitled to recover such amount from such
Lender without set-off, counterclaim or deduction of any kind.

 

(ii)                          If Agent determines at any time that any
amount received by Agent under this Agreement must be returned to any Credit
Party or paid to any other Person pursuant to any Debtor Relief Law or
otherwise, then, notwithstanding any other term or condition of this Agreement,
Agent will not be required to distribute any portion thereof to any Lender.  In addition, each Lender will repay to Agent
on demand any portion of such amount that Agent has distributed to such Lender,
together with interest at such rate, if any, as Agent is required to pay to
Borrower or such other Person, without set-off, counterclaim or deduction of
any kind.

 

11.4                        Dissemination of Information

 

Upon
request by a Lender, Agent will distribute promptly to such Lender, unless
previously provided by any Credit Party to such Lender, copies of all notices,
schedules, reports, projections, financial statements, agreements and other
material and information, including, without limitation, financial and
reporting information received from the Credit Parties or generated by a third
party (and excluding only internal information generated by CapitalSource for
its own use as a Lender or as Agent), as provided for in this Agreement and the
other Loan Documents as received by Agent. 
Agent shall not be liable to any of the Lenders for any failure to
comply with its obligations under this Section 11.4, except to the extent
that such failure is

 

50

 

attributed to Agent’s gross negligence or willful misconduct and
results in demonstrable damages to such Lender as determined, in each case, by
a court of competent jurisdiction on a final and non-appealable basis.

 

XII.                            MISCELLANEOUS

 

12.1                        Governing Law; Jurisdiction; Service of
Process; Venue

 

The
Loan Documents shall be governed by and construed in accordance with the
internal laws of the State of New York without giving effect to its choice of
law provisions that would result in the application of the laws of a different
jurisdiction.  Any judicial proceeding
against any Credit Party with respect to the Obligations, any Loan Document or
any related agreement may be brought in any federal or state court of competent
jurisdiction located in Montgomery County in the State of Maryland or the
Borough of Manhattan in the State of New York. 
By execution and delivery of each Loan Document to which it is a party,
each Credit Party (i) accepts the non-exclusive jurisdiction of the
aforesaid courts, (ii) waives personal service of process, (iii) agrees
that service of process upon it may be made by certified or registered mail,
return receipt requested, pursuant to Section 12.5, and (iv) waives
any objection to jurisdiction and venue of any action instituted hereunder and
agrees not to assert any defense based on lack of jurisdiction, venue,
convenience or forum nonconveniens. 
Nothing shall affect the right of Agent or any Lender to serve process
in any manner permitted by law or shall limit the right of Agent or any Lender
to bring proceedings against any Credit Party in the courts of any other
jurisdiction having jurisdiction.  Any
judicial proceedings against Agent or any Lender involving, directly or
indirectly, the Obligations, any Loan Document or any related agreement shall
be brought only in a federal or state court located in Montgomery County in the
State of Maryland or in the Borough of Manhattan in the State of New York.

 

12.2                        Successors and Assigns; Assignments and
Participations

 

(a)                                  Subject to Section 12.2(h), each Lender
may, at any time and from time to time, assign all or any portion of its rights
and delegate all or a portion of its obligations under this Agreement and the
other Loan Documents in a minimum amount of $1,000,000 (or 100% of any
remaining Commitment less than $1,000,000) (including all of its rights and
obligations with respect to the Loan) to one or more Eligible Assignees (each,
a “Transferee”) with the prior written consent of Agent and, to the extent no
Default or Event of Default shall have occurred and be continuing, with the
prior written consent of Borrower (which consent of Borrower shall not be
unreasonably withheld, delayed or conditions, or required if any Default or
Event of Default exists); provided, that such Transferee and such assigning
Lender shall execute and deliver to Agent for acceptance and recording in the
Register, a Lender Addition Agreement, which shall be in form and substance
acceptable to Agent in its Permitted Discretion.  Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such Lender
Addition Agreement, (i) the Transferee thereunder shall be a party hereto
and, to the extent provided in such Lender Addition Agreement, have the same
rights, benefits and obligations of a Lender hereunder, (ii) the assigning
Lender shall be relieved of its obligations hereunder with respect to its
Commitment or assigned portion thereof, as the case may be, to the extent that
such obligations shall have been expressly assumed by the Transferee pursuant
to such Lender Addition Agreement (and, in the case of a Lender Addition
Agreement

 

51

 

covering all or the
remaining portion of an assigning Lender’s rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto but shall
nevertheless continue to be entitled to the benefits of Sections 12.4 and
12.7).  Borrower hereby acknowledges and
agrees that any assignment will give rise to a direct obligation of Borrower to
the Transferee and that the Transferee shall be a “Lender” hereunder and under
the other Loan Documents.  Except as
provided in Section 12.2(h), no Lender will assign all or any portion of
its Loans and/or Commitments unless such Lender also assigns its proportionate
share of its “Loans” and/or “Commitments” under (and as defined in) the
Revolving Loan Agreement. Notwithstanding anything to the contrary contained in
this Section 12.2, no Transferee shall be entitled to the benefits of Section 13.1
unless such Transferee is a “United States Person” (as defined in Section 13.1(f)).

 

(b)                                 Each Lender at any time may sell
participations in all or any part of its rights and obligations under this
Agreement and the other Loan Documents (including all of its rights and
obligations with respect to the Loan) to one or more Persons (each, a “Participant”).  In the event of any such sale by a Lender of
a participation to a Participant, such Lender’s obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan (and any Note evidencing such Loan)
for all purposes under this Agreement and the other Loan Documents and Borrower
and Agent shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement and
the other Loan Documents.  Any agreement
pursuant to which any Lender shall sell any such participation shall provide
that such Lender shall retain the sole right and responsibility to exercise
such Lender’s rights and enforce each Credit Party’s obligations hereunder,
including the right to consent to any amendment, supplement, modification or
waiver of any provision of this Agreement or any of the other Loan Documents;
provided, that such participation agreement may provide that such Lender will
not agree, without the consent of the Participant, to any amendment,
supplement, modification or waiver to the extent resulting in: (i) any
reduction in the principal amount, interest rate or fees payable with respect
to any Loan in which such Participant participates; (ii) any extension of
the date fixed for any payment of principal, interest or fees payable with
respect to any Loan in which such Participant participates; and (iii) any
release of all or substantially all of the Collateral (other than in accordance
with the terms of this Agreement or the other Loan Documents).  The Credit Parties hereby acknowledge and
agree that the Participant under each participation shall, solely for the
purposes of Sections 10.5, 12.4 and 12.7 of this Agreement, be considered to be
a “Lender” hereunder.  Notwithstanding
anything to the contrary contained in this Section 12.2, no Participant
shall be entitled to the benefits of Section 13.1 unless such Participant
is a “United States Person” (as defined in Section 13.1(f)).

 

(c)                                  Agent, on behalf of Borrower, shall maintain
at its address referred to in Section 12.5 a copy of each Lender Addition
Agreement delivered to it and the Register for the recordation of the names and
addresses of the Lenders and the Commitment of, and the principal amount of the
Loan owing to, and the Notes, if any, evidencing such Loan owned by, each
Lender from time to time.  Anything
contained in this Agreement to the contrary notwithstanding, each of the Credit
Parties, Agent and the Lenders shall treat each Person whose name is recorded
in such Register as the owner of the Loan, the Notes and the Commitments
recorded therein for all purposes of this Agreement.  The Register shall be available for

 

52

 

inspection by Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.

 

(d)                                 Notwithstanding anything in this Agreement to
the contrary, no assignment under Section 12.2(a) of any rights or
obligations under or in respect of the Loan or the Notes evidencing such Loan
shall be effective unless and until (i) Agent shall have recorded the
assignment pursuant to Section 12.2(c) and (ii) the assignor
Lender or the Transferee has paid to Agent a processing fee (not at the expense
of any Credit Party) in the amount of $3,500 (provided no such processing fee
shall be required to be paid in connection with an assignment by a Lender to
another Lender, an Eligible Assignee that is an Affiliate of such Lender or a
Related Fund of such Lender).  Upon its
receipt of a Lender Addition Agreement executed by an assigning Lender and an
Transferee, Agent shall (i) promptly accept such Lender Addition Agreement
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give prompt notice of such
acceptance and recordation to the Lenders and Borrower.  On or prior to such effective date, the
assigning Lender shall surrender any outstanding Notes held by it all or a
portion of which are being assigned, and Borrower, at its own expense, shall,
upon the request of Agent, the assigning Lender or the Transferee, as
applicable, execute and deliver to Agent, within five (5) Business Days of
any request, new Notes to reflect the interest held by the assigning Lender and
its Transferee.

 

(e)                                  Except as otherwise provided in this Section 12.2,
no Lender shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or negotiation
of, or granting of participations in, all or any part of the Loan or other
Obligations owed to such Lender.  Each
Lender may furnish any information concerning the Credit Parties in the
possession of that Lender from time to time to assignees and participants
(including prospective assignees and participants), subject to confidentiality
requirements, if any, hereunder.

 

(f)                                    Notwithstanding any other provision set forth
in this Agreement, any Lender may at any time create a security interest in all
or any portion of its rights under this Agreement, including, without
limitation, the Loan owing to it and the Notes held by it and the other Loan
Documents and its rights in the Collateral.

 

(g)                                 Each Credit Party agrees to provide
commercially reasonable efforts to assist any Lender in assigning or selling
participations in all or any part of any Loan made by such Lender to a
potential Transferee or Participant identified by such Lender.

 

(h)                                 Notwithstanding anything in the Loan
Documents to the contrary, (i) CapitalSource and its Affiliates shall not
be required to execute or deliver a Lender Addition Agreement in connection
with any transaction involving CapitalSource and any of its Affiliates, or the
lenders or funding or financing sources of CapitalSource or any of its
Affiliates, (ii) subject to the provisions at the end of this paragraph,
no lender to or Affiliate, funding or financing source of CapitalSource or any
of its Affiliates shall be considered a Transferee, and (iii) there shall
be no limitation or restriction on (A) the ability of CapitalSource or any
of its Affiliates to assign or otherwise transfer any Loan Document, Commitment
or Obligation to any such Affiliate or lender or financing or funding source or
(B) any such lender’s or funding or financing source’s ability to assign
or otherwise transfer any Loan Document, Commitment or

 

53

 

Obligation; provided,
however, CapitalSource shall continue to be liable as a “Lender” under the Loan
Documents unless such Affiliate, lender or funding or financing source executes
and delivers a Lender Addition Agreement and thereby becomes a “Lender.”

 

(i)                                     The Loan Documents shall be binding upon and
inure to the benefit of each Lender, Agent, each Transferee, each Participant
(to the extent expressly provided herein only) and all future holders of the
Loan, the Notes, the Obligations and/or any of the Collateral, and each of
their respective successors and assigns. 
Each Loan Document shall be binding upon the Persons other than Lenders
and Agent that are parties thereto and their respective successors and assigns;
provided that, no such Person shall assign, delegate or transfer any Loan
Document or any of its rights or obligations thereunder without the prior
written consent of Agent and each Lender. 
No rights are intended to be created under any Loan Document for the
benefit of any third party donee, creditor or incidental beneficiary of any
Credit Party.  Nothing contained in any
Loan Document shall be construed as a delegation to Agent or any Lender of any
other Person’s duty of performance.

 

12.3                        Reinstatement; Application of Payments

 

To
the extent that any payment made or received with respect to the Obligations is
subsequently invalidated, determined to be fraudulent or preferential, set
aside, defeased or required to be repaid to a trustee, debtor in possession,
receiver, administrator custodian or any other similar Person under any Debtor
Relief Law, common law or equitable cause or any other law, then the
Obligations intended to be satisfied by such payment shall be revived and shall
continue as if such payment had not been received by Agent or any Lender and
the Liens created by the Security Documents shall be revived automatically
without any action on the part of any party hereto and shall continue as if
such payment had not been received by Agent or such Lender.  Except as specifically provided in this
Agreement, any payments with respect to the Obligations received shall be
credited and applied in such manner and order as Agent shall decide in its sole
discretion.

 

12.4                        Indemnity

 

The
Credit Parties, jointly and severally, hereby indemnify Agent and each Lender,
and their respective Affiliates, managers, members, officers, employees,
agents, representatives, successors, assigns, accountants and attorneys
(collectively, the “Indemnified Persons”) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, reasonable fees and disbursements of counsel
and in-house documentation and diligence fees and legal expenses) which may be
imposed on, incurred by or asserted against any Indemnified Person with respect
to or arising out of, or in any litigation, proceeding or investigation
instituted or conducted by any Person with respect to any aspect of, or any
transaction contemplated by, or any matter related to, any Loan Document, any
Revolving Loan Document, any Related Document or any agreement, document or
transaction contemplated thereby, whether or not such Indemnified Person is a
party thereto, except to the extent a final and nonappealable order of judgment
binding on such Indemnified Person of a court of competent jurisdiction
determines the same arose out of the gross negligence or willful misconduct of
such Indemnified Person.  If any
Indemnified Person uses in-house counsel for

 

54

 

any purpose for which the Credit Parties are responsible to pay or
indemnify, the Credit Parties expressly agree that their indemnification
obligations include reasonable charges for such work commensurate with the reasonable
fees that would otherwise be charged by outside legal counsel selected by such
Indemnified Person in its sole discretion for the work performed.  Agent agrees to give Borrower reasonable
notice of any event of which Agent becomes aware for which indemnification may
be required under this Section 12.4, and Agent may elect (but is not
obligated) to direct the defense thereof. 
Any Indemnified Person may take such actions as it deems necessary and
appropriate to investigate, defend or settle any event or take other remedial
or corrective actions with respect thereto as may be necessary for the
protection of such Indemnified Person or the Collateral; provided, however,
that the Indemnified Person shall not settle, compromise or admit any liability
or wrongdoing without the prior written consent of the Borrower (which consent
shall not be unreasonably withheld or delayed). 
Notwithstanding the foregoing, if any insurer agrees to undertake the
defense of an event (an “Insured Event”), Agent agrees not to exercise its
right to select counsel to defend the event if that would cause Borrower’s
insurer to deny coverage; provided, however, that each Indemnified Person
reserves the right to retain counsel to represent such Indemnified Person with
respect to an Insured Event at its sole cost and expense.  To the extent that Agent or any Lender
obtains recovery from a third party other than an Indemnified Person of any of
the amounts that the Credit Parties have paid to Agent or any Lender pursuant
to the indemnity set forth in this Section 12.4, then Agent and/or any
such Lender shall promptly pay to Borrower the amount of such recovery.  Without limiting any of the foregoing, the
Credit Parties, jointly and severally, indemnify the Indemnified Parties for
all claims for brokerage fees or commissions by any person claiming by, through
or under any Credit Party or Affiliate thereof which may be made in connection
with respect to any aspect of, or any transaction contemplated by or referred
to in, or any matter related to, any Loan Document, any of the Revolving Loan
Documents, any Related Document or any other agreement, document or transaction
contemplated thereby.

 

12.5                        Notice

 

Any
notice or request under any Loan Document shall be given to any party to this
Agreement at such party’s address set forth beneath its signature on the
signature page to this Agreement, or at such other address as such party
hereafter may specify in a notice given in the manner required under this Section 12.5.  Any notice or request hereunder shall be
given only by, and shall be deemed to have been received upon (each, a “Receipt”):  (i) registered or certified mail, return
receipt requested, on the date on which such notice or request is received as
indicated in such return receipt, (ii) delivery by a nationally recognized
overnight courier, one (1) Business Day after deposit with such courier,
or (iii) facsimile or electronic transmission, in each case upon telephone
or further electronic communication from the recipient acknowledging receipt
(whether automatic or manual from recipient), as applicable.

 

12.6                        Severability; Captions; Counterparts

 

If
any provision of any Loan Document is adjudicated to be invalid under
applicable laws or regulations, such provision shall be inapplicable to the
extent of such invalidity without affecting the validity or enforceability of
the remainder of the Loan Documents which shall be given effect so far as
possible.  The captions in the Loan
Documents are intended for convenience and reference only and shall not affect
the meaning or interpretation of the Loan

 

55

 

Documents.  The Loan Documents
may be executed in one or more counterparts (which taken together, as
applicable, shall constitute one and the same instrument) and by facsimile
transmission, which facsimile signatures shall be considered original executed
counterparts.  Each party to this
Agreement agrees that it will be bound by its own facsimile signature and that
it accepts the facsimile signature of each other party.

 

12.7                        Expenses

 

The
Credit Parties hereby jointly and severally agree to pay on demand, whether or
not the Closing occurs, all reasonable costs and expenses incurred by Agent,
Lenders and/or their Affiliates, including, without limitation, documentation
and diligence fees and expenses, all search, audit, appraisal, recording,
professional and filing fees and expenses and all other out-of-pocket charges
and expenses (including, without limitation, UCC and judgment and tax lien
searches and UCC filings and fees for post-Closing UCC and judgment and tax
lien searches and wire transfer fees and audit expenses), and reasonable
attorneys’ fees and expenses, (i) in any effort to enforce, protect or
collect payment of any Obligation or to enforce any Loan Document, any Related
Document or any related agreement, document or instrument, (ii) in
connection with entering into, negotiating, preparing, reviewing and executing
the Loan Documents, the Revolving Loan Documents, the Related Documents and/or
any related agreements, documents or instruments, (iii) arising in any way
out of the administration of the Obligations or the taking or refraining from
taking by Agent or any Lender of any action requested by any Credit Party, (iv) in
connection with instituting, maintaining, preserving, enforcing and/or
foreclosing on the Liens in any of the Collateral or securities pledged under
the Loan Documents, whether through judicial proceedings or otherwise, (v) in
defending or prosecuting any actions, claims or proceedings arising out of or
relating to Agent’s and/or Lenders’ transactions with the Credit Parties, (vi) in
seeking, obtaining or receiving any advice with respect to its rights and
obligations under any Loan Document, any Revolving Loan Document, any Related
Document and any related agreement, document or instrument, (vii) arising
out of or relating to any Default or Event of Default or as a result thereof, (viii) in
connection with all actions, visits, audits and inspections undertaken by Agent
or Lenders or their Affiliates pursuant to the Loan Documents, the Revolving
Loan Documents, any Related Document, and/or (ix) in connection with any
modification, restatement, supplement, amendment, waiver or extension of any
Loan Document, any Revolving Loan Document, any Related Document and/or any
related agreement, document or instrument. 
All of the foregoing shall be charged to Borrower’s account and shall be
part of the Obligations.  If Agent, any
Lender or any of their Affiliates uses in-house counsel for any purpose under
any Loan Document for which the Credit Parties are responsible to pay or
indemnify, the Credit Parties expressly agree that their Obligations include
reasonable charges for such work commensurate with the reasonable fees that
would otherwise be charged by outside legal counsel selected by Agent, such
Lender or such Affiliate in its sole discretion for the work performed.  Without limiting the foregoing, Borrower
shall pay all taxes (other than taxes based upon or measured by a Lender’s
income or revenues or any personal property tax), if any, in connection with
the issuance of any Note and the filing and/or recording of any documents
and/or financing statements.  
Notwithstanding anything to the contrary contained herein or in any
other Loan Document, in no event shall the Credit Parties be liable for any
costs or expenses relating to or arising out of the syndication or
participation of the Loan, unless such syndication or participation is at the
request of any Credit Party.

 

56

 

12.8                        Entire Agreement

 

This
Agreement and the other Loan Documents to which the Credit Parties are parties
constitute the entire agreement between and among the Credit Parties, Agent and
Lenders with respect to the subject matter hereof and thereof, and supersede
all prior agreements and understandings (including, without limitation, the
letter dated on or about September 8, 2005) relating to the subject matter
hereof or thereof.  Execution of this
Agreement by the Credit Parties constitutes a full, complete and irrevocable
release of any and all claims which any Credit Party may have at law or in
equity in respect of all prior discussions and understandings, oral or written,
relating to the subject matter of this Agreement and the other Loan Documents.  Each party hereto acknowledges that it has
been advised by counsel in connection with the negotiation and execution of
this Agreement and is not relying upon oral representations or statements
inconsistent with the terms and provisions hereof.

 

12.9                        Approvals and Duties

 

Unless
expressly provided herein to the contrary, any approval, consent, waiver or
satisfaction of Agent or Lenders with respect to any matter that is the subject
of any Loan Document may be granted or withheld by Agent or Lenders, as
applicable, in their sole and absolute discretion.  Other than Agent’s duty of reasonable care
with respect to Collateral delivered pursuant to the Loan Documents in
accordance with applicable law (to the extent not waivable), Agent and Lenders
shall have no responsibility for or obligation or duty with respect to any of
the Collateral or any matter or proceeding arising out of or relating thereto,
including, without limitation, any obligation or duty to collect any sums due
in respect thereof or to protect or preserve any rights pertaining thereto.

 

12.10                 Confidentiality and Publicity

 

(a)                                  Each Credit Parties agrees, and agrees to
cause each of its Subsidiaries, (i) except to the extent required by
applicable law or regulations (in which case, except in connection with the
Securities Act and the Securities Exchange Act, as amended, and the rules thereunder,
each Credit Party shall, and shall cause its Subsidiaries to, use its best
efforts to obtain confidential treatment of such information), not to transmit
or disclose any provision of any Loan Document to any Person (other than to
such Credit Party’s directors, advisors, counsel, accountants, officers and
employees on a need-to-know basis), in any such case without Agent’s prior
written consent, and (ii) to inform all Persons receiving information
related to the Loan Documents, except through disclosure pursuant to the
Securities Act and the Securities Exchange Act, as amended, and the rules thereunder,
of the confidential nature of the Loan Documents and to direct them not to
disclose the same to any other Person and to require each of them to be bound
by these provisions.  Except for filings
submitted pursuant to the Securities Act and the Securities Exchange Act, and
the rules thereunder, the Credit Parties shall provide in writing any
materials that the Credit Parties or any of their Subsidiaries prepare that
contain Agent’s or any Lender’s name or describe or refer to any Loan Document,
any of the terms thereof or any of the transactions contemplated thereby prior
to its use, disclosure or distribution, and Agent and each Lender reserves the
right to review and approve in advance (which approval shall not be
unreasonably withheld or delayed) all such materials.  The Credit Parties shall not, and shall not
permit any of their Subsidiaries to, use either Agent’s or any Lender’s name
(or the name of any

 

57

 

of Agent’s or any Lender’s
Affiliates) in connection with any of its Business; provided, that Borrower may
disclose the Lenders’ names, the aggregate principal amount of the Loan
outstanding and other principal terms of such Loan to (x) its shareholders and
other equity owners and prospective purchasers of debt or equity securities of
Borrower and (y) Governmental Authorities regulating the Business in accordance
with applicable legal requirements. 
Nothing contained in any Loan Document is intended to permit or
authorize any Credit Party or any of its Subsidiaries to contract on behalf of
Agent or any Lender.   Notwithstanding
the foregoing, copies of the Loan Documents and information concerning the
applicable provisions of such Loan Documents may be delivered to each holder of
the Subordinated Notes in connection with matters relating to the Seller
Subordination Agreement.

 

(b)                                 Agent and each Lender agree to exercise their
best efforts to maintain in confidence, in accordance with its customary
procedures for handling confidential information, all non-public information
that any Credit Party or Subsidiary thereof furnishes to Agent or such Lender
on a confidential basis clearly identified as such (“Confidential Information”),
other than any such Confidential Information that becomes generally available
to the public other than as a result of a breach by Agent or any Lender of its
obligations hereunder or that is or becomes available to Agent or any Lender
from a source other than a Credit Party and that is not, to the actual
knowledge of the recipient thereof, subject to obligations of confidentiality
with respect thereto; provided, however, that Agent and each Lender shall, in
any event, have the right to deliver copies of any such information, and to
disclose any such information, to:

 

(i)                             its affiliates, lenders, funding or financing
sources (or its affiliates’ or lenders’ funding or financing sources),
portfolio management services and partners that are obligated to maintain the
confidentiality of such Confidential Information;

 

(ii)                          directors, officers, trustees, employees,
agents, attorneys, professional consultants, and rating agencies;

 

(iii)                       any other Lender and any successor Agent;

 

(iv)                      (A) subject to provisions substantially
similar to those contained in this Section 12.10, any potential Transferee
or Participant, or (B) any Person if the disclosure consists of general
portfolio information and does not identify any Credit Party specifically by
name;

 

(v)                         any regulatory authority or examiner, or any
insurance industry association, regulating or having jurisdiction over Agent or
any Lender and requiring or requesting such disclosure; and

 

(vi)                      any other Person to which such delivery or
disclosure may be necessary (A) in compliance with any applicable law,
rule, regulation or order, (B) in response to any subpoena or other legal
process or informal investigative demand, (C) in connection with any
litigation to which Agent or such Lender is a party, or (D) in connection
with the exercise or enforcement, or potential exercise or enforcement, of any
of the rights and/or remedies of Agent and/or the Lenders under this Agreement
and the other Loan Documents at any time during the existence of an Event of
Default.

 

58

 

Should Agent or any Lender be required to disclose any such information
by virtue of a subpoena or similar process by any court, tribunal, or agency
pursuant to items (v) or (vi) above, then Agent or such Lender shall
promptly notify the applicable Credit Party thereof so as to allow such Credit
Party, at its sole cost and expense, to seek a protective order or to take any
other appropriate action to protect its rights. 
Further, the foregoing notwithstanding, the Credit Parties agree that
Agent, any Lender or any Affiliate of Agent or any Lender may (i) disclose
a general description of transactions arising under the Loan Documents, the
Revolving Loan Documents and the Related Documents for advertising, marketing
or other similar purposes, and (ii) use any Credit Party’s name, logo or
other indicia germane to such party in connection with such advertising,
marketing or other similar purposes.

 

(c)                                  The
obligations of Agent and Lenders under this Section 12.10 shall supersede
and replace the obligations of Agent and Lenders under any confidentiality
agreement in respect of the financing evidenced hereby executed and delivered
by Agent or any Lender prior to the date hereof.

 

12.11                 No Consequential Damages

 

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

 

12.12                 Borrower Funds Administrator

 

(a)                                  Borrowers maintain an integrated cash
management system reflecting their interdependence on one another and the
mutual benefits shared among them as a result of their respective
operations.  In order to efficiently fund
and operate their respective businesses and minimize the number of borrowings
which they will make under this Agreement and thereby reduce the administrative
costs and record keeping required in connection therewith, including the
necessity to enter into and maintain separately identified and monitored
borrowing facilities, Borrowers have requested, and Agent and Lenders have
agreed that the Loan will be advanced to and for the account of Borrowers on a
joint and several basis in accordance with the other provisions hereof.  Each Borrower hereby acknowledges that it
will be receiving direct and indirect benefits from each Loan made pursuant to
this Agreement.

 

(b)                                 Each Borrower hereby designates, appoints,
authorizes and empowers Borrower Funds Administrator as its agent to act as
specified in this Agreement and each of the other Loan Documents and Borrower
Funds Administrator hereby acknowledges such designation, authorization and
empowerment, and accepts such appointment. 
Each Borrower hereby irrevocably authorizes and directs Borrower Funds
Administrator to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents, and any other instruments, documents
and agreements referred to herein or therein, and to exercise such powers and
to perform such duties hereunder and thereunder as are specifically delegated
to or required of Borrower Funds Administrator by the respective terms and
provisions hereof and

 

59

 

thereof, and such other
powers as are reasonably incidental thereto, including, without limitation, to
take the following actions for and on such Borrower’s behalf:

 

(i)                             to submit on behalf of each Borrower other
notices to Agent in accordance with the provisions of this Agreement;

 

(ii)                          to receive on behalf of each Borrower the
proceeds of the Loan in accordance with the provisions of this Agreement, such
proceeds to be disbursed to or for the account of the applicable Borrower as
soon as practicable after its receipt thereof; and

 

(iii)                       to submit on behalf of each Borrower,
Compliance Certificates and all other certificates, notices and other
communications given or required to be given hereunder.

 

Borrower
Funds Administrator hereby further is authorized and directed by each Borrower
to take all such actions on behalf of such Borrower necessary to exercise the
specific power granted in clauses (i) through (iii) above and to
perform such other duties hereunder and under the other Loan Documents, and
deliver such agreements, documents, certificates and instruments as delegated
to or required of Borrower Funds Administrator by the terms hereof or thereof.

 

(c)                                  The administration by Agent and Lenders of
the credit facility under this Agreement as a co-borrowing facility with a
funds administrator in the manner set forth herein is solely as an
accommodation to Borrowers and at their request and neither Agent nor any
Lender shall incur any liability to any Credit Party as a result thereof.

 

12.13                 Joint and Several Liability

 

(a)                                  Each Borrower acknowledges that it is jointly
and severally liable for all of the Obligations under the Loan Documents.  Each Borrower expressly understands, agrees
and acknowledges that (i) Borrowers are all Affiliated entities by common
ownership, (ii) each Borrower desires to have the availability of one
common credit facility instead of separate credit facilities, (iii) each
Borrower has requested that Lenders extend such a common credit facility on the
terms herein provided, (iv) Lenders will be lending against, and relying
on a Lien upon, all of Borrowers’ assets even though the proceeds of any
particular Loan made hereunder may not be advanced directly to a particular
Borrower, (v) each Borrower will nonetheless benefit by the making of the
Loan by each Lender and the availability of a single credit facility of a size
greater than each could independently warrant, (vi) all of the
representations, warranties, covenants, obligations, conditions, agreements and
other terms contained in the Loan Documents shall be applicable to and shall be
binding upon each Borrower and (vii) Borrowers have each executed or will
execute the Notes as co-makers of the Notes and that it would not be able to
obtain the credit provided by Lenders hereunder without the financial support
provided by the other Borrowers.

 

(b)                                 Each Borrower hereby guarantees the prompt
payment and performance in full of all Obligations.  Such guarantee constitutes a guarantee of
payment and not of collection.

 

60

 

Each Borrower’s obligations
under this Agreement shall, to the fullest extent permitted by law, be
unconditional irrespective of (i) the validity or enforceability,
avoidance or subordination of the Obligations of any other Credit Party or of
any promissory note or other document evidencing all or any part of the
Obligations of any other Credit Party, (ii) the absence of any attempt to
collect the Obligations from any other Credit Party, or any other security
therefor, or the absence of any other action to enforce the same, (iii) the
waiver, consent, extension, forbearance or granting of any indulgence by Agent
and/or any Lender with respect to any provision of any instrument evidencing
the Obligations of any other Credit Party or any part thereof, or any other
agreement now or hereafter executed by any other Credit Party and delivered to
Agent and/or any Lender, (iv) the failure by Agent and/or any Lender to
take any steps to perfect and maintain its security interest in, or to preserve
its rights to, any security or collateral for the Obligations of any other
Credit Party, (v) Agent’s and/or any Lender’s election, in any proceeding
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of
the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
any other Credit Party, as debtor-in-possession under Section 364 of the
Bankruptcy Code, (vii) the disallowance of all or any portion of Agent’s
and/or any Lender’s claim(s) for the repayment of the Obligations of any other
Credit Party under Section 502 of the Bankruptcy Code or (viii) any
other circumstances which might constitute a legal or equitable discharge or
defense of a guarantor or of any other Credit Party (other than actual
indefeasible payment in full in cash). 
With respect to any Borrower’s Obligations arising as a result of the
joint and several liability of Borrowers hereunder with respect to the Loan or
other extensions of credit made to any of the other Borrowers hereunder, such
Borrower hereby forever waives any right to enforce any right of subrogation or
any remedy which Agent and/or any Lender now has or may hereafter have against
any other Credit Party, or any endorser of all or any part of the Obligations,
and any benefit of, and any right to participate in, any security or collateral
given to Agent and/or any Lender to secure payment of the Obligations or any
other liability of any Borrower to Agent and/or any Lender.  During the existence of any Event of Default,
Agent may proceed directly and at once, without notice, against any Borrower to
collect and recover the full amount, or any portion of the Obligations, without
first proceeding against any other Credit Party or any other Person, or against
any security or collateral for the Obligations. 
Each Borrower consents and agrees that Agent shall be under no
obligation to marshal any assets in favor of any Credit Party or against or in
payment of any or all of the Obligations.

 

(c)                                  Each Borrower is obligated to repay the
Obligations as a joint and several obligor under this Agreement and the other
Loan Documents.  To the extent that any
Borrower shall, under this Agreement as a joint and several obligor, repay any
of the Obligations constituting the Loan made to another Borrower hereunder or
other Obligations incurred directly and primarily by any other Borrower (an “Accommodation
Payment”), then the Borrower making such Accommodation Payment shall be entitled
to contribution and indemnification from, and be reimbursed by, each of the
other Borrowers in an amount, for each of such other Borrowers, equal to a
fraction of such Accommodation Payment, the numerator of which fraction is such
other Borrower’s Allocable Amount and the denominator of which is the sum of
the Allocable Amounts of all of the Borrowers. 
As of any date of determination, the “Allocable Amount” of each Borrower
shall be equal to the maximum amount of liability for Accommodation Payments
which could be asserted against such Borrower hereunder without (i) rendering
such Borrower “insolvent” within the meaning of Section 101 (31) of the
Bankruptcy

 

61

 

Code, Section 2 of the
Uniform Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform
Fraudulent Conveyance Act (“UFCA”), (ii) leaving such Borrower with
unreasonably small capital or assets, within the meaning of Section 548 of
the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA,
or (iii) leaving such Borrower unable to pay its debts as they become due
within the meaning of Section 548 of the Bankruptcy Code, Section 4
of the UFTA or Section 5 of the UFCA. 
All rights and claims of contribution, indemnification, and reimbursement
under this Section 12.13 shall be subordinate in right of payment to the
prior indefeasible payment in full in cash of the Obligations.  The provisions of this Section 12.13
shall, to the extent inconsistent with any provision in any Loan Document, supersede
such inconsistent provision.

 

(d)                                 If (i) any court holds that Borrowers
are guarantors and not jointly and severally liable as principal obligors or (ii) bankruptcy
or reorganization proceedings at any time are instituted by or against any
Borrower under any Debtor Relief Law, then each Borrower hereby: (A) expressly
and irrevocably waives, to the fullest extent possible, except as otherwise
provided in Section 12.13(c), on behalf of such Borrower, any and all
rights at law or in equity to subrogation, reimbursement, exoneration,
contribution, indemnification, set off or any other rights that could accrue to
a surety against a principal, to a guarantor against a maker or obligor, to an
accommodation party against the party accommodated, to a holder or transferee
against a maker, or to the holder of a claim against any Person, and which such
Borrower may have or hereafter acquire against any Person in connection with or
as a result of such Borrower’s execution, delivery and/or performance of this
Agreement, or any other documents to which such Borrower is a party or
otherwise; (B) expressly and irrevocably waives any “claim” (as such term
is defined in the Bankruptcy Code) of any kind against any other Borrower, and
further agrees that it shall not have or assert any such rights against any
Person (including any surety), either directly or as an attempted set off to
any action commenced against such Borrower by Agent or a Lender or any other
Person; and (C) acknowledges and agrees (I) that this waiver is intended
to benefit Agent and Lenders and shall not limit or otherwise affect such
Borrower’s liability hereunder or the enforceability of this Agreement, and
(II) that Agent and Lenders and their successors and assigns are intended
beneficiaries of this waiver, and the agreements set forth in this Section 12.13
and their rights under this Section 12.13 shall survive payment in full of
the Obligations.

 

(e)                                  EACH CREDIT PARTY WAIVES THE FILING OF A
CLAIM WITH A COURT IN THE EVENT OF RECEIVERSHIP OR BANKRUPTCY OF ANY CREDIT
PARTY, AND WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH
ANY CREDIT PARTY MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY
AGENT OR ANY LENDER IN ENFORCING THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION,
EVERY DEFENSE, COUNTERCLAIM OR SETOFF WHICH SUCH CREDIT PARTY MAY NOW
HAVE, OR HEREAFTER MAY HAVE, AGAINST ANOTHER CREDIT PARTY OR ANY OTHER
PARTY LIABLE TO AGENT OR ANY LENDER IN ANY MANNER.  AS FURTHER SECURITY, ANY AND ALL DEBTS AND
LIABILITIES NOW OR HEREAFTER ARISING AND OWING TO ANY CREDIT PARTY BY ANY OTHER
CREDIT PARTY, OR TO ANY OTHER PARTY LIABLE TO AGENT OR ANY LENDER, ARE HEREBY
SUBORDINATED TO AGENT’S AND ANY SUCH LENDER’S CLAIMS AND UPON THE OCCURRENCE OF
AN EVENT OF DEFAULT ARE ASSIGNED TO AGENT FOR THE BENEFIT OF LENDERS.  EACH

 

62

 

CREDIT PARTY RATIFIES AND
CONFIRMS WHATEVER AGENT OR A LENDER MAY DO PURSUANT TO THE TERMS HEREOF,
AND AGREES THAT NEITHER AGENT NOR ANY LENDER SHALL BE LIABLE FOR ANY ERROR IN
JUDGMENT OR MISTAKES OF FACT OR LAW OTHER THAN WITH RESPECT TO ITS GROSS
NEGLIGENCE, FRAUD OR WILLFUL MISCONDUCT. 
EACH CREDIT PARTY HEREBY AGREES THAT IT MAY BE JOINED AS A PARTY
DEFENDANT IN ANY LEGAL PROCEEDING (INCLUDING, BUT NOT LIMITED TO, A FORECLOSURE
PROCEEDING) INSTITUTED BY AGENT OR ANY LENDER AGAINST ANY OTHER CREDIT PARTY.

 

(f)                                    Should a claim be made upon Agent or any
Lender at any time for repayment of any amount received by Agent or any Lender
in payment of the Obligations, or any part thereof, whether received from any
Credit Party or received by Agent or any Lender as the proceeds of Collateral,
by reason of:  (1) any judgment,
decree or order of any court or administrative body having jurisdiction over
Agent or any Lender or any of their property, or (2) any settlement or
compromise of any such claim effected by Agent or any Lender, in its sole
discretion, with the claimant (including a Credit Party), each Credit Party
shall remain liable to Agent or any such Lender for the amount so repaid to the
same extent as if such amount had never originally been received by Agent or
any such Lender, notwithstanding any termination hereof or the cancellation of
any note or other instrument evidencing any of the Obligations.

 

To
the extent that any payment to, or realization by, any Lender or Agent on the
Obligations exceeds the limitations of this Section 12.13 and is otherwise
subject to avoidance and recovery in any such proceeding, the amount subject to
avoidance shall in all events be limited to the amount by which such actual
payment or realization exceeds such limitation, and this Agreement as limited
shall in all events remain in full force and effect and be fully enforceable
against such Credit Party.  This Section 12.13
is intended solely to reserve the rights of Lenders and Agent hereunder against
each Credit Party, in such proceeding to the maximum extent permitted by
applicable Debtor Relief Laws and no Credit Party, guarantor of the Obligations
or other Person shall have any right, claim or defense under this Section 12.13
that would not otherwise be available under applicable Debtor Relief Laws in
such proceeding.

 

XIII.                        TAXES

 

13.1                        Taxes

 

(a)                                  Subject to this Section 13.1(g), any and
all payments by Borrower or any other Credit Party to each Lender or Agent
under this Agreement or any other Loan Document shall be made free and clear
of, and without deduction or withholding for, any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and
Agent, such taxes (including income taxes or franchise taxes) as are imposed on
or measured by the net income of such Lender or Agent, respectively, by the
jurisdiction under the laws of which such Lender or Agent, as the case may be,
is organized or maintains a Lending Office or other taxable presence, or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as “Taxes”).

 

63

 

(b)                                 In addition, Borrower and the other Credit
Parties shall pay any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as “Other Taxes”).

 

(c)                                  Subject to this Section 13.1(g), the
Credit Parties shall indemnify and hold harmless each Lender and Agent for the
full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 13.1) paid by
such Lender or Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted,
except in the case of Taxes or Other Taxes incurred due to the gross negligence
or willful misconduct of such Lender or Agent. 
Payment under this indemnification shall be made within ten (10) days
from the date any Lender or Agent makes written demand therefor.

 

(d)                                 If any Credit Party shall be required by law
to deduct or withhold any Taxes or Other Taxes from or in respect of any sum
payable hereunder to any Lender or Agent, then, subject to Section 13.1(g):

 

(i)                             the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 13.1), such
Lender or Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deductions been made;

 

(ii)                          such Credit Party shall make such deductions;
and

 

(iii)                       such Credit Party shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.

 

(e)                                  Within ten (10) days after the date of
any payment by any Credit Party of Taxes or Other Taxes, Borrower shall furnish
to Agent (and the applicable Lender) the original or a certified copy of a
receipt evidencing payment thereof, or other evidence of payment satisfactory
to Agent (and the applicable Lender).

 

(f)                                    Each Lender that is not a “United States
Person” within the meaning of Section 7701(a)(30) of the Code (a “Non-U.S.
Lender”) shall deliver to Borrower and Agent two (2) copies of each U.S.
Internal Revenue Service Form W-8BEN or Form W-8ECI, or any
subsequent versions thereof or successors thereto, or, in the case of a
Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or
881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8BEN,
or any subsequent versions thereof or successors thereto (and a certificate
representing that such Non-U.S. Lender is not a “bank” for purposes of Section 881(c) of
the Code, is not a ten (10%) percent shareholder (within the meaning of Section 871(h)(3)(B) of
the Code) of Borrower and is not a controlled foreign corporation related to
Borrower (within the meaning of Section 864(d)(4) of the Code)),
properly completed and duly executed by such Non-U.S. Lender claiming complete
exemption from, or a reduced rate of, U.S. federal withholding tax on all
payments by Borrower under this Agreement

 

64

 

and the other Loan
Documents.  Such forms shall be delivered
by each Non-U.S. Lender on or before the date it becomes a party to this
Agreement.  In addition, each Non-U.S.
Lender shall deliver such forms (or other forms or documents to the extent
required) promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender or upon any changes in the forms or documents
required hereunder for establishing that payments to the Non-U.S. Lender are
exempt from withholding.  Each Non-U.S.
Lender shall promptly notify Borrower at any time it determines that it is no
longer in a position to provide any previously delivered certificate to
Borrower (or any other form of certification adopted by the U.S. taxing
authorities for such purpose). 
Notwithstanding any other provision of this section, a Non-U.S. Lender
shall not be required to deliver any form pursuant to this subsection that
such Non-U.S. Lender is not legally able to deliver.

 

(g)                                 Borrower shall not be required to pay any
additional amounts in respect of United States Federal income tax pursuant to
Sections 13.1(c) or (d) to any Lender for the account of any Lending
Office of such Lender:

 

(i)                             if the obligation to pay such additional
amounts would not have arisen but for a failure by such Lender to deliver the
forms or other documents under Section 13.1(f) in respect of such
Lending Office; or

 

(ii)                          if such Lender shall have delivered to
Borrower a Form W-8BEN and/or Form W-8ECI (or any subsequent versions
thereof or successors thereto) in respect of such Lending Office pursuant to Section 13.1(f),
and such Lender shall not at any time be entitled to exemption from deduction
or withholding of United States Federal income tax in respect of payments by
Borrower hereunder for the account of such Lending Office for any reason other
than a change in United States law, treaty or regulations or in the official
interpretation of such law or regulations by any Governmental Authority charged
with the interpretation or administration thereof (whether or not having the
force of law) after the date of delivery of such Form W-8BEN and/or Form W-8ECI
(or any subsequent versions thereof or successors thereto).

 

(h)                                 If, at any time, Borrower requests any Lender
to deliver any forms or other documentation in addition to those forms required
to be delivered by such Lender pursuant to Section 13.1(f), then Borrower
shall, on demand of such Lender through Agent, reimburse such Lender for any
costs and expenses (including attorneys’ fees and expenses) reasonably incurred
by such Lender in the preparation or delivery of such forms or other
documentation.

 

(i)                                     If Borrower is required to pay additional
amounts to any Lender or Agent pursuant to Sections 13.1 (c) or (d), then
such Lender shall use its reasonable efforts (consistent with legal and
regulatory restrictions) to change the jurisdiction of its Lending Office so as
to eliminate any such additional payment by Borrower which may thereafter
accrue if such change in the judgment of such Lender is not otherwise
disadvantageous to such Lender.  In
addition to the foregoing and if such Lender deems it commercially reasonable
in its sole discretion, such Lender agrees to obtain a refund or credit for any
additional amounts paid by Borrower to such Lender or Agent pursuant to
Sections 13.1 (c) or (d), and, to the extent any such refund or credit is
obtained, apply such amounts to the outstanding Obligations owing by any Credit
Party under this Agreement (without any Prepayment Premium under Section 3.2).

 

65

 

13.2                        Certificates of Lenders.

 

Any
Lender claiming reimbursement or compensation pursuant to this Article XIII
shall deliver to Borrower (with a copy to Agent) a certificate setting forth in
reasonable detail the amount payable to such Lender hereunder and such
certificate shall be conclusive and binding on the Credit Parties in the
absence of manifest error.

 

13.3                        Survival.

 

The
agreements and obligations of the Credit Parties in this Article XIII
shall survive the payment of all other Obligations.

 

XIV.                       GUARANTY

 

14.1                        Guaranty

 

Each
Guarantor jointly and severally hereby unconditionally and irrevocably guarantees
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of each other Credit Party, including, without
limitation, Borrower, now or hereafter existing under any Loan Document,
whether for principal, interest (including, without limitation, all interest
that accrues after the commencement of any proceeding of Borrower or any other
Credit Party under any Debtor Relief Laws), fees, commissions, expense
reimbursements, indemnifications or otherwise (such obligations, to the extent
not paid by Borrower, the “Guaranteed Obligations”), and agrees to pay any and
all costs, fees and expenses (including reasonable counsel fees and expenses)
incurred by Agent and Lenders in enforcing any rights under the guaranty set
forth in this Article XIV. 
Without limiting the generality of the foregoing, each Guarantor’s
liability shall extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by Borrower or any other Credit Party to Agent and
Lenders under any Loan Document, but for the fact that they are unenforceable
or not allowable due to the existence of any proceeding under any Debtor Relief
Laws involving Borrower or any other Credit Party.  This guaranty is a guaranty of payment and not
of collection.

 

14.2                        Guaranty Absolute

 

The
obligations of each Guarantor under this Article XIV are
independent of the Guaranteed Obligations, and a separate action or actions may
be brought and prosecuted against each Guarantor to enforce such obligations,
irrespective of whether any action is brought against any Credit Party or
whether any Credit Party is joined in any such action or actions.  The liability of each Guarantor under this Article XIV
shall be irrevocable, absolute and unconditional irrespective of, and each
Guarantor hereby irrevocably waives any defenses it may now or hereafter have
in any way relating to, any or all of the following:

 

(a)                                  any lack of validity or enforceability of any
Loan Document or any agreement or instrument relating thereto;

 

(b)                                 any change in the time, manner or place of
payment of, or in any other term of, all or any of the Guaranteed Obligations,
or any other amendment or waiver of or any consent to departure from any Loan
Document, including, without limitation, any increase in the

 

66

 

Guaranteed Obligations
resulting from the extension of additional credit to any Credit Party or
otherwise;

 

(c)                                  any taking, exchange or release of, or
non-perfection of a Lien on, any Collateral, or any taking, release or
amendment or waiver of or consent to departure from any other guaranty, for all
or any of the Guaranteed Obligations;

 

(d)                                 any change, restructuring or termination of
the corporate, limited liability company or partnership structure or existence
of any Credit Party; or

 

(e)                                  any other circumstance (including, without
limitation, any statute of limitations) or any existence of or reliance on any
representation by Agent or Lenders that might otherwise constitute a defense
available to, or a discharge of, any Credit Party or any other guarantor or
surety.

 

This
Article XIV shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Guaranteed Obligations is
rescinded or must otherwise be returned to Agent or Lenders or any other Person
upon the insolvency, bankruptcy or reorganization of Borrower or any other
Credit Party or otherwise, all as though such payment had not been made.

 

14.3                        Waiver

 

Each
Guarantor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Guaranteed Obligations and this Article XIV
and any requirement that Agent or Lenders exhaust any right or take any action
against any other Credit Party, any other Person or any Collateral.  Each Guarantor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated herein and that the waiver set forth in this Section 14.3 is
knowingly made in contemplation of such benefits.  Each Guarantor hereby waives any right to
revoke this Article XIV, and acknowledges that this Article XIV
is continuing in nature and applies to all Guaranteed Obligations, whether
existing now or in the future.

 

14.4                        Continuing Guaranty; Assignments

 

This
Article XIV is a continuing guaranty and shall (a) remain in
full force and effect until the indefeasible payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Article XIV
and the termination of this Agreement, (b) be binding upon each Guarantor,
its successors and assigns and (c) inure to the benefit of, and be
enforceable by, Agent and Lenders and their respective successors, pledgees,
Transferees and Participants.  Without
limiting the generality of the foregoing clause (c), any Lender may pledge,
assign or otherwise transfer all or any portion of its rights and obligations
under this Agreement (including, without limitation, all or any portion of its
Commitments and the portion of the Loan owing to it) to any Transferee, and
such Transferee shall thereupon become vested with all the benefits in respect
thereof granted such Lender herein or otherwise, in each case as provided in
this Agreement.

 

67

 

14.5                        Maximum Liability

 

The
provisions of this Guaranty are severable, and in any action or proceeding
involving any state corporate law, or any Debtor Relief Law, if the obligations
of any Guarantor under this Guaranty would otherwise be held or determined to
be avoidable, invalid or unenforceable on account of the amount of such
Guarantor’s liability under this Guaranty, then, notwithstanding any other
provision of this Guaranty to the contrary, the amount of such liability shall,
without any further action by the Guarantors or the Lenders, be automatically
limited and reduced to the highest amount that is valid and enforceable as
determined in such action or proceeding (such highest amount determined
hereunder being the relevant Guarantor’s “Maximum Liability”).  This Section with respect to the Maximum
Liability of each Guarantor is intended solely to preserve the rights of the
Lenders to the maximum extent not subject to avoidance under applicable law,
and no Guarantor nor any other person or entity shall have any right or claim
under this Section with respect to such Maximum Liability, except to the
extent necessary so that the obligations of any Guarantor hereunder shall not
be rendered voidable under applicable law. 
Each Guarantor agrees that the Guaranteed Obligations may at any time
and from time to time exceed the Maximum Liability of each Guarantor without
impairing this Guaranty or affecting the rights and remedies of the Lender
Parties hereunder, provided that, nothing in this sentence shall be construed
to increase any Guarantor’s obligations hereunder beyond its Maximum Liability.

 

14.6                        Subordination

 

Each
of the Persons composing Guarantors hereby agrees that, after the occurrence
and during the continuance of any Default or Event of Default, the payment of
any amounts due with respect to the indebtedness owing by Borrower to a
Guarantor or by amounts due with respect to the indebtedness owing by Borrower
to a Guarantor or by any Guarantor to any other Guarantor is hereby
subordinated to the prior payment in full in cash of the Obligations.  Each Guarantor hereby agrees that, after the
occurrence and during the continuance of any Default or Event of Default, such
Guarantor shall not demand, sue for or otherwise attempt to collect any
indebtedness of Borrower or any other Guarantor owing to such Guarantor until
the Obligations shall have been paid in full in cash.  If, notwithstanding the foregoing sentence,
such Guarantor shall collect, enforce or receive any amounts in respect of such
indebtedness, such amounts shall be collected, enforced and received by such
Guarantor as trustee for the Lender Parties, and such Guarantor shall deliver
any such amounts to Agent for application to the Obligations.

 

14.7                        Subrogation

 

No
Guarantor shall exercise any rights that it may now have or hereafter acquire
against any other Credit Party or any other guarantor or that arise from the
existence, payment, performance or enforcement of such Guarantor’s obligations
under this Article XIV, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and
any right to participate in any claim or remedy of Agent and Lenders against
any other Credit Party or any other guarantor or any Collateral, whether or not
such claim, remedy or right arises in equity or under contract, statute or
common law, including, without limitation, the right to take or receive from
any other Credit party or any other guarantor, directly or indirectly, in cash
or other property or by set-off or in any other manner, payment or security

 

68

 

solely on account of such claim, remedy or right, unless and until all
of the Guaranteed Obligations and all other amounts payable under this Article XIV
shall have been indefeasibly paid in full in cash and all Commitments to lend
hereunder shall have terminated; provided, however, no Guarantor shall have any
rights hereunder against a Credit Party or any of its Subsidiaries if all or
any portion of the Guaranteed Obligations shall have been satisfied with
proceeds from the exercise of remedies in respect of the equity securities of
such Credit Party pursuant to a Pledge Agreement.  If any amount shall be paid to any Guarantor
in violation of the immediately preceding sentence, such amount shall be held
in trust for the benefit of Agent and Lenders and shall forthwith be paid to
Agent to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Article XIV, whether matured or
unmatured, in accordance with the terms of this Agreement, or to be held as
Collateral for any Guaranteed Obligations or other amounts payable under this Article XIV
thereafter arising.  If (i) any
Guarantor shall make payment to Agent and Lenders of all or any part of the
Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all
other amounts payable under this Article XIV shall be paid in full
in cash and (iii) all Commitments to lend hereunder shall have been
terminated, Agent and Lenders will, at such Guarantor’s request and expense,
execute and deliver to such Guarantor or appropriate documents, without
recourse and without representation or warranty, reasonably necessary to
evidence the transfer by subrogation to such Guarantor of an interest in the
Guaranteed Obligations resulting from such payment by such Guarantor.

 

[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGES FOLLOW]

 

69

 

IN
WITNESS WHEREOF, each of the parties has duly executed this Credit Agreement as
of the date first written above.

 

	
  BORROWER:

  	
  EVOLVING SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Brian R. Ervine

  
	
   

  	
  Name:

  	
  Brian R. Ervine

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief

  
	
   

  	
   

  	
  Financial and Administrative Officer

  
	
   

  	
  9777 Pyramid Court, Suite 100

  
	
   

  	
  Englewood, CO 80112

  
	
   

  	
  Attention:

  	
  Anita T. Moseley, General Counsel

  
	
   

  	
  Telephone:

  	
  303 802-2599

  
	
   

  	
  FAX:

  	
  303 802-1138

  
	
   

  	
  E-MAIL:

  	
  atm@evolving.com

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  BORROWER:

  	
  TELECOM SOFTWARE ENTERPRISES, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Brian R. Ervine

  
	
   

  	
  Name:

  	
  Brian R. Ervine

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief

  
	
   

  	
   

  	
  Financial and Administrative Officer

  
	
   

  	
  9777 Pyramid Court, Suite 100

  
	
   

  	
  Englewood, CO 80112

  
	
   

  	
  Attention:

  	
  Anita T. Moseley, General Counsel

  
	
   

  	
  Telephone:

  	
  303 802-2599

  
	
   

  	
  FAX:

  	
  303 802-1138

  
	
   

  	
  E-MAIL:

  	
  atm@evolving.com

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GUARANTOR:

  	
  EVOLVING SYSTEMS HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Brian R. Ervine

  
	
   

  	
  Name:

  	
  Brian R. Ervine

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief

  
	
   

  	
   

  	
  Financial and Administrative Officer

  
	
   

  	
  9777 Pyramid Court, Suite 100

  
	
   

  	
  Englewood, CO 80112

  
	
   

  	
  Attention:

  	
  Anita T. Moseley, General Counsel

  
	
   

  	
  Telephone:

  	
  303 802-2599

  
	
   

  	
  FAX:

  	
  303 802-1138

  
	
   

  	
  E-MAIL:

  	
  atm@evolving.com

  
				

 

 

	
  AGENT AND A LENDER:

  	
  CAPITALSOURCE FINANCE LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steven A. Museles

  
	
   

  	
  Name:

  	
  Steven A. Museles

  
	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CapitalSource Finance LLC

  
	
   

  	
  4445 Willard Avenue, 12th Floor

  
	
   

  	
  Chevy Chase, Maryland 20815

  
	
   

  	
  Attention:

  	
  Corporate Finance Group, Portfolio Manager

  
	
   

  	
  Telephone:

  	
  (301) 841-2700

  
	
   

  	
  FAX:

  	
  (301) 841-2313

  
	
   

  	
  E-MAIL:

  	
  sladd@capitalsource.com

  
				

 

 

	
  Appendix A

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Definitions

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B-1

  	
  Financial
  Covenants

  	
   

  
	
  Exhibit B-2

  	
  Form of
  Compliance Certificate

  	
   

  
	
  Exhibit C

  	
  Reporting Requirements

  	
   

  
	
  Exhibit D

  	
  Closing Conditions

  	
   

  
	
   

  	
   

  	
   

  
	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
  Schedule A

  	
  Lenders/Commitments

  	
   

  
	
   

  	
  Schedule 5.3

  	
  Subsidiaries, Capitalization and Ownership
  Interests

  	
   

  
	
   

  	
  Schedule 5.5

  	
  Other Agreements

  	
   

  
	
   

  	
  Schedule 5.6

  	
  Litigation

  	
   

  
	
   

  	
  Schedule 5.8

  	
  Tax Returns; Governmental Reports

  	
   

  
	
   

  	
  Schedule 5.9

  	
  Financial Statements and Reports

  	
   

  
	
   

  	
  Schedule 5.10(c)

  	
  Compliance with Law

  	
   

  
	
   

  	
  Schedule 5.11

  	
  Intellectual Property

  	
   

  
	
   

  	
  Schedule 5.12

  	
  Permits

  	
   

  
	
   

  	
  Schedule 5.14

  	
  Insurance

  	
   

  
	
   

  	
  Schedule 5.16

  	
  Broker’s or Finder’s Commissions

  	
   

  
	
   

  	
  Schedule 6.7

  	
  Post-Closing
  Deliverables

  	
   

  
	
   

  	
  Schedule 6.7(c)

  	
  Leases

  	
   

  
	
   

  	
  Schedule 7.2

  	
  Permitted Indebtedness

  	
   

  
	
   

  	
  Schedule 7.3

  	
  Permitted Liens

  	
   

  
	
   

  	
  Schedule 7.4

  	
  Investments

  	
   

  
	
   

  	
  Schedule 7.6

  	
  Affiliates

  	
   

  
					

 

 

Schedule 6.7

 

Post Closing
Deliverables

 

In
accordance with Section 6.7 of the Agreement, the following actions, items
and deliverables, which were not completed on or before the Closing Date as
otherwise required by the Agreement, shall be completed, taken and/or delivered
to Required Lenders’ satisfaction on or before the respective dates specified
below.  The Credit Parties acknowledge
that the Lenders are accommodating them by permitting the Credit Parties to
complete the following actions, items and deliverables on a post-Closing
basis.  As such, the failure to take,
comply with or provide any of the actions or items referred to below on or
before the respective due date set forth below shall constitute an immediate
Event of Default under the Agreement, without further notice or action by or on
behalf of Agent, any Lender or any other Person.  Nothing in this Schedule 6.7
shall limit the effect of any provision of the Agreement or the Credit Parties’
obligations thereunder.  Capitalized
terms used but not otherwise defined in this Schedule 6.7 shall
have the meanings assigned to it in the Agreement.

 

1.                                       On or before January 31,
2006, Evolving Systems and its Subsidiaries shall execute the Transfer Pricing
Agreements in form and substance approved by Agent in its Permitted Discretion
and deliver copies thereof to Agent.

 

2.                                       On or before December 31,
2005, the Credit Parties shall procure the Life Insurance Policy.

 

3. The
Credit Parties shall cooperate with Agent to cause Lenders to provide a
back-to-back letter of credit in support of Letter of Guarantee No. 040/700115-0
mentioned on Schedule 7.2 and shall then cause the issuer to
release any charge over the Property of the Credit Parties.

 

4.                                       On or before the
fifteenth Business Day after the Closing Date Evolving Systems shall amend the
Certificate of Designations of the Series B Convertible Preferred Stock in
form and substance acceptable to Agent.  

 

 

Exhibit B-1

 

Financial
Covenants

 

1.                                       Leverage
Ratio.  No Credit Party shall permit
the Leverage Ratio for the twelve (12) month period ending on any date set
forth in the table below to exceed the maximum ratio set forth in the table
below opposite such date:

 

	
  Date

  	
   

  	
  Maximum Ratio

  
	
   

  	
   

  	
   

  
	
  December 31,
  2005, March 31, 2006, June 30, 2006 and September 30, 2006

  	
   

  	
  2.50:1

  
	
   

  	
   

  	
   

  
	
  December 31,
  2006, March 31, 2007, June 30, 2007, and September 30, 2007

  	
   

  	
  2.25:1

  
	
   

  	
   

  	
   

  
	
  December 31,
  2007, March 31, 2008, June 30, 2008 and September 30, 2008

  	
   

  	
  2:00 to 1

  
	
   

  	
   

  	
   

  
	
  December 31,
  2008, March 31, 2009 and the end of each quarter thereafter

  	
   

  	
  1.75:1

  

 

2.                                       Minimum
EBITDA.  No Credit Party shall permit
EBITDA of the Credit Parties and their consolidated Subsidiaries on a
consolidated basis, without duplication, for the twelve (12) month period
ending on any date set forth in the table below to be less than the minimum
amount set forth in the table below opposite such date:  

 

	
  Date

  	
   

  	
  Minimum EBITDA

  
	
   

  	
   

  	
   

  
	
  December 31, 2005, March 31, 2006 and June 30, 2006

  	
   

  	
   

  	
  $

  	
  5,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 30, 2006 and December 31, 2006

  	
   

  	
   

  	
  $

  	
  6,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2007 and June 30, 2007

  	
   

  	
   

  	
  $

  	
  6,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  September 30, 2007 and December 31, 2007

  	
   

  	
   

  	
  $

  	
  7,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  March 31, 2008 and the end of each quarter thereafter

  	
   

  	
   

  	
  $

  	
  7,250,000

  	
   

  

 

3.                                       Fixed
Charge Coverage Ratio.  No
Credit Party shall permit the Fixed Charge Coverage Ratio for the twelve (12)
month period ending on any date set forth in the table below to be less than
the minimum ratio set forth in the table below opposite such date:

 

 

	
  Date

  	
   

  	
  Minimum Ratio

  
	
   

  	
   

  	
   

  
	
  December 31, 2005, March 31, 2006 and June 30, 2006

  	
   

  	
  1.15:1

  
	
   

  	
   

  	
   

  
	
  September 30, 2006 and the end of each quarter thereafter

  	
   

  	
  1.20:1

  

 

4.                                       Capital
Expenditures.  No Credit
Party shall make or commit to make Capital Expenditures for any fiscal year (or
shorter period) set forth in the table below in an aggregate amount for all
Credit Parties and their consolidated Subsidiaries, without duplication,
exceeding the dollar limitation set forth in the table below (the “Capital Expenditure Limitation”) with respect to such fiscal year
(or shorter period):

 

	
  Fiscal Year/Period:

  	
   

  	
  Limitation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Fiscal year
  ending December 31, 2005;

  	
   

  	
  $

  	
  1,400,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Fiscal year
  ending December 31, 2006 and each fiscal year thereafter until the
  Maturity Date

  	
   

  	
  $

  	
  1,400,000

  	
   

  

 

provided,
however, in the event the Credit Parties do not expend the entire respective
Capital Expenditure Limitation in any fiscal year, the Credit Parties may carry
forward to the immediately succeeding fiscal year (but not to subsequent fiscal
years) fifty percent (50%) of such unutilized portion.  All Capital Expenditures during any fiscal year
shall be applied first to reduce the applicable Capital Expenditure Limitation
of such fiscal year and then to reduce the carry-forward from the previous
fiscal year (or shorter period), if any.

 

5.                                       Definitions.  As used in this Agreement, the following
terms shall have the following meanings:

 

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

 

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

 

(a)                                  Net
Income;

 

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

 

(i)                                     Interest
Expense;

 

 

(ii)                                  franchise
and income taxes;

 

(iii)                               depreciation,
amortization and impairment expense;

 

(iv)                              all
other non-cash and/or non-recurring charges (including non-cash charges related
to accounting for employee stock option plans as required by FAS 123R) and
expenses approved by Agent in its Permitted Discretion, excluding (A) accruals
for cash expenses made in the Ordinary Course of Business and (B) write-offs
of accounts receivable;

 

(v)                                 loss
from any sale of assets, other than sales in the Ordinary Course of Business;

 

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

 

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

 

(i)                                     gain
from any sale of assets, other than sales in the Ordinary Course of Business;

 

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

 

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

 

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

 

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

 

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

 

“Fixed Charge Coverage Ratio” shall mean, for
the Credit Parties and their consolidated Subsidiaries on a consolidated basis
and without duplication, on any date of determination, the ratio of (a) EBITDA
minus Unfinanced Capital Expenditures minus income and franchise
taxes paid in cash, to (b) Fixed Charges, in each case for the twelve (12)
months then ending.

 

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

 

 

“Interest Expense” shall mean total interest
expense generated during the period in question (including attributable to
conditional sales contracts, Capital Leases and other title retention
agreements in accordance with GAAP and all unused line and commitment fees and
administrative and similar fees) of the Credit Parties and their consolidated
Subsidiaries on a consolidated basis and without duplication with respect to all
outstanding Indebtedness, including accrued interest and interest paid in kind
and capitalized interest, but excluding commissions, discounts and other fees
owed with respect to letters of credit and bankers’ acceptance financing, net
costs under Hedging Agreements and fees payable to Agent or Lenders on the
Closing Date under Section 3.1.

 

“Leverage Ratio” shall mean, on any date of
determination, the ratio of (a) Senior Debt calculated on such date, to (b) 
EBITDA for the twelve (12) months then ending.

 

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

 

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

 

“Total Debt” shall mean, on any date of
determination, the total Indebtedness of the Credit Parties and their
consolidated Subsidiaries on a consolidated basis and without duplication,
including, without limitation, all Indebtedness under the Loan Documents,
Revolving Loan Documents and all accrued interest on the foregoing (including,
without limitation, all interest paid in kind) and all Capital Lease
Obligations and including, without duplication, Contingent Obligations
consisting of guarantees of Indebtedness that otherwise would constitute Total
Debt of other Persons (provided that, for purposes of determining the
Indebtedness outstanding under any other revolving credit facility (including
the Revolving Loan Agreement) as of the end of each fiscal quarter, “Total Debt”
shall mean the average daily

 

70

 

amount
of outstanding principal and accrued interest on such revolving credit facility
for such fiscal quarter).  For all
purposes of this Agreement, the term “Total Debt” shall be calculated to
include (i.e., not net of) discounts, deductions or allocations relating or
applicable to or arising from any equity or equity participation or fees,
whether under GAAP or otherwise.

 

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

 

“Unfinanced Capital Expenditures”
shall mean, for any period, all Capital Expenditures made during such period
other than any Capital Expenditures financed within 30 days of such expenditure
with the proceeds of Permitted Indebtedness (Permitted Indebtedness, for this
purpose, does not include advances under a revolving line of credit, including,
without limitation, Advances under the Revolving Facility).

 

 

Exhibit B-2

 

Form of
Compliance Certificate

 

COMPLIANCE
CERTIFICATE

EVOLVING SYSTEMS, INC.

TELECOM SOFTWARE ENTERPRISES,
LLC

 

Date:                 ,
20   .

 

This Compliance Certificate (this “Certificate”)
is given by Evolving Systems, Inc. (“ESI”) and Telecom Software
Enterprises, LLC (“TSE,” and together with ESI, collectively, the “Borrower”), pursuant to Section 6.1(a) of
that certain Credit Agreement dated as of             
            , 2005
among Borrower, the other Credit Parties named therein, CapitalSource Finance
LLC, a Delaware limited liability company, in its capacity as agent for the
Lenders (in such capacity, “Agent”), and the Lenders thereunder (as amended,
modified, supplemented or restated from time to time, the “Credit Agreement”).  Capitalized terms used herein without
definition shall have the meanings set forth in the Credit Agreement.

 

The officer executing this Certificate is the
                                    
of ESI and the                                     
of TSE, and as such is duly authorized to execute and deliver this Certificate
on behalf of Borrower.  By so executing
this Certificate, the Borrower hereby certifies to the Lender Parties that:

 

(a)                                  the
financial statements delivered with this Certificate in accordance with subsection 6.1(a) of
the Credit Agreement fairly present in all material respects the consolidated
results of operations and financial position of the Credit Parties and their
consolidated Subsidiaries as of, and for the respective periods ending on, the
dates of such financial statements;

 

(b)                                 Borrower
has reviewed the relevant terms of the Loan Documents and the financial
condition of Borrower and the other Credit Parties;

 

(c)                                  no
Default or Event of Default has occurred and is continuing, except as set forth
in Schedule 1 hereto, which includes a description of the nature
and status and period of existence of such Default or Event of Default, if any,
and what action Borrower has taken, and is undertaking and proposes to take
with respect thereto; and

 

(d)                                 Borrower
and the other Credit Parties are in compliance with all financial covenants set
forth on Exhibit B-1 to the Credit Agreement, as demonstrated by the
calculations of such covenants below, except as set forth in Schedule 1
hereto.

 

 

IN WITNESS WHEREOF, Borrower has caused this
Certificate to be executed by the                                                 
of ESI and the                               of
TSE as of this           day of                       ,
20    .

 

	
   

  	
  [EVOLVING SYSTEMS, INC.]

  
	
   

  	
  [TELECOM SOFTWARE ENTERPRISES, LLC]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  

 

 

LEVERAGE
RATIO

 

	
  a.

  	
   

  	
  Senior Debt

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  b.

  	
   

  	
  EBITDA for the twelve (12) months then
  ending

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c.

  	
   

  	
  Ratio of Line (a) to (b)

  	
   

  	
   

  	
   

  

 

MINIMUM
EBITDA

 

	
  a.

  	
   

  	
  EBITDA for the twelve (12) months then
  ending

  	
   

  	
  $

  	
   

  

 

FIXED
CHARGE COVERAGE RATIO

 

	
  a.

  	
   

  	
  EBITDA for the twelve (12) months then
  ending 

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  b.

  	
   

  	
  Less the aggregate amount of all Unfinanced
  Capital Expenditures during the twelve (12) months then ending

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  c.

  	
   

  	
  Less income and franchise taxes paid in
  cash for the twelve (12) months then ending

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  d.

  	
   

  	
  Total ((a) less (b) less (c))

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  e.

  	
   

  	
  Fixed Charges during the twelve (12) months
  then ending

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  f.

  	
   

  	
  Ratio of Line (d) to (e)

  	
   

  	
   

  	
   

  

 

CAPITAL
EXPENDITURES

 

	
  Maximum Permitted Capital Expenditures

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  In Compliance

  	
   

  	
  Yes / No

  	
   

  

 

 

SCHEDULE 1 TO EXHIBIT B-2

CONDITIONS
OR EVENTS WHICH CONSTITUTE A DEFAULT OR 

EVENT OF
DEFAULT

 

If any condition or event exists that
constitutes a Default or Event of Default, specify nature and period of
existence and what action Borrower or one or more other Credit Parties has
taken, is taking or proposes to take with respect thereto; if no such condition
or event exists, state “None.” 

 

 

Exhibit C-1

 

Reporting
Requirements

 

(a)                                  Financial Reports.  The
Credit Parties shall furnish to Agent and each Lender:

 

(i)                                     as soon as available and in any event within
ninety (90) calendar days after the end of each fiscal year of Evolving
Systems, (A) audited consolidated financial statements of Evolving Systems
and its consolidated Subsidiaries, including the notes thereto, consisting of a
consolidated balance sheet at the end of such fiscal year and the related
consolidated statements of income, retained earnings and cash flows and owners’
equity for such fiscal year, which financial statements shall be prepared by
and accompanied by an opinion of any “Big Four” or any other nationally
recognized independent certified public accounting firm satisfactory to Agent
in its Permitted Discretion (which opinion shall be without (1) a “going
concern” qualification, (2) any qualification or exception as to the scope
of such audit and (3) any qualification which relates to the treatment or
classification of any item and which, as a condition to the removal of such
qualification, would require an adjustment to such item, the effect of which
would be to cause any noncompliance with the provisions of Section 7.1(a)),
and which opinion shall state that such financial statements present fairly in
all material respects the financial position for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years and (B) consolidating
balance sheets and income statements for (1) Evolving Systems and its
consolidated Domestic Subsidiaries, (2) the Revolving Borrower and its
consolidated Subsidiaries (excluding Evolving Systems GmbH) and (3) Evolving
Systems Networks India PVT LTD;

 

(ii)                                  as soon as available and in any event within
forty-five (45) calendar days after the end of each fiscal quarter of Evolving
Systems, unaudited financial statements of Evolving Systems and its
consolidated Subsidiaries consisting of (A) a consolidated balance sheet
and related consolidated statements of income, retained earnings and cash flows
and owners’ equity as of the end of such fiscal quarter, all certified on behalf
of Borrower by a Responsible Officer as fairly presenting in all material
respects the financial position and the results of operations of Borrower in
accordance with GAAP, subject to normal year-end adjustments and the absence of
footnote disclosure and (B) consolidating balance sheets and income
statements for (1) Evolving Systems and its consolidated Domestic
Subsidiaries, (2) the Revolving Borrower and its consolidated
Subsidiaries, excluding Evolving Systems GmbH and (3) Evolving Systems
Networks India PVT LTD; and

 

(iii)                               as soon as available and in any event within
thirty (30) calendar days after the end of each calendar month, unaudited
financial statements of Evolving Systems and its consolidated Subsidiaries
consisting of (A) a consolidated balance sheet and the related
consolidated statements of income, retained earnings and cash flows and owners’
equity as of the end of such calendar month, all certified on behalf of
Borrower by a Responsible Officer as fairly presenting in all material respects
the financial position and the results of operations of Borrower in accordance
with GAAP, subject to normal

 

 

year-end adjustments and the absence of
footnote disclosure and (B) consolidating balance sheets and income
statements for (1) Evolving Systems and its consolidated Domestic
Subsidiaries, (2) the Revolving Borrower and its consolidated Subsidiaries
(excluding Evolving Systems GmbH) and (3) Evolving Systems Networks India
PVT LTD.

 

All such financial statements shall be prepared in accordance with GAAP
consistently applied with prior periods (subject, as to interim statements, to
normal year-end adjustments and the absence of footnote disclosure).  With each delivery of monthly and annual
financial statements, Borrower also shall deliver to Agent and each Lender a
completed Compliance Certificate certified on behalf of Borrower by a
Responsible Officer.

 

(b)                                 Other Materials.  The
Credit Parties shall furnish to Agent and Lenders:

 

(i)                                     concurrently with the delivery of annual and
quarterly financial statements pursuant to clauses (a)(i) and (a)(ii) above:

 

(1) a report listing
any and all new contracts entered into by any Credit Party during the preceding
fiscal year or quarter that are material to its business.  If the board of directors of Evolving Systems
receives such a report then the report delivered under this subsection may
take the same form and substance;

 

(2) an operating report
for Evolving Systems and its consolidated Subsidiaries, which includes a
detailed comparison of the actual year-to-date operating results against (A) the
projected operating budget delivered hereunder for the current or prior fiscal
year and (B) the actual operating results for the same period during the
prior fiscal year, in each case inclusive of profit and loss statements;

 

(3) a report specifying
all unpaid amounts, fees, payables and balances owing to any Governmental
Authority (other than for taxes) as of the last day of such ended fiscal year
or quarter, if any, and

 

(4) a management
report, in reasonable detail, signed by a Responsible Officer of Borrower,
describing the operations and financial condition of the Credit Parties for the
quarter and portion of the fiscal year then ended (or for the fiscal year then
ended in the case of annual financial statements), which may be satisfied by
delivery of quarterly and annual reports filed with the SEC; and

 

(ii)                                  as soon as available and in any event within
ten (10) calendar days after the preparation, receipt or issuance thereof
or request by Agent or any Lender therefor, as applicable:

 

(1) copies of any final
reports submitted to the Credit Parties by their independent accountants in
connection with any interim audit of the books of

 

 

the Credit Parties or their Subsidiaries and
copies of each management control letter provided by such independent
accountants; and

 

(2) such additional
information, documents, statements, reports and other materials as Agent or any
Lender may request from time to time in its Permitted Discretion.

 

(c)                                  Notices.  The
Credit Parties shall promptly, and in any event within five (5) Business
Days after any officer of any Credit Party obtains knowledge thereof, notify
Agent and each Lender in writing of:

 

(i)                                     any pending or threatened litigation, suit,
investigation, arbitration, enforcement action, dispute resolution proceeding
or administrative or regulatory proceeding brought or initiated by or against
any Credit Party or Subsidiary of a Credit Party or otherwise affecting or
involving or relating to any Credit Party or Subsidiary of a Credit Party or
any Credit Party’s or a Subsidiary of a Credit Party’s Property to the extent (A) the
amount in controversy exceeds $100,000 individually
or $150,000 in the aggregate for all such events or (B) to the extent any
of the foregoing seeks injunctive relief against a Credit Party;

 

(ii)                                  the occurrence or existence of any Default or
Event of Default, which notice shall specify the nature, status and period of
existence thereof and the actions proposed to be taken with respect thereto;

 

(iii)                               any other development, event, fact,
circumstance or condition that would reasonably be expected to result in a
Material Adverse Effect, in each case describing the nature and status thereof
and the actions proposed to be taken with respect thereto;

 

(iv)                              any matter(s) in the amount of $250,000
individually or $500,000 in the aggregate, in existence at any time adversely
affecting the value, enforceability or collectibility of any of the Collateral;

 

(v)                                 to the extent not duplicative of deliveries
made hereunder, any material written notice (including any notice of default or
acceleration) and any material written information or other material written delivery
given or made by or delivered to or received by any Credit Party to or from any
lender of any such Credit Party (as a lender and not in any other capacity),
together with copies thereof, as applicable including in connection with the
Subordinated Loan Document.

 

(vi)                              (A) the receipt of any notice or request
from any Governmental Authority regarding any liability or claim of liability
in the amount equal to or exceeding $100,000 individually or $150,000 in the
aggregate or (B) any action taken or threatened to be taken by any
Governmental Authority (or any notice of any of the foregoing) with respect to
any Credit Party which would reasonably be expected to result in a Material
Adverse Effect;

 

 

(vii)                           receipt or giving of any notice by any Credit
Party regarding termination of any lease of real property (other than by
expiration of the term) or any senior officer or executive, or the loss,
termination or notice of non-renewal (other than by expiration of the term) of
any Material Contract to which any Credit Party is a party or by which its
properties or assets are subject or bound;

 

(viii)                        the filing, recording or assessment of any
federal, state, local or foreign tax Lien against any Collateral or any Credit
Party;

 

(ix)                                the creation, establishment or acquisition of
any Subsidiary or the issuance by Borrower of any Capital Stock or other equity
security or warrant, option or similar agreement in respect thereof other than
Permitted Securities of Evolving Systems; or

 

(x)                                   any
default or breach in the
performance, observance or fulfillment of any provision contained in any
Material Contract that with the giving of notice and passage of time permits
the other party thereto to terminate such Material Contract or otherwise reduce
or limit any material amounts owed by such other party thereunder.

 

Each notice in accordance with the foregoing shall be accompanied by a
written statement by a Responsible Officer on behalf of Borrower setting forth
details of the occurrence referred to therein, and describing with
particularity any and all clauses or provisions of this Agreement and the other
Loan Documents that have been breached or violated.

 

(d)                                 Operating Budget and
Projections.  Borrower shall furnish to Agent and each
Lender on or prior to the Closing Date and for each fiscal year of Borrower
thereafter prior to the commencement of such fiscal year, consolidated month by
month projected operating budgets, projections, profit and loss statements,
income statements, balance sheets and cash flow reports of and for the Credit
Parties for such upcoming fiscal year (including an income statement for and a
balance sheet as at the end of each such month), and annual projections for the
fiscal years then remaining in the Term, in each case prepared in accordance
with GAAP consistently applied with prior periods (subject to normal year-end
adjustments and the absence of footnote disclosure).

 

(e)                                  Shareholder/Equity Holder
Reports and Government Filings.  The Credit Parties shall furnish to Agent,
within five (5) Business Days after the sending or filing thereof, copies,
which may be in electronic form, of all proxy statements, financial statements
and reports which any Credit Party has made available to its shareholders or
other equity owners as a class or any class or series of shareholders or other
equity owners as a class or series, and copies of all regular, periodic and
special reports, financial statements or registration statements which any
Credit Party files with the Securities and Exchange Commission, any stock
exchange or any Governmental Authority.

 

(f)                                    Government Filings Referencing Agent or Lenders.  A reasonable time prior to its use, disclosure or distribution thereof, the Credit
Parties shall and shall cause their Subsidiaries to provide in writing every document to be filed pursuant to state or
federal

 

 

securities laws that contain Agent’s or any Lender’s name or describe
or refer to any Loan Document, any of the terms thereof or any of the
transactions contemplated thereby.

 

 

Exhibit C-2

 

Collateral
Reporting and Other Requirements

 

(a)                                  Collateral Reporting.  Each Credit Party shall:

 

(i)                                     provide Agent with not less than thirty (30)
days’ prior written notice of any change in such Credit Party’s legal name,
organizational identification number, if any, federal employer identification
number, mailing address, corporate or organizational form or jurisdiction of
organization, or of any new location for any of its Property valued at more
than $100,000;

 

(ii)                          notify Agent promptly in writing (A) prior
to any change in the proposed use by such Credit Party or Subsidiary of any
trade name or fictitious business name and (B) upon obtaining knowledge
that any application or registration relating to any Necessary Intellectual
Property (whether now or hereafter existing) may become abandoned, or of any
adverse determination or development (including the institution of, or any such
determination or material development in, any proceeding in the United States
Patent and Trademark Office, the United States Copyright Office or any court)
regarding such Credit Party’s or Subsidiary’s ownership of any Necessary Intellectual
Property, its right to register the same, or to keep and maintain the same;

 

(iii)                       promptly notify Agent of any Commercial Tort Claim
in excess of $50,000 and any claims in excess of $100,000 in the aggregate,
acquired by it and, unless otherwise consented to by Agent, and promptly enter
into a supplement to the Security Agreement to which it is a party granting to
Agent, for the benefit of the Lender Parties, a Lien on and security interest
in such Commercial Tort Claim;

 

(iv)                      upon acquiring or receiving any of the same,
deliver and pledge to Agent any and all Instruments (excluding checks, drafts
and similar instruments that are customarily endorsed or presented for
collection or deposit in the Ordinary Course of Business), negotiable
Documents, Chattel Paper and, subject to the limitations in Section 6.7(e) of
this Agreement, certificated Securities (or Capital Stock) (accompanied by
stock powers executed in blank) duly endorsed and/or accompanied by such
instruments of assignment and transfer executed by such Person in such form and
substance as Agent may request in its Permitted Discretion; provided, that so
long as no Event of Default shall have occurred and be continuing, each Credit
Party or Subsidiary may retain for collection in the Ordinary Course of Business
any Instruments, negotiable Documents and Chattel Paper received by such Person
in the Ordinary Course of Business; provided, further, that if any such Credit
Party or Subsidiary retains possession of any Instruments (excluding checks,
drafts and similar instruments that are customarily endorsed or presented for
collection or deposit in the Ordinary Course of Business), negotiable Documents
or Chattel Paper pursuant to the terms hereof, each such Instrument, negotiable
Documents and Chattel Paper shall be marked with the following legend: “This
writing and the obligations evidenced or secured hereby are subject to the
security interest of CapitalSource Finance LLC, as Agent, as secured

 

 

party, for the benefit of certain Lender
Parties” in each case in accordance with the terms of any applicable Security
Agreement;

 

(v)                         deliver to Agent an updated Schedule I
(Filing Jurisdictions), Schedule II (Capital Stock, Instruments,
Documents, Letter of Credit Rights and Chattel Paper), and/or Schedule III
(Legal Names, Prior Names, Type of Entity, Organizational Identification
Number, State of Organization, Chief Executive Office, Principal Place of
Business, Offices, Warehouses, Consignees, Processors, Books and Records) of
the Security Agreement to which it is a party within five (5) Business
Days of any change thereto;

 

(vi)                      prior to any Credit Party opening any new
deposit or securities accounts (except accounts used exclusively for payroll
and employee benefits), such Credit Party shall give Agent not less than ten (10) Business
Days’ prior written notice of its intention to do so and shall deliver to Agent
a revised version of Schedule V (Deposit Accounts) of the Security
Agreement to which it is a party showing any changes thereto within five (5) Business
Days of any such change (and shall otherwise obtain and deliver to Agent an
Account Control Agreement in respect thereof in accordance with the terms of
such Security Agreement);

 

(vii)                   advise Agent promptly, in reasonable detail, (A) of
any Lien (other than a Permitted Lien) or material claim made or asserted
against any of the Collateral, and (B) of the occurrence of any other
event which would reasonably be expected to have a Material Adverse Effect on
the value of the Collateral or on the Liens created hereunder or under any
other Loan Document;

 

(viii)                promptly, and in any event within five (5) Business
Days after becoming a beneficiary, notify Agent of the issuance of any letter
of credit of which such Credit Party or Subsidiary is a beneficiary;

 

(ix)                        promptly notify Agent of any Collateral which
constitutes a claim against the United States government or any instrumentality
or agent thereof, in an amount equal to or greater than $50,000 individually or
$100,000 in the aggregate, the assignment of which claim is restricted by
federal law and, upon the request of Agent, such Credit Party or Subsidiary
shall take such steps as may be necessary to comply with any applicable federal
assignment of claims laws or other comparable laws; and

 

(x)                           promptly comply with all of the terms and
conditions of each Security Agreement to which such Credit Party or Subsidiary
is a party as is necessary or desirable to ensure the attachment, granting,
creation, perfection, continuation and/or enforceability of a Lien, in favor of
Agent, for the benefit of the Lender Parties, as a result of any of the events
or circumstances described in the other clauses of this paragraph (b) in
each case subject to any grace or cure periods set forth therein.

 

 

Exhibit D

 

Closing
Conditions

 

(a)                                  Agent
shall have received (i) the Loan Documents executed by each Credit Party
and the other parties thereto and (ii) executed copies of the Revolving
Loan Documents;

 

(b)                                 Agent shall have received (i) a report
of Uniform Commercial Code financing statement, tax, pending suit and judgment
lien searches as requested by Agent, and such report shall show no Liens on the
Collateral (other than Permitted Liens and Liens to be terminated at Closing), (ii) each
document (including, without limitation, any Uniform Commercial Code financing
statements) required by any Loan Document or under law or requested by Agent in
its Permitted Discretion to be filed, registered or recorded to create and
perfect, in favor of Agent, for the benefit of the Lenders Parties, a first
priority Lien upon the Collateral, subject only to Priority Permitted Liens,
and (iii) evidence of each such filing, registration and recordation and
of the payment by Borrower of any necessary fee, tax or expense relating
thereto;

 

(c)                                  Agent shall have received: (i) a payoff
letter and lien termination agreement from the holders of the Subordinated
Notes in form and substance satisfactory to Agent in its Permitted Discretion
providing for (A) partial repayment of the liabilities and obligations of
the Credit Parties to the holders of the Subordinated Notes and (B) termination
of all security agreements and related documents with respect to all Liens and
Uniform Commercial Code financing statements relating thereto, (ii) release
and termination of, or Agent’s authority to release and terminate, any and all
other Liens and/or Uniform Commercial Code financing statements in, on, against
or with respect to any of the Collateral, other than Permitted Liens, and (iii) evidence
that all prior lockbox and blocked account arrangements, if any, are
terminated;

 

(d)                                 [Reserved];

 

(e)                                  Agent shall have received (i) the
Charter and Good Standing Documents, (ii) a certificate of the secretary
or assistant secretary of each Credit Party, dated the Closing Date, as to the
incumbency and signature of the Persons executing the Loan Documents and the
Related Documents on behalf of such Credit Party, (iii) the written legal
opinions of counsel and/or special counsel for the Credit Parties with respect
to the Loan Documents and the Revolving Loan Documents, and (iv) a
certificate executed by an Responsible Officer of Borrower Funds Administrator,
which contains a representation and warranty by Borrower as of the Closing Date
that the conditions contained in this Agreement have been satisfied;

 

(f)                                    Agent shall be satisfied with all corporate
and other proceedings, documents, instruments and other legal matters in
connection with the transactions contemplated by the Loan Documents, the
Revolving Loan Documents and the Related Documents (including, but not limited
to, those relating to corporate and capital structures of each Credit Party);

 

(g)                                 the Related Transactions (other than the
Transfer Pricing Agreement) shall have closed in the manner contemplated by the
Related Documents, and Agent shall have received certified copies of such
Related Documents;

 

 

(h)                                 Agent shall have received original
certificates of all such required insurance policies, and confirmation that
such certificates are in effect and that the premiums then due and owing with
respect thereto have been paid in full, which certificates shall name the
Agent, for the benefit of the Lender Parties, as sole beneficiary, loss payee
or additional insureds (except in the case of additional insureds as permitted
by Section 6.4(c)), as applicable;

 

(i)                                     Agent
shall have received (or shall receive simultaneously with the funding of the
Loan) all fees, charges and expenses due and payable to Agent and Lenders on or
prior to the Closing Date pursuant to the Loan Documents;

 

(j)                                     All in form and substance satisfactory to
Agent in its Permitted Discretion, Agent shall have received such consents,
approvals and agreements from such third parties as Agent and its counsel shall
determine in their Permitted Discretion are necessary or desirable with respect
to (i) the Loan Documents and/or the transactions contemplated thereby, (ii) claims
against any Credit Party or any of the Collateral, and/or (iii) agreements,
documents or instruments to which any Credit Party is a party or by which any
of its properties or assets are bound or subject, including without limitation
Landlord Waivers and Consents for each property lease;

 

(k)                                  Agent shall have completed its due diligence
examinations of each Credit Party and their Subsidiaries, including, without
limitation, (i) examination of the Collateral and its financial due
diligence, (ii) an examination of the terms and conditions of all
obligations owed by such Person deemed material by Agent, the results of which
shall be satisfactory to Agent, and (iii) customer reference checks and
calls, credit checks and background checks with respect to the relevant key
management and principals of each Credit Party and their Subsidiaries;

 

(l)                                     There shall be no event of default under a
Material Contract as of the Closing Date;

 

(m)                               no Material Adverse Effect shall have
occurred since June 30, 2005 and Agent shall have received the audited
financial statements of the Credit Parties for the fiscal year ended December 31,
2004 and the unaudited financial statements of the Credit Parties on a
consolidated, consolidating and pro-forma basis for the eight (8) month
period ending and as of August 31, 2005;

 

(n)                                 Agent shall have received evidence that
consolidated EBITDA of Borrower (calculated, for purposes of this subsection (n)
without regard for the amounts that would be accrued in connection with TSE
Contingent Obligations if the Credit Parties accrued for such amounts) for the
six (6)-month period ended on June 30, 2005 was at least Two Million Seven
Hundred Fifty Thousand Dollars ($2,750,000);

 

(o)                                 Agent shall have received such other
approvals, opinions, documents, agreements, instruments, certificates and
materials as Agent or any Lender may request in their Permitted Discretion;

 

(p)                                 The Credit Parties and their Consolidated
Subsidiaries, on a consolidated basis without duplication shall have an
aggregate of at least $4,000,000 of
unrestricted cash,

 

 

marketable
securities and Availability under the Revolving Facility, as defined in the
Revolving Loan Agreement; and

 

(q)                                 No Default or Event of
Default shall have occurred and be continuing or will occur after giving effect
to the transactions contemplated by the Loan Documents.

 

 

APPENDIX A

 

DEFINITIONS

 

The
following terms are defined in the Sections or subsections referenced opposite
such terms:

 

	
  “Accommodation Payment”

  	
  12.13(c)

  
	
  “Affected Lender”

  	
  13.4

  
	
  “Agent”

  	
  Preamble

  
	
  “Agreement”

  	
  Preamble

  
	
  “Borrower”

  	
  Preamble

  
	
  “Capital Expenditures”

  	
  Exhibit D

  
	
  “CapitalSource”

  	
  Preamble

  
	
  “Confidential Information”

  	
  13.10

  
	
  “EBITDA”

  	
  Exhibit D

  
	
  “Event of Default”

  	
  VIII

  
	
  “Fixed Charge Coverage Ratio”

  	
  Exhibit D

  
	
  “Guaranteed Obligations”

  	
  14.1

  
	
  “Indemnified Persons”

  	
  12.4

  
	
  “Insured Event”

  	
  12.4

  
	
  “Interest Coverage Ratio”

  	
  Exhibit D

  
	
  “Interest Settlement Date”

  	
  11.5(a)(iii)

  
	
  “Investments”

  	
  7.4

  
	
  “Leverage Ratio”

  	
  Exhibit D

  
	
  “Maximum Liability”

  	
  14.5

  
	
  “Necessary Intellectual Property”

  	
  5.11

  
	
  “Non-U.S. Lender”

  	
  13.1(f)

  
	
  “Other Taxes”

  	
  13.1(b)

  
	
  “Participant”

  	
  12.2(b)

  
	
  “Permitted Indebtedness”

  	
  7.2

  
	
  “Permitted Liens”

  	
  7.3

  
	
  “Premium Financing Agreement”

  	
  7.8(k)

  
	
  “Receipt”

  	
  12.5

  
	
  “Register”

  	
  2.4

  
	
  “Replacement Lender”

  	
  13.4

  
	
  “Restricted Payments”

  	
  7.5

  
	
  “SEC”

  	
  5.10

  
	
  SEC Documents

  	
  5.10

  
	
  “Taxes”

  	
  13.1(a)

  
	
  “Transferee”

  	
  12.2(a)

  
	
  “UK Subsidiaries”

  	
  Annex A

  
	
  “UFCA”

  	
  12.13(c)

  
	
  “UFTA”

  	
  12.13(c)

  

 

In
addition to the terms defined elsewhere in the Agreement, the following terms
have the following meanings:

 

 

“Account
Control Agreement” shall mean, with respect to each deposit account,
securities account or other account of any Credit Party, excluding each
exclusively payroll account opened in the Ordinary Course of Business, an
agreement, in form and substance satisfactory to Agent in its Permitted
Discretion, among Agent, such Credit Party and the financial institution at
which such account is maintained, pursuant to which, among other things, Agent,
for the benefit of the Lender Parties, has “control” under the UCC over, and
otherwise has a first priority and perfected Lien on, such account and all
Property from time to time on deposit or otherwise credited to such account.

 

“Acquisition”
shall mean any transaction or series of related transactions for the purpose of
or resulting, directly or indirectly, in (a) the acquisition of all or
substantially all of the assets of a Person, or of any business or division of
a Person, (b) the acquisition of more than fifty percent (50%) of the
Capital Stock of any Person or otherwise causing any Person to become a
Subsidiary of a Credit Party, or (c) a merger, amalgamation, consolidation
or other combination with another Person.

 

“Affiliate”
or “affiliate” shall mean, as to any initial Person, any other Person (a) that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such initial Person, (b) who
is or within the preceding ten years was a director or officer (i) of such
initial Person, (ii) of any Subsidiary of such initial Person, or (iii) of
any other Person described in clause (a) above with respect to such
initial Person, or (c) which, directly or indirectly through one or more
intermediaries, is the beneficial or record owner (as defined in Rule 13d-3
of the Securities Exchange Act of 1934, as amended) of twenty percent (20%) or
more of any class of the outstanding voting Capital Stock of such initial
Person.  For purposes of this definition,
the term “control” (and the correlative terms, “controlled by” and “under
common control with”) shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and/or policies of a Person,
whether through ownership of securities or other interests, by contract or
otherwise.

 

“Applicable
Default Margin” shall mean four percent (4.0%).

 

“Applicable
Margin” shall mean six and one quarter percent (6.25%); provided, however,
that the Applicable Margin shall, from time to time, be five and one quarter
percent (5.25%) for the quarter following each fiscal quarter in which
quarterly financial statements are delivered pursuant to this Agreement in
which the Leverage Ratio calculated as of the last day of such prior quarter
was less than 1.50 to 1.

 

“Bankruptcy
Code” shall mean the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101,
et seq.), as amended and in effect from time to time and the regulations issued
from time to time thereunder.

 

“Borrower
Funds Administrator” shall mean Evolving Systems, Inc. or such
successor Person approved by Agent.

 

“Business”
shall mean the development, distribution and implementation of software
primarily for the communications industry and the provision of related
services, and other activities that are reasonably incidental or ancillary
thereto.

 

 

“Business
Day” shall mean any day other than a Saturday, Sunday or other day on which
the Federal Reserve or Agent is authorized or required by law to be closed.

 

“Capital
Lease” shall mean, as to any Person, any lease of any interest in any kind
of Property by that Person as lessee that is, should be or should have been
recorded as a “capital lease” in accordance with GAAP.

 

“Capital
Lease Obligations” shall mean all obligations of any Person under Capital
Leases, in each case taken at the amount thereof accounted for as a liability
in accordance with GAAP.

 

“Capital
Stock” shall mean, as to any Person that is a corporation, the authorized
shares of such Person’s capital stock or shares, including all classes of
common, preferred, voting and nonvoting capital stock or shares, and, as to any
Person that is not a corporation or an individual, the partnership, membership
or other ownership interests in such Person, including, without limitation, the
right to share in profits and losses, the right to receive distributions of
cash and other Property, and the right to receive allocations of items of
income, gain, loss, deduction and credit and similar items from such Person,
whether or not such interests include voting or similar rights entitling the
holder thereof to exercise control over such Person, collectively with, in any
such case, all warrants, options and other rights to purchase or otherwise
acquire, and all other instruments convertible into or exchangeable for, any of
the foregoing.

 

“Cash
Equivalents” shall mean (a) securities issued, or directly and fully
guaranteed or insured, by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than six (6) months
from the date of acquisition, (b) time deposits, certificates of deposit
and bankers’ acceptances of items denominated in the currency of the holder’s
jurisdiction of formation (i) any domestic commercial bank of recognized
standing having capital and surplus in excess of $500,000,000, or (ii) any
bank (or the parent company of such bank) whose short-term commercial paper
rating from Standard & Poor’s Ratings Services (“S&P”) is at least
A-2 or the equivalent thereof or from Moody’s Investors Service, Inc. (“Moody’s”)
is at least P-2 or the equivalent thereof in each case with maturities of not
more than six (6) months from the date of acquisition (any bank meeting
the qualifications specified in clauses (b)(i) or (ii), an “Approved Bank”),
(c) repurchase obligations with a term of not more than seven (7) days
for underlying securities of the types described in clause (a) above
entered into with any Approved Bank, (d) commercial paper issued by any
Approved Bank or by the parent company of any Approved Bank and commercial
paper issued by, or guaranteed by, any industrial or financial company with a
short-term commercial paper rating of at least A-2 or the equivalent thereof by
S&P or at least P-2 or the equivalent thereof by Moody’s, or guaranteed by
any industrial company with a long term unsecured debt rating of at least A or
A2, or the equivalent of each thereof, from S&P or Moody’s, as the case may
be, and in each case maturing within six (6) months after the date of
acquisition, and (e) investments in money market funds substantially all
of whose assets are comprised of securities of the type described in clauses (a) through
(d) above.

 

 

“Change
of Control” shall mean the occurrence of any of the following:

 

(i)                             any “change in/of control” or “sale” or “disposition”
or similar event as defined in any Organizational Document of any Credit Party or
the Subordinated Notes;

 

(ii)                          the consummation of any initial Public
Offering by any Credit Party after the Closing Date;

 

(iii)                       Any Person and its Affiliates, individually
or as part of a group (as that term is described in Rule 13d-5(b)(1) under
the Exchange Act), either (A) owning or controlling in the aggregate in
excess of 20% of the then outstanding voting Capital Stock of Evolving Systems
or (B) being able to elect a majority of the board of directors of
Evolving Systems;

 

(iv)                              Any Credit Party ceases to own and control,
beneficially and of record, one hundred percent (100%) of the issued and
outstanding Capital Stock (other than directors’ qualifying shares required by
law), free and clear of all Liens, rights, options, warrants or other similar
agreements or understandings, other than Liens in favor of Agent, for the
benefit of the Lender Parties of any Subsidiary of which it own, or controls
such Capital Stock as of the Closing Date;

 

(v)                                 Stephen K. Gartside, Jr. ceases to be
employed as Chief Executive Officer of Borrower or otherwise dies or becomes
disabled and, in any case, shall not have been replaced within forty-five (45)
calendar days by an interim Chief Executive Officer, and within two hundred
seventy (270) days by a permanent Chief Executive Officer with such permanent
replacement having similar experience and qualifications as the Chief Executive
Officer being replaced; or

 

(vi)                              Any Credit Party is subject to Shareholder
Blocking Rights which have not been waived pursuant to an agreement in form and
substance satisfactory to Agent in its Permitted Discretion; provided that any
voting rights of the holders of Evolving System’s Series B Convertible
Preferred Stock under Section 3(c) of the Certificate of Designation
have only been waived, if at all, with respect to the rights of the Agent and
Lenders under the Loan Documents.

 

“Charter
and Good Standing Documents” shall mean, for each Credit Party, (i) a
copy of the certificate of incorporation or formation (or other applicable
charter document) certified as of a date not more than twenty one (21) Business
Days prior to the Closing Date by the applicable Governmental Authority of the
jurisdiction of incorporation or organization of such Credit Party, (ii) a
copy of the bylaws or similar Organizational Documents of such Credit Party certified
as of a date not more than twenty one (21) Business Days prior to the Closing
Date by the corporate secretary or assistant secretary of such Credit Party (or
its general partner or managing member, as the case may be), (iii) an
original certificate of good standing as of a date acceptable to Agent issued
by the applicable Governmental Authority of the jurisdiction of incorporation
or organization of such Credit Party and of every other jurisdiction in which
such Credit Party has an office or conducts business or is otherwise required
to be in good standing, and (iv) copies of

 

 

the resolutions of the Board of Directors or Managers (or other
applicable governing body of such Credit Party) of such Credit Party and, if
required, stockholders, members, partners or other equity owners, authorizing
the execution, delivery and performance of the Loan Documents and the Related
Documents to which such Credit Party is a party, certified by the corporate
secretary or assistant secretary of such Credit Party (or its general partner
or managing member, as the case may be) as of the Closing Date.

 

“Closing”
shall mean the satisfaction, or written waiver by Agent and Requisite Lenders,
of all of the conditions precedent set forth in this Agreement required to be
satisfied prior to the disbursement of the Loan and consummation of the other
transactions contemplated hereby.

 

“Closing
Date” shall mean the date of this Agreement.

 

“Code”
shall mean the Internal Revenue Code of 1986, and regulations promulgated
thereunder.

 

“Collateral”
shall mean, collectively, all Property, interests in Property, collateral
and/or security granted and/or securities pledged to Agent, for the benefit of
the Lender Parties, or any Lender by the Credit Parties and any other Person to
secure the Obligations or any part thereof pursuant to the Loan Documents,
including, without limitation, all Property in which a Lien is granted pursuant
to the Security Documents to secure the Obligations or any part thereof.

 

“Commitment”
or “Commitments” shall mean as to all Lenders, the aggregate commitments
of all Lenders to fund the Loan as the same may be reduced, modified or
terminated from time to time pursuant to this Agreement.

 

“Compliance
Certificate” shall mean a compliance certificate executed by a Responsible
Officer of Borrower in the form of Exhibit B-2 hereto.

 

“Contingent
Obligations” shall mean, as to any Person, any agreement, undertaking or
arrangement by which such Person assures, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, any Indebtedness, leases, dividends or other
obligations (“primary obligations”) of any other Person (the “primary obligor”)
in any manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, whether or not contingent, (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, including, without
limitation, any so-called “keepwell” or “makewell” agreement, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, (d) otherwise to assure or to hold
harmless the owner of such primary obligation against loss in respect thereof, (e) with
respect to any letter of credit of such Person or as to which that Person is
otherwise liable for reimbursement of drawings, or (f) with respect to any
Hedging Agreement; provided, however, that the term “Contingent Obligation”
shall not include endorsements of instruments for deposit or collection in the
Ordinary Course of Business.  The amount
of any Contingent Obligation shall be deemed

 

 

to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made or,
if not stated or determinable, the maximum reasonably anticipated liability in
respect thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith.

 

“Credit
Party” shall mean each of Evolving Systems, Inc., Telecom Software
Enterprises, LLC, Intermediate Holdco, and all Domestic Subsidiaries of such
persons.

 

“Credit
Parties” shall mean Evolving Systems, Telecom Software Enterprises, LLC,
Intermediate Holdco, and all Domestic Subsidiaries of such persons.

 

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

 

“Debtor Relief Law” shall mean,
collectively, the Bankruptcy Code and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally, in each case as amended
from time to time.

 

“Default”
shall mean any event, fact, circumstance or condition that, with the giving of
applicable notice or passage of time or both, would constitute, be or result in
an Event of Default.

 

“Default
Rate” shall mean a per annum rate equal to the Libor Rate in effect from
time to time, plus six and one quarter percent (6.25%), plus the
Applicable Default Margin; provided, that if any Obligation otherwise does not
bear interest, the Default Rate with respect thereto shall equal the Libor Rate
in effect from time to time, plus six and one quarter percent (6.25%), plus
the Applicable Default Margin.

 

“Dollars”
and “$” shall mean lawful money of the United States of America.

 

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

 

“Eligible
Assignee” shall mean any of the following: 
(a) a commercial bank organized under the laws of the United
States, or any state thereof; (b) a commercial bank organized under the
laws of any other country; (c) a finance company, insurance company or
other financial institution or fund which is engaged in making, purchasing or
otherwise investing in commercial loans or other debt obligations for its own
account in its ordinary course of business; or (d) a Related Fund.

 

“Environmental
Laws” shall mean, collectively, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendment and
Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the
Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, any other
“Superfund” or

 

 

“Superlien” law and all other federal, state and local and foreign
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation, transportation,
processing, handling, production or disposal of Hazardous Substances, in each
case, as amended, and the legally-binding rules, regulations, policies,
guidelines, interpretations, decisions, orders and directives of Governmental
Authorities with respect thereto.

 

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

 

“Eurocurrency
Reserve Requirement” for any day shall mean the aggregate (without
duplication) of the rates (expressed as a decimal rounded upward to the nearest
1/100th of 1%) as determined by Agent of reserve requirements in
effect on such day (including, without limitation, basis, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System of the United Stated or other Governmental
Authority, or any successor thereto, having jurisdiction with respect thereto)
prescribed for Eurocurrency funding (currently referred to as “Eurocurrency
Liabilities” in Regulation D of such Board) maintained by a member bank of the
Federal Reserve System.

 

“Excess
Cash Flow” shall mean, for Evolving Systems and its consolidated
Subsidiaries, for each fiscal year commencing with the year ending December 31,
2006, on a consolidated basis without duplication, an amount equal to the sum
of (i) EBITDA (as defined in Annex I hereof) for such fiscal year, minus
(ii) actual cash franchise and income tax paid in cash during such fiscal
year, minus (iii) cash Interest Expense on the Loan and the
Revolving Facility and the Subordinated Notes actually paid during such fiscal
year, if any, minus (iv) Unfinanced Capital Expenditures (as
defined in Exhibit B-1 hereto) of the Credit Parties and their
Subsidiaries for such fiscal year minus (v) an amount equal to the
aggregate amount of all scheduled repayments of principal and all prepayments
of the Loan for such fiscal year, if any, minus (vi) an amount
equal to the sum of payments of principal on the Subordinated Notes and
Revolving Facility, if any, (to the extent such payments on the Revolving
Facility resulting in permanent reductions of the Revolving Facility) actually
made during such period to the extent permitted hereunder.

 

“Exchange Act” shall mean the
Securities Exchange Act of 1934, as amended.

 

“Fair
Valuation” shall mean the determination of the value of the consolidated
assets of a Person on the basis of the amount which may be realized by a
willing seller within a reasonable time through collection or sale of such
assets at market value on a going concern basis to an interested buyer who is
willing to purchase under ordinary selling conditions in an arm’s length
transaction.

 

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

 

“GAAP”
shall mean generally accepted accounting principles in the United States of
America in effect from time to time as applied by nationally recognized
accounting firms.

 

 

“Governmental
Authority” shall mean any federal, state, foreign, municipal, national,
provincial, local or other governmental department, court, commission, board,
bureau, agency or instrumentality or political subdivision thereof, or any
entity or officer exercising executive, legislative or judicial, regulatory or
administrative functions of or pertaining to any government or any court, in
each case, whether of the United States or a state, territory or possession
thereof, a foreign sovereign entity or country or jurisdiction or the District
of Columbia.

 

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

 

“Guaranty”
shall mean any guaranty executed by a Guarantor, including, without limitation,
the guaranty effectuated by Article XIV of this Agreement or any
guaranty set forth in a Pledge Agreement executed by a Person relating to the
Capital Stock of Borrower or any of its Subsidiaries.

 

“Hazardous
Substances” shall mean any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related materials as defined
in or other substances or materials regulated by or subject to, or which may
form the basis of liability under, any applicable Environmental Law.

 

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

 

“Indebtedness”
of any Person shall mean, without duplication: (a) all indebtedness for
borrowed money; (b) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (other than trade payables
incurred and payable in the Ordinary Course of Business of such Person); (c) the
face amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder and all reimbursement or
payment obligations with respect to letters of credit, surety bonds and other
similar instruments issued by such Person; (d) all obligations evidenced
by notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses; (e) all indebtedness created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in either
case with respect to Property acquired by such Person (even though the rights
and remedies of the seller or bank under such agreement in the event of default
are limited to repossession or sale of such property); (f) all Capital
Lease Obligations; (g) the principal balance outstanding under any
synthetic lease, off-balance sheet loan or similar off balance sheet financing
products; (h) all indebtedness referred to in clauses (a) through (g) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in Property
(including accounts and contracts rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
indebtedness; and (i) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a) through
(h) above.

 

 

“Intellectual
Property” shall mean all present and future:  trade secrets, know-how and other proprietary
information; trademarks, trademark applications, internet domain names, service
marks, trade dress, trade names, business names, designs, logos, slogans (and
all translations, adaptations, derivations and combinations of the foregoing)
indicia and other source and/or business identifiers, and the goodwill of the
business relating thereto and all registrations or applications for
registrations which have heretofore been or may hereafter be issued thereon
throughout the world; copyrights and copyright applications; (including
copyrights for computer programs) and all tangible and intangible property
embodying the copyrights, unpatented inventions (whether or not patentable);
patents and patent applications; industrial design applications and registered
industrial designs; license agreements related to any of the foregoing and
income therefrom; books, records, writings, computer tapes or disks, flow
diagrams, specification sheets, computer software, source codes, object codes,
executable code, data, databases and other physical manifestations, embodiments
or incorporations of any of the foregoing; the right to sue for all past,
present and future infringements of any of the foregoing; all other
intellectual property; and all common law and other rights throughout the world
in and to all of the foregoing.

 

“Intellectual
Property Security Agreement” shall mean an Acknowledgment of Intellectual
Property Collateral Lien executed by a Credit Party in favor of Agent, for the
benefit of the Lender Parties, as the same may be modified, amended, restated
or supplemented from time to time.

 

“Interest
Payment Date” shall mean the first day of each calendar month.

 

 “Joinder Agreement” shall mean an
agreement, in form and substance satisfactory to Agent in its Permitted Discretion,
pursuant to which, among other things, a Person becomes a party to, and bound
by the terms of, this Agreement and/or the other Loan Documents in the same
capacity and to the same extent as either Borrower or a Guarantor, as Agent may
determine.

 

“Landlord
Waiver and Consent” shall mean a waiver or consent, in form and substance
satisfactory to Agent in its Permitted Discretion, pursuant to which a
mortgagee, owner or lessor of real property on which any Collateral is stored
or otherwise located, or a warehouseman, processor or other bailee of any
Property of any Credit Party, (i) acknowledges and consents to the Liens
of Agent, for the benefit of the Lender Parties under the Loan Documents, (ii) waives
any Liens held by such Person on such Property, and (iii) in the case of
any such agreement with a mortgagee or lessor, permits Agent access to and use
of such real Property for a reasonable amount of time following the occurrence
and during the continuance of an Event of Default to assemble, complete and
sell any Collateral stored or otherwise located thereon.

 

“Lender”
shall mean any of the Persons from time to time named on Schedule A
under the headings “Lenders,” and their respective successors and permitted
assigns (but not, except as expressly set forth herein, any Participant that
otherwise is not a party to this Agreement), and “Lenders” shall mean all of
them collectively.

 

“Lender
Addition Agreement” shall mean an agreement among Agent, a Lender and such
Lender’s assignee regarding their respective rights and obligations with
respect to assignments of

 

 

the Commitments, the Loan and other interests under this Agreement and
the other Loan Documents, in form and substance acceptable to Agent in its
Permitted Discretion; it being agreed and understood that the consent or
approval of Borrower shall be required thereto only in accordance with the
terms of Section 13.1.

 

“Lender
Parties” shall mean, collectively, Agent and Lenders, and “Lender Party”
shall mean any of them.

 

“Lending
Office” shall mean, with respect to any Lender, the office or offices of
such Lender specified as its “Lending Office” opposite its name on the
applicable signature page hereto, or such other office or offices of such
Lender as it may from time to time notify Borrower and Agent.

 

“Libor
Rate” shall mean a fluctuating per annum rate of interest equal to (i) the
rate per annum (rounded upwards to the nearest 1/100th of 1%) equal
to the offered rate for deposits of Dollars for a 30-day period which appears
on Telerate page 3750 as of 11:00 A.M. (London time) Rate divided by (ii) 1.00
minus the Eurocurrency Reserve Requirements in effect.  “Telerate page 3750” means the display
designated as “page 3750” on the Telerate Service (or such other page as
may replace Page 3750 on that service or such other service as may be
nominated by the British Bankers’ Association as the information vendor for the
purpose of displaying British Bankers’ Association Interest Settlement Rates
for deposits in Dollars).

 

“Lien”
shall mean any mortgage, pledge, security interest, encumbrance, transfer,
charge or other restriction, lien or charge of any kind or any other priority
arrangement (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement or any lease in the nature
thereof), or any other arrangement pursuant to which title to the Property is
retained by or vested in some other Person for security purposes.

 

“Life
Insurance Policy” shall mean a current, valid and fully paid key man life
insurance policy insuring the life of Stephen K. Gartside, Jr. in the
amount of $1,000,000 that (i) lists Agent, for the benefit of the Lender
Parties, as the sole beneficiary thereunder, (ii) is issued by a carrier
and otherwise is in form and substance acceptable to Agent in its Permitted
Discretion, (iii) cannot be altered, amended or modified in any respect
(including, without limitation, with respect to amounts of coverage and
beneficiaries without the consent of Agent), and (iv) cannot be canceled
without at least thirty (30) Business Days’ prior written notice to Agent.

 

“Loan”
shall mean the term loan in aggregate principal balance of $8,500,000 made by
the Lenders to the Borrowers pursuant to this Agreement.

 

“Loan
Documents” shall mean, collectively, this Agreement, the Notes, if any, the
Security Documents, all Compliance Certificates, the Subordination Agreements and
all other agreements, documents, instruments and certificates heretofore or
hereafter executed and/or delivered to Agent or any Lender by or on behalf of
any Credit Party in connection with any of the foregoing or the Loan, in each
case as the same may be amended, modified or supplemented from time to time.

 

 

“Material
Adverse Effect” shall mean any event, condition, obligation, liability or circumstance
or set of events, conditions, obligations, liabilities or circumstances or any
change(s) which:

 

(i)                                     has,
had or would reasonably be expected to have a material adverse effect upon or
change in (a) the legality, validity or enforceability of any Loan
Document to which a Credit Party is a party or (b) the aggregate rights
and remedies of the Agent under the Loan Documents taken as a whole;

 

(ii)                                  has been or would reasonably be expected to
be material and adverse to the value of any of the Collateral, taken as a
whole, or to the business, operations, liabilities or condition (financial or
otherwise) of Evolving Systems or Revolving Borrower, individually, or of the
Credit Parties taken as a whole; or

 

(iii)                               has materially impaired or would reasonably
be expected to materially impair the ability of Evolving Systems or Revolving
Borrower, individually, or of the Credit Parties taken as a whole to perform
any of its or their Obligations, or to consummate the transactions, under the
Loan Documents.

 

“Material Contracts” means (i) the
Related Documents and (ii) any other one or series of related contracts,
agreements or arrangements to which Credit Parties or any of their Subsidiaries
are a party that involve aggregate
consideration payable to or by such Credit Party or such Subsidiary of
more than $1,000,000 annually.

 

“Maturity Date”  shall mean the earliest to occur of (i) the
acceleration (whether automatic or by written notice) of any Obligations in
accordance with the terms of this Agreement and (ii) the last day of the
Term.

 

“Mortgage”
shall mean a mortgage, deed of trust, deed to secure debt, leasehold mortgage,
leasehold deed of trust, leasehold deed to secure debt or similar instrument
creating a Lien on real Property or on any interest in real Property to secure
any of the Obligations.

 

“Net
Proceeds” shall mean:

 

(i)                                     in
respect of any issuance of debt or equity, cash proceeds and non-cash proceeds
received or receivable in connection therewith, net of underwriting discounts
and reasonable out-of-pocket costs and expenses paid or incurred in connection
therewith in favor of any Person that is not an Affiliate of any Credit Party;
and

 

(ii)                                  in respect of any disposition, casualty,
condemnation, taking or other event of loss, proceeds in cash, checks or other
cash equivalent financial instruments (including Cash Equivalents) as and when
received by the Person making such disposition or all insurance proceeds
received on account of such casualty, condemnation, taking or other event of
loss, in any such case net of: (i) in the event of a disposition, (x) the
direct costs and expenses relating to such disposition excluding amounts
payable to Borrower or any Affiliate of any Credit Party, (y) sale, use or
other transaction taxes paid or payable as a result thereof, and (z) amounts
required to be

 

 

applied to repay principal, interest and
prepayment premiums and penalties on Indebtedness (other than the Obligations)
secured by a Lien on the asset that is the subject of such disposition; and (ii) in
the event of a casualty, condemnation, taking or other event of loss, (x) all
money actually applied to repair or reconstruct the damaged property or
property affected by the condemnation or taking in accordance with the terms
hereof, (y) all of the costs and expenses reasonably incurred in connection
with the collection of such proceeds, award or other payments, and (z) any
amounts retained by or paid to parties having superior rights to such proceeds,
awards or other payments.

 

“Notes”
shall mean, collectively, if any, any notes issued pursuant to this Agreement,
together with any promissory notes or other instruments issued in substitution
therefor or replacement thereof, in each case as the same may be amended,
modified, divided, split, supplemented and/or restated from time to time.

 

“Obligations”
shall mean, without duplication, all present and future obligations,
Indebtedness and liabilities of Borrower and/or any other Credit Party to Agent
and/or the other Lender Parties at any time and from time to time of every
kind, nature and description arising under any Loan Document, whether direct or
indirect, secured or unsecured, joint and/or several, absolute or contingent,
due or to become due, matured or unmatured, now existing or hereafter arising,
contractual or tortious or liquidated or unliquidated, including, without
limitation, all interest, fees, charges, expenses and/or amounts paid or
advanced by Agent or any other Lender Party to, on behalf of or for the benefit
of any such Person for any reason under any Loan Document at any time,
obligations of performance as well as obligations of payment, and all interest,
fees and other amounts that accrue after the commencement of any proceeding
under any Debtor Relief Law by or against any such Person or its Properties
related to any of the Obligations.

 

“Ordinary
Course of Business” shall mean, in respect of any transaction involving any
Credit Party, the ordinary course of such Credit Party’s business, as conducted
by such Credit Party in accordance with past practices and undertaken by such
Credit Party in good faith and not for purposes of evading any covenant or
restriction in any Loan Document.

 

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

 

“Patriot
Act” shall mean the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56, as
amended.

 

“Permit”
shall mean any license, lease, power, permit, franchise, certificate,
authorization or approval issued by a Governmental Authority.

 

 

“Permitted
Discretion” shall mean, with respect to any Person, a determination or
judgment made by such Person in good faith in the exercise of reasonable (from
the perspective of a secured lender) credit or business judgment.

 

“Permitted
Securities” shall mean any Capital Stock of Evolving Systems that by their
terms (or by the terms of any security into which they are convertible or for
which they are exchangeable) or upon the happening of any event or otherwise (A) are
not convertible or exchangeable for Indebtedness or any securities that are not
Permitted Securities, (B) (i) do not mature and (ii) are not
putable or redeemable at the option of the holder thereof, in each case under
clause (i) or (ii) in whole or in part on or prior to the date that
is six (6) months after the earlier of the scheduled end of the Term or
the actual payment in full in cash of the Obligations, (C) do not require
or mandate payments of dividends or distributions in cash on or prior to the
date that is six (6) months after the earlier of the scheduled end of the
Term or the actual payment in full in cash of the Obligations, (D) are
unsecured and by operation of law or by legally binding agreement are
subordinated in right of repayment, liens, security and remedies to all of the
Obligations and to all of Agent’s and the other Lender Parties’ rights, Liens
and remedies, (E) are not sold, issued or otherwise transferred in
connection with or as a part of a Public Offering; and (F) to the extent
the same are subject to or provide for any Shareholder Blocking Rights, all
such Shareholder Blocking Rights have been waived in form and substance
satisfactory to Agent in its Permitted Discretion.

 

“Person”
shall mean an individual, a partnership, a corporation, a limited liability
company, a business trust, a joint stock company, a trust, an unincorporated
association, a joint venture, a Governmental Authority or any other entity of
whatever nature.

 

“Pledge
Agreement” shall mean any pledge agreement between Agent and any Credit
Party, as the same be amended, modified, supplemented or restated from time to
time.

 

“Prepayment
Premium” shall mean: (a) for the period from the Closing Date through
and including November 14, 2006, an amount equal to two and one half
percent (2.5%) of the Loan so prepaid or required to be prepaid; (b) for
the period after November 14, 2006 through and including November 14,
2007, an amount equal to one and one half percent (1.5%) of the Loan so prepaid
or required to be prepaid.

 

“Priority
Permitted Liens” shall mean Permitted Liens contemplated by and permitted
under Sections 7.3(b), (c), (d), (e) and/or (i).

 

“Property”
shall mean all types of real, personal or mixed property and all types of
tangible or intangible property.

 

“Pro
Rata Share” shall mean:

 

(a)                                  with respect to any Lender
as to all Lenders, the percentage obtained by dividing (i) the aggregate
amount of such Lender’s share of the Loan outstanding and such Lender’s
Commitments by (ii) the aggregate amount of all Lenders’ share of the Loan
outstanding and all Lenders’ Commitments; in any case as such percentage may be
adjusted by assignments permitted pursuant to Section 12.2 and 2.9.

 

 

“Public
Offering” shall mean any offer or sale of its Capital Stock by Evolving
Systems or any of its Subsidiaries pursuant to any registration statement filed
and effective with the Securities and Exchange Commission or any other
applicable Governmental Authority except offers and sales pursuant to (a) any
Special Registration Statement or (b) any registration statements on Form S-3
that are effective as of the Closing Date.

 

“Qualified
Asset Sale” shall mean any sale, transfer or other disposition by Borrower
or any of its Subsidiaries permitted under Section 7.7(a), (b), (d), (e), (f) and
(g).

 

“Real
Estate” shall mean each parcel of real Property owned by any Credit Party.

 

“Related
Documents” shall mean, collectively, the Subordinated Loan Documents, the
Transfer Pricing Agreements to be prepared pursuant to Section 6.7, and the
Cross License Agreement.

 

“Related
Fund” shall mean (a) any fund, trust or similar entity that invests in
commercial loans in the ordinary course of its business and is advised or
managed by (i) a Lender, (ii) an Affiliate of a Lender, (iii) the
same investment advisor that manages a Lender or (iv) an Affiliate of an
investment advisor that manages a Lender or (b) any finance company,
insurance company or other financial institution which temporarily warehouses
the Loan for any Lender or any Person described in clause (a) above.

 

“Related
Transactions” shall mean the transactions anticipated by the Related
Documents.

 

“Requisite
Lenders” shall mean at any time Lenders then holding more than fifty
percent (50%) of the sum of the aggregate unpaid principal amount of the Loan
then outstanding.  For purposes of this
definition, all Lenders that are Affiliates and each Lender and its Related
Funds shall be deemed to constitute one, single Lender.

 

“Responsible
Officer” shall mean the chief executive officer or the president of
Borrower Funds Administrator, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants or delivery of financial information, the chief financial
officer or the treasurer of Borrower Funds Administrator, or any other officer
having substantially the same authority and responsibility.

 

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

 

“Revolving
Facility” shall mean the revolving loan facility established pursuant to
the Revolving Loan Documents.

 

“Revolving
Lender” shall mean the “Lender” under the Revolving Loan Agreement.

 

“Revolving
Loan Agreement” shall mean the Revolving Loan Agreement dated the date
hereof by and among Revolving Borrower, Evolving Systems Ltd, Agent and CSE
Finance, Inc., as the same be amended, modified, supplemented or restated
from time to time.

 

 

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

 

“Revolving Obligations” shall mean the
“Obligations” as defined in the Revolving Loan Agreement.

 

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

 

“Securities Exchange Act” shall mean
the Securities Exchange Act of 1934, as amended.

 

“Security
Agreements” shall mean any security or pledge agreement executed by a
Person in favor of Agent, for the benefit of the Lender Parties, to secure the
Obligations.

 

“Security
Documents” shall mean, collectively, the Security Agreements, the
Guarantees, any Mortgages, the Intellectual Property Security Agreements, all
Account Control Agreements, all Landlord Waivers and Consents, all UCC
financing statements and all other agreements, documents and instruments that
create or perfect the Liens in the Collateral, as the same may be modified,
amended or supplemented from time to time.

 

“Seller
Subordination Agreement” shall mean the Subordination Agreement dated the
date hereof by and among Agent, the Credit Parties named therein, the holders
of the Subordinated Notes and any other parties thereto as the same may be
modified, amended, restated or supplemented from time to time and in form and
substance satisfactory to Agent.

 

“Shareholder
Blocking Rights” shall mean any rights of any owner (direct or indirect) of
any Capital Stock of any Credit Party which, pursuant to the terms of any
agreement or Organizational Document, has the right to consent, or the effect
of requiring such consent, to any foreclosure by the Agent under any Pledge
Agreement or otherwise to the exercise of any of Agent’s rights and remedies
thereunder or otherwise has the right to restrain, delay, impair or otherwise
interfere with the Agent in the event of Agent’s exercise of its rights under a
Pledge Agreement or other Security Documents.

 

“Solvent”
shall mean, as to any Person at any time, that (a) the fair value of the
Property of such Person is greater than the amount of such Person’s liabilities
(including disputed, contingent and unliquidated liabilities) as such value is
established and liabilities evaluated for purposes of Section 101(32)(A) of
the Bankruptcy Code and, in the alternative, for purposes of the Uniform
Fraudulent Transfer Act; (b) the present fair saleable value of the
Property of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured; and (c) such Person is able to realize upon its Property and
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business.

 

“Special Registration Statement” shall
mean (i) a registration statement relating to any employee benefit plan, (ii) any
registration statement with respect to any corporate reorganization or
transaction under Rule 145 of the Securities Act, including any
registration statements related to the issuance or resale of securities issued
in such a transaction or (iii) any

 

 

registration statement for the purpose of effecting a business
combination; provided that, in the case of any registration statement described
in clauses (ii) and (iii), the underlying transaction is permitted under
the Loan Documents or is otherwise consented to in writing by Agent prior to
the consummation thereof.

 

“Subordinated
Debt” shall mean any Indebtedness, contingent equity, earnout or other
obligations of Borrower or any of its Subsidiaries that is unsecured and
subordinated by written contract in right of payment, liens, security and
remedies to all of the Obligations and all of the Lender Parties’ rights, Liens
and remedies in form and substance satisfactory to Requisite Lenders,
including, without limitation, the unsecured Indebtedness of Borrower evidenced
by the Subordinated Loan Documents.

 

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

 

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

 

“Subordination
Agreement” shall mean, collectively, any of (i) the Seller
Subordination Agreement and (ii) any other agreement between Agent and the
holders of Subordinated Debt to which Evolving Systems is either a party or
executes an acknowledgment to such agreement, in each case as the same may be
modified, amended, restated or supplemented from time to time and in form and
substance satisfactory to Requisite Lenders.

 

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

 

“Term”
shall mean the period commencing on the Closing Date and ending on November 14,
2010.

 

“Transfer Pricing Agreements” shall
mean agreements on transfer pricing in form and substance satisfactory to Agent
in its Permitted Discretion.

 

“TSE Contingent Obligations” shall
mean the Deferred Payment obligations to the Sellers (as defined in the TSE
Purchase Agreement).

 

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

 

“UCC”
shall mean the Uniform Commercial Code as in effect in the State of New York
from time to time; provided, that to the extent the UCC is used to define any
term herein or in any other Loan Document and such term is defined differently
in different Articles or Divisions of the UCC the definition of such term
contained in Article or Division 9 shall govern.

 

 

“UK Excess Cash Flow” shall mean, for
Revolving Borrower and its consolidated Subsidiaries (the “UK Subsidiaries”),
for each fiscal quarter commencing with the fiscal quarter ending December 31,
2006, on a consolidated basis without duplication, an amount equal to the sum
of (i) EBITDA (as defined in Annex I hereof) of the UK Subsidiaries for
such fiscal quarter, minus (ii) actual cash franchise and income tax paid
in cash by the UK Subsidiaries during such fiscal quarter, minus (iii) cash
Interest Expense on the Revolving Facility actually paid during such fiscal
quarter, if any, minus (iv) Unfinanced Capital Expenditures (as defined in
Exhibit B-1 hereto) of the UK Subsidiaries for such fiscal quarter minus (v) an
amount equal to the sum of payments of principal on the Revolving Facility, if
any, (to the extent such payments on the Revolving Facility resulting in
permanent reductions of the Revolving Facility) actually made during such
period to the extent permitted hereunder, minus (vi) the amount of any
dividends made by Revolving Borrower under Section 7.5(c) during such
period for Intermediate Holdco to pay taxes, costs and expenses.

 

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

 

 

SCHEDULE A

Lenders/Commitments

 

	
  Lenders

  	
   

  	
  Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  CapitalSource Finance LLC

  	
   

  	
  $

  	
  8,500,000

  	
   

  
	
  4445 Willard Avenue, 12th Floor

  	
   

  	
   

  	
   

  
	
  Chevy Chase, Maryland 20815

  	
   

  	
   

  	
   

  
	
  Attention: Corporate Finance Group,
  Portfolio Manager

  	
   

  	
   

  	
   

  
	
  Telephone: (301) 841-2700

  	
   

  	
   

  	
   

  
	
  FAX: (301) 841-2360

  	
   

  	
   

  	
   

  
	
  E-Mail: sladd@capitalsource.com

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wire Instructions:

  	
   

  	
   

  	
   

  	
   

  
	
  Bank:

  	
  Bank of America, Baltimore, MD

  	
   

  	
   

  	
   

  
	
  Account:

  	
  003939396662

  	
   

  	
   

  	
   

  
	
  ABA:

  	
  026009593

  	
   

  	
   

  	
   

  
	
  Account Name:

  	
  CapitalSource Funding LLC - CFG

  	
   

  	
   

  	
   

  
	
  Reference:

  	
  Evolving Systems

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  8,500,000Exhibit 10.1(b)

 

SECURITY
AGREEMENT

 

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

 

W I T N E S S E T H:

 

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

 

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

 

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

 

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

 

1.             Defined Terms.

 

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

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

2.             Grant of Lien.

 

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

 

(i)            all
Accounts;

 

(ii)           all
Chattel Paper;

 

(iii)          all
Documents;

 

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

 

3

 

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

 

(vi)          all
Instruments;

 

(vii)         all
Investment Property;

 

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

 

(ix)           all money,
cash and cash equivalents;

 

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

 

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

 

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

 

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

 

(c)           Notwithstanding
anything to the contrary set forth in this Section 2, the term “Collateral”
shall not include: (i) securities representing at any time more than 65%
of the aggregate voting power of the Capital Stock of a “controlled foreign corporation,” as defined in Section 957 of
the Code, or (ii) any leased equipment, Intellectual Property or
General Intangibles of any Grantor to the extent that (but only to the extent
that) (A) they are not assignable or capable of being encumbered as a
matter of law or under the terms of any license or other agreement applicable
thereto or such assignment or encumbrance would invalidate the rights under
terms of any license, lease or other agreements applicable thereto (but solely
in each case to the extent that any such restriction would be enforceable under
applicable law) without the consent of the licensor thereof or other applicable
party thereto, and (B) such consent has not been obtained; provided,
however, that the foregoing grant of a security interest shall extend
to, and the term “Collateral” shall include, each of the following:  (1) any leased equipment, Intellectual
Property or General Intangible which is in the nature of an Account or a right

 

4

 

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

 

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

 

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

 

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

 

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

 

5

 

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

 

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

 

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

 

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

 

(d)           Schedule II
hereto lists all Capital Stock (to be limited to not more than 65% of the aggregate
voting power of the Capital Stock of a “controlled foreign corporation,” as
defined in Section 957 of the Code), Instruments (excluding checks, drafts
and similar instruments that are customarily endorsed or presented for
collection or deposit in the Ordinary Course of Business), Documents, Letter of
Credit Rights and Chattel Paper in which such Grantor has an interest as of the
date hereof.  All action by such Grantor
necessary to protect and perfect the Lien of Agent on each item set forth on Schedule II
(including the delivery of all originals thereof to Agent as required by Section 5(a) and
the legending of all Chattel Paper as required by Section 5(b)) has
been duly taken, or as of the Closing Date, shall be duly taken.  The Lien of Agent, for the benefit of the
Lender Parties, on the Collateral listed on Schedule II hereto is
prior to all other Liens, except Priority Permitted Liens.

 

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

 

6

 

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

 

(f)            [Intentionally
Omitted]

 

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

 

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

 

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

 

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

 

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

 

7

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

8

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

11

 

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

 

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

 

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

 

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

 

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

 

12

 

8.             Remedies; Rights Upon Default.

 

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

 

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

 

13

 

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

 

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

 

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

 

14

 

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

 

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

 

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

 

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

 

15

 

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

 

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

 

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

 

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

 

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

 

16

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

17

 

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

 

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

 

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

 

18

 

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

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/  Anita
  T. Moseley

  	
   

  
	
   

  	
  Name:

  	
  Anita T.
  Moseley

  
	
   

  	
  Title:

  	
  Sr. Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TELECOM
  SOFTWARE ENTERPRISES, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Anita T.
  Moseley

  	
   

  
	
   

  	
  Name:

  	
  Anita T.
  Moseley

  
	
   

  	
  Title:

  	
  Sr. Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EVOLVING
  SYSTEMS HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Anita T.
  Moseley

  	
   

  
	
   

  	
  Name:

  	
  Anita T.
  Moseley

  
	
   

  	
  Title:

  	
  Sr. Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CAPITALSOURCE FINANCE LLC, as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Steven A.
  Museles

  	
   

  
	
   

  	
  Name:

  	
  Steven A.
  Museles

  
	
   

  	
  Title:

  	
  Senior Vice
  President

  
						

 

 

SCHEDULE I

to

SECURITY AGREEMENT

 

Filing
Jurisdictions

 

	
  Evolving Systems, Inc.

  	
   

  	
  Delaware

  
	
  Telecom Software Enterprises, LLC

  	
   

  	
  Colorado

  
	
  Evolving Systems Holdings, Inc.

  	
   

  	
  Delaware

  

 

 

SCHEDULE II

to

SECURITY AGREEMENT

 

Capital
Stock, Instruments, Documents, Chattel Paper

and Letter of Credit Rights

 

 

SCHEDULE III

to

SECURITY AGREEMENT

 

Schedule of
Organizational Identification, Offices,

Locations of Collateral and Records Concerning Collateral

 

	
  I.

  	
  Each Grantor’s
  official name:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  II.

  	
  Prior official
  names of each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  III.

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

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  IV.

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

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  V.

  	
  State of
  organization or incorporation of each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  

 

 

	
  VI.

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

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  VII.

  	
  Other offices of
  each Grantor:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  VIII.

  	
  Warehouses,
  Consignees and Processors:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  IX.

  	
  Other premises
  at which Collateral is stored or located:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  X.

  	
  Locations of
  records concerning Collateral:

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  
	
   

  	
   

  
	
  XI.

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

  
	
   

  	
   

  
	
   

  	
  a.

  
	
   

  	
   

  
	
   

  	
  b.

  
	
   

  	
   

  
	
   

  	
  c.

  

 

 

SCHEDULE IV

 

to

 

SECURITY
AGREEMENT

 

Motor
Vehicles.

 

 

SCHEDULE V

to

SECURITY AGREEMENT

 

Designated
Deposit Accounts.

 

	
  Grantor

  	
   

  	
  Bank

  	
   

  	
  Account Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBIT A

 

POWER
OF ATTORNEY

 

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

 

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

 

 

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

 

[remainder
of page intentionally left blank]

 

 

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

 

	
   

  	
  EVOLVING
  SYSTEMS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TELECOM
  SOFTWARE ENTERPRISES, LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  EVOLVING
  SYSTEMS HOLDINGS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CAPITALSOURCE FINANCE LLC, as Agent

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  

 

 

NOTARY
PUBLIC CERTIFICATE

 

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

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  	
   

  

 

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

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  	
   

  

 

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

 

	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

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