Document:

cacc_042513ia.htm

Exhibit 4.91

 

Execution Copy

 

AMENDED AND RESTATED INTERCREDITOR AGREEMENT

 

 

This Amended and Restated Intercreditor Agreement (this “Agreement”), dated April 25, 2013, is among Credit Acceptance Corporation (“CAC”), CAC Warehouse Funding Corporation II (“Warehouse Funding II”), CAC Warehouse Funding III, LLC (“Warehouse Funding III”), CAC Warehouse Funding LLC IV (“Warehouse Funding IV”),  Credit Acceptance Funding LLC 2013-1 (“Funding 2013-1”), Credit Acceptance Funding LLC 2012-2 (“Funding 2012-2”), Credit Acceptance Funding LLC 2012-1 (“Funding 2012-1”), Credit Acceptance Funding LLC 2011-1 (“Funding 2011-1”), Credit Acceptance Funding LLC 2010-1 (“Funding 2010-1”), Credit Acceptance Auto Loan Trust 2013-1 (the “2013-1 Trust”), Credit Acceptance Auto Loan Trust 2012-2 (the “2012-2 Trust”), Credit Acceptance Auto Loan Trust 2012-1 (the “2012-1 Trust”), Credit Acceptance Auto Loan Trust 2011-1 (the “2011-1 Trust”), Credit Acceptance Auto Loan Trust 2010-1 (the “2010-1 Trust”), Wells Fargo Bank, National Association, as collateral agent under the Wells Fargo Warehouse Securitization Documents (“Wells Fargo”), Fifth Third Bank, as agent under the Fifth Third Securitization Documents (“Fifth Third”), Wells Fargo Bank, National Association, as indenture trustee and trust collateral agent under the 2013-1 Securitization Documents (in either such capacity, the “2013-1 Trustee”, as the context requires), the 2012-2 Securitization Documents (in either such capacity, the “2012-2 Trustee”, as the context requires), Wells Fargo Bank, National Association, as indenture trustee and trust collateral agent under the 2012-1 Securitization Documents (in either such capacity, the “2012-1 Trustee”, as the context requires), Wells Fargo Bank, National Association, as indenture trustee and trust collateral agent under the 2011-1 Securitization Documents (in either such capacity, the “2011-1 Trustee”, as the context requires), Wells Fargo Bank, National Association, as indenture trustee and trust collateral agent under the 2010-1 Securitization Documents (in either such capacity, the “2010-1 Trustee”, as the context requires), Bank of Montreal, as collateral agent under the BMO Warehouse Securitization Documents (“BMO”), Comerica Bank, as agent under the CAC Credit Facility Documents (“Comerica”), and each other creditor who becomes a party hereto after the date hereof.

 

 

Capitalized terms used but not otherwise defined herein shall have the meaning set forth in Appendix A attached hereto and made part of this Agreement.

 

 

Background

 

 

A.  Pursuant to the terms of the various Dealer Agreements between CAC and the Dealers, Collections from a particular Pool are first used to pay certain collection costs, CAC’s servicing fee and to pay back the Pool’s Advance balance.  After the Advance balance under such Pool has been reduced to zero, the Dealer to whom the Pool relates has a contractual right under the related Dealer Agreement to receive a portion of any further Collections with respect to the Pool (such portion of further Collections otherwise payable to the Dealer is referred to herein as “Back-end Dealer Payments”), subject to CAC’s right of offset as described in paragraph I below.

 

 

B.  CAC has granted a security interest in CAC’s rights with respect to its Pools (to the extent not released) and related assets generally under the CAC Credit Facility Documents to Comerica, as collateral agent for the banks which are parties thereto.

 

 

  

  

  

C.  CAC, Wells Fargo and certain other parties entered into a transaction as set forth in the Wells Fargo Warehouse Securitization Documents (the “Wells Fargo Warehouse Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the Wells Fargo Warehouse Securitization Documents will be) released by Comerica, CAC contributed (and will contribute) such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Warehouse Funding II, and Warehouse Funding II granted Wells Fargo, in its capacity as collateral agent, a security interest in Warehouse Funding II’s rights to such Pools, Purchased Loans and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “Wells Fargo Warehouse Loans”).

 

 

D.  CAC, Fifth Third and certain other parties entered into a transaction as set forth in the Fifth Third Securitization Documents (the “Fifth Third Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the Fifth Third Securitization Documents will be) released by Comerica, CAC contributed (and will contribute) such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Warehouse Funding III, and Warehouse Funding III granted Fifth Third, in its capacity as collateral agent, a security interest in Warehouse Funding III’s rights to such Pools, Purchased Loans and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “Fifth Third Loans”).

 

 

E. CAC, BMO and certain other parties entered into a transaction as set forth in the BMO Warehouse Securitization Documents (the “BMO Warehouse Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the BMO Warehouse Securitization Documents will be) released by Comerica, CAC transferred (and will transfer) such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Warehouse Funding IV, and Warehouse Funding IV granted BMO, in its capacity as collateral agent, a security interest in Warehouse Funding IV’s rights to such Pools, Purchased Loans and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “BMO Warehouse Loans”).

 

 

F.  CAC and the 2010-1 Trustee entered into a transaction as set forth in the 2010-1 Securitization Documents (the “2010-1 Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the 2010-1 Securitization Documents will be) released by Comerica, CAC sold and contributed such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Funding 2010-1, which subsequently sold such Pools, Purchased Loans and related assets to the 2010-1 Trust, a trust the depositor of which is Funding 2010-1, and the 2010-1 Trust granted the 2010-1 Trustee a security interest in its right, title and interest in and to such Pools and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “2010-1 Loans”).

 

 

G.  CAC and the 2011-1 Trustee entered into a transaction as set forth in the 2011-1 Securitization Documents (the “2011-1 Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the 2011-1 Securitization Documents will be) released by Comerica, CAC sold and contributed such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Funding 2011-1, which subsequently sold such Pools, Purchased Loans and related assets to the 2011-1 Trust, a trust the depositor of which is Funding 2011-1, and the 2011-1 Trust granted the 2011-1 Trustee a security interest in its right, title and interest in and to such Pools and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “2011-1 Loans”).

 

 

  

2

  

H.  CAC and the 2012-1 Trustee entered into a transaction as set forth in the 2012-1 Securitization Documents (the “2012-1 Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the 2012-1 Securitization Documents will be) released by Comerica, CAC sold and contributed such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Funding 2012-1, which subsequently sold such Pools, Purchased Loans and related assets to the 2012-1 Trust, a trust the depositor of which is Funding 2012-1, and the 2012-1 Trust granted the 2012-1 Trustee a security interest in its right, title and interest in and to such Pools and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “2012-1 Loans”).

 

 

I.  CAC and the 2012-2 Trustee entered into a transaction as set forth in the 2012-2 Securitization Documents (the “2012-2 Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets was (and during the revolving period under the 2012-2 Securitization Documents will be) released by Comerica, CAC sold and contributed such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Funding 2012-2, which subsequently sold such Pools, Purchased Loans and related assets to the 2012-2 Trust, a trust the depositor of which is Funding 2012-2, and the 2012-2 Trust granted the 2012-2 Trustee a security interest in its right, title and interest in and to such Pools and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “2012-2 Loans”).

 

 

J. CAC and the 2013-1 Trustee are entering into a transaction as set forth in the 2013-1 Securitization Documents (the “2013-1 Securitization”) pursuant to which the security interest with respect to certain specifically identified Pools, Purchased Loans and related assets is being (and during the revolving period under the 2013-1 Securitization Documents will be) released by Comerica, CAC is transferring (and will transfer) such Pools, Purchased Loans and related assets to its wholly-owned subsidiary, Funding 2013-1, which is subsequently transferring such Pools, Purchased Loans and related assets to the 2013-1 Trust, a trust the depositor of which is Funding 2013-1, and the 2013-1 Trust is granting the 2013-1 Trustee a security interest in its right, title and interest in and to such Pools and related assets (such Pools, Purchased Loans and related assets are referred to herein as the “2013-1 Loans”).

 

 

K.  Comerica retains a security interest in Pools, Purchased Loans and related assets which (i) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets has not been (and will not be) granted to Wells Fargo pursuant to the Wells Fargo Warehouse Securitization, (ii) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets has not been (and will not be) granted to Fifth Third pursuant to the Fifth Third Securitization, (iii) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets has not been (and will not be) granted to BMO pursuant to the BMO Warehouse Securitization, (iv) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets has not been (and will not be) granted to the 2010-1 Trustee pursuant to the 2010-1 Securitization, (v) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets has not been (and will not be) granted to the 2011-1 Trustee pursuant to the 2011-1 Securitization, (vi) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets is not being granted to the 2012-1 Trustee pursuant to the 2012-1 Securitization, (vii) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets is not being granted to the 2012-2 Trustee pursuant to the 2012-2 Securitization, and (viii) have not been (and will not be) released, and a security interest encumbering such Pools, Purchased Loans and related assets is not being granted to the 2013-1 Trustee pursuant to the 2013-1 Securitization (such unreleased Pools, Purchased Loans and related assets are referred to herein as the “Comerica Loans”).

 

 

  

3

  

K.  The Dealer Agreements permit CAC and its assignees, under certain circumstances, to set off any Collections received with respect to any Pool of a Dealer against Advances under other Pools of that Dealer or Purchased Loans from the Dealer and such set off rights are authorized and permitted under the CAC Credit Facility Documents, the Wells Fargo Warehouse Securitization Documents, the Fifth Third Securitization Documents, the BMO Warehouse Securitization Documents, the 2013-1 Securitization Documents, the 2012-2 Securitization Documents, the 2012-1 Securitization Documents, the 2011-1 Securitization Documents and the 2010-1 Securitization Documents.

 

 

L.  The parties hereto acknowledge that the rights of CAC or its assigns, pursuant to the Dealer Agreements, to set off Collections received with respect to a Pool, or Purchased Loans against the outstanding balance under any other Pool or Purchased Loans are not intended, and should not be permitted, to be used to prejudice the collateral position of any of the parties hereto, and therefore the exercise of such rights should be limited to Back-end Dealer Payments.  Funding 2013-1 directs the Owner Trustee of the 2013-1 Trust to enter into this Agreement, Funding 2012-2 directs the Owner Trustee of the 2012-2 Trust to enter into this Agreement, Funding 2012-1 directs the Owner Trustee of the 2012-1 Trust to enter into this Agreement, Funding 2011-1 directs the Owner Trustee of the 2011-1 Trust to enter into this Agreement and Funding 2010-1 directs the Owner Trustee of the 2010-1 Trust to enter into this Agreement.

 

 

In consideration of the mutual premises and promises set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

 

 

Agreements

 

 

1. Confirmation.  Notwithstanding any statement or provision contained in the Financing Documents or otherwise to the contrary, and irrespective of the time, order or method of attachment or perfection of security interests granted pursuant to the Financing Documents, respectively, or the time or order of filing or recording of any financing statements, or other notices of security interests, liens or other interests granted pursuant to the Financing Documents, respectively, or the giving of or failure to give notice of the acquisition or expected acquisition of purchase money or other security interests, and irrespective of anything contained in any filing or agreement to which any Creditor may now or hereafter be a party and irrespective of the ordinary rules for determining priority under the Uniform Commercial Code or under any other law governing the relative priorities of secured creditors, subject, however, to the terms and conditions of this Agreement:

 

  

4

  

 

(a) Release by Wells Fargo.  Wells Fargo, as the collateral agent, (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the Wells Fargo Warehouse Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer or Warehouse Funding II to use Collections on its behalf contrary to clause (a)(i).  Wells Fargo, as collateral agent, agrees that the lien and security interest granted to it pursuant to the Wells Fargo Warehouse Securitization Documents does not and shall not attach to any Comerica Loans, Fifth Third Loans, BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

(b) Release by Fifth Third.  Fifth Third, as the collateral agent, (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the Fifth Third Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer or Warehouse Funding III to use Collections on its behalf contrary to clause (b)(i).  Fifth Third, as collateral agent, agrees that the lien and security interest granted to it pursuant to the Fifth Third Securitization Documents does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

(c) Release by the 2010-1 Trustee.  The 2010-1 Trustee (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the 2010-1 Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer, Funding 2010-1 or the 2010-1 Trust to use Collections on its behalf contrary to clause (c)(i).  The 2010-1 Trust agrees that the lien and security interest granted to the 2010-1 Trustee pursuant to the 2010-1 Securitization Documents to which it is a party does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, Fifth Third Loans, BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

  

5

  

(d) Release by the 2011-1 Trustee.  The 2011-1 Trustee (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the 2011-1 Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer, Funding 2011-1 or the 2011-1 Trust to use Collections on its behalf contrary to clause (d)(i).  The 2011-1 Trust agrees that the lien and security interest granted to the 2011-1 Trustee pursuant to the 2011-1 Securitization Documents to which it is a party does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, Fifth Third Loans, BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

(e) Release by the 2012-1 Trustee.  The 2012-1 Trustee (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2011-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the 2012-1 Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer, Funding 2012-1 or the 2012-1 Trust to use Collections on its behalf contrary to clause (e)(i).  The 2012-1 Trust agrees that the lien and security interest granted to the 2012-1 Trustee pursuant to the 2012-1 Securitization Documents to which it is a party does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, Fifth Third Loans, BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2011-1 Loans, the 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

(f) Release by the 2012-2 Trustee.  The 2012-2 Trustee (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the 2012-2 Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer, Funding 2012-2 or the 2012-2 Trust to use Collections on its behalf contrary to clause (f)(i).  The 2012-2 Trust agrees that the lien and security interest granted to the 2012-2 Trustee pursuant to the 2012-2 Securitization Documents to which it is a party does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, Fifth Third Loans, BMO Loans, the 2013-1 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

  

6

  

(g) Release by the 2013-1 Trustee.  The 2013-1 Trustee (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the 2013-1 Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer, Funding 2013-1 or the 2013-1 Trust to use Collections on its behalf contrary to clause (g)(i).  The 2013-1 Trust agrees that the lien and security interest granted to the 2013-1 Trustee pursuant to the 2013-1 Securitization Documents to which it is a party does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, Fifth Third Loans, BMO Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

(h) Release by BMO.  BMO, as the collateral agent, (i) releases any and all rights in and to any Collections with respect to the Comerica Loans, the Wells Fargo Warehouse Loans, the Fifth Third Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans, or in any Back-end Dealer Payments; provided, that no release shall have been granted with respect to amounts collected under any Pools or Purchased Loans which are Back-end Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the BMO Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, any successor servicer or Warehouse Funding IV to use Collections on its behalf contrary to clause (h)(i).  BMO, as collateral agent, agrees that the lien and security interest granted to it pursuant to the BMO Warehouse Securitization Documents does not and shall not attach to any Comerica Loans, Wells Fargo Warehouse Loans, Fifth Third Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, 2010-1 Loans (or related Collections) or to any Back-end Dealer Payments and shall not assert any claim thereto.

 

 

(i) Release by Comerica.  Comerica (i) releases any and all rights in and to any Collections with respect to the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans, the 2010-1 Loans, other than amounts collected under the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans,  the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans or the 2010-1 Loans which are owed to Dealers as Back-end Dealer Payments and which are subject to set off by CAC pursuant to the related Dealer Agreement and which have not been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents against amounts owing under the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans and the 2010-1 Loans and (ii) relinquishes all rights it has or may have to require CAC, individually or as servicer, or any successor servicer to use Collections on its behalf contrary to clause (i)(i) above.  Except for Back-end Dealer Payments to the extent provided in clause (i)(i) above, Comerica agrees that the lien and security interest granted to it pursuant to the CAC Credit Facility Documents does not and shall not attach to any Wells Fargo Warehouse Loans, Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans or the 2010-1 Loans and shall not assert any claim against the Wells Fargo Warehouse Loans, the Fifth Third Loans, the BMO Loans, the 2013-1 Loans, the 2012-2 Loans, the 2012-1 Loans, the 2011-1 Loans or the 2010-1 Loans or Collections related thereto.

 

 

  

7

  

2. Covenant of the CAC Entities.

 

 

(a) Each of the CAC Entities covenants that it shall not use any right it may have under the Dealer Agreements, Purchase Agreements, whether at the direction of Comerica, Wells Fargo, Fifth Third, BMO, the 2013-1 Trustee, the 2012-2 Trustee, the 2012-1 Trustee, the 2011-1 Trustee, the 2010-1 Trustee or otherwise, to set off any Collections, other than amounts which are owed to Dealers as Back-end Dealer Payments, from one Pool against amounts owed under another Pool encumbered in favor of another Creditor.

 

 

(b) Each of the CAC Entities covenants that it will require any other person or entity which hereafter acquires any security interest in the Pools, Dealer Agreements, Purchased Loans and related assets from a CAC Entity to become parties to this Agreement by executing an amendment or acknowledgment, in form and substance reasonably satisfactory to CAC and the Creditors, by which such persons or entities agree to be bound by the terms of this Agreement, and delivering such signed amendment or acknowledgement hereof to each of the CAC Entities and the Creditors; provided, however, that in the event the amount owed by the CAC Entities to any Creditor shall be reduced to zero and such Creditor shall have no obligation or agreement to make any further advances to any CAC Entity, such Creditor shall have no rights under this Section 2(b).

 

3. Turnover of Proceeds.  The parties hereto agree that if, at any time, a Creditor (a “Receiving Creditor”) (x) receives any payment, distribution, security or the proceeds thereof to which another Creditor or Creditors shall, under the terms of Section 1 of this Agreement, be entitled (the “Wrong Payments”) and (y) the Receiving Creditor either (A) had actual knowledge, at the time of such receipt, that such payment, distribution or proceeds were wrongfully received by it or (B) another Creditor or Creditors shall have given written notice to the Receiving Creditor, prior to such receipt, of its good faith belief that such payments, distributions or proceeds are being misapplied, and such notice contains evidence reasonably satisfactory to the Receiving Creditor of such misapplication, then such Receiving Creditor shall receive and hold the same separately and in trust for the benefit of, and shall forthwith pay over and deliver the same to the relevant Creditor.  Without limiting the rights and remedies of the other Creditors, to the extent the Wrong Payments have been received and applied by the Receiving Creditor making the turnover of the same impossible, the Receiving Creditor agrees that such Wrong Payments shall be netted against future payments to which it is entitled under the relevant Financing Documents.  For purposes of the foregoing, (i) the actual knowledge of the 2013-1 Trustee shall be determined based on the actual knowledge of the 2013-1 Trustee’s Responsible Officers (as defined in the 2013-1 Indenture), it being understood that each such Responsible Officer shall have no duty to make any inquiry regarding the propriety of any payment, distribution or proceeds, (ii) the actual knowledge of the 2012-2 Trustee shall be determined based on the actual knowledge of the 2012-2 Trustee’s Responsible Officers (as defined in the 2012-2 Indenture), it being understood that each such Responsible Officer shall have no duty to make any inquiry regarding the propriety of any payment, distribution or proceeds, (iii) the actual knowledge of the 2012-1 Trustee shall be determined based on the actual knowledge of the 2012-1 Trustee’s Responsible Officers (as defined in the 2012-1 Indenture), it being understood that each such Responsible Officer shall have no duty to make any inquiry regarding the propriety of any payment, distribution or proceeds, (iv) the actual knowledge of the 2011-1 Trustee shall be determined based on the actual knowledge of the 2011-1 Trustee’s Responsible Officers (as defined in the 2011-1 Indenture), it being understood that each such Responsible Officer shall have no duty to make any inquiry regarding the propriety of any payment, distribution or proceeds, and (v) the actual knowledge of the 2010-1 Trustee shall be determined based on the actual knowledge of the 2010-1 Trustee’s Responsible Officers (as defined in the 2010-1 Indenture), it being understood that each such Responsible Officer shall have no duty to make any inquiry regarding the propriety of any payment, distribution or proceeds.

 

 

  

8

  

4. Further Assurances.  Each Creditor and CAC Entity agrees that it shall be bound by all of the provisions of this Agreement.  Without limiting any other provision hereof, each of the Creditors and CAC Entities agrees that it will promptly execute such instruments, notices or other documents as may be reasonably requested in writing by any party hereto for the purpose of confirming the provisions of this Agreement or better effectuating the intent hereof.  CAC will reimburse each Creditor for all reasonable expenses incurred by such Creditor pursuant to this Section 4.

 

 

5. Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York.  Each of the parties hereto agrees to the non-exclusive jurisdiction of any federal court located within the State of New York.  Each of the parties hereto hereby waives any objection based on forum non conveniens and any objection to venue of any action instituted hereunder in any of the aforementioned courts, and consents to the granting of such legal or equitable relief as is deemed appropriate by such court.

 

 

6. Counterparts.  This Agreement may be executed in two or more counterparts including facsimile transmission thereof (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one of the same instrument.

 

 

7. Severability.  If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement.

 

 

8. No Proceedings.  Each of the parties hereto hereby agrees that it will not institute against, or join any other person in instituting against Warehouse Funding II, Warehouse Funding III, Warehouse Funding IV, Funding 2013-1, the 2013-1 Trust, Funding 2012-2, the 2012-2 Trust, Funding 2012-1, the 2012-1 Trust, Funding 2011-1, the 2011-1 Trust, Funding 2010-1 or the 2010-1 Trust, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law so long as there shall not have elapsed one year and one day after there are no remaining amounts owed to any of the Creditors by any of the CAC Entities pursuant to the Wells Fargo Warehouse Securitization Documents, the Fifth Third Securitization Documents, the BMO Warehouse Securitization Documents, the 2013-1 Securitization Documents, the 2012-2 Securitization Documents, the 2012-1 Securitization Documents, the 2011-1 Securitization Documents and the 2010-1 Securitization Documents.

 

 

  

9

  

9. Amendment.  This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing executed by all of the parties hereto; provided further that if the amount owed by the CAC Entities to any Creditor shall be reduced to zero and such Creditor shall have no obligation or agreement to make any further advances to any CAC Entity, this Agreement may be amended by the other parties hereto without the consent of such Creditor.

 

 

10. No Third Party Beneficiaries.  This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

 

 

11. Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns, including any successor or assignor to the 2013-1 Trustee under the 2013-1 Securitization Documents, any successor or assignor to the 2012-2 Trustee under the 2012-2 Securitization Documents, any successor or assignor to the 2012-1 Trustee under the 2012-1 Securitization Documents, any successor or assignor to the 2011-1 Trustee under the 2011-1 Securitization Documents and any successor or assignor to the 2010-1 Trustee under the 2010-1 Securitization Documents.

 

 

12. Notices.  Except as otherwise provided herein, all notices or demand hereunder to the parties hereto shall be sufficient if made in writing, and either: (i) sent via certified or registered mail (or the equivalent thereof), postage prepaid, (ii) delivered by messenger or overnight courier, or (iii) transmitted via facsimile with a confirmation of the receipt thereof.  Notice shall be deemed to be given for purposes of this Agreement on the day of receipt.  Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this Section, notices, demands and other communications in writing shall be given to or made upon the respective parties hereto: (a) in the case of any of the CAC Entities, to Silver Triangle Building, 25505 West Twelve Mile Road, Southfield, Michigan 48034-8339, Attention: Douglas W. Busk, telephone: (248) 353-2700 (ext. 4432), facsimile: (866) 743-2704; (b) in the case of Fifth Third, to 38 Fountain Square Plaza, MD 109046, Cincinnati, Ohio 45263, Attention: Brian Gardner: telephone: (513) 534-7949, facsimile: (513) 534-0319; (c) in the case of BMO, to Bank of Montreal, 115 South LaSalle Street, 20th Floor West, Chicago, Illinois  60603, Attention: Karen Louie, Facsimile No.: (312) 293-4948, Confirmation No.: (312) 293-4410; (d) in the case of the 2013-1 Trustee, the 2012-2 Trustee, the 2012-1 Trustee, the 2011-1 Trustee and the 2010-1 Trustee, to MAC N9311-161, Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479 Attention: Corporate Trust Services – Asset-Backed Administration, telephone: (612) 667-8058, facsimile: (612) 667-3464; and (e) in the case of Comerica, to One Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226, Attention: Anthony E. Lemelin, telephone: (313) 222-9224, facsimile: (313) 222-3716.

 

 

13. Termination.  Each party’s rights and obligations under this agreement shall terminate at the time all amounts due to or owed by such party have been paid in full and such party’s applicable Financing Documents have been terminated so long as each party whose rights and obligations are subject to termination pursuant to this Section 13 (i) has no actual knowledge or written notice of payments, distributions, security or the proceeds thereof to which another Creditor or Creditors is entitled, as provided in Section 3 hereof, and (ii) has not received a written notice from Comerica under the CAC Credit Facility Documents that there is a “Default” or an “Event of Default” (as such terms are defined therein) at the time of the termination of the applicable Financing Documents.

 

 

  

10

  

14. Integration; Termination of Prior Agreement.  This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement.  Without limiting the generality of the foregoing, this Agreement is intended to supersede the Prior Agreement in its entirety.  Each of Comerica, Wells Fargo, Fifth Third, the 2013-1 Trustee, the 2012-1 Trustee, the 2011-1 Trustee, the 2010-1 Trustee and the CAC Entities that were parties to the Prior Agreement further acknowledge and agree that, as among themselves, this Agreement supersedes the Prior Agreement with respect to their rights as against each other and that this Agreement shall govern their rights against each other and the other parties hereto.

 

  

11  

  

 

This Amended and Restated Intercreditor Agreement has been executed and delivered by the parties hereto as of the date first above written.

 

CREDIT ACCEPTANCE CORPORATION

 

/s/ Douglas W. Busk                                                 

By:    Douglas W. Busk

Title: Senior Vice President and Treasurer

 

 

 

 

CAC WAREHOUSE FUNDING CORPORATION II

 

 

/s/ Douglas W. Busk                                                 

By:    Douglas W. Busk

Title: Treasurer

 

 

 

 

CAC WAREHOUSE FUNDING III, LLC

 

 /s/ Douglas W. Busk                                                 

By:    Douglas W. Busk

Title: Treasurer

 

 

 

 

CAC WAREHOUSE FUNDING LLC IV

 

 

 

/s/ Douglas W. Busk                                                 

By:    Douglas W. Busk

Title: Treasurer

 

 

 

[A&R Intercreditor Agreement]

  

  

  

 

CREDIT ACCEPTANCE FUNDING LLC 2013-1

 

 /s/ Douglas W. Busk                                                 

By:    Douglas W. Busk

Title: Treasurer

 

 

 

 

CREDIT ACCEPTANCE FUNDING LLC 2012-2

 

 /s/ Douglas W. Busk                                                 

By:    Douglas W. Busk

Title: Treasurer

 

 

 

 

CREDIT ACCEPTANCE FUNDING LLC 2012-1

 

/s/ Douglas W. Busk                                                  

By:    Douglas W. Busk

Title: Treasurer

 

 

 

 

CREDIT ACCEPTANCE FUNDING LLC 2011-1

 

 

/s/ Douglas W. Busk                                                  

By:    Douglas W. Busk

Title: Treasurer

 

 

 

 

CREDIT ACCEPTANCE FUNDING LLC 2010-1

 

 

            

/s/ Douglas W. Busk                                                  

By:    Douglas W. Busk

Title: Treasurer

 

 

 

[A&R Intercreditor Agreement]

  

  

  

CREDIT ACCEPTANCE AUTO

LOAN TRUST 2013-1

 

By: U.S. Bank Trust National Association,

Not In Its Individual Capacity But Solely

As Owner Trustee

 

 

/s/ Annette Morgan                                                   

By:    Annette Morgan

Title: Assistant Vice President

 

 

CREDIT ACCEPTANCE AUTO

LOAN TRUST 2012-2

 

By: U.S. Bank Trust National Association,

Not In Its Individual Capacity But Solely

As Owner Trustee

 

 

/s/ Annette Morgan                                                   

By:    Annette Morgan

Title: Assistant Vice President

 

 

 

CREDIT ACCEPTANCE AUTO

LOAN TRUST 2012-1

 

By: U.S. Bank Trust National Association,

Not In Its Individual Capacity But Solely

As Owner Trustee

 

 

/s/ Annette Morgan                                                  

By:    Annette Morgan

Title: Assistant Vice President

 

 

[A&R Intercreditor Agreement]

 

 

  

  

 

CREDIT ACCEPTANCE AUTO

LOAN TRUST 2011-1

 

By: U.S. Bank Trust National Association,

Not In Its Individual Capacity But Solely

As Owner Trustee

 

/s/ Annette Morgan                                                   

By:    Annette Morgan

Title: Assistant Vice President

 

 

 

CREDIT ACCEPTANCE AUTO

LOAN TRUST 2010-1

 

By: U.S. Bank Trust National Association,

Not In Its Individual Capacity But Solely

As Owner Trustee

 

 

/s/ Annette Morgan                                                  

By:    Annette Morgan

Title: Assistant Vice President

 

[A&R Intercreditor Agreement]

  

  

  

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

Not In Its Individual Capacity But Solely as the 2010-1 Trustee,

the 2011-1 Trustee, the 2012-1 Trustee, the 2012-2 Trustee, the 2013-1 Trustee

and Collateral Agent under the Wells Fargo Warehouse

Securitization Documents

 

 

 

/s/ Adam J. Holzemer                                                 

By:    Adam Holzemer

Title: Assistant Vice President

 

[A&R Intercreditor Agreement]

  

  

  

 

FIFTH THIRD BANK,

As Agent

 

 

/s/ Brian Gardner                                                         

By:    Brian Gardner

Title: Vice President

 

[A&R Intercreditor Agreement]

  

  

  

 

BANK OF MONTREAL

As Lender and Collateral Agent

 

 

/s/ Karen Louie                                                            

By:    Karen Louie

Title:  Director

 

[A&R Intercreditor Agreement]

  

  

  

 

COMERICA BANK,

As Agent

 

 

/s/ Paul G. Russo                                                         

By:    Paul G. Russo

Title: Vice President

 

 

 

[A&R Intercreditor Agreement]

  

  

  

 

APPENDIX A

DEFINITIONS

 

 

2010-1 Indenture: the Indenture dated as of November 4, 2010, between the 2010-1 Trustee and the 2010-1 Trust, as amended from time to time.

 

 

2010-1 Securitization Documents: the Sale and Servicing Agreement dated as of November 4 2010, among the 2010-1 Trust, Funding 2010-1, CAC, the 2010-1 Trustee, and Wells Fargo Bank, National Association, as the Backup Servicer, the 2010-1 Indenture, and the documents related thereto, as amended from time to time.

 

 

2011-1 Indenture: the Indenture to be dated on or about October 6, 2011, between the 2011-1 Trustee and the 2011-1 Trust, as amended from time to time.

 

 

2011-1 Securitization Documents: the Sale and Servicing Agreement to be dated on or about October 6, 2011, among the 2011-1 Trust, Funding 2011-1, CAC, the 2011-1 Trustee, and Wells Fargo Bank, National Association, as the Backup Servicer, the 2011-1 Indenture, and the documents related thereto, as amended from time to time.

 

 

2012-1 Indenture: the Indenture to be dated on or about March 29, 2012, between the 2012-1 Trustee and the 2012-1 Trust, as amended from time to time.

 

 

2012-1 Securitization Documents: the Sale and Servicing Agreement to be dated on or about March 29, 2012, among the 2012-1 Trust, Funding 2012-1, CAC, the 2012-1 Trustee, and Wells Fargo Bank, National Association, as the Backup Servicer, the 2012-1 Indenture, and the documents related thereto, as amended from time to time.

 

 

2012-2 Indenture: the Indenture to be dated on or about September 20, 2012, between the 2012-2 Trustee and the 2012-2 Trust, as amended from time to time.

 

 

2012-2 Securitization Documents: the Sale and Servicing Agreement to be dated on or about September 20, 2012, among the 2012-2 Trust, Funding 2012-2, CAC, the 2012-2 Trustee, and Wells Fargo Bank, National Association, as the Backup Servicer, the 2012-2 Indenture, and the documents related thereto, as amended from time to time.

 

 

2013-1 Indenture: the Indenture to be dated on or about April 25, 2013, between the 2013-1 Trustee and the 2013-1 Trust, as amended from time to time.

 

 

2013-1 Securitization Documents: the Sale and Servicing Agreement to be dated on or about April 25, 2013, among the 2013-1 Trust, Funding 2013-1, CAC, the 2013-1 Trustee, and Wells Fargo Bank, National Association, as the Backup Servicer, the 2013-1 Indenture, and the documents related thereto, as amended from time to time.

 

 

Advance: Amounts advanced to a Dealer upon the acceptance of a Contract by CAC pursuant to a Dealer Agreement.

 

 

  

A-1

  

BMO Warehouse Securitization Documents: The Loan and Security Agreement dated as of August 19, 2011, among Warehouse Funding IV, CAC, BMO, and the other parties from time to time party thereto, and the documents related thereto, as amended from time to time.

 

 

CAC Credit Facility Documents: The Fifth Amended and Restated Credit Acceptance Corporation Credit Agreement, dated as of June 17, 2011, by and among the banks signatory thereto, Comerica and CAC, and the documents related thereto, as amended from time to time.

 

 

CAC Entities: Each of CAC, Warehouse Funding II, Warehouse Funding III, Warehouse Funding IV, Funding 2013-1, the 2013-1 Trust, Funding 2012-2, the 2012-2 Trust, Funding 2012-1, the 2012-1 Trust, Funding 2011-1, the 2011-1 Trust, Funding 2010-1 and the 2010-1 Trust.

 

 

Collections: All money, amounts or other payments received or collected by CAC, individually or as servicer, or any successor servicer or any other CAC entity with respect to a contract in the form of cash, checks, wire transfers or other form of payment in accordance with the Contracts or the Dealer Agreements, including, without limitation, with respect to Pool amounts collected under any other Pool which are Back-End Dealer Payments that have been set off by CAC or by Comerica pursuant to the CAC Credit Facility Documents, against amounts owing under such Pool.

 

 

Contract: A retail installment contract for the sale of used motor vehicles assigned outright by Dealers to CAC or a subsidiary of CAC or written by Dealers in the name of CAC or a subsidiary of CAC (and funded by CAC or such subsidiary) or assigned by Dealers to CAC or a subsidiary of CAC, as nominee for the Dealer, for administration, servicing, and collection, in each case pursuant to an applicable Dealer Agreement.

 

 

Creditor: Each of Comerica, Wells Fargo, Fifth Third, BMO, the 2013-1 Trustee, the 2012-2 Trustee, the 2012-1 Trustee, the 2011-1 Trustee and the 2010-1 Trustee.

 

 

Dealer: A person engaged in the business of the retail sale or lease of new or used motor vehicles, including both businesses exclusively selling used motor vehicles and businesses principally selling new motor vehicles, but having a used vehicle department, including any such person which constitutes an affiliate of CAC.

 

 

Dealer Agreement: The sales and/or servicing agreements between CAC or its subsidiaries and a participating Dealer which sets forth the terms and conditions under which CAC or its subsidiaries (i) accepts, as nominee for such Dealer, the assignment of Contracts for purposes of administration, servicing and collection and under which CAC or its subsidiary may make advances to such Dealers and (ii) accepts outright assignments of Contracts from Dealers or funds Contracts originated by such Dealer in the name of CAC or any of its subsidiaries, in each case as such agreements may be in effect from time to time.

 

 

Financing Documents: The CAC Credit Facility Documents, the Wells Fargo Warehouse Securitization Documents, the Fifth Third Securitization Documents, the BMO Warehouse Securitization Documents,  the 2013-1 Securitization Documents, the 2012-2 Securitization Documents, the 2012-1 Securitization Documents, the 2011-1 Securitization Documents and the 2010-1 Securitization Documents.

 

 

  

A-2

  

Fifth Third Securitization Documents: The Amended and Restated Loan and Security Agreement dated as of June 29, 2012 among Warehouse Funding III, CAC, Fifth Third, and the other parties from time to time party thereto, and the documents related thereto, as amended from time to time.

 

 

Pool: A grouping on the books and records of CAC or any of its subsidiaries of Advances or Contracts originated or to be originated with CAC or any of its subsidiaries by a Dealer and bearing the same pool identification number assigned by CAC’s computer system.

 

 

Prior Agreement: The Amended and Restated Intercreditor Agreement dated September 20, 2012, among CAC, Warehouse Funding II, Warehouse Funding III, Warehouse Funding IV, Funding 2012-2, Funding 2012-1, Funding 2011-1, Funding 2010-1, the 2012-2 Trust, the 2012-1 Trust, the 2011-1 Trust, the 2010-1 Trust, Wells Fargo, Fifth Third, the 2012-1 Trustee, the 2011-1 Trustee, the 2010-1 Trustee, BMO and Comerica.

 

 

Purchased Loan: A motor vehicle retail installment loan relating to the sale of a used automobile or light-duty truck originated by a Dealer, purchased by the Originator from such Dealer and evidenced by a Purchased Loan Contract.

 

 

Wells Fargo Warehouse Securitization Documents: The Fifth Amended and Restated Loan And Security Agreement dated as of December 27, 2012, as amended, among Warehouse Funding II, CAC, Variable Funding Capital Company LLC, Wells Fargo Securities, LLC, Wells Fargo Bank, National Association and the other parties from time to time party thereto, and the documents related thereto, as amended from time to time.

 

  

A-3EXHIBIT 10.1

Exhibit 10.1

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”), dated as of April 26, 2013 (the “Effective Date”), among SILICON VALLEY BANK, a California corporation (“Bank”), ARI NETWORK SERVICES, INC. , a Wisconsin corporation (“ARI”) and PROJECT VIKING II ACQUISITION, INC., a Wisconsin corporation (“Viking”, and together with ARI, individually and collectively, jointly and severally, the “Borrower”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank.  The parties agree as follows:

1

ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP.  Calculations and determinations must be made following GAAP.  Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13.  All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

2

LOAN AND TERMS OF PAYMENT

2.1

Promise to Pay.  Borrower hereby unconditionally, individually and collectively, jointly and severally, promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.1.1

Revolving Advances.

(a)

Availability.  Subject to the terms and conditions of this Agreement, so long as Borrower demonstrates pro-forma compliance with the financial covenants contained in Section 6.7, Bank shall make Advances not exceeding the Availability Amount.  Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

(b)

Termination; Repayment.  The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

2.1.2

Term Loan.

(a)

Availability.  Bank shall make one (1) term loan (the “Term Loan”) available to Borrower in an amount up to Four Million Five Hundred Thousand Dollars ($4,500,000) (the “Term Loan Amount”) on the Effective Date, subject to the satisfaction of the terms and conditions of this Agreement.

(b)

Repayment.  Borrower shall make interest payments on the outstanding principal balance of the Term Loan as follows: (i) with respect to Prime Rate Loans, commencing on the first day of the Borrower’s Fiscal Quarter following the Fiscal Quarter in which the Funding Date occurs, Borrower shall make quarterly payments of interest with respect to the Term Loan and thereafter on the first day of each successive Fiscal Quarter thereafter until the Term Loan is paid in full and (ii) with respect to LIBOR Loans, Borrower shall make interest 

 commencing on the last day of the initial Interest Period following the Funding Date, and on the last day of each Interest Period ending thereafter, Borrower shall remit to Bank all accrued and outstanding interest with respect to such Interest Period.   In addition, Borrower shall repay the principal amount of the Term Loan (each payment of principal and/or interest being a “Term Loan Payment”), in quarterly installments of principal commencing on August 1, 2013 and on the first day of each successive Fiscal Quarter thereafter until the Term Loan is paid in full, based on the installment amounts set forth below opposite each installment payment date set forth below: 

		
	Installment Payment Dates

	Installment Amount

	August 1, 2013 through and including May 1, 2014

	$112,500.00

	August 1, 2014 through and including May 1, 2015

	$168,750.00

	August 1, 2015 through and including February 1, 2018

	$281,250.00

To the extent not previously paid, the then outstanding principal amount of the Term Loan shall be due and payable on the Term Loan Maturity Date, together with accrued and unpaid interest on such principal amount to be paid to but excluding the date of payment.  Once repaid, the Term Loan may not be reborrowed.

(c)

Prepayment of Term Loan.   Borrower may at any time and from time to time prepay all, but not less than all, of the outstanding principal balance of the Term Loan, upon irrevocable notice delivered to the Bank no later than 
10
:00 
A.M.,
 Pacific time, three (3) Business Days prior thereto, in the case of LIBOR Loans, and no later than 10:00 A.M., Pacific time, one (1) Business Day prior thereto, in the case of Prime Rate Loans, which notice shall specify the date and amount of the proposed prepayment, it being understood that if a LIBOR Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 3.6(c)(ii).  If such prepayment is at Borrower’s election or at Bank’s election due to the occurrence and continuance of an Event of Default, Borrower shall pay to Bank, in addition to the payment of any other expenses or fees then-owing, a prepayment fee in an amount equal to (i) if such prepayment occurs on or prior to the First Anniversary, Ninety Thousand Dollars ($90,000) (i.e. two percent (2.00%) of Four Million Five Hundred Thousand Dollars ($4,500,000)); (ii) if such prepayment occurs after the First Anniversary but on or before the Second Anniversary, Forty Five Thousand Dollars ($45,000) (i.e. one percent (1.00%) of Four Million Five Hundred Thousand Dollars ($4,500,000)); and (iii) if such prepayment occurs after the Second Anniversary, no prepayment fee will be charged. No prepayment fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Silicon Valley Bank.  In addition, if such notice of prepayment indicates that such prepayment is to be funded with the proceeds of a refinancing, such notice of prepayment may be revoked if the financing is not consummated.  If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid.  

-2-

(d)

Each prepayment of the Term Loan under Section 2.1.2(c) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid.  The Borrower shall deliver to the Bank notice of such prepayment of the Term Loan made pursuant to Section 2.1.2(c) not less than 
three
 (3) Business Days prior to the date such prepayment shall be made.

2.2

Overadvances.  If, at any time, the outstanding principal amount of any Advances exceeds the Revolving Line, Borrower shall immediately pay to Bank in cash the amount of such excess (such excess, the “Overadvance”). Without limiting Borrower’s obligation to repay Bank any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate.

2.3

Payment of Interest on the Credit Extensions

(a)

Interest Rate.  Subject to Section 2.3(c) and (e):

(i)

Advances.  The principal amount outstanding under the Revolving Line shall be maintained as either LIBOR Loans or as Prime Rate Loans, and shall accrue interest as follows:

(A)

Subject to Sections 3.6 and 3.7, each Advance maintained as a LIBOR Loan shall bear interest for each Interest Period with respect thereto at a rate per annum equal to the LIBOR Rate determined on the first day of such Interest Period plus (ii) the Applicable Margin, which interest shall be payable in arrears, on the last day of each applicable Interest Period; and

(B)

Each Advance maintained as a Prime Rate Loan shall bear interest at a rate per annum equal to the Prime Rate plus (ii) the Applicable Margin, which interest shall be payable monthly, in arrears, on the first day of each month.

(ii)

Term Loan.  The principal amount outstanding under the Term Loan shall be maintained as either LIBOR Loans or as Prime Rate Loans, and shall accrue interest as follows:

(A)

Subject to Sections 3.6 and 3.7, each portion of the Term Loan maintained as a LIBOR Loan shall bear interest for each Interest Period with respect thereto at a rate per annum equal to the LIBOR Rate determined on the first day of such Interest Period plus (ii) the Applicable Margin, which interest shall be payable in arrears, in accordance with Section 2.1.2(b); and

(B)

Each portion of the Term Loan maintained as a Prime Rate Loan shall bear interest at a rate per annum equal to the Prime Rate plus (ii) the Applicable Margin, which interest shall be payable quarterly, in arrears, on the first day of each Fiscal Quarter. 

-3-

(b)

Interest Rate Determination.    The foregoing applicable interest rates for Credit Extensions consisting of Advances or the Term Loan will be adjusted on the first (1st) day of each Interest Period and fixed for the duration of each such Interest Period.  As of each Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Term Loan for which an interest rate is then being determined for the applicable Interest Period.  In the event that Bank shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), as of any Interest Rate Determination Date with respect to any Credit Extensions consisting of Advances or the Term Loan, that adequate and fair means do not exist for ascertaining the interest rate applicable to such Credit Extensions consisting of Advances or the Term Loan on the basis provided for in the definition of LIBOR Rate, then Bank may select a comparable replacement index and corresponding margin.

(c)

Default Rate.  Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is three percentage points (3.00%) above the rate that is otherwise applicable thereto (the “Default Rate”).  Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations.  Payment or acceptance of the increased interest rate provided in this Section 2.3(c) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank. 

(d)

Adjustment to Interest Rate.    Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change. 

(e)

Payment; Interest Computation.  Unless otherwise indicated, interest is payable on each Interest Payment Date.  Interest accruing on LIBOR Loans shall be computed on the basis of a 360-day year for the actual number of days elapsed and interest accruing on Prime Rate Loans shall be computed on the basis of a 365/366 (as applicable) day year for the actual number of days elapsed.  In computing interest, (i) all payments received after 10:00 A.M. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.

2.4

Fees.  Borrower shall pay to Bank:  

(a)

Commitment Fee.  A fully earned, non-refundable commitment fee of Seventy Five Thousand Dollars ($75,000), payable on the Effective Date; 

(b)

Unused Revolving Line Facility Fee.  Payable quarterly in arrears, commencing on August 1, 2013 on the first day of each Fiscal Quarter occurring thereafter prior to the Revolving Line Maturity Date, and on the Revolving Line Maturity Date, a fee (the “Unused Revolving Line Facility Fee”) in an amount equal to one-quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line, as determined by Bank.  The unused portion of the Revolving Line, for purposes of this calculation, shall be calculated on a calendar year basis and shall equal the difference between (i) the Revolving Line, 

-4-

and (ii) the average for the period of the daily closing balance of the Revolving Line outstanding; and

(c)

Bank Expenses.  All Bank Expenses (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).

(a)

Fees Fully Earned.  Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder.  Bank may deduct amounts owing by Borrower under the clauses of this Section 2.4 pursuant to the terms of Section 2.5(c).  Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.4.

2.5

Payments; Application of Payments; Debit of Accounts.  

(a)

All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 noon Pacific time on the date when due.  Payments of principal and/or interest received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day.  When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.  

(b)

Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied.  Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

(c)

Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due.  These debits shall not constitute a set-off.

3

CONDITIONS OF LOANS

3.1

Conditions Precedent to Initial Credit Extension.  Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

(a)

duly executed signatures to the Loan Documents;

(b)

duly executed signatures to the Control Agreements, if any;

(c)

the Operating Documents and good standing certificates of Borrower and its Subsidiaries certified by the Secretary of State (or equivalent agency) of Borrower’s and such Subsidiaries’ jurisdiction of organization or formation and each jurisdiction in which Borrower and 

-5-

each Subsidiary is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date; 

(d)

duly executed signatures to the completed Borrowing Resolutions for Borrower;

(e)

duly executed signature to a payoff letter from each of Fifth Third Bank and Michael D. Sifen, Inc. (each a “Prior Lender”);

(f)

evidence that (i) the Liens securing Indebtedness owed by Borrower to each Prior Lender will be terminated and (ii) the documents and/or filings evidencing the perfection of such Liens, including without limitation any financing statements and/or control agreements, have or will, concurrently with the initial Credit Extension, be terminated;

(g)

certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(h)

the Perfection Certificate of Borrower, together with the duly executed signature thereto;

(i)

a landlord’s consent in favor of Bank for each of (i) 10850 West Park Place, Suite 1200, Milwaukee, Wisconsin 153224; (ii) 2900 Sabre Street, Suite 50, Virginia Beach, Virginia 23452; (iii) 6101 Ball Road, Suite 309, Cypress, California 90630; (iv) 5 W 1st Street, Suite 302, Duluth, Minnesota 55802 and (v) 300 E. Superior Street, Duluth, Minnesota 55802, by the respective landlord thereof, together with the duly executed signatures thereto;

(j)

a bailee’s waiver in favor of Bank for (i) CDW Data Center, 5515 Nobel Drive, Fitchburg, Wisconsin 53711; (ii) Windstream (Paetec) Data Center, 477 Viking Drive, Virginia Beach, Virginia 23452; and (iii) each location where Borrower maintains property with a third party with a value in excess of Two Hundred Fifty Thousand Dollars ($250,000), by each such third party, together with the respective duly executed signatures thereto;

(k)

an officer’s certificate certifying that, as of the Effective Date, after giving effect to the funding of the Term Loan and any Advances under the Revolving Line, that Borrower has a Senior Leverage Ratio equal to or less than 2.00:1.00;

(l)

a legal opinion of Borrower’s counsel dated as of the Effective Date together with the duly executed signature thereto;

(m)

evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank; and

(n)

payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

-6-

3.2

Conditions Precedent to all Credit Extensions.  Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a)

timely receipt of an executed Payment/Advance Request;  

(b)

the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension.  Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(c)

Bank determines to its satisfaction that there has not been any Material Adverse Change.

3.3

Covenant to Deliver. 

Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension.  Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

3.4

Procedures for Borrowing; Advances.  Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, an Advance shall be made upon Borrower’s irrevocable written notice delivered to Bank by electronic mail in the form of a Notice of Borrowing executed by an Authorized Signer or without instructions if any Advances is necessary to meet Obligations which have become due.  Such Notice of Borrowing must be received by Bank prior to 12:00 noon Pacific time, (i) at least one (1) Business Days prior to the requested Funding Date, in the case of any LIBOR Loan, and (ii) on the requested Funding Date, in the case of a Prime Rate Loan, specifying: (1) the amount of the Advance; (2) the requested Funding Date; (3) whether the Loan is to be comprised of LIBOR Loans or Prime Rate Loans; and (4) the duration of the Interest Period applicable to any such LIBOR Loans included in such notice; provided that if the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Loan comprised of LIBOR Loans, such Interest Period shall be one (1) month.  In addition to such Notice of Borrowing, Borrower must promptly deliver to Bank by electronic mail a completed Payment/Advance Form executed by an Authorized Signer together with such other reports and information.  Bank may make Advances

-7-

 under this Agreement (i) based on verbal/telephonic instructions from a Responsible Officer or his or her designee, so long as (a) such requests for Advances are Prime Rate Loans and (b) Borrower promptly delivers to Bank by electronic mail a completed Payment Advance Form executed by an Authorized Signer; or (ii) without instructions if the Advances are necessary to meet Obligations which have become due.

3.5

Conversion and Continuation Elections.

(a)

So long as (i) no Event of Default exists; (ii) Borrower shall not have sent any notice of termination of this Agreement; and (iii) Borrower shall have complied with such customary procedures as Bank has established from time to time for Borrower’s requests for LIBOR Loans, Borrower may, upon irrevocable written notice to Bank:

(1)

elect to convert on any Business Day, Prime Rate Loans into LIBOR Loans;

(2)

elect to continue on any Interest Payment Date any LIBOR Loans maturing on such Interest Payment Date; or

(3)

elect to convert on any Interest Payment Date any LIBOR Loans maturing on such Interest Payment Date into Prime Rate Loans.

(b)

Borrower shall deliver a Notice of Conversion/Continuation by electronic mail to be received by Bank prior to 12:00 noon Pacific time (i) at least three (3) Business Days in advance of the Conversion Date or Continuation Date, if any Credit Extensions are to be converted into or continued as LIBOR Loans; and (ii) on the Conversion Date, if any Credit Extensions are to be converted into Prime Rate Loans, in each case specifying the:

(1)

proposed Conversion Date or Continuation Date;

(2)

aggregate amount of the Credit Extensions to be converted or continued;

(3)

nature of the proposed conversion or continuation; and

(4)

if the resulting Credit Extension is to be a LIBOR Loan, the duration of the requested Interest Period.

(c)

If upon the expiration of any Interest Period applicable to any LIBOR Loans, Borrower shall have timely failed to select a new Interest Period to be applicable to such LIBOR Loans or request to convert a LIBOR Loan into a Prime Rate Loan, Borrower shall be deemed to have elected for any such Credit Extensions, to convert such LIBOR Loans into Prime Rate Loans.

(d)

Any LIBOR Loans shall, at Bank’s option, convert into Prime Rate Loans in the event that an Event of Default exists.  Borrower agrees to pay Bank, upon demand by Bank (or Bank may, at its option, debit the Designated Deposit Account or any other account Borrower maintains with Bank) any amounts required to compensate Bank for any loss (including loss of anticipated profits), cost, or expense incurred by Bank, as a result of the conversion of LIBOR Loans to Prime Rate Loans pursuant to Section 3.6(c)(ii).

-8-

(e)

Notwithstanding anything to the contrary contained herein, Bank shall not be required to purchase Dollar deposits in the London interbank market or other applicable LIBOR market to fund any LIBOR Loans, but the provisions hereof shall be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Loans.

3.6

Special Provisions Governing LIBOR Loans.  Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to LIBOR Loans as to the matters covered:

(a)

Determination of Applicable Interest Rate.  As soon as practicable on each Interest Rate Determination Date, Bank shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower.

(b)

Inability to Determine Applicable Interest Rate.  In the event that Bank shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBOR Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such LIBOR Loan on the basis provided for in the definition of LIBOR, Bank shall on such date give notice (by facsimile or by telephone confirmed in writing) to Borrower of such determination, whereupon (i) no Credit Extensions may be made as, or converted to, LIBOR Loans until such time as Bank notifies Borrower that the circumstances giving rise to such notice no longer exist, and (ii) any Notice of Conversion/Continuation given by Borrower with respect to LIBOR Loans in respect of which such determination was made shall be deemed to be rescinded by Borrower.

(c)

Compensation for Breakage or Non-Commencement of Interest Periods.  If (i) for any reason, other than a default by Bank or any failure of Bank to fund LIBOR Loans due to impracticability or illegality under Sections 3.7(c) and 3.7(d) of this Agreement, a borrowing or a conversion to or continuation of any LIBOR Loans does not occur on a date specified in a Notice of Conversion/Continuation, as the case may be, or (ii) any complete or partial principal payment or reduction of a LIBOR Loan, or any conversion of any LIBOR Loan, occurs on a date prior to the last day of an Interest Period applicable to that LIBOR Loan, including due to voluntary or mandatory prepayment or acceleration, then, in each case, Borrower shall compensate Bank, upon written request by Bank, for all losses and expenses incurred by Bank in an amount equal to the excess, if any, of:

(A)

the amount of interest that would have accrued on the amount (1) not borrowed, converted or continued as provided in clause (i) above, or (2) paid, reduced or converted as provided in clause (ii) above, for the period from (y) the date of such failure to borrow, convert or continue as provided in clause (i) above, or the date of such payment, reduction or conversion as provided in clause (ii) above, as the case may be, to (z) in the case of a failure to borrow, convert or continue as provided in clause (i) above, the last day of the Interest Period that would have commenced on the date of such borrowing, conversion or continuing but for such failure, and in the case of a payment, reduction or conversion prior to the 

-9-

last day of an Interest Period applicable to a LIBOR Loan as provided in clause (ii) above, the last day of such Interest Period, in each case at the applicable rate of interest or other return for such LIBOR Loan(s) provided for herein (excluding, however, the LIBOR Rate Margin included therein, if any), over 

(B)

the interest which would have accrued to Bank on the applicable amount provided in clause (A) above through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate on the date of such failure to borrow, convert or continue as provided in clause (i) above, or the date of such payment, reduction or conversion as provided in clause (ii) above, as the case may be, for a period equal to the remaining period of such applicable Interest Period provided in clause (A) above.  

Bank’s request shall set forth the manner and method of computing such compensation in reasonable detail and such determination as to such compensation shall be conclusive absent manifest error.  

(d)

Assumptions Concerning Funding of LIBOR Loans.  Calculation of all amounts payable to Bank under this Section 3.6 and under Section 3.7 shall be made as though Bank had actually funded each relevant LIBOR Loan through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to the definition of LIBOR Rate in an amount equal to the amount of such LIBOR Loan and having a maturity comparable to the relevant Interest Period; provided, however, that Bank may fund each of its LIBOR Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 3.6 and under Section 3.7.

(e)

LIBOR Loans After Default.  After the occurrence and during the continuance of an Event of Default, (i) Borrower may not elect to have any Credit Extension be continued as, or converted to, a LIBOR Loan after the expiration of any Interest Period then in effect for such Credit Extension and (ii) subject to the provisions of Section 3.7(c), any Notice of Conversion/Continuation given by Borrower with respect to a requested conversion/continuation that has not yet occurred shall, at Bank’s option, be deemed to be rescinded by Borrower and be deemed a request to convert or continue Credit Extensions referred to therein as Prime Rate Loans.

3.7

Additional Requirements/Provisions Regarding LIBOR Loans.

(a)

Borrower shall pay Bank, upon demand by Bank, from time to time such amounts as Bank may determine to be necessary to compensate it for any costs incurred by Bank that Bank determines are attributable to its making or maintaining of any amount receivable by Bank hereunder in respect of any LIBOR Loans relating thereto (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), in each case resulting from any Regulatory Change which:

(i)

changes the basis of taxation of any amounts payable to Bank under this Agreement in respect of any LIBOR Loans (other than changes which affect taxes measured by or imposed on the overall net income of Bank); 

-10-

(ii)

imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with, or other liabilities of Bank (including any LIBOR Loans or any deposits referred to in the definition of LIBOR); or

(iii)

imposes any other condition affecting this Agreement (or any of such extensions of credit or liabilities).

Bank will notify Borrower of any event occurring after the Effective Date which will entitle Bank to compensation pursuant to this Section 3.7(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation.  Bank will furnish Borrower with a statement setting forth in reasonable detail the basis and amount of each request by Bank for compensation under this Section 3.7(a).  Determinations and allocations by Bank for purposes of this Section 3.7(a) of the effect of any Regulatory Change on its costs of maintaining its obligations to make LIBOR Loans, of making or maintaining LIBOR Loans, or on amounts receivable by it in respect of LIBOR Loans, and of the additional amounts required to compensate Bank in respect of any Additional Costs, shall be conclusive absent manifest error.

(b)

If Bank shall determine that the adoption or implementation of any applicable law, rule, regulation, or treaty regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by Bank (or its applicable lending office) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank, or comparable agency, has or would have the effect of reducing the rate of return on capital of Bank or any person or entity controlling Bank (a “Parent”) as a consequence of its obligations hereunder to a level below that which Bank (or its Parent) could have achieved but for such adoption, change, or compliance (taking into consideration policies with respect to capital adequacy) by an amount deemed by Bank to be material, then from time to time, within five (5) days after demand by Bank, Borrower shall pay to Bank such additional amount or amounts as will compensate Bank for such reduction.  A statement of Bank claiming compensation under this Section 3.7(b) and setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder shall be conclusive absent manifest error.

Notwithstanding anything to the contrary in this Section 3.7, Borrower shall not be required to compensate Bank pursuant to this Section 3.7(b) for any amounts incurred more than nine (9) months prior to the date that Bank notifies Borrower of Bank’s intention to claim compensation therefor; provided that if the circumstances giving rise to such claim have a retroactive effect, then such nine-month period shall be extended to include the period of such retroactive effect.  The obligations of the Borrower arising pursuant to this Section 3.7(b) shall survive the Term Loan Maturity Date and/or the Revolving Line Maturity Date, as applicable, the termination of this Agreement and the repayment of all Obligations.

(c)

If, at any time, Bank, in its sole and absolute discretion, determines that (i) the amount of LIBOR Loans for periods equal to the corresponding Interest Periods are not available to Bank in the offshore currency interbank markets, or (ii) LIBOR does not accurately reflect the cost to Bank of lending the LIBOR Loans, then Bank shall promptly give notice thereof to Borrower.  Upon the giving of such notice, Bank’s obligation to make LIBOR Loans shall 

-11-

terminate; provided, however, LIBOR Loans shall not terminate if Bank and Borrower agree in writing to a different interest rate applicable to LIBOR Loans. 

(d)

If it shall become unlawful for Bank to continue to fund or maintain any LIBOR Loans, or to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay the LIBOR Loans in full with accrued interest thereon and all other amounts payable by Borrower hereunder (including, without limitation, any amount payable in connection with such prepayment pursuant to Section 3.6(c)(ii)).  Notwithstanding the foregoing, to the extent a determination by Bank as described above relates to a LIBOR Loan then being requested by Borrower pursuant to a Notice of Conversion/Continuation, Borrower shall have the option, subject to the provisions of Section 3.6(c)(ii), to (i) rescind such Notice of Conversion/Continuation by giving notice (by facsimile or by telephone confirmed in writing), to Bank of such rescission on the date on which Bank gives notice of its determination as described above, or (ii) modify such Notice of Conversion/Continuation to obtain a Prime Rate Loan or to have outstanding Credit Extensions converted into or continued as Prime Rate Loans by giving notice (by facsimile or by telephone confirmed in writing) to Bank of such modification on the date on which Bank gives notice of its determination as described above.

3.8

Limitations on LIBOR Tranches.  Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of LIBOR Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the LIBOR Loans comprising each LIBOR tranche shall be equal to One Hundred Thousand Dollars ($100,000) or a whole multiple of One Hundred Thousand Dollars ($100,000) in excess thereof, and (b) no more than seven (7) LIBOR tranches shall be outstanding at any one time.

4

CREATION OF SECURITY INTEREST  

4.1

Grant of Security Interest.  Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.  

Borrower acknowledges that it may in the future enter into Bank Services Agreements with Bank.  Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien in this Agreement).

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash.  Upon payment in full in cash of the Obligations (other than inchoate indemnity obligations) and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at the sole cost and expense of Borrower, release its Liens in the Collateral and all rights therein shall revert to Borrower.  In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank 

-12-

in its good faith business judgment for Bank Services, if any.  In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%) of the Dollar Equivalent of the face amount of all such Letters of Credit; and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit, plus in each case all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its business judgment), to secure all of the Obligations relating  to such  Letters of Credit.

4.2

Priority of Security Interest.  Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that are permitted pursuant to the terms of this Agreement to have superior priority to Bank’s Lien under this Agreement).  If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

4.3

Authorization to File Financing Statements.  Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code.   Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

5

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows: 

5.1

Due Organization, Authorization; Power and Authority.  Borrower is duly existing and in active status as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business.  In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate”.  Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and 

-13-

complete in all material respects (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).  If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower’s organizational identification number.

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect), or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.  

5.2

Collateral.  Borrower has good title to, 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 except Permitted Liens.  Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank’s Affiliates except for (i) the Collateral Accounts described in the Perfection Certificate delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the term of Section 6.8(b) and (ii) the Existing Accounts and the Foreign Accounts described in, and subject to the terms of, Section 6.6(a).  The Accounts are bona fide, existing obligations of the Account Debtors.  

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate.  None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate.  To the best of Borrower’s knowledge, each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.  To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

-14-

Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

5.3

Accounts Receivable.  All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be.  All sales and other transactions underlying or giving rise to each Account shall comply in all material respects with all applicable laws and governmental rules and regulations.  To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.  

5.4

Litigation.  There are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, One Hundred Thousand Dollars ($100,000).

5.5

Financial Statements; Financial Condition.  All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations.  There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

53.6

Solvency.  The fair salable value of Borrower’s consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower’s liabilities; Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.7

Regulatory Compliance.  Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended.  Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors).  Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business.  None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally.  Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

5.8

Subsidiaries; Investments.  Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.  

5.9

Tax Returns and Payments; Pension Contributions.  Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and

-15-

 local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Fifty Thousand Dollars ($50,000).  

To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.”  Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower.  Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.10

Use of Proceeds.  Borrower shall use the proceeds of the Credit Extensions to repay in full each Prior Lender and as working capital to fund its general business requirements and not for personal, family, household or agricultural purposes.

5.11

Full Disclosure.  No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

5.12

Definition of “Knowledge.”  For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

6

AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1

Government Compliance.  

(a)

Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on 

-16-

Borrower’s business.  Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject.

(b)

Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property.  Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.

6.2

Financial Statements, Reports, Certificates.  Provide Bank with the following:

(a)

Monthly Financial Statements.  As soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated and consolidating balance sheet and income statement covering the Borrower’s consolidated operations for such month certified by a Responsible Officer and in a form reasonably acceptable to Bank (the “Monthly Financial Statements”); 

(b)

Monthly Compliance Certificate.  Within thirty (30) days after the last day of each month, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank may reasonably request;

(c)

Accounts Receivable/Accounts Payable Reports.  Within thirty (30) days after the end of each month, (A) monthly accounts receivable agings, aged by invoice date and (B) monthly accounts payable agings, aged by invoice date;

(d)

Annual Operating Budget and Financial Projections.  Within forty-five (45) days after the end of each fiscal year of Borrower, (i) annual operating budgets (including income statements and estimated cash flow statements, by month) for the then-current fiscal year of Borrower, and (ii) annual financial projections for the following fiscal year (on a quarterly basis), in each case as approved by Borrower’s board of directors, together with any related business forecasts used in the preparation of such annual financial projections;

(e)

Annual Audited Financial Statements.  As soon as available, but no later than one hundred twenty (120) days after the last day of Borrower’s fiscal year, audited consolidated financial statements of Borrower and its Subsidiaries, prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank;

(f)

Other Statements.  Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt;

(g)

SEC Filings.  Within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by such Loan Party with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be.  Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which such Loan Party posts such documents, or provides a link thereto, on such Loan Party’s website on the Internet at such Loan Party’s website 

-17-

address; provided, however, Borrower shall promptly notify Bank in writing (which may be by electronic mail) of the posting of any such documents;

(h)

Legal Action Notice.  A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could reasonably be expected to result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or more; and

(i)

Other Financial Information.  Other financial information reasonably requested by Bank.

6.3

Inventory; Returns.  Keep all Inventory in good and marketable condition, free from material defects.  Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date.  Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000).

6.4

Taxes; Pensions.  Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof that do not, individually or in the aggregate, exceed Fifty Thousand Dollars ($50,000), and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.5

Insurance.  

(a)

Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request.  Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower, and in amounts that are satisfactory to Bank.  All property policies shall have a lender’s loss payable endorsement showing Bank an additional lender loss payee.  All liability policies shall show, or have endorsements showing, Bank as an additional insured.  Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral. 

(b)

Ensure that proceeds payable under any property policy are, at Bank’s option, payable to Bank on account of the Obligations.    

(c)

At Bank’s request, Borrower shall deliver certified copies of insurance policies and evidence of all premium payments.  Each provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice before any such policy or policies shall be materially altered or canceled.  If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

6.6

Operating Accounts; Collections of Accounts.

-18-

(a)

Banking Relationship.  Maintain all of its and its Subsidiaries’ operating and other deposit accounts and securities accounts with Bank and Bank’s Affiliates; provided, that Borrower may maintain its existing accounts at Fifth Third Bank (the “Existing Accounts”), so long as such Existing Accounts are closed within sixty (60) days after Effective Date (or such longer period as Bank shall determine, in its sole discretion), with all proceeds from such Existing Accounts transferred to an account of Borrower maintained at Bank; provided further, that Borrower may maintain its existing accounts located outside the United States and described in the Perfection Certificate (the “Foreign Accounts”), so long as the maximum aggregate amount maintained in all such Foreign Accounts does not exceed One Hundred Thousand Dollars ($100,000) at any time, with amounts in excess thereof transferred to an account of Borrower maintained at Bank within one (1) Business Day.  

(b)

Collateral Accounts.  Provide Bank five (5) days prior-written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank.  The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes, and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

(c)

Collection of Accounts.  Borrower shall have the right to collect all Accounts, unless and until an Event of Default has occurred and is continuing.  Bank shall, on or before the date that is sixty (60) days after the Effective Date, require that Borrower direct Account Debtors to deliver or transmit all proceeds of Accounts into a lockbox account, or via electronic deposit capture into a “blocked account” as specified by Bank (either such account, the “Cash Collateral Account”).  Whether or not an Event of Default has occurred and is continuing, Borrower shall immediately deliver all payments on and proceeds of Accounts to the Cash Collateral Account to be applied to immediately reduce the Obligations.

6.7

Financial Covenants.

Maintain as of the last day of each quarter, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

(a)

Senior Leverage Ratio.  A Senior Leverage Ratio equal to or less than 2.00 to 1.00, measured on a trailing twelve month basis ending as of the date of measurement, tested (i) on the Effective Date, after giving effect to the initial Credit Extensions; and (ii) (A) monthly when there are outstanding Advances under the Revolving Line as of the date of measurement, or (B) quarterly, on the last day of each Fiscal Quarter, so long as there are no outstanding Advances under the Revolving Line as of the date of measurement.

(b)

Fixed Charge Coverage Ratio.  A Fixed Charge Coverage Ratio, measured on a trailing twelve-month basis as of the last day of each Fiscal Quarter, equal to or greater than 1.25:1.00.

-19-

6.8

Protection and Registration of Intellectual Property Rights.  

(a)

(i) Protect, defend and maintain the validity and enforceability of its Intellectual Property; (ii) promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public, except for expiration of Intellectual Property or abandonment thereof in the ordinary course of Borrower’s business, in a manner consistent with past practices, without Bank’s written consent.  

(b)

To the extent not already disclosed in writing to Bank, if Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark, then Borrower shall immediately provide written notice thereof to Bank and shall execute such intellectual property security agreements and other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in such property.  If Borrower decides to register any Copyrights or mask works in the United States Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15) days prior written notice of Borrower’s intent to register such Copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding exhibits thereto); (y) execute an intellectual property security agreement and such other documents and take such other actions as Bank may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Bank in the Copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the Copyright or mask work application(s) with the United States Copyright Office.  Borrower shall promptly provide to Bank copies of all applications that it files for Patents or for the registration of Trademarks, Copyrights or mask works, together with evidence of the recording of the intellectual property security agreement required for Bank to perfect and maintain a first priority perfected security interest in such property.

(c)

Provide written notice to Bank within ten (10) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public).  Borrower shall take such steps as Bank reasonably requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank’s rights and remedies under this Agreement and the other Loan Documents.

6.9

Litigation Cooperation.  From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Bank may 

-20-

deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

6.10

Formation or Acquisition of Subsidiaries.  Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall (a) cause such new Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a co-borrower or guarantor together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank; provided, that with respect to any Foreign Subsidiary, in the event that Borrower and Bank mutually agree that (i) the grant of a continuing pledge and security interest in and to the assets of any such Foreign Subsidiary, (ii) the guaranty of the Obligations of the Borrower by any such Foreign Subsidiary and/or (iii) the pledge by Borrower of a perfected security interest in one hundred percent (100%) of the stock, units or other evidence of ownership of each Foreign Subsidiary, could reasonably be expected to have an adverse tax effect on the Borrower, then the Borrower shall only be required to grant and pledge to Bank a perfected security interest in up to sixty-five percent (65%) of the stock, units or other evidence of ownership of such Foreign Subsidiary, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above.  Any document, agreement, or instrument executed or issued pursuant to this Section 6.10 shall be a Loan Document. As of the Effective Date, the foregoing provisions of this Section 6.10 shall not apply to ARI Europe.

6.11

Further Assurances.  Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement.  Deliver to Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.

6.12

Post-closing Matters.  Borrower shall deliver the items listed below in the time-frame specified, in each case in form and substance acceptable to Bank, in its reasonable discretion:

(a)

on or before the date that is ten (10) days after the Effective Date (or such later date as Bank shall determine, in its sole discretion), original executed signature pages to the Loan Documents and other agreement described in Section 3.1 above (other than original executed signature pages to the payoff letters described in Section 3.1(e) and to the landlord’s consents and bailee waivers described in Section 3.1(i) and 3.1(j)); 

-21-

(b)

on or before the date that is thirty (30) days after the Effective Date (or such later date as Bank shall determine, in its sole discretion), to the extent not received on the Effective Date, unless waived by Bank, in its reasonable discretion, executed signature pages to the landlord’s consents and bailee waivers described in Section 3.1(i) and Section 3.1(j);

(c)

on or before the date that is sixty (60) days after the Effective Date, Borrower shall have instructed all Account Debtors to remit payments to the Cash Collateral Account, as further described in Section 6.6(c).

7

NEGATIVE COVENANTS

Borrower shall not do any of the following without Bank’s prior written consent:

7.1

Dispositions.  Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any stock of Borrower permitted under Section 7.2 of this Agreement; (e) consisting of Borrower’s use or transfer of money or Cash Equivalents in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents. 

7.2

Changes in Business, Management, Ownership or Business Locations.  (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by Borrower within five (5) days after such Key Person’s departure from Borrower; or (ii) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than forty percent (40%) of the voting stock of Borrower immediately after giving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital or private equity investors so long as Borrower identifies to Bank the venture capital or private equity investors at least seven (7) Business Days prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction).  

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Two Hundred Fifty Thousand Dollars ($250,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Two Hundred Fifty Thousand Dollars ($250,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, unless the Borrower shall have delivered to Bank a bailee’s waiver as described in the following sentence, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization.  If Borrower intends to deliver any portion of the Collateral valued, 

-22-

individually or in the aggregate, in excess of Two Hundred Fifty Thousand Dollars ($250,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank.

7.3

Mergers or Acquisitions.  Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person (including, without limitation, by the formation of any Subsidiary).  A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

7.4

Indebtedness.  Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5

Encumbrance.  Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, permit any Collateral not to be subject to the first priority security interest granted herein, in each case, other than for Permitted Liens, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

7.6

Maintenance of Collateral Accounts.  Maintain any Collateral Account except pursuant to the terms of Section 6.6 hereof.

7.7

Distributions; Investments.  (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock

; or

(b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so.

7.8

Transactions with Affiliates.  Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

7.9

Subordinated Debt.  (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.

7.10

Compliance.  Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in 

-23-

Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or non-exempt Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, in each case if such failure or violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

7.11

Fiscal Year End.  Change its fiscal year-end from the fiscal year-end in effect as of the Effective Date (as of the Effective Date, Borrower’s fiscal year begins August 1 and ends on July 31 of each annual period).

8

EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

8.1

Payment Default.  Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due (provided that failure by Bank to timely debit Borrower’s account at Bank for any interest and/or principal payment will not result in an Event of Default hereunder), or (b) pay any other Obligation within three (3) Business Days after such Obligation is due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date).  During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2

Covenant Default.  

(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.6, 6.7, 6.10, 6.11 or violates any covenant in Section 7; or

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period).  Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

8.3

Material Adverse Change.  A Material Adverse Change occurs;

-24-

8.4

Attachment; Levy; Restraint on Business.  

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary), or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or 

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;

8.5

Insolvency.  (a) Borrower or any of its Subsidiaries is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower or any of its Subsidiaries and is not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6

Other Agreements.  There is, under any agreement to which Borrower is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of One Hundred Thousand Dollars ($100,000); or (b) any breach or default by Borrower, the result of which could reasonably be expected to have a material adverse effect on Borrower’s business; 

8.7

Judgments; Penalties.  One or more fines, penalties or final judgments, orders or decrees for the payment of money in an amount, individually or in the aggregate, of at least One Hundred Thousand Dollars ($100,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order or decree);

8.8

Misrepresentations.  Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made;

8.9

Subordinated Debt.  Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the 

-25-

Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement; or

8.10

Governmental Approvals.  Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) causes, or could reasonably be expected to cause, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction.

9

BANK’S RIGHTS AND REMEDIES

9.1

Rights and Remedies.  Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:

(a)

declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b)

stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c)

demand that Borrower (i) deposit cash with Bank in an amount equal to at least 105% (110% for Letters of Credit denominated in a Currency other than Dollars), of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

(d)

terminate any foreign exchange forward contracts;

(e)

verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Bank’s security interest in such funds;  

(f)

make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral.  Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates.  Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, 

-26-

purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies;

(g)

apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(h)

ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

(i)

place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(j)

demand and receive possession of Borrower’s Books; and

(k)

exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

9.2

Power of Attorney.  Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to:  (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits.  Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder.  Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

9.3

Protective Payments.  If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all 

-27-

amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral.  Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter.  No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.4

Application of Payments and Proceeds.  If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations.  Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency.  If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

9.5

Bank’s Liability for Collateral.  So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person.  Borrower bears all risk of loss, damage or destruction of the Collateral, other than occasioned by Bank’s gross negligence or willful misconduct.

9.6

No Waiver; Remedies Cumulative.  Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith.  No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given.  Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative.  Bank has all rights and remedies provided under the Code, by law, or in equity.  Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver.  Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.  

9.7

Demand Waiver.  Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

10

NOTICES

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three 

-28-

(3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below.  Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10. 

		
	If to Borrower:

	ARI Network Services, Inc.

10850 West Park Place, Suite 1200

Milwaukee, Wisconsin 53224

Attn:  Mr. Darin Janecek

Fax:   414.973.4357

Email: Darin.Janecek@arinet.com

Website URL:  www.arinet.com

	If to Bank:

	Silicon Valley Bank

230 West Monroe Street, Suite 720

Chicago, Illinois  60606

Attn: Mr. Dennis Grunt

Fax:  (312) 704-1532

Email:  dgrunt@svb.com

	with a copy to:

	Riemer & Braunstein LLP

Three Center Plaza

Boston, Massachusetts 02108

Attn:  Michael R. Horner, Esquire

Fax: (617) 692-3442

Email: mhorner@riemerlaw.com

	 
	 

11

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

Illinois law governs the Loan Documents without regard to principles of conflicts of law.  Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Chicago, Illinois; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank.  Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. 

-29-

mails, proper postage prepaid.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

This Section 11 shall survive the termination of this Agreement.

12

GENERAL PROVISIONS

12.1

Termination Prior to Revolving Line Maturity Date; Survival.  All covenants, representations and warranties made in this Agreement shall continue in full force until this Agreement has terminated pursuant to its terms and all Obligations have been satisfied.  So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), the Revolving Line may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank.  Those obligations that are expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’s termination. 

12.2

Successors and Assigns.  This Agreement binds and is for the benefit of the successors and permitted assigns of each party.  Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion).  Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents. 

12.3

Indemnification.  Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against:  (i) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.

-30-

12.4

Time of Essence.  Time is of the essence for the performance of all Obligations in this Agreement.

12.5

Severability of Provisions.  Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.6

Correction of Loan Documents.  Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) days to object to such correction.  In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrower.

12.7

Amendments in Writing; Waiver; Integration.  No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought.  Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document.  Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver.  The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements.  All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

12.8

Counterparts.  This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

12.9

Confidentiality.  In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “Bank Entities”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable efforts to obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein.  Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.

-31-

Bank Entities may use confidential information for the development of databases, reporting purposes, and market analysis so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Borrower.  The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

12.10

Attorneys’ Fees, Costs and Expenses.  In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the Bank shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.

12.11

Electronic Execution of Documents.  The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

12.12

Captions.  The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

12.13

Construction of Agreement.  The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement.  In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

12.14

Relationship.  The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.  The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

12.15

Third Parties.  Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

12.16

Borrower Liability.  Either Borrower may, acting singly, request Advances hereunder.  Each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Advances hereunder.  Each Borrower hereunder shall be jointly and severally obligated to repay all Advances made hereunder, regardless of which Borrower actually receives said Advance, as if each Borrower hereunder directly received all Advances.  Each Borrower waives (a) any suretyship defenses available to it under the Code or any other applicable law, and (b) any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy.  Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) 

-32-

without affecting any Borrower’s liability.  Notwithstanding any other provision of this Agreement or other related document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise.  Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void.  If any payment is made to a Borrower in contravention of this Section, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured.

13

DEFINITIONS.

13.1

Definitions.  As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, and the singular includes the plural.  As used in this Agreement, the following capitalized terms have the following meanings:

“Account” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

“Advance” or “Advances” means a revolving credit loan (or revolving credit loans) under the Revolving Line.

“Affiliate” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“Agreement” is defined in the preamble hereof.

“Applicable Margin” is the rate per annum set forth under the relevant column heading below, as determined by Bank quarterly, based on the Compliance Certificate corresponding with the end of each Fiscal Quarter of Borrower and as required to be delivered pursuant to Section 6.2(b): 

With respect to Term Loans and Advances

			
	Senior Leverage Ratio

	LIBOR Loans

	Prime Rate Loans

	>1.75:1.00

	3.25%

	1.00%

-33-

			
	Senior Leverage Ratio

	LIBOR Loans

	Prime Rate Loans

	>1.25:1.00 but < 1.75:1.00

	3.00%

	0.75%

	< 1.25:1.00

	2.75%

	0.50%

Notwithstanding the foregoing, (a) until the delivery of the first Compliance Certificate corresponding with the end of Borrower’s Fiscal Quarter ending after the Effective Date, as required to be delivered pursuant to Section 6.2(b), the Applicable Margin applicable to the Term Loan and Advances under the Revolving Line shall be the rates corresponding to a Senior Leverage Ratio of 1.75:1.00 in the foregoing table, (b) if the Borrower fails to timely deliver any of the financial statements required by Section 6.2 and the related Compliance Certificate required by Section 6.2(b), by the respective date required thereunder after the end of any applicable reporting period of the Borrower, the Applicable Margin applicable to the Term Loans and Advances under the Revolving Line shall be the rates corresponding to a Senior Leverage Ratio of 1.75:1.00 in the foregoing table until such financial statements and Compliance Certificate are delivered, and (c) no reduction to the Applicable Margin shall become effective at any time when an Event of Default has occurred and is continuing.

If, as a result of any restatement of or other adjustment to the financial statements of the Borrower or for any other reason, the Bank determines that (x) the Senior Leverage Ratio as calculated by the Borrower as of any applicable date was inaccurate and (y) a proper calculation of the Senior Leverage Ratio would have resulted in different pricing for any period, then (i) if the proper calculation of the Senior Leverage Ratio would have resulted in higher pricing for such period, the Borrower shall automatically and retroactively be obligated to pay to the Bank, promptly on demand by the Bank, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period; provided that such period may not exceed one hundred eighty (180) days prior to such demand by Bank; and (ii) if the proper calculation of the Senior Leverage Ratio would have resulted in lower pricing for such period, the Bank shall have no obligation to repay any interest or fees to the Borrower, but the same shall be applied to reduce any outstanding Obligations.

“ARI” is defined in the preamble.

“ARI Europe” is ARI Europe, B.V., a company organized and existing under the laws of The Netherlands and a wholly owned Subsidiary of ARI.

“Authorized Signer” is any individual listed in Borrower’s Borrowing Resolution who is authorized to execute the Loan Documents, including any Notice of Borrowing or other Advance request, on behalf of Borrower.

“Availability Amount” is (a) the Revolving Line minus (b) the outstanding principal balance of any Advances, it being understood that Advances are only available following delivery of evidence satisfactory to Bank that Borrower is in pro forma compliance with the financial covenants contained in Section 6.7.

“Bank” is defined in the preamble hereof.

“Bank Entities” is defined in Section 12.9. 

-34-

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.

“Bank Services”  are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “Bank Services Agreement”).

“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“Borrowing Resolutions” are, with respect to any Person, those resolutions adopted by such Person’s board of directors (and, if required under the terms of such Person’s Operating Documents, stockholders) and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that set forth as a part of or attached as an exhibit to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents, including any Notice of Borrowing or other Advance request, on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

“Business Day” is any day that is not a Saturday, Sunday or other day on which banking institutions in the State of California are authorized or required by law or other governmental action to close, except that if any determination of a “Business Day” shall relate to a LIBOR Advance, the term “Business Day” shall also mean a day on which dealings are carried on in the London interbank market.

“Capital Expenditures” means, with respect to any Person for any period, the sum of (a) the aggregate of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed, plus (b) to the extent not covered by clause (a), the aggregate of all expenditures by such Person and its Subsidiaries during such period to acquire by purchase or otherwise the business or capitalized assets or the capital stock of any other Person.

-35-

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.

“Claims” is defined in Section 12.3.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of Illinois; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of Illinois, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

“Commodity Account” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

“Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit E.

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business.  The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

-36-

“Continuation Date” means any date on which Borrower continues a LIBOR Loan into another Interest Period.

“Control Agreement” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

“Conversion Date” means any date on which Borrower converts a Prime Rate Loan to a LIBOR Loan or a LIBOR Loan to a Prime Rate Loan.

“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

“Credit Extension” is any Advance, Term Loan, any Overadvance, Letter of Credit, foreign exchange forward contract, amount utilized for cash management services, or any other extension of credit by Bank for Borrower’s benefit.

“Currency” is coined money and such other banknotes or other paper money as are authorized by law and circulate as a medium of exchange.

“Default” means any event which with notice or passage of time or both, would constitute an Event of Default.

“Default Rate” is defined in Section 2.5(c).

“Deferred Revenue” is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue.

“Deposit Account” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“Designated Deposit Account” is the multicurrency account denominated in Dollars, account number 3300935512, maintained by Borrower with Bank.

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the extent deducted in the calculation of Net Income, depreciation expense and amortization expense, plus (d) income tax expense, plus (e) one-time costs and other non-recurring fees and expenses incurred in connection with the transactions under this Agreement, the Ready2Ride 

-37-

acquisition and the 50Below acquisition; plus (f) other reasonable non-cash, including, without limitation, non-cash stock compensation expense, and other one-time charges reducing Net Income, in each case approved by Bank in writing as an ‘add back’ to EBITDA.

“Effective Date” is defined in the preamble hereof.

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.

“Event of Default” is defined in Section 8.

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

“Existing Accounts” is defined in Section 6.6(a).

“First Anniversary” is the date that is 365 days after the Effective Date.

“Fiscal Quarter” is each quarterly period ending October 31, January 31, April 30, and July 31 of each fiscal year of Borrower (for clarity, Borrower’s fiscal year begins August 1 and ends July 31 of each annual period).

“Fixed Charge Coverage Ratio” means with respect to the Borrower and its consolidated Subsidiaries for any period, the ratio of (a)  (i) EBITDA for such period minus (ii) the portion of taxes based on income actually paid in cash during such period minus (iii) Capital Expenditures actually paid in cash (excluding the principal amount of such expenditures funded with the Credit Extensions incurred in connection with such expenditures) minus (iv) capitalized software expense during such period) divided by (b) Fixed Charges for such period.

“Fixed Charges” means, with respect to Borrower and its consolidated Subsidiaries for any trailing twelve-month period, the sum (without duplication) of (a) Interest Expense paid in cash for such period provided, that for the first three (3) quarterly testing periods occurring after the Effective Date, the calculation of Interest Expense shall include only the actual cash Interest Expense actually incurred in such quarterly testing period, plus (b) scheduled payments actually paid in cash during such period on account of the principal amount of outstanding Indebtedness of the Borrower and its consolidated Subsidiaries (including, without limitation, all scheduled principal payments and prepayments in respect of the Term Loan; provided, that for the first four (4) quarterly testing periods occurring after the Effective Date, such principal payments and prepayments shall be deemed to be Four Hundred Fifty Thousand Dollars ($450,000)).

“Foreign Accounts” is defined in Section 6.6(a).

“Foreign Currency” means lawful money of a country other than the United States.

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

“Funding Date” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

-38-

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“Indebtedness” is, without duplication, (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

“Indemnified Person” is defined in Section 12.3.

“Initial Audit” is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s Books, with results satisfactory to Bank in its sole and absolute discretion.

“Insolvency Proceeding” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property” means, with respect to any Person, means all of such Person’s right, title, and interest in and to the following:

(a)

its Copyrights, Trademarks and Patents; 

(b)

any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how and operating manuals;

(c)

any and all source code;

(d)

any and all design rights which may be available to such Person;

-39-

(e)

any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

(f)

all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

“Interest Expense” means for any fiscal period, interest expense (whether cash or non-cash) determined in accordance with GAAP for the relevant period ending on such date, including, in any event, interest expense with respect to any Credit Extension and other Indebtedness of Borrower and its Subsidiaries, including, without limitation or duplication, all commissions, discounts, or related amortization and other fees and charges with respect to letters of credit and bankers’ acceptance financing and the net costs associated with interest rate swap, cap, and similar arrangements, and the interest portion of any deferred payment obligation (including leases of all types).

“Interest Payment Date” means, with respect to any LIBOR Loan, the last day of each Interest Period applicable to such LIBOR Loan and, with respect to Prime Rate Loans, the first day of each month (or, if that day of the month does not fall on a Business Day, then on the first Business Day following such date), and each date a Prime Rate Loan is converted into a LIBOR Loan to the extent of the amount converted to a LIBOR Loan.

“Interest Period” means, as to any LIBOR Loan, the period commencing on the date of such LIBOR Loan, or on the conversion/continuation date on which the LIBOR Loan is converted into or continued as a LIBOR Loan, and ending on the date that is one (1), two (2), or  three (3) months thereafter, in each case as Borrower may elect in the applicable Notice of Conversion/Continuation; provided, however, that (a) no Interest Period with respect to any LIBOR Loan shall end later than the Revolving Line Maturity Date, (b) the last day of an Interest Period shall be determined in accordance with the practices of the LIBOR interbank market as from time to time in effect, (c) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day, (d) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period, and (e) interest shall accrue from and include the first Business Day of an Interest Period but exclude the last Business Day of such Interest Period.

“Interest Rate Determination Date” means each date for calculating LIBOR for purposes of determining the interest rate in respect of an Interest Period.  The Interest Rate Determination Date shall be the second Business Day prior to the first day of the related Interest Period for a LIBOR Loan.

“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and 

-40-

finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

“IP Agreement” is each Intellectual Property Security Agreement executed and delivered by Borrower to Bank dated as of the Effective Date.

“Key Person” is each of Borrower’s (a) President and Chief Executive Officer, who is Roy W. Oliver as of the Effective Date and (b) Vice President of Finance and Chief Financial Officer, who is Darin Janecek as of the Effective Date.  

“Letter of Credit” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.

 “LIBOR” means, for any Interest Rate Determination Date with respect to an Interest Period for any Advance to be made, continued as or converted into a LIBOR Loan, the rate of interest per annum determined by Bank to be the per annum rate of interest at which deposits in Dollars are offered to Bank in the London interbank market (rounded upward, if necessary, to the nearest 0.0001%) in which Bank customarily participates at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior to the first day of such Interest Period for a period approximately equal to such Interest Period and in an amount approximately equal to the amount of such Advance.

“LIBOR Loan” and “LIBOR Loans” means any Credit Extension that bears interest based on the LIBOR Rate.

“LIBOR Rate” means, for each Interest Period in respect of LIBOR Loans comprising part of the same Credit Extension an interest rate per annum (rounded upward, if necessary, to the nearest 0.0001%) equal to the greater of (i) one percent (1.00%) and (ii) LIBOR for such Interest Period divided by one (1) minus the Reserve Requirement for such Interest Period.

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

“Loan Documents” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the IP Agreement, any Bank Services Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower or any guarantor, and any other present or future agreement by Borrower and/or any guarantor with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.

“Material Adverse Change” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower, taken as a whole; or (c) a material impairment of the prospect of repayment of any portion of the Obligations.  

-41-

“Monthly Financial Statements” is defined in Section 6.2(a).

“Net Income” means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.

“Notice of Borrowing” means a notice given by Borrower to Bank in accordance with Section 3.4(a), substantially in the form of Exhibit B, with appropriate insertions.

“Notice of Conversion/Continuation” means a notice given by Borrower to Bank in accordance with Section 3.5, substantially in the form of Exhibit C, with appropriate insertions.

“Obligations” are Borrower’s obligations to pay when due any debts, principal, interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, all obligations relating to Letters of Credit (including reimbursement obligations for drawn and undrawn Letters of Credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’s duties under the Loan Documents.

“Operating Documents” are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“Overadvance” is defined in Section 2.2.

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

“Payment/Advance Form” means a form given by Borrower to Bank in accordance with Section 3.4, substantially in the form of Exhibit D.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a)

Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

(b)

Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

(c)

Subordinated Debt;

(d)

unsecured Indebtedness to trade creditors incurred in the ordinary course of business; 

-42-

(e)

Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

(f)

Indebtedness secured by Liens permitted under clauses (a), (c) and (j) of the definition of “Permitted Liens” hereunder; 

(g)

Indebtedness of Subsidiaries owed to Borrower, in an aggregate principal amount not to exceed, together with the Investments permitted pursuant to clause (e) of the definition of “Permitted Investments”, One Hundred Thousand Dollars ($100,000) in any fiscal year;

(h)

extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) above; provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investments” are:

(a)

Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate;

(b)

Investments consisting of Cash Equivalents;

(c)

Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower; 

(d)

Investments accepted in connection with Transfers permitted by Section 7.1; and

(e)

additional Investments by Borrower in Subsidiaries after the Effective Date, in an aggregate principal amount not to exceed, together with the Indebtedness permitted pursuant to clause (g) of the definition of “Permitted Indebtedness”, One Hundred Thousand Dollars ($100,000) in any fiscal year;

“Permitted Liens” are:

(a)

Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;

(b)

Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

(c)

purchase money Liens securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment, or (ii) existing 

-43-

on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment;

(d)

Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed One Hundred Thousand Dollars ($100,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; 

(e)

Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

(f)

Liens incurred in the extension, renewal or refinancing of the Indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

(g)

leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

(h)

non-exclusive license of Intellectual Property granted to third parties in the ordinary course of business, and licenses of Intellectual Property that could not result in a legal transfer of title of the licensed property that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; 

(i)

Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7; and

 (j)

Liens arising in connection with capital leases (and attaching only to the property being leased); provided that the Indebtedness relating thereto shall not exceed an aggregate amount equal to Four Hundred Thousand Dollars ($400,000) at any one time outstanding.

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

-44-

“Prime Rate” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors).

“Prime Rate Loan” means any Loan that bears interest based on the Prime Rate. 

“Prior Lender” is defined in Section 3.1(e).

“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

“Regulatory Change” means, with respect to Bank, any change on or after the date of this Agreement in United States federal, state, or foreign laws or regulations, including Regulation D, or the adoption or making on or after such date of any interpretations, directives, or requests applying to a class of lenders including Bank, of or under any United States federal or state, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

“Requirement of Law” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserve Requirement” means, for any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained during such Interest Period under Regulation D against “Eurocurrency liabilities” (as such term is used in Regulation D) by member banks of the Federal Reserve System.  Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by Bank by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the LIBOR Rate is to be determined as provided in the definition of LIBOR or (b) any category of extensions of credit or other assets which include Advances.

“Responsible Officer” is any of the President and Chief Executive Officer, the Vice President of Finance, and the Chief Financial Officer of Borrower.  

“Restricted License” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank’s right to sell any Collateral.

“Revolving Line” is an aggregate principal amount not to exceed Three Million Dollars ($3,000,000) outstanding at any time.

-45-

“Revolving Line Maturity Date” is April 26, 2015 (24 months after the Effective Date).

“SEC” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

“Second Anniversary” is the date that is 365 days after the First Anniversary.

“Securities Account” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

“Senior Leverage Ratio” means, as at the last day of any period, the ratio of (a Total Senior Indebtedness on such day, to (b)  EBITDA for such period.

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.  Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

“Term Loan” is defined in Section 2.1.2(a).

“Term Loan Amount” is defined in Section 2.1.2(a).

“Term Loan Maturity Date” is April 26, 2018 (60 months after the Effective Date).

“Term Loan Payment” is defined in Section 2.1.2(b).

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

“Total Senior Indebtedness” means, as of any date of determination, the aggregate principal amount of all Indebtedness of the Borrower and its consolidated Subsidiaries owed to Bank at such date, determined on a consolidated basis in accordance with GAAP.

“Transfer” is defined in Section 7.1. 

“Unused Revolving Line Facility Fee” is defined in Section 2.4(b).

 [Signature page follows.]

-46-

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument under the laws of the State of Illinois, as of the Effective Date.

BORROWER:

ARI NETWORK SERVICES, INC.

By  /s/ Darin R. Janecek                                   

Name: Darin R. Janecek                                    

Title: CFO                                                        

PROJECT VIKING II ACQUISITION, INC.

By  /s/ Darin R. Janecek                                   

Name: Darin R. Janecek                                    

Title: CFO                                                        

BANK:

SILICON VALLEY BANK

By  /s/ Dennis Grunt                                      

Name: Dennis Grunt                                      

Title: Vice President                                        

1

EXHIBIT A – COLLATERAL DESCRIPTION

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and

all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

2

EXHIBIT B

FORM OF NOTICE OF BORROWING

ARI NETWORK SERVICES, INC. / PROJECT VIKING II ACQUISITION, INC.

Date:  ______________

To:  Silicon Valley Bank

3003 Tasman Drive

Santa Clara, CA  95054

Attention:  

Email:  

RE:

Loan and Security Agreement dated as of April 

, 2013 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”), by and among ARI NETWORK SERVICES, INC. (“ARI”), PROJECT VIKING II ACQUISITION, INC. (“Viking”, and together with ARI, individually and collectively, jointly and severally, the “Borrower”)  and SILICON VALLEY BANK (the “Bank”)

Ladies and Gentlemen:

The undersigned refers to the Loan Agreement, the terms defined therein and used herein as so defined, and hereby gives you notice irrevocably, pursuant to Section 3.4 of the Loan Agreement, of the borrowing of the Term Loan and .

1.

The Funding Date, which shall be a Business Day, of the requested borrowing is 

   _______, 2013.

2.

The Currency of the requested borrowing is U.S. Dollars.

3.

The aggregate amount of the requested Term Loan on the Effective Date is $4,500,000.

4.

The requested Term Loan shall consist of $___________ of Prime Rate Loans and $______ of LIBOR Loans.

5.

The duration of the Interest Period for the LIBOR Loans included in the requested Term Loan shall be [one (1)/ two (2)/ three (3)] __________ months.

6.

The aggregate amount of requested Advances is $

.

7.

The requested Advances shall consist of $___________ of Prime Rate Loans and $______ of LIBOR Loans.

8.

The duration of the Interest Period for the LIBOR Loans included in the requested Advances shall be [one (1)/ two (2)/ three (3)] __________ months.

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed Credit Extension before and after giving effect thereto, and to the application of the proceeds therefrom, as applicable:

1

(a)

all representations and warranties of Borrower contained in the Loan Agreement are true, complete and correct in all material respects as of the date hereof; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(b)

no Event of Default has occurred and is continuing, or would result from the disbursement of such proposed Credit Extension.

		
	BORROWER

	ARI NETWORK SERVICES, INC.

PROJECT VIKING II ACQUISITION, 

 INC.

	 
	 

	 
	By:                                                                     

	 
	Name:                                                                

	 
	Title:                                                                   

	 
	 

	 
	 

	 
	 

For internal Bank use only

				
	LIBOR Pricing Date

	LIBOR

	LIBOR Variance

	Maturity Date

	 
	 
	____%

	 

	 
	 
	 
	 

2

EXHIBIT C

FORM OF NOTICE OF CONVERSION/CONTINUATION

ARI NETWORK SERVICES, INC. / PROJECT VIKING II ACQUISITION, INC.

Date:         

           

To:

Silicon Valley Bank

3003 Tasman Drive

Santa Clara, CA  95054

Attention:  

Email:  

RE:

Loan and Security Agreement dated as of April 

, 2013 (as amended, modified, supplemented or restated from time to time, the “Loan Agreement”), by and among ARI NETWORK SERVICES, INC. (“ARI”), PROJECT VIKING II ACQUISITION, INC. (“Viking”, and together with ARI, individually and collectively, jointly and severally, the “Borrower”)  and SILICON VALLEY BANK (the “Bank”)

Ladies and Gentlemen:

The undersigned refers to the Loan Agreement, the terms defined therein being used herein as therein defined, and hereby gives you notice irrevocably, pursuant to Section 3.5 of the Loan Agreement, of the [conversion] [continuation] of the Credit Extensions specified herein, that:

1.

The date of the [conversion] [continuation] is                                            , 20___, relating to that [portion of the Term Loan] [portion of Advances under the Revolving Line] with an Interest Period which commenced on [      ].

2.

The aggregate amount of the proposed [portion of the Term Loan] [Advances under the Revolving Line to be [converted is $                          ] [continued is $                          ].

3.  

The Loans are to be [converted into] [continued as] [LIBOR] [Prime Rate] Loans.

4.

The duration of the Interest Period for the LIBOR Loans included in the [conversion] [continuation] shall be [one (1)/ two (2)/ three (3)]             months.

The undersigned, on behalf of Borrower, hereby certifies that the following statements are true on the date hereof, and will be true on the date of the proposed [conversion] [continuation], before and after giving effect thereto and to the application of the proceeds therefrom:

(a)

all representations and warranties of Borrower stated in the Loan Agreement are true, complete and correct in all material respects as of the date hereof; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly

1

 referring to a specific date shall be true, accurate and complete in all material respects as of such date; and

(b)

no Event of Default has occurred and is continuing, or would result from such proposed [conversion] [continuation].

		
	BORROWER

	ARI NETWORK SERVICES, INC.

PROJECT VIKING II ACQUISITION, 

 INC.

	 
	 

	 
	By:                                                                     

	 
	Name:                                                                

	 
	Title:                                                                   

	 
	 

	 
	 

	 
	 

For internal Bank use only

				
	LIBOR Pricing Date

	LIBOR

	LIBOR Variance

	Maturity Date

	 
	 
	____%

	 

	 
	 
	 
	 

2

EXHIBIT D

COMPLIANCE CERTIFICATE

TO:

SILICON VALLEY BANK

Date:  

FROM: 

ARI NETWORK SERVICES, INC. 

PROJECT VIKING II ACQUISITION, INC.

The undersigned authorized officer of ARI NETWORK SERVICES, INC. (“ARI”), PROJECT VIKING II ACQUISITION, INC. (“Viking”, and together with ARI, individually and collectively, jointly and severally, the “Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement (the “Agreement”), between Borrower and Silicon Valley Bank (“Bank”): (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) unless noted below, there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.  

Attached are the required documents supporting the certification.  The undersigned certifies that these supporting documents have been prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

			
	Please indicate compliance status by circling Yes/No under the “Complies” column.

	 

	Reporting Covenants

	Required

	Complies

	 
	 
	 

	Monthly financial statements 

	Monthly within 30 days 

	Yes   No

	Compliance Certificates

	Monthly within 30 days 

	Yes   No

	Annual financial statement (CPA Audited) 

	FYE within 120 days 

	Yes   No

	10-Q, 10-K and 8-K, if applicable

	Within 5 days after filing with SEC

	Yes   No

	A/R & A/P Agings

	Monthly within 30 days 

	Yes   No

	 

	The following Intellectual Property was registered (or a registration application submitted) after the Effective Date (if no registrations, state “None”)

1

	
	________

___________________________________________________________________________________________

				
	Financial Covenants

	Required

	Actual

	Complies

	 
	 
	 
	 

	Maintain as indicated:

	 
	 
	 

	Senior Leverage Ratio (monthly/quarterly)

	<2.00:1.00

	_____:1.00

	Yes   No

	Fixed Charge Coverage Ratio (quarterly)

	>1.25:1.00

	_____:1.00

	Yes   No

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

Other Matters

			
	Have there been any amendments of or other changes to the capitalization table of Borrower and to the Operating Documents of Borrower or any of its Subsidiaries?  If yes, provide copies of any such amendments or changes with this Compliance Certificate.

	Yes

	No

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

		
	ARI NETWORK SERVICES, INC. 

PROJECT VIKING II ACQUISITION, INC. 

By: 

Name: 

Title: 

	BANK USE ONLY

Received by: _____________________

AUTHORIZED SIGNER

Date: 

_________________________

Verified: ________________________

AUTHORIZED SIGNER

Date: 

_________________________

Compliance Status:

Yes     No

2

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Agreement, the terms of the Agreement shall govern.

Dated:

____________________

I.

Senior Leverage Ratio (Section 6.7(a))

Required:

Maintain a Senior Leverage Ratio equal to or less than 2.00 to 1.00, measured on a trailing twelve month basis ending as of the date of measurement, tested (i) on the Effective Date, after giving effect to the initial Credit Extensions; and (ii) (A) monthly when there are outstanding Advances under the Revolving Line as of the date of measurement, or (B) quarterly, on the last day of each Fiscal Quarter, so long as there are no outstanding Advances under the Revolving Line as of the date of measurement

Actual: all amounts measured on a trailing twelve month basis:

			
	A.

	The aggregate principal amount of all Indebtedness of the Borrower and its consolidated Subsidiaries owed to Bank, determined on a consolidated basis in accordance with GAAP

	$                           

	B.

	1.

Net Income

	$                           

	 
	2. Interest Expense

	$                           

	 
	To the extent deducted from the calculation of Net Income:

	$                           

	 
	3. Depreciation expense and amortization expense

	$                           

	 
	4. Income tax expense

	$                           

	 
	5. One-time costs and other non-recurring fees and expenses incurred in connection with the transactions under the Agreement, the Ready2Ride acquisition and the 50Below acquisition

 

	$                           

	

	6. Other reasonable non-cash, including, without limitation, non-cash stock compensation expense, and other one-time charges reducing Net Income, in each case approved by Bank in writing

	$                           

	C.

	The sum of line B.1 through B.6

	$                           

	D.

	SENIOR LEVERAGE RATIO (line A divided by line C)

	                 :1.00

Is line D equal to or less than 2.00:1:00?

                   No, not in compliance

                Yes, in compliance

1

II.

Fixed Charge Coverage Ratio (Section 6.7(b))

Required:  Maintain a Fixed Charge Coverage Ratio, measured on a trailing twelve-month basis as of the last day of each Fiscal Quarter, equal to or greater than 1.25:1.00.

Actual: All amounts measured on a consolidated basis, on a trailing twelve month basis, unless otherwise indicated:

			
	A.

	EBITDA (from line I.C above)

	$                           

	B.

	Without duplication, (i) the portion of taxes based on income actually paid in cash during such period minus (ii) to the extent otherwise permitted and paid under the Agreement, dividends paid in cash during such period minus (iii) Capital Expenditures actually paid in cash (excluding the principal amount of such expenditures funded with the Credit Extensions incurred in connection with such expenditures) minus (iv) capitalized software expense during such period)

	$                           

	C.

	Adjusted EBITDA (line A minus line B)

	$                           

	D.

	Interest Expense paid in cash for such period provided, that for the first three (3) quarterly testing periods occurring after the Effective Date, the calculation of Interest Expense shall include only the actual cash Interest Expense actually incurred in such quarterly testing period

	$                           

	E.

	Scheduled payments actually paid in cash during such period on account of the principal amount of outstanding Indebtedness of the Borrower and its consolidated Subsidiaries (including, without limitation, all scheduled principal payments and prepayments in respect of the Term Loan; provided, that for the first four (4) quarterly testing periods occurring after the Effective Date, such principal payments and prepayments shall be deemed to be Four Hundred Fifty Thousand Dollars ($450,000))

	$                           

	F.

	Fixed Charges (line D plus line E)

	$                           

	G.

	FIXED CHARGE COVERAGE RATIO (line C divided by line F)

	               :1.00

Is line G equal to or greater than 1.25:1.00?

                 No, not in compliance

                 Yes, in compliance

2

EXHIBIT E – LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME*

Fax To: _____________________          &nbspDate: _____________________

			
	LOAN PAYMENT:

	ARI NETWORK SERVICES, INC. / PROJECT VIKING II ACQUISITION, INC.

	 
	 

	From Account #                                            

	To Account #                                            

	                                             (Deposit Account #)

	                                            (Loan Account #)

	Principal $                                                              

	and/or Interest $                                           

	Authorized Signature:                                            

	and/or Interest $                                           

	Print Name/Title:                                                    

	 

	 
	 

			
	LOAN ADVANCE:

	 

	Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

	 
	 

	From Account #                                            

	To Account #                                            

	                                             (Loan Account #)

	                                            (Deposit Account #)

	Amount of Advance $                                             

	 

	 
	 

	All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:

	 
	 

	Authorized Signature:                                            

	Phone Number:                                            

	Print Name/Title:                                                    

	 

	 
	 

			
	OUTGOING WIRE REQUEST:

	 

	Complete only if all or a portion of funds from the loan advance above is to be wired.

	Deadline for same day processing is noon, Pacific Time

	 

	Beneficiary Name:                                                

	 Amount of Wire: $                                            

	Beneficiary Bank:                                                 

	 Account Number:                                             

	City and State:                                                      

	 

	Beneficiary Bank Transit (ABA) #:                      

	Beneficiary Bank Code (Swift, Sort, Chip, etc.):           

	 
	                                    (For International Wire Only)

	Intermediary Bank:                                               

	Transit (ABA) #:

	For Further Credit to:                                            

	Special Instruction:                                               

	 
	 

	By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

	 
	 

	Authorized Signature:                                            

	2nd Signature (if required):                                     

	Print Name/Title:                                                    

	Print Name/Title:                                                    

	Telephone Number:                                               

	Telephone Number:                                               

	 
	 

                                                             

* Unless otherwise provided for any Advance/Term Loan bearing interest at LIBOR.

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00216-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00216-of-00352.parquet"}]]